<PAGE>
<TABLE>
<S><C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the twenty-six weeks ended July 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
Lamonts Apparel, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(425) 814-5700
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed
all documents and reports required to be filed by Sections 12,13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by the court.
Yes /X/ No / /
As of August 31, 1999, there were 9,000,000 shares of Registrant's Class A
Common Stock, par value $0.01 per share, outstanding and 10 shares of
Registrant's Class B Common Stock, par value $0.01 per share, outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Exhibit Index on Page 18
Page 1 of 23 pages
<PAGE>
LAMONTS APPAREL, INC.
FORM 10-Q
JULY 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Caution Regarding Forward-Looking Statements 3
Part I. Financial Information
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - July 31,1999 and January 30, 1999 4
- Consolidated Statements of Operations and Accumulated Deficit for the thirteen weeks 5
ended July 31, 1999 and August 1, 1998
- Consolidated Statements of Operations and Accumulated Deficit for the twenty-six 6
weeks ended July 31, 1999 and August 1, 1998
- Consolidated Statements of Cash Flows for the twenty-six weeks ended July 31, 1999 7
and August 1, 1998
- Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 15
Part II. Other Information
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities and Use of Proceeds 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters and Vote of Security Holders 16
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Statements in this report containing the words "believes," "anticipates,"
"expects," and words of similar import, and any other statements which may be
construed as a prediction of future performance or events, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve risks,
uncertainties, and other factors that may cause our actual results, performance,
achievements, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. These factors include, among others:
- national and local general economic and market conditions;
- demographic changes;
- liability and other claims asserted against Lamonts;
- competition;
- the loss of a significant number of our customers or suppliers;
- fluctuations in our operating results;
- changes in our business strategy or development plans;
- disruptions in our business;
- our ability to attract and retain qualified personnel;
- ownership of our common stock;
- volatility of our stock price; and
- delays on the part of us, or suppliers or other third parties in
achieving year 2000 compliance.
Additional risk factors are identified in Lamonts' Registration Statement on
Form S-1 (No. 333-44311) initially filed with the SEC on January 15, 1998 (as
amended from time to time, and most recently amended by Post-Effective Amendment
No. 1, filed on August 10, 1999), and those described from time to time in
Lamonts' other filings with the SEC, press releases and other communications. We
disclaim any obligations to update any of these factors or to announce publicly
the result of any revisions to any of the forward-looking statements contained
or incorporated by reference in this report to reflect future events or
developments.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JULY 31, 1999 JANUARY 30, 1999
------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash $ 2,145 $ 1,594
Receivables 4,881 2,124
Inventories 46,705 42,411
Prepaid expenses and other 985 1,433
------------- ----------------
Total current assets 54,716 47,562
Property and equipment - net of accumulated depreciation and
amortization of $8,785 and $5,590, respectively 27,914 28,896
Leasehold interests 6,346 7,134
Excess reorganization value 8,599 8,832
Deposits 1,087 1,078
Other assets 424 393
------------- ----------------
Total assets $ 99,086 $ 93,895
------------- ----------------
------------- ----------------
Current Liabilities:
Borrowings under the Revolver $ 29,764 $ 25,396
Accounts payable 24,678 17,231
Accrued payroll and related costs 2,497 2,615
Accrued taxes 1,846 967
Accrued interest 465 419
Other accrued expenses 5,168 5,722
Current maturities of long-term debt 10,078 10,228
Current maturities of obligations under capital leases 1,717 1,646
------------- ----------------
Total current liabilities 76,213 64,224
Long-term debt, net of current maturities 101 265
Obligations under capital leases, net of current maturities 11,359 12,225
Other 2,532 2,579
------------- ----------------
Total liabilities 90,205 79,293
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
Class A: 9,000,000 shares issued and outstanding 16,926 16,926
Class B: 10 shares issued and outstanding 1 1
Warrants - contributed capital 3,029 3,029
Accumulated deficit (10,182) (4,461)
Accumulated other comprehensive loss (893) (893)
------------- ----------------
Total stockholders' equity 8,881 14,602
------------- ----------------
Total liabilities and stockholders' equity $ 99,086 $ 93,895
------------- ----------------
------------- ----------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
(RESTATED)
<S> <C> <C>
Revenues $ 50,888 $ 50,591
Cost of merchandise sold 32,163 32,954
------------- --------------
Gross profit 18,725 17,637
------------- --------------
Operating and administrative expenses 16,482 15,824
Depreciation and amortization 2,214 1,903
------------- --------------
Operating costs 18,696 17,727
------------- --------------
Income (loss) from operations 29 (90)
Other income (expense):
Interest expense (1,510) (709)
Other income - 2
------------- --------------
Net Loss (1,481) (797)
Accumulated deficit, beginning of period (8,701) (5,012)
------------- --------------
Accumulated deficit, end of period ($10,182) ($5,809)
------------- --------------
------------- --------------
Basic and Diluted Loss per Common Share ($0.16) ($0.09)
------------- --------------
------------- --------------
Weighted Average Shares Used in Computing Loss per Common Share:
Basic and Diluted 9,000,010 9,000,010
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
(RESTATED)
<S> <C> <C>
Revenues $ 92,122 $ 90,062
Cost of merchandise sold 59,256 60,527
------------- --------------
Gross profit 32,866 29,535
------------- --------------
Operating and administrative expenses 31,192 29,432
Depreciation and amortization 4,404 3,774
------------- --------------
Operating costs 35,596 33,206
------------- --------------
Loss from operations (2,730) (3,671)
Other income (expense):
Interest expense (2,995) (2,145)
Other income 4 7
------------- --------------
Net loss (5,721) (5,809)
Accumulated deficit, beginning of period (4,461) -
------------- --------------
Accumulated deficit, end of period ($10,182) ($5,809)
------------- --------------
------------- --------------
Basic and Diluted Loss per Common Share ($ 0.64) ($ 0.65)
------------- --------------
------------- --------------
Weighted Average Shares Used in Computing Loss per Common Share:
Basic and Diluted 9,000,010 9,000,010
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 5,721) ($ 5,809)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,404 3,774
Curtailment gain from pension plan - (1,001)
Non-cash interest, including amortization of debt-related costs 551 433
Net change in current assets and liabilities 367 (4,102)
Other (55) (78)
------------- --------------
Net cash used by operating activities (454) (6,783)
------------- --------------
Cash flows from investing activities:
Capital expenditures (2,211) (618)
Other (43) (75)
------------- --------------
Net cash used by investing activities (2,254) (693)
------------- --------------
Cash flows from financing activities:
Net borrowings under Revolver 4,368 9,060
Payments on long-term debt (314) (182)
Principal payments on obligations under capital leases (795) (806)
------------- --------------
Net cash provided by financing activities 3,259 8,072
------------- --------------
Net increase in cash 551 596
Cash, beginning of period 1,594 1,301
------------- --------------
Cash, end of period $ 2,145 $ 1,897
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------------
JULY 31, 1999 AUGUST 1, 1998
------------- --------------
(RESTATED)
<S> <C> <C>
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in:
Receivables ($ 2,757) ($ 1,328)
Inventories (4,294) (5,633)
Prepaid expenses and other (273) 1,503
Increase (decrease) in:
Accounts payable 7,447 5,094
Accrued payroll and related costs (118) (668)
Accrued taxes 879 855
Accrued interest 46 (579)
Other accrued expenses (563) (3,346)
------------- --------------
$ 367 ($ 4,102)
------------- --------------
------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments made $2,414 $ 2,268
Capital lease obligations incurred - 148
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
July 31, 1999
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position, results of operations, and cash flows of Lamonts and its subsidiaries.
