-----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, G3E6jnhMtL8NwlXsN2+D6+0q/eg75KmxdjEoitqfoGD/p7j0Jc3+grCeA9q6cZOD +vrqdhFMTPu+UZo+bPambQ== 0000085149-97-000015.txt : 19971209 0000085149-97-000015.hdr.sgml : 19971209 ACCESSION NUMBER: 0000085149-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971025 FILED AS OF DATE: 19971208 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROSES HOLDINGS 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: SEC FILE NUMBER: 000-00631 FILM NUMBER: 97733760 BUSINESS ADDRESS: STREET 1: PO DRAWER 947 STREET 2: 218 S GARNETT ST CITY: HENDERSON STATE: NC ZIP: 27536 BUSINESS PHONE: 9194302600 FORMER COMPANY: FORMER CONFORMED NAME: ROSES STORES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 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 October 25, 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 HOLDINGS, INC. Incorporated Under the Laws of Delaware I.R.S. Employer Identification No. 56-2043000 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 November 19, 1997, of the 10,000,000 shares of common stock delivered to First Union National Bank of North Carolina ("FUNB"), as Escrow Agent pursuant to the Modified and Restated First Amended Joint Plan of Reorganization, 8,612,661 of such shares of common stock are outstanding. The remaining 19,680 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, 8,632,341 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 Registrant and will be retired or held in the treasury of the Registrant. On August 7, 1997, Rose's Holdings, Inc. was created as the parent of Rose's Stores, Inc. ROSE'S HOLDINGS, INC. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Amounts in thousands except per share amounts) On August 7, 1997, pursuant to an agreement and plan of merger among Rose's Stores, Inc. ("Stores") and two newly created, wholly-owned subsidiaries of Stores, Stores became a wholly-owned subsidiary of Rose's Holdings, Inc. (the "Company"). As a result of such merger, each share of common stock, no par value ("Stores Common Stock"), of Stores was converted into common stock, no par value ("Common Stock"), of Rose's Holdings, Inc. and each warrant, option or other right entitling the holder thereof to purchase or receive shares of Stores Common Stock was converted into a warrant, option or other right (as the case may be) entitling the holder thereof to purchase or receive shares of Common Stock on identical terms. The powers, rights and other provisions of the Common Stock are identical to the powers, rights and other provisions of the Stores Common Stock. The following summary of financial information of 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 HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in Thousands Except Per Share Amounts)
For the Thirteen Weeks Ended October 25, 1997 October 26, 1996 Revenue: Gross sales $ 156,482 160,796 Leased department sales 4,022 4,907 Net sales 152,460 155,889 Leased department income 1,046 1,124 Total revenue 153,506 157,013 Costs and Expenses: Cost of sales 113,761 116,813 Selling, general and administrative (a) 38,872 37,757 Depreciation and amortization (453) (568) Interest 2,358 2,563 Total costs and expenses 154,538 156,565 Net Earnings (Loss) $ (1,032) 448 Net Earnings (Loss) Per Share $ (.12) .05 Weighted Average Shares 8,632 8,632
(a) Included in 1997 selling, general and administrative costs is a third quarter charge of $500 for the estimated closing expenses of two stores to close in the fourth quarter. Included in 1996 selling, general and administrative costs is a third quarter charge of $657 related to a merger agreement which was terminated on August 20, 1996. See notes to financial statements. PAGE ROSE'S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in Thousands Except Per Share Amounts)
For the Thirty-Nine Weeks Ended October 25, 1997 October 26, 1996 Revenue: Gross sales $ 450,485 481,066 Leased department sales 13,092 14,867 Net sales 437,393 466,199 Leased department income 3,404 3,364 Total revenue 440,797 469,563 Costs and Expenses: Cost of sales 331,425 352,942 Selling, general and administrative (a) 111,532 113,241 Depreciation and amortization (1,465) (1,856) Interest 5,631 5,928 Total costs and expenses 447,123 470,255 Loss Before Extraordinary Item (6,326) (692) Extraordinary Item - Loss on Early Extinguishment of Debt (b) - (914) Net Loss $ (6,326) (1,606) Loss Per Share Before Extraordinary Item $ (.73) (.08) Net Loss Per Share $ (.73) (.19) Weighted average shares 8,632 8,632
(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 $689 related to store closings. Included in 1996 selling, general and administrative costs is a third quarter charge of $657 related to a merger agreement which was terminated on August 20, 1996. (b) The extraordinary item - loss on early extinguishment of debt represents the deferred costs of a financing facility which were written off as a result of Stores obtaining a new facility in 1996. See notes to financial statements. PAGE ROSE'S HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
October 25, January 25, October 26, 1997 1997 1996 (Unaudited) (Audited) (Unaudited) Assets Current Assets Cash and cash equivalents $ 596 1,241 582 Accounts receivable 21,621 5,101 20,192 Inventories 195,849 141,287 200,054 Other current assets 4,026 4,503 3,774 Total current assets 222,092 152,132 224,602 Property and Equipment, at cost Less accumulated depreciation and amortization 8,719 7,710 7,638 Other Assets 504 480 458 $ 231,315 160,322 232,698 Liabilities and Stockholders' Equity Current Liabilities Short-term debt $ 100,299 44,138 95,743 Bank drafts outstanding 4,605 - 3,657 Accounts payable 39,337 19,230 35,507 Accrued salaries and wages 4,673 6,422 4,879 Pre-petition liabilities 1,003 2,737 4,261 Other current liabilities 13,201 10,908 13,042 Total current liabilities 163,118 83,435 157,089 Excess of Net Assets Over Reorganization Value, Net of Amortization 19,247 21,872 22,747 Reserve for Income Taxes 13,033 12,996 12,673 Deferred Income - 339 533 Other Liabilities 1,303 740 702 Stockholders' Equity Preferred stock, authorized 10,000 shares; none issued - - - Common stock, authorized 50,000 shares; issued 8,632 at 10/25/97, 1/25/97 and 10/26/96 (Note 1) 35,000 35,000 35,000 Paid-in capital 1,159 1,159 1,159 Retained earnings (accumulated deficit) (1,545) 4,781 2,795 Total stockholders' equity 34,614 40,940 38,954 $ 231,315 160,322 232,698
