<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended January 30, 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, WA 98034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 814-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, par value $0.01 per share and related Stock Purchase
Rights
Class A Warrants to purchase Class A Common Stock
Class B Warrants to purchase Class A Common Stock
Class C Warrants to purchase Class A Common Stock
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Registrant's voting stock held by
nonaffiliates of the Registrant as of April 15 ,1999, was approximately
$4,477,000 (based on the average bid and ask price of such stock on such date).
For purposes of this calculation, the voting stock held by Dallas C. Troutman
has been included.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a Court.
Yes /X/ No
---- ----
As of April 15, 1999, there were 9,000,000 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, outstanding and 10 shares of
Registrant's Class B Common Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 45
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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. 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 a significant number of customers or
suppliers, (vi) fluctuations in operating results, (vii) changes in business
strategy or development plans, (viii) business disruptions, (ix) the ability to
attract and retain qualified personnel, (x) ownership of Common Stock, (xi)
volatility of stock price, (xii) delays on the part of the Company or suppliers
or other third parties in achieving year 2000 compliance, and (xiii) the
additional risk factors identified in the Company's Registration Statement on
Form S-1 (No. 333-44311) initially filed with the SEC on January 15, 1998 (as
amended from time to time), and those described from time to time in the
Company's other filings with the SEC, press releases and other communications.
The Company disclaims any obligations to update any such factors or to announce
publicly the result of any revisions to any of the forward-looking statements
contained or incorporated by reference herein to reflect future events or
developments.
PART I
ITEM 1 - BUSINESS
GENERAL BACKGROUND
Lamonts Apparel, Inc. (the "Company" or "Lamonts") is a promotionally oriented,
Northwest-based regional retailer with 38 stores in five states. The Company
offers an assortment of moderately priced fashion apparel and home and fashion
accessories at competitive prices for the entire family. The Company, which has
been operating in the Northwest for over 30 years, is well recognized in the
region as a retailer of nationally recognized brand name apparel such as Levi,
Liz Claiborne, Lee, Bugle Boy, Jockey, Alfred Dunner, OshKosh, Adidas, Nike, and
Health-Tex. Lamonts purchases goods from approximately 700 vendors and uses a
distribution center in Kent, Washington for processing and warehousing
merchandise for distribution to its stores. The Company employs approximately
1,500 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.
CHAPTER 11 REORGANIZATION
BACKGROUND
On January 6, 1995, the Company filed a voluntary petition for relief under
Chapter 11 ("Chapter 11") of title 11 of the United States Code in the United
States Bankruptcy Court for the Western District of Washington at Seattle. The
Company's Modified and Restated Plan of Reorganization (the "Plan") was
confirmed by the Bankruptcy Court on December 18, 1997, and the Company emerged
from bankruptcy on January 31, 1998 ("Plan Effective Date").
PLAN
The overall purpose of the Plan was to (i) alter the debt and capital structure
of the Company to permit it to emerge from Chapter 11 and (ii) settle,
compromise or otherwise dispose of certain claims on terms that the Company
considered to be reasonable.
The Plan resulted in an approximate $90 million net reduction in the total
indebtedness and liabilities subject to reorganization of the Company. The Plan
provided generally for, among other things, payment in full by the Company of
administrative expenses, certain other priority claims and secured claims, other
than the claim of BankBoston, N.A. ("BankBoston"), the agent and lender under
the Company's bank credit facility (the "BankBoston Facility"), (which was left
unimpaired), cancellation of certain indebtedness in exchange for new equity
securities of
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the Company, the discharge of certain other pre-petition claims, the
cancellation of then existing equity securities of the Company in exchange for
new equity securities of the Company, the assumption or rejection of executory
contracts and unexpired leases and the designation of a new board of directors.
In addition, the Plan provided that the Company assume all of its obligations
under the BankBoston Facility, including any unpaid accrued interest, fees,
costs and charges.
DEBTOR-IN-POSSESSION ("DIP") FINANCING AND EXIT FINANCING
During its Chapter 11 case, the Company received debtor-in-possession financing
from BankBoston pursuant to a loan and security agreement, dated June 4, 1996
(the "Prior Loan Agreement") between the Company and BankBoston. On September
26, 1997, the Prior Loan Agreement was amended and restated as set forth in the
Amended and Restated Debtor-in-Possession and Exit Financing Loan Agreement (the
"Loan Agreement"), between the Company and BankBoston. Pursuant to the Loan
Agreement, BankBoston provides Lamonts with (i) a revolving credit facility (the
"Revolver") with a maximum borrowing capacity of $32 million and (ii) a term
loan in the amount of $10 million (the "Term Loan"). See Note 7 to the
Consolidated Financial Statements for a description of the Term Loan, Revolver
and BankBoston Facility.
ACQUISITION OF SECURITIES BY TROUTMAN INVESTMENT COMPANY
On January 4, 1999, Troutman Investment Company ("Troutman Investment") filed
with the SEC a report stating that on December 23, 1998, Troutman Investment
acquired 2,925,140 shares of Class A Common Stock, 1,810,380 Class A Warrants,
and 581,181 Class B Warrants from certain investment companies and accounts
indirectly controlled by FMR Corp. (collectively "Fidelity") with the stated
intent of entering into discussions with the Company regarding a possible merger
of the two Companies. Troutman Investment's principal business is the operation
of retail stores selling fashion apparel and home and fashion accessories.
In January, 1999, the Company commenced preliminary discussions with Troutman
Investment with respect to a possible merger between the Company and Troutman
Investment. Additionally, the Board of Directors of the Company adopted a
Stockholder Rights Plan (See Note 12 to the Consolidated Financial Statements)
and certain amendments to the Company's Bylaws . The Company does not intend to
disclose any details of the discussions with Troutman Investment pending their
outcome.
On March 10, 1999, Troutman Investment transferred all of its securities of
Lamonts Apparel, Inc. to Dallas C. Troutman, president and controlling
stockholder of Troutman Investment.
OPERATIONS
Lamonts offers an assortment of moderately priced fashion apparel, and home and
fashion accessories for the entire family at competitive prices.
PROMOTION AND MARKETING - Sales promotion and inventory allocation decisions are
made centrally by Lamonts' corporate staff. The Company generally maintains
uniform 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 targets specific merchandise products and consumer groups, including
holders of its proprietary credit card, for sales events.
SHOE LICENSEE - Lamonts utilizes a licensee, Shoe Corporation of America
("SCOA"), for its 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 SCOA (approximately $1.4 million for the 52 weeks ended
January 30, 1999 ("Fiscal 1998")) 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 optional extension.
PURCHASING - The Company's centralized buying organization includes general
merchandise managers, divisional merchandise managers, and buyers responsible
for maintaining vendor relationships. The Company purchases its merchandise from
approximately 700 vendors and is not dependent on any single source of supply.
The Company
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also has a membership in Frederick Atkins, Inc. ("Atkins"), a merchandising
consultant and buying cooperative, which provides certain private label
merchandise to the Company. In connection with its membership, the Company
maintains a noncurrent deposit of approximately $1.0 million. The Company
maintains no long-term commitments with any supplier and believes that there
will continue to be an adequate supply of merchandise to satisfy its current and
anticipated requirements. However, like other apparel retailers, the Company is
highly dependent upon its ability to obtain trade credit.
On March 31, 1999, the Company informed Atkins that it was terminating its
membership in Atkins in accordance with the terms of an agreement, which
provides that either party may terminate the agreement at the end of any
calendar month by giving at least 18 months prior written notice to the other
party. In the opinion of management, the termination of its membership in Atkins
will not have a material adverse effect on the business of Lamonts.
DISTRIBUTION - The Company utilizes a contractor, Assembly Transportation
Distribution Systems, Inc. ("ATD"), to operate its distribution center pursuant
to an agreement dated April 30, 1998, that continues through February 2001.
Monthly operating fees payable to ATD are $16,164, in addition to reimbursements
for specified costs incurred in connection with the operations of the
distribution center. Through its dedicated distribution center, the Company
generally receives, tickets and ships merchandise to its stores within a
two-to-three day period. The Company believes that this distribution center
enables it to monitor vendor shipments effectively, reduce receiving and marking
expenses, reduce related transportation costs, improve inventory control, and
reduce inventory shrinkage.
The current lease for the distribution center, which is guaranteed by the
Company, covers 62,500 square feet of space through February 2001. The amount of
lease payments guaranteed by the Company pursuant to the lease is approximately
$21,000 per month. See "Item 2 - Properties."
STORE OPERATIONS - The Company's store management team consists of a senior vice
president, three regional directors and 36 store managers. Two of the three
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 25 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 1,500 people, approximately
two-thirds of whom are part-time. Approximately 325 employees working in
Seattle, Washington stores are represented by the United Food and Commercial
Workers Union pursuant to a contract that expires June 12, 1999. Approximately
40 employees working in the Wenatchee, Washington store are represented by the
United Food and Commercial Workers Union. These employees have not negotiated a
collective bargaining agreement, and they work under the same working conditions
as the Company's nonunion employees. Approximately 20 employees working in the
Kirkland corporate office are represented by the United Food and Commercial
Workers Union pursuant to a contract that expires on March 31, 2000. Management
believes that its employee relations are good.
COMPETITION - Lamonts competes with other specialty retail apparel stores,
department stores and discount and mass merchandisers on the basis of product
range, quality, fashion, price and service. The Company attempts to
differentiate itself from its competitors by positioning itself as a focused
specialty retailer with emphasis on casual wear and high quality branded
products, as well as its private label, "Northwest Outfitters." Principal
competitors in one or more of the Company's market areas include The Bon Marche
(a division of Federated Department Stores, Inc.), Nordstrom, J.C. Penney Co.,
Inc., Sears Roebuck and Company, and Mervyn's (a division of Dayton-Hudson
Corporation). Many of the Company's competitors have substantially greater
financial resources than Lamonts.
TRADEMARKS - The Company currently owns various registered trademarks which are
part of its private label program. Management believes that, although these
trademarks are significant, the Company's business is not dependent on any of
the rights.
CREDIT POLICY - The Company offers its customers various methods of payment
including cash, check, Lamonts charge card, certain major credit cards and a
lay-away plan. Since its inception in July 1988, the Company's charge card
program has expanded to approximately 675,000 accounts, of which approximately
165,000 had transactions within the last year.
The Company's proprietary charge card, administered and owned by Alliance Data
Systems ("ADS"), 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
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accordance with prescribed schedules. Through a contractual arrangement, as
amended (the "Alliance Agreement"), ADS owns the receivables generated from
purchases made by customers using the Lamonts charge card.
The Alliance Agreement provides that the Company will be charged a discount fee
of 1.95% of Net Sales, as that term is defined in the Alliance Agreement.
Additionally, the Alliance Agreement provides for a supplemental discount fee
equal to one-tenth of one percent (0.1%) of Net Sales for each one million
dollar increment that Net Sales for a subject year are less than $48.0 million
(the "Minimum Level") up to a total maximum fee of 3% of the Net Sales for the
subject year. ADS waived the supplemental discount fee for the 52 weeks ended
January 31, 1998 ("Fiscal 1997"). In the event of store closures, the Alliance
Agreement provides that the Minimum Level may be decreased. The Company is not
responsible for any net bad debt expense. Discount fees totaled approximately
$0.8 million in Fiscal 1998 and $0.9 million in Fiscal 1997.
The Alliance Agreement provides that either party may terminate the agreement
after June 22, 1999 upon 180 days prior written notice. In December 1998, the
Company gave notice of termination. The Company intends to enter into an
agreement with a new administrator effective in mid-1999.
RETURN POLICY - The Company exchanges or issues a credit if a customer is not
completely satisfied with any Lamonts purchase. Management believes that the
Company's customer return policy and experience is consistent with industry
practices.
INFORMATION SYSTEMS - In recent years the Company has invested in the
development of management information systems (MIS) in the areas of merchandise
reporting, distribution and allocation, customer service (full and promotional
price look-up at the register), as well as financing, credit authorization, and
store operations.
The Company 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 the 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, which 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 reporting and classification
to the merchants and Year 2000 preparations, as well as a new POS platform to
support enhanced customer service and future 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 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 the Company.
REGULATIONS - The Company is subject to Federal, state and local laws and
regulations affecting retail apparel stores generally. The Company believes that
it is in substantial compliance with these laws and regulations.
ITEM 2 - PROPERTIES
The Company considers its ability to maintain attractive, high traffic store
locations to be a critical element of its business and a key determinant of
Lamonts' future growth and profitability.
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The Company currently operates 38 stores in the following locations:
<TABLE>
<CAPTION>
Alaska (7) Washington (23) Utah (1)
- ------------------------ ---------------------------------- ----------------
<S> <C> <C>
- - Anchorage: 3 stores - Seattle: 6 stores - Logan
- - Fairbanks - Bellevue/Eastside: 4 stores
- - Juneau - Spokane: 2 stores
- - Soldotna - Tacoma: 2 stores Oregon (2)
----------------
- - Wasilla - Aberdeen
- Marysville - Astoria
Idaho (5) - Moses Lake - Corvallis
- ------------------------
- Olympia
- - Coeur d'Alene - Port Angeles
- - Idaho Falls - Silverdale
- - Lewiston - Tri-Cities
- - Moscow - Wenatchee
- - Pocatello - Yakima
</TABLE>
Of the 38 stores, 14 are located in regional malls, 15 are located in community
malls, three are located in strip centers, and six are located in free-standing
locations.
All of the Company's stores are currently operated in facilities leased by the
Company, except one which is operated in a building owned by the Company subject
to a ground lease which expires in 2015. The leases for these facilities have
terms up to 30 years, with an average remaining term of six years, not including
additional option periods. The Company leases approximately 30,000 square feet
for its principal office in Kirkland, Washington. The lease expires in May 2006.
The Company's stores range from 20,700 to 80,000 square feet in size, with a
typical store averaging approximately 47,000 square feet. The interiors of
Lamonts' stores are decorated and organized to maximize 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.
The Company has an agreement with ATD, which provides distribution and
merchandise processing services for Lamonts on a cost plus fee reimbursement
basis. As part of the agreement, the Company is a guarantor of the lease of the
distribution center located in Kent, Washington. The lease expires in February
2001.
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in various matters of litigation arising in the ordinary
course of business. In the opinion of management, the ultimate outcome of all
such matters will not have a material adverse effect on the financial position
of the Company, but, if decided adversely to the Company, could have a material
effect on quarterly or annual operating results during the period such matters
are resolved.
In March 1995, the Company brought an action against one of its landlords,
Hickel Investment Company ("Hickel"), to recover overpayments of common area
maintenance and other charges made to Hickel. The United States District Court
for the District of Alaska has entered a judgment against Hickel for an amount
in excess of $1.9 million. Hickel has since appealed the judgment and posted a
bond to obtain a stay pending appeal. There can be no assurance that the Company
will be successful on such appeal. No amounts related to this judgment have been
recorded in the Consolidated Financial Statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of Fiscal 1998.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Pursuant to the Plan, the Company's Class A Common Stock, par value $0.01 per
share ("Common Stock"), was delivered to Norwest Bank Minnesota, N.A., as
exchange agent, on January 31, 1998, for distribution to unsecured creditors and
shareholders. The Common Stock is quoted on the OTC Bulletin Board ("OTC") and
is listed under the symbol "LMNT."
The average bid and ask price of the Common Stock on April 15, 1999 was $0.50.
As of April 15, 1999, there were 1,100 holders of record of the Common Stock.
The following table sets forth, for the periods indicated, the high and low bid
prices of the Common Stock (Fiscal 1998) and the common stock issued to the
former holders of Lamonts common stock ("Old Common Stock") (Fiscal 1997) as
quoted on the OTC under the symbol "LMNT". The bid prices, as stated, represent
inter-dealer prices without adjustments for retail mark-ups, markdowns or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
- ---------------------------------------------------- --------------
Fiscal 1998 (Common Stock): High Low
- ------------------------------------- ------------- --------------
<S> <C> <C>
Thirteen weeks ended May 2 2 5/8
Thirteen weeks ended August 1 1 5/16 3/8
Thirteen weeks ended October 31 13/16 3/8
Thirteen weeks ended January 30 1 1/2 1/4
- ---------------------------------------------------- --------------
Fiscal 1997 (Old Common Stock): High Low
- ------------------------------------- ------------- --------------
Thirteen weeks ended May 3 1/8 1/16
Thirteen weeks ended August 2 1/8 1/16
Thirteen weeks ended November 1 3/16 1/16
Thirteen weeks ended January 31 1/4 1/16
</TABLE>
DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock or 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.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the Company
and should be read in conjunction with the Consolidated Financial Statements and
the Notes thereto, included in Item 8. The following financial data is not
necessarily comparable for the periods presented because of the effects of
Fresh-Start Reporting as of January 31, 1998, due to the inclusion of
reorganization expenses prior to January 31, 1998. Accordingly, a vertical black
line is shown to separate post-emergence operations from those prior to January
31, 1998 in the statement of operations data and to separate the January 31,
1998 consolidated balance sheet data from the prior year since it is not
prepared on a comparable basis.
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ITEM 6 - SELECTED FINANCIAL DATA
LAMONTS APPAREL, INC.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
52 weeks ended | 52 weeks ended 52 weeks ended
Jan 30, 1999 | Jan 31, 1998 Feb 1, 1997
-------------- | -------------- --------------
<S> <C> | <C> <C>
STATEMENT OF OPERATIONS DATA |
Revenues (1) $209,585 | $201,623 $203,602
Cost of merchandise sold 137,651 | 131,700 130,480
--------- | --------- ---------
Gross profit 71,934 | 69,923 73,122
--------- | --------- ---------
Operating and administrative expenses 63,343 | 67,844 67,173
Depreciation and amortization 8,024 | 7,141 7,999
Impairment of long-lived assets -- | -- 4,170
Store closure costs -- | -- --
--------- | --------- ---------
Operating costs 71,367 | 74,985 79,342
--------- | --------- ---------
|
Income (loss) from operations before other |
income (expense), reorganization |
expenses, fresh-start revaluation, |
and extraordinary item 567 | (5,062) (6,220)
|
Other income (expense): |
Interest expense (2) (5,042) | (5,900) (5,053)
Other income (expense) 14 | 8 12
--------- | --------- ---------
Loss from operations before reorganization expenses, |
fresh-start revaluation and extraordinary item (4,461) | (10,954) (11,261)
Reorganization expenses -- | (5,995) (6,037)
Fresh-start revaluation -- | 70,495 --
--------- | --------- ---------
Income (loss) before income taxes and extraordinary item (4,461) | 53,546 (17,298)
Income tax benefit -- | -- --
--------- | --------- ---------
Income (loss) before extraordinary item (4,461) | 53,546 (17,298)
Extraordinary item - gain on debt discharge 0 | 69,158 0
--------- | --------- ---------
Net income (loss) ($4,461) | $122,704 ($17,298)
--------- | --------- ---------
--------- | --------- ---------
Net income (loss) before extraordinary item per |
Common Share, Basic and Diluted (3) ($0.50) | $3.00 ($0.97)
--------- | --------- ---------
--------- | --------- ---------
Net income (loss) per Common Share, Basic and Diluted (3) ($0.50) | $6.86 ($0.97)
--------- | --------- ---------
--------- | --------- ---------
Shares Used in Computing Earnings (Loss) per |
Common Share (in thousands), Basic and Diluted (3) 9,000 | 17,876 17,900
--------- | --------- ---------
--------- | --------- ---------
BALANCE SHEET DATA (at end of period)
Working capital (deficit) ($16,662) ($5,049) | ($3,357)
Total assets 93,895 96,892 | 93,272
Liabilities subject to settlement under |
reorganization proceedings -- -- | 102,858
Long term debt and obligations under capital |
leases, net of current maturities 12,490 24,371 | 2,846
Stockholders' equity (deficit) 14,602 19,956 | (59,553)
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
53 weeks ended 52 weeks ended
Feb 3, 1996 (4) Jan 28, 1995 (4)
--------------- ----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues (1) $199,548 $231,199
Cost of merchandise sold 131,677 175,330
--------- ---------
Gross profit 67,871 55,869
--------- ---------
Operating and administrative expenses 71,372 87,807
Depreciation and amortization 9,232 11,355
Impairment of long-lived assets -- --
Store closure costs -- 7,200
--------- ---------
Operating costs 80,604 106,362
--------- ---------
Income (loss) from operations before other
income (expense), reorganization
expenses, fresh-start revaluation,
and extraordinary item (12,733) (50,493)
Other income (expense):
Interest expense (2) (5,098) (11,858)
Other income (expense) 196 27
--------- ---------
Loss from operations before reorganization expenses,
fresh-start revaluation and extraordinary item (17,635) (62,324)
Reorganization expenses (7,240) (7,499)
Fresh-start revaluation -- --
--------- ---------
Income (loss) before income taxes and extraordinary item (24,875) (69,823)
Income tax benefit -- 400
--------- ---------
Income (loss) before extraordinary item (24,875) (69,423)
Extraordinary item - gain on debt discharge --
--------- ---------
Net income (loss) ($24,875) ($69,423)
--------- ---------
--------- ---------
Net income (loss) before extraordinary item per
Common Share, Basic and Diluted (3) ($1.39) ($4.13)
--------- ---------
--------- ---------
Net income (loss) per Common Share, Basic and Diluted (3) ($1.39) ($4.13)
--------- ---------
--------- ---------
Shares Used in Computing Earnings (Loss) per
Common Share (in thousands), Basic and Diluted (3) 17,894 16,820
--------- ---------
--------- ---------
BALANCE SHEET DATA (at end of period)
Working capital (deficit) ($2,248) $16,025
Total assets 102,361 120,269
Liabilities subject to settlement under
reorganization proceedings 104,845 108,333
Long term debt and obligations under capital
leases, net of current maturities -- --
Stockholders' equity (deficit) (42,556) (17,509)
</TABLE>
- --------------------------
1 The additional week during the 53 weeks ended February 3, 1996 ("Fiscal
1995") accounted for $2.2 million of revenues.