All subsidiaries of Lamonts are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation. The
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Accordingly,
certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
consolidated financial statements included herein, and related notes, should be
read in conjunction with the audited, annual consolidated financial statements,
and notes thereto, for the 52 weeks ended January 30, 1999 ("Fiscal 1998"),
included in Lamonts' Annual Report on Form 10-K.
On July 31,1999, Lamonts had a working capital deficit of approximately $21.5
million. Approximately $9.8 million of this deficit was a result of recording as
a current liability the balance due on December 26, 1999 on Lamonts' term loan,
referred to in the Capital Resources section below. Subject to an extension of
Lamonts' revolving line of credit for a sufficient period, Lamonts has the
option to extend the maturity date of the term loan for two additional one-year
periods (subject to earlier maturity of the revolving line of credit) 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, and Lamonts plans to do so. If the term loan is
extended, Lamonts intends to record the balance due on the term loan as
long-term debt. BankBoston has agreed, subject to definitive documentation, to
extend the term of the revolving line of credit through January 31, 2002.
In addition, Lamonts intends to continue implementing a plan, formulated by
senior management, designed to increase gross margins and reduce operating
expenses through a variety of department level merchandising strategies and cost
containment initiatives. If this plan is successful, it will further reduce the
working capital deficit remaining after the reclassification of the term loan to
long-term debt as discussed above.
NOTE 2 -- REORGANIZATION, EMERGENCE FROM CHAPTER 11 AND FRESH-START REPORTING
On January 6, 1995, Lamonts filed a voluntary petition for relief under Chapter
11 ("Chapter 11") of title 11 of the United States Code in the United States
Bankruptcy Court for the Western District of Washington at Seattle. The Lamonts'
Modified and Restated Plan of Reorganization was confirmed by the Bankruptcy
Court on December 18, 1997 and Lamonts emerged from bankruptcy on January 31,
1998 (the "Plan Effective Date").
Pursuant to the guidance provided by the American Institute of Certified Public
Accountants in Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (also referred to as "Fresh-Start
Reporting"), Lamonts adopted Fresh-Start Reporting for financial reporting
purposes as of the Plan Effective Date.
In accordance with SOP 90-7, Lamonts' reorganization value was determined as of
the Plan Effective Date. The reorganization value was derived by an independent
public accounting firm (which was not Lamonts' independent accountants) using
various valuation methods, including discounted cash flow analyses (utilizing
Lamonts' projections), analyses of the market values of other publicly traded
companies whose businesses are reasonably comparable, and analyses of the
present value of Lamonts' equity. The reorganization value was determined to be
the fair value of Lamonts before considering liabilities and approximated the
amount a willing buyer would have paid for the assets of Lamonts immediately
after restructuring.
9
<PAGE>
NOTE 3 -- CHANGE IN ACCOUNTING PRINCIPLE
In February 1999, Lamonts changed its method of accounting for inventories from
the Last-In-First-Out (LIFO) method to the First-In-First-Out (FIFO) method.
Management believes that the FIFO method provides a better measurement of
operating results since Lamonts has experienced stable prices and expects the
trend to continue for the foreseeable future. In the current non-inflationary
environment, the use of the FIFO method more accurately reflects Lamonts'
financial position.
The change in method of accounting for inventories has been applied
retroactively to the prior year consolidated financial statements and
comparative amounts for prior periods have been restated. The result of the
restatement was to increase net loss and accumulated deficit by approximately
$1.0 million or $0.11 per share for the thirteen weeks ended August 1, 1998. For
the twenty-six weeks ended August 1, 1998, the result of the restatement was to
increase net loss and accumulated deficit by approximately $3.2 million or $0.36
per share. The effect of this change on Lamonts' consolidated results of
operations for the fiscal years ended January 30, 1999 and January 31, 1998 was
not material.
NOTE 4 -- INCOME (LOSS) PER COMMON SHARE
For the thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998,
all outstanding options and warrants to purchase common stock were excluded from
the computation of diluted loss per common share since the effect of assuming
their exercise would be anti-dilutive.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Lamonts 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 Lamonts, but, if decided adversely to Lamonts, could have a material effect
upon Lamonts' operating results during the period in which the litigation is
resolved.
In March 1995, Lamonts brought an action against one of its landlords, Hickel
Investment Company ("Hickel"), to recover overpayments of common area
maintenance and other charges made to Hickel. The United States District Court
for the District of Alaska has entered a judgment against Hickel for an amount
in excess of $1.9 million. Hickel has since appealed the judgment and posted a
bond to obtain a stay pending appeal. There can be no assurance that Lamonts
will be successful on appeal. No amounts related to this judgment have been
recorded in the consolidated financial statements.
Lamonts 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 the contract are
based on CPU utilization and other miscellaneous charges. The minimum monthly
fee payable to ACS under the contract is $50,000. In addition, ACS licenses
certain system and application software programs to Lamonts.
Lamonts is self-insured for health care claims for eligible covered enrollees.
Consulting actuaries assist Lamonts in determining its undiscounted liability
for self-insured claims. Lamonts is liable for claims up to $200,000 per covered
enrollee annually. The maximum lifetime benefit per covered enrollee is $1.0
million. Self-insurance claims costs are accrued based upon the aggregate of the
liability for reported claims and an estimated liability for claims incurred but
not reported.