See notes to financial statements. PAGE ROSE'S HOLDINGS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Amounts in thousands)
For the Thirty-Nine Weeks Ended October 25, 1997 October 26, 1996 Cash flows from operating activities: Net earnings (loss) $ (6,326) (1,606) Expenses not requiring the outlay of cash: Depreciation and amortization (1,465) (1,855) Amortization of deferred financing costs 509 435 (Gain) loss on disposal of property and equipment - (1) Settlement of pre-petition liabilities (754) - Provisions for store closings 689 - Extraordinary loss on early extinguishment of debt - 914 Write-off of merger costs - 657 Reversal of severance reserve - (130) Cash provided by (used in) assets and liabilities: (Increase) decrease in accounts receivable (16,520) (12,983) (Increase) decrease in inventories (54,562) (46,864) (Increase) decrease in other assets 483 354 Increase (decrease) in accounts payable 20,107 11,662 Increase (decrease) in other liabilities (881) (712) Increase (decrease) in income tax reserves 37 - Increase (decrease) in reserve for store closings (86) (163) Increase (decrease) in deferred income (339) (441) Increase (decrease) in accumulated PBO - (300) Net cash provided by (used in) operating activities (59,108) (51,033) Cash flows from investing activities: Purchases of property and equipment (1,296) (3,219) Proceeds from disposal of property and equipment - 2 Net cash provided by (used in) investing activities (1,296) (3,217) Cash flows from financing activities: Net activity on line of credit 56,161 62,070 Payments of unsecured priority and administrative claims (227) (371) Principal payments on capital leases (241) (225) Increase (decrease) in bank drafts outstanding 4,605 (5,873) Payments of deferred financing costs (539) (1,362) Net cash provided by (used in) financing activities 59,759 54,239 Net decrease in cash (645) (11) Cash and cash equivalents at beginning of period 1,241 593 Cash and cash equivalents at end of period $ 596 582 Supplemental disclosure of additional non-cash investing and financing activities: Retirement of net book value of assets in reserve for store closings $ 14 - Capital lease additions 887 -
See notes to financial statements. PAGE Notes to Financial Statements: (1) On August 7, 1997, pursuant to an agreement and plan of merger among Rose's Stores, Inc. ("Stores") and two newly created, wholly-owned subsidiaries of Stores, Stores became a wholly-owned subsidiary of Rose's Holdings, Inc. (the "Company"). As a result of such merger, each share of common stock, no par value (the "Stores Common Stock") was converted into common stock, no par value ("Common Stock"), of Rose's Holdings, Inc. and each warrant, option or other right entitling the holder thereof to purchase or receive shares of Stores Common Stock was converted into a warrant, option or other right (as the case may be) entitling the holder thereof to purchase or receive shares of Common Stock on identical terms. The powers, rights and other provisions of the Common Stock are identical to the powers, rights and other provisions of the Stores Common Stock. In the presentation of the Company's consolidated financial statements, intercompany accounts and transactions are eliminated. Incident to the merger, the Company entered into a guaranty of the obligations (the "Guaranty") of Stores under the three year revolving credit agreement (the "Credit Agreement") between Stores and the participating lenders in favor of such lenders. The Guaranty is secured by a stock pledge and security agreement (the "Security Agreement") covering all the assets of the Company. In addition, Stores entered into a second amendment to the Credit Agreement (the "Second Amendment") effecting certain changes related to the merger. (2) On September 5, 1993, Stores 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"). Stores' 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 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 November 19, 1997, the Company had 8,613 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 November 19, 1997, and pursuant to the provisions of the Plan, 1,367 shares had reverted to the Company from escrow to be retired. The remaining 20 shares held in escrow will be distributed by FUNB in satisfaction of disputed Class 3 claims as and when such claims are resolved. These claims are claims of landlords with respect to leases which were rejected during the course of the Chapter 11 proceeding. If all pending claims are resolved adversely to the Company, 20 additional shares of Common Stock will be issued and there will be a Notes to Financial Statements (Continued): total of 8,632 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. On the Effective Date, all shares of Stores 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 Stores Common Stock. 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 Common Stock. The warrants may be exercised at any time until they expire on April 28, 2002. The current exercise price of $11.87 was effective 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 288 shares of the Company Common Stock were outstanding on October 25, 1997. The weighted average option price per share is $3.63. 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. Under the Long-Term Stock Incentive Plan, nonqualified stock options to purchase 75 shares of Company Common Stock were outstanding on October 25, 1997. The weighted average option price per share is $1.75. The options are fully vested and exercisable and expire five 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. (3) Accounts receivable is net of an allowance for doubtful accounts of $533 as of October 25, 1997; $420 as of January 25, 1997 and $320 as of October 26, 1996. PAGE Notes to Financial Statements (Continued): (4) The operating results presented herein are not necessarily indicative of the operating results for a full year due to seasonal factors, among other reasons. (5) Stores paid interest (including deferred financing costs) of $1,974 in the third quarter of 1997 and $2,180 in the comparable quarter of last year. Year-to-date, Stores paid interest of $5,285 in 1997 and $5,220 in 1996. (6) Certain reclassifications have been