2 Interest expense includes amortization of discounts on the Company's long
term debt and interest paid through issuance of additional debt.
3 See note 4 to the consolidated financial statements.
4 The Company changed its fiscal year end on March 9, 1995. For purposes of
presenting the data for the 52 weeks ended January 28, 1995 ("Fiscal 1994"),
the Company has provided data which is derived from unaudited financial
records of the Company.
8
<PAGE>
ITEM 7 - 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 the Company and Notes thereto included elsewhere in this
report.
BACKGROUND
FRESH-START REVALUATION
Effective January 31, 1998, the Company implemented the required accounting for
entities emerging from Chapter 11 in accordance with the American Institute of
Certified Public Accountant's (AICPA) Statement of Position 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
(also referred to as "Fresh-Start Reporting"). Under Fresh-Start Reporting, the
reorganization value (determined as discussed below) of the Company was
allocated to the reorganized Company's net assets on the basis of the purchase
method of accounting, which required the adjustment of the Company's assets and
liabilities to reflect their estimated fair value at the Plan Effective Date.
In accordance with SOP 90-7, the Company's reorganization value was determined
as of the Plan Effective Date. The reorganization value was derived by an
independent public accounting firm (which was not the Company's independent
accountants) using various valuation methods, including discounted cash flow
analyses (utilizing the Company's projections), analyses of the market values of
other publicly traded companies whose businesses are reasonably comparable, and
analyses of the present value of the Company's equity. This value was viewed as
the fair value of the Company before considering liabilities and approximated
the amount a willing buyer would have paid for the assets of the Company
immediately after restructuring. Management determined the value of the equity
to be approximately $20 million by deducting the working capital deficit,
operating debt, and the new debt from the reorganization value.
The adjustments to reflect the consummation of the Plan and the adoption of
Fresh-Start Reporting, including the adjustment to restate assets and
liabilities at the fair value of net assets, including the establishment of
excess reorganization value, and the gain on debt discharge for liabilities
subject to settlement under reorganization proceedings, are reflected in the
Fiscal 1997 Consolidated Statements of Operations under the captions "Fresh
Start Revaluation" and "Extraordinary Item - Gain on Debt Discharge". See Note 2
to the Consolidated Financial Statements.
Because Fresh-Start Reporting was adopted as of January 31, 1998, the
consolidated results of operations for Fiscal 1998 are not comparable to Fiscal
1997 due to the inclusion of reorganization expenses prior to January 31, 1998,
and the change in depreciation and amortization expenses related to the
revaluation of assets. Accordingly, a vertical black line is shown to separate
post-emergence operations from those prior to January 31, 1998, in the
consolidated results of operations and to separate the January 31, 1998
consolidated balance sheet from the prior year since it is not prepared on a
comparable basis.
9
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. Comparable store revenues (i.e., stores open since the beginning of
each of the periods presented) of $209.6 for Fiscal 1998 increased $8.0 million
or 3.9% from $201.6 million for Fiscal 1997. Comparable store revenues increased
due to higher average inventory levels, continued improvement in the quality of
the merchandise offered in the stores, and strong sales in the Alaska market.
There can be no assurance that a continuation of such factors will increase
revenues in future periods.
GROSS PROFIT. Gross profit of $71.9 million or 34.3% as a percentage of revenues
for Fiscal 1998 decreased from $69.9 million or 34.7% for Fiscal 1997. Gross
profit percentages include all anticipated markdowns.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $63.3 million, or 30.2% of revenues for Fiscal 1998, compared to $67.8
million, or 33.6% of revenues, for Fiscal 1997. Excluding the curtailment gain
of $1.0 million recognized in the first quarter of Fiscal 1998 (see Note 14 to
the Consolidated Financial Statements), operating and administrative expenses
for Fiscal 1998 were 30.7% of sales. Expense savings initiatives, including
lower occupancy expense at the Company's leased distribution center and lower
store payroll expense as a percentage of sales, partially offset by an increase
in Year 2000 remediation costs, accounted for the remainder of the reduction in
operating and administrative expenses for Fiscal 1998 as compared to Fiscal
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $8.0
million for Fiscal 1998 and $7.1 million for Fiscal 1997. The increase is
primarily due to the revaluation of assets in connection with fresh-start
reporting.
INTEREST EXPENSE. Interest expense was $5.0 million in Fiscal 1998 compared to
$5.9 million in Fiscal 1997. Interest expense is primarily related to
outstanding borrowings under the Company's BankBoston Facility, referred to
below. The decrease is primarily the result of an adjustment, totaling
approximately $0.8 million, for a change in estimate recorded during Fiscal 1998
and lower average interest rates, partially offset by higher outstanding
balances on the BankBoston Facility during Fiscal 1998.
REORGANIZATION EXPENSES. Reorganization expenses of $6.0 million in Fiscal 1997
represent costs directly related to the Company's Chapter 11 case. No such costs
were incurred in Fiscal 1998. See Note 1 to the Consolidated Financial
Statements.
FRESH-START REVALUATION. The Company recorded a fresh-start revaluation
adjustment of $70.5 million in Fiscal 1997. See Note 2 to the Consolidated
Financial Statements.
EXTRAORDINARY ITEM - GAIN ON DEBT DISCHARGE. The Company recorded an
extraordinary gain of $69.2 million in Fiscal 1997. See Note 2 to the
Consolidated Financial Statements.
NET INCOME. As a result of the foregoing, the Company recorded a net loss of
$4.5 million for Fiscal 1998 compared to net income of $122.7 million in Fiscal
1997. The $12.5 million improvement (exclusive of the $70.5 million fresh-start
revaluation and $69.2 million extraordinary item - gain on debt discharge
recorded in Fiscal 1997) is primarily due to (i) the decrease in operating and
administrative expenses of $4.5 million, (ii) the increase in gross profit of
$2.0 million, due mainly to the increase in store revenues, (iii) the $0.9
million reduction in interest expense and (iv) the reduction in reorganization
expenses of $6.0 million. These improvements were partially offset by the
increase in depreciation and amortization expense of $0.9 million.
10
<PAGE>
FISCAL 1997 COMPARED TO THE 52 WEEKS ENDED FEBRUARY 1, 1997 ("FISCAL 1996")
REVENUES. Revenues of $201.6 million for Fiscal 1997 decreased $2.0 million on a
total store basis from $203.6 million for Fiscal 1996. This decrease is
attributable to the closure of the five stores that were operating during Fiscal
1996. Comparable store revenues, for the 38 stores, of $201.6 million for Fiscal
1997 increased 6.3% from $189.7 million for Fiscal 1996. Comparable store
revenues are defined as revenues generated at stores open for at least 12 months
in each of the periods. Management believes that comparable store revenues have
increased due to higher inventory levels and continued improvement in the
quality of the merchandise offered in the stores compared to the prior year.
There can be no assurance that a continuation of such factors will increase
revenues in future periods.
GROSS PROFIT. Gross profit as a percentage of revenues of 34.7% for Fiscal 1997
decreased from 35.9% for Fiscal 1996 due to additional markdowns in Fiscal 1997.
Reductions in the LIFO inventory layers impacted the Consolidated Statements of
Operations by $0.2 million in Fiscal 1997 and Fiscal 1996.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$67.8 million, or 33.6% of revenues for Fiscal 1997, compared to $67.2 million,
or 33.0% of revenues, for Fiscal 1996. Operating and administrative expense
savings of $3.6 million attributable to closed stores operating in the prior
year were offset by increases in (i) credit card fees of $0.4 million, (ii)
advertising of $1.0 million, (iii) payroll of $0.5 million, (iv) write-down
supplies inventory and other current assets of $1.1 million, and (v) other
expenses of $1.2 million, which included Year 2000 compliance expenses. Year
2000 costs included in operating and administrative expenses for Fiscal 1997
amounted to approximately $0.3 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $7.1
million for Fiscal 1997 decreased $0.9 million from $8.0 million for Fiscal
1996. The decrease was primarily related to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A non-cash charge of $4.2 million for the
impairment of long-lived assets was recognized during Fiscal 1996 due to the
adoption of Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). See Note 3
to the Consolidated Financial Statements.
INTEREST EXPENSE. Interest expense of $5.9 million in Fiscal 1997 increased from
$5.1 million in Fiscal 1996. Interest expense is primarily related to
outstanding borrowings under the Company's bank credit facilities. The increase
in interest expense is primarily due to facility fees incurred in connection
with the Term Loan and Revolver (as discussed below in the "Financing" section).
REORGANIZATION EXPENSES. During the course of the Chapter 11 case, the Company
recognized $26.8 million of reorganization expenses, including approximately
$13.2 million of non-cash charges, of which $6.0 million was incurred during
Fiscal 1997 and $6.0 million during Fiscal 1996. The Fiscal 1997 expenses relate
primarily to professional fees and bonuses paid to certain employees associated
with the Company's Chapter 11 case. In addition, the Fiscal 1996 expenses
include accrued or estimated costs associated with the rejection of real
property leases and costs related to closing underperforming and nonprofitable
stores.
FRESH-START REVALUATION. The Company recorded as income, a fresh-start
revaluation adjustment of $70.5 million in Fiscal 1997. See Note 2 to the
Consolidated Financial Statements.
EXTRAORDINARY ITEM - GAIN ON DEBT DISCHARGE. The Company recorded an
extraordinary gain of $69.2 million in Fiscal 1997. See Note 2 to the
Consolidated Financial Statements.
NET INCOME. The net income for Fiscal 1997 was $122.7 million, compared to a net
loss of $17.3 million for Fiscal 1996. The $0.3 million improvement (exclusive
of the $70.5 million fresh-start revaluation and $69.2 million extraordinary
item - gain on debt discharge) is primarily due to no impairment of long lived
assets for Fiscal 1997 compared to the recognition of a $4.2 million for
impairment in Fiscal 1996, and the decrease in depreciation and amortization
expenses of $0.9 million, offset by (i) the decrease in gross profit of $3.2
million, (ii) the increase in operating and administrative expenses of $0.6
million, and (iii) the increase in interest expense of $0.8 million.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company used $1.9 million of cash for operating activities for Fiscal 1998.
Cash for operating activities was used to fund higher inventory levels, for the
payment of accrued reorganization expenses as required under the Plan, and to
fund losses in Fiscal 1998. The Company's primary cash requirement is the
procurement of inventory which is currently funded through borrowings under the
BankBoston Facility, trade credit and cash generated from operations. Like other
apparel retailers, the Company is highly dependent upon its ability to obtain
trade credit, which is generally extended by its vendors and, when applicable,
their factoring institutions that continually monitor the Company's credit
worthiness. 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 generated from operations will provide the liquidity necessary
to fund the Company's cash requirements for the next 12 months. As of January
30, 1999, the Company had a working capital ratio of 0.7.
At January 30, 1999, the Company had a working capital deficit of
approximately $16.7 million. Approximately $10.0 million of the working
captial deficit is primarily as a result of recording as a current liability
the balance due on December 26, 1999 on the Company's Term Loan (as more
fully described in Note 7 to the Consolidated Financial Statements). Subject
to an extension of the Revolver (as more fully described in Note 7 to the
Consolidated Financial Statements) for a sufficient period, the Company has
the option to extend the maturity date of the Term Loan for two additional
one-year periods and plans to do so. If the Term Loan is extended, the
Company will record the balance due on the Term Loan as long-term debt. Based
on discussions to date with BankBoston, the Company anticipates that the
Revolver will be extended.
In addition, the Company 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 would further
reduce the working capital deficit remaining after the reclassification of
the Term Loan to long-term debt as discussed above. For additional
information see Notes 1 and 7 to the Consolidated Financial Statements.
The Company used $2.3 million of cash in investing activities for Fiscal 1998,
representing an increase of $1.1 million as compared to $1.2 million used in
Fiscal 1997. The increase was primarily attributable to higher capital
expenditures. In addition, the Company received approximately $0.2 million from
the sale of land during Fiscal 1997.
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.
FINANCING
The Company entered into the Amended and Restated Debtor-in-Possession and Exit
Financing Loan Agreement, dated as of September 26, 1997 (the "Loan Agreement"),
between the Company and BankBoston, N.A. ("BankBoston"), pursuant to which
BankBoston provides Lamonts with (i) a revolving line of credit (the "Revolver")
with a maximum borrowing capacity of $32 million, ($35 million for the period
October 15, 1998 to December 15, 1998) and (ii) a term loan in the amount of $10
million (the "Term Loan" and, together with the Revolver, the "BankBoston
Facility"). See Note 7 to the Consolidated Financial Statements for a further
description of the BankBoston Facility.
The Revolver will mature January 31, 2000 subject to earlier maturity
(including, as a result of acceleration, mandatory prepayment or otherwise) of
the Term Loan. The Term Loan will mature December 26, 1999, subject to earlier
maturity (including, as a result of acceleration, mandatory prepayment or
otherwise) of the Revolver. Lamonts may extend the maturity date of the Term
Loan for two additional one-year periods (subject to earlier 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 for the
Revolver.
As of April 14, 1999, the Company had $27.6 million of borrowings outstanding
under the Revolver (with additional borrowing capacity of $4.4 million), and
$9.85 million outstanding under the Term Loan
To hedge the interest rate exposure from variable rate loans under the
BankBoston Facility, on March 24, 1998, the Company entered into a forward
interest rate swap letter agreement ("Swap Agreement") with BankBoston. Under
the Swap Agreement, the Company pays a fixed rate of 5.73% per annum and
receives the floating rate which is
12
<PAGE>
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.
DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock, Old
Common Stock, or any other equity security, and does not anticipate paying cash
dividends on the Common Stock or any other equity security in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
certain debt instrument limitations, future earnings, results of operations,
capital requirements, the financial condition of the Company, and such other
factors as the Company's Board of Directors may consider. The ability of the
Company to pay dividends is directly and indirectly restricted under the terms
of the BankBoston Facility. Such restrictions prohibit the payment of dividends
for the foreseeable future.
SEASONALITY
The Company's sales are seasonal, with the fourth quarter historically being the
strongest quarter as a result of the holiday season. The table below sets forth
the effect of seasonality on the Company's business for Fiscal 1998 and Fiscal
1997.
<TABLE>
<CAPTION>
(dollars in thousands)
---------------------------------------------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL 1998
Revenues $39,471 $50,591 $50,862 $68,661 $209,585
% of Total 18.8% 24.1% 24.3% 32.8%
FISCAL 1997
Revenues $37,648 $49,483 $50,263 $64,229 $201,623
% of Total 18.7% 24.5% 24.9% 31.9%
</TABLE>
INFLATION
The primary items affected by inflation include the cost of merchandise,
utilities, and labor. Retail sales prices are generally set to reflect such
inflationary increases, the effects of which cannot be readily determined.
Management believes that inflationary factors have had a minimal effect on the
Company's operations during the past three years.
YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000, which could cause a system failure or
miscalculations, leading to disruptions in operations.
The Company has established a compliance program to modify or replace existing
information technology systems to prevent the generation of invalid or incorrect
results in connection with processing year dates for the year 2000 and later
("Year 2000"). The Company believes that it will complete its Year 2000
modifications by the third quarter of the 52 weeks ending January 29, 2000
("Fiscal 1999") and, based on its current understanding of its systems, does not
currently anticipate any material disruption in its operations as a result of
Year 2000 issues. However, if modifications or replacements are not properly
made, or are not timely completed, the reasonably likely worst case scenario is
that various nonessential stand-alone systems would be impaired and the Company
would lose its ability to efficiently process merchandise through its leased
distribution center, which might have a material adverse effect on its
operations.
13
<PAGE>
As of January 30,1999, the Company estimates that 90% of its mainframe and
client server information technology ("IT") systems have been tested and are
currently operating as Year 2000 compliant systems. The Company estimates that
an additional 10% of its IT systems have been reviewed and modified, but not yet
tested. Additionally, the Company is in the process of replacing its POS
platform, which includes the replacement of in-store registers, and related
computers and operating systems ("POS Project"). As of January 30, 1999, the
Company estimates that 60% of the POS Project has been completed. Full testing
of the POS Project is expected to be complete in April 1999, with the
installation of new registers to begin in April 1999 and the rollout completed
in the third quarter of Fiscal 1999. A summary of the expected completion dates
for work currently in process to make all IT operating systems and application
systems software Year 2000 compliant is as follows:
First Quarter of Fiscal 1999: 1. Local area network, servers and desktop
personal computers.
2. Pilot new POS platform in one store.
Second Quarter of Fiscal 1999: 1. Mid-range computer operating systems and
application systems software.
2. Leased distribution center.
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.
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
inventory information. The Company currently does not have complete information
concerning the compliance status of its suppliers or other third parties.
Although the Company 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 the Company's
ability to process credit card transactions. Because third-party failures could
have a material adverse impact on the Company's ability to conduct business, the
Company plans to request confirmations from major suppliers to certify that
plans are being developed to address Year 2000 issues.
Currently, the Company is developing contingency plans for all IT and non-IT
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 Company spent $419,000 in Fiscal 1998 and $324,000 through Fiscal 1997 to
make its computer systems Year 2000 compliant. The total cost of the project to
date as of January 30,1999, was $743,000, and the Company estimates it will
spend approximately $200,000 in Fiscal 1999 to complete the project. The total
expected cost approximates the total budgeted project cost of $1,000,000,
excluding costs related to the POS Project.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, cooperation of vendors and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in the area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
The Company presently believes that Year 2000 issues will not pose significant
operational problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that Year 2000 issues will not materially adversely impact the
Company's results of operations or adversely affect the Company's relationships
with customers, vendors, or others. Additionally, there can be no assurance that
the Year 2000 issues of other entities will not have a material adverse impact
on the Company's systems or results of operations.
14
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivatives and Hedging Activities." ("SFAS No. 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
derivatives used for hedging activities. SFAS No. 133 requires that all
derivatives be recognized either as an asset or liability, be measured at fair
value and that the resulting measurements be included either in the income
statement or stockholders' equity, depending on the nature of the transaction.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. The impact
of the adoption of SFAS No. 133 on the Company's financial position and results
of operations has not yet been determined.
ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to 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 January 30, January 30,
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 $25,396 -- -- -- -- -- $25,396 $25,396
Variable average
interest rate 8.36% --% --% --% --% --% 8.36%
Short-term debt 9,900 -- -- -- -- -- 9,900 9,900
Variable average
interest rate 8.0% --% --% --% --% --% 8.0%
Long-term debt -- fixed 72 54 -- -- -- -- 126 112
Average interest
rate 8.0% 8.0% --% --% --% --% 8.0%
Long-term debt 256 211 -- -- -- -- 467 467
Variable average
interest rate 7.0% 7.0% --% --% --% --% 7.0%
Obligations under
capital leases 1,841 1,775 1,738 1,227 918 6,372 13,871 13,871
Variable average
interest rate 10.42% 10.42% 10.42% 10.42% 10.42% 10.42% 10.42%
DERIVATIVES MATCHED AGAINST LIABILITIES:
Swaps -- fixed rate (1) $20,000 $20,000 -- -- -- -- $20,000 $0.2
Average pay rate 5.73% 5.73% --% --% --% --% 5.73%
Average receive
rate 5.0% 5.0% --% --% --% --% 5.0%
</TABLE>
(1) Interest rate swaps on which the Company is the fixed rate payor.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LAMONTS APPAREL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE #
------------
17 Independent Auditors' Report
18 Report of Independent Accountants
19 Consolidated Balance Sheets - January 30, 1999 and January 31, 1998
20 Consolidated Statements of Operations for the 52 weeks ended
January 30, 1999, 52 weeks ended January 31, 1998, and 52 weeks
ended February 1, 1997
21 Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the 52 weeks ended January 30, 1999, 52
weeks ended January 31, 1998, and 52 weeks ended February
1, 1997
22 Consolidated Statements of Cash Flows for the 52 weeks ended
January 30, 1999, 52 weeks ended January 31, 1998, and 52 weeks
ended February 1, 1997
24 Notes to Consolidated Financial Statements
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheet of Lamonts Apparel,
Inc. and subsidiaries (the "Company") as of January 30, 1999 and the related
consolidated statement of operations, changes in stockholders' equity (deficit)
and cash flows for the 52 weeks then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 30, 1999
and the results of its operations and its cash flows for the 52 weeks then
ended, in conformity with generally accepted accounting principles.
On January 31, 1998, the Company emerged from bankruptcy. As discussed in Note 2
to the consolidated financial statements, the Company adopted "Fresh-Start
Reporting" principles in accordance with the American Institute of Certified
Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code." As a result of the reorganization
and the adoption of Fresh-Start Reporting, the Company's January 30, 1999
consolidated statement of operations is not comparable to the Company's January
31, 1998 consolidated statement of operations.
/s/ Deloitte & Touche LLP
Seattle, Washington
April 16, 1999
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheet of Lamonts Apparel,
Inc. (the "Company") as of January 31, 1998 and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the 52 weeks ended January 31, 1998 and February 1, 1997. 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 after
the restatement described in Note 3, present fairly, in all material respects,
the consolidated financial position of the Company as of January 31, 1998 and
the consolidated results of operations and cash flows for the 52 weeks ended
January 31, 1998 and February 1, 1997, in conformity with generally accepted
accounting principles.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
April 10, 1998, except as to the information presented in the last paragraph of
Note 3, for which the date is April 16, 1999.
