FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 5, 1994
ROSE'S STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-631 56-0382475
(Commission File Number) (IRS Employer Identification No.)
218 S. Garnett Street
Henderson, North Carolina
27536
(Address of principal executive offices) (Zip Code)
(919) 430-2600
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
On September 5, 1993 the Registrant 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,
Raleigh Division (the "Court"). The Registrant is in possession
of its property and is maintaining and operating its property as
a debtor-in-possession pursuant to the provisions of Sections
1107 and 1108 of the Bankruptcy Code.
The Registrant has periodically reported material events
related to the bankruptcy proceedings in its Form 10-K, 10-Qs and
8-Ks.
On October 5, 1994 the Court issued an order (the "Order")
approving as containing "adequate information" under Section 1125
of the Bankruptcy Code a First Amended Disclosure Statement (the
"Disclosure Statement") that describes the proposed First Amended
Joint Plan of Reorganization (the "Plan") and approving the
solicitation of acceptances and rejections of the Plan from
various classes of creditors and equity holders prior to the
Court holding a confirmation hearing. A copy of the Order, the
Disclosure Statement and Plan are attached as exhibits hereto.
Capitalized terms used herein shall have the meanings set forth
in the Plan. Various ancillary agreements required to effectuate
the Plan are expected to be negotiated with the official
unsecured creditors committee, the Pre-Petition Lenders, the
official equity committee and any Plan/exit funder, and filed at
a later date.
While the Registrant anticipates seeking Court approval of
the Plan mid-December, 1994, the Plan's "Effective Date", or the
consummation of the Plan, will only occur if certain conditions
are met. The Effective Date of the Plan is presently anticipated
to occur during the first quarter of 1995, but there can be no
assurance of that.
<PAGE>
Item 7. Financial Statements and Exhibits
The following exhibits are part of this report:
Exhibit 10.1 Order of United States Bankruptcy Court
Eastern District of North Carolina Raleigh
Division dated October 5, 1994.
Exhibit 10.2 First Amended Disclosure Statement Related to
First Amended Joint Plan of Reorganization
dated October 4, 1994.
Exhibit 10.3 Proposed First Amended Joint Plan of
Reorganization dated October 4, 1994.
<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 hereunto duly authorized.
ROSE'S STORES, INC.
Date: October 25, 1994 By: /s/ R. Edward Anderson
R. Edward Anderson
President and Chief Executive Officer
<PAGE>
Exhibit Index
Exhibit No. Description
Exhibit 10.1 Order of United States Bankruptcy
Court Eastern District of North
Carolina Raleigh Division dated
October 5, 1994.
Exhibit 10.2 First Amended Disclosure Statement
Related to First Amended Joint Plan
of Reorganization dated October 4,
1994.
Exhibit 10.3 Proposed First Amended Joint Plan
of Reorganization dated October 4, 1994.
<PAGE>
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
<TABLE>
<S> <C> <C>
In re: (Bracket) Case No. 93-01365-5-ATS
ROSE'S STORES, INC., Chapter 11
DEBTOR.
</TABLE>
ORDER (I) APPROVING FIRST AMENDED DISCLOSURE STATEMENT, AUTHORIZING
SOLICITATION OF VOTES AND GRANTING RELATED RELIEF RESPECTING
THE FIRST AMENDED JOINT PLAN OF REORGANIZATION AND
(II) SCHEDULING HEARING ON CONFIRMATION OF SUCH FIRST AMENDED JOINT PLAN
Upon (A) the "Motion For Order (i) Approving The Proposed Disclosure
Statement; (ii) Scheduling A Hearing Date To Consider Confirmation Of The Joint
Plan; (iii) Establishing All Requirements And Procedures For (a) Solicitation Of
Acceptances Or Rejections Of The Joint Plan, (b) Voting On The Joint Plan, (c)
Counting Ballots, And (d) Submission Of Objections To Confirmation Of The Joint
Plan; And (iv) Prescribing The Form And Manner Of Notice With Respect To Such
Relief" (the "Motion"), filed by Rose's Stores, Inc., debtor and
debtor-in-possession in the above-captioned case (the "Debtor"); (B) this
Court's Order dated August 8, 1994 (the "Scheduling Order") scheduling a hearing
to consider the relief requested in the Motion, and prescribing the form and
manner of notice of the Disclosure Statement Approval Hearing (as defined in the
Scheduling Order); (C) (i) the proposed First Amended Joint Plan Of
Reorganization For Rose's Stores, Inc. (with all exhibits and attachments, the
"Joint Plan"); and (ii) the proposed First Amended Disclosure Statement Relating
To Joint Plan Of Reorganization For Rose's Stores, Inc. (with all exhibits and
attachments, the "Proposed Disclosure Statement"), copies of which have been
filed with the Court; and (D) the record of the hearings held on September 20,
1994 and October 4, 1994; and it appearing from the certificates of service,
affidavits of service and certificates of publication filed with the Court that
adequate and sufficient notice of the Motion and the hearing thereon has been
given in accordance with the Scheduling Order; and sufficient cause appearing
therefor; and after due deliberation; it is hereby
ORDERED, that the Motion is approved in all respects; and it is further
ORDERED, that the Proposed Disclosure Statement is approved as containing
"adequate information" within the meaning of section 1125 of the Bankruptcy Code
and shall hereinafter be referred to as the "Disclosure Statement"; and it is
further
ORDERED, that the amount and manner of notice actually given to Dean Witter
Reynolds, the certain retirees and the holders of stock options of the Motion
and the Disclosure Statement Approval Hearing, as reflected in the various
certificate of service and affidavits of service filed with the Court, was
sufficient under the facts and circumstances of this case and to the extent such
notice was less than the notice otherwise required by Rule 2002(b) and (d) of
the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), the Court
hereby shortens the required notice pursuant to Bankruptcy Rule 9006(c)(1) to
the notice actually given; and it is further
ORDERED, that pursuant to Bankruptcy Rule 3017(c) the forms of ballot,
including voting instructions (collectively, the "Ballots," and individually, a
"Ballot" or "Master Ballot"), substantially in the form annexed hereto as
Exhibit "A" and listed immediately below are hereby approved in all respects and
may be used by the Debtor in conjunction with the solicitation of votes on the
Joint Plan from entities entitled to accept or reject the Joint Plan, as
follows:
<TABLE>
<S> <C>
Ballot No. 1 Ballot for Unsecured Creditors (Class 3)
Ballot No. 2 Ballot for Registered and Beneficial Owners of Voting Common Stock and Non-Voting
Class B Stock (Class 5)
Ballot No. 3 Master Ballot for Use By Brokerage Firms, Financial Institutions, Other Nominees and
Proxy Intermediaries;
</TABLE>
and it is further
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<PAGE>
ORDERED, that the Debtor is authorized to retain Federated Claims Services
Group as ballot agent (the "Ballot Agent") in this case to receive and tabulate
the Ballots, and otherwise administer the balloting process; and it is further
ORDERED, that (i) all Ballots, including Master Ballots must be actually
received by the Ballot Agent on or before 5:00 p.m. (Eastern Standard Time) on
December 5, 1994 (the "Voting Deadline"), to be counted, and any Ballot or
Master Ballot which is received after such time will not be counted, and (ii)
only Ballots actually received by the Ballot Agent by hand, mail or overnight
courier will be counted; Ballots received by facsimile will not be counted; and
it is further
ORDERED, that (i) any Ballot returned by the Voting Deadline which is
properly completed and executed by the holder of a claim or interest permitted
to vote pursuant to the Joint Plan and Disclosure Statement which does not
indicate an acceptance or rejection of the Joint Plan shall be deemed to be an
acceptance of the Joint Plan, (ii) any Ballot which is not executed will be
considered null and void and will not be counted, (iii) if no votes are received
with respect to a particular class of claims or interests which are entitled to
vote on the Joint Plan, such class shall be deemed to have accepted the Joint
Plan, (iv) any Ballot in which both the acceptance and rejection boxes are
checked shall be deemed to have voted to accept the Joint Plan, and (v) if a
particular creditor or interest holder casts more than one Ballot voting the
same claim prior to the Voting Deadline, the last Ballot received prior to the
Voting Deadline shall be deemed to reflect the voter's intent and thus shall be
deemed to supersede any prior Ballots; and it is further
ORDERED, that pursuant to section 1128 of the Bankruptcy Code and
Bankruptcy Rule 3017(c), a hearing shall be held before the Honorable A. Thomas
Small, United States Bankruptcy Judge at 10:30 a.m. on December 13, 1994, or as
soon thereafter as counsel can be heard (the "Confirmation Hearing"), in Room
208 of the United States Bankruptcy Court, Eastern District of North Carolina,
U.S. Courthouse and Post Office Building, 300 Fayetteville Street Mall, Raleigh,
North Carolina, to consider confirmation of the Joint Plan; and it is further
ORDERED, that any objection to confirmation of the Joint Plan must (i) be
in writing, (ii) comply with the Bankruptcy Rules and Local Bankruptcy Rules of
the Court, (iii) set forth the name of the objecting party, the nature and
amount of any claim or interest alleged by such objecting party against the
estate or any property of any Debtor, (iv) state with particularity the legal
and factual basis for the objection, (v) be filed with the Clerk of the Court,
with a copy thereof served, by hand or by mail, upon (i) Smith Debnam Hibbert &
Pahl, counsel for the Debtor, P.O. Box 26268, Raleigh, North Carolina 27611,
Attn: J. Larkin Pahl; (ii) Proskauer Rose Goetz & Mendelsohn, special bankruptcy
counsel for the Debtor, 1585 Broadway, New York, New York 10036, Attn: Alan B.
Hyman, Esq. (iii) Otterbourg, Steindler, Houston & Rosen, P.C., counsel for the
Official Committee of Unsecured Creditors, 230 Park Avenue, New York, New York
10169, Attn: Glenn Rice, Esq.; (iv) Lord Bissell & Brook, counsel for the
Committee of Equity Security Holders, 115 South La Salle Street, Chicago,
Illinois 60603, Attn: Benjamin Waisbren, Esq., (v) Hebb & Gitlin, counsel to the
Senior Secured Noteholders, One State Street, Hartford, Connecticut 06103, Attn:
Michael J. Reilly, (vi) Anderson Kill Olick & Oshinsky, PC, counsel to The Bank
of Tokyo, Ltd., 1251 Avenue of the Americas, New York, New York 10020, Attn:
Jeffrey L. Glatzer, and (vii) the Office of the Bankruptcy Administrator,
Eastern District of North Carolina, P.O. Box 3758, Wilson, North Carolina 27894
(the "Bankruptcy Administrator"), Attn: Marjorie Lynch, Esq., so as to actually
be received no later than 5:00 p.m. (Eastern Standard Time) on December 5, 1994;
and it is further
ORDERED, that any objections, responses or comments to confirmation of the
Joint Plan that are not timely filed and served as set forth in the foregoing
decretal paragraph shall be deemed waived; and it is further
ORDERED, that October 5, 1994 (the "Record Date") be, and hereby is,
established as the record date for purposes of determining which creditors and
equity security holders (pursuant to Bankruptcy Rule 3018(a)) are entitled to
receive a Solicitation Package (as defined below) and vote on the Joint Plan;
and it is further
ORDERED, that notwithstanding the Record Date, orders of the Court, entered
after the Record Date may effect the amount such holders of claims or interests
as of the Record Date may vote for or against the Joint Plan; and it is further
ORDERED, that the Debtor be, and hereby is, authorized to mail or cause to
be mailed (first-class) on or before October 26, 1994 (the "Service Date") (i) a
copy of the Disclosure Statement (including the Joint Plan); (ii) a Ballot
(where applicable); (iii) a copy of this Order (without exhibits); (iv) letters,
substantially in the form annexed hereto as Exhibit "B" from (a) the Debtor's
management, (b) the Official Unsecured Creditors Committee (c) the Official
Committee of Equity Security Holders and (d) the Debtor's management to retirees
(where applicable); and (v) a notice substantially in the form annexed hereto as
Exhibit "C" (the "Notice"), of (a) this Court's approval of the Disclosure
Statement, (b) the time within which acceptances and rejections of the Joint
Plan must be received by the Ballot Agent, (c) the Confirmation Hearing, and (d)
the time within which objections to confirmation of the Joint Plan must be filed
with the Court and served on the parties specified in this Order (collectively
the "Solicitation Package") on every entity that was listed in the Debtor's
schedules as a
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<PAGE>
creditor, or is a party to a pre-petition executory contract or unexpired lease
with the Debtor, every entity which has, as of the date hereof, filed a proof of
claim or interest with this Court against the Debtor (which has not been
disallowed as of the date hereof by an order of this Court), every holder of
record of securities of the Debtor determined as of the close of business on the
Record Date, the Bankruptcy Administrator, the Securities and Exchange
Commission, the District Director, Internal Revenue Service, and the United
States Attorney for the Eastern District of North Carolina; and it is further
ORDERED, that the Debtor shall cause the Notice to be published once in THE
NEW YORK TIMES (National Edition), THE WALL STREET JOURNAL (National Edition),
THE ATLANTA CONSTITUTION and THE RALEIGH NEWS AND OBSERVER on or before the
Service Date; and it is further
ORDERED, that Wachovia Bank of North Carolina, N.A., the Debtor's Stock
Transfer Agent ("Wachovia"), shall provide the Debtor, or such other entity
designated by the Debtor, within five (5) business days after the Record Date, a
hard copy and a computer tape of the certified shareholder list, listing all
record holders of stock (all classes) in the Debtor as of the Record Date; and
it is further
ORDERED, that banks, brokerage firms or agents (collectively, the "Master
Ballot Agents") through which beneficial owners hold stock in the Debtor be, and
hereby are, directed to distribute Solicitation Packages as promptly as possible
to the beneficial owners for which they provide services, and that such Master
Ballot Agents shall obtain the votes of beneficial owners of stock in the Debtor
by forwarding the Solicitation Package to the beneficial owner of stock in the
Debtor for voting along with a return envelope provided by and addressed to the
Master Ballot Agent, with the beneficial owner then returning the individual
Ballot to that Master Ballot Agent. The Master Ballot Agent shall summarize the
votes of its respective beneficial owners on the appropriate Master Ballot in
accordance with the procedures set forth below and the instructions annexed to
the Master Ballot, and then returning the Master Ballot to the Ballot Agent so
as to be received prior to the Voting Deadline. The Debtor shall provide the
Master Ballot Agents with sufficient copies of the Solicitation Package for
distribution by them to the beneficial owners of equity securities; and it is
further
ORDERED, that the Debtor shall serve a copy of this Order on Wachovia, ADP
Proxy Services, and each known bank, brokerage firm or agent that is serving as
a Master Ballot Agent through which beneficial owners hold stock in the Debtor
(other than those banks, brokerage firms or agents that use ADP Proxy Services),
and, upon written request, is authorized to reimburse such entities (or their
agents) in accordance with customary procedures for their reasonable, actual and
necessary out-of-pocket expenses incurred in performing the tasks described
herein; and it is further
ORDERED that with respect to the tabulation of Ballots cast by record
holders and beneficial owners of Stock in the Debtor, the following procedures
are hereby approved:
a. All Master Ballot Agents through which beneficial owners hold Stock in
the Debtor shall arrange to receive and summarize on a Master Ballot all
individual Ballots cast by their respective beneficial owners and return a
Master Ballot to the Ballot Agent. Master Ballot Agents shall retain the Ballots
cast by their respective beneficial owners for inspection for one year following
the submission of a corresponding Master Ballot.
b. Votes cast by beneficial owners holding Stock in the Debtor through a
Master Ballot Agent and transmitted by means of a Master Ballot will be matched
against the positions in the applicable stock held by such entities, as
evidenced by the record list of holders of the applicable stock. Votes submitted
by a Master Ballot Agent on a Master Ballot shall not be counted in excess of
the record position maintained by that entity in the applicable equity security.
c. To the extent that conflicting votes or "overvotes"1 are submitted by a
Master Ballot Agent tallying the votes of beneficial owners of stock in the
Debtor on a Master Ballot, the Ballot Agent shall attempt to resolve the
conflict or overvote prior to the Voting Deadline.
d. To the extent that an overvote on a Master Ballot or Ballots is not
reconcilable prior to the Voting Deadline, votes to accept and reject the Joint
Plan shall be applied by the Ballot Agent in the same proportion as the votes to
accept and reject the Joint Plan submitted by the applicable Master Ballot Agent
on the Master Ballot(s) that resulted in the overvote to the extent of the
Master Ballot Agent's record position in the applicable stock in the Debtor.
e. A single Master Ballot Agent may complete and deliver to the Ballot
Agent multiple Master Ballots summarizing the votes of beneficial owners of
stock in the Debtor. Votes reflected on multiple Master Ballots will be counted,
except to the
1 As used herein, "overvote" means a Master Ballot Agent's submission of a
Master Ballot or Ballots reflecting an aggregate amount of interests that
exceed the record position maintained by that Master Ballot Agent in the
applicable equity security.
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<PAGE>
extent that they are duplicative of other Master Ballots. If two or more Master
Ballots are inconsistent, the latest Master Ballot received prior to the Voting
Deadline will, to the extent of such inconsistency, supersede and revoke any
prior Master Ballot.
f. For purposes of tabulating votes, each record owner (except Master
Ballot Agents) or beneficial owner of stock in the Debtor will be deemed to have
voted the full amount of its claim or claims relating to such stock in the
Debtor; and it is further
ORDERED, that the Debtor is not required to mail Solicitation Packages to
any entity at an address from which the notice of the Disclosure Statement
Approval Hearing was returned by the United States Post Office as undeliverable,
unless the Debtor is provided with an accurate address by such entity prior to
October 26, 1994; and it is further
ORDERED, that notwithstanding anything to the contrary herein (i) the
ballots previously cast for the Joint Plan (prior to its amendment) pursuant to
that certain Consent Order Regarding Support Of The Proposed Joint Plan Of
Reorganization Of Rose's Stores, Inc. entered by this Court on August 30, 1994
(the "Plan Support Consent Order") by the Balloting Pre-Petition Lenders (as
defined in the Plan Support Consent Order) are deemed to apply to the Joint Plan
(as amended through October 4, 1994) and the Balloting Pre-Petition Lenders are
deemed to have accepted the Joint Plan (as amended through October 4, 1994);
(ii) the Plan Support Consent Order is and remains in full force and effect with
respect to the Joint Plan; and (iii) the written consent of GE Capital given in
respect of the Joint Plan (prior to it amendment) shall apply to the Joint Plan;
and it is further
ORDERED, that to the extent there are any contingent, disputed or
unliquidated claims that are not estimated by order of this Court entered prior
to the Confirmation Hearing, such claims may be estimated at the Confirmation
Hearing. The Debtor shall notify the holders of such contingent, disputed or
unliquidated claims of the Debtor's intention to request that such claims be
estimated for voting purposes at the Confirmation Hearing as soon as possible
after such claims, if any, are identified; and it is further
ORDERED, that the solicitation of acceptances or rejections of the Joint
Plan and the participation in the offer, issuance, sale or purchase of
securities, offered or sold under the Joint Plan are deemed to have been made in
good faith and in compliance with the applicable provisions of the Bankruptcy
Code, and persons soliciting acceptances or rejections of the Joint Plan and
persons participating in the offer, issuance, sale or purchase of securities,
offered or sold under the Joint Plan are entitled to the protection of section
1126(e) of the Bankruptcy Code; and it is further
ORDERED, that the above-authorized notices by mail and publication shall be
deemed good and sufficient notice of the time within which objections to the
Joint Plan must be filed and the time within which acceptances and rejections of
the Joint Plan must be received, and of the Confirmation Hearing; and it is
further
ORDERED, that the Debtor is hereby authorized to make typographical,
grammatical and other conforming changes to the Disclosure Statement and Joint
Plan prior to mailing to creditors, interest holders, and parties in interest
without further order of this Court, provided, however, that the Debtor shall
file with the Court the fully corrected Disclosure Statement and Joint Plan, as
submitted to creditors, interest holders and parties in interest; and it is
further
ORDERED, that the Confirmation Hearing described above may be adjourned
from time to time without further notice to creditors, holders of equity
interests or interested parties other than by the announcement of the adjourned
date at the Confirmation Hearing.
Dated: October 5, 1994
<TABLE>
<C> <S>
/s/ A. THOMAS SMALL
UNITED STATES BANKRUPTCY JUDGE
</TABLE>
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<PAGE>
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
<TABLE>
<S> <C> <C>
In re: (Bracket) Case No. 93-01365-5-ATS
ROSE'S STORES, INC., Chapter 11
DEBTOR.
</TABLE>
NOTICE RESPECTING (I) APPROVAL OF DISCLOSURE
STATEMENT, (II) BALLOT AND VOTING PROCEDURES,
(III) HEARING ON CONFIRMATION OF FIRST AMENDED JOINT PLAN
OF REORGANIZATION, AND (IV) OTHER RELIEF RELATING
TO PLAN SOLICITATION AND THE CONFIRMATION HEARING
PLEASE TAKE NOTICE, that, pursuant to the order, dated October 5, 1994, of
the Honorable A. Thomas Small, United States Bankruptcy Judge, United States
Bankruptcy Court, Eastern District of North Carolina (the "Order"), the First
Amended Disclosure Statement Relating to Joint Plan of Reorganization of Rose's
Stores, Inc., debtor and debtor-in-possession (the "Debtor"), dated October 4,
1994 (as so approved, the "Disclosure Statement"), has been approved in its
entirety as containing "adequate information" pursuant to section 1125 of
chapter 11 of title 11, United States Code, 11 U.S.C.
(section mark)(section mark) 101 ET SEQ. (the "Bankruptcy Code"). The Disclosure
Statement has been transmitted by the Debtor to the parties-in-interest in
accordance with the Order, section 1125 of the Bankruptcy Code, and Rules 3017
and 3018 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
Pursuant to section 1125 of the Bankruptcy Code, and Bankruptcy Rules 3017 and
3018, the Debtor has been authorized to solicit, and is soliciting, acceptances
of the First Amended Joint Plan of Reorganization, dated October 4, 1994 (the
"Joint Plan"), from holders of claims against and/or interests in the Debtor
that are entitled to vote under the Joint Plan.
PLEASE TAKE FURTHER NOTICE, that, pursuant to section 1122 of the
Bankruptcy Code and Bankruptcy Rule 3020, a hearing (the "Confirmation Hearing")
shall be held before the Honorable A. Thomas Small, United States Bankruptcy
Judge, in Room 208 of the United States Bankruptcy Court, Eastern District of
North Carolina, U.S. Courthouse and Post Office Building, 300 Fayetteville
Street Mall, Raleigh, North Carolina, on December 13, 1994 at 10:30 a.m. or as
soon thereafter as counsel may be heard, to consider confirmation
("Confirmation") of the Joint Plan pursuant to the applicable provisions of the
Bankruptcy Code.
PLEASE TAKE FURTHER NOTICE, that the Joint Plan and Disclosure Statement
are on file with the Clerk of the Bankruptcy Court for the Eastern District of
North Carolina, P.O. Box 1441, Raleigh, North Carolina 27602, and are available
for inspection during regular business hours.
PLEASE TAKE FURTHER NOTICE, that all Ballots must be actually received by
Federated Claims Services Group (the "Ballot Agent") on or before December 5,
1994 at 5:00 p.m., Eastern Standard Time (the "Voting Deadline") at:
<TABLE>
<CAPTION>
VIA MAIL VIA OVERNIGHT COURIER
<S> <C>
Federated Claims Services Group Federated Claims Services Group
Post Office Box 1607 9111 Duke Blvd.
Cincinnati, Ohio 45201-1607 Mason, Ohio 45040
</TABLE>
Ballots by shareholders of Rose's Stores, Inc. Voting Common Stock and/or
Non-voting Class B Stock, held in street name, must return their Ballots to the
bank, brokerage firm or other nominee, which forwarded the Ballot to them in the
return pre-addressed envelope provided by such bank, brokerage firm or other
nominee, sufficiently prior to the Voting Deadline to allow votes to be
processed and forwarded by the bank, brokerage firm or other nominee to the
Ballot Agent so as to be received on or before the Voting Deadline.
