SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended August 3, 1996.
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 No. N/A
COUNTY SEAT, INC.
(Exact name of registrant as specified in its charter)
Delaware 75 - 2295710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17950 Preston Road, Suite 1000
Dallas, Texas 75252-5638
(Address of principal executive offices)
(214) 248-5100
(Registrant's telephone number, including area code)
____________________________________________________
Indicate by check mark whether the registrant:
(1)has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the registrantwas required to file such reports).
YES X NO
(2)has been subject to such filing requirements for the past
90 days. YES X NO
As of September 17, 1996, 3,327,042 shares of Common
Stock were outstanding.
<PAGE>
COUNTY SEAT, INC.
INDEX
Part I. Financial Information Page
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
August 3, 1996, July 29, 1995 and
February 3, 1996 . . . . . . . 3
Consolidated Statements of Operations
for the thirteen and twenty-six
weeks ended August 3, 1996 and
July 29, 1995. . . . . . . . . 4
Consolidated Statements of Cash Flows for
the twenty-six weeks ended August 3, 1996
and July 29, 1995. . . . . . . 5
Notes to Interim Consolidated Financial
Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . 11
Part II. Other Information
Item 5. Other Information . . . . . 18
Item 6. Exhibits and Reports on Form 8 - K18
Signatures . . . . . . . . . 19
Exhibit Index . . . . . . . . 20
2
<PAGE>
Part I. - Item 1. Consolidated Financial Statements
<TABLE>
COUNTY SEAT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Amounts)
(Unaudited)
<CAPTION>
August 3, July 29, February 3,
1996 1995 1996
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,603 $ 8,125 $ 8,166
Receivables 1,486 2,778 2,658
Merchandise inventories 132,580 143,474 110,744
Prepaid expenses 10,985 11,371 11,339
Deferred tax benefit 2,930 12,006 989
Total current assets 158,584 177,754 133,896
Property and equipment, at cost 119,425 117,466 120,277
Less--Accumulated depreciation and amortization (65,943) (52,128) (61,674)
Property and equipment, net 53,482 65,338 58,603
Other Assets, net:
Debt issuance costs 3,816 3,408 3,073
Deferred income taxes 2,111 6,455 2,486
Excess of purchase price over net assets acquired - 75,215 -
Other 814 1,408 1,303
Total other assets, net 6,741 86,486 6,862
$218,807 $329,578 $199,361
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings under credit agreement $ 81,800 $ 43,700 $ 27,000
Current maturities of long-term debt 26 29 25
Accounts payable 47,397 65,472 36,754
Accrued expenses 22,477 19,489 20,526
Accrued income taxes 1,348 1,962 1,111
Total current liabilities 153,048 130,652 85,416
Long-term debt 122,640 152,099 147,365
Other long-term liabilities 11,966 11,752 12,044
Commitments and contingencies
Minority interest-redeemable preferred
stock of Stores 48,521 40,389 44,319
Redeemable preferred stock of CSI 64,210 53,637 58,628
Shareholders' Equity (Deficit):
Preferred stock: par value $.01 per share; 5,000,000
shares authorized; no shares issued and outstanding - - -
Common stock: par value $.01 per share; 50,000,000
shares authorized; 3,327,042, 3,327,042 and
3,327,042 shares issued and outstanding,
respectively 33 33 33
Paid-in capital 22,193 22,193 22,193
Warrants 2,600 2,600 2,600
Common stock notes receivable (5,139) (4,973) (4,982)
Accumulated deficit (201,265) (78,804) (168,255)
Total shareholders' equity (deficit) (181,578) (58,951) (148,411)
$218,807 $329,578 $199,361
See accompanying Notes To Interim Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
COUNTY SEAT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Share Amounts)
(Unaudited)
<CAPTION>
13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 121,727 $ 130,110 $ 243,331 $ 254,299
Cost of sales, including buying
and occupancy 90,283 95,123 185,812 190,061
Gross profit 31,444 34,987 57,519 64,238
Selling, general and administrative
expenses 33,668 32,189 64,990 62,094
Depreciation and amortization 2,956 3,531 5,915 6,787
Loss from operations (5,180) (733) (13,386) (4,643)
Interest expense, net 5,742 5,865 11,098 11,638
Minority interest-dividends and accretion
of redeemable preferred stock of Stores 2,143 3,022 4,202 4,715
Loss before income taxes
and extraordinary items (13,065) (9,620) (28,686) (20,996)
Income taxes 4,095 (2,661) (1,258) (6,941)
Loss before extraordinary items (17,160) (6,959) (27,428) (14,055)
Extraordinary items, net of income tax benefit - 9,997 - 9,997
Net Loss (17,160) (16,956) (27,428) (24,052)
Redeemable preferred stock dividends
and accretion (2,950) (2,869) (5,582) (5,045)
Net loss applicable to common shares $ (20,110) $ (19,825) $ (33,010) $ (29,097)
Per common share:
Loss before extraordinary items $ (6.04) $ (2.95) $ (9.92) $ (5.74)
Extraordinary items - (3.01) - (3.01)
Net loss per common share $ (6.04) $ (5.96) $ (9.92) $ (8.75)
Weighted average shares outstanding 3,327,042 3,326,874 3,327,042 3,326,705
See accompanying Notes To Interim Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
COUNTY SEAT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<CAPTION>
26 Weeks Ended
August 3, July 29,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(27,428) $(24,052)
Adjustments to reconcile net loss to net cash
used for operating activities:
Extraordinary items - 9,997
Depreciation and amortization 5,915 6,787
Amortization of debt issuance costs and discount 780 1,201
Minority interest-dividends and accretion of
redeemable preferred stock of Stores 4,202 4,715
Rent expense in excess of cash outlays, net 53 189
Deferred tax benefit (1,258) (5,590)
Changes in operating assets and liabilities:
Receivables 625 2,371
Merchandise inventories (21,836) (47,203)
Prepaid expenses 313 (1,236)
Accounts payable 11,211 25,358
Accrued expenses 2,746 (4,047)
Accrued income taxes (70) (1,865)
Other non-current assets and liabilities 15 (971)
Net cash used for operating activities (24,732) (34,346)
Cash Flows from Financing Activities:
Borrowings under the Credit Agreement, net 29,800 73,700
Issuance of long-term debt - 104,943
Debt and equity issuance costs and prepayment premiums (1,257) (6,781)
Principal payments on long-term debt and capital leases (12) (20)
Repayment of long-term debt - (150,795)
Issuance of common stock - 104
Repayment of common stock notes receivable - 160
Net cash provided by financing activities 28,531 21,311
Cash Flows from Investing Activities:
Capital expenditures (1,365) (9,313)
Proceeds from disposal of property and equipment 3 14
Net cash used for investing activities (1,362) (9,299)
Net Increase (Decrease) in Cash and Cash Equivalents 2,437 (22,334)
Cash and Cash Equivalents:
Beginning of period 8,166 30,459
End of period $ 10,603 $ 8,125
Cash Paid During the Period For:
Interest $ 9,982 $ 13,570
Income taxes $ 70 $ 514
See accompanying Notes To Interim Consolidated Financial Statements.
</TABLE>
5
<PAGE>
COUNTY SEAT, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Business
The accompanying interim consolidated financial statements
represent those of County Seat, Inc. ("CSI") and its wholly-
owned subsidiary, County Seat Stores, Inc. ("Stores") (together,
"the Company" or "County Seat"). The activities of CSI consist
principally of its investment in Stores.
The Company is the nation's largest specialty retailer selling
both brand name and private-label jeans and jeanswear. The
Company operated 740 stores in 48 states as of August 3, 1996.
The Company's 681 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 wide selection of designer brands, including
Girbaud, Guess?, Calvin Klein, Tommy Hilfiger and popular
national brands such as Levi's as well as its proprietary brands,
County Seat [Registered Trademark], Nuovo [Registered
Trademark] and Ten Star [Registered Trademark] makes County
Seat a destination store for jeans. The Company operates 34
County Seat Outlet stores offering discount pricing on special
purchase and clearance merchandise and 21 Levi's Outlet stores
under license from Levi Strauss & Co. offering a full range of
Levi's and Docker's off-price merchandise for both adults and
children. The Company also operates four The 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.
2. Basis of Presentation
The accompanying interim consolidated financial statements
are unaudited and do not contain all disclosures required by
generally accepted accounting principles to be included in a
complete set of financial statements. The significant accounting
policies and certain financial information which are normally
included in financial statements prepared in accordance with
generally accepted accounting principles, but which are not
required for interim purposes, have been condensed or omitted.
Accordingly, these statements should be read in conjunction with
the Company's audited financial statements as of and for the year
ended February 3, 1996 included in the Company's Annual
Report on Form 10-K.
In the opinion of management, the accompanying interim
consolidated financial statements reflect all normally recurring
adjustments that are necessary for a fair presentation of the
interim periods. Due to the seasonal nature of the Company's
business, operating results for the interim periods are not
necessarily indicative of results for the full year. All significant
intercompany accounts and transactions have been eliminated.
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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Significant Accounting Policies
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents approximates
the fair value because of their short maturities. At August 3,
1996, the book value of the Company's borrowings under the
Credit Agreement was estimated to approximate the fair value and
the recorded value of Stores' 12% senior subordinated notes (the
"12% Senior Subordinated Notes") and CSI's 9% junior
subordinated exchange debentures (the "9% Exchange
Debentures") was estimated to have exceeded the fair value by
approximately $48,300,000 and $8,100,000 respectively. The
fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the
rates currently available to the Company for debt of the same
remaining maturities.
6
<PAGE>
4. Credit Agreement
The Credit Agreement is funded through a syndicate of
commercial lenders providing a senior secured reducing revolving
credit facility to fund seasonal working capital requirements and
the May 1995 redemption in full of all of the Company's then
outstanding senior notes.
The Credit Agreement and the indenture for Stores' 12%
Senior Subordinated Notes (the "Indenture") contain certain
covenants which, among other things, limit the amount of debt of
the Company, restrict the payment of interest on CSI's 9%
Exchange Debentures, restrict the payment of cash dividends on
Stores' Series A senior exchangeable preferred stock and the CSI
Series A junior exchangeable preferred stock, limit expenditures
for property, equipment and rent under operating leases and
require the Company to maintain certain financial ratios. The
most restrictive financial covenants at August 3, 1996 for the
Company included, as defined, a minimum current ratio (1.10 to
1.0); minimum interest coverage ratio (.90 to 1.0); minimum
adjusted net worth, as defined ($30,000,000 including redeemable
preferred stock); minimum EBITDA, as defined ($24,800,000)
and minimum fixed charge coverage ratio (1.15 to 1.0). The
Credit Agreement limits the level of capital expenditures to
$4,000,000, $3,600,000, $5,000,000 and $5,000,000 in fiscal
1996, 1997, 1998 and 1999, respectively. The permitted capital
expenditures will be increased if the Company generates defined
excess cash flow levels.
Effective February 3, 1996, the Company amended the Credit
Agreement to provide an increased borrowing commitment,
secure borrowings with all assets of the Company, make certain
financial covenants less restrictive and further limit capital
expenditures. The Company incurred fees and expenses of
approximately $1,300,000 in the first quarter of fiscal 1996
related to the amendment to the Credit Agreement, which will be
amortized over its remaining term.
The Company has obtained an amendment effective August 3,
1996 and a discretionary waiver effective August 31, 1996 with
respect to trailing 12-month EBITDA requirements under the
Credit Agreement. The waiver will expire September 24, 1996,
unless extended, and is revocable at the election of the requisite
banks under the Credit Agreement. In the absence of a current
amendment, it will likely be necessary for the Company to obtain
amendments or waivers of covenants with respect to the
remaining quarters of fiscal 1996 and thereafter. The Company
is in the process of meeting with the members of its bank group
to discuss additional changes to the Credit Agreement to modify
its financial covenants and other terms. A semi-annual interest
payment on the Company's 12% Senior Subordinated Notes is
due October 1, 1996. In the absence of an amendment or
extension of the waiver, the requisite banks will be permitted to
prevent such payment. Failure to make such payment, whether
or not prevented by the banks, will constitute a default under the
Indenture after the 30-day grace period provided in the Indenture
has expired. The Company has initiated discussions with certain
holders of the 12% Senior Subordinated Notes with respect to a
possible financial restructuring and is evaluating such other
financial alternatives as may be necessary. In addition, if an
appropriate amendment or waiver is not obtained, Stores will not
be permitted to advance funds to permit CSI to make the interest
payment due November 30, 1996 on CSI's 9% Exchange
Debentures. No assurance can be given that satisfactory
amendments, modifications or waivers to the terms of the Credit
Agreement or the 12% Senior Subordinated Notes can be
negotiated.
7
<PAGE>
The commitment under the Credit Agreement provides for
borrowings up to $135,000,000 including a $50,000,000 letter of
credit facility. Availability under the Credit Agreement is limited
to the lesser of certain percentages of eligible inventory or
$135,000,000 through December 31, 1996. The commitment
under the Credit Agreement will reduce to $125,000,000 on
December 31, 1996. In addition, the commitment will be reduced
if the Company generates defined excess cash flow levels. The
Credit Agreement matures on December 31, 1999. Availability
is reduced by any amounts drawn under the facility as well as
outstanding letters of credit. The Credit Agreement also requires
that for a period of 30 consecutive days after each December 15
and before each February 15 of the following year, the Company
must not have any aggregate borrowings (including Bankers
Acceptances) outstanding under the Credit Agreement, less cash
on deposit, in excess of $50,000,000. The permitted aggregated
borrowings during this 30-day period will be reduced if the
Company generates defined excess cash flow levels. Borrowings
under the facility are secured by the assets of Stores and
guaranteed by CSI. CSI's guarantee is secured by a pledge of its
primary asset, the outstanding common stock of Stores.
In connection with the amendment effective August 3, 1996,
the interest rate on borrowings under the Credit Agreement has
been increased by 0.5%. At the option of the Company, interest
is payable on borrowings under the Credit Agreement at a prime
rate plus 2.0% or a Eurodollar rate plus 3.0%. The Credit
Agreement provides for a commitment fee during the period prior
to maturity of 0.5% of the unutilized commitment under the
Credit Agreement. Due to the revocable nature of the current
waiver, all loans under the Credit Agreement were classified as
a current liability as of August 3, 1996. Borrowings of
$30,000,000 and $25,000,000 under the Credit Agreement were
classified as long-term debt as of July 29, 1995 and February 3,
1996, respectively.
Loans, borrowing base and letter of credit commitments under
the Credit Agreement were as follows (dollars in thousands):
<TABLE>
<CAPTION>
26 Weeks Ended
August 3
1996
<S> <C>
At Period-End
Loans outstanding. . . . . . . . . . $81,800
Borrowing base . . . . . . . . . . . 132,721
Available borrowing base . . . . . . 10,078
Letter of credit commitments outstanding 22,201
During the Period
Days loans were outstanding. . . . . 182
Maximum loan borrowing . . . . . . . $91,000
Average loan borrowing . . . . . . . 66,490
Weighted average interest rate . . . 8.22%
</TABLE>
8
<PAGE>
5.Redeemable Preferred Stock
<TABLE>
At August 3, 1996, redeemable preferred stock consisted of
the following (in thousands):
<CAPTION>
Redemption
Value
<S> <C>
Junior exchangeable preferred stock of CSI $64,210
County Seat Stores, Inc. senior 49,550
exchangeable preferred stock
</TABLE>
Junior Exchangeable Preferred Stock
Of the 6,000,000 shares of Series A and Series B junior
exchangeable preferred stock, par value $.01, (together the Junior
Preferred) authorized, 3,085,164 were issued and outstanding at
August 3, 1996.
Dividends on the Series A junior exchangeable preferred stock
(Series A Junior Preferred) are cumulative and payable quarterly.
Under the terms of the Series A Junior Preferred, the Company
has the option of declaring stock dividends in lieu of cash
dividends through February 15, 2000. Effective with the
quarterly dividend at February 29, 1996, the Company is
restricted from declaring dividends on the Series A Junior
Preferred until sufficient net earnings are generated to permit the
declaration of dividends under Delaware corporate law. As a
result, under the terms of the Junior Preferred, the annual
dividend accrual rate was increased from $3.00 per share to $3.50
per share for the quarter ending August 31, 1996. Unpaid
dividends on the Series A Junior Preferred cumulate and
compound until paid. Cumulative undeclared, unpaid Series A
Junior Preferred stock dividends were $2,991,000 and equivalent
to 170,798 shares at August 3, 1996. These equivalent shares are
not issued or outstanding.
Cumulative dividends on the Series B junior exchangeable
preferred stock (Series B Junior Preferred) compound as if a
stock dividend was declared at each quarterly dividend date.
Undeclared, unpaid Series B Junior Preferred stock dividends
were $5,672,000 and equivalent to 323,940 shares at August 3,
1996. These equivalent shares are not issued or outstanding.
County Seat Stores, Inc. Senior Exchangeable Preferred Stock
Of the 4,000,000 shares of County Seat Stores, Inc. Series A
and Series B senior exchangeable preferred stock, par value $.01,
authorized, 1,510,896 shares were issued and outstanding at
August 3, 1996.
Cumulative dividends on Stores' Series B senior exchangeable
preferred stock compound as if a stock dividend was declared at
each quarterly dividend date. Undeclared, unpaid stock dividends
were $10,274,000 and equivalent to 410,962 shares at August 3,
1996. These equivalent shares are not issued or outstanding.
6. Shareholders' Equity
Stock Options
In the first quarter of fiscal 1996, the Company extended the
expiration date of options to purchase 22,275 shares of common
stock which were originally granted to management in 1991 with
an expiration date of April 1996. As of August 3, 1996, options
to purchase 219,594 shares of common stock have been granted
to management at $6.67 to $15.00 per share under the CSI
incentive stock option plan. At August 3, 1996, grants of 16,080,
38,850 and 87,787 shares were exercisable at $9.00, $10.00 and
$15.00 per share, respectively.
Also during the first quarter of fiscal 1996, options to
purchase 6,000 shares of common stock were granted to non-
management directors of the Company at $9.00 per share. As of
August 3, 1996, options to purchase 27,000 shares of common
stock have been granted to non-management directors at $6.67 to
$15.00 per share. At August 3, 1996, grants of 18,000 shares,
6,000 shares and 2,250 shares were exercisable at $6.67, $9.00
and $15.00 per share, respectively.
9
<PAGE>
7. Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". This standard requires, among
other things, recognition of future tax benefits, measured by
enacted tax rates, attributable to deductible temporary differences
between financial statement and income tax bases of assets and
liabilities and to tax net operating loss carryforwards to the extent
that realization of such benefits is more likely than not.
Management cannot predict with assurance that there will be
sufficient operating income to fully utilize its deferred income tax
assets. Therefore, deferred tax assets have been reduced by a
valuation allowance of $16,800,000, of which $8,000,000 was
recorded in the second quarter of fiscal 1996. Management has
significantly discounted future projections of taxable income in
determining the valuation allowance. The Company believes the
amount of recognized deferred tax assets is an amount more likely
than not to be realized based on its expectations regarding taxable
income over the remainder of the current fiscal year.
8. Related Party Transactions
Affiliates of Donaldson, Lufkin & Jenrette Securities
Corporation (DLJ) held 1,407,630 shares of Junior Preferred and
760,760 shares of Stores' senior preferred stock as of August 3,
1996. Undeclared, unpaid stock dividends on the Junior
Preferred and Stores' senior preferred stock held by affiliates of
DLJ, if issued, would be equivalent to 85,725 shares and 213,485
shares, respectively, as of August 3, 1996. In addition, affiliates
of DLJ held 917,746 shares of common stock as of August 3,
1996.
9. Net Loss Per Common Share
Net loss per common share was computed by dividing net
loss, after reduction for CSI preferred stock dividends and
accretion, by the weighted average number of common shares and
equivalents outstanding. Common share equivalents included in
the computation represent shares issuable upon assumed exercise
of stock options and warrants which would have a dilutive effect
in periods where there were earnings. Because of net losses
applicable to common shares for all periods presented, the effect
of common share equivalents was antidilutive and they were
excluded from the calculations.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
<TABLE>
The following table sets forth the Company's operating results as a
percentage of net sales for the periods indicated:
<CAPTION>
13 Weeks Ended 26 Weeks Ended
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and
occupancy 74.2 73.1 76.4 74.7
Gross profit 25.8 26.9 23.6 25.3
Selling, general and administrative
expenses 27.7 24.7 26.7 24.4
Depreciation and amortization 2.4 2.8 2.4 2.7
Loss from operations (4.3) (0.6) (5.5) (1.8)
Interest expense, net 4.7 4.5 4.6 4.6
Minority interest-dividends and accretion of
redeemable preferred stock of Stores 1.7 2.3 1.7 1.9
Loss before income taxes and extraordinary
items (10.7) (7.4) (11.8) (8.3)
Income taxes 3.4 (2.1) (0.5) (2.7)
Loss before extraordinary items (14.1) (5.3) (11.3) (5.6)
Extraordinary items - 7.7 - 3.9
Net Loss (14.1)% (13.0)% (11.3)% (9.5)%
Number of Stores:
Openings 1 10 5 24
Closings (5) (4) (10) (5)
Net increase (decrease) (4) 6 (5) 19
End of period 740 720 740 720
</TABLE>
Net sales for the second quarter of fiscal 1996 were $121.7
million, $8.4 million or 6.5% below net sales of $130.1 million
reported in the second quarter of fiscal 1995. A $13.1 million decrease
in sales from comparable stores and a $1.8 million reduction in sales
due to store closings were partially offset by a $6.5 million increase in
net sales from new store locations. Comparable store sales in the
second quarter of fiscal 1996 decreased 10.2% from the second quarter
of fiscal 1995. Men's apparel and accessories contributed a decrease
of 7.7% and women's apparel and accessories contributed a decrease
of 2.5% to the comparable store sales results. The Company defines
comparable stores to be stores that have reached their thirteenth full
month of operations, excluding closed stores. Stores open less than
thirteen full months are defined as new stores.
Net sales for the first six months of fiscal 1996 were $243.3
million, $11.0 million or 4.3% below net sales of $254.3 million in the
first six months of fiscal 1995. A $22.4 million decrease from
comparable store sales and a $3.4 million reduction in sales due to
store closings were partially offset by a $14.8 million increase in net
sales from new store locations. Comparable store sales decreased
9.0% in the first six months of fiscal 1996 in comparison to the first
six months of fiscal 1995. Men's apparel and accessories and women's
apparel and accessories contributed decreases of 7.9% and 1.1%,
respectively, to the comparable store sales results.
Gross profit after buying and occupancy expense was $31.4 million
in the second quarter of fiscal 1996, a decrease of $3.5 million, or
10.1% compared to the second quarter of fiscal 1995. The decrease
was primarily due to lower comparable store sales and additional
buying and occupancy costs from new store locations, partially offset
by sales from new stores and a higher retail margin rate. Gross profit
as a percentage of net sales decreased to 25.8% in the second quarter
of fiscal 1996 from 26.9% in the second quarter of fiscal 1995.
Buying and occupancy costs increased 2.1% as a percentage of sales
due to the decrease in comparable store sales and increased occupancy
costs from new store locations. Retail margins increased 1.0% in the
second quarter of fiscal 1996 compared to the second quarter of fiscal
1995, reflecting stronger margins in women's apparel.
11
<PAGE>
For the first six months of fiscal 1996, gross profit decreased $6.7
million or 10.5% compared to the first six months of fiscal 1995. The
decrease was primarily due to lower comparable store sales and
additional buying and occupancy costs from new store locations,
partially offset by sales from new stores and a slightly higher retail
margin rate. Gross profit as a percentage of net sales decreased to
23.6% in the first six months of fiscal 1996 compared to 25.3% in the
first six months of fiscal 1995. Buying and occupancy costs increased
2.0% as a percentage of sales due to the decrease in comparable store
sales and increased occupancy costs from new store locations. Retail
margins increased 0.3% in the first six months of fiscal 1996 compared
to the first six months of fiscal 1995, primarily due to stronger margins
in womens's apparel.
Selling, general and administrative expenses ("SG&A") increased
$1.5 million, or 4.6%, in the second quarter of fiscal 1996 compared
to the second quarter of fiscal 1995. For the first six months of fiscal
1996, SG&A was $2.9 million or 4.7% above the first six months of
fiscal 1995. The increase was primarily due to store operating
expenses associated with new stores opened in fiscal 1996 and 1995.
In the second quarter of fiscal 1996, the Company recorded expenses
of $1.1 million to recognize deferred costs related to an executive
severance agreement with Barry Parker, former Chief Executive
Officer of the Company. In the first six months of fiscal 1995, SG&A
included a $1.0 million consulting fee related to the evaluation of the
Company's financial structure. SG&A as a percentage of net sales
increased to 27.7% in the second quarter of fiscal 1996 compared to
24.7% in the second quarter of fiscal 1995. For the first six months
of fiscal 1996, SG&A as a percentage of net sales was 26.7%
compared to 24.4% in the first six months of fiscal 1995. The increase
in SG&A as a percentage of net sales was primarily due to comparable
stores reporting lower sales combined with approximately constant
operating expenses.
Depreciation and amortization expense decreased $0.5 million to
$3.0 million in the second quarter of fiscal 1996 from $3.5 million in
the second quarter of fiscal 1995. Depreciation and amortization
expense decreased $0.9 million to $5.9 million in the first six months
of fiscal 1996 from $6.8 million in the first six months of fiscal 1995.
The decrease was primarily due to the reduction in amortization
expense related to goodwill, partially offset by increased amortization
of other assets. The remaining balance of goodwill was written off in
the third quarter of fiscal 1995. Depreciation and amortization
decreased as a percentage of net sales to 2.4% in the first six months
of fiscal 1996 from 2.7% in the first six months of fiscal 1995,
primarily as a result of the reduction in goodwill amortization.
Net interest expense decreased $0.2 million to $5.7 million in the
second quarter of fiscal 1996 from $5.9 million the second quarter of
fiscal 1995. Interest expense decreased $0.5 million to $11.1 million
in the first six months of fiscal 1996 from $11.6 million in the first six
months of fiscal 1995. The decrease for the first six months of fiscal
1996 was primarily due to lower interest expense and issuance cost
amortization of $1.9 million on the Senior Notes, reflecting the May
1995 redemption of the Senior Notes, partially offset by a $1.5 million
increase in interest expense on borrowings under the Credit Agreement.
Additional interest expense related to higher total debt outstanding was
substantially offset by a lower net effective interest rate. Other net
interest expense decreased by $0.1 million primarily due to lower
discount and issuance cost amortization.
The charge resulting from the minority interest for dividends and
accretion of Stores' senior preferred stock decreased $0.9 million to
$2.1 million in the second quarter of fiscal 1996 compared to $3.0
million in the second quarter of fiscal 1995. The charge for minority
interest for dividends and accretion of Stores' senior preferred stock
decreased $0.5 million to $4.2 million in the first six months of fiscal
1996 from $4.7 million in the first six months of fiscal 1995. The
decrease was primarily due to a larger accrual of preferred stock
dividends in the second quarter of fiscal 1995, partially offset by the
compounding nature of dividends with respect to Stores' senior
preferred stock.
The Company recorded an income tax benefit of $1.3 million in the
first six months of fiscal 1996 compared to an income tax benefit of
$6.9 million in the first six months of fiscal 1995. The Company's
income tax provision includes a $9.3 million income tax benefit for the
first six months of fiscal 1996, partially offset by an $8.0 million
valuation allowance for deferred tax assets which was recorded in the
second quarter of fiscal 1996 (see - "Liquidity and Capital Resources").
The effective income tax rate of 4.4% for the first six months of fiscal
1996 differed from the statutory federal rate primarily due to the effect
of the valuation allowance for deferred tax assets and non-deductible
minority interest preferred stock dividend and accretion charges.
12
<PAGE>
The net loss of $17.2 million in the second quarter of fiscal 1996
compared to a net loss of $17.0 million in the second quarter of fiscal
1995 was due to the factors discussed above and extraordinary charges
of $10.0 million, net of related income taxes, recorded in the second
quarter of fiscal 1995. The net loss of $27.4 million in the first six
months of fiscal 1996 compared to a net loss of $24.1 million in the
first six months of fiscal 1995 was due to the factors discussed above
and the extraordinary charges in fiscal 1995. The extraordinary
charges in the second quarter of fiscal 1995 related to the redemption
of the Senior Notes and the exchange of the then-outstanding 12%
Senior Subordinated Notes for new 12% Senior Subordinated Notes.
Liquidity and Capital Resources
Financing and Operating Activities
In the third quarter of fiscal 1995, the Company revised its
projections regarding its ability to operate on a profitable basis in the
long term. These projections indicated modification of its capital
structure might be required. The Company's projections of net income
and discounted future cash flows utilized in estimating the fair value of
the Company's goodwill in the third quarter of fiscal 1995 indicated a
refinancing of its existing long-term debt and its obligations under the
redeemable preferred stock might be required at some time in the
future. Management developed projections of net income and cash
flows based on expectations for store growth, retail gross margin rates
and operating expense performance. These expectations were based on
the Company's most recent 5-year experience, and Management's best
estimates of expected future performance, as well as overall
assumptions regarding the economy and the mall-based specialty retail
apparel industry. Important assumptions used in these projections were
an annual sales growth rate of 2%, consistent gross margin rates, an
annual expense inflation rate of 3%, and the ability to refinance debt
maturities as they come due at a cost consistent with the historical cost
of the current long-term debt. No assurance can be given that the
Company will be successful in efforts to address its capital structure
issues or operate on a profitable basis in the long-term.
The Company has obtained an amendment effective August 3, 1996
and a discretionary waiver effective August 31, 1996 with respect to
trailing 12-month EBITDA requirements under the Credit Agreement.
The waiver will expire September 24, 1996, unless extended, and is
revocable at the election of the requisite banks under the Credit
Agreement. In the absence of a current amendment, it will likely be
necessary for the Company to obtain amendments or waivers of
covenants with respect to the remaining quarters of fiscal 1996 and
thereafter. The Company is in the process of meeting with the
members of its bank group to discuss additional changes to the Credit
Agreement to modify its financial covenants and other terms. A semi-
annual interest payment on the Company's 12% Senior Subordinated
Notes is due October 1, 1996. In the absence of an amendment or
extension of the waiver, the requisite banks will be permitted to prevent
such payment. Failure to make such payment, whether or not
prevented by the banks, will constitute a default under the Indenture
after the 30-day grace period provided in the Indenture has expired.
The Company has initiated discussions with certain holders of the 12%
Senior Subordinated Notes with respect to a possible financial
restructuring and is evaluating such other financial alternatives as may
be necessary. In addition, if an appropriate amendment or waiver is
not obtained, Stores will not be permitted to advance funds to permit
CSI to make the interest payment due November 30, 1996 on CSI's 9%
Exchange Debentures. No assurance can be given that satisfactory
amendments, modifications or waivers to the terms of the Credit
Agreement or the 12% Senior Subordinated Notes can be negotiated.
The Company intends to improve its financial condition and reduce
its dependence on borrowing by slowing expansion, controlling
expenses, closing certain unprofitable stores, improving distribution
center productivity and tightening inventory controls. In the third
quarter of fiscal 1996, Management intends to implement more
aggressive pricing policies to improve inventory turnover in the near-
term and is in the process of reevaluating the Company's
merchandising, marketing, store operations and real estate strategies.
Although Management cannot predict with certainty, operating results
for the third quarter of fiscal 1996 may reflect lower retail margin rates
as a percentage of sales, higher operating expenses in comparison to the
prior year and restructuring charges as a result of actions taken on the
basis of the reevaluation of the Company's operations. In addition, the
results of operations in the second half of fiscal 1996 will reflect the
impact of fewer new store openings in comparison to recent years.
13
<PAGE>
Cash provided by operating activities is the primary source of
liquidity and capital for the Company. After the impact of cash interest
payments, cash used for operations for the twenty-six weeks ended
August 3, 1996 and July 29, 1995 was $24.7 million and $34.3 million,
respectively. The Company made cash interest payments of $10.0
million and $13.6 million in the twenty-six weeks ended August 3,
1996 and July 29, 1995, respectively. Because of the seasonal nature
of the Company's business, positive net cash flow from operations is
typically not generated through the first three quarters of the fiscal
year. The decrease in cash used for operations in the twenty-six weeks
ended August 3, 1996 compared to the twenty-six weeks ended July 29,
1995 was primarily due to lower net spending on merchandise
inventories, partially offset by reduced cash generated from operations.
Additional liquidity to fund working capital activities is provided
through borrowings under the Credit Agreement and open account trade
terms from vendors. While the Company has historically negotiated
open trade terms with the majority of its domestic vendors, recent
financial circumstances have caused the Company to rely more
extensively on letters of credit for its domestic purchase terms. Trade
terms are negotiated with each vendor and may be modified from time
to time. County Seat is not dependent upon factors to support the
Company's purchases from its suppliers. County Seat generates cash
on a daily basis by selling merchandise for cash or payments with
national credit cards. County Seat does not offer its own credit card.
Due to the seasonal nature of County Seat's business, working
capital funding requirements increase as inventory levels peak in
anticipation of the back-to-school and holiday shopping seasons.
Working capital at August 3, 1996 and July 29, 1995 was $5.5 million
and $47.1 million, respectively. The decrease in working capital at
August 3, 1996 compared to July 29, 1995 was primarily due to a
$38.1 million increase in short-term borrowings, reflecting a
reclassification of all loans under the Credit Agreement as a current
liability as of August 3, 1996. At July 29, 1995, $30 million in
borrowings under the Credit Agreement were classified as long-term
debt. Other changes in working capital at August 3, 1996 compared
to July 29, 1995 included a $10.9 million decrease in merchandise
inventories and a $9.1 million reduction in current deferred income tax
assets, partially offset by an $18.1 million reduction in accounts
payable, and a net decrease of $1.6 million in other working capital
components.
The Company's cash requirements are related to funding working
capital for operations, capital expenditures and debt service. In
addition to funding working capital needs through cash generated by
operations, the Company has resources available under the Credit
Agreement to provide seasonal working capital funding. The Credit
Agreement is funded through a syndicate of commercial lenders
providing a senior secured reducing revolving credit facility to fund
seasonal working capital requirements and the May 1995 redemption in
full of all the Company's then outstanding senior notes. The Credit
Agreement and the Indenture contain a number of financial and other
restrictive covenants, including limitations on the ability of the
Company to pay dividends on or redeem common stock beyond certain
specified amounts. In addition, the Credit Agreement is subject to
customary events of default, including, but not limited to, payment
defaults, defaults under other agreements and changes of control.
Effective February 3, 1996, the Company amended the Credit
Agreement to provide an increased borrowing commitment, secure
borrowings with all assets of the Company, make certain financial
covenants less restrictive and further limit capital expenditures.
The commitment under the Credit Agreement provides for
borrowings up to $135 million, including a $50 million letter of credit
facility. Availability under the Credit Agreement is limited to the
lesser of certain percentages of eligible inventory or $135 million
through December 31, 1996. The commitment under the Credit
Agreement will reduce to $125 million on December 31, 1996. In
addition, the commitment will be reduced if the Company generates
defined excess cash flow levels. The Credit Agreement matures on
December 31, 1999. Availability under the Credit Agreement is
reduced by any amounts drawn under the facility as well as outstanding
letters of credit. The Credit Agreement also requires that for a period
of 30 consecutive days after each December 15 and before each
February 15 of the following year, the Company must not have any
aggregate borrowings (including Bankers Acceptances) outstanding
under the Credit Agreement, less cash on deposit, in excess of $50
million. The permitted aggregate borrowings during this 30 day period
will be reduced if the Company generates defined excess cash flow
levels. Borrowings under the facility are secured by the assets of
Stores and guaranteed by CSI. CSI's guarantee is secured by a pledge
of its primary asset, the outstanding common stock of Stores.
14
<PAGE>
In connection with the amendment effective August 3, 1996, the
interest rate on borrowings under the Credit Agreement has been
increased by 0.5%. The increase in the cost of borrowing under the
Credit Agreement is not expected to have a material impact on the
results of operations in fiscal 1996. At the option of the Company,
interest is payable on borrowings under the Credit Agreement at
variable rates equal to approximately a prime rate plus 2.0% or a
Eurodollar rate plus 3.0%. The Credit Agreement provides for a
commitment fee during the period prior to maturity of 0.5% of the
unutilized commitment under the Credit Agreement. At August 3,
1996, the Company had cash borrowings outstanding of $81.8 million,
$10.1 million available for borrowing under the Credit Agreement,
banker's acceptances outstanding of $18.6 million, and outstanding
commitments under the letter of credit facility of $22.2 million.
Fluctuations in market interest rates affect the cost of the Company's
borrowings under the Credit Agreement. The impact of fluctuations in
market interest rates in the twenty-six weeks ended August 3, 1996
were not significant to the operating results of the Company. At
August 3, 1996, borrowings under the Credit Agreement accrued
interest at a rate of 8.6%.
Net cash capital expenditures were $1.4 million in the first twenty-
six weeks of fiscal 1996. Historically, County Seat has spent capital
primarily to open new stores and improve existing store locations. In
fiscal 1996, the Company will to reduce the number of new store
openings in comparison to prior years and focus on improving the
profitability of existing stores. Due to decreased cash flow and
restrictive debt covenants, the Company's ability to grow through new
store openings is significantly restricted. The Credit Agreement limits
the level of capital expenditures to $4.0 million, $3.6 million, $5.0
million and $5.0 million in fiscal 1996, 1997, 1998 and 1999,
respectively. The permitted capital expenditures will be increased if the
Company generates defined excess cash flow levels. In fiscal 1996, the
Company plans to spend approximately $4.0 million on capital
expenditures including approximately $1.9 million to fund the addition
of approximately seven new stores and three store relocations. The
remaining capital expenditures are expected to be used primarily to
make improvements at existing store locations and to improve
distribution center productivity. The Company expects to fund capital
expenditures primarily through cash generated from operations.
The Company's long-term borrowings, excluding current
maturities, were $122.6 million at August 3, 1996. At August 3, 1996,
the recorded value of Stores' 12% Senior Subordinated Notes and CSI's
9% Exchange Debentures was estimated to have exceeded the fair
market value by approximately $48.3 million and $8.1 million,
respectively. The 12% Senior Subordinated Notes were downgraded
by Moody's and Standard & Poor's bond rating agencies in the fourth
quarter of fiscal 1995.
In fiscal 1995, the Company entered into an agreement with
Yankee Publishing, Inc., the publisher of The Old Farmer's Almanac,
to license the name The Old Farmer's Almanac General Store
[Servicemark] for retail stores to be owned and operated by County
Seat in shopping malls in the United States, Canada and Mexico. The
Company plans to open a limited number of test stores to evaluate the
feasibility of this concept. The Company is currently operating four of
these test stores. If the test stores prove to be successful, the Company
anticipates that substantial capital expenditures and working capital
financing would be required to roll out the concept. In such event, the
Company would require access to other sources of capital which may
include debt or equity financing or other arrangements. There can be
no assurance that any such financing will be available on terms
favorable to the Company or otherwise, and the Company does not
anticipate that such financing would be available in the short term.
CSI is a holding company, the primary asset of which is the
common stock of Stores. Substantially all of CSI's operations are
conducted through Stores, and CSI is dependent on the cash flow of
Stores to meet its payment obligations with respect to obligations under
CSI's 9% Exchange Debentures. In the twenty-six weeks ended
August 3, 1996, Stores paid dividends of $1.1 million to CSI to fund
semi-annual interest payments on CSI's 9% Exchange Debentures.
Remedies available to the holders of CSI's 9% Exchange Debentures
for failure to make required interest payments include the right to
accelerate such indebtedness. In the event of a failure to repay such
defaulted indebtedness, the holders of the 9% Exchange Debentures
could foreclose upon the assets of CSI including the common stock of
Stores, which would constitute an event of default under the Credit
Agreement and the Indenture. No assurance can be given that the
Company will have access to resources sufficient to repay defaulted
indebtedness if so required.
15
<PAGE>
At August 3, 1996, the Company's redeemable preferred stock
consisted of $48.5 million Series A and Series B County Seat Stores,
Inc. senior exchangeable preferred stock and CSI's redeemable
preferred stock consisted of $64.2 million of Series A and Series B
County Seat, Inc. junior exchangeable preferred stock. Under the
terms of the Series A redeemable preferred stock, the Company has the
option of declaring stock dividends in lieu of cash dividends through
February 15, 2000. Cumulative stock dividends on each of the Series
B redeemable preferred stock compound as if a stock dividend was
declared at each quarterly dividend date. As of August 3, 1996,
dividends accrue at an annual rate of $4.50 per share and $3.50 per
share on Stores' senior preferred stock and CSI's junior preferred
stock, respectively. Effective with the quarterly dividend at February
29, 1996, the Company is restricted from declaring dividends on the
CSI's junior preferred stock until sufficient net earnings are generated
to permit the declaration of dividends under Delaware corporate law.
As a result, under the terms of CSI's junior preferred stock, the annual
dividend accrual rate was increased from $3.00 per share to $3.50 per
share for the quarter ending August 31, 1996. Unpaid dividends on the
Series A Junior Preferred cumulate and compound until paid.
The tax year-end for the Company is the Saturday closest to July
31. At its tax year ended Saturday, August 3, 1996, the Company had
regular income tax operating loss carryforwards of approximately $14.7
million which can be used to reduce future income tax payments by
approximately $5.6 million, subject to certain limitations. The
Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This standard requires, among other things, recognition of
future tax benefits, measured by enacted tax rates, attributable to
deductible temporary differences between financial statement and
income tax bases of assets and liabilities and to tax net operating loss
carryforwards to the extent that realization of such benefits is more
likely than not. Management cannot predict with assurance that there
will be sufficient operating income to fully utilize its deferred income
tax assets. Therefore, deferred tax assets have been reduced by a
valuation allowance of $16.8 million. Management has significantly
discounted future projections of taxable income in determining the
valuation allowance. The Company believes the amount of recognized
deferred tax assets is an amount more likely than not to be realized
based on its expectations regarding taxable income over the remainder
of the current fiscal year.
16
<PAGE>
Seasonality
<TABLE>
The Company, like most retailers, has a seasonal pattern of sales
and income. The Company has two major selling seasons:
back-to-school in the third quarter and Christmas in the fourth quarter.
The table below sets forth by quarter, 1996, 1995 and 1994 net sales,
gross profit and income (loss) from operations.
<CAPTION>
Fiscal First Second Third Fourth Total
Year Quarter Quarter Quarter Quarter Year
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
1996 Net sales . . . . . . $121,604 $121,727
Gross profit. . . . . 26,075 31,444
Income (loss) from
operations (8,206) (5,180)
1995 Net sales . . . . . . $124,189 $130,110 $159,476 $205,450 $619,225
Gross profit. . . . . 29,251 34,987 41,073 61,900 167,211
Income (loss) from
operations(1) (3,910) (733) (76,486) 20,895 (60,234)
1994 Net sales . . . . . . $112,937 $119,923 $157,338 $198,129 $588,327
Gross profit. . . . . 27,535 33,255 46,209 60,850 167,849
Income (loss) from
operations (4,183) 552 12,143 23,020 31,532
____________________
(1)Income (loss) from operations for the third quarter of fiscal 1995 includes non-recurring charges of $1.2 million
for the cost of proposed initial public offering and $80.2 million for the write-off of certain long-lived assets.
</TABLE>
Inflation, Economic Trends and Potential Developments
Although its operations are affected by general economic trends, the
Company does not believe that inflation has had a material effect on the
results of its operations during the past three fiscal years. On the other
hand, Management believes that the Company and other specialty
retailers have suffered from price "deflation", which has had a negative
impact on sales and gross margin. The Company believes that poor
economic conditions have adversely affected its sales and profitability
in prior years and may affect results in future periods.
Forward Looking Information
This report contains various forward-looking statements and
information that are based on Management's beliefs as well as
assumptions made by and information currently available to
Management. When used in this document, the words "anticipate",
"estimate", "expect", "predict", "project" and similar expressions are
intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Among the key factors that
may have a direct bearing on the Company's results are the need to
meet existing financial obligations, risks resulting from the Company's
highly leveraged capital structure, the highly competitive nature of the
Company's industry, the impact of any changes in the Company's
operating strategies, restrictions on capital expenditures imposed under
the Credit Agreement, the Company's relationships with key vendors,
general risks of doing business abroad resulting from purchasing a large
portion of the Company's merchandise from foreign suppliers and the
likely need to ultimately refinance existing obligations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking statements contained in this report will in fact transpire.
17
<PAGE>
Part II.
Item 5.Other Information
In the second quarter of fiscal 1996, the Company's Board
of Directors accepted the resignation of Barry J.C. Parker,
who had served as President, Chief Executive Officer and
Chairman of the Board. Gilbert C. Osnos has been retained
as interim Chief Executive Officer of the Company until a
permanent Chief Executive Officer is engaged.
In August 1996, the Company's Board of Directors
accepted the resignations of Joyce A. Konrad, Senior Vice
President/Merchandising, and Michael L. Konrad, Senior
Vice President/Stores. In the third quarter of fiscal 1996,
the Company expects to record expenses of $0.5 million to
recognize deferred costs for related executive severance
agreements.
Item 6.Exhibits and Reports on Form 8 - K
(a)Exhibits:
4(ii)(a)(14) Third Amendment to Credit Agreement,
dated as of August 3, 1996, by and
among County Seat, Inc., County Seat
Stores Inc., various Banks set forth
therein and Bankers Trust Company as
Agent for the Banks.
4(ii)(a)(15) Fourth Amendment to Credit
Agreement, dated as of August 31,
1996, by and among County Seat, Inc.,
County Seat Stores, Inc., various Banks
set forth therein and Bankers Trust
Company as Agent for the Banks.
10(iii)(x) Engagement agreement dated as of July
29, 1996 between Osnos & Company,
Inc. and County Seat, Inc.
27 Financial Data Schedule
(b) Reports on Form 8 - K: none
18
<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.
Dated: September 17, 1996
COUNTY SEAT, INC.
By /s/Edward A. Tomechko
Edward A. Tomechko
Senior Vice President and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial and accounting officer
19
<PAGE>
EXHIBIT INDEX
4(ii)(a)(14) Third Amendment to Credit Agreement, dated as of
August 3, 1996, by and among County Seat, Inc., County Seat
Stores, Inc., various Banks set forth therein and Bankers
Trust Company as Agent for the Banks.
4(ii)(a)(15) Fourth Amendment to Credit Agreement, dated as of
August 31, 1996, by and among County Seat, Inc., County Seat
Stores, Inc., various Banks set forth therein and Bankers
Trust Company as Agent for the Banks.
10(iii)(x) Engagement agreement dated as of July 29, 1996 between Osnos &
Company, Inc. and County Seat, Inc.
27 Financial Data Schedule
20
<PAGE>
EXHIBIT 4(ii)(a)(14)
- --------------------
THIRD AMENDMENT
THIRD AMENDMENT (the "Amendment"), dated as of
August 3, 1996, among COUNTY SEAT, INC., a Delaware corporation
("Holdings"), COUNTY SEAT STORES, INC., a Minnesota corporation
(the "Borrower"), the institutions party to the Credit Agreement referred to
below (the "Banks") and BANKERS TRUST COMPANY, as Agent (the
"Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Credit Agreement
referred to below.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Banks and the
Agent are parties to a Credit Agreement dated as of May 17, 1995 (as
amended to date, the "Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
A. Amendments
1. Section 8.01 of the Credit Agreement is hereby
amended by (i) redesignating clause (j) thereof as clause (k), and (ii)
inserting immediately following clause (i) thereof the following new clause
(j):
"(j) Weekly Information. No later than
Wednesday of each week, the following information
for the immediately preceding week, or as of the last
day of the immediately preceding week, as the case
may be: aggregate sales, comparable store sales (on
a percentage basis), inventory levels, aggregate
accounts payable (with additional detail specifying the
ten largest accounts payable creditors and the
amounts owing to each such creditor), aggregate
outstanding Loans, Acceptance Outstandings and
Letter of Credit Outstandings (including the portion
thereof representing Standby L/C Outstandings)."
2. Section 9.11 of the Credit Agreement is hereby
amended by deleting the reference to the ratio "1.20:1" appearing opposite
the date of July 31, 1996 in the table set forth therein and by inserting in
lieu thereof a reference to the ratio "1.15:1".
3. Section 9.18 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"9.18 Minimum EBITDA. (a)
Holdings and the Borrower will not permit
EBITDA for any period of four consecutive
fiscal quarters (taken as one accounting
period) ended on or about each date set forth
below to be less than the amount set forth
opposite such date:
Date Amount
April 30, 1996 $26,500,000
July 31, 1996 $24,800,000
October 31, 1996 $28,000,000
January 31, 1997 $28,800,000
April 30, 1997 $35,370,000
July 31, 1997 $35,370,000
October 31, 1997 $35,600,000
January 31, 1998 $36,200,000"
and thereafter
(b) Holdings and the Borrower will not permit EBITDA
for the period of 12 consecutive fiscal months ending on or about August
31, 1996 (taken as one accounting period) to be less than $26,000,000.
4. On and as of the Amendment Effective Date, the
definition of "Acceptance Commission" appearing in Section 11 of the
Credit Agreement is hereby amended by (i) deleting the reference to "2-
1/2%" appearing therein and inserting "3%" in lieu thereof, (ii) deleting the
reference to "2-1/4%" appearing therein and inserting in lieu thereof "2-
3/4%", (iii) deleting the reference to "2%" appearing therein and inserting
in lieu thereof "2-1/2%", and (iv) deleting the parenthetical appearing at the
end of the first sentence thereof.
5. The definition of "Adjusted Net Worth" appearing in
Section 11 of the Credit Agreement is hereby amended by adding at the end
thereof the following new sentence:
"Notwithstanding anything to the contrary contained
above, Adjusted Net Worth shall be determined
without giving effect to any reversal of deferred tax
assets previously recorded."
6. On and as of the Amendment Effective Date, the
definition of "Applicable Margin" appearing in Section 11 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Applicable Margin" shall mean (i) in the case
of Base Rate Loans, 2% and (ii) in the case of
Eurodollar Rate Loans, 3%; provided that on each date
upon which the annual or quarterly financial statements
required pursuant to Section 8.01(b) or (c) are
delivered, if (x) no Event of Default exists, (y)
EBITDA for the four consecutive fiscal quarters ending
on the date of such financial statements equals or
exceeds an amount shown in column 1 below and (z)
the ratio of EBITDA minus Capital Expenditures to
Interest Expense determined for the four consecutive
fiscal quarters ending on the date of such financial
statements equals or exceeds the ratio set forth below
opposite the respective amount in column 2, then the
Applicable Margin for each Type of Loan shall be
reduced to the respective amounts set forth in column
3 opposite the respective amount and ratio in columns
1 and 2:
(3)
Applicable
(1) (2) Margin
Interest
Coverage Base Rate Eurodollar
EBITDA Ratio Loans Rate Loans
$55,000,000 or more 1.4:1 1-3/4% 2-3/4%
$60,000,000 or more 1.6:1 1-1/2% 2-1/2%
provided that such reduction shall only remain in effect
until the earlier of (x) the next date of delivery of such
financial statements or (y) the last day on which the
financial statements for the fiscal quarter in which such
reduction is to be effective are required to be delivered
pursuant to Section 8.01(b) or (c), as the case may be.
7. On and as of the Amendment Effective Date, the definition of
"Applicable Standby L/C Percentage" appearing in Section 11 of the Credit
Agreement is hereby amended by (i) deleting the reference to "2-1/2%"
appearing therein and inserting "3%" in lieu thereof, (ii) deleting the
reference to "2-1/4%" appearing therein and inserting in lieu thereof
"2-3/4%", (iii) deleting the reference to "2%" appearing therein and
inserting in lieu thereof "2-1/2%" and (iv) deleting the parenthetical
appearing at the end of the first sentence thereof.
8. On and as of the Amendment Effective Date, the definition of
"Applicable Commercial L/C Percentage" appearing in Section 11 of the Credit
Agreement is hereby amended by (i) deleting the reference to "2-1/2%"
appearing therein and inserting "3%" in lieu thereof, (ii) deleting the
reference to "2-1/4%" and inserting "2-3/4%" in lieu thereof, (iii) deleting
the reference to "2%" appearing therein and inserting in lieu thereof "2-1/2%"
and (iv) deleting the parenthetical appearing at the end of the first sentence
thereof.
9. The definition of "EBITDA" appearing in Section 11 of the Credit
Agreement is hereby amended by (i) deleting the word "and" immediately
preceding clause (f) therein and (ii) inserting, immediately following the
reference to "Holdings," appearing in clause (f) therein, the following clause
(g):
"and (g) solely for the purpose of determining EBITDA for the four
consecutive fiscal quarter period ending on or about July 31, 1996,
any severance or similar charge or expense recorded as a result of
the resignation by Barry Parker as Chief Executive Officer of the
Borrower,".
10. Section 14.02 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"14.02 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way
of limitation of any such rights, upon the occurrence and
continuance of an Event of Default, each Bank is hereby authorized
at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Credit Party or to any
other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by
such Bank (including without limitation by branches and agencies of
such Bank wherever located) to or for the credit or the account of
such Credit Party against and on account of the Obligations and
liabilities of such Credit Party to such Bank or any other Bank under
this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations of such
Credit Party purchased by such Bank or any other Bank pursuant to
Section 14.06(b), and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have
made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or
unmatured. Each Bank is hereby designated the agent of all other
Banks for purposes of effecting set off pursuant to this Section
14.02, and each Credit Party hereby grants to each Bank a
continuing security interest in any and all deposits, accounts or
moneys of such Credit Party maintained from time to time with such
Bank. Promptly after any Bank takes any action pursuant to this
Section 14.02, such Bank agrees to notify the Borrower thereof (it
being understood that the failure to give any such notice shall not
diminish the Borrower's obligations under this Agreement or prevent
such Bank from taking any further action under this Section 14.02).
B. Miscellaneous
1. In order to induce the Banks to enter into this Amendment, each
of Holdings and the Borrower (x) represents and warrants that no Default or
Event of Default exists on the Amendment Effective Date after giving effect
to this Amendment, and (y) makes each of the representations, warranties and
agreements contained in the Credit Agreement and the other Credit Documents
on the Amendment Effective Date after giving effect to this Amendment (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct
in all material respects only as of such date).
2. In order to induce the Banks to enter into this Amendment, the
Borrower hereby agrees to pay to each Bank a fee equal to 0.20% of such
Bank's Commitment as in effect on the Amendment Effective Date, which fee
shall be due and payable on such date.
3. In order to induce the Banks to enter into this Amendment,
Holdings and the Borrower hereby remise, release and forever discharge, and
by these presents do for their Subsidiaries (direct or indirect), and for
themselves and their predecessors, successors, affiliates and assigns (each a
"Releasor"), remise, release and forever discharge, the Agent, each Bank
which enters into this Amendment, and their predecessors, affiliates,
subsidiaries (direct or indirect), successors, assigns, participants, officers,
directors, shareholders, employees or agents, of and from all manner of actions
at law or equity, all causes of action for damages, costs, debts, sums of
money, accounts, bills, rights of indemnity, breach of contract, provision of
labor or materials, loss of use, loss of services, expenses, compensation,
consequential or punitive damages, or any other thing whatever, relating in any
way to (i) this Amendment, the Credit Agreement, the Obligations or any other
Credit Document, (ii) any claims (including, without limitation, for
contribution or indemnification) which have or could have arisen out of any of
the transactions contemplated by this Amendment or the Credit Documents or
any other proceedings that have been brought or may be brought by any party
hereto or to any Credit Document or any third party relating to the Credit
Documents or the transactions contemplated thereby, (iii) any acts, transactions
or events that are the subject matter of this Amendment or the Credit
Documents or (iv) the prosecution of any claims or any settlement negotiations
which such Releasor ever had, now or which it, its Subsidiaries (direct or
indirect), or its successors or assigns hereafter can, shall or may have against
the Agent, each Bank which enters into this Amendment, and their
predecessors, affiliates, subsidiaries (direct or indirect), successors,
assigns, participants, officers, directors, shareholders, employees or agents,
by reason of (with respect to each of clauses (i)-(iv) above) any matter, cause
or thing whatsoever on or prior to the date hereof; provided, however, that
nothing herein shall be construed or deemed to release any covenants or
agreements contained in any Credit Document so long as such Credit Document
shall remain in full force and effect.
4. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
5. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Credit Parties and the Agent.
6. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
7. This Amendment shall become effective as of August 3,
1996 on the date (the "Amendment Effective Date") when each of the
following shall have occurred:
(i) each of Holdings, the Borrower, CSS Trade Names, Inc. and
the Required Banks shall have signed a copy hereof (whether the same
or different copies) and shall have delivered (including by way of
telecopier) the same to the Agent at its Notice Office;
(ii) the Borrower shall have paid to the Agent for the account of
the respective Banks entitled thereto the fees referred to in
Section B(2) above; and
(iii) the Agent shall have received such other certificates and
documents as it shall have requested.
8. At all times on and after the Amendment Effective Date, all
references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to such Credit Agreement
after giving effect to this Amendment.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused
a counterpart of this Amendment to be duly executed and delivered as of the
date first above written.
COUNTY SEAT, INC.
By
Title:
COUNTY SEAT STORES, INC.
By
Title:
BANKERS TRUST COMPANY,
Individually and as Agent
By
Title:
BANQUE PARIBAS
By
Title:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By
Title:
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By
Title:
FIRST BANK NATIONAL
ASSOCIATION
By
Title:
SAKURA BANK
By
Title:
UNITED STATES NATIONAL BANK
OF OREGON
By
Title:
BANQUE FRANCAISE DU
COMMERCE EXTERIEUR
By
Title:
PEARL STREET, L.P.
By
Title:
ACKNOWLEDGED AND AGREED:
CSS TRADE NAMES, INC.
By______________________
Title:
EXHIBIT 4(ii)(a)(15)
- --------------------
FOURTH CONSENT, WAIVER AND AMENDMENT
FOURTH CONSENT, WAIVER AND AMENDMENT (the
"Consent"), dated as of August 31, 1996, among COUNTY SEAT, INC.,
a Delaware corporation ("Holdings"), COUNTY SEAT STORES, INC., a
Minnesota corporation (the "Borrower"), the institutions party to the Credit
Agreement referred to below from time to time (the "Banks") and
BANKERS TRUST COMPANY, as Agent (the "Agent"). All capitalized
terms used herein and not otherwise defined shall have the respective
meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Holdings, the Borrower, the Banks and the
Agent are parties to a Credit Agreement, dated as of May 17, 1995 (as
amended and otherwise modified to date, the "Credit Agreement");
WHEREAS, the Borrower has requested the Banks to grant
the consents, waivers and amendments provided herein, and the Banks party
hereto have agreed to grant the consents, waivers and amendments provided
herein on the terms and conditions herein provided;
NOW, THEREFORE, it is agreed:
A. Consents, Waivers and Amendments.
1. The Borrower hereby acknowledges that it has failed
to comply with the covenant set forth in Section 9.18(b) of the Credit
Agreement. The Banks hereby waive compliance by the Borrower with
Section 9.18(b) of the Credit Agreement, and any Default or Event of
Default that may exist solely as a result of the failure to comply with such
covenant, on the terms provided in this Consent. The parties hereto agree
that the waiver provided in the immediately preceding sentence (a) is
revocable at any time by the Required Banks in their sole discretion by
notice to such effect given to the Borrower by the Agent on behalf of the
Required Banks and (b) shall be deemed revoked automatically without
further notice or act upon the close of business on September 24, 1996
unless further extended in writing by the Agent on behalf of the Required
Banks. Upon revocation such waiver shall be deemed of no further force
or effect. The parties hereto further agree that Holdings, the Borrower and
each of their respective Subsidiaries shall be prohibited from taking any
action which the Credit Agreement does not permit to be taken during the
continuance of a Default or Event of Default, provided, that unless and
until the waiver provided above has been revoked by the Agent on behalf
of the Required Banks, no Default or Event of Default arising as a result
of a failure to comply with Section 9.18(b) of the Credit Agreement shall
be deemed to exist under Section 6.02(a) or with respect to any
misrepresentation arising in connection with a Notice of Borrowing as it
relates to Section 9.18(b) of the Credit Agreement.
2. Notwithstanding anything in the Credit Agreement to
the contrary, each of Holdings and the Borrower hereby agrees that it will
not, without at least three Business Days' prior written notice to the Agent,
make any payments of interest on the Borrower Senior Subordinated Notes
or the Holdings Subordinated Exchange Debentures, or transfer any moneys
to a trustee or paying agent for purposes of making any such interest
payment. Notwithstanding the foregoing, the Agent and the Banks
expressly reserve all of their rights with respect to the making of any such
payment, including, without limitation, those contained in Section 11.3(b)
of the indenture governing the Borrower Senior Subordinated Notes and
Section 9.03(b) of the indenture governing the Holdings Subordinated
Exchange Debentures.
3. The Borrower hereby acknowledges that the
Concentration Account is maintained with First Bank National Association
("First Bank"). The Borrower hereby agrees that at the request of the
Collateral Agent, the Borrower will change the name of such Concentration
Account to be an account of "Bankers Trust Company, as Collateral Agent
for the lenders party to the County Seat Stores, Inc. Credit Agreement", it
being understood and agreed that on and after the date of such change, the
Borrower shall continue to have access to funds in such Concentration
Account for any purpose permitted under the Credit Agreement unless and
until an Event of Default exists and the Collateral Agent shall have notified
the Borrower that it will not have access to the funds in such account. At
the request of the Collateral Agent, the Borrower will enter into an
agreement or agreements with the Collateral Agent and/or First Bank to
give effect to this Section 3, which agreement or agreements shall be in
form and substance satisfactory to the parties thereto (including First Bank)
(it being understood that nothing herein shall be deemed an obligation or
commitment of First Bank to enter into any such agreement).
4. Holdings and the Borrower further agree that in the
event that the trustee in respect of such Holdings Subordinated Exchange
Debentures or Borrower Senior Subordinated Notes is replaced, Holdings
or the Borrower, as the case may be, shall give the Agent at least three
Business Days' prior written notice of such replacement, which notice shall
identify the name of the new trustee and the notice information for such
new trustee under the respective indenture (including, without limitation,
the address and telecopy number at and to which notices shall be provided
to the trustee under Section 9.03 of the indenture relating to the Holdings
Subordinated Exchange Debentures and the address and telecopy number at
and to which notices shall be provided to the trustee under Section 11.3 of
the indenture relating to the Borrower Senior Subordinated Notes), each of
which such notices shall be acknowledged in writing by the respective
replacement trustee. In addition, no later than September 16, 1996, (i) the
Borrower shall seek to obtain from the institution then acting as trustee
under the indenture governing the Borrower Senior Subordinated Notes an
acknowledgement that a notice received from the Agent by the close of
business on September 27, 1996 pursuant to Section 11.3 of such indenture
will be effective to block the interest payment on the Borrower Senior
Subordinated Notes due on October 1, 1996, and (ii) Holdings shall seek
to obtain from the institution then acting as trustee under the indenture
governing the Holdings Subordinated Exchange Debentures an
acknowledgement that a notice received from the Agent by the close of
business on November 27, 1996 pursuant to Section 9.03 of such indenture
will be effective to block the interest payment on the Holdings Subordinated
Exchange Debentures due on November 30, 1996.
5. Section 14.01 of the Credit Agreement is hereby
amended by deleting clauses (i) and (ii) thereof in their entirety and by
inserting in lieu thereof the following new clauses (i) and (ii):
"(i) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and
expenses of the Agent in connection with the Credit
Documents and the documents and instruments referred to
therein (including, without limitation, the reasonable fees and
disbursements of O'Melveny & Myers, White & Case and
of any local counsel, and the reasonable fees and
disbursements of Policano & Manzo in its role as an advisor
to the Agent, O'Melveny & Myers (on terms substantially
similar to those set forth in the engagement letter, dated
August 15, 1996 between Policano & Manzo and White &
Case (the "Letter")) and/or White & Case (pursuant to the
terms of the Letter); (ii) pay all reasonable out-of-pocket
costs and expenses of the Agent in connection with any
amendment, waiver or consent relating to the Credit
Documents and the documents and instruments referred to
therein (including without limitation, the reasonable fees and
disbursements of O'Melveny & Myers, White & Case and
of any local counsel) and of the Agent and each of the Banks
in connection with the enforcement of the Credit Documents
and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and
disbursements of counsel for the Agent and for each of the
Banks);".
6. Section 14.02 of the Credit Agreement is hereby
amended by deleting the second sentence thereof in its entirety and by
inserting in lieu thereof the following new sentence:
"Each Bank is hereby designated the agent of all other Banks
for purposes of effecting set off pursuant to this Section
14.02, and each Credit Party hereby grants to each Bank for
such Bank's own benefit and as agent for all other Banks a
continuing security interest in any and all deposits, accounts
or moneys of such Credit Party maintained from time to time
with such Bank."
B. Miscellaneous.
1. In order to induce the Banks to enter into this
Consent, each of Holdings and the Borrower (x) represents and warrants
that no Default or Event of Default exists on the Consent Effective Date
after giving effect to this Consent and (y) makes each of the representa-
tions, warranties and agreements contained in the Credit Agreement and the
other Credit Documents on the Consent Effective Date after giving effect
to this Consent (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required
to be true and correct in all material respects only as of such date).
2. In order to induce the Banks to enter into this
Consent, the Borrower hereby agrees to pay to each Bank a fee equal to
0.10% of such Bank's Commitment as in effect on the Consent Effective
Date, which fee shall be due and payable on such date; provided that the
foregoing fee shall only be payable if this Consent becomes effective at or
prior to 12:00 Noon on September 4, 1996.
3. In order to induce the Banks to enter into this
Consent, Holdings and the Borrower hereby remise, release and forever
discharge, and by these presents do for their Subsidiaries (direct or
indirect), and for themselves and their predecessors, successors, affiliates
and assigns (each a "Releasor"), remise, release and forever discharge, the
Agent, each Bank, and their predecessors, affiliates, subsidiaries (direct or
indirect), successors, assigns, participants, officers, directors, shareholders,
employees or agents, of and from all manner of actions at law or equity,
all causes of action for damages, costs, debts, sums of money, accounts,
bills, rights of indemnity, breach of contract, provision of labor or
materials, loss of use, loss of services, expenses, compensation,
consequential or punitive damages, or any other thing whatever, relating in
any way to (i) this Consent, the Credit Agreement, the Obligations or any
other Credit Document, (ii) any claims (including, without limitation, for
contribution or indemnification) which have or could have arisen out of any
of the transactions contemplated by this Consent or the Credit Documents
or any other proceedings that have been brought or may be brought by any
party hereto or to any Credit Document or any third party relating to the
Credit Documents or the transactions contemplated thereby, (iii) any acts,
transactions or events that are the subject matter of this Consent or the
Credit Documents or (iv) the prosecution of any claims or any settlement
negotiations which such Releasor ever had, now or which it, its Subsidiaries
(direct or indirect), or its successors or assigns hereafter can, shall or may
have against the Agent, each Bank, and their predecessors, affiliates,
subsidiaries (direct or indirect), successors, assigns, participants, officers,
directors, shareholders, employees or agents, by reason of (with respect to
each of clauses (i)-(iv) above) any matter, cause or thing whatsoever on or
prior to the date hereof; provided, however, that nothing herein shall be
construed or deemed to release any covenants or agreements contained in
any Credit Document so long as such Credit Document shall remain in full
force and effect.
4. This Consent is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
5. This Consent may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged with the Credit
Parties and the Agent.
6. THIS CONSENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.
7. This Consent shall become effective as of August 31,
1996 on the date (the "Consent Effective Date") when each of the following
shall have occurred:
(i) each of Holdings, the Borrower, CSS Trade
Names, Inc. and the Required Banks shall have signed a
copy hereof (whether the same or different copies) and shall
have delivered (including by way of telecopier) the same to
the Agent at its Notice Office;
(ii) the Borrower shall have paid to the Agent for
the account of the Banks the fees referred to in Section B(2)
above;
(iii)the Borrower shall have paid to White &
Case, counsel to the Agent, its outstanding invoice, dated
August 21, 1996, in the amount of $34,974.20;
(iv) the Borrower shall have paid to O'Melveny &
Myers, counsel to the Agent, a retainer of $75,000, to be
applied against future payment obligations of the Borrower
under Section 14.01 of the Credit Agreement; and
(v) the Borrower shall have paid to White &
Case, counsel to the Agent, a retainer of $25,000, to be
applied against future payment obligations of the Borrower
under Section 14.01 of the Credit Agreement, provided that
if any of such amount is not invoiced to the Borrower, such
remaining amount shall be returned to the Borrower.
8. At all times on and after the Consent Effective Date,
all references in the Credit Agreement and each of the Credit Documents
to the Credit Agreement shall be deemed to be references to such Credit
Agreement after giving effect to this Consent.
* * *
IN WITNESS WHEREOF, each of the parties hereto has
caused a counterpart of this Consent to be duly executed and delivered as
of the date first above written.
COUNTY SEAT, INC.
By
Title:
COUNTY SEAT STORES, INC.
By
Title:
BANKERS TRUST COMPANY,
Individually and as Agent
By
Title:
BANQUE PARIBAS
By
Title:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By
Title:
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By
Title:
FIRST BANK NATIONAL
ASSOCIATION
By
Title:
SAKURA BANK
By
Title:
U.S. BANK OF OREGON
By
Title:
BANQUE FRANCAISE DU
COMMERCE EXTERIEUR
By
Title:
PEARL STREET, L.P.
By
Title:
ACKNOWLEDGED AND AGREED:
CSS TRADE NAMES, INC.
By______________________
Title:
EXHIBIT 10(iii)(x)
- ------------------
July 29, 1996
Mr. Gilbert C. Osnos
Osnos & Company, Inc.
230 Park Avenue
Suite C-301
New York, NY 10169
Dear Gil:
The Board of Directors of County Seat, Inc. ("the Company") wishes to
engage professional management assistance to provide general management
of the Company's operating and business affairs and to assist the Company,
to the extent possible, in seeking and finding solutions to certain problems
within the sphere of management direction and planning.
The Company hereby agrees to engage Osnos & Company, Inc. ("GCO"), a
New York corporation, effective as of July 29, 1996, for the purpose of
managing the Company during the critical period ahead. GCO will provide
Gilbert C. Osnos to serve as interim chief executive officer of the Company
and Robert Rimmer to serve as a consultant, subject to the following terms
and conditions:
1. GCO shall have full access to all personnel and a relationship
with the entire internal organization much like that of the chief
executive officer, although the relationship of GCO to the Company
shall, at all times, be that of an independent contractor.
2. GCO shall review and approve all financial and operating
policies, plans and programs and shall participate in any major
decision, which might have a significant impact on such policies.
3. GCO shall be subject solely to the control of the Board of
Directors of the Company. Except for such control, GCO shall not
be subject to the control of any other person or persons.
4. GCO shall be compensated for its services pursuant to the
engagement at the rate of $60,000 for the first month, $40,000 for
the second month, and $50,000 per month thereafter plus expenses.
There shall be an initial payment of $30,000 as a client deposit,
which will be refunded to the extent that at the end of the assignment
the total amount billed to the Company by GCO, less the payments
made to GCO, does not equal or exceed the amount of such deposit.
Fees and expenses shall be billed monthly, and all invoices are due
and payable upon receipt.
5. In consideration of GCO's undertaking to discharge the
responsibilities of the engagement, as set forth above, the Company
shall and does, hereby forever release, remise and discharge, agree to
indemnify, pay on demand, and hold harmless, GCO, its agents,
attorneys, employees, and representatives, from any and all claims,
costs, demands, actions, or liabilities, whatsoever, in law or equity,
which may result from any act or failure to act in what they, in good
faith, believe to be the best interests of the Company, its creditors or
stockholders except for any such act or failure to act constituting
gross negligence.
6. This engagement of GCO shall continue at the pleasure of
the Board of Directors and may be terminated at any time by
resolution of the Board of Directors, a certified copy of which shall
be delivered to GCO. GCO shall have the option to terminate its
employment at any time upon notification to the Board of Directors
of its desire to terminate. Monthly compensation will be prorated
for any portion of a month to the date of termination. The
obligations under Sections 7 and 8 below shall survive the
termination of this engagement.
7. The Company shall retain exclusive rights to ownership of
all work-product hereunder.
8. GCO will maintain, in strict confidence, any and all
information of a non-public nature relating to the Company or any of
its subsidiaries or any of their businesses that it may gain or develop
in the course of its engagement by the Company (including its own
work-product and advice to the Company), and will not disclose any
such information to any person during or after its engagement by the
Company except with the written consent of the Company or as
required by law or court order. Upon termination of this
engagement GCO will, if requested, return to the Company, all
materials of a non-public nature received from the Company in the
course of its engagement and will either deliver to the Company or
destroy any copies thereof that it may have made or received.
If this reflects our mutual understanding of the terms and conditions of your
engagement, please sign the enclosed copy of this letter and return it to me.
Sincerely,
COUNTY SEAT, INC.
By:
David Pulver
Chairman, Executive Committee
of the Board of Directors
Accepted and Agreed to this __________ day of
_____________________, 1996.
OSNOS & COMPANY
By:
Gilbert C. Osnos
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR THE 26 WEEK PERIOD ENDED AUGUST 3, 1996 INCLUDED IN THE COMPANY'S FORM
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FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> AUG-03-1996
<CASH> 10603
<SECURITIES> 0
<RECEIVABLES> 1486
<ALLOWANCES> 0
<INVENTORY> 132580
<CURRENT-ASSETS> 158584
<PP&E> 119425
<DEPRECIATION> 65943
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<CURRENT-LIABILITIES> 153048
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112731
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<CGS> 185812
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11098
<INCOME-PRETAX> (28686)
<INCOME-TAX> (1258)
<INCOME-CONTINUING> (27428)
<DISCONTINUED> 0
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<EPS-PRIMARY> (9.92)
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