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 April 30, 1994
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 close of the period covered by this report.
Class Shares Outstanding
Voting common stock, no par value 8,262,420
Non-voting Class B stock, no par value 10,495,586
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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, which is unaudited,
reflects all adjustments (none of which were other than normal recurring
accruals) which are, in the opinion of management, necessary to a fair
statement of the information presented below for the thirteen weeks ended
April 30, 1994 and May 1, 1993.
Notes:
(1) The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
payment of liabilities in the ordinary course of business. The Company
continues to operate as a debtor-in-possession pursuant to the provisions
of Sections 1107 and 1108 of the Bankruptcy Code. The Company is in the
process of developing its plan of reorganization. The Company has not yet
filed a plan of reorganization with the Bankruptcy Court and has obtained
from its creditors an extension of the exclusivity period to June 14,
1994. The Company intends to file a plan of reorganization on or prior to
June 14, 1994 or to seek an additional extension of the exclusivity
period.
(2 The operating results presented herein are not necessarily indicative of
the operating results for a full year due to seasonal factors.
(3) Included in the reorganization costs for the first quarter of 1994 is a
provision of $55,000 for the costs of closing 59 stores in 1994 and to
realign corporate and administrative costs accordingly. This charge
includes the anticipated losses on the disposition of related store
fixtures and the anticipated claims associated with the rejection of store
leases. Current year operating results exclude the results of these 59
stores.
(4) Certain reclassifications were made to 1993 balances to conform to the
1994 presentation. These reclassifications have no effect on
stockholders' equity.
(5) LIFO expense (credit) is included as an adjustment to reconcile net loss
to net cash used in operating activities in the statements of cash flows
because LIFO expense (credit) is a noncash item included in cost of sales
to adjust inventories stated on a FIFO basis to a LIFO basis.
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ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
April 30, 1994 May 1, 1993
<S> <C> <C>
Revenue:
Gross sales $ 174,583 288,046
Leased department sales 5,514 9,062
Net sales 169,069 278,984
Leased department income 1,300 2,013
Total revenue 170,369 280,997
Costs and Expenses:
Cost of sales 126,696 208,230
Selling, general and administrative 40,181 65,396
Depreciation and amortization 2,475 3,214
Interest 1,784 2,983
Total costs and expenses 171,136 279,823
Earnings (Loss) Before Reorganization Expense (767) 1,174
Reorganization Expense(Note 1) (58,781) -
Net Earnings (Loss) $ (59,548) 1,174
Earnings (Loss) Per Share $ (3.17) 0.06
Weighted Average Shares 18,758 18,698
Note 1
Closed store reserve (59 closings) $ (55,000)
DIP financing fees, amortization & expenses (424)
Estimated professional fees (3,115)
Other reorganization costs and expenses (242)
TOTAL REORGANIZATION COSTS $ (58,781)
</TABLE>
See notes to consolidated financial statements
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ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
April 30, January 29, May 1,
1994 1994 1993
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,863 11,955 1,087
Accounts receivable 13,314 15,057 14,572
Inventories 234,467 203,150 268,131
Prepaid merchandise 9,199 10,757 -
Other current assets 7,252 7,457 9,526
Total current assets 266,095 248,376 293,316
Property and Equipment, at cost
Less accumulated depreciation and amortization 40,704 50,234 56,591
Deferred Income Tax Benefits 6,447 6,447 5,760
Other Assets 653 3,048 3,591
$ 313,899 308,105 359,258
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Reclamation claims $ 2,271 4,000 -
Current installments of long-term debt - - 16,600
Current maturities of capital lease obligations 2,043 2,374 2,378
Bank drafts outstanding - - 8,970
Accounts payable 38,623 35,507 92,858
Federal and state income taxes - - 1,148
DIP financing 13,100 - -
Short-term debt - - 4,000
Accrued salaries and wages 7,138 12,295 8,915
Reserve for store closings and remerchandising 41,027 - 4,480
Deferred income tax liability 6,447 6,447 5,760
Other current liabilities 16,038 14,113 38,181
Total current liabilities 126,687 74,736 183,290
Liabilities Subject to Settlement Under
Reorganization Proceedings 221,464 207,456 -
Long-term Debt - - 73,900