In October 1998, Lamonts entered into a purchase agreement with NCR Corporation
("NCR"), in which NCR will furnish certain equipment and related services in
connection with the replacement of in-store registers, computers and operating
systems ("POS Project"). The minimum purchase commitment under the agreement is
approximately $2.1 million. The agreement also contains a cancellation charge of
20 percent of the list price of the canceled product (approximately $0.6
million). The equipment has been financed through a leasing company as an
operating lease over five years. Lease obligations to the leasing company begin
when
10
<PAGE>
Lamonts receives the equipment. As of July 31, 1999, Lamonts had received
equipment totaling $1.9 million with related remaining lease obligations of
approximately $1.86 million.
Lamonts utilizes a licensee, Shoe Corporation of America ("Shoe Corporation"),
for its family shoe department. 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 Shoe Corporation (approximately $1.4 million for the 52 weeks
ended January 30, 1999) range from 10% to 12% of annual net sales generated by
Shoe Corporation. The license agreement with Shoe Corporation expires in January
2001 with one three-year extension option. On June 14, 1999, Shoe Corporation
filed for protection under the provisions of Chapter 11 of the United States
Bankruptcy Code. Lamonts could suffer a loss of income and customer traffic if
Shoe Corporation is unable to continue to act as its licensee or supply Lamonts
with its desired level of shoe inventory. Further, Shoe Corporation could reject
its license agreement with Lamonts, forcing Lamonts to find another licensee.
There is a risk that Lamonts may not be able to enter into another license
arrangement on terms advantageous to it. Lamonts' credit agreement with
BankBoston currently constrains its ability to purchase shoe inventory itself.
Therefore, if Lamonts cannot find a substitute shoe licensee, it would not be
able to sell shoes unless Lamonts renegotiated the terms of its credit agreement
to enable it to purchase shoe inventory itself and resell it like its other
merchandise as a principal. As of September 8, 1999, Shoe Corporation has
continued to operate under the terms of its agreement with Lamonts.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In connection with this item, reference is made to the information appearing
under "Caution Regarding Forward-Looking Statements" at the beginning of this
report.
The following information should be read in conjunction with the Consolidated
Financial Statements of Lamonts and Notes thereto included elsewhere in this
report.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the thirteen weeks ("2nd Quarter 1999") and twenty-six
weeks ("YTD 1999") ended July 31, 1999, compared to the thirteen weeks ("2nd
Quarter 1998") and twenty-six weeks ("YTD 1998") ended August 1, 1998.
REVENUES. Comparable store revenues (i.e., stores open since the beginning of
each of the periods presented) of $50.9 million for 2nd Quarter 1999 increased
$0.3 million or 0.6% from $50.6 million for 2nd Quarter 1998. Comparable store
revenues of $92.1 million for YTD 1999 increased $2.0 million or 2.3% as
compared to $90.1 million for YTD 1998. Management believes that revenues
increased due primarily to higher average inventory levels and strong sales in
the Alaska, Oregon, and Utah markets. We cannot assure you that revenues will
increase in future periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased from 34.9%
for 2nd Quarter 1998, to 36.8% for 2nd Quarter 1999. Gross profit, as a
percentage of revenues, increased from 32.8% for YTD 1998 to 35.7% for YTD 1999.
The 2nd Quarter 1998 gross profit was restated and reduced by $1.0 million and
YTD 1998 gross profit was restated and reduced by $3.2 million as a result of
converting from LIFO to FIFO accounting for inventories (see Note 3 to the
consolidated financial statements). Gross profit for YTD 1998, as a percentage
of revenues before the conversion to FIFO, was 36.3%. The 35.7% gross profit
percentage for YTD 1999 reflects seasonal markdowns in the thirteen weeks ended
May 1, 1999, which were taken at a higher rate than in the same period a year
ago.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $16.5 million or 32.4% of sales for 2nd Quarter 1999, compared to $15.8
million or 31.3% of sales for 2nd Quarter 1998. Operating and administrative
expenses were $31.2 million or 33.9% of sales for YTD 1999, compared to $29.4
million or 32.7% of sales for YTD 1998. Excluding the curtailment gain of $1.0
million recognized in the first quarter 1998, operating and administrative
expenses for YTD 1999 increased approximately $0.8 million. The
11
<PAGE>
increase was due primarily to an increase in self-insured benefit costs,
payroll related costs, advertising, and nonrecurring legal expenses related
to Lamonts' termination of the Troutman merger discussions and amendments to
the Form S-1.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $2.2
million for 2nd Quarter 1999 compared to $1.9 million for 2nd Quarter 1998.
Depreciation and amortization expense was $4.4 million for YTD 1999 compared to
$3.8 million for YTD 1998. Both increases were primarily due to higher asset
values.
INTEREST EXPENSE. Interest expense was $1.5 million for 2nd Quarter 1999
compared to $0.7 million for 2nd Quarter 1998. Interest expense was $3.0 million
for YTD 1999 compared to $2.1 million for YTD 1998. Interest expense is
primarily related to borrowings under our credit facility with BankBoston,
referred to in the Capital Resources section below. The increase in both 2nd
Quarter 1999 and YTD 1999 was primarily the result of an adjustment, totaling
approximately $0.8 million, for a change in estimate recorded in 2nd Quarter
1998. In addition, the increase in interest expense YTD 1999 was due to higher
average borrowings under the credit facility with BankBoston, partially offset
by lower interest rates.
NET LOSS. As a result of the factors listed above, Lamonts recorded a net loss
of $1.5 million for 2nd Quarter 1999, compared to a net loss of $0.8 million for
2nd Quarter 1998. Lamonts recorded a net loss of $5.7 million for YTD 1999,
compared to a net loss of $5.8 million for YTD 1998.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
For YTD 1999, we used $0.5 million of cash for operating activities as compared
to $6.8 million of cash used by operating activities for YTD 1998. The decrease
in cash used for operating expenses is attributed to an increase in payables for
the purchase of inventory, partially offset by an increase in receivables of
$1.4 million primarily related to a landlord receivable. Additionally, in the
prior year, cash for operating activities was used for the payment of accrued
reorganization expenses as required by Lamont's Plan of Reorganization.
Our primary cash requirement currently is the procurement of inventory, which is
presently funded through borrowings under the credit facility with BankBoston,
referred to in the Capital Resources section below, trade credit, and cash
generated from operations. Like other apparel retailers, Lamonts is highly
dependent upon its ability to obtain trade credit, which is generally extended
by its vendors and, when applicable, their factoring institutions. If Lamonts
continues to obtain the trade credit terms it is currently receiving, management
believes that borrowings under the credit facility with BankBoston and cash
generated from operations will provide the liquidity necessary to fund Lamonts'
cash requirements for the next 12 months.