PLEASE TAKE FURTHER NOTICE, THAT ANY BALLOT WHICH IS RECEIVED AFTER THE
VOTING DEADLINE WILL NOT BE COUNTED. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES
NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE JOINT PLAN SHALL BE DEEMED AN
ACCEPTANCE OF THE JOINT PLAN. ANY BALLOT WHICH IS NOT EXECUTED WILL BE
CONSIDERED NULL AND VOID AND WILL NOT BE COUNTED. IF NO VOTES ARE RECEIVED WITH
RESPECT TO A PARTICULAR CLASS OF CLAIMS OR INTERESTS WHICH ARE ENTITLED TO VOTE
ON THE JOINT PLAN, SUCH CLASS SHALL BE DEEMED TO HAVE ACCEPTED THE JOINT PLAN.
ANY BALLOT IN WHICH BOTH THE ACCEPTANCE AND REJECTION BOXES ARE CHECKED SHALL BE
DEEMED TO HAVE VOTED TO ACCEPT THE JOINT PLAN. ANY BALLOT RECEIVED BY FACSIMILE
WILL NOT BE COUNTED.
PLEASE TAKE FURTHER NOTICE, that objections to Confirmation, if any, (i)
shall be in writing, (ii) shall comply with the Bankruptcy Rules and the Local
Bankruptcy Rules of the Bankruptcy Court, (iii) shall set forth the name and
address of the objectant, and the nature and amount of any claim or interest
alleged by such objectant against the Debtor's estate or property, (iv) shall
state with particularly the legal and factual basis for such objection, (v)
shall be filed with the Clerk of the Bankruptcy Court for the Eastern District
of North Carolina, P.O. Box 1441, Raleigh, North Carolina 27602, with copies
thereof served, by hand or by overnight delivery service, upon Smith Debnam
Hibbert & Pahl, counsel for the Debtor, P.O. Box 26268, Raleigh, North Carolina
27611, Attn: J. Larkin Pahl, Esq.; Proskauer Rose Goetz & Mendelsohn, special
bankruptcy counsel for the Debtor, 1585 Broadway, New York, New York 10036,
Attn: Alan B. Hyman, Esq.; Otterbourg, Steindler, Houston & Rosen, P.C., counsel
for the Official Committee of Unsecured Creditors, 230 Park Avenue, New York,
New York 10169, Attn: Scott L. Hazen, Esq.; Lord Bissell & Brook, counsel to the
Official Committee of Equity Security Holders, 115 South La Salle Street,
Chicago, Illinois 60603, Attn: Benjamin Waisbren, Esq.; Hebb & Gitlin, counsel
to the Senior
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<PAGE>
Secured Noteholders, One State Street, Hartford, Connecticut
06103, Attn: Michael J. Reilly, Esq.; Anderson Kill Olick & Oshinsky, P.C.,
counsel to the Bank of Tokyo, Ltd., 1251 Avenue of the Americas, New York, New
York 10020, Attn: Jeffrey L. Glatzer, Esq.; and the Office of the Bankruptcy
Administrator, Eastern District of North Carolina, P.O. Box 3758, Wilson, North
Carolina 27895-3758, Attn: Marjorie K. Lynch, Esq., such that all objections
are filed and received no later than 5:00 p.m. (Eastern Standard Time) on
December 5, 1994.
PLEASE TAKE FURTHER NOTICE, that the confirmation Hearing may be adjourned
from time to time, without prior notice to creditors or interested parties other
than by the announcement of the adjourned date at the Confirmation Hearing.
PLEASE TAKE FURTHER NOTICE, that you may obtain answers to questions
regarding the Ballot or the procedures for voting on the Joint Plan by calling
(919) 250-2240.
Dated: October 5, 1994
Raleigh, North Carolina
BY ORDER OF THE COURT:
/S/ A. THOMAS SMALL
UNITED STATES BANKRUPTCY JUDGE
SMITH DEBNAM HIBBERT & PAHL
Counsel to the Debtor and
Debtor-in-Possession
P.O. Box 26268
Raleigh, North Carolina 27611
(919) 250-2000
Attn: J. Larkin Pahl
Terri L. Gardner
PROSKAUER ROSE GOETZ & MENDELSOHN
Special Bankruptcy Counsel to the Debtor
and Debtor-in-Possession
1585 Broadway
New York, New York 10036
(212) 969-3000
Attn: Alan B. Hyman
Michael E. Foreman
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<PAGE>
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE: CASE NO. 93-01365-5-ATS
ROSE'S STORES, INC.,
(TAX ID #56-0382475), CHAPTER 11
DEBTOR.
FIRST AMENDED DISCLOSURE STATEMENT
RELATING TO FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF
ROSE'S STORES, INC.
OCTOBER 4, 1994
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ROSE'S STORES, INC.
DISCLOSURE STATEMENT
TABLE OF CONTENTS
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I. SUMMARY OF INFORMATION CONTAINED IN THE DISCLOSURE STATEMENT.................................................... 1
A. INTRODUCTION............................................................................................. 1
B. SUMMARY OF THE PLAN...................................................................................... 2
1. Introduction....................................................................................... 2
2. Summary Of Classification And Treatment Of Claims And Interests.................................... 3
3. Significant Provisions Regarding Implementation of the Plan........................................ 9
C. WHO MAY VOTE............................................................................................. 10
D. VOTING INSTRUCTIONS...................................................................................... 10
E. ACCEPTANCE OR REJECTION OF THE PLAN...................................................................... 11
F. CONFIRMATION HEARING..................................................................................... 11
G. OBJECTIONS TO CONFIRMATION............................................................................... 11
II. DESCRIPTION OF THE DEBTOR AND EVENTS PRECIPITATING THE CHAPTER 11 FILING........................................ 12
A. HISTORY OF THE DEBTOR.................................................................................... 12
B. OPERATIONS OF THE DEBTOR................................................................................. 12
1. General Description................................................................................ 12
2. Location of Stores................................................................................. 12
3. Financial Structure of the Debtor.................................................................. 13
4. Board of Directors................................................................................. 13
5. Officers........................................................................................... 13
6. Transactions with Insiders of the Debtor........................................................... 13
7. RSI Trading, Inc................................................................................... 14
C. FINANCIAL CONDITION OF THE DEBTOR........................................................................ 14
1. Pre-Petition Financing............................................................................. 14
2. Events Precipitating the Chapter 11 Filing......................................................... 16
III. SIGNIFICANT EVENTS OF CHAPTER 11 CASE........................................................................... 17
A. COMMENCEMENT............................................................................................. 17
B. PARTIES PARTICIPATING IN THE CASE........................................................................ 17
1. Bankruptcy Court................................................................................... 17
2. Bankruptcy Administrator........................................................................... 17
3. Secured Creditors.................................................................................. 17
4. The Committees and Their Advisors.................................................................. 17
5. Advisors to the Debtor............................................................................. 17
C. POST-PETITION FINANCING.................................................................................. 18
1. Introduction....................................................................................... 18
2. Use of Cash Collateral............................................................................. 18
3. GE Capital Debtor-In-Possession Financing Facility................................................. 18
D. BUSINESS PLAN FORMULATION................................................................................ 19
E. EXCLUSIVITY.............................................................................................. 19
F. GOING-OUT-OF-BUSINESS SALES.............................................................................. 19
1. GOB1 Sales......................................................................................... 19
2. GOB2 Sales......................................................................................... 20
G. OVERHEAD COST REDUCTIONS................................................................................. 20
H. POST-PETITION LITIGATION WITH PRE-PETITION LENDERS....................................................... 20
I. BAR DATES AND NOTICES OF BAR DATES....................................................................... 21
J. LEASE DISPOSITIONS, EXECUTORY CONTRACTS AND UNEXPIRED LEASES............................................. 21
K. EMPLOYEE MATTERS......................................................................................... 22
1. Pre-Petition Payroll and Employee Benefits......................................................... 22
2. Retiree Benefits................................................................................... 23
3. Equity Compensation Plan........................................................................... 23
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4. Officer Compensation............................................................................... 24
5. Compensation of President and Chief Executive Officer.............................................. 24
6. Employee Performance and Retention Program......................................................... 25
L. VENDOR ISSUES............................................................................................ 25
1. Returns and Setoffs................................................................................ 25
2. Reclamation Issues................................................................................. 25
M. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE................................................................. 26
N. POST-EFFECTIVE DATE FINANCING............................................................................ 26
IV. SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER AND
PLAN SUPPORT ORDER.............................................................................................. 27
A. SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER.................................................... 27
B. CONSENT ORDER REGARDING SUPPORT OF PROPOSED JOINT PLAN OF
REORGANIZATION OF ROSE'S STORE'S, INC.................................................................... 30
C. EFFECT OF SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER,
PLAN SUPPORT CONSENT ORDER AND PLAN...................................................................... 31
V. THE PLAN OF REORGANIZATION...................................................................................... 31
A. INTRODUCTION............................................................................................. 31
B. CLASSIFICATION OF CLAIMS AND INTERESTS................................................................... 32
1. Administrative Claims.............................................................................. 33
2. Allowed Tax Claims................................................................................. 33
3. GE Capital's Claims................................................................................ 33
4. Class 1 -- Non-Tax Priority Claims................................................................. 34
5. Class 2A -- Allowed Secured Claims................................................................. 34
6. Class 2B -- Allowed Secured Claims of the Pre-Petition Lenders..................................... 34
7. Class 3 -- Allowed Unsecured Claims................................................................ 34
8. Class 4 -- Intercompany Claims..................................................................... 34
9. Class 5 -- Common Stock Interests.................................................................. 34
10. Class 6 -- Pre-Petition Warrants................................................................... 35
11. Class 7 -- Pre-Petition Stock Options.............................................................. 35
12. Class 8 -- Subordinated Claims..................................................................... 35
C. TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN......................................................... 35
1. Treatment of Claims and Interests if the Alternative Treatment Provisions are not Effective........ 35
2. Events Triggering Implementation of the Alternative Treatment Provisions........................... 43
3. Treatment of Claims and Interests if the Alternative Treatment Provisions are Effective............ 43
4. Distributions of Cash under the Alternative Treatment Provisions................................... 46
D. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE PLAN................................................... 46
1. Conditions Precedent to Effective Date............................................................. 46
2. Waiver of Conditions to the Effective Date......................................................... 47
E. MEANS OF EXECUTION IF THE ALTERNATIVE TREATMENT PROVISIONS ARE NOT EFFECTIVE.............................
47
1. Funding of the Distributions Provided for in the Plan.............................................. 47
2. Post-Effective Date Financing Facility............................................................. 47
3. Corporate Action................................................................................... 48
4. Cancellation of Common Stock Interests, Pre-Petition Warrants, Pre-Petition Stock Options and
Pre-Petition Secured Notes and Surrender of Common Stock, and Pre-Petition Warrants.............. 48
5. Authorization and Issuance of Equity and Debt Instruments of Reorganized Rose's.................... 49
6. Merger of RSI into the Debtor...................................................................... 49
7. New Rose's Common Stock Allocable to Management of Reorganized Rose's.............................. 49
8. Preservation or Waiver of Rights of Action of the Estate........................................... 49
F. MEANS OF EXECUTION IF THE ALTERNATIVE TREATMENT PROVISIONS ARE EFFECTIVE.................................
50
1. Funds for Distribution............................................................................. 50
2. Corporate Action................................................................................... 50
3. Implementation of the Alternative Treatment Provisions............................................. 50
G. DISCHARGE, RELEASES, INJUNCTIONS, AND RELATED PROVISIONS................................................. 52
1. Releases........................................................................................... 52
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2. Injunctions........................................................................................ 54
3. Indemnification.................................................................................... 55
4. Effect of Confirmation............................................................................. 55
H. CLAIMS RESOLUTION AND DISTRIBUTIONS...................................................................... 55
1. Claims Resolution.................................................................................. 55
2. Distributions in Connection With Disputed Claims................................................... 56
3. Disputed Payments.................................................................................. 57
4. Unclaimed Distributions............................................................................ 57
5. Fractional Distributions and Fractional Cents; Round Lots.......................................... 57
K. MISCELLANEOUS............................................................................................ 58
1. Executory Contracts and Unexpired Leases........................................................... 58
2. Post-Confirmation Claims........................................................................... 58
3. The Committees and Post-Effective Date Trade Committee............................................. 58
4. Modification of the Plan........................................................................... 59
5. Revocation of the Plan............................................................................. 59
6. Retention of Jurisdiction.......................................................................... 60
VI. REORGANIZED ROSE'S.............................................................................................. 61
A. FINANCIAL PROJECTIONS.................................................................................... 61
B. VALUATION OF POTENTIAL RECOVERY BY HOLDERS OF ALLOWED CLAIMS IN CLASS 3 AND HOLDERS OF COMMON STOCK
INTERESTS................................................................................................ 61
1. Estimated Valuation of Reorganized Rose's.......................................................... 62
2. Subscription Rights................................................................................ 63
3. New Rose's Warrants................................................................................ 63
4. Secondary Distribution of New Common Stock......................................................... 64
5. Summary of Distributions to Holders of Common Stock Interests...................................... 66
C. MANAGEMENT OF REORGANIZED ROSE'S......................................................................... 66
1. Board of Directors................................................................................. 66
2. Executive Officers................................................................................. 66
3. Compensation....................................................................................... 67
D. NEW ROSE'S CHARTER AND BYLAWS OF REORGANIZED ROSE'S...................................................... 67
VII. APPLICABILITY OF SECURITIES AND OTHER FEDERAL LAWS.............................................................. 67
A. IN GENERAL............................................................................................... 67
B. ISSUANCE OF NEW SECURITIES UNDER THE PLAN................................................................ 67
C. TRANSFERS OF NEW SECURITIES.............................................................................. 67
D. CERTAIN TRANSACTIONS BY STOCKBROKERS..................................................................... 68
E. TRUST INDENTURE ACT...................................................................................... 69
F. ABSENCE OF PUBLIC MARKET................................................................................. 69
G. ADDITIONAL INFORMATION................................................................................... 69
VIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............................................................. 69
A. FEDERAL INCOME TAX CONSEQUENCES TO CLAIMANTS............................................................. 70
1. Overview........................................................................................... 70
3. Gain or Loss to Holders of Allowed Unsecured Claims................................................ 71
4. Certain Other Tax Considerations for Pre-Petition Lenders and Holders of Allowed Unsecured Claims.. 71
5. Gain or Loss to Holders of Common Stock Interests.................................................. 72
B. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR............................................................ 72
1. Overview........................................................................................... 72
2. Debt Restructuring................................................................................. 73
IX. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN....................................................... 76
A. IN GENERAL............................................................................................... 76
1. Sale Alternative................................................................................... 76
2. Enhanced Value As An Operating Unit................................................................ 76
3. Chapter 11 Liquidation............................................................................. 76
4. Conversion to Chapter 7............................................................................ 76
5. Dismissal Alternative.............................................................................. 76
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6. Other Alternatives If Plan Is Not Confirmed........................................................ 77
X. CONFIRMATION OF THE PLAN OF REORGANIZATION...................................................................... 77
A. STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN...................................................... 77
1. In General......................................................................................... 77
2. Best Interests of Creditors Test/Liquidation Analysis.............................................. 78
3. Financial Feasibility.............................................................................. 79
4. Acceptance by Impaired Classes..................................................................... 79
5. Confirmation Without Acceptance by All Impaired Classes............................................ 79
XI. CERTAIN FACTORS TO BE CONSIDERED................................................................................ 80
A. AVOIDABLE PREFERENTIAL TRANSFER CLAIMS................................................................... 80
B. RISK FACTOR FOR REORGANIZED ROSE'S....................................................................... 80
1. Post-Effective Date Credit Facility................................................................ 80
2. Lack of Established Market for New Rose's Common Stock............................................. 81
3. Competition........................................................................................ 81
4. History of the Debtor.............................................................................. 81
C. RECOMMENDATIONS.......................................................................................... 81
D. CONCLUSION............................................................................................... 81
XII. EXHIBITS........................................................................................................ A-1
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FIRST AMENDED DISCLOSURE STATEMENT
I.
SUMMARY OF INFORMATION CONTAINED
IN THE DISCLOSURE STATEMENT
A. INTRODUCTION
ROSE'S STORES, INC., debtor and debtor-in-possession ("Rose's" or the
"Debtor"), provides this First Amended Disclosure Statement (the "Disclosure
Statement") pursuant to Section 1125(b) of Chapter 11 of Title 11 of the United
States Code, 11 U.S.C. (section mark)(section mark) 101 ET SEQ. (the "Bankruptcy
Code") and Rule 3017 of the Federal Rules of Bankruptcy Procedure (the
"Bankruptcy Rules"), in connection with the First Amended Joint Plan of
Reorganization dated October 4, 1994 (the "Plan"), in order to provide adequate
information to enable holders of Claims, or holders of Interests, that are
impaired under the Plan,1 to make an informed judgment in exercising their right
to vote for acceptance or rejection of the Plan.
The Plan describes the means by which, and the extent to which, the Claims
and Interests will be provided for and provides a means by which the Debtor will
be reorganized under Chapter 11 of the Bankruptcy Code.2 A copy of the Plan,
which has been filed with the Clerk of the Bankruptcy Court, is annexed hereto
and made a part hereof as Exhibit "A," and is discussed in greater detail in
this Disclosure Statement in the Section entitled "The Plan of Reorganization."
Accompanying this Disclosure Statement are copies of the following
documents:
1. An Order of the Bankruptcy Court (the "Disclosure Statement Approval
Order") that, among other things, (i) approves the Disclosure Statement, as
containing adequate information pursuant to Section 1125 of the Bankruptcy Code
and (ii) approves the form of ballot to be executed by holders of impaired
Claims and Common Stock Interests for voting on the Plan; and the related notice
approved by the Bankruptcy Court which, among other things, fixes the time for:
a. submitting acceptances or rejections to the Plan;
b. the hearing to consider confirmation of the Plan; and
c. filing objections to confirmation of the Plan.
2. A ballot (the "Ballot") to be executed by holders of impaired Claims and
Common Stock Interests for voting to accept or reject the Plan.
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE BANKRUPTCY
COURT AS CONTAINING INFORMATION OF A KIND AND IN SUFFICIENT DETAIL TO ENABLE
HOLDERS OF CLAIMS OR INTERESTS ENTITLED TO VOTE ON THE PLAN TO MAKE AN INFORMED
JUDGMENT WITH RESPECT TO VOTING TO ACCEPT OR REJECT THE PLAN. THE BANKRUPTCY
COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE A
RECOMMENDATION OR DETERMINATION BY THE BANKRUPTCY COURT WITH RESPECT TO THE
FAIRNESS AND MERITS OF THE PLAN OR THE ACCURACY OF THE INFORMATION OR THE
POSITIONS SET FORTH IN THIS DISCLOSURE STATEMENT. MOREOVER, ALL STATEMENTS AND
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT ARE INCLUDED SOLELY FOR
PURPOSES OF SOLICITING VOTES RESPECTING THE PLAN. WITH RESPECT TO DISPUTES,
CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER PENDING OR THREATENED ACTIONS
BETWEEN THE DEBTOR AND THIRD PARTIES, NOTHING CONTAINED IN THIS DISCLOSURE
STATEMENT SHALL BE CONSTRUED AS AN ADMISSION, WAIVER OR STIPULATION, BUT RATHER
SHALL BE TREATED AS STATEMENTS MADE AND INFORMATION PROVIDED IN SETTLEMENT
NEGOTIATIONS.
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF THE
PLAN AND CERTAIN OTHER DOCUMENTS, AND CERTAIN FINANCIAL INFORMATION. WHILE THE
DEBTOR BELIEVES THAT THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE ADEQUATE
INFORMATION WITH
1 The holders of (i) Intercompany Claims (Class 4), (ii) Pre-Petition Warrants
(Class 6), (iii) Pre-Petition Stock Options (Class 7) and (iv) Subordinated
Claims (Class 8) will receive no distributions under the Plan. Accordingly,
pursuant to Section 1126(g) of the Bankruptcy Code, Classes 4, 6, 7, and 8 are
deemed to have rejected the Plan, and therefore, the votes of the holders of
such Claims or Interests will not be solicited.
2 All capitalized terms used herein but not defined in this Disclosure Statement
shall have the meaning ascribed to them in the Plan unless otherwise noted.
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RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES ARE QUALIFIED TO THE
EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS. IN THE
EVENT OF ANY INCONSISTENCY OR DISCREPANCY BETWEEN A DESCRIPTION IN THIS
DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS OF THE PLAN, OR THE OTHER
DOCUMENTS AND FINANCIAL INFORMATION TO BE INCORPORATED THEREIN BY REFERENCE,
THE PLAN SHALL GOVERN FOR ALL PURPOSES.
THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE BEEN MADE AS
OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. EACH HOLDER OF AN ALLOWED CLAIM
OR INTEREST REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE TIME OF
SUCH REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH HEREIN UNLESS
SO SPECIFIED. WHILE THE DEBTOR HAS MADE EVERY EFFORT TO DISCLOSE WHERE CHANGES
IN PRESENT CIRCUMSTANCES COULD REASONABLY BE EXPECTED TO MATERIALLY AFFECT THE
VOTE OF HOLDERS OF ALLOWED CLAIMS OR INTERESTS ENTITLED TO VOTE ON THE PLAN,
THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT THAT CERTAIN EVENTS, SUCH
AS THOSE MATTERS DISCUSSED IN THE SECTION BELOW ENTITLED, "RISK FACTORS," DO
OCCUR. EACH HOLDER OF AN ALLOWED CLAIM OR INTEREST SHOULD CAREFULLY REVIEW THE
PLAN AND OTHER EXHIBITS HERETO BEFORE CASTING A BALLOT. FURTHERMORE, THE
STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE NOT BEEN THE SUBJECT
OF A CERTIFIED AUDIT, BUT HAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. ALTHOUGH THE DEBTOR HAS MADE EVERY EFFORT TO BE
ACCURATE, EACH HOLDER OF A CLAIM OR COMMON STOCK INTEREST SHOULD CAREFULLY
REVIEW THE PLAN AND THE OTHER EXHIBITS HERETO BEFORE CASTING A BALLOT.
NO PARTY IS AUTHORIZED TO GIVE ANY INFORMATION WITH RESPECT TO THE PLAN
OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. NO
REPRESENTATIONS CONCERNING THE DEBTOR, ITS FUTURE BUSINESS OPERATIONS OR THE
VALUE OF ITS ASSETS HAVE BEEN AUTHORIZED BY EITHER THE DEBTOR OR THE BANKRUPTCY
COURT OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY INFORMATION,
REPRESENTATIONS OR INDUCEMENTS MADE TO OBTAIN YOUR ACCEPTANCE WHICH ARE OTHER
THAN OR INCONSISTENT WITH THE INFORMATION CONTAINED HEREIN SHOULD NOT BE RELIED
UPON BY ANY HOLDER OF A CLAIM OR INTEREST IN VOTING ON THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125
OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAW. PERSONS OR ENTITIES HOLDING,
TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST, OR
SECURITIES OF, THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT IN LIGHT OF
THE PURPOSE FOR WHICH IT WAS PREPARED.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS SUCH COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
B. SUMMARY OF THE PLAN
1. INTRODUCTION
The Plan contemplates that Claims and Interests will be treated pursuant to
one of two alternatives, depending upon the events of the Chapter 11 Case prior
to the Effective Date. The Plan provides for continued operations and a capital
restructuring of the Debtor wherein the Debtor will provide the Pre-Petition
Lenders with New Rose's Secured Notes in the principal amount of approximately
$27 million and holders of Allowed Unsecured Claims will receive New Rose's
Common Stock. Existing holders of Common Stock Interests also may, under certain
conditions, receive New Rose's Common Stock. In the event certain Alternative
Treatment Events, set forth in the Second Supplemental Adequate Protection
Consent Order, as discussed hereafter and in the Plan, occur, the Alternative
Treatment Provisions of the Plan will become effective, the Debtor's operations
will cease, and the assets of the Debtor will be sold and disposed of pursuant
to the Second Supplemental Adequate Protection Consent Order (as amended), the
Plan and/or the Alternative Treatment Implementation Orders. Accordingly,
throughout this Disclosure Statement, references will be made to the treatment
of Claims and Interests in the event the Alternative Treatment Provisions of the
Plan are not effective and in the event said provisions are effective.