made to the 1996 financial statements to conform with the 1997 presentation. (7) Subsequent Event: On December 2, 1997, Rose's Holdings, Inc. (the "Company") consummated the sale to Variety Wholesalers, Inc. ("Variety") of all of the outstanding capital stock of Rose's Stores, Inc. ("Stores"), a wholly owned subsidiary of the Company (the "Sale") pursuant to a Stock Purchase Agreement, dated as of October 24, 1997, between the Company and Variety (the "Stock Purchase Agreement"). The Sale constituted the disposition by the Company of substantially all of its assets and was approved by the holders of a majority of the outstanding shares of Common Stock of the Company at a special stockholders meeting of the Company on December 2, 1997. The total purchase price for the Sale was $19,200,000, including $1,920,000 which was placed in escrow. The proceeds of the Sale, net of certain transaction, closing, and other costs, are approximately $15,300,000 (including $1,920,000 which was placed in escrow). For further information with respect to the Sale, the Stock Purchase Agreement, and related matters, reference is made to the Company's definitive proxy statement, dated November 10, 1997, as filed with the Securities and Exchange Commission (the "Proxy Statement"). PAGE ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Amounts in thousands) On December 2, 1997, Rose's Holdings, Inc. (the "Company") consummated the sale to Variety Wholesalers, Inc. ("Variety") of all of the outstanding capital stock of Rose's Stores, Inc. ("Stores"), a wholly owned subsidiary of the Company (the "Sale") pursuant to a Stock Purchase Agreement, dated as of October 24, 1997, between the Company and Variety (the "Stock Purchase Agreement"). The Sale constituted the disposition by the Company of substantially all of its assets and was approved by the holders of a majority of the outstanding shares of Common Stock of the Company at a special stockholders meeting of the Company on December 2, 1997. The total purchase price for the Sale was $19,200,000, including $1,920,000 which was placed in escrow. The proceeds of the Sale, net of certain transaction, closing, and other costs, are approximately $15,300,000 (including $1,920,000 which was placed in escrow). For further information with respect to the Sale, the Stock Purchase Agreement, and related matters, reference is made to the Company's definitive proxy statement, dated November 10, 1997, as filed with the Securities and Exchange Commission (the "Proxy Statement"). Effective December 2, 1997, R. Edward Anderson resigned his positions as Chairman of the Board, President, and Chief Executive Officer of Rose's Holdings. In addition, all of the other officers of the Company resigned effective as of the closing of the Sale. Warren G. Lichtenstein, a member of the Board of Directors, became the President, Chief Executive Officer, and the principal accounting officer of the Company; and Jack L. Howard, also a member of the Board of Directors, became Vice President, Secretary, Treasurer, and principal financial officer. Revenue Sales for the third quarter of 1997 were $156,482, a decrease of $4,314, or 2.7%, from the third quarter of 1996, and year-to-date sales were $450,485, a decrease of $30,581, or 6.4%, from the comparable period of the prior year. The decline in sales was due primarily to a decline in sales on a comparable store basis of 2.4% for the quarter and 5.9% year-to-date. On June 26, 1997, two small stores, operating under the name Rose's Express, were opened. During the fourth quarter, two stores will be closed. Costs and Expenses Cost of sales as a percent of net sales was 74.6% for the third quarter and 74.9% for the comparable period of the prior year. Year-to-date cost of sales as a percent of net sales was 75.8% for 1997 and 75.7% for the comparable period of the prior year. The decrease in the cost of sales as a percent of net sales for the quarter was .3%. The decrease resulted from cumulative increase in mark-on percent (.5%), a decrease in shrinkage (.5%) and an increase in advertising co-op income (.1%) and cash discounts (.1%). These decreases were partially offset by higher promotional markdowns (.9%). The increase in the year-to-date cost of sales as a percent to net sales was .1%. The increase in promotional markdowns (.6%) were partially offset by an increase in mark-on percent (.1%) and a decrease in shrinkage (.4%). Selling, general and administrative expenses ("SG&A") as a percent of net sales for the third quarter were 25.5% in 1997 and 24.2% for the comparable quarter of the prior year. Year-to-date SG&A expenses as a percentage of sales were 25.5% in 1997 and 24.3% in 1996. SG&A expenses increased by $1,115 for the quarter and decreased by $1,709 year-to-date. Included in 1997 third quarter and year-to-date results was an expense of $500 related to two stores that will close in the fourth quarter. Also included in 1997 year-to-date 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. Included in 1996 SG&A is a third quarter charge of $657 related to a merger agreement which was terminated on August 20, 1996. Liquidity and Capital Resources In the third quarter of 1997, $449 in cash was invested in property and equipment, as compared to $880 in the third quarter of 1996. Year-to-date cash investment in property and equipment was $1,296 in 1997 compared to $3,219 in 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 $42,139 in the third quarter of 1997, and $59,108 year-to-date. Cash used in operating activities during 1996 was $31,217 in the third quarter and $51,033 year-to-date. Subsequent to the Sale, the Company has no business operations and its principal asset is the net proceeds from the Sale. The Company intends to seek out and to obtain an acquisition and/or merger transaction in which to employ its cash so that the Company's stockholders may benefit by owning an interest in a viable enterprise. There can be no assurance that the Company will be able to locate or purchase a business, or that such business, if located and purchased, will be profitable. In order to finance an acquisition, the Company may be required to incur or assume indebtedness. The Company has not yet identified any potential acquisition candidates. Pending the use of the net proceeds of the Sale, the Company plans to invest such net proceeds in liquid, high quality investments. Subsequent to the Sale, there can be no assurance that the Company will continue to meet the continued listing requirements in order that the Company Common Stock will remain listed on the NASDAQ National Market System, and any delisting therefrom may adversely affect the liquidity of the Company Common Stock. PAGE PART II. OTHER INFORMATION ITEM 6: Exhibits and Reports on Form 8-K (a) 10.1 Agreement of sale dated as of October 24, Incorporated 1997 by and between Variety Wholesalers, by reference Inc. and the Registrant. (Incorporated by reference to Annex I to Registrant's Form DEF 14A for the current report date of November 10, 1997.) 10.2 Amended and Restated Employment Agreement with R. Edward Anderson, Chairman of the Board, President and Chief Executive Officer, dated October 23, 1997. (b) The Company filed the following current reports on Form 8-K during the quarter covered by this report: (i) Report on Form 8-K dated October 24, 1997, reporting under Item 5 the definitive agreement providing for the sale to Variety Wholesalers, Inc. of Rose's Holdings, Inc. wholly owned subsidiary, Rose's Stores, Inc. (ii) Report on Form 8-K dated December 2, 1997, reporting under Item 5 the completion of the sale to Variety Wholesalers, Inc. of Rose's Holdings, Inc. wholly owned subsidiary, Rose's Stores, Inc. PAGE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROSE'S HOLDINGS, INC. Date: December 8, 1997 By /s/Warren G. Lichtenstein Warren G. Lichtenstein President, Chief Executive Officer Date: December 8, 1997 By /s/ Jack L. Howard Jack L. Howard Vice President, Secretary and Treasurer EX-10.2 2 EXHIBIT 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Agreement, originally dated as of May 29, 1995 and amended herein as of October 23, 1997, among Rose's Holdings, Inc. ("RHI" or the "Company"), Rose's Stores, Inc. ("Rose's") (collectively, RHI and Rose's are hereinafter referred to as the "Control Group"), and R. Edward Anderson, residing in Raleigh, North Carolina (the "Executive"). WHEREAS, the Executive is currently employed by Rose's pursuant to the Employment Agreement dated as of May 29, 1995 (the "Existing Employment Agreement"); WHEREAS, pursuant to a restructuring of Rose's, Rose's has become a wholly-owned subsidiary of RHI; and WHEREAS, Rose's and the Executive desire to amend and restate the Existing Employment Agreement (the "Agreement"). NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained herein, the parties agree as follows: 1. Term of Employment. Except for earlier termination as provided in Sections 4 through 11 hereof, the Executive's employment under this Agreement shall continue in effect until May 28, 1998 (the "Initial Term"). Subject to Sections 4 through 11 hereof, the Initial Term shall be automatically extended for additional terms of successive one-year periods (the "Additional Term(s)"), unless the Company or the Executive gives written notice to the other party of its intention not to extend this Agreement at least 90 days prior to the expiration of the Initial Term or the current Additional Term, as the case may be. The Initial Term and the Additional Term(s), if any, shall be collectively referred to as the "Employment Term." 2. Duties and Services. (a) During the Employment Term, the Executive shall serve as Chairman of the Board of Directors of RHI (the "RHI Board" or the "Company Board"), President and Chief Executive Officer of the Company, and shall be the President, Chief Executive Officer and Chairman of the Board of Directors of Rose's (the "Rose's Board"), reporting only to the RHI Board and Rose's Board. The Executive agrees that in such offices he shall perform such duties and functions as are commensurate with his status as Chairman, President and Chief Executive Officer of the Company and Rose's as may be determined by the RHI Board and/or the Rose's Board from time to time. The Executive shall devote substantially all of his working time, attention, skill and efforts to the performance of his duties hereunder; provided, however, that with the prior approval of the RHI Board, which it may grant or deny in its sole discretion, the Executive may serve on the board of directors of other corporations, if such service does not conflict with his duties hereunder or with his fiduciary duties to the Company or Rose's. In addition, nothing herein shall prevent the Executive from managing his passive personal investments and participating in charitable and civic endeavors as long as such activities do not interfere in more than a de minimis manner with the Executive's performance of his duties hereunder. The services to be performed by the Executive pursuant to the terms of this Agreement shall be rendered principally at the Control Group's principal offices; provided, however, that the Executive shall be available for reasonable business travel as the needs of the business require. (b) Upon the request of the RHI Board, the Executive shall also serve as an officer or director of any subsidiary or affiliate of the Company or Rose's with no additional compensation. 3. Compensation, Benefits and Vacation. (a) During the Employment Term, the Company and Rose's shall pay the Executive, in accordance with their normal payroll practices and subject to required withholding, a base salary at the annual rate of not less than $425,000. Such annual salary rate shall be reviewed by the RHI Board or its designee each year and upon such review, the annual salary rate may be increased to such rate as shall be considered appropriate and fixed by the RHI Board. The annual salary rate and such annual increases shall collectively be referred to as the "Base Salary." (b) During the Employment Term, the Executive shall be eligible to participate in such bonus, incentive or equity plans maintained by the Company and/or Rose's from time to time for their senior executives in accordance with the terms of such plans at the time of participation. In the event that either (i) the Executive is not eligible to participate in the annual incentive bonus plans established by the Company and/or Rose's, or (ii) the Company and/or Rose's has not established such plans, the Executive shall be eligible to receive an incentive compensation bonus contingent upon the Company and/or Rose's achieving targeted goals which are to be established by the RHI Board from time to time, in its discretion. (c) During the Employment Term, the Executive shall be eligible to participate in all pension, health, insurance and fringe benefit plans, as well as perquisites, maintained by the Company and/or Rose's from time to time for their officers and directors in accordance with the terms of such plans at the time of participation. However, the Company and/or Rose's shall be under no obligation to establish any such plan or otherwise to pay any such additional compensation in lieu of a plan. (d) During the Employment Term, the Executive shall be entitled to reimbursement for all reasonable out-of-pocket travel and entertainment expenses incurred in connection with the performance of his duties hereunder, upon submission of appropriate documentation, in accordance with the Company's and/or Rose's, as applicable, policies for senior officers as then in effect. (e) The Executive shall be entitled to four weeks vacation for each fiscal year of the Company during the Employment Term, to be taken at such time as is mutually convenient to the Executive and the Company. 4. Death. Upon the death of the Executive during the Employment Term, the Employment Term shall terminate and the Company and Rose's shall pay, as soon as administratively possible, the Executive's estate (or, if properly designated under an applicable plan or arrangement, his beneficiary) any accrued and unpaid amounts of Base Salary through the date of termination, any unreimbursed travel and entertainment expenses and a lump sum payment of One Million Dollars ($1,000,000). In addition, all stock options and stock subject to vesting requirements under any of the Company's and Rose's plans shall become fully vested as of the date of the Executive's death. Upon such payment and vesting, the Company and Rose's shall have no liability or further obligations to the Executive's estate. 5. Disability. If the RHI Board reasonably shall determine that the Executive has become physically or mentally incapable of performing his material duties as provided in Section 2 hereof and that such incapacity is likely to last for a period of at least six months from the onset of such incapacity, the Company and Rose's may, at their election at any time thereafter while the Executive remains incapable of performing his duties, terminate the Employment Term and the Executive's employment with the Control Group effective immediately by giving the Executive written notice of such termination. In such event, the Company and Rose's shall have no obligation to the Executive except as follows: (a) a lump sum payment equal to One Million Dollars ($1,000,000) to be paid to the Executive as soon as administratively possible; and (b) all stock options and stock subject to vesting requirements under any of the Company's and Rose's plans shall become fully vested as of the date of termination. 6. Cause. (a) If the RHI Board shall determine that there are grounds for terminating the Employment Term and Executive's employment with the Control Group for "cause" (as hereinafter defined), the Company may, at its election at any time within six months after the Company shall obtain knowledge of the grounds for termination, give the Executive notice of its intention to terminate the Executive for cause, stating the grounds for termination and specifying a reasonable date (the "Meeting Date") on which the Executive shall be given an opportunity to discuss such grounds for termination at a meeting of the RHI Board, if he so desires. (b) If the grounds for termination are those specified in clause (ii)(X), (iv) or (v) of paragraph (d) hereof, the Executive shall have a period of ten days from the Meeting Date to cure the neglect, refusal or breach, as the case may be, provided that if similar grounds arise again within one year of such cure, no new notice need be given and the Company, at its option, may immediately terminate the Executive for cause. (c) If the grounds for termination are those specified in clauses (i), (ii)(Y) or (iii) of paragraph (d) hereof, it is understood and agreed that no satisfactory cure is available. If, following discussion with the Executive of the grounds for his termination at the RHI Board meeting or, if the Executive does not appear, following the RHI Board meeting, the Company shall continue to be intent on discharging the Executive for cause on the grounds specified in clause (i), (ii)(Y) or (iii) of paragraph (d), the Company shall so notify the Executive, and such termination shall be effective immediately. (d) For purposes of this Agreement, the term "cause" shall mean: (i) the conviction (or plea of guilty or nolo contendere) of the Executive of any felony, or of any crime involving fraud, dishonesty or misappropriation, or moral turpitude or, if any of the foregoing involves any member of the Control Group, the commission of any of the foregoing (other than good faith disputes involving expense account items); (ii) the Executive's (X) continued willful neglect of his duties and responsibilities under this Agreement or (Y) gross negligence; (iii) the Executive's willful misconduct with regard to the Control Group; (iv) the Executive's refusal to follow the written direction of the RHI Board and/or Rose's Board with regard to the Executive's responsibilities as set forth herein; and (v) material breach of any of the provision of this Agreement by the Executive. (e) If the Company shall terminate the Employment Term and the Executive's employment with the Control Group pursuant to this Section 6, the Company and Rose's shall have no liability or further obligation hereunder except as provided in Section 9. 7. Good Reason. In the event that the Company or Rose's shall (i) reduce the Executive's annual salary below the Base Salary, (ii) materially change or diminish the duties and responsibilities of the Executive as Chairman, President and Chief Executive Officer of RHI and Rose's (except in connection with the termination of the Executive's employment for cause, disability or death), (iii) assign to the Executive duties and responsibilities inconsistent with his positions, (iv) relocate the Company's and/or Rose's principal executive offices to a location outside a 100-mile radius of Raleigh, North Carolina, (v) give the Executive written notice of its intention not to extend the Employment Term as provided in Section 1, or (vi) breach a material provision of this Agreement (including without limitation a failure to deliver a Direct Pay Letter of Credit to the Executive in accordance with Section 12 hereto) (each of the foregoing, a "Triggering Event"), then the Executive may give notice to the Company of his intention to terminate the Employment Term and the Executive's employment with the Control Group pursuant to this Section 7, effective 60 days from the date of such notice, unless the Company and/or Rose's shall have cured the default within such notice period (or if the breach can be cured but is not capable of being cured within 60 days, is diligently pursuing a cure). If the Employment Term is terminated pursuant to this Section 7, the Company and Rose's shall have no liability or further obligation hereunder except as provided in Section 8. If the Executive does not notify the Company of his intention to terminate within 90 days from the date on which the Executive had knowledge of a Triggering Event, the Executive shall be deemed to have waived his right to terminate based on such Triggering Event but such waiver shall not prejudice his right to terminate pursuant to this Section 7 based on the occurrence of a subsequent Triggering Event. 8. Termination of Employment for Good Reason or Without Cause. (a) In the event that (X) the Executive terminates the Employment Term and his employment with the Control Group for good reason pursuant to Section 7, or (Y) the Company terminates the Employment Term and his employment with the Control Group other than pursuant to Sections 4, 5 or 6, in which event the Employment Term shall terminate on the date specified in such plan or proposal, or if not specified, on the date of approval, then the Company and Rose's shall have no obligation to the Executive except as follows: (i) a lump sum payment to be made as soon as administratively possible equal to One Million Dollars ($1,000,000) (ii) all stock options and stock subject to vesting requirements under any of the Company's and Rose's plans held by the Executive which would vest within 60 days from the date of termination shall become fully vested as of the date of termination. (b) The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Section 8 by seeking other employment nor shall any amount to be received by the Executive pursuant to this Section 8 be reduced by any other compensation earned. 9. Termination of Employment for Cause or Without Good Reason. In the event that (i) the Company terminates the Employment Term for cause pursuant to Section 6, or (ii) the Executive terminates the Employment Term and his employment with the Control Group without good reason (as described in Section 7) pursuant to a written notice of resignation to the RHI Board, specifying a termination date that shall be no sooner than 90 days after the submission of such notice, the Executive shall be entitled to receive only his Base Salary through the date of termination, any bonus that was due and payable at the time of termination and any unreimbursed business expenses. 10. Change of Control. (a) In the event of a Change of Control, as defined below, the Executive may terminate the Employment Term and his employment with the Control Group by giving 30-days written notice to the RHI Board at any time during the six-month period following the date on which the Change of Control event occurred. Such termination shall be effective as of the date of such notice. In such event, or if the Employment Term is terminated by the Company, without cause pursuant to Section 6, or by the Executive during the seven-month period after a Change of Control event for good reason pursuant to Section 7, the Company and Rose's shall have no obligation to the Executive except as follows: (i) a lump sum payment to be made as soon as administratively possible equal to One Million Dollars ($1,000,000) (ii) all stock options and stock subject to vesting requirements under any of the Company's and Rose's plans held by the Executive shall become fully vested as of the date of termination. (b) For purposes of this Agreement, a "Change of Control" shall be deemed to occur if (i) any "person" (as such term is defined in Sections 3(a)(9) and 13 (d)(3) of the Exchange Act) (a "Person") becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) (a "Beneficial Owner") of securities of the Company and/or Rose's representing 50.1% or more of the total combined voting power of the Company's and/or Rose's then outstanding voting securities, (ii) the Company and/or Rose's merges or is consolidated with any Person or substantially all of the Company's and/or Rose's assets are sold or disposed of to a Person other than (A) in a merger or consolidation which would result in the voting securities of the Company and/or Rose's outstanding immediately prior to such event to continue to represent (either by remaining outstanding or by conversion into voting securities of the surviving or parent entity) 50.1% or more of the combined voting power of the voting securities of the Company and/or Rose's or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or capitalization effected to implement a recapitalization of the Company and/or Rose's (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities representing more than 50.1% or more of the total combined voting power of the Company's and/or Rose's then outstanding voting securities, or (iii) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the RHI Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in (i) and (ii) of this paragraph) whose election by the RHI Board or nomination for election by the Company's stockholders was approved by at vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof. Notwithstanding the foregoing, an initial public offering of the common stock of Rose's or a spinoff of the shares of common stock of Rose's to RHI's stockholders whereby Rose's becomes a separate publicly held corporation shall not be considered a Change of Control of Rose's. 11. Termination on Account of Bankruptcy or Liquidation of Rose's or the Company. If the Executive's employment with the Control Group terminates during the Employment Term, whether voluntarily or involuntarily, within three (3) years following: (i) the date of the Company's or Rose's filing of a bankruptcy petition pursuant to Chapter 7 or 11 of Title 11, Unites States Code, as amended (the "Bankruptcy Code"); (ii) the filing of a bankruptcy petition against the Company or Rose's pursuant to Chapter 7 or 11 or the Bankruptcy Code (a) which is not dismissed within thirty (30) days of the filing thereof, or (b) with respect to which an order for relief is entered for any reason whatsoever; or (iii) approval by the RHI Board of the liquidation of all or substantially all of the assets of the Company's or Rose's, the Executive shall be entitled to receive the One Million Dollar ($1,000,000) lump sum payment as soon as administratively possible and accelerated vesting of all stock options and other stock, all as described in Section 10 above. 12. Direct Pay Letter of Credit. The Company shall deliver to the Executive an irrevocable direct pay letter of credit (the "Direct Pay Letter of Credit") satisfying the requirements of this Section 12 simultaneously with the execution of this Agreement. The Direct Pay Letter of Credit shall be in an amount equal to One Million Dollars ($1,000,000) and shall not expire prior to three (3) years after the termination of this Agreement as described in Section 1 above. Upon each May 28, the Company shall extend the expiration of the Direct Pay Letter of Credit for one (1) additional year so that the above- mentioned three (3) year period shall be preserved. The Executive (or, if applicable, his personal representative) shall be entitled to draw on the Direct Pay Letter of Credit upon presentation to the issuing bank of a demand for payment signed by the Executive (or, if applicable, his personal representative) stating (as applicable) that: (i) the Executive is entitled to payment pursuant to Sections 5, 8, 10 or 11 of this Agreement, or (ii) the Executive's estate (or, if applicable, his designated beneficiary) is entitled to payment pursuant to Section 4 of this Agreement. There shall be no other requirements (including no requirement that the Executive first make demand for payment upon RHI or Rose's) with regard to payment of the Direct Pay Letter of Credit. To the extent the Direct Pay Letter of Credit is not adequate to cover the amounts owed the Executive for any such amounts, RHI and Rose's shall remain jointly and severally liable to the Executive for any such amount. To the extent any amount is paid under the Direct Pay Letter of Credit it shall be credited against any amounts RHI or Rose's then or thereafter would owe the Executive under this Agreement. The Direct Pay Letter of Credit shall be issued by a bank or trust company reasonably acceptable to RHI and the Executive. RHI shall bear all costs relating to the Direct Pay Letter of Credit. 13. Confidentiality and Non-Competition. (a) The Executive acknowledges that as a result of his employment by the Company and Rose's, the Executive will obtain secret and confidential information as to the Control Group, that the Company will suffer substantial damage, which would be difficult to ascertain, if the Executive shall enter into Competition, as defined below, with any member of the Control Group and that because of the nature of the information that will be known to the Executive it is necessary for the Company and Rose's to be protected by the prohibition against Competition set forth herein, as well as the Confidentiality restrictions set forth herein. The Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the business of the Control Group and that part of the compensation paid under this Agreement and the agreement to pay severance in certain instances is in consideration for the agreements in this Section 13. (b) Competition shall mean: (i) participating, directly or indirectly, as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, consultant or in any capacity whatsoever (in any country where any member of the Control Group does business) in a business having retail locations in the states of Delaware, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia or West Virginia in competition with any business conducted by any member of the Control Group, with regard to which the Executive worked or otherwise had responsibilities or had access to material confidential information while employed by the Company and Rose's; provided, however, that such participation shall not include (X) the mere ownership of not more than one percent (1%) of the total outstanding stock of a publicly held company; or (Y) the performance of services for any enterprise to the extent such services are not performed, directly or indirectly, for a business in the aforesaid competition; or (ii) recruiting, soliciting or inducing, any nonclerical employee or employees of any member of the Control Group to terminate their employment with, or otherwise cease their relationship with, the Control Group or hiring or assisting another person or entity to hire any nonclerical employee of the Control Group or any person who had been a nonclerical employee of the Control Group within six months before the date of solicitation. Notwithstanding the foregoing, if requested by an entity with which the Executive is not affiliated, the Executive may serve as a reference for any person who at the time of the request is not an employee of the Control Group. (c) If any restriction with regard to Competition is found by a court of competent jurisdiction, or an arbitrator, to be unenforceable due to the length of time of the covenant, the range of activities covered or the size of the geographic area, such restriction shall be interpreted to extend over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (d) During and after the Employment Term, the Executive shall hold in a fiduciary capacity for the benefit of the Control Group all secret, proprietary or confidential information, knowledge or data relating to the Control Group, and their respective businesses, including any confidential information as to customers of the Control Group, (i) obtained by the Executive during his employment by the Control Group and (ii) not otherwise public knowledge or known within the Company's or Rose's industry. The Executive shall not, without prior written consent of the Company and Rose's, unless compelled pursuant to the order of a court or other governmental or legal body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and Rose's and those designated by them. In the event the Executive is compelled by order of a court or other governmental or legal body to communicate or divulge any such information, knowledge or data to anyone other than the Company and Rose's and those designated by them, he shall promptly notify the Company and Rose's of any such order and he shall cooperate fully with the Company and Rose's in protecting such information to the extent possible under applicable law. (e) Upon termination of his employment with the Control Group, or at any time as the Company and/or Rose's may request, the Executive will promptly deliver to the Company and/or Rose's, as applicable, all documents (whether prepared by a member of the Control Group, the Executive or a third party) relating to the Control Group or any of its businesses or property which he may possess or have under his direction or control. (f) During the Employment Term and, except in connection with a termination by the Executive pursuant to Sections 7, 10 or 11, or by the Company and Rose's without cause as defined in Section 6, for one year thereafter, Executive will not enter into Competition with the Control Group. (g) In the event of a breach or potential breach this Section 13, the Executive acknowledges that the Control Group will be caused irreparable injury and that money damages may not be an adequate remedy and agree that the Control Group shall be entitled to injunctive relief (in addition to its other remedies at law) to have the provisions of this Section 13 enforced. 14. Executive's Representation. The Executive represents and warrants to the Company and Rose's that there is no legal impediment to the performance by him of his obligations under this Agreement and that entering into this Agreement and performing his contemplated services hereunder will not violate any agreement to which he is a party or any other legal restriction. 15. Independent Review. The Executive acknowledges that he has been advised by the Company and Rose's to have the Agreement reviewed by independent counsel and has been given the opportunity to do so. 16. Notice. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telecopy, or overnight courier against receipt to the party to whom it is to be given at the address set forth in the introductory paragraph of this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 16). Any notice or other communication given by hand, telecopy or overnight courier shall be deemed given at the time of receipt thereof. 17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration conducted in New York under the Commercial Arbitration Rules then prevailing of the American Arbitration Association and such submission shall request the American Arbitration Association to: (i) appoint an arbitrator experienced and knowledgeable concerning the matter then in dispute, (ii) require the testimony to be transcribed, (iii) require the award to be accompanied by finding of fact and the statement for reasons for the decision, and (iv) request the matter to be handled by and in accordance with the expedited procedures provided for in the Commercial Arbitration Rules. The determina- tion of the arbitrators, which shall be based upon a de novo interpretation of this Agreement, shall be final and binding and judgment may be entered on the arbitrators' award in any court having jurisdiction. The Company and the Executive shall each pay 50% of the costs of the American Arbitration Association and the arbitrator. 18. Assignment; Successors. (a) The Executive's rights and benefits under this Agreement are personal to him and such rights and benefits shall not be subject to voluntary or involuntary assignment, alienation or transfer, except to the extent such rights and benefits are lawfully available to the Executive's spouse, beneficiary or estate upon his death. (b) The Company and Rose's shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company or Rose's to expressly assume and agree in writing to perform this Agreement in the same manner and to the same extent that the Company and/or Rose's would be required to perform if such succession had not taken place, or in the event the Company and/or Rose's remains in existence after such purchase, merger consolidation or otherwise, the Company and/or Rose's may continue to employ the Executive under the terms hereof. Upon such assignment and assumption, the Company and/or Rose's shall be released of any further obligation or liability hereunder. 19. Governing Law. This Agreement shall be governed by and enforce in accordance with the law of the State of North Carolina, without regard to its conflict of law provisions. 20. Miscellaneous. (a) This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements and understandings, whether written or oral, with respect to the subject matter hereof. No terms, conditions or provisions of this Agreement may be changed, waived, modified or discharged unless such change, waiver, modification or discharge is agreed to in writing by the paries hereto. All references to any law shall be deemed also to refer to any successor provisions to such laws. (b) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (c) If any provisions of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, shall not affect the remaining provisions hereof which shall remain in full force and effect. (d) The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date opposite each party's signature. Date: _________, 1997 ROSE'S HOLDINGS, INC. By:__________________________ Name: Title: Date: _________, 1997 R. EDWARD ANDERSON _____________________________ ROSE'S STORES, INC. By:__________________________ Name: Title: R. EDWARD ANDERSON _____________________________ EX-27 3
5 This schedule contains summary financial information extracted from Rose's Stores, Inc., Form 10-Q for the quarter ended October 25, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JAN-31-1998 OCT-25-1997 596 0 22,154 533 195,849 222,092 11,155 2,436 231,315 163,118 0 0 0 35,000 (386) 231,315 437,393 440,797 331,425 331,425 (1,465) 0 5,631 (6,326) 0 (6,326) 0 0 0 (6,326) (.73) (.73)
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