Capital Lease Obligations 1,601 1,907 3,656
Reserve for Future Store Closings - - 18,943
Deferred Income 1,922 2,296 3,186
Accumulated Postretirement Benefit Obligation 5,678 5,614 5,374
Stockholders' Equity (Deficit)
Voting common stock
Authorized 30,000 shares; issued 10,800 shares 2,250 2,250 2,250
Non-voting Class B stock
Authorized 30,000 shares; issued 12,659 shares 18,795 18,795 18,951
Paid-in Capital-Stock Warrants 2,700 2,700 2,700
Retained earnings (Accumulated deficit) (48,580) 10,969 78,350
(24,835) 34,714 102,251
Treasury stock, at cost (4,701 shares at 4/30/94
and 1/29/94; 4,752 shares at 5/1/93) (18,618) (18,618) (18,901)
Total stockholders' equity (deficit) (43,453) 16,096 83,350
$ 313,899 308,105 359,258
</TABLE>
See notes to consolidated financial statements
PAGE
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ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
April 30, 1994 May 1, 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (59,548) 1,174
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,475 3,214
(Gain) loss on disposal of property and equipment (310) -
LIFO expense 172 19
Provision for closed stores 55,000 -
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable 1,743 (1,288)
(Increase) decrease in prepaid merchandise 1,558 -
(Increase) decrease in inventories (31,489) (35,886)
(Increase) decrease in other current and non-current assets 51 229
Increase (decrease) in accounts payable (97) 3,346
Increase (decrease) in accrued expenses and other liabilities (3,150) (1,470)
Increase (decrease) in federal and state income taxes payable - 7,706
Increase (decrease) in reserves for closed stores $ 58,986 (3,320)
Non cash activities in closed store reserve:
Provision for closed stores (55,000) -
Retirement of net book value of assets 6,901 255
Write-off of inventory - 779
Net cash increase (decrease) in provisions for
closed stores 10,887 (2,286)
Increase (decrease) in deferred income (374) (360)
Increase (decrease) in accumulated postretirement
benefit obligation 64 75
Net cash provided by (used in) operating activities (23,018) (25,527)
Cash flows from investing activities:
Purchases of property and equipment (278) (1,791)
Proceeds from disposal of property and equipment 712 -
Net cash provided by (used in) investing activities 434 (1,791)
Cash flows from financing activities:
Net activity on lines of credit - 4,000
Proceeds (payments) of DIP Facility 13,100 -
Principal payments on capital lease obligations (607) (605)
Increase (decrease) in bank drafts outstanding - 5,842
Other (1) 67
Net cash provided by (used in) financing activities 12,492 9,304
Net decrease in cash (10,092) (18,014)
Cash and cash equivalents at beginning of period 11,955 19,101
Cash and cash equivalents at end of period $ 1,863 1,087
</TABLE>
See notes to consolidated financial statements
PAGE
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollar amounts in thousands)
Chapter 11 Proceedings
The Company continues to operate as a debtor-in-possession pursuant to
the provisions of Sections 1107 and 1108 of the Bankruptcy Code. The
Company is in the process of developing its plan of reorganization. The
Company has not yet filed a plan of reorganization with the Bankruptcy
Court and has obtained from its creditors an extension of the
exclusivity period to June 14, 1994. The Company intends to file a plan
of reorganization on or prior to June 14, 1994 or to seek an additional
extension of the exclusivity period.
After the plan is filed, it will be sent along with a disclosure
statement approved by the Bankruptcy Court to members of all classes of
impaired creditors and equity security holders for acceptance or
rejection. Following acceptance or rejection of any plan by impaired
classes and equity security holders, the Bankruptcy Court after notice
and a hearing would consider whether to confirm the plan. Among other
things, to confirm a plan the Bankruptcy Court is required to find (i)
with respect to each impaired class of creditors and equity security
holders, that each holder of a claim or interest of such class either
(a) will, pursuant to the plan, receive or retain property of a value,
as of the effective date of the plan, that is at least as much as such
holder would have received in a liquidation on such date of the Company,
or (b) has accepted the plan, (ii) with respect to each class of claims
or equity security holders, that such class has accepted the plan or
such class is not impaired under the plan and (iii) confirmation of the
plan is not likely to be followed by the liquidation or need for further
financial reorganization of the Company or any successors unless such
liquidation or reorganization is proposed in the plan.