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(A) SUMMARY OF THE PLAN ASSUMING ALTERNATIVE TREATMENT PROVISIONS ARE NOT
EFFECTIVE
Assuming the Alternative Treatment Provisions of the Plan are not
effective, the Plan, in general, provides that: (i) the Pre-Petition Lenders
will receive Cash equal to the aggregate amount of all unpaid fees, charges and
expenses due and
payable to the Pre-Petition Lenders, and interest-bearing replacement secured
notes in the aggregate principal amount of the Pre-Petition Lenders' Allowed
Secured Claims, as reduced by payments made by the Debtor to the Pre-Petition
Lenders prior to the Effective Date; (ii) all Pre-Petition Stock Options and
Pre-Petition Warrants will be canceled, annulled and extinguished, and no
distributions will be made on account thereof; (iii) Subordinated Claims and, in
the event RSI is merged into the Debtor, all Intercompany Claims will be
canceled, annulled and extinguished, and no distributions will be made on
account thereof; (iv) all GE Obligations will be satisfied in full in Cash on or
prior to the Effective Date; (v) all holders of Administrative Claims, Allowed
Non-Tax Priority Claims, Allowed Tax Claims and Allowed Secured Claims (other
than those of the Pre-Petition Lenders) will receive Cash in full satisfaction
of their Claims; (vi) all holders of Allowed Unsecured Claims will, in exchange
for such Claims, receive a Pro-Rata distribution of New Rose's Common Stock
and/or Cash resulting from the exercise by holders of Common Stock Interests of
their Subscription Rights (as defined in Section V.C.1(h) hereof) to purchase
New Rose's Common Stock otherwise allocable to holders of Allowed Unsecured
Claims; and (vii) existing Common Stock Interests will be canceled, annulled and
extinguished, and all holders of Common Stock Interests will receive, in
exchange for such Interests, (A) Subscription Rights to purchase up to 100% of
New Rose's Common Stock, (B) New Roses's Common Stock to the extent that the
Cash and/or the shares distributed to holders of Allowed Unsecured Claims (with
provisions made for Disputed Claims) exceed the number necessary to provide such
holders with the full value of their Claims, and (C) New Rose's Warrants.
(B) SUMMARY OF THE PLAN ASSUMING ALTERNATIVE TREATMENT PROVISIONS ARE
EFFECTIVE
Assuming the Alternative Treatment Provisions of the Plan are effective,
the Plan, in general, provides that no sooner than January 1, 1995, the Debtor
will implement the cessation of its discount retail business and commence the
sale and disposition of its remaining Inventory, Fixtures and other assets, and
(i) prior to the Effective Date, GE Capital will receive Cash equal to the
amount of all GE Obligations; (ii) prior to the Effective Date, each of the
Pre-Petition Lenders will receive Cash equal to its Allowed Secured Claim in
accordance with the Intercreditor Agreements; (iii) the Debtor will either
abandon the collateral securing an Allowed Secured Claim in full satisfaction of
the secured value of that Claim or will pay Cash to a holder of an Allowed
Secured Claim equal to the secured value of that Claim; (iv) holders of
Administrative Claims, Allowed Non-Tax Priority Claims, and Allowed Tax Claims
will receive Cash in full satisfaction of their Allowed Claims; (v) after
payment in full of all of the GE Obligations and after payment in full, in Cash,
of the Pre-Petition Lenders' Allowed Secured Claims, Allowed Secured Claims,
Administrative Claims, Allowed Non-Tax Priority Claims, and Allowed Tax Claims,
each holder of an Allowed Unsecured Claim will receive its Pro-Rata share of
Available Cash, provided that in no event will the holder of an Allowed
Unsecured Claim receive Cash aggregating more than the full amount of such
Allowed Claim; (vi) after payment in full, in Cash, of all of the GE Obligations
and after payment in full, in Cash, of the Pre-Petition Lenders' Allowed Secured
Claims, Allowed Secured Claims, Administrative Claims, Allowed Non-Tax Priority
Claims, Allowed Tax Claims, and Allowed Unsecured Claims, each holder of a
Common Stock Interest shall receive its Pro-Rata Share of any remaining
Available Cash and all other residual property of the Estate; (vii) existing
Common Stock Interests, Pre-Petition Stock Options and Pre-Petition Warrants
will be canceled, annulled and extinguished; provided, however, that the right
of holders of Common Stock Interests to receive distributions under the Plan
shall survive such cancellation, annulment and extinguishment; (viii) all
Subordinated Claims will be canceled, annulled and extinguished, and no
distributions will be made on account thereof; and (ix) most executory
contracts, including the Pre-Petition Secured Noteholder Warrants, will be
rejected.
2. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The following charts set forth a brief summary of the classification and
treatment of each type of Claim and Interest under the Plan. A more detailed
discussion of the classification and treatment of Claims and Interests is
provided in the schedule immediately following the charts. The Plan is being
provided herewith and should be reviewed separately.
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TREATMENT OF CLAIMS IF ALTERNATIVE TREATMENT PROVISIONS ARE NOT EFFECTIVE
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PROJECTED AMOUNT OF
CLAIMS AND
CATEGORY/CLASS DESCRIPTION INTERESTS TREATMENT
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Administrative Claims Claims constituting $6,500,000 (as of Paid in full, in Cash, on the Effective Date or upon such
a cost or expense 1/28/95) other terms as may be agreed upon between the holders of
allowed under such Claims and the Debtor. A special procedure is
Section 503(b) and established for payment of Professional Fees. Retiree
entitled to Claims will be paid as a cost of administration through the
priority under Effective Date and honored thereafter in accordance with
Section 507(a), the Debtor's legal obligations.
Professional Fees
and Retiree Claims
Tax Claims Claims of $1,325,000 Paid in full, in Cash, on the Effective Date, provided,
governmental units however, the Debtor may make deferred Cash payments as
entitled to permitted by Section 1129(a)(9).
priority under
Section 507(a)(7)
GE Obligations Claims of GE $3,808,000 (GE Satisfied in full, in Cash, on or prior to the Effective
Capital arising Borrowings) and Date.
from DIP Facility $13,700,000
(outstanding
letters of credit)
(as of 1/28/95)
1. Claims other than Non-material Paid in full, in Cash, on the Effective Date, or upon such
Administrative or other terms as may be agreed to between the Debtor and the
Tax Claims entitled holder of any Allowed Non-Tax Priority Claim.
to priority in
payment under
Section 507(a)
2A. Claims secured by None Satisfied by either assumption, reinstatement, payment in
unavoidable, full or abandonment of collateral to holder.
perfected liens on
personal property
2B. Secured Claims of Note of Cash equal to the aggregate amount of all unpaid fees,
the Pre-Petition approximately charges and expenses due the Pre-Petition Lenders and New
Lenders $26,810,000 and Rose's Secured Notes having an aggregate face amount equal
fees and charges of to the New Rose's Secured Notes Original Principal Amount
$200,000 after payment in full of all GE Obligations.
3. Unsecured Claims $115,000,000 to Pro-Rata share of up to 100% of the Effective Date Shares
(including trade $130,000,000 which are not distributed to holders of Common Stock
creditors) Interests through the Class 5 Subscription. In the event
that holders of Common Stock Interests exercise their
Subscription Rights under the Plan to purchase New Rose's
Common Stock, the resulting Cash will be distributed
Pro-Rata among holders of Allowed Claims in Class 3 and the
Reserves.
4. Intercompany Claims Undetermined When RSI is merged into Reorganized Rose's, all
Intercompany Claims will be deemed canceled, annulled and
extinguished.
5. Common Stock Approximately 18.5 (i) Pro-Rata share of the Subscription Rights (which allows
Interests million shares holders to purchase New Rose's Common Stock otherwise
allocable to holders of Claims in Class 3); (ii) Pro-Rata
share of New Rose's Warrants (which provides for the
purchase of up to 4,285,714 shares of New Rose's Common
Stock); and (iii) Pro-Rata share of the New Rose's Common
Stock Secondary Distribution.
6. Pre-Petition Undetermined No distribution and all Pre-Petition Warrants will be
Warrants canceled.
7. Pre-Petition Stock Undetermined No distribution and all Pre-Petition Stock Options will be
Options canceled.
8. Subordinated Claims None No distribution and Subordinated Claims will be canceled.
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TREATMENT OF CLAIMS IF ALTERNATIVE TREATMENT PROVISIONS ARE EFFECTIVE
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PROJECTED AMOUNT OF
CLAIMS AND
CATEGORY/CLASS DESCRIPTION INTERESTS TREATMENT
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Administrative Claims Claims constituting $44,000,000 (as of Paid in full, in Cash, on the Effective Date after full
a cost or expense 1/28/95) satisfaction of the GE Obligations, the Pre-Petition
allowed under Lender's Allowed Secured Claims and Allowed Secured Claims.
Section 503(b) and A special procedure is established for payment of
entitled to Professional Fees. Retiree Claims will be paid as a cost of
priority under administration through the Effective Date. The Debtor will
Section 507(a), request the Bankruptcy Court to appoint a committee under
Professional Fees Section 1114 to represent the interests of the retirees in
and Retiree Claims the determination of appropriate treatment of Retiree
Claims.
Tax Claims Claims of $1,325,000 Paid in full, in Cash, on the Effective Date after full
governmental units satisfaction of the GE Obligations, Allowed Secured Claims
entitled to of the Pre-Petition Lenders and Allowed Secured Claims.
priority under
Section 507(a)(7)
GE Obligations Claims of GE $3,808,000 (GE Satisfied in full, in Cash, prior to the Effective Date.
Capital arising Borrowings) and
from DIP Facility $13,700,000
(outstanding
letters of credit)
(as of 1/28/95)
1. Claims other than Non-Material Paid in full, in Cash, after full satisfaction of the GE
Administrative or Obligations, the Allowed Secured Claims of the Pre-Petition
Tax Claims entitled Lenders, Allowed Secured Claims and Administrative Claims.
to priority in
payment under
Section 507(a)
2A. Claims secured by None Abandonment of collateral to holder or payment in Cash, in
avoidable, full, after full satisfaction of the GE Obligations.
perfected liens on
personal property
2B. Secured Claims of $26,810,000 in Cash, in full, after full satisfaction of the GE
the Pre-Petition principal and Obligations and prior to the Effective Date.
Lenders interest and
$200,000 in fees
and charges
3. Unsecured Claims $150,000,000 to Pro-Rata share of Available Cash after full satisfaction of
$160,000,000 the GE Obligations, the Pre-Petition Lenders' Allowed
Secured Claims, Allowed Secured Claims, Administrative
Claims, Allowed Tax Claims, and Allowed Non-Tax Priority
Claims, provided that no holder will receive Cash
aggregating more than the full amount of its respective
Allowed Claim.
4. Intercompany Claims Undetermined If RSI is merged into the Debtor, the Intercompany Claims
will be deemed canceled, annulled and extinguished. If RSI
is not merged into the Debtor, the Intercompany Claims will
survive.
5. Common Stock Approximately 18.5 Pro-Rata share of remaining Available Cash and all other
Interests million shares residual property of the Estate and upon entry of the Final
Decree, all Common Stock Interests will be canceled.
6. Pre-Petition Undetermined No distribution and all Pre-Petition Warrants will be
Warrants canceled.
7. Pre-Petition Stock Undetermined No distribution and all Pre-Petition Stock Options will be
Options canceled.
8. Subordinated Claims None No distribution and Subordinated Claims will be canceled.
</TABLE>
5 M-27
<PAGE>
<TABLE>
<CAPTION>
CLASS TYPE OF CLAIM/INTEREST TREATMENT
<S> <C> <C>
Not Applicable Administrative Claims Assuming the Alternative Treatment Provisions of the Plan are not
(See Plan Section 3.1) effective, Administrative Claims will be paid in full, in Cash, (i)
in such amounts as are incurred in the ordinary course of business by
the Debtor, or (ii) in such amounts as are allowed by Final Order of
the Bankruptcy Court (a) upon the later of the Effective Date or the
other date upon which the Bankruptcy Court enters a Final Order
allowing such Administrative Claim; or (b) upon such other terms as
may exist due to the ordinary course of business of the Debtor; or
(c) as may be agreed upon between the holders of Administrative
Claims and the Debtor.
In the event the Alternative Treatment Provisions of the Plan are
effective, on any Distribution Date commencing on the Effective Date,
after full satisfaction of the GE Obligations and payment in full of
the Allowed Secured Claims of the Pre-Petition Lenders and Allowed
Secured Claims, Administrative Claims will be paid in full, in Cash.
Not Applicable Allowed Tax Claims Assuming the Alternative Treatment Provisions are not effective,
(See Plan Section 3.2) Allowed Tax Claims will be paid in full, in Cash, on the later of the
Effective Date or the date upon which the Bankruptcy Court enters a
Final Order allowing such Allowed Tax Claim or upon such other terms
as may be agreed to between the Debtor and the holder of any Allowed
Tax Claim; PROVIDED, HOWEVER, that (i) the Debtor may, at its option,
in lieu of payment in full of the Allowed Tax Claims on the Effective
Date, defer cash payments respecting Allowed Tax Claims, to the
extent permitted by Section 1129(a)(9) of the Bankruptcy Code and, in
such event, interest shall be paid on the unpaid portion of such
Allowed Tax Claim at a rate to be agreed to by the Debtor and the
appropriate governmental unit or, if they are unable to agree, to be
determined by the Bankruptcy Court and (ii) if such Allowed Tax Claim
is for a tax assessed against property of the Estate, the amount of
such Allowed Tax Claim does not exceed the value of the Estate's
interest in such property; and (iii) in the event an Allowed Tax
Claim may also be classified as an Allowed Secured Claim, the Debtor
may, at its option, elect to treat the Allowed Tax Claim as a Secured
Claim. All Allowed Tax Claims that by their terms become due and
payable after the Confirmation Date will be paid when due.
In the event the Alternative Treatment Provisions of the Plan are
effective, on any Distribution Date commencing on the Effective Date,
after full satisfaction of the GE Obligations and payment in full of
the Allowed Secured Claims of the Pre-Petition Lenders and Allowed
Secured Claims, Allowed Tax Claims will be paid in full, in Cash;
PROVIDED, HOWEVER, that (i) if such Allowed Tax Claim is for a tax
assessed against property of the Estate, the amount of such Allowed
Tax Claim may not exceed the value of the Estate's interest in such
property; and (ii) in the event an Allowed Tax Claim may also be
classified as an Allowed Secured Claim, the Debtor may elect to treat
the Allowed Tax Claim as a Secured Claim.
Not Applicable GE Obligations Whether or not the Alternative Treatment Provisions are effective,
(See Plan Section 3.5) the GE Obligations will be satisfied in full, in Cash, on or prior to
the Effective Date.
1. Allowed Non-Tax Priority UNIMPAIRED. Assuming the Alternative Treatment Provisions of the Plan
Claims are not effective, Allowed Non-Tax Priority Claims will be paid in
full, in Cash, after the Effective Date or such other date as
determined by the Bankruptcy Court pursuant to a Final Order allowing
such Non-Tax Priority Claims, or upon such other terms as may be
agreed to between the Debtor and the holder of any Allowed Non-Tax
Priority Claim.
</TABLE>
M-28 6
<PAGE>
<TABLE>
<CAPTION>
CLASS TYPE OF CLAIM/INTEREST TREATMENT
<S> <C> <C>
In the event the Alternative Treatment Provisions of the Plan are
effective, on any Distribution Date commencing on the Effective Date,
after full satisfaction of the GE Obligations and payment in full of
the Allowed Secured Claims of the Pre-Petition Lenders, Allowed
Secured Claims and Administrative Claims, Allowed Non-Tax Priority
Claims will be paid in full, in Cash.
2A. Allowed Secured Claim UNIMPAIRED. Assuming the Alternative Treatment Provisions of the Plan
are not effective, with respect to each holder of an Allowed Secured
Claim, the Debtor may at its option: (a)(i) cure any default, other
than of the kind specified in Section 365(b)(2) of the Bankruptcy
Code, provided that any accrued and unpaid interest, if any, which
the Debtor may be obligated to pay with respect to such default shall
be paid at the applicable contract rate and not at any default rate
of interest; (ii) reinstate the pre-default maturity of the Allowed
Secured Claim; (iii) compensate the holder of the Allowed Secured
Claim for any damages incurred as a result of any reasonable reliance
of the holder on any provision that entitled the holder to accelerate
maturity of the Allowed Secured Claim; and (iv) leave unaltered the
other legal, equitable, or contractual rights to which the Allowed
Secured Claim entitles the holder; PROVIDED, HOWEVER, that as to any
such Allowed Secured Claim which is a nonrecourse claim and exceeds
the value of the collateral securing the Allowed Secured Claim, the
collateral may be sold at a sale at which the holder of such Allowed
Secured Claim has an opportunity to bid; or (b) on the Effective
Date, or on such other date as may be agreed to by the Debtor and the
holders of such Allowed Secured Claim or determined by the Bankruptcy
Court, the Debtor shall abandon the collateral securing such Allowed
Secured Claim to the holder thereof in full satisfaction and release
of such Allowed Secured Claim; or (c) on the Effective Date, the
holder of such Allowed Secured Claim shall receive, on account of
such Allowed Secured Claim, Cash equal to its Allowed Secured Claim,
or such lesser amount to which the holder of such Allowed Secured
Claim shall agree, in full satisfaction and release of such Allowed
Secured Claim.
In the event the Alternative Treatment Provisions of the Plan are
effective, on any Distribution Date commencing on the Effective Date,
after full satisfaction of the GE Obligations, the Debtor may (i)
abandon the collateral securing an Allowed Secured Claim to the
holder of such claim in full satisfaction of the secured value of
that Claim and release thereof or (ii) pay Cash to the holder of an
Allowed Secured Claim equal to the secured value of that Claim, or
such lesser amount to which the holder of the Claim will agree in
full satisfaction of that Claim.
2B. Allowed Secured Claims of IMPAIRED. Assuming the Alternative Treatment Provisions are not
the Pre-Petition Lenders effective, after payment in full of all GE Obligations on the
Effective Date, each holder of an Allowed Secured Claim will receive,
in respect of its claim and in accordance with the Intercreditor
Agreements, its share of Cash equal to the aggregate amount of all
unpaid fees, charges and expenses due the Pre-Petition Lenders and
New Rose's Secured Notes having an aggregate face amount equal to New
Rose's Secured Notes Original Principal Amount.
UNIMPAIRED. In the event the Alternative Treatment Provisions are
effective, prior to the Effective Date and after payment in full of
the GE Obligations, each of the Pre-Petition Lenders will receive its
share of Cash equal to its Allowed Secured Claim, in full, in
accordance with the Intercreditor Agreements and related Bankruptcy
Court orders.
7 M-29
<PAGE>
CLASS TYPE OF CLAIM/INTEREST TREATMENT
<S> <C> <C>
3. Allowed Unsecured Claims IMPAIRED. Assuming the Alternative Treatment Provisions are not
effective, each holder of an Allowed Unsecured Claim will receive its
Pro-Rata share of (i) up to 100% of the Effective Date Shares which
are not distributed to holders of Common Stock Interests pursuant to
the Class 5 Subscription, of which 70% shall be distributed on the
Effective Date and 30% shall be held in trust by Reorganized Rose's
until the Determination Date. Thirty (30) days after the
Determination Date, the New Rose's Common Stock held in trust will be
distributed to the holders of Allowed Unsecured Claims as necessary
to provide such holders with 100% value of their respective Allowed
Claims and otherwise in accordance with the Reserve provisions of the
Plan. In the event that holders of Common Stock Interests in Class 5
exercise their Subscription Rights under the Plan to purchase New
Rose's Common Stock, the resulting Cash will be distributed Pro-Rata
among holders of Allowed Claims in Class 3 and the Reserve.
In the event the Alternative Treatment Provisions of the Plan are
effective, on any Distribution Date commencing on the Effective Date,
after full satisfaction of the GE Obligations and after payment in
full of the Pre-Petition Lenders' Allowed Secured Claims, Allowed
Secured Claims, Administrative Claims, Allowed Tax Claims, and
Allowed Non-Tax Priority Claims, each holder of an Allowed Unsecured
Claim will receive its Pro-Rata share of Available Cash, provided
that in no event will the holder of an Allowed Unsecured Claim
receive Cash aggregating more than the full amount of such Allowed
Claim.
4. Intercompany Claims IMPAIRED. Assuming the Alternative Treatment Provisions are not
effective, RSI will be merged into the Debtor or Reorganized Rose's
on or before the Effective Date. RSI may be merged into the Debtor
prior to the Effective Date only with the written consent of the
Unsecured Committee. Upon said merger, all Intercompany Claims will
be deemed canceled, annulled and extinguished, and RSI will not
receive any distribution.
In the event the Alternative Treatment Provisions are effective and
RSI is merged into the Debtor prior to the Effective Date, with the
written consent of the Unsecured Committee, the Intercompany Claims
will be deemed canceled, annulled and extinguished. In the event the
Alternative Treatment Provisions are effective and RSI is not merged
into the Debtor, the Debtor will retain its claim against RSI, and
any Claim of RSI against the Debtor will be treated under the Plan in
accordance with the nature of the Claim filed by RSI and to the
extent said Claim is allowed by the Bankruptcy Court.
5. Common Stock Interests IMPAIRED. Assuming the Alternative Treatment Provisions of the Plan
are not effective, each holder of a Common Stock Interest will
receive its Pro-Rata share of the Subscription Rights pursuant to
which such holders can purchase their Pro-Rata share, or such greater
number of shares as a holder may acquire by oversubscription, of New
Rose's Common Stock otherwise allocable to holders of Claims in Class
3. Each holder of a Common Stock Interest will also receive its
Pro-Rata share of New Rose's Warrants, which provide for the purchase
of up to 4,285,714 shares of New Rose's Common Stock, subject to
adjustment as provided in the New Rose's Warrant Agreement, at the
per share price set forth in the Plan and described more fully in
Section V.C.1(h) hereof. Finally, holders of Common Stock Interests
will be eligible to receive their respective Pro-Rata share of the
New Rose's Common Stock Secondary Distribution.
M-30 8
<PAGE>
CLASS TYPE OF CLAIM/INTEREST TREATMENT
<S> <C> <C>
In the event the Alternative Treatment Provisions of the Plan are
effective, upon entry of the Final Decree, all Common Stock Interests
will be deemed canceled, annulled and extinguished; PROVIDED,
HOWEVER, notwithstanding such cancellation, annulment and
extinguishment, holders of Common Stock Interests shall remain
entitled to receive their Pro-Rata share of any remaining Available
Cash and all other residual property of the Estate.
6. Pre-Petition Warrants IMPAIRED. Regardless of whether the Alternative Treatment Provisions
of the Plan are effective, on the Effective Date, holders of
Interests in Class 6 will not receive any distribution whatsoever,
and the Pre-Petition Warrants will be deemed canceled, annulled and
extinguished. In addition, all agreements providing for the issuance
of Pre-Petition Warrants to any Persons will be deemed rejected,
provided that any and all Claims arising therefrom will be
subordinated pursuant to the provisions of Section 510(b) of the
Bankruptcy Code.
7. Pre-Petition Stock Options IMPAIRED. Regardless of whether the Alternative Treatment Provisions
of the Plan are effective on the Effective Date, holders of Interests
in Class 7 will not receive any distribution whatsoever, and the
Pre-Petition Stock Options will be deemed canceled, annulled and
extinguished. In addition, all agreements providing for the issuance
of Stock Options to any Persons will be deemed rejected, provided
that any and all Claims arising therefrom will be subordinated
pursuant to the provisions of Section 510(b) of the Bankruptcy Code.
8. Subordinated Claims IMPAIRED. Regardless of whether the Alternative Treatment Provisions
of the Plan are effective on the Effective Date, holders of
Subordinated Claims in Class 8 will not receive any distribution
whatsoever, and the Subordinated Claims will be deemed canceled,
annulled and extinguished.
</TABLE>
A more detailed summary of the treatment of the foregoing classes of Claims
and Interests is provided below in the Section entitled "The Plan of
Reorganization -- Treatment of Claims and Interests Under the Plan."
3. SIGNIFICANT PROVISIONS REGARDING IMPLEMENTATION OF THE PLAN
(A) REORGANIZED ROSE'S
Assuming the Alternative Treatment Provisions of the Plan are not
effective, Reorganized Rose's will be a Delaware corporation with a
reconstituted, "fresh start" balance sheet following the Effective Date. A
Pro-Forma Balance Sheet for Reorganized Rose's is attached hereto as Exhibit
"B." Reorganized Rose's will engage in the same business as that of the Debtor
prior to Confirmation of the Plan. Holders of Claims and Interests should refer
to the Sections below entitled "Reorganized Rose's" and "Certain Factors To Be
Considered-Risk Factors" for additional information regarding Reorganized
Rose's.