For YTD 1999, we used $2.3 million of cash for investing activities as compared
to $0.7 million for YTD 1998. The increase of $1.6 million used by investing
activities is due primarily to higher capital expenditures related to the
replacement of the point-of-sale ("POS") platform, which includes in-store
registers, and related computers and operating systems.
For YTD 1999, financing activities contributed $3.3 million of cash as compared
to $8.1 million in 2nd Quarter 1998, the result of lower net borrowings under
Lamonts' line of credit described in the Capital Resources section below.
On July 31,1999, we had a working capital deficit of approximately $21.5
million. Approximately $9.8 million of this deficit was a result of recording as
a current liability the balance due on December 26, 1999 on Lamonts' term loan,
referred to in the Capital Resources section below. Subject to an extension of
Lamonts' revolving line of credit for a sufficient period, Lamonts has the
option to extend the maturity date of the term loan for two additional one-year
periods (subject to earlier maturity of the revolving line of credit) 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, and Lamonts plans to do so. If the term loan is
extended, Lamonts intends to record the balance due on the term loan as
long-term debt. BankBoston
12
<PAGE>
has agreed, subject to definitive documentation, to extend the term of the
revolving line of credit through January 31, 2002.
In addition, Lamonts intends to continue implementing a plan, formulated by
senior management, designed to increase gross margins and reduce operating
expenses through a variety of department level merchandising strategies and cost
containment initiatives. If this plan is successful it will further reduce the
working capital deficit remaining after the reclassification of the term loan to
long-term debt as discussed above.
Management continually evaluates 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 38 Lamonts
stores.
CAPITAL RESOURCES
Lamonts entered into the Amended and Restated Debtor-in-Possession and Exit
Financing Loan Agreement, dated as of September 26, 1997 (the "Loan Agreement"),
between Lamonts and BankBoston, N.A. under which BankBoston provides Lamonts
with (1) a revolving line of credit with a maximum borrowing capacity of $32
million; and (2) a term loan in the amount of $10 million.
SEASONALITY
Lamonts' business is subject to substantial seasonal variations in demand.
Historically, approximately one-third of Lamonts' sales, and substantially all
of its contribution to net income, have been realized in the fourth fiscal
quarter, which includes the November/December holiday season.
YEAR 2000
Some of Lamonts' older computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognize a date using "00" as the year 1900
rather than the year 2000, which could cause a system failure or
miscalculations, leading to disruptions in operations.
Lamonts has established a compliance program to modify or replace existing
information technology systems to prevent the generation of invalid or incorrect
results in connection with processing year dates for the year 2000 and later.
Lamonts believes that it will complete its year 2000 modifications early in the
fourth quarter of fiscal 1999 and, based on its current understanding of its
systems, does not currently anticipate any material disruption in operations as
a result of year 2000 issues. However, if modifications or replacements are not
properly made, or are not completed timely, the reasonably likely worst case
scenario is that various nonessential stand-alone systems would be impaired and
Lamonts would lose its ability to efficiently process merchandise through its
leased distribution center, which might have a material adverse effect on its
operations.
As of July 31, 1999, Lamonts estimates that 98% of its mainframe and client
server information technology systems have been tested and are currently
operating as year 2000 compliant systems. The remaining 2% of the systems have
not yet been tested. Additionally, Lamonts is in the process of implementing the
POS Project. As of July 31, 1999, testing of the related hardware and software
of the POS Project has been completed. Installation of new registers began in
April 1999. Completion of the rollout is scheduled for the third quarter of
Fiscal 1999. A summary of the expected completion dates for work currently in
process to make all information technology operating systems and application
systems software year 2000 compliant is as follows:
Third quarter of fiscal 1999: 1. Full test of all systems at a
disaster recovery site which will
emulate the changeover to the Year
2000.
2. Replacement of in-store registers,
computers, and operating systems
with new hardware and software.
13
<PAGE>
Fourth quarter of fiscal 1999: 1. Mid-range and desktop computer
operating systems and application
systems software.
Lamonts spent $220,000 for YTD 1999 compared to $246,000 for YTD 1998 to make
its computer systems year 2000 compliant. The total cost of the project to date,
as of July 31, 1999 was $964,000 and Lamonts estimates it will spend
approximately $75,000 in the remainder of Fiscal 1999 to complete the project.
The total original budgeted project cost is $1,000,000, excluding costs related
to the POS Project (See "Liquidity and Capital Resources" above).
Suppliers of Lamonts and other third parties exchange information with Lamonts
or rely on Lamonts' merchandising systems for certain sales and inventory
information. Lamonts currently does not have complete information concerning the
compliance status of its suppliers or other third parties. Although Lamonts is
not dependent on any single supplier, year 2000 noncompliance by suppliers or
third parties could impact the company's sales and disrupt the flow of
merchandise to the stores and/or impair Lamonts' ability to process credit card
transactions. Because third-party failures could have a material adverse impact
on Lamonts' ability to conduct business, Lamonts has requested confirmations
from major suppliers to certify that plans have been developed to address year
2000 issues.
Currently, Lamonts is developing contingency plans for all information
technology and other systems, as well as developing contingencies for dealing
with those suppliers and other third parties who have not responded to year 2000
readiness questionnaires, or who are at risk of noncompliance.
The cost of the project and the date on which Lamonts believes it will complete
the year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, cooperation of vendors and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in the area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Lamonts presently believes that year 2000 issues will not pose significant
operational problems for Lamonts. However, if all year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to year 2000 problems that are identified, it is possible
that year 2000 issues will materially adversely impact Lamonts' results of
operations or adversely affect Lamonts' relationships with customers, vendors,
or others. Additionally, it is possible that the year 2000 issues of other
entities will have a material adverse impact on Lamonts' systems or results of
operations.
14
<PAGE>
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Lamonts is affected by the risk of fluctuating interest rates in the normal
course of business, primarily as a result of borrowings, which generally bear
interest at variable rates. The table below presents the principal (or notional)
amounts, at book value, and related weighted average interest rates by year of
maturity. All items described in the table are non-trading and are stated in
U.S. dollars.
