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Relates to Form S-1
Registration No. 333-44311
Filed under Rule 424(b) (3) and (c)
SUPPLEMENT TO
PROSPECTUS
OF
LAMONTS APPAREL, INC.
The following information supplements the Prospectus, dated August 18, 1999, of
Lamonts Apparel, Inc. related to 8,746,291 shares of Lamonts' Class A Common
Stock; 1,810,380 Class A Warrants, each to purchase 1 share of Common Stock;
581,184 Class B Warrants, each to purchase 1 share of Common Stock; and 228,639
Class C Warrants, each to purchase an aggregate of 15 shares of Common Stock, as
supplemented by the Prospectus Supplement, dated September 20, 1999.
Capitalized terms used in this Supplement and not defined herein have the
meanings given to them in the Prospectus dated August 18, 1999. This Supplement
should be read in conjunction with the Prospectus, as supplemented.
THE DATE OF THIS SUPPLEMENT IS OCTOBER 27, 1999
RECENT EVENTS
Lamonts and a number of financial institutions and BankBoston, N.A., as
agent, have entered into a Seventh Amendment, dated October 13, 1999, to the
Amended and Restated Debtor in Possession and Exit Financing Loan Agreement,
dated September 26, 1997. Among other things, the Seventh Amendment provides
for:
- renewal of the revolving credit facility through January 31, 2002;
- extension of the term loan through January 31, 2001 with an option to
further extend the term loan to January 31, 2002 if we meet specified
requirements;
- an increase in the maximum amount we may borrow under the revolving
credit facility to $38.0 million in the months of October and November
to accommodate seasonal inventory requirements; and
- changes in the borrowing base formula to allow us to borrow up to 70
percent of eligible inventory from January 15th through June 30th and
up to 65 percent of eligible inventory from July 1st through January
14th.
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Immediately prior to entering into the Seventh Amendment, BankBoston
assigned its interest as a lender under the credit facility to its affiliate,
BankBoston Retail Finance, Inc. However, BankBoston will continue to serve as
agent under the credit facility.
As a result of the extension of the term loan, we anticipate that we will
reclassify approximately $9.7 million of our current liabilities as long-term
debt. This reclassification would reduce approximately 45% of our working
capital deficit of $21.5 million as of July 31, 1999, included in the Prospectus
Supplement dated September 20, 1999. The information contained in this
Supplement with respect to the extension of our term loan and the anticipated
reduction in our working capital deficit modifies the information contained on
page 11 of the Prospectus under the captions "Risk Factors-We have a substantial
working capital deficit" and "Risk Factors-Unless extended, our term loan
becomes due at the end of 1999."
We are filing the Seventh Amendment as an exhibit to a post-effective
amendment to the registration statement which includes this Prospectus. For
more information on how you may inspect and obtain a copy of the registration
statement, including the post-effective amendment, and the Seventh Amendment,
please see the discussion on page 59 of the Prospectus under the caption "Where
to Find Additional Information About Us." In view of the execution of the
Seventh Amendment to our credit facility, we are restating in this Supplement
the description of our bank credit facility on pages 55-57 of the Prospectus
under the caption "Description of our Bank Credit Facility" as follows:
DESCRIPTION OF OUR BANK CREDIT FACILITY
We are party to a loan agreement with BankBoston, N.A., BankBoston Retail
Finance, Inc. and The CIT Group/Business Credit, Inc. Under this agreement,
- BankBoston Retail Finance and CIT provide a revolving line of credit
with a maximum principal amount of $38 million; and
- BankBoston Retail Finance has provided a term loan with an initial
principal amount of $10 million.
As lenders under the revolving line of credit, BankBoston Retail Finance
and CIT are obligated to: (1) make loans and advances to us on a revolving
basis, and (2) issue letters of credit to us or for our account (with a sublimit
for letters of credit of $3 million), subject to the terms and conditions of the
loan agreement.
The amount outstanding under the revolving line of credit (net of
repayments) may not exceed the lesser of: (a) $38 million during the period
October 1 through December 1 of each year, or $32 million during the balance of
the year and (b) a borrowing base equal to a specified percentage of the book
value of our first quality finished goods inventory held for sale. The
specified borrowing base percentage will be set for the period January 15
through June 30 of each year by a formula based on the appraised value of our
inventory, but will not be less than
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65%, nor greater than 70% and the borrowing base percentage for the balance of
each year will be 65%. The term loan was fully disbursed to us during our
Chapter 11 case and we are not entitled to borrow any further amounts under it.
The term loan is guaranteed by Specialty Investment.
The revolving line of credit is scheduled to mature on January 31, 2002,
but may mature earlier as a result of acceleration, mandatory prepayment or
other earlier maturity of the term loan. The term loan is scheduled to mature
on January 31, 2001, but may mature earlier as a result of acceleration,
mandatory prepayment or other earlier maturity of the revolving line of credit.
We have the option to extend the maturity date of the term loan for an
additional year, as long as the revolving line of credit has not matured, on the
terms and conditions of the loan agreement and upon repayment of a fee equal to
approximately 5% of the outstanding amount of the term loan on the extension
date. There are no extension options for the revolving line of credit.