The Debtor has prepared annual financial projections for 1994 through 1998,
quarterly projections for 1995, assumptions supporting said projections, and
related financial reports (the "Financial Projections"), a summary of which is
attached hereto as Exhibit "C." The Financial Projections are based on a variety
of assumptions and are subject to significant business, economic and competitive
uncertainties and contingencies, many of which will be beyond the control of
Reorganized Rose's.
(B) MEANS OF EXECUTION
As of the date hereof, the Debtor believes that it will have sufficient
Cash available to make all Cash distributions required under the Plan, whether
generated from operations, the second "going-out-of-business sales," the
Post-Effective Date Financing Facility or the possible closing of a small number
of Core Stores, or, in the case of distributions to be made pursuant to the
Alternative Treatment Provisions of the Plan, from Cash constituting the net
proceeds from the sale or disposition of substantially all assets of the Estate.
The Debtor also projects that Reorganized Rose's will have sufficient liquidity
and capital resources to implement the Plan.
During the Chapter 11 Case, the Debtor obtained post-petition financing
from GE Capital and is continuing to utilize the DIP Facility through GE
Capital. With respect to Post-Effective Date financing, the Debtor has obtained
a Commitment
9 M-31
<PAGE>
Letter from GE Capital wherein GE Capital has agreed, subject to certain
conditions, to provide an $80 million Post-Effective Date Financing Facility.
(C) CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE PLAN
Before the Plan will become effective (i) Confirmation must have occurred
pursuant to the Confirmation Order, (ii) the Debtor must enter into either a
Post-Effective Date Financing Facility sufficient for operations of Reorganized
Rose's or have effectuated the final "going-out-of-business" sales at the Core
Stores and fully satisfied all GE Obligations and the Pre-Petition Lenders'
Allowed Secured Claims, (iii) all documents and agreements identified in the
Plan and this Disclosure Statement must be filed with the Bankruptcy Court in a
substantially final form, and (iv) the Debtor must be able to make all Cash
distributions required under the Plan. However, in no event, may the Plan become
effective prior to March 31, 1995. The conditions precedent to the effectiveness
of the Plan are discussed in greater detail in the Section entitled "The Plan of
Reorganization -- Conditions Precedent to the Effective Date of the Plan."
C. WHO MAY VOTE
Under the Bankruptcy Code, impaired classes of claims or equity interests
are entitled to vote to accept or reject a plan of reorganization. However,
where claims or equity interests in impaired classes will retain no property and
receive no distributions under a plan, they are deemed to have rejected the plan
and are therefore not entitled to vote. Only holders of claims or interests in
impaired classes which are allowed claims or interests or claims which are
estimated and allowed for voting purposes by order of the Bankruptcy Court as of
the voting deadline are entitled to vote on the plan.
A class is "impaired" unless (i) the legal, equitable and contractual
rights to which the holders of claims or equity interests in such class are
entitled are not modified, (ii) with respect to secured claims, the effect of
any default is cured and the original terms of the obligation are reinstated, or
(iii) a plan provides that on the confirmation date, the holder of a claim
receives on account thereof, cash equal to the allowed amount of such claim or,
with respect to any equity interest, any fixed liquidation preference to which
the holder of the equity interest is entitled or any fixed price at which the
applicable security may be redeemed.
For purposes of this Disclosure Statement, holders of Secured Claims in
Class 2B,3 and Unsecured Claims in Class 3 are deemed to be impaired, and thus,
holders of Allowed Claims or Disputed Claims estimated and allowed for voting
purposes in such Classes are entitled to vote on the Plan.4 Each holder of a
Common Stock Interest in Class 5 as of the Record Date shall be entitled to vote
on the Plan.5 The Debtor will seek the entry of an order which provides for the
estimation, solely for purposes of voting on the Plan, of certain Disputed
Claims and the reclassification of improperly classified Claims. To the extent a
Claim is not affected by said order, the Claim will be provisionally allowed for
voting purposes in the amount set forth in the holder's proof of Claim or, if no
proof of Claim was filed, the Debtor's schedule of assets and liabilities.
D. VOTING INSTRUCTIONS
As a holder of a Claim or Common Stock Interest, your vote on the Plan is
important. A Ballot to be used for voting to accept or reject the Plan
accompanies this Disclosure Statement. After carefully reviewing the Plan and
this Disclosure Statement, including the attached exhibits, please indicate your
acceptance or rejection of the Plan on the Ballot and return it in the manner
described on the Ballot.
With respect to publicly traded equity securities held in broker (street)
name, if any, banks and broker nominees (collectively, the "Nominees") voting on
behalf of more than one beneficial owner of such securities have been requested
to transmit a copy of this Disclosure Statement, a Ballot, and other
Court-approved solicitation materials to each beneficial owner of such
securities. Each beneficial holder of a security should return a fully completed
Ballot to its respective Nominee (a pre-addressed envelope to such Nominee
should be included) who will then compile the information contained on such
Ballots
3 Class 2B is unimpaired if the Alternative Treatment Provisions of the Plan are
effective.
4 Holders of Intercompany Claims, Pre-Petition Warrants, Pre-Petition Stock
Options, and Subordinated Claims will receive no distributions and are deemed
to have rejected the Plan.
5 The Plan establishes two record dates that affect the rights of holders of
Common Stock Interests in Class 5. The Record Date for purposes of voting on
the Plan is the date of entry of the order approving the Disclosure Statement.
The Record Date for the purpose of any distributions under the Plan to holders
of Common Stock Interests is the Equity Record Date, or February 7, 1995.
M-32 10
<PAGE>
onto master Ballots supplied to such Nominees. The master Ballots will indicate
both the customer account number (or other identifying number) for each
beneficial owner and the total number of securities voting to accept or reject
the Plan.
Completed Ballots, other than those ballots to be returned to the Nominee,
should be returned in the enclosed pre-addressed envelope to:
<TABLE>
<S> <C>
VIA MAIL VIA EXPRESS DELIVERY
Federated Claims Services Group Federated Claims Services Group
Post Office Box 1607 9111 Duke Blvd.
Cincinnati, OH 45201-1607 Mason, OH 45202
</TABLE>
BALLOTS MUST BE ACTUALLY RECEIVED BY FEDERATED CLAIMS SERVICES GROUP (THE
"BALLOT AGENT"), ON BEHALF OF THE DEBTOR, ON OR BEFORE 5:00 P.M. EASTERN
STANDARD TIME ON THE DATE INDICATED ON SUCH BALLOTS (THE "VOTING DEADLINE"). ANY
BALLOTS RECEIVED AFTER THE VOTING DEADLINE WILL NOT BE COUNTED. IF YOU ARE A
BENEFICIAL OWNER OF A PUBLICLY TRADED EQUITY SECURITY, YOU MUST RETURN YOUR
BALLOT TO YOUR NOMINEE EARLY ENOUGH FOR THE NOMINEE TO PROCESS YOUR VOTE AND
FORWARD IT TO THE BALLOT AGENT FOR RECEIPT BY THE BALLOT AGENT PRIOR TO THE
VOTING DEADLINE.
IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE PLAN,
PLEASE CALL (919) 250-2240.
E. ACCEPTANCE OR REJECTION OF THE PLAN
Under the Bankruptcy Code, a class of claims is deemed to have accepted a
plan if the plan is accepted by at least two-thirds in amount and more than
one-half in number of the allowed claims of such class who vote on the plan. A
class of common stock interests is deemed to have accepted a plan if the plan is
accepted by at least two-thirds in amount of the allowed common stock interests
of such class who vote on the plan.
If a plan is not accepted by all of the impaired classes of allowed claims
and common stock interests, the plan may still be confirmed by the Bankruptcy
Court pursuant to Section 1129(b) of the Bankruptcy Code, if the plan has been
accepted by at least one impaired class of claims or common stock interests, and
the Bankruptcy Court determines, among other things, that the plan "does not
discriminate unfairly" and is "fair and equitable" with respect to each
non-accepting impaired class of claims or common stock interests. If certain
impaired Classes of Allowed Claims or Common Stock Interests reject the Debtor's
Plan, the Debtor may ask the Bankruptcy Court to find that the Plan does not
discriminate unfairly and is fair and equitable with respect to each
non-accepting impaired Class of Claims or Common Stock Interests.
A more detailed description concerning the acceptance and confirmation of
the Plan is set forth later in this Disclosure Statement in the Section below
entitled, "Confirmation of the Plan of Reorganization -- Statutory Requirements
for Confirmation of the Plan."
F. CONFIRMATION HEARING
Pursuant to Section 1128 of the Bankruptcy Code and Rule 3017 (c) of the
Bankruptcy Rules, the Bankruptcy Court will schedule the Confirmation hearing
before the Honorable A. Thomas Small at the United States Bankruptcy Court,
Eastern District of North Carolina, U.S. Courthouse & Post Office Building, Room
208, 300 Fayetteville Street Mall, Raleigh, North Carolina. A notice
accompanying the Plan and Disclosure Statement will set a date and time for the
Confirmation hearing. The Confirmation hearing may be adjourned from time to
time by the Bankruptcy Court without further notice, except for the announcement
of such adjourn date by the Bankruptcy Court in open court at such hearing.
G. OBJECTIONS TO CONFIRMATION
Any objection to Confirmation of the Plan must be in writing, must comply
with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court, must
state the name of the objecting party, the nature and amount of any Claim or
Interest asserted by such objecting party against the Debtor's Estate, and must
be filed and served as required by the Bankruptcy Court pursuant to the
Disclosure Statement Approval Order. A copy of the Disclosure Statement Approval
Order accompanies this Disclosure Statement and contains all relevant procedures
relating to the submission of objections to Confirmation of the Plan. Parties
submitting objections should review such order in its entirety.
11 M-33
<PAGE>
II.
DESCRIPTION OF THE DEBTOR AND EVENTS
PRECIPITATING THE CHAPTER 11 FILING
A. HISTORY OF THE DEBTOR
Rose's was founded by Paul H. Rose in 1915 when he opened a
"5-10-25(cents)" store in Henderson, North Carolina. When the company
incorporated in 1927, a total of 28 stores were in operation under the name of
"Rose's 5-10 & 25(cents) Stores, Inc." In 1962, the name was changed to its
current name "Rose's Stores, Inc." Since its founding, Rose's has evolved from a
chain of variety stores located in central business districts to a chain of
discount department stores located in strip shopping centers.
While publicly held since 1927, Rose's has been and continues to be
controlled by descendants of the founder. As of February 1, 1994, the Church and
Harvin families, descendants of Paul H. Rose, continued to own more than 50% of
the total Voting Common Stock. All of the chief executive officers were family
members until July of 1991 when the Board of Directors elected George L. Jones
as the president and chief executive officer. Mr. Jones served in this capacity
until he resigned on August 19, 1994 at which time the Board of Directors
replaced him with R. Edward Anderson, formerly the chief financial officer.
B. OPERATIONS OF THE DEBTOR
1. GENERAL DESCRIPTION
At the Filing Date, Rose's owned and operated 212 discount department
stores and 3 closeout stores in 11 different states in the mid-Atlantic and
Southeastern United States. Approximately 75% of the Debtor's stores were
located in North Carolina, Virginia, and South Carolina. The merchandise
assortment includes apparel and accessories, home furnishings, health and beauty
aids, toys, music and electronic products and other items for the family and
home.
The Debtor's stores average 51,000 square feet of gross leased space and
are generally located in strip shopping centers in non-urban and small town
areas. Nationally advertised name brands account for the majority of non-apparel
sales and a lesser amount of apparel sales. The Debtor's targeted customers,
individuals in the low to lower-middle income brackets, are marketed through
weekly advertising circulars. The operating environment is extremely
competitive, with the primary competition being Kmart and Wal-Mart.
The Debtor's headquarters are located in Henderson, North Carolina. The
Debtor owns its corporate offices, distribution center (referred to herein as
the "Warehouse Facility"), and data processing centers, all of which are located
in Henderson, North Carolina. The Debtor leases corporate space on U.S. #1
Business, Henderson North Carolina. This lease was to expire in January, 1995,
but the Debtor obtained an extension of said lease until June 30, 1995.
2. LOCATION OF STORES
As of the date this Disclosure Statement was filed, the Debtor operated 113
Core Stores in 10 states.6 The number of stores in each of these 10 states can
be summarized as follows:
<TABLE>
<CAPTION>
NAME OF STATE NUMBER OF STORES
<S> <C>
Delaware........................................................... 3
Georgia............................................................ 8
Kentucky........................................................... 3
Maryland........................................................... 4
Mississippi........................................................ 4
North Carolina..................................................... 53
South Carolina..................................................... 6
Tennessee.......................................................... 2
Virginia........................................................... 29
West Virginia...................................................... 1
Total Stores................................................ 113
</TABLE>
The Plan does not eliminate the possibility that the Debtor may close
additional stores.
6 In January 1994, pursuant to the Final DIP Order, discussed more fully below,
Rose's began liquidation sales in 40 of its discount department stores and 3
closeout stores, reducing the chain to 172 ongoing discount stores. During
the preparation of the Debtor's 1994 Revised Business Plan, discussed in
detail herein, the Debtor decided to close an additional 59 stores during the
spring of 1994, leaving the Debtor with 113 Core Stores.
M-34 12
<PAGE>
3. FINANCIAL STRUCTURE OF THE DEBTOR
Approximately 8.3 million shares of Voting Common Stock and 10.5 million
Shares of Non-Voting Class B Stock were outstanding as of January 29, 1994. The
Debtor's stock trades in the NASDAQ system under the symbols "RSTOQ" for the
Voting Common Stock and "RSTBQ" for the Non-Voting Class B Stock. The Debtor
filed with the Securities and Exchange Commission a Form 10-K for the fiscal
year ending January 29, 1994 and a Form 10-Q for the second quarter ended July
31, 1994, copies of which are attached hereto as Exhibits "H" and "I,"
respectively. Exhibit H does not include exhibits filed with the 10-K. As of
January 29, 1994, the Debtor had assets with an estimated book value of $308
million and liabilities of $292 million. Item 12 of the Form 10-K provides a
listing of the Common Stock Interests held as of January 29, 1994 by each
director, nominee, the chief executive officer and the four other most highly
compensated executive officers.
4. BOARD OF DIRECTORS
The board of directors, which may be comprised of 7 to 13 members, is
currently comprised of 11 directors with one-year terms. The number of directors
is set by the stockholders at the meeting at which the board member election is
held. Each director is elected at the annual meeting of stockholders to serve
until his successor is elected and qualifies. A director must be the owner of
not fewer than 100 shares of Rose's Voting Common Stock before he or she can
qualify or serve as a director. Any individual director may be removed from
office by a vote of 75% of the outstanding shares entitled to vote at an
election of directors. A listing of the members of the board of directors as of
October 4, 1994 and a short biographical summary for each member is attached
hereto as Exhibit "E." The compensation provided to the directors is set forth
in Item 11 of the Form 10-K, attached hereto as Exhibit H.
5. OFFICERS
The following constitute the officers of the corporation: chairman of the
board, president and chief executive officer, treasurer, secretary, executive
vice presidents and vice presidents. Each officer holds office until his
successor is chosen and qualifies and is subject to removal by the chief
executive officer or by affirmative vote of a majority of the whole board.
Vacancies are approved by a majority vote of directors. As of the Filing Date,
there were 23 officers, and as of October 4, 1994, there were 15 officers.
Officer compensation is discussed later in this Disclosure Statement. A listing
of the officers of the Debtor as of October 4, 1994 and a short biographical
summary for each officer, including annual compensation by the Debtor, is
attached hereto as Exhibit "F."
6. TRANSACTIONS WITH INSIDERS OF THE DEBTOR
John T. Church, Sr. retired as a full-time employee of Rose's on December
31, 1982. At that time, Rose's entered into a Consultation Agreement with Mr.
Church. Under an extension of that agreement, Mr. Church was paid $52,500 for
the year ending December 31, 1993.
Pursuant to existing leases, since the Filing Date, the Debtor has paid the
Rosemyr Corporation ("Rosemyr") $155,987.55 in rent for Core Store #51 in Morgan
Shopping Center, Morganton, North Carolina, and $38,281.91 in percentage rent
for a total of $194,269.46; $298,445 in rent for Core Store #376 in Newmarket
Plaza Shopping Center, Newport News, Virginia (in which Rosemyr owns a 31.5%
interest); and $104,491.35 in rent for GOB2 Store #322 in Nags Head, North
Carolina (in which Rosemyr owns a 95% interest). In addition to leasing space in
store buildings, Rosemyr also leases office and parking space to the Debtor.
Since the Filing Date, the Debtor has paid Rosemyr $4,575.77 in rent for office
space in the Laffman Building in Henderson, North Carolina and $11,700 in rent
for two parking facilities in Henderson, North Carolina. Eighty percent (80%) of
the stock of Rosemyr is owned by Mrs. L. H. Harvin, Jr. and her children and by
the Estate and trusts of the late Emma Rose Church, whose beneficiaries are Mr.
John T. Church, Sr., Mrs. E. C. Bacon (both former directors of Rose's) and Mr.
John T. Church, Jr.
Since the Filing Date, the Debtor has paid the Emrose Corporation (
"Emrose") $12,169.71 in rent for office space in the Wise Building in Henderson,
North Carolina; $18,684.00 in rent for storage facilities in Henderson, North
Carolina; and $11,237.78 in rent for office space in the L.H.H. Learning Center
in Henderson, North Carolina. Emrose is owned by Mrs. L. H. Harvin, Jr. and Mr.
John T. Church, Sr., Mrs. E. C. Bacon and Mr. John T. Church, Jr. Messrs. John
T. Church and Mr. George M. Harvin, who are directors of Rose's, are executive
officers of Rosemyr and Emrose.
Since the Filing Date, the Debtor has paid H.H.C. Co., Inc. ("H.H.C.")
$90,174.28 in rent for GOB1 Store #96 in High Point, North Carolina, and
$42,098.35 in percentage rent. Mrs. L. H. Harvin, Jr. and Mr. John T. Church,
Sr. own 61% of the stock of H.H.C.
13 M-35
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All of the foregoing leases and other transactions are competitive. The
rents paid under the leases approximate the rate of rent paid by the Debtor to
independent landlords under leases for comparable property negotiated at
comparable times, and represent the fair market value for comparable
transactions.
7. RSI TRADING, INC.
The Debtor owns all of the outstanding stock of RSI Trading, Inc. ("RSI"),
a Delaware corporation, 1105 North Market Street, Suite 1300, Wilmington,
Delaware 19801. RSI was incorporated in November, 1990 at which time the Debtor
received the stock of RSI in exchange for transfer to RSI by the Debtor of the
trademark/name "Rose's." The value of the trademark/name was determined to be
$166,000,000. Therefore, the value of the RSI stock as reflected on the Debtor's
books is $166,000,000.
Pursuant to a License Agreement dated November 16, 1990, the Debtor is
obligated to pay an annual royalty of $18,921,459 to RSI for use of the name
"Rose's." The License Agreement is automatically renewed each year unless the
Debtor or RSI provides notice of termination. This sum is paid to RSI in
quarterly installments. The Debtor is entitled to and receives all dividends of
RSI stock on a quarterly basis.
Other than the payments due under the License Agreement, the only other
intercompany liability between the Debtor and RSI is approximately $15,000 in
corporate start-up costs owed the Debtor by RSI. The RSI balance sheet does not
reflect any other liabilities.
C. FINANCIAL CONDITION OF THE DEBTOR
1. PRE-PETITION FINANCING
For some time prior to the Filing Date, the Debtor utilized both long term
and short term external sources of financing to supplement cash generated from
operations to fund payroll, operating costs and expenses, and inventory
purchases.
On May 31, 1991, the Debtor entered into agreements with its short term and
long term lenders, consisting of the Pre-Petition Secured Noteholders, the Bank
Group, and the Bank of Tokyo, each of whom are defined below (collectively, the
"Pre-Petition Lenders"), for a working capital facility, providing for direct
borrowings and letters of credit up to $81.5 million through May 31, 1992 and
deferrals of $3 million in long term debt. In exchange for such loans and
deferrals, the Pre-Petition Lenders were granted a $26.5 million security
interest in the Warehouse Facility (as defined below) and its contents, and a
security interest in all other fixed assets and inventory in two stores.
As of January 25, 1992, the Debtor maintained formal, partially secured
lines of credit in the aggregate of $50 million, including an amount for letters
of credit related to imports. The Debtor, however, continued to be adversely
affected by increased competition and economic conditions, including vendor
reluctance to extend credit due to concern over the Debtor's protracted bank
facility negotiations. As a result, many shipments were limited, while others
ceased. Accordingly, on May 29, 1992, the Debtor entered into agreements with
the Pre-Petition Lenders to restructure the principal payment of all of its long
term debt, as outlined below.
(A) ISSUANCE OF PRE-PETITION SECURED NOTES
In connection with the restructuring and pursuant to that certain Combined,
Amended and Restated Note Agreement, dated as of May 29, 1992 (the "Note
Agreement"), by and among the Debtor and the Pre-Petition Secured Noteholders, 7
the Debtor exchanged, issued and sold notes (collectively, the "Pre-Petition
Secured Notes") to the Pre-Petition Secured Noteholders for an aggregate
principal amount of $82,500,000, with a maturity date of December 31, 1998. As
of the Filing Date, the Debtor's outstanding obligations to the Pre-Petition
Secured Noteholders totaled approximately $74,582,361.14, including interest.
7 "Pre-Petition Secured Noteholders" shall mean the holders of the Pre-Petition
Secured Notes, to wit: Nationwide Life Insurance Company, Wausau Preferred
Health Insurance Company, Equitable Variable Life Insurance Company, The
Equitable Life Assurance Society of the United States, Jefferson-Pilot Life
Insurance Company, The Franklin Life Insurance Company, The Franklin United
Life Insurance Company, GreatWest Life & Annuity Insurance Company, American
Family Life Insurance Company, State Mutual Life Assurance Company of
America, SMA Life Assurance Company, Merrill Lynch Life Insurance Company, ML
Life Insurance Company of New York, Woodmen of the World Life Insurance
Society, Knights of Columbus, Washington National Insurance Company, The
Stonehill Investment Corp., Central Life Assurance Company, and Lazard Freres
& Co., or their successors and assigns, as of the Record Date.
M-36 14
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In connection with the issuance of the Pre-Petition Secured Notes by the
Pre-Petition Secured Noteholders, the Debtor issued warrants (the "Pre-Petition
Secured Noteholder Warrants") to such noteholders pursuant to warrant agreements
(the "Pre-Petition Secured Noteholder Warrant Agreement"). The Pre-Petition
Secured Noteholder Warrants are exercisable by the Pre-Petition Secured
Noteholders into the Debtor's Non-Voting Class B Stock at a $5.00 per share
option price. At the Filing Date, the Pre-Petition Secured Noteholder Warrants
granted the Pre-Petition Secured Noteholders the right to purchase approximately
9% of the Debtor's total outstanding shares after giving effect to the issuance.
The Pre-Petition Secured Noteholder Warrants also provided the right to purchase
an additional 7% of outstanding shares which were to be issued over time unless
the Debtor refinanced the debt owing to the Pre-Petition Secured Noteholders
before May 1, 1994.8
(B) BANK GROUP LOANS
Pursuant to that certain Amended and Restated Loan Agreement, dated as of
May 29, 1992, by and among the Debtor and NationsBank Of North Carolina, N.A.
("NationsBank"), Branch Banking & Trust Company, Crestar Bank, The Bank Of New
York, Credit Lyonnais New York Branch, Credit Lyonnais Cayman Island Branch,
Central Carolina Bank and Trust Company and Wachovia Bank of North Carolina,
N.A. (collectively, the "Bank Group"), the Bank Group agreed to make available
revolving credit loans of up to $45,400,000 in 1992 and $33,400,000 in 1993, and
issue letters of credit to the Debtor (the "Bank Group Loans"). The obligations
of the Debtor to repay the Bank Group Loans are evidenced by promissory notes,
dated May 29, 1992, executed by the Debtor in favor of the Bank Group.
As of the Filing Date, the Debtor owed a total of $15,112,750, including
interest, on account of the Bank Group Loans, excluding amounts due with respect
to outstanding letters of credit. In addition, NationsBank was the issuer of a
standby letter of credit to Fireman's Fund totalling $2.8 million.9 As of the
Filing Date, there were approximately $24 million in documentary letters of
credit, of which $6 million were estimated to be conforming.
(C) BANK OF TOKYO LOAN
Pursuant to that certain Amended and Restated Loan Agreement dated as of
May 29, 1992 between the Debtor and Bank of Tokyo, Ltd., Atlanta Agency
(collectively with its successor-in-interest, Bank of Tokyo, "BOT"), BOT made
available a term loan to the Debtor in the principal amount of $20,000,000 (the
"BOT Term Loan"), and a revolving line of credit in the maximum aggregate
principal amount of $1,000,000 (the "BOT Working Capital Loan"). The obligations
of the Debtor to repay the BOT Term Loan and the BOT Working Capital Loan are
evidenced by the Second Amended and Restated Term Note (the "BOT Term Note") and
the Revolving Credit Note, each dated May 29, 1992 and executed by the Debtor in
favor of BOT. As of the Filing Date, the Debtor's alleged obligations to BOT
consisted of $18,179,444.44, inclusive of interest, on the BOT Term Note and
$504,166.67, inclusive of interest, on the Revolving Credit Note.
(D) SECURITY FOR OBLIGATIONS TO THE PRE-PETITION LENDERS
As security for its obligations to the Pre-Petition Lenders, the Debtor
granted security interests to NationsBank (successor-in-interest to NCNB
National Bank of North Carolina), as collateral agent for the Pre-Petition
Lenders (the "Collateral Agent"), in accordance with the following documents:
(i) that certain security agreement, dated May 29, 1992, as amended
from time to time thereafter, covering inventory located at various of the
Debtor's store locations (the "Covered Store Inventory")10;
(ii) that certain Amended and Restated Security Agreement dated May
29, 1992, as amended on January 8, 1993, covering inventory located at
three of the Debtor's store locations in Henderson, North Carolina;
Hickory, North Carolina; and Martinsville, Virginia (the "BOT Inventory");
(iii) that certain Security Agreement dated as of September 18, 1991,
as amended on May 29, 1992, covering aircraft and fixed assets, along with
that certain Deed of Trust and Security Agreement dated as of September 18,
1991,
8 The Debtor filed a motion to reject the Pre-Petition Secured Noteholder
Warrant Agreement but withdrew that motion pursuant to a consent order in
which the Debtor reserved its rights to subsequently reject the Pre-Petition
Secured Noteholder Warrant Agreement.
9 On February 2, 1994, this letter of credit was canceled and replaced by a
letter of credit for the same amount which was issued by Bank of America on
behalf of General Electric Capital Corporation.
10 The Covered Store Inventory (which excludes the BOT Inventory described
below) represented approximately 58% of the Debtor's store inventory as of
the Filing Date.
15 M-37
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as amended on May 29, 1992, covering 12 parcels of land located in Vance
County along with all fixtures and improvements thereto (the "Fixed
Assets");
(iv) that certain Security Agreement, dated as of July 24, 1991, as
amended on May 29, 1992, covering the inventory located at the Debtor's
Warehouse Facility located in Vance County (the "Warehouse Inventory"); and
(v) that certain Deed of Trust and Security Agreement dated as of July
24, 1991 as amended on May 29, 1992, covering the Warehouse Facility.11
Pursuant to various intercreditor agreements, each dated May 29, 1992,
executed by and among the Pre-Petition Lenders and the Collateral Agent, the
Pre-Petition Lenders agreed on a manner in which to share the proceeds of sale
from the various security interests granted by the Debtor.
As of the Filing Date, the approximate book value and where noted,
appraised value, of the collateral granted to the Collateral Agent, on behalf of
the Pre-Petition Lenders, was as follows:
(i) Covered Store Inventory (less BOT inventory): approximately
$133,726,000 (at cost);
(ii) BOT Inventory: approximately $3,614,500 (at cost);
(iii) Fixed Assets (including equipment, furniture, fixtures, rolling
stock, airplanes, and all real property): approximately $27,500,000 (book
value);
(iv) Warehouse Inventory: approximately $26,467,000 (at cost);
(v) Warehouse Facility: approximately $15,500,000 (appraisal);
(subject to cap of $26,500,000 for the Warehouse Inventory and Facility);
(vi) Cash securing Collateral Agent: $7,000,000;
(vii) Cash securing Bank of Tokyo: $194,405.12
As described below in the Section entitled "Significant Events of Chapter
11 Case," the Debtor challenged on several grounds the perfection of the liens
filed by the Collateral Agent on inventory and personal property.13
2. EVENTS PRECIPITATING THE CHAPTER 11 FILING
The retail industry in which Rose's operates is cyclical, with the months
of November and December historically accounting for up to 50% of the company's
annual earnings before interest, taxes, and depreciation. Typically, in July and
August, a retailer such as Rose's will begin to increase inventory levels for
the back-to-school business and place substantial orders for inventory targeted
for delivery beginning in October through the Christmas/Holiday season. On
August 23, 1993, Rose's announced its second quarter results and the various
alternatives under consideration to improve liquidity, including a replacement
or extension of its working capital facility, refinancing or restructuring of
its long term debt, an equity infusion, store closings, inventory reductions,
sale of the company, or a restructuring under the provisions of Chapter 11 of
the Bankruptcy Code. Rose's release of its second quarter results precipitated
an immediate cessation of trade credit and working capital capability at the
least opportune time for Rose's, severely hampering the company's ability to
obtain inventory deliveries and to arrange for the delivery of merchandise for
the Christmas/Holiday season.
After careful evaluation, Rose's determined that the alternative best
serving the interests of stockholders and creditors was to file for
reorganization under Chapter 11 of the Bankruptcy Code. Rose's recognized that
it could obtain critically needed trade support through the procurement of a
post-petition working capital facility.
11 The security interest in the Warehouse Inventory and Warehouse Facility is
limited to a total recovery of $26,500,000.
12 In the Order Approving Interim Limited Use Of Cash Collateral And Providing
Adequate Protection (the "Cash Collateral Order"), dated September 10, 1993,
the Debtor stipulated for the purposes of that order that of its cash
balances on hand at the Filing Date, $7,000,000 of the funds were subject to
a security interest in favor of the Collateral Agent, and $194,405 of the
funds were subject to a security interest in favor of BOT. A letter of credit
was provided to these creditors under the DIP Facility, and the letter of
credit was funded in January, 1994.
13 The secured position of NationsBank with respect to the Debtor's real
property and airplanes was not challenged.
M-38 16
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III.
SIGNIFICANT EVENTS OF CHAPTER 11 CASE
A. COMMENCEMENT
The Debtor filed its petition for reorganization under Chapter 11 of the
Bankruptcy Code on September 5, 1993 (the "Filing Date").
B. PARTIES PARTICIPATING IN THE CASE
The parties discussed below have been the major participants in the Chapter
11 Case to date:
1. BANKRUPTCY COURT
The Honorable A. Thomas Small, Chief United States Bankruptcy Judge for the
Eastern District of North Carolina, has presided over the case.
2. BANKRUPTCY ADMINISTRATOR
Marjorie K. Lynch, Esquire, the Bankruptcy Administrator for the Eastern
District of North Carolina, has made numerous appearances.
3. SECURED CREDITORS
The Pre-Petition Lenders, and their counsel are as follows:
(a) The Pre-Petition Secured Noteholders have been represented by the
law firms of Hebb & Gitlin, a Professional Corporation, One State Street,
Hartford, Connecticut and Merriman, Nicholls & Crampton, P.A., Raleigh,
North Carolina. The Finley Group has served as the financial advisor to the
Pre-Petition Secured Noteholders.
(b) The Bank Group has been represented by the law firm of Moore & Van
Allen, 100 North Tryon Street, 47th Floor, NationsBank Corporate Center,
Charlotte, North Carolina.
(c) The Bank of Tokyo has been represented by Anderson Kill Olick &
Oshinsky, P.C., 1251 Avenue of the Americas, New York, New York and
Ragsdale, Liggett & Foley, Raleigh, North Carolina. Price Waterhouse has
served as the financial advisor to the Bank of Tokyo.
4. THE COMMITTEES AND THEIR ADVISORS
Pursuant to the applicable provisions of the Bankruptcy Code, a committee
of creditors holding the largest unsecured claims (the "Unsecured Committee")
was appointed by the Bankruptcy Administrator and approved by the Bankruptcy
Court. Counsel for the Unsecured Committee, whose employment was authorized by
the Bankruptcy Court, is Otterbourg, Steindler, Houston & Rosen, P.C. of New
York, New York. Local counsel for the Unsecured Committee is Wyche & Story of
Raleigh, North Carolina. Ernst & Young is the financial advisor to the Unsecured
Committee.
The Bankruptcy Administrator also appointed an official equity security
holders' committee (the "Equity Committee"), which appointment was approved by
the Bankruptcy Court. Counsel for the Equity Committee is Lord Bissell & Brook
of Chicago, Illinois. Local counsel is Burns Day & Presnell of Raleigh, North
Carolina. The Unsecured Committee and the Equity Committee are hereinafter
collectively referred to as the "Committees." Pacholder Associates, Inc. has
served as the financial advisor to the Equity Committee.
5. ADVISORS TO THE DEBTOR
The Bankruptcy Court approved the employment of Smith Debnam Hibbert & Pahl
as the Debtor's lead bankruptcy counsel. Due to the complex nature of the
Debtor's business, however, it was necessary to obtain the services of
additional professionals to assist in certain specialized areas. Additional
professionals employed by the Debtor, with Court approval, include: (i)
Proskauer Rose Goetz & Mendelsohn, as special bankruptcy counsel; (ii) KPMG Peat
Marwick, as accountants; (iii) Petree Stockton, as special counsel to assist the
Debtor with corporate, tax and securities issues; (iv) Federated Claims Services
Group, as claims consultant; (v) The Levin Group, as real estate consultant; and
(vi) Peter J. Solomon Company Limited, as investment banker.
17 M-39
<PAGE>
C. POST-PETITION FINANCING
1. INTRODUCTION
As of the Filing Date, the Debtor's primary needs were to obtain a working
capital and letter of credit facility and to reestablish trade credit with its
extensive vendor community. The Debtor required a sufficiently large
debtor-in-possession financing facility in place at the earliest possible
moment, and in no event later than mid-October, 1993, in order to finalize
orders for Christmas/Holiday merchandise and to restore depleted inventory
levels.
2. USE OF CASH COLLATERAL
The first step in obtaining a sufficient working capital and letter of
credit facility was to enter into a consensual cash collateral use arrangement
which would include the Pre-Petition Lenders' concomitant consent to the
execution of a commitment letter with GE Capital regarding debtor-in-possession
financing. On September 10, 1993, the Bankruptcy Court entered a consensual
interim order authorizing the Debtor to use cash collateral, pending a final
hearing. The need for a final hearing was superseded by the Bankruptcy Court's
order authorizing the Debtor to obtain post-petition financing from GE Capital,
discussed more fully below.
3. GE CAPITAL DEBTOR-IN-POSSESSION FINANCING FACILITY
The Debtor obtained a consensual debtor-in-possession financing arrangement
from GE Capital, which is embodied in the Debtor-In-Possession Loan Agreement,
as amended, (the "DIP Financing Documents") and was approved by Bankruptcy Court
order dated October 14, 1993 (the "Final DIP Financing Order"). Pursuant to the
Final DIP Financing Order and the DIP Financing Documents (the "DIP Facility"),
the Debtor was authorized, under certain terms and conditions, to borrow up to a
maximum of $125 million on a revolving basis over a two-year term, inclusive of
a $35 million letter of credit sub-facility. To secure the Debtor's obligations
under the DIP Facility, GE Capital received, among other things, a superpriority
Claim and a "priming" first lien and security interest on all property of the
Debtor's estate, other than fee simple interests in real property owned by the
Debtor as of the Filing Date, senior in all respects to, among other things, any
liens and security interests of the Pre-Petition Lenders in any assets, other
than fee simple interests in real property owned by the Debtor as of the Filing
Date. The Pre-Petition Lenders were provided with an adequate protection lien on
all assets of the Debtor subordinate only to the lien of GE Capital, a
professional fee "carve-out" of $2.0 million for unpaid professional fees
approved by the Court, and any other pre-existing liens. For adequate protection
purposes, the Pre-Petition Lenders were granted a superpriority claim under
Section 364(c) of the Bankruptcy Code over all administrative expenses incurred
in the Chapter 11 Case or any Chapter 7 case, subordinate to all obligations due
to GE Capital and the professional fee "carve-out."
The Debtor's direct borrowings and outstanding letters of credit under the
DIP Facility were limited by a borrowing base formula which was calculated
weekly. Borrowings under the DIP Financing Documents were limited to an
aggregate amount which equaled 50% of the Debtor's "Eligible Inventory" (as
defined in the DIP Financing Documents), less reserves established by GE Capital
for, INTER ALIA, landlord liens, reclamation claims and professional fees. The
terms of the Final DIP Financing Order imposed additional restrictions on the
Debtor's ability to borrow under the DIP Facility, as borrowings were also
limited by a calculation which initially required the Debtor to deduct from the
book value of all inventory, the sum of $163,807,550 (which represented the book
value of the inventory securing the Pre-Petition Lenders at the Filing Date)
plus $9 million for reclamation claims, and plus $6 million for landlord liens
(said book value less (x) $163,807,550 plus (y) $9,000,000 plus $6,000,000 being
the "Borrowing Base Restrictions"). Pursuant to the Final DIP Financing Order,
the sum of direct borrowings and the adjusted face amount of issued letter of
credit obligations could not exceed 50% of the Borrowing Base Restrictions. The
Debtor's ability to borrow under the DIP Facility was limited to the lesser of
the maximum amount available pursuant to the DIP Financing Documents' borrowing
limit or the maximum amount available under the Final DIP Financing Order. The
Debtor's agreement to the terms of the Final DIP Financing Order was driven, in
part, by the Debtor's need for immediate use of the DIP Facility in order to
purchase inventory for the 1993 Christmas/Holiday season.
The Final DIP Financing Order contemplated the Debtor's closing of
approximately 40 stores through "going out-of-business sales" in January and
February, 1994 and payment by the Debtor of a "GOB Adequate Protection Payment"
to the Pre-Petition Lenders. The Debtor paid approximately $9 million to the
Collateral Agent on January 10, 1994 in compliance with the Final DIP Financing
Order. This payment resulted in an adjustment to the Borrowing Base Restrictions
such that the amount that the Debtor could borrow pursuant to the DIP Facility
increased.
The Final DIP Financing Order was modified by a court order dated January
31, 1994 which allowed the removal of the $9 million reclamation amount and $6
million landlord lien amount from the calculation of the Borrowing Base
Restrictions such that the amount the Debtor could borrow under the DIP Facility
again increased.
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In addition to the GOB Adequate Protection Payment, the Debtor provided the
Pre-Petition Lenders with a $7.2 million letter of credit through GE Capital to
permit the Debtor's use of cash collateral on hand at the Filing Date. The
letter of credit was drawn in January, 1994, and the Debtor has paid all
interest due the Pre-Petition Lenders and 75% of all professional fees billed by
counsel and financial advisors for the Pre-Petition Lenders. From the Petition
Date through May 12, 1994, the Debtor had paid the Pre-Petition Lenders an
approximate total of $25 million comprised of principal, pre-petition and post-
petition interest and fees and professional fees. The balance of the debt at
filing of $108 million, including principal and interest, was reduced to
approximately $92 million. Further reductions in the amount due the Pre-Petition
Lenders have occurred and will occur in connection with the GOB2 Sales, which
are discussed below. Additionally, pursuant to the Supplemental Adequate
Protection Orders (as defined in the Plan) which relate to, among other things,
said GOB2 Sales and the proceeds therefrom, the Borrowing Base Restrictions have
been and will be further adjusted in connection with the payment of sums
representing GOB2 Sales proceeds such that the amount the Debtor can borrow
under the DIP Facility may again increase.
D. BUSINESS PLAN FORMULATION
After obtaining the DIP Facility, the next critical issue in the Chapter 11
Case was the development of an operating business plan for fiscal year 1994. A
viable business plan is a fundamental step in a debtor's operational
reorganization and necessary to any feasible plan of reorganization. Thus, the
task of promulgating a workable business plan was a major undertaking of the
Debtor's management in the months subsequent to the Filing Date.
Pursuant to the terms of the Final DIP Financing Order, a draft business
plan was prepared for dissemination to GE Capital, the Pre-Petition Lenders and
the Unsecured Committee on or about December 1, 1993. This business plan,
initially developed at the inception of the Chapter 11 Case, was considered
preliminary by the Debtor's board of directors and management, due to the
unknown critical impact of the months of the Christmas/Holiday season on the
financial forecast, particularly in light of the recent Chapter 11 filing. In
recognition of the impact these months would have on the formulation of the
business plan, the Debtor and the creditor constituencies agreed to an extension
of the deadline for submission of a business plan to January 17, 1994. However,
as the January 17 deadline approached, the Debtor's management determined that a
broad spectrum of financial data to be compiled during January regarding the
Christmas season and during February regarding the Debtor's quarter and fiscal
year ends was critical to the plan drafting process. Accordingly, the Debtor
re-designated its December 1 draft business plan as its plan for purposes of
compliance with the January 17 deadline and continued its efforts to draft an
effective business plan.
A revised business plan (the "Revised Business Plan") was disseminated on
April 1, 1994 to GE Capital, the Pre-Petition Lenders and the Committees which
provided for an additional 59 store closings, over and above the initial 43
closings, and commensurate revisions in overhead, sales and margin projections.
E. EXCLUSIVITY
Because of the critical nature of the business plan and the complex issues
that arose in its formulation and dissemination and the efforts to negotiate the
terms of a joint plan, the Debtor obtained seven extensions of the exclusive
period within which to file a plan of reorganization (the "Exclusive Plan Filing
Period") and solicit acceptances thereof pursuant to Section 1121 of the
Bankruptcy Code (collectively, the "Exclusive Periods"). The Debtor's initial
Exclusive Plan Filing Period was to expire January 3, 1994. The final Exclusive
Plan Filing Period expired on August 1, 1994, as established by the Bankruptcy
Court in the order authorizing a seventh extension of the Exclusive Periods.
F. GOING-OUT-OF-BUSINESS SALES
1. GOB1 SALES
Pursuant to the DIP Financing Order and by order dated December 23, 1993,
the Debtor obtained Bankruptcy Court authority to close 43 stores (the "GOB1
Stores"). The GOB1 Stores consisted of 15 stores encumbered by the security
interests of the Pre-Petition Lenders (the "Covered GOB Stores") and 28 stores
unencumbered by any security interests of the Pre-Petition Lenders (the
"Non-Covered GOB Stores"). By a second order dated December 23, 1993, the
Bankruptcy Court authorized the Debtor to conduct "going-out-of-business" sales
(the "GOB1 Sales") at the GOB1 Stores, commencing in early January, 1994 and to
employ Nassi Bernstein Company, Inc. ("Nassi Bernstein") to conduct the GOB1
Sales (the "GOB1 Order"). The GOB1 Sales had different characteristics depending
upon whether the inventory being sold was located in a Covered GOB Store or a
Non-Covered GOB Store.
19 M-41
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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 Debtor for payment to the Pre-Petition Lenders. Pursuant to
the GOB1 Order, on January 10, 1994, the Debtor paid a total of $9,387,632 to
the Pre-Petition Lenders. 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 $27,994,780.
2. GOB2 SALES
On May 17, 1994, the Court entered orders allowing the Debtor to close an
additional 59 stores and to conduct "going-out-of-business" sales at these
locations (the "GOB2 Stores" and the "GOB2 Sales"). The GOB2 Sales began on May
15, 1994 and continued until the end of July, 1994. The closing of an additional
59 stores was proposed by the Debtor in conjunction with its Revised Business
Plan, discussed earlier. Management determined that the additional store
closings would increase the Debtor's profitability and permit the generation of
proceeds which can be used to reduce the remaining claims of the Pre-Petition
Lenders.
Nassi Bernstein submitted the best proposal for the liquidation of the
inventory in the GOB2 Stores. Accordingly, the Debtor employed, with Court
approval, Nassi Bernstein to act as the Debtor's agent during the sales. Nassi
Bernstein guaranteed a return of at least 60.5% to the Debtor, less the selling
expenses of 7.7%. As security for its performance, Nassi Bernstein provided a
letter of credit for the benefit of the Debtor in the amount of $33 million.
In conjunction with the entry of the orders authorizing the closing of the
GOB2 stores, a "First Supplemental Consensual Adequate Protection Order" was
entered on May 17, 1994 which, among other things, directed the Debtor to pay to
the Pre-Petition Lenders certain net proceeds from the GOB2 Stores encumbered by
the security interests of the Pre-Petition Lenders (the "Covered GOB2 Stores").
These proceeds were to be deposited in a segregated account, not subject to the
liens of GE Capital. The net proceeds from the Covered GOB2 Stores were paid to
the Collateral Agent on behalf of the Pre-Petition Lenders as adequate
protection payments and were required to equal at least $30 million. The actual
distribution to the Pre-Petition Lenders from the Covered GOB2 Stores totaled
$33,818,917. The proceeds from the Non-Covered GOB2 Stores were deposited in
accordance with the Final DIP Financing Order.
G. OVERHEAD COST REDUCTIONS
The Debtor has made significant reductions in corporate overhead during the
Chapter 11 Case. In 1993, corporate overhead totalled $31 million, or 2.6% of
sales. The corporate overhead for 1994 is projected to total $24.24 million, or
3.2% of sales. This reduction is primarily composed of annual decreases in
payroll totalling $3.5 million and in other expenses totalling $1.1 million per
year. These decreases are offset by decreases in cash discounts which are booked
as income to corporate services. The Debtor is also seeking to reduce its
distribution expenses, such as costs of operating the distribution center, as
well as outside freight costs, ratably with the decrease in volume related to
the store closings.
H. POST-PETITION LITIGATION WITH PRE-PETITION LENDERS
On February 3, 1994, the Collateral Agent, on behalf of the Pre-Petition
Lenders, filed an adversary proceeding against the Debtor, 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 Debtor filed an
adversary proceeding against the Pre-Petition Lenders, pursuant to, INTER ALIA,
11 U.S.C. (section mark)(section mark) 544, 547, and 549. The two separate
adversary proceedings were consolidated by order of the Court entered on March
3, 1994 (the "Adversary Proceeding"). The Equity Committee filed a motion to
intervene in the Adversary Proceeding on March 11, 1994 which was granted by
order entered on April 11, 1994.
On March 2, 1994 the Pre-Petition Lenders filed a Motion for Partial
Summary Judgment As to Validity, Priority and Perfection of Liens, which sought
resolution of three issues: (i) the propriety of the use of a collateral agent
for filing UCC financing statements to perfect a security interest in inventory,
(ii) the adequacy of the descriptions of collateral used in Virginia financing
statements, and (iii) the validity of the floating security interests in covered
store inventory. On March 25, 1994, the Bankruptcy Court entered an Order
granting partial summary judgment in favor of the Pre-Petition Lenders ("Partial
Summary Judgment Order"). On April 4, 1994, the Debtor filed a Notice of Appeal
and Application for Leave to Appeal Pursuant to 28 U.S.C. (section mark) 158
with respect to the Partial Summary Judgment Order.
On March 21, 1994 the Debtor filed its own Motion for Partial Summary
Judgment regarding, among other things, the Debtor's assertion that the
Pre-Petition Lenders' security interests were limited to one store location
described in Exhibit A
M-42 20
<PAGE>
attached to the pertinent security agreement. On May 5, 1994, the Bankruptcy
Court entered a supplemental order with respect to the Partial Summary Judgment
Order which resolved all issues relating to the validity and enforceability of
the Pre-Petition Lenders' liens in the Pre-Petition Lenders' favor. In
accordance with the Third Consent Order Extending Exclusive Periods For Filing
Plan of Reorganization And For Obtaining Acceptances Thereof entered on April 7,
1994, the Debtor withdrew its appeal of the Partial Summary Judgment Order and
dismissed the cause of action regarding Exhibit A by stipulation entered on
April 12, 1994.
The issues remaining in the Adversary Proceeding related to certain
avoidance claims made by the Debtor under Sections 547, 548, 549 and 550 of the
Bankruptcy Code. The Debtor filed a Motion to Dismiss Fraud Related Causes of
Action on April 12, 1994. The Equity Committee filed a response to the Debtor's
motion to dismiss to the extent that it jeopardized its 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. On
June 15, 1994, the Bankruptcy Court entered an order resolving all claims in the
Adversary Proceeding relating to Section 548 of the Bankruptcy Code in favor of
the Pre-Petition Lenders. On August 1, 1994, the Bankruptcy Court entered a
Stipulation of Dismissal dismissing with prejudice the remaining claims against
the Pre-Petition Lenders relating to Sections 547, 549 and 550 of the Bankruptcy
Code.
I. BAR DATES AND NOTICES OF BAR DATES
The Bankruptcy Court, pursuant to Bankruptcy Rule 3003(c)(3), fixed January
13, 1994 (the "First Bar Date") as the first Bar Date by which all Persons
asserting a Claim against the Debtor which arose from or was related to, or
could be deemed to have arisen from or be related to, the Debtor's pre-petition
activities must have filed a proof of Claim in the Chapter 11 Case or be forever
barred from asserting such Claim against the Debtor. On September 24, November
22 and December 14, 1993, the Debtor served notice of the First Bar Date on its
creditors. Pursuant to Local Bankruptcy Rule 3003.1 of the Eastern District of
North Carolina, those creditors listed as disputed, contingent, or unliquidated
were provided a special notice that they should file their claims by January 13,
1994 or their claims would not be allowed for voting or distribution through the
Chapter 11 Case.
On May 25, 1994, pursuant to the Consent Order Establishing Notice and
Claim Procedure for Abandoned Property Claimants of Rose's Stores, Inc., the
Debtor issued a notice to owners of unclaimed property which fixed July 24, 1994
as the second bar date (the "Second Bar Date") for filing proofs of Claim for
these specific abandoned property claimants. While the issuance of this notice
containing the Second Bar Date will provide certain abandoned property claimants
with an opportunity to assert an unsecured Claim against the Debtor, a
significant number of additional Claims is not anticipated.
The Court has set other bar dates in court orders regarding the rejection
of executory contracts and the addition of creditors omitted from the Debtor's
Schedule of Liabilities (the First Bar Date, the Second Bar Date, and other
specifically ordered bar dates are referred to collectively herein as the "Bar
Dates"). The Debtor will object to, or extinguish through the Plan, all Claims
which are not filed before the appropriate Bar Dates.
As noted earlier, the Plan establishes two record dates that affect the
rights of holders of Common Stock Interests in Class 5. The Record Date for
purposes of voting on the Plan is the date of entry of the order approving the
Disclosure Statement. The Record Date for the purpose of any distributions under
the Plan to holders of Common Stock Interests is the Equity Record Date, or
February 7, 1995.
J. LEASE DISPOSITIONS, EXECUTORY CONTRACTS AND UNEXPIRED LEASES
After the Filing Date, the Debtor undertook the tremendous task of
analyzing approximately 275 non-residential real property leases to determine
which leases to assume or reject pursuant to Section 365 of the Bankruptcy Code.
The total rent and related lease obligations were a major expenditure, totalling
approximately $39.5 million per year. Because of the number of leases and the
potential cost to the Estate from assumption or rejection, the Debtor employed
The Levin Group to assist in analyzing and marketing the leases. As a result of
the rejection and anticipated rejection of its non-residential real property
leases, other than the Core Stores, the Debtor estimates that it will incur
unsecured Claims totaling a maximum of $27 million. This estimate is based on
the maximum claim allowed under Section 502(b)(6) of the Bankruptcy Code and
does not consider any mitigation by landlords.
Immediately following the Filing Date, the Debtor rejected 28 leases for
"dark" store locations, or those locations where the Debtor ceased operations
prior to the Filing Date (the "Dark Store Leases"). With respect to three Dark
Store Leases, the Debtor negotiated a complete waiver of lease rejection damages
in exchange for immediate payment of administrative rent due under the leases.
21 M-43
<PAGE>
With respect to the remaining non-residential real property leases, the
Debtor sought an extension of time within which to assume or reject these leases
pursuant to Section 365 of the Bankruptcy Code until Confirmation of the Plan
because of the magnitude of the task at hand. By several orders dated November
18, 1993, the Bankruptcy Court granted an extension as follows: (i) as to 6
leases where the landlords objected to the requested extension and could not
negotiate a settlement with the Debtor, a 60 day extension; (ii) as to
approximately 47 leases where the landlords objected to the requested extension
and negotiated a settlement with the Debtor (the "Consenting Landlords"), a 120
day extension and (iii) as to all other leases, an extension until Confirmation
of the Plan.
Upon expiration of the 60 day period discussed above, the Debtor rejected 1
lease, assumed 3 leases with no modifications, and assumed 2 leases with the
agreement that the administrative or rejection Claims for one of the leases
would be eliminated and drastically capped for the other. Upon expiration of the
120 day period, the Consenting Landlords agreed to a second extension of time
within which to assume or reject the non-residential real property leases as
follows: (i) as to those leases for GOB2 Stores, an extension to completion of
the lease auction conducted in conjunction with the GOB2 Sales and (ii) as to
all other leases, an extension to June 30, 1994. Upon expiration of the June 30,
1994 deadline, by Bankruptcy Court Order dated September 15, 1994, the Debtor
obtained a further extension to April 30, 1995; PROVIDED, HOWEVER, the Debtor
may not reject said leases prior to April 30, 1995 and will make all lease
payments which accrue on or before April 30, 1995.
During the GOB1 Sales, the Debtor sold four leases for GOB1 Store locations
for a total of $1.4 million. At the conclusion of the GOB1 Sales, any leases for
GOB1 Stores which were not previously sold were auctioned and, if not sold at
the auction, promptly rejected. Rejection of the Dark Store Leases and GOB1
Store leases resulted in an annual cash savings of $11.5 million for
lease-related expenditures.
As a result of the decision to close additional stores, the Debtor managed
to negotiate substantial rent concessions from the landlords of the Core Stores,
totalling an estimated savings of $4.1 million over a six year period. The
Debtor marketed the leases for the GOB2 Stores during the GOB2 Sales and
auctioned those leases not previously sold on July 19, 1994. Prior to the
auction, the Debtor negotiated the return of 5 stores to the landlords in
exchange for lease rejection damage Claim waivers totalling $520,588. The Debtor
received offers for two GOB2 Store leases. With Bankruptcy Court approval, the
Debtor sold one lease for $500,000. The Bankruptcy Court did not approve the
second offer, at which time the Debtor rejected lease.
In addition to analyzing its non-residential real property leases, the
Debtor is also reviewing approximately 250 equipment lease schedules and other
executory contracts. Due to the closing of approximately 102 store locations and
the downsizing of the Debtor's corporate headquarters, the Debtor no longer
needs numerous pieces of leased equipment, such as bar code scanners, price
marking machines and computer equipment. The Debtor rejected several equipment
leases at the conclusion of the GOB1 Sales and the GOB2 Sales. Furthermore, the
Debtor is negotiating with many lessors and other parties to contracts to modify
existing contracts which are too burdensome for the downsized Rose's to assume.
The Plan provides that on the Effective Date, the Debtor will reject all
executory contracts which are not specifically assumed or the subject of a
motion to assume or a motion seeking or order granting additional time to assume
on or before the Effective Date.
To date, the only executory agreements assumed, with the exception of
employment and insurance related agreements, were consignment agreements with
three merchandise vendors. Subsequent to the Filing Date, the Debtor assumed
agreements with GE Lighting, a division of General Electric Company,
Aris-Isotoner, a division of Sara Lee Corporation, and L'eggs Products, a
division of Sara Lee Corporation, to insure these vendors would supply the
Debtor with merchandise for the 1993 Christmas buying season.
K. EMPLOYEE MATTERS
1. PRE-PETITION PAYROLL AND EMPLOYEE BENEFITS
Immediately following the Filing Date, the Debtor sought to maintain
employee morale during the initial stages of the reorganization. The Debtor
obtained Bankruptcy Court approval to pay its pre-petition payroll up to the
Filing Date, aggregating approximately $2.6 million with the Debtor's share of
FICA aggregating approximately $.4 million, and approximately $.7 million in
medical claims which were in process at the time of filing. The amount due any
one employee did not exceed $2,000 as provided under Section 507(a)(3) of the
Bankruptcy Code. The Debtor also obtained Bankruptcy Court approval to continue
providing its employees with life, disability and health insurance, vacation and
other similar benefits, and expense reimbursements.
M-44 22
<PAGE>
2. RETIREE BENEFITS
The Debtor sponsors several employee benefit plans providing
post-retirement and/or welfare benefits to former employees who meet certain age
and service eligibility requirements.
Retirement benefits are provided to the Debtor's former employees through
the Rose's Stores, Inc. Profit Sharing Plan, a defined contribution plan. The
Profit Sharing Plan assets are held in trust by Central Carolina Bank and are
not part of the bankruptcy Estate. The Debtor intends to continue the Profit
Sharing Plan during the pendency of the Chapter 11 Case. However, in the event
the Alternative Treatment Provisions become effective, the Profit Sharing Plan
will be terminated and each participant therein will be eligible to receive his
account balance or "roll-over" such account balance to an individual retirement
account.
The Debtor also provides certain eligible retired employees with life
insurance under the Rose's Stores, Inc. Retired Life Plan (the "Life Insurance
Plan"). The Life Insurance Plan provides lump sum death benefits on behalf of
any associate who met certain service requirements as of December 31, 1987 and
who retires after age 55 and has completed at least 20 years of service with the
Debtor. There are currently approximately 295 participants in the Life Insurance
Plan. The amount of the benefit is one-half of the associate's salary, as of
December 31, 1987. The Debtor self-funds the cost of the Life Insurance Plan and
estimated that, as of January, 1994, the present value of its liability to
retirees using a 10% discount rate applicable to the face value of the lump sum
benefits was $769,000. This amount is increased to $1.1 million with the
addition of current employees who have met the service eligibility requirements
to participate in the Life Insurance Plan upon their retirement.
The Debtor also provides certain health and medical benefits through Rose's
Stores, Inc. Health Care Plan. Under the Health Care Plan, medical, hospital,
and dental benefits are provided to persons qualified to receive coverage. The
Health Plan is self-insured, and eligible retirees are required to contribute to
the cost. An associate who retires between the ages of 55 and 65 with at least
20 years of continuous service is eligible to continue to participate in the
Health Care Plan upon payment of the applicable premium. There are currently
approximately 173 retirees in the Health Care Plan. A retiree may continue to
participate in the Health Care Plan until he reaches age 65, or until the date
the Health Care Plan is terminated, if earlier. Annually, the Debtor's liability
to the retirees under the Health Care Plan totals approximately $500,000. The
accumulated post-retirement benefit obligation (present value of benefits to
current retirees at a 7% discount rate) under the Health Care Plan is
approximately $1.7 million. This amount was determined through examination of
historical data and use of actuarial methods. The amount is increased to $3.277
million with the addition of current employees who have met the service
eligibility requirements to participate in the Health Care Plan upon their
retirement.
Under the Plan, Retiree Claims under the Health Care Plan and Life
Insurance Plan are treated as Administrative Claims to the extent that they
arise on or before the Effective Date, and except in the event the Alternative
Treatment Provisions are effective, Retiree Claims and benefits will continue to
be satisfied in the same manner as prior to the Filing Date. In the event the
Alternative Treatment Provisions are effective, and the Debtor liquidates after
January 1, 1995, then the Debtor may seek to modify Retiree benefits in which
case the Debtor will request the Bankruptcy Court to appoint an official
committee of retirees under Section 1114 of the Bankruptcy Code to represent the
holders of Retiree Claims. This committee will represent the interest of the
retirees in the determination of the amount and treatment of the Retiree Claims.
The Debtor believes that it is likely that Retire Claims arising after the
Effective Date will be treated as unsecured Claims in Class 3.
3. EQUITY COMPENSATION PLAN
On May 22, 1991, the stockholders of the Debtor approved issuance under the
Equity Compensation Plan (the "Compensation Plan") of up to 1,500,000 shares of
Non-Voting Class B Stock to provide executives, key employees, and certain
directors (the "Eligible Personnel") with a variety of stock options.
On May 26, 1992, the stockholders of the Debtor approved (i) the Adjunct
Stock Plan for officers of the Company for issuance as of November 2, 1992, and
authorized 842,000 shares of the Non-Voting Class B Stock currently held as
treasury shares to be made available for issuance under the Compensation Plan,
and (ii) a provision for nondiscretionary grants of stock options to outside
Directors with an initial grant dated January 1, 1993.
As of January 29, 1994, the status of the Compensation Plan was as follows:
<TABLE>
<CAPTION>
PRICE NUMBER OF
RANGE SHARES
<S> <C> <C>
Outstanding, January 29, 1994................................................ 2.50-7.00 1,730
Exercisable, January 29, 1994................................................ 2.50-7.00 1,274
</TABLE>
23 M-45
<PAGE>
The Plan provides for the cancellation of any Pre-Petition Stock Options
outstanding as of the Effective Date regardless of whether the Alternative
Treatment Provisions are effective. Eligible Personnel will be treated as
holders of Pre-Petition Stock Options in Class 7 and will receive no
distribution under the Plan.
4. OFFICER COMPENSATION
Rule 4002.3 of the Local Bankruptcy Rules for the Eastern District of North
Carolina prohibits the Debtor from compensating any officer, director or
shareholder of the Debtor prior to confirmation of a plan of reorganization
without prior approval of the Court. Pursuant to an order dated November 18,
1993, the Bankruptcy Court authorized the Debtor to continue paying its
officers, including the chairman of the board on a interim basis, their
pre-petition annual base salaries and to continue providing the Officer Medical
Reimbursement Plan to the same.
After the Filing Date, the Debtor was extremely concerned that the
bankruptcy filing might cause its key personnel, who were anxious about the
reorganization process, to resign which would result in tremendous tangible and
intangible costs to the Estate. The Debtor's concern magnified when several of
the Debtor's officers resigned, including the Debtor's Senior Vice President of
Human Resources. To stem this migration of talent, the Debtor created, and
obtained Bankruptcy Court approval of, a severance program (the "Severance
Program") for all officers and salaried employees, except the President and
Chief Executive Officer.
The Severance Program provides severance pay to eligible officers and
salaried associates and remains effective for a period of one year after (i)
confirmation of a plan of reorganization or a plan of liquidation or (ii)
conversion of the case to Chapter 7 of the Bankruptcy Code. Associates of the
Debtor become eligible for severance pay upon the occurrence of "triggering
events," including termination due to a Chapter 11 liquidation or a conversion
of the Chapter 11 Case to a proceeding under Chapter 7. Below is a summary of
the severance award for eligible associates:
<TABLE>
<CAPTION>
MAXIMUM OUTPLACEMENT
BENEFITS EXPENSE
SEVERANCE CONTINUATION REIMBURSEMENT
<S> <C> <C> <C>
EXECUTIVE OFFICERS
Exec. VPs (1)............................... 18 mos. salary14 3 months $ 10,000
Senior VPs (1)
OFFICERS
VPs (11).................................... 12 mos. salary15 3 months $ 7,500
Treasurer
SALARIED EMPLOYEES.......................... 4-26 weeks (1-3 weeks per year of service)
</TABLE>
Monthly installment payments will cease if the associate obtains another
job.
5. COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
On June 7, 1994, the Bankruptcy Court authorized the Debtor to assume its
existing employment agreement with George L. Jones, the president and chief
executive officer, and enter into a new employment agreement effective upon
expiration of the existing employment agreement. The existing employment
agreement was entered into with Mr. Jones on July 25, 1991 and was for a term of
3 years. The agreement provided Mr. Jones with base compensation of $700,000,
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 Debtor's
performance. Mr. Jones has not received any incentive bonus during his tenure
with the Debtor. Upon signing the agreement, Mr. Jones also received a "signing
bonus" of $2.5 million which was deposited with Norwest Bank as trustee under a
trust agreement and paid to Mr. Jones on or about July 25, 1994. With the
support of the Unsecured Committee, the Debtor obtained Court approval to enter
into a new employment agreement which provided for an employment term of one
year effective July 25, 1994, a base salary of $595,000 per year and severance
pay of 18 months salary. Mr. Jones resigned from his position effective August
19, 1994.
On August 22, 1994, the Debtor's board of directors, with the support of
the Plan Proponents, elected R. Edward Anderson, formerly the chief financial
officer, to the position of president and chief executive officer. The board
authorized the Debtor to employ Mr. Anderson for a term expiring upon the
earlier of thirty (30) days after the Effective Date or April 30,
14 Payable one-half in a lump sum immediately upon termination and one-half in
monthly installments commencing on the first day of the tenth month following
the date of termination.
15 Payable one-half in a lump sum immediately upon termination and one-half in
monthly installments commencing on the first day of the seventh month
following the date of termination.
M-46 24
<PAGE>
1994 at an annual base salary of $395,000. At the time this Disclosure Statement
was filed, a motion was pending before the Bankruptcy Court seeking approval of
the proposed compensation. The board also elected Mr. Anderson to the position
of chairman of the board and as a replacement for Lucius H. Harvin, III, who
resigned from that position effective August 23, 1994.
At the time this Disclosure Statement was filed, a motion was pending in
which the Debtor seeks Bankruptcy Court approval of a compromise and settlement
of certain issues raised by the "Motion of Official Committee of Unsecured
Creditors to Reconsider the Order Authorizing Interim Compensation of the
Chairman of the Board of Directors and Granting Related Relief" reached by and
among the Unsecured Committee, Lucius H. Harvin, III and the Debtor. Pursuant to
this compromise and settlement, Mr. Harvin resigned from his position as
Chairman of the Board; the Debtor agreed to make a termination payment to Mr.
Harvin in the amount of $200,000.00 upon Bankruptcy Court approval of the
settlement and $150,000 within thirty days of the Effective Date assuming the
Alternative Treatment Provisions are not effective; and the Unsecured Committee
agreed to withdraw its Motion for Reconsideration.
6. EMPLOYEE PERFORMANCE AND RETENTION PROGRAM
On August 4, 1994, the Bankruptcy Court approved the Debtor's proposed
Short-Term Incentive Plan. Available to all officers of the Debtor, except the
chairman of the board, this plan is designed to motivate employees to achieve
designated performance goals during the reorganization by awarding bonuses based
on the Debtor's ability to achieve specified cash flow targets (referred to as
"EBITDA") for the performance period.
Under the Short-Term Incentive Plan, officers can earn "incentive awards,"
the amounts of which are based on the Debtor's ability to achieve the designated
EBITDA for the performance period. The Plan provides for two (2) six (6) month
performance periods during each fiscal year. Eligible officers may earn
Incentive Awards in either or both performance periods. Incentive Awards, if
any, for both performance periods will be paid within thirty (30) days of the
Effective Date.
Each fiscal year, executive officers can earn a maximum Incentive Award of
35% of annual base salary, and vice presidents can earn a maximum Incentive
Award of 30% of annual base salary. Eligible officers will earn one-fourth of
the maximum Incentive Award if the Debtor achieves 100% of the targeted EBITDA
for the performance period and one-half of the maximum Incentive Award if the
Debtor achieves 120% of the targeted EBITDA for the performance period.
L. VENDOR ISSUES
1. RETURNS AND SETOFFS
Prior to the Filing Date, the Debtor instituted a Vendor Merchandise Return
Program which allows the Debtor to return certain categories of unsalable
merchandise to vendors for a credit against future invoices. Because of the
economic advantages provided to the Debtor by this program, the Debtor was
anxious to continue it throughout the Chapter 11 Case. Accordingly, the Debtor
obtained Bankruptcy Court approval to continue the Vendor Merchandise Return
Program as follows: (i) for the first 45 days after entry of the order, the
Debtor could return pre-petition inventory to the respective vendors for a
credit of 100% of the original invoice amount of the returned inventory against
pre-petition invoices up to a maximum of $8.5 million without further Court
approval, and (ii) 45 days after entry of the order, the Debtor could return
pre-petition and post-petition inventory to the respective vendors for a credit
of 100% of the original invoice amount of the returned inventory against
post-petition invoices.
At the Filing Date, the Debtor had accumulated approximately $6 million in
accounts receivable for claims that the Debtor had against its creditors,
primarily its vendors, which accrued prior to the Filing Date. The accounts
receivable arose from a variety of sources, including co-operative advertising
credits, carrier receivables, vendor allowances programs, and manufacturing
coupon rebates. By order dated November 8, 1993, the Debtor obtained the
authority to set off these receivables against the Debtor's pre-petition
obligations to the corresponding vendor pursuant to Section 553 of the
Bankruptcy Code. The returns and setoffs will result in reductions of vendor
Claims from the amounts originally scheduled by the Debtor.
2. RECLAMATION ISSUES
On February 10, 1994, the Bankruptcy Court entered an order authorizing the
Debtor to compromise and settle reclamation claims. Pursuant to that order, the
Debtor is authorized to reach agreements with each of its vendors asserting
reclamation rights as to the dollar amount of the reclamation claims (the
"Agreed Reclamation Claim"). If the vendor is unable to reach an agreement with
the Debtor, the Court, upon motion by either the Debtor or the vendor, will
determine the amount of
25 M-47
<PAGE>
the reclamation claim (the "Determined Reclamation Claim"). The Debtor will
treat Agreed Reclamation Claims and Determined Reclamation Claims pursuant to
the option selected by the vendor, if timely selected, in accordance with the
February 10, 1994 order.
Under option one, vendors will be paid 42% of their Agreed Reclamation
Claim or Determined Reclamation Claim within 30 days of such agreement or
determination. The remaining 58% will be treated as an ordinary Administrative
Claim and will be subordinate to all security interests and liens granted under
the Final DIP Financing Order to GE Capital and the Pre-Petition Lenders and to
the "Post-Petition Obligations" (as defined in the Final DIP Financing Order).
Vendors selecting option two will be paid 60% of such vendor's Agreed
Reclamation Claim or Determined Reclamation Claim within 30 days of such
agreement or determination in full and complete satisfaction of the claim.
Option two is the default option for those vendors failing to timely elect an
option.
A total of 39 reclaiming creditors selected option one. As of May 12, 1994,
the Debtor projected payment of $1.3 million prior to Confirmation and payment
of $1.8 million as an Administrative Claim under the Plan to creditors under
option one. A total of $2.9 million will be paid to 176 creditors under option
two.
M. ALTERNATIVE DISPUTE RESOLUTION PROCEDURE
At the time of filing, the Debtor had been exposed to pre-petition
liability for certain personal injury, property damage, and commercial Claims
(the "Damages Claims"). The Debtor is self-insured for these Claims up to
$250,000 due to the existence of a $250,000 deductible under its insurance
policy with Fireman's Fund. The Debtor developed a three step Alternative
Dispute Resolution Procedure (the "ADR Procedure") to liquidate these Damages
Claims. Pursuant to the ADR Procedure, each holder of a Damages Claim (the
"Damages Claimant") must participate in an Offer and Exchange Procedure with the
Debtor, and if such procedure is unsuccessful, Mediation regarding the amount of
their Claim. If the Claim remains unresolved, the Damages Claimant may proceed
to binding arbitration, with the consent of the Debtor, or may seek relief from
the automatic stay to pursue the Damages Claim outside the Chapter 11 Case.
Under the ADR Procedure, the Debtor may elect to make immediate payment of
any Claim which it settles with a Damages Claimant for $500 or less. If the
Debtor's liability for any Claim exceeds $250,000, the first $250,000 of the
Claim (which equals the Debtor's deductible amount) will be treated under the
Plan, and Fireman's Fund will make payment of any amounts in excess of the
deductible. On April 26, 1994, the Bankruptcy Court approved the ADR Procedure,
and on June 1, 1994, the Debtor began implementation of the ADR Procedure. As of
September 29, 1994, the Debtor had settled approximately 33 Damages Claims
pursuant to the ADR for a total of $141,231. Collectively, the holders of these
Damages Claims filed proofs of Claim totalling approximately $870,690. At the
time this Disclosure Statement was filed, a motion was pending in which the
Debtor seeks to disallow approximately 30 Damages Claims for failure to timely
comply with the procedural requirements of the ADR.
The Debtor's liability for workers' compensation Claims is covered by state
funded insurance in some states and insurance provided by Fireman's Fund in
other states. Because the Debtor does not expect any pre-petition workers'
compensation Claims to be filed in the Chapter 11 Case and will not be required
to pay said Claims, the Debtor did not include the workers' compensation Claims
in the ADR Procedure.
N. POST-EFFECTIVE DATE FINANCING
The Debtor filed a motion for approval of entry of a Letter of Interest
with GE Capital Commercial Finance on June 20, 1994, and by order dated July 5,
1994 the Bankruptcy Court approved the Debtor's entry of the Letter of Interest.
Thereafter, a Commitment Letter for Post-Effective Date Financing (the
"Commitment Letter") was provided by GE Capital and executed by the Debtor on
July 8, 1994. On or about July 12, 1994, a motion was filed with the Bankruptcy
Court to obtain approval of the Commitment Letter. On August 2, 1994, the
Bankruptcy Court entered an order approving the Commitment Letter and a related
letter regarding fees to be charged the Debtor.
The Commitment Letter provides that GE Capital will, subject to certain
conditions, provide a revolving credit facility in the aggregate principal
amount of up to $80 million in order to fund Reorganized Rose's Post-Effective
Date working capital requirements and, within such limits, to guarantee its
letter of credit obligations up to $30 million. The Borrowing Base will equal
55% of "Eligible Inventory" valued at the lower of fair market value or cost (on
a FIFO basis), less such reserves as GE Capital deems necessary from time to
time. Amounts outstanding will bear interest, at the election of Reorganized
Rose's, at either a floating rate equal to the Index Rate plus 1.25% per annum
or LIBOR plus 2.75%. Interest will be paid monthly in arrears on the first day
of each month. Amounts outstanding under the revolving credit facility must be
M-48 26
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repaid in full on the earlier of (a) the earlier of (i) April 30, 1998 or (ii)
the third annual anniversary of the Effective Date (as defined in the Commitment
Letter) or (b) default and acceleration. The working capital facility will be
secured by a first priority security interest, lien and/or mortgage on all
assets of the Debtor subject only to valid and perfected liens, if any,
acceptable to GE Capital. The aggregate indebtedness to GE Capital and other
obligations secured by a lien on the inventory cannot exceed an amount equal to
the value of the inventory, at the lower of fair market value or cost (on a FIFO
basis) multiplied by 60%.
The Commitment Letter provided the Debtor with the ability to terminate the
Commitment Letter by August 20, 1994 under certain conditions, but the Debtor
did not terminate the letter.
IV.
SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER AND
PLAN SUPPORT ORDER
A. SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER
The Plan must be considered in conjunction with two orders which the Debtor
sought approval of on August 1, 1994 simultaneously with the Joint Plan of
Reorganization. The following discussion and any other discussion or description
of these two orders in this Disclosure Statement are qualified in their entirety
by reference to the provisions of these two orders (as amended) which were
entered by the Bankruptcy Court on August 30, 1994. Copies of these two orders
may be obtained by requesting said orders from the Debtor's counsel. The first
of these orders is the "Second Supplemental Adequate Protection Consent Order in
Connection with Payment of Net Proceeds from "GOB2 Sales' and the Filing of the
Joint Plan of Reorganization of Rose's Stores, Inc.," as amended (hereafter the
"Second Supplemental Adequate Protection Consent Order"). This order contains
certain protections for the interests of the Pre-Petition Lenders and other Plan
Proponents and is the foundation for the Pre-Petition Lenders' support of the
Plan. The Debtor, GE Capital, the Bank of Tokyo, the Pre-Petition Secured
Noteholders, the Unsecured Committee, and the Equity Committee have consented to
the terms of the Second Supplemental Adequate Protection Consent Order.
The Second Supplemental Adequate Protection Consent Order provides that
upon satisfaction of certain conditions set forth in the order, the DIP
Financing Order, and the DIP Financing Documents, GE Capital will advance to the
Debtor under the DIP Facility sums necessary to permit the Debtor to make
"Additional Adequate Protection Payments" to the Pre-Petition Lenders in an
amount equal to the Net Non-Covered GOB2 Sale Proceeds. As discussed earlier in
this Disclosure Statement, the Debtor agreed in the First Supplemental Adequate
Protection Consent Order to pay the Collateral Agent no less than $30 million in
net proceeds from the sale of Covered GOB2 Stores. The payments under the Second
Supplemental Adequate Protection Consent Order will effectively provide the
Pre-Petition Lenders with all proceeds, net of certain defined expenses, from
the GOB2 Sales. The estimated total payment to the Pre-Petition Lenders under
the First and Second Supplemental Adequate Protection Consent Orders is $63
million.
Subject to certain conditions which will be discussed below, the Additional
Adequate Protection Payments will be made to the Pre-Petition Lenders16 pursuant
to the following schedule:
1. Payment of $4 million (the "First Payment") plus net proceeds totalling
$727,407 from the sale of the Debtor's aircraft previously sold pursuant to
Bankruptcy Court order and net proceeds from the sale of fixtures in the GOB2
Stores (the "Supplemental Payment") within one business day following entry of
the Second Supplemental Adequate Protection Consent Order. The First Payment was
made by the Debtor on August 31, 1994, and the payment of $727,407 and the
Supplemental Payment of $1,175,444.75 were made by the Debtor on September 1,
1994.
2. Payment of an amount equal to (i) $48 million minus (ii) the sum of (A)
the First Payment and (B) the Net Covered GOB2 Sale Proceeds paid to the
Pre-Petition Lenders pursuant to the First Supplemental Adequate Protection
Consent Order (the "Second Payment") following entry of a final order approving
the Disclosure Statement. The Debtor estimates that the Second Payment, which
can be made in installments, will total approximately $12 million.
3. Payment of an amount equal to (i) the sum of all Net Non-Covered GOB2
Sale proceeds and all Net Covered GOB2 Sales Proceeds, less (ii) the sum of (A)
all Net Covered GOB2 Sale Proceeds payable to the Pre-Petition Lenders pursuant
to
16 The Second Supplemental Adequate Protection Consent Order was amended by
Bankruptcy Court order dated August 30, 1994 to allow the Debtor to make the
Additional Adequate Protection Payments directly to the Pre-Petition Lenders
instead of to the Collateral Agent for the benefit of the Pre-Petition
Lenders.
27 M-49
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the First Supplemental Adequate Protection Consent Order, (B) the First Payment
and the Net Fixture Proceeds (as defined in the Second Supplemental Adequate
Protection Consent Order) and (C) the Second Payment or such portion of the
Second Payment or Second Payment installments as has been paid (the "Final
Payment") on or about November 30, 1994. The Debtor estimates that the Final
Payment, which can be made in installments, will total approximately $12
million.
4. An aggregate payment relating to the Net GOB2 Proceeds of no less than
$52 million by December 31, 1994, said amount including the First, Second and
Final Payments above and payments made pursuant to the First Supplemental
Adequate Protection Consent Order.
5. Payment of all remaining Net GOB2 Sale Proceeds by January 20, 1995. The
payments set forth above are conditioned upon occurrence of the following
conditions, among others, unless waived or satisfied:17
1. The Second Supplemental Adequate Protection Consent Order must be in
full force and effect and not stayed.
2. A Final Order must be entered approving the GE Commitment Letter, as
discussed earlier, or a Final Order must be entered approving a commitment for
alternative exit financing, said commitment satisfactory to GE Capital. A Final
Order approving the GE Commitment Letter was obtained on August 2, 1994.
3. The GE Commitment Letter must not be terminated.
4. The Plan and the Disclosure Statement must be executed and filed.
5. The Plan Support Consent Order, discussed below, must be entered by the
Court, and the ballots of the Pre-Petition Lenders must have been executed and
delivered.
6. No GE Capital Event of Default can exist and no default under the DIP
Facility, notice of which has been given by GE Capital, can exist and no default
can be caused by the First, Second and Final Payments.
7. The Debtor must have Availability18 after making the First, Second, and
Final Payments (the "DIP Cushion") of at least $25 million. If said Availability
does not exist when the Second and Final Payments are due, these payments can be
made in installments when Availability does exist.
8. The Debtor must pay a loan adjustment fee to GE Capital.
9. None of the Plan Proponents may be in default of the Second Supplemental
Adequate Protection Consent Order or the Plan Support Consent Order.
10. If the Final Payment cannot be made in full by December 31, 1994, then
no payments can be made until (i) the Debtor has delivered to the Unsecured
Committee and the Pre-Petition Lenders a certification from the Debtor's chief
financial officer that the Debtor has paid its trade payables pursuant to
invoice terms by January 15, 1995 which are due and payable on or before such
date and which are not the subject of a bona fide dispute, or (ii) the
occurrence of an Alternative Treatment Event, as discussed below, in which case
the Pre-Petition Lenders shall receive further adequate protection payments in
accordance with the provisions of the Second Supplemental Adequate Protection
Consent Order governing distributions following the occurrence of an Alternative
Treatment Event.
As the Pre-Petition Lenders receive the adequate protection payments
described above, the Debtor will receive additional borrowing base relief under
the Final DIP Financing Order based upon the book value (at cost) of the
inventory at the Non-Covered GOB2 Stores. The Debtor projects sufficient
borrowing capability to purchase adequate inventory for the 1994 Christmas
season.
If any of the following Alternative Treatment Events occur and are not
satisfied or waived by all parties to the Second Supplemental Adequate
Protection Consent Order (except with respect to numbers 7 and 8 which need only
be waived by the Unsecured Committee), then at the later of January 1, 1995 or
the date upon which an Alternative Treatment Event becomes effective, the Debtor
will implement the cessation of its business and the immediate sale and
disposition of the Debtor's remaining inventory, fixtures, and other assets at
its remaining Core Stores:
17 At the time this Disclosure Statement was filed, the conditions set forth in
numbers one through five below had occurred in accordance with the Second
Supplemental Adequate Protection Consent Order.
18 "Availability" shall mean the aggregate amount of financing available for the
Debtor at any time pursuant to the DIP Financing Documents for obtaining
Advances or incurring Letter of Credit Obligations.
M-50 28
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1. The Debtor does not make the First Payment, the Supplemental Payment,
the Second Payment (or any and all Second Payment Installments), or the Final
Payment (or any and all Final Payment Installments), as such terms are defined
in the Second Supplemental Adequate Protection Consent Order, as described
above, notwithstanding the occurrence, satisfaction or waiver of all First
Payment Conditions, all Second Payment Conditions, or all Final Payment
Conditions, as applicable.
2. The Debtor does not make by December 31, 1994 payments to the
Pre-Petition Lenders pursuant to the Supplemental Adequate Protection Consent
Orders (excluding any Supplemental Payment as defined in the Second Supplemental
Adequate Protection Consent Order) aggregating at least $52 million.
3. The Debtor does not make the full amount of the Final Payment (as
defined in the Second Supplemental Adequate Protection Consent Order) to the
Pre-Petition Lenders, by single payment or installments, in full, by January 20,
1995.
4. The Joint Plan has not been confirmed by the Court pursuant to Section
1129 of the Bankruptcy Code by December 31, 1994.
5. On January 20, 1995, the Actual EBITDA19 is less than $25 million.
6. The Effective Date does not occur by April 30, 1995, or such later date
as agreed to in writing by all Plan Proponents.
7. Unless waived by the Unsecured Committee, the Debtor (i) as of January
20, 1995 has not paid post-petition trade payables pursuant to invoice terms
which are due and payable by January 15, 1995 which are not the subject of a
bona fide dispute, (ii) has failed to deliver the certification of payment of
the trade payables to the Pre-Petition Lenders and Unsecured Creditors by
January 15, 1995 or (iii) has failed to make available to financial advisors of
the Unsecured Committee such financial data as is necessary to verify the
statements contained in the certification.
8. Unless waived by the Unsecured Committee, on the date which would
otherwise be the Effective Date, after taking into account the effect of making
all Cash payments required to be made under the Plan by the Effective Date, the
actual DIP Cushion is (or would be) more than $8 million less than the budgeted
DIP Cushion for such date.
If an Alternative Treatment Event becomes effective and is not waived by
the necessary parties, the Debtor must, INTER ALIA, liquidate its inventory,
fixtures, and other assets at its remaining stores at final
"going-out-of-business sales" (the "Final Sales") pursuant to Section 363(f) of
the Bankruptcy Code, free and clear of liens, with liens attaching to the
proceeds of sale. The Second Supplemental Adequate Protection Consent Order (and
in particular, paragraph 18 thereof) contains detailed procedures for the
liquidation of assets, including the requirement that a nationally known
liquidator must conduct the sales in a manner substantially similar to the GOB2
Sales. Furthermore, Alternative Treatment Implement Orders may be entered to
deal with liquidation issues.
The Second Supplemental Adequate Protection Consent Order provides that the
"Net Final Proceeds" from the Final Sales will be paid to GE Capital until it is
paid in full, then to the Pre-Petition Lenders until they are paid in full. Any
remaining proceeds will be distributed pursuant to the Alternative Treatment
Provisions of the Plan if the Effective Date occurs, as discussed hereafter. If
GE Capital and the Pre-Petition Lenders are not paid in full from the Net Final
Proceeds within 120 days after Court approval of the Final Sales (the "Final
Sales Approval Date"), the Debtor's remaining assets will be sold (the
"Remaining Asset Sales"). Within 140 days of the Final Sales Approval Date, the
Debtor will seek Court approval of the specific procedures for conducting the
Remaining Asset Sales, but the specific procedures will subject to approval of
any entity with a senior lien on the asset to be sold. The Remaining Assets
Sales must occur within 60 days of
19 "EBITDA" shall mean for any period, as to the Debtor or Reorganized Rose's,
without duplication, the sum of the consolidated net income of the Debtor or
Reorganized Rose's for such period PLUS consolidated interest charges of the
Debtor or Reorganized Rose's for such period PLUS consolidated taxes of the
Debtor or Reorganized Rose's for such period deducted in arriving at
consolidated net income of the Debtor or Reorganized Rose's for such period
PLUS consolidated non-cash charges (including depreciation, amortization and
LIFO reserve charges) of the Debtor or Reorganized Rose's for such period
LESS any consolidated non-cash income (including LIFO reserve credits) of the
Debtor or Reorganized Rose's for such period PLUS extraordinary cash losses
(including without limitation reorganization expenses and otherwise
calculated in accordance with GAAP in a manner consistent with the
Projections) of the Debtor or Reorganized Rose's for such period LESS
extraordinary cash gains of the Debtor or Reorganized Rose's for such period
calculated in accordance with GAAP in a manner consistent with the Business
Projections attached to the Disclosure Statement (the terms GAAP having the
meaning ascribed to such term in the Plan). The Debtor's EBITDA calculated as
of December 31, 1994 for the eleven month fiscal period ending on such date,
and determined on or before January 20, 1995 is hereinafter referred to as
the "Actual EBITDA." The Debtor has projected that the Actual EBITDA will be
$28.4 million.
29 M-51
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Court approval of such specific procedures. The Net Remaining Asset Proceeds
will be paid to lienholders in order of priority and then pursuant to the Plan,
if the Effective Date occurs.
In the event that an Alternative Treatment Event becomes effective and if,
and only if, all obligations owing to GE Capital and the Pre-Petition Lenders
have been satisfied in full, the Unsecured Committee will have the right to
submit an EX PARTE order providing for the appointment of a Liquidation Officer
who will govern and control the Debtor. The Liquidation Officer will be vested
with all rights, privileges and powers of a trustee appointed under Section 1104
of the Bankruptcy Code, but shall be bound by, among other things, all of the
terms of the Second Supplemental Adequate Protection Consent Order.
The Second Supplemental Adequate Protection Consent Order requires the
execution and delivery of that certain twelfth amendment to the DIP Financing
Documents (the "Twelfth Amendment"). The Twelfth Amendment has been executed and
delivered, and a copy may be obtained by requesting same from counsel for the
Debtor. Among other things, the Twelfth Amendment provides (i) for the amendment
of the definition of "Commitment Termination Date" under the DIP Financing
Documents; (ii) that the occurrence of an Alternative Treatment Event or the
effectiveness of the Alternative Treatment Provisions of the Plan shall
constitute an Event of Default under the DIP Financing Documents; (iii) that
upon GE Capital's determination to exercise any remedy in the nature of
realizing upon collateral for Debtor's obligations under the DIP Financing
Documents, through the sale of such collateral outside the ordinary course of
business, the manner of effecting such sale shall be in accordance with
paragraph 18 of the Second Supplemental Adequate Protection Consent Order; and
(iv) for the payment of a non-refundable, fully earned loan adjusted fee of
$468,750.
The Plan, which is discussed in great detail in the next section of this
Disclosure Statement, provides for a continuation of the Debtor's operations if
no Alternative Treatment Event occurs and if certain other conditions are met,
including the Debtor's procurement of a Post-Effective Date Financing Facility.
However, if an Alternative Treatment Event does occur and is not timely remedied
or waived by the Plan Proponents and GE Capital (except with respect to Sections
8.1(g) and (h) of the Plan which must only be waived by the Unsecured
Committee), (i) the Plan recognizes that a liquidation will be conducted as
required by the Second Supplemental Adequate Protection Consent Order or the
Alternative Treatment Provisions of the Plan, and (ii) GE Capital and the
Pre-Petition Lenders will be paid in full from the proceeds of sale prior to the
Effective Date of the Plan.
B. CONSENT ORDER REGARDING SUPPORT OF PROPOSED JOINT PLAN OF REORGANIZATION OF
ROSE'S STORE'S, INC.
A "Consent Order Regarding Support of Proposed Joint Plan of Reorganization
of Rose's Store's, Inc." (the "Plan Support Consent Order") was filed with the
Court in conjunction with the Second Supplemental Adequate Protection Consent
Order and the Plan. The Plan Support Consent Order was executed by the Debtor,
the Equity Committee, the Unsecured Committee, and the Pre-Petition Lenders
(with the exception of the Bank Group). GE Capital has consented to entry of the
Plan Support Consent Order.
This order obligates the executing parties to proceed in good faith to
obtain confirmation and consummation of the Plan. The Plan Proponents have
agreed that no plan other than the Plan will be supported unless such plan has
been agreed to and supported by all Plan Proponents. In addition, the
Pre-Petition Lenders (with the exception of the Bank Group) provided accepting
ballots to an Escrow Agent upon entry of the Plan Support Consent Order who will
tender them to the Debtor upon entry of an order approving the Disclosure
Statement.
The effectiveness of the Plan Support Consent Order was conditioned upon
filing the Plan and Disclosure Statement, entry of the Plan Support Consent
Order and the Second Supplemental Adequate Protection Consent Order, and consent
by GE Capital to the Second Supplemental Adequate Protection Consent Order. In
the event any party breaches the Plan Support Consent Order, the non-breaching
parties will be entitled to specific performance and other injunctive and
equitable relief upon expedited hearing.
If a Vote Withdrawal Event occurs, the votes of the Pre-Petition Lenders
(with the exception of the Bank Group) with respect to the Plan will be deemed
extinguished, null and void and without force or effect. The Vote Withdrawal
Events are as follows:
(i) Failure of the Debtor to make the First Payment and the
Supplemental Payment, as required by the Second Supplemental Adequate
Protection Consent Order,20 and
20 The Debtor made the First Payment on August 31, 1994 and the Supplemental
Payment on September 1, 1994.
M-52 30
<PAGE>
(ii) Failure of the Debtor to make the Second Payment, as required by
the Second Supplemental Adequate Protection Consent Order because the Plan
Support Consent Order, the Second Supplemental Adequate Protection Consent
Order or the order approving the Disclosure Statement are not final orders.
C. EFFECT OF SECOND SUPPLEMENTAL ADEQUATE PROTECTION CONSENT ORDER, PLAN SUPPORT
CONSENT ORDER AND PLAN
The Second Supplemental Adequate Protection Consent Order, the Plan Support
Consent Order, and the Plan represent a comprehensive agreement among the key
creditor constituencies for the Debtor's emergence from Chapter 11. The Plan
Proponents and GE Capital, recognizing the benefits of providing an opportunity
for the Debtor's emergence from Chapter 11 and the Debtor, recognizing the need
to utilize the Pre-Petition Lenders' cash collateral and obtain relief from the
Borrowing Base Restrictions, have agreed that Adequate Protection Payments
equalling all net proceeds from the GOB2 Sales, as discussed previously herein,
and as provided in the Second Supplemental Adequate Protection Consent Order,
should be paid to the Pre-Petition Lenders. Payment of the Adequate Protection
Payments, approximating $63 million, will reduce the fully secured claims of the
Pre-Petition Lenders to approximately $27 million and provide certain borrowing
base relief for the Debtor. Through the methodology established by the Second
Supplemental Adequate Protection Consent Order, the obligations to the
Pre-Petition Lenders are reduced while the Debtor is protected in its need for
borrowing capability through December 31, 1994.
Assuming that the Debtor performs substantially as forecast in its 1994
Business Projections, achieves an Actual EBITDA greater than $25 million, makes
the payments which are required by the Supplemental Adequate Protection Consent
Orders, and obtains confirmation of its Plan by December 31, 1994, all of which
are anticipated by the Debtor, then the Debtor will provide the Pre-Petition
Lenders with New Rose's Secured Notes on the Effective Date of the Plan. The
Debtor projects the ability to make the required payments under the New Rose's
Secured Notes.21 The Committees recognize that if the value of the Debtor's
operations as a going concern can be maintained, this value will be distributed
under the Plan to holders of Allowed Unsecured Claims and/or holders of Common
Stock Interests in the form of New Rose's Common Stock, New Rose's Warrants and
Subscription Rights. Under certain conditions, holders of existing Common Stock
Interests, who would likely receive no distribution in a liquidation, may also
receive New Rose's Common Stock in addition to the New Rose's Warrants and the
Subscription Rights.
In the event that an Alternative Treatment Event occurs and is not timely
remedied or waived by the necessary parties, the Second Supplemental Adequate
Protection Consent Order provides a mechanism for an orderly liquidation and
distribution of net proceeds. The Plan, in conjunction with the Second
Supplemental Adequate Protection Consent Order, is important to the Unsecured
Committee because following payment of GE Capital and the Pre-Petition Lenders,
it provides for the completion of the liquidation process and the distribution
of the Debtor's assets in a manner acceptable to the Unsecured Committee. The
ballots of the Pre-Petition Lenders in support of the Plan assure the Unsecured
Committee that the requirements for Confirmation of the Plan will more likely be
achieved, even though the Pre-Petition Lenders will be paid in full before the
Effective Date if the Alternative Treatment Provisions become effective.
The Debtor filed a motion for Court approval of the Second Supplemental
Adequate Protection Consent Order and the Plan Support Consent Order on August
1, 1994. Following notice to the Committees, the Pre-Petition Lenders, GE
Capital, their counsel, and all parties who requested notices through the
Official Service List maintained by the Bankruptcy Court, said orders (as
amended) were entered by the Bankruptcy Court on August 30, 1994.
V.
THE PLAN OF REORGANIZATION
A. INTRODUCTION
The Plan provides for the treatment of Claims and Interests of the Debtor.
The following summary and the other descriptions in this Disclosure Statement
are qualified in their entirety by reference to the provisions of the Plan and
its exhibits. It is urged that you carefully review the terms of the Plan.
Consultation with a legal or financial advisor may be beneficial.
In general, a Chapter 11 plan (i) divides claims and interests into
separate categories and classes; (ii) specifies the treatment that each category
and class is to receive under the plan; and (iii) contains other provisions
necessary for the
21 Prior to the closing of the GOB2 Stores, the Debtor recognized that it would
have difficulty servicing a Post-Effective Date note to the Pre-Petition
Lenders in the amount of their existing aggregate secured claim of
approximately $92 million.
31 M-53
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reorganization of a debtor. The Plan divides all Claims and Interests asserted
against the Debtor into eight classes, with Class 2 consisting of two
subclasses, and sets forth the treatment offered to each Class and sub-Class.
The Plan specifically provides for the discharge of all liabilities of the
Debtor treated in the Plan and the Confirmation Order.
THE FOLLOWING IS A SUMMARY OF THE MATTERS CONTEMPLATED TO OCCUR EITHER PURSUANT
TO OR IN CONNECTION WITH CONFIRMATION AND/OR CONSUMMATION OF THE PLAN. THIS
SUMMARY HIGHLIGHTS THE SUBSTANTIVE PROVISIONS OF THE PLAN AND IS NOT, NOR IS IT
INTENDED TO BE, A COMPLETE DESCRIPTION OF THE PLAN. STATEMENTS REGARDING
PROJECTED AMOUNTS OF CLAIMS OR DISTRIBUTIONS (OR VALUE OF SUCH DISTRIBUTIONS)
ARE ESTIMATED BY THE DEBTOR BASED ON CURRENT INFORMATION AND ARE NOT A
REPRESENTATION AS TO THE ACCURACY OF THESE AMOUNTS. ANY CONFLICT BETWEEN THE
FOLLOWING SUMMARY AND THE PLAN SHALL BE RESOLVED BY REFERENCE TO THE TERMS AND
PROVISIONS OF THE PLAN WHICH SHALL GOVERN. FURTHERMORE, CERTAIN TERMS USED IN
THIS AND THE FOLLOWING PARAGRAPHS, NOT OTHERWISE DEFINED HEREIN, SHALL HAVE THE
MEANING GIVEN THEM IN THE TEXT OF THE PLAN AND REFERENCE SHOULD BE MADE THERETO
FOR A CLEAR UNDERSTANDING OF THESE TERMS.
B. CLASSIFICATION OF CLAIMS AND INTERESTS
Section 1122 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims of a debtor's creditors and interest holders. Section
101(5) of the Bankruptcy Code defines "Claim" as a "right to payment, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured" or a "right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment whether or not such right to a
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured." A "claim against the debtor"
includes a claim against property of the debtor, as provided in Section 102(2)
of the Bankruptcy Code. An interest is an equity security as defined in Section
101(16) of the Bankruptcy Code. For the purposes of the Plan, the interests are
divided into Common Stock Interests, Pre-Petition Warrants and Pre-Petition
Stock Options.
In order for the holder of a claim to participate in a reorganization plan
and receive the treatment offered to the class in which it is classified, its
claim must be allowed. An allowed claim is defined by the Bankruptcy Code as a
claim or a portion thereof (i) which has been scheduled by the debtor, and is
not scheduled as disputed, contingent or unliquidated, and as to which no
objection timely filed by any party in interest is pending or (ii) which has
been filed with the Bankruptcy Court and as to which no objection to the
allowance thereof has been interposed within the period of time therefor fixed
by the Bankruptcy Code, Bankruptcy Rules or an Order of the Bankruptcy Court, or
as to which any objection has been determined by a Final Order of the Bankruptcy
Court allowing such portion. An allowed interest is an interest scheduled by a
debtor or that which appears on a register maintained in the ordinary course of
business.
A debtor is required under Section 1122 of the Bankruptcy Code to classify
the claims and interests of its creditors and interest holders into classes that
contain substantially similar claims and interests. While the Debtor believes
that it has classified all Claims and Interests in compliance with the
provisions of Section 1122, it is possible that a holder of a Claim or Interest
may challenge the Debtor's classification, and the Bankruptcy Court may find
that a different classification is required for the Plan to be confirmed. In
such event, it is the Debtor's present intent, to the extent permitted by the
Bankruptcy Court, to modify the Plan to provide for whatever reasonable
classification might be required by the Bankruptcy Court for Confirmation and to
use the acceptances received by the Debtor from any holder of a Claim or
Interest pursuant to this solicitation for the purpose of obtaining the approval
of the Class of which such holder of a Claim or Interest is ultimately deemed to
be a member. Any such reclassification of a Claim or Interest could adversely
affect the Class in which such Claim or Interest was initially a member, or any
other Class under the Plan, by changing the composition of such Class and the
required vote thereof for approval of the Plan. Further, a reclassification of a
Claim and/or Interest after approval of the Plan might necessitate a
resolicitation of acceptances and prolong this reorganization.
TO THE EXTENT PERMITTED BY THE BANKRUPTCY COURT, ACCEPTANCE OF THE PLAN BY ANY
IMPAIRED PARTY PURSUANT TO THIS SOLICITATION WILL BE DEEMED TO BE THE ACCEPTANCE
OF THE PLAN'S TREATMENT OF SUCH PARTY REGARDLESS OF WHICH CLASS SUCH PARTY IS
ULTIMATELY DEEMED TO BE A MEMBER.
The Plan segregates the various Claims against, and Interests in, the
Debtor as follows: Administrative Claims, Tax Claims, the Claims of GE Capital
under the DIP Facility, Non-Tax Priority Claims (Class 1), Secured Claims
(consisting of two subclasses, Classes 2A and 2B), General Unsecured Claims
(Class 3), Intercompany Claims (Class 4), Common Stock
M-54 32
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Interests (Class 5), Pre-Petition Warrants (Class 6), Pre-Petition Stock Options
(Class 7) and Subordinated Claims (Class 8). These categories and Classes take
into account the differing nature and priority of Claims against, and Interests
in, the Debtor and are more fully described below.
1. ADMINISTRATIVE CLAIMS
Administrative Claims include the actual and necessary costs and expenses
of the Chapter 11 Case. If allowed by the Bankruptcy Court, such expenses may
include costs incurred in the operation of the Debtor's business after the
commencement of the Chapter 11 Case, reclamation Claims, cure payments on
executory contracts, the actual, reasonable fees and expenses of Professionals
retained by the Debtor.
If the Alternative Treatment Provisions are not effective, then, as of the
Effective Date, the Debtor projects that operational expenses will have been
paid on a current basis. Cure payments on executory contracts are projected to
total $3.3 million, unpaid Professional Fees are projected to total
approximately $1.0 million, and reclamation Claims will total $1.81 million.22
The Debtor will honor retiree benefits in the manner provided by its benefit
plans. If the Alternative Treatment Provisions are effective, liquidation
expenses and wind down costs will be incurred, and the Administrative Claims
will approximate $44 million, as reflected in the Liquidation Analysis, attached
hereto as Exhibit "D."
2. ALLOWED TAX CLAIMS
Tax Claims are any Claims of a governmental unit entitled to priority under
Section 507(a)(7) of the Bankruptcy Code. The taxes entitled to such priority
are (i) taxes on income or gross receipts that meet the requirements set forth
in Section 507(a)(7)(A) of the Bankruptcy Code; (ii) property taxes meeting the
requirements of Section 507(a)(7)(B) of the Bankruptcy Code; (iii) taxes that
were required to be collected or withheld by the Debtor and for which the Debtor
is liable in any capacity as described in Section 507(a)(7)(C) of the Bankruptcy
Code; (iv) employment taxes, wages, salaries or commissions entitled to priority
pursuant to Section 507(a)(3) of the Bankruptcy Code, to the extent that such
taxes also meet the requirements of Bankruptcy Code Section 507(a)(7)(E); (v)
excise taxes of the kind specified in Section 507(a)(7)(E) of the Bankruptcy
Code; (vi) custom duties arising out of the importation of merchandise that meet
the requirements of Section 507(a)(7)(F) of the Bankruptcy Code; and (vii)
pre-petition penalties relating to or in the foregoing Tax Claims to the extent
that such penalties constitute compensation for actual pecuniary loss as
provided in Section 507(a)(7)(G) of the Bankruptcy Code.
Proofs of Claim have been filed against the Debtor by the Department of the
Treasury -- Internal Revenue Service on behalf of the United States (the "IRS")
for corporate income taxes, and by various state and local jurisdictions for
certain corporation franchise and income taxes. The Claims asserted by the IRS
aggregate approximately $6.6 million, of which approximately $5.5 million is
asserted as a Priority Claim and approximately $1.1 million is asserted as an
Unsecured Claim. In the Debtor's opinion, the Claims asserted by the various
state and local jurisdictions for corporate franchise and income taxes should
not be allowed in an amount in excess of $15,000.
It is the Debtor's belief that the Claims asserted by the IRS substantially
overstate the liabilities, and the Debtor is disputing a substantial amount of
these Claims. On September 27, 1993, the Debtor filed a Protest with the
District Director of Internal Revenue objecting to proposed adjustments to its
income for the taxable years ended January 25, 1989 through January 25, 1992,
and is currently involved in the resolution of these claims. The Debtor
estimates that the allowed amount of the IRS Claims should not exceed $0.75
million, and the allowed amount of Claims for personal property taxes should not
exceed $.8 million.
3. GE CAPITAL'S CLAIMS
GE Capital's Claims consist of all obligations owed by the Debtor to GE
Capital and certain individual and corporate affiliates under and pursuant to
the DIP Facility.
22 Pursuant to the Bankruptcy Court order authorizing the Debtor to compromise
and settle reclamation Claims, as discussed herein, vendors were provided
with the option of receiving a portion of their Claim immediately and to have
the remainder treated as an Administrative Claim.
33 M-55
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4. CLASS 1 -- NON-TAX PRIORITY CLAIMS
Class 1 consists of all Claims entitled to priority under Sections
507(a)(2), (3), (4), (5), (6), and (8) of the Bankruptcy Code. This class
includes, among other things, certain unsecured Claims for wages, salaries or
commissions, including vacation, severance and sick leave pay earned within 90
days before the Filing Date, subject to a maximum of $2,000 per individual, and
certain unsecured Claims for contributions to employee benefit plans. Because
the Debtor obtained Court approval to pay the great majority of these Claims
immediately after the Filing Date, the Debtor estimates that, as of the
Effective Date, the aggregate amount of Allowed Claims in Class 1 will be less
than $25,000.
5. CLASS 2A -- ALLOWED SECURED CLAIMS
Class 2A consists of Allowed Secured Claims, other than those of the
Pre-Petition Lenders. The Debtor determined that AT&T Credit Corporation
("AT&T") held a pre-petition lien on certain satellite and communications
equipment called "VSAT Equipment" based upon two lease-purchase agreements
entered into by AT&T and the Debtor for VSAT equipment on or about February 19,
1993. AT&T perfected its security interest in the VSAT equipment located in
North Carolina, valued by the Debtor at $25,000, but did not perfect its
interest in equipment located in other states. It is the Debtor's position that
it has paid AT&T an amount post-petition which exceeds the value of its secured
Claim. Therefore, the balance of its Claim will be treated in Class 3.
The Debtor has performed a lien search and does not believe that there are
any Allowed Secured Claims in Class 2A. If an equipment lessor believes that it
has a security interest in the Debtor's Estate and is granted a Final Order so
determining, such lessor will be treated as a holder of a Claim in Class 2A and
treated in accordance with this Section.
6. CLASS 2B -- ALLOWED SECURED CLAIMS OF THE PRE-PETITION LENDERS
Class 2B consists of the Pre-Petition Lenders' Allowed Secured Claims.
7. CLASS 3 -- ALLOWED UNSECURED CLAIMS
Class 3 consists of all Allowed Unsecured Claims, including trade
creditors. Claims of trade creditors consist of amounts owing for goods and
inventory provided or to be provided to the Debtor prior to the Filing Date.
Approximately 4100 unsecured Claims totalling approximately $251,000,000
have been scheduled and/or filed. Following objections to these Claims, the
Debtor believes that a maximum of $115 million to $130 million in Claims will
become Allowed Unsecured Claims. To arrive at this projected maximum, the Debtor
has estimated that $107,070,000 in filed vendor Claims will be allowed in an
amount between $78,300,000 and $87,800,000. This range reflects the Debtor's
trial balance, which has undergone significant review and reconciliation, plus
5% for the lower estimate and 10% for the higher estimate. A total of 507 Claims
totalling approximately $28,500,000 were scheduled or filed by individuals
holding personal injury Claims and EEOC Claims. Following disallowance of many
of these Claims by the Bankruptcy Court, only 244 Claims will likely proceed
through the Alternative Dispute Resolution Procedure, discussed earlier in this
Disclosure Statement. Based on a review and assessment of many of these Claims
by Alexsis, Inc., the Debtor's claims adjuster, and Debtor's counsel, the
projected liability on personal injury and EEOC Claims will range from a total
of $1.634 to $2.5 million. Fireman's Fund Insurance Company filed a Claim for
$29,536,289, but the Claim reflected that $5.1 million was the best estimate of
this unliquidated insurance-related Claim. Fireman's Fund is holding an advance
fund deposit and letter of credit which could result in payment of $4.7 million
to Fireman's Fund, yielding an unsecured Claim of $450,000. This latter amount
has been included in the projected range of unsecured Claims.
Claims related to the Debtor's real property leases totalled $45,500,000.
The Debtor has thoroughly reviewed these Claims and determined appropriate
rejection damages. The real property lease damages should total no more than $27
million for leases other than the Core Stores, unless the Alternative Treatment
Provisions of the Plan are effective. If said provisions are effective, then an
additional $25,208,000 in lease rejection damages could arise.
8. CLASS 4 -- INTERCOMPANY CLAIMS
Class 4 consists of all Intercompany Claims (defined as Claims held by RSI
against the Debtor). As of the date of this Disclosure Statement, the Debtor is
current in its obligations to RSI, and RSI owes $15,000 to the Debtor.
9. CLASS 5 -- COMMON STOCK INTERESTS
Class 5 consists of all Common Stock Interests in the Debtor.
M-56 34
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10. CLASS 6 -- PRE-PETITION WARRANTS
Class 6 consists of all Interests arising from Pre-Petition Warrants.
11. CLASS 7 -- PRE-PETITION STOCK OPTIONS
Class 7 consists of all Interests arising from Pre-Petition Stock Options.
12. CLASS 8 -- SUBORDINATED CLAIMS
Class 8 consists of all Subordinated Claims.
C. TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN
A Chapter 11 plan may provide that certain classes of claims or interests
are to be paid in full upon the effective date of a plan or are to remain
unchanged by the reorganization effectuated by the plan. Parties in such classes
are referred to as "unimpaired" and, because of such treatment, are deemed to
have accepted the plan. Accordingly, it is not necessary to solicit votes from
the holders of claims or equity interests in such "unimpaired" classes. Under
the Plan, Non-Tax Priority Claims (Class 1), and General Secured Claims (Class
2A) are unimpaired.
Under the Plan, the Secured Claims of the Pre-Petition Lenders (Class 2B),
General Unsecured Claims (Class 3), Intercompany Claims (Class 4), Common Stock
Interests (Class 5), Pre-Petition Warrants (Class 6), Pre-Petition Stock Options
(Class 7) and Subordinated Claims (Class 8) are impaired.23 Since the holders of
Intercompany Claims (Class 4), Pre-Petition Warrants (Class 6), Pre-Petition
Stock Options (Class 7) and Subordinated Claims (Class 8) will receive no
distribution under the Plan, they are deemed to have rejected the Plan, and
their votes will not be solicited by the Debtor. Accordingly, the Debtor will
only solicit acceptances or rejections of the Plan from holders of Allowed
Claims in Classes 2B, Class 3, and Class 5. The Debtor will request the
Bankruptcy Court to limit the right of holders of certain Claims, including
Disputed Claims, to vote to accept or reject the Plan.
1. TREATMENT OF CLAIMS AND INTERESTS IF THE ALTERNATIVE TREATMENT PROVISIONS
ARE NOT EFFECTIVE
(A) ADMINISTRATIVE CLAIMS, PROFESSIONAL FEES AND RETIREE CLAIMS
All Administrative Claims, other than Professional Fees, will be paid by
the Debtor in full, in Cash, in such amounts as are incurred by the Debtor in
the ordinary course of its business, or in such amounts as are allowed by Final
Order of the Bankruptcy Court (a) upon the later of the Effective Date or as
soon as practicable thereafter, or the date upon which the Bankruptcy Court
enters a Final Order allowing such Administrative Claim, or (b) upon such other
terms as may exist in the ordinary course of the Debtor's business or (c) as may
be agreed upon between the holders of such Administrative Claims and the Debtor.
Those liabilities of the Debtor due and payable in the ordinary course of
business after the Effective Date will be treated as ordinary course of business
obligations of Reorganized Rose's.
All Professionals will file applications for compensation up to and
including the Confirmation Date in accordance with all orders of the Bankruptcy
Court governing the filing of said applications. Awards of Professional Fees for
all periods up to and including the Confirmation Date will be paid (i) first,
from those trusts or escrows established by prior order of the Bankruptcy Court
for which payment was requested but not authorized by the Bankruptcy Court prior
to the Confirmation Date, and (ii) thereafter, by the Debtor in Cash, pursuant
to order of the Bankruptcy Court. All final applications relating to
Professional Fees for the period up to and including the Confirmation Date will
be filed within sixty (60) days after the Confirmation Date. After the
Confirmation Date, Professionals employed by the Debtor or the Committees may be
paid reasonable compensation and reimbursement of expenses monthly in arrears in
full in Cash upon the submission of invoices to the Debtor and the Committees.
Ten (10) days after the Debtor's receipt of any such invoice, the Debtor will be
authorized to pay such invoice without further order of the Bankruptcy Court
unless the Debtor and/or the Person seeking payment has received a written
objection to the payment thereof from the Debtor or the Unsecured Committee
within such period. In the event fees and expenses of any professional retained
by the Debtor are objected to by either the Debtor or the Unsecured Committee,
such fees and expenses will be subject to and payable only upon Bankruptcy Court
approval or prior agreement of the parties. Confirmation of the Plan shall not
limit or expand the provisions of the paragraph 15 of the Final DIP Order
relating to unpaid fees, costs, expenses and disbursements which are awarded by
the Bankruptcy Court pursuant to Sections 330 and 331 of the Bankruptcy Code in
an aggregate amount not to exceed $2 million. All Professional Fees for services
rendered after the Effective Date in connection with the Debtor or Reorganized
Rose's, as the case may be, the Chapter 11
23 Class 2B is unimpaired if the Alternative Treatment Provisions of the Plan
are effective.
35 M-57
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Case and/or this Plan will be paid by the Debtor or Reorganized Rose's, as the
case may be, pursuant to the provisions of the Plan or upon such terms as agreed
to by the Debtor or Reorganized Rose's, as the case may be, and the particular
Professional without further Bankruptcy Court review or authorization. In all
circumstances, the fees of the professionals of the Pre-Petition Lenders will be
paid in accordance with the Second Supplemental Adequate Protection Consent
Order.
Reclamation Claims will be treated as an Administrative Claim and will be
paid in full, in Cash, on the Effective Date.
On and after the Effective Date, all Allowed Retiree Claims arising prior
to the Effective Date, if any, will be treated as Administrative Claims and paid
in full. All retiree benefits, as defined in Section 1114(a) of the Bankruptcy
Code, will continue at the level established or modified pursuant to Section
1114 of the Bankruptcy Code solely to the extent, and for the period, that the
Debtor and Reorganized Rose's is contractually or legally obligated to provide
such benefits.
The Debtor has paid and intends to continue to pay current post-petition
trade payables, store lease obligations, and other payables in the ordinary
course of business. Any trade payables, lease obligations or other operating
expenses incurred between the Confirmation Date and the Effective Date will be
treated as Administrative Claims to the extent not paid in the ordinary course
of business and allowed by the Bankruptcy Court.
(B) GE CAPITAL'S CLAIMS
With respect to the DIP Facility, all GE Obligations will be fully and
finally satisfied on or prior to the Effective Date. Until all GE Obligations
are fully satisfied, all liens, claims and interests granted to GE Capital
pursuant to the DIP Facility will remain in full force and effect with priority
over all liens, claims and interests except as, and to the extent otherwise,
specifically set forth in the DIP Facility. The termination of the DIP Facility
will be done in accordance with any and all applicable provisions of (i) all DIP
Financing Orders, DIP Financing Documents, and all documents authorized
thereunder, and entered into in connection therewith, to effectuate the DIP
Facility, (ii) the Supplemental Adequate Protection Consent Orders, or, if
stayed or overturned, pursuant to the Plan, (iii) the Confirmation Order, and
(iv) the Plan. Notwithstanding anything to the contrary set forth herein or in
the Plan, on and after the Effective Date, Reorganized Rose's will be deemed to
have assumed, without any action or the execution of any document, any and all
GE Obligations which remain outstanding and unsatisfied as of the Effective
Date, including, without limitation, any indemnification obligations of the
Debtor under or pursuant to the DIP Facility; PROVIDED, HOWEVER, that such
assumption will not constitute or be deemed to constitute a satisfaction of the
GE Obligations.
(C) ALLOWED TAX CLAIMS
Allowed Tax Claims of governmental units entitled to priority under Section
507(a)(7) of the Bankruptcy Code will be paid by the Debtor in full, in Cash, on
the later of the Effective Date or the date upon which the Bankruptcy Court
enters a final order allowing such Allowed Tax Claim, or upon such other terms
as may be agreed to between the Debtor and the holder of any Allowed Tax Claim;
PROVIDED, HOWEVER, that (i) the Debtor may, at its option, in lieu of payment in
full on the Effective Date of the Allowed Tax Claims, make cash payments
respecting Allowed Tax Claims, deferred to the extent permitted by Section
1129(a)(9) of the Bankruptcy Code, and in such event, interest shall be paid on
the unpaid portion of such Allowed Tax Claim at a rate to be agreed to by the
Debtor and the appropriate governmental unit or, if they are unable to agree, to
be determined by the Bankruptcy Court; (ii) if such Allowed Tax Claim is for a
tax assessed against property of the estate, such Claim will not exceed the
value of the interest of the Estate in such property; and (iii) in the event an
Allowed Tax Claim may also be classified as a Secured Claim, the Debtor may, at
its option, elect to treat the Allowed Tax Claim as an Allowed Secured Claim.
All Allowed Tax Claims that by their terms become due and payable after the
Confirmation Date will be paid when due.
(D) CLASS 1 -- NON-TAX PRIORITY CLAIMS (UNIMPAIRED)
All Allowed Non-Tax Priority Claims will be paid in full, in Cash, on the
later of the Effective Date or the date of a Final Order allowing such Allowed
Non-Tax Priority Claims or upon such other terms as may be agreed to between the
Debtor and the holder of any Allowed Non-Tax Priority Claim.
(E) CLASS 2A -- ALLOWED SECURED CLAIMS (UNIMPAIRED)
With respect to any holder of an Allowed Secured Claim in Class 2A, the
Debtor may either: (a)(i) cure any default, other than of the kind specified in
Section 365(b)(2) of the Bankruptcy Code, provided that any accrued and unpaid
interest which the Debtor may be obligated to pay with respect to such default
shall be paid at the applicable contract rate and not at any default rate of
interest; (ii) reinstate the pre-default maturity of the Allowed Secured Claim;
(iii) compensate the holder
M-58 36
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of the Allowed Secured Claim for any damage incurred as a result of any
reasonable reliance of the holder on any provision that entitled the holder to
accelerate maturity of the Claim; and (iv) leave unaltered the other legal,
equitable, or contractual rights to which the Claim entitles the holder;
PROVIDED, HOWEVER, that as to any such Allowed Secured Claim which is a
nonrecourse claim and exceeds the value of the collateral securing such Claim,
the collateral may be sold at a sale at which the holder of such Claim has an
opportunity to bid; or (b) on the Effective Date, or on such other date as may
be agreed to by the Debtor and the holder of an Allowed Secured Claim or
determined by the Bankruptcy Court, the Debtor will abandon the collateral
securing such Claim to the holder thereof in full satisfaction and release of
such Claim; or (c) on the Effective Date or as soon as practicable thereafter,
the holder of an Allowed Secured Claim will receive, on account of such Claim,
Cash equal to its Allowed Secured Claim, or such lesser amount to which the
holder of such Claim will agree, in full satisfaction and release of such Claim.
(F) CLASS 2B -- PRE-PETITION LENDERS' ALLOWED SECURED CLAIMS (IMPAIRED)
Pursuant to Section 5.1 of the Plan, on the Effective Date, each holder of
an Allowed Secured Claim in Class 2B will receive, in respect of its Allowed
Secured Claim and in accordance with the Intercreditor Agreements, its share of:
(i) Cash equal to the aggregate amount of all unpaid fees, charges and
expenses due and payable to the Collateral Agent and the Pre-Petition
Lenders as of the Effective Date, estimated to be approximately $200,000
(after payment of $632,000, which is to be paid on or about November 30,
1994); and
(ii) New Rose's Secured Notes having an aggregate face amount equal to
the New Rose's Secured Notes Original Principal Amount. These Notes are
projected to total $26,810,000. Certain terms and conditions in respect of
the New Rose's Secured Notes are set forth in Exhibit 5.1 annexed to the
Plan and made a part thereof and are incorporated herein by this reference.
On the Effective Date, Reorganized Rose's will grant to the Collateral
Agent liens on, and security interests in, all of the Post-Effective Date
Collateral for the purpose of securing all obligations and liabilities of
Reorganized Rose's under the New Rose's Secured Notes, which security interests
and liens will be junior in priority only to the security interests and liens
granted to the Post-Effective Date Lender, pursuant to the Plan and such orders
of the Bankruptcy Court authorizing the Post-Effective Date Financing Facility,
and otherwise will be superior in priority to all other security interests and
liens whether consensual or nonconsensual, statutory or otherwise, and whether
existing now or in the future. The Pre-Petition Lenders will be granted security
interests in, and liens on, certain Permitted Encumbrance Collateral which
security interests and liens will be subordinate only to all valid, perfected
and unavoidable liens and security interests existing on the Permitted
Encumbrance Collateral as of the Effective Date.
Reorganized Rose's will take such action, at its own expense, as is
reasonably necessary and appropriate and