<TABLE>
<CAPTION>
Principal / Notional Amount Maturing in:
- ------------------------------------------------------------------------------------------------------
Total Fair Value
Fiscal Fiscal Fiscal Fiscal Fiscal July 31, July 31,
1999 2000 2001 2002 2003 Thereafter 1999 1999
- ---------------------------- ------ ------ ------ ------ ------ ---------- -------- ----------
(dollars in thousands, except percents)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE RISK:
LIABILITIES:
Borrowings under the
Revolver $29,763 - - - - - $29,763 $29,763
Variable average
interest rate 8.27% -% -% -% -% -% 8.27%
Short-term debt 9,750 - - - - - 9,750 9,750
Variable average
interest rate 8.13% -% -% -% -% -% 8.13%
Long-term debt 128 $211 - - - - 339 339
Variable average
interest rate 9.00% 9.00% -% -% -% -% 9.00%
Long-term debt 36 54 - - - - 90 79
Fixed average
interest rate 8.00% 8.00% -% -% -% -% 8.00%
Obligations under
capital leases 1,046 1,775 $1,738 $1,227 $918 $6,372 13,076 13,076
Variable average
interest rate 10.43% 10.43% 10.43% 10.43% 10.43% 10.43% 10.43%
DERIVATIVES MATCHED AGAINST LIABILITIES:
Swaps -- fixed rate (1) - $20,000 - - - - $20,000 $0.2
Average pay rate 5.73% 5.73% -% -% -% -% 5.73%
Average receive
rate 5.00% 5.00% -% -% -% -% 5.00%
</TABLE>
- ---------------
(1) Interest rate swaps on which Lamonts is the fixed rate payor.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Reference is made to Note 5 of the Consolidated Financial Statements included
elsewhere in this report.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The 1999 Annual Meeting of Stockholders of Lamonts Apparel,
Inc. was held on July 16, 1999.
b) Stockholders elected by a plurality of the votes cast, five
members to the Board of Directors to serve until the next
Annual Meeting of the Stockholders or until their respective
successors shall be elected and qualify. The members elected
(all of whom were already serving as the directors of Lamonts)
and the votes for and withheld were as follows:
<TABLE>
<CAPTION>
MEMBER ELECTED FOR WITHHELD
------------------- --------- ---------
<S> <C> <C>
Alan R. Schlesinger 3,037,638 3,128,057
Loren R. Rothschild 3,051,852 3,113,843
Paul M. Buxbaum 3,053,045 3,112,650
Stanford Springel 3,051,974 3,113,721
John J. (Jack) Wiesner 3,053,974 3,111,721
</TABLE>
c) The proposal to amend Lamonts' certificate of incorporation
eliminating the prohibition against the issuance of nonvoting
equity securities did not attain the necessary votes for
approval. There were 1,573,756 shares voted in favor of the
proposal, 3,162,316 shares voted against the proposal, and
269,262 abstained. The broker non-votes were 1,160,361 shares.
d) The proposal to increase the authorized number of shares
reserved for issuance under Lamonts' stock option plan by
750,000 shares did not attain the necessary votes for
approval. There were 1,511,197 shares voted in favor of the
proposal, 3,179,407 shares voted against the proposal, and
314,730 abstained. The broker non-votes were 1,160,361 shares.
16
<PAGE>
ITEM 5 -- OTHER INFORMATION
UNION AGREEMENT
Approximately 300 employees working in nine Seattle, Washington and surrounding
area stores are represented by the United Food and Commercial Workers Union
under a contract that expired June 12, 1999. In August, 1999, Lamonts met with
the union and a federal mediator and reached an agreement that will expire
June 8, 2002. Management believes that its employee relations are good.
17
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
2.1 Modified and Restated Plan of Reorganization Under Chapter 11
of the Bankruptcy Code (incorporated by reference from
Exhibit 99.7 of Quarterly Report on Form 10-Q of Lamonts (the
"Registrant") as filed with the Securities and Exchange
Commission (the "Commission") on December 16, 1997).
2.2 Supplemented and Restated Disclosure Statement (As Amended)
re Debtor's Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code (incorporated by reference from Exhibit 99.8
of Quarterly Report on Form 10-Q of the Registrant as filed
with the Commission on December 16, 1997).
3.1 Second Restated Certificate of Incorporation of the
Registrant (incorporated by reference from Exhibit 3.1 of the
Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).
3.2 Amended and Restated By-laws of the Registrant (as amended
through July 2, 1999). (incorporated by reference from
Exhibit 3 (ii) of Form 8-K of the Registrant as filed with
the Commission on July 6, 1999).
4.1 Specimen Class A Common Stock certificate (incorporated by
reference from Exhibit 4.1 of the Company's Registration
Statement on Form S-1, File No. 333-44311, initially filed
with the Commission on January 15, 1998).
4.2 Specimen Class B Common Stock certificate (incorporated by
reference from Exhibit 4.2 of the Company's Registration
Statement on Form S-1, File No. 333-44311, initially filed
with the Commission on January 15, 1998).
4.3 Warrant Agreement dated January 31, 1998 between the
Registrant and Norwest Bank Minnesota, N.A., as Warrant Agent
(incorporated by reference from Exhibit 4 of the Company's
Registration Statement on Form 8-A, File No. 000-15542, filed
with the Commission on February 2, 1998).
4.4 Warrant Agreement dated January 31, 1998 between the
Registrant and Specialty Investment I LLC (incorporated by
reference from Exhibit 5 of Lamonts' Registration Statement
on Form 8-A, File No. 000-15542, filed with the Commission on
February 2, 1998).
4.5 Warrant Agreement dated January 31, 1998 between the
Registrant and Gordian Group, L.P. (incorporated by reference
from Exhibit 4.6 of Lamonts' Registration Statement on Form
S-8, File No. 333-45455, filed with the Commission on
February 2, 1998).
4.6 Form of Warrant Agreement dated January 31, 1998 between
Registrant and each of Alan R. Schlesinger, Loren R.
Rothschild, Debbie A. Brownfield, E.H. Bulen and Gary
Grossblatt (incorporated by reference from Exhibit 6 of
Lamonts' Registration Statement on Form 8-A, File No.
000-15542, filed with the Commission on February 2, 1998).(1)
4.7 Rights Agreement dated January 12, 1999, between the
Registrant and Norwest Bank Minnesota, N.A. (incorporated by
reference from Exhibit 4.1 of Current Report on Form 8-K of
the Registrant as filed with the Commission on January 13,
1999).
4.8 Certificate of Designation, Preferences and Rights of Series
RP Preferred Stock, dated January 12, 1999 (incorporated by
reference from Exhibit 4.8 of Annual Report on Form 10-K of
the Registrant as filed with the Commission on April 30,
1999).
18
<PAGE>
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 (incorporated by
reference from Exhibit 10.1 of the Company's Registration
Statement on Form S-1, File No. 333-44311, initially filed
with the Commission on January 15, 1998).
10.2 Form of Indemnification Agreement dated October 30, 1992
between the Registrant and each of Alan R. Schlesinger, Loren
R. Rothschild and Debbie A. Brownfield (incorporated by
reference from Exhibit 10.22 of Current Report on Form 8-K of
the Registrant as filed with the Commission on November 13,
1992).(1)
10.3 Employment Agreement dated April 18, 1995 between the
Registrant and Alan R. Schlesinger (incorporated by reference
from Exhibit 10.5 of Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on April 21,
1995).(1)
10.4 Employment Agreement dated April 18, 1995 between the
Registrant and Loren R. Rothschild (incorporated by reference
from Exhibit 10.6 of Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on April 21,
1995).(1)
10.5 License Agreement dated May 25, 1995 between the Registrant
and Shoe Corporation of America (incorporated by reference
from Exhibit 10.2 of Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on June 12, 1995).
10.6 Computer Services Agreement dated February 1, 1996 between
the Registrant and Infotech Corporation (incorporated by
reference from Exhibit 10.37 of Quarterly Report on Form 10-Q
of the Registrant as filed with the Commission on May 3,
1996).
10.7 Loan and Security Agreement dated June 4, 1996 between First
National Bank of Boston and the Registrant (incorporated by
reference from Exhibit 10.1 of Quarterly Report on Form 10-Q
of the Registrant as filed with the Commission on June 18,
1996).
10.8 Depository Account Agreement dated June 4, 1996 among the
Registrant, BankBoston and Bank of America, N.W. N.A. (d/b/a
Seafirst Bank) (incorporated by reference from Exhibit 10.11
of the Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).
10.9 Waiver dated August 3, 1996 between First National Bank of
Boston and the Registrant (incorporated by reference from
Exhibit 10.1 of Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on September 16,
1996).
10.10 First Amendment dated November 8, 1996 to Loan and Security
Agreement dated June 4, 1996 between First National Bank of
Boston and the Registrant (incorporated by reference from
Exhibit 10.1 of Quarterly Report on Form 10-Q of the
Registrant as filed with the Commission on December 17,
1996).
10.11 Amendment dated December 9, 1996 to the Credit Card Plan
Agreement (incorporated by reference from Exhibit 10.19 of
Annual Report on Form 10-K of the Registrant as filed with
the Commission on May 2, 1997).
10.12 Computer Services Agreement dated February 4, 1997 between
the Registrant and Affiliated Computer Services, Inc.
(incorporated by reference from Exhibit 10.25 of Annual
Report on Form 10-K of the Registrant as filed with the
Commission on May 2, 1997).
10.13 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") (incorporated by reference from Exhibit 10.26
of Quarterly Report on Form 10-Q of
19
<PAGE>
the Registrant as filed with the Commission on
September 12, 1997).
10.14 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 (incorporated by reference from
Exhibit 10.17 of the Company's Registration Statement on Form
S-1, File No. 333-44311, initially filed with the Commission
on January 15, 1998).(1)
10.15 Lamonts Apparel, Inc. 1998 Stock Option Plan (incorporated by
reference from Exhibit 10.18 of the Company's Registration
Statement on Form S-1, File No. 333-44311, initially filed
with the Commission on January 15, 1998).(1)
10.16 Amended and Restated Employment Agreement dated January 31,
1998 between the Registrant and Alan R. Schlesinger
(incorporated by reference from Exhibit 10.19 of the
Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).(1)
10.17 Amended and Restated Employment Agreement dated January 31,
1998 between the Registrant and Loren R. Rothschild
(incorporated by reference from Exhibit 10.20 of the
Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).(1)
10.18 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
(incorporated by reference from Exhibit 10.27 of Quarterly
Report on Form 10-Q of the Registrant as filed with the
Commission on December 16, 1997).
10.19 Grant of Registration Rights dated January 31, 1998 among the
Company and the parties listed on the signature pages thereto
((incorporated by reference from Exhibit 10.22 of the
Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).
10.20 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 (incorporated by reference from Exhibit 10.23 of the
Company's Registration Statement on Form S-1, File No.
333-44311, initially filed with the Commission on January 15,
1998).(1)
10.21 First Amendment dated January 8, 1998, to Amended and
Restated Debtor in Possession and Exit Financing Loan
Agreement dated September 26, 1997 among the Registrant,
certain financial institutions and BankBoston, as agent.
(incorporated by reference from Exhibit 10.24 of Quarterly
Report on Form 10-Q of the Registrant as filed with the
Commission on December 16, 1998).
10.22 Second Amendment dated April 1, 1998, to Amended and Restated
Debtor in Possession and Exit Financing Loan Agreement dated
September 26, 1997 among the Registrant, certain financial
institutions and BankBoston, as agent. (incorporated by
reference from Exhibit 10.25 of Quarterly Report on Form 10-Q
of the Registrant as filed with the Commission on December
16, 1998).
10.23 Third Amendment dated September 23, 1998, to Amended and
Restated Debtor in Possession and Exit Financing Loan
Agreement dated September 26, 1997 among the Registrant,
certain financial institutions and BankBoston, as agent.
(incorporated by reference from Exhibit 10.26 of Quarterly
Report on Form 10-Q of the Registrant as filed with the
Commission on December 16, 1998).
10.24 Fourth Amendment dated April 13, 1999 to Amended and Restated
Debtor in Possession and Exit Financing Loan Agreement dated
September 26, 1997 among the Registrant, certain financial
institutions and BankBoston, as agent. (incorporated by
reference from Exhibit 10.19 of Annual Report on Form 10-K of
the Registrant as filed with the Commission on April 30,
1999).
20
<PAGE>
10.25 Amended and Restated Employment Agreement dated April 19,
1999 between the Registrant and Alan R. Schlesinger
(incorporated by reference from Exhibit 10.11 of Annual
Report on Form 10-K of the Registrant as filed with the
Commission on April 30, 1999). (1)
10.26 Amended and Restated Employment Agreement dated April 19,
1999 between the Registrant and Loren R. Rothschild
(incorporated by reference from Exhibit 10.12 of Annual
Report on Form 10-K of the Registrant as filed with the
Commission on April 30, 1999). (1)
10.27 Form of Employment Agreement dated April 19, 1999 between the
Registrant and Debbie A. Brownfield, E.H. Bulen and Gary A.
Grossblatt (incorporated by reference from Exhibit 10.20 of
Annual Report on Form 10-K of the Registrant as filed with
the Commission on April 30, 1999). (1)
*10.28 Fifth Amendment dated July 9, 1999 to Amended and Restated
Debtor in Possession and Exit Financing Loan Agreement dated
September 26, 1997 among the Registrant, certain financial
institutions and BankBoston, as agent.
*10.29 Sixth Amendment dated July 31, 1999 to Amended and Restated
Debtor in Possession and Exit Financing Loan Agreement dated
September 26, 1997 among the Registrant, certain financial
institutions and BankBoston, as agent.
18.1 Letter re change in accounting principle (incorporated by
reference from Exhibit 18.1 of Quarterly Report on Form 10-Q
of the Registrant as filed with the Commission on June 15,
1999).
*27.1 Financial Data Schedule
- -------------------
* filed herewith
(1) Management contracts and/or compensatory plans required to
be identified specifically as responsive to Item
601(b)(10)(iii)(A) of Regulation S-K.
</TABLE>
21
<PAGE>
(b) Reports filed on Form 8-K:
Form 8-K, dated July 6, 1999. Item 5 - Other Events
related to:
a) The postponement from July 9, 1999 until July 16,
1999, of Lamonts' 1999 Annual Meeting of
Stockholders.
b) An amendment to the bylaws of the Corporation (the
"Bylaws") to reduce the quorum, solely for the
purposes of the 1999 Annual Meeting, from a majority
to one-third of the outstanding shares of the
Corporation's Common stock entitled to vote at the
1999 Annual Meeting.
c) The termination by Lamonts of preliminary merger
discussions with Troutman Investment Company.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: LAMONTS APPAREL, INC.
Date: September 13, 1999 BY: /s/ Debbie A. Brownfield
-----------------------------------
Debbie A. Brownfield
Executive Vice President,
Chief Financial Officer, Treasurer,
and Secretary
23
<PAGE>
Exhibit 10.28
FIFTH AMENDMENT
FIFTH AMENDMENT dated as of July 9, 1999 (this "AMENDMENT"), by and
among LAMONTS APPAREL, INC., a Delaware corporation (the "BORROWER"), having its
principal place of business at 12413 Willows Road N.E., Kirkland, WA 98034,
BANKBOSTON, N.A. (f/k/a "The First National Bank of Boston"), a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110 (the "BANK"), and BANKBOSTON, N.A. (f/k/a "The First National Bank of
Boston"), as Agent (the "AGENT") amending certain provisions of the Amended and
Restated Debtor in Possession and Exit Financing Loan Agreement by and among the
Borrower, the Bank, and the Agent dated as of September 26, 1997, as previously
amended by a First Amendment dated as of January 8, 1998, a Second Amendment
dated as of April 1, 1998, a Third Amendment dated as of September 23, 1998, and
a Fourth Amendment dated as of April 13, 1999 (as so amended, the "LOAN
AGREEMENT"). Terms not otherwise defined herein which are defined in the Loan
Agreement shall have the respective meanings herein assigned to such terms in
the Loan Agreement.
WHEREAS, the Borrower has requested that the Bank agree to amend the
terms of the Loan Agreement in certain respects; and
WHEREAS, the Bank is willing to amend the terms of the Loan Agreement
in such respects, upon the terms and subject to the conditions contained herein;
and
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Loan Agreement, herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. AMENDMENT TO DEFINITIONS. Section 1.1 of the Loan Agreement
is hereby amended as follows:
DEFINITION OF "STORE CREDIT CARD PROGRAM DOCUMENTS." Section 1.1 of the
Loan Agreement is amended by deleting the definition of the term "STORE CREDIT
CARD PROGRAM DOCUMENTS" and inserting the following in place thereof:
"STORE CREDIT CARD PROGRAM DOCUMENTS. The Revolving Credit
Program Agreement dated as of June 1, 1999, by and between the Borrower
and Green Tree Financial Corporation, a Delaware
<PAGE>
-2-
corporation, its successors and assigns, a copy of which has been
delivered to the Agent, evidencing and relating to the Store Credit
Card Program, and, to the extent each is approved by the Agent in
writing, any amendments, modifications, and successor or substitute
documents with respect thereto, evidencing or relating to the Store
Credit Card Program as in effect from time to time."
Section 2. AMENDMENT TO SECTION 10.2 OF THE LOAN AGREEMENT. Section
2(b)(vii) of the Loan Agreement is hereby deleted and the following inserted in
place thereof:
"(vii) unsecured Indebtedness in respect of the
presently-existing limited recourse arrangements under the Store Credit
Card Program Documents."
Section 3. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower
contained in the Loan Agreement or in any other Loan Documents was true and
correct as of the date as of which it was made and is true and correct in all
material respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which case
they shall be true and correct as of such earlier date); and no Default or Event
of Default has occurred and is continuing as of the date of this Amendment;
(b) This Amendment has been duly authorized, executed and delivered by
the Borrower; and
(c) This Amendment shall constitute the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
Section 4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to satisfaction of the following conditions on or
prior to July 9, 1999:
(a) This Amendment shall have been duly executed and delivered by
the Borrower, the Banks and the Agent.
(b) The Agent shall have received written confirmation of approval
of this Amendment executed by the Surety and written ratification of the
Supplemental Guaranty (as defined in the Purchase and Guaranty Agreement)
<PAGE>
-3-
executed by the Guarantor (as defined in the Purchase and Guaranty Agreement),
each in form and substance satisfactory to the Agent.
(c) A Direct Collection Letter, in form and substance satisfactory
to the Agent shall have been duly executed and delivered by the Borrower, the
Agent, and Green Tree Financial Corporation.
(d) The Agent shall have received such other documents or
instruments relating hereto as the Agent shall have reasonably requested.
Section 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Loan Agreement, the other Loan Documents, and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects.
All references in the Loan Agreement or any related agreement or instrument to
the Loan Agreement shall hereafter refer to the Loan Agreement as amended
hereby.
Section 6. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect any
Obligations, any other obligations of the Borrower, or any right of the Agent or
any Bank consequent thereon.
Section 7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
Section 8. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as a sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
By: /s/ Debbie Brownfield
--------------------------------
Name: Debbie Brownfield
Title: EVP & CFO
BANKBOSTON, N.A., in its respective
capacities as a Revolving Credit Bank
and Agent
By: /s/ W. J. Sherald
--------------------------------
Name: W. J. Sherald
Title: Vice President
BANKBOSTON, N.A., as Term Loan
Lender
By: /s/ W. J. Sherald
--------------------------------
Name: W.J. Sherald
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT,
INC., as a Revolving Credit Bank
By: /s/ Kelly Wu
--------------------------------
Name: Kelly Wu
Title: AVP
<PAGE>
-5-
CONFIRMATION OF THE SURETY
AND
OF THE GUARANTOR
The Surety hereby confirms approval of the foregoing amendment in all
respects and directs the Term Loan Lender to give its consent thereto. The
Guarantor (as defined in the Purchase and Guaranty Agreement) hereby ratifies
and confirms the Supplemental Guaranty (as defined in the Purchase and Guaranty
Agreement) in all respects, and agrees that the Supplemental Guaranty, after
giving effect to foregoing amendment, shall continue in full force and effect.
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
-------------------------------
Name: Alan R. Goldstein
Title: CFO/Mgr
GORDON BROTHERS PARTNERS,
INC.
By: /s/ Alan R. Goldstein
-------------------------------
Name: Alan R. Goldstein
Title: CFO/EVP
<PAGE>
Exhibit 10.29
SIXTH AMENDMENT
SIXTH AMENDMENT dated as of July 31, 1999 (this "AMENDMENT"), by and
among LAMONTS APPAREL, INC., a Delaware corporation (the "BORROWER"), having
its principal place of business at 12413 Willows Road N.E., Kirkland, WA
98034, BANKBOSTON, N.A. (f/k/a The First National Bank of Boston), a national
banking association and the other lending institutions that are or may become
party to the Loan Agreement referred to below (the "BANKS"), and BANKBOSTON,
N.A., as agent for the Banks (the "AGENT") amending certain provisions of the
Amended and Restated Debtor in Possession and Exit Financing Loan Agreement
by and among the Borrower, the Banks, and the Agent dated as of September 26,
1997, as previously amended by a First Amendment dated as of January 8, 1998,
a Second Amendment dated as of April 1, 1998, a Third Amendment dated as of
September 23, 1998, a Fourth Amendment dated as of April 13, 1999 and a Fifth
Amendment dated as of July 9, 1999 (as so amended, the "LOAN AGREEMENT").
Terms not otherwise defined herein which are defined in the Loan Agreement
shall have the respective meanings herein assigned to such terms in the Loan
Agreement.
WHEREAS, the Borrower has requested that the Banks and the Agent
agree to amend the terms of the Loan Agreement in order to modify the
financial covenant set forth in Section 10.3(d) thereof; and
WHEREAS, the Banks and the Agent are willing to amend the terms of
the Loan Agreement in such respects, upon the terms and subject to the
conditions contained herein; and
NOW, THEREFORE, in consideration of the mutual agreements contained
in the Loan Agreement, herein and other good and valuable consideration, the
treceipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. AMENDMENT TO SECTION 10.3 OF THE LOAN AGREEMENT. Section
10.3(d) of the Loan Agreement is hereby amended by deleting the Minimum
Amount of "$47,800,000" set forth opposite the date of July 31, 1999 in the
table set forth therein, and by replacing such amount with the Minimum Amount
of "$46,500,000".
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Banks and the Agent as follows:
<PAGE>
-2-
(a) Each of the representations and warranties of the Borrower
contained in the Loan Agreement or in any other Loan Documents was true and
correct as of the date as of which it was made and is true and correct in all
material respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which
case they shall be true and correct as of such earlier date); and no Default
or Event of Default has occurred and is continuing as of the date of this
Amendment;
(b) This Amendment has been duly authorized, executed and delivered by
the Borrower; and
(c) This Amendment constitutes the legal, valid and binding obligation
of the Borrower, enforceable in accordance with its terms.
Section 3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to satisfaction of the following conditions:
(a) This Amendment shall have been duly executed and delivered by
the Borrower, the Banks and the Agent.
(b) The Agent shall have received written confirmation of approval
of this Amendment executed by the Surety and written ratification of the
Supplemental Guaranty (as defined in the Purchase and Guaranty Agreement)
executed by the Guarantor (as defined in the Purchase and Guaranty
Agreement), each in form and substance satisfactory to the Agent.
(c) The Agent shall have received such other documents or
instruments relating hereto as the Agent shall have reasonably requested.
Section 4. RATIFICATION, ETC. Except as expressly amended hereby,
the Loan Agreement, the other Loan Documents, and all documents, instruments
and agreements related thereto are hereby ratified and confirmed in all
respects. All references in the Loan Agreement or any related agreement or
instrument to the Loan Agreement shall hereafter refer to the Loan Agreement
as amended hereby.
Section 5. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect
any
<PAGE>
-3-
Obligations, any other obligations of the Borrower, or any right of the Agent
or any Bank consequent thereon.
Section 6. COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
Section 7. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as a sealed instrument as of the date first above written.
LAMONTS APPAREL, INC.
By: /s/ Loren R. Rothschild
--------------------------------
Name: Loren R. Rothschild
Title: Vice Chairman
BANKBOSTON, N.A., in its respective
capacities as a Revolving Credit Bank
and Agent
By: /s/ W.J. Sherald
--------------------------------
Name: W.J. Sherald
Title: Vice President
BANKBOSTON, N.A., as Term Loan
Lender
By: /s/ W.J. Sherald
--------------------------------
Name: W.J. Sherald
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT,
INC., as a Revolving Credit Bank
By: /s/ Cecil Chinery
--------------------------------
Name: Cecil Chinery
Title: VP
<PAGE>
-5-
CONFIRMATION OF THE SURETY
AND
OF THE GUARANTOR
The Surety hereby confirms approval of the foregoing amendment in all
respects and directs the Term Loan Lender to give its consent thereto. The
Guarantor (as defined in the Purchase and Guaranty Agreement) hereby ratifies
and confirms the Supplemental Guaranty (as defined in the Purchase and Guaranty
Agreement) in all respects, and agrees that the Supplemental Guaranty, after
giving effect to foregoing amendment, shall continue in full force and effect.
SPECIALTY INVESTMENT I LLC
By: /s/ Alan R. Goldstein
----------------------
Name: Alan R. Goldstein
Title: CFO/Mgr
GORDON BROTHERS PARTNERS,
INC.
By: /s/ Alan R. Goldstein
----------------------
Name: Alan R. Goldstein
Title: CFO/EVP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,145
<SECURITIES> 0
<RECEIVABLES> 4,881
<ALLOWANCES> 0
<INVENTORY> 46,705
<CURRENT-ASSETS> 54,716
<PP&E> 27,914<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,086
<CURRENT-LIABILITIES> 76,213
<BONDS> 0
0
0
<COMMON> 16,927
<OTHER-SE> 2,136<F2>
<TOTAL-LIABILITY-AND-EQUITY> 99,086
<SALES> 92,122
<TOTAL-REVENUES> 92,122
<CGS> 59,256
<TOTAL-COSTS> 35,596<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,995
<INCOME-PRETAX> (5,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,721)
<EPS-BASIC> (0.64)
<EPS-DILUTED> (0.64)
<FN>
<F1>Amount is net of accumulated depreciation of $8,785.
<F2>Includes warrants-contributed capital of $3,029, and accumulated other
comprehensive loss of ($893).
<F3>Includes operating expenses and administrative expenses of $31,192 and
depreciation and amortization of $4,404.
</FN>
</TABLE>