Under the Bankruptcy Code, the rights of stockholders and pre-petition
creditors may be substantially altered by the plan of reorganization,
either voluntarily or by order of the Bankruptcy Court. The Company's
objective is a plan of reorganization that will permit the Company to
fund its current operations and meet its obligations to creditors (as
they may be restructured under the plan) out of the cash flow generated
by the Company after approval and confirmation of the plan. The
Company's objective is subject to a number of factors, some of which are
within the ability of the Company to control and others of which are
not. At this time it is not possible to predict whether the Company
will achieve its objective or the effect of the plan of reorganization
on the rights of creditors and stockholders of the Company.
On confirmation of a plan of reorganization, the Company expects to
utilize "Fresh Start Accounting" in accordance with the guidelines for
accounting for emergence from bankruptcy. Fresh Start Accounting is
expected to result in a restatement of Company assets and liabilities to
reflect current values.
Revenue
The Company reported sales for the first quarter of 1994 of $174,583, a
decrease of $113,463 or 39.4% from the first quarter of 1993. Sales on
a comparable store basis increased 2.1% for the first quarter.
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Costs and Expenses
Year-to-date cost of sales as a percent to net sales was 74.9% for 1994
and 74.6% for 1993. Increases in markdowns as a percent of sales were
almost offset by increases in markon and decreases in the shrink percent
to sales.
Selling, general and administrative expenses as a percent of sales were
23.8% in 1994 and 23.4% in 1993. Corporate overhead was the primary
cause of the increase in the SG&A percent. The Company has a plan to
reduce corporate overhead expenses concurrently with the closing of 59
stores in the second quarter of 1994.
On April 4, 1994, the Company announced plans to close 59 additional
stores in 1994. Included in the reorganization costs for the first
quarter of 1994 is a provision of $55,000 for the costs of closing 59
stores in 1994 and to realign corporate and administrative costs
accordingly. This charge includes the anticipated losses on the
disposition of related store fixtures and the anticipated claims
associated with the rejection of store leases. Current year operating
results exclude the results of these 59 stores.
Also included in reorganization costs for the first quarter of 1994 is
$3,781 for professional fees, DIP fees and expense amortizations, and
other expenditures related directly to the Chapter 11 filing.
Liquidity and Capital Resources
At the end of the first quarter of 1994, the Company had $13,100
outstanding under its DIP facility. The Company invested $278 in cash
for property and equipment in the first quarter of 1994 compared to
$1,791 invested in the first quarter of 1993.
The Company expects net proceeds from the 59 closings to exceed $60,000
and to use at least part of these proceeds to pay down a portion of the
pre-petition secured claims.
Cash used in operating activities was $23,018 in the first quarter of
1994 and $25,527 in the first quarter of 1993. Rose's management
expects the Company to realize positive cash flow from its 1994
operations. The filing under Chapter 11 will protect the Company from
its pre-petition creditors while a plan of reorganization is being
negotiated. The adequacy of the Company's capital resources and long-
term liquidity cannot be determined until a plan or reorganization is
developed and confirmed by the Bankruptcy Court.
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PART II. OTHER INFORMATION
No securities (debt or equity) which were not registered under the
Securities Act of 1933 were sold by the registrant during the fiscal
quarter ended April 30, 1994.
ITEM 1: Legal Proceedings (Dollar amounts in thousands)
The Company's business ordinarily results in a number of negligence
and tort actions, most of which arise from injuries on store premises,
injuries from a product, or false arrest and detainer arising from
apprehending suspected shoplifters. The Company's liability for
uninsured general damages and punitive damages is not considered
material. No legal proceedings presently pending by or against the
Company are described because the Company believes that the outcome of
such litigation should not have a material adverse effect on the
financial position or results of operations of the Company.