We are required to make, and we have made, principal payments on the term
loan of $25,000 per month since October 31, 1998. We expect that a substantial
portion of the principal amount of the term loan will be outstanding on the
maturity date of the term loan. Our borrowings under both the revolving line of
credit and the term loan currently bear interest at a floating rate of 1.50%
above the "base rate," as defined in the loan agreement, or, at our option, at
2.75% above the Eurodollar Rate. The rates are subject to adjustment annually
on June 1, based upon our financial results in accordance with the criteria
described in the loan agreement. See "Risk Factors - Risks Arising from Our
Substantial Level of Indebtedness" beginning on page 11 of the Prospectus. The
default rate of interest under the revolving line of credit 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.
We paid a facility fee for the revolving line of credit of $336,000 on
January 31, 1998, an additional fee in the amount of $224,000 on December 31,
1998, and an extension fee on October 13, 1999 of $160,000. We will be charged
a letter of credit fee of 1.75% per annum quarterly in arrears based on the
average daily maximum aggregate amount available to be drawn by beneficiaries
under all outstanding letters of credit. We must pay a commitment fee in the
amount of 0.5% per annum monthly in arrears based on the average daily unused
amount of the maximum revolving line of credit. Both the letter of credit fee
and the commitment fee may be adjusted each June 1, based upon our financial
results in accordance with the criteria described in the loan agreement. In
addition to the closing fee in the amount of $500,000 that we paid at the
closing of the term loan on September 26, 1997, we paid an additional closing
fee of $500,000 in September 1998 and an additional closing fee of $160,550 on
October 13, 1999, and we will be subject to extension fees calculated at the
rate of 5% per annum applied to the average daily principal balance of the term
loan outstanding on February 1, 2000 and on the first day of any applicable
extension period, payable at the times and in the manner described in the loan
agreement.
Advances under the credit facility are secured by all real and personal
property, rights, and assets of Lamonts, including, without limitation, real
estate leasehold interests.
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The credit facility required us to issue to Specialty Investment, as of
January 31, 1998, the effective date of our plan of reorganization, (1) 228,639
Class C warrants exercisable for the purchase of an aggregate of 3,429,585
shares of common stock, and (2) 10 shares of Class B common stock, representing
all of the authorized and outstanding Class B common stock, in partial exchange
for BankBoston's administrative claim against our Chapter 11 estate, and in
consideration for Specialty Investment's guaranty of the term loan. See
"Description of Our Capital Stock - Class B Common Stock" on page 50 of the
Prospectus for a description of the special voting rights of the Class B common
stock.
The loan agreement restricts our ability to incur indebtedness, other than:
- indebtedness under the credit facility;
- current liabilities not incurred through the borrowing of money;
- indebtedness for taxes or other governmental charges not yet due and
payable or being contested in good faith by appropriate proceeding;
- scheduled indebtedness not contemplated as being discharged by
Lamonts' Chapter 11 plan of reorganization;
- certain purchase money indebtedness limited to 50% of permitted
capital expenditures; and
- unsecured indebtedness for the limited recourse arrangements under our
credit agreement with Green Tree.
The loan agreement restricts the creation of liens, other than:
- liens securing the obligations under the credit facility with
BankBoston;
- scheduled liens not contemplated as being discharged by Lamonts'
Chapter 11 plan of reorganization;
- liens securing taxes or other governmental charges not yet due;
- deposits or pledges made in connection with social security
obligations;
- mechanics and similar liens less than 120 days old for obligations not
yet due,
- immaterial easements and similar encumbrances;
- statutory or common law landlord's liens; and
- purchase money security interests to the extent the indebtedness is
permitted under the loan agreement.
The loan agreement prohibits the payment of dividends, other than:
- dividends payable solely in shares of common stock;
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- distributions by one of our wholly-owned subsidiaries to us; and
- dividends and/or distributions contemplated by our Chapter 11 plan of
reorganization.
In addition, the loan agreement prohibits mergers, consolidations or
dispositions of assets, other than:
- sales of inventory in the ordinary course;
- dispositions of leasehold improvements in connection with permitted
store closures; and
- dispositions of obsolete fixtures and equipment not to exceed $100,000
in any 12 month period.
In addition, the loan agreement contains covenants, restrictions among
other things:
- guarantees with respect to indebtedness of other persons, other than
the guarantee of lease payments for our distribution center in Kent,
Washington; and
- capital expenditures, other than capital expenditures of $6,500,000
during fiscal 1998, $5,500,000 during fiscal 1999, $6,000,000 during
fiscal 2000 and $6,000,000 during fiscal 2001. In addition to the
foregoing, we are required to maintain 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 described in the loan
agreement. As of October 13, 1999, we were in compliance with all
covenants under the loan agreement.
If we need a waiver of or an amendment to the covenants of the loan
agreement, we will need to obtain, except as otherwise specified in the credit
facility, the consent of BankBoston, BankBoston Retail Finance, CIT, and
Specialty Investment and any other lender under the revolving line of credit.
The loan agreement contains customary events of default for credit facilities of
its type. Specialty Investment has the right, under specified circumstances
after a default, to direct BankBoston Retail Finance to declare our obligations
under the credit facility immediately due and payable and to cause the exercise
of certain of BankBoston Retail Finance's rights and remedies under the loan
agreement.
To hedge the interest rate exposure from variable rate loans under the
credit facility, on March 24, 1998, we entered into a forward interest rate swap
letter agreement with BankBoston. Under this agreement, we pay a fixed rate of
5.73% per annum and receive the floating rate which is tied to 3-month LIBOR as
fixed quarterly. The swap agreement is for a notional amount of $20 million for
a period of two years beginning March 25, 1998. Net periodic cash settlements
under the swap agreement are recognized in the consolidated statements of
operations in the related period.
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