-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Taatt7Q0Y876l0iXIbRPBS2xLHKjRILycdAOqIFSMZM5v+ZNSZp4Q82RyU3wx9Nq Fgrx+OCXQS95pozF2SthXw== 0000085149-97-000003.txt : 19970611 0000085149-97-000003.hdr.sgml : 19970611 ACCESSION NUMBER: 0000085149-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970426 FILED AS OF DATE: 19970610 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSES STORES INC CENTRAL INDEX KEY: 0000085149 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 560382475 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00631 FILM NUMBER: 97621638 BUSINESS ADDRESS: STREET 1: PO DRAWER 947 STREET 2: 218 S GARNETT ST CITY: HENDERSON STATE: NC ZIP: 27536 BUSINESS PHONE: 9194302600 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 26, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-631 ROSE'S STORES, INC. Incorporated Under the Laws of Delaware I.R.S. Employer Identification No. 56-0382475 P. H. Rose Building 218 South Garnett Street Henderson, North Carolina 27536 Telephone No. 919/430-2600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. As of May 14, 1997, of the 10,000,000 shares of common stock delivered to First Union National Bank of North Carolina, as Escrow Agent ("FUNB"), pursuant to the Modified and Restated First Amended Joint Plan of Reorgani- zation, 8,575,331 of such shares of common stock are outstanding. The remaining 424,503 shares held in escrow will be distributed by FUNB in satisfaction of disputed Class 3 claims as and when such claims are resolved. If all pending claims are resolved adversely to the Company, approximately 8,611,337 shares of common stock will be outstanding. If all pending claims are resolved in accordance with the Company's records, approximately 8,600,590 shares of common stock will be outstanding. To the extent that escrowed shares of common stock are not used to satisfy claims, they will revert to the Company and will be retired or held in the treasury of the Company. PAGE ROSE'S STORES, INC. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Amounts in thousands except per share amounts) The following summary of financial information of Rose's Stores, Inc. (the "Company"), which is unaudited, reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the information presented. ROSE'S STORES, INC. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in Thousands Except Per Share Amounts) For the Thirteen Weeks Ended April 26, 1997 April 27, 1996 Revenue: Gross sales $ 140,281 154,426 Leased department sales 3,979 4,281 Net sales 136,302 150,145 Leased department income 1,034 1,080 Total revenue 137,336 151,225 Costs and Expenses: Cost of sales 102,884 113,040 Selling, general and administrative 34,753 (a) 36,819 Depreciation and amortization (529) (672) Interest 1,536 1,386 Total costs and expenses 138,644 150,573 Net Earnings (Loss) $ (1,308) 652 Net Earnings (Loss) Per Share $ (.15) .08 Weighted Average Shares 8,611 8,611 (a) Included in 1997 selling, general and administrative costs is income of $754 from the settlement of pre-petition insurance liabilities and a loss of $189 from the closing of a store during the first quarter. See notes to financial statements PAGE ROSE'S STORES, INC. BALANCE SHEETS (Amounts in thousands)
April 26, January 25, April 27, 1997 1997 1996 (Unaudited) (Audited) (Unaudited) Assets Current Assets Cash and cash equivalents $ 584 1,241 578 Accounts receivable 7,473 5,101 8,679 Inventories 155,485 141,287 172,294 Other current assets 3,355 4,503 4,246 Total current assets 166,897 152,132 185,797 Property and Equipment, at cost, less accumulated depreciation and amortization 7,554 7,710 5,780 Other Assets 282 480 961 $ 174,733 160,322 192,538 Liabilities and Stockholders' Equity Current Liabilities Short-term debt $ 44,243 44,138 53,220 Bank drafts outstanding 2,041 - 3,926 Accounts payable 36,539 19,230 34,521 Accrued salaries and wages 4,400 6,422 4,620 Pre-petition liabilities 1,908 2,737 4,597 Other current liabilities 11,123 10,908 11,497 Total current liabilities 100,254 83,435 112,381 Excess of Net Assets Over Reorganization Value, Net of Amortization 20,997 21,872 24,496 Reserve for Income Taxes 13,033 12,996 12,673 Deferred Income 128 339 804 Other Liabilities 689 740 972 Stockholders' Equity Preferred stock, Authorized 10,000 shares; none issued - - - Common stock, Authorized 50,000 shares; issued 8,611 at 4/26/97, 1/25/97 and 4/27/96 (Note 1) 35,000 35,000 35,000 Paid-in capital 1,159 1,159 1,159 Retained earnings 3,473 4,781 5,053 Total stockholders' equity 39,632 40,940 41,212 $ 174,733 160,322 192,538
See notes to financial statements PAGE ROSE'S STORES, INC. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
For the Thirteen Weeks Ended April 26, 1997 April 27, 1996 Cash flows from operating activities: Net earnings (loss) $ (1,308) 652 Expenses not requiring the outlay of cash: Depreciation and amortization (529) (673) Amortization of deferred financing costs 206 97 (Gain) loss on disposal of property and equipment - (2) Settlement of pre-petition liabilities (754) - Provision for closed store 189 - Cash provided by (used in) assets and liabilities: (Increase) decrease in accounts receivable (2,372) (1,470) (Increase) decrease in inventories (14,198) (19,104) (Increase) decrease in other assets 1,150 462 Increase (decrease) in accounts payable 17,309 10,676 Increase (decrease) in other liabilities (1,439) (2,667) Increase (decrease) in income tax reserves 37 - Increase (decrease) in reserve for store closings (530) (24) Increase (decrease) in deferred income (211) (170) Increase (decrease) in accumulated PBO - (100) Net cash provided by (used in) operating activities (2,450) (12,323) Cash flows from investing activities: Purchases of property and equipment (204) (860) Proceeds from disposal of property and equipment - 2 Net cash used in investing activities (204) (858) Cash flows from financing activities: Net activity on line of credit 105 19,547 Payments of unsecured priority and administrative claims (75) (35) Principal payments on capital leases (64) (106) Increase (decrease) in bank drafts outstanding 2,041 (5,604) Payments of deferred financing costs (10) (636) Net cash provided by (used in) financing activities 1,997 13,166 Net decrease in cash (657) (15) Cash and cash equivalents at beginning of period 1,241 593 Cash and cash equivalents at end of period $ 584 578 Supplemental disclosure of additional non-cash investing and financing activities: Retirement of net book value of assets in reserve for store closings $ 14 -
See notes to financial statements PAGE Notes to Financial Statements: (1) On September 5, 1993, the Company filed a voluntary Petition for Relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Eastern District of North Carolina (the "Bankruptcy Court"). The Company's Modified and Restated First Amended Joint Plan of Reorganization (the "Plan") was approved by order of the Bankruptcy Court on April 24, 1995. On April 28, 1995 (the "Effective Date"), the Plan became effective. Since emergence, distributions of the common stock, no par value, of the Company (the "Common Stock") have been made to holders of Allowed Class 3 Unsecured Claims (as defined in the Plan) in accordance with the provisions of the Plan. As a result of distributions of the Common Stock pursuant to the Plan, as of May 14, 1997, the Company had 8,575 shares of Common Stock outstanding of the 10,000 shares of Common Stock which were delivered pursuant to the Plan on the Effective Date to First Union National Bank of North Carolina ("FUNB") as escrow agent. In addition, as of May 14, 1997, and pursuant to the provisions of the Plan, 1,000 shares have reverted to the Company from escrow to be retired. The remaining 425 shares held in escrow will be distributed by FUNB in satisfaction of disputed Class 3 claims as and when such claims are resolved. The disputed Class 3 claims which remained unresolved at May 14, 1997 were primarily claims of landlords with respect to leases which were rejected during the course of the Chapter 11 proceeding and general liability claims being resolved under an alternative dispute resolution program established by the Bankruptcy Court. If all pending claims are resolved adversely to the Company, approximately 36 additional shares of Common Stock will be issued and there will be a total of approxi- mately 8,611 shares of Common Stock issued and outstanding. If all pending claims are resolved in accordance with the Company's records and/or position as to such claims, approximately 26 additional shares of Common Stock will be issued, and there will be a total of approximately 8,601 shares of Common Stock issued and outstanding. To the extent that escrowed shares of Common Stock are not used to satisfy claims, they will revert to the Company and will be retired or held in the treasury of the Company. PAGE Notes to Financial Statements (Continued): (1) Continued On the Effective Date, all shares of the Company's pre-emergence Voting Common Stock and Non-Voting Class B Stock were cancelled and the record owners of such stock as of such date received warrants to purchase the new Common Stock of the Company. One warrant was issued for every 4.377 shares of pre-emergence Voting Common Stock or Non-Voting Class B Stock and allows the holder to purchase one share of the new Common Stock. The warrants may be exercised at any time until they expire on April 28, 2002. The initial warrant exercise price of $14.45 was calculated pursuant to a formula set forth in the Plan. The exercise price was adjusted to $12.01 on April 28, 1996, the first anniversary of the Effective Date, and was adjusted to $11.87 on April 28, 1997, the second anniversary of the Effective Date. The exercise price will be adjusted on the third anniversary of the Effective Date to reflect adjustments to the total of allowed and disputed claims of the Company's unsecured creditors. The exercise price will be further adjusted on the fourth, fifth and sixth anniversaries of the Effective Date to reflect 105%, 110% and 115%, respectively, of the total of the allowed and disputed claims of the unsecured creditors. Under the New Equity Compensation Plan, nonqualified stock options to purchase 318 shares of Common Stock were outstanding on April 26, 1997. The weighted average option price per share is $3.89. The options vest over a three year period (unless earlier vested by reason of certain acceleration events, including a change of control of the Company). One half of the options expire five years from the date of issuance and the remainder expire seven years from the date of issuance. The exercise of outstanding stock options and warrants would not result in a dilution of earnings per share and are excluded from the calculation of earnings per share. (2) Accounts receivable is net of an allowance for doubtful accounts of $515 as of April 26, 1997; $420 as of January 25, 1997 and $298 as of April 27, 1996. (3) The operating results presented herein are not necessarily indicative of the operating results for a full year due to seasonal factors, among other reasons. (4) The Company paid interest (including deferred financing costs) of $1,279 in the first quarter of 1997 and $1,669 in the comparable quarter of last year. (5) Certain reclassifications have been made to the 1996 financial statements to conform with the 1997 presentation. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands) Revenue The Company reported sales for the first quarter of 1997 of $140,281, a decrease of $14,145, or 9.2%, from the first quarter of 1996. The decline in sales was primarily attributable to a decline in sales on a comparable store basis of 8.4%, together with the decrease in the number of stores (104 in 1997 as compared to 105 in 1996). Costs and Expenses Cost of sales as a percent of net sales was 75.5% for the first quarter of 1997 and 75.3% for the comparable period of the prior year. Cost of sales increased .2% for the quarter due to an increase in markdowns, increased .2% for the quarter due to a decrease in the markon percent and increased .1% by a decrease in advertising co-op income. These increases were offset somewhat by a decrease in shrinkage resulting in a decrease of .2% in cost of sales, and a decrease in freight costs resulting in a decrease of .1% in cost of sales. Selling, general and administrative expenses (SG&A) as a percent of net sales were 25.5 % for the first quarter of 1997 and 24.5% for the comparable quarter of the prior year. Included in 1997 selling, general and administrative expense was income of $754 resulting from the settlement of pre-petition insurance liabilities and a loss of $189 from the closing of a store during the first quarter. Liquidity and Capital Resources As of May 17, 1997, under the Company's three year revolving credit facility (the "Credit Facility"), the Company had $48,692 outstanding in short-term borrowings, $6,634 in outstanding letters of credit and unused availability of $32,709. The Company's management believes that the Company's current financing arrangement and cash flows are adequate to meet its liquidity needs. Under the Credit Facility, trade suppliers which extend credit to the Company are supported by a subordinated lien on all of the assets of the Company including a subordinated lien of $15,000 in the real estate properties of the Company (the "Trade Lien"). The Trade Lien expires April 29, 1998, was put into place on April 30, 1997, and replaces the prior trade security package (consisting of a $5,000 letter of credit and a subordinated lien in the real estate properties of the Company), which expired on April 29, 1997. The Company invested $204 in cash for property and equipment in the first quarter of 1997 compared to $860 in the first quarter of 1996. The 1997 expenditures were for store improvements and computer software. The 1996 expenditures were primarily for store remodelings and new computer software. Cash used in operating activities, primarily to fund inventory levels, was $2,450 in the first quarter of 1997, and $12,323 in the comparable period last year. PART II. OTHER INFORMATION ITEM 6: Exhibits and Reports on Form 8-K (a) 10.1 Second Amended and Restated Trade Debt Note dated as of April 29, 1997, between the Company and M. J. Sherman and Associates, Inc. 10.2 Collateral Trust Agreement dated as of April 29, 1997, between M. J. Sherman and Associates, Inc., as Trustee, and the Company. 10.3 General Security Agreement dated as of April 29, 1997, by the Company to M. J. Sherman and Associates, Inc., as Trustee. 10.4 Second Amendment to Second Deed of Trust, Assignment of Rents and Security Agreement dated as of April 29, 1997, by and among the Company, Alan H. Peterson, and M. J. Sherman and Associates, Inc. (b) The Company filed the following reports on Form 8-K during the quarter covered by this report: (i) Report on Form 8-K, dated April 28, 1997, reporting under Item 5 the adjustment of the exercise price of the Company's Warrants. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROSE'S STORES, INC. Date: June 10, 1997 By /s/ R. Edward Anderson R. Edward Anderson President, Chief Executive Officer Date: June 10, 1997 By /s/ Jeanette R. Peters Jeanette R. Peters Senior Vice President, Chief Financial Officer EX-10.1 2 SECOND AMENDED AND RESTATED TRADE DEBT NOTE $15,000,000.00 April 29, 1997 Henderson, North Carolina For Value Received, Rose's Stores, Inc., a Delaware corporation, whose address is 218 South Garnett Street, Henderson, North Carolina 27536 ("Mortgagor"), promises to pay to the order of M.J. Sherman & Associates, Inc., whose address is 333 East 68th Street, New York, New York 10021, as Trustee ("Beneficiary"), or at such other place as may be designated from time to time in writing, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000.00), or such portion thereof as may, from time to time, be owing hereunder, with interest thereon as hereinafter provided. The Beneficiary is Trustee for the "Trade Vendors" of the undersigned, under and as defined in the Collateral Trust Agreement between the undersigned and the Beneficiary, dated the date hereof, as from time to time amended, amended and restated, supplemented or otherwise modified from time to time (the "Collateral Trust Agreement"), which amends and restates in its entirety the Letter of Credit and Mortgage Trust Agreement between the undersigned and the Beneficiary, dated as of May 8, 1995, as amended. This Second Amended and Restated Trade Debt Note ("Note") is given to evidence present and future obligations of the undersigned to the Trade Vendors for the unpaid invoiced cost of goods heretofore and hereafter delivered by them to the undersigned as shown on and after May 8, 1995 and prior to an Event of Default, as hereinafter defined, on the books and records of the undersigned, provided, that the maximum principal amount of present and future obligations which may be evidenced hereby at any one time is FIFTEEN MILLION DOLLARS ($15,000,000.00). All such future obligations shall be incurred on or before April 29, 1998, unless the time for incurring such obligations is extended to a date which, in no event, will be later than fifteen (15) years from May 8, 1995. The unpaid principal balance hereof shall be due from an "Event of Default", as that term is defined in the Collateral Trust Agreement, and shall bear interest from an Event of Default at a rate per annum equal to three and one-half percent (3.50%) above the "base rate", "prime rate" or "reference rate" announced from time to time by Norwest Bank Minnesota, National Association, or any successor thereto, on the unpaid balance until paid. Both principal and interest are payable in lawful money of the United States of America at the office of the Beneficiary or at such place as the legal holder hereof may designate in writing. Pursuant to the provisions of N.C. Gen. Stat. Sections 45-67 et seq., this Note secures the making of present and future advances incurred hereunder. This Note shall become null and void and of no further force or effect upon termination of the Collateral Trust Agreement in accordance with its terms. All parties to this Note, including maker and any sureties, endorsers, or guarantors hereby waive protest, presentment, notice of dishonor and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest and all other sums due under this Note notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon the occurrence of an Event of Default the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the maker, principal, surety, guarantor and endorsers of this Note hereby agree to pay on demand the holder's reasonable attorney's fees, plus all other reasonable expenses incurred by the holder in exercising any of the holder's rights and remedies upon and after an Event of Default. The rights and remedies of the holder as provided in this Note and any instrument securing this Note shall be cumulative and may be pursued singly, successively, or together against any security held by the holder for payment or security in the sole discretion of the holder. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. In the event any interest is charged in excess of the maximum allowed by law, the undersigned acknowledges and stipulates that any such charge shall be the result of an accidental and bona fide error and such excess shall be, first, applied to reduce the principal due, and, second, returned to the undersigned, it being the intention of the parties hereto not to enter at any time into an usurious or otherwise illegal relationship. This Note is to be governed and construed in accordance with the laws of the State of North Carolina. This Note is issued pursuant to the terms of the Collateral Trust Agreement and amends and restates in its entirety the Trade Debt Note dated April 29, 1996 (the "Existing Trade Debt Note") previously executed and delivered by the Mortgagor to the Beneficiary pursuant to the terms of the Collateral Trust Agreement. This Note is not intended to be and shall not constitute a novation of the indebtedness evidenced by the Existing Trade Debt Note, but is a restatement of such indebtedness as it currently exists and shall constitute evidence of the indebtedness of the Mortgagor to the Trade Vendors as set forth herein. IN WITNESS WHEREOF, the Mortgagor has caused this instrument to be signed in its corporate name by its duly authorized officer and its seal to be hereunto affixed by authority of its Board of Directors, the day and year first above written. ROSE'S STORES, INC. a Delaware corporation By:/s/ Jeanette Peters_______ Name: Jeanette Peters________ Title: Chief Financial Officer Senior VP & Treasurer ATTEST: G. Templeton Blackburn, II Secretary (CORPORATE SEAL) EX-10.2 3 COLLATERAL TRUST AGREEMENT dated as of April 29, 1997 between ROSE'S STORES, INC., and M.J. SHERMAN & ASSOCIATES, INC., as Trustee PAGE TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . .- 4 - SECTION 1.01 Certain Defined Terms. . . . . . . . . .- 4 - SECTION 1.02 Certain References . . . . . . . . . . .- 8 - ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY OF TRADE VENDOR DOCUMENTS AND INTERCREDITOR AGREEMENT . . . . . . . . . . .- 9 - SECTION 2.01 Acceptance of Trust. . . . . . . . . . .- 9 - SECTION 2.02 Execution and Delivery of Trade Vendor Documents . . . . . . . . . . . .- 9 - SECTION 2.03 Execution and Delivery of Intercreditor Agreement. . . . . . . . .- 9 - ARTICLE 3. INTENTIONALLY OMITTED . . . . . . . . . . . .- 9 - ARTICLE 4. DEFAULT NOTICE; REMEDIES. . . . . . . . . . .- 9 - SECTION 4.01 Default Notice . . . . . . . . . . . . .- 9 - SECTION 4.02 Action Upon Receipt of Default Notice. .- 9 - SECTION 4.03 Remedies Generally . . . . . . . . . . - 10 - SECTION 4.04 Appointment of a Receiver. . . . . . . - 11 - SECTION 4.05 Exercise of Powers . . . . . . . . . . - 11 - SECTION 4.06 Remedies Not Exclusive . . . . . . . . - 11 - SECTION 4.07 Limitation on Rights and Remedies in Respect of Security . . . . . . . . - 12 - SECTION 4.08 Right to Initiate Judicial Proceedings, Etc.. . . . . . . . . . . - 12 - SECTION 4.09 Limitation on Trustee's Duties in Respect of Security. . . . . . . . . . - 12 - SECTION 4.10 Limitation by Law. . . . . . . . . . . - 13 - ARTICLE 5. DIRECTION BY TRADE COMMITTEE. . . . . . . . - 13 - SECTION 5.01 Direction by Trade Committee . . . . . - 13 - ARTICLE 6. INTENTIONALLY OMITTED . . . . . . . . . . . - 14 - ARTICLE 7. NOTICE TO TRADE VENDORS . . . . . . . . . . - 14 - SECTION 7.01 Notice to Trade Vendors . . . . . . . . - 14 - ARTICLE 8. PROCEEDS ACCOUNT. . . . . . . . . . . . . . - 15 - SECTION 8.01 The Proceeds Account . . . . . . . . . - 15 - SECTION 8.02 Control of Proceeds Account. . . . . . - 15 - SECTION 8.03 Investment of Funds Deposited in Proceeds Account. . . . . . . . . . - 15 - ARTICLE 9. APPLICATION OF PROCEEDS . . . . . . . . . . - 16 - SECTION 9.01 Application of Proceeds. . . . . . . . - 16 - SECTION 9.02 Distribution of Proceeds . . . . . . . - 16 - ARTICLE 10. ABSOLUTE RIGHTS OF TRADE VENDORS. . . . . . - 17 - SECTION 10.01 Absolute Rights of Trade Vendors . . . - 17 - ARTICLE 11. AGREEMENTS WITH THE TRUSTEE AND THE MORTGAGE TRUSTEE. . . . . . . . . . - 18 - SECTION 11.01 (a) Information as to Trade Vendors . - 18 - (b) Confidentiality . . . . . . . . . - 18 - SECTION 11.02 Compensation and Expenses. . . . . . . - 19 - SECTION 11.03 Stamp and Other Similar Taxes. . . . . - 19 - SECTION 11.04 Filing Fees, Excise Taxes, Etc.. . . . - 19 - SECTION 11.05 Indemnification. . . . . . . . . . . . - 20 - SECTION 11.06 Further Assurances . . . . . . . . . . - 20 - SECTION 11.07 Notification of Event of Default Under Loan Agreement . . . . . . . . . - 21 - ARTICLE 12. THE TRUSTEE . . . . . . . . . . . . . . . . - 22 - SECTION 12.01 Exculpatory Provisions . . . . . . . . - 22 - SECTION 12.02 Delegation of Duties . . . . . . . . . - 22 - SECTION 12.03 Reliance by Trustee. . . . . . . . . . - 22 - SECTION 12.04 Limitations on Duties of the Trustee . - 23 - SECTION 12.05 Moneys to Be Held in Trust . . . . . . - 24 - SECTION 12.06 Resignation and Removal of Trustee . . - 24 - SECTION 12.07 Trustee Appointed Attorney-in-Fact . . - 25 - SECTION 12.08 Reasonable Care. . . . . . . . . . . . - 26 - ARTICLE 13. MISCELLANEOUS . . . . . . . . . . . . . . . - 26 - SECTION 13.01 Amendment or Waiver. . . . . . . . . . - 26 - SECTION 13.02 Intercreditor and Subordination Agreements . . . . . . . - 26 - SECTION 13.03 Notices. . . . . . . . . . . . . . . . - 26 - SECTION 13.04 Headings . . . . . . . . . . . . . . . - 27 - SECTION 13.05 Severability . . . . . . . . . . . . . - 27 - SECTION 13.06 Claims Against Trustee . . . . . . . . - 27 - SECTION 13.07 Binding Effect . . . . . . . . . . . . - 28 - SECTION 13.08 Governing Law. . . . . . . . . . . . . - 28 - SECTION 13.09 Counterparts . . . . . . . . . . . . . - 28 - SECTION 13.10 Termination. . . . . . . . . . . . . . - 28 - PAGE EXHIBITS EXHIBIT A Default Notice EXHIBIT B Individual Trade Vendor Notice EXHIBIT C Public Trade Vendor Notice PAGE COLLATERAL TRUST AGREEMENT This COLLATERAL TRUST AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, this "Agreement") is dated as of April 29, 1997 and is entered into between Rose's Stores, Inc., a Delaware corporation, with an office at U.S. Highway #1 Business, Henderson, North Carolina 27536 (the "Company") and M.J. Sherman & Associates, Inc., a New York corporation, with an office at 333 East 68th Street, New York, New York 10021, as trustee (the "Trustee"). This Agreement amends and restates in its entirety the Letter of Credit and Mortgage Trust Agreement between the Company and the Trustee, dated May 8, 1995, as amended. Initially capitalized terms used and not otherwise defined herein shall have the meanings set forth in Article 1 hereof. RECITALS A. On September 5, 1993 the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Eastern District of North Carolina (the "Bankruptcy Court"). B. On December 14, 1994 the Bankruptcy Court entered an order confirming the Company's First Amended Joint Plan of Reorganization dated October 4, 1994 (as so confirmed, and as modified and restated by the Company's Modified and Restated First Amended Joint Plan of Reorganization, dated April 19, 1995 which was confirmed pursuant to an order of the Bankruptcy Court dated April 24, 1995, the "Plan"). C. On April 28, 1995 the Company entered into a Revolving Credit Agreement with The First National Bank of Boston ("FNBB") and The CIT Group/Business Credit, Inc., as facility agents, FNBB, as administrative agent, and the lending institutions parties thereto, (as amended, amended and restated, supplemented or otherwise modified from time to time, "FNBB Credit Agreement"), pursuant to which such lenders made financial accommodations to the Company to facilitate consummation of the Plan and provide working capital to the Company. D. On May 21, 1996, the Company, as Borrower, entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), as Agent, PPM Financing, Inc. as Co- Agent, and the financial institutions name therein, as Lenders (as amended, amended and restated, supplemented or otherwise modified from time to time the "Foothill Loan Agreement") pursuant to which all indebtedness of the Company to FNBB and the other lenders under the FNBB Credit Agreement was paid in full. E. It is important to the success of the Company's business that the Company's Trade Vendors extend terms to the Company and deliver goods needed by the Company to successfully operate its business. F. To induce the Trade Vendors to continue to extend terms to the Company and to continue to deliver to the Company the goods it needed to successfully operate its business the Company, as security for the Trade Obligations and the other Obligations, (i) caused Foothill to cause the issuance of a standby letter of credit, dated May 22, 1996 (as amended, amended and restated, supplemented, renewed, replaced or otherwise modified from time to time, the "Trade Vendor L/C"), in the face amount of $5,000,000 in favor of the Trustee, as beneficiary, in trust for, and for the benefit of, the Trade Vendors, which expires on April 29, 1997 and (ii) granted to Alan H. Peterson, as substitute trustee (the "Mortgage Trustee"), for the benefit of the Trustee, as beneficiary, the Second Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 8, 1995, in the maximum principal amount of $15,000,000, with respect to all of the interests of the Company in the Henderson Property, subject and subordinate to the Senior Mortgage, dated May 21, 1996, granted by the Company to David L. Huffstetler, as trustee, for the benefit of the Lenders under the Foothill Loan Agreement, (such Second Deed of Trust granted for the benefit of the Trustee, as amended, amended and restated, supplemented or otherwise modified from time to time, the "Mortgage", as hereinafter further defined). The Henderson Property is hereinafter sometimes referred to as the "Mortgaged Property". G. As further inducement to the Trade Vendors to continue to extend terms to the Company and to continue to deliver to the Company the goods it needs to operate its business, and in lieu of the Trade Vendor L/C which expires on April 29, 1997, the Company, as security for prompt payment and performance the Trade Obligations and the other Obligations, has executed and delivered to the Trustee the Security Agreements pursuant to which the Company has granted to the Trustee, for the benefit of the Trade Vendors, liens upon and security interests in certain of the Company's personal property and fixtures as more fully described in the Security Agreements (the "Collateral") subject and subordinate to the liens of the Agent therein. The Collateral and the Mortgaged Property are referred to collectively as the "Security". H. The rights and remedies of the Trustee in respect of the Security Agreements, the Mortgage and the other Security Documents are subject in all respects to the terms of the Intercreditor Agreement, dated as of the date hereof, as amended, amended and restated, supplemented or otherwise modified from time to time, the "Intercreditor Agreement") and the Subordination Agreement, dated as of May 21, 1996, as amended, amended and restated, supplemented or otherwise modified from time to time, the "Subordination Agreement") between Foothill, as Agent for itself and the other Lenders under the Loan Agreement, and the Trustee, respectively. I. This Agreement is intended to establish a trust under which (i) the Security Documents, (ii) all cash and non-cash proceeds of the Security (the "Proceeds") and (iii) the Proceeds Account, (the right, title and interest of the Trustee in and to the Security Documents, the Security, the Proceeds and the Proceeds Account being herein collectively referred to as the "Trust Estate") will be held by the Trustee in trust for, and for the benefit of, the Trade Vendors who have not been paid in full for goods heretofore delivered and hereafter delivered to the Company. J. This Agreement is further intended to set forth the terms and conditions upon which the Trust Estate will be administered by the Trustee, the rights and remedies of the Trade Vendors with respect to the Trust Estate and certain other related matters. DECLARATION OF TRUST NOW, THEREFORE, in order to induce the Trade Vendors to deliver goods to the Company and to provide security for payment of the obligations the Company has heretofore incurred and hereafter incurs to the Trade Vendors in the amount of the unpaid invoiced cost of goods delivered to the Company by the Trade Vendors as shown from time to time on the books and records of the Company (the "Trade Obligations"), and in consideration of the premises and the mutual agreements set forth herein, the Company hereby confirms that it has caused the Trade Vendor Documents to be executed and delivered to the Trustee, and the Trustee does hereby declare that it holds and will hold the Trade Vendor Documents as trustee in trust under this Agreement, and the Company does hereby consent thereto. TO HAVE AND TO HOLD, the Trust Estate unto the Trustee and its successors in trust under this Agreement and its assigns and the assigns of its successors in trust forever or until terminated in accordance with the terms hereof; IN TRUST NEVERTHELESS, under and subject to the terms and conditions set forth herein for the benefit of the Trade Vendors and for the enforcement of the payment of the Trade Obligations, and for the performance of and compliance with the covenants and conditions of this Agreement, the Note, the Security Documents and the Mortgage. ARTICLE 1. DEFINITIONS SECTION 01 Certain Defined Terms. The following terms shall have the following meanings as used herein (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agent" has the meaning set forth in the Foothill Loan Agreement. "Agreement" has the meaning set forth in the preamble to this Agreement. "Authorized Officer" means the Chairman, the President, any Vice President, the Secretary or the Treasurer of a Person or any other officer designated as an "Authorized Officer" by the Board of Directors (or equivalent governing body) of such Person and shall include, with respect to the Trade Committee, the counsel to the Trade Committee. "Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. Sections 101 et seq., as amended. "Bankruptcy Court" has the meaning set forth in Paragraph A of the Recitals to this Agreement. "Business Day" means a day other than a Saturday, Sunday or other day on which national banks are required or authorized by law to close. "Collateral" has the meaning set forth in Paragraph G of the Recitals to this Agreement. "Company" has the meaning set forth in the preamble to this Agreement. "Default Notice" has the meaning set forth in Section 4.01. "Event of Default" means an "Event of Default" under and as defined