On September 5, 1993, the Company filed a voluntary Petition for
Relief under Chapter 11, Title 11 of the United Stated Code (the
"Bankruptcy Code") with the United States Bankruptcy Court for the
Eastern District of North Carolina (the "Bankruptcy Court") Case No. 93-
01365-5-ATS (the "Chapter 11 Case").
The Chapter 11 Case is described in the Form 10-K of the Company for
the year ended January 30, 1994. The following discussion sets forth
certain developments in the Chapter 11 Case during the first quarter of
1994 and through the date hereof, but is not intended to be an
exhaustive summary. For additional information regarding the effect of
the Chapter 11 Case on the Company, reference should be made to the
Bankruptcy Code.
The Company has not yet filed a plan of reorganization with the
Bankruptcy Court and has obtained from its creditors an extension of the
exclusivity period to June 14, 1994. The Company intends to file a plan
of reorganization on or prior to June 14, 1994 or to seek an additional
extension of the exclusivity period.
Post-Petition Litigation with Pre-Petition Lenders
On February 3, 1994, the Collateral Agent for the Pre-Petition
Lenders filed adversary proceeding number 94-00003-5-AP against the
Company, asking the Bankruptcy Court to determine the validity, priority
and extent of their lien claims on assets of the bankruptcy estate. On
the following day, the Company filed adversary proceeding number 94-
00004-5-AP against the Pre-Petition Lenders challenging the liens of the
Pre-Petition Lenders. The two separate adversary proceedings were
consolidated by order of the Bankruptcy Court entered on March 3, 1994.
Although they never filed an Answer to the Company's Complaint, the Pre-
Petition Lenders disputed the Company's allegations, and contended that
their security interests were perfected in all material respects. On
March 25, 1994, the Bankruptcy Court entered an Order Allowing Motion
for Partial Summary Judgment in favor of the Pre-Petition Lenders. On
April 4, 1994, the Company filed a Notice of Appeal and Application for
Leave to Appeal Pursuant to 28 U.S.C. Section 158 with respect to the Order
Allowing Motion for Partial Summary Judgment.
Thereafter, the Pre-Petition Lenders filed a Motion for Clarification
of Order Granting Partial Summary Judgment on April 22, 1994. On March
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21, 1994 the Company filed its own Motion for Partial Summary Judgment
regarding, among other things, the Company's assertion that the Pre-
Petition Lenders' security interests were limited to one store location.
The Company withdrew its Notice of Appeal and Application for Leave
to Appeal Pursuant to 28 U.S.C. Section 158 regarding the Order Granting
Partial Summary Judgment by notice filed on May 5, 1994. The Company
dismissed the cause of action asserting that the Pre-Petition Lenders'
security interests were limited to one store location by stipulation
entered on April 12, 1994. Additionally, the Company filed a Motion to
Dismiss Fraud Related Causes of Action on April 12, 1994. The Equity
Committee filed an objection to the Company's motion to the extent that
it jeopardized their right to assert, on behalf of the estate, the fraud
related causes of action against the Pre-Petition Lenders. This
objection was withdrawn on or about June 6, 1994, and the Court allowed
the Company's motion.
Going-Out-Of-Business Sales
GOB1 Sales
Pursuant to the Final DIP Order and by order dated December 23, 1993,
the Company obtained Bankruptcy Court authority to close 43 stores (the
"GOB1 Stores"). The First GOB Stores consisted of 14 encumbered stores
("Covered GOB Stores") and 29 non-encumbered stores ("Non-Covered GOB
Store"). By a second order dated December 23, 1993, the Bankruptcy
Court authorized the Company to conduct "going-out-of-business" ("GOB1")
sales at the GOB1 Stores, commencing in early January, 1994 and to
employ Nassi Bernstein Company, Inc. to conduct the GOB1 sales (the
"GOB1 Order").
