<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 2, 1998
OR
( ) TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
_______________
Commission File Number: 0-23913
COUNTY SEAT STORES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1272706
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
469 Seventh Avenue, 11th Floor
New York, New York 10018
(212) 714-4800
(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by 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 [ ]
The number of shares of each of the issuers classes of Common Stock, outstanding
as of June 10, 1998 was 20,000,000 shares of Common Stock.
<PAGE>
COUNTY SEAT STORES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at May 2, 1998 (Unaudited)
And January 31, 1998 2
Consolidated Statements of Operations (Unaudited) for the
thirteen weeks ended May 2, 1998 and May 3, 1997 3
Consolidated Statements of Cash Flows (Unaudited) for the
thirteen weeks ended May 2, 1998 and May 3, 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION 11
Signatures 12
</TABLE>
<PAGE>
County Seat Stores, Inc. and Subsidiary
Consolidated Balance Sheet
(Amounts in Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
May 2,
1998 January 31,
(Unaudited) 1998
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $4,078 $22,235
Restricted cash in security account 11,947 11,830
Receivables 4,695 3,530
Merchandise inventories 62,041 55,785
Prepaid expenses 6,147 6,291
--------- ---------
Total current assets 88,908 99,671
--------- ---------
Property and equipment, net 33,640 32,651
--------- ---------
Other Assets:
Debt issuance costs 7,779 8,013
Restricted cash in security account - 5,396
Reorganization value in excess of amounts allocated to identified assets 65,259 62,961
Other 348 384
--------- ---------
Total other assets 73,386 76,754
--------- ---------
$195,934 $209,076
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilites:
Borrowings under credit agreement $4,230 $ -
Current maturities of long-term debt 1,859 2,475
Accounts payable 18,878 21,252
Accrued expenses 15,102 16,462
Accrued reorganization costs 2,593 7,036
--------- ---------
Total current liabilites 42,662 47,225
--------- ---------
Long-Term Liabilities:
Long-term debt 77,904 77,632
Other long-term liabilities 1,864 1,600
Shareholders' Equity:
Common stock: par value $.01 per share; 40,000,000 shares
authorized, 20,000,000 issued and outstanding 200 200
Paid-in capital in excess of par value 77,865 77,865
Retained Earnings (accumulated deficit) (4,561) 4,554
--------- ---------
Total shareholders' equity 73,504 82,619
--------- ---------
$195,934 $209,076
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
County Seat Stores, Inc. and Subsidiary
Consolidated Statements of Operations
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Company
-----------
13 Weeks 13 Weeks
Ended May 2, Ended May 3,
1998 1997
---------- -----------
<S> <C> <C>
Net sales $63,232 $93,158
Cost of sales 47,259 77,729
---------- -----------
Gross profit 15,973 15,429
Selling, general and administrative expenses 22,677 23,290
Depreciation and amortization 2,782 2,200
Reorganization costs - 4,179
Interest expense, net 3,279 1,243
---------- -----------
Loss before income tax (benefit) (12,765) (15,483)
Income tax (benefit) (3,650) -
---------- -----------
Net loss $(9,115) $(15,483)
---------- -----------
---------- -----------
Basic Loss Per Share $(0.46)
----------
----------
Diluted Loss Per Share $(0.40)
----------
----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
County Seat Stores, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Company
-----------
13 Weeks Ended 13 Weeks Ended
May 2, 1998 May 3, 1997
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $ (9,115) $(15,483)
Adjustment to reconcile net (loss) to cash provided by (used in)
operating activities:
Reorganization costs -- 1,739
Depreciation and amortization 2,782 2,167
Amortization of debt issuance costs and discount 384 221
Loss on disposal of property and equipment 134 --
Rent expense in excess of cash outlays 409 655
Deferred tax provision (benefit) (3,389) --
Changes in operating assets and liabilities:
Receivables (1,164) (1,989)
Merchandise inventories (6,257) 3,767
Prepaid expenses 143 425
Accounts payable (2,373) 1,770
Accrued expenses (6,212) 206
Current maturities of long-term debt 536 --
Other non-current assets and liabilities (616) --
Operating liabilities subject to compromise -- 685
----------- -----------
Net cash (used in) operating activities (24,738) (5,837)
----------- -----------
Cash Flows from Financing Activities:
Borrowings under credit agreement 4,230 6,000
Debt and equity issuance costs (149) (200)
Principal payments on long-term debt -- (5)
Restricted cash in security account 5,279 --
----------- -----------
Net cash provided by financing activities 9,360 5,795
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (2,779) (180)
----------- -----------
Net cash used for investing activities (2,779) (180)
----------- -----------
Net (decrease) in cash and cash equivalents (18,157) (222)
Cash and cash equivalents:
Beginning of period 22,235 6,356
----------- -----------
End of period $ 4,078 $ 6,134
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COUNTY SEAT STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of County Seat
Stores, Inc. (County Seat) and its wholly-owned subsidiary, CSS
Trade Names, Inc. (Trade Names) (together, the Company) at May 2,
1998 and for the three month periods ended May 2, 1998 ("1998") and
May 3, 1997 ("1997") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The Consolidated Financial Statements
include the accounts of County Seat and Trade Names. All significant
intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The Consolidated Balance Sheet
at January 31, 1998 was taken from the audited financial statements.