in any of the Security Documents. "FNBB" has the meaning set forth in Paragraph C of the Recitals to this Agreement. "FNBB Credit Agreement" has the meaning set forth in Paragraph C of the Recitals to this Agreement. "Foothill Loan Agreement" has the meaning set forth in Paragraph D of the Recitals of this Agreement. "General Security Agreement" means the General Security Agreement, dated as of the date hereof, executed by the Company, as debtor, in favor of Trustee, as secured party, as the same may hereafter be amended, amended and restated, supplemented or otherwise modified from time to time. "Henderson Property" means the Company's warehouse distribution center, corporate offices, data processing center and graphics production center located in Henderson, North Carolina. "Individual Trade Vendor Notice" has the meaning set forth in Section 7.01. "Intellectual Property Security Agreement" means the Intellectual Property Security Agreement, dated as of the date hereof, between the Company and the Trustee, as amended, amended and restated, supplemented or otherwise modified from time to time. "Intercreditor Agreement" has the meaning set forth in Paragraph H of the Recitals to this Agreement. "Intercreditor and Subordination Agreements" means, collectively, the Intercreditor Agreement and the Subordination Agreement. "Lenders" has the meanings set forth in the Foothill Loan Agreement. "Mortgage" has the meaning set forth in Paragraph F of the Recitals to this Agreement, as recorded in Book 749, at Page 499 with the Vance County Registry of Deeds, as amended by the First Amendment to Second Deed of Trust, Assignment of Rents and Security Agreement, dated as of April 29, 1996, recorded on May 24, 1996 at Book 771, at Page 53 with the Vance County Registry of Deeds, as further amended by the Second Amendment to Second Deed of Trsut and as amended, amended and restated, supplemented or otherwise modified from time to time. "Mortgaged Property" has the meaning set forth in Paragraph F of the Recitals to this Agreement. "Mortgage Trustee" has the meaning set forth in Paragraph F of the Recitals to this Agreement. "Note" means the Second Amended and Restated Trade Debt Note, dated the date hereof, in the maximum principal amount of $15,000,000 made by the Company to the Trustee. "Obligations" means, at any time, all obligations, liabilities or indebtedness, whether matured or unmatured, of the Company evidenced or arising out of this Agreement, the Note or any of the Security Documents, whether principal, interest, fees or expenses, including without limitation, the Trade Obligations, the fees and expenses of the Trustee and the Mortgage Trustee and the expenses of the Trade Committee, including the fees and disbursements of counsel to the Trustee, counsel to the Mortgage Trustee and counsel to the Trade Committee and any indemnity obligations of the Company to the Trustee, the Mortgage Trustee or the Trade Committee. "Permitted Investments" means (a) marketable securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than three months from the date of acquisition, (b) time deposits and certificates of deposit of, or money market or similar accounts with, any domestic commercial bank of recognized standing having capital and surplus in excess of U.S. $100,000,000 and a Keefe Bank Watch Rating of C or better, with maturities of not more than three months from the date of acquisition, (c) commercial paper rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P- 1 on the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within three months after the date of acquisition, (d) repurchase obligations with a term of not more than thirty days for underlying securities of the types described in clauses (a), (b) and (c) entered into with any bank meeting the qualifications specified in clause (b) above or with a securities dealer acceptable to the Trustee. "Person" means an individual, a partnership, a corporation, a business trust, a joint stock company, a limited liability company, a trust, an unincorporated association, a joint venture, a governmental entity or another entity of whatever nature. "Plan" has the meaning set forth in Paragraph B of the Recitals to this Agreement. "Proceeds" has the meaning set forth in Paragraph I of the Recitals to this Agreement. "Proceeds Account" has the meaning set forth in Section 8.01. "Public Trade Vendor Notice" has the meaning set forth in Section 7.01. "Second Amendment to Deed of Trust" means the Second Amendment to Deed of Trust, Assignment of Rents and Security Agreement, dated as of the date hereof, by and among the Company, the Mortgage Trustee and the Trustee, as Beneficiary. "Second Amendment to Subordination Agreement" means the Second Amendment, dated the date hereof, to the Subordination Agreement. "Security" has the meaning set forth in Paragraph G of the Recitals to this Agreement and includes all property and assets of the Company, now existing or hereafter acquired, and all cash and non-cash proceeds thereof, in respect of which any lien, mortgage security interest or other encumbrance in favor of the Trustee is granted or created under any, Security Document, including, without limitation the Security Agreements and the Mortgage. "Security Agreements" means, collectively, the General Security Agreement and the Intellectual Property Security Agreement. "Security Documents" means, collectively, the General Security Agreement, the Intellectual Property Security Agreement, the Mortgage, all UCC-1 financing statements now or hereafter executed by the Company, as debtor, in favor of the Trustee or the Mortgage Trustee, as secured party, and all other documents and agreements at any time executed with or in favor of the Trustee or the Mortgage Trustee as security for the Obligations, as the same may now exist or may hereafter be amended, amended and restated, supplemented or otherwise modified. "Senior Headquarters Mortgage" means the Future Advance Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 21, 1996, executed by the Company, as grantor, to David L. Huffstetler, as trustee for the benefit of the Banks (as defined therein), as beneficiary, recorded on May 24, 1996 in Book 771, at Page 93 in the Vance County Registry of Deeds encumbering a portion of the Mortgaged Property identified as Parcels 1 though 12 on Exhibit "A" thereto. "Senior Indebtedness" has the meaning set forth in the Subordination Agreement. "Senior Mortgage" means, collectively, the Senior Headquarters Mortgage and the Senior Warehouse Mortgage. "Senior Warehouse Mortgage" means the Future Advance Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 21, 1996, executed by the Company, as grantor to David L. Huffstetler, as trustee, for the benefit of the Banks (as defined therein), as beneficiary, recorded on May 24, 1996 in Book 771, at Page 131 encumbering a portion of the Mortgaged Property identified as Parcel 13 on Exhibit "A" thereto in the Vance County Registry of Deeds. "Subordination Agreement" has the meaning set forth in Paragraph H of the Recitals to this Agreement. "Trade Committee" means the Post-Effective Date Trade Committee under and as defined in the Plan. "Trade Obligations" has the meaning set forth in the Declaration of Trust made in the Recitals to this Agreement. "Trade Vendor" means trade vendors of the Company who have extended or who hereafter extend terms to the Company for goods delivered to the Company, other than on consignment. "Trade Vendor Documents" means the Note, the Mortgage, the Security Agreement, the Intellectual Property Security Agreement and the other Security Documents. "Trade Vendor Information" has the meaning set forth in Section 11.01. "Trade Vendor L/C" has the meaning set forth in Paragraph F of the Recitals to this Agreement. "Trade Vendor Payable Amount" has the meaning set forth in Section 7.01. "Trust Estate" has the meaning set forth in Paragraph G of the Recitals to this Agreement. "Trustee" has the meaning set forth in the preamble to this Agreement. SECTION 02 Certain References. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement and section, schedule and exhibit references are to this Agreement unless otherwise specified. References to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons. ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY OF TRADE VENDOR DOCUMENTS AND INTERCREDITOR AGREEMENT SECTION 01 Acceptance of Trust. The Trustee, for itself and its successors, hereby accepts the trust created by this Agreement upon the terms and conditions hereof. Further, the Trustee, for itself and its successors, does hereby declare that it will hold the Trust Estate for the benefit of the Trade Vendors upon the trusts herein set forth. SECTION 02 Execution and Delivery of Trade Vendor Documents. On or about the date thereof the Company has executed in favor of and delivered to the Trustee, for the benefit of the Trade Vendors, the Note, the General Security Agreement, the Intellectual Property Security Agreement and the Second Amendment to Deed of Trust. SECTION 03 Execution and Delivery of Intercreditor Agreement. On or about the date hereof, the Trustee has executed and delivered to the Agent the Intercreditor Agreement in the form approved by, and as directed, by the Trade Committee. ARTICLE 3. INTENTIONALLY OMITTED ARTICLE 4. DEFAULT NOTICE; REMEDIES SECTION 01 Default Notice. If an Event of Default shall have occurred, the Trade Committee shall have the right to deliver to the Trustee at any time, at its option, an irrevocable written notice ("Default Notice"), substantially in the form attached hereto as Exhibit A, stating that an Event of Default has occurred and directing the Trustee to take, and cause the Mortgage Trustee to take, such action as therein requested by the Trade Committee with respect to the Security Documents and the Security (which action may include, without limitation, subject to the terms and conditions of the Intercreditor and Subordination Agreements, the institution of any remedies provided by any of the Security Documents, by law or by this Agreement). SECTION 02 Action Upon Receipt of Default Notice. Upon receipt of a Default Notice (or at such later time as shall be the first time when such action is not prohibited to be taken by the Intercreditor Agreement or the Subordination Agreement), the Trustee shall promptly take, and cause the Mortgage Trustee to promptly take, such action as is requested by the Trade Committee in such Default Notice or any notice supplemental thereto authorized, or as the Trustee shall deem this necessary or appropriate in its sole discretion, to collect the then unpaid Obligations. SECTION 03 Remedies Generally. (a) The Company hereby irrevocably constitutes and appoints each of the Trustee and the Mortgage Trustee and any officer or agent of either of them with full power of substitution, as its true and lawful attorney- in-fact with full power and authority in the name of the Company or its own name, from time to time in the Trustee's and Mortgage Trustee's discretion, after action by the Trustee and Mortgage Trustee is not prohibited by the Intercreditor Agreement or the Subordination Agreement, for the purpose of carrying out the terms of the Security Documents, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes hereof and thereof and, without limiting the generality of the foregoing, hereby gives each of the Trustee and the Mortgage Trustee the power and right on behalf of the Company, without notice to or assent by the Company, to do (to the extent permitted under the Security Documents) the following: (i) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due upon or by virtue hereof and thereof, (ii) to receive, take, endorse, assign and deliver any and all checks, notes, drafts, acceptances, documents and other negotiable and non-negotiable instruments and chattel paper taken or received by the Trustee or Mortgage Trustee in connection herewith and therewith, (iii) to commence, file, prosecute, defend, settle, compromise or adjust any claim, suit, action or proceeding with respect hereto and thereto or in connection herewith and therewith, (iv) to sell, transfer, assign, lease or rent all or any portion of or otherwise deal in or with the Security or any part thereof as fully and effectually as if the Trustee or the Mortgage Trustee, as the case may be, was the absolute owner thereof, (v) to make demands, give consents and releases or partial releases, and to exercise any other rights contemplated or permitted by the Security Documents, and (vi) to do, at its option and at the expense and for the account of the Company, at any time and from time to time, all acts and things which it deems necessary to protect or preserve the Security and to realize upon the Security. SECTION 04 Appointment of a Receiver. If a receiver of the Mortgaged Property or other Security shall be appointed in judicial proceedings, the Mortgage Trustee or the Trustee, as the case may be, may be appointed as such receiver. Notwithstanding the appointment of a receiver, the Mortgage Trustee or the Trustee, as the case may be, shall be entitled to retain possession and applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered, or filed under the provisions of any applicable law. ARTICLE 5. DIRECTION BY TRADE COMMITTEE SECTION 01 Direction by Trade Committee. (a) Subject to Section 4.10 and the terms of the Intercreditor and Subordination Agreements, if an Event of Default shall have occurred and the Trustee shall have received a Default Notice with respect thereto: (i) in addition to taking such action as is required by Section 4.02 the Trustee shall take such other action as is necessary and appropriate for the performance of and compliance with the covenants and conditions of this Agreement as the Trade Committee shall request in writing; and (ii) the Trustee shall follow the written directions of the Trade Committee with respect to the time, method and place of taking any action required by the preceding paragraph (i), or, if no such direction is provided, then the Trustee may take such action in the manner it deems necessary and appropriate for the performance of and compliance with the covenants and conditions of this Agreement, provided that nothing in this Agreement shall be construed to impose a duty on the Trustee to take any discretionary action without first receiving a direction from the Trade Committee to do the same. (b) Nothing in this Section 5.01 shall impair the right of the Trustee in its discretion to take or omit to take any action deemed proper by the Trustee and which action or omission is not inconsistent with the direction of the Trade Committee; provided, however, the Trustee shall not be under any obligation to take any action pursuant to any Trade Vendor Document without first being provided adequate security and indemnity by the Company against the costs, expenses and liabilities which may be incurred by it in complying with such direction (except any cost, expense or liability caused by its own gross negligence or willful misconduct or its failure to exercise reasonable care in the handling of moneys and securities actually received by it), including such reasonable advances for such cost and expenses as may be requested by the Trustee. ARTICLE 6. INTENTIONALLY OMITTED ARTICLE 7. NOTICE TO TRADE VENDORS SECTION 01 Notice to Trade Vendors. (a) Promptly after receipt of a Default Notice from the Trade Committee pursuant to Section 4.01 and thereafter of Trade Vendor Information from the Company pursuant to Section 11.01, the Trustee shall mail a notice (the "Individual Trade Vendor Notice") substantially in the form attached hereto as Exhibit B, to each of the Trade Vendors (i) notifying each of them that (x) an Event of Default has occurred and (y) as to any action taken by the Trustee or the Mortgage Trustee with respect to the Security, and (ii) advising each of them of the amount of the Trade Obligations owing to each of them, respectively, as of the date of such Trade Vendor Information (the "Trade Vendor Payable Amount"). The Individual Trade Vendor Notice shall further state that the Trade Vendor Payable Amount set forth in the Payment Notice shall be deemed correct and shall be the amount used by the Trustee in calculating the distributions to be made to the Trade Vendors pursuant to this Agreement, unless within 20 days of the mailing of the Individual Trade Vendor Notice, a Trade Vendor shall provide to the Trustee and the Company contrary information as to the Trade Vendor Payable Amount owed to it, in which case, the Trustee shall reserve and to the extent available funds in the Proceeds Account to provide for any disputed amount until such dispute is resolved by the parties thereto. (b) Substantially contemporaneous with the mailing of the Individual Trade Vendor Notices to the Trade Vendors in accordance with clause (a) above, the Trustee shall publish a