With regard to the Covered GOB stores, the GOB1 sales were to begin
after January 1, 1994, but no later than January 7, 1994, with the funds
being deposited with the Company. The GOB1 Order provided that on or
before January 10, 1994, the Collateral Agent for the Pre-Petition
Lenders would receive the greater of (i) 60% of the book value of the
inventory in each Covered GOB store as of the Filing Date, or (ii) an
amount equal to 47.5% of the retail value of inventory in all Covered
GOB stores, less certain expenses of sale. Pursuant to the GOB1 Order,
a total of $9,388 was paid by the Company to the Collateral Agent on
January 10, 1994. This sum represented 60% of the book value of
inventory in the Covered GOB Stores on the Filing Date.
With regard to the Non-Covered GOB Stores, the GOB1 sales began on or
about January 2, 1994. The gross sales proceeds for inventory in the
Non-Covered GOB Stores totalled $27,994.
GOB2 Sales
On May 17, 1994, the Bankruptcy Court entered orders allowing the
Company to close an additional 59 stores and to conduct GOB sales at
these locations (the "GOB2 Stores" and the "GOB2 Sales"). The GOB2
Sales began on May 15, 1994, and will continue until the end of July,
1994.
The Company employed, with Bankruptcy Court approval, Nassi Bernstein
to act as the Company's agent during the sales. Nassi Bernstein
guaranteed a return of at least 60.5% to the Debtor and capped its
expenses at 7.7%. As security for their performance, Nassi Bernstein
provided a letter of credit for the benefit of the Company in the amount
of $33,000.
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In conjunction with the entry of the orders authorizing the closing
of the GOB2 Stores, the Bankruptcy Court entered an order on May 17,
1994 which, among other things, directed the Company to pay all proceeds
from the encumbered GOB2 Stores (the "Covered GOB2 Stores") to the Pre-
Petition Lenders. These proceeds will be deposited in a segregated
account, not subject to the liens of GE Capital. The proceeds from the
Covered GOB2 Stores will be paid to the Collateral Agent on behalf of
the Pre-Petition Lenders as adequate protection payments. If the
adequate protection payment does not equal $30,000, the Company must pay
the difference using the proceeds from the Non-Covered GOB2 Stores. The
proceeds from the Non-Covered GOB2 Stores will be deposited in
accordance with the Final DIP Order.
Employment Agreement with George L. Jones, President and CEO
On April 15, 1994, the Company filed a motion to assume and modify
its existing employment agreement with George L. Jones and enter into a
new employment agreement effective upon expiration of the existing
employment agreement. The existing employment agreement was entered
with Mr. Jones on July 25, 1991 and was for a term of 3 years. The
agreement provided Mr. Jones with base compensation of $700, severance
pay equal to the balance of his salary for the remaining term of the
agreement upon termination, and an incentive bonus based on the
Company's performance. Mr. Jones has not received any incentive bonus
during his tenure as president and CEO. Upon signing the agreement, Mr.
Jones also received a "signing bonus" of $2,500 which was deposited with
Norwest Bank as Trustee under a trust agreement. The new employment
agreement provides for an additional employment term of one year
effective July 25, 1994, a base salary of $595 per year, and severance
pay of 18 months salary, one-half payable upon severance and one-half
payable in monthly installments commencing with the 10th month following
termination. Monthly installment payments will cease if Mr. Jones
obtains another job. On June 7, 1994, the Bankruptcy Court approved the
Company's motion except that the severance pay provision will not be
effective until July 25, 1994.
ITEM 6: Exhibits and Reports on Form 8-K
(a) All exhibits included in the Company's 1993 Form 10K are
included herein by reference.
Exhibit 10.9, Employment agreement with George L. Jones, dated
June 13, 1994.
(b) No reports on Form 8K were filed during the quarter.
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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 STORES, INC.
Date June 13, 1994 By (signature of George L. Jones)
George L. Jones
President,
Chief Executive Officer
Date June 13, 1994 By (signature of R. Edward Anderson)
R. Edward Anderson
Executive Vice President,
Chief Financial Officer
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EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into on this the 13th day of June, 1994,
between Rose's Stores, Inc., ("Rose's"), and George L. Jones ("Associate").
NOW, THEREFORE, in consideration of the terms and mutual undertakings
herein contained, it is agreed by and between Rose's and Associate as follows:
1. Effective Date and Term of Employment:
1.1 This Agreement shall become effective July 25, 1994.
Beginning on July 25, 1994, and ending at the close of business on July 24,
1995, unless Associate's employment is earlier terminated or Associate resigns
pursuant to section 6 hereof, Associate hereby agrees to faithfully and
competently render services on a full-time basis to Rose's and to devote his
best efforts, skill and attention (except for vacations and leaves conforming
with Rose's policies) to Rose's. This Agreement shall automatically renew for
the period beginning July 25, 1995 and ending at the close of business on July
24, 1996 unless and until, subject to section 6 herein, either party gives the
other party written notice not to renew this Agreement for such period at
least sixty days prior to July 25, 1995.
1.2 The provisions herein regarding the payment of a Severance
Allowance shall operate in addition to, and shall not modify in any manner,
the provisions regarding termination of employment and the payment of the
signing bonus set forth in the existing Executive Employment Agreement entered
into between the Associate and Rose's.
2. Duties and Responsibilities: Associate shall be the President
and Chief Executive Officer of Rose's and shall be responsible for all the
duties normally ascribed to that office under laws of the State of Delaware.
The Board of Directors reserves specifically, as specified under the By-laws
of Rose's, the power and authority to designate officers of Rose's and to
specify the compensation of officers of Rose's.
3. Compensation: Rose's agrees to employ Associate for the term
and in the capacities described in sections 1 and 2 above and to compensate
Associate for such services as follows:
3.1 Associate shall be paid a base salary of $595,000 per annum
("Base Salary"). Said Base Salary shall be paid in equal installments in
accordance with Rose's customary pay schedule and shall be subject to
applicable withholding for federal and state income taxes and social security
and related deductions. Base Salary may be modified from year to year by the
Board of Directors of Rose's. For purposes of section 6, the Base Salary
shall be the most recent calendar year salary as established by the Board of
Directors.
3.2 In addition, Associate shall be eligible to receive an
annual cash bonus award ("Bonus Award") pursuant to Rose's Bonus Plan, if any,
as defined and modified from time-to-time by the Board of Directors of Rose's.
The amount of any such Bonus Award shall be discretionary with Rose's but
shall take into account management objectives established by the Board of
Directors. Bonus Awards shall be subject to applicable withholding for
federal and state income taxes, social security, and other tax and related
deductions.
4. Benefit Plans: During the terms of this Agreement, Associate
shall be entitled to participate in the benefit plans established by Rose's
for its officers and directors in effect from time-to-time.
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5. Expense Reimbursement: Rose's shall pay or reimburse Associate
for all ordinary and necessary expenses reasonably incurred in the performance
of his duties hereunder. Such reimbursement shall be made against the
submission by Associate of properly signed and supported itemized expense
reports in accordance with the travel and business reimbursement policies of
Rose's in effect from time-to-time.
6. Termination of Employment:
6.1 Associate Resignation: Associate may terminate his
employment by submitting a written Notice of Resignation to the Chairman of
the Board of Directors, specifying a termination date which shall be no sooner
than sixty (60) days after the submission of said Notice. During this sixty
(60) day period, Associate shall be paid current salary and benefits but his
duties and the capacity in which he services shall be subject to such
conditions and limitations as may be imposed by the Board of Directors.
6.2 Termination Without Cause and Eligibility for Severance
Allowance: Rose's shall have the right to terminate Associate's employment at
any time, without cause. If Associate ceases employment for any of the
following reasons, he will be entitled to receive a severance allowance as
described in section 6.3 (the "Severance Allowance"):
(a) termination of his or her employment other than for
Misconduct;
(b) constructive or voluntary termination, within sixty (60)
days of such termination, due to a material reduction in
salary;
(c) constructive or voluntary termination, within sixty (60)
days of such termination, due to a material change in job
responsibilities;
(d) termination of his employment with Rose's on account of his
Permanent Disability; or
(e) termination due to liquidation of Rose's under the
provisions of chapter 11 of the Bankruptcy Code of 1978, as
amended (the "Bankruptcy Code") or a conversion to a
proceeding under chapter 7 of the Bankruptcy Code.
For purposes of subsection (d) above, the Associate shall be deemed
"Permanently Disabled" six (6) months after the first date on which he is
disabled by bodily or mental illness, disease, or injury, to the extent that
he is prevented from performing his material and substantial duties of
employment, provided that such disability has continued uninterrupted for such
six (6) month period. The Board of Directors shall determined whether the
Associate is "Permanently Disabled." The Board of Directors' determination
that the Associate is "Permanently Disabled" shall be final and binding.
6.3 Severance Allowance: The Severance Allowance shall consist
of the following:
(a) Eighteen (18) months' Base Salary, one-half payable in a
lump sum payment made as soon as administratively possible
after the date of the Associate's termination and one-half
payable in substantially equal monthly installments over a
nine (9) month period with installment payments commencing
on the first day of the tenth month following the date of
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the Associate's termination;
(b) Reimbursement for reasonable expenses, as determined by the
Board of Directors, incurred by Associate in the pursuit of
subsequent employment, including any reputable outplacement
assistance, up to a maximum of $10,000. Associate shall be
entitled to such payments until the first day of the month
following the month in which Associate is reemployed or the
end of the six month period beginning on the date of
termination, whichever shall occur first; and
(c) Continued medical, dental and disability coverage under the
current company plans for a period of three (3) months
following the date of the Associate's termination. In lieu
of continued coverage pursuant to this provision, Associate
may elect to receive the present value of the continued
coverage in a lump sum payment made as soon as
administratively possible after the date of the Associate's
termination by filing his choice with Rose's in writing
within fourteen (14) days following the date of the
Associate's termination. Any benefits or payments under
this subsection shall be in addition to any extended
group health coverage to which Associate is entitled to
under the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
Notwithstanding the foregoing, if the Associate shall not execute a
general release acceptable to the Board of Directors, the Severance Allowance
shall consist of one week's Base Salary in lieu of the Severance Allowance
described in subsections (a), (b) and (c) above.
Installment payments pursuant to Section 6.3(a) shall cease on the
date that the Associate becomes actively employed, as determined by the Board
of Directors.
As a condition to receiving a Severance Allowance, the Associate must
immediately provide written notice to the Board of Directors if the Associate
shall obtain new employment. If the Associate fails to timely or accurately
provide such written notice, as determined by the Board of Directors, Rose's
shall be entitled to terminate Severance Allowance payments to the Associate
and to recover from the Associate the amount of any Severance Allowance
payments previously made to the Associate on account of the failure to timely
or accurately provide such written notice.
In no event shall a Severance Allowance payable hereunder (1) be paid
over a period longer than twenty-four (24) months; (2) exceed 200% of the
Associate's annual compensation as of the date of the Associate's termination;
or (3) be structured so that the payments constitute an employee pension
benefit plan as defined by Title I, Section 3 of the Employee Retirement
Income Security Act of 1974, as amended.
6.4 Termination for Misconduct: Rose's shall have the right to
immediately terminate Associate's employment under this Agreement for
Misconduct. The Associate shall not be entitled to a Severance Allowance if
his employment with Rose's is terminated for Misconduct. For purposes hereof,
"Misconduct" shall mean actions, or the failure to act, by Associate which:
(a) constitute a willful and continued material violation of
important policies of Rose's for reasons other than
illness, medical treatment or recovery, or incapacity, the
violation of which has a material adverse affect on the
<PAGE>
ability of the Associate to perform his functions and
responsibilities hereunder;
(b) constitute a willful and continued material failure to
perform his duties hereunder for reasons other than
illness, medical treatment or recovery, or incapacity;
(c) constitute common law fraud against Rose's, or constitute a
felony;
(d) constitute the theft or misappropriation of the assets of
Rose's; or
(e) constitute an act of misconduct involving moral turpitude
that interferes with or has a material adverse affect on
the performance by Associate of his functions and
responsibilities hereunder.
The determination as to whether the Associate's employment has been
terminated for Misconduct shall be made by the Board of Directors in its
discretion. Written notice of such a determination shall be provided to the
Associate not later than the date of the Associate's termination, and such
written notice shall set forth in reasonable detail the facts and
circumstances that are claimed to constitute Misconduct.
6.5 Termination - Records: In the event of termination or
resignation pursuant to this Agreement, whether the termination is without
cause or for Misconduct as defined in Section 6.4 above, Associate will
transfer all books, records, documents, and other memoranda of Rose's,
including all materials which have come into his custody, possession and
control as a result of employment with Rose's, to whomsoever Rose's shall
designate. Associate shall not, any time after the resignation or termination
of his employment hereunder, divulge to any person any information or fact
relating to the conduct and management of Rose's, which shall have come to his
knowledge in the course of his employment and the disclosure of which would
cause damage or loss to Rose's or result in the disclosure of confidential or
proprietary information regarding Rose's or any of its members.
7. Restrictive Covenant: So long as this Agreement remains in
effect, Associate shall not take part in any other employment or enterprise
which (1) is in competition with Rose's; or (2) is contrary to Rose's Conflict
of Interest Policy; or (3) otherwise conflicts or interferes with the full
performance of his duties hereunder, without the prior written consent of the
Board of Directors. Rose's shall determine the propriety and acceptability of
such additional employment or enterprise at its sole discretion.
8. Indemnification: Rose's agrees to indemnify and hold harmless
Associate for any legal, including attorneys fees, or court expenses he may
incur while acting within the proper scope of his employment, which right of
indemnification and agreement to hold harmless shall continue in effect
subsequent to any termination herewith so long as any claim or expense relates
to services provided by Associate during his employment.
9. Binding Effect: This Agreement shall be binding upon the
successors and assigns of Rose's, including those that may result from merger
or reorganization.
10. Non-Assignability: Associate's rights and benefits under this
Agreement are personal to him and such right and benefits shall not be subject
to voluntary or involuntary assignment, alienation or transfer, except to the
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extent such rights and benefits are lawfully available to Associate's spouse,
estate or beneficiary upon his death.
11. Governing Law: This Agreement shall be governed by the laws of
the State of North Carolina without regard to its conflicts of law principles,
provided that the duties of Associate as described in Section 2 hereof shall
be interpreted in accordance with the laws of the State of Delaware.
12. Severability: In the event any of the provisions of this
Agreement are held to be unenforceable by a court of competent jurisdiction,
it is understood that the provision(s) affected thereby shall not be
terminated, but shall be deemed amended to the extent required to render them
valid and enforceable, and this validity and enforceability of the other
provisions of this Agreement shall not be affected thereby.
13. Waiver: Either party's failure to demand strict performance and
compliance with any part of this Agreement shall not be deemed to be a waiver
of any of such party's rights under this Agreement or by operation of law.
The waiver by either party of any breach of any provisions of this Agreement
by the other party shall not operate or be construed as a waiver of any
subsequent breach of this Agreement by such other party.
14. Entire Agreement: Associate and Rose's acknowledge that this
Agreement contains the full and complete agreement between them with respect
to the subject matter hereof and that there are no oral or implied agreements
or other modifications not specifically set forth herein. Associate and
Rose's further agree that no modification of this Agreement may be made except
by means of a written agreement or memorandum signed by both of them.
15. Administration and Appeals Procedure: The appeals procedure
contained in Section 8 of the Rose's Stores, Inc. Severance Program shall
apply to claims by the Associate for a Severance Allowance under this
Agreement, and to the extent any question should arise as to the
interpretation of the Agreement, provided that all references in such Section
8 to the Program Administrator shall be deemed references to the Board of
Directors for purposes of this Agreement; and the Board of Directors shall
have all the powers, duties and discretion of the Program Administrator as set
out in Sections 6 and 7 of the Rose's Stores, Inc. Severance Program.
IN WITNESS WHEREOF Rose's and Associate have each dated, executed and
delivered this Agreement the day and year indicated by their signatures.
ROSE'S STORES, INC.
Date: By:
ASSOCIATE
Date: By:
