<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION NO. 333-44311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
LAMONTS APPAREL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5651 75-2076160
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification
incorporation or organization) no.)
</TABLE>
------------------------
LAMONTS APPAREL, INC. DEBBIE BROWNFIELD
12413 WILLOWS ROAD N.E. LAMONTS APPAREL, INC.
KIRKLAND, WASHINGTON 98034 12413 WILLOWS ROAD N.E.
(425) 814-5700 KIRKLAND, WASHINGTON 98034
(Address, including zip code, and (425) 814-5461
telephone number, including area code, (Name, address, including zip code,
of registrant's principal executive and telephone number, including area
offices) code, of agent for service)
------------------------
COPIES TO:
MICHAEL A. WORONOFF, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 S. GRAND AVENUE, SUITE 3400
LOS ANGELES, CALIFORNIA 90071-3144
(213) 687-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
At any time and from time to time after the effective date of this Registration
Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 3, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
LAMONTS APPAREL, INC.
8,687,154 SHARES OF CLASS A COMMON STOCK
1,799,244 CLASS A WARRANTS
577,639 CLASS B WARRANTS
228,639 CLASS C WARRANTS
------------------
This Prospectus relates to the offer and sale by the persons named herein
under the caption "Selling Security Holders" of (i) 1,799,244 Class A Warrants
(the "Class A Warrants"), each of which entitles the holder thereof to purchase
one share of Class A Common Stock, par value $.01 per share (the "Common
Stock"), of Lamonts Apparel, Inc. ("Lamonts" or the "Company") at a current
exercise price of $.01 per share, (ii) 577,639 Class B Warrants (the "Class B
Warrants"), each of which entitles the holder thereof to purchase one share of
Common Stock at a current exercise price of $.01 per share, (iii) 228,639 Class
C Warrants (the "Class C Warrants," and together with the Class A Warrants and
the Class B Warrants, the "Warrants"), each of which entitles the holder thereof
to purchase fourteen shares of Common Stock (the "Initial Shares") at a current
exercise price of $1.25 per share and one share of Common Stock (the "Adjustment
Shares") at a current exercise price of $.01 per share, and (iv) 8,687,154
shares of Common Stock (including 5,806,471 shares issuable upon exercise of the
Warrants). The shares of Common Stock being offered by the Selling Security
Holders represent approximately 97.4% of all outstanding shares of Common Stock.
The availability of such a large number of shares of Common Stock may have the
effect of depressing the market price of the Common Stock.
The securities being offered hereby were issued by the Company pursuant to
the Company's Modified and Restated Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code (the "Plan of Reorganization") in full or partial exchange
for various pre-petition and administrative claims of the Selling Security
Holders. The issuance of such securities was not registered under the Securities
Act of 1933, as amended (the "Securities Act") in reliance on the exemptions
provided by section 1145 of Chapter 11 ("Chapter 11"), title 11 of the United
States Code (the "Bankruptcy Code") and, with respect to the Class C Warrants,
section 4(2) of the Securities Act. In connection with the Plan of
Reorganization, the Company granted certain registration rights to the Selling
Security Holders, including the right to require the Company to file the
Registration Statement of which this Prospectus is a part. The distributions
under the Plan of Reorganization and the terms of the Warrants (including the
initial exercise price per share of Common Stock issuable upon exercise of the
Warrants) were determined after negotiations with the committees representing
the Company's unsecured trade creditors, bondholders and equity security
holders. The Plan of Reorganization was confirmed by the United States
Bankruptcy Court (the "Bankruptcy Court") for the Western District of Washington
at Seattle on December 18, 1997 and became effective on January 31, 1998 (the
"Plan Effective Date").
The numbers of shares of Common Stock and Warrants (and the shares issuable
upon the exercise of such Warrants) that are being offered by this Prospectus
correspond to the total numbers of such shares of Common Stock and Warrants that
were received by the Selling Security Holders pursuant to the initial
distributions under the Plan of Reorganization. The Company contemplates
effecting one or more subsequent distributions 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. The Company intends to file a
post-effective amendment updating the amount of shares of Common Stock and
Warrants covered by this Prospectus after such distributions occur.
The Class A Warrants are exercisable on or after the first date on which the
Aggregate Equity Trading Value (as defined in the following paragraph) equals or
exceeds $20 million. The Class B Warrants are exercisable on or after the first
date on which the Aggregate Equity Trading Value equals or exceeds $25 million.
If not previously exercised, each Class A Warrant and Class B Warrant will
expire on the tenth anniversary of the Plan Effective Date. The Class C Warrants
to purchase the Initial Shares are exercisable on or after the date of issuance
thereof and the Class C Warrants to purchase the Adjustment Shares are
<PAGE>
exercisable on or after the first date on which the Aggregate Equity Trading
Value equals or exceeds $25 million; provided that the portion of each Class C
Warrant to purchase an Adjustment Share shall not be exercisable by the holder
thereof unless and until the portion of such Class C Warrant to purchase the
Initial Shares has been exercised in full by such holder. If not previously
exercised, the Class C Warrants to purchase the Initial Shares will expire on
the fourth anniversary of the Plan Effective Date and the Class C Warrants to
Purchase the Adjustment Shares will expire on the tenth anniversary of the Plan
Effective Date. The exercise price per share and the number of shares of Common
Stock issuable upon exercise of the Warrants are subject to certain antidilution
adjustments. The exercise price per share of Common Stock issuable pursuant to
the exercise of the Class C Warrants is subject to a 25% increase and the
expiration dates for such Warrants are subject to a one year extension, in each
case upon the happening of certain events described below.
"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).
There is currently no public market for the Common Stock or the Warrants and
there can be no assurance that an active public market will develop. The Common
Stock and the Warrants are quoted on the OTC Bulletin Board.
------------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH
UNDER "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
IT IS ANTICIPATED THAT THE SELLING SECURITY HOLDERS WILL OFFER AND SELL THE
SECURITIES WHICH MAY BE SOLD BY SUCH PERSON HEREUNDER FROM TIME TO TIME IN
ORDINARY TRANSACTIONS TO OR THROUGH ONE OR MORE BROKERS OR DEALERS IN THE
OVER-THE-COUNTER MARKET OR IN PRIVATE TRANSACTIONS AT SUCH PRICES AS MAY BE
OBTAINABLE. ANY SUCH PERSON MAY BE DEEMED TO BE AN "UNDERWRITER" AS THAT TERM IS
DEFINED BY THE SECURITIES ACT. HOWEVER, THE COMPANY AND SUCH PERSONS DISCLAIM
THAT ANY SUCH PERSON IS AN UNDERWRITER. SEE "PLAN OF DISTRIBUTION." THE COMPANY
WILL RECEIVE NO PROCEEDS FROM THE SALE BY THE SELLING SECURITY HOLDERS OF THE
WARRANTS OR THE SHARES OF COMMON STOCK, BUT WILL RECEIVE AN AGGREGATE OF
APPROXIMATELY $4.03 MILLION UPON EXERCISE OF ALL WARRANTS COVERED BY THIS
PROSPECTUS FOR SHARES OF COMMON STOCK . THE COMPANY WILL PAY ALL THE EXPENSES
INCIDENT TO THE REGISTRATION OF THE SECURITIES OFFERED HEREBY, EXCEPT FOR
COMMISSIONS OF BROKERS OR DEALERS. SEE "USE OF PROCEEDS."
THE DATE OF THIS PROSPECTUS IS , 1998.
2
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SECURITY HOLDER OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
Statements in this Prospectus including the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause the actual results, performance, or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, (i) national and
local general economic and market conditions, (ii) demographic changes, (iii)
liability and other claims asserted against the Company, (iv) competition, (v)
the loss of significant customers or suppliers, (vi) fluctuations in operating
results, (vii) changes in business strategy or development plans, (viii)
business disruptions (including, as a result of adverse weather conditions),
(ix) the ability to attract and retain qualified personnel, (x) ownership of
Common Stock and (xi) volatility of stock price. GIVEN THESE UNCERTAINTIES,
THOSE READING THIS PROSPECTUS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained or incorporated by reference herein to
reflect untrue events or developments.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 5
PROSPECTUS SUMMARY......................................................................................... 6
PLAN OF REORGANIZATION..................................................................................... 11
RISK FACTORS............................................................................................... 13
USE OF PROCEEDS............................................................................................ 18
MARKET PRICES OF COMMON STOCK.............................................................................. 19
DIVIDEND POLICY............................................................................................ 19
CAPITALIZATION............................................................................................. 20
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER OPERATING DATA.............................................. 21
PRO FORMA FINANCIAL DATA................................................................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 26
BUSINESS................................................................................................... 33
MANAGEMENT................................................................................................. 38
PRINCIPAL STOCKHOLDERS..................................................................................... 44
CERTAIN TRANSACTIONS....................................................................................... 46
SELLING SECURITY HOLDERS................................................................................... 48
PLAN OF DISTRIBUTION....................................................................................... 49
DESCRIPTION OF CAPITAL STOCK............................................................................... 50
DESCRIPTION OF CERTAIN INDEBTEDNESS........................................................................ 54
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 56
EXPERTS.................................................................................................... 57
LEGAL MATTERS.............................................................................................. 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. 58
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at
the Regional Offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
the above Washington D.C. address. The Commission maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission.
This Prospectus, which constitutes a part of a Registration Statement filed
by the Company with the Commission under the Securities Act, omits certain
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning provisions of any document are not
necessarily complete, and each such statement is qualified in its entirety by
reference to the copy of such document filed with the Commission. All material
contracts required to be described herein that are currently in effect are
described in this Prospectus.
------------------------
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCE TO THE "COMPANY" OR "LAMONTS" REFERS TO LAMONTS APPAREL,
INC. AFTER GIVING EFFECT TO THE PLAN OF REORGANIZATION AND THE RELATED
TRANSACTIONS DESCRIBED BELOW.
THE COMPANY
Lamonts is a Northwest-based regional retailer with 38 stores in five
states. The Company offers an assortment of moderately priced fashion apparel
and accessories at competitive prices for the entire family. Lamonts purchases
finished goods from approximately 1,200 vendors and uses a distribution center
in Kent, Washington for processing and warehousing merchandise for distribution
to its stores. Lamonts employs approximately 1,600 people in salaried, hourly,
or part-time positions. The Company's stores average approximately 47,000 square
feet and are generally located in shopping centers and malls. The Company's
revenues for the 52 weeks ended February 1, 1997 ("Fiscal 1996") were
approximately $204 million. As of February 1, 1997, Lamonts' total assets and
liabilities, at book value, approximated $93.3 million and $152.8 million,
respectively.
Despite numerous attempts to restructure the Company's capital structure
from 1992 through 1994, and as a result of the continued deterioration of the
Company's financial position, on January 6, 1995 (the "Petition Date"), the
Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code. In Chapter 11, the Company continued to manage its affairs and operate its
business as a debtor-in-possession. On October 31, 1997, the Company filed with
the Bankruptcy Court its Plan of Reorganization, along with the proposed
disclosure statement relating to the Plan of Reorganization (as amended, the
"Disclosure Statement"). The Plan of Reorganization was confirmed by the
Bankruptcy Court on December 18, 1997 and became effective on January 31, 1998.
Under the Plan of Reorganization, among other things, certain indebtedness of
Lamonts was cancelled in exchange for new equity interests (including certain of
the Common Stock and Warrants being offered hereunder by the Selling Security
Holders), 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 (including certain of the
Common Stock and Warrants being offered hereunder by the Selling Security
Holders), executory contracts and unexpired leases were assumed or rejected, and
the members of a new board of directors were designated. See "Plan of
Reorganization."
6
<PAGE>
THE OFFERING
Securities Offered by the Selling Security Holders
<TABLE>
<CAPTION>
AGGREGATE OF
SHARES OF COMMON EXERCISE PRICE
NUMBER AND TITLE OF EACH CLASS STOCK UNDERLYING PER SHARE OF
OF SECURITIES OFFERED SECURITIES CONDITIONS TO EXERCISABILITY COMMON STOCK
- ------------------------------------------------- ----------------- ------------------------------------ -------------------
<S> <C> <C> <C>
8,687,154 Shares of Class A Common Stock, par N/A N/A N/A
value $.01 per share............................
1,799,244 Class A Warrants, each to purchase one 1,799,244 Aggregate Equity Trading Value $.01
share of Common Stock........................... equals or exceeds
$20 million
577,639 Class B Warrants, each to purchase one 577,639 Aggregate Equity Trading Value $.01
share of Common Stock........................... equals or exceeds
$25 million
228,639 Class C Warrants, each to purchase 3,200,949 Immediately exercisable $1.25
fourteen shares of Common Stock.................
228,639 Class C Warrants, each to purchase one 228,639 Aggregate Equity Trading Value $.01
share of Common Stock........................... equals or exceeds
$25 million(1)
</TABLE>
- ------------------------------
(1) No Class C Warrant with a per share exercise price of $.01 shall be
exercisable by the holder thereof unless such holder has exercised in full
such holder's portion of such Class C Warrant with a per share exercise
price of $1.25.
<TABLE>
<S> <C>
Securities Offered by the 5,806,471 shares of Common Stock issuable upon exercise
Company......................... of the Warrants.
Class A Warrants.................. Each Class A Warrant entitles its registered holder to
purchase from the Company one share of Common Stock at a
current exercise price of $.01 per share, subject to
adjustment from time to time upon the occurrence of
certain events. The Class A Warrants are exercisable on
or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $20 million and, if not
previously exercised, will expire on the tenth
anniversary of the Plan Effective Date. See "Description
of Capital Stock-- Class A Warrants and Class B
Warrants."
Class B Warrants.................. Each Class B Warrant entitles its registered holder to
purchase from the Company one share of Common Stock at a
current exercise price of $.01 per share, subject to
adjustment from time to time upon the occurrence of
certain events. The Class B Warrants are exercisable on
or after the first date on which the Aggregate Equity
Trading Value equals or exceeds $25 million and, if not
previously exercised, will expire on the tenth
anniversary of the Plan Effective Date. See "Description
of Capital Stock-- Class A Warrants and Class B
Warrants."
Class C Warrants.................. Each Class C Warrant entitles its registered holder to
purchase from the Company fourteen shares of Common
Stock at a current exercise price of $1.25 per share and
one share of Common Stock at a current exercise price of
$.01 per share, in each case subject to adjustment from
time to time upon the occurrence of certain events. The
Class C Warrants to purchase the Initial Shares are
exercisable on or after the date of issuance thereof
and, if not previously exercised, will expire on the
fourth
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
anniversary of the Plan Effective Date. The Class C
Warrants to purchase the Adjustment Shares are
exercisable on or after the first date on which the
Aggregate Equity Trading Value equals or exceeds $25
million and, if not previously exercised, will expire on
the tenth anniversary of the Plan Effective Date;
provided that the portion of each Class C Warrant to
purchase an Adjustment Share shall not be exercisable by
the holder thereof unless and until the portion of such
Class C Warrant to purchase the Initial Shares has been
exercised in full by such holder. The exercise price per
share of Common Stock issuable pursuant to the exercise
of the Class C Warrants is subject to a 25% increase and
the expiration date for such Warrants is subject to a
one year extension, in each case upon the happening of
certain events. See "Description of Capital Stock--Class
C Warrants."
Common Stock to be outstanding
after offering.................. 17,147,939 shares assuming (i) exercise of options ("New
Employee Stock Options") to purchase 1,333,729 shares of
Common Stock reserved for issuance under the Company's
1998 Stock Option Plan (the "Stock Option Plan"), and
(ii) exercise of all Warrants to be issued and
outstanding as of the Plan Effective Date (including
Warrants not covered by this Prospectus). Excludes
potential exercise of the warrants issuable by the
Company 120 days following the Plan Effective Date to
Gordian Group, L.P. ("Gordian"). See "Description of
Capital Stock--Gordian Warrants."
OTC Bulletin Board symbol for
Class A Common Stock ........... LMNT
OTC Bulletin Board symbol for
Class A Warrants................ LMNTZ
OTC Bulletin Board Symbol for
Class B Warrants................ LMNTW
OTC Bulletin Board Symbol for
Class C Warrants................ LMNTH
</TABLE>
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA AND CERTAIN OPERATING DATA
The following pro forma and historical data should be read in conjunction
with, and is qualified in its entirety by, the Consolidated Financial Statements
and Notes thereto, the "Pro Forma Financial Data" and the other information
included elsewhere in this Prospectus. The historical financial data of the
Company for Fiscal 1996 and the 53 weeks ended February 3, 1996 ("Fiscal 1995")
has been derived from the historical consolidated financial statements of the
Company audited by Coopers & Lybrand L.L.P., independent accountants, whose
report with respect thereto is included elsewhere in this Prospectus. The
historical financial data for the nine months ended November 1, 1997 and
November 2, 1996 has been derived from the Company's unaudited consolidated
financial statements included elsewhere in this Prospectus. The historical
financial data for the 52 weeks ended January 28, 1995 has been derived from the
unaudited financial records of the Company. Such unaudited consolidated
financial statements and records reflect all adjustments which are, in the
opinion of management, necessary and of a normal recurring nature to present
fairly the operating results for the periods presented. The results of
operations for the nine months ended November 1, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending January 31,
1998.
The pro forma financial data gives effect to the reorganization under the
Plan of Reorganization and adoption of fresh-start accounting and the amounts
are presented as though the reorganization had been consummated, for purposes of
the statement of operations data, at the beginning of Fiscal 1996 and, for
purposes of the balance sheet data, on the applicable balance sheet date. The
unaudited pro forma financial data does not purport to be indicative of the
results of operations that would actually have been reported had such
transactions actually been consummated on such dates or of the results of
operations that may be reported by the Company in the future.
9
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ------------------------ ----------- ------------------------
NINE MONTHS NINE MONTHS NINE MONTHS 52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 1, NOVEMBER 1, NOVEMBER 2, FEBRUARY 1, FEBRUARY 1, FEBRUARY 3,
1997 1997 1996 1997 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)..................................... $ 137,394 $ 137,394 $ 138,284 $ 203,602 $ 203,602 $ 199,548
Cost of merchandise sold........................ 87,798 87,798 88,237 130,480 130,480 131,677
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................... 49,596 49,596 50,047 73,122 73,122 67,871
----------- ----------- ----------- ----------- ----------- -----------
Operating and administrative expenses........... 47,077 47,235 49,482 66,962 67,173 71,372
Depreciation and amortization................... 5,416 5,484 6,051 7,870 7,999 9,232
Impairment of long-lived assets................. -- -- 4,170 4,170 4,170 --
Store closure costs............................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Operating costs................................. 52,493 52,719 59,703 79,002 79,342 80,604
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before other income/
(expense), reorganization expenses and income
tax provision/(benefit)....................... (2,897) (3,123) (9,656) (5,880) (6,220) (12,733)
Other income (expense):
Interest expense
--Cash........................................ (3,760) (3,855) (3,773) (4,923) (5,053) (5,098)
--Non-Cash(2)................................. -- -- -- -- -- --
Other income (expense)........................ 6 6 8 12 12 196
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before reorganization
expenses and income tax
provision/(benefits).......................... (6,651) (6,972) (13,421) (10,791) (11,261) (17,635)
Reorganization expenses......................... -- 1,924 5,090 -- 6,037 7,240
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations before income tax
provision/(benefit)........................... (6,651) (8,896) (18,511) (10,791) (17,298) (24,875)
Income tax provision/(benefit).................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss........................................ $ (6,651) $ (8,896) $ (18,511) $ (10,791) $ (17,298) $ (24,875)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
OTHER DATA
Number of stores at end of period............... 38 42 38 43
NET LOSS PER COMMON SHARE
Net Loss per common share....................... $ (0.74) $ (0.50) $ (1.03) $ (1.20) $ (0.97) $ (1.39)
Weighted average number of
shares........................................ 9,000,000(4) 17,900,053 17,900,053 9,000,000(4) 17,899,906 17,893,675
BALANCE SHEET DATA
(AT END OF PERIOD)
Working capital................................. $ 830 $ 2,847 $ (5,622) $ (3,357) $ (2,248)
Total assets.................................... 108,854 109,993 112,964 93,272 102,361
Liabilities subject to settlement under
reorganization proceedings.................... -- 103,489 103,538 102,858 104,845
Long-term debt and obligations under capital
leases, net of current maturities............. 23,354 13,246 2,808 2,846 --
Stockholders' equity/(deficit).................. 19,957 (68,411) (61,025) (59,553) (42,556)
<CAPTION>
52 WEEKS
ENDED
JANUARY 28,
1995(3)
-----------
<S> <C>
(UNAUDITED)
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)..................................... $ 231,199
Cost of merchandise sold........................ 175,330
-----------
Gross profit.................................... 55,869
-----------
Operating and administrative expenses........... 87,807
Depreciation and amortization................... 11,355
Impairment of long-lived assets................. --
Store closure costs............................. 7,200
-----------
Operating costs................................. 106,362
-----------
Loss from operations before other income/
(expense), reorganization expenses and income
tax provision/(benefit)....................... (50,493)
Other income (expense):
Interest expense
--Cash........................................ (6,698)
--Non-Cash(2)................................. (5,160)
Other income (expense)........................ 27
-----------
Loss from operations before reorganization
expenses and income tax
provision/(benefits).......................... (62,324)
Reorganization expenses......................... 7,499
-----------
Loss from operations before income tax
provision/(benefit)........................... (69,823)
Income tax provision/(benefit).................. (400)
-----------
Net loss........................................ $ (69,423)
-----------
-----------
OTHER DATA
Number of stores at end of period............... 48
NET LOSS PER COMMON SHARE
Net Loss per common share....................... $ (4.13)
Weighted average number of
shares........................................ 16,820,257
BALANCE SHEET DATA
(AT END OF PERIOD)
Working capital................................. $ 16,025
Total assets.................................... 120,269
Liabilities subject to settlement under
reorganization proceedings.................... 108,333
Long-term debt and obligations under capital
leases, net of current maturities............. --
Stockholders' equity/(deficit).................. (17,509)
</TABLE>
- ----------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long-term debt and interest paid-in-kind through issuance of
additional debt.
(3) On March 9, 1995, the Company changed its fiscal year end from the Saturday
closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other
apparel retailers. For purposes of comparing the data for Fiscal 1995, the
Company has provided data for the 52 weeks ended January 28, 1995 which is
derived from unaudited financial records of the Company.
(4) Pursuant to the Plan of Reorganization, the Company has or will issue (a)
9,000,000 shares of Common Stock and (b) warrants and options that are
immediately exercisable to purchase an aggregate of 6,196,419 shares of
Common Stock (based on an estimated reorganization value of $19,957,000).
Such warrants and options have not been included in the calculation of net
loss per common share because the effect of assuming their exercise would be
anti-dilutive.
10
<PAGE>
PLAN OF REORGANIZATION
The overall purpose of the Plan of Reorganization 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 of Reorganization resulted in an approximate $90 million net
reduction in the total indebtedness and liabilities subject to reorganization of
the Company. The Plan of Reorganization 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 is left unimpaired), cancellation of certain
indebtedness in exchange for new equity securities of the Company (including
certain of the Common Stock and Warrants being offered hereunder by the Selling
Security Holders), 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 (including certain of the Common Stock and
Warrants being offered hereunder by the Selling Security Holders), the
assumption or rejection of executory contracts and unexpired leases and the
designation of a new board of directors. In addition, the Plan of Reorganization
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 of Reorganization,
(a) an aggregate of 8,800,000 shares of Common Stock, 2,203,320 Class A
Warrants to purchase Common Stock and 700,237 Class B Warrants to purchase
Common Stock have been or will be issued to the holders of prepetition claims
against Lamonts,
(b) an aggregate of 200,000 shares of Common Stock and 100,000 Class B
Warrants to purchase Common Stock have been or will be issued to the former
holders of Lamonts common stock (the "Old Common Stock"), and
(c) 228,639 Class C Warrants to purchase Common Stock and 10 shares of Class
B Common Stock, par value $.01 per share of the Company ("Class B Common
Stock"), have been issued to Specialty Investment I LLC (the "Surety").
All such securities were or will be issued in exchange for various
prepetition 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
(the "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 of Reorganization, the Company granted New
Employee Stock Options initially exercisable for the purchase of 1,333,729
shares of Common Stock and consisting of:
(i) options exercisable for the purchase of 1,000,000 shares of Common Stock
with an initial exercise price of $1.00 per share;
(ii) to prevent dilution resulting from the issuance of the Class A
Warrants, options exercisable for the purchase of an additional 244,813 shares
of Common Stock with an initial exercise price of $0.01 per share, exercisable
only on or after the date on which the Class A Warrants become exercisable; and
(iii) to prevent dilution resulting from the issuance of the Class B
Warrants, options exercisable for the purchase of an additional 88,915 shares of
Common Stock with an initial exercise price of $0.01 per share, exercisable only
on or after the date on which the Class B Warrants become exercisable.
In addition, to prevent dilution resulting from the issuance of the Class C
Warrants to the Surety, each holder of New Employee Stock Options has been or
will be issued Class C Warrants initially exercisable for the purchase of
381,065 shares of Common Stock (355,661 shares with an exercise price of $1.25
per share
11
<PAGE>
and 25,404 shares with an exercise price of $.01 per share). See "Options
Granted Pursuant to the Plan or Reorganization."
As 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 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. For a description of the terms of the Gordian Warrants, see
"Description of Capital Stock--Gordian Warrants."
In connection with the Plan of Reorganization, the Company entered into a
Grant of Registration Rights in favor of certain holders of the Warrants and the
Common Stock, pursuant to which, subject to certain exceptions, the Company has
agreed to keep the Registration Statement of which this Prospectus is a part
continuously in effect until no securities registerable under the Grant of
Registration Rights are outstanding. In addition, such holders are entitled to
certain "piggyback" registration rights in connection with certain registrations
of securities by the Company. In the event such Registration Statement is not
effective within 45 days after the Plan Effective Date, or if the effectiveness
thereof is suspended under certain circumstances, the Company will be required
to pay liquidated damages to the Selling Security Holders. See "Description of
Capital Stock--Registration Rights."
Also in connection with the Plan of Reorganization, 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.
Mr. Schlesinger received a one-time bonus of $175,000 for extending the term of
his employment to January 31, 2002 and, in connection with the Plan of
Reorganization, a bonus of $400,000, together with a grant of 800,237 New
Employee Stock Options and 15,243 Class C Warrants. 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 May 1, 2001 and, in
connection with the Plan of Reorganization, a bonus of $187,000, together with a
grant of 200,059 New Employee Stock Options and 3,811 Class C Warrants, as
compensation for the Company's emergence from Chapter 11. See
"Management--Employment Agreements."
The Plan of Reorganization was filed with the Bankruptcy Court on October
31, 1997. The Disclosure Statement, which was filed with the Bankruptcy Court on
October 31, 1997 and amended on November 21, 1997, was approved by the
Bankruptcy Court on November 24, 1997. The Plan of Reorganization was confirmed
by the Bankruptcy Court on December 18, 1997 and became effective on January 31,
1998.
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE SECURITIES OFFERED BY THIS PROSPECTUS.
CONTINUATION AS A GOING CONCERN. The report dated March 28, 1997 of the
Company's independent accountants includes an explanatory paragraph that
describes an uncertainty regarding Lamont's ability to continue as a going
concern and recover the carrying amounts of its assets. Although such report was
issued prior to confirmation of the Plan of Reorganization and the Company's
emergence from Chapter 11, there can be no assurance that following such events
the Company to continue to operate as a going concern. The ability of the
Company to continue as a going concern is dependent upon, among other things,
the ability of the Company (i) to comply with the restrictive covenants set
forth in the BankBoston Facility, (ii) to achieve profitable operations
following its emergence from Chapter 11 and (iii) to generate sufficient cash
from operations to meet its obligations.
HIGH LEVERAGE. After giving effect to the reduction in its outstanding debt
pursuant to the Plan of Reorganization, the Company has a reduced, but
nevertheless substantial, degree of leverage. The Company's consolidated ratio
of total debt to equity as of November 1, 1997, on a pro forma basis after
giving effect to the Plan of Reorganization and the adoption of fresh start
reporting, is approximately 2.5:1. See "Capitalization." If the Company is
unable to generate sufficient cash flow from operations in the future, or if it
fails to satisfy the financial covenants contained in the BankBoston Facility,
it could face default on its restructured obligations.
The leveraged nature of the Company's capital structure will have several
important effects on the Company and its operations, including the following:
(i) the Company continues to have significant cash requirements for debt
service; (ii) because the Company's indebtedness under the BankBoston Facility
bears interest at a floating rate, the Company is sensitive to any increase in
prevailing interest rates; (iii) as a result of the Company's debt service
requirements and restrictions imposed under the terms of the BankBoston
Facility, funds available for capital expenditures and cash dividends will be
limited; and (iv) the Company's ability to meet its debt service obligations
(and to satisfy the financial covenants contained therein) will be dependent
upon its future performance which, in turn, will be subject to general economic
conditions and to financial, business and other factors affecting the operations
of the Company, including factors beyond the Company's control. See "Description
of Certain Indebtedness."
The Term Loan will mature on December 26, 1999, or, if earlier, upon the
maturity (including, as a result of acceleration, mandatory prepayment or
otherwise) of the Company's revolving credit facility with BankBoston (the
"Revolver") (with provision for two one-year extensions on the terms and
conditions set forth in the BankBoston Facility). Although the Company will be
required to make monthly principal payments on the Term Loan commencing on
October 31, 1998, the Term Loan provides for the repayment of the outstanding
balance in a lump-sum or "balloon" payment at maturity. In addition, BankBoston
could demand repayment prior to the maturity date of the Term Loan or the
Revolver if certain events of default were to occur. See "Description of Certain
Indebtedness." The ability of the Company to repay such indebtedness at maturity
or otherwise may depend upon the ability of the Company either to refinance or
extend such indebtedness, to repay such indebtedness with proceeds of other
capital transactions, such as the issuance of additional equity, or to sell
assets. There can be no assurance that such refinancing or extension will be
available on reasonable terms or at all, that additional equity will be issued,
or that a sale of assets will occur. The inability to repay such indebtedness
could have a material adverse effect on the Company. See "Description of Capital
Stock--Class B Common Stock" for a description of the special voting rights of
the Class B Common Stock upon the occurrence of certain defaults under the
BankBoston Facility.
COMPETITION. The retail business in which the Company is involved is highly
competitive, and the Company has certain competitors with substantially greater
resources than the Company. Numerous other
13
<PAGE>
companies, including publicly and privately held independent stores and chains
and department stores, also provide competition on a national and regional
basis. In addition, the competitive environment is often affected by factors
beyond a particular retailer's control, such as shifts in consumer preferences,
changes in style, business environment, population trends, and traffic control.
Although management attempts to anticipate and respond to changes in consumer
preferences and changes in styles, and believes that the Company competes
successfully, the Company could face difficulties in continuing to compete
successfully. See "Business--Competition."
HISTORY OF LOSSES. The Company has experienced significant losses in the
last five fiscal years. In the long term, the Company's viability is dependent
upon its ability to achieve profitable results of operations and positive cash
flows. Although improvements have been made each year since the 52 weeks ended
January 28, 1995, the Company has continued to realize losses. For Fiscal 1995,
the Company reported a net loss of $24.9 million and, for Fiscal 1996, the
Company reported a net loss of $17.3 million.
DEPENDENCE ON HIGH SALES VOLUME; SUCCESS OF MERCHANDISING STRATEGIES. The
Company's business is dependent upon a high volume of sales and, with respect to
its mall and shopping center stores, sales are derived, in part, from a high
volume of mall and shopping center traffic. Volume of sales and mall and
shopping center traffic may be adversely affected by local, regional, or
national economic downturns, demographic changes, new competition and, in the
case of its mall and shopping center stores, by the closing of "anchor" stores.
Revenues have been adversely affected by, among other things, (i) the general
lower demand for apparel experienced by the Company and many other apparel
retailers, (ii) the economy in the Seattle/Tacoma market, and (iii) the increase
in discounter/mass merchandiser retail space in the Company's markets.
Management believes that sales may continue to be adversely affected by the
foregoing, among other factors. In addition, the Company's performance may
continue to be adversely affected by (a) liability and other claims asserted
against the Company, (b) the loss of significant customers or suppliers, (c)
changes in business strategy or development plans and (d) business disruptions
(including, as a result of adverse weather conditions). Furthermore, management
believes that there may be continued pressure on gross profit in order to
maintain a competitive position in the Company's markets. There can be no
assurance that the above factors or a future economic downturn would not have a
material adverse impact on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's profitability is also dependent upon the success of its
merchandising strategies and its ability to anticipate, gauge and respond to
changing consumer demands and fashion trends in a timely manner. New management
has developed and implemented numerous merchandising strategies, which are
designed to: (i) organize merchandising efforts in key departments on an
integrated basis in order to streamline operations and focus responsibility for
merchandise presentation and a more attractive mix of quality, price and
availability; (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.
ABSENCE OF PUBLIC MARKET FOR COMMON STOCK AND WARRANTS. The Old Common
Stock of the Company issued and outstanding prior to the Plan Effective Date was
quoted on the OTC Bulletin Board and, until January 20, 1995, was listed on The
NASDAQ SmallCap Market ("Nasdaq"). Prior to the Plan Effective Date, there had
been a limited public trading market for the Old Common Stock. There is no
active trading market for the Common Stock or the Warrants being offered hereby.
There can be no assurance that any market will develop for the Common Stock or
the Warrants, as to liquidity of any such market, the ability of holders to sell
such securities, or the price at which holders would be able to sell such
securities.
The shares of Common Stock being offered by the Selling Security Holders
represent approximately 97.4% of all outstanding shares of Common Stock. The
availability of such a large number of shares of Common Stock may have the
effect of depressing the market price of the Common Stock.
14
<PAGE>
LIMITATIONS ON FUTURE GROWTH. The Company's growth is subject to (i) its
ability to maintain revenues at existing stores, (ii) the availability of
capital and (iii) the restrictions on capital expenditures set forth in the
BankBoston Facility, which prohibits capital expenditures in excess of $6.5
million for the Company's fiscal year ending January 28, 1999 ("Fiscal 1998").
There can be no assurance that the Company will be able to maintain revenues at
current stores or that capital will be available to the Company or, if
available, that it will be available on terms the Company considers reasonable.
The failure or inability of the Company to maintain such revenues or obtain such
capital on favorable terms could have a material adverse effect on the Company's
operations, business or financial condition.
The Company's current expansion plans are expected to require capital
expenditures of approximately $2.9 million during Fiscal 1998, which is within
the restrictions contained in the BankBoston Facility. The Company is
continually evaluating store locations and operations to determine whether to
close stores that do not meet its performance objectives. Additionally, the
Company may expand, downsize or relocate existing stores. Management has no
current plans to close any of the remaining 38 Lamonts stores. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL. The future success of the Company is largely
dependent on the talents and efforts of Mr. Alan R. Schlesinger, the Company's
President, Chief Executive Officer and Chairman of the Board, as well as on the
talents and abilities of other key management executives. The Company entered
into a 4-year employment agreement with Mr. Schlesinger on the Plan Effective
Date, but does not maintain a key person life insurance policy on the life of
Mr. Schlesinger. The loss of Mr. Schlesinger could have a material adverse
effect on the Company's operations, business and financial condition. See
"Management--Employment Agreements."
RESTRICTIONS ON COMMON STOCK 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 offered hereby or
any other equity security in the foreseeable future. In addition, the BankBoston
Facility contains certain covenants which directly and indirectly restrict the
ability of the Company to pay dividends. Such restrictions specifically prohibit
the payment of cash dividends on the Common Stock and the Class B Common Stock.
See "Restrictions on Common Stock Dividends" and "Description of Certain
Indebtedness."
RESTRICTIONS IMPOSED BY THE TERMS OF THE BANKBOSTON FACILITY. The
BankBoston Facility includes affirmative and negative covenants which
substantially restrict many aspects of the Company's operations and finances.
Such covenants include, without limitation, a prohibition on dividends and
restrictions on capital expenditures and the incurrence of indebtedness. The
covenants will reduce the Company's operational and financial flexibility and
its ability to respond to changing retail conditions and take advantage of
attractive business opportunities. Should the Company be unable to meet any of
these covenants when required, it will be necessary to request waivers and/or
amendments of the facility from BankBoston and the Surety. There can be no
assurance that the necessary waivers and/or amendments will be granted or that,
if granted, they will be on terms acceptable or favorable to the Company.
Failure to obtain such waivers and/or amendments could result in the obligations
of the Company under the BankBoston Facility being declared immediately due and
payable. In addition, BankBoston could foreclose on the collateral securing the
BankBoston Facility. See "Description of Certain Indebtedness." See also
"Description of Capital Stock--Class B Common Stock" for a description of the
special voting rights of the Class B Common Stock upon the occurrence of certain
defaults under the BankBoston Facility.
RECENT EMERGENCE FROM CHAPTER 11. The Company emerged from Chapter 11 on
January 31, 1998. The Company's experience in Chapter 11 may affect its ability
to negotiate favorable trade terms with manufacturers and other vendors and to
negotiate favorable lease terms with landlords. The failure to obtain such
favorable terms could have a material adverse effect on the Company's
operations, business or financial condition. In accordance with AICPA Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"), the Company has adopted "fresh-
15
<PAGE>
start reporting" and intends to reflect the effects of such adoption in its
Consolidated Balance Sheet as of January 31, 1998. Accordingly, the Company's
Consolidated Balance Sheets at and after January 31, 1998 and its Consolidated
Statements of Operations for periods after January 31, 1998 will not be
comparable to the Consolidated Financial Statements for prior periods included
elsewhere herein. Among other things, the Consolidated Statement of Operations
for the 52 weeks ended January 31, 1998 ("Fiscal 1997") will include as an
extraordinary item a one-time gain relating to the debt discharged in the
Chapter 11 proceedings.
ANTITAKEOVER EFFECT OF BLANK CHECK PREFERRED STOCK. The Company's Second
Restated Certificate of Incorporation authorizes the issuance of "blank check"
preferred stock with such designations, rights, and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the relative voting power or other rights of the holders of the
Common Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company and could prevent stockholders from receiving a
premium for their shares in the event of a third party tender offer or change of
control transaction. Although the Company has no present intention to issue any
shares of its preferred stock, there can be no assurance that the Company will
not do so in the future. Additionally, if the Company issues preferred stock,
the issuance may have a dilutive effect upon the holders of the Company's Common
Stock, including the purchasers of the shares of Common Stock offered hereby. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
an "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder.
DILUTION. The Common Stock being offered hereby is subject to dilution by
the additional shares of Common Stock issuable upon exercise of the Class A
Warrants, the Class B Warrants, the Class C Warrants, the New Employee Stock
Options, and the Gordian Warrants. Moreover, the Company will have the right to
issue additional securities (including without limitation under the Stock Option
Plan) in the future upon compliance with applicable law and the Company's Second
Restated Certificate of Incorporation and Amended and Restated Bylaws, which
could result in further dilution.
TAX CONSEQUENCES OF THE PLAN OF REORGANIZATION; POTENTIAL LOSS OF CERTAIN
TAX ATTRIBUTES. As a result of the implementation of the Plan of
Reorganization, the Company will (i) undergo an "ownership change" (generally, a
greater than 50 percentage point change in ownership) for purposes of section
382 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
realize cancellation of indebtedness income ("COI") from the cancellation of
certain indebtedness in exchange for new equity securities. Because such
ownership change and cancellation of indebtedness will arise in a case under
Chapter 11, the Company will be able to avoid some of the adverse Federal income
tax consequences generally associated therewith (e.g, the COI realized will not
be includible in income). Nevertheless, the Company expects that its ability to
offset future taxable income with net operating loss and loss carryforwards
("NOLs"), as well as certain built-in losses and tax credits, will be limited
and that certain of its tax attributes, including NOLs, will be significantly
reduced. In addition, the purchase of the securities offered hereby, as well as
the exercise of the Warrants by certain holders, may cause the Company to
undergo another "ownership change" for purposes of section 382 of the Code and,
accordingly, may further limit the Company's ability to use its NOLs and certain
built-in losses and tax credits to offset future taxable income.
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The net proceeds to the
Company from the sale of Common Stock issuable upon exercise of the Warrants
being offered by this Prospectus have been allocated to general corporate
purposes. Therefore, management of the Company will have broad discretion,
subject to the restrictions of the BankBoston Facility, with respect to the use
of such proceeds. See "Use of Proceeds."
16
<PAGE>
ASSETS OF THE COMPANY SECURE BANKBOSTON FACILITY. Obligations under the
BankBoston Facility are secured by liens on substantially all assets of the
Company. If, after default, BankBoston were to foreclose on the collateral
securing the BankBoston Facility or if the assets of the Company were
liquidated, the proceeds of such assets would be applied to satisfy the
Company's obligations under the BankBoston Facility. There can be no assurance
that there would be sufficient assets remaining to provide a recovery to the
Company's equity holders. See "Description of Certain Indebtedness."
17
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale by the Selling Security
Holders of the Warrants or the shares of Common Stock, but will receive an
aggregate of approximately $4.03 million upon exercise of all of the Class A
Warrants, Class B Warrants and Class C Warrants covered by this Prospectus
(approximately $.02 million upon exercise of such Class A Warrants;
approximately $.01 million upon exercise of such Class B Warrants; and
approximately $4.00 million upon exercise of such Class C Warrants) for shares
of Common Stock. If the exercise price of the Class C Warrants is increased by
25% as required upon the occurrence of certain events pursuant to the Class C
Warrant Agreement, the Company will receive an additional $1 million upon
exercise of all of the Class C Warrants covered by this Prospectus. The proceeds
from the exercise of the Warrants, if any, will be used by the Company for
general corporate purposes. See "Risk Factors--Management Discretion as to Use
of Proceeds." All of the expenses incurred in connection with the registration
of the Warrants and the shares of Common Stock offered hereby will be paid by
the Company, except for commissions of brokers or dealers and any transfer fees
incurred in connection with sales of Warrants and shares of Common Stock by the
Selling Security Holders, which will be paid by the Selling Security Holders.
18
<PAGE>
MARKET PRICES OF COMMON STOCK
Prior to the Plan Effective Date, the Old Common Stock was quoted on the OTC
Bulletin Board and, until January 20, 1995, was listed on Nasdaq under the
symbol "LMNT." As a result of the filing, the Old Common Stock is no longer
listed. The following table sets forth, for the periods indicated, the high and
low closing bid prices as reported on Nasdaq and over the counter quotes. The
bid prices, as stated, represent inter-dealer prices without adjustments for
retail mark-ups, mark-downs, or commissions and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1997:
Quarter ended January 31..................................................... 1/4 1/16
Quarter ended November 1..................................................... 3/16 1/16
Quarter ended August 2....................................................... 1/8 1/16
Quarter ended May 3.......................................................... 1/8 1/16
Fiscal 1996:
Quarter ended February 1..................................................... 7/16 1/16
Quarter ended November 2..................................................... 1/4 1/8
Quarter ended August 3....................................................... 7/16 1/8
Quarter ended May 4.......................................................... 1/4 1/8
Fiscal 1995:
Quarter ended February 3..................................................... 1/4 1/16
Quarter ended Oct. 28........................................................ 1/4 1/16
Quarter ended July 29........................................................ 7/16 1/8
Quarter ended April 29....................................................... 1/2 1/8
January Quarter:(1)
Quarter ended January 28, 1995............................................... 2 1/8
Fiscal 1994:
Quarter ended October 29..................................................... 13/16 5/8
Quarter ended July 30........................................................ 1 3/4 3/4
Quarter ended April 30....................................................... 2 1 1/4
Quarter ended January 29..................................................... $ 2 3/4 $ 2
</TABLE>
- ------------------------------
(1) On March 9, 1995, the Company changed its fiscal year end from the Saturday
closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other
apparel retailers. As a result, the Company reports separately financial
information and other data for the quarter ending January 28, 1995.
At January 31, 1998, there were 1,345 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Old Common
Stock or any other equity security, and does not anticipate paying cash
dividends on the Common Stock or any other equity security in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
certain debt instrument limitations, future earnings, results of operations,
capital requirements, the financial condition of the Company, and such other
factors as the Company's Board of Directors may consider. The ability of the
Company to pay dividends is directly and indirectly restricted under the terms
of the BankBoston Facility. Such restrictions prohibit the payment of dividends
for the foreseeable future. See "Description of Certain Indebtedness" and "Risk
Factors--Restrictions on Common Stock Dividends."
19
<PAGE>
CAPITALIZATION
The following table sets forth, on an unaudited basis, the capitalization of
the Company as of November 1, 1997 both before and after giving effect to the
revised capital structure of the Company as a result of the Plan of
Reorganization. This table should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 1, 1997
----------------------------
HISTORICAL(1) AS ADJUSTED(2)
------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current Debt
BankBoston Facility Revolver.................................. $ 24,401 $ 24,401
Notes Payable................................................. 41 41
Deferred Payment Tax Liabilities.............................. 0 253
Capital Leases................................................ 1,035 1,035
------------ -------
TOTAL CURRENT DEBT.............................................. 25,477 25,730
------------ -------
Long-Term Debt
Liabilities Subject to Compromise............................. 23,631 0
Capital Leases................................................ 12,884 12,884
Old 10 1/4% Notes............................................. 67,600 0
Old 13 1/2% Notes............................................. 838 0
BankBoston Term Loan.......................................... 10,000 10,000
Deferred Payment Tax Liabilities.............................. 0 470
------------ -------
TOTAL LONG-TERM DEBT............................................ 114,953 23,354
------------ -------
TOTAL DEBT...................................................... 140,430 49,084
------------ -------
Stockholders' Equity:(3)
Common Stock.................................................. 179 90
Additional Paid in Capital.................................... 63,010 19,867
Retained Earnings............................................. (131,600) 0
------------ -------
TOTAL STOCKHOLDERS' EQUITY...................................... (68,411) 19,957
------------ -------
TOTAL CAPITALIZATION............................................ $ 72,019 $ 69,041
------------ -------
------------ -------
</TABLE>
- ------------------------------
(1) Before giving effect to the Plan of Reorganization.
(2) After giving effect to the Plan of Reorganization and the adoption of
fresh-start accounting. For purposes of applying fresh-start accounting, the
Company has made certain adjustments to the historical financial data based
on an estimated reorganization value of $19,957,000, in accordance with SOP
90-7. See "Pro Forma Financial Data."
(3) Does not reflect the possible exercise of (i) non-qualified options to
purchase 1,333,729 shares of Common Stock issued under the Stock Option
Plan, (ii) Class A Warrants to purchase 2,203,320 shares of Common Stock,
(iii) Class B Warrants to purchase 800,237 shares of Common Stock and (iv)
Class C Warrants to purchase 3,810,653 shares of Common Stock, or the
receipt of proceeds by the Company from such exercise.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER OPERATING DATA
The following historical data should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto and the other information included elsewhere in this Prospectus. The
selected historical financial data of the Company for the 52 weeks ended
February 1, 1997, the 53 weeks ended February 3, 1996, the 13 weeks ended
January 28, 1995 and the 52 weeks ended October 29, 1994 ("Fiscal 1994") has
been derived from the historical consolidated financial statements of the
Company audited by Coopers & Lybrand L.L.P., independent accountants, whose
report with respect thereto is included elsewhere in this Prospectus. The
selected historical financial data for the 52 weeks ended October 30, 1993 has
been derived from the historical consolidated financial statements of the
Company audited by Coopers & Lybrand L.L.P., independent accountants. The
historical financial data for the nine months ended November 1, 1997 and
November 2, 1996 has been derived from the Company's unaudited consolidated
financial statements included elsewhere in this Prospectus. The historical
financial data for the 52 weeks ended January 28, 1995 has been derived from the
unaudited financial records of the Company. Such unaudited consolidated
financial statements and records reflect all adjustments which are, in the
opinion of management, necessary and of a normal recurring nature to present
fairly the operating results for the periods presented. The results of
operations for the nine months ended November 1, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending January 31,
1998.
The Company was operating under Chapter 11 during Fiscal 1996 and Fiscal
1995. As a result, the financial condition and results of operations of the
Company for such fiscal years are not necessarily comparable. On March 9, 1995,
the Company changed its fiscal year end from the Saturday closest to October 31
to the Saturday closest to January 31. As a result, the financial condition and
results of operations of the Company for Fiscal 1996 and Fiscal 1995 are not
necessarily comparable to its prior fiscal years.
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED
NOVEMBER 1, NOVEMBER 2, FEBRUARY 1, FEBRUARY 3,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)........................... $ 137,394 $ 138,284 $ 203,602 $ 199,548
Cost of merchandise sold.............. 87,798 88,237 130,480 131,677
------------ ------------ ------------ ------------
Gross profit.......................... 49,596 50,047 73,122 67,871
------------ ------------ ------------ ------------
Operating and administrative
expenses............................ 47,235 49,482 67,173 71,372
Depreciation and amortization......... 5,484 6,051 7,999 9,232
Impairment of long-lived assets....... -- 4,170 4,170 --
Store closure costs................... -- -- -- --
------------ ------------ ------------ ------------
Operating costs....................... 52,719 59,703 79,342 80,604
------------ ------------ ------------ ------------
Loss from operations before other
income/ (expense), reorganization
expenses and income tax
provision/(benefit)................. (3,123) (9,656) (6,220) (12,733)
Other income (expense):
Interest expense
--Cash................................ (3,855) (3,773) (5,053) (5,098)
--Non-Cash(2)......................... -- -- -- --
Other income (expense)................ 6 8 12 196
------------ ------------ ------------ ------------
Loss from operations before
reorganization expenses and income
tax provision/(benefit)............. (6,972) (13,421) (11,261) (17,635)
Reorganization expenses............... 1,924 5,090 6,037 7,240
------------ ------------ ------------ ------------
Loss from operations before income tax
provision/ (benefit)................ (8,896) (18,511) (17,298) (24,875)
Income tax provision/(benefit)........ -- -- -- --
------------ ------------ ------------ ------------
Net loss.............................. $ (8,896) $ (18,511) $ (17,298) $ (24,875)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
OTHER DATA
Number of stores at period end........ 38 42 38 43
NET LOSS PER COMMON SHARE
Net loss per common share............. $ (0.50) $ (1.03) $ (0.97) $ (1.39)
Weighted average number of shares..... 17,900,053 17,900,053 17,899,906 17,893,675
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital....................... $ 2,847 $ (5,622) $ (3,357) $ (2,248)
Total assets.......................... 109,993 112,964 93,272 102,361
Liabilities subject to settlement
under reorganization proceedings.... 103,489 103,538 102,858 104,845
Long-term debt and obligations under
capital leases, net of current
maturities.......................... 13,246 2,808 2,846 --
Stockholders' equity/(deficit)........ (68,411) (61,025) (59,553) (42,556)
<CAPTION>
52 WEEKS 13 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
JANUARY 28, JANUARY 28, OCTOBER 29, OCTOBER 30,
1995(3) 1995 1994 1993
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(1)........................... $ 231,199 $ 71,014 $ 237,922 $ 251,015
Cost of merchandise sold.............. 175,330 60,587 163,697 157,098
------------ ------------ ------------ ------------
Gross profit.......................... 55,869 10,427 74,225 93,917
------------ ------------ ------------ ------------
Operating and administrative
expenses............................ 87,807 22,400 88,520 84,176
Depreciation and amortization......... 11,355 2,666 11,441 11,164
Impairment of long-lived assets....... -- -- -- --
Store closure costs................... 7,200 -- 7,200 --
------------ ------------ ------------ ------------
Operating costs....................... 106,362 25,066 107,161 95,340
------------ ------------ ------------ ------------
Loss from operations before other
income/ (expense), reorganization
expenses and income tax
provision/(benefit)................. (50,493) (14,639) (32,936) (1,423)
Other income (expense):
Interest expense
--Cash................................ (6,698) (1,356) (8,130) (12,477)
--Non-Cash(2)......................... (5,160) (1,670) (3,490) --
Other income (expense)................ 27 29 (369) 29
------------ ------------ ------------ ------------
Loss from operations before
reorganization expenses and income
tax provision/(benefit)............. (62,324) (17,636) (44,925) (13,871)
Reorganization expenses............... 7,499 7,499 -- --
------------ ------------ ------------ ------------
Loss from operations before income tax
provision/ (benefit)................ (69,823) (25,135) (44,925) (13,871)
Income tax provision/(benefit)........ (400) -- (400) (3,000)
------------ ------------ ------------ ------------
Net loss.............................. $ (69,423) $ (25,135) $ (44,525) $ (10,871)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
OTHER DATA
Number of stores at period end........ 48 48 55 56
NET LOSS PER COMMON SHARE
Net loss per common share............. $ (4.13) $ (1.41) $ (3.05) $ (1.22)
Weighted average number of shares..... 16,820,257 17,883,135 14,583,038 8,917,624
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital....................... $ 16,025 $ 16,025 $ 9,938 $ 43,060
Total assets.......................... 120,269 120,269 152,589 183,709
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 93,130
Stockholders' equity/(deficit)........ (17,509) (17,509) 7,560 36,208
</TABLE>
- ------------------------------
(1) The additional week in Fiscal 1995 accounted for $2.2 million of revenues.
(2) Non-cash interest expense is comprised of amortization of discounts on the
Company's long-term debt and interest paid-in-kind through issuance of
additional debt.
(3) On March 9, 1995, the Company changed its fiscal year end from the Saturday
closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other
apparel retailers. For purposes of comparing the data for Fiscal 1995, the
Company has provided data for the period ended January 28, 1995 which is
derived from unaudited financial records of the Company.
22
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma data should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto for the 52 weeks ended February 1, 1997 and the unaudited Consolidated
Financial Statements and Notes thereto for the nine month period ended November
1, 1997 and the other information included elsewhere in this Prospectus. The pro
forma financial data gives effect to the reorganization under the Plan of
Reorganization and adoption of fresh-start reporting and the amounts are
presented as though the reorganization had been consummated, for purposes of the
statement of operations data, at the beginning of Fiscal 1996 and, for purposes
of the balance sheet data, on the applicable balance sheet date. The unaudited
pro forma financial data does not purport to be indicative of the results of
operations that would actually have been reported had such transactions actually
been consummated on such dates or of the results of operations that may be
reported by the Company in the future.
For purposes of applying fresh-start accounting in the pro forma financial
data set forth below, the Company has made certain adjustments to the historical
financial data as reported to give effect to the Plan of Reorganization and
reflect its assets and liabilities based on their estimated fair values in
accordance with SOP 90-7.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 1, 1997 52 WEEKS ENDED FEBRUARY 1, 1997
--------------------------------------------- ---------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
AS REPORTED ----------------- ----------- AS REPORTED ----------- -----------
----------- (UNAUDITED) (UNAUDITED) ----------- (UNAUDITED) (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Revenues.................... $ 137,394 $ 137,394 $ 203,602 $ 203,602
Cost of merchandise sold.... 87,798 87,798 130,480 130,480
----------- ----------- ----------- -----------
Gross profit................ 49,596 49,596 73,122 73,122
----------- ----------- ----------- -----------
Operating and administrative
expenses.................. 47,235 $ (158)(a) 47,077 67,173 $ (211)(a) 66,962
Depreciation and
amortization.............. 5,484 (243)(b) 5,416 7,999 (361)(b) 7,870
(542)(c) (723)(c)
717(d) 955(d)
Impairment of long-lived
assets.................... -- -- 4,170 4,170
----------- ----------- ----------- -----------
Operating costs............. 52,719 52,493 79,342 79,002
----------- ----------- ----------- -----------
Loss from operations before
other income/(expense) and
reorganization expenses... (3,123) (2,897) (6,220) (5,880)
Other income (expense):
Interest expense
--Cash...................... (3,855) 360(e) (3,760) (5,053) 480(e) (4,923)
(210)(f) (280)(f)
(55)(g) (70)(g)
--Non-Cash.................. -- -- -- --
Other income (expense)...... 6 6 12 12
----------- ----------- ----------- -----------
Loss from operations before
reorganization expenses... (6,972) (6,651) (11,261) (10,791)
Reorganization expenses..... 1,924 (1,924)(h) -- 6,037 (6,037)(h) --
----------- ----------- ----------- -----------
Net loss.................... $ (8,896) $ (6,651) $ (17,298) $ (10,791)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE
Net loss per common share... $ (0.50) $ (0.74) $ (0.97) $ (1.20)
Weighted average number of
shares.................... 17,900,053 9,000,000(i) 17,899,906 9,000,000(i)
</TABLE>
- ------------------------------
(a) To record reduced rent expense for several stores where the landlord has
agreed to concessions upon assumption of the lease, which will occur on the
Plan Effective Date.
23
<PAGE>
(b) To reflect the reversal of the historical amortization of excess of cost
over net assets acquired, which was eliminated with the application of
fresh-start accounting.
(c) To reflect the reversal of the historical amortization of deferred financing
fees associated with outstanding warrants to purchase Old Common Stock which
were cancelled on the Plan Effective Date.
(d) To record additional depreciation and amortization based on the increase in
fair market value of identifiable net assets as if the reorganization had
occurred at the beginning of Fiscal 1996.
(e) To reflect the reversal of the historical fees in respect of the Company's
working capital facility assessed while the Company was in Chapter 11.
(f) To reflect amortization of the facility fee in respect of the working
capital facility, payable in the amount of $336,000 on the Plan Effective
Date and in the amount of $224,000 on December 31, 1998.
(g) To record quarterly interest expense associated with debt arising from
allowed priority tax claims.
(h) To reverse historical reorganization expense.
(i) Pursuant to the Plan of Reorganization, on the Plan Effective Date, the
Company issued (a) 9,000,000 shares of Common Stock and (b) warrants and
options that are immediately exercisable to purchase an aggregate of
6,196,419 shares of Common Stock (based on an estimated reorganization value
of $19,957,000). Such warrants and options have not been included in the
calculation of net loss per common share because the effect of assuming
their exercise would be anti-dilutive.
<TABLE>
<CAPTION>
AS OF NOVEMBER 1, 1997
-------------------------------------------------------------
ADJUSTMENTS
HISTORICAL -----------------------------
AS REPORTED DEBIT CREDIT PRO FORMA
----------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD)
Current Assets:
Cash.................................. $ 2,298 $ 2,298
Merchandise Inventories............... 55,712 $ 750(h) 56,462
Other Current Assets.................. 6,339 280(a) 6,619
----------- -----------
Total current assets................ 64,349 65,379
Property and equipment, net............. 27,765 6,767(h) 34,532
Leasehold interests..................... 3,156 3,578(h) 6,734
Excess of cost over net assets acquired,
net................................... 11,347 $ 11,347(c) 0
Deferred Financing Fees................. 1,447 1,447(b) 0
Other Assets............................ 1,929 280(a) 2,209
----------- ------------ ------------ -----------
Total assets........................ $ 109,993 $ 11,655 $ 12,794 $108,854
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Current Liabilities:
Borrowings under BankBoston
Facility............................ $ 24,401 $ 24,401
Accounts Payable...................... 25,435 25,435
Other Current Liabilities............. 11,666 $ 560(a) 14,713
2,487(e)
----------- -----------
Total Current Liabilities........... 61,502 64,549
Other Liabilities....................... 167 827(e) 994
Deferred Payment Tax Liabilities........ 0 470(e) 470
BankBoston Term Loan.................... 10,000 10,000
Obligations Under Capital Leases........ 3,246 9,638(e) 12,884
Liabilities subject to settlement under
reorganization proceedings............ 103,489 $ 103,489(d) 0
Stockholders' Equity (Deficit):
Common Stock.......................... 179 179(f) 90(g) 90
Additional paid-in capital............ 63,010 63,010(f) 19,867(g) 19,867
Accumulated deficit................... (131,600) 131,600(f) 0
----------- -----------
Total stockholders' equity
(deficit)......................... (68,411) 19,957
----------- ------------ ------------ -----------
Total Liabilities and Stockholders'
Equity............................ $ 109,993 $ 166,678 $ 165,539 $108,854
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
</TABLE>
- ------------------------------
(a) To capitalize the $560,000 facility fee in respect of the Company's working
capital facility payable in the amount of $336,000 on the Plan Effective
Date and in the amount of $224,000 on December 31, 1998.
(b) To write off the balance of deferred financing costs associated with
outstanding warrants to purchase Old Common Stock which were cancelled on
the Plan Effective Date.
24
<PAGE>
(c) To write-off the balance of excess of cost over net assets acquired, net
associated with the Company prior to reorganization.
(d) To discharge liabilities subject to settlement under reorganization
proceedings.
(e) To reclassify certain liabilities subject to settlement under reorganization
proceedings where the obligation was assumed or settled in cash.
(f) Cancellation of historical Stockholders' Equity (Deficit).
(g) To record estimated reorganization value of $19,957,000, $90,000 of which is
classified as Common Stock based on issuance and sale of 9,000,000 shares of
Class A Common Stock, $0.01 par value, pursuant to the Plan of
Reorganization. The Remaining $19,867,000 is classified as additional paid
in capital.
(h) Allocation of the fair market value to identifiable net assets in accordance
with purchase method accounting as follows: Inventory, $750,000; Property
and equipment, $6,767,000; and Leasehold interests, $3,578,000.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus. On March 9, 1995, the Company changed its fiscal
year end from the Saturday closest to October 31 to the Saturday closest to
January 31 in order to enhance comparability of the Company's results of
operations with other apparel retailers. Accordingly, for purposes of comparing
the results of operations of the Company for Fiscal 1995, the Company believes
it is meaningful to use the comparable prior year period as the basis for
comparison.
The information contained herein, including, without limitation, statements
containing the words "believes", "anticipates" "expects" and words of a similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, (i) national and local general
economic and market conditions, (ii) demographic changes, (iii) liability and
other claims asserted against the Company, (iv) competition, (v) the loss of
significant customers or suppliers, (vi) fluctuations in operating results,
(vii) changes in business strategy or development plans, (viii) business
disruptions (including, as a result of adverse weather conditions), (ix) the
ability to attract and retain qualified personnel, (x) ownership of Common
Stock, and (xi) volatility of stock price. The Company disclaims any obligations
to update any such factors or to announce publicly the result of any revisions
to any of the forward-looking statements contained or incorporated by reference
herein to reflect untrue events or developments.
BACKGROUND
Despite numerous attempts to restructure the Company's capital structure
from 1992 through 1994, and as a result of the continued deterioration of the
Company's financial position, on 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 of Reorganization and, on January 31, 1998, the Plan of Reorganization
became effective. Under the Plan of Reorganization, among other things, certain
indebtedness of Lamonts was cancelled in exchange for new equity interests
(including certain of the Common Stock and Warrants being offered hereunder by
the Selling Security Holders), 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
(including certain of the Common Stock and Warrants being offered hereunder by
the Selling Security Holders), executory contracts and unexpired leases were
assumed or rejected, and the members of a new board of directors were
designated. See "Plan of Reorganization."
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 in order 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.
26
<PAGE>
STORE LOCATIONS
Since October 29, 1994, the Company has closed 19 stores, eleven 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.
In March 1995, the Company opened a new store in Issaquah, Washington.
Management is also evaluating possibilities of opening new stores in desirable
geographic locations to facilitate revenue growth. The Company intends to use
funds generated from operating cash flow and, in certain circumstances, tenant
reimbursements to cover the costs associated with opening such new stores. There
can be no assurance, however, that operating cash flow and/or the amount of
tenant reimbursements will be sufficient to cover such costs.
COMPARISON OF NINE MONTHS ENDED NOVEMBER 1, 1997 ("YTD 1997") TO
NINE MONTHS ENDED NOVEMBER 2, 1996 ("YTD 1996")
REVENUES. Revenues of $137.4 million for YTD 1997 decreased $0.9 million on
a total store basis from $138.3 million for YTD 1996. The decrease is
attributable to the closure of 4 stores that were operating during the prior
periods. Comparable store revenues increased 6.0% for YTD 1997 as compared to
YTD 1996. Management believes that comparable store revenues have increased due
to increased levels of inventory and continued improvement in the quality of the
merchandise offered in the stores compared to the prior year. There can be no
assurance that a continuation of such factors will increase revenues in future
periods. Comparable store revenues are defined as revenues generated at stores
open for at least nine months in each of the periods.
GROSS PROFIT. Gross profit, as a percentage of revenues was 36.1% for YTD
1997, compared to 36.2% for YTD 1996. The reductions in the LIFO layers have
impacted the statements of operations by $0 and $0.2 million for YTD 1997 and
YTD 1996, respectively.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses of $47.2 million for YTD 1997 decreased 4.5% or $2.3 million from $49.5
million for YTD 1996. The decrease is primarily the result of a reduction in
operating costs of $2.9 million, attributable to closed stores operating in the
prior year and decreases in computer fees and operating lease expenses of $0.6
million, offset by increases in (i) credit card fees of $0.3 million, (ii)
advertising of $0.4 million, (iii) payroll of $0.4 million, and (iv) other
expenses of $0.1 million. Costs associated with making the Company's computer
systems year 2000 compliant included in operating and administrative expenses
for YTD 1997 amounted to approximately $0.2 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
$5.5 million for YTD 1997 decreased $0.5 million as compared to $6.0 million for
YTD 1996. The decrease primarily relates to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A non-cash charge of $4.2 million for the
impairment of long-lived assets was recognized during YTD 1996 due to the
adoption of Statement of Financial Accounting Standards No. 121.
INTEREST EXPENSE. YTD 1997 interest expense was $3.9 million, compared to
$3.8 million for YTD 1996. Interest expense is related to outstanding borrowings
under the Company's credit facilities.
REORGANIZATION EXPENSES. YTD 1997 reorganization expenses of $1.9 million
decreased $3.2 million from $5.1 million for YTD 1996. The reorganization
expenses represent costs directly related to the
27
<PAGE>
Company's Chapter 11 case and consist primarily of professional fees, a
substantial portion of which were incurred in Fiscal 1996 in connection with the
preparation of the Disclosure Statement.
NET LOSS. The Company reported a net loss of $8.9 million for YTD 1997
compared to a net loss of $18.5 million for YTD 1996. The decrease of $9.6
million from the prior period resulted primarily from (i) no impairment of
long-lived assets for YTD 1997 compared to the recognition of $4.2 million for
the impairment of long-lived assets for YTD 1996, (ii) the reduction in
reorganization expenses of $3.2 million, (iii) the decrease in operating and
administrative expenses of $2.2 million, and (iv) the decrease in depreciation
and amortization expense of $0.5 million, offset by a decrease in gross profit
of $0.5 million.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
REVENUES. Revenues of $204 million for Fiscal 1996 increased 2.0% on a
total store basis from $199 million for Fiscal 1995. Management believes that
revenues increased due to increased levels of inventory and overall improvement
in the quality of the merchandise offered in the stores compared to the prior
year. Comparable store revenues, for the 38 stores, of $185.0 million for Fiscal
1996 increased 4.6% from $176.9 million for Fiscal 1995 (after deducting the
53rd week of sales in Fiscal 1995). Comparable store revenues are defined as
revenues generated at stores open for at least twelve months in each of the
periods.
GROSS PROFIT. Gross profit as a percentage of revenues of 36.0% for Fiscal
1996 increased 1.5% from 34.5% for Fiscal 1995 (excluding the effect of non-cash
charges of $0.2 million in Fiscal 1996 and $0.9 million in Fiscal 1995). The
non-cash charges consist primarily of LIFO inventory valuation and net
realizable value adjustments. The reductions in the LIFO layers have 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 also implemented policies to mark-down and clear out
unsold merchandise within its respective season.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses of $67.1 million, or 33.0% of revenues for Fiscal 1996, decreased 5.9%
from $71.3 million, or 35.8% of revenues, for Fiscal 1995. On a comparable store
basis, operating and administrative expenses of $62.0 million decreased 3.9%
from $64.5 million for Fiscal 1995. This improvement is primarily attributable
to reductions in payroll and corporate administration, offset slightly by
increases in rent and advertising.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
$8.0 million for Fiscal 1996 decreased 13.4% from $9.2 million for Fiscal 1995.
The decrease was primarily attributable to the closure of a store in early 1996
and the sale-leaseback of an additional store. The increase in depreciation and
amortization associated with newly acquired assets was offset by reductions due
to assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A noncash charge of $4.2 million for the
impairment of long-lived assets was recognized during Fiscal 1996 due to the
application of Statement No. 121. The charge consisted of a non-cash writeoff of
the excess of cost over net assets acquired, leasehold interests and leasehold
improvements determined to be impaired under the application of Statement No.
121.
REORGANIZATION EXPENSES. Since the Chapter 11 filing, the Company has
recognized $20.8 million in reorganization expenses (approximately $13.2 million
of noncash charges), of which $6.0 million was incurred during Fiscal 1996 and
$7.2 million during Fiscal 1995. These expenses relate primarily to professional
fees associated with the Company's Chapter 11 case, the accrued or estimated
costs associated with the rejection of real property leases, and costs related
to closing underperforming and nonprofitable
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<PAGE>
stores subsequent to the Company's Chapter 11 case. The charges for store
closures were primarily non-cash writeoffs of inventory losses realized in the
inventory liquidation process.
INTEREST EXPENSE. Interest expense of $5.1 million in Fiscal 1996 remained
unchanged from Fiscal 1995.
NET LOSS. The net loss of $17.3 million for Fiscal 1996 decreased $7.6
million, a 30% improvement over the net loss or $24.9 million for Fiscal 1995.
The reduction in net loss was primarily a result of (i) a $5.2 million
improvement in gross margin which includes non-cash charges for LlFO as
discussed above, (ii) a $1.2 million decrease in costs related to reorganization
expenses, excluding the costs associated with the closing of stores in Fiscal
1996 compared to Fiscal 1995, (iii) lower operating and administrative expenses
of $4.2 million in Fiscal 1996 as discussed above, and (iv) a $1.2 million
decline in depreciation and amortization expense during Fiscal 1996, offset by a
$4.2 million non-cash charge for the impairment of long-lived assets.
COMPARISON OF FISCAL 1995 TO
12 MONTHS ENDED JANUARY 28, 1995
REVENUES. Revenues of $199 million for Fiscal 1995 decreased 13.7% on a
total store basis from $231 million for the comparable prior year period,
primarily because the comparable prior year period results include revenues from
six stores that were closed in January 1995. In addition, the majority of the
revenue decrease in Fiscal 1995 occurred during the first three months after the
Company's Chapter 11 filing. Comparable store revenues decreased 4.5% in Fiscal
1995 (after deducting the 53rd week of sales in Fiscal 1995).
GROSS PROFIT. Gross profit, as a percentage of revenues, increased 3.2% for
Fiscal 1995, to 34.5% from 31.3% of revenues in the comparable prior year period
(excluding the effect of non-cash charges of $16.5 million in the comparable
prior year period and $0.9 million in Fiscal 1995). The non-cash charges
consisted primarily of LIFO inventory valuation and net realizable value
adjustments. The reductions in the LIFO layers have impacted the statements of
operations by $0.5 million and $4.6 million for Fiscal 1995 and the 12 months
ended January 28, 1995, respectively. The improvement in gross profit margins
can be attributed to the Company's implementation of new merchandising
strategies designed to reduce inventory levels and increased inventory turns.
Merchandise turnovers increased from 2.3 times in the comparable prior year
period to 2.8 times in Fiscal 1995, a 22% improvement. The Company has also
initiated policies to mark-down and clear out any unsold merchandise within its
respective season.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses of $71.3 million, or 35.8% of revenues for Fiscal 1995, decreased
compared to $87.8 million, or 38.0% of revenues for the comparable prior year
period. On a comparable store basis, operating and administrative expenses have
decreased $5.5 million or 7.3%. Reduction in payroll, corporate administration
and professional expenses were primarily attributable to this improvement
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of
$9.2 million for Fiscal 1995 decreased from $11.4 million in the comparable
prior year period. The decrease was primarily attributable to the six stores
closed during January 1995. The increase in depreciation and amortization
associated with newly acquired assets was offset by reductions due to assets
becoming fully depreciated or amortized.
REORGANIZATION EXPENSES. Reorganization expenses relate to costs associated
with the Company's Chapter 11 filing and the general restructuring of the
Company's business operations. Since the Chapter 11 filing, the Company has
recognized $14.7 million in reorganization expense (approximately $9.0 million
of non-cash charges), of which $7.2 million was incurred during Fiscal 1995 and
$7.5 million during the comparable prior year period. These expenses relate
primarily to legal costs associated with the Company's
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<PAGE>
Chapter 11 case, the accrued or estimated costs associated with the rejection of
real property leases, and costs related to closing underperforming and
nonprofitable stores subsequent to the commencement of the Company's Chapter 11
case. The charges for store closures are primarily non-cash writeoffs of
abandoned assets but also include inventory losses realized in the inventory
liquidation process.
INTEREST EXPENSE. Interest expense of $5.1 million for Fiscal 1995
decreased from $11.8 million ($6.7 million cash and $.5.1 million non-cash) in
the comparable prior year period. The decrease in interest expense was primarily
a result of the Company's Chapter 11 case. As of February 3, 1996, the Company's
working capital facility accrued interest at an annual rate of 11.25% as
compared to 12% on borrowings on the Company's working capital facility in the
comparable prior year period.
NET LOSS. The Fiscal 1995 net loss of $24.8 million decreased $44.6 million
compared to the net loss of $69.4 million for the comparable prior year period.
The reduction in operating losses is primarily a result of (i) a $12 million
improvement in gross margin which includes non-cash charges in the comparable
prior year period as discussed above, (ii) a $6.4 million decrease in costs
related to the closing of stores in Fiscal 1995 compared to the comparable prior
year period, (iii) lower operating and administrative expenses of $16.4 million
in Fiscal 1995 as discussed above, (iv) a $6.8 million reduction in interest
expense in Fiscal 1995 due to the Company's Chapter 11 filing and (v) a $2.1
million decline in depreciation and amortization expense during Fiscal 1995.
Although the Company has realized a significant reduction in operating and other
expenses due to downsizing, these savings have been partially offset by a
decline in sales also attributable to a reduced number of operating stores.
CASH FLOW
The Company used $6.9 million of cash for operating activities before
reorganization items for YTD 1997, a decrease of $2.3 million as compared to
$9.2 million used for YTD 1996. The improvement is partially due to a decrease
in net loss. In addition, cash used for inventory purchases decreased $5.0
million to $18.2 million for YTD 1997 from $23.2 million for YTD 1996.
The difference in investing activities for YTD 1997 from YTD 1996 of $4.8
million results primarily from net sale proceeds of $4.5 million received in the
sale-leaseback of one of the Company's stores during YTD 1996.
The Company received $10.6 million from financing activities for YTD 1997 as
compared to $8.5 million for YTD 1996. The $2.1 million difference is the result
of proceeds from the Term Loan offset by lower net borrowings under the
Revolver.
As of November 1, 1997, the Company had $2.3 million of cash and an
additional $1.7 million of current restricted cash, representing the funding of
payroll and taxes in connection with the Chapter 11 filing.
CAPITAL RESOURCES
The Company has entered into the Amended and Restated Debtor in Possession
and Exit Financing Loan Agreement, dated as of September 26, 1997 (the "Loan
Agreement"), among the Company, certain financial institutions from time to time
parties thereto and BankBoston, as agent thereunder, pursuant to which
BankBoston is providing Lamonts with a $42 million Revolver and Term Loan on the
terms and conditions set forth in the Loan Agreement. For a description of the
BankBoston Facility, see "Description of Certain Indebtedness."
For the nine months ended November 1, 1997, the weighted average interest
rate for loans based on the 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 the Revolver) 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 dollar deposits in the interbank
eurodollar market (the "Eurodollar Rate") was
30
<PAGE>
8.45% (calculated on the average monthly Eurodollar Loan balance). The Company
has expensed fees of approximately $568,000 for the BankBoston Facility for the
nine months ended November 1, 1997, which fees payable under the BankBoston
Facility for such period consisted primarily of monthly payments based on the
average unused borrowing capacity and on the borrowing capacity under the
Revolver.
As of January 31, 1998, the Company had $19 million of borrowings
outstanding under the Revolver with additional borrowing capacity thereunder of
$4.3 million. In addition, the Company had $10 million outstanding under the
Term Loan at such date.
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the BankBoston Facility (ii)
trade credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is dependent upon its ability to obtain trade credit,
which is generally extended by its vendors and a small number of factoring
institutions that continually monitor the Company's credit lines. If the Company
continues to obtain the trade credit terms it is currently receiving, the
Company believes that borrowings under the BankBoston Facility and cash expected
to be generated from operations will provide the cash necessary to fund the
Company's cash requirements for the next twelve months. The adequacy of the
Company's long-term capital resources and liquidity will depend on the Company's
performance after the Plan Effective Date, as well as other factors.
OTHER
The Company has never declared or paid cash dividends on its Old Common
Stock or any other equity security, and does not anticipate paying cash
dividends on the Common Stock or any other equity security in the foreseeable
future. Any future determination as to the payment of dividends on the Common
Stock will depend upon certain debt instrument limitations, future earnings,
results of operations, capital requirements, the financial condition of the
Company, and such other factors as the Company's Board of Directors may
consider. The ability of the Company to pay dividends is directly and indirectly
restricted under the terms of the BankBoston Facility. Such restrictions
prohibit the payment of dividends for the foreseeable future. See "Risk
Factors--Restrictions on Common Stock Dividends."
SEASONALITY
The Company's sales are seasonal, with the fourth quarter being its
strongest quarter as a result of the Christmas Season. The table below sets
forth the effect of seasonality on the Company's business for Fiscal 1996 and
Fiscal 1995:
<TABLE>
<CAPTION>
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
--------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Revenues................................................ $ 37,922 $ 49,657 $ 50,705 $ 65,318 $ 203,602
%Contribution........................................... 18.6% 24.4% 24.9% 32.1%
FISCAL 1995
Revenues................................................ $ 36,682 $ 47,711 $ 49,802 $ 65,353 $ 199,548
%Contribution........................................... 18.4% 23.9% 24.9% 32.8%
</TABLE>
INFLATION
The primary items affected by inflation include the cost of merchandise,
utilities and labor. Retail sales prices are generally set to reflect such
inflationary increases, the effects of which cannot be readily determined.
Management of the Company believes that inflationary factors have had a minimal
effect on the Company's operations during the past three years.
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<PAGE>
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 fiscal 1999 and does not currently
anticipate any material disruption in its operations as a result of any failure
by the Company to be in such compliance. The Company spent approximately
$350,000 in fiscal 1997 and estimates it will spend approximately $500,000 in
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement No.
128"). All companies are required to comply with the disclosure requirements of
the statement and the Company adopted the policy in the fourth quarter of Fiscal
1997. Management is currently evaluating the requirements of Statement No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("Statement No.
130"). Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Statement No. 130 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of earlier periods presented.
Management is currently evaluating the requirements of Statement No. 130.
32
<PAGE>
BUSINESS
GENERAL
Lamonts is a Northwest-based regional retailer with 38 stores in five
states. The Company offers an assortment of moderately priced fashion apparel
and accessories at competitive prices for the entire family. Lamonts purchases
finished goods from approximately 1,200 vendors and uses a distribution center
in Kent, Washington for processing and warehousing merchandise for distribution
to its stores. Lamonts employs approximately 1,600 people in salaried, hourly,
or part-time positions. The Company's stores average approximately 47,000 square
feet and are generally located in shopping centers and malls. The Company's
revenues for Fiscal 1996 were approximately $204 million. As of February 1,
1997, Lamonts' total assets and liabilities, at book value, approximated $93.3
million and $152.8 million, respectively.
The Company was incorporated in Delaware as Texstyrene Corporation in 1985,
changed its name to Aris Corporation in October 1988 and to Lamonts Corporation
in April 1991. In September 1989, the Company acquired Lamonts Apparel, Inc.
("Apparel") from LH Group, Inc., a subsidiary of Northern Pacific Corporation.
Prior to the completion of the divestiture of its original core business in
August 1989, the Company manufactured expandable polystyrene beads and converted
them into foam cups and containers, insulation products, packing materials, and
custom-molded packaging products. Apparel's predecessor was incorporated in
Washington in May 1923. On October 30, 1992, Apparel was merged with and into
the Company and the name of the Company was changed to Lamonts Apparel, Inc.
The Company's principal executive offices are located at 12413 Willows Road
N.E., Kirkland, Washington 98034 and its telephone number at that address is
(425) 814-5700.
PROMOTION AND MARKETING
Sales promotion and inventory allocation decisions are made centrally by
Lamonts' corporate staff. The Company generally maintains uniformity with
respect to inventory, pricing decisions, selection of promotional goods, and
markdown policies throughout all of its locations.
Lamonts advertises primarily through radio, television, newspaper and
newspaper inserts, direct mail, and charge statement inserts. The Company's
promotional strategy is to target specific merchandise products and consumer
groups, including holders of its proprietary credit card, for sale events.
SHOE LICENSEE
Lamonts utilizes a licensee, Shoe Corporation of America ("SCOA"), for its
family shoe department. The sales of shoes represented approximately 6.0% of the
Company's total annual revenues for Fiscal 1996, but are not reflected in such
revenues for financial reporting purposes because income derived from the rental
fees charged to the licensee is reported as an offset to operating expenses. The
rental fees paid to Lamonts by SCOA (approximately $1.273 million for Fiscal
1996) 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 option.
PURCHASING
The Company's centralized buying organization includes general merchandise
managers, divisional merchandise managers and buyers responsible for maintaining
vendor relationships. New management teams within the merchandising departments
were assembled subsequent to the Petition Date. In addition, the Company's
membership in Frederick Atkins, Inc. ("Atkins"), merchandising consultant,
provides it with industry research and the ability to use Atkins' private label
import program. Additionally, the Company backs certain of its direct import
purchases with letters of credit issued through Atkins. Costs associated with
the letters of credit are based on a fixed percentage of each draw plus a
non-interest bearing deposit of 17% of annual usage.
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
33
<PAGE>
believes that there will continue to be an adequate supply of merchandise to
satisfy its current anticipated requirements. However, like other apparel
retailers, the Company is highly dependent upon its ability to obtain trade
credit.
DISTRIBUTION
The Company utilizes a contractor, 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 is generally able to receive and ship
merchandise to its stores within a two-to-three day period. The Company believes
that this distribution center enables it to monitor vendor shipments more
effectively, reduce receiving and marking expenses, reduce related
transportation costs, improve inventory control and reduce inventory shrinkage.
The current lease for this distribution facility, which is guaranteed by the
Company, covers 62,500 square feet of space and has an initial term running
through February 2001 with one three-year extension option. The amount of lease
payments guaranteed by the Company pursuant to such lease are approximately
$21,000 per month.
RETURN POLICY
It is the Company's policy to exchange or issue a credit if a customer is
not completely satisfied with any Lamonts purchase. Management believes that the
Company's customer return policy and experience is consistent with industry
practices.
STORE LOCATIONS AND PROPERTIES
The Company considers its ability to maintain attractive, high traffic store
locations to be a critical element of its business and a key determinant of
Lamonts' future growth and profitability. The Company currently operates 38
stores in the following locations:
<TABLE>
<CAPTION>
LAMONTS APPAREL STORES
- -----------------------------------------------------------------------------------------------------
ALASKA(7) WASHINGTON(23) UTAH(1)
- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Anchorage: 3 stores Seattle: 6 stores Logan
Fairbanks Bellevue/Eastside: 4 stores
Juneau Tacoma 2 stores OREGON(2)
Soldotna Spokane: 2 stores Astoria
Wasilla Aberdeen Corvallis
Marysville
IDAHO(5) Moses Lake
Coeur d' Alene Olympia
Idaho Falls Port Angeles
Lewiston Silverdale
Moscow Tri-Cities
Pocatello Wenatchee
Yakima
</TABLE>
Of the 38 Lamonts' stores, 14 are located in regional malls, 15 are located
in community malls, 3 are located in strip centers and 6 are located in
free-standing locations.
All of the Company's operating stores (except one which is an owned
building, subject to an operating ground lease) are currently located in leased
facilities. The leases for these facilities have terms up to 30 years, with an
average remaining term of 7 years, not including additional option periods. The
Company
34
<PAGE>
leases its principal office in Kirkland, Washington. The lease, which commenced
May 1996, is for approximately 30,000 square feet and expires May 2006.
The Company's stores range in size from 20,700 to 80,000 square feet, with a
typical store averaging approximately 47,000 square feet. The interiors of
Lamonts' stores are decorated and organized with the intention of maximizing
traffic flow and merchandise exposure. Signage and service facilities, such as
fitting rooms and customer service areas, are designed to create a pleasant and
convenient shopping environment.
During 1994, the Company closed eight stores because of poor performance.
Also, in connection with its operational restructuring, the Company received
permission from the Bankruptcy Court to close six additional underperforming
stores in early 1995. In 1996, the Company received permission from the
Bankruptcy Court to close five additional underperforming stores. In February
1996, the Company entered into a sale-leaseback transaction involving the land
and building at the Company's Alderwood store in Seattle, Washington. The
Company sold the property for approximately $5 million and leased the property
back for a 20 year period, plus option terms.
In March 1995, the Company opened a new 36,000 square foot store in a
465,000 square foot shopping center in Issaquah, Washington. This is the
Company's fourth store in the eastside area of the Seattle market. See "Risk
Factors--Limitations on Future Growth."
STORE OPERATIONS
The Company's store management team consists of a senior vice president,
four regional directors and 34 store managers. The four regional directors also
serve as store managers. Store managers are primarily responsible for hiring and
supervising store personnel and for day-to-day store operations. A typical
Lamonts' store employs a staff of 23 to 40 people, including the store manager,
two to four area sales managers and 20 to 35 sales associates, approximately
two-thirds of whom are part-time.
EMPLOYEES
The Company employs approximately 1,600 employees, approximately two-thirds
of whom are part-time. Approximately 275 employees working in Seattle,
Washington stores are represented by the United Food and Commercial Workers
Union pursuant to a contract that expires June 12, 1999. That contract was
ratified by the union's bargaining unit on August 17, 1997, and was approved by
the Bankruptcy Court on September 25, 1997. Approximately 35 employees work in
the Wenatchee, Washington store and are represented by the United Food and
Commercial Workers Union; they have no negotiated bargaining agreement, and the
employees work under the same working conditions as the Company's non-union
employees. There are approximately 16 employees working in the Kirkland
corporate office who are represented by the United Food and Commercial Workers
Union pursuant to an employee ratified agreement that expires the earlier of
March 31, 1998 or seven months following emergence from Chapter 11. Management
believes that its employee relations are good.
COMPETITION
Lamonts competes with other specialty retail apparel stores, department
stores, and discount/mass merchandisers on the basis of product range, quality,
fashion, price, and service. The Company attempts to differentiate itself from
its competitors by positioning itself as a focused specialty retailer with
emphasis on casual wear and high quality branded products, as well as its
private label, "Northwest Outfitters". Principal competitors in one or more of
the Company's market areas include The Bon Marche (a division of Federated
Department Stores, Inc.), Nordstrom, J.C. Penney Co., Inc., Sears Roebuck and
Company, and Mervyn's (a division of Dayton-Hudson Corporation). Many of the
Company's competitors have substantially greater financial resources than the
Company. See "Risk Factors--Competition."
35
<PAGE>
TRADEMARKS
The Company currently owns various registered trademarks which are part of
its proprietary brand imports program. Management believes that, although such
trademarks are significant, the Company's business is not dependent on any of
such rights.
INFORMATION SYSTEMS
In recent years, the Company has invested in the development of management
information systems (MIS) in the areas of merchandise reporting, distribution
and allocation, customer service (full and promotional price look-up at the
register), as well as financing, credit authorization and store operations. The
company has made generational improvements in its systems since the late 1980's
and is continuing to make enhancements to its merchandising systems.
The Company uses the Universal Product Code (UPC) on each ticket and
automatic price look-up and electronic data interchange (EDI) for re-ordering
basic merchandise and for vendor provided advance ship notices (ASN's) which
improves in-stock inventories on predictable, basic merchandise. The point-of-
sale (POS) data provides the basis for merchandise unit reporting, merchandise
allocation decisions and electronic transmission of orders. In addition to
running its own automatic basic stock replenishment system, the Company also
uses automatic basic merchandise replenishment programs offered by key vendors.
Sales and POS markdowns are monitored daily by using POS terminals to record
ticketed information. This information flows electronically from the stores to
the corporate office and then to 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 for the
merchants, Year 2000 preparations, customer database and direct marketing
systems, as well as a new POS platform to support enhanced customer service and
the direct marketing initiatives.
The Company utilizes an outside service bureau, 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 include charges for CPU utilization based on a usage rate of $210 per
CPU hour 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 fiscal 1999 and does not currently
anticipate any material disruption in its operations as a result of any failure
by the Company to be in such compliance. The Company spent approximately
$350,000 in fiscal 1997 and estimates it will spend approximately $500,000 in
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.
36
<PAGE>
CREDIT POLICY
The Company offers its customers various methods of payment including cash,
check, Lamonts charge card, certain major credit cards and a lay-away plan.
Since its inception in July 1988, the Company's charge-card program has been
expanded to approximately 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 the customer
who pays by cash, check or most bank credit cards. The Company believes that its
proprietary credit card program provides additional benefits in two areas: (i)
industry research shows that proprietary credit cards build significant customer
loyalty and (ii) proprietary credit cards enhance target marketing by providing
valuable demographic and purchasing behavior information on customers.
The Company's proprietary charge card, administered and owned by Alliance
Data Systems (which purchased the charge accounts from National City Bank of
Columbus), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Alliance Agreement"), Alliance Data Systems owns
the receivables generated from purchases made by customers using the Lamonts
charge card.
The Alliance Agreement provides that the Company will be charged a discount
fee of 1.95% of Net Sales, as that term is defined in the Alliance Agreement.
Additionally, the Alliance Agreement provides for a supplemental discount fee
equal to one-tenth of one percent (0.1%) of Net Sales for each one million
dollar increment that Net Sales for a subject year are less than $48.0 million
(the "Minimum Level") up to a total maximum fee of 3% of the Net Sales for the
subject year. In the event of store closures, the Alliance Agreement provides
that the Minimum Level may be decreased. Additionally, as of March 1, 1996, the
Company is no longer responsible for any net bad debt expense. The Alliance
Agreement may be terminated by either party after June 22, 1999 upon 180 days
prior written notice. The Company paid National City Bank of Columbus and
Alliance Data Systems $0.1 million for bad debt expense and $0.9 million in fees
during Fiscal 1996.
REGULATION
The Company is subject to Federal, state and local laws and regulations
affecting retail apparel stores generally. The Company believes that it is in
substantial compliance with these laws and regulations.
LEGAL PROCEEDINGS
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate outcome
of all such matters will not have a material adverse effect on the financial
position of the Company, but, if decided adversely to the Company, could have a
material effect on quarterly or annual operating results during the period such
matters are resolved.
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. Such judgment, however,
is subject to possible stay and/or appeal. There can be no assurance that the
Company will be successful on any appeal, or that the Company will be able to
enforce or collect such judgment.
CHANGE IN FISCAL YEAR
On March 9, 1995, the Company changed its fiscal year end from the Saturday
closest to October 31 to the Saturday closest to January 31 in order to enhance
comparability of the Company's results of operations with other apparel
retailers.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age, positions and offices with the Company, present occupation or
employment and employment history of each of the directors, nominees for
directors and executive officers of the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Alan R. Schlesinger................................. 55 Chairman of the Board, President,
and Chief Executive Officer
Loren R. Rothschild................................. 59 Vice Chairman of the Board
Debbie A. Brownfield................................ 43 Executive Vice President, Chief Financial
Officer, 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. (Jack) 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 of Reorganization. Such individuals have
served on the Board of Directors of the Company since the Plan Effective
Date.
Mr. Schlesinger joined the Company as President and Chief Executive Officer
in November 1994. In December 1994, Mr. Schlesinger was appointed Chairman of
the Board. From 1991 to 1994, Mr. Schlesinger was a Senior Vice President with
the May Company Department Stores.
Mr. Rothschild, a Director of the Company since October 1992, became Vice
Chairman of the Board in December 1994. In addition, Mr. Rothschild has served
as President and director of Sycamore Hill Capital Group since September 1993.
Prior to that time, he served as Vice Chairman and President of American
Protection Industries, Inc. ("API"), a privately held company engaged in direct
marketing of collectibles, home decor products, flowers by wire clearing house,
and real estate and agribusiness, and Vice Chairman of the Franklin Mint from
1985 to June 1992. From 1988 to June 1992, Mr. Rothschild also served as
Chairman and Chief Executive Officer of API's Agribusiness division.
Ms. Brownfield joined the Company as Vice President of Finance, Secretary,
and Treasurer in September 1985 and served as Acting Chief Financial Officer of
the Company from January 1993 through August 1993. Ms. Brownfield was named
Senior Vice President and Chief Financial Officer in December 1995, and
Executive Vice President in July 1997.
Mr. Bulen joined the Company in December 1995 as Senior Vice President and
General Merchandise Manager. Prior to joining the Company, Mr. Bulen was Vice
President, Retail Stores, with Vans, Inc. from April 1993. Prior to his
affiliation with Vans, Inc., Mr. Bulen was Senior Vice President with May
Company--California, where he served in a variety of merchandising roles from
February 1976 to January 1993.
Mr. Grossblatt joined Lamonts in August 1997 as Senior Vice President and
General Merchandise Manager. Prior to joining the Company, Mr. Grossblatt was
Divisional Vice President and Divisional Merchandise Manager for Robinsons-May,
where he served in a variety of merchandising roles since 1987.
Mr. Springel 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
38
<PAGE>
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.
Mr. Wiesner has served on the Board of Directors of the Company since the
Plan Effective Date. Mr. Wiesner has served as Chairman of the Board and Chief
Executive Officer of C.R. Anthony Company, a regional apparel retailer with 246
stores operating in 18 southwestern and midwestern states, since 1987. Since
July 1997, Mr. Wiesner has served on the board of directors of Stage Stores,
Inc. and, since December 1997, Mr. Wiesner has served on the board of directors
of Elder Berrman.
Mr. Buxbaum 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 over 300 locations in the northeastern United States. Since April
1995, Mr. Buxbaum has served on the board of directors of Richman Gordon 1/2
Price Stores and, since May 1997, Mr. Buxbaum has served on the board of
directors of the Jay Jacob Stores.
Peter Aaron, who joined Lamonts in November 1983 as Executive Vice
President, resigned from that position effective July 1997. Mr. Aaron currently
serves as a consultant to the Company and will continue to provide such
consulting services to the Company from time to time after the Plan Effective
Date.
All directors and executive officers are elected for a term of one year and
serve until their successors are duly elected and qualified.
In order to assist it in carrying out its duties, the Board of Directors of
the Company has delegated certain authority to an Audit Committee and a
Compensation Committee. The initial members of the Audit Committee, Messrs.
Springel, Wiesner and Buxbaum, were selected by the Board. With respect to its
audit function, the committee's duties and responsibilities will include, among
other things, meetings with the independent accountants to review the scope and
results of audits and other activities of the Company, evaluating the
independent accountants' performance, and recommending to the Board of Directors
as to whether the accounting firm should be retained by the Company for the
ensuing fiscal year. In addition, the committee will review the Company's
internal accounting and financial controls and reporting systems and practices.
The initial members of the Compensation Committee, Messrs. Springel, Wiesner and
Buxbaum, were selected by the Board. With respect to its compensation function,
its duties and responsibilities will include, among other things, reviewing,
approving and recommending to the full Board of Directors the salaries and other
compensation arrangements of all other officer-employees of the Company and
administering the Stock Option Plan. Members of the Audit Committee and the
Compensation Committee may be addressed at 12413 Willows Road N.E., Kirkland,
Washington 98034.
COMPENSATION OF DIRECTORS
The Company will pay each director (other than Messrs. Schlesinger and
Rothschild) a fee of $2,500 for attending each meeting of the Board ($500 for
each meeting attended telephonically) and $1,500 for
39
<PAGE>
attending each meeting of the Audit Committee and the Compensation Committee,
plus reimbursement for reasonable out-of-pocket expenses incurred in connection
with attending such meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during Fiscal 1996, Fiscal 1995 and Fiscal 1994, to (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly compensated
senior executive officers (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1)
- ---------------------------------------- ----------- ------------ --------- -------------------
<S> <C> <C> <C> <C>
Alan R. Schlesinger, ................... 1996 450,000 100,000 5,100
Chairman of the Board, President, and 1995 450,000 100,000 3,600
Chief Executive Officer 1994 58,270 125,000 0
Loren R. Rothschild, ................... 1996 240,000 0 2,790
Vice Chairman of the Board 1995 240,000 0 2,790
1994 6,462 125,000 0
Peter Aaron, ........................... 1996 210,000 30,000 3,118
Executive Vice President(2) 1995 205,833 30,000 3,247
1994 183,836 8,160 3,540
Debbie A. Brownfield, .................. 1996 160,000 30,000 2,016
Executive Vice President, Chief 1995 121,249 35,000 1,497
Financial Officer and Secretary 1994 99,722 0 1,227
E.H. Bulen, ............................ 1996 152,000(4) 15,000 661
Senior Vice President and General 1995 48,930 0 0
Merchandise Manager(3)
</TABLE>
- ------------------------
(1) Consists of Company contributions to a tax qualified trust under the
Company's Tax Relief Investments Protection Plan, as amended and restated
effective July 1, 1991, and consists of premiums paid by the Company for
term life insurance pursuant to the Lamonts Apparel Group Life and Long-Term
Disability Plan, effective July 7, 1991.
(2) Mr. Aaron resigned from his position as Executive Vice President effective
July 1997.
(3) Mr. Bulen commenced his employment with the Company in November 1995.
(4) Includes $24,430 in consulting fees for the period from September 27, 1995
to November 30, 1995.
OPTION GRANTS DURING FISCAL 1996; CANCELLATION OF OLD EMPLOYEE STOCK OPTIONS
There were no options granted to Named Executive Officers during Fiscal
1996. Pursuant to the Plan of Reorganization, all employee stock options granted
under the Lamonts Apparel, Inc. 1992 Incentive and Non-Statutory Stock Option
Plan were cancelled on the Plan Effective Date.
OPTIONS GRANTED PURSUANT TO THE PLAN OF REORGANIZATION
On and after the Plan Effective Date, the Company will issue from time to
time New Employee Stock Options under the Stock Option Plan. The New Employee
Stock Options initially granted pursuant to the Plan of Reorganization are
initially exercisable for the purchase of 1,333,729 shares of Common Stock and
consist of: (i) options exercisable for the purchase of 1,000,000 shares of
Common Stock with an initial exercise price of $1.00 per share; (ii) to prevent
dilution resulting from the issuance of the Class A Warrants, options
exercisable for the purchase of an additional 244,813 shares of Common Stock
with an
40
<PAGE>
initial exercise price of $0.01 per share, exercisable only on or after the date
on which the Class A Warrants become exercisable; and (iii) to prevent dilution
resulting from the issuance of the Class B Warrants, options exercisable for the
purchase of an additional 88,915 shares of Common Stock with an initial exercise
price of $0.01 per share, exercisable only on or after the date on which the
Class B Warrants become exercisable. The number of New Employee Stock Options
described in clauses (ii) and (iii) above that may be exercised by any holder
shall bear the same proportion (based on the total number of such options
granted to such holder) to the number of New Employee Stock Options described in
clause (i) above that have been exercised by such holder (based on the total
number of such options granted to such holder). In addition, to prevent dilution
resulting from the issuance of the Class C Warrants to the Surety, holders of
New Employee Stock Options have been or will be issued, on a pro rata basis and
with the same vesting schedule as each holder's respective New Employee Stock
Options, Class C Warrants initially exercisable for the purchase of an aggregate
of 381,065 shares of Common Stock (355,661 shares with an exercise price of
$1.25 per share and 25,404 shares with an exercise price of $.01 per share).
The New Employee Stock Options and the Class C Warrants are subject to
adjustment to prevent dilution upon the occurrence of certain specified events,
excluding exercise of the New Employee Stock Options, the Class A Warrants, the
Class B Warrants, the Class C Warrants, or the Gordian Warrants. The term of the
New Employee Stock Options will be 10 years. The New Employee Stock Options will
be governed by the Stock Option Plan, and the Class C Warrants issued in
conjunction therewith will be governed by a Warrant Agreement in substantially
the form of the Class C Warrant Agreement between the Company and the Surety.
Those New Employee Stock Options and Class C Warrants were allocated as of the
Plan Effective Date as follows:
<TABLE>
<CAPTION>
PROTECTIVE PROTECTIVE
BASE OPTIONS OPTIONS(1)(5) OPTIONS(2)(5)
-------------- -------------- --------------- TOTAL NEW
INITIAL INITIAL INITIAL EMPLOYEE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE STOCK CLASS C
RECIPIENT $1.00 $.01 $.01 OPTIONS WARRANTS
- ----------------------------------------- -------------- -------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Alan R. Schlesinger(3)................... 600,000 146,888 53,349 800,237 15,243
Loren R. Rothschild(3)................... 150,000 36,722 13,337 200,059 3,811
Debbie A. Brownfield(3).................. 60,000 14,689 5,335 80,024 1,524
E.H. Bulen(3)............................ 50,000 12,241 4,446 66,687 1,270
Gary A. Grossblatt(3).................... 30,000 7,344 2,667 40,011 762
Others(4)................................ 110,000 26,929 9,781 146,711 2,794
-------------- ------- ------ ---------- -----------
Totals................................... 1,000,000 244,813 88,915 1,333,729 25,404
-------------- ------- ------ ---------- -----------
-------------- ------- ------ ---------- -----------
</TABLE>
- ------------------------------
(1) Exercisable on or after the first date on which the Aggregate Equity Trading
Value equals or exceeds $20 million.
(2) Exercisable on or after the first date on which the Aggregate Equity Trading
Value equals or exceeds $25 million.
(3) 50% of the Warrants and options vested on the Plan Effective Date. Of the
remaining 50%, 25% will vest on the first anniversary of the Plan Effective
Date, and 25% will vest on the second anniversary of the Plan Effective
Date.
(4) To be granted to employees (other than Messrs. Schlesinger and Rothschild)
from time to time, in such amounts, and subject to such terms (including
vesting), as management shall determine.
(5) The number of protective options that may be exercised by any holder shall
bear the same proportion (based on the total number of such options granted
to such holder) to the number of base options that have been exercised by
such holder (based on the total number of such options granted to such
holder).
Under the terms of the Stock Option Plan, the Company has available, in
addition to the shares of Common Stock reserved for issuance upon exercise of
the New Employee 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 New Employee Stock Options) of Common Stock for possible grants of additional
stock options from time to time after the Plan Effective Date if, and to the
extent, the Compensation Committee may determine that such
41
<PAGE>
additional grants would be in the best interest of the Company. On February 26,
1998, the Compensation Committee reserved 351,500 of the 375,000 shares of
Common Stock available for issuance upon exercise of New Employee Stock Options
granted by the Compensation Committee on such date to the Named Executive
Officers, the disinterested members of the Board and certain other senior and
middle level managers of the Company. Such New Employee 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.
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.
The following table contains the estimated annual benefit payable to Pension
Plan participants in the specified compensation and years of service categories
set forth therein.
PENSION PLAN TABLE (1)(3)
<TABLE>
<CAPTION>
YEARS OF SERVICE AT RETIREMENT(2)
------------------------------------------
FINAL AVERAGE EARNINGS 15 20 25 30
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
150,000................................................................ 20,302 27,070 33,837 40,604
200,000................................................................ 27,802 37,070 46,337 55,604
250,000................................................................ 35,302 47,070 58,837 70,604
300,000................................................................ 42,802 57,070 71,337 85,604
350,000................................................................ 50,302 67,070 83,837 100,604
400,000................................................................ 57,802 77,070 96,337 115,604
450,000................................................................ 65,302 87,070 108,837 130,604
500,000................................................................ 72,802 97,070 121,337 145,604
550,000................................................................ 70,302 107,070 133,837 160,604
600,000................................................................ 87,802 117,070 146,337 175,604
</TABLE>
- ------------------------
(1) Compensation covered by the Pension Plan includes all payments for personal
services as an employee of the Company other than deferrals under any
non-qualified plan of the Company.
(2) Credited years of service for the Named Executive Officers are as follows:
Alan R. Schlesinger (3 years); Loren R. Rothschild (3 years); Peter Aaron
(15 years); Debbie A. Brownfield (22.25 years); and E.H. Bulen (2 years).
(3) Benefits are based on the product of years of service multiplied by the sum
of (a) 0.5% of final average earnings PLUS (b) 0.5% of final average
earnings in excess of the average Social Security Wage Base ($29,304 for
1997). However, in the case of Peter Aaron's service prior to January 1,
1994 and Debbie Brownfield's service prior to January 1, 1995, benefits are
based on the product of years of service multiplied by the sum of (a) 1.00%
of final average earnings PLUS (b) 0.65% of final average earnings in excess
of the average Social Security Wage Base ($29,304 for 1997).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The determination of Fiscal 1996 executive compensation was made by the
Board of Directors.
EMPLOYMENT AGREEMENTS
Pursuant to the Plan of Reorganization, Messrs. Schlesinger and Rothschild
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
42
<PAGE>
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 of Reorganization, Mr. Schlesinger
received a $400,000 bonus, together with a grant of 800,237 New Employee 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 ninety days following the Plan Effective
Date, Mr. Rothschild's base salary will remain at $240,000 per year and,
thereafter, will be reduced to $150,000 per year, subject to a non-discretionary
annual cost of living adjustment reflecting the increase in the cost of living
since January 1, 1998. In addition, in connection with the Plan of
Reorganization, Mr. Rothschild received a $187,000 bonus, together with a grant
of 200,059 New Employee Stock Options and 3,811 Class C Warrants. See
"Management-- Options Granted Pursuant to the Plan of Reorganization."
If the Company terminates either executive's employment without "cause"
during the initial terms of the amended and restated employment agreements, such
executive will be entitled to receive, for a period of no less than 24 months in
the case of Mr. Schlesinger and for a period no less than 12 months in the case
of Mr. Rothschild, the base salary and guaranteed minimum bonus (if any) that
the executive would have received had such termination not occurred and to
continue to participate in all benefit plans and receive all other benefits to
which the executive was entitled at the time of the termination. The Company may
elect to pay the severance payments payable under the Schlesinger Employment
Agreement in a single lump sum equal to the present value of such payments at an
effective annual interest rate of 10%.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the General Corporation Law of the State of Delaware, a
Delaware corporation has the power, under specified circumstances, to indemnify
its directors, officers, employees and agents in connection with actions, suits
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against liabilities and expenses incurred in any
such action, suit or proceeding. Article VIII of the Company's Amended and
Restated Bylaws provides that the Company shall indemnify all persons that are
officers and directors of the Company on or after the Plan Effective Date to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware.
The officers and directors of the Company 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.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following tables set forth as of January 31, 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
New Employee Stock Options that become exercisable on the first date on which
the Aggregate Equity Trading Value equals or exceeds $20 million and that
portion of the vested Class C Warrants held by directors and executive officers
that are immediately exercisable, (b) shares of Common Stock issuable upon the
exercise of the Class A Warrants, and (c) with respect to the Class C Warrants
to be issued to the Surety, the Initial Shares. Shares beneficially owned does
not include (i) shares of Common Stock issuable upon the exercise of unvested
New Employee Stock Options or that portion of the vested New Employee Stock
Options and Class C Warrants held by directors and executive officers that
become exercisable on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million, (ii) shares of Common Stock issuable upon the
exercise of the Class B Warrants, and (iii) with respect to the Class C Warrants
to be issued to the Surety, the Adjustment Shares.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
-------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF CLASS A COMMON PERCENTAGE OF
STOCK CLASS
---------------------- -------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Alan R. Schlesinger........................................................... 480,143(1) 5.1%
Loren R. Rothschild........................................................... 120,036(1) 1.3%
Debbie A. Brownfield.......................................................... 48,038(1) *
E.H. Bulen.................................................................... 40,012(1) *
Gary A. Grossblatt............................................................ 24,007(1) *
All directors and executive officers as group (5 persons)..................... 712,236(1) 7.3%
5% STOCKHOLDERS
BEA Associates(2)............................................................. 550,069(3) 6.1%
153 East 53rd St., 57th Floor
New York, NY 10022
FMR Corp.(4).................................................................. 4,679,927(3) 44.0%
82 Devonshire Street
Boston, Massachusetts 02109
Specialty Investment I LLC(5)................................................. 3,200,949(6) 26.24%
40 Broad Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------------
* Percentage equal to less than 1%
(1) Represents shares of Common Stock issuable upon the exercise of (i) vested
New Employee Stock Options that become exercisable on the first date on
which the Aggregate Equity Trading Value equals or exceeds $20 million, and
(ii) that portion of the vested Class C Warrants held by directors and
executive officers that are immediately exercisable. Does not include shares
of Common Stock issuable upon the exercise of unvested New Employee Stock
Options or that portion of the vested New Employee Stock Options and Class C
Warrants held by directors and executive officers that become exercisable on
the first date on which the Aggregate Equity Trading Value equals or exceeds
$25 million. See "Management--Options Granted Pursuant to the Plan of
Reorganization." Also includes, in the case of Ms. Brownfield, 23 shares
issued upon cancellation of Old Common Stock.
(2) 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
44
<PAGE>
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.
(3) 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 initial
distributions under the Plan of Reorganization. Additional shares of Common
Stock, Class A Warrants and Class B Warrants may be distributed following
the resolution of pending claims filed against the Company during its
Chapter 11 case. Also includes shares of Common Stock issuable upon the
exercise of Class A Warrants that become exercisable on the first date on
which the Aggregate Equity Trading Value equals or exceeds $20 million. Does
not include 71,167 shares and 577,639 shares of Common Stock issuable upon
the exercise by BEA Associates and the entities described below in note 4,
respectively, of Class B Warrants, which become exercisable on the first
date on which the Aggregate Equity Trading Value equals or exceeds $25
million.
(4) Such shares are owned indirectly by FMR Corp., a Massachusetts corporation
("FMR"). Such shares are owned directly by (a) various portfolios of
investment companies (the "Fidelity Funds") registered under Section 8 of
the Investment Company Act of 1940, as amended, which are advised by
Fidelity Management & Research Company ("FMRC"), a wholly-owned subsidiary
of FMR and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, and (b) various private investment accounts
(the "Accounts") for which Fidelity Management Trust Company ("FMTC"), a
wholly-owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of
the Securities Exchange Act of 1934, acts as trustee or managing agent.
Edward C. Johnson 3d 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 3d family, such persons collectively own shares of
common stock of FMR representing approximately 49% of the voting power of
FMR.
(5) 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.
(6) Represents Initial Shares issuable upon the exercise of that portion of the
Class C Warrants that are immediately exercisable. Does not include the
Adjustment Shares issuable upon the exercise of that portion of the Class C
Warrants which become exercisable on the first date on which the Aggregate
Equity Trading Value equals or exceeds $25 million.
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
----------------------------------
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENTAGE OF CLASS
----------- ---------------------
<S> <C> <C>
5% STOCKHOLDERS
Specialty Investment I LLC(1) .............................. -- --
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.
45
<PAGE>
CERTAIN TRANSACTIONS
In connection with a recapitalization of the Company in October 1992 (the
"Recapitalization"), pursuant to which, among other things, the Company issued
an aggregate of $75 million in principal amount of its 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. The Voting Agreement was to terminate upon the earlier
of (i) October 30, 2002, or (ii) the date upon which at least 25% of the then
outstanding shares of Old Common Stock are publicly held pursuant to one or more
underwritten registered offerings of primary shares. Since the Petition Date,
none of the parties to the Voting Agreement has exercised its rights thereunder.
Lamonts' obligations under the Voting Agreement 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 of Reorganization 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 cancelled on the Plan Effective Date.
A former director of the Company is an affiliate of Morgens. Pursuant to the
Recapitalization, certain affiliates of Morgens received an aggregate of
approximately 16.7% (1,482,906 shares) of Old Common Stock outstanding
immediately following the Recapitalization in exchange for approximately $12.5
million in principal amount of Old 13 1/2% Notes. As holders of Old Common
Stock, certain affiliates of Morgens received 15,568 shares of Common Stock and
8,285 Class B Warrants under the Plan of Reorganization 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 cancelled on the Plan Effective
Date.
Pursuant to the Recapitalization, ELICNY received 898,406 shares of the Old
Common Stock and $7.8 million ($6.4 million after adjustment for the Company's
capital infusion and debt reduction plan (the "Infusion") in December 1993) in
principal amount of the Old 10 1/4% Notes. As a result of the commencement of
the Chapter 11 case, the Company has paid ELICNY no cash interest on the Old
10 1/4% Notes since the Petition Date. As a holder of Old Common Stock and of
Old 10 1/4% Notes, ELICNY received 341,931 shares of Common Stock, 208,138 Class
A Warrants and 71,167 Class B Warrants pursuant to the initial distributions
under the Plan of Reorganization. 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
cancelled on the Plan Effective Date.
46
<PAGE>
In connection with the Infusion, certain funds and accounts managed or
advised by the Fidelity Funds, the holders of those Old 10 1/4% Notes which are
not owned by ELICNY, became the holders of more than 5% of the Company's Old
Common Stock. Accordingly, the Company has reflected the entire amount of the
Old 10 1/4% Notes as related party debt for all periods presented. During Fiscal
1994, the Company paid the Fidelity Funds $6.9 million of cash interest on the
Old 10 1/4% Notes. In addition, at October 29, 1994, the Company had accrued
$3.6 million of interest on the Old 10 1/4% Notes, which was subsequently issued
to the Fidelity Funds in additional securities of the Company as interest paid
in kind. As a result of the commencement of the Chapter 11 case, the Company has
paid no interest to the Fidelity Funds on the Old 10 1/4% Notes since the
Petition Date. As a holder of Old Common Stock and of Old 10 1/4% Notes, the
Fidelity Funds received 2,880,683 shares of Common Stock, 1,799,244 Class A
Warrants and 577,639 Class B Warrants pursuant to the initial distributions
under the Plan of Reorganization. The Fidelity Funds 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 the Fidelity Funds were cancelled on the Plan Effective Date.
As required by the BankBoston Facility and in partial exchange for its
administrative claim, pursuant to the Plan of Reorganization, 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.
In connection with the Plan of Reorganization, the Company entered into a
Grant of Registration Rights in favor of the Fidelity Funds and the Surety,
pursuant to which, subject to certain exceptions, the Company has agreed to keep
the Registration Statement of which this Prospectus is a part continuously in
effect until no securities registerable under the Grant of Registration Rights
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. See "Description of Capital Stock--Registration Rights."
The Company believes that, to the extent applicable, none of the
transactions described above were on terms less favorable to the Company than
those available from unaffiliated parties offering comparable goods and
services.
47
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth certain information, as of the Plan Effective
Date, regarding the Class A Warrants, the Class B Warrants, the Class C Warrants
and the shares of Common Stock held by the Selling Security Holders named below
(including shares issuable upon exercise of the Warrants), all of which are
being offered by this Prospectus. It is anticipated that the Selling Security
Holders will offer and sell the shares of Common Stock and/or Warrants offered
by them hereby as principals or through one or more brokers, dealers or agents
from time to time in one or more transactions. As of the date of this
Prospectus, to the knowledge of the Company, none of the Selling Security
Holders own any other shares of Common Stock or Warrants of the Company.
Each Class A Warrant and Class B Warrant is initially exercisable for the
purchase of one share of Common Stock at an exercise price per share of $.01.
Each Class C Warrant is initially exercisable for the purchase of 14 shares of
Common Stock at an exercise price of $1.25 per share and 1 share of Common Stock
at an exercise price of $.01 per share.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
SHARES OF CLASS A
NUMBER OF NUMBER OF NUMBER OF CLASS A COMMON STOCK
CLASS A CLASS B CLASS C COMMON BENEFICIALLY
WARRANTS WARRANTS WARRANTS STOCK OWNED UPON
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICALLY EXERCISE OF
SELLING HOLDER(1)(2): OWNED(3) OWNED(3) OWNED(3) OWNED(3) WARRANTS(3)
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Fidelity Capital & Income Fund(4).................... 568,087 182,262 909,297 750,349
Fidelity Asset Manager(4)............................ 398,808 126,745 635,930 525,553
Fidelity Magellan Fund(4)............................ 267,667 85,067 426,817 352,734
Spartan High Income Fund(4).......................... 93,672 32,910 155,648 126,582
Fidelity Puritan Fund(4)............................. 93,671 30,051 149,927 123,722
Variable Insurance Products Fund II: Assets Manager
Portfolio(4)....................................... 85,641 27,218 136,562 112,859
Variable Insurance Products Fund: High Income
Portfolio(4)....................................... 66,927 21,470 107,122 88,397
Fidelity Advisor High Yield Fund(4).................. 66,927 21,470 107,122 88,397
General Motors Employees Domestic Group Pension
Trust(4)........................................... 48,982 15,713 78,398 64,695
Fidelity Asset Manager: Growth(4).................... 48,179 15,312 76,826 63,491
Illinois Municipal Retirement Fund Master Trust(4)... 36,375 11,669 58,220 48,044
Illinois State Board of Investments(4)............... 12,848 4,083 20,487 16,931
Pensions Reserves Investment Management Board(4)..... 5,321 1,707 8,516 7,028
Fidelity High Yield Bond Collective Trust(4)......... 3,464 1,112 5,545 4,576
Fidelity Global Asset Allocation Fund(4)............. 2,675 850 4,266 3,525
Specialty Investment I LLC........................... 228,639 3,429,588
----------- ----------- ----------- ----------- ------------
Total................................................ 1,799,244 577,639 228,639 2,880,683 5,806,471
</TABLE>
- ------------------------------
(1) The Company executed a Grant of Registration Rights in favor of the Selling
Security Holders (see "Description of Capital Stock--Registration Rights")
and the Surety is the guarantor of the Company's Term Loan. No other
relationships currently exist between the Company, on the one hand, and the
Selling Security Holders, on the other hand. For a description of certain
relationships that existed between the Company and the Fidelity Funds prior
to the Plan Effective Date, see "Certain Transactions."
(2) For a description of the natural persons that beneficially own significant
and/or controlling interests in the Selling Security Holders, see "Principal
Stockholders."
(3) The numbers of shares of Common Stock and Warrants (and the shares issuable
upon the exercise of such Warrants) that are being offered by this
Prospectus correspond to the total numbers of such shares of Common Stock
and Warrants that were received by the Selling Security Holders pursuant to
the initial distributions under the Plan of Reorganization. The Company
contemplates effecting one or more subsequent distributions of Common Stock,
Class A Warrants and Class B Warrants following the resolution of pending
claims filed against the Company during its Chapter II case. The company
intends to file a post-effective amendment updating the amount of shares of
Common Stock and Warrants covered by this Prospectus after such
distributions occur.
(4) These investment companies and private investment accounts are indirectly
owned by FMR. See note 4 under "Principal Stockholders."
48
<PAGE>
PLAN OF DISTRIBUTION
It is anticipated that the Selling Security Holders will offer and sell the
shares of Common Stock and/ or Warrants offered by them hereby as principals or
through one or more brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) on any
exchange or in the over-the-counter market, or (ii) in transactions otherwise
than in the over-the-counter market. The Selling Security Holders may from time
to time offer such securities through brokers, dealers or agents who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Security Holders and/or the purchasers of the securities
offered hereby for whom they may act as agent (which discounts, concessions or
commissions as to particular brokers, dealers or agents may be in excess of
those customary in the types of transactions involved). The Selling Security
Holders and any brokers, dealers or agents that participate in the distribution
of securities may be deemed to be an "underwriter" as that term is defined by
the Securities Act, and any profit on the sale of securities by them and any
discounts, concessions or commission received by any such brokers, dealers or
agents may be deemed to be underwriting discounts and commissions under the
Securities Act. However, the Company and such persons disclaim that any such
person is an underwriter of the Common Stock or Warrants. The Company is not
aware of any arrangements with any underwriters, brokers, dealers or agents with
respect to a sale of the securities offered hereby. At any time a particular
offer of Common Stock or Warrants is made, if required, a Prospectus Supplement
will be distributed that will set forth the aggregate amount of such securities
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions and other items
constituting compensation from the Selling Security Holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. Such
Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part will be filed with the
Commission to reflect the disclosure of additional information with respect to
the distribution of such securities.
No director, officer or agent of the Company is expected to be involved in
soliciting offers to purchase the securities offered hereby, and no such person
will be compensated by the Company for the sale of any of such securities.
Certain officers of the Company may assist representatives of the Selling
Security Holders in such efforts but will not be compensated therefor.
The securities offered hereby (other than the Common Stock issuable by the
Company upon exercise of the Warrants, which will be sold by the Company at the
exercise price of the Warrants) may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Selling Security Holders or by agreement between the
Selling Security Holders and underwriters or dealers.
To comply with the securities laws of certain jurisdictions, the securities
offered hereby will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the securities offered hereby may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company is 50,000,000 and consists of
39,999,990 shares of Common Stock, 10 shares of Class B Common Stock and 10
million shares of preferred stock, $.01 par value per share (the "Preferred
Stock").
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no stockholder has any right to
convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of Common Stock are, and all shares of Common Stock offered hereby will
be, when issued and paid for, fully paid and nonassessable.
Subject to rights of holders of Preferred Stock, if any, the holders of
shares of Common Stock are entitled to dividends when, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to stockholders. The Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future. See "Restrictions on Common Stock Dividends."
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 3/4 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 Class B Common Stock representing all of the authorized and
outstanding Class B Common Stock. See "Description of Certain Indebtedness."
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,
50
<PAGE>
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of such
class or series and as may be permitted by the General Corporation Law of the
State of Delaware, including, without limitation, the authority to provide that
any such class or series may be (a) subject to redemption at such time or times
and at such price or prices; (b) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (c) entitled to such
rights upon the dissolution of, or upon any distribution of the assets of, the
Company; or (d) convertible into, or exchangeable for, shares of any other class
or classes of stock, or of any other series of the same or any other class or
classes of stock, of the Company at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution or
resolutions. Because the Board of Directors has the power to establish the
preferences and rights attributable to the Preferred Stock, it may afford the
holders of any Preferred Stock preferences, powers and rights (including voting
rights) senior to the rights of the holders of Common Stock. No shares of
Preferred Stock are currently outstanding. Although the Company has no present
intention to issue shares of Preferred Stock, the issuance of shares of
Preferred Stock, or the issuance of rights to purchase such shares, may have the
effect of delaying, deferring or preventing a change in control of the Company.
See "Risk Factors-- Antitakeover Effect of Blank Check Preferred Stock."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock and the Warrants is
Norwest Bank, Minnesota, N.A.
REGISTRATION RIGHTS
In connection with the Plan of Reorganization, the Company executed and
delivered the Grant of Registration Rights in favor of certain parties pursuant
to which the Company agreed to file the shelf registration statement of which
this Prospectus is a part. The Company shall use reasonable best efforts to
cause this shelf registration to remain continuously effective for a period
ending on the date on which no securities registerable under the Grant of
Registration Rights are outstanding. The Company will pay all expenses (other
than underwriting fees, discounts or commissions) in connection with all such
registrations. The Grant of Registration Rights also provides for certain
piggyback registration rights. In the event such Registration Statement is not
effective within 45 days after the Plan Effective Date, or a stop order is
imposed prior to the effectiveness of the Registration Statement, or, except as
permitted by Section 5 of the Grant of Registration Rights, the effectiveness
thereof is suspended, or, in the case of a suspension permitted by such Section
5, such suspension exceeds the length of time permitted by such section, the
Company will be required to pay liquidated damages to the Selling Security
Holders. Such liquidated damages shall begin to accrue as set forth below and,
in each case, shall be in an amount equal to: (i) $.10 per 500 shares of Common
Stock (or, in the case of Warrants, per 500 shares issuable upon exercise of
such Warrants) per week for the first ninety (90) days; (ii) $.20 per 500 shares
of Common Stock (or, in the case of Warrants, per 500 shares issuable upon
exercise of such Warrants) per week for the next ninety (90) days; and (iii)
$.30 per 500 shares of Common Stock (or, in the case of Warrants, per 500 shares
issuable upon exercise of such Warrants) per week thereafter. The liquidated
damages shall begin to accrue on the date the Registration Statement is required
to become effective, on the date such stop order is imposed, in the case of
suspensions other than those permitted by Section 5 of the Grant of Registration
Rights, on the date of such suspension and, in the case of suspensions permitted
by such Section 5, on the date on which such suspension failed to comply with
such section, as applicable.
51
<PAGE>
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 of
Reorganization pursuant to a Warrant Agreement (the "Class A/ B Warrant
Agreement") entered into between the Company and the Warrant Agent named
therein. The Class A Warrants are exercisable, in whole or in part, on the first
date on which the Aggregate Equity Trading Value equals or exceeds $20 million
and, if not previously exercised, expire on the tenth anniversary of the Plan
Effective Date. The Class B Warrants are exercisable, in whole or in part, on
the first date on which the Aggregate Equity Trading Value equals or exceeds $25
million and, if not previously exercised, expire on the tenth anniversary of the
Plan Effective Date. The current exercise price for the Class A Warrants and the
Class B Warrants is $.01 per share.
The number and type of securities issuable upon exercise of the Class A
Warrants and the Class B Warrants and the exercise price payable upon exercise
thereof are subject to customary anti-dilution protection in the event of (a)
stock dividends, subdivisions, combinations, and reclassifications affecting the
Common Stock, (b) issuances of rights, options, or warrants to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock (or
securities convertible into Common Stock) at a price per share of Common Stock
(or having a conversion price per share of Common Stock, if a security
convertible into Common Stock) less than the fair market value per share of
Common Stock, (c) distributions to all holders of Common Stock of evidences of
indebtedness or assets, including capital stock other than Common Stock, or
subscription rights, options or warrants (other than cash dividends or cash
distributions payable out of consolidated earnings or earned or capital surplus
or dividends payable in Common Stock); and (d) subject to certain exceptions,
issuances to any Affiliate (as defined in the Class A/B Warrant Agreement),
officer, director or employee of the Company of Common Stock or rights, options
or warrants to purchase Common Stock (or securities convertible into Common
Stock) at a price per share of Common Stock (or having a conversion price per
share of Common Stock, if a security convertible into Common Stock) less than
the Closing Price (as defined in the Class A/B Warrant Agreement) per share of
Common Stock on the date of issuance.
In addition to the foregoing provisions, if the Company at any time
consolidates with or merges with or into another corporation or the property of
the Company is sold substantially as an entirety, the holder of any outstanding
Class A Warrant or Class B Warrant would be entitled to receive, upon the
exercise thereof in accordance with its terms, the securities, property, or cash
to which the holder of the number of shares of Common Stock deliverable upon the
exercise of such Class A Warrant or Class B Warrant immediately prior to such
transaction would have been entitled upon such transaction.
CLASS C WARRANTS
254,043 Class C Warrants to purchase an aggregate of 3,810,653 shares of
Common Stock have been or will be issued by the Company in accordance with the
Plan of Reorganization 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 have been or will be distributed as
follows: (i) 228,639 Class C Warrants to purchase an aggregate of 3,429,588
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 381,065 shares of Common Stock have been or will be distributed to
the holders of New Employee Stock Options. The Class C Warrants are exercisable,
in whole or in part, as follows: (a) at any time after the date of issuance
thereof and until the fourth anniversary of the Plan Effective Date, the Class C
Warrants are exercisable for an aggregate of 3,556,610 shares of Common Stock at
an exercise price of $1.25 per share; and (b) at any time after the first date
on which the Aggregate Equity Trading Value equals or exceeds $25 million and
until the tenth anniversary of the Plan Effective Date, the Class C Warrants are
exercisable for an aggregate of 254,043
52
<PAGE>
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 in the event of (a)
stock dividends, subdivisions and combinations; (b) subject to certain
exceptions, issuances to any person of Additional Stock (as defined) which is
common Stock (or Convertible Securities (as defined) convertible into common
Stock) at a price per share of such Stock (or having a conversion price per
share of such Stock, if a security convertible into such Stock) which is less
than (i) with respect to any such issuance incident to the consolidation or
merger of the Company with, or the sale, lease or transfer of all or
substantially all the Company's assets to, the Merger Party (as defined in the
Class C Warrant Agreements) (or in connection with a financing related to any
such transaction), the Fair Market Value of a share of common Stock, and (ii)
with respect to any other such issuance, (A) on or prior to the first date on
which the Aggregate Equity Trading Value equals or exceeds $20 million, the
greater of the exercise price and the Fair Market Value per share of common
Stock and (B) after the first date on which the Aggregate Equity Trading Value
equals or exceeds $20 million, the Fair Market Value per share of common Stock;
and (c) subject to certain exceptions, issuances to any person of Additional
Stock which is not subject to adjustments required under (b) above at a price
per share of such stock which is less than Fair Market Value per share of such
capital stock. If the Company consummates a consolidation or merger with, or the
sale, lease or transfer of all or substantially all its assets to, the Merger
Party within one year of the Plan Effective Date, the exercise price for each
share of Common Stock purchasable upon exercise of the Class C Warrants shall be
increased by 25% and the expiration date for such warrant shall be extended by
one year.
In addition to the foregoing provisions, if the Company at any time
consolidates with or merges with or into another corporation (whether or not
such corporation is the Merger Party) or the property of the Company is sold
substantially as an entirety, the holder of any outstanding Class C Warrant
would be entitled to receive, upon the exercise thereof in accordance with its
terms, the securities, property, or cash to which the holder of the number of
shares of Common Stock deliverable upon the exercise of such Class C Warrant
immediately prior to such transaction would have been entitled upon such
transaction.
GORDIAN WARRANTS
As part of the compensation to Gordian 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 amount of shares of Common Stock equal to
200,000 divided by the Normalized Share Price (as defined below). The Gordian
Warrants are immediately exercisable upon issuance thereof and, if not
previously exercised, expire 5 years from their issuance date. The exercise
price for the Gordian Warrants is the Normalized Share Price per share. The
"Normalized Share Price" is equal to the average of the "Closing Prices" of the
Common Stock for the 45 trading days commencing on the 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.
53
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has entered into the Loan Agreement, pursuant to which
BankBoston is providing Lamonts with up to a $42 million Revolver and Term Loan
on the terms and conditions set forth in the Loan Agreement. The BankBoston
Facility consists of: (i) a revolving line of credit with a maximum borrowing
capacity of $32 million; and (ii) a term loan in the amount of $10 million. The
Term Loan has been guarantied by the Surety. Pursuant to, and on the terms and
conditions set forth in the Loan Agreement, BankBoston is obligated to make
loans and advances to Lamonts on a revolving basis, and to issue letters of
credit to or for the account of Lamonts (with a sublimit for letters of credit
of $3 million) in an aggregate outstanding amount (net of repayments) not to
exceed the lesser of $32 million and a borrowing base approximately equal to 65%
(subject to adjustment and reserve) 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 or, if
earlier, upon maturity (including, as a result of acceleration, mandatory
prepayment or otherwise) of the Term Loan. The Term Loan will mature December
26, 1999, or, if earlier, upon maturity (including, as a result of acceleration,
mandatory prepayment or otherwise) of the Revolver. Lamonts will have the option
to extend the maturity date of the Term Loan for two additional one-year periods
(subject to earlier maturity upon maturity of the Revolver), on the terms and
conditions set forth in the Loan Agreement and upon payment of 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. See "Risk Factors--High Leverage."
Lamonts' borrowings under both the Revolver and the Term Loan bear interest
at a floating rate of 1.50% above the Base Rate or, at Lamonts' option, at 2.75%
above 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. See "Risk Factors--High
Leverage." The default rate of interest under the Revolver is 3% above the Base
Rate. The default rate of interest under the Term Loan prior to maturity is 7%
above the non-default rate otherwise applicable, and after maturity is 7% above
the non-default rate applicable to loans measured by the Base Rate.
A facility fee in respect of the Revolver 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 the closing fee in the amount of $500,000 that Lamonts
paid at the closing of the Term Loan on September 26, 1997, an additional
closing fee in respect of the Term Loan, calculated at the rate of 5% per annum
applied to the average daily principal balance of the Term Loan outstanding
after September 26, 1998, is payable at the times and in the manner set forth in
the Loan Agreement. If the options to extend the maturity date of the Term Loan
are exercised, extension fees calculated at the rate of 5% per annum applied to
the average daily principal balance of the Term Loan outstanding during the
applicable extension period will be payable at the times and in the manner set
forth in the Loan Agreement.
Advances by BankBoston under the BankBoston Facility are secured by all real
and personal property, rights, and assets of Lamonts, including, without
limitation, real estate leasehold interests, but excluding any proceeds of
bankruptcy causes of action under sections 544 through 550 of the Bankruptcy
Code and
54
<PAGE>
proceeds from a special account established for unpaid professional fees. See
"Risk Factors--Assets of the Company Secure BankBoston Facility."
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 by
Specialty Investment I LLC, the Surety, 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 "Description of Capital
Stock--Class B Common Stock" for a description of the special voting rights of
the Class B Common Stock.
The Loan Agreement contains, among 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 of Reorganization, (v) certain purchase money indebtedness limited to
50% of permitted capital expenditures, and (vi) unsecured indebtedness in
respect of the limited recourse arrangements under the Alliance Agreement,
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
of Reorganization, (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 of Reorganization; (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 the Company's 1997 fiscal year, 1998 fiscal year,
1999 fiscal year 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.
55
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax considerations for
original purchasers of the Warrants and is for general information purposes
only. This summary is based on the Federal income tax law now in effect, which
is subject to change, possibly retroactively. This summary does not discuss all
aspects of Federal income taxation which may be important to particular holders
of the Warrants in light of their individual investment circumstances, including
holders subject to special tax rules (E.G., financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, and foreign
taxpayers). In addition, this summary does not address state, local or foreign
tax consequences. This summary assumes that holders will hold their Warrants and
the Common Stock received upon the exercise of such Warrants, as "capital
assets" (generally, property held for investment) under the Code. Purchasers of
the Warrants are urged to consult their tax advisors regarding the specific
Federal, state, local, and foreign income and other tax consequences of
purchasing, exercising, and disposing of the Warrants.
CHARACTERIZATION OF THE WARRANTS. The Federal income tax consequences of
the purchase, exercise and disposition of the Warrants will depend, to some
extent, on whether or not they are viewed, for Federal income tax purposes, as
equivalent to common stock. There is no authority directly dealing with this
issue. Because of the nominal exercise price for the Class A Warrants and the
Class B Warrants, the Company believes that such Warrants should be treated as
issued and outstanding shares of Common Stock for Federal income tax purposes.
EXERCISE. Whether or not the Warrants are treated as stock for Federal
income tax purposes, upon the exercise of a Warrant, a holder will not recognize
gain or loss and will have a tax basis in the Common Stock received equal to the
tax basis in such holder's Warrant plus the exercise price thereof. A holder of
a Class C Warrant should consult his tax advisor regarding whether his tax basis
in such Warrant should be apportioned between the Initial Shares and the
Adjustment Shares upon the exercise of the Warrant for the Initial Shares or,
alternatively, upon the exercise of the Warrant for the Adjustment Shares. The
holding period for the Common Stock acquired pursuant to the exercise of a
Warrant will begin on the day following the date of exercise and will not
include the period that the holder held his Warrant.
DISPOSITION. Whether or not the Warrants are treated as stock for Federal
income tax purposes, upon a sale, exchange, or other disposition of a Warrant, a
holder will recognize a capital gain or loss in an amount equal to the
difference between the amount realized and the holder's adjusted tax basis in
the Warrant. Under recently-enacted legislation, net capital gain (generally,
capital gain in excess of capital loss) recognized by an individual holder upon
the disposition of Warrants that have been held for more than 18 months will
generally be subject to tax at a rate not to exceed 20%. Net capital gain
recognized by an individual holder upon the disposition of Warrants that have
been held for more than 12 months but for not more than 18 months will continue
to be subject to tax at a rate not to exceed 28%, and net capital gain
recognized upon the disposition of Warrants that have been held for 12 months or
less will continue to be subject to tax at ordinary income tax rates. In
addition, capital gain recognized by a corporate holder will continue to be
subject to tax at the ordinary income tax rates applicable to corporations.
LAPSE OF WARRANTS. Whether or not the Warrants are treated as stock for
Federal income tax purposes, in the event that a Warrant lapses unexercised, a
holder will recognize a capital loss in an amount equal to his tax basis in the
Warrant. Such loss will be long-term if the holding period of the Warrant is
more than 18 months.
ADJUSTMENT TO EXERCISE PRICE. If at any time the Company makes a
distribution of property to shareholders that would be taxable to such
shareholders as a dividend for Federal income tax purposes and, in accordance
with the antidilution provisions of the Warrants, the exercise price is
decreased, the amount of such decrease may be deemed to be the payment of a
taxable dividend to holders of the Warrants. For example, a decrease in the
exercise price in the event of distributions of cash or indebtedness
56
<PAGE>
of the Company will generally result in deemed dividend treatment to holders,
but generally a decrease in the event of stock dividends or the distribution of
rights to subscribe for shares of Common Stock will not.
EXPERTS
The consolidated balance sheets as of February 1, 1997, February 3, 1996 and
January 28, 1995 and the consolidated statements of operations, changes in
stockholders deficit and cash flows for the 52 weeks ended February 1, 1997, 53
weeks ended February 3, 1996, quarter ended January 28, 1995 and the 52 weeks
ended October 29, 1994 included in this Prospectus have been included herein in
reliance on the report, which includes an explanatory paragraph that describes
an uncertainty regarding Lamonts Apparel, Inc.'s ability to continue as a going
concern and recover the carrying amounts of its assets, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angels, California.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FISCAL YEAR FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-1
Consolidated Balance Sheets--February 1, 1997, February 3, 1996 and January 28, 1995....................... F-2
Consolidated Statements of Operations for the 52 weeks ended February 1, 1997, 53 weeks ended February 3,
1996, Quarter ended January 28, 1995 and 52 weeks ended October 29, 1994................................. F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the 52 weeks ended February 1,
1997, 53 weeks ended February 3, 1996, Quarter ended January 28, 1995 and 52 Weeks Ended October 29,
1994..................................................................................................... F-4
Consolidated Statements of Cash Flows for the 52 weeks ended February 1, 1997, 53 weeks ended February 3,
1996, Quarter ended January 28, 1995 and the 52 weeks ended October 29, 1994............................. F-5
Notes to Consolidated Financial Statements................................................................. F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets--November 1, 1997 and November 2, 1996......................................... F-28
Consolidated Statements of Operations and Accumulated Deficit for the quarter ended November 1, 1997 and
November 2, 1996......................................................................................... F-29
Consolidated Statements of Operations and Accumulated Deficit for the nine months ended November 1, 1997
and November 2, 1996..................................................................................... F-30
Consolidated Statements of Cash Flows for the nine months ended November 1, 1997 and November 2, 1996...... F-31
Notes to the Consolidated Financial Statements............................................................. F-32
</TABLE>
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheets of Lamonts
Apparel, Inc. (Debtor-in-Possession) as of February 1, 1997, February 3, 1996,
and January 28, 1995 and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the 52 weeks ended February
1, 1997, 53 weeks ended February 3, 1996, Quarter ended January 28, 1995 and the
52 weeks ended October 29, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lamonts Apparel, Inc. (Debtor-in-Possession) as of February 1, 1997, February 3,
1996, and January 28, 1995 and the results of its operations and its cash flows
for the 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996,
Quarter ended January 28, 1995 and the 52 weeks ended October 29, 1994, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations. As discussed in Note 1 of the notes
to the consolidated financial statements, on January 6, 1995, the Company filed
a voluntary petition for relief under Chapter 11 of Title 11 of the United
States Code. Further, as more fully described in Note 1, claims substantially in
excess of amounts reflected as liabilities in the consolidated financial
statements have been asserted against the Company as a result of the
reorganization proceedings. The validity of these claims, as well as the amount
and manner of payment of all valid claims, will ultimately be determined by the
Bankruptcy Court. As a result of the reorganization proceedings, the Company may
sell or otherwise realize assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further,
the confirmation of a Plan or Reorganization could materially change the amounts
currently recorded in the consolidated financial statements. These matters raise
substantial doubt about the Company's ability to continue as a going concern and
recover the carrying amounts of its assets. Management's plans in regard to
these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Seattle, Washington
March 28, 1997
F-1
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash..................................................................... $ 2,066 $ 1,581 $ 7,972
Receivables, net......................................................... 1,595 2,458 3,050
Inventories.............................................................. 37,559 30,401 28,399
Prepaid expenses and other............................................... 1,528 2,076 5,517
Restricted cash and deposits............................................. 714 1,058 532
----------- ----------- -----------
Total current assets................................................. 43,462 37,574 45,470
Property and equipment..................................................... 30,653 42,083 51,924
Leasehold interests........................................................ 3,477 4,570 5,058
Excess of cost over net assets acquired.................................... 11,591 13,278 13,639
Deferred financing costs................................................... 1,989 2,713 3,436
Restricted cash and deposits............................................... 1,142 1,278 256
Other assets............................................................... 958 865 486
----------- ----------- -----------
Total assets......................................................... $ 93,272 $ 102,361 $ 120,269
----------- ----------- -----------
----------- ----------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility.......................................... $ 23,141 $ 20,334 $ --
Borrowings under working capital facility.............................. -- -- 15,838
Accounts payable....................................................... 13,578 8,417 1,754
Accrued payroll and related costs...................................... 2,285 2,396 2,913
Accrued taxes.......................................................... 812 821 455
Accrued interest....................................................... 616 207 336
Accrued store closure costs............................................ 1,050 3,254 2,951
Other accrued expenses................................................. 5,325 4,393 5,198
Current maturities of obligations under capital leases................. 12 -- --
----------- ----------- -----------
Total current liabilities............................................ 46,819 39,822 29,445
Obligations under capital leases......................................... 2,846 -- --
Other.................................................................... 302 250 --
----------- ----------- -----------
Total liabilities not subject to settlement under reorganization
proceedings........................................................ 49,967 40,072 29,445
----------- ----------- -----------
Liabilities subject to settlement under reorganization proceedings:
Related party.......................................................... 67,600 67,576 67,576
Other.................................................................. 35,258 37,269 40,757
----------- ----------- -----------
102,858 104,845 108,333
----------- ----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value; 40,000,000 shares authorized; 17,900,053,
17,899,549, and 17,887,775 shares issued and outstanding,
respectively........................................................... 179 179 179
Additional paid-in-capital............................................... 62,972 62,921 62,843
Minimum pension liability adjustment..................................... -- (250) --
Accumulated deficit...................................................... (122,704) (105,406) (80,531)
----------- ----------- -----------
Total stockholders' deficit............................................ (59,553) (42,556) (17,509)
----------- ----------- -----------
Total liabilities and stockholders' deficit.......................... $ 93,272 $ 102,361 $ 120,269
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS QUARTER 52 WEEKS
ENDED ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues...................................... $ 203,602 $ 199,548 $ 71,014 $ 237,922
Cost of merchandise sold...................... 130,480 131,677 60,587 163,697
--------------- --------------- --------------- ---------------
Gross profit................................ 73,122 67,871 10,427 74,225
--------------- --------------- --------------- ---------------
Operating and administrative expenses......... 67,173 71,372 22,400 88,520
Depreciation and amortization................. 7,999 9,232 2,666 11,441
Impairment of long-lived assets............... 4,170 -- -- --
Store closure costs........................... -- -- -- 7,200
--------------- --------------- --------------- ---------------
Operating costs............................. 79,342 80,604 25,066 107,161
--------------- --------------- --------------- ---------------
Loss from operations before other income
(expense), reorganization expenses and
income tax benefit.......................... (6,220) (12,733) (14,639) (32,936)
Other income (expense):
Interest expense:
Cash (contractual interest of $13.7
million, $13.8 million and $3.6 million
during 1996, 1995 and January Quarter,
respectively)........................... (5,053) (5,098) (1,356) (8,130)
Non-cash.................................. -- -- (1,670) (3,490)
Other income (expense)...................... 12 196 29 (369)
--------------- --------------- --------------- ---------------
Loss from operations before reorganization
expenses and income tax benefit............. (11,261) (17,635) (17,636) (44,925)
Reorganization expenses....................... 6,037 7,240 7,499 --
--------------- --------------- --------------- ---------------
Loss before income tax benefit................ (17,298) (24,875) (25,135) (44,925)
Income tax benefit............................ -- -- -- (400)
--------------- --------------- --------------- ---------------
Net loss...................................... $ (17,298) $ (24,875) $ (25,135) $ (44,525)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net loss per common share..................... $ (0.97) $ (1.39) $ (1.41) $ (3.05)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL MINIMUM PENSION
PREFERRED COMMON PAID-IN LIABILITY ACCUMULATED
STOCK STOCK CAPITAL ADJUSTMENT DEFICIT
----------- ----------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 30, 1993........................ $ -- $ 89 $ 46,990 $ -- $ (10,871)
Net loss for the 52 weeks ended October 29,
1994......................................... -- -- -- -- (44,525)
Issuance of Series A Preferred stock pursuant
to the Infusion, net of issuance cost........ 45 -- 12,990 -- --
Conversion of Series A Preferred Stock into
Common Stock................................. (45) 89 (44) -- --
Options exercised.............................. -- 1 -- -- --
Issuance of warrants........................... -- -- 2,205 -- --
Compensation expense related to stock option
plan......................................... -- -- 636 -- --
----- ----- ----------- ----- ------------
Balance, October 29, 1994........................ -- 179 62,777 -- (55,396)
Net loss for the quarter ended January 28,
1995......................................... -- -- -- -- (25,135)
Compensation expense related to stock option
plan......................................... -- -- 66 -- --
----- ----- ----------- ----- ------------
Balance, January 28, 1995........................ -- 179 62,843 -- (80,531)
Net loss for the 53 weeks ended February 3,
1996......................................... -- -- -- -- (24,875)
Compensation expense related to stock option
plan......................................... -- -- 78 -- --
Minimum pension liability adjustment........... -- -- -- (250) --
----- ----- ----------- ----- ------------
Balance, February 3, 1996........................ -- 179 62,921 (250) (105,406)
Net loss for the 52 weeks ended February 1,
1997......................................... -- -- -- -- (17,298)
Compensation expense related to stock option
plan......................................... -- -- 51 -- --
Minimum pension liability adjustment........... -- -- -- 250 --
----- ----- ----------- ----- ------------
Balance, February 1, 1997........................ $ -- $ 179 $ 62,972 $ -- $ (122,704)
----- ----- ----------- ----- ------------
----- ----- ----------- ----- ------------
</TABLE>
F-4
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED QUARTER ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (17,298) $ (24,875) $ (25,135) $ (44,525)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities before
reorganization items:
Depreciation and amortization.................... 7,999 9,232 2,666 11,441
Impairment of long-lived assets.................. 4,170 -- -- --
Store closure costs charged to operations........ -- -- -- 6,129
Non-cash interest, including interest
paid-in-kind and amortization of debt
discount....................................... -- -- 1,670 3,490
Income taxes..................................... -- -- -- (400)
Stock option expense............................. 51 78 66 636
Net realizable value adjustment to inventory..... -- 500 -- 10,000
Decrease (increase) in long term restricted cash
and deposits................................... 137 (1,022) -- --
Other............................................ (562) (1,425) (950) 473
Net change in current assets and liabilities..... (2,621) 4,895 31,186 7,342
Reorganization expenses.......................... 6,037 7,240 7,499 --
--------------- --------------- ------------- ---------------
Net cash provided (used) by operating
activities before reorganization expenses.... (2,087) (5,377) 17,002 (5,414)
Operating cash flows used by reorganization
expenses:
Payment for professional fees or other expenses
related to the Chapter 11 proceedings.......... (3,241) (2,475) (1,872) --
--------------- --------------- ------------- ---------------
Net cash provided (used) by operating
activities................................... (5,328) (7,852) 15,130 (5,414)
--------------- --------------- ------------- ---------------
Cash flows from investing activities:
Capital expenditures............................. (699) (1,343) (694) (3,889)
Proceeds from sale of assets..................... 4,459 -- -- --
Other............................................ 90 (448) (3) 228
--------------- --------------- ------------- ---------------
Net cash provided (used) by investing
activities................................... 3,850 (1,791) (697) (3,661)
--------------- --------------- ------------- ---------------
Cash flows from financing activities:
Pre-petition borrowings under working capital
facility....................................... -- -- 26,667 194,768
Pre-petition payments under working capital
facility....................................... -- -- (35,422) (183,875)
Post-petition borrowings under working capital
facility....................................... 255,174 244,178 -- --
Post-petition payments under working capital
facility....................................... (252,367) (239,682) -- --
Principal payments on obligations under capital
leases......................................... (778) (1,183) (373) (1,484)
Payments of financing costs...................... -- -- -- (805)
Proceeds from sale of preferred stock............ -- -- -- 13,399
Payment of long term debt........................ -- -- -- (13,000)
Other............................................ (66) (61) (27) (159)
--------------- --------------- ------------- ---------------
Net cash provided (used) by financing
activities................................... 1,963 3,252 (9,155) 8,844
--------------- --------------- ------------- ---------------
Net increase (decrease) in cash.................... 485 (6,391) 5,278 (231)
Cash, beginning of period.......................... 1,581 7,972 2,694 2,925
--------------- --------------- ------------- ---------------
Cash, end of period................................ $ 2,066 $ 1,581 $ 7,972 $ 2,694
--------------- --------------- ------------- ---------------
--------------- --------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED QUARTER ENDED 52 WEEKS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, OCTOBER 29,
1997 1996 1995 1994
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Reconciliation of net change in current assets and
liabilities:
(Increase) decrease in accounts receivable....... $ 818 $ 692 ($ 1,056) $ 1,144
(Increase) decrease in inventory (excluding
adjustment for net realizable value)........... (9,388) (2,692) 32,400 9,895
(Increase) decrease in prepaid expenses.......... (111) 2,018 992 (907)
Increase (decrease) in accounts payable.......... 5,161 6,663 (3,245) (1,012)
Increase (decrease) in accrued interest.......... 409 (103) (666) (3,982)
Increase (decrease) in other accrued expenses.... 490 (1,683) 2,761 2,149
Decrease in other working capital................ -- -- -- 55
--------------- --------------- ------------- ---------------
($ 2,621) $ 4,895 $ 31,186 $ 7,342
--------------- --------------- ------------- ---------------
--------------- --------------- ------------- ---------------
Supplemental Cash Flow Information:
Cash interest payments made...................... $ 4,783 $ 5,201 $ 1,401 $ 12,178
Non-cash transactions:
Capital lease relating to sale - leaseback of
Alderwood store.............................. 2,835 -- -- --
Issuance of debt in payment of interest........ -- -- -- 4,026
Issuance of warrants........................... -- -- -- 2,205
Conversion of Series A Preferred Stock into
Common Stock................................. -- -- -- 89
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
NOTE 1--CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief under Chapter 11
("Chapter 11") of title 11 of the United States Code (the "Bankruptcy Code") in
the United States Bankruptcy Court (the "Court") for the Western District of
Washington at Seattle. In Chapter 11, the Company has continued to manage its
affairs and operate its business as a debtor-in-possession. As a
debtor-in-possession in Chapter 11, the Company may not engage in transactions
outside of the ordinary course of business without approval, after notice and
hearing, of the Court. The Company and representatives of the committees that
represent Lamonts' unsecured trade creditors, bondholders and equityholders (the
"Committees") have reached an understanding regarding the material economic
terms of a proposed consensual plan of reorganization designed to enable the
Company to emerge from Chapter 11. On August 23, 1996, that plan was filed with
the Court, along with the proposed disclosure statement relating to the plan. On
October 23, 1996, an amended plan of reorganization ("the Plan") and an amended
disclosure statement (the "Disclosure Statement") were filed with the Court. The
Disclosure Statement was approved by the Court on October 24, 1996, and the Plan
and Disclosure Statement were transmitted to all impaired creditors and equity
security holders along with ballots for the purpose of soliciting acceptances of
the Plan. A hearing to consider confirmation of the Plan (the "Confirmation
Hearing") commenced on January 6, 1997, and the Court determined that the
requisite majorities of each class of the Company's impaired creditors and
equity security holders voted in favor of acceptance of the Plan and that all
requirements for confirmation of the Plan had been satisfied, except as
requested by Lamonts and the Committees, the Confirmation Hearing was continued
to April 14, 1997, to consider certain "Deferred Confirmation Requirements". At
the request of Lamonts and the Committees, the Court has again deferred final
confirmation of the Plan in order to afford Lamonts additional time in which to
investigate recapitalization opportunities.
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject to
modifications and/or withdrawal. Accordingly, the value of the Company's common
stock remains highly speculative.
On October 11, 1996, the Company retained an investment banking firm, with
the approval of the Court, to explore opportunities to raise additional capital.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the bankruptcy filing, in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES
IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations
and the matters discussed herein related to the bankruptcy filing raise
substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon,
among other things, (i) the ability to comply with its debtor-in-possession
financing agreement and to extend such financing upon the expiration of its
current financing agreement, (ii) confirmation of a Plan under the Bankruptcy
Code, (iii) the ability to achieve profitable operations after such confirmation
and (iv) the ability to generate sufficient cash from operations to meet its
obligations.
F-7
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 1--CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As a result of the Company's Chapter 11 filing, the Company is currently in
default under the indentures governing the Company's 10 1/4% Subordinated Notes
due November 1999 (the "10 1/4% Notes") and the 13 1/2% Senior Subordinated
Notes which were due February 1995 (the "13 1/2% Notes"). As a result, all
unpaid principal of, and accrued pre-petition interest on, such debt became
immediately due and payable. The payment of such debt and accrued but unpaid
interest is prohibited during the pendency of the Company's Chapter 11 case, and
these liabilities have been included in the balance sheet as "liabilities
subject to settlement under reorganization proceedings." (Also see Note 3)
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accounts payable and accrued liabilities............... $ 23,121 $ 23,511 $ 23,714
Capital lease obligations.............................. 11,216 12,321 15,560
10 1/4% Notes (including pre-petition accrued
interest)............................................ 67,600 67,576 67,576
13 1/2% Notes (including pre-petition accrued
interest)............................................ 838 838 838
Notes payable.......................................... 83 599 645
----------- ----------- -----------
$ 102,858 $ 104,845 $ 108,333
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In accordance with the Bankruptcy Code, the Company can seek Court approval
for the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, the Company
continues to review all of its obligations under its executory contracts. As of
March 31, 1997, the Company has rejected 14 real property leases and certain
executory contracts and assumed 5 leases (with certain conditions and
limitations).
As a result of the reorganization proceedings, the Company may sell or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the consolidated financial statements. Further, a plan
of reorganization could materially change the amounts currently recorded in the
consolidated financial statements, including amounts recorded for the excess of
cost over net assets
F-8
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 1--CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
acquired. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these matters or adjustments
that might result should the Company be unable to continue as a going concern.
Generally, if a debtor-in-possession is unable to emerge from Chapter 11, such
debtor-in-possession could be required to liquidate its assets.
Costs associated with the reorganization of the Company are charged to
expense as incurred. Under the requirements of the Chapter 11 filing, the
Company is required to pay certain expenses of the Committees. Other includes
the administrative costs associated with the Plan of Reorganization and store
closure costs other than the write-off of property and equipment. The amounts
charged to reorganization expense by the Company are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY
1996 1995 QUARTER
--------- --------- -----------
<S> <C> <C> <C>
Write-off of property & equipment, net of obligations under
capital leases................................................. $ 1,389 $ 2,997 $ 2,200
Professional Fees................................................ 2,128 2,479 699
Lease Related Costs.............................................. 1,036 925 3,400
Payroll Related Costs............................................ 411 411 728
Store closure, administrative costs and other.................... 1,073 428 472
--------- --------- -----------
$ 6,037 $ 7,240 $ 7,499
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 2--CONSOLIDATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation.
NOTE 3--BACKGROUND
The Company is a Northwest based regional retailer of moderately priced
casual apparel. The Company has positioned itself as a focused specialty
retailer with emphasis on casual wear and high quality branded products.
On October 30, 1992, the Company completed a comprehensive recapitalization
(the "Recapitalization"). Prior to the Recapitalization, the Company was named
Lamonts Corporation and was the holding company for Lamonts Apparel, Inc., its
sole operating subsidiary ("Apparel"). Concurrent with the Recapitalization,
Apparel was merged with and into Lamonts Corporation whose name was changed to
Lamonts Apparel, Inc.
Pursuant to the Recapitalization, the Company, among other things, issued an
aggregate of $75.0 million in principal amount of its 10 1/4% Senior
Subordinated Notes due 1999 (the "10 1/4% Notes"). As a result of the
Recapitalization, the Company's funded debt was reduced by $63.6 million. The
Recapitalization was reported as a complete reorganization at October 30, 1992.
Purchase accounting was applied in
F-9
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 3--BACKGROUND (CONTINUED)
accordance with the provisions of Accounting Principles Board Opinion No. 16.
Accordingly, at October 30, 1992, all assets and liabilities were re-valued at
their estimated current fair market value and the excess of purchase price over
the fair market value of the net assets acquired was allocated to excess of cost
over net assets acquired.
In December 1993, the Company completed a capital infusion and debt
reduction plan (the "Infusion") pursuant to which it received approximately
$13.4 million from the issuance of 4,466,206 shares of its Series A Convertible
Preferred Stock, par value $.01 per share ("Series A Preferred Stock"), which,
together with cash flow from operations was used to repurchase $13.0 million
aggregate principal amount of the 10 1/4% Notes, at par, together with accrued
interest through the repurchase date. Each share of the Series A Preferred Stock
automatically converted into two shares of Common Stock on March 14, 1994,
concurrent with the effective date of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 15 million to 40 million shares. In connection with this
transaction, the terms of the 10 1/4% Notes that remained outstanding were
amended to, among other things, prospectively reduce the interest rate thereof
from 11 1/2% (the original rate at issuance) to 10 1/4%.
On June 10, 1994, the Company further amended the terms of the 10 1/4% Notes
to (i) modify the minimum net worth covenant to exclude store closure costs and
(ii) provide that interest payments due on the 10 1/4% Notes through November 1,
1995 could be paid, at the Company's option, either in cash, at a rate of 12%
per annum, or in additional 10 1/4% Notes, at a rate of 13% per annum ("PIK
Interest"). In accordance with the amendment, the Company elected to issue
additional 10 1/4% Notes at the PIK Interest rate of 13% for the November 1,
1994 interest payment. Interest continued to accrue on the 10 1/4% Notes until
the date of filing of the Company's Chapter 11 case.
On October 18, 1994, the holders of all outstanding 10 1/4% Notes (i)
granted the Company the option to exchange the outstanding 10 1/4% Notes for
shares of Common Stock representing approximately 70% of the Common Stock
outstanding immediately following the exchange and $50.0 million aggregate
liquidation preference of a new series of preferred stock of the Company and
(ii) released the collateral securing the 10 1/4% Notes and generally
subordinated the Company's obligations under the 10 1/4% Notes so that they are
junior to trade payables and certain other liabilities, subject to certain
exceptions. The Company could have exercised its option to exchange the 10 1/4%
Notes on or prior to March 31, 1995. However, on March 27, 1995, the Company
received an extension from the holders of the 10 1/4% Notes to extend
indefinitely, the time in which the Company may exercise its option to require
the holders to exchange their 10 1/4% Notes; provided, however, that a majority
of the holders of the 10 1/4% Notes may terminate such extension upon 60 days
notice to the Company. As of February 1, 1997, the Company has not exercised its
option to require the holders of the 10 1/4% Notes to exchange their notes.
The $75.0 million principal amount of 10 1/4% Notes were issued in
connection with the Recapitalization pursuant to the Note Indenture dated
October 30, 1992 between the Company and First Trust National Association, as
trustee (the "Indenture"). The Indenture initially provided for semi-annual
interest payments on May 1 and November 1 of each year at 11 1/2% per annum.
Subject to certain exceptions, no principal payments would be due with respect
to the 10 1/4% Notes until the maturity thereof on November 1, 1999. The 10 1/4%
Notes Indenture contains, among other things, covenants that (I) limit
F-10
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 3--BACKGROUND (CONTINUED)
the Company's ability to make payments on its stock, to make certain investments
or to make payments in respect of subordinated indebtedness, (ii) limit the
Company's ability to enter into transactions with affiliates, (iii) limit the
Company's ability to incur additional indebtedness, (iv) require the Company to
repurchase a portion of the 10 1/4% Notes if it fails to maintain a minimum net
worth, (v) limit the Company's ability to create or permit payment restrictions
affecting its subsidiaries, (vi) prohibit the Company from creating, incurring,
assuming or suffering to exist any liens upon its assets other than usual and
customary permitted liens and liens in favor of a working capital lender, (vii)
require the Company to apply 100% of all net asset sale proceeds to investment
in assets directly related to the business of the Company and its subsidiaries,
to repay letter of credit or working capital indebtedness or to repurchase the
10 1/4% Notes, (viii) require the Company to offer to purchase all of the
10 1/4% Notes in the event of a post-Recapitalization change of control and (ix)
limit the Company's ability to invest in unrestricted subsidiaries.
NOTE 4--SUMMARY OF ACCOUNTING POLICIES
CHANGE IN YEAR END
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying consolidated financial statements
include the results of operations of the Company for the 52 week period ended
February 1, 1997 ("Fiscal 1996"), the 53 week period ended February 3, 1996
("Fiscal 1995"), the quarter ended January 28, 1995, ("January Quarter") and the
52 weeks ended October 29, 1994 ("Fiscal 1994").
INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in,
first-out ("LIFO") method) or net realizable value. At October 30, 1992, as a
result of the Recapitalization, the purchase price allocated to merchandise
inventories was computed based on the estimated selling prices of such
merchandise less the costs of disposal and a profit for the selling effort. As a
result of purchase accounting and the use of the LIFO method (the "Step-up"),
the carrying value of the Company's inventories at February 1, 1997, February 3,
1996, and January 28, 1995, exceeded the weighted average cost of inventories by
$1.8 million, $2.1 million and $2.6 million, respectively.
During the January Quarter, reductions in inventory quantities resulted in
the elimination of LIFO inventory layers which were carried at higher costs
(including the Step-up) as compared with the cost of merchandise purchased in
the January Quarter. The effect of these reductions increased cost of
merchandise sold by $3.2 million ($0.18 per share) in the January Quarter.
PRE-OPENING EXPENSES
Certain costs incurred in connection with the opening of new stores are
capitalized and amortized on a straight-line basis over twelve months commencing
the month following the store opening.
F-11
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH AND DEPOSITS
Current restricted cash and deposits includes amounts deposited in
restricted operating accounts for the purpose of ensuring payment of employee
payroll, utilities, and certain taxes, including retail sales taxes. The Company
chose this option while operating as a debtor-in-possession and will close the
accounts at the time of emergence from Chapter 11. Noncurrent restricted cash
and deposits represents amounts held as a deposit by the Company's buying
service for the annual usage of international letters of credit, as well as
deposits for workers' compensation.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation
based on the following useful lives: buildings and improvements, 10-40 years;
furniture, fixtures and equipment, 3-10 years; and leasehold improvements and
property under capital leases, life of lease or useful life if shorter.
Depreciation is computed using primarily the straight-line method for financial
reporting purposes and accelerated depreciation methods for income tax purposes.
Upon sale or retirement of property and equipment, the related cost and
accumulated depreciation are removed from the accounts of the Company and any
gain or loss is reflected in the consolidated financial statements in the period
the sale or retirement occurred. Maintenance and repair costs are expensed as
incurred. Expenditures for renewals and betterments are generally capitalized.
Software development costs incurred in connection with significant upgrades
of management information systems are capitalized. Amortization of capitalized
software development costs begins when the related software is placed in service
using the straight-line method over estimated useful lives of three to five
years.
LEASEHOLD INTERESTS
In connection with the Recapitalization and the application of purchase
accounting, the excess of the fair rental value of leased facilities under
operating leases over the respective contractual rents has been recorded as an
asset at its discounted net present value and is amortized on a straight-line
basis over the respective remaining lease terms. During the first quarter of
Fiscal 1996, the Company wrote-off approximately $0.6 million of leasehold
interests due to the adoption of Statement No. 121 (defined below). The
accumulated amortization of leasehold interests approximated $1.7 million, $1.4
million and $1.3 million at February 1, 1997, February 3, 1996 and January 28,
1995, respectively.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over the fair market value of net assets acquired
pursuant to the Recapitalization is being amortized on a straight-line basis
over 40 years. Accumulated amortization approximated $1.4 million, $1.2 million
and $0.8 million at February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
The Company continually evaluates the recoverability of the carrying amount
of the excess of cost over net assets acquired by assessing whether the recorded
value will be recovered through future expected
F-12
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
operating results. During the first quarter of Fiscal 1996, the Company
wrote-off approximately $1.3 million of the excess of cost over net assets
acquired due to the adoption of Statement No. 121 (defined below).
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of the Company's debt are
amortized using the effective interest method over the term of the related
indebtedness. In connection with an amendment to the 10 1/4% Notes in June 1994,
the Company issued Warrants (the "1994 Warrants") initially to purchase up to an
aggregate of approximately 2.0 million shares of Common Stock to the holders of
the 10 1/4% Notes. The 1994 Warrants may be exercised on or prior to June 10,
1999, at an initial exercise price of $1.00 per share of Common Stock. The
issuance of the 1994 Warrants resulted in an increase of $2.2 million in
deferred financing costs and additional paid-in capital. The accumulated
amortization of deferred financing costs approximated $2.8 million, $2.1 million
and $1.4 million at February 1, 1997, February 3, 1996 and January 28, 1995,
respectively.
ADVERTISING COSTS
The Company expenses the production costs of advertising as incurred.
Advertising expense approximated $13.0 million, $12.6 million, $3.8 million and
$15.0 million during Fiscal 1996, Fiscal 1995, the January Quarter and Fiscal
1994, respectively.
CASH EQUIVALENTS
The Company considers all short term investments with original maturities of
three months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
In Fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("Statement No. 121"). Statement No. 121
requires that long-lived assets and certain intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If impairment has occurred,
an impairment loss must be recognized.
Beginning in Fiscal 1996 with the adoption of Statement No. 121, assets are
grouped and evaluated at the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of assets.
The Company has identified this lowest level to be principally individual
stores. The Company considers historical performance and future estimated
results in its evaluation of potential impairment and then compares the carrying
amount of the asset to the estimated future cash flows expected to result from
the use of the asset. If the carrying amount of the asset exceeds estimated
expected undiscounted future cash flows, the Company measures the amount of the
impairment by comparing the carrying amount of the asset to its fair value. The
estimation of fair value is measured by discounting expected future cash flows
at a rate commensurate with the Company's borrowing rate.
F-13
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 4--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
During the first quarter of Fiscal 1996, the Company recognized a non-cash
impairment loss of $4.2 million. Of the total impairment loss, $2.3 million
represents impairment of property and equipment, $1.3 million relates to excess
of cost over net assets acquired and $0.6 million pertains to leasehold
interests. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
As a result of the reduced carrying value of the impaired assets,
depreciation and amortization expense for Fiscal 1997 is expected to be reduced
by approximately $0.4 million.
OTHER
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". This statement encourages, but does not require, a fair value
based method of accounting for stock compensation plans. Companies may elect to
continue to apply current accounting requirements for employee stock
compensation awards. All companies are required to comply with the disclosure
requirements of the statement, and the Company has adopted the disclosure
requirements only in the fiscal year ended February 1, 1997. The Company is
continuing accounting for employee stock compensation awards under Accounting
Principle Board Opinion No. 25 "Accounting for Stock issued to Employees".
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". All companies
are required to comply with the disclosure requirements of the statement and the
Company will adopt the policy in the fiscal year ending January 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation.
NOTE 5--NET LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding. The common stock
equivalents, represented by stock options, warrants and Series A Preferred Stock
(outstanding from December 1, 1993 to March 13, 1994) were not considered in the
calculation as they either have an exercise price greater than the applicable
market price, or the effect of assuming their exercise or conversion would be
anti-dilutive. The weighted average number of shares
F-14
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 5--NET LOSS PER COMMON SHARE (CONTINUED)
outstanding was 17,899,906, 17,893,675, 17,883,135 and 14,583,038 for Fiscal
1996, Fiscal 1995, the January Quarter and Fiscal 1994, respectively.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land................................................... $ -- $ 1,412 $ 1,412
Buildings under capital leases......................... 17,605 15,073 18,018
Buildings and improvements............................. 2,193 7,594 7,594
Leasehold improvements................................. 15,012 17,953 19,498
Furniture, fixtures, and equipment..................... 16,699 16,608 17,781
Deferred software costs................................ 6,650 6,484 5,897
----------- ----------- -----------
58,159 65,124 70,200
Less accumulated depreciation and amortization......... (27,506) (23,041) (18,276)
----------- ----------- -----------
$ 30,653 $ 42,083 $ 51,924
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During the first quarter of Fiscal 1996, the Company wrote-off approximately
$2.3 million of property and equipment due to the adoption of Statement No. 121.
Accumulated amortization for buildings under capital leases approximated
$5.8 million, $4.6 million and $4.1 million at February 1, 1997, February 3,
1996 and January 28, 1995, respectively.
In March 1996 the Company closed a store in Eugene, Oregon. The Company
owned the building subject to a ground lease. The building reverted to the owner
of the land. The net book value of the building and improvements totaled $2.2
million at February 3, 1996. (See Note 9.)
In December 1996, the Company closed four stores located at Spokane, WA;
Twin Falls, ID; Missoula, MT; and Hillsboro, OR. The net book value of
furniture, fixtures and equipment associated with the stores totaled $0.4
million as of February 1, 1997, and has been included in the store closure
reserve. (See Note 9).
On February 8, 1996, the Company entered into a sale-leaseback transaction
for the land and building at the Company's Alderwood store in Washington. The
proceeds of approximately $5.0 million were applied against the Company's Old
DIP Facility (defined below) borrowings. The Company concurrently entered into a
20 year lease agreement with the purchaser.
NOTE 7--LEASES
The Company leases all of its stores (except one which is subject to a
ground lease), some of its equipment and its office facility. Generally, store
leases provide for minimum rentals (which, in some cases, include payment of
taxes and insurance) and contingent rentals (based upon a percentage of sales in
F-15
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 7--LEASES (CONTINUED)
excess of a stipulated minimum). The majority of lease agreements cover periods
from 20 to 30 years, including three to six renewal options of five years each.
Operating lease rental expense is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Minimum rentals........................................ $ 7,095 $ 7,300 $ 2,265 $ 9,258
Contingent rentals..................................... 660 496 217 670
Sublease rentals....................................... (959) (803) (214) (710)
--------- --------- ----------- ---------
$ 6,796 $ 6,993 $ 2,268 $ 9,218
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
The Company had capital lease contingent rental expense of approximately
$0.1 million and received sublease rentals of approximately $0.4 million during
each of Fiscal 1996, Fiscal 1995 and Fiscal 1994. During the January Quarter,
the Company had contingent capital lease rental expense of $0.1 million and
received $0.2 million in sublease rentals. Capital lease interest expense was
$2.1 million, $2.0 million, $0.6 million and $2.7 million during Fiscal 1996,
Fiscal 1995, the January Quarter and Fiscal 1994, respectively.
In September 1995, in connection with the Company's Chapter 11 case, the
Company negotiated a rental concession with one of its landlords in the Alaska
market. The lease agreement was amended to reduce monthly payments from
September 1995 through August 2001. The concession has been reflected in the
tables below.
Future minimum rental payments as of February 1, 1997 under capital and
operating leases, excluding amounts related to contracts which have been
rejected by the Company in connection with the Company's Chapter 11 filing, are
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
For the fiscal years ending:
1997.................................................................. $ 2,852 $ 6,132
1998.................................................................. 2,859 6,092
1999.................................................................. 2,859 5,861
2000.................................................................. 2,726 5,101
2001.................................................................. 2,577 4,743
Thereafter.......................................................... 14,956 25,607
--------- -----------
Total minimum rental payments..................................... $ 28,829 $ 53,536
--------- -----------
--------- -----------
Less estimated executory costs
(primarily taxes and insurance)....................................... (103)
Less amounts representing interest...................................... (14,652)
---------
Present value of obligations............................................ $ 14,074
---------
---------
</TABLE>
F-16
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 7--LEASES (CONTINUED)
In addition, the Company guarantees an operating lease, expiring February
1998 with one option to renew the lease for a term of three years, of a third
party which operates a distribution center for the Company. At February 1, 1997,
annual future minimum rentals of the operating lease relating to the
distribution center are approximately $0.3 million per year.
NOTE 8--DEBT
WORKING CAPITAL FACILITY
In January 1994, the Company replaced its existing working capital facility
with a new loan and security agreement with an asset-based lender, Foothill
Capital Group ("Foothill"). Amounts borrowed bore interest payable monthly at
1.75%, increased to 2.25% on June 21, 1994, above the reference rate (the base
rate charged by major money center banks) with a minimum of 7.50% per annum.
On February 17, 1995, the Company received approval from the Court for a
Loan and Security Agreement with Foothill (the "Old DIP Facility"). The Old DIP
Facility provided for a borrowing capacity of up to $32.0 million in revolving
loans, including up to $15.0 million of letters of credit, subject to borrowing
base limitations based upon, among other things, the value of inventory and
certain real property. Effective October 17, 1995, the Old DIP Facility was
amended to increase the percentage of inventory value allowed in the borrowing
capacity from 60% to 70%. This increase in borrowing base was in effect for the
period October 17, 1995 through December 2, 1995. Effective November 28, 1995,
Foothill increased the Company's borrowing capacity from $32 million to $34
million to accommodate seasonal requirements. The additional $2 million in
borrowing capacity expired December 15, 1995.
The Old DIP Facility provided that interest would accrue at the rate of 3%
per annum in excess of the reference rate, payable monthly in arrears. The Old
DIP Facility also provided that in the event of a default in the payment of any
amount due thereunder, the interest rate on such defaulted amount would be 4.5%
per annum in excess of the reference rate, payable on demand. At February 3,
1996, the reference rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the Old DIP Facility
in February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the Old DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
On June 4, 1996, the Company entered into a loan and security agreement (the
"FNBB Facility") with The First National Bank of Boston ("FNBB") replacing the
Old DIP Facility, after a hearing by the Court and the entering of an order
approving such financing. Although Foothill had taken no action to declare the
Company in default as of the date on which the Old DIP Facility was terminated,
the Company was in violation of the net worth maintenance covenant in the Old
DIP Facility at the time of termination.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit), subject
to borrowing base limitations based upon, among other things, the value of
inventory and certain real property. The FNBB Facility will expire on the
effective date of the Company's Plan of Reorganization or June 30, 1997,
whichever is sooner. The Bank has informed
F-17
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 8--DEBT (CONTINUED)
the Company that the agreement will be extended to February 28, 1998 and is
currently in the process of documenting the amendments, however, there can be no
assurances that documents relating to such amendments will be completed prior to
June 30, 1997. Effective November 8, 1996, the FNBB Facility was amended to
increase the Company's borrowing limit from $32 million to $35 million to
accommodate seasonal requirements for the Company's holiday season purchases.
The borrowing limit reverted to $32 million on December 15, 1996. In addition,
during the period beginning on December 15, 1996 and ending on January 31, 1997,
the Company was required to maintain the aggregate amount of outstanding
borrowings under the FNBB Facility at no more than $21.5 million for a period of
30 consecutive days. Subject to FNBB's approval of the plan of reorganization
and other specified conditions, the FNBB Facility will continue for a two year
period following the effective date of the plan of reorganization. At February
1, 1997, the Company had $23.1 million of borrowings and no outstanding letters
of credit under the FNBB Facility, with additional borrowing capacity of $1.9
million.
The FNBB Facility provides that for Base Rate loans interest will accrue at
the rate of 1.5% per annum in excess of the Base Rate (as defined therein),
payable monthly in arrears. For Eurodollar loans, the interest rate will be the
Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided therein).
The FNBB Facility also provides that in the event of a default in the payment of
any amount due thereunder, the interest rate on such borrowings shall be the
greater of (i) 3.0% per annum in excess of the Base Rate and (ii) the applicable
rate on the loan, payable on demand. The interest rates for both Base Rate loans
and Eurodollar loans are subject to adjustment upon the effective date of a plan
of reorganization and the satisfaction of certain other conditions described in
the FNBB Facility based on financial ratios of the Company specified in the FNBB
Facility. At February 1, 1997, the Base Rate was 8.25% and the Eurodollar Rate
was 5.5%.
The Company has expensed fees of $474,000 for the FNBB Facility as of
February 1, 1997. Fees payable under the FNBB Facility consist primarily of
monthly payments equal to 0.5% (adjusted as provided therein) of the average
unused borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of the plan
of reorganization and the satisfaction of certain conditions described in the
FNBB Facility payable in the amount of $560,000 of which $336,000 shall be
payable on the date the conditions are satisfied and $224,000 shall be payable
on December 31, 1997 (or, if earlier, the time of termination of the
commitments).
Borrowings under the FNBB Facility, together with cash flow from operations,
may be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all other
assets and is an allowed administrative expense claim with super priority over
other administrative expenses in the Chapter 11 case. The FNBB Facility imposes
limitations on the Company with respect to, among other things, (i)
consolidations, mergers, and sales of assets, (ii) capital expenditures in
excess of specified levels and (iii) the prepayment of certain indebtedness.
Additionally, the Company must comply with certain operating and financial
covenants (as described therein). Although the Company failed to comply with
certain covenants related to inventory levels for the months ending July 6, 1996
and August 3, 1996, the Company requested and received a waiver relating to such
breaches.
As a result of the Company's Chapter 11 filing, the Company is currently in
default on all its funded debt agreements (other than the FNBB Facility). The
Company has not accrued interest upon such
F-18
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 8--DEBT (CONTINUED)
indebtedness (other than the FNBB Facility) since the date of filing. The
13 1/2% Notes were due February 15, 1995.
NOTE 9--STORE CLOSURE COSTS
In July 1994, the Company determined that three of its Portland, Oregon
stores and all five Lamonts For Kids children's stores should be closed because
of poor performance. These stores represented approximately 8.1% of the
Company's 1994 revenues. All store closures occurred by January 31, 1995, and a
$7.2 million charge against operations for these costs was recorded at October
29, 1994.
In connection with its operational restructuring, the Company received
permission from the Court to close six additional underperforming stores in
January 1995. A charge to reorganization expense of $2.2 million was recorded in
the January Quarter. In January 1996, the Company received permission from the
Court to close an underperforming store located in Eugene, Oregon, and the
Company conducted a going out of business sale at this store through March 1996.
The Company owned the building in Eugene subject to a ground lease and attempted
to market the building. A purchaser was not located and ownership of the
building reverted to the owner of the underlying land. The write off of the net
book value of the building and leasehold improvements was included in the $3.0
million charge to reorganization expense recorded in Fiscal 1995 in connection
with the closure of the Eugene store. In October 1996, the Company received
approval by the Court to close four additional underperforming stores, located
in Spokane, WA; Twin Falls, ID; Missoula, MT; and Hillsboro, OR. The Company
conducted going out of business sales at these stores through December 1996.
During Fiscal 1996, $3.1 million was charged to reorganization expense in
connection with the closure of these stores. Store closure costs for Fiscal
1996, Fiscal 1995, the January Quarter and Fiscal 1994 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
--------------------------------------------
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Write-off of property and equipment, net of
obligations under capital leases..................... $ -- $ 2,362 $ 1,330 $ 2,972
Adjustments to inventory carrying values............... 1,866 450 400 1,748
Estimated operating losses through the dates
of closure........................................... -- -- -- 1,357
Lease Termination Costs................................ 1,036 -- -- --
Other.................................................. 186 238 470 1,123
--------- --------- ----------- ---------
$ 3,088 $ 3,050 $ 2,200 $ 7,200
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Amounts charged to reserve............................. $ 5,292 $ 3,247 $ 2,806 $ 3,843
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
Revenues associated with the closed stores totaled $13.9 million, $16.1
million, $12.5 million and $47.1 million in Fiscal 1996, Fiscal 1995, the
January Quarter and Fiscal 1994, respectively. Operating income (losses),
excluding the allocation of corporate expenses, interest and reorganization
expenses, incurred from these stores were $1.4 million, ($0.9) million, ($2.5)
million and ($5.4) million in Fiscal 1996, Fiscal 1995, the January Quarter and
Fiscal 1994, respectively.
F-19
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 1, 1997
NOTE 10--INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, deferred tax assets and liabilities are recognized on temporary
differences between the financial statement and tax bases of assets and
liabilities using applicable enacted tax rates.
The income tax benefit from operations is comprised of the following
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL
1994
--------
<S> <C>
Current................................. $ (400)
Deferred................................ --
--------
$ (400)
--------
--------
</TABLE>
The Company has recorded a valuation allowance against net deferred tax
assets as the Company could not conclude that it was more likely than not that
the tax benefits from temporary differences and net operating loss carryforwards
would be realized.
The differences between the Company's effective income tax rate and the
Federal statutory rate for 1994 is summarized as follows:
<TABLE>
<CAPTION>
FISCAL 1994
-----------
<S> <C>
Expected benefit.................................. (34.0%)
Effect of current year net operating loss......... 34.0%
Adjustment to tax provision....................... (0.9%)
Other............................................. --
-----
(0.9%)
-----
-----
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryovers........... $ 34,366 $ 30,835 $ 24,192
Accrued payroll and related costs....... 954 948 1,074
Leasehold interests..................... 2,667 2,652 2,630
Store closure expenses.................. 5,209 3,821 2,856
Other................................... 2,418 1,883 1,623
Valuation allowance..................... (44,448) (38,707) (30,395)
----------- ----------- -----------
----------- ----------- -----------
Total deferred income tax assets........ (1,166) (1,432) (1,980)
----------- ----------- -----------
Deferred income tax liabilities:
Inventory............................. (228) (454) (644)
Property and equipment................ (938) (978) (1,336)
----------- ----------- -----------
Total deferred income tax liabilities... (1,166) (1,432) (1,980)
----------- ----------- -----------
Net deferred income taxes............... $ 0 $ 0 $ 0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-20
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 10--INCOME TAXES (CONTINUED)
As a result of the Recapitalization, the Company's ability to utilize its
Federal tax net operating loss carryforward of $14.7 million and its alternative
minimum tax net operating loss carryforward of $2.8 million at October 31, 1992,
which expire beginning in 2005, may be significantly limited under Internal
Revenue Code Section 382 in future years. The Federal tax net operating loss
carryforward and the alternative minimum tax net operating loss carryforward at
October 31, 1992 are shown net of a $9.5 million and $6.4 million, respectively,
reduction associated with the Company's agreement with the Internal Revenue
Service ("IRS") discussed below.
As of February 1, 1997, the Company had $101.0 million and $90.9 million of
regular tax and alternative minimum tax net operating losses, respectively,
which are available to offset future income, expiring in years beginning in
2005. Possible restructuring of the Company and cancellation of indebtedness
resulting from the reorganization of the Company under Chapter 11 could further
impact the Company's ability to utilize its net operating loss carryforwards.
The Company's Federal income tax returns for fiscal years 1988, 1989 and
1990 were examined by the IRS. An agreement, which was reviewed and accepted by
the Joint Committee of Taxation was reached with the IRS, whereby the Company
was given notice to pay the IRS approximately $504,000 for additional taxes and
interest. This amount is included in the balance sheet as liabilities subject to
settlement under reorganization proceedings. As a result of reaching this
agreement, the Company reduced its previously established accrued liability for
taxes and interest for this examination by approximately $1.0 million during
1994. The IRS also completed its examinations of the Company's Federal income
tax returns for fiscal years 1991 and 1992, which resulted in no additional tax
due.
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107
"Disclosures about Fair Value of Financial Instruments", the following
assumptions were used by management of the Company in estimating its fair value
disclosures for the Company's financial instruments:
CASH
The carrying amount for cash approximates fair value because of the short
maturity of amounts therein.
WORKING CAPITAL FACILITY
The carrying value of borrowings under the FNBB Facility approximates market
value as the interest rate is variable.
LETTERS OF CREDIT
At February 1, 1997, the Company had no outstanding trade or stand-by
letters of credit.
F-21
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 11--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG TERM DEBT INCLUDED IN LIABILITIES SUBJECT TO COMPROMISE
Management believes the carrying amount the Company's 10 1/4% Notes and the
13 1/2% Notes is in excess of fair value based on the Company's Chapter 11
filing. Until a plan of reorganization is approved by the Court, a fair value
can not be readily determined.
NOTE 12--COMMITMENTS, CONTINGENCIES AND OTHER
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate outcome
of all such matters should not have a material adverse effect on the financial
position of the Company, but, if decided adversely to the Company, could have a
material effect upon the Company's anticipated plan of reorganization or
operating results during the period in which the litigation is resolved.
CREDIT CARD PLAN AGREEMENT
The Company's proprietary charge card, administered and owned by Alliance
Data Systems (which purchased the charge accounts from National City Bank of
Columbus), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Agreement"), Alliance Data Systems owns the
receivables generated from purchases made by customers using the Lamonts charge
card. The Agreement provides that the Company will be charged a discount fee of
1.95% of Net Sales, as that term is defined in the Agreement.
Additionally, the Agreement provides for a supplemental discount fee equal
to one-tenth of one percent (0.1%) of Net Sales for each one million dollar
increment that Net Sales for a subject year are less than $48.0 million (the
"Minimum Level") up to a maximum fee of 3% of the Net Sales for the subject
year. In the event of store closures, the Agreement provides that the Minimum
Level may be decreased. Additionally, as of March 1, 1997 the Company is no
longer responsible for any net bad debt expense. The Agreement may be terminated
by either party after June 22, 1999, upon 180 days prior written notice. At
February 3, 1996 and January 28, 1995 the Company had $0.3 million reserved for
bad debts arising from this program. At February 1, 1997, there was no reserve
for bad debts arising from this program. Bad debt expense for Fiscal 1996,
Fiscal 1995, the January Quarter and Fiscal 1994 was approximately $0.1 million,
$0.9 million, $0.2 million and $0.8 million, respectively.
NOTE 13--STOCKHOLDERS' EQUITY
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no stockholder has any right to
convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
F-22
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
Subject to rights of holders of Preferred Stock, if any, the holders of
shares of Common Stock are entitled to dividends when, and if declared by the
Board of Directors from funds legally available and, upon liquidation, to a pro
rata share in any distribution to stockholders.
PREFERRED STOCK
On December 1, 1993, 4,466,206 shares of the Company's Series A Preferred
Stock was issued pursuant to the Infusion. Each share of the Series A Preferred
Stock automatically converted into two shares of Common Stock on March 14, 1994,
concurrent with the stockholders approval of an increase in the number of
authorized shares of Common Stock of the Company from 15 million to 40 million
shares.
Pursuant to the Restated Certificate of Incorporation of the Company, the
Board of Directors has the authority, without further shareholder approval, to
provide for the issuance of up to 10 million shares of Preferred Stock in one or
more series and to determine the dividend rights, conversion rights, sinking
fund rights, voting rights, rights and terms of redemption, liquidation
preferences, the number of shares constituting any such series and the
designation of such series. Because the Board of Directors has the power to
establish the preferences and rights of each series, it may afford the holders
of any Preferred Stock preferences, powers and rights (including voting rights)
senior to the rights of the holders of Common Stock. No shares of Preferred
Stock are currently outstanding.
WARRANTS
On September 21, 1992, the Company distributed as a dividend to the holders
of Common Stock of record as of September 1, 1992, 1992 Warrants to purchase an
aggregate of 1,017,478 shares of Common Stock. The exercise price of the 1992
Warrants is $5.51 per share which shall increase on each September 28 by an
amount equal to 10% of the exercise price immediately prior to such increase. As
of February 1, 1997 none of the 1992 Warrants have been exercised.
On June 10, 1994, the Company issued 1994 Warrants to purchase up to an
aggregate of approximately 2.0 million shares of Common Stock (or approximately
10% of the Common Stock outstanding after giving effect to the exercise of such
1994 Warrants) to the holders of the 10 1/4% Notes. The 1994 Warrants may be
exercised on or prior to June 10, 1999, at an initial exercise price of $1.00
per share of Common Stock. As of February 1, 1997, none of the 1994 Warrants
have been exercised.
The exercise price per share of Common Stock subject to the 1992 and 1994
Warrants would be adjusted upon the occurrence of certain events, including
future distributions or issuances by the Company of: (i) Common Stock, (ii)
rights, options or warrants to purchase Common Stock or (iii) securities
convertible into or exchangeable for Common Stock, at a price per share less
than the then current market price per share of Common stock. Upon each such
adjustment to the exercise price, the number of shares of Common Stock subject
to the 1992 and 1994 Warrants will be proportionately adjusted.
STOCK OPTIONS
The Lamonts Apparel, Inc. 1992 Incentive and Nonstatutory Stock Option Plan
(the "1992 Stock Option Plan"), which was approved by the Board of Directors and
by the stockholders in 1992 and amended by the Board of Directors and by the
stockholders in 1994, provides for the issuance of options to
F-23
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
purchase up to 1,972,845 shares of Common Stock, subject to certain
anti-dilution adjustments. Awards may be granted under the 1992 Stock Option
Plan to individuals, identified by the plan committee, who have or will have a
direct and significant effect on the performance or financial development of the
Company. The following table summarizes the 1992 Stock Option Plan activity:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
---------------
<S> <C>
Balance, October 29, 1994......................... 592,672
Granted......................................... 0
Exercised....................................... (12,545)
Canceled........................................ (205,387)
---------------
Balance, January 28, 1995......................... 374,740
Granted......................................... 0
Exercised....................................... (11,774)
Canceled........................................ (43,902)
---------------
Balance, February 3, 1996......................... 319,064
Granted......................................... 0
Exercised....................................... (504)
Canceled........................................ (43,109)
---------------
Balance, February 1, 1997......................... 275,451
---------------
---------------
</TABLE>
At February 1, 1997 options to purchase 275,451 shares at an exercise price
of $.01 per share were issued and outstanding of which, 266,041 are currently
exercisable and the balance thereof, subject to certain conditions, will vest
ratably through the fifth anniversary of the date of grant. All options are
exercisable for a period of ten years from the date of grant. The exercise price
was below the fair market value of the underlying shares on the date of grant
and, accordingly, $0.1 million, $0.1 million, $0.1 million, and $0.6 million was
charged to compensation expense during Fiscal 1996, Fiscal 1995, the January
Quarter and Fiscal 1994, respectively.
NOTE 14--RELATED PARTY TRANSACTIONS
In connection with the Recapitalization, certain of the Company's
stockholders, representing an aggregate of approximately 8,717,000 shares or 98%
of the Common Stock outstanding immediately following the Recapitalization
(currently 48.7%), entered into a voting agreement (the "Voting Agreement"). The
Voting Agreement provides, among other things, that (i) Apollo Retail Partners,
L.P. (together with its permitted assignees, "ARP") may designate six persons to
the Board of Directors, (ii) management may designate two persons to the Board
of Directors, and (iii) a majority of certain former holders of the 13 1/2%
Notes, which notes were exchanged for Common Stock pursuant to the
Recapitalization, may designate two persons to the Board of Directors. The
Voting Agreement will terminate upon the earlier of (i) October 30, 2002, or
(ii) the date upon which at least 25% of the then outstanding shares of Common
Stock are publicly held pursuant to one or more underwritten registered
offerings of primary shares. Since the Company's Chapter 11 filing, none of the
parties to the Voting
F-24
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 14--RELATED PARTY TRANSACTIONS (CONTINUED)
Agreement has exercised its right thereunder. Pursuant to the Plan, the
Company's obligations under the Voting Agreement will be rejected upon the
effective date of the Plan.
A former director of the Company is an affiliate of Morgens Waterfall
Vintiadis & Co. Inc. ("Morgens Waterfall"). Pursuant to the Recapitalization,
certain affiliates of Morgens Waterfall received an aggregate of approximately
16.7% (1,482,906 shares) of Common Stock outstanding immediately following the
Recapitalization in exchange for approximately $12.5 million in principal amount
of 13 1/2% Notes.
A former director of the Company was an officer of one of the banks which
extended a line of credit to the Company prior to its replacement with the
Foothill working capital facility in January 1994 (see Note 8).
Pursuant to the Recapitalization, Executive Life Insurance Company of New
York ("ELICNY") received 898,406 shares of the Company's Common Stock and $7.8
million ($6.4 million after adjustment for the Infusion) in principal amount of
the 10 1/4% Notes. During Fiscal 1994, the Company paid ELICNY $0.8 million of
cash interest on the 10 1/4% Notes. In addition, at October 29, 1994 the Company
had accrued $0.4 million of interest on the 10 1/4% Notes, which was
subsequently issued to ELICNY in additional securities of the Company as
interest paid in kind.
In connection with the Infusion, certain funds and accounts managed by
Fidelity Management and Research Company or Fidelity Management Trust Company
(the "Fidelity Funds"), the holders of the remaining 10 1/4% Notes, became the
holders of more than 5% of the Company's Common Stock. Accordingly, the Company
has reflected the entire amount of the 10 1/4% Notes as related party debt.
During Fiscal 1994, the Company paid the Fidelity Funds $6.9 million of cash
interest on the 10 1/4% Notes. In addition, at October 29, 1994 the Company had
accrued $3.6 million of interest on the 10 1/4% Notes, which was subsequently
issued to the Fidelity Funds in additional securities of the Company as interest
paid in kind.
NOTE 15--BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc.
Employees Retirement Trust and the Lamonts Apparel, Inc. Supplemental Executive
Retirement Plan (collectively the "Retirement Plan"). The Lamonts Apparel, Inc.
Supplemental Executive Retirement Plan was rejected in Fiscal 1996. The
Retirement Plan is a noncontributory defined benefit pension plan for employees
of the Company who are not eligible for pension benefits from another pension
plan pursuant to collective bargaining agreements. Participant benefits are
based on years of service and compensation during later years of employment. It
is the Company's policy to make contributions to the Retirement Plan in amounts
which comply with the minimum regulatory funding requirements.
F-25
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 15--BENEFIT PLANS (CONTINUED)
The following table sets forth the Company's funded plan status and amounts
recognized in the Company's consolidated balance sheets (dollars in thousands):
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY JANUARY
1, 1997 3, 1996 28, 1995
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of
$5,345, $5,462 and $4,286 in Fiscal 1996, Fiscal
1995 and the January Quarter, respectively...... $ 5,598 $ 5,651 $ 4,583
--------- --------- ---------
--------- --------- ---------
Projected benefit obligation...................... $ 6,513 $ 6,639 $ 5,499
Retirement Plan assets at value, primarily money
market funds and guaranteed investment
contracts....................................... 6,045 5,143 4,642
--------- --------- ---------
Projected benefit obligation in excess of
Retirement Plan assets.......................... 468 1,496 847
Unrecognized net loss from past experience
different from that assumed..................... (347) (1,238) (1,162)
--------- --------- ---------
Accrued (prepaid) pension cost.................... 121 258 (315)
Additional liability charge to equity to recognize
minimum liability............................... -- 250 --
--------- --------- ---------
Total accrued (prepaid) pension cost.............. $ 121 $ 508 ($ 315)
--------- --------- ---------
--------- --------- ---------
Discount rate..................................... 7.75% 7.25% 8.5%
Rate of increase in future compensation levels.... 3.5% 3.5% 4.5%
Expected long term rate of return on assets....... 9.0% 9.0% 9.0%
</TABLE>
Amounts charged to expense under the Retirement Plan were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL JANUARY FISCAL
1996 1995 QUARTER 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Service cost, benefits earned during the period... $ 404 $ 414 $ 108 $ 536
Interest cost on projected benefit obligation..... 461 483 113 407
Actual return on assets........................... (635) (883) 39 11
Other, including deferred recognition of asset
gain/(loss)..................................... 213 559 (129) (444)
-------- -------- -------- --------
Net pension cost.................................. $ 443 $ 573 $ 131 $ 510
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
During Fiscal 1995, a claim was filed against the Company by the Pension
Benefit Guaranty Corporation ("PBGC") in the amount of $2.8 million based upon
PBGC's assumption that one of the Company's qualified employee retirement plans
would be terminated. The Company believes that even if the plan was terminated,
unfunded plan benefit liabilities would not be material. The Company disputed
the claim. PBGC has withdrawn its claim without prejudice to its right to refile
at a future date if the PBGC determines it is appropriate to do so.
F-26
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 1, 1997
NOTE 15--BENEFIT PLANS (CONTINUED)
LAMONTS 401(K) PLAN
The Lamonts Apparel, Inc. Tax Relief Investments Protection Plan, as amended
and restated effective January 1, 1994 (the "401(k) Plan") provides participants
the opportunity to elect to defer an amount from one percent to 15% of their
compensation, in increments of one percent. Under the 401(k) Plan, the Company
matches contributions equal to 50% of each participant's deferred pay
contributions (such contribution not to exceed one percent of the participant's
compensation). The Company contributed $0.14 million, $0.15 million, $0.04
million, and $0.2 million during Fiscal 1996, Fiscal 1995, the January Quarter
and Fiscal 1994, respectively.
F-27
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash................................................................................. $ 2,298 $ 2,694
Receivables--net..................................................................... 2,271 2,478
Inventories.......................................................................... 55,712 52,770
Prepaid expenses and other........................................................... 2,365 2,315
Restricted cash and deposits......................................................... 1,703 1,217
----------- -----------
Total current assets............................................................... 64,349 61,474
Property and equipment--net of accumulated depreciation and amortization of $30,994 and
$26,061 respectively................................................................. 27,765 31,924
Leasehold interests.................................................................... 3,156 3,595
Excess of cost over net assets acquired--net........................................... 11,347 11,681
Deferred financing costs--net.......................................................... 1,447 2,170
Restricted cash and deposits........................................................... 1,142 1,139
Other assets........................................................................... 787 981
----------- -----------
Total assets....................................................................... $ 109,993 $ 112,964
----------- -----------
----------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility........................................................ $ 24,401 $ 29,565
Accounts payable..................................................................... 25,435 24,400
Accrued payroll and related costs.................................................... 2,525 2,564
Accrued taxes........................................................................ 1,400 1,187
Accrued interest..................................................................... 1,132 526
Accrued store closure costs.......................................................... -- 2,695
Other accrued expenses............................................................... 6,487 6,159
Current maturities of obligations under capital leases............................... 122 --
----------- -----------
Total current liabilities.......................................................... 61,502 67,096
Long-term debt......................................................................... 10,000 --
Obligations under capital leases....................................................... 3,246 2,808
Other.................................................................................. 167 547
----------- -----------
Total liabilities not subject to settlement under reorganization proceedings....... 74,915 70,451
----------- -----------
Liabilities subject to settlement under reorganization proceedings..................... 103,489 103,538
----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized, 17,900,053 shares issued
and outstanding...................................................................... 179 179
Additional paid-in capital............................................................. 63,010 62,963
Minimum pension liability adjustment................................................... -- (250)
Accumulated deficit.................................................................... (131,600) (123,917)
----------- -----------
Total stockholders' equity (deficit)............................................... (68,411) (61,025)
----------- -----------
Total liabilities and stockholders' equity (deficit)............................... $ 109,993 $ 112,964
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-28
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................................................... $ 50,263 $ 50,705
Cost of merchandise sold............................................................... 31,760 32,283
----------- -----------
Gross profit........................................................................... 18,503 18,422
----------- -----------
Operating and administrative expenses.................................................. 16,508 16,504
Depreciation and amortization.......................................................... 1,723 2,015
----------- -----------
Operating costs........................................................................ 18,231 18,519
----------- -----------
Income (loss) from operations before other income (expense) and reorganization
expenses............................................................................. 272 (97)
Other income (expense):
Interest expense (contractual interest of $3.6 million in 1997 and $3.5 million in
1996)................................................................................ (1,415) (1,318)
Other.................................................................................. 2 3
----------- -----------
Loss from operations before reorganization expenses.................................... (1,141) (1,412)
Reorganization expenses................................................................ 930 3,435
----------- -----------
Net loss............................................................................... (2,071) (4,847)
Accumulated deficit, beginning of period............................................... (129,529) (119,070)
----------- -----------
Accumulated deficit, end of period..................................................... $(131,600) $(123,917)
----------- -----------
----------- -----------
Net loss per common share.............................................................. $ (0.12) $ (0.27)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-29
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................................................... $ 137,394 $ 138,284
Cost of merchandise sold............................................................... 87,798 88,237
----------- -----------
Gross profit........................................................................... 49,596 50,047
----------- -----------
Operating and administrative expenses.................................................. 47,235 49,482
Depreciation and amortization.......................................................... 5,484 6,051
Impairment of long-lived assets........................................................ -- 4,170
----------- -----------
Operating costs........................................................................ 52,719 59,703
----------- -----------
Loss from operations before other income (expense) and reorganization expenses......... (3,123) (9,656)
Other income (expense):
Interest expense (contractual interest of $10.4 million in 1997 and $10.3 million in
1996)................................................................................ (3,855) (3,773)
Other.................................................................................. 6 8
----------- -----------
Loss from operations before reorganization expenses.................................... (6,972) (13,421)
Reorganization expenses................................................................ 1,924 5,090
----------- -----------
Net loss............................................................................... (8,896) (18,511)
Accumulated deficit, beginning of period............................................... (122,704) (105,406)
----------- -----------
Accumulated deficit, end of period..................................................... $(131,600) $(123,917)
----------- -----------
----------- -----------
Net loss per common share.............................................................. $ (0.50) $ (1.03)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-30
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
NOVEMBER 1, NOVEMBER 2,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... $ (8,896) $ (18,511)
Adjustments to reconcile net loss to net cash used in operating activities before
reorganization items:
Depreciation and amortization.......................................................... 5,484 6,051
Impairment of long-lived assets........................................................ -- 4,170
Reorganization expenses................................................................ 1,924 5,090
Increase in inventories................................................................ (18,153) (23,211)
Increase in accounts payable........................................................... 11,857 15,983
Other.................................................................................. 845 1,225
----------- -----------
Net cash used in operating activities before reorganization items.................. (6,939) (9,203)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the Chapter 11
proceedings.......................................................................... (2,591) (2,195)
----------- -----------
Net cash used in operating activities.............................................. (9,530) (11,398)
----------- -----------
Cash flows from investing activities:
Capital expenditures................................................................... (1,050) (525)
Proceeds from sale of property and equipment........................................... 4 4,459
Other.................................................................................. 257 45
----------- -----------
Net cash provided by (used in) investing activities................................ (789) 3,979
----------- -----------
Cash flows from financing activities:
Proceeds from term loan................................................................ 10,000 --
Post-petition borrowings under working capital facility................................ 154,167 187,979
Post-petition payments under working capital facility.................................. (152,908) (178,748)
Principal payments on obligations under capital leases................................. (666) (650)
Other.................................................................................. (42) (49)
----------- -----------
Net cash provided by financing activities.......................................... 10,551 8,532
----------- -----------
Net increase in cash................................................................... 232 1,113
Cash, beginning of period.............................................................. 2,066 1,581
----------- -----------
Cash, end of period.................................................................... $ 2,298 $ 2,694
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash interest payments made............................................................ $ 3,417 $ 3,615
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to the purchase of equipment.................................... $ (511) --
----------- -----------
----------- -----------
Capital lease relating to sale-leaseback of store...................................... -- $ 2,835
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consoldated financial
statements.
F-31
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1--PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the
"Company" or "Lamonts") filed a voluntary petition for relief (the "Filing")
under Chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court (the "Court") for the
Western District of Washington at Seattle. In Chapter 11, the Company has
continued to manage its affairs and operate its business as a
debtor-in-possession. As a debtor-in-possession in Chapter 11, the Company may
not engage in transactions outside of the ordinary course of business without
approval, after notice and hearing, of the Court. The Company and
representatives of the committees that represent Lamonts' unsecured trade
creditors, bondholders and equityholders (the "Committees") have reached an
understanding regarding the material economic terms of a proposed consensual
plan of reorganization designed to enable the Company to emerge from Chapter 11.
On August 23, 1996, that plan was filed with the Court, along with the proposed
disclosure statement relating to the plan. On October 23, 1996, an amended plan
of reorganization (the "Prior Plan") and an amended disclosure statement (the
"Prior Disclosure Statement") were filed with the Court. The Prior Disclosure
Statement was approved by the Court on October 24, 1996, and the Prior Plan and
Prior Disclosure Statement were transmitted to all impaired creditors and equity
security holders along with ballots for the purpose of soliciting acceptances of
the Prior Plan. A hearing to consider confirmation of the Prior Plan (the
"Confirmation Hearing") commenced on January 6, 1997, and the Court determined
that the requisite majorities of each class of the Company's impaired creditors
and equity security holders voted in favor of acceptance of the Prior Plan and
that all requirements for confirmation of the Prior Plan had been satisfied,
except that, as requested by Lamonts and the Committees, the Confirmation
Hearing was continued to April 14, 1997, to consider certain "Deferred
Confirmation Requirements". At the request of Lamonts and the Committees, the
Court further deferred final confirmation of the Prior Plan in order to afford
Lamonts additional time in which to explore opportunities to raise additional
working capital.
On September 26, 1997, following approval by the Court, the Company entered
into an amended and restated loan agreement (the "BankBoston Facility") with
BankBoston, N.A. (f/k/a "The First National Bank of Boston") ("BankBoston")
pursuant to which BankBoston has provided the Company with a new $10 million
term loan (the "Term Loan"), resulting in an increase in the maximum amount of
the Company's line of credit from $32 million to $42 million. The Term Loan has
been guaranteed by the Surety (as defined therein). The Term Loan has been fully
disbursed and no further amounts may be borrowed thereunder. The BankBoston
Facility is discussed further in Note 3.
On October 31, 1997, Lamonts filed a modified and restated plan of
reorganization (the "Plan") to take into account the Term Loan and related
matters, together with a supplemented and restated disclosure statement (as
amended on November 21, 1997, the "Disclosure Statement"). On November 24, 1997,
the Court approved the Disclosure Statement and authorized Lamonts to distribute
the Plan and Disclosure Statement and approved solicitation materials to
impaired creditors and equity security holders. A hearing on confirmation of the
Plan has been scheduled for December 18, 1997. If the Plan is confirmed at that
hearing, Lamonts expects the effective date of the Plan to occur on January 31,
1998. There can be no assurance that confirmation will be obtained or that the
effective date will occur when expected or at all.
F-32
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1--PETITION FOR RELIEF UNDER CHAPTER 11 (CONTINUED)
The Plan provides that the Company's current equity holders will be
substantially diluted. The confirmation and effectiveness of the Plan, the
implementation of the Company's proposed business plan and the Company's
proposed equity distribution are each subject to numerous uncertainties set
forth in detail in the Plan and Disclosure Statement, and the Plan is subject to
modifications and/or withdrawal. Accordingly, the value of the Company's common
stock remains highly speculative.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are generally stayed while the Company continues its
business operations as a debtor-in-possession. In a Chapter 11 reorganization
plan, the rights of the creditors may be significantly altered. Creditors may
receive substantially less than the full face amount of claims. Certain
creditors have filed claims with the Court substantially in excess of amounts
reflected in the Company's financial statements. The Company continues to
analyze and reconcile the claims filed by creditors with the Company's financial
records, but believes it has made appropriate provision for all claims filed.
However, no estimate of the amount of adjustments, if any, from recorded
amounts, to amounts to be realized by creditors, is available at this time.
These liabilities are included in the balance sheet as "liabilities subject to
settlement under reorganization proceedings."
As a result of the Company's Chapter 11 filing, the Company is currently in
default under the indentures governing the Company's 10 1/4% Subordinated Notes
due November 1999 (the "10 1/4% Notes") and its 13 1/2% Senior Subordinated
Notes which were due February 1995. As a result, all unpaid principal of, and
accrued pre-petition interest on, such debt became immediately due and payable.
The payment of such debt and accrued but unpaid interest is prohibited during
the pendency of the Company's Chapter 11 case, and these liabilities have been
included in the balance sheet as "liabilities subject to settlement under
reorganization proceedings".
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
<TABLE>
<CAPTION>
NOVEMBER 1, FEBRUARY 1,
1997 1997
----------- -----------
<S> <C> <C>
Accounts payable and accrued liabilities........................... $ 24,459 $ 23,121
Capital lease obligations.......................................... 10,551 11,216
10 1/4% Notes (including pre-petition accrued interest) related
party............................................................ 67,600 67,600
13 1/2% Notes (including pre-petition accrued interest)............ 838 838
Notes payable...................................................... 41 83
----------- -----------
$ 103,489 $ 102,858
----------- -----------
----------- -----------
</TABLE>
The increase in accounts payable and accrued liabilities is due to lease
damage claims accrued in fiscal year 1996 that have been reclassified as
liabilities subject to settlement under reorganization proceedings. The
reduction in capital lease obligations consists of payments to landlords for
store locations in the ongoing business operations of the Company.
F-33
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 1--PETITION FOR RELIEF UNDER CHAPTER 11 (CONTINUED)
In accordance with the Bankruptcy Code, the Company can seek Court approval
for the rejection of executory contracts, including real property leases. Any
such rejection may give rise to a prepetition unsecured claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, the Company
continues to review all of its obligations under its executory contracts. As of
November 1, 1997, the Company has rejected 14 real property leases and certain
executory contracts and assumed 5 leases (with certain conditions and
limitations).
As a result of the reorganization proceedings, the Company may sell or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the consolidated financial statements. Further, a plan
of reorganization could materially change the amounts currently recorded in the
consolidated financial statements, including amounts recorded for the excess of
cost over net assets acquired. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these matters or adjustments that might result should the Company be unable to
continue as a going concern. Generally if a debtor-in-possession is unable to
emerge from Chapter 11, such debtor-in-possession could be required to liquidate
its assets.
Costs associated with the reorganization of the Company are charged to
expense as incurred. Under the requirements of the Chapter 11 filing, the
Company is required to pay certain expenses of the Committees. The amounts
charged to reorganization expense by the Company have consisted and will
continue to consist primarily of write-offs of property and equipment,
professional fees, lease related costs and severance costs.
NOTE 2--BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation. The
consolidated financial statements included herein should be read in conjunction
with the audited, annual consolidated financial statements for the fiscal year
ended February 1, 1997, included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on May 2, 1997. The year-end
condensed balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods subsequent
to the Filing, in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses from operations and
the matters discussed herein related to the Filing raise substantial doubt about
the Company's ability to continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon, among other things, (i) the
ability to comply with its debtor-in-possession financing agreement, (ii)
confirmation of a plan of reorganization under the Bankruptcy Code, (iii) the
ability to achieve profitable operations after such confirmation and (iv) the
ability to generate sufficient cash from operations to meet its obligations.
F-34
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
The consolidated financial statements presented herein reflect all
adjustments that are, in the opinion of management, necessary to present fairly
the operating results for the periods reported. Except as discussed in Note 1,
all such adjustments are normal and recurring in nature. The results of
operations for the quarterly periods are not necessarily indicative of results
for the entire year.
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of Fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No.
121"). Statement No. 121 requires that long-lived assets and certain intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If impairment has
occurred, an impairment loss must be recognized.
Statement No. 121 requires that assets be grouped and evaluated at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
identified this lowest level to be principally individual stores. The Company
considers historical performance and future estimated results in its evaluation
of potential impairment and then compares the carrying amount of the asset to
the estimated future cash flows expected to result from the use of the asset. If
the carrying amount of the asset exceeds estimated expected undiscounted future
cash flows, the Company measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value. The estimation of fair value is
measured by discounting expected future cash flows at a rate commensurate with
the Company's borrowing rate.
During the first quarter of Fiscal 1996, the Company recognized a non-cash
impairment loss of $4.2 million. Of the total impairment loss, $2.3 million
represents impairment of property and equipment, $1.3 million relates to excess
of cost over net assets acquired and $0.6 million pertains to leasehold
interests. Based on estimates by management as of November 1, 1997, subject to
the outcome of issues discussed in Note 1, no additional impairment has occurred
during the nine months ended November 1, 1997. Considerable management judgment
is necessary to estimate discounted future cash flows. Accordingly, actual
results could vary significantly from such estimates.
OTHER
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("Statement No.
128"). All companies are required to comply with the disclosure requirements of
the statement and the Company will adopt the policy in the 4th Quarter of its
Fiscal year ending January 31, 1998. Management is currently evaluating the
requirements of Statement No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("Statement No.
130"). Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Statement No. 130 is effective for fiscal years beginning
after December 15,
F-35
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
1997 and requires restatement of earlier periods presented. Management is
currently evaluating the requirements of Statement No. 130.
NOTE 3--LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a
Loan and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing capacity
of up to $32.0 million in revolving loans, including up to $15.0 million of
letters of credit, subject to borrowing base limitations based upon, among other
things, the value of inventory and certain real property. On June 4, 1996, the
Company entered into a loan and security agreement with BankBoston replacing the
Old DIP Facility, after a hearing by the Court and the entering of an order
approving such financing. Although Foothill had taken no action to declare the
Company in default as of the date on which the Old DIP Facility was terminated,
the Company was in violation of the net worth maintenance covenant in the Old
DIP Facility.
On September 26, 1997, following approval by the Court, the Company entered
into the BankBoston Facility, which consists of: (i) a revolving line of credit
with a maximum borrowing capacity of $32 million (the "Revolver"); and (ii) a
term loan in the amount of $10 million. The Term Loan has been guaranteed by the
Surety. Pursuant to, and on the terms and conditions set forth in the BankBoston
Facility, BankBoston is obligated to make loans and advances to Lamonts on a
revolving basis, and to issue letters of credit to or for the account of Lamonts
(with a sublimit for letters of credit of $3 million) in an aggregate
outstanding amount (net of repayments) not to exceed the lesser of $32 million
and the Borrowing Base (as defined therein). The Term Loan has been fully
disbursed and no further amounts may be borrowed thereunder.
Assuming that the Plan is confirmed and becomes effective, the Revolver will
mature two years after the effective date of the Plan ("Effective Date") or, if
earlier, upon maturity of the Term Loan. The Term Loan will mature December 26,
1999, or, if earlier, upon maturity of the Revolver. Lamonts will have the
option to extend the maturity date of the Term Loan for two additional one-year
periods (subject to earlier maturity upon maturity of the Revolver), on the
terms and conditions set forth in the BankBoston Facility and upon payment of an
extension fee described therein. There are no extension options in respect of
the Revolver. If the Plan is not confirmed or does not become effective, both
the Revolver and the Term Loan would mature on February 27, 1998.
Lamonts is required to make principal payments on the Term Loan of $25,000
per month commencing October 31, 1998. A substantial portion of the principal
amount of the Term Loan is scheduled to be outstanding on the maturity date of
the Term Loan. Lamonts' borrowings under both the Revolver and the Term Loan
bear interest at a floating rate of 1.5% above the Base Rate (as defined
therein) or, at Lamonts' option, at 2.75% above the fully reserved adjusted
Eurodollar Rate (as defined therein). The rates are subject to adjustment on
June 1, 1998, and annually thereafter, based upon Lamonts' financial results in
accordance with the criteria set forth in the BankBoston Facility. The default
rate of interest under the Revolver is 3% above the Base Rate. The default rate
of interest under the Term Loan prior to maturity is 7% above the non-default
rate otherwise applicable, and after maturity is 7% above the non-default rate
applicable to loans measured by the Base Rate.
F-36
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 3--LOAN AND SECURITY AGREEMENTS (CONTINUED)
A facility fee in respect of the Revolver will be payable in the amount of
$336,000 on the Effective Date and in the amount of $224,000 on December 31,
1998. A letter of credit fee of 1.75% per annum will be charged quarterly in
arrears based on the average daily Maximum Drawing Amount (as defined therein)
of all outstanding letters of credit. A commitment fee in the amount of 0.5% per
annum will be payable monthly in arrears based on the average daily unused
amount of the Revolver. Both the letter of credit fee and commitment fee are
subject to adjustment on June 1, 1998, and annually thereafter, based upon
Lamonts' financial results in accordance with the criteria set forth in the
BankBoston Facility. In addition to a closing fee in the amount of $500,000
which Lamonts paid at the closing of the Term Loan on September 26, 1997, an
additional closing fee in respect of the Term Loan calculated at the rate of 5%
per annum applied to the average daily principal balance of the Term Loan
outstanding after September 26, 1998, is payable at the times and in the manner
set forth in the BankBoston Facility. If the options to extend the maturity date
of the Term Loan are exercised, extension fees calculated at the rate of 5% per
annum applied to the average daily principal balance of the Term Loan
outstanding during the applicable extension period will be payable at the times
and in the manner set forth in the BankBoston Facility.
Advances by BankBoston under the BankBoston Facility are secured by all real
and personal property, rights and assets of Lamonts, including without
limitation, real estate leasehold interests, but excluding certain proceeds of
bankruptcy causes of action and proceeds from a special account established for
unpaid professional fees. During the Chapter 11 case, the BankBoston Facility is
an allowed administrative expense claim with super-priority over other
administrative expenses in the Chapter 11 case.
The BankBoston Facility requires that, as of the Effective Date, in partial
exchange for the BankBoston claim against the Company's Chapter 11 estate and in
consideration for the guaranty of the Term Loan by the Surety, the Surety will
receive under the Plan (i) a warrant exercisable for the purchase of 3,429,588
shares of common stock, and (ii) 10 shares of Class B Common Stock, representing
all of the Class B Common Stock (which shares have special voting rights upon
the occurrence of certain events under the BankBoston Facility) to be authorized
and outstanding after the Effective Date.
The BankBoston Facility contains, among other things, covenants restricting
(i) the incurrence of debt and guarantees, (ii) the incurrence of liens and
encumbrances, (iii) the disposition of assets, (iv) mergers and investments, (v)
dividends and other restricted payments (as defined) and (vi) capital
expenditures. Any necessary waivers of or amendments to such covenants require,
with certain exceptions specified in the BankBoston Facility, the concurrence of
both BankBoston and the Surety.
The BankBoston Facility contains customary events of default for credit
facilities of this type. The Surety has the right, under specified circumstances
after a default, to direct BankBoston to declare Lamonts' obligations under the
BankBoston Facility immediately due and payable and to exercise certain of
BankBoston's rights and remedies under the BankBoston Facility.
For the nine months ended November 1, 1997, the weighted average interest
rate for loans based on the Base Rate was 10.0% (calculated on the average
monthly Revolver balance) and the weighted average interest rate for loans based
on the Eurodollar Rate was 8.45% (calculated on the average monthly Eurodollar
loan balance). The Company has expensed fees of approximately $568,000 for the
BankBoston Facility for the nine months ended November 1, 1997, which fees
payable under the BankBoston Facility
F-37
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOVEMBER 1, 1997
NOTE 3--LOAN AND SECURITY AGREEMENTS (CONTINUED)
for such period consisted primarily of monthly payments based on the average
unused borrowing capacity and on the borrowing capacity under the Revolver.
NOTE 4--LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period. The
common stock equivalents, represented by stock options and warrants were not
considered in the calculation as they either have an exercise price greater than
the applicable market price, or the effect of assuming their exercise or
conversion would be anti-dilutive. The weighted average number of shares
outstanding for the quarter and nine months ended November 1, 1997 were
17,900,053.
The weighted average number of shares outstanding for the quarter and nine
months ended November 2, 1996 were 17,900,053 and 17,899,857, respectively.
NOTE 5--COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation arising in the
ordinary course of business. In the opinion of management, the ultimate outcome
of all such matters should not have a material adverse effect on the financial
position of the Company, but, if decided adversely to the Company, could have a
material effect upon the Company's anticipated plan of reorganization and
operating results during the period in which the litigation is resolved. (See
also Part II, Item 1.)
F-38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses other than the Securities and Exchange Commission filing fees
are estimated.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 1,639.68
Accountants' fees and expenses.............................. $ 100,000.00
Legal fees and expenses..................................... $ 150,000.00
Blue Sky fees and expenses.................................. 0
Printing and engraving expenses............................. $ 25,000.00
Rating agencies' fees....................................... 0
Trustee's and registrar's fees and expenses................. $ 10,000.00
Miscellaneous............................................... $ 50,000.00
------------
Total:.................................................. $ 336,639.68
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware, a
Delaware corporation has the power, under specified circumstances, to indemnify
its directors, officers, employees and agents in connection with actions, suits
or proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against liabilities and expenses incurred in any
such action, suit or proceeding. Article VIII of the Company's Amended and
Restated Bylaws provides that the Company shall indemnify all persons that are
officers and directors of the Company on or after the Plan Effective Date to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware.
The officers and directors of the Company will each enter into
indemnification agreements (the "Indemnification Agreements") with the Company
pursuant to which the Company will indemnify, to the fullest extent permitted by
applicable law, such officer or director against liabilities and expenses
incurred by such officer or director in any proceeding or action because such
officer or director is or was a director, officer, employee or agent of the
Company and certain other circumstances. The Indemnification Agreements are in
addition to the indemnification provided in the Company's Amended and Restated
Bylaws. In neither case will indemnification be provided if prohibited under
applicable law. Individuals not entering into indemnification agreements will
remain entitled to the indemnification provisions of the Company's Amended and
Restated Bylaws and as otherwise provided by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES
Pursuant to the Plan of Reorganization, (a) an aggregate of 8,800,000 shares
of Common Stock, 2,203,320 Class A Warrants to purchase Common Stock and 700,237
shares of Class B Warrants to purchase Common Stock have been or will be issued
to the holders of prepetition claims against Lamonts, (b) an aggregate of
200,000 shares of Common Stock and 100,000 Class B Warrants to purchase Common
Stock have been or will be issued to the former holders of Old Common Stock, and
(c) 228,639 Class C Warrants to purchase Common Stock and 10 shares of Class B
Common Stock have been issued to the Surety. All such securities were or will be
issued in exchange for various prepetition 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 the Term Loan and in partial exchange for its administrative
claim.
II-1
<PAGE>
The issuance of such securities was not registered under the Securities Act
in reliance on the exemptions provided by section 1145 of the Bankruptcy Code
and, with respect to the Class C Warrants, section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Second Restated Certificate of Incorporation of the Registrant. (1)
3.2 Amended and Restated By-laws of the Registrant. (1)
*4.1 Specimen Class A Common Stock certificate.
*4.2 Specimen Class B Common Stock certificate.
4.3 Warrant Agreement dated January 31, 1998 between the Registrant and
Norwest Bank Minnesota, N.A., as Warrant Agent. (1)
4.4 Warrant Agreement dated January 31, 1998 between the Registrant and
Specialty Investment I LLC. (1)
4.5 Warrant Agreement dated January 31, 1998 between the Registrant and
Gordian Group, L.P. (2)
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of
the Common Stock and Warrants.
*10.1 Standard Service Agreement dated February 13, 1989 between Frederick
Atkins, Incorporated and the Registrant, as amended October 3, 1989 and
February 5, 1990.
*10.2 Credit Card Plan Agreement dated June 20, 1988, as amended September 30,
1992, between the Registrant and Alliance Data Systems (successor in
interest to National City Bank, Columbus, f/k/a BancOhio National Bank)
(the "Credit Card Plan Agreement").
*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.
*10.4 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan Agreement.
*10.5 Letter Agreement dated November 2, 1994 to the Credit Card Plan Agreement.
*10.6 Employment Agreement dated April 18, 1995 between the Registrant and Alan
R. Schlesinger.
*10.7 Employment Agreement dated April 18, 1995 between the Registrant and Loren
R. Rothschild.
*10.8 License Agreement dated May 25, 1995 between the Registrant and Shoe
Corporation of America.
*10.9 Computer Services Agreement dated February 1, 1996 between the Registrant
and Infotech Corporation.
*10.10 Loan and Security Agreement dated June 4, 1996 between First National Bank
of Boston and the Registrant.
*10.11 Depository Account Agreement dated June 4, 1996 among the Registrant,
BankBoston and Bank of America, N.W. N.A. (d/b/a Seafirst Bank).
*10.12 Waiver dated August 3, 1996 between First National Bank of Boston and the
Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*10.13 First Amendment dated November 8, 1996 to Loan and Security Agreement
dated June 4, 1996 between First National Bank of Boston and the
Registrant.
*10.14 Amendment dated December 9, 1996 to the Credit Card Plan Agreement.
*10.15 Computer Services Agreement dated February 4, 1997 between the Registrant
and Affiliated Computer Services, Inc.
*10.16 Second Amendment dated May 23, 1997 to Loan and Security Agreement dated
June 4, 1996 between the Registrant and Bank Boston, N.A. (f/k/a The
First National Bank of Boston) ("BankBoston").
*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.
*10.18 Lamonts Apparel, Inc. 1998 Stock Option Plan.
10.19 Amended and Restated Employment Agreement dated January 31, 1998 between
the Registrant and Alan R. Schlesinger.
10.20 Amended and Restated Employment Agreement dated January 31, 1998 between
the Registrant and Loren R. Rothschild.
*10.21 Amended and Restated Debtor in Possession and Exit Financing Loan
Agreement dated September 26, 1997 among the Registrant, certain
financial institutions and Bank Boston, as agent.
10.22 Grant of Registration Rights dated January 31, 1998 among the Company and
the parties listed on the signature pages thereto.
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.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on page II-5).
*99.1 Modified and Restated Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code.
*99.2 Supplemented and Restated Disclosure Statement (As Amended) re Debtor's
Plan of Reorganization Under Chapter 11 of the Bankruptcy Code.
</TABLE>
All other exhibits have been omitted since the required information is not
present or not present in amounts sufficient to require submission of schedules,
or because the information required is included in the financial statements and
Notes thereto.
- ------------------------
* Previously filed or incorporated by reference.
** To be filed by amendment.
(1) Incorporated by reference from the Company's Registration Statement on Form
8-A filed with the Commission on February 2, 1998.
(2) 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.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The Undersigned Registrant hereby undertakes:
(1) To file, during the period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of the Registration Fee" table in the effective
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new Registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from Registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Loren R.
Rothschild his or her ture and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Kirkland,
State of Washington, on March 3, 1998.
<TABLE>
<S> <C> <C>
LAMONTS APPAREL, INC.
By: /s/ ALAN R. SCHLESINGER*
------------------------------------------
Alan R. Schlesinger
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ -------------------
<C> <S> <C>
Chairman of the Board, Chief
/s/ ALAN R. SCHLESINGER* Executive Officer and
- ------------------------------ Director (Principal March 3, 1998
Alan R. Schlesinger Executive Officer)
/s/ LOREN R. ROTHSCHILD*
- ------------------------------ Vice Chairman of the Board and March 3, 1998
Loren R. Rothschild Director
Executive Vice President,
Chief Financial Officer
/s/ DEBBIE A. BROWNFIELD* and Secretary (Principal
- ------------------------------ Financial Officer and March 3, 1998
Debbie A. Brownfield Principal Accounting
Officer)
/s/ STANFORD SPRINGEL
- ------------------------------ Director March 3, 1998
Stanford Springel
/s/ PAUL M. BUXBAUM
- ------------------------------ Director March 3, 1998
Paul M. Buxbaum
/s/ JOHN J. WIESNER
- ------------------------------ Director March 3, 1998
John J. Wiesner
/s/ LOREN R. ROTHSCHILD
- ------------------------------
Loren R. Rothschild, March 3, 1998
ATTORNEY-IN-FACT
</TABLE>
- ------------------------
*By Loren R. Rothschild, as Attorney-in-Fact
II-6
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
made and entered into as of January 31, 1998, is by and between Lamonts
Apparel, Inc., a Delaware corporation (the "Company"), and Alan Schlesinger
("Executive").
WHEREAS, this Agreement, which amends and restates the Employment
Agreement, dated as of April 18, 1995 (the "Existing Employment Agreement"),
between Executive and the Company, is being entered into in connection with
the Company's Modified and Restated Plan of Reorganization under Chapter 11
of the Bankruptcy Code (the "Plan of Reorganization" or "Plan");
WHEREAS, the Plan of Reorganization provides, among other things, for
the continued employment of Executive after confirmation of the Plan of
Reorganization and dismissal of the Company's Chapter 11 case (the
"Bankruptcy Case") under Chapter 11 of title 11 of the United States Code
(the "Bankruptcy Code");
WHEREAS, the Plan was confirmed by order entered on December 18,
1997 by the United States Bankruptcy Court for the Western District of
Washington at Seattle (the "Bankruptcy Court") and the Bankruptcy Case has
been dismissed; and
WHEREAS, the Plan included provision for employment of the
Executive pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of
the mutual covenants set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree to amend and restate the Existing Employment Agreement as
follows:
1. EMPLOYMENT OF EXECUTIVE; TITLE.
(a) EMPLOYMENT. Executive agrees to be employed by the
Company, and the Company agrees to employ Executive, on the terms and
conditions set forth in this Agreement. Executive agrees during the term of
his employment to devote substantially all of his business time, efforts,
skills and abilities to the performance of his duties as stated in this
Agreement and to the furtherance of the Company's business.
<PAGE>
(b) TITLE. Executive's job title will be Chief Executive
Officer and his duties will be those as are designated by the Board of
Directors of the Company ("Board"), consistent with the position of Chief
Executive Officer. Executive further agrees to serve, without additional
compensation, as a director of the Company, and as an officer or director, or
both, of any subsidiary, division or affiliate of the Company or any other
entity in which the Company holds an equity interest; PROVIDED, however, that
the Company shall indemnify Executive from liabilities in connection with
serving in any such position to the same extent as his indemnification rights
pursuant to the Company's Certificate of Incorporation, By-Laws and
applicable Delaware law.
2. COMPENSATION.
(a) BASE SALARY. Executive's base salary shall be composed
of the following:
i) SALARY. During the term of Executive's employment
with the Company pursuant to this Agreement, the Company shall pay to
Executive as compensation for his services an annual salary of $450,000
payable semi-monthly ("Salary"). Executive's Salary will be payable in
arrears in accordance with the Company's normal payroll procedures and will
be reviewed annually and subject to upward adjustment as provided in
paragraph 3(a)(iii) below.
ii) GUARANTEED PERFORMANCE BONUS. In addition to his
Salary, the Executive shall be paid a guaranteed annual bonus in the sum of
$100,000 per year ("Minimum Bonus"), payable at the end of each calendar
year. In the event the Executive resigns or the Executive's employment is
terminated during the year, the guaranteed annual bonus shall be prorated and
paid upon termination.
iii) INCREASES IN BASE SALARY. Beginning on January 31,
1998, the Executive's Salary and Minimum Bonus shall be reviewed by the
Board or the Compensation Committee thereof no less frequently than on each
January 31 during the Term. The Salary and Minimum Bonus payable to
Executive may be increased on each such date (and at such other times as such
Board or the Compensation Committee may deem appropriate during the Term) to
such amount determined appropriate by such Board or the Compensation
Committee; PROVIDED, HOWEVER, that Executive's Salary and Minimum Bonus shall
be increased annually in a minimum amount equal to the cost-of-living
increment as reported in the "Consumer Price Index, Seattle, Washington, All
Items," published by the U.S. Department of Labor (using January 1, 1995 as
the base date for comparison with respect to the increase to be made on
January 31, 1998, and
2
<PAGE>
using January 1 of the immediately preceding year as the base date for
comparison with respect to each annual increase to be made thereafter). Each
such new Salary and Minimum Bonus shall become the base for each successive
year increase. Any increase in Salary, Minimum Bonus or other compensation
shall in no way limit or reduce any other obligations of the Company
hereunder and, once established as an increased specified rate, Executive's
Salary and Minimum Bonus shall not be reduced unless Executive otherwise
agrees in writing.
(b) BONUS COMPENSATION.
i) REORGANIZATION BONUS. Upon the Effective Date, the
Company became obligated to pay to the Executive, a bonus (the
"Reorganization Bonus") in an amount equal to $400,000. The Reorganization
Bonus shall be payable within 10 days after the Effective Date. If Executive
shall cease to be employed by the Company prior to the one year anniversary
of the Effective Date as a result of Executive's voluntary termination of
this Agreement in accordance with Section 7 hereof, Executive shall repay to
the Company on such date Executive ceases to be so employed, one-half of the
amount of the Reorganization Bonus received by Executive hereunder. The
Reorganization Bonus shall be an Expense of Administration obligation of the
Company.
ii) EXTENSION BONUS. The Company shall pay to Executive
an extension bonus of $175,000 payable on February 2, 1998, PROVIDED THAT,
Executive is employed by the Company on such date.
(c) RETENTION OF PRIOR BENEFITS. The Executive shall retain
all monies and other benefits previously paid to him by reason of the
Existing Employment Agreement.
(d) EXECUTIVE PERQUISITES. Executive shall be entitled to
receive such executive perquisites and fringe benefits as have been
customarily provided to senior executives of the Company.
(e) MISCELLANEOUS BUSINESS EXPENSES. Executive shall be
entitled to receive an allowance of $1,500 per month, payable monthly in
advance, for unreimbursed business-related expenses including the use of one
personal vehicle.
(f) STOCK OPTIONS. On the Effective Date, the Company shall
issue to Executive (i) options to purchase 600,000 shares of Class A Common
Stock, par
3
<PAGE>
value $.01 per share (the "Common Stock"), of the Company, which options
shall be exercisable at a price of $1.00 per share; (ii) to prevent dilution
upon exercise of the New Class A Warrants and the New Class B Warrants (as
each such term is defined in the Plan of Reorganization), (x) options to
purchase 146,888 shares of Common Stock, which options shall be exercisable
at a price of $.01 per share on the first date on which the Aggregate Equity
Trading Value (as such term is defined in the Plan of Reorganization) equals
or exceeds $20 million and (y) options to purchase 53,349 shares of Common
Stock, which options shall become exercisable at a price of $.01 per share on
the first date on which the Aggregate Equity Trading Value equals or exceeds
$25 million; PROVIDED THAT, the aggregate number of options described in
clauses (ii)(x) and (y) above which may be exercised by Executive shall bear
the same proportion (based on the total number of such options granted to
Executive) to the number of options described in clause (i) above that have
been exercised by Executive (based on the total number of such options
granted to Executive); and (iii) to prevent dilution upon the exercise of the
New Class C Warrants (as defined in the Plan), 15,243 New Class C Warrants,
exercisable in accordance with the terms thereof.
The options described in clauses (i) and (ii) above and the New
Class C Warrants issued to Executive shall vest (x) 50% upon the Effective
Date, (y) 25% on the first anniversary of the Effective Date and (z) 25% on
the second anniversary of the Effective Date; PROVIDED THAT, such options and
New Class C Warrants shall vest in full upon a Change in Control (as defined
in Section 6 hereof).
(g) TAX WITHHOLDING. The Company has the right to deduct from
any compensation payable to Executive under this Agreement social security
(FICA) taxes and all federal, state, municipal or other such taxes or charges
as may now be in effect or that may hereafter be enacted or required.
(h) BOARD MEMBERSHIP. The Company agrees that it will use its
best efforts to cause Executive to be nominated to the Board and to serve as
Chairman of the Board at each annual meeting of stockholders of the Company
during the term of this Agreement.
(i) LIFE INSURANCE. In addition to any other insurance which
the Company may choose to maintain on the life of the Executive, the Company
shall provide, to the extent it is reasonably able to do so, a term life
insurance policy in the face amount of two million dollars ($2,000,000)
payable to such beneficiary as the Executive may designate; provided,
however, that in no event shall the Company be
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required to pay premiums on such term life insurance policy in excess of
$15,000 per annum.
(j) DIRECTOR'S AND OFFICER'S INSURANCE. The Company shall
maintain directors' and officers' insurance policies during the term of
Executive's employment hereunder and for a period of twelve months thereafter
on substantially the same terms as the Company's current policies; PROVIDED
THAT, if any insurer shall cancel or refuse to renew any such policy and the
Company is unable to obtain a replacement policy on substantially the same
terms reasonably satisfactory to Executive, the Company will timely exercise
any and all options thereunder, and pay any and all premiums or other charges
necessary, to extend the period during which claims may be made thereunder;
further PROVIDED THAT, the Company shall not be required to pay such premiums
or other charges necessary to extend such period if they are substantially in
excess of the premiums in effect on the date hereof. If the Company does not
maintain directors' and officers' insurance at any time during the term of
Executive's employment hereunder, Executive may terminate this Agreement
immediately and such termination shall be treated as a termination without
Cause hereunder.
3. DURATION OF EMPLOYMENT.
(a) TERM. Unless otherwise terminated at an earlier date in
accordance with Section 4 or 6 hereof, the term of Executive's employment
under this Agreement shall be for a period commencing on the effective date
of the Plan of Reorganization (the "Effective Date") and ending on January
31, 2002 (the "Term").
(b) EARLY TERMINATION. Notwithstanding the foregoing, this
Agreement (other than Sections 5 through 14 hereof) will terminate upon the
earliest to occur of: (a) the date the Company terminates Executive's
employment, (b) the date Executive resigns from the Company, (c) notice from
the Company following the disability of Executive that renders him unable to
perform his essential duties under this Agreement, even with reasonable
accommodation that does not cause undue hardship to the Company, for at least
90 days out of any 120 consecutive day period, or (d) the death of Executive,
provided, however, that in the event of the death of Executive, the Company
shall pay to the estate of Executive six months of Salary commencing with the
next regular pay period after the date of his death ("Death Benefit"). Any
Death Benefit otherwise payable by the Company shall be offset by proceeds
from any life insurance furnished by the Company for payment of the Death
Benefit under this Section 3(b).
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4. TERMINATION BY THE COMPANY; DEFINITION OF CAUSE. Executive's
employment under this Agreement (and his right to receive the compensation
set forth in Section 2 hereof) may be terminated by the Company at any time
for "Cause," or (subject to the rights of Executive pursuant to Section 5
hereof) without "Cause." As used herein, "Cause" shall mean:
(a) Any dishonest or fraudulent act or course of conduct by
Executive, or other act or course of conduct by Executive constituting a
criminal act or which results in improper gain or personal enrichment of
Executive at the expense of the Company, or the commission by Executive of an
act or a course of conduct involving moral turpitude, or Executive's
insubordination to the Board.
(b) Executive's material breach of any of the terms or
conditions of this Agreement or of policies established by the Board, or
Executive's material neglect of his duties or of the Company's business,
provided, however, that no such termination pursuant to this clause (b) shall
be effective unless the Company shall have given Executive ten days' prior
written notice of any such conduct which, if not discontinued or corrected,
would lead to his termination for Cause. Executive will have the opportunity
to cure such non-complying conduct or performance within such 10-day period.
Termination pursuant to this clause (b) shall be effective with respect to
matters referred to in this clause (b) ten days after such notice unless such
conduct has been cured in the good faith judgment of the Board, subject to
the provisions of clause (c) below.
(c) In the event that the Executive disputes the grounds for a
claim of misconduct under clause (b) above, the Bankruptcy Court, prior to
the Effective Date, shall have jurisdiction to determine whether the alleged
misconduct constitutes reasonable grounds for termination for cause. In such
event the determination of the Bankruptcy Court shall be binding upon the
parties.
5. SEVERANCE PAYMENT ON TERMINATION WITHOUT CAUSE.
(a) TERMINATION WITHOUT CAUSE. If Executive's employment is
terminated by the Company without Cause during the term of this Agreement,
the Company shall be obligated to continue to pay Executive his Salary for a
period of two years or for the remainder of the term of this Agreement,
whichever period is shorter, subject to the provisions in Section 6
pertaining to Change in Control; PROVIDED THAT, such payments are subject to
reduction in accordance with the provisions of Section
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5(b) hereof. At the Company's sole option, the Company may elect to pay
Executive any remaining Salary due under this 5(a) in a lump sum, equal to
the present value of such remaining Salary payments at an effective annual
interest rate of 10 percent.
(b) OFFSET. If Executive's employment with the Company is
terminated pursuant to Section 5(a), this clause (b) shall apply. The
payments which would have been due and payable in accordance with Section
5(a) hereof shall be reduced by an amount equal to any amounts that Executive
receives in connection with any other employment, or engagement as a
consultant and/or independent contractor, during the period such payments
pursuant to Section 5(a) would have been due and payable. For purposes of
this Section 5(b), any fringe benefits received by Executive in connection
with any other employment that are reasonably comparable, but not necessarily
as beneficial, to Executive as the fringe benefits then being provided by the
Company pursuant to Section 5(a) hereof, shall be deemed to be the equivalent
of, and shall terminate the Company's responsibility to continue providing,
the fringe benefits then being provided by the Company if Executive's
employment with the Company is terminated pursuant to Section 5(a). Executive
shall have no duty to mitigate his damages and, specifically, Executive shall
have no obligation to seek any employment or engagement which would generate
payments or benefits that would constitute an offset hereunder.
(c) GENERAL RELEASE. Acceptance by Executive of any amounts
pursuant to this Section 5 shall constitute a full and complete release by
Executive of any and all claims Executive may have against the Company, any
of its past, present or future shareholders or any of their respective
officers, directors and affiliates (past, present or future), including, but
not limited to, claims he might have relating to Executive's cessation of
employment with the Company, or with respect to claims under Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967,
the Americans with Disabilities Act of 1990, or any other similar federal,
state or local statute, rule or regulation; PROVIDED THAT, there shall be
properly excluded from the scope of such general release the following:
i) claims that Executive may have against the Company for
reimbursement of ordinary and necessary business expenses incurred by him
during the course of his employment;
ii) claims that may be made by the Executive for payment
of Salary, Minimum Bonus, fringe benefits, stock, or stock options properly
due to him; and
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iii) claims respecting matters for which the Executive is
entitled to be indemnified under the Company's Certificate of Incorporation
or Bylaws or indemnification agreements, respecting third party claims
asserted or third party litigation pending or threatened against the
Executive.
A condition to Executive's receipt of any amounts pursuant to this Section 5
shall be Executive's execution and delivery of a general release as described
above. Such payment shall be considered independent consideration made in
exchange for such release. In exchange for such release, the Company shall,
if Executive's employment is terminated without Cause, provide a release to
Executive, but only with respect to claims against Executive which are
actually known to the Company as of the time of such termination.
6. EFFECT OF CHANGE IN CONTROL.
(a) If a Change in Control (as hereinafter defined) shall
occur on or prior to the date specified in Section 3(a) hereof as the end of
the Term, then (i) if the remaining portion of the Term is less than two
years, the Term shall be automatically extended to a date which is 2 years
from the date on which such Change in Control is consummated ("Extended
Term"), and, (ii) if Executive's options, including warrants, have not fully
vested, then upon consummation of a Change in Control on or after the
Effective Date, all Executive options, including warrants, shall vest
immediately upon such event. In the event that Executive is terminated
during the Extended Term the provisions of Section 5 shall apply.
(b) As used herein, a "Change in Control" shall be deemed to
have occurred if, subsequent to the date hereof:
i) any "person" (as such term is defined in Section 13(d)
of the Securities Exchange Act of 1934), other than (i) Apollo Advisors,
L.P., Lion Advisors, L.P., FMR Corp., Fidelity Management & Research Company,
Fidelity Management Trust Company, any other beneficial owner of the
Company's common stock as of the Effective Date, or (ii) any investment fund
managed by, or firm or group affiliated with any of the persons specified in
clause (i) above, or any of their respective affiliates, becomes the
beneficial owner, directly or indirectly, of either (A) a majority of the
Company's outstanding common stock or (B) securities of the Company
representing a majority of the combined voting power of the Company's then
outstanding voting securities;
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ii) a sale is made to any purchaser unaffiliated with the
Company or any of the persons specified in clause (i) above of all or
substantially all of the assets of the Company; or
iii) a merger or consolidation of the Company is made
with another corporation or other legal person unaffiliated with the Company
or any of the persons specified in clause (i) above if, immediately after
such merger or consolidation, less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person are
held, directly or indirectly, in the aggregate by the holders immediately
prior to such transaction of the then-outstanding securities of the Company
entitled to vote generally in the election of the Board.
In no event shall the term "Change in Control" be construed to
include any change of control of the Company or any affiliate of the Company
solely as a result of any exchange of equity for debt securities of the
Company or any such affiliate upon consummation of a plan of reorganization
for the Company in the Bankruptcy Case.
(c) Notwithstanding any other provision of this Agreement, if
the aggregate present value of the "parachute payments" to the Executive,
determined under Section 280G(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), is at least three times the "base amount" determined
under such Section 280G, then the Salary otherwise payable under this
Agreement and any other amount payable hereunder or any other severance plan,
program, policy or obligation of the Company or any other affiliate thereof
shall be reduced so that the aggregate present value of the "parachute
payments" to the Executive, determined under Section 280G, does not exceed
2.99 times the base amount. In no event, however, shall any benefit provided
hereunder be reduced to the extent such benefit is specifically excluded by
Section 280G of the Code as a "parachute payment" or as an "excess parachute
payment." Any decisions regarding the requirement or implementation of such
reductions shall be made by such tax counsel as may be selected by the
Company and acceptable to Executive.
7. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate
this Agreement for any reason by giving the Company at least 180 days'
written notice of termination. The Company shall have no obligation to
provide any severance compensation under Section 5 in the event of
Executive's voluntary termination of this Agreement.
8. NONSOLICITATION OF EMPLOYEES. For a period of two years after
the termination or cessation of his employment with the Company for any reason
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whatsoever, Executive shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, solicit or in
any manner attempt to influence or induce any employee of the Company or its
subsidiaries or affiliates (known by the Executive to be such) to leave the
employment of the Company or its subsidiaries or affiliates, nor shall he use
or disclose to any person, partnership, association, corporation or other
entity any information obtained while an employee of the Company concerning
the names and addresses of the Company's employees.
9. NONDISCLOSURE OF TRADE SECRETS. During the term of this
Agreement, Executive will have access to and become familiar with various
trade secrets and proprietary and confidential information of the Company,
its subsidiaries and affiliates, including, but not limited to, processes,
computer programs, compilations of information, records, sales procedures,
customer and supplier requirements, pricing techniques, customer and supplier
lists, methods of doing business and other confidential information
(collectively referred to as "Trade Secrets") which are owned by the Company,
its subsidiaries and/or affiliates and regularly used in the operation of its
business, and as to which the Company, its subsidiaries and/or affiliates
take precautions to prevent dissemination to persons other than certain
directors, officers and employees. Executive acknowledges and agrees that
the Trade Secrets (1) are secret and not known in the industry; (2) give the
Company or its subsidiaries or affiliates an advantage over competitors who
do not know or use the Trade Secrets; (3) are of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality
and secrecy of the Trade Secrets; and (4) are valuable, special and unique
assets of the Company or its subsidiaries or affiliates, the disclosure of
which could cause substantial injury and loss of profits and goodwill to the
Company or its subsidiaries or affiliates. Executive may not use in any way
or disclose any of the Trade Secrets, directly or indirectly, either during
the term of this Agreement or at any time thereafter, except as required in
the course of his employment under this Agreement, if required in connection
with a judicial or administrative proceeding, or if the information becomes
public knowledge other than as a result of an unauthorized disclosure by the
Executive. All files, records, documents, information, data and similar
items relating to the business of the Company, whether prepared by Executive
or otherwise coming into his possession, will remain the exclusive property
of the Company and may not be removed from the premises of the company under
any circumstances without the prior written consent of the Board (except in
the ordinary course of business during the Executive's period of active
employment under this Agreement), and in any event must be promptly delivered
to the Company upon termination of Executive's employment with the Company.
Executive agrees that upon his receipt of any subpoena, process or other
request to produce or divulge, directly or indirectly, any Trade Secrets to
any entity,
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agency, tribunal or person, Executive shall timely notify and promptly hand
deliver a copy of the subpoena, process or other request to the Board. For
this purpose, Executive appoints the Company (including any attorney retained
by the Company), as his true and lawful attorney-in-fact, to act in
Executive's name, place and stead to perform any act that Executive might
perform to defend and protect against any disclosure of any Trade Secrets.
10. EQUITABLE RELIEF. Executive acknowledges that the restrictions
contained in Sections 8 and 9 are, in view of the nature of the business of
the Company, reasonable and necessary to protect the legitimate interests of
the Company, that the company would not have entered into this Agreement in
the absence of such restrictions, and that any violation of any provisions of
those sections will result in irreparable injury to the Company. Executive
also acknowledges that the remedy at law for any violation of these
restrictions will be inadequate and that the Company shall be entitled to
temporary and permanent injunctive relief prohibiting any such violation,
without the necessity of proving actual damages or the posting of a bond, and
that the Company shall be further entitled to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative of and in addition to any other rights or remedies
to which the Company may be entitled. In the event of any such violation,
the Company shall be entitled to commence an action for temporary and
permanent injunctive relief and other equitable relief in any court of
competent jurisdiction and Executive further irrevocably submits to the
jurisdiction of any federal or state court in the geographical jurisdiction
of Seattle, Washington over any suit, action or proceeding arising out of or
relating to any asserted violation of Section 8 and/or 9. Executive hereby
waives, to the fullest extent permitted by law, any objection that he may now
or hereafter have to the jurisdiction of any federal or state court in the
geographical jurisdiction of Seattle, Washington or to the venue of any such
suit, action or proceeding brought in such a court and any claim that such
suit, action or proceeding has been brought in an inconvenient forum.
Effective service of process may be made upon Executive by mail under the
notice provisions contained in Section 14(a).
11. SEVERABILITY. The parties hereto intend all provisions of
Sections 8 and 9 hereof to be enforced to the fullest extent permitted by
law. Accordingly, should a court of competent jurisdiction determine that
the scope of any provision of Section 8 or 9 hereof is too broad to be
enforced as written, the parties intend that the court reform the provision
to such narrower scope as it determines to be reasonable and enforceable. In
addition, however, Executive agrees that the noncompetition, nonsolicitation
and nondisclosure agreements set forth above each constitute separate
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agreements independently supported by good and adequate consideration and
shall be severable from the other provisions of, and shall survive, this
Agreement. The existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the covenants
of Executive contained in the noncompetition, nonsolicitation and
nondisclosure agreements. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never constituted a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision
or by its severance herefrom. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be added as part of this Agreement, a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
12. LEGAL EXPENSES; EXECUTIVE'S WARRANTY.
(a) The Company agrees to reimburse Executive for reasonable
attorneys' fees and disbursements incurred and to be incurred by Executive
(net of amounts previously advanced) in the making of this agreement, in
seeking approval of the Bankruptcy Court thereof in the Bankruptcy Case, and
in obtaining such other services as may be required by the Executive in
connection with the effect of the Bankruptcy Case on his employment by the
Company. In the event that the parties do not agree on the amount of such
attorneys' fees the Bankruptcy Court shall be requested to make such
determination; provided, however, that in no event shall the Company be
required to pay attorneys' fees and disbursements in excess of $10,000 after
the date of the commencement of the Bankruptcy Case.
(b) Executive affirms that his employment is not contrary to
or in breach of any lawful agreement or other obligation Executive has to The
May Department Stores Company, and that based upon information known to him
as of the date of this Agreement regarding the business of the Company, he
does not know or possess any trade secrets or proprietary information of The
May Department Stores Company, or any of its affiliates (including its
parent) which would provide the Company with an unfair advantage over such
entities in the retail apparel business, and, in any event, will not, and
does not have any intent to convey any trade secrets or proprietary
information to the Company.
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13. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as otherwise provided herein, the parties agree
that the exclusive remedy or method of resolving all disputes or questions
arising out of or relating to this Agreement shall be arbitration.
Arbitration shall be held in Seattle, Washington, presided over by one
arbitrator. Any arbitration may be initiated by either party by written
notice ("Arbitration Notice") to the other party specifying the subject of
the requested arbitration.
(b) If the parties are unable to mutually select an arbitrator
to hear the matter, then the American Arbitration Association, upon
application of the initiating party, shall provide a panel of arbitrators
from which the parties shall select one to hear the matter.
(c) The arbitration proceeding shall be conducted in
accordance with the Rules for Resolution of Employment Disputes of the
American Arbitration Association. The administrative costs of arbitration
(including the expense of a party in preparing for and presenting the
party's case at the arbitration and of the fees and expenses of legal counsel
to a party, all of which shall be borne by that party), shall be borne by the
Company only if Executive receives substantially the relief sought by him in
the arbitration; otherwise, the costs shall be borne equally between the
parties. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered and
enforced in any court of competent jurisdiction.
14. MISCELLANEOUS.
(a) NOTICES. Any notices, consents, demands, requests,
approvals and other communications to be given under this Agreement by either
party to the other must be in writing and must be either (i) personally
delivered, (ii) mailed by registered or certified mail, postage prepaid with
return receipt requested, (iii) delivered by overnight express delivery
service or same-day local courier service, or (iv) delivered by telex or
facsimile transmission, to the address set forth below, or to such other
address as may be designated by the parties from time to time in accordance
with this Section 14(a):
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If to the Company: Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, Washington 98034
Attention: Chief Financial Officer
Facsimile: (425) 814-9749
With a copy (which
shall not constitute
notice) to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile: (213) 687-5600
Attention: Michael A. Woronoff
If to Executive: Alan Schlesinger
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, Washington 98034
Facsimile: (425) 814-9749
With a copy (which
shall not constitute
notice) to: Lawrence A. Jacobson
Cohen and Jacobson
577 Airport Boulevard
Suite 230
Burlingame, California 94010
Facsimile: (415) 347-2916
Notices delivered personally or by overnight express delivery
service or by local courier service are deemed given as of actual receipt.
Mailed notices are deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission are deemed given upon receipt by
the sender of the answer back (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).
(b) ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or written, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.
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(c) MODIFICATION. No change or modification of this Agreement
is valid or binding upon the parties, nor will any waiver of any term or
condition in the future be so binding, unless the change or modification or
waiver is in writing and signed by the parties to this Agreement.
(d) GOVERNING LAW. THE PARTIES ACKNOWLEDGE AND AGREE THAT
THIS AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES UNDER THIS
AGREEMENT WILL BE PERFORMED IN SEATTLE, WASHINGTON. THIS AGREEMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
WASHINGTON, AND, WHERE APPLICABLE, THE LAWS OF THE UNITED STATES.
(e) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which constitutes an original, but all of which
constitute one document.
(f) ESTATE. If Executive dies prior to the expiration of the
term of employment or during a period when monies are owing to him, any
monies that may be due him from the Company under this Agreement as of the
date of his death shall be paid to his estate when and as otherwise payable.
(g) ASSIGNMENT. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of the Company's assets or a control block
of stock of the Company, or with which the Company merges or consolidates.
The rights, duties and benefits to Executive hereunder are personal to him,
and no such right or benefit may be assigned by him. The provisions of this
clause (g) are all subject to the provisions of Section 6.
(h) BINDING EFFECT. This Agreement is binding upon the
parties hereto, together with their respective executors, administrators,
successors, personal representatives, heirs and permitted assigns, and upon
any Trustee appointed in the Bankruptcy Case whether in the pending Chapter
11 case, in any converted Chapter 7 case, or otherwise.
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(i) WAIVER OF BREACH. The waiver by the Company or Executive
of a breach of any provision of this Agreement by Executive or the Company
may not operate or be construed as a waiver of any subsequent breach.
(j) COURT APPROVAL. This Employment Agreement is subject to
approval of the Bankruptcy Court in the Bankruptcy Case.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth in the first paragraph.
LAMONTS APPAREL, INC.
By: /s/ Loren R. Rothschild
-------------------------------------
Name: Loren R. Rothschild
Title: Vice Chairman of the Board
/s/ ALAN SCHLESINGER
---------------------------------------
ALAN SCHLESINGER
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AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
made and entered into as of January 31, 1998, is by and between Lamonts Apparel,
Inc., a Delaware corporation (the "Company"), and Loren R. Rothschild
("Executive").
WHEREAS, this Agreement, which amends and restates the Employment
Agreement, dated as of April 18, 1995 (the "Existing Employment Agreement"),
between Executive and the Company, is being entered into in connection with the
Company's Modified and Restated Plan of Reorganization under Chapter 11 of the
Bankruptcy Code (the "Plan of Reorganization" or "Plan");
WHEREAS, the Plan provides, among other things, for the continued
employment of Executive after confirmation of the Plan and dismissal of the
Company's Chapter 11 case (the "Bankruptcy Case") under Chapter 11 of title 11
of the United States Code (the "Bankruptcy Code");
WHEREAS, the Plan was confirmed by order entered on December 18, 1997
by the United States Bankruptcy Court for the Western District of Washington at
Seattle (the "Bankruptcy Court") and the Bankruptcy Case has been dismissed; and
WHEREAS, the Plan included provision for employment of the Executive
pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
to amend and restate the Existing Employment Agreement as follows:
1. EMPLOYMENT OF EXECUTIVE; TITLE.
(a) EMPLOYMENT. The Company hereby agrees to employ Executive,
and Executive agrees to enter into the employment of the Company, on the terms
and conditions set forth in this Agreement. Executive agrees during the term of
his employment to devote such portion of his business and professional time,
efforts, skills and abilities to the performance of his duties as stated herein
and to the furtherance of the Company's business as the Chairman of the Board of
Directors of the Company (the "Board") may reasonably direct.
<PAGE>
(b) TITLE. Executive's job title will be Vice Chairman of the
Board and his duties will be those as are mutually determined by the Chairman
and the Vice Chairman of the Board, consistent with the position of Vice
Chairman, including managing the legal, financial and administrative functions
of the Company.
(c) BOARD MEMBERSHIP. The Company agrees that it will use its
best efforts to cause Executive to be nominated to the Board and to serve as
Vice Chairman of the Board at each annual meeting of stockholders of the Company
during the term.
2. TERM. Unless terminated at an earlier date in accordance with
Section 8, the term of this Agreement (the "Term") shall continue until the
third anniversary of the 90th day following the effective date of the Plan (the
"Effective Date").
3. COMPENSATION.
(a) BASE SALARY. Subject to Section 8 hereof, as compensation
for Executive's services hereunder, the Company shall pay to Executive a base
salary ("Base Salary") of (i) $240,000 per year, payable in equal monthly
installments of $20,000, in arrears at the end of each calendar month during the
first 90 days of the Term and (ii) $150,000 per year, payable in equal monthly
installments of $12,500, in arrears at the end of each calendar month during the
remainder of the Term.
(b) REORGANIZATION BONUS. Upon the Effective Date, the Company
became obligated to pay to Executive, a bonus (the "Reorganization Bonus") in an
amount equal to (i) $186,667 and (ii) an additional bonus of $80,000. The
portion of the Reorganization Bonus payable pursuant to clause (ii) of this
Section 3(b) shall be payable on the 90th day after the Effective Date. The
Reorganization Bonus shall be an Expense of Administration obligation of the
Company.
(c) INCREASES IN BASE SALARY. Beginning on January 31, 1998,
Executive's Base Salary shall be reviewed by the Board or the Compensation
Committee thereof no less frequently than on each January 31 during the Term.
The Base Salary payable to Executive may be increased on each such date (and at
such other times as such Board or the Compensation Committee may deem
appropriate during the Term) to such amount determined appropriate by such Board
or the Compensation Committee; PROVIDED, HOWEVER, that Executive's Base Salary
shall be increased annually in a minimum amount equal to the cost-of-living
increment as reported in the "Consum-
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er Price Index, Los Angeles, California, All Items," published by the U.S.
Department of Labor (using January 1, 1995 as the base date for comparison with
respect to the increase to be made on January 31, 1998, and using January 1 of
the immediately preceding year as the base date for comparison with respect to
each annual increase to be made thereafter). Each such new Base Salary shall
become the base for each successive year increase. Any increase in Base Salary
or other compensation shall in no way limit or reduce any other obligations of
the Company hereunder and, once established as an increased specified rate,
Executive's Base Salary shall not be reduced unless Executive otherwise agrees
in writing.
4. ADDITIONAL COMPENSATION. On the Effective Date, the Company
shall issue to Executive (i) options to purchase 150,000 shares of Class A
Common Stock, par value $.01 per share (the "Common Stock"), of the Company,
which options shall be exercisable at a price of $1.00 per share; (ii) to
prevent dilution upon exercise of the New Class A Warrants and the New Class B
Warrants (as each such term is defined in the Plan of Reorganization), (x)
options to purchase 36,722 shares of Common Stock, which options shall be
exercisable at a price of $.01 per share on the first date on which the
Aggregate Equity Trading Value (as such term is defined in the Plan of
Reorganization) equals or exceeds $20 million and (y) options to purchase 13,337
shares of Common Stock, which options shall become exercisable at a price of
$.01 per share on the first date on which the Aggregate Equity Trading Value
equals or exceeds $25 million; PROVIDED THAT, the aggregate number of options
described in clauses (ii)(x) and (y) above which may be exercised by Executive
shall bear the same proportion (based on the total number of such options
granted to Executive) to the number of options described in clause (i) above
that have been exercised by Executive (based on the total number of such options
granted to Executive); and (iii) to prevent dilution upon the exercise of the
New Class C Warrants (as defined in the Plan), 3,811 New Class C Warrants,
exercisable in accordance with the terms thereof.
The options described in clauses (i) and (ii) above and the New Class
C Warrants issued to Executive shall vest (x) 50% upon the Effective Date, (y)
25% on the first anniversary of the Effective Date and (z) 25% on the second
anniversary of the Effective Date; PROVIDED THAT, if this Agreement is
thereafter terminated pursuant to Section 8(a)(i), such options and New Class C
Warrants shall vest in full upon the date of such termination.
5. TAX WITHHOLDING; WAIVER OF BENEFITS. The Company has the right
to deduct from all compensation and amounts payable to Executive under this
Agreement social security (FICA) taxes and all federal, state, municipal or
other such
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taxes, deductions or charges as may now be in effect or that may hereafter be
enacted or required. During the Term, Executive hereby waives, to the fullest
extent permitted by applicable law, all benefits and executive perquisites
provided to employees of the Company, including, without limitation, those
provided to its senior executives (but excluding 401(k) benefits and benefits
and perquisites provided to directors of the Company, including (without
limitation), directors' and officers' liability insurance).
6. EXPENSES. Executive acknowledges that the performance of his
duties hereunder will require significant travel, primarily to Kirkland,
Washington, and agrees to be present in such other locations at such other times
as the Chairman of the Board may reasonably request. Executive shall be
reimbursed by the Company, in accordance with its reimbursement policy from time
to time in effect, for all reasonable and necessary out-of-pocket expenses
incurred by him in performing his duties under this Agreement, including
(without limitation) hotel, rental car, airfare and other reasonable travel
expenses between Executive's home in Los Angeles, California, and Kirkland,
Washington. Executive shall be furnished with a suitable office and secretarial
assistance at the Company's headquarters.
7. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. Except as permitted or directed by the
Board through written authorization, during the Term and for a period of two
years thereafter, Executive shall not, and shall not permit any of his
affiliates or representatives (collectively, "REPRESENTATIVES") to, divulge,
furnish or make accessible to anyone or use in any way (other than in the
ordinary course of the business of the Company) any confidential or secret
knowledge or information of the Company which Executive or any of his
Representatives has acquired or becomes acquainted with or will acquire or
become acquainted with prior to the termination of this Agreement, whether
developed by itself or by others, concerning any trade secrets, confidential or
secret designs, directly or indirectly useful in any aspect of the business of
the Company, any customer or supplier lists of the Company, any confidential or
secret development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. The foregoing
obligations of confidentiality, however, shall not apply to disclosure of any
knowledge or information that is required by any governmental agency or
instrumentality to be disclosed or is now published or which subsequently
becomes generally publicly known in the form in which it was obtained from the
Company, other than as a direct or indirect result of the breach of this
Agreement by Executive or any of his Representatives; PROVIDED THAT, in the case
of a governmental agency or instrumentality seeking disclosure of such
confidential material,
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Executive agrees to provide the Company with prompt notice, sufficient
information and reasonable assistance so that the Company can seek an
appropriate order or other appropriate remedy or, if the Company wishes, waive
Executive's compliance with this Section 7.
(b) CONFIDENTIAL MATERIALS. Upon termination of this Agreement
and upon written request of the Company, Executive agrees to deliver promptly to
the Company all written confidential or secret knowledge or information of the
Company, including, without limitation, all analyses, compilations, studies or
other documents or records prepared by Executive, his Representatives or any
others, and all copies or other reproductions of any of the aforementioned
items.
8. TERMINATION.
(a) BASES FOR TERMINATION. Notwithstanding any other provision
hereof, this Agreement and the relationship created hereunder between the
Company and Executive shall terminate prior to the expiration of the Term only
upon the occurrence of any one of the following events:
(i) 30 days after delivery to Executive by the Company of
written notice of the Company's voluntary and unilateral termination of
this Agreement;
(ii) 30 days after delivery to the Company by Executive of
written notice of Executive's voluntary and unilateral termination of this
Agreement; or
(iii) immediately after delivery to Executive by the Company
of written notice of termination for "cause." For purposes of this
Agreement, "cause" shall mean (A) any dishonest or fraudulent act or course
of conduct by Executive, or other act or course of conduct by Executive
constituting a criminal act or that results in improper gain or personal
enrichment of Executive at the expense of the Company, or the commission by
Executive of an act or a course of conduct involving moral turpitude, or
Executive's insubordination to the Board; or (B) the engaging by Executive
in willful misconduct or gross negligence that is injurious to the Company;
or (C) a material breach by Executive of any of the terms or conditions of
this Agreement or of policies reasonably established by the Board, or
Executive's material neglect of his duties or of the Company's business,
PROVIDED THAT, no such termination pursuant to this clause
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(C) shall be effective unless the Company shall have given Executive 30
days' prior written notice specifying the manner in which Executive's
conduct or performance fails to comply with this clause (C) and Executive
shall not have cured such non-complying conduct or performance within such
30-day period. (Termination pursuant to this clause (C) shall be effective
30 days after such notice unless such conduct has been cured in the good
faith judgment of the Board of Directors of the Company.)
(b) EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8(a)(i), Executive shall be entitled to receive only (A) the
unpaid portion of his Base Salary that would have been payable pursuant to
Section 3(a) during the Termination Period (defined below) had this Agreement
not been so terminated, which shall be paid to Executive in arrears at the end
of each calendar month during such period, plus (B) any unreimbursed expenses
payable pursuant to Section 6, which shall be paid to Executive within ten
business days after the date that Executive submits to the Company reasonable
documentation of such unreimbursed expenses. "TERMINATION PERIOD" shall mean
the period beginning on the effective date of termination and ending on the last
day of the Term.
If this Agreement is terminated pursuant to Section 8(a)(ii) or (iii),
Executive shall be entitled to receive only (A) his Base Salary payable pursuant
to Section 3(a), pro-rated through the effective date of such termination, which
shall be paid to Executive on the effective date of such termination, plus (B)
any unreimbursed expenses payable pursuant to Section 6, which shall be paid to
Executive within ten business days after the date that Executive submits to the
Company reasonable documentation of such unreimbursed expenses.
(c) GENERAL RELEASE. Acceptance by Executive of any amounts
pursuant to this Section 8 shall constitute a full and complete release by
Executive of any and all claims Executive may have against the Company, its
officers, directors, and affiliates, including, but not limited to, claims he
might have relating to Executive's cessation of employment with the Company;
PROVIDED, however, that there may be properly excluded from the scope of such
general release the following:
(i) claims that Executive may have against the Company for
reimbursement of reasonable and necessary business expenses incurred by him
during the course of his employment;
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(ii) claims that may be made by Executive for payment of base
salary properly due to him; or
(iii) claims respecting matters for which Executive is
entitled to be indemnified under the Company's Certificate of Incorporation
or Bylaws or indemnification agreements, respecting third-party claims
asserted or third-party litigation pending or threatened against Executive.
A condition to Executive's receipt of any amounts pursuant to this Section 8
shall be Executive's execution and delivery of a general release as described
above. In exchange for such release, the Company shall, if Executive's
employment is terminated without cause, provide a release to Executive, but only
with respect to claims against Executive that are actually known to the Company
as of the time of such termination.
9. LIABILITY OF EXECUTIVE. Executive assumes no responsibility
under this Agreement, other than to perform the services to be performed
hereunder in good faith and to maintain the confidentiality of any confidential
or secret information of the Company pursuant to Section 7. Executive shall
not be liable to the Company, except by reason of acts constituting bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties.
The Company shall maintain directors' and officers' insurance policies
during the Term and for a period of twelve months thereafter on substantially
the same terms as the Corporation's current policies; PROVIDED THAT, if any
insurer shall cancel or refuse to renew any such policy and the Company is
unable to obtain a replacement policy on substantially the same terms reasonably
satisfactory to Executive, the Company will timely exercise any and all options
thereunder, and pay any and all premiums or other charges necessary, to extend
the period during which claims may be made thereunder; PROVIDED further THAT,
the Company shall not be required to pay such premiums or other charges
necessary to extend such period if they are substantially in excess of the
premiums in effect on the date hereof. If the Company does not maintain
directors' and officers' insurance at any time during the Term, Executive may
terminate this Agreement immediately and such termination shall be treated as a
termination under 8(a)(i) hereof.
10. OTHER BUSINESS ACTIVITIES. The Company acknowledges and agrees
that Executive may perform consulting services for other persons; PROVIDED THAT,
Executive may not perform consulting or other services for any retail apparel
chain that is competitive with the Company or its subsidiaries in any
geographical area in which
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the Company or any of its subsidiaries engages in business. Subject to the
foregoing proviso, nothing in this Agreement shall restrict or limit the right
of Executive, the Company or their respective affiliates or associates to engage
in whatever activities they choose, whether or not competitive with matters
covered by this Agreement, and none of them shall, as a result of this
Agreement, have any obligation to offer any interest in such activities to any
party hereto.
11. ARBITRATION - EXCLUSIVE REMEDY.
(a) Except as otherwise provided herein, the parties agree that
the exclusive remedy or method of resolving all disputes or questions arising
out of or relating to this Agreement shall be arbitration. Arbitration shall be
held in Seattle, Washington, presided over by one arbitrator. Any arbitration
may be initiated by either party by written notice ("Arbitration Notice") to the
other party specifying the subject of the requested arbitration.
(b) If the parties are unable to mutually select an arbitrator
to hear the matter, then the American Arbitration Association, upon application
of the initiating party, shall provide a panel of arbitrators from which the
parties shall select one to hear the matter.
(c) The arbitration proceeding shall be conducted in accordance
with the Rules for Resolution of Employment Disputes of the American Arbitration
Association. The administrative costs of arbitration (including the expense of
a party in preparing for and presenting the party's case at the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party), shall be borne by the Company only if Executive receives
substantially the relief sought by him in the arbitration; otherwise, the costs
shall be borne equally between the parties. The arbitration determination or
award shall be final and conclusive on the parties, and judgment upon such award
may be entered and enforced in any court of competent jurisdiction.
12. MISCELLANEOUS.
(a) ASSIGNMENT. The Company shall have the right to assign
this Agreement to its successors or assigns. The terms "successors" and
"assigns" shall include any person, corporation, partnership or other entity
that buys all or substantially all of the Company's assets or all of its stock,
or with which the Company
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merges or consolidates. The rights, duties and benefits to Executive hereunder
are personal to him, and no such right or benefit may be assigned by him.
(b) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF WASHINGTON AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WITHIN SAID STATE WITHOUT CONSIDERATION OF
ANY CONFLICTS OF LAW PROVISIONS THEREOF.
(c) ENTIRE AGREEMENT. This Agreement evidences the entire
understanding and agreement of the parties hereto relative to the employment
arrangement between Executive and the Company and the other matters discussed
herein. This Agreement supersedes any and all other agreements and
understandings, whether written or oral, relative to the matters discussed
herein.
(d) SEVERABILITY. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ a
valid, legal, nonvoid and enforceable alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(e) AMENDMENTS/WAIVERS. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
(f) HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
(h) NOTICES. Any notices or other communications to the Company
or Executive required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company: Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Facsimile: (425) 814-9749
Attention: Chief Executive Officer
If to Executive: Loren R. Rothschild
Lamonts Apparel, Inc.
12413 Willows Road N.E.
Kirkland, WA 98034
Facsimile: (425) 814-9749
The Company or Executive by notice to the other party may designate additional
or different addresses as shall be furnished in writing by such party. Any
notice or communication to the Company or Executive shall be deemed to have been
given or made as of the date so delivered, if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and five
business days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth in the first paragraph.
LAMONTS APPAREL, INC.
By: /s/ Alan Schlesinger
-----------------------------------
Name: Alan Schlesinger
Title: Chairman of the Board,
President and Executive Officer
/s/ LOREN R. ROTHSCHILD
---------------------------------------
LOREN R. ROTHSCHILD
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GRANT OF REGISTRATION RIGHTS
Lamonts Apparel, Inc., a Delaware corporation as reorganized pursuant to
Chapter 11, Title 11 of the United States Code (the "Company"), hereby grants to
each Holder (as hereinafter defined), effective as of the Effective Date (as
defined in the Plan of Reorganization of the Company (the "Plan"), as confirmed
by order of the United States Bankruptcy Court for the Western District of
Washington) the registration rights provided for herein.
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"ADVICE" has the meaning set forth in Section 5.
"AFFILIATE" means, with respect to any specified Person, any other Person
who, directly or indirectly through one or more intermediaries, (a) controls, is
controlled by, or is under common control with such specified Person, (b) serves
as trustee or in a similar fiduciary capacity for such specified Person or
(c) acts as investment manager or adviser for such specified person.
"BUSINESS DAY" means any day other than a day on which banks are authorized
or required to be closed in the State of New York.
"CLASS A/B HOLDER" means each holder of a Class 4 Claim and/or a Class 5
Interest under the Plan which, together with its Affiliates, directly or
indirectly, beneficially owns in excess of ten percent (10%) of the issued and
outstanding shares of Common Stock on the Effective Date, and "CLASS A/B
HOLDERS" shall refer to all such Persons collectively.
"CLASS C HOLDER" means Specialty Investment I LLC.
"CLASS A WARRANTS" means the Class A Warrants to purchase Common Stock
issued to Class A/B Holders in accordance with the Plan.
"CLASS B WARRANTS" means the Class B Warrants to purchase Common Stock
issued to Class A/B Holders in accordance with the Plan.
<PAGE>
"CLASS C WARRANTS" means the Class C Warrants to purchase Common Stock
issued to the Class C Holder in accordance with the Plan.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" means the shares of Common Stock held by the Holders.
"COMMON STOCK" means the Class A Common Stock, par value $0.01 per share,
of the Company.
"COMPANY" has the meaning set forth in the first paragraph hereof and shall
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"CONTROLLING PERSONS" has the meaning set forth in Section 8(a).
"EFFECTIVE DATE" has the meaning set forth in the first paragraph.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"HOLDER" means (a) the Class A/B Holders, (b) the Class C Holder and
(c) each Person to whom any such holder transfers Registrable Securities if
either (i) after giving effect to such transfer such Person (together with its
Affiliates and together with any Persons who are members of a "group" (within
the meaning of Section 13 of the Exchange Act and the rules and regulations
promulgated thereunder) with such Person), directly or indirectly, beneficially
owns ten percent (10%) or more of the issued and outstanding shares of Common
Stock as of the date of such transfer, or (ii) such Person has not met with
respect to such Registrable Securities the holding period requirement of
Rule 144(k) promulgated under the Securities Act (or any successor provision).
"HOLDERS' COUNSEL" means (a) in the case of the Class A/B Holders, Goodwin,
Procter & Hoar or any successor counsel selected from time to time by holders of
a majority in interest of Registrable Securities then outstanding and
beneficially owned by the Class A/B Holders and (b) in the case of the Class C
Holder, Goulston & Storrs or any successor counsel selected from time to time by
the Class C Holder; PROVIDED that, for any successor counsel under either clause
(a) or (b) immediately above to be deemed "Holders' Counsel" for purposes of
this Grant of Registration Rights, the
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Company shall have received written notice from the relevant Holders specifying
the identity and address of any such successor counsel.
"INSPECTORS" has the meaning set forth in Section 4(m).
"LOCK-UP REQUEST" has the meaning set forth in Section 10.
"NASD" has the meaning set forth in Section 4(q).
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"PIGGY-BACK REGISTRATION" has the meaning set forth in Section 3(a).
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to the prospectus, including post-effective
amendments, and in each case including all material incorporated by reference or
deemed to be incorporated by reference in such prospectus.
"QUALIFIED INVESTOR" means a Person who, pursuant to a transaction approved
by the Company's Board of Directors (including a majority of the disinterested
directors) acquires Common Stock (or securities convertible into Common Stock)
representing at least thirty-five percent (35%) of the Common Stock issued and
outstanding immediately following such transaction.
"RECORDS" has the meaning set forth in Section 4(m).
"REGISTRABLE SECURITIES" means, collectively, the Common Shares, the
Warrants and the Warrant Shares until such time as such Registrable Securities
are held by a Person who (a) (together with its Affiliates and together with any
Persons who are members of a "group" (within the meaning of Section 13 of the
Exchange Act and the rules and regulations promulgated thereunder) with such
Person), directly or indirectly, beneficially owns less than ten percent (10%)
of the issued and outstanding shares of
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Common Stock and (b) has met with respect to such Registrable Securities the
holding period requirement of Rule 144(k) promulgated under the Securities Act
or any successor provision.
"REGISTRATION EXPENSES" has the meaning set forth in Section 7.
"REGISTRATION STATEMENT" means any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Grant of Registration Rights (including any Shelf Registration Statement), and
all amendments and supplements to any such registration statement, including
post-effective amendments, in each case including the Prospectus, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"RULE 144A" has the meaning set forth in Section 9(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"SHELF REGISTRATION" has the meaning set forth in Section 2(a).
"SHELF REGISTRATION STATEMENT" has the meaning set forth in Section 2(a).
"SUSPENSION NOTICE" has the meaning set forth in Section 5.
"SUSPENSION PERIOD" has the meaning set forth in Section 5.
"TARGET EFFECTIVE DATE" means the date forty-five (45) days after the
Effective Date.
"TARGET EFFECTIVE PERIOD" has the meaning set forth in Section 2(a).
"WARRANTS" means, collectively, the Class A Warrants, the Class B Warrants
and the Class C Warrants.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of the Warrants held by the Holders.
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SECTION 2. SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. If, as of the Target Effective Date, a shelf
registration statement (the "Shelf Registration Statement") on the appropriate
form for an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act (or such successor rule or similar provision then in effect)
covering all of the Registrable Securities (a "Shelf Registration") is not
effective or the effectiveness thereof has been suspended, then the Company
shall use its reasonable best efforts to cause such Shelf Registration Statement
to be effective as soon as practicable. Once the Shelf Registration Statement
is effective, the Company shall use its reasonable best efforts to keep such
Shelf Registration Statement continuously effective for a period (the "Target
Effective Period") ending on the date on which no Registrable Securities are
outstanding. The Company further agrees, if necessary, to supplement or amend
the Shelf Registration Statement, as required by the registration form used by
the Company for such Shelf Registration Statement or by the instructions
applicable to such registration form or by the Securities Act or as reasonably
requested (which request shall result in the filing of a supplement or amendment
if required) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, but only to the extent such request relates to
information with respect to such Holder, and the Company agrees to furnish to
each Holder, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment. The Holders shall be permitted to withdraw all or any
part of the Registrable Securities from a Shelf Registration Statement no later
than 10 Business Days prior to the expected effective date of such Shelf
Registration Statement.
(b) LIQUIDATED DAMAGES.
(i) If the Shelf Registration Statement has not been filed or is
filed but has not become effective (other than as a result of the action or
inaction of any Holder) on or before the Target Effective Date, the Company
shall pay liquidated damages to each Holder in an amount equal to $.10 per
500 Common Shares of (or in the case of any Warrant, per 500 Warrant
Shares) per week beginning on the Target Effective Date. If the
ineffectiveness of the Shelf Registration Statement shall not have been
cured within 90 days after the Target Effective Date, the weekly liquidated
damages shall increase to $.20 per 500 Common Shares (or in the case of any
Warrant, per 500 Warrant Shares). If the ineffectiveness of the Shelf
Registration Statement shall not have been cured within 180 days after the
Target Effective Date, the weekly liquidated damages
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shall increase to $.30 per 500 Common Shares (or in the case of any
Warrant, per 500 Warrant Shares).
(ii) If during the Target Effective Period a stop order is imposed,
for any other reason the effectiveness of the Shelf Registration Statement
is suspended or there is a Suspension Period exceeding the length of time
permitted by Section 5 hereof or not otherwise permitted by Section 5
hereof, then the Company shall pay liquidated damages to each Holder in an
amount equal to $.10 per 500 Common Shares (or in the case of any Warrant,
per 500 Warrant Shares) per week beginning on the date of such stop order,
the date of such other suspension of effectiveness or the date on which
such Suspension Period failed to comply with Section 5 hereof, as the case
may be. If the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 90 days after such stop order was imposed,
the effectiveness of such Shelf Registration Statement was otherwise
suspended or the Suspension Period failed to comply with Section 5 hereof,
as the case may be, the weekly liquidated damages shall increase to $.20
per 500 Common Shares (or in the case of any Warrant, per 500 Warrant
Shares). If the stop order, other suspension of effectiveness of the Shelf
Registration Statement or excessive or impermissible Suspension Period
shall not have been cured within 180 days after such stop order was
imposed, the effectiveness of such Shelf Registration Statement was
otherwise suspended or the Suspension Period failed to comply with
Section 5 hereof, as the case may be, the weekly liquidated damages shall
increase to per 500 Common Shares (or in the case of any Warrant, $.30 per
500 Warrant Shares).
(iii) The liquidated damages to be paid to Holders pursuant to this
Section 2(b) shall begin to accrue on the date on which such liquidated
damages are triggered as set forth above occurs and shall cease to accrue
on (A) the day after the Shelf Registration Statement is declared
effective, (B) the day after the reinstatement of effectiveness of the
Shelf Registration Statement or (C) the day after any excessive or
impermissible Suspension Period ends, as the case may be.
(iv) The Registrable Securities with respect to which liquidated
damages shall accrue and be payable in accordance with this Section 2(b)
shall be those Registrable Securities held by the Holders which are
included or proposed to be included in the Shelf Registration Statement and
which have not
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been sold prior to the occurrence of the event triggering such liquidated
damages. The Company shall pay the liquidated damages due with respect to
any Registrable Securities at the end of each week during which such
damages accrue. Liquidated damages shall be paid to the Holders of
Registrable Securities entitled to receive such liquidated damages by wire
transfer in immediately available funds to the accounts designated in
writing by such Holders or by check, if not so designated.
(v) The parties hereto agree that the liquidated damages provided
for in this Section 2(b) constitute a reasonable estimate of the damages
that will be suffered by Holders of Registrable Securities by reason of the
failure of the Shelf Registration Statement to be declared effective and/or
remain effective, in accordance with this Grant of Registration Rights.
(c) EFFECTIVE REGISTRATION. A registration will not be deemed to have
been effected as a Shelf Registration unless the Shelf Registration Statement
with respect thereto has been declared effective by the Commission and the
Company has complied in all material respects with its obligations under this
Grant of Registration Rights with respect thereto. If a Shelf Registration is
deemed not to have been effected (other than as a result of the action or
inaction of any Holder), then the Company shall continue to be obligated to
effect a Shelf Registration pursuant to this Section 2.
(d) SELECTION OF UNDERWRITER. If the Holders so elect, the offering of
Registrable Securities pursuant to a Shelf Registration Statement shall be in
the form of an underwritten offering. If they so elect, the Holders
participating in such Shelf Registration Statement shall select one or more
nationally recognized firms of investment bankers to act as the book-running
managing underwriter or underwriters in connection with such offering; provided
that such selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld.
SECTION 3. PIGGY-BACK REGISTRATION.
(a) REQUEST FOR REGISTRATION. Each time the Company proposes to file a
registration statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its securityholders
of any class of equity security (other than (i) a registration statement on Form
S-4 or S-8 (or any substitute form that is adopted by the Commission) or (ii) a
registration statement filed in connection with an exchange offer or offering of
securities solely to the Company's existing securityholders), and the form of
registration statement to be used permits the
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registration of Registrable Securities, then the Company shall give written
notice of such proposed filing to the Holders of Registrable Securities as soon
as reasonably practicable (but in no event less than 30 days before the
anticipated effective date), and such notice shall offer such Holders the
opportunity to register such Registrable Securities as each such Holder may
request (which request shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof)
within 20 days after the date such notice is received by such Holder from the
Company (a "Piggy-Back Registration"). The Company shall cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on substantially the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Any Holder shall
have the right to withdraw its request for inclusion of its Registrable
Securities in any registration statement pursuant to this Section 3 by giving
written notice to the Company of such withdrawal no later than 10 Business Days
prior to the anticipated effective date. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective, provided that
the Company shall give prompt notice of such withdrawal to the Holders of
Registrable Securities requested to be included in such Piggy-Back Registration.
(b) REDUCTION OF OFFERING. If the managing underwriter or underwriters of
an underwritten offering with respect to which Piggy-Back Registration has been
requested as provided in Section 3(a) hereof shall have informed the Company, in
writing, that in the opinion of such underwriter or underwriters the total
number of shares which the Company, Holders of Registrable Securities and any
other Persons participating in such registration intend to include in such
offering is such as to materially and adversely affect the success of such
offering (including without limitation any material decrease in the proposed
public offering price), then the number of shares to be offered for the account
of all Persons (other than the Company and any executive officers of the
Company) participating in such registration shall be reduced or limited (to zero
if necessary) PRO RATA in proportion to the respective number of shares
requested to be registered by such Persons to the extent necessary to reduce the
total number of shares requested to be included in such offering to the number
of shares, if any, recommended by such managing underwriter or underwriters;
provided that if such registration is being effected pursuant to the exercise of
demand registration rights by a Qualified Investor, then the number of shares to
be offered for the account of all Persons (other than the Qualified Investor,
the Company and any executive officers of the Company) participating in such
registration shall be reduced or limited (to zero if
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necessary) PRO RATA in proportion to the respective number of shares requested
to be registered by such Persons to the extent necessary to reduce the total
number of shares requested to be included in such offering to the number of
shares, if any, recommended by such managing underwriter or underwriters.
No registration effected under this Section 3, and no failure to effect a
registration under this Section 3 shall relieve the Company of its obligation to
effect a Shelf Registration pursuant to Section 2 hereof. No failure to effect
a registration under this Section 3 and to complete the sale of Registrable
Securities in connection therewith shall relieve the Company of any other
obligation under this Grant of Registration Rights, including without
limitation, the Company's obligations under Sections 7 and 8 hereof.
SECTION 4. REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Grant of Registration Rights, the Company shall use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as reasonably
practicable, and in connection therewith:
(a) Prior to filing a Registration Statement or Prospectus or any
amendments or supplements thereto, excluding for purposes of this Section 4(a)
documents incorporated by reference after the initial filing of the Registration
Statement, the Company will furnish to the Holders of the Registrable Securities
covered by such Registration Statement (the "Selling Holders"), Holders' Counsel
and the underwriters, if any, draft copies of all such documents proposed to be
filed at least 10 Business Days prior thereto, which documents will be subject
to the reasonable review of such Holders' Counsel and the underwriters, if any,
and the Company will not, unless required by law, file any Registration
Statement or amendment thereto or any Prospectus or any supplement thereto to
which Selling Holders of at least a majority in interest of the Registrable
Securities (the "Objecting Party") shall reasonably object pursuant to notice
given to the Company prior to the filing of such amendment or supplement (the
"Objection Notice") and no later than 5 Business Days after receipt of the
documents to which the Objection Notice relates. The Objection Notice shall set
forth the objections and the specific areas in the draft documents where such
objections arise. The Company shall have five Business Days after receipt of
the Objection Notice to correct such deficiencies to the reasonable satisfaction
of the Objecting Party, and will notify each
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Selling Holder of any stop order issued or threatened by the Commission in
connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(b) The Company shall promptly prepare and file with the Commission such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof; shall
cause the Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 under the Securities
Act; and shall comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders set forth in such Registration
Statement or supplement to the Prospectus;
(c) The Company shall promptly furnish to any Holder and the underwriters,
if any, without charge, such reasonable number of conformed copies of each
Registration Statement and any post-effective amendment thereto and such number
of copies of the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, any documents incorporated by reference
therein and such other documents as such Holder or underwriter may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities being sold by such Holder.
(d) The Company shall, (i) on or prior to the date on which a Registration
Statement is declared effective, use its reasonable best efforts to register or
qualify the Registrable Securities covered by such Registration Statement under
such other securities or "blue sky" laws of such states of the United States as
any Holder, Holders' Counsel or underwriter requests; (ii) do any and all other
acts and things which may be reasonably necessary to enable such Holder to
consummate the disposition of such Registrable Securities owned by such Holder;
and (iii) use its reasonable best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective in accordance with the
provisions of this Grant of Registration Rights; PROVIDED, HOWEVER, that the
Company shall not be required (x) to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 4(d) or (y) to file any general consent to service of process.
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(e) The Company shall cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary by virtue of
the business and operations of the Company to enable the Holders to consummate
the disposition of such Registrable Securities.
(f) The Company shall promptly notify each Holder, Holders' Counsel and
any underwriter in writing, (i) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any state securities authority for
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the issuance by any state securities commission or
other regulatory authority of any order suspending the qualification or
exemption from qualification of any of the Registrable Securities under state
securities or "blue sky" laws or the initiation of any proceedings for that
purpose, and (v) of the happening of any event which makes any statement made in
a Registration Statement or related Prospectus untrue or which requires the
making of any changes in such Registration Statement or Prospectus so that they
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(g) The Company shall make generally available to the Holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 45 days (90 days in the event it relates to a fiscal year) after the
end of the 12-month period beginning with the first day of the Company's first
fiscal quarter commencing after the effective date of a Registration Statement,
which earnings statement shall cover said 12-month period, and which requirement
will be deemed to be satisfied if the Company timely files complete and accurate
information on forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise
complies with Rule 158 under the Securities Act.
(h) The Company shall promptly use its reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a Registration
Statement, and if one is issued use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of a Registration Statement
at the earliest possible moment.
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(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Holders' Counsel, or any Holder promptly incorporate in a
Prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters reasonably requests, or Holders' Counsel
reasonably requests, to be included therein, including, without limitation, with
respect to the Registrable Securities being sold by such Holder to such
underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other terms of an
underwritten offering of the Registrable Securities to be sold in such offering,
and promptly make all required filings of such Prospectus supplement or
post-effective amendment.
(j) The Company shall, as promptly as practicable after filing with the
Commission any document which is incorporated by reference into a Registration
Statement (in the form in which it was incorporated), deliver a copy of each
such document to each of the Holders.
(k) The Company shall cooperate with the Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends unless
required under applicable law) representing securities sold under a Registration
Statement, and enable such securities to be in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or such
Holders may reasonably request and keep available and make available to the
Company's transfer agent prior to the effectiveness of such Registration
Statement a supply of such certificates.
(l) The Company shall enter into such customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as the Holders or the underwriters retained by the Holders participating
in an underwritten public offering, if any, may reasonably request in order to
expedite or facilitate the disposition of Registrable Securities.
(m) The Company shall promptly make available to each Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney, accountant or other agent or representative
retained by any such Holder or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such Registration
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Statement; PROVIDED that, unless the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such Registration Statement or
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction, the Company shall not be required to
provide any information under this paragraph if (1) the Company believes, after
consultation with counsel for the Company and Holders' Counsel, that to do so
would cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (2) either (i) the Company has requested and
been granted from the Commission confidential treatment of such information
contained in any filing with the Commission or documents provided supplementally
or otherwise or (ii) the Company reasonably determines in good faith that such
Records are confidential and so notifies the Inspectors in writing unless prior
to furnishing any such information with respect to (i) or (ii) such Holder of
Registrable Securities requesting such information agrees to enter into a
confidentiality agreement in customary form and subject to customary exceptions
reasonably acceptable to the Company; and PROVIDED, FURTHER that each Holder of
Registrable Securities agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company at its expense, to undertake appropriate action
and to prevent disclosure of the Records deemed confidential.
(n) In the case of any underwritten public offering, the Company shall
furnish to each Holder and to each underwriter a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion or opinions of counsel to the
Company, and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as the managing underwriter therefor reasonably requests.
(o) The Company shall, on or prior to the effective date of any
Registration Statement, cause the Common Stock to be authorized for quotation
and/or listing, as applicable, on either (i) the New York Stock Exchange,
(ii) the American Stock Exchange, (iii) the National Market System of the NASDAQ
Stock Market or (iv) in the event that the Common Stock is not, following the
exercise of reasonable best efforts by the Company, eligible for listing on any
exchange or quotation system described in the preceding clauses (i), (ii) and
(iii), such other exchange or quotation system for which the Common Stock is
eligible for listing as a majority in interest of the Holders may approve, which
approval shall not be unreasonably withheld.
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(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Registration Statement not later than the effective date
of such Registration Statement.
(q) The Company shall cooperate with each Holder and each underwriter
participating in the disposition of Registrable Securities and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus is required
to be delivered under the Securities Act, promptly file all documents required
to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act.
(s) The Company shall appoint a transfer agent and registrar for all the
shares of Common Stock covered by a Registration Statement not later than the
effective date of such Registration Statement.
(t) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Holders, in customary efforts to sell the securities under
the offering, including without limitation, participating in "road shows."
SECTION 5. SUSPENSION PERIOD.
In the case of a Shelf Registration Statement, each Holder, upon receipt of
any notice (a "Suspension Notice") from the Company of the happening of any
event of the kind described in Section 4(f)(v), shall forthwith discontinue
disposition of the Registrable Securities pursuant to the Shelf Registration
Statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
4(f) or until it is advised in writing (the "Advice") by the Company that the
use of the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, such Holder will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice; PROVIDED, HOWEVER, that (w) the
Company shall not give a Suspension Notice until after the Shelf Registration
Statement has been
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declared effective, (x) the Company shall not give more than two Suspension
Notices during any period of twelve consecutive months, (y) in no event shall
the period from the date on which any Holder receives a Suspension Notice to the
date on which any Holder receives either the Advice or copies of the
supplemented or amended Prospectus contemplated by Section 4(f) (the "Suspension
Period") exceed 45 days and (z) in no event shall the aggregate length of all
Suspension Periods during any period of twelve consecutive months exceed 60
days. In the event that the Company shall give any Suspension Notice, (i) the
Company shall use its reasonable best efforts and take such actions as are
reasonably necessary to end the Suspension Period as promptly as practicable and
(ii) immediately following expiration of the Suspension Period, the Company
shall, to the extent necessary, prepare and file with the Commission and furnish
a supplement or amendment to such Prospectus so that, as thereafter deliverable
to the purchasers of such Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 6. HOLDER INFORMATION.
If any Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right, to the extent permitted by law, to require (i) the insertion therein of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal or state "blue sky"
statute and the rules and regulations thereunder then in force, the deletion of
the reference to such Holder.
SECTION 7. REGISTRATION EXPENSES.
Any and all expenses incident to the Company's performance of or compliance
with this Grant of Registration Rights, including without limitation all
Commission and securities exchange, NASDAQ or NASD registration and filing fees,
all fees and reasonable expenses incurred in connection with compliance with
state securities or "blue sky" laws (including reasonable fees and disbursements
of one counsel for all underwriters in connection with "blue sky" qualifications
of the Registrable Securities),
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printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), all reasonable
expenses for word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Grant of Registration
Rights, the fees and expenses incurred in connection with the listing of the
Registrable Securities, the fees and disbursements of counsel for the Company
and of the independent certified public accountants of the Company (including
the expenses of any special audit or comfort letters) Securities Act liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any special experts or other Persons retained by the Company in
connection with any registration, the reasonable fees and disbursements of
Holders' Counsel (all such expenses being herein called "Registration
Expenses"), will be borne by the Company whether or not the Registration
Statement to which such expenses relate becomes effective; PROVIDED, HOWEVER,
that Registration Expenses shall not include underwriting fees, discounts or
commissions attributable to the sale or disposition of Registrable Securities.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder, its
partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees and agents
of such controlling Person (collectively, the "Controlling Persons"), from and
against all losses, claims, damages, liabilities and expenses (including without
limitation any reasonable legal or other fees and expenses actually incurred in
connection with defending or investigating any action or claim in respect
thereof) (collectively, the "Damages") to which such Holder, its partners,
officers, directors, trustees, stockholders, employees, agents and investment
advisers, and any such Controlling Person may become subject under the
Securities Act, insofar as such Damages (or proceedings in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of
material fact contained in any Registration Statement (or any amendment thereto)
pursuant to which Registrable Securities were registered under the Securities
Act, including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they
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were made not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
Damages arise out of or are based upon any such untrue statement or omission
based upon information relating to such Holder furnished in writing to the
Company by such Holder (or by a Person authorized to provide such information on
behalf of such Holder) expressly for use therein.
(b) INDEMNIFICATION BY THE HOLDERS. Each Holder agrees, severally and not
jointly, to indemnify and hold harmless to the fullest extent permitted by law
the Company, its directors, officers, stockholders, employees, agents,
attorneys, and investment advisers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, or is under common control with, or is controlled by,
the Company, together with its Controlling Persons, from and against all Damages
to which the Company and any Controlling Persons may become subject under the
Securities Act insofar as such Damages (or proceedings in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which Registrable Securities were registered under the Securities Act (including
all documents incorporated therein by reference), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or caused by any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, to the extent, but only to the extent that such
Damages arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission based upon information relating
to such Holder furnished in writing to the Company by such Holder (or by a
Person authorized to provide such information on behalf of such Holder)
expressly for inclusion therein; PROVIDED, HOWEVER, that such selling Holder
shall not be liable in any such case to the extent that such Damages result from
the failure of the Company to promptly amend or take action to correct or
supplement any such Registration Statement or Prospectus on the basis of
corrected or supplemental information provided in writing by such selling Holder
to the Company expressly for such purpose.
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(c) INDEMNIFICATION PROCEDURES. In case any proceeding (including any
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceedings and shall pay the
reasonable fees and disbursements of such counsel relating to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party or
parties, or (iii) (A) the named parties to any such proceeding (including any
impleaded parties) include both such indemnified party or parties and any
indemnifying party or an Affiliate of such indemnified party or parties or of
any indemnifying party, (B) there may be one or more legal defenses available
to such indemnified party or parties or such Affiliate of such indemnified party
or parties that are different from or additional to those available to any
indemnifying party or such Affiliate of any indemnifying party and (C) such
indemnified party or parties shall have been advised by such counsel that there
may exist a legal conflict of interest between or among such indemnified party
or parties or such Affiliate of such indemnified party or parties and any
indemnifying party or such Affiliate of any indemnifying party, in which case,
if such indemnified party or parties notifies the indemnifying party or parties
in writing that it elects to employ separate counsel of its choice at the
reasonable expense of the indemnifying parties, the indemnifying parties shall
not have the right to assume the defense thereof and such counsel shall be at
the reasonable expense of the indemnifying parties, it being understood,
however, that unless there exists a conflict among indemnified parties, the
indemnifying parties shall not, in connection with any one such proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys at
any time for such indemnified party or parties. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent (which will not be unreasonably withheld) but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party or parties from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent (which will not be unreasonably
withheld) of the indemnified party, effect any
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settlement of any pending or threatened proceeding in respect of which such
indemnified party is a party, and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) CONTRIBUTION. To the extent that the indemnification provided for in
paragraph (a) or (b) of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any Damages, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Damages in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Holders on the other hand in
connection with the statements or omissions that resulted in such Damages, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Holders on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Notwithstanding the provisions of this Section 8(d), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Holder were offered to the
public exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue statement or omission. Each Holder's
obligation to contribute pursuant to this Section 8(d) is several in the
proportion that the proceeds of the offering received by such Holder bears to
the total proceeds of the offering received by all the Holders and not joint.
If indemnification is available under paragraph (a) or (b) of this Section
8, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 8(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of
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the Damages referred to in this Section 8 shall be deemed to include, subject to
the limitations set forth above, any reasonable legal or other expenses incurred
(and not otherwise reimbursed) by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 8 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
SECTION 9. RULE 144 AND RULE 144A.
(a) RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales under Rule 144 under the Securities Act), and it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rules may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
(b) RULE 144A. Upon the request of any Holder, the Company shall deliver
to such holder within 20 days following receipt by the Company of such request,
the information required by Section (d)(4) of Rule 144A under the Securities
Act, as such rule may be amended from time to time or any similar rule or
regulation hereafter adopted by the Commission ("Rule 144A"), and will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations or the exemptions
provided by Rule 144A. All information shall be "reasonably current" as defined
in Rule 144A.
SECTION 10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Grant of Registration
Rights, including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not
20
<PAGE>
be given unless the Company has obtained the written consent of the Holders of a
majority in interest of the Registrable Securities then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by registered or certified mail (return
receipt requested), postage prepaid or courier to any Holder, at such Holder's
address as set forth in the Company's books or, if to the Company, to Lamonts
Apparel, Inc., 12413 Willows Road N.E., Kirkland, WA 98034 (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been received: at
the time delivered by hand, if personally delivered; two business days after
being deposited in the mail, postage prepaid, if mailed; and on the next
business day if timely delivered to a courier guaranteeing overnight delivery.
(c) SUCCESSORS AND ASSIGNS. This Grant of Registration Rights shall inure
to the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders of Registrable Securities. If any Holder
shall acquire Registrable Securities in any manner, whether by operation of law
or otherwise, such Registrable Securities shall be held subject to all of the
terms of this Grant of Registration Rights, and by taking and holding such
Registrable Securities such person shall be entitled to receive the benefits
hereof.
(d) HEADINGS. The headings in this Grant of Registration Rights are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. This Grant of Registration Rights shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of law.
(f) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
21
<PAGE>
(g) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Grant of Registration Rights or where any provision hereof is
validly asserted as a defense, the successful party shall, to the extent
permitted by applicable law, be entitled to recover reasonable attorneys' fees
and expenses in addition to any other available remedy.
(h) FURTHER ASSURANCES. Each party shall cooperate and take such action
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Grant of Registration Rights and the
transactions contemplated hereby.
(i) REMEDIES. Except as provided in Section 2 hereof with respect to
liquidated damages, in the event of a breach or a threatened breach by the
Company of its obligations under this Grant of Registration Rights, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Grant of Registration Rights or to injunctive relief,
in addition to being entitled to exercise all rights granted by law. Except as
otherwise provided in Section 2 hereof with respect to liquidated damages, the
parties agree that the provisions of this Grant of Registration Rights shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, is inadequate and that any objection in any action
for specific performance or injunctive relief that a remedy at law would be
adequate is waived.
(j) REGISTRATION RIGHTS TO OTHERS. The Company shall not provide to any
holder of its securities (other than a Qualified Investor) registration rights
with respect to the registration of such securities under the Securities Act;
provided that the Company may grant "piggyback" registration rights which are
not senior in priority to the rights of Holders of Registrable Securities
pursuant to Section 3 hereof.
(k) LIMITATION OF LIABILITY. The Company hereby acknowledges and agrees
that the obligations of this Grant of Registration Rights are not binding upon
any of the partners, trustees, officers, employees, beneficiaries or
shareholders of any Holder individually, but are binding only upon the assets
and property of such Holder. The Company agrees that no beneficiary, employee,
shareholder, trustee or officer of any Holder may be held personally liable or
responsible for any obligations of such Holder arising out of this Grant of
Registration Rights. With respect to obligations of any such Holder arising out
of this Grant of Registration Rights, the Company shall look for payment or
satisfaction of any claim solely to the assets and property of such Holder.
With respect to any Holder which is a portfolio of a Massachusetts business
trust, the Company is expressly put on notice that the rights and obligations of
each series of
22
<PAGE>
shares of such Holder under its Declaration of Trust are separate and distinct
from those of any and all other series. Each Holder hereby acknowledges and
agrees that the obligations of the Company under this Grant of Registration
Rights are not binding upon any of the directors, employees, officers or
shareholders of the Company individually, and that no such person may be held
personally liable or responsible for any obligations of the Company arising out
of this Grant of Registration Rights.
SECTION 11. BINDING ARBITRATION.
Any dispute arising out of or relating to this Grant of Registration Rights
shall be finally settled by arbitration pursuant to the JAMS/ENDISPUTE
Comprehensive Arbitrators Rules and Procedures then in effect (the "Rules"), as
modified by this Section 11. Within fifteen (15) Business Days following the
request of any party to submit a dispute to arbitration, the parties shall
select a retired judge or other neutral third party mutually acceptable to the
parties to serve as the sole arbitrator of the dispute. In the event the
parties are unable to select a mutually acceptable arbitrator within such
fifteen day period, the JAMS/ENDISPUTE administrator (the "Administrator") shall
select the arbitrator. Each arbitrator selected hereunder will disclose to each
party any conflict of interest or potential conflict of interest and, if any
such conflict or potential conflict exists, the Administrator shall, unless
otherwise agreed to by the parties, select a different arbitrator. The parties
will be bound by the arbitrator's determination(s), which will constitute a
final, binding and non-appealable adjudication on the merits. The arbitration
shall be conducted in the State of Washington at a location to be determined by
the arbitrator. The prevailing party(ies) in any arbitration hereunder will be
entitled to recover all costs, including reasonable attorneys' fees, charges and
disbursements from the opposing party(ies). Judgment on any arbitration award
may be entered in any court having jurisdiction. It is the intent of the
parties that the arbitration be conducted and the dispute resolved in as
expeditious a manner as reasonably possible consistent with the Rules.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Grant of
Registration Rights as of January 31, 1998.
LAMONTS APPAREL, INC.
By: /s/ Alan R. Schlesinger
----------------------------------------
Name: Alan R. Schlesinger
Title: Chairman of the Board, President
and Chief Executive Officer
<PAGE>
FIDELITY CAPITAL & INCOME FUND
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
SPARTAN HIGH INCOME FUND
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND:
HIGH INCOME PORTFOLIO
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
FIDELITY ADVISOR HIGH YIELD FUND
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
FIDELITY ASSET MANAGER
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
FIDELITY PURITAN FUND
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
FIDELITY ASSET MANAGER: GROWTH
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
II: ASSET MANAGER PORTFOLIO
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
FIDELITY MAGELLAN FUND
By: /s/ Leonard M. Rush
------------------------------------------
Name: Leonard M. Rush
Title: Assistant Treasurer
<PAGE>
MELON BANK, N.A., as Trustee for
GENERAL MOTORS EMPLOYEES DOMESTIC
GROUP PENSION TRUST
By: /s/ Jennifer Colon
------------------------------------------
Name: Jennifer Colon
Title: Manager
<PAGE>
FIDELITY GLOBAL ASSET ALLOCATION
FUND
By: /s/ Richard A. Silver
------------------------------------------
Name: Richard A. Silver
Title: Treasurer
<PAGE>
FIDELITY HIGH YIELD BOND COLLECTIVE TRUST
By: Fidelity Management Trust Company, Trustee
By: /s/ John P. O'Reilly, Jr.
------------------------------------------
Name: John P. O'Reilly, Jr.
Title: Executive Vice President
<PAGE>
NORTHERN TRUST AS TRUSTEE FOR:
Illinois State Board of Investments
By: /s/ Yvonne Broomfield
------------------------------------------
Name: Yvonne Broomfield
Title: Trust Officer
<PAGE>
NORTHERN TRUST AS TRUSTEE FOR:
Illinois Municipal Retirement Fund Master Trust
By: /s/ Yvonne Broomfield
------------------------------------------
Name: Yvonne Broomfield
Title: Trust Officer
<PAGE>
STATE STREET BANK AND TRUST AS
CUSTODIAN FOR
Pension Reserves Investment Management Board
By: Catamaran & Co., by State Street Bank &
Trust Co.
By: /s/ Diane Intravaia
------------------------------------------
Name: Diane Intravaia
Title: Custody Clerk
<PAGE>
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
------------------------------------------
Name: Alan R. Goldstein
Title: Chief Financial Officer and
Executive Vice Presisdent
<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of January 31, 1998, between Lamonts
Apparel, Inc., a Delaware corporation (the "Company"), and
[Name of Indemnitee] (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, the By-laws of the Company require the Company to indemnify
and advance expenses to certain of its directors and officers to the fullest
extent permitted by law and the Indemnitee has been serving and continues to
serve as a director or officer of the Company in part in reliance on such
By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner, and Indemnitee's reliance on the
aforesaid By-laws, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by such By-laws will be available to
Indemnitee (regardless of, among other things, any amendment to or revocation of
such By-laws or any change in the composition of the Company's Board of
Directors or acquisition transaction relating to the Company), the Company
wishes to provide in this Agreement for the indemnification of and the advancing
of expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by law and as set forth in this Agreement, and, to the extent
insurance is maintained, for the continued coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
<PAGE>
1. CERTAIN DEFINITIONS:
(a) CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of transactions)
all or substantially all the Company's assets.
(b) CLAIM: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether instituted by the Company
or any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs, expenses
and obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any Claim relating to any
Indemnifiable Event.
2
<PAGE>
(d) INDEMNIFIABLE EVENT: any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
(e) INDEPENDENT LEGAL COUNSEL: an attorney or firm of attorneys,
selected in accordance with the provisions of Section 3, who shall not have
otherwise performed services for the Company or Indemnitee within the last five
years (other than with respect to matters concerning the rights of Indemnitee
under this Agreement, or of other indemnitees under similar indemnity
agreements).
(f) REVIEWING PARTY: any appropriate person or body consisting of a
member or members of the Company's Board of Directors or any other person or
body appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) VOTING SECURITIES: any securities of the Company that vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be
3
<PAGE>
permitted to be indemnified under applicable law, and (ii) the obligation of the
Company to make an Expense Advance pursuant to Section 2(a) shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; PROVIDED, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). If there has not been a Change
in Control, the Reviewing Party shall be selected by the Board of Directors, and
if there has been such a Change in Control (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), the Reviewing Party
shall be the Independent Legal Counsel referred to in Section 3 hereof. If
there has been no determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation in any court in the States of Washington or
Delaware having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control that has been approved by
a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or Company By-law now or
hereafter in effect relating to Claims for Indemnifiable Events, the Company
shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion
to the Company and Indemnitee as to whether and to what extent the Indemnitee
would be permitted to be indemnified under
4
<PAGE>
applicable law. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or Company By-law now or hereafter in effect relating to Claims for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim
but not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is
entitled. Moreover, notwithstanding any other provision of this Agreement, to
the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
6. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. NO PRESUMPTIONS. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met
5
<PAGE>
any particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief.
8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's By-laws
or the Delaware General Corporation Law or otherwise. To the extent that a
change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's By-laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
9. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; PROVIDED, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
11. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything
6
<PAGE>
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or of any
other enterprise at the Company's request.
15. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any provision hereof (including any provision within a single
section, paragraph or sentence) is held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable in any respect, and the validity and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired and shall remain enforceable
to the fullest extent permitted by law.
16. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflict of laws.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this 31st day of January, 1998.
LAMONTS APPAREL, INC.
By:
--------------------------------------
Name: Alan R. Schlesinger
Title: Chairman of the Board,
President and Executive Officer
--------------------------------------
[Name of Indemnitee]
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-44311) of our report, which includes an explanatory paragraph that describes
an uncertainty regarding Lamonts Apparel, Inc.'s ability to continue as a going
concern and recover the carrying amounts of its assets, dated March 28, 1997, on
our audits of the consolidated financial statements of Lamonts Apparel, Inc. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Seattle, Washington
March 2, 1998