18
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash $1,594 $1,301
Receivables 2,124 1,703
Inventories 42,411 38,617
Prepaid expenses and other 1,412 1,500
Restricted cash and deposits 21 1,543
-------- -------
Total current assets 47,562 44,664
Property and equipment - net of accumulated depreciation and
amortization of $ 5,590 and $0, respectively 28,896 32,154
Leasehold interests 7,134 8,749
Excess reorganization value 8,832 9,296
Deposits 1,078 1,130
Other assets 393 899
-------- -------
Total assets $93,895 $96,892
-------- -------
-------- -------
Current Liabilities:
Borrowings under the Revolver $25,396 $18,967
Accounts payable 17,231 15,186
Accrued payroll and related costs 2,615 3,106
Accrued taxes 967 865
Accrued interest 419 1,007
Accrued reorganization expenses 15 2,497
Other accrued expenses 5,707 6,228
Current maturities of long-term debt 10,228 403
Current maturities of obligations under capital leases 1,646 1,454
-------- -------
Total current liabilities 64,224 49,713
Long-term debt, net of current maturities 265 10,536
Obligations under capital leases, net of current maturities 12,225 13,835
Other 2,579 2,852
-------- -------
Total liabilities 79,293 76,936
Commitments and Contingencies (Notes 6 and 11)
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 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 (4,461) --
Accumulated other comprehensive loss (893) --
-------- -------
Total stockholders' equity 14,602 19,956
-------- -------
Total liabilities and stockholders' equity $93,895 $96,892
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
52 Weeks | 52 Weeks 53 Weeks
ended | ended ended
January 30, | January 31, February 1,
1999 | 1998 1997
----------- | ----------- -----------
<S> <C> | <C> <C>
Revenues $209,585 | $201,623 $203,602
Cost of merchandise sold 137,651 | 131,700 130,480
--------- | --------- ---------
Gross profit 71,934 | 69,923 73,122
--------- | --------- ---------
Operating and administrative expenses 63,343 | 67,844 67,173
Depreciation and amortization 8,024 | 7,141 7,999
Impairment of long-lived assets -- | -- 4,170
--------- | --------- ---------
Operating costs 71,367 | 74,985 79,342
--------- | --------- ---------
Income (loss) from operations before other income (expense), |
reorganization expenses, fresh-start revaluation, |
and extraordinary item 567 | (5,062) (6,220)
|
Other income (expense): |
Interest expense (5,042) | (5,900) (5,053)
Other income (expense) 14 | 8 12
--------- | --------- ---------
Loss from operations before reorganization |
expenses, fresh-start revaluation, |
and extraordinary item (4,461) | (10,954) (11,261)
|
Reorganization expenses -- | (5,995) (6,037)
Fresh-start revaluation -- | 70,495 --
--------- | --------- ---------
(Loss) income before extraordinary item (4,461) | 53,546 (17,298)
|
Extraordinary item - gain on debt discharge -- | 69,158 --
--------- | --------- ---------
Net (loss) income ($4,461) | $122,704 ($17,298)
--------- | --------- ---------
--------- | --------- ---------
Basic and Diluted Earnings (Loss) per Common Share |
(Loss) income from operations before extraordinary item ($0.50) | $3.00 ($0.97)
Extraordinary item - gain on debt discharge -- | $3.86 --
Net (loss) income ($0.50) | $6.86 ($0.97)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Old Warrants - Additional
Number of Common Class A Class B contributed paid-in
shares stock Common stock Common stock capital capital
---------- -------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996 17,900,053 $179 $-- $-- $- $62,921
Comprehensive loss
Net loss for the 52 weeks
ended February 1, 1997 -- -- -- -- -- --
Other comprehensive income, net of tax
Minimum pension liability
adjustment -- -- -- -- -- --
Comprehensive loss
Compensation expense related
to stock option plan -- -- -- -- -- 51
---------- --------- ------- --------- ---------- --------
Balance, February 1, 1997 17,900,053 179 -- -- -- 62,972
Comprehensive income
Net income for the 52 weeks
ended January 31, 1998 -- -- -- -- -- --
Compensation expense related
to stock option plan -- -- -- -- -- 38
Other comprehensive loss, net of tax
Minimum pension liability
adjustment -- -- -- -- -- --
Cancellation of the former equity
and elimination of accumulated
deficit under the Plan (17,900,053) (179) -- -- -- (63,010)
Comprehensive income
Issuance of new equity under
the Plan 9,000,010 -- 16,926 1 3,029 --
---------- --------- ------- --------- ---------- --------
Balance, January 31, 1998 9,000,010 -- 16,926 1 3,029 --
Comprehensive loss
Net income for the 52 weeks
ended January 30, 1999 -- -- -- -- -- --
Other comprehensive loss, net of tax
Minimum pension liability
adjustment -- -- -- -- -- --
Comprehensive loss
---------- --------- ------- --------- ---------- --------
Balance, January 30, 1999 9,000,010 $0 $16,926 $1 $3,029 $0
---------- --------- ------- --------- ---------- --------
---------- --------- ------- --------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Accumulated Comprehensive
Loss deficit Loss Total
------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Balance, February 3, 1996 ($250) ($105,406) ($42,556)
Comprehensive loss
Net loss for the 52 weeks
ended February 1, 1997 -- (17,298) $(17,298) (17,298)
Other comprehensive income, net of tax
Minimum pension liability
adjustment 250 -- 250 250
--------
Comprehensive loss ($17,048)
--------
--------
Compensation expense related
to stock option plan -- -- 51
--------- --------- --------
Balance, February 1, 1997 -- (122,704) (59,553)
Comprehensive income
Net income for the 52 weeks
ended January 31, 1998 -- 122,704 $122,704 122,704
Compensation expense related
to stock option plan -- -- 38
Other comprehensive loss, net of tax
Minimum pension liability
adjustment (438) -- (438) (438)
Cancellation of the former equity
and elimination of accumulated
deficit under the Plan 438 -- 438 (62,751)
--------
Comprehensive income $122,704
--------
--------
Issuance of new equity under
the Plan -- -- 19,956
--------- --------- --------
Balance, January 31, 1998 -- -- 19,956
Comprehensive loss
Net income for the 52 weeks
ended January 30, 1999 -- (4,461) ($4,461) (4,461)
Other comprehensive loss, net of tax
Minimum pension liability
adjustment (893) -- (893) (893)
--------
Comprehensive loss ($5,354)
--------
--------
--------- --------- --------
Balance, January 30, 1999 ($893) ($4,461) $14,602
--------- --------- --------
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
52 weeks ended | 52 weeks ended 52 weeks ended
January 30, | January 31, February 1,
1999 | 1998 1997
-------------- | -------------- --------------
<S> <C> | <C> <C>
Cash flows from operating activities: |
Net (loss) income ($4,461) | $122,704 ($17,298)
Adjustments to reconcile net (loss) income to net cash |
used by operating activities: |
Depreciation and amortization 8,024 | 7,141 7,999
Impairment of long-lived assets -- | -- 4,170
Curtailment gain (1,001) |
Gain on sale of fixed asset -- | (177) --
Non-cash interest, including amortization of debt discount 987 | 321 --
Stock option compensation expense -- | 38 51
Net change in current assets and liabilities (5,189) | (639) (5,862)
Other (225) | (1,092) (425)
Reorganization expenses -- | 5,995 6,037
Fresh-start revaluation -- | (70,495) --
Gain on debt discharge -- | (69,158) --
------- | --------- --------
|
Net cash used by operating activities ($1,865) | ($5,362) ($5,328)
------- | --------- --------
|
Cash flows from investing activities: |
Capital expenditures (2,184) | (1,507) (699)
Proceeds from sale of assets -- | 39 4,459
Other (75) | 257 90
------- | --------- --------
|
Net cash (used) provided by investing activities (2,259) | (1,211) 3,850
------- | --------- --------
|
Cash flows from financing activities: |
Net Borrowings (Payments) under Revolver 6,429 | (4,174) 2,807
Proceeds from term loan -- | 10,000 --
Payments on long-term debt (446) | -- --
Principal payments on obligations under capital leases (1,566) | (900) (778)
Assumption of liabilities subject to compromise -- | 939 --
Other -- | (57) (66)
------- | --------- --------
|
Net cash provided by financing activities 4,417 | 5,808 1,963
------- | --------- --------
|
Net increase (decrease) in cash 293 | (765) 485
Cash, beginning of period 1,301 | 2,066 1,581
------- | --------- --------
|
Cash, end of period $1,594 | $1,301 $2,066
------- | --------- --------
------- | --------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
52 weeks ended | 52 weeks ended 52 weeks ended
January 30, | January 31, February 1,
1999 | 1998 1997
-------------- | -------------- --------------
<S> <C> | <C> <C>
Reconciliation of net change in current assets and liabilities: |
(Increase) decrease in: |
Receivables ($421) | ($154) $818
Inventories (3,794) | 118 (7,158)
Prepaid expenses and other (561) | (64) 548
Restricted cash and deposits 1,522 | -- --
|
Increase (decrease) in: |
Accounts payable 2,045 | 1,607 5,161
Accrued payroll and related costs (491) | 821 (111)
Accrued taxes 102 | 53 (9)
Accrued interest (588) | 547 409
Accrued reorganization costs (2,482) | (4,539) (3,241)
Accrued store closure costs -- | (1,050) (2,204)
Other accrued expenses (521) | 2,022 (75)
------- | ------- -------
|
($5,189) | ($639) ($5,862)
------- | ------- -------
------- | ------- -------
Supplemental Cash Flow Information: |
Cash interest payments made $5,257 | $6,565 $4,783
Non-cash transactions: |
Capital leases relating to equipment 148 | 759 --
Capital lease relating to sale - leaseback of Alderwood store -- | -- 2,835
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 30, 1999
NOTE 1 - GENERAL BUSINESS DESCRIPTION, REORGANIZATION AND EMERGENCE FROM
CHAPTER 11
Lamonts Apparel, Inc. (the "Company" or "Lamonts") is a promotionally oriented,
Northwest-based regional retailer with 38 stores in five states. The Company
offers an assortment of moderately priced fashion apparel and home and fashion
accessories at competitive prices for the entire family.
On January 6, 1995 ("Petition Date"), the Company filed a voluntary petition for
relief under Chapter 11 ("Chapter 11") of title 11 of the United States Code
(the "Bankruptcy Code") in the United States Bankruptcy Court (the "Bankruptcy
Court") for the Western District of Washington at Seattle. The Company's
Modified and Restated Plan of Reorganization (the "Plan") was confirmed by the
Bankruptcy Court on December 18, 1997 and became effective on January 31, 1998
("Plan Effective Date").
Costs associated with the reorganization of the Company were expensed as
incurred. Such costs include certain expenses of the committees that represented
Lamonts' unsecured trade creditors, bondholders and equity holders (the
"Committees"). The amounts charged to reorganization expense by the Company are
as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL
1997 1996
------ ------
<S> <C> <C>
Professional fees $2,344 $2,128
Lease related costs 196 1,036
Payroll related costs 1,924 411
Store closure costs, administrative and other 1,531 2,462
------ ------
$5,995 $6,037
------ ------
------ ------
</TABLE>
At January 30, 1999, the Company had a working capital deficit of
approximately $16.7 million. Approximately $10.0 million of the working
capital deficit is a result of recording as a current liability the balance
due on December 26, 1999 on the Company's Term Loan (as more fully described
in Note 7). Subject to an extension of the Revolver (as more fully described
in Note 7) for a sufficient period, the Company has the option to extend the
maturity date of the Term Loan for two additional one-year periods and plans
to do so. If the Term Loan is extended, the Company will record the balance
due on the Term Loan as long-term debt. Based on discussions to date with
BankBoston, the Company anticipates that the Revolver will be extended.
In addition, the Company 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 would further
reduce the working captial deficit remaining after the reclassification of
the Term Loan to long-term debt as discussed above.
NOTE 2 - BASIS OF PRESENTATION AND FRESH-START REPORTING
Pursuant to the guidance provided by the American Institute of Certified Public
Accountants in Statement 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") (also referred to as
"Fresh-Start Reporting"), the Company adopted Fresh-Start Reporting for
financial reporting purposes as of the Plan Effective Date. Therefore, the
consolidated statement of operations for the 52 weeks ended January 30, 1999,
are not comparable to the consolidated results of operations for the 52 weeks
ended January 31, 1998, or the 52 weeks ended February 1, 1997. Accordingly, a
vertical black line is shown to separate post-emergence operations from those
ended prior to January 31, 1998, in the consolidated results of operations and
to separate the January 31, 1998 consolidated balance sheet from the prior year
since it is not prepared on a comparable basis. Under Fresh-Start Reporting, the
reorganization value of the Company was allocated to the reorganized Company's
net assets on the basis of the purchase method of accounting. This method
required the adjustment of the Company's assets and liabilities to reflect their
estimated fair value at the Plan Effective Date.
24
<PAGE>
In accordance with SOP 90-7, the Company's reorganization value was determined
as of the Plan Effective Date. The reorganization value was derived by an
independent public accounting firm using various valuation methods, including
discounted cash flow analyses (utilizing the Company's projections), analyses of
the market values of other publicly traded companies whose businesses are
reasonably comparable, and analyses of the present value of the Company's
equity. The reorganization value was determined to be the fair value of the
Company before considering liabilities and approximated the amount a willing
buyer would have paid for the assets of the Company immediately after
restructuring.
The primary methodology used to determine the reorganization value was a
weighted average of the historical market guideline method, projected guideline
method, and the income approach using the discounted cash flow method. Under the
income approach, the terminal value was determined using the discounted cash
flow projected for the period from February 1, 1998 through February 3, 2002,
using a discount rate of 14.1% and a long-term growth rate of 3.5%, with a
capitalization rate at 10.6%.
The adjustments to reflect the consummation of the Plan and adoption of
Fresh-Start Reporting, including the adjustment to restate assets and
liabilities at their respective estimated fair values, the gain on debt
discharge for liabilities subject to settlement under reorganization proceedings
of $69.2 million, and the elimination of $122.7 million of the prior accumulated
deficit, are reflected in the accompanying consolidated financial statements at
January 31, 1998.
The effect of the reorganization on the Company's consolidated balance sheet as
of January 31, 1998 is as follows:
25
<PAGE>
<TABLE>
<CAPTION>
Pre-Fresh-Start
Balance Sheet
(dollars in thousands) January 31, Debt Fresh-Start
1998 Discharge Reporting
--------------- --------------- ------------
<S> <C> <C> <C>
Current Assets:
Cash $1,301
Receivables 1,703
Inventories 37,441 $ 1,176 (a)
Prepaid expenses and other 1,500
Restricted cash and deposits 1,543
--------- --------- --------
Total current assets 43,488 -- 1,176
Property and equipment 27,255 4,899 (b)
Leasehold interests 3,049 5,700 (b)
Excess reorganization value -- 9,296 (b)
Excess of cost over net assets acquired 11,266 (11,266) (c)
Deferred financing costs 1,266 ($ 1,266) (d)
Restricted cash and deposits 1,130
Other assets 899
--------- --------- --------
--------- --------- --------
Total assets $88,353 ($1,266) $9,805
--------- --------- --------
--------- --------- --------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under the Revolver $18,967
Accounts payable 15,186
Accrued payroll and related costs 3,106
Accrued taxes 865
Accrued interest 1,163 ($ 156) (e)
Accrued reorganization expenses 2,497
Other accrued expenses 6,442 $ 362 (f) (576) (g)
Current maturities of long-term debt 403
Current maturities of obligations under capital leases 177 1,277 (e)
--------- --------- --------
Total current liabilities 48,806 362 545
Long-term debt, net of current maturities 10,536
Obligations under capital leases, net of current maturities 3,444 10,391 (e)
Other 1,023 835 (f) 994 (g)
--------- --------- --------
Total liabilities not subject to settlement under reorganization
proceedings 63,809 1,197 11,930
--------- --------- --------
Liabilities subject to settlement under reorganization proceedings:
Related party 67,600 (67,600) (f)
Other 33,846 (23,533) (f) (10,313) (e)
--------- --------- --------
Total liabilities subject to settlement under reorganization
proceedings 101,446 (91,133) (10,313)
--------- --------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized
no shares issued or outstanding --
Common stock, $.01 par value; 40,000,000 shares authorized
Class A: 9,000,000 shares issued and outstanding 179 88 (h) 16,659 (h)
Class B: 10 shares issued and outstanding -- 1 (h)
Warrants - contributed capital -- 3,029 (h)
Additional paid-in-capital 63,010 19,424 (h) (82,434) (h)
Minimum pension liability adjustment (438) 438 (g)
Accumulated deficit (139,653) 69,158 (i) 70,495 (j)
Accumulated other comprehensive loss --
--------- --------- --------
Total stockholders' equity (deficit) (76,902) 88,670 8,188
--------- --------- --------
Total liabilities and stockholders' equity (deficit) $88,353 ($1,266) $9,805
--------- --------- --------
--------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
Fresh-Start
Balance Sheet
January 31,
1998
--------------
<S> <C>
Current Assets:
Cash $ 1,301
Receivables 1,703
Inventories 38,617
Prepaid expenses and other 1,500
Restricted cash and deposits 1,543
---------
Total current assets 44,664
Property and equipment 32,154
Leasehold interests 8,749
Excess reorganization value 9,296
Excess of cost over net assets acquired --
Deferred financing costs --
Restricted cash and deposits 1,130
Other assets 899
---------
Total assets $ 96,892
---------
---------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under the Revolver $ 18,967
Accounts payable 15,186
Accrued payroll and related costs 3,106
Accrued taxes 865
Accrued interest 1,007
Accrued reorganization expenses 2,497
Other accrued expenses 6,228
Current maturities of long-term debt 403
Current maturities of obligations under capital leases 1,454
---------
Total current liabilities 49,713
Long-term debt, net of current maturities 10,536
Obligations under capital leases, net of current maturities 13,835
Other 2,852
---------
Total liabilities not subject to settlement under reorganization
proceedings 76,936
---------
Liabilities subject to settlement under reorganization proceedings:
Related party --
Other --
---------
Total liabilities subject to settlement under reorganization
proceedings --
---------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized
no shares issued or outstanding --
Common stock, $.01 par value; 40,000,000 shares authorized
Class A: 9,000,000 shares issued and outstanding 16,926
Class B: 10 shares issued and outstanding 1
Warrants - contributed capital 3,029
Additional paid-in-capital --
Minimum pension liability adjustment --
Accumulated deficit --
Accumulated other comprehensive loss --
---------
Total stockholders' equity (deficit) 19,956
---------
---------
Total liabilities and stockholders' equity (deficit) $ 96,892
---------
---------
</TABLE>
26
<PAGE>
(a) To adjust inventories to fair value.
(b) To allocate fair value to identifiable net assets in accordance with
purchase method accounting as follows: property and equipment, $4.9
million; leasehold interests, $5.7 million, and excess reorganization
value, $9.3 million
(c) To write off the balance of excess of cost over net assets acquired.
(d) To write off the balance of deferred financing costs related to debt
discharged .
(e) To reclassify certain liabilities subject to settlement under
reorganization proceedings, where the obligation was assumed.
(f) To record the discharge of liabilities subject to settlement under
reorganization proceedings, and reclassify pre-petition priority claims and
cure amounts.
(g) To restate liabilities, including pension liabilities at fair value.
(h) To record cancellation of historical Stockholders' equity (deficit) and
record reorganization value of $20.0 million, $16.9 million of which is
classified as Class A and Class B Common Stock, $.01 par value, and $3
million which is classified as Warrants - contributed capital.
(i) To record the extraordinary item - gain on debt discharge.
(j) To recognize the value of the reorganized Company.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
The following unaudited pro forma consolidated statement of operations reflects
the financial results of the Company during Fiscal 1997 as if the Plan had been
consummated on February 2, 1997. The pro forma information does not purport to
be indicative of the results of operations that would actually have been
reported had such transactions actually been consummated on such date or of the
results of operations that may be reported by the Company in the future.
<TABLE>
<CAPTION>
As Reported Pro forma
52 Weeks Ended 52 Weeks Ended
January 31, 1998 Adjustments January 31, 1998
---------------- -------------- ----------------
<S> <C> <C> <C>
Total revenue $201,623 $201,623
Total cost of merchandise sold,
operating expenses, and depreciation and (1) (3)
amortization and other income (expense) (4) (5)
(212,577) $(466) (6) (7) (213,043)
------------ ------------
Loss from operations before reorganization
expenses, fresh-start revaluation and
extraordinary item (10,954) (11,420)
Reorganization expenses (5,995) 5,995 (2) --
Fresh-start revaluation 70,495 (70,495) (8) --
------------ ------------
Income (loss) before extraordinary
item 53,546 (11,420)
Extraordinary item 69,158 (69,158) (8) --
------------ --------- ------------
Net income (loss) $122,704 ($134,124) ($11,420)
------------ --------- ------------
------------ --------- ------------
Basic and diluted loss per share ($1.27)
------------
------------
Weighted average number of shares 9,000,010 (9)
</TABLE>
The unaudited pro forma statement of operations has been adjusted to reflect the
following:
1) An increase in depreciation and amortization expense of approximately $1.4
million due to the change in the fair value of identifiable assets,
property and equipment and leasehold interests. The increase in
amortization expense of $0.5 million for excess reorganization value.
2) The elimination of approximately $6.0 million in reorganization costs.
3) The elimination of approximately $0.3 million for amortization of excess of
cost over net assets acquired.
4) The elimination of approximately $0.7 million for amortization of deferred
financing fees associated with outstanding warrants to purchase Old Common
Stock which were canceled on the Plan Effective Date.
5) The amortization of approximately $0.5 million in facility fees for the
working capital facility.
27
<PAGE>
6) The reduction in rent expense of approximately $0.2 million for several
stores in which the landlord has agreed to concessions upon assumption of
the lease.
7) An increase in interest expense of $0.1 million associated with debt
arising from deferred priority tax claims and deferred cure payments
8) The elimination of Fresh-Start Reporting adjustments totaling approximately
$70.5 million and extraordinary item - gain on debt discharge of $69.2
million.
9) Pursuant to the Plan, the Company issued 9,000,010 shares of Common Stock
and granted warrants and options to purchase Common Stock. 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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lamonts Apparel, Inc. and its subsidiaries. All subsidiaries of the Company are
currently inactive. All significant intercompany transactions and account
balances have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in, first-out
("LIFO") method) or net realizable value. Inventories valued on a
first-in-first-out ("FIFO") method would have approximated the inventories
reported as of January 30, 1999 and January 31, 1998. The cost of inventory
includes the cost of goods and delivery to the distribution center and to the
retail stores.
DEPOSITS
Noncurrent deposits include approximately $1.0 million as of January 30, 1999,
and January 31, 1998, held as a deposit by Frederick Atkins, Inc. ("Atkins"), a
merchandising consultant and buying cooperative, which provides certain private
label merchandise to the Company.
PROPERTY AND EQUIPMENT
The Company's adoption of Fresh-Start Reporting as of January 31, 1998, required
property and equipment to be adjusted to fair value. The adoption of Fresh-Start
Reporting did not result in any material change in the remaining useful lives of
the Company's property and equipment.
Depreciation is determined using the remaining useful lives based on the
following original useful lives: buildings and improvements, 10-40 years;
furniture, fixtures and equipment, 3-12 years; and leasehold improvements and
property under capital leases, life of lease or useful life if shorter.
Depreciation is computed primarily using the straight-line method.
Upon sale or retirement of property and equipment, the related cost (or restated
value) and accumulated depreciation are removed from the accounts of the Company
and any gain or loss is reflected in the consolidated financial statements in
the period the sale or retirement occurred. Maintenance and repair costs are
expensed as incurred. Expenditures for renewals and improvements are generally
capitalized.
Software development costs incurred in connection with significant upgrades of
management information systems are capitalized, in accordance with Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." 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.
Work in progress primarily consists of costs related to the Company's new
point-of-sale (POS) platform and local area network (LAN) projects.
28
<PAGE>
LEASEHOLD INTERESTS
The excess of the fair rental value of leased facilities under operating leases
over the respective contractual rents was recorded as an asset under Fresh-Start
Reporting at its discounted net present value and is being amortized on a
straight-line basis over the respective remaining lease terms.
The accumulated amortization of leasehold interests approximated $1.6 million at
January 30, 1999. The adoption of Fresh-Start Reporting did not result in any
significant change in the remaining useful lives of the Company's leasehold
interests.
IMPAIRMENT OF LONG-LIVED ASSETS
During the 52 weeks ended February 1, 1997 ("Fiscal 1996"), the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be recognized.
With the adoption of SFAS No. 121, assets are grouped and evaluated at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
identified this lowest level as individual stores. The Company considers
historical performance and future estimated results in its evaluation of
potential impairment and then compares the carrying amount of the asset to the
estimated future cash flows expected to result from the use of the asset. If the
carrying amount of the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of the impairment by comparing the
carrying amount of the asset to its fair value. The estimation of fair value is
measured by discounting expected future cash flows at a rate commensurate with
the Company's borrowing rate.
During Fiscal 1996, the Company recognized a non-cash impairment loss of $4.2
million. Of the total impairment loss, $2.3 million represented impairment of
property and equipment, $1.3 million related to excess of cost over net assets
acquired and $0.6 million pertained to leasehold interests. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary significantly from such estimates.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the effective interest method over
the term of the related indebtedness.
EXCESS REORGANIZATION VALUE
Excess reorganization value represents the amount of reorganization value as of
January 31, 1998, not attributable to tangible or other intangible assets.
Excess reorganization value is being amortized on a straight-line basis over 20
years. The accumulated amortization approximated $0.5 million at January 30,
1999.
ADVERTISING COSTS
The Company expenses the production costs of advertising as the associated
advertisement runs. Advertising expense was $13.1 million in Fiscal 1998, $13.2
million in Fiscal 1997, and $13.0 million in Fiscal 1996.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS 130"),
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. SFAS
130 was adopted in Fiscal Year 1998 with the restatement of earlier periods.
29
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS
131"), which establishes annual and interim reporting standards for a Company's
business segments and related disclosures about products and services,
geographic areas, and major customers. The Company generates substantially all
of its revenues through a common delivery infrastructure, and therefore the
Company has only one reportable segment. Substantially all revenues are
generated from domestic sources and all of the Company's long-lived assets are
physically located within the United States.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
derivatives used for hedging activities. It requires that all derivatives be
recognized either as an asset or liability, be measured at fair value and that
the results of such measurement be included either in the income statement or
stockholders' equity, depending on the nature of the transaction. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. The impact of the
adoption of SFAS No. 133 on the Company's financial position and results of
operations has not yet been determined.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS AND RESTATEMENT
Certain prior period amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
The consolidated balance sheet as of January 31, 1998 has been restated to
reflect a change to the allocation of the reorganization value to the
reorganized Company's net assets under Fresh-Start Reporting. The restatement is
the result of a fair value adjustment to certain noncurrent assets at January
31, 1998 used in the allocation. The change resulted in a combined decrease of
approximately $9.3 million in property and equipment and leasehold interests and
the establishment of an intangible asset "excess reorganization value" of
approximately the same amount. There was no effect on previously reported
current assets, total stockholders' equity (deficit) or net income (loss)
related to these restatements or reclassifications.
NOTE 4 - EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock. Options to
purchase 1.6 million shares of Common Stock in Fiscal 1997 were not included in
the computation of diluted earnings per common share because the option price
was greater than the average market price of the Common Stock. Options and
warrants to purchase common stock, with an exercise price of $0.01 per share,
were not included in the computation of diluted loss per common share in Fiscal
1998 and Fiscal 1996 since the effect of assuming their exercise would be
anti-dilutive.
Net income (loss) per common share is computed by dividing net loss by the
weighted average number of common shares outstanding. The weighted average
number of shares outstanding for both basic and diluted calculations was
9,000,010, 17,875,602 and 17,899,906 for Fiscal 1998, Fiscal 1997, and Fiscal
1996, respectively.
30
<PAGE>
<TABLE>
<CAPTION>
Earnings (Loss) per Common Share Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
<S> <C> <C> <C>
Basic and diluted (loss) earnings per common share
(Loss) income from operations before extraordinary item $(0.50) $3.00 $(0.97)
Extraordinary item - gain on debt discharge $ -- $3.86 $ --
----------- ----------- -----------
Net (loss) income $(0.50) $6.86 $(0.97)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Shares Used in Computing Earnings (Loss)
per Common Share (in thousands) Fiscal 1998 Fiscal 1997 Fiscal 1996
------------ ----------- -----------
Common Stock Old Common Stock
------------ ------------------------------
<S> <C> <C> <C>
Basic and Diluted 9,000 17,876 17,900
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Buildings and equipment under capital leases $9,482 $9,482
Buildings and improvements 2,100 2,100
Leasehold improvements 11,467 11,118
Furniture, fixtures, and equipment 8,575 8,006
Software costs 1,872 1,400
Work in progress 990 48
----------- -----------
34,486 32,154
Less accumulated depreciation and amortization (5,590) -
----------- -----------
$28,896 $32,154
----------- -----------
----------- -----------
</TABLE>
NOTE 6 - LEASES
All of the Company's stores are currently operated in facilities leased by the
Company, except one which is operated in a building owned by the Company,
subject to a ground lease, which expires in 2015. The Company also leases some
of its equipment and its office facility. Generally, store leases provide for
minimum rentals (which include payment of taxes and insurance in some cases) and
contingent rentals (which are based upon a percentage of sales in excess of a
stipulated minimum). The majority of lease agreements cover periods from 20 to
30 years, including multiple renewal options of up to five years each. Capital
lease obligations were revalued under Fresh-Start Reporting.
Operating lease rental expense is summarized as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Minimum rentals $6,277 $6,307 $7,095
Contingent rentals 726 616 660
Sublease rentals (1,025) (999) (959)
------ ------ ------
$5,978 $5,924 $6,796
------ ------ ------
------ ------ ------
</TABLE>
31
<PAGE>
The Company received sublease rentals related to capital leases of approximately
$0.4 million during each of Fiscal 1998, Fiscal 1997 and Fiscal 1996. Capital
lease interest expense was $1.5 million, $2.0 million, and $2.1 million during
Fiscal 1998, Fiscal 1997, and Fiscal 1996, respectively.
Future minimum rental payments under capital and operating leases are summarized
as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(dollars in thousands)
<S> <C> <C>
For the fiscal years:
1999 $3,004 $6,634
2000 2,896 5,971
2001 2,836 5,637
2002 2,001 4,954
2003 1,498 4,500
Thereafter 10,393 17,786
------ ------
Total minimum rental payments 22,628 $45,482
------
------
Less amounts representing interest (8,757)
------
Present value of obligations $13,871
------
------
</TABLE>
In addition, the Company guarantees an operating lease of a third party that
operates the Company's distribution center in Kent, Washington, which expires in
February 2001. Minimum monthly lease payments guaranteed by the Company pursuant
to such lease approximate $21,000 per month.
NOTE 7 - DEBT
REVOLVER AND TERM LOAN
The Company entered into the Amended and Restated Debtor-in-Possession and Exit
Financing Loan Agreement, dated as of September 26, 1997 (the "Loan Agreement"),
between the Company and BankBoston, pursuant to which BankBoston provides
Lamonts with (i) a revolving line of credit (the "Revolver") with a maximum
borrowing capacity of $32 million, ($35 million for the period October 15, 1998
to December 15, 1998) and (ii) a term loan in the amount of $10 million (the
"Term Loan" and, together with the Revolver, the "BankBoston Facility"). The
Company was required to maintain a Revolver balance of less than $20.5 million
for 30 consecutive days between December 15, 1998 and January 31, 1999. 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 reserves as specified in
the Loan Agreement) of the book value of the Company's first quality finished
goods inventory held for sale. The borrowing base increased to 70% effective
January 15, 1999, through June 30, 1999, at which time the borrowing base will
revert back to 65%. The Term Loan was fully disbursed during the Chapter 11 case
and no further amounts may be borrowed thereunder. The Term Loan is guaranteed
by Specialty Investment I LLC (the "Surety").
The Revolver will mature two years after the Plan Effective Date subject to
earlier maturity (including, as a result of acceleration, mandatory prepayment
or otherwise) of the Term Loan. The Term Loan will mature December 26, 1999,
subject to earlier maturity (including, as a result of acceleration, mandatory
prepayment or otherwise) of the Revolver. Lamonts has the option to extend the
maturity date of the Term Loan for two additional one-year periods (subject to
earlier 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 for 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 expected to be outstanding on the maturity date of
the Term Loan.
32
<PAGE>
Lamonts' borrowings under both the Revolver and the Term Loan bear interest at a
floating rate of 1.50% above the annual interest rate announced from time to
time by BankBoston as its "base rate" (the "Base Rate") or, at Lamonts' option,
at 2.75% above the rate (fully adjusted for applicable reserve requirements)
based on the rate offered dollar deposits in the interbank eurodollar market
(the "Eurodollar Rate"). The rates are subject to adjustment annually on June 1,
based upon Lamonts' financial results in accordance with the criteria set forth
in the Loan Agreement. The default rate of interest under the Revolver is 3%
above the Base Rate. The default rate of interest under the Term Loan prior to
maturity is 7% above the non-default rate otherwise applicable, and after
maturity is 7% above the non-default rate applicable to loans measured by the
Base Rate. For Fiscal 1998 and Fiscal 1997, the weighted average interest rate
for Base Rate loans was 9.8% and 10.0%, respectively, and the weighted average
interest rate for Eurodollar Rate loans was 8.3% and 8.5%, respectively.
A facility fee for 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 was paid 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 annually on June 1, based upon Lamonts' financial results in
accordance with the criteria set forth in the Loan Agreement. In addition to a
closing fee in the amount of $500,000 that Lamonts paid at the closing of the
Term Loan on September 26, 1997, an additional closing fee for 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.
The BankBoston Facility required that, as of the Plan Effective Date, in partial
exchange for the BankBoston administrative claim against the Company's Chapter
11 estate, and in consideration for the guaranty of the Term Loan, the Surety
received (i) 228,639 Class C Warrants exercisable for the purchase of an
aggregate of 3,429,585 shares of Common Stock, and (ii) 10 shares of Class B
Common Stock, representing all of the authorized and outstanding Class B Common
Stock. (See Note 12.)
The Loan Agreement contains certain covenants, among others provisions, which
require the Company 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. In addition, to the foregoing, the Company has
restrictions on acquisitions, capital expenditures, additional indebtedness or
liens, payment of dividends and other restrictions. As of January 30, 1999, the
Company is in compliance with all covenants.
Any necessary waivers of or amendments to the covenants require, with certain
exceptions specified in the BankBoston Facility, the concurrence of both
BankBoston and the Surety. The Loan Agreement contains customary Events of
Default for credit facilities of its type. The Surety has the right, under
specified circumstances after a default, to direct BankBoston to declare
Lamonts' obligations under the BankBoston Facility immediately due and payable
and to cause the exercise of certain of BankBoston's rights and remedies under
the Loan Agreement.
As of January 30, 1999, the Company had $25.4 million of borrowings outstanding
under the Revolver (with additional borrowing capacity thereunder of $5.0
million) and $9.9 million outstanding under the Term Loan.
To hedge the interest rate exposure from variable rate loans under the
BankBoston Facility, on March 24, 1998, the Company entered into a forward
interest rate swap letter agreement ("Swap Agreement") with BankBoston. Under
the Swap Agreement, the Company pays a fixed rate of 5.73% per annum and
receives 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 when they
accrue.
33
<PAGE>
CERTAIN DEFERRED PRIORITY TAX OBLIGATIONS AND DEFERRED CURE PAYMENTS
Deferred priority tax obligations consist of $0.5 million (of which
approximately $0.25 million is included in current maturities of long-term debt)
in tax claims which were entitled to priority under the Bankruptcy Code. The
holders of these certain deferred priority tax claims will receive deferred cash
payments in principal amounts equal in the aggregate to the amount of their
claims, payable in quarterly installments beginning April 30, 1998 through
October 31, 2000, together with interest at the prevailing statutory rates.
Deferred cure payments accepted by landlords consist of approximately $0.1
million (of which approximately $0.07 million is included in current maturities
of long-term debt) of lease arrearages required under the Plan subsequent to the
Plan Effective Date. The deferred cash payments, including principal plus simple
interest at the rate of 8% per annum, will be paid quarterly, in equal principal
amounts beginning January 31, 1998 through October 31, 2000.
Maturities of long-term debt obligations are as follows:
<TABLE>
<CAPTION>
For fiscal years ending: (dollars in thousands)
<S> <C>
1999 $10,228
2000 265
--------
$10,493
--------
--------
</TABLE>
LETTERS OF CREDIT
At January 30, 1999, the Company had no outstanding trade or stand-by letters of
credit
NOTE 8 - STORE CLOSURE COSTS
In October 1996, the Company received approval by the Bankruptcy Court to close
four underperforming stores. During Fiscal 1996, $3.1 million was charged to
reorganization expense in connection with the closure of these stores. Revenues
associated with the closed stores totaled $13.9 million Fiscal 1996. Operating
income (losses) incurred from these stores, excluding the allocation of
corporate expenses, interest and reorganization expenses, were $1.4 million.
There were no store closure costs in Fiscal 1998 or Fiscal 1997.
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109, deferred tax assets and liabilities are recognized on
temporary differences between the financial statement and tax bases of assets
and liabilities using applicable enacted tax rates.
The Company has recorded a valuation allowance against net deferred tax assets
as the Company could not conclude that it was more likely than not that the tax
benefits from temporary differences and net operating loss carryforwards would
be realized. In subsequent periods, the Company may reduce the valuation
allowance, provided that the possibility of utilization of the deferred tax
assets is more likely than not.
34
<PAGE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1999 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryovers $5,642 $5,190
Accrued payroll and related costs 1,230 1,118
Leasehold interests 1,134 889
Other 680 1,670
Valuation allowance (7,750) (6,418)
------- --------
Total deferred income tax assets 936 2,449
------- --------
Deferred income tax liabilities:
Inventory $(572) $(572)
Property and equipment (364) (1,877)
------- --------
Total deferred income tax liabilities (936) (2,449)
------- --------
Net deferred income taxes $0 $0
------- --------
------- --------
</TABLE>
As of January 30, 1999, the Company had approximately $16 million of regular tax
Net Operating Losses ("NOL"), after adjustments for section 382 limitations
discussed below, which will expire in years 2009 through 2019.
The Company underwent an ownership change in reorganization under Chapter 11
which was approved by the Bankruptcy Court on December 18, 1997. Section 382 of
the Internal Revenue Code limits the use of NOLs when an ownership change
occurs. The annual limitation under section 382 with respect to such ownership
change has significantly limited the Company's ability to use its NOLs to offset
future taxable income. The annual section 382 limitation on the pre-ownership
change NOLs is approximately $1 million. As a result of the section 382
limitation a maximum of $15.3 million of pre-ownership change NOLs will become
available prior to expiration. Post-ownership change NOLs are unaffected by the
section 382 limitation.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments", the following
assumptions were used by management of the Company in estimating its fair value
disclosures for the Company's financial instruments:
CASH AND RESTRICTED CASH
The carrying amount for cash approximates fair value because of the short
maturity of amounts therein.
REVOLVER AND TERM LOAN
The fair value is estimated based on current rates offered for similar debt.
Carrying value approximates the fair value.
INTEREST RATE SWAP
The fair value of the interest rate swap, under the Swap Agreement, was
estimated to be ($0.1 million).
35
<PAGE>
NOTE 11 - 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 will not have a material adverse effect on the financial statements
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. The United States District Court
for the District of Alaska has entered a judgment against Hickel for an amount
in excess of $1.9 million. Hickel has since appealed the judgment and posted a
bond to obtain a stay pending appeal. There can be no assurance that the Company
will be successful on such appeal. As a result, no amounts related to this
judgment have been recorded in the consolidated financial statements.
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 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 the Company.
The Company is self-insured for health care claims for eligible covered
enrollees. Consulting actuaries assist the Company in determining its
undiscounted liability for self-insured claims. The Company 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.
The Company's proprietary charge card, administered and owned by Alliance Data
Systems ("ADS"), provides for the option of paying in full within 30 days of the
billed date with no finance charge or with revolving credit terms. Terms of the
short-term revolving charge accounts require customers to make minimum monthly
payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Alliance Agreement"), ADS owns the receivables
generated from purchases made by customers using the Lamonts charge card.
In October 1998, the Company entered into an agreement with NCR Corporation
("NCR"), in which NCR will furnish certain equipment and related services in
connection with the replacement of in-store registers and computer and operating
systems ("POS Project"). The equipment has been financed through a leasing
company as an operating lease over five years. Lease obligations to the leasing
company begin when the equipment is received.
NOTE 12 - STOCKHOLDERS' EQUITY
As provided under the Plan, the authorized capital stock of the Company is
50,000,000 shares and consists of 39,999,990 shares of Common Stock, 10 shares
of Class B Common Stock, and 10,000,000 shares of preferred stock, par value
$0.01 per share ("Preferred Stock").
All equity interests existing immediately prior to consummation of the Plan were
canceled pursuant to the Plan, and the accumulated deficit relating to the
equity interests was eliminated under Fresh-Start Reporting.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe to 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.
36
<PAGE>
Subject to the rights of holders of Preferred Stock, if any, the holders of
shares of Common Stock are entitled to dividends when, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to stockholders. The Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.
CLASS B COMMON STOCK
Except as set forth in the following paragraphs, the holders of Class B Common
Stock shall enjoy the same rights, privileges and preferences and be subject to
the same restrictions as the holders of the Common Stock.
Upon the affirmative vote of not less than three-fourths of the then outstanding
shares of the Class B Common Stock, (a) during the continuance of any event
described in Section 11(b) of the Loan Agreement (each, an "Event of Default"),
including, without limitation, nonpayment of principal and/or interest, covenant
defaults, breach of representations and warranties and certain events of
bankruptcy, in each case subject to applicable notice and cure periods, and/or
(b) upon acceleration of any of the loans under the Loan Agreement and until
such acceleration is rescinded or all amounts due under such accelerated loan
are paid in full, the Company shall (i) file a voluntary petition under Chapter
11 of the Bankruptcy Code and (ii) oppose any motion to dismiss the resulting
bankruptcy case. Such right of the holders of the Class B Common Stock will
terminate upon satisfaction in full of all of the Company's obligations under
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 Company issued 10 shares of the Class B Common
Stock, representing all of the authorized and outstanding Class B Common Stock,
to the Surety on the Plan Effective Date.
STOCKHOLDER RIGHTS PLAN
In January 1999, the Company adopted a Stockholder Rights Plan (the "Rights
Plan"). Under the Rights Plan, a dividend of one Share Purchase Right (a
"Right") was declared for each share of Common Stock and Class B Common Stock of
the Company outstanding at the close of business on January 22, 1999.
In the event that a person or group acquires beneficial ownership of shares that
represent 15% or more of the combined voting power of the outstanding shares of
Common Stock and Class B Common Stock of the Company without advance approval by
the Board of Directors, each Right will entitle the holder, other than the
acquirer and its affiliates, to buy Common Stock of the Company with a market
value of twice the Right's then current exercise price (initially $6.00, subject
to adjustment). In addition, if the new Rights are triggered by such a
non-approved acquisition and the Company is thereafter acquired in a merger or
other transaction in which the stockholders of the Company are not treated
equally, stockholders with unexercised Rights will be entitled to purchase
common stock of the acquirer with a value of twice the exercise price of the
Rights.