The Company's business is affected by the pattern of seasonality
common to most retail apparel businesses. The results for the
current and prior period are not necessarily indicative of future
financial results.
Certain notes and other information have been condensed or omitted from
the interim Consolidated Financial Statements presented in this
Quarterly Report on Form 10-Q. Therefore, these Consolidated Financial
Statements should be read in conjunction with the Company's Fiscal 1997
Financial Statements as filed within the Company's Registration
Statement S-4.
2. REORGANIZATION AND NATURE OF BUSINESS
The Company is a specialty apparel retailer selling both brand name and
private-label jeans and jeanswear. The Company currently operates 413
stores in 41 states. The Company's 375 County Seat stores, located
almost exclusively in regional shopping malls, offer one-stop shopping
for daily casual wear featuring a contemporary jeanswear look. The
Company's selection consists primarily of private label merchandise and
Levi's jeans. The Company also operates 14 County Seat Outlet stores
offering discount pricing on special purchase and clearance merchandise
and 22 Levi's Outlet stores under license from Levi Strauss & Co. (Levi
Strauss) offering a full range of Levi's and Docker's off-price
merchandise for both adults and children. The Company operates two Old
Farmer's Almanac General Stores, a new retail concept selling products
associated with American country living, under license from Yankee
Publishing, Inc., the publisher of The Old Farmer's Almanac.
The activities of Trade Names consist principally of licensing the
rights to the County Seat service marks to County Seat Stores.
On October 17, 1996, County Seat and Trade Names filed voluntary
petitions for relief under Chapter 11 (Chapter 11) of Title 11 of the
United States Code (the Bankruptcy Code) in the United States
Bankruptcy Court for the District of Delaware (the Court). The Company
operated as debtors-in-possession under the jurisdiction of the Court.
5
<PAGE>
Following approval by the Court on October 17, 1996, the Company
entered into a debtor-in-possession credit agreement (the DIP Credit
Agreement) with a syndicate of commercial banks to provide working
capital and longer-term financing through the Chapter 11 process.
On August 22, 1997 the Company filed the "First Amended Disclosure
Statement with Respect to Plan of Reorganization of County Seat Stores,
Inc." (the Plan) with the Court, which was confirmed on October 1, 1997
and consummated on October 29, 1997 (Effective Date). The Plan
segregated creditors into three classes -- unclassified claims,
unimpaired claims and impaired claims. Unclassified and unimpaired
claims were satisfied by cash payments totaling $4,234,286. In exchange
for impaired claims of approximately $151.0 million, creditors received
20,000,000 shares of Common Stock (100% of County Seat's Stock) valued
at $66.9 million, representing 44% recovery of their claims. Previous
preferred stockholders received Series B Warrants valued at $1.595
million in exchange for their claims of $50.3 million. Additionally, a
$1,520,664 security account was established to pay lease cures,
disputed claims and holdback professional fees.
As provided for in the Plan, the Company sold $85,000,000 of 12 3/4%
Senior Notes due November 1, 2004 with Series A Warrants to purchase
common stock (Notes). Each unit consisting of a principal amount of
$1,000 contains one Series A Warrant to purchase 26.8908 shares of the
Company's common stock, par value $.01 per share, at an exercise price
of $.01 per share. Net proceeds from the Notes were $65,142,000 after
the initial discount to the underwriters of $4,250,000, a deposit into
a security account to satisfy interest on the Notes to May 1, 1999 of
$15,482,100, and a $125,000 fee paid to the underwriters. Additionally,
the Company secured a New Credit Facility (Credit Agreement) with a
syndicate of banks led by BankBoston (Banks). The Company used the
proceeds from the Notes and initial borrowings under the Credit
Agreement to pay claims as described above. Also, under the Plan, the
old stockholders of the Company did not receive assets of,
securities issued by or interests in the reorganized company.
3. BASIS OF PRESENTATION
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. On an ongoing basis, management reviews its
estimates based on currently available information. Changes in facts
and circumstances may result in revised estimates.
FRESH START ACCOUNTING
The Company applied Fresh Start Accounting on the Effective Date. Fresh
Start Accounting, as provided for by the American Institute of
Certified Public Accountants Statement of Position 90-7, results in a
revaluation of the Company's assets and liabilities as of the Effective
Date, to reflect the estimated fair market values of those assets and
liabilities in conformity with Accounting Principles Board (APB) No.
16, "Business Combinations". The valuation differences are charged to
Reorganization Value in Excess of Amounts Allocated to Identified
Assets (Excess Reorganization Value) and amortized on a straight-line
basis over 15 years.
6
<PAGE>
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share." This statement revised the manner in which
earnings per share ("EPS") is calculated, replacing the presentation of
Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the presentation of both
Basis EPS and Diluted EPS on the face of the Statement of Operations.
Under this statement, Basic EPS is computed on the weighted average
number of shares actually outstanding during the period. Diluted EPS
includes the effect of potential dilution from the exercise of
outstanding dilutive stock warrants into common stock using the
treasury stock method.
RECLASSIFICATION
Certain reclassifications have been made to the Unaudited Consolidated
Financial Statements for the prior period in order to conform to the
May 2, 1998 presentation.
4. COMMITMENTS AND CONTINGENCIES
On or about September 29, 1997, RAI Credit Corporation (RAI) filed an
adversary proceeding against the Company in the Court. The Company
and RAI had entered into an Account Purchase and Service Agreement
dated July 11, 1997 (Agreement) pursuant to which RAI had agreed to
establish and service a private-label credit card program for the
Company. RAI'S complaint alleges that the Company wrongfully
terminated the Agreement and seeks compensatory damages of not less
than $10,741,960 and an injunction prohibiting the Company from
entering into a private-label credit card program with any entity
other than RAI prior to the beginning of 1999, as well as attorneys'
fees and costs.
The Company believes that it has meritorious defenses to RAI's
complaint and believes that any resolution of this matter will not have
a material adverse effect on the Company's financial position or future
results of operations.
5. SUBSEQUENT EVENTS
The Company entered into the second Amendment (Amendment) to the Senior
Credit Facility from BankBoston on May 28, 1998. The Amendment provided
for a reduction in the fixed charge coverage ratio requirement for the
second and third quarter 1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected financial condition and results of operations during
the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
The following table sets forth the Company's operating results as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------
May 2, 1998 May 3, 1997
-------------- ---------------
<S> <C> <C>
Net Sales $63.2 $93.2
Gross Profit 16.0 15.4
Selling, general, 22.7 23.3
and administrative
expenses
EBITDA (1) (6.7) (7.9)
Loss from operations (9.5) (10.1)
</TABLE>
(1) EBITDA represents income (loss) before interest, income taxes, depreciation
and amortization. EBITDA is presented here to provide additional
information about the Company's operations. EBITDA is not a measure of
financial performance under generally accepted accounting principles (GAAP)
and should not be considered as an alternative to (i) net income (loss) as
a measure of performance (or any other measure of performance in accordance
with GAAP) or (ii) cash flows from operating, investing, or financing
activities as an indicator of cash flows or as a measure of liquidity.
Comparison of 13 Weeks Ended May 2, 1998 and 13 Weeks Ended May 3, 1997
Net sales decreased $29.9 million, or 32.1% to $63.2 million for the 13 weeks
ended May 2, 1998 from $93.2 million for the 13 weeks ended May 3, 1997. The
decline in sales was primarily due to (i) the closing of 137 stores during
1997, which accounted for $25.2 million of the decrease in net sales and (ii) a
$5.5 million, or 8.1% decrease in comparable store sales. The decline in
comparable store sales is primarily due to a planned shift toward lower price
points in accordance with the Company's new business strategy. The decline in
net sales was partially offset by $0.8 million relating to new store sales.
Gross profit increased $0.5 million, or 3.5% to $16.0 million for the 13 weeks
ended May 2, 1998 from $15.5 million for the 13 weeks ended May 3, 1997. Gross
margin increased by 8.7% to 25.3% for the 13 weeks ended May 2, 1998 from 16.6%
for the 13 weeks
8
<PAGE>
ended May 3, 1998 due to a 12.2% increase in retail gross profit from
implementing the Company's new merchandising policy, offset by a 1.7% increase
in occupancy costs and a 1.8% increase in merchandising and merchandise handling
costs.
Selling, general, and administrative expense decreased $0.6 million, or 1.1% to
$22.7 million for the 13 weeks ended May 2, 1998 from $23.3 million for the 13
weeks ended May 3, 1997. The decrease was primarily due to the closing of
stores and efficiencies realized from the consolidation of corporate operations.
Selling, general, and administrative as a percentage of net sales increased to
35.9% for the 13 weeks ended May 2, 1998 from 25.0% for the 13 weeks ended
May 3, 1997.
Depreciation and amortization expense increased $0.6 million to $2.8 million
for the 13 weeks ended May 2, 1998 from $2.2 million for the 13 weeks ended
May 3, 1997. The increase was primarily due to amortization expense of $1.1
million of Excess Reorganization Value.
Loss from operations (defined as loss before interest and taxes) decreased to
$(9.5) million for the 13 weeks ended May 2, 1998 from $(10.1) million for the
13 weeks ended May 3, 1997. Loss from operations does not give effect to
reorganization costs of $4.2 million for the 13 weeks ended May 3, 1997, which
related to stores closing and includes lease rejection claims, write-offs of
fixed assets and other costs associated with closing stores. No reorganization
costs were incurred for the 13 weeks ended May 2, 1998.
Liquidity and Capital Resources
Net cash used in operating activities for the 13 weeks ended May 2, 1998 was
$24.7 million compared to $5.8 million for the 13 weeks ended May 3, 1997.
Cash was used in operations primarily to cover a net loss of $9.1 million
during the 13 weeks ended May 2, 1998, an increase in inventory of $6.3
million and a reduction of accounts payable and accruals of $8.6 million.
During the 13 weeks ended May 3, 1997, cash was used in operations for a net
loss of $15.5 million, which was offset by decreases in inventory of $3.8
million and increases in accounts payable and accruals of $2.0 million.
Working capital as of May 2, 1998 was $46.3 million. Working capital as of
May 3, 1997 was $(48.9) million.
During the 13 weeks ended May 2, 1998 the Company invested $2.8 million to
build-out the Company's new distribution center in Baltimore, build-out the
Company's new corporate office in New York, and continued its investment
in the new accounting and merchandising computer system and store maintenance.
9
<PAGE>
The Credit Agreement provides for a three-year revolving line of credit in an
amount of $115 million. Up to $90 million of such amount may be utilized for
letters of credit and bankers' acceptances. Availability under the Credit
Agreement is limited to certain percentages of eligible inventory, amounts drawn
under the facility as well as outstanding letters of credit and bank acceptances
and is subject to the satisfaction of certain conditions. The borrowing base
provides for seasonal fluctuations in inventory. Peak borrowing periods
generally occur between June and November. The Company's peak borrowing periods
commence with the sourcing of its merchandise through the utilization of letters
of credit facilities requiring approximately three months lead-time prior to
delivery of such merchandise.
As of May 2, 1998, the Company had approximately $26.3 million of letters of
credit and $1.2 million of bankers' acceptances outstanding. Approximately
$26.5 million remained availability under the Credit Agreement. The Company
believes that cash generated from operations, together with borrowings under
the Credit Agreement and normal trade terms will be adequate to finance 1998
operations.
Seasonality, Inflation, Economic Trends and Potential Developments
The Company, like most retailers, has a seasonal pattern of sales and earnings.
The Company has two major selling seasons: back-to-school (third quarter) and
Christmas (fourth quarter). For fiscal years 1997, 1996 and 1995, the
back-to-school and Christmas seasons accounted for approximately 56% of the
Company's fiscal year sales.
The Company's operations are affected by general economic trends, including
inflation. Management believes that the Company and other specialty retailers
have suffered from price competition, which had a negative effect on comparable
stores sales.
10
<PAGE>
COUNTY SEAT STORES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
None
ITEM 2. CHANGES IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
10.1 Second Amendment to Credit Agreement with BankBoston
11.1 Statement regarding computation of loss per share
27.1 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed by the Company during the
quarter ended May 2, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, State of New
York, on June 15, 1998.
COUNTY SEAT STORES, INC.
/s/ BRETT D. FORMAN
--------------------------------------
Brett Forman
Executive Vice President
/s/ PAUL KITTNER
--------------------------------------
Paul Kittner
Senior Vice President, Chief
Financial Officer, Treasurer
12
<PAGE>
Exhibit 10.1
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is made as of this
28th day of May, 1998 by and between
BankBoston Retail Finance Inc. as Agent for the Lenders party to a certain
Loan and Security Agreement dated as of October 29, 1997, as amended and in
effect;
the Lenders party thereto; and
County Seat Stores, Inc., a Minnesota corporation with its principal
executive offices at 469 Seventh Avenue, New York, New York 10018
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
WHEREAS, on October 29, 1997, the Agent, the Lenders and the Borrower
entered in a certain Loan and Security Agreement,(as amended and in effect, the
"Agreement"); and
WHEREAS, the Agent, the Lenders and the Borrower desire to modify certain
of the provisions of the Agreement as set forth herein.
NOW, THEREFORE, it is hereby agreed among the Agent, the Lenders and the
Borrowers as follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined shall have the same meaning herein as in the
Agreement.
2. Amendments to Article 1. The provisions of Article 1 of the Agreement
are hereby amended as follows:
(a) by adding the following new sentence at the end of the definition
of "Acceptable Inventory":
In no event shall Inventory reflected in the Borrower's stock
ledger Department 3010 constitute "Acceptable Inventory" at any
time on or after July 20, 1998.
(b) by deleting the definition of "Fixed Charge Coverage Ratio"
appearing therein and substituting the following in its stead:
<PAGE>
"Fixed Charge Coverage Ratio": The ratio of the following, each
determined for the period in respect of which compliance with this
ratio is being determined:
EBITDA less Fixed Charges
-------------------------------------
The sum of cash payments of (a) interest
(other than to the holders of the New
Notes but only to the extent such cash payment is
funded from amounts presently deposited in the New Note
Disbursement Account (and any interest earned thereon), it being
agreed that any payments not funded from the New Note
Disbursement Account shall be included as "interest" for purposes
hereof) and (b) principal amortization.
(c) by amending the definition of "Fixed Charges" by deleting clause
(a) in its entirety.
3. Amendments to Article 5. The provisions of Article 5 of the Agreement
are hereby amended by deleting the provisions of Section 5-11(a) in
their entirety and substituting the following in its stead:
(a) The Borrower will not permit its Fixed Charge Coverage Ratio
to be less than the following for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Ratio
On or About
--------------------- -----
<S> <C>
January 31, 1998 1.25:1.00
April 30, 1998 1.25:1.00
July 31, 1998 1.00:1.00*
October 31, 1998 1.00:1.00**
January 31, 1999 and
thereafter 1.25:1.00
</TABLE>
* For purposes of calculating the Borrower's compliance with
this covenant for the quarter ending on or about July 31, 1998
only, the parties agree that the numerator of the Fixed Charge
Coverage Ratio shall be calculated as follows:
EBITDA plus $12,000,000.00 less Fixed Charges
** For purposes of calculating the Borrower's compliance with
this covenant for the quarter ending on or about October 31, 1998
only, the parties agree that the numerator of the Fixed Charge
Coverage Ratio shall be calculated as follows:
2
<PAGE>
EBITDA plus $1,700,000.00 less Fixed Charges
4. Ratification of Loan Documents. Except as provided herein, all terms
and conditions of the Agreement on the other Loan Documents remain in
full force and effect. The Borrower hereby ratifies, confirms, and
reaffirms (i) all of the representations, warranties and covenants
therein contained (except to the extent that such representations and
warranties expressly relate to an earlier date), and (ii) that all
Collateral secures all of the Liabilities, as modified hereby.
5. Conditions to Effectiveness. This Second Amendment to Loan and
Security Agreement shall not be effective until each of the following
conditions precedent have been fulfilled to the satisfaction of the
Agents:
(a) This Second Amendment to Loan and Security Agreement shall have
been duly executed and delivered by the Borrower, the Agent and
such percentage of the Lenders as is required to consent hereto
under the terms of the Agency Agreement. The Agent shall have
received a fully executed copy hereof and of each other document
required hereunder.
(b) All action on the part of the Borrower necessary for the valid
execution, delivery and performance by the Borrower of this
Second Amendment to Loan and Security Agreement shall have been
duly and effectively taken. The Agent shall have received from
the Borrower, a true copy of its certificate of the resolutions
adopted by its board of directors authorizing the transactions
described herein, certified by its secretary as of a recent date
to be true and complete.
(c) The Borrower shall have paid to the Agent, for the ratable
benefit of the Lenders consenting to this Second Amendment to
Loan and Security Agreement an amendment fee in the sum of
$200,000.00.
(d) The Borrower shall have paid to the Agent all fees and expenses
then due and owing pursuant to the Loan and Security Agreement,
as modified hereby, including, without limitation, reasonable
attorneys' fees incurred by the Agent.
(e) No Suspension Event shall have occurred and be continuing.
3
<PAGE>
(f) The Borrower shall have provided such additional instruments and
documents to the Agent as the Agent and its counsel may have
reasonably requested.
6. Miscellaneous.
(a) This Second Amendment to Loan and Security Agreement may be
executed in several counterparts and by each party on a separate
counterpart, each of which when so executed and delivered shall be an
original, and all of which together shall constitute one instrument.
(b) This Second Amendment to Loan and Security Agreement
expresses the entire understanding of the parties with respect to the
transactions contemplated hereby. No prior negotiations or
discussions shall limit, modify, or otherwise affect the provisions
hereof.
(c) Any determination that any provision of this Second
Amendment to Loan and Security Agreement or any application hereof is
invalid, illegal or unenforceable in any respect and in any instance
shall not effect the validity, legality, or enforceability of such
provision in any other instance, or the validity, legality or
enforceability of any other provisions of this Second Amendment to
Loan and Security Agreement.
(d) The Borrower shall pay on demand all costs and expenses of
the Agent, including, without limitation, reasonable attorneys' fees
in connection with the preparation, negotiation, execution and
delivery of this Second Amendment to Loan and Security Agreement.
(e) The Borrower warrants and represents that the Borrower has
consulted with independent legal counsel of the Borrower's selection
in connection with this Second Amendment to Loan and Security
Agreement and is not relying on any representations or warranties of
the Agent or any Lender or their respective counsel in entering into
this Second Amendment.
4
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused this Second Amendment
to Loan and Security Agreement to be executed and their seals to be hereto
affixed as of the date first above written.
AGENT
BANKBOSTON RETAIL FINANCE INC.
By: /s/ Michael L. Pizette
--------------------------------
Title: Director
LENDERS
BANKBOSTON RETAIL FINANCE INC.
By: /s/ Michael L. Pizette
--------------------------------
Title: Director
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Gregory Eck
--------------------------------
Title: Vice President
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ Keith C. Chapman
--------------------------------
Title: Vice President
FOOTHILL CAPITAL CORPORATION
By: /s/ Todd W. Culpitts
--------------------------------
Title: Asst. Vice President
5
<PAGE>
FINOVA CAPITAL CORPORATION
By: /s/ Maryann V. Richardson
--------------------------------
Title: Asst. Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Allison Friedman
--------------------------------
Title: Assistant Secretary
BORROWER
COUNTY SEAT STORES, INC.
By: /s/ Paul J. Kittner
--------------------------------
Title: Chief Financial Officer
AGREED
CSS TRADE NAMES INC.
By: /s/ Paul J. Kittner
--------------------------
Title: Chief Financial Officer
6
<PAGE>
County Seat Stores, Inc. and Subsidiary EXHIBIT 11.1
Computation of Earnings Per Common Share
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
13 Weeks
Ended
May 2,
1998
----------
<S> <C>
BASIC
Net loss $ (9,115)
----------
----------
Weighted average shares outstanding 20,000
----------
----------
Loss per common share, basic $ (0.46)
----------
----------
DILUTED
Net loss $ (9,115)
----------
----------
Weighted average shares outstanding 20,000
Add assumed exercise of options reduced by the number
of shares purchased with the proceeds 2,851
----------
Total shares 22,851
----------
----------
Loss per common share, diluted $ (0.40)
----------
----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COUNTY SEAT
STORES, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR PERIOD AND
THREE MONTHS ENDED 5/2/98
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> MAY-02-1998
<CASH> 4,078
<SECURITIES> 0
<RECEIVABLES> 4,695
<ALLOWANCES> 0
<INVENTORY> 62,041
<CURRENT-ASSETS> 0
<PP&E> 37,054
<DEPRECIATION> (3,414)
<TOTAL-ASSETS> 195,934
<CURRENT-LIABILITIES> 42,662
<BONDS> 79,053
0
0
<COMMON> 200
<OTHER-SE> 73,304
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 63,232
<TOTAL-REVENUES> 63,232
<CGS> 32,528
<TOTAL-COSTS> 40,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,279
<INCOME-PRETAX> 0
<INCOME-TAX> (3,650)
<INCOME-CONTINUING> (9,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,115)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.40)
</TABLE>