notice (the "Public Trade Vendor Notice") in substantially the form attached hereto as Exhibit C, which (i) shall be published in each of the Wall Street Journal and Women's Wear Daily once during the the Trust Estate. The Trustee shall have no responsibility for any loss resulting from a fluctuation in interest rates or the sale or other disposition of any Permitted Investment prior to its maturity date or otherwise. The Trustee shall have a reasonable period of time in which to reinvest the moneys on deposit in the Proceeds Account. In addition to the payment of expenses incurred by the Trustee pursuant to any other Section of this Agreement, the Trustee may deduct from the funds on deposit in the Proceeds Account all of the actual and reasonable costs and expenses that the Trustee or the Mortgage Trustee may incur in connection with (a) the exercise or enforcement of any of the rights and remedies of the Trustee hereunder or the Trustee or the Mortgage Trustee under the Security Documents and (b) the custody or preservation of Trust Estate. ARTICLE 9. APPLICATION OF PROCEEDS SECTION 01 Application of Proceeds. All Proceeds and all other moneys in the Proceeds Account shall promptly be applied as follows: FIRST: To the payment of (i) compensation due and payable to the Trustee for services hereunder, and (ii) all costs, expenses and liabilities incurred by the Trustee and the Mortgage Trustee in connection with the exercise or enforcement of the rights, duties and remedies of the Trustee and the Mortgage Trustee under this Agreement and the Security Documents, including, without limitation, the reasonable fees and disbursements of counsel for the Trustee and the Mortgage Trustee. SECOND: After payment in full of the outstanding obligations described in subsection 9.01 FIRST, to the payment of all costs, expenses and liabilities incurred by the Trade Committee in connection with the exercise of its rights, duties or remedies under this Agreement, including, without limitation, the reasonable fees and disbursements of counsel for the Trade Committee. THIRD: After payment in full of the outstanding obligations described in subsection 9.01 SECOND, to the ratable payment of the Trade Obligations then outstanding; and FOURTH: After payment in full of all of the Trade Obligations described in subsection 9.01 THIRD, to the Company or to its order, or as a court of competent jurisdiction may direct. SECTION 02 Distribution of Proceeds. All distributions required to be made hereunder to each of the Trade Vendors in respect of the Trade Obligations shall be made directly to each of the Trade Vendors, at the respective addresses for each of the Trade Vendors provided to the Trustee by the Company pursuant to Section 11.01 of this Agreement or at such other more current address of which the Trustee shall become aware. All such distributions shall be (subject to any decree of any court of competent jurisdiction) final. ARTICLE 10. ABSOLUTE RIGHTS OF TRADE VENDORS SECTION 01 Absolute Rights of Trade Vendors. Notwithstanding any other provision of this Agreement or any provision of any of the Security Documents, the right of each Trade Vendor, which is absolute and unconditional, to receive payment of the Trade Obligations owed to such Trade Vendor on or after the due date thereof as set forth on the books and records of the Company, to institute suit for the enforcement of such payment on or after such due date, and to assert its position as a creditor in a case under the Bankruptcy Code in which the Company is a debtor, and the obligation of the Company, which is also absolute and unconditional, to pay the Trade Obligations owed to such Trade Vendor at the time and place expressed therein, shall not be impaired or affected without the written consent of such Trade Vendor. In addition, every right of each Trade Vendor to receive payment or collateral security from sources other than the Trust Estate shall not be, and is not hereby, impaired or affected. Without limiting the generality of the foregoing, no Trade Vendor shall be hereby obligated to share with any other Trade Vendor any proceeds of such collateral security, any guaranty or right of set- off; nor shall any Trade Vendors right to receive its ratable share of proceeds of the Trust Estate or any part thereof hereunder be diminished by or affected in any way by its right to receive proceeds of any other collateral, set-off, payment upon a guaranty or payment from any other source. In no event shall any Trade Vendor have the right to receive more than the amount of Trade Obligations owed to such Trade Vendor. ARTICLE 11. AGREEMENTS WITH THE TRUSTEE AND THE MORTGAGE TRUSTEE SECTION 01 (a) Information as to Trade Vendors. In connection with the distributions to be made by the Trustee after the occurrence of an Event of Default pursuant to Section 9.01, the Company agrees that it shall promptly deliver, or cause to be delivered, to the Trustee, from time to time, upon the request of the Trustee or the Trade Committee, but not more than once each month, a list setting forth the following (the "Trade Vendor Information"): (1) the aggregate outstanding amount of the Trade Obligations, (2) the names and addresses of all Trade Vendors, including the contact Person at each Trade Vendor, and the unpaid principal amount and all other unpaid amounts in respect of Trade Obligations known to the Company to be owing to each such Trade Vendor and (3) such other information regarding the Trade Vendors and the Trade Obligations necessary to effectuate such distributions as the Trustee or the Trade Committee may reasonably request. Unless otherwise specified herein, the Trustee may for all purposes hereunder rely on such information provided by the Company unless (i) the Trustee shall have actual knowledge of any inaccuracy or (ii) any Trade Vendor shall provide contrary information with respect to such Trade Vendor, in which case the Trustee shall proceed as set forth in Section 7.01. (b) Confidentiality. Except for (i) Trade Vendor Information furnished by the Company to the Trustee pursuant to Section 11.01(1) and 11.01 (2) which is disclosed by the Trustee to the Trade Vendors in accordance with the terms of this Agreement, and (ii) Trade Vendor Information which is or hereafter becomes available to the public, the Trustee shall maintain the confidentiality of any Trade Vendor Information designated by the Company as confidential (the "Confidential Information") and the content of all such Confidential Information, and shall not provide or reveal the Confidential Information or its content to any Trade Vendor or other person without the express written consent of the Company. The Trustee shall not be permitted to use, and hereby agrees not to use, any such Confidential Information for any purpose other than to effectuate distributions to Trade Vendors pursuant to this Agreement. In the event that the Trustee is requested or required, by law or legal process, to disclose any of the Confidential Information, the Trustee shall immediately notify the Company of any such request, and, in any such event, the Company may seek and pursue any such action, including, without limitation, the commencement of judicial or administrative proceedings at law or in equity. In the event that, in the absence of a protective order or the receipt of a written waiver from the Company, the Trustee nonetheless, in the opinion of counsel, is compelled by law to disclose Confidential Information concerning the Company or else be liable for contempt or subject to other censure or penalty, the Trustee shall be permitted to disclose such information without liability under this Agreement only to the extent necessary to avoid such liability, censure or penalty. The Trustee acknowledges and agrees that the Company shall be entitled to enforce the provisions of this Section 11.01(b) by specific performance and injunctive relief in the event of any breach thereof by the Trustee, any Trade Vendor or any other Person. The Trustee's obligations under this Section 11.01(b) shall survive the termination of the other provisions of this Agreement. SECTION 02 Compensation and Expenses. The Company agrees to pay to the Trustee and any successor trustee appointed hereunder and to the Mortgage Trustee, as applicable, from time to time upon demand, (i) reasonable compensation for the services of the Trustee hereunder and for administering the Trust Estate pursuant to a letter agreement, dated as of May 8, 1995, between the Company and the Trustee as amended, supplemented or otherwise modified from time to time and (ii) all the costs and expenses of the Trustee and the Mortgage Trustee (including, without limitation, the reasonable fees and disbursements of counsel to the Trustee and the Mortgage Trustee and such special counsel as the Trustee or the Mortgage Trustee elects to retain) (A) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement or the enforcement of any of the provisions hereof or the Note or any Security Document or (B) incurred or required to be advanced in connection with the administration of the Trust Estate, the sale or other disposition of the Security or any part thereof and the exercise, preservation, protection or defense of the Trustee's rights under this Agreement and the Trustee's and Mortgage Trustee's rights under the Security Documents and in and to the Trust Estate. The Company's obligations under this Section 11.02 shall survive the termination of the other provisions of this Agreement. SECTION 03 Stamp and Other Similar Taxes. The Company agrees to indemnify and hold harmless the Trustee and the Mortgage Trustee from any present or future claim for liability for any stamp or other similar tax and any penalties or interest or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, the Note, the Security Documents or the Security. The obligations of the Company under this Section 11.03 shall survive the termination of the other provisions of this Agreement. SECTION 04 Filing Fees, Excise Taxes, Etc. The Company agrees to pay or reimburse the Trustee and the Mortgage Trustee for any and all amounts in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance and enforcement of this Agreement, the Note and the Security Documents. The obligations of the Company under this Section 11.04 shall survive the termination of the other provisions of this Agreement. SECTION 05 Indemnification. (a) The Company agrees to pay, indemnify, and hold harmless the Trustee and the Mortgage Trustee and each of the agents thereof from and against any an all liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses and disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Note, the Security Documents and the Trust Estate, unless arising from the gross negligence or willful misconduct of the Trustee or the Mortgage Trustee, as the case may be, or such agents thereof as are seeking indemnification or the failure of the Trustee or the Mortgage Trustee or any such agents to exercise reasonable care in the handling of moneys or securities actually received by the Trustee or the Mortgage Trustee or any such agents. (b) In any suit, proceeding or action brought by the Trustee or the Mortgage Trustee under or with respect to the Note, any Security Document or any Security for any sum owing thereunder, or to enforce any provision thereof, the Company will save, indemnify and hold harmless the Trustee and the Mortgage Trustee from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever of the obligee thereunder (unless such expense, loss or damage is caused by the gross negligence or willful misconduct of the Trustee or the Mortgage Trustee, or the failure of the Trustee or Mortgage Trustee, as the case may be, to (i) exercise reasonable care in the handling of moneys and securities actually received by the Trustee or the Mortgage Trustee or (ii) comply with the provisions of Section 11.01(b) of this Agreement) arising out of a breach by the Company of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such obligee or its successors from the Company and all such obligations shall be and remain enforceable against and only against the Company and shall not be enforceable against the Trustee or the Mortgage Trustee, as the case may be. The agreements in this Section 11.05 shall survive the termination of the other provisions of this Agreement. SECTION 06 Further Assurances. (a) Each of the Company and the Trustee agrees that it will promptly correct any defect or error that may be discovered in this Agreement, the Note or any Security Document or in the execution, acknowledgment or recordation thereof, as applicable. (b) The Company agrees that from time to time it will, promptly, upon reasonable request by the Trustee or the Mortgage Trustee, and at its own expense, execute, acknowledge, deliver, record, re-record, file, re-file, register and reregister any and all further financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances, and other instruments as the Trustee or the Mortgage Trustee may reasonably request from time to time in order (i) to carry out more effectively the purposes of this Agreement and (ii) to enable the Trustee and the Mortgage Trustee to exercise and enforce is rights and remedies hereunder and under the Security Documents, (iii) to subject to the liens created by the Security Documents, any of the properties, rights or interests of the Company covered or now or hereafter intended to be covered by the Security Documents, (iv) to perfect and maintain the validity, effectiveness and priority of the Security Documents and the liens intended to be created thereby, (v) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Trustee or the Mortgage Trustee, as the case may be, the rights granted or now or hereafter intended to be granted under the Security Documents or under any other instrument executed in connection therewith to which the Trustee or the Mortgage Trustee is or may become a party, and (vi) to enable the Trustee and the Mortgage Trustee to exercise and enforce its respective rights and remedies hereunder and under the Security Documents provided, however, that this Section 11.06(b) shall not be construed to require the Company to grant any lien other than expressly provided for in this Agreement or affect the limitations or the rights of the Trustee under the Intercreditor Agreement or the Subordination Agreement. (c) The Company hereby authorizes the Trustee and the Mortgage Trustee to file one or more financing or continuation statements, and amendments thereto, relative to the Security without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Security or any part thereof shall be sufficient as a financing statement where permitted by law. (d) The Company shall furnish to the Mortgage Trustee from time to time such reports in connection with the Mortgaged Property as the Mortgage Trustee may reasonably request. SECTION 07 Notification of Event of Default Under Loan Agreement. The Company shall promptly notify the Trustee of the occurrence of an "Event of Default" under and as defined in the Foothill Loan Agreement. ARTICLE 12. THE TRUSTEE SECTION 01 Exculpatory Provisions. (a) The Trustee shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein, all of which are made solely by the Company. The Trustee makes no representation as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Company to the Security or as to the validity, execution (except the Trustee's own execution), enforceability, legality or sufficiency of this Agreement, any of the Security Documents or any of the Trade Obligations and, except as otherwise expressly provided for herein, the Trustee shall incur no liability or responsibility in respect of any such matters. The Trustee shall not be responsible for insuring the Trust Estate or the payment of any taxes, charges, assessments or liens upon the Trust Estate or otherwise as to the maintenance of the Trust Estate, except that in the event that the Trustee enters into possession of a part or all of the Trust Estate, the Trustee shall preserve the part in its possession. (b) The Trustee shall not be required to ascertain or inquire as to the performance by the Company of any of the covenants or agreements contained herein, any Security Document or with respect to any of the Trade Obligations. (c) The Trustee shall not be personally liable for any action taken or omitted to be taken by the Trustee in accordance with this Agreement or any Security Document except for its own gross negligence or willful misconduct and its failure to exercise reasonable care in the handling of moneys or securities actually received by it. SECTION 02 Delegation of Duties. The Trustee may execute any of the trusts hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact (which shall not include officers and employees of the Company or any affiliate of the Company). The Trustee shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact reasonably selected by it in good faith. SECTION 03 Reliance by Trustee. (a) Whenever in the administration of the trusts of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established in connection with the taking, suffering or omitting any action hereunder or under any Security Document unless otherwise provided herein or therein, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved or established by a certificate of an Authorized Officer of the Company or the Trade Committee delivered to the Trustee, and such certificate shall constitute a full warranty to the Trustee for any action taken, suffered or omitted in reliance thereon unless the Trustee shall have actual knowledge of an inaccuracy therein. (b) The Trustee may consult with independent counsel and any opinion of such counsel shall be full and complete authorization and protection in respect of-any action taken or suffered by it hereunder in accordance therewith unless the Trustee has actual knowledge or a reason to question the validity or accuracy of such opinion or of any assumption expressed therein as the basis for such opinion. The Trustee shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. (c) The Trustee may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond, or other paper or document which it reasonably believes to be genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of gross negligence or willful misconduct, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee that conform to the requirements of this Agreement. SECTION 04 Limitations on Duties of the Trustee. (a) The Trustee undertakes to perform only the duties expressly set forth herein. (b) The Trustee may exercise the rights and remedies granted to it by this Agreement, the Note and the Security Documents, but only pursuant to the terms hereof and thereof and subject to the terms of the Intercreditor and Subordination Agreements, and the Trustee shall not be liable with respect to any action taken or omitted by it in accordance with the direction of the Trade Committee subject to the terms hereof, the Note, the Security Documents and the Intercreditor and Subordination Agreements. (c) Except as herein otherwise expressly provided, the Trustee shall not be under any obligation to take any action which is discretionary with the Trustee under the provisions hereof or any Security Agreement except upon the written request of the Trade Committee. Subject to the provisions of Section 11.01(b) of this Agreement, the Trustee shall make available for inspection and copying by the Trade Committee and each Trade Vendor, each certificate or other paper furnished to the Trustee by the Company, by the Trade Committee, by any Trade Vendor, or by any other Person, under or in respect of this Agreement, any Security Document, or any of the Trust Estate. SECTION 05 Moneys to Be Held in Trust. All Proceeds and other moneys and securities received by the Trustee under or pursuant to any provision of this Agreement or any Security Document shall be held in trust for the purposes of which they were paid or held and the Trustee shall exercise reasonable care in the handling of any such Proceeds, other moneys and securities actually received by it. SECTION 06 Resignation and Removal of Trustee. (a) The Trustee may at any time, by giving 30 days prior written notice to the Company and the Trade Committee, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the appointment of a successor trustee by the Trade Committee and the acceptance of such appointment by such successor trustee. The Trustee may be removed at any time (with or without cause) and a successor trustee appointed by the Trade Committee, provided that the Trustee shall be entitled to its fees and expenses to the date of removal. If no successor trustee shall be appointed and approved within 30 days from the date of the giving of the aforesaid notice of resignation or within 30 days from the date of such removal, the Trustee shall, or the Trade Committee may, apply to any court of competent jurisdiction to appoint a successor trustee to act until such time, if any, as a successor trustee shall have been appointed as above provided. Any successor trustee so appointed by such court shall immediately and without further act be superseded by any successor trustee appointed by the Trade Committee as above provided. (b) If at any time the Trustee shall become incapable of acting, or if at any time a vacancy shall occur in the office of the Trustee for any other cause, a successor trustee shall be appointed by the Trade Committee and the powers, duties, authority and title of the predecessor trustee terminated and cancelled without procuring the resignation of such predecessor trustee, and without any other formality (except as may be required by applicable law) than the appointment and designation of a successor trustee in writing, duly acknowledged, delivered to the predecessor trustee and the Company and filed for record in each public office, if any, in which this Agreement is required to be filed. (c) The appointment and designation referred to in Section 12.06(b) shall, after any required filing, be full evidence of the right and authority to make the same and this Agreement shall vest in such successor trustee, without any further act, deed or conveyance, all of the estate and title of its predecessor, and upon such filing for record, if any, the successor trustee shall become fully vested with all the estates, properties, rights, remedies, trusts, duties, authority and title of its predecessor; but such predecessor shall, nevertheless, on the written request of the Trade Committee, the Company or its or their successor trustee, execute and deliver an instrument transferring to such successor all the estates, properties, rights, remedies, trusts, duties, authority and title of such predecessor hereunder and shall deliver all moneys and securities held by it to such successor trustee. Should any deed, conveyance or other instrument in writing from the Company be required by any successor trustee for more fully and certainly vesting in such successor trustee or trustees the estate, properties, rights, powers, trusts, duties, authority and title vested or intended to be vested in the predecessor trustee, any and all such deeds, conveyances and other instruments in writing shall, on request of such successor trustee, be granted, acknowledged and delivered by the Company. (d) Any required filing for record of the instrument appointing a successor trustee as hereinabove provided shall be at the expense of the Company. The resignation of any trustee and the instrument or instruments removing any trustee, together with all other instruments, deeds and conveyances provided for in this Article 12 shall, if permitted by law, be forthwith recorded, registered and filed by and at the expense of the Company, wherever this Agreement is recorded, registered and filed. SECTION 07 Trustee Appointed Attorney-in-Fact. The Company hereby irrevocably constitutes and appoints the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority in the name of the Company or its own name and in the place and stead of the Company, from time to time at the direction of the Trade Committee, to take, subject to Section 5.01(b), any action and to execute any instrument which the Trade Committee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Company representing payment, rents, issues or profits or other distribution in respect of the Security, or any part thereof and to give full discharge for the same. SECTION 08 Reasonable Care. The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Trust Estate if the Trust Estate is accorded treatment substantially equal to that which he Trustee accords its own property and reasonable care is exercised by the Trustee in handling any moneys or securities in its possession, it being understood that neither the Trustee nor the Mortgage Trustee shall have any responsibility for taking any steps to preserve rights against any parties with respect to the Security, except as expressly provided for by or in accordance with this Agreement. ARTICLE 13. MISCELLANEOUS SECTION 01 Amendment or Waiver. (a) None of the terms and conditions of this Agreement, the Note or any Security Document may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Trustee with the consent of the Trade Committee. Any such amendment, waiver or modification shall be binding upon the Company, the Trade Committee, the Trade Vendors, and the Trustee and their respective successors and assigns. (b) Notwithstanding the provisions of paragraph (a), the Trustee and the Company may, at any time and from time to time, without the consent of the Trade Committee, enter into one or more agreements supplemental hereto or to any Security Document, in form satisfactory to the Trustee, (i) to add to the covenants of the Company, for the benefit of the Trade Vendors, or to surrender any right or power herein conferred upon the Company, or (ii) to mortgage, pledge or grant a security interest in favor of the Trustee as additional security for the Trade Obligations any property or assets which are required to be mortgaged or pledged, or in which a security interest is required to be granted, to the Trustee pursuant to the Security Documents. SECTION 02 Intercreditor and Subordination Agreements. Notwithstanding any provision of this Agreement to the contrary, the Trustee shall comply with the provisions of the Intercreditor and Subordination Agreements and shall not require the consent of the Trade Committee or any Trade Vendor to comply with any provision of the Intercreditor Agreement or the Subordination Agreement. SECTION 03 Notices. All notices, requests, demands and other communications provided for or permitted hereunder shall, unless otherwise stated herein, be in writing (including telex and telecopy communications) and shall be sent by registered or certified mail, return receipt requested, telex, telecopier or hand delivery; (a) If to the Company, to P.O. Box Drawer 947, Henderson, North Carolina 27536, Attention: Chief Financial Officer, or at such other address as shall be designated by it in a written notice to the Trustee and the Trade Committee; (b) If to the Trustee, to its address at 333 East 68th Street, New York, New York 10021, Attention: Michael J. Sherman, or at such other address as shall designated by it in a written notice to the Company and the Trade Committee; (c) If to any Trade Vendor, to it at the address specified from time to time in the list provided by the Company to the Trustee pursuant to Section 11.01. (d) If to the Trade Committee, c/o Mattel Toys, 333 Continental Boulevard, El Segundo, California 90295, Attention: Dorthy Fee, or at such other address as shall be designated by it in a written notice to the Company and the Trustee, with a copy to.Otterbourg, Steindler, Houston & Rosen, PC., 230 Park Avenue, New York, New York 10169 Attention: Glenn B. Rice, Esq., counsel the Trade Committee, or at such other address as shall be designated by such firm to the Company and the Trustee. All such notices, requests, demands and communications shall be deemed to have been duly given or made, (i) when delivered by hand, (ii) five Business Days after being deposited in the United States mail, postage prepared, (iii) when telexed with answer back received or (iv) when telecopied with receipt acknowledged. SECTION 04 Headings. Section, subsection and other headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 05 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 06 Claims Against Trustee. This Agreement is made for the benefit of the Trade Vendors, and the Trade Committee may from time to time enforce the rights of the Trade Vendors as explicit beneficiaries hereunder. Any claims or causes of action which the Trade Vendors or the Company shall have against the Trustee shall survive the termination of this Agreement and the termination of the Trust Estate hereunder. SECTION 07 Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and, additionally, shall inure to the benefit of the Trade Committee and its successors and assigns and the Trade Vendors and their respective successors and assigns and nothing herein is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement or the Trust Estate or any part thereof. SECTION 08 Governing Law. This Agreement and the rights and obligations hereunder of the Trade Committee and the Trade Vendors shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles of such State. SECTION 09 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 13.10 Termination. This Agreement shall terminate upon the earliest to occur of (a) midnight on April 29, 1998, (b) the sale or other disposition of all of the Security and the final disposition of all Proceeds, and (c) the indefeasible payment in full of the Obligations, provided, that, if this Agreement is terminated pursuant to clause (a) of this Section 13.10, such termination shall not relieve or discharge the Company of its duties, obligations or covenants under this Agremeent or the other Vendor Documents until all Trade Obligations incurred prior to such termination and all other Obligations at any time incurred in connection with the collection of such Trade Obligations have been fully and finally discharged and paid, and the Trustee's liens upon and security interests in the Security and the rights and remedies of the Trustee under the Agreement, the other Vendor Documents and applicable law shall remain in full force and effect until all such Trade and other Obligations have been fully and finally paid. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. M.J. SHERMAN & ASSOCIATES, INC. as Trustee By:/s/ Michael J. Sherman________________ Name: Michael J. Sherman_________________ Title: C. E. O. _________________________ ROSE'S STORES, INC. By:/s/ Jeanette Peters __________________ Name: Jeanette Peters____________________ Title: Chief Financial Officer___________ PAGE EXHIBIT A TRADE COMMITTEE OF ROSE'S STORES, INC. c/o Mattel Toys 333 Continental Boulevard El Segundo, California 90245 Attention: Ms. Dorthy Fee DEFAULT NOTICE ______________, 1997 M.J. Sherman & Associates, Inc., Trustee 333 East 68th Street New York, New York 10021 Attn: Michael J. Sherman, President Gentlemen: Reference is made to the Collateral Trust Agreement, dated as of April 29, 1997, between Rose's Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Trust Agreement"). Initially capitalized terms used and not otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trade Committee hereby notifies the Trustee that an Event of Default has occurred under the Trust Agreement and hereby irrevocably directs the Trustee to take and to cause the Mortgagee Trustee to [take such action as requested by the Trade Committee with respect to the Security Documents and the Security]. Very truly yours, TRADE COMMITTEE OF ROSE'S STORES, INC. By: MATTEL TOYS By:___________________________ Name:_________________________ Title:________________________ cc: Rose's Stores, Inc. Att: Chief Financial Officer PAGE EXHIBIT B TRADE COMMITTEE OF ROSE'S STORES, INC. c/o Mattel Toys 333 Continental Boulevard El Segundo, California 90245 Attention: Ms. Dorthy Fee INDIVIDUAL TRADE VENDOR NOTICE ______________, 1997 [Name and Address of Individual Trade Vendor] Attn: [Contact Person] Gentlemen: Reference is made to the Collateral Trust Agreement, dated as of April 29, 1997 between Rose's Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time t time, the "Trust Agreement"). Initially capitalized terms used and not otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trustee hereby (i) notifies you that (x) an Event of Default has occurred under the Trust Agreement and (y) the Trustee and the Mortgage Trustee have [taken the following action with respect to the Security] and (ii) advises you that the books and records of the Company show that as of ______________, 19__ the unpaid amount of Trade Obligations due and payable to you is $_______________ (the "Trade Vendor Payable Amount"). The Trade Vendor Payable Amount shall be deemed correct and shall be the amount used by the Trustee in calculating the distribution to be made to you pursuant to the Trust Agreement unless, within 20 days of the mailing of this Individual Trade Vendor Notice, you shall provide to the Trustee and the Company contrary information as to the Trade Payable Amount owed to you, in which PAGE case, the Trustee shall reserve, to the extent available, funds in the Proceeds Account to provide for any disputed amount until such dispute is resolved. Very truly yours, M.J. SHERMAN & ASSOCIATES, INC., Trustee By:_____________________________ Name:___________________________ Title:__________________________ PAGE EXHIBIT C M.J. SHERMAN & ASSOCIATES, INC. Trustee 333 East 68th Street New York, New York 10021 PUBLIC TRADE VENDOR NOTICE ______________, 1997 TO: THE TRADE VENDORS OF ROSE'S STORES, INC. Reference is made to the Collateral Trust Agreement, dated as of April 29, 1997, between Rose's Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Trust Agreement"). Initially capitalized terms used and not otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trustee hereby (i) notifies you that (x) an Event of Default has occurred under the Trust Agreement and (y) the Trustee and the Mortgage Trustee have [taken the following action with respect to the Security] and (ii) advises you that if you have not received an Individual Trade Vendor Notice, then, if you wish to receive any distribution made under the Trust Agreement, you must, on or before ______________, [20 days after the date of the first publication of the Public Payment Notice], notify the Trustee and the Company in writing of the amount of Trade Obligations owed to you. In the event the Trustee and the Company shall have received contrary information from the Company as to the amount of Trade Obligations owed to you, the Trustee shall reserve, to the extent available, funds in the Proceeds Account to provide for any disputed amount until such dispute is resolved. Very truly yours, M.J. SHERMAN & ASSOCIATES, INC., Trustee By:_____________________________ Name:___________________________ Title:__________________________ EX-10.3 4 GENERAL SECURITY AGREEMENT dated as of April 29, 1997 by ROSE'S STORES, INC., to M.J. SHERMAN & ASSOCIATES, INC., as Trustee PAGE TABLE OF CONTENTS Page No. SECTION 1. Definitions . . . . . . . . . . . . . . . . .- 1 - SECTION 2. Grant of Security Interest. . . . . . . . . .- 2 - SECTION 3. Security for Obligations. . . . . . . . . . .- 3 - SECTION 4. Representations and Warranties. . . . . . . .- 3 - SECTION 5. Covenants as to the Collateral. . . . . . . .- 5 - SECTION 5A. Acts Permitted Under the Foothill Loan Agreement . . . . . . . . . . . . . . . . . .- 9 - SECTION 6. Additional Provisions Concerning the Collateral. . . . . . . . . . . . . . . . . .- 9 - SECTION 7. Events of Default . . . . . . . . . . . . . - 11 - SECTION 8. Remedies Upon Default . . . . . . . . . . . - 12 - SECTION 9. Indemnity and Expenses. . . . . . . . . . . - 13 - SECTION 10. Notices . . . . . . . . . . . . . . . . . . - 13 - SECTION 11. Security Interest Absolute. . . . . . . . . - 14 - SECTION 12. Miscellaneous . . . . . . . . . . . . . . . - 14 - PAGE GENERAL SECURITY AGREEMENT GENERAL SECURITY AGREEMENT (this "Agreement"), dated as of April 29, 1997, made by ROSE'S STORES, INC., a Delaware corporation (the "Debtor") to M.J. SHERMAN & ASSOCIATES, INC., Trustee (as defined in the Collateral Trust Agreement described below) for the benefit of the Trade Vendors (as defined in the Collateral Trust Agreement). W I T N E S E T H: WHEREAS, the Debtor is now and may hereafter become indebted to its Trade Vendors for goods which have been and may hereafter be sold by them to the Debtor to operate its business; WHEREAS, the Trade Vendors require, as a condition for their extension of credit to the Debtor, that the Debtor execute and deliver to the Trustee, for the benefit of the Trade Vendors, this Agreement, pursuant to which the Debtor, as security for such indebtedness and the other Obligations (as defined herein), is granting to the Trustee, for the benefit of the Trade Vendors, a security interest in the Collateral (as defined herein); WHEREAS, the Debtor and the Trustee have entered into a Collateral Trust Agreement, dated as of the date hereof, (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the "Collateral Trust Agreement"), pursuant to which the Trustee will administer the Collateral for the benefit of the Trade Vendors; and WHEREAS, pursuant to the Loan and Security Agreement, dated as of May 31, 1996, by and among Foothill Capital Corporation ("Foothill"), as Agent and Lender, the other Lenders, and Rose's Stores, Inc., as Borrower, as amended, amended and restated, supplemented, extended, renewed, or replaced from time to time (the "Foothill Loan Agreement") the Debtor, as security for the Obligations (as defined in the Foothill Loan Agreement), has granted to the Agent, for the benefit of the Lenders, a first priority security interest in the Collateral; NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Debtor hereby agrees with the Trustee, for the benefit of the Trade Vendors, as follows: SECTION 1. Definitions. All initially capitalized terms used in this Agreement which are defined in the Collateral Trust Agreement or in Article 9 of the Uniform Commercial Code as currently in effect in the State of New York (the "Code") and which are not otherwise defined herein shall have the same meanings herein as set forth therein. In the event of any inconsistencies in such definitions, the provisions of this Agreement shall control. SECTION 2. Grant of Security Interest. As security for the payment in full of all of the Obligations, the Debtor hereby pledges and assigns to the Trustee and grants to the Trustee, for the benefit of the Trade Vendors, a continuing general lien upon and second priority, perfected security interest in, subject only to the security interest of the Agent therein, all of the following, which is owned by the Debtor or in which the Debtor has any interest, wherever held by the Debtor or others for its account (collectively, the "Collateral"): (a) Accounts, (b) Debtor's Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Negotiable Collateral, (g) any money, or other assets of Debtor that now or hereafter come into the possession, custody, or control of the Trustee, and (h) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Debtor's Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, real property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. As used in this Agreement: (a) "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to the Debtor arising out of the sale or lease of goods or the rendition of services by the Debtor, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. (b) "Debtor's Books" means all of the Debtor's books and records including: ledgers; records indicating, summarizing, or evidencing the Debtor's properties or assets (including the Collateral) or liabilities; all information relating to the Debtor's business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information. (c) "Equipment" means all of the Debtor's present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including, (a) any interest of the Debtor in any of the foregoing, and (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. (d) "General Intangibles" means all of the Debtor's present and future general intangibles and other personal property (including contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty, franchise, or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral. (e) "Inventory" means all present and future inventory in which the Debtor has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of the Debtor's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above. (f) "Negotiable Collateral" means all of the Debtor's present and future letters of credit, notes, drafts, instruments, certificated securities (including the shares of stock of subsidiaries of the Debtor), documents, personal property leases (wherein the Debtor is the lessor), chattel paper, and the Debtor's Books relating to any of the foregoing. SECTION 3. Security for Obligations. The security interest hereby created in the Collateral constitutes continuing collateral security for payment and performance of all of the Obligations. As used in this Agreement, "Obligations" means, all obligations, liabilities and indebtedness, whether matured or unmatured, of the Debtor arising out of or evidenced by the Note, any Security Document or the Collateral Trust Agreement, whether as principal, interest, fees or expenses, including, without limitation, the Trade Obligations, the fees and expenses of the Trustee and the Mortgage Trustee and the of the Trade Committee, and the reasonable fees and disbursements of the respective counsel to the Trustee, the Mortgage Trustee and the Trade Committee payable pursuant to the Collateral Agreement or this Agreement. SECTION 4. Representations and Warranties. The Debtor represents and warrants as follows: (a) The Debtor (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation as set forth on the first page hereof, and (ii) has all requisite power and authority to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by the Debtor of this Agreement (i) have been duly authorized by all necessary corporate action, (ii) do not and will not contravene its charter or by-laws, any other applicable law or any contractual restriction binding on or affecting the Debtor or any of its properties, and (iii) do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties other than as set forth in this Agreement. (c) This Agreement is a legal, valid and binding obligation of the Debtor enforceable against the Debtor in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting the rights of creditors generally and limitations imposed by federal or state law or equitable principles upon the specific enforceability of any of the remedies, covenants or other provisions hereof and thereof. (d) All Equipment and Inventory now existing is, and all Equipment and Inventory hereafter existing will be, unless consented to in writing by the Trustee, located at the address(es) specified therefor in Schedule I hereto. The Debtor's chief place of business and chief executive office, the place where the Debtor keeps its records concerning Accounts and General Intangibles and all originals of all chattel paper which constitutes Accounts are located at the address(es) specified therefor in such Schedule I. None of the Accounts or General Intangibles is evidenced by a promissory note or other instrument. Set forth as Schedule II hereto is a complete and correct list of each trade name used by the Debtor. (e) The Debtor is and will be at all times the owner of the Collateral free and clear of any lien, security interest or other charge or encumbrance, except for (i) the security interest created by this Agreement, (ii) the security interest in favor of the Agent and (iii) the security interests and other encumbrances described in Schedule III hereto. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office, except (i) such as may have been filed in favor of the Agent in connection with the Foothill Loan Agreement, (ii) such as may have been filed in favor of the Trustee and (iii) such as may have been filed to perfect or protect any security interest or encumbrance described in Schedule III hereto. (f) The exercise by the Trustee of any of its rights and remedies hereunder will not contravene any law or any contractual restrictions binding on or affecting the Debtor or any of its properties and will not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of the Debtor's properties other than as set forth in this Agreement. (g) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the due execution, delivery and performance by the Debtor of this Agreement, (ii) the grant by the Debtor, or the perfection, of the security interest purported to be created hereby in the Collateral, or (iii) the exercise by the Trustee of any of its rights and remedies hereunder, except for the filing of the financing statements required to be filed to perfect the security interest created by this Agreement. (h) There is no pending or, to the best of Debtor's knowledge, threatened action, suit, proceeding or claim before any court or other governmental authority or any arbitrator, or any order, judgment or award by any court or other governmental authority or arbitrator, that may adversely affect the grant by the Debtor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by the Trustee of any of its rights and remedies hereunder. (i) This Agreement creates a valid second priority security interest in the Collateral in favor of the Trustee, for the benefit of the Trade Vendors, as security for the Obligations. The filing of the financing statements required to perfect the security interest created by this Agreement has been made and results in the perfection of such security interest in that portion of the Collateral in which a security interest may be perfected by filing financing statements. Such security interest is, or in the case of Collateral in which the Debtor obtains rights after the date hereof and in which a security interest may be perfected by filing financing statements, will be, a perfected, second priority security interest, subject only to the security interest of the Agent and the other encumbrances described in Schedule III hereto. SECTION 5. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Trustee shall otherwise consent in writing: (a) Further Assurances. The Debtor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Trustee may reasonably request in order (i) to perfect and protect the security interest created hereby; (ii) after the occurrence and during the continuance of an Event of Default (as hereinafter defined), to enable the Trustee to exercise and enforce it rights and remedies hereunder in respect of the Collateral, or (iii) to otherwise effect the purpose of this Agreement, including, without limitation, (A) marking conspicuously each item of chattel paper included in the Accounts and General Intangibles and, at the request of the Trustee, each of its records pertaining to the Collateral with a legend, in form and substance reasonably satisfactory to the Trustee, indicating that such chattel paper or Collateral is subject to the security interest created hereby, (B) if any Account or General Intangible shall be evidenced by a promissory note or other instrument or chattel paper, delivering and pledging to the Trustee hereunder such note, instrument or chattel paper duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Trustee, (C) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Trustee may reasonably request in order to perfect and preserve the security interest purported to be created hereby, and (D) furnishing to the Trustee from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Trustee may reasonably request, all in reasonable detail. (b) Location of Equipment and Inventory. The Debtor will keep the Equipment and Inventory at the location(s) specified therefor in Schedule I hereto, or, upon not less than 30 Business Days' prior written notice to the Trustee accompanied by a new Schedule I hereto indicating each new location of the Equipment and Inventory, at such other location as the Debtor may elect, provided that the Trustee's rights in such Equipment and Inventory, including, without limitation, the existence, perfection and priority of the security interest created hereby in such Equipment and Inventory, are not materially adversely affected thereby. (c) Condition of Equipment. The Debtor will cause Equipment necessary for the operation of its business to be maintained and preserved in good repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all necessary repairs, replacement, and other improvements in connection therewith so that the value and operating efficiency thereof shall at all times be maintained and preserved. The Debtor will promptly furnish to the Trustee a statement regarding any loss or damage in excess of $100,000 to any Equipment. (d) Taxes. The Debtor will pay timely (before delinquency or the expiration of any extension period) when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against any Collateral, except to the extent the validity thereof is being contested in good faith by proper proceedings and with respect to which adequate reserves have been set aside for the payment thereof. (e) Insurance. (i) The Debtor will, at it own expense, maintain insurance (including, without limitation, comprehensive general liability insurance and all risk insurance insuring against loss by fire, explosion, theft and such other casualties as may be satisfactory to the Trustee) with respect to the Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as is currently in effect. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Trustee and the Debtor as their respective interests may appear, and each policy for property damage shall provide for all losses to be paid directly to the Trustee upon the occurrence and during the continuance of an Event of Default. In addition, each such policy or property damage insurance shall provide for all losses to be paid directly to the Trustee and shall (A) include the Trustee as an insured party thereunder (without any representation or warranty by or obligation upon the Trustee) as its interest may appear, (B) contain the agreement by the insurer that any loss pursuant to clause (iii) of this Section 5(e) shall be payable to the Trustee notwithstanding any action, inaction or breach of representation or warranty by the Debtor, (C) provide that there shall be no recourse against the Trustee for payment of premiums or other amounts with respect thereto, and (D) provide that at least 10 days' prior written notice of cancellation or of lapse shall be given to the Trustee by the insurer. The Debtor will, if so requested by the Trustee, deliver to the Trustee duplicate policies of all liability and property damage insurance and, as often as the Trustee may reasonably request, a report of a reputable insurance broker with respect to such insurance. The Debtor will also, after the occurrence and during the continuance of an Event of Default, at the request of the Trustee, duly execute and deliver instruments of assignment of such insurance policies and cause the respective insurer to acknowledge notice of such assignment. (ii) Reimbursement under any liability insurance maintained by the Debtor pursuant to this Section 5(e) may be paid directly to the party who shall have incurred liability covered by such insurance. In the case of any loss involving damage to Equipment or Inventory as to which clause (iii) of this Section 5(e) is not applicable, the Debtor will make or cause to be made the necessary repairs to or replacements to such Equipment and Inventory, and any proceeds of insurance maintained by the Debtor pursuant to this Section 5(e) shall be paid to the Debtor as reimbursement for the costs of such repair or replacements. (iii) Upon the occurrence and during the continuance of an Event of Default, or the actual or constructive total loss (in excess of $100,000 per occurrence) of any Equipment or Inventory, all insurance payments in respect of such Equipment and Inventory and all other Collateral shall be paid to the Trustee and applied as specified in Section 8(b) hereof. (f) Provisions Concerning the Accounts and General Intangibles. (i) The Debtor will (A) give the Trustee at least 30 days' prior written notice of any change in the Debtor's name, identity or corporate structure, (B) keep its chief place of business and chief executive office and all originals of all chattel paper which constitutes Accounts or General Intangibles at the locations specified therefor in Schedule I hereof, and (C) keep adequate records concerning the Accounts and General Intangible and such chattel paper and, after reasonable notice, permit representatives of the Trustee to inspect and make abstracts from such records and chattel paper at any time during normal business hours. (ii) The Debtor will, except as otherwise provided in this subsection (f) continue to collect at its own expense, all amounts due or to become due under the Accounts and General Intangibles. In connection with such collections, the Debtor may (and, at the Trustee's direction, will) take such action as the Debtor or the Trustee may deem necessary or advisable to enforce collection or performance of the Accounts and General Intangibles; provided, however, the Trustee shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, to notify the account debtors or obligors under any Account or General Intangible of the assignment of such Account or General Intangible to the Trustee and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Debtor hereunder directly to the Trustee and, upon such notification and at the expense of the Debtor and to the extent permitted by law, to enforce collection of any such Account or General Intangible and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Debtor might have done. In addition, upon the occurrence and during the continuance of an Event of Default, the Trustee shall have the right to notify the United States Postal Service authorities to change the address for delivery of mail addressed to the Debtor at such address as the Trustee may designate and to do all other acts and things necessary to carry out this Agreement. Upon the occurrence and during the continuance of an Event of Default, (A) all amounts and proceeds (including instruments) received by the Debtor in respect of the Accounts and General Intangibles shall be received in trust for the benefit of the Trustee hereunder, shall be segregated from other funds of the Debtor and shall be forthwith paid over to the Trustee in the same form as so received (with any necessary indorsement) to be held as cash collateral and either (1) released to the Debtor so long as no Event of Default, or an event which, with the giving of notice or lapse of time or both, would constitute an Event of Default shall have occurred and be continuing or (2) if any Event of Default shall be continuing, applied as specified in Section 8(b) hereof, and (B) the Debtor will not adjust, settle or compromise the amount or payment of any Account or General Intangible or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon without the express written consent of the Trustee. (g) Transfers and Other Liens. The Debtor will not (i) sell, transfer or assign (by operation of law or otherwise), lease, exchange or otherwise dispose of any of the Collateral except for (A) sales or disposal of Inventory in the ordinary course of business and (B) sale and disposition of obsolete equipment in the ordinary course of business so long as the amount thereof sold in any fiscal year by the Debtor shall not have a fair market value in excess of $100,000, or (ii) create or suffer to exist any lien, security interest or other charge or encumbrance upon or with resect to any of the Collateral, except for (A) the security interest created hereby, (B) the security interest in favor of the Agent and (C) the security interests and other encumbrances described in or permitted under Schedule III hereto. SECTION 5A. Acts Permitted Under the Foothill Loan Agreement. Notwithstanding anything to the contrary contained in this Agreement, including, without limitation, the covenants set forth in Section 5 hereof and the additional provisions concerning the Collateral set forth in Section 6 hereof, the Debtor shall have the right at any time, except (i) upon the occurrence and during the continuance of an Event of Default or (ii) to the extent not permitted under the Foothill Loan Agreement, to take such acts permitted under, and exercise such rights as may be provided for in, Section 6.6, 6.8, 7.1, 7.2, 7.4, 7.10 and 7.14 of the Foothill Loan Agreement. SECTION 6. Additional Provisions Concerning the Collateral. (a) So long as any of the Obligations remain outstanding the Debtor hereby authorizes the Trustee to file, without the signature of the Debtor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Debtor hereby irrevocably appoints the Trustee, the Debtor's attorney-in-act and proxy, with full authority in the place and stead of the Debtor and in the name of the Debtor or otherwise, from time to time in the Trustee's discretion, to take any action and to execute any instrument which the Trustee may reasonably deem necessary or advisable to accomplish the purpose of this Agreement (subject to the rights of the Debtor under Section 5(f) hereof), including, without limitation: (A) to receive, take, endorse, sign, assign and deliver, all in the name of the Trustee or the Debtor, any and all checks, notes, drafts, and other documents or instruments relating to the Collateral (but in all instances before an Event of Default in the name of the Debtor and not the Trustee); (B) to obtain and adjust insurance required to be paid to the Trustee pursuant to Section 5(e) hereof, and to receive, indorse and collect any drafts or other instruments, document and chattel paper in connection therewith; and (C) in addition to the foregoing and without limitation, upon the occurrence and during the continuation of an Event of Default, (1) to receive, indorse and collect any notes, drafts or other instruments, documents and chattel paper relating to the Collateral; (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral; (iii) to receive, indorse, and collect any drafts or other instruments, documents and chattel paper in connection with clause (B), (C)(i) or (C)(ii) of this Subsection (b); and (iv) to file any claim or take any action or institute any proceedings which the Trustee may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Trustee with respect to any Collateral, including, without limitation, the right, in the name of the Trustee, for the benefit of the Trade Vendors, or the Debtor, to file claims under any insurance policy, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, release, assignment, reassignment or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. (c) If the Debtor fails to perform any agreement contained herein, the Trustee may itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Trustee incurred in connection therewith shall be payable by the Debtor pursuant to Section 9 hereof. (d) The powers conferred on the Trustee hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Trustee shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. (e) Upon the termination of the Collateral Trust Agreement and this Agreement and payment and satisfaction in full by Debtor of all Obligations, the Trustee shall deliver to Debtor, at Debtor's sole cost and expense, all UCC-3 termination statements and any other documents necessary to terminate the Collateral Trust Agreement and this Agreement and to release the liens and security interests granted under this Agreement with respect to the Collateral. Upon the Debtor's written request and certification to the Trustee that a sale, disposition or transaction is permitted under this Agreement (upon which certification the Trustee may rely conclusively, without further inquiry), the Trustee shall release any lien or security interest granted under this Agreement on any Collateral (i) constituting property being sold or disposed of if a release is required or desirable in connection therewith, (ii) constituting property in which Debtor owned no interest at the time the security interest was granted or at any time thereafter, or (iii) constituting property leased to Debtor under a lease that has expired or been terminated in a transaction permitted under this Agreement; provided, however, that (x) the Trustee shall not be required to execute any document necessary to evidence such release on terms that, in the Trustee's opinion, would expose the Trustee to liability or create any obligation or entail any consequence other than the release of such lien or security interest without recourse, representation or warranty, and (y) such release shall not in any manner discharge, affect or impair the Obligations or any liens or security interests granted under this Agreement (other than those expressly being released) upon (or obligations of the Debtor in respect of) all interests retained by Debtor, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. SECTION 7. Events of Default. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: (a) The failure of the Debtor to pay when due and payable any of the Obligations; (b) If any material misstatement or material misrepresentation now or hereafter exists in any warranty, representation, statement or report made to the Trustee by the Debtor or any officer, employee, agent, or director thereof; (c) The failure or neglect by the Debtor to perform, keep or observe any term, provision, condition, covenant, or agreement contained in this Agreement or any other Vendor Document, which failure or neglect continues for ten (10) or more days; (d) The occurrence of an "Event of Default" under and as defined in the Mortgage; or (e) The occurrence of an "Event of Default" under and as defined in Section 8.1, 8.5, 8.6 or 8.7 of the Foothill Loan Agreement or Agent declares all "Obligations" under and as defined in the Foothill Loan Agreement immediately due and payable. SECTION 8. Remedies Upon Default. If any Event of Default shall have occurred and be continuing: (a) The Trustee may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral), and may also (i) require the Debtor to, and the Debtor hereby agrees that it will at its expense and upon request of the Trustee forthwith, assemble all or part of the Collateral as directed by the Trustee and make it available to the Trustee at a place to be designated by the Trustee which is reasonably convenient to both parties, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at a public or private sale, at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Trustee may reasonably deem commercially reasonable. The Debtor agrees that, to the extent notice of sale shall be required by law, at least five (5) days' notice to the Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Debtor hereby waives any claims against the Trustee arising by reason of the fact that the price at which the Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Trustee accepts the first offer received and does not offer the Collateral to more than one offeree, provided that such sale has been conducted in a commercially reasonable manner. (b) Any cash held by the Trustee as Collateral and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Trustee, be held by the Trustee as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Trustee pursuant to Section 9 hereof) in whole or in part by the Trustee against, all or any part of the Obligations in the order provided for in Article 9 of the Collateral Trust Agreement. (c) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Trustee is legally entitled, the Debtor shall be liable for the deficiency, together with interest thereon at the rate specified in the Collateral Trust Agreement or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees and expenses of any attorneys employed by the Trustee to collect such deficiency. SECTION 9. Indemnity and Expenses. (a) The Debtor agrees to indemnify the Trustee from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting solely and directly from the Trustee's gross negligence or willful misconduct. (b) The Debtor will, upon demand, pay to the Trustee the amount of any and all reasonable costs and expenses, including the reasonable fees and disbursements of the Trustee's counsel and of any experts and agents, which the Trustee may reasonably incur in connection with (i) as applicable, the preparation, administration, amendment, waiver or other modification this Agreement, the other Security Documents, or the Collateral Trust Agreement; (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral; (iii) the exercise or enforcement of any of the rights of the Trustee hereunder; or (iv) the failure by the Debtor to perform or observe any of the provisions hereof. SECTION 10. Notices. All notices, requests, demands and other communications provided for or permitted hereunder shall, unless otherwise stated herein, be in writing (including telex and telecopy communications) and shall be sent by registered or certified mail, return receipt requested, telex, telecopier or hand delivery; (a) If to the Debtor, to P.O. Box Drawer 947, Henderson, North Carolina 27536, Attention: Chief Financial Officer, or at such other address as shall be designated by it in a written notice to the Trustee with a copy to Proskauer, Rose, Goetz & Mendelsohn, LLP, 1585 Broadway, New York, New York 10036- 8299 Attention: Michael E. Foreman, Esq., counsel to the Debtor, or at such other address as shall be designated by such firm in a written notice to the Trustee; and (b) If to the Trustee, to its address at 333 East 68th Street, New York, New York 10021, Attention: Michael J. Sherman, or at such other address as shall designated by it in a written notice to the Debtor, with a copy to Otterbourg, Steindler, Houston & Rosen, PC., 230 Park Avenue, New York, New York 10169, Attention: Glenn B. Rice, Esq., counsel the Trade Committee, or at such other address as shall be designated by such firm in a written notice to the Debtor. All such notices, requests, demands and communications shall be deemed to have been duly given or made, (i) when delivered by hand, (ii) five Business Days after being deposited in the United States mail, postage prepared, (iii) when telexed with answer back received or (iv) when telecopied with receipt acknowledged. SECTION 11. Security Interest Absolute. All rights and the security interest of the Trustee hereunder and all obligations of the Debtor hereunder shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of this Agreement or any other Vendor Document; (ii) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from this Agreement or any other Vendor Document; (iii) any increase in, addition to, exchange or release of, or non-perfection of any lien on or security interest in, any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (iv) the absence of any action on the part of the Trustee to obtain payment or performance of the Obligations from the Debtor or any other party. SECTION 12. Miscellaneous. (a) Amendments. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Debtor and the Trustee, and no waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) Waivers; Cumulative Rights; Etc. No failure on the part of the Trustee to exercise, and no delay in exercising, any right hereunder or under any other Vendor Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Trustee provided herein are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Trustee under this Agreement are not conditional or contingent on any attempt by the Trustee to exercise any of its rights against any other Person. (c) Captions; Separability. The captions of the various Sections, Subsections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) Continuing Security Interest; Assignments. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full of the Obligations in accordance with the terms of the Collateral Trust Agreement and (ii) be binding on the Debtor and its successors and assigns and shall inure, together with all rights and remedies of the Trustee hereunder, to the benefit of the Trustee and its successors, transferees and assigns. (e) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. (f) CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT MAY BE TRIED AND LITIGATED IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE OPTION OF TRUSTEE, IN ANY OTHER COURT IN WHICH TRUSTEE SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF DEBTOR AND TRUSTEE WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b). DEBTOR AND TRUSTEE HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE VENDOR DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. DEBTOR AND TRUSTEE REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (g) Admissibility of Security Agreement. The Debtor agrees that any copy of this Agreement signed by the Debtor and transmitted by telecopier for delivery to the Trustee shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence. (h) Binding Nature. This Agreement shall be binding upon and inure to the benefit of the successors, assigns or other legal representatives of the Debtor, and shall, together with the rights and remedies of the Trustee hereunder, be binding upon and inure to the benefit of the Trustee and the Trade Vendors and each of their respective successors, assigns or other legal representatives. (i) Counterparts. This Agreement may be executed by the parties hereto individually or in any combination, in one or more counterparts, each of which shall be an original and all of which shall together constitute one and the same agreement. (j) Schedules. The Trustee is authorized to annex hereto any schedules referred to herein. (k) Acknowledgment of Receipt. The Debtor acknowledges receipt of a copy of this Agreement. (l) This Agreement is subject to the terms and conditions of the Intercreditor Agreement, dated on or about the date hereof, between the Agent and the Trustee relating to the priorities of their respective security interests in, and respective rights and remedies in and to, the Collateral. PAGE IN WITNESS WHEREOF, the Debtor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written. ROSE'S STORES, INC. By:/s/ Jeanette Peters____ Name: Jeanette Peters_____ Title: Chief Financial Officer PAGE SCHEDULE I TO GENERAL SECURITY AGREEMENT 1. Location(s) of Equipment and Inventory: 2. The Debtor's (a) chief executive office, (b) chief place of business, and (c) place where the Debtor keeps its records concerning Accounts and General Intangibles. PAGE SCHEDULE II TO GENERAL SECURITY AGREEMENT Trade Names SCHEDULE III TO GENERAL SECURITY AGREEMENT Permitted Encumbrances EX-10.4 5 NORTH CAROLINA SECOND AMENDMENT TO SECOND DEED OF TRUST, VANCE COUNTY ASSIGNMENT OF RENTS AND SECURITY AGREEMENT THIS SECOND AMENDMENT TO SECOND DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this "Second Amendment"), dated as of April 29, 1997, is by and among ROSE'S STORES, INC., a Delaware corporation whose address is 218 South Garnett Street, Henderson, North Carolina 27536 (the "Mortgagor"), ALAN H. PETERSON, Substitute Trustee, whose address is Two Hanover Square, 434 Fayetteville Street Mall, Raleigh, North Carolina 27602 (the "Trustee"),and M.J. SHERMAN & ASSOCIATES, INC., a New York corporation, as trustee, whose address is 333 East 68th Street, New York, New York 10021 (the "Mortgagee" or the "Beneficiary"). W I T N E S S E T H: WHEREAS, the Mortgagor executed a Second Deed of Trust, Assignment of Rents and Security Agreement, dated as of May 8, 1995, on the Mortgaged Property (as defined therein) in favor of the Beneficiary which was recorded in the records of the Vance County, North Carolina, Register of Deeds on May 10, 1995 in Book 749, at Page 499 (the "Mortgage" or "Deed of Trust") to secure obligations then and thereafter owing by the Mortgagor to its merchandise vendors for the unpaid invoiced cost of goods theretofore and thereafter delivered by them to the Mortgagor in accordance with the terms of the Letter of Credit and Mortgage Trust Agreement, dated as of May 8, 1995, between the Mortgagor and the Beneficiary (as amended, the "Letter of Credit and Mortgage Trust Agreement"); and WHEREAS, the Deed of Trust was amended by the First Amendment to Second Deed of Trust, Assignment of Rents and Security Agreement dated as of April 29, 1996 which was recorded in the records of the Vance County, North Carolina, Registry of Deeds on May 24, 1996 in Book 771 at Page 53; WHEREAS, pursuant to a Revolving Credit Agreement dated as of April 28, 1995 (as from time to time amended, the "Original Loan Agreement") among the Mortgagor, The First National Bank of Boston ("FNBB") and CIT Group/Business Credit, Inc. ("CIT"; FNBB and CIT and any other lending institution party to the Original Loan Agreement being referred to herein collectively as the "Original Banks"), the Mortgagor executed and delivered to the Original Banks as beneficiary, as security for the "Obligations" of the Mortgagor to the Original Banks, a First Deed of Trust, Assignment of Rents and Security Agreement dated as of April 27, 1995 (as from time to time amended, the "Original First Mortgage") constituting a first lien and security interest on the Mortgaged Property; WHEREAS, on May 21, 1997, the Company, as Borrower, entered into a Loan and Security Agreement with Foothill Capital Corporation ("Foothill"), as Agent, PPM Financing, Inc. as Co- Agent, and the financial institutions named therein, as Lenders and referred to herein as the "Banks" (as amended, amended and restated, supplemented or otherwise modified from time to time the "Loan Agreement") pursuant to which all indebtedness of the Company to the Original Banks under the Original Credit Agreement was paid in full and the Original First Mortgage was released; WHEREAS, as security for the "Obligations" of the Mortgagor to the Banks under and as defined in the Loan Agreement, the Mortgagor executed and delivered (a) that certain Future Advance Deed of Trust, Assignment of Rents and Security Agreement (the "Senior Headquarters Mortgage") dated as of May 21, 1996 to David L. Huffstetler, as trustee (the "First Mortgage Trustee") for the benefit of the Banks, as beneficiary, recorded on May 24, 1996 in Book 771, at Page 93 in the records of the Vance County, North Carolina Registry of Deeds encumbering a portion of the Mortgaged Property identified as Parcels 1 through 12 on Exhibit "A", and (b) that certain Future Advance Deed of Trust, Assignment of Rents and Security Agreement (the "First Warehouse Mortgage") dated as of May 21, 1996 executed by Mortgagor, as grantor to the First Mortgage Trustee for the benefit of the Banks, as beneficiary, recorded in the records of the Vance County, North Carolina Registry of Deeds on May 24, 1996 in Book 771, at Page 132 encumbering a portion of the Mortgaged Property identified Parcel 13 on Exhibit "A" (the First Warehouse Mortgage and the First Headquarters Mortgage being hereinafter collectively referred to as the "First Mortgage"); WHEREAS, the Mortgage is subordinate, junior, and subject to the First Mortgage as a result of that certain Subordination Agreement (the "Subordination Agreement") dated as of May 21, 1996, executed by the Beneficiary, the Trustee and Foothill, recorded on May 24, 1996 in Book 771, at Page 159 in the records of the Vance County, North Carolina Registry of Deeds and encumbering the Mortgaged Property; WHEREAS, the Letter of Credit and Mortgage Trust Agreement was amended and restated in its entirety by the Collateral Trust Agreement, dated as of April 29, 1997, between the Mortgagor and the Beneficiary (as from time to time amended, amended and restated, supplemented or otherwise modified, the "Trade Credit Trust Agreement"); WHEREAS, the Mortgagor has requested the Beneficiary to amend the Deed of Trust to, among other things, extend the date on or before which future obligations of the Beneficiary to its merchandise vendors must be incurred if such obligations are to be secured by the Deed of Trust; WHEREAS, the Beneficiary is willing to make such amendment to the Deed of Trust upon the terms and subject to the conditions set forth in this Second Amendment; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used herein shall have the meanings ascribed to such terms in this Second Amendment. Capitalized terms that are not otherwise defined herein shall have the meanings ascribed to such terms in the Deed of Trust. Section 2. Amendments to Deed of Trust. 1 Amendment to Definition of Trade Credit Trust Agreement. The definition of Trade Credit Trust Agreement in the recitals to the Deed of Trust is hereby amended and restated in its entirety so that "Trade Credit Trust Agreement" means the Collateral Agreement, dated as of April 29, 1997, between the Mortgagor and the Beneficiary, as amended, amended and restated, supplemented, or otherwise modified, from time to time. 2 Amendment to Definition of Loan Agreement. The definition of "Loan Agreement" in the recitals to the Deed of Trust is hereby amended and restated in its entirety so that Loan Agreement means the Loan and Security Agreement, dated May 21, 1996, by and among Foothill Capital Corporation ("Foothill"), as Agent, PPM Financing, Inc., as Co-Agent, and the financial institutions named therein as Lenders, and referred to herein as the "Banks", as amended, amended and restated, supplemented, renewed, extended, replaced or otherwise modified, from time to time. 3 Amendment to Definition of Banks. The definition of "Banks" in the Deed of Trust is amended and restated in its entirety so that "Banks" means the financial institutions named as Lenders in the Loan Agreement. 4 Amendment to Definition of First Mortgage. The definition of "First Mortgage" is amended and restated in its entirety so that "First Mortgage" means, collectively, (a) that certain Future Advance Deed of Trust, Assignment of Rents and Security Agreement (the "Senior Headquarters Mortgage") dated as of May 21, 1996 to David L. Huffstetler, as trustee (the "First Mortgage Trustee") for the benefit of the Banks, as beneficiary, recorded on May 24, 1996 in Book 771, at Page 93 in the records of the Vance County, North Carolina Registry of Deeds encumbering a portion of the Mortgaged Property identified as Parcels 1 through 12 on Exhibit "A", and (b) that certain Future Advance Deed of Trust, Assignment of Rents and Security Agreement (the "First Warehouse Mortgage") dated as of May 21, 1996 executed by Mortgagor, as grantor to the First Mortgage Trustee for the benefit of the Banks, as beneficiary, recorded in the records of the Vance County, North Carolina Registry of Deeds on May 24, 1996 in Book 771, at Page 132 encumbering a portion of the Mortgaged Property identified Parcel 13 on Exhibit "A", as the Senior Headquarters Mortgage and the Senior Warehouse Mortgage may be amended, amended and restated, supplemented or otherwise modified, from time to time. 5 Amendment to Definition of Subordination Agreement. The definition of Subordination Agreement in the recitals to the Deed of Trust is hereby amended and restated in its entirety so that "Subordination Agreement" means the Subordination Agreement, dated as of May 21, 1996, among Foothill, as Agent for itself and the other Banks, and the Beneficiary, recorded in the records of the Vance County North Carolina Registry of Deeds on May 24, 1996 in Book 771, at Page 159, and encumbering the Mortgaged Property, as amended, amended and restated, or otherwise modified from time to time. 6 Amendment to Section 1.1 of Deed of Trust. Section 1.1 of the Deed of Trust is hereby amended and restated in its entirety to read as follows: 1.1 The Obligations. This Deed of Trust is executed to secure the payment and performance of the "Trade Obligations" and other "Obligations" under and as defined in May 8, 1995. Pursuant to the provisions of N.C.G.S. Sections 45-67 et seq., this Deed of Trust secures the making of present and future advances incurred hereunder. 8 Amendment to Article V of the Deed of Trust. The following is added to the Deed of Trust as Section 5.7 thereof: 5.7 Default under General Security Agreement. The occurrence of an "Event of Default" under and as defined in the General Security Agreement, dated as of April 29, 1997, executed by the Mortgagor in favor of the Mortgagee, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time. Section 3. Deed of Trust in Full Force and Effect. Except as hereby amended, the terms and conditions of the Deed of Trust remain in full force and effect. PAGE Section 4. Execution of this Amendment by Trustee. The Beneficiary requests and directs the Trustee to execute and enter into this Second Amendment. Section 5. Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have this First Amendment under seal as of the date above written. ATTEST: ROSE'S STORES, INC. a Delaware corporation G. Templeton Blackburn, II By: /s/ Jeanette Peters________ Secretary Name: Jeanette Peters _________ (CORPORATE SEAL) Title: Chief Financial Officer Senior VP & Treasurer M.J. SHERMAN & ASSOCIATES, INC. as Trustee Illegible_______________ By: /s/ Michael J. Sherman_____ Secretary Name: Michael J. Sherman_______ (CORPORATE SEAL) Title: C. E. O. President_____ ALAN H. PETERSON, Substitute Trustee ________________________ By: /s/ Alan H. Peterson_______ Secretary Name: Alan H. Peterson_________ (CORPORATE SEAL) Title: Substitute Trustee______ page> STATE OF NORTH CAROLINA COUNTY OF VANCE I, a Notary Public for said County and State aforesaid, do hereby certify that _Jeanette Peters_ personally appeared before me this day, who, being by me duly sworn, says she is Chief Financial Officer, Senior Vice President and Treasurer of ROSE'S STORE, INC., a corporation, that the seal affixed to the foregoing instrument in writing is the corporate seal of said corporation, that said writing was signed and sealed by her on behalf of said corporation by its authority duly given, and that the said _Jeanette Peters_ acknowledged the said writing to be the act and deed of the corporation. Witness my hand and official stamp or seal, this _28th_ day of April, 1997. _/s/ Farrel W. Oakes______________ Notary Public My Commission Expires Oct. 16, 2000________ (SEAL) PAGE STATE OF NEW YORK COUNTY OF NEW YORK I, a Notary Public for said County and State aforesaid, do hereby certify that Michael J. Sherman personally appeared before me this day, who, being by me duly sworn, says he is CEO and President of M.J. SHERMAN & ASSOCIATES, INC., a corporation, that the seal affixed to the foregoing instrument in writing is the seal of said corporation, that said writing was signed and sealed by him on behalf of said corporation by its authority duly given, and that the said Michael J. Sherman acknowledged the said writing to be the act and deed of the corporation. Witness my hand and official stamp or seal, this _24th_ day of April, 1997. _/s/ Cathleen A. Pellegrino______ Notary Public My Commission Expires November 30, 1998__ (SEAL) PAGE STATE OF NORTH CAROLINA COUNTY OF _Wake _____ I, a Notary Public for said County and State aforesaid, do hereby certify that on this day before me came Alan H. Peterson to me known to be the individual described in, and who executed, the foregoing instrument as Substitute Trustee, and acknowledged that he executed the same as Substitute Trustee. Witness my hand and official stamp or seal, this _28th_ day of April, 1997. _/s/ Kristen L. Rosendale_________ Notary Public My Commission Expires 10-23-2001____________ (SEAL) EX-27 6
5 This schedule contains summary financial information extracted from Rose's Stores, Inc., Form 10-Q for the quarter ended April 26, 1997, and is qualified in its entirety by reference to such financial statements. 0000085149 ROSE'S STORES, INC. 1,000 3-MOS JAN-31-1998 APR-26-1997 584 0 7,988 515 155,485 166,897 9,176 1,622 174,733 100,254 0 0 0 35,000 4,632 174,733 136,302 137,336 102,884 102,884 (529) 0 1,536 (1,308) 0 (1,308) 0 0 0 (1,308) (.15) (.15)
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