The Board of Directors may redeem the Rights for a nominal amount at any time
prior to an event that causes the Rights to become exercisable. The Rights trade
automatically with the underlying Common Stock (unless and until a distribution
event occurs under the Rights Plan) and expire on January 12, 2009, if not
redeemed earlier.
The Rights Plan includes grandfathering provisions that exempt Troutman
Investment Company ("Troutman Investment") and its affiliates including Dallas
C. Troutman (collectively, "Troutman"), which hold approximately 32.5% of the
common stock of the Company on a fully-diluted basis, and Specialty Investment I
LLC, which holds warrants to acquire approximately 19% of the Common Stock of
the Company, at their respective levels of Common Stock ownership at the time
the Rights Plan was adopted. However, dispositions of shares owned at the time
of the adoption of the Rights Plan will reduce each of Troutman and Specialty
Investment's maximum permissible level of ownership share-for-share (i.e., any
acquisition by Troutman or Specialty Investment of securities other than the
grandfathered securities which, when aggregated with the grandfathered
securities, represent 15% or more of the voting power of the Common Stock and
Class B Common Stock of the Company, will trigger the Rights Plan).
37
<PAGE>
PREFERRED STOCK
The Second Restated Certificate of Incorporation of the Company provides for the
issuance of 10 million shares of Preferred Stock. The Preferred Stock may be
issued in one or more classes or series, and the Board of Directors is
authorized to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof. Because the Board of
Directors has the power to establish the preferences and rights attributable to
the Preferred Stock, it may afford the holders of any Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of Common Stock. No shares of Preferred Stock are currently
outstanding.
WARRANTS
Pursuant to the Plan, all outstanding warrants to purchase Old Common Stock were
rejected as of the Plan Effective Date.
CLASS A WARRANTS AND CLASS B WARRANTS
Class A Warrants to purchase an aggregate of 2,203,320 shares of Common Stock
and Class B Warrants to purchase an aggregate of 800,237 shares of Common Stock
were issued by the Company in accordance with the Plan pursuant to a Warrant
Agreement (the "Class A/B Warrant Agreement") entered into between the Company
and Norwest Bank Minnesota, N.A., as Warrant Agent named therein. The Class A
Warrants are exercisable, in whole or in part, on the first date on which the
Aggregate Equity Trading Value (as defined below) equals or exceeds $20 million
and, if not previously exercised, expire on the tenth anniversary of the Plan
Effective Date. The Class B Warrants are exercisable, in whole or in part, on
the first date on which the Aggregate Equity Trading Value equals or exceeds $25
million and, if not previously exercised, expire on the tenth anniversary of the
Plan Effective Date. The exercise price for the Class A Warrants and the Class B
Warrants is $.01 per share. The number and type of securities issuable upon
exercise of the Class A Warrants and the Class B Warrants and the exercise price
payable upon exercise thereof are subject to customary anti-dilution protection
as described in the Class A/B Warrant Agreement.
"Aggregate Equity Trading Value" means, as of any date, the product of (a)
either (i) if the Common Stock is listed on any national securities exchange or
quoted on a national quotation system, the average of the daily closing prices
of the Common Stock for the five (5) trading days immediately preceding such
date, or (ii) if the Common Stock is not so listed or quoted, the fair market
value per share of the Common Stock determined in good faith by the Company's
Board of Directors as of a date within 30 days of such date, multiplied by (b)
the total number of issued and outstanding shares of Common Stock as of such
date (assuming for purposes of determining such number of shares the exercise in
full of all in-the-money options outstanding on such date to purchase shares of
Common Stock and the exercise of all Class B Warrants which are exercisable as
of such date).
CLASS C WARRANTS
254,043 Class C Warrants to purchase an aggregate of 3,810,645 shares of Common
Stock were issued by the Company in accordance with the Plan pursuant to one or
more Warrant Agreements (collectively, the "Class C Warrant Agreements") entered
into between the Company and the initial holders of the Class C Warrants, and
were distributed as follows: (i) 228,639 Class C Warrants to purchase an
aggregate of 3,429,585 shares of Common Stock were distributed to the Surety as
required under the BankBoston Facility and in consideration of the Surety's
guaranty of the Term Loan and in partial exchange for the Surety's
administrative claim against the Company's Chapter 11 estate; and (ii) 25,404
Class C Warrants to purchase an aggregate of 381,060 shares of Common Stock were
distributed to the holders of Stock Options. The Class C Warrants are
exercisable, in whole or in part, as follows: (a) at any time after the date of
issuance thereof and until the fourth anniversary of the Plan Effective Date,
the Class C Warrants are exercisable for an aggregate of 3,556,602 shares of
Common Stock at an exercise price of $1.25 per share; and (b) at any time after
the first date on which the Aggregate Equity Trading Value equals or exceeds $25
million and until the tenth anniversary of the Plan Effective Date, the Class C
Warrants are exercisable for an aggregate of 254,043 additional shares of Common
Stock at an exercise price of $.01 per share; provided that the portion of each
Class C Warrant otherwise exercisable after the first date on which the
Aggregate Equity Trading Value equals or exceeds $25 million shall not be
exercisable by any holder thereof unless such holder has exercised in full such
holder's portion of such Class C Warrant that is immediately exercisable upon
the issuance thereof. The number and type of securities issuable upon exercise
of the Class C Warrants are subject to customary anti-dilution protection as
described in the Class C Warrant Agreements.
38
<PAGE>
GORDIAN WARRANTS
On June 1, 1998, as compensation to Gordian for investment banking services
rendered to the Company during the Company's Chapter 11 case, Gordian was issued
warrants exercisable for the purchase 161,937 shares of Common Stock with an
exercise price of $1.24 per share. The Gordian Warrants are immediately
exercisable and expire five (5) years from their issuance date.
STOCK OPTIONS
The Stock Options granted pursuant to the Plan are exercisable for the purchase
of 1,333,728 shares of Common Stock and consist of: (i) options exercisable for
the purchase of 1,000,000 shares of Common Stock with an exercise price of $1.00
per share ("Base Options"); (ii) to prevent dilution resulting from the issuance
of the Class A Warrants, options exercisable for the purchase of an additional
244,813 shares of Common Stock with an exercise price of $0.01 per share,
exercisable only on or after the date on which the Class A Warrants become
exercisable ("Protective A Options"); and (iii) to prevent dilution resulting
from the issuance of the Class B Warrants, options exercisable for the purchase
of an additional 88,915 shares of Common Stock with an exercise price of $0.01
per share, exercisable only on or after the date on which the Class B Warrants
become exercisable ("Protective B Options" and, together with Protection A
Options, the "Protective Options"). In addition, to prevent dilution resulting
from the issuance of the Class C Warrants to the Surety, holders of Stock
Options have been or will be issued, on a pro rata basis and with the same
vesting schedule as each holder's respective Stock Options, Class C Warrants
exercisable for the purchase of an aggregate of 381,060 shares of Common Stock
(355,656 shares with an exercise price of $1.25 per share and 25,404 shares with
an exercise price of $.01 per share).
The number of Protective Options that may be exercised by any holder shall bear
the same proportion (based on the total number of Protective Options granted to
such holder) to the number of Base Options that have been exercised by such
holder (based on the total number of Base Options granted to such holder).
The Stock Options and the Class C Warrants are subject to adjustment to prevent
dilution upon the occurrence of certain specified events, excluding exercise of
the Stock Options, the Class A Warrants, the Class B Warrants, the Class C
Warrants, or the Gordian Warrants. The Stock Options granted on January 31, 1998
have a term of 10 years and vest as follows: 50% on the date of grant; and 25%
on each anniversary of the date of grant. The Stock Options are governed by the
Lamonts Apparel, Inc. 1998 Stock Option Plan (the "Stock Option Plan"), and the
Class C Warrants issued in conjunction therewith are governed by a warrant
agreement in substantially the form of the Class C Warrant Agreement between the
Company and the Surety.
Under the terms of the Stock Option Plan, the Company has available, in addition
to the 1,333,728 shares of Common Stock reserved for issuance upon the exercise
of the Stock Options granted on the Plan Effective Date (subject to adjustment
to prevent dilution upon certain events, excluding any exercise of Class A
Warrants, Class B Warrants, Class C Warrants, or Stock Options), an additional
375,000 shares of Common Stock for possible grants of additional stock options
from time to time after the Plan Effective Date if, and to the extent, a
committee appointed by the Board of Directors ("Compensation Committee"), may
determine that additional grants would be in the best interest of the Company.
Any shares forfeited, canceled, exchanged or surrendered will again be available
under the Stock Option Plan. Stock Options issued as of January 30, 1999 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.
39
<PAGE>
The following summarizes the Stock Options granted under the Stock Option Plan
during Fiscal 1997 and 1998:
<TABLE>
<CAPTION>
Weighted
Shares Range Average
---------- -------------- -----------
<S> <C> <C> <C>
Balance February 1, 1997 0
Granted 1,333,728 $0.01 - $1.00 $0.75
Exercised 0
Expired / Canceled 0
---------- -------------- ------
Balance, January 31, 1998 1,333,728 $0.01 - $1.00 $0.75
Granted 388,000 $1.00 $1.00
Exercised 0
Expired / Canceled (67,275) $0.01 - $1.00 $0.84
---------- -------------- ------
Balance, January 30, 1999 1,654,453 $0.01 - $1.00 $0.81
----------
----------
</TABLE>
The following table summarizes information concerning options outstanding and
exercisable at January 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Range of Exercise Number Contractual Life Average Number Average
Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
-------------------------- --------------- --------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
$0.01 322,828 9.00 $0.01 119,957 $0.01
$1.00 1,331,625 9.02 $1.00 583,125 $1.00
-------------------------- --------------- --------------------- ------------------ ---------------- -------------------
-------------------------- --------------- --------------------- ------------------ ---------------- -------------------
$0.01 - $1.00 1,654,453 9.01 $0.81 703,082 $0.83
-------------------------- --------------- --------------------- ------------------ ---------------- -------------------
-------------------------- --------------- --------------------- ------------------ ---------------- -------------------
</TABLE>
The Company has elected to follow Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") in accounting for its
employee stock options. Under APB No. 25, because the exercise price of the
Company's employee options is greater than the market price of the underlying
stock on the date of grant, no compensation expense is recognized in the
consolidated financial statements.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation ("SFAS No. 123"). This information is required to be determined as
if the Company has accounted for its employee stock options granted subsequent
to January 31, 1995, under the fair value method of that statement.
The fair value of the options was estimated at the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions for Fiscal 1998 and Fiscal 1997: risk free interest rates of 5.2%
and 5.7%; a stock price volatility factor of 2.25 estimated based on the
Company's actual stock prices during Fiscal 1998 and 0.45 estimated based on
stock prices of similar publicly traded companies with similar stock option
plans; and an expected option life of 5 and 10 years; and no dividend during the
expected terms.
For purposes of pro forma disclosures required by SFAS No. 123, the Company's
income and earnings per share ("EPS") would have reflected compensation cost
determined based on the estimated fair value of the options at the date of
grant. There are no pro forma adjustments for Fiscal 1996 and Fiscal 1995
because no options were granted during these periods. The Company's pro forma
information is as follows:
40
<PAGE>
Pro Forma (Loss) Income and EPS from Operations Before Extraordinary Item:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
------------------------------------
(dollars in thousands except
share data)
<S> <C> <C>
(Loss) income from operations before extraordinary item:
As reported $(4,461) $53,546
Pro forma net (loss) income $(4,636) $53,487
Basic and Diluted EPS from operations before extraordinary item:
As reported $(0.50) $3.00
Pro forma net (loss) income per share $(0.52) $3.00
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
As required by the BankBoston Facility and in partial exchange for its
administrative claim, pursuant to the Plan, the Surety received (i) 228,639
Class C Warrants exercisable for the purchase of an aggregate of 3,429,585
shares of Common Stock and (ii) 10 shares of Class B Common Stock representing
all of the authorized and outstanding Class B Common Stock.
Under the Plan, certain investment companies and accounts indirectly controlled
by FMR Corp. (collectively "Fidelity") received 2,925,140 shares of Common
Stock, 1,810,380 Class A Warrants and 581,181 Class B Warrants in exchange for
1,042,174 shares of Old Common Stock and $60.6 million of outstanding debt.
In connection with the Plan, the Company entered into a Grant of Registration
Rights in favor of Fidelity and the Surety, pursuant to which, and subject to
certain exceptions, the Company has agreed to file and cause to remain effective
a Registration Statement under the Securities Act of 1933, as amended, covering
certain of the securities distributed under the Plan until no such securities
are outstanding. The Company is required to pay all expenses (other than
underwriting discounts and commissions) in connection with all such
registrations. In addition, the agreement provides for certain "piggyback"
registration rights.
On January 4, 1999, Troutman Investment filed with the SEC a report stating that
on December 23, 1998, Troutman Investment acquired 2,925,140 shares of Class A
Common Stock, 1,810,380 Class A Warrants, and 581,181 Class B Warrants from
Fidelity with the stated intent of entering into discussions with the Company
regarding a possible merger of the two Companies. Troutman Investment's
principal business is the operation of retail stores selling fashion apparel and
home and fashion accessories.
In January, 1999 the Company commenced preliminary discussions with Troutman
with respect to a possible merger between the Company and Troutman Investment.
Additionally, the Board of Directors of the Company adopted a Stockholder Rights
Plan (See Note 12) and certain amendments to the Company's Bylaws. The Company
does not intend to disclose any details of the discussions with Troutman pending
their outcome.
On March 10, 1999, Troutman Investment transferred all of its securities of
Lamonts Apparel, Inc. to Dallas C. Troutman, president and controlling
stockholder of Troutman Investment.
NOTE 14 - BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc. Employees
Retirement Trust (the "Pension Plan"). The Pension Plan is a noncontributory
defined benefit pension plan for employees of the Company who are not eligible
for pension benefits from another pension plan pursuant to collective bargaining
agreements. Participant benefits are based on years of service and compensation
during later years of employment. The Company makes contributions to the Pension
Plan in amounts which comply with the minimum regulatory funding requirements.
41
<PAGE>
On February 26, 1998, the Board approved an amendment to the Pension Plan which
provided that, effective April 1, 1998, benefits under the Pension Plan would
cease to accrue. In addition, the entry of new participants would be prohibited.
Participants not vested as of April 1, 1998, continue to accrue vesting service
after April 1, 1998. In accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits" ("SFAS No. 88"), the
projected benefit obligation decreased, and a curtailment gain of $1.0 million
was recognized in Fiscal 1998. The curtailment gain is included as a reduction
of operating and administrative expense in the consolidated statements of
operations.
The following table sets forth the Company's funded plan status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31, FEBRUARY 1,
1999 1998 1997
---------- ---------- ----------
(dollars in thousands, except percents)
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $8,422 $6,513 $6,547
Service cost 64 336 404
Interest cost 554 527 461
Assumption change 383 899 (522)
Actuarial loss (gain) 352 441 (117)
Curtailment (1,001) -- --
Benefits paid (376) (294) (260)
------- ------- -------
Benefit obligation at end of year 8,398 8,422 6,513
------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 6,528 6,045 5,345
Actual return on plan assets 456 777 635
Employer contributions 175 -- 527
Benefits paid (376) (294) (462)
------- ------- -------
Fair value of plan assets at end of year 6,783 6,528 6,045
------- ------- -------
Funded status (1,615) (1,894) (468)
Unrecognized actuarial loss 893 1,432 347
------- ------- -------
Accrued benefit cost (722) (462) (121)
------- ------- -------
WEIGHT AVERAGE ASSUMPTIONS
Discount rate 6.75% 7.0% 7.75%
Expected long term rate of return on assets 9.0% 9.0% 9.0%
Rate of increase in future compensation levels 3.5% 3.5% 3.5%
</TABLE>
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $64 $336 $404
Interest cost on projected benefit obligation 554 527 461
Expected return on plan assets (613) (532) (494)
Recognized net actuarial loss -- 10 72
------- ----- -----
Net periodic benefit cost $5 $341 $443
------- ----- -----
------- ----- -----
SFAS No. 88 curtailment gain $1,001 -- --
</TABLE>
42
<PAGE>
LAMONTS 401(k) PLAN
The Lamonts Apparel, Inc. Tax Relief Investments Protection Plan, as amended and
restated effective January 1, 1994 (the "401(k) Plan") provides participants the
opportunity to elect to defer an amount from 1% to 15% of their compensation, in
increments of 1%. Under the 401(k) Plan, the Company matches contributions equal
to 50% of each participant's deferred pay contributions (such contribution not
to exceed one percent of the participant's compensation). Effective April 1,
1998, the Company increased its matching contribution to 50% of the first 4% of
each participant's deferred pay contributions. Effective April 1, 1999, the
Company increased its matching contribution to 50% of the first 6% of each
participant's deferred pay contributions. The Company contributed $0.2 million,
$0.12 million, and $0.14 million during Fiscal 1998, Fiscal 1997, and Fiscal
1996, respectively.
43
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 9, 1998, the Company dismissed PricewaterhouseCoopers LLP ("PwC") as its
independent accountants.
The dismissal of PwC was approved by unanimous written consent of the Board of
Directors on July 1, 1998.
For the fiscal year ended January 31, 1998, PwC's report on the consolidated
financial statements contained an unqualified opinion which included the
following explanatory paragraph:
"On January 31, 1998, the Company emerged from bankruptcy. As discussed in Note
2 to the consolidated financial statements, the Company adopted "Fresh-Start
Reporting" principles in accordance with the American Institute of Certified
Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code." As a result of the reorganization
and the adoption of Fresh-Start Reporting, the Company's January 31, 1998
consolidated balance sheet is not comparable to the Company's February 1, 1997
consolidated balance sheet since it presents the consolidated financial position
of the reorganized entity."
For the fiscal year ended February 1, 1997, PwC's report on the consolidated
financial statements contained an unqualified opinion which included the
following explanatory paragraph:
"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 of 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."
During the quarter ended May 2, 1998 and the fiscal years ended January 31, 1998
and February 1, 1997, there were no disagreements with PwC on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures that, if not resolved to the satisfaction of PwC, would have
caused PwC to make reference to the subject matter of the disagreement in
connection with its report.
On July 29, 1998,the Company engaged Deloitte & Touche LLP as its principal
accountants to audit the Company's consolidated financial statements.
44
<PAGE>
PART III
ITEM 10 - EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The information called for by this item is incorporated by reference from the
Company's Definitive Proxy Statement relating to the 1999 Annual Meeting of the
Stockholders, to be filed with the Commission on or before May 30, 1999.
ITEM 11 - EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference from the
Company's Definitive Proxy Statement relating to the 1999 Annual Meeting of the
Stockholders, to be filed with the Commission on or before May 30, 1999.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference from the
Company's Definitive Proxy Statement relating to the 1999 Annual Meeting of the
Stockholders, to be filed with the Commission on or before May 30, 1999.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference from the
Company's Definitive Proxy Statement relating to the 1999 Annual Meeting of the
Stockholders, to be filed with the Commission on or before May 30, 1999.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of this Report
1. FINANCIAL STATEMENTS OF LAMONTS APPAREL, INC. - Reference is
made to the Index to Consolidated Financial Statements on page
16.
2. FINANCIAL STATEMENT SCHEDULES - All schedules have been
omitted as they are either not required or not applicable or
because the information required to be presented is included
in the Consolidated Financial Statements and related notes.
Exhibit
Number Description of Document
-------- -----------------------
(a) Exhibits.
2.1 Modified and Restated Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code. (Previously filed as Exhibit 99.1 in
Quarterly Report on Form 10-Q of the Registrant as filed with
Commission on December 16, 1997) (7)
2.2 Supplemented and Restated Disclosure Statement (As Amended) re
Debtor's Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code. (Previously filed as Exhibit 99.2 in Quarterly
Report on Form 10-Q of the Registrant as filed with Commission
on December 16, 1997) (7)
3.1 Second Restated Certificate of Incorporation of the Registrant.
(10)
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Specimen Class A Common Stock certificate. (10)
4.2 Specimen Class B Common Stock certificate. (10)
4.3 Warrant Agreement dated January 31, 1998 between the Registrant
and Norwest Bank Minnesota, N.A., as Warrant Agent. (8)
45
<PAGE>
4.4 Warrant Agreement dated January 31, 1998 between the Registrant
and Specialty Investment I LLC. (8)
4.5 Warrant Agreement dated January 31, 1998 between the Registrant
and Gordian Group, L.P. (9)
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. (8)
4.7 Rights Agreement dated January 12, 1999, between the Registrant
and Norwest Bank Minnesota, N.A. (12)
4.8 Certificate of Designation, Preferences and Rights of Series RP
Preferred Stock, dated January 12, 1999 *
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)
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"). (2)
10.3 Amendment No. 2 dated March 30, 1994 to the Credit Card Plan
Agreement. (3)
10.4 Letter Agreement dated November 2, 1994 to the Credit Card Plan
Agreement. (4)
10.5 License Agreement dated May 25, 1995 between the Registrant and
Shoe Corporation of America. (5)
10.6 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)
10.7 Amendment dated December 9, 1996 to the Credit Card Plan
Agreement. (6)
10.8 Computer Services Agreement dated February 4, 1997 between the
Registrant and Affiliated Computer Services, Inc. (6)
10.9 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) (1)
10.10 Lamonts Apparel, Inc. 1998 Stock Option Plan. (10) (1)
10.11 Amended and Restated Employment Agreement dated April 19, 1999
between the Registrant and Alan R. Schlesinger. (1) *
10.12 Amended and Restated Employment Agreement dated April 19, 1999
between the Registrant and Loren R. Rothschild. (1) * . 10.13
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. (7)
10.14 Grant of Registration Rights dated January 31, 1998 among the
Company and the parties listed on the signature pages thereto.
(10)
10.15 Form of Indemnification Agreement dated January 31, 1998 between
the Registrant
46
<PAGE>
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. (10) (1)
10.16 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 (11)
10.17 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 (11)
10.18 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 (11)
10.19 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 *
10.20 Form of Employment Agreement dated April 19, 1999 between the
Registrant and Debbie A. Brownfield, E.H. Bulen and Gary A.
Grossblatt (1) *
23.1 Auditors' Consent *
23.2 Auditors' Consent *
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.
(2) Incorporated by reference from Registration Statement No.
33-56038 of the Registrant, initially filed with the Commission
on December 22, 1992.
(3) Incorporated by reference from Quarterly Report on Form 10-Q of
the Registrant as filed with Commission on June 14, 1994.
(4) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with Commission on January 27, 1995.
(5) Incorporated by reference from Quarterly Report on Form 10-Q of
the Registrant as filed with Commission on June 12, 1995.
(6) Incorporated by reference from Annual Report on Form 10-K of the
Registrant as filed with Commission on May 2, 1997.
(7) Incorporated by reference from Quarterly Report on Form 10-Q of
the Registrant as filed with Commission on December 16, 1997.
(8) Incorporated by reference from the Company's Registration
Statement on Form 8-A (File No. 000-15542) filed with the
Commission on February 2, 1998.
(9) 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.
(10) Incorporated by reference from the Company's Registration
Statement on Form S-1
47
<PAGE>
(File No. 333-44311) initially filed with the Commission on
January 15, 1998.
(11) Incorporated by reference from Quarterly Report on Form 10-Q of
the Registrant as filed with the Commission on December 16, 1998
(12) Incorporated by reference from Current Report on Form 8-K of the
Registrant as filed with the Commission on January 13, 1999.
(b) Reports filed on Form 8-K
1. Form 8-K dated July 9, 1998. Item 4 - Changes in Registrant's
Certifying Accountant, related to announcing that
PricewaterhouseCoopers LLP was dismissed as the Company's
independent accountants.
2. Form 8-K dated July 29, 1998. Item 4 - Changes in Registrant's
Certifying Accountant, related to announcing the engagement of
Deloitte & Touche LLP as the principal accountants to audit the
Company's consolidated financial statements.
3. Form 8-K dated January 12, 1999. Item 5 - Other Events, related
to (i) the commencement of preliminary discussions between the
Company and Troutman with respect to a possible business
combination between the Company and Troutman, (ii) the adoption
by the Board of Directors of the Company of a Stockholder Rights
Plan; and (iii) the adoption by the Board of certain amendments
to the Company's Bylaws. No financial statements were filed with
this Form 8-K.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LAMONTS APPAREL, INC.
By: /S/ DEBBIE A. BROWNFIELD
-----------------------------------------
Debbie A. Brownfield
Executive Vice President and Chief Financial Officer
Date: April 29, 1999
49
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Alan R. Schlesinger Chairman of the Board, Chief
- ---------------------------- Executive Officer, President and
Alan R. Schlesinger Director (Principal Executive Officer) April 29, 1999
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- ---------------------------- Administrative Officer and Director April 29, 1999
Loren R. Rothschild
/s/ Debbie A. Brownfield Executive Vice President and Chief
- ---------------------------- Financial Officer (Principal
Debbie A. Brownfield Financial and Accounting Officer) April 29, 1999
/s/ Stanford Springel
- ----------------------------
Stanford Springel Director April 29, 1999
/s/ John J. Wiesner
- ----------------------------
John J. Wiesner Director April 29, 1999
/s/ Paul M. Buxbaum
- ----------------------------
Paul M. Buxbaum Director April 29, 1999
</TABLE>
50
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
LAMONTS APPAREL, INC.
(hereinafter called the "Corporation")
(as amended through January 12, 1999)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders for
the election of directors shall be held on such date and at such time as shall
be designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
SECTION 3. SPECIAL MEETINGS. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, if there be one, or the Vice Chairman of the
Board of Directors, if there be one, or (ii) the President, or Vice President,
if there be one, the Secretary or any Assistant Secretary, if there be one, at
the request in writing of (i) the Board of Directors, (ii) a committee of the
Board of Directors that has been duly designated by the Board of Directors and
whose powers and authority include the power to call such meetings, or (iii)
with respect to
<PAGE>
Special Meetings of the holders of the Corporation's Class B Common Stock
only, during the continuance of any Special Share Event (as defined in the
Certificate of Incorporation), holders owning 100% of the issued and
outstanding Class B Common Stock. Such request shall state the purpose or
purposes of the proposed meeting. At a Special Meeting of Stockholders, only
such business shall be conducted as shall be specified in the notice of
meeting (or any supplement thereto).
Upon request in writing sent by registered mail to the President or
Chief Executive Officer by any stockholder or stockholders entitled to call a
special meeting of stockholders pursuant to this Section 3, the Board of
Directors shall determine a place and time for such meeting, which time shall
be not less than ninety (90) nor more than one hundred (100) days after the
receipt and determination of the validity of such request, and a record date
for the determination of stockholders entitled to vote at such meeting in the
manner set forth in Article V, Section 5 hereof. Following such receipt and
determination, it shall be the duty of the Secretary to cause notice to be
given to the stockholders entitled to vote at such meeting, in the manner set
forth in Section 4 of Article II, Section 4 hereof, that a meeting will be
held at the place and time so determined.
SECTION 4. NOTICE. Whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
SECTION 5. ADJOURNMENTS. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 6. QUORUM. Unless otherwise required by law or the Certificate
of Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented
2
<PAGE>
by proxy, shall have power to adjourn the meeting from time to time, in the
manner provided in Section 5, until a quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these By-laws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or
by proxy but no proxy shall be voted on or after three years from its date,
unless such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of any
class of the Corporation, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 8 to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery to
its registered office in the state of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and who, if the action had been taken at a meeting, would have been entitled to
notice of the meeting if the record date for such meeting had been the date that
written consents signed by a sufficient number of holders to take the action
were delivered to the Corporation as provided above in this section.
3
<PAGE>
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
SECTION 12. ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS.
Nominations of persons for election to the Board and the proposal of business to
be transacted by the stockholders may be made at an annual meeting of
stockholders (a) pursuant to the Corporation's notice with respect to such
meeting, (b) by or at the direction of the Board or (c) by any stockholder of
record of the Corporation who was a stockholder of record at the time of the
giving of the notice
4
<PAGE>
provided for in the following paragraph, who is entitled to vote at the
meeting and who has complied with the notice procedures set forth in this
section.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the foregoing paragraph, (1)
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation, (2) such business must be a proper matter for
stockholder action under the General Corporation Law of the State of Delaware,
(3) if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, has provided the Corporation with a Solicitation
Notice, as that term is defined in subclause (c)(iii) of this paragraph, such
stockholder or beneficial owner must, in the case of a proposal, have delivered
a proxy statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice and (4) if no Solicitation Notice relating thereto has been
timely provided pursuant to this section, the stockholder or beneficial owner
proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this section. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation (i) in the
case of the 1999 annual meeting, not after March 31, 1999 and not before
February 28, 1999, or (ii) in the case of any annual meeting for any year after
1999, not less than 45 or more than 75 days prior to the first anniversary (the
"Anniversary") of the date on which the Corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 30 days after (i) in the case of the 1999
annual meeting, June 30, 1999, or (ii) in the case of any annual meeting for any
year 1999, the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of (i) the 90th day prior to such annual meeting or (ii)
the 10th day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person as would be required to be
disclosed in solicitations of proxies for the election of such nominees as
directors pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and such person's written consent to serve as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of such business, the reasons
for conducting such business at the meeting and
5
<PAGE>
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner, (ii) the class and number of shares of the Corporation that
are owned beneficially and of record by such stockholder and such beneficial
owner, and (iii) whether either such stockholder or beneficial owner intends
to deliver a proxy statement and form of proxy to holders of, in the case of
a proposal, at least the percentage of the Corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the
Corporation's voting shares to elect such nominee or nominees (an affirmative
statement of such intent, a "Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph of
this Section 12 to the contrary, in the event that the number of directors to be
elected to the Board is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased Board made
by the Corporation at least 55 days prior to the Anniversary, a stockholder's
notice required by this Bylaw shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this
Section 12 shall be eligible to serve as directors and only such business shall
be conducted at an annual meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in this section.
The chair of the meeting shall have the power and the duty to determine whether
a nomination or any business proposed to be brought before the meeting has been
made in accordance with the procedures set forth in these Bylaws and, if any
proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposed business or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the Board may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board or (b) by any stockholder of record of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
paragraph, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this Section 12. Nominations by stockholders
of persons
6
<PAGE>
for election to the Board may be made at such a special meeting of
stockholders if the stockholder's notice required by the second paragraph of
this Section 12 shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the later of the 90th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board to be elected
at such meeting.
For purposes of this section, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 12, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to matters set forth in this
Section 12. Nothing in this Section 12 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed from time to time by the Board of
Directors. Except as provided in Section 2 of this Article III, directors shall
be elected by a plurality of the votes cast at the Annual Meetings of
Stockholders and each director so elected shall hold office until the next
Annual Meeting of Stockholders and until such director's successor is duly
elected and qualified, or until such director's earlier death, resignation or
removal. Any director may resign at any time upon written notice to the
Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
7
<PAGE>
SECTION 3. DUTIES AND POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by any director. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the meeting, by
telephone or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
SECTION 5. QUORUM. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
SECTION 6. ACTIONS BY WRITTEN CONSENT. Unless otherwise provided in
the Certificate of Incorporation, or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
8
<PAGE>
SECTION 8. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to
the extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board
9
<PAGE>
of Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, also may choose a Chairman of the
Board of Directors and a Vice Chairman of the Board of Directors (each of whom
must be a director) and one or more Vice Presidents, Assistant Secretaries,
Assistant Treasurers and other officers. Any number of offices may be held by
the same person, unless otherwise prohibited by law or the Certificate of
Incorporation. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of Directors
and the Vice Chairman of the Board of Directors, need such officers be directors
of the Corporation.
SECTION 2. ELECTION. The Board of Directors, at its first meeting held
after each Annual Meeting of Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the Board
of Directors may be removed at any time by the affirmative vote of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised
10
<PAGE>
and possessed if present. The Board of Directors may, by resolution, from
time to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
SECTION 5. VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice Chairman
of the Board of Directors, if there be one, shall be an agent of the Corporation
and, subject to the direction of the Board of Directors, shall perform such
functions and duties as from time to time may be assigned to him or her by the
Board of Directors. The Vice Chairman of the Board of Directors, if present,
shall preside with the Chairman of the Board of Directors at all meetings of the
stockholders and all meetings of the Board of Directors.
SECTION 6. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as may from time to time be assigned to such officer by these By-Laws or
by the Board of Directors.
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SECTION 7. VICE PRESIDENTS. At the request of the President or in the
President's absence or in the event of the President's inability or refusal to
act (and if there be no Chairman of the Board of Directors), the Vice President,
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors), shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have
such other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by
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the Board of Directors, the Treasurer shall give the Corporation a bond in
such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in the
Treasurer's possession or under the Treasurer's control belonging to the
Corporation.
SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging to
the Corporation.
SECTION 12. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of
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the Corporation, certifying the number of shares owned by such stockholder in
the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be canceled before a
new certificate shall be issued. No transfer of stock shall be valid as against
the Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
SECTION 5. RECORD DATE.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which
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the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; providing, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by law,
shall be the first date on which a signed written consent setting forth the
action taken or proposed is delivered to the Corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolutions taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 6. RECORD OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of
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any other person, whether or not it shall have express or other notice
thereof, except as otherwise required by law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present in person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any Eligible Indemnitee who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
"Eligible Indemnitee" means any person who is or was a director or officer
of the Corporation on or after January 31, 1998.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN
THE RIGHT OF THE CORPORATION. Subject to
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Section 3 of this Article the Corporation shall indemnify any Eligible
Indemnitee who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the Eligible Indemnitee is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion or (iii) by the stockholders. To
the extent, however, that an Eligible Indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to
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the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care
by the Corporation or another enterprise. The term "another enterprise" as
used in this Section 4 shall mean any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise of which such
person is or was serving at the request of the Corporation as a director,
officer, employee or agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
in Section 1 or 2 of this Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article and
notwithstanding the absence of any determination thereunder, any Eligible
Indemnitee may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the Eligible Indemnitee is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by an
Eligible Indemnitee in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being
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the policy of the Corporation that indemnification of the persons specified
in Sections 1 and 2 of this Article VIII shall be made to the fullest extent
permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Section 1
or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law
of the State of Delaware, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or
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officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article X and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
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Exhibit 4.8
Certificate of Designation, Preferences and
Rights of Series RP Preferred Stock
of
Lamonts Apparel, Inc.
(Pursuant to Section 151 of the Delaware General Corporation Law)
I, Debbie A. Brownfield, Secretary of Lamonts Apparel, Inc. (the
"CORPORATION"), a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of the
Corporation by the Restated Certificate of Incorporation of the Corporation, the
said Board of Directors has adopted the following resolutions creating a series
of 40,000 shares of Preferred Stock designated as Series RP Preferred Stock.
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Corporation in accordance with the provisions of the
Restated Certificate of Incorporation of the Corporation, the Board of Directors
hereby creates a series of Series RP Preferred Stock, with a par value of $.01
per share, of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof as
follows (the following provisions being intended to operate in addition to any
other provisions of said Restated Certificate of Incorporation applicable to any
series of Preferred Stock):
Series RP Preferred Stock
Section 1. DESIGNATION, PAR VALUE AND AMOUNT. The shares of such series
shall be designated as "Series RP Preferred Stock" (hereinafter referred to as
"SERIES RP PREFERRED STOCK"), the shares of such series shall be with par value
of $.01 per share, and the number of shares constituting such series shall be
40,000; PROVIDED, HOWEVER, that, if more than a total of 40,000 shares of Series
RP Preferred Stock shall be issuable upon the exercise of Rights (the "Rights")
issued pursuant to the Rights Agreement, dated as of January 12, 1999, between
the Corporation and Norwest Bank Minnesota, N.A., as Rights Agent (as amended
from time to time, the "RIGHTS AGREEMENT"), the Board of Directors of the
Corporation shall direct by resolution or resolutions that a certificate be
properly executed, acknowledged and filed providing for the total number of
shares of Series RP Preferred Stock authorized to be issued to be increased (to
the extent that the Restated Certificate of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number) issuable
upon exercise of the Rights.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
2.1 Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series RP Preferred Stock with respect to dividends, the holders of
shares of Series RP Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of assets legally available for
the purpose, quarterly dividends payable in cash on the first business day of
March, June, September and December in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series RP Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment set forth in Section 6.1, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of Common Stock,
par value $.01 per share, of the Corporation (the "COMMON STOCK") or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series RP Preferred Stock.
2.2 The Corporation shall declare a dividend or distribution on
the Series RP Preferred Stock as provided in Section 2.1 above immediately
after it declares a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock); PROVIDED THAT, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on
the Series RP Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
2.3 Dividends shall begin to accrue and be cumulative on
outstanding shares of Series RP Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series RP
Preferred Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series RP Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series RP Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series RP Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 30 days prior to the date fixed for
the payment thereof.
2
<PAGE>
Section 3. VOTING RIGHTS. The holders of shares of Series RP Preferred
Stock shall have the following voting rights:
3.1 Except as provided in Section 3.3 and subject to the
provision for adjustment hereinafter set forth, each share of Series RP
Preferred Stock shall entitle the holder thereof to 1,000 votes on all
matters submitted to a vote of the stockholders of the Corporation.
3.2 Except as otherwise provided herein or by law, the holders
of shares of Series RP Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
3.3 The following additional provisions shall apply with
respect to the voting of shares of Series RP Preferred Stock:
3.3.1 If, on the date used to determine stockholders of record
for any meeting of stockholders for the election of directors, a default in
preference dividends (as defined in Section 3.3.5 below) on the Series RP
Preferred Stock shall exist, the holders of the Series RP Preferred Stock
shall have the right, voting as a class as described in Section 3.3.2 below,
to elect two directors (in addition to the directors elected by holders of
Common Stock of the Corporation). Such right may be exercised (a) at any
meeting of stockholders for the election of directors or (b) at a meeting of
the holders of shares of Voting Preferred Stock (as hereinafter defined),
called for the purpose in accordance with the Bylaws of the Corporation,
until all such cumulative dividends (referred to above) shall have been paid
in full or until non-cumulative dividends have been paid regularly for at
least one year.
3.3.2 The right of the holders of Series RP Preferred Stock to
elect two directors, as described above, shall be exercised as a class
concurrently with the rights of holders of any other series of Preferred
Stock upon which voting rights to elect such directors have been conferred
and are then exercisable. The Series RP Preferred Stock and any additional
series of Preferred Stock that the Corporation may issue and that may provide
for the right to vote with the foregoing series of Preferred Stock are
collectively referred to herein as "VOTING PREFERRED STOCK."
3.3.3 Each director elected by the holders of shares of Voting
Preferred Stock shall be referred to herein as a "PREFERRED DIRECTOR." A
Preferred Director shall continue to serve as such for a term of one year,
except that upon any termination of the right of all holders of Voting
Preferred Stock to vote as a class for Preferred Directors, the term of
office of Preferred Directors then serving shall terminate. Any Preferred
Director may be removed by, and shall not be removed except by, the vote of
the holders of record of a majority of the outstanding shares of Voting
Preferred Stock then entitled to vote for the election of directors, present
(in person or by proxy) and voting together as a single class (a) at a
meeting of the stockholders, or (b) at a meeting of the holders of shares of
such Voting Preferred Stock, called for the purpose in accordance with the
Bylaws of the Corporation.
3.3.4 So long as a default in any preference dividends of the
Series RP Preferred Stock shall exist or the holders of any other series of
Voting Preferred Stock shall be
3
<PAGE>
entitled to elect Preferred Directors, (a) any vacancy in the office of a
Preferred Director may be filled (except as provided in the following clause
(b)) by an instrument in writing signed by the remaining Preferred Director
and filed with the Corporation and (b) in the case of the removal of any
Preferred Director, the vacancy may be filled by the vote or written consent
of the holders of a majority of the outstanding shares of Voting Preferred
Stock then entitled to vote for the election of directors, present (in person
or by proxy) and voting together as a single class, at such time as the
removal shall be effected. Each director appointed as aforesaid by the
remaining Preferred Director shall be deemed, for all purposes hereof, to be
a Preferred Director. Whenever (x) no default in preference dividends on the
Series RP Preferred Stock shall exist and (y) the holders of other series of
Voting Preferred Stock shall no longer be entitled to elect such Preferred
Directors, then the number of directors constituting the Board of Directors
of the Corporation shall be reduced by two.
3.3.5 For purposes hereof, a "DEFAULT IN PREFERENCE DIVIDENDS"
on the Series RP Preferred Stock shall be deemed to have occurred whenever
the amount of cumulative and unpaid dividends on the Series RP Preferred
Stock shall be equivalent to six full quarterly dividends or more (whether or
not consecutive), and, having so occurred, such default shall be deemed to
exist thereafter until, but only until, all cumulative dividends on all
shares of the Series RP Preferred Stock then outstanding shall have been paid
through the last Quarterly Dividend Payment Date or until, but only until,
non-cumulative dividends have been paid regularly for at least one year.
3.4 Except as set forth herein (or as otherwise required by
applicable law), holders of Series RP Preferred Stock shall have no general
or special voting rights and their consent shall not be required for taking
any corporate action.
Section 4. CERTAIN RESTRICTIONS.
4.1 Whenever quarterly dividends or other dividends or
distributions payable on the Series RP Preferred Stock as provided in Section
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series RP Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
4.1.1 declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series RP Preferred
Stock;
4.1.2 declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series RP
Preferred Stock, except dividends paid ratably on the Series RP Preferred
Stock and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such shares
are then entitled;
4.1.3 redeem or purchase or otherwise acquire for consideration
(except as provided in Section 4.1.4 below) shares of any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series RP Preferred Stock, provided that the
4
<PAGE>
Corporation may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series RP Preferred Stock;
4.1.4 redeem or purchase or otherwise acquire for consideration
any shares of Series RP Preferred Stock, or any shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series RP Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
4.2 The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Section 4.1,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series RP Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Amendment creating a
series of Preferred Stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
6.1 Subject to the prior and superior rights of holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series RP Preferred Stock with respect to rights upon liquidation,
dissolution or winding up (voluntary or otherwise), no distribution shall be
made to the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series RP Preferred
Stock unless, prior thereto, the holders of shares of Series RP Preferred
Stock shall have received per share an amount equal to the greater of 1,000
times $6.00 or 1,000 times the payment made per share of Common Stock, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "SERIES RP
LIQUIDATION PREFERENCE"). Following the payment of the full amount of the
Series RP Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series RP Preferred Stock unless, prior thereto,
the holders of shares of Common Stock shall have received an amount per share
(the "CAPITAL ADJUSTMENT") equal to the quotient obtained by dividing (i) the
Series RP Liquidation Preference by (ii) 1,000 (as appropriately adjusted as
set forth in Section 6.3 to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii) being hereafter referred to as the "ADJUSTMENT
NUMBER"). Following the payment of the full amount of the Series RP
Liquidation Preference and the Capital
5
<PAGE>
Adjustment in respect of all outstanding shares of Series RP Preferred Stock
and Common Stock, respectively, holders of Series RP Preferred Stock and
holders of Common Stock shall receive their ratable and proportionate share
of the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
6.2 In the event, however, that there are not sufficient assets
available to permit payment in full of the Series RP Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series RP Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of Series RP
Preferred Stock and the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there are
not sufficient assets available to permit payment in full of the Capital
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
6.3 In the event the Corporation shall (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series RP Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to the Adjustment Number
(as appropriately adjusted as set forth in Section 6.3 to reflect such events
as stock splits, stock dividends and recapitalizations with respect to the
Common Stock) times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged.
Section 8. NO REDEMPTION. The shares of Series RP Preferred Stock
shall not be redeemable.
Section 9. RANKING. The Series RP Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such other
series shall provide otherwise.
Section 10. AMENDMENT. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner that would
materially alter or change the powers, preferences or special rights of the
Series RP Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series RP Preferred Stock, voting separately as a class.
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<PAGE>
Section 11. FRACTIONAL SHARES. Series RP Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of
holders of Series RP Preferred Stock.
RESOLVED, that the proper officers of the Corporation be, and each of them
hereby is, authorized to execute a Certificate of Designation with respect to
the Series RP Preferred Stock pursuant to Section 151 of the General Corporation
Law of the State of Delaware and to take all appropriate action to cause such
Certificate to become effective, including, but not limited to, the filing and
recording of such Certificate with and/or by the Secretary of State of the State
of Delaware.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, I have executed and subscribed to this Certificate and
do affirm the foregoing as true under penalty of perjury this 12th day of
January, 1999.
/s/ Debbie A. Brownfield
------------------------------
Debbie A. Brownfield
Secretary
8
<PAGE>
EXHIBIT 10.19
FOURTH AMENDMENT
FOURTH AMENDMENT dated as of April 13, 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, and a Third Amendment dated as of September 23, 1998
(as so amended, the "LOAN AGREEMENT"). Terms not otherwise defined herein which
are defined in the Loan Agreement shall have the respective meanings herein
assigned to such terms in the Loan Agreement.
WHEREAS, the Borrower has requested that the Bank 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 "OPERATING CASH FLOW." Section 1.1 of the Loan Agreement is
amended by inserting the following sentence following subparagraph (C) in the
definition of the term "OPERATING CASH FLOW": "The deduction in the foregoing
clause (iii) for cash payments shall not include, and there shall be no
deduction from Operating Cash Flow for, cash payments made by the Borrower in
connection with the acquisition, installation and lease financing of certain
point of sale cash registers and associated systems and software (the so called
"POS Register Project") as disclosed to the Agent."
<PAGE>
-2-
Section 2. AMENDMENT TO Section 10.3 OF THE LOAN AGREEMENT. Section 10.3
of the Loan Agreement is hereby amended as follows:
MINIMUM/MAXIMUM INVENTORY FROM AND AFTER EXIT FACILITY DATE. Section
10.3(d) of the Loan Agreement is amended by deleting the dates and amounts on
and following May 1, 1999 in the table in Section 10.3(d), and inserting in
place thereof the following dates and amounts:
<TABLE>
<CAPTION>
Date Minimum Amount Maximum Amount
---- -------------- --------------
<S> <C> <C>
May 1, 1999 $45,700,000 $53,700,000
July 31, 1999 $47,800,000 $55,800,000
November 6, 1999 $63,800,000 $71,800,000
February 5, 2000 $44,900,000 $52,900,000
</TABLE>
Section 3. AMENDMENT TO EXHIBIT J. Exhibit J to the Loan Agreement is
hereby amended as follows:
EXHIBIT J (FORM OF COMPLIANCE CERTIFICATE AND WORKSHEET). Exhibit J of the
Loan Agreement is hereby amended by deleting Exhibit J (Form of Compliance
Certificate and Worksheet) thereof in its entirety and substituting in place
thereof the Form of Compliance Certificate and Worksheet attached hereto as
Exhibit J.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. The Borrower hereby represents, warrants and covenants to the
Agent as follows:
(a) Each of the representations and warranties of the Borrower contained
in the Loan Agreement or in any other Loan Documents was true and correct as of
the date as of which it was made and is true and correct in all material
respects as of the date of this Amendment except to the extent such
representations and warranties expressly related to a prior date (in which case
they shall be true and correct as of such earlier date); and no Default or Event
of Default has occurred and is continuing as of the date of this Amendment;
(b) This Amendment has been duly authorized, executed and delivered by the
Borrower; and
(c) This Amendment shall constitute the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
Section 5. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to satisfaction of the following conditions on or
prior to April 23, 1999:
<PAGE>
-3-
(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 6. RATIFICATION, ETC. Except as expressly amended hereby, the
Loan Agreement, the other Loan Documents, and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects.
All references in the Loan Agreement or any related agreement or instrument to
the Loan Agreement shall hereafter refer to the Loan Agreement as amended
hereby.
Section 7. NO OTHER CHANGES; NO IMPLIED WAIVER. Except as expressly
provided herein, the Loan Agreement and the other Loan Documents shall be
unaffected hereby and shall continue in full force and effect, and nothing
contained herein shall constitute a waiver by the Agent or any Bank of any
right, remedy, Default, or Event of Default, or impair or otherwise affect any
Obligations, any other obligations of the Borrower, or any right of the Agent or
any Bank consequent thereon.
Section 8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
-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 Rothschild
----------------------------------
Name: Loren Rothschild
Title: Vice Chairman
BANKBOSTON, N.A., in its respective
capacities as a Revolving Credit Bank
and Agent
By: /s/ William J. Sherald
----------------------------------
Name: William J. Sherald
Title: Vice President
BANKBOSTON, N.A., as Term Loan
Lender
By: /s/ William J. Sherald
----------------------------------
Name: William J. Sherald
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT,
INC., as a Revolving Credit Bank
By: /s/ Kelly Wu
----------------------------------
Name: Kelly Wu
Title: Assistant Vice President
<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/SVP
GORDON BROTHERS PARTNERS,
INC.
By: /s/ Alan R. Goldstein
----------------------------------
Name: Alan R. Goldstein
Title: CFO/SVP
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), made and
entered into as of April 19, 1999, is by and between Lamonts Apparel, Inc., a
Delaware corporation (the "Company"), and Alan Schlesinger ("Executive").
WHEREAS, this Agreement amends and restates the Employment Agreement, dated
as of April 18, 1995, as amended as of January 31, 1998 (the "Effective Date"),
between Executive and the Company (the "Existing Employment Agreement"), which
amendment was 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");
NOW, THEREFORE, the parties agree to amend and restate the Existing
Employment Agreement in its entirety 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 (as defined below) 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.
(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, if requested by the Board, 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.
<PAGE>
2. COMPENSATION.
(a) BASE SALARY. Executive's base salary shall be composed of the
following:
(i) SALARY. During the Term, 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 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.
(iii) INCREASES IN BASE SALARY. The Executive's Salary and
Minimum Bonus shall be reviewed by the Board or the Compensation Committee of
the Board 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 of the
Board (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 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) RETENTION OF PRIOR BENEFITS. Executive shall retain all monies
and other benefits previously paid to him by reason of the Existing Employment
Agreement.
(c) 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.
(d) 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.
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<PAGE>
(e) 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.
(f) BOARD MEMBERSHIP. The Company agrees that during the Term it
will use its best efforts to cause Executive to be nominated for election to the
Board at each annual meeting of stockholders of the Company and, if elected, the
Company will appoint Executive to serve as Chairman of the Board.
(g) 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 required to pay premiums on such term life insurance policy
in excess of $15,000 per annum.
(h) DIRECTOR'S AND OFFICER'S INSURANCE. 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 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
shall exercise in a timely manner 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 fails to 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 3, 4 or 6 hereof or unless extended in accordance with
Section 6 hereof, the term of Executive's employment under this Agreement shall
be for a period commencing on January 31, 1998 and ending on January 31, 2002
(the "Term").
(b) EARLY TERMINATION. Notwithstanding the foregoing, this Agreement
(other than Sections 5 through 14 hereof) and the relationship created hereunder
between the Company and Executive will terminate prior to the expiration of the
Term upon the
3
<PAGE>
earliest to occur of: (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) the date of delivery to the Company by Executive of
written notice of Executive's voluntary and unilateral termination of this
Agreement, (iii) the date of delivery of written 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, (iv) immediately after delivery to
Executive by the Company of written notice of termination for "Cause" (as
defined in Section 4 below) or (v) 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).
(c) EFFECT OF TERMINATION. Subject to the provisions set forth in
Section 6 hereof pertaining to a Change in Control, if this Agreement is
terminated (A) by the Company for "Cause" or pursuant to Section 3(b)(iii), (B)
voluntarily by Executive or (C) by nonrenewal at the end of the Term, Executive
shall be entitled to receive only (i) his Salary payable pursuant to Section
2(a)(i), pro-rated through the effective date of such termination, (ii) a
pro-rated portion of his Minimum Bonus payable pursuant to Section 2(a)(ii) and
(iii) all reasonable and necessary expenses reasonably incurred by Executive on
Company business prior to the effective date of termination shall be reimbursed
in accordance with the Company's reimbursement policy then in effect, which
shall be paid to Executive within ten business days after the date the Executive
submits to the Company reasonable documentation of such expenses.
4. TERMINATION BY THE COMPANY FOR CAUSE; 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 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.
(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
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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.
5. SEVERANCE PAYMENT ON TERMINATION WITHOUT CAUSE.
(a) TERMINATION WITHOUT CAUSE. Subject to the provisions set forth
below and in Section 6 hereof pertaining to Change in Control (it being intended
that this Section 5 shall apply cumulatively with Section 6 hereof, except to
the extent otherwise provided in Section 6 hereof), if Executive's employment is
terminated by the Company without Cause during the Term, (i) the Company shall
be obligated to continue to pay Executive his Salary for a period of three years
or for the remainder of the Term, whichever period is shorter, (ii) all options
to purchase shares of capital stock of the Company shall vest in full upon the
date of such termination, and (iii) the Company shall pay Executive an amount
equal (x) sum of (A) the Minimum Bonus for the year in which the termination
occurs plus (B) the Minimum Bonus for each year (treating a portion of a year as
a full year for this purpose) remaining in the Term, excluding the year in which
the termination occurs minus (y) the aggregate of all amounts paid as Minimum
Bonus under this Agreement prior to such termination. At the Company's sole
option, the Company may elect to pay Executive any remaining Salary due under
this Section 5(a) in one lump sum, equal to the present value of such remaining
Salary payments at an effective annual interest rate of 10 percent.
(b) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to Sections 3, 5 or 6 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 employment and/or cessation of employment
with the Company, including without limitation, tort, contract and common law
claims and 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, the Washington Law Against Discrimination, or any other similar federal,
state or local statute, rule or regulation; provided that, there shall be
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;
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(ii) claims that may be made by the Executive for payment of
accrued Salary, Minimum Bonus, fringe benefits, stock, or stock options properly
due to him as provided in this Agreement; and
(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 Sections 3, 5
or 6 shall be Executive's execution and delivery of a general release as
described above with appropriate provisions as necessary to insure the release
is valid and enforceable under applicable laws, including the Older Workers
Benefit Protection Act. 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 that 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 defined below) shall occur on or prior
to the expiration of the Term or the earlier termination of this Agreement
pursuant to Sections 3 or 4, then (A) if the remaining portion of the Term is
scheduled to end on a date that is on or before the date that is the second
anniversary of the occurrence of such Change in Control, then the Term shall be
extended by such number of months so that the Term shall end on a date that is
the second anniversary of the occurrence of such Change in Control; or (B) if
the remaining portion of the Term is scheduled to end on a date that is after
the date of the second anniversary of the occurrence of such Change in Control,
then the Term shall remain unaffected and shall not be extended. If a Change in
Control shall occur on or prior to the expiration of the Term, or the earlier
termination of this Agreement pursuant to Sections 3 or 4, then if Executive's
options have not fully vested, then upon occurrence of a Change in Control on or
after the Effective Date, all such options shall fully vest immediately upon
such event. In the event that a Change in Control occurs, this Agreement shall
continue to apply to Executive's employment except that (x) termination of
Executive's employment by Executive for "Good Reason" (as defined below) shall
be treated in the same manner as termination of Executive's employment by the
Company without Cause; and (y) if Executive's employment with the Company is
terminated without Cause or for Good Reason following (or is otherwise effected
in connection with) a Change in Control, the Company shall pay Executive in a
lump sum (calculated in accordance with such section) within 10 days of such
date of termination, an amount equal to the present value of the Salary that
would have been payable under this Agreement for the remainder of the Term.
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(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, as amended (the "Exchange Act")), 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 more than 10% of the Company's common stock as of January
31, 1998, 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;
(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;
(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 70% 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; or
(iv) if during any two consecutive years individuals who the
beginning of such period constituted the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the members of the Board;
PROVIDED, HOWEVER, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board; PROVIDED, FURTHER,
HOWEVER, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than the Board of Directors(a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest.
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
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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) As used in this Agreement, "Good Reason" shall mean the
occurrence (without Executive's express written consent) after or in connection
with any Change in Control, of any of the following acts by the Company, or
failures to act by the Company to act, unless, in the case of any act or failure
to act described in clauses (i), (iv), (v) or (vi) below, such act or failure to
act is corrected prior to the effective date of Executive's termination:
(i) the assignment to Executive by the Company of any duties
inconsistent with Executive's status as the chief executive officer of the
Company or a substantial adverse alteration in the nature or status of
Executive's responsibilities from those in effect immediately prior to the
Change in Control;
(ii) a reduction by the Company in Executive's Salary as in
effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of Executive's principal place of
employment to a location more than 25 miles from Executive's principal place of
employment immediately prior to the Change in Control or the Company's requiring
Executive to be based anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on the Company's
business to an extent substantially consistent with Executive's business travel
obligations prior to the Change in Control;
(iv) the failure of the Company to pay to Executive any portion
of Executive's current compensation, or to pay to Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company, within seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to the
Change in Control that is material to Executive's total compensation (e.g.,
stock option, restricted stock, stock appreciation right, incentive
compensation, bonus or other similar plan), unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount or timing of payment of
benefits provided and the level of Executive's participation relative to other
participants, as existed immediately prior to the Change in Control; or
(vi) the failure by the Company to continue to provide
Executive with benefits substantially similar to those enjoyed by Executive
under any of the Company's
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pension, savings, life insurance, medical, health and accident, or disability
plans in which Executive was participating immediately prior to the Change in
Control, the taking of any other action by the Company that would directly
or indirectly materially reduce any of such benefits or deprive Executive of
any material fringe benefit enjoyed by Executive at the time of the Change in
Control, or the failure by the Company to provide Executive with the number
of paid vacation days to which Executive is entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control.
(d) Executive's right to terminate Executive's employment for Good
Reason shall not be affected by Executive's incapacity due to physical or mental
illness. Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.
(e) For purposes of any determination regarding the existence of Good
Reason, any claim by Executive that Good Reason exists shall be presumed to be
correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(f) LIMITATION ON PAYMENTS. In the event that the termination and
other benefits provided for in this Agreement (the "Benefits") or otherwise
payable to the Executive (i) constitute "parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) but for this Section 6(f) would be subject to the excise tax imposed by
Section 4999 of the Code, then the Benefits shall be payable either (A) in full,
or (B) as to such lesser amount which would result in no portion of the Benefits
being subject to excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the excise tax imposed by Section 4999,
results in the receipt by the Executive on an after-tax basis, of the greatest
amount of Benefits, notwithstanding that all or some portion of such Benefits
may be taxable under Section 4999 of the Code.
If a reduction of the Benefits is necessary to comply with the provisions
of the preceding paragraph, the Executive shall be entitled to select which
Benefits will be reduced and the manner and method of any such reduction of such
Benefits. Within 30 days after the amount of any required reduction in Benefits
is finally determined in accordance with the provisions of this Section 6(f),
the Executive shall notify the Company and the Accounting Firm in writing
regarding which Benefits are to be reduced. If no notification is given by the
Executive, the Company will determine which Benefits to reduce. If, as a result
of any reduction required by this Section 6(f), amounts previously paid to the
Executive exceed the amount to which the Employee is entitled, the Employee will
promptly return the excess amount to the Company.
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Any determination (the "Determination") with respect to this Section 9(f)
shall be made at the Company's expense by an accounting firm selected by the
Company (the "Accounting Firm"). The Accounting Firm shall provide its
Determination that amounts otherwise payable would be subject to Section 4999,
together with detailed supporting calculations and documentation to the Company
and Executive within 15 days of the effective date of Executive's termination of
employment by the Company if applicable, or such other time as requested by the
Company or by Executive. The Accounting Firm shall provide any other
Determination requested within 10 days.
Within 10 days of the delivery of a Determination to Executive, Executive
shall have the right to dispute the Determination and such dispute shall be
resolved in accordance with Section 13 of this Agreement. Upon the resolution
of a dispute under Section 13, the Company shall promptly pay to Executive or
the Executive shall pay to the Company, any amount required by such resolution
and such resolution shall be binding, final and conclusive upon the Company and
Executive. If there is no dispute, the Determination shall be binding, final
and conclusive upon the Company and Executive. Nothing herein shall limit the
parties' respective rights in the event that an applicable government taxing
authority or a court, in a final, nonappealable order or decision, takes a
position which is inconsistent with a non-disputed Determination or a final and
conclusive resolution of a disputed Determination.
7. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for any reason by giving the Company written notice of termination,
which shall be effective as set forth in Section 3(b) above. Except in the case
of a voluntary termination that constitutes Good Reason following a Change in
Control, 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
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,
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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, 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
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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 Sections 8 and 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 this
Agreement, including 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 this Agreement, including 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
nonsolicitation and nondisclosure agreements set forth above each constitute
separate 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 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.
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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.
(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.
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
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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):
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:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Facsimile: (650) 324-0638
Attention: Henry Lesser
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
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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.
(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 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.
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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) NO DUTY TO MITIGATE. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in any provision of this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for in this Agreement be reduced by any compensation
earned by him as a result of employment by another employer or by retirement
benefits after the termination date, or otherwise.
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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.
/s/ Loren R. Rothschild
- ------------------------------
Loren R. Rothschild,
Vice Chairman of the Board
EXECUTIVE
/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 April 19, 1999, is by and between Lamonts Apparel, Inc., a
Delaware corporation (the "Company"), and Loren R. Rothschild ("Executive").
WHEREAS, this Agreement amends and restates the Employment Agreement, dated
as of April 18, 1995, as amended as of January 31, 1998 (the "Effective Date"),
between Executive and the Company (the "Existing Employment Agreement"), which
amendment was 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").
NOW, THEREFORE, the parties agree to amend and restate the Existing
Employment Agreement in its entirety 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 (as
defined below) 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.
(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 advising on legal, financial and administrative functions of the
Company.
(c) BOARD MEMBERSHIP. The Company agrees that during the Term it
will use its best efforts to cause Executive to be nominated for election to the
Board at each annual meeting of stockholders of the Company and, if elected, the
Company will appoint Executive to serve as Vice Chairman of the Board.
2. TERM. Unless terminated at an earlier date in accordance with Section
8 hereof or extended in accordance with Section 9 hereof, the term of this
Agreement (the "Term") shall commence as of the Effective Date and continue
until April 1, 2001.
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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 $174,876 per year, payable in equal monthly installments of
$14,573, in arrears at the end of each calendar month during the remainder of
the Term.
(b) INCREASES IN BASE SALARY. Executive's Base Salary shall be
reviewed by the Board or the Compensation Committee of the Board 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 of the Board (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 "Consumer 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. INTENTIONALLY OMITTED.
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 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-
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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, 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 PRIOR TO A CHANGE IN CONTROL.
(a) BASES FOR TERMINATION. Notwithstanding any other provision
hereof, this Agreement and the relationship created hereunder between the
Company and
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Executive shall terminate prior to the expiration of the Term only upon the
occurrence of any one of the following events (unless such termination occurs
after the occurrence of a Change in Control in which case Section 9 shall
apply and this Section 8 shall thereafter apply cumulatively with Section 9
hereof except to the extent otherwise provided in Section 9 hereof):
(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) the date of delivery of written notice from the Company to
the Executive following the disability of Executive that renders him unable to
perform his essential duties under this Agreement, even with reasonable
accommodations that do not cause undue hardship to the Company, for at least 90
days out of any 120 consecutive day period;
(iv) immediately after delivery to Executive by the Company of
written notice of termination for "Cause"; or
(v) the death of Executive; PROVIDED, HOWEVER, that in the
event of the death of Executive, the Company shall pay the estate of Executive
six months of Base Salary commencing with the next regular pay period after the
date of his death.
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 (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 clause (C) shall be effective 30 days after such notice unless such
conduct has been cured in the good faith judgment of the Board.
(b) EFFECT OF TERMINATION. If this Agreement is terminated by the
Company pursuant to Section 8(a)(i), (A) Executive shall be entitled to receive
only the
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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 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; and (B) all options to purchase
shares of capital stock of the Company held by Executive shall vest in full
upon the date of such termination. At the Company's sole option, the Company
may elect to pay Executive any remaining Base Salary due under this Section
8(b) in one lump sum, equal to the present value of such remaining Base
Salary payments at an effective annual interest rate of 10 percent.
"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 by Executive pursuant to Section 8(a)(ii)
or by the Company pursuant to Section 8(a)(iii) and 8(a)(iv); 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.
9. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) If a Change in Control (as defined below) shall occur on or prior
to the expiration of the Term or the earlier termination of this Agreement
pursuant to Section 8(a), then the Term shall be extended by such number of
months so that the Term shall end on a date that is the second anniversary of
the occurrence of such Change in Control. If a Change in Control shall occur on
or prior to the expiration of the Term or the earlier termination of this
Agreement pursuant to Section 8(a), then if Executive's options have not fully
vested, then upon occurrence of a Change in Control, on or after the Effective
Date, all the Executive options, shall fully vest immediately upon such event.
In the event that a Change in Control occurs, the provisions of this Agreement
shall continue to apply except that (x) termination of Executive's employment by
Executive for "Good Reason" (as defined below) shall be treated in the same
manner as termination of Executive's employment by the Company without Cause;
and (y) if Executive's employment with the Company is terminated without Cause
or for Good Reason following (or is otherwise effected in connection with) a
Change in Control, the Company shall pay Executive in a lump sum within 10 days
of such date of termination, an amount equal to the present value (at an
effective annual interest rate of 10 percent) of the Salary that would have been
payable under this Agreement for the remainder of the Term.
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(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, as amended (the "Exchange Act")), 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 more than 10% of the Company's common stock as of
January 31, 1998, 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;
(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;
(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 and if, immediately after such
merger or consolidation, less than 70% 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; or
(iv) if during any two consecutive years individuals who the
beginning of such period constituted the Board (the "Incumbent Board"), cease
for any reason to constitute at least two-thirds of the members of the Board;
PROVIDED, HOWEVER, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board; PROVIDED, FURTHER,
HOWEVER, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest.
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
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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) As used in this Agreement, "Good Reason" shall mean the
occurrence (without Executive's express written consent) after or in connection
with any Change in Control, of any of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in clauses (i), (v) or (vi) below, such act or failure to act is
corrected prior to the effective date of Executive's termination:
(i) the assignment to Executive by the Company of any duties
inconsistent with Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
Executive's responsibilities from those in effect immediately prior to the
Change in Control;
(ii) a reduction by the Company in Executive's Base Salary as
in effect on the date hereof or as the same may be increased from time to time;
(iii) the relocation of Executive's principal place of
employment to a location more than 25 miles from Executive's principal place of
employment immediately prior to the Change in Control or the Company's requiring
Executive to be based anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on the Company's
business to an extent substantially consistent with Executive's business travel
obligations prior to the Change in Control;
(iv) the failure of the Company to pay to Executive any portion
of Executive's current compensation, or to pay to Executive any portion of an
installment of deferred compensation under any deferred compensation program of
the Company, within 7 days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to the
Change in Control that is material to Executive's total compensation (e.g.,
stock option, restricted stock, stock appreciation right, incentive
compensation, bonus or other similar plan), unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount or timing of payment of
benefits provided and the level of Executive's participation relative to other
participants, as existed immediately prior to the Change in Control; or
(vi) the failure by the Company to continue to provide
Executive with benefits substantially similar to those enjoyed by Executive
under any of the
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Company's pension, savings, life insurance, medical, health and accident, or
disability plans in which Executive was participating immediately prior to
the Change in Control, the taking of any other action by the Company that
would directly or indirectly materially reduce any of such benefits or
deprive Executive of any material fringe benefit enjoyed by Executive at the
time of the Change in Control, or the failure by the Company to provide
Executive with the number of paid vacation days to which Executive is
entitled on the basis of years of service with the Company in accordance with
the Company's normal vacation policy in effect at the time of the Change in
Control.
(d) Executive's right to terminate Executive's employment for Good
Reason shall not be affected by Executive's incapacity due to physical or mental
illness. Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.
(e) For purposes of any determination regarding the existence of Good
Reason, any claim by Executive that Good Reason exists shall be presumed to be
correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(f) LIMITATION ON PAYMENTS. In the event that the termination and
other benefits provided for in this Agreement (the "Benefits") or otherwise
payable to the Executive (i) constitute "parachute payments" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) but for this Section 9(f) would be subject to the excise tax imposed by
Section 4999 of the Code, then the Benefits under this Section 9 shall be
payable either (A) in full, or (B) as to such lesser amount which would result
in no portion of the Benefits being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the excise tax
imposed by Section 4999, results in the receipt by the Executive on an after-tax
basis, of the greatest amount of the Benefits, notwithstanding that all or some
portion of such Benefits may be taxable under Section 4999 of the Code.
If a reduction in the Benefits is necessary to comply with the
provisions of the preceding paragraph, the Executive shall be entitled to select
which Benefits will be reduced and the manner and method of any such reduction
of such Benefits. Within 30 days after the amount of any required reduction in
Benefits is finally determined in accordance with the provisions of this Section
9(f), the Executive shall notify the Company and the Accounting Firm in writing
regarding which Benefits are to be reduced. If no notification is given by the
Executive, the Company will determine which Benefits to reduce. If, as a result
of any reduction required by this Section 9(f), amounts previously paid to the
Executive exceed the amount to which the Employee is entitled, the Employee will
promptly return the excess amount to the Company.
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Any determination (the "Determination") with respect to this Section 9(f)
shall be made at the Company's expense by an accounting firm selected by the
Company (the "Accounting Firm"). The Accounting Firm shall provide its
Determination that amounts otherwise payable would be subject to Section 4999,
together with detailed supporting calculations and documentation to the Company
and Executive within 15 days of the effective date of Executive's termination of
employment by the Company if applicable, or such other time as requested by the
Company or by Executive. The Accounting Firm shall provide any other
Determination requested within 10 days.
Within 10 days of the delivery of a Determination to Executive, Executive
shall have the right to dispute the Determination and such dispute shall be
resolved in accordance with Section 17 of this Agreement. Upon the resolution
of a dispute under Section 17, the Company shall promptly pay to Executive or
the Executive shall pay to the Company, any amount required by such resolution
and such resolution shall be binding, final and conclusive upon the Company and
Executive. If there is no dispute, the Determination shall be binding, final
and conclusive upon the Company and Executive. Nothing herein shall limit the
parties' respective rights in the event that an applicable government taxing
authority or a court, in a final, nonappealable order or decision, takes a
position which is inconsistent with a non-disputed Determination or a final and
conclusive resolution of a disputed Determination.
10. GENERAL RELEASE. Acceptance by Executive of any amounts pursuant to
Sections 8 or 9 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 employment and/or cessation of employment
with the Company, including without limitation, tort, contract and common law
claims and 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, the Washington Law Against Discrimination, or any other similar federal,
state or local statute, rule or regulation; provided that, there shall be
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;
(ii) claims that may be made by the Executive for payment of
accrued Base Salary or stock options properly due to him as provided in this
Agreement; 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 Sections 8 or 9
shall be Executive's execution and delivery of a general release as described
above with appropriate provisions as necessary to insure the release is valid
and enforceable under applicable laws, including the Older Workers Benefit
Protection Act. 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 that are actually
known to the Company as of the time of such termination.
11. NONSOLICITATION OF EMPLOYEES. For a period of two years after the
termination or cessation of his employment with the Company for any reason
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.
12. EQUITABLE RELIEF. Executive acknowledges that the restrictions
contained in Sections 7 and 11 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 7
or 11. Executive hereby waives, to the fullest extent permitted by law, any
objection that he may now or hereafter
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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 18(h).
13. SEVERABILITY. The parties hereto intend all provisions of this
Agreement, including Sections 7 and 11 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 this Agreement, including Section 7
or 11 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
nonsolicitation and nondisclosure agreements set forth above each constitute
separate 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 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.
14. 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.
15. DIRECTOR'S AND OFFICER'S INSURANCE. 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 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
shall exercise in a timely manner any
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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 fails to
maintain directors' and officers' insurance at any time during the Term,
Executive may terminate this Agreement immediately and such termination shall
be treated (A)as a termination under 8(a)(i) hereof if such failure occurs
prior to a Change in Control and (B) as a termination by the Executive for
Good Reason if such failure occurs on or after the occurrence of a Change in
Control.
16. 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 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, 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.
17. 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
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judgment upon such award may be entered and enforced in any court of competent
jurisdiction.
18. 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 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 CON TRACTS
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
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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.
(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, 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 18(a):
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: Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Facsimile: (650) 324-0638
Attention: Henry Lesser
If to Executive: Loren R. Rothschild
1201 Tower Grove Drive
Beverly Hills, California 90210
Facsimile: (310) 276-1784
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
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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).
(i) NO DUTY TO MITIGATE. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by him as a
result of employment by another employer or by retirement benefits after the
termination date, or otherwise.
(j) ESTATE. If Executive dies prior to the expiration of the Term 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.
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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.
/s/ Alan Schlesinger
- -------------------------------------
Alan Schlesinger,
Chairman of the Board,
President and Chief Executive Officer
EXECUTIVE
/s/ Loren R. Rothschild
- -------------------------------------
Loren R. Rothschild
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into as of
April __, 1999, is by and between Lamonts Apparel, Inc., a Delaware corporation
(the "Company"), and ______________ ("Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Compensation Committee (the "Compensation Committee") of the
Board of Directors of the Company (the "Board") has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including Executive; and
WHEREAS, the Board, upon the recommendation of the Compensation Committee,
has determined that it is in the best interests of the Company to institute an
employment arrangement for certain of its executives, officers and key
employees, including the Executive, to provide for their continued employment
with the Company.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the parties hereto hereby agree 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 (as defined below) to devote
substantially all of Executive's business time, efforts, skills and abilities to
the performance of Executive's duties as stated in this Agreement and to the
furtherance of the Company's business.
(b) TITLE. Executive's job title will be _____________ and
Executive's duties will be those as are designated by the Board of Directors of
the Company ("Board") from time to time, subject to the supervision of the Chief
Executive Officer of the Company.
<PAGE>
2. COMPENSATION.
(a) BASE SALARY. Executive's base salary shall be composed of the
following:
(i) SALARY. During the Term, the Company shall pay to
Executive as compensation for his services an annual salary of as
determined by the Compensation Committee from time to time ("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 2(a)(iii) below. If
a Change in Control (as defined below) occurs, then the Salary for the Term
(as defined below) and, if applicable, any extension thereof in accordance
with Section 6(a) hereof shall be the Salary in effect immediately prior to
the occurrence of the Change in Control.
(ii) BONUS. During the Term, Executive shall be eligible for
each fiscal year that ends within the Term to participate in an annual
incentive performance bonus program in accordance with performance targets
and other criteria established by the Board or the Compensation Committee
of the Board from time to time in its sole discretion.
(iii) INCREASES IN SALARY. The Executive's Salary shall be
reviewed by the Board or the Compensation Committee thereof no less
frequently than on each January 31 during the Term.
(b) EXECUTIVE PERQUISITES. Executive shall be entitled to receive
such executive perquisites and fringe benefits as determined by the Compensation
Committee (in its sole and absolute discretion) from time to time for executives
of equivalent seniority.
(c) 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.
(d) DIRECTOR'S AND OFFICER'S INSURANCE. During the Term, the
Executive shall be entitled to the same benefits under the Company's directors'
and officers' insurance policies as those to which the Chief Executive Officer
is entitled.
3. DURATION OF EMPLOYMENT.
(a) TERM. Unless otherwise terminated at an earlier date in
accordance with Section 3, 4 or 6 hereof or unless extended in accordance with
Section 6 hereof, the
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term of Executive's employment under this Agreement shall be for a period
commencing on April 1, 1999 (the "Effective Date") and ending on March 31,
2001 (the "Term").
(b) EARLY TERMINATION. Notwithstanding the foregoing, this Agreement
(other than Sections 5 through 14 hereof) and the relationship created hereunder
between the Company and Executive will terminate prior to the expiration of the
Term upon the earliest to occur of: (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) the date of delivery to the Company by
Executive of written notice of Executive's voluntary and unilateral termination
of this Agreement, (iii) the date of delivery of written 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, (iv) immediately after delivery to Executive by the
Company of written notice of termination for "Cause" (as defined in Section 4
below) or (v) the death of Executive.
(c) EFFECT OF TERMINATION. Subject to the provisions set forth in
Section 6 hereof pertaining to a Change in Control, if this Agreement is
terminated (A) by the Company for "Cause" or pursuant to Section 3(b)(iii), (B)
voluntarily by Executive or (C) by nonrenewal at the end of the Term, Executive
shall be entitled to receive only (i) Executive's Salary payable pursuant to
Section 2(a)(i), pro-rated through the effective date of such termination, and
(ii) all reasonable and necessary expenses reasonably incurred by Executive on
Company business prior to the effective date of termination shall be reimbursed
in accordance with the Company's reimbursement policy then in effect, which
shall be paid to Executive within ten business days after the date the Executive
submits to the Company reasonable documentation of such expenses.
4. TERMINATION BY THE COMPANY FOR CAUSE; DEFINITION OF CAUSE.
Executive's employment under this Agreement (and Executive's 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 in 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.
(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
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Executive's 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 Executive's
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.
5. SEVERANCE PAYMENT ON TERMINATION WITHOUT CAUSE.
(a) TERMINATION WITHOUT CAUSE; DUTY TO MITIGATE. Subject to the
provisions set forth below and in Section 6 hereof pertaining to Change in
Control (it being intended that this Section 5 shall apply cumulatively with
Section 6 hereof except to the extent otherwise provided in Section 6 hereof),
if Executive's employment is terminated by the Company without Cause during the
Term, (i) the Company shall be obligated to continue to pay Executive his/her
Salary for the remainder of the Term (the "Severance Period"), and (ii) all
options to purchase shares of stock of the Company shall vest in full upon the
date of such termination. Subject to the provisions relating to a Change in
Control, Executive shall use reasonable efforts to mitigate the amount of any
payment or benefit provided for in this Section 5(a) by seeking employment
commensurate with Executive's skills and experience, or otherwise. The amounts
payable by the Company pursuant to Section 5(a)(i) shall be reduced by any
compensation earned by Executive during the Severance Period as a result of
employment by another employer or otherwise during the Severance Period.
(b) GENERAL RELEASE. Acceptance by Executive of any amounts pursuant
to Sections 3, 5 or 6 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
Executive might have relating to Executive's employment and/or cessation of
employment with the Company, including without limitation, tort, contract and
common law claims and 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, the Washington Law Against Discrimination, or any
other similar federal, state or local statute, rule or regulation; provided
that, there shall be 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
Executive during the course of Executive's employment;
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<PAGE>
(ii) claims that may be made by the Executive for payment of
accrued Salary, bonus, fringe benefits, stock, or stock options properly
due to him as provided in this Agreement; and
(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 Sections 3, 5
or 6 shall be Executive's execution and delivery of a general release as
described above with appropriate provisions as necessary to insure the release
is valid and enforceable under applicable laws, including the Older Workers
Benefit Protection Act. 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 that 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 shall occur on or prior to the expiration
of the Term, or the earlier termination of this Agreement pursuant to
Sections 3, 4 or 5, then (A) if the remaining portion of the Term is scheduled
to end on a date that is on or before the last day of the fifteenth month after
the occurrence of such Change in Control (the "Fifteenth Month"), the Term shall
be automatically extended by such number of months so that the Term shall end on
the date that is the last day of the Fifteenth Month; or (B) if the remaining
portion of the Term is to end on a date that is after the last day of the
Fifteenth Month, then the Term shall remain unaffected and shall not be
extended. If a Change in Control shall occur on or prior to the expiration of
the Term, or the earlier termination of this Agreement pursuant to Sections 3, 4
or 5, then if Executive's options have not fully vested, then upon occurrence of
a Change in Control on or after the Effective Date, all Executive options shall
fully vest immediately upon such event. In the event that a Change in Control
occurs, this Agreement shall continue to apply to Executive's Employment except
that termination of Executive's employment by Executive for "Good Reason" (as
defined below) shall be treated in the same manner as termination of Executive's
employment by the Company without Cause.
(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
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Advisors, L.P., FMR Corp., Fidelity Management & Research Company,
Fidelity Management Trust Company, any other beneficial owner of more than
10% of the Company's common stock as of January 31, 1998, 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;
(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;
(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 70% 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; or
(iv) if during any two consecutive years individuals who the
beginning of such period constituted the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-thirds of the members of
the Board; PROVIDED, HOWEVER, that if the election, or nomination for
election by the Company's stockholders, of any new director was approved by
a vote of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board of Directors (a "Proxy Contest")
including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest.
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.
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(c) As used in this Agreement, "Good Reason" shall mean the
occurrence (without Executive's express written consent) after or in connection
with any Change in Control, of any of the following acts by the Company, or
failures to act by the Company to act, unless, in the case of any act or failure
to act described in clauses (i), (iv), (v) or (vi) below, such act or failure to
act is corrected prior to the effective date of Executive's termination:
(i) the assignment to Executive by the Company of any duties
materially and adversely inconsistent with Executive's status as a senior
executive officer of the Company or a substantial adverse alteration in the
nature or status of Executive's responsibilities from those in effect
immediately prior to the Change in Control;
(ii) a reduction by the Company in Executive's Salary as in
effect on the date hereof or as the same may be increased from time to
time;
(iii) the relocation of Executive's principal place of
employment to a location more than 25 miles from Executive's principal
place of employment immediately prior to the Change in Control or the
Company's requiring Executive to be based anywhere other than such
principal place of employment (or permitted relocation thereof) except for
required travel on the Company's business to an extent substantially
consistent with Executive's business travel obligations prior to the Change
in Control;
(iv) the failure of the Company to pay to Executive any portion
of Executive's current compensation, or to pay to Executive any portion of
an installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such compensation
is due;
(v) the failure by the Company to continue in effect any
compensation plan in which Executive participates immediately prior to the
Change in Control that is material to Executive's total compensation (e.g.,
stock option, restricted stock, stock appreciation right, incentive
compensation, bonus or other similar plan), unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or timing
of payment of benefits provided and the level of Executive's participation
relative to other participants, as existed immediately prior to the Change
in Control; or
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<PAGE>
(vi) the failure by the Company to continue to provide
Executive with benefits substantially similar to those enjoyed by Executive
under any of the Company's pension, savings, life insurance, medical,
health and accident, or disability plans in which Executive was
participating immediately prior to the Change in Control, the taking of
any other action by the Company that would directly or indirectly
materially reduce any of such benefits or deprive Executive of any material
fringe benefit enjoyed by Executive at the time of the Change in Control,
or the failure by the Company to provide Executive with the number of paid
vacation days to which Executive is entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control.
(d) Executive's right to terminate Executive's employment for Good
Reason shall not be affected by Executive's incapacity due to physical or mental
illness. Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.
(e) For purposes of any determination regarding the existence of Good
Reason, any claim by Executive that Good Reason exists shall be presumed to be
correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(f) If any payment received or to be received by or for the benefit
of Executive following or in connection with a Change in Control (whether
payable pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, any persons whose actions result in a Change in
Control, or any person affiliated with the Company or such person) will be
subject to excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), and would not be deductible (in whole or in part)
by the Company as a result of such payments constituting an "excess parachute
payment" (as defined in Section 280G of the Code), payments under this Agreement
(or, at the Executive's Election, such other payments and/or benefits, or a
combination of such other payments and/or benefits) shall be reduced to the
largest amount as will result in no portion of the payments not being fully
deductible by the Company as a result of Section 280G of the Code. All
determinations of excess parachute payments shall be made by the Company's
independent auditors. Any determination required by this paragraph to be made
by the Company's independent auditors shall be binding upon the Company and
Executive, absent manifest error.
(g) If after the occurrence of a Change in Control, Executive's
employment is terminated without cause by the Company or for good reason by
Executive, Executive shall not be required to mitigate the amount of any payment
or benefit provided for in this Agreement by seeking other employment or
otherwise. The
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amounts payable by the Company pursuant to this Section 6 shall be reduced by
any compensation (whether as salary, consulting fees or otherwise) earned by
Executive during the Severance Period as a result of employment by other
employer or otherwise during the Severance Period.
7. VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement for any reason by giving the Company written notice of termination,
which shall be effective as set forth in Section 3(b) above. Except in the case
of a voluntary termination that constitutes Good Reason following a Change in
Control, 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
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
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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, 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 Sections 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).
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11. SEVERABILITY. The parties hereto intend all provisions of this
Agreement, including 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 this Agreement, including 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
nonsolicitation and nondisclosure agreements set forth above each constitute
separate 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 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. EXECUTIVE'S WARRANTY. Executive represents and warrants that
Executive's entering into this Agreement does not, and that his performance
under this Agreement and consummation of the transactions contemplated hereby
will not, violate the provisions of any agreement or instrument to which the
Executive is a party, or any decree, judgment or order to which Executive is
subject, and that this Agreement constitutes a valid and binding obligation of
Executive in accordance with its terms.
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
11
<PAGE>
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):
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 Heller Ehrman White & McAuliffe
(which shall not 525 University Avenue
constitute notice) Palo Alto, California 94301
to: Facsimile: (650) 324-0638
Attention: Henry Lesser
If to Executive:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
12
<PAGE>
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.
(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 Executive, any monies
that may be due Executive from the Company under this Agreement as of the date
of his death shall be paid to Executive's 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.
13
<PAGE>
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.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth in the first paragraph.
LAMONTS APPAREL, INC.
By:
-----------------------------------------
Name: Alan Schlesinger
Title: President and Chief Executive Officer
- ---------------------------------------------
[Executive]
15
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement No. 333-45455 of
Lamonts Apparel, Inc. on Form S-8 of our report, dated April 16, 1999, appearing
in this Annual Report on Form 10-K of the Company for the year ended January 30,
1999.
/s/ Deloitte & Touche LLP
Seattle, Washington
April 27, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-45455) of our report dated April 10, 1998,
except as to the restatement described in the last paragraph of Note 3 which is
as of April 16, 1999, relating to the consolidated financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Seattle, Washington
April 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE FIFTY-TWO WEEKS ENDED JANUARY 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 1,594
<SECURITIES> 0
<RECEIVABLES> 2,124
<ALLOWANCES> 0
<INVENTORY> 42,411
<CURRENT-ASSETS> 47,562
<PP&E> 28,896<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,895
<CURRENT-LIABILITIES> 64,224
<BONDS> 0
0
0
<COMMON> 16,927
<OTHER-SE> 3,029
<TOTAL-LIABILITY-AND-EQUITY> 93,895
<SALES> 209,585
<TOTAL-REVENUES> 209,585
<CGS> 137,651
<TOTAL-COSTS> 71,367<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,042
<INCOME-PRETAX> (4,461)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,461)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
<FN>
<F1>Amount is net of accumulated depreciation of $6,690.
<F2>Includes operating expenses and administrative expenses of $63,343 and
depreciation and amortization of $8,024.
</FN>
</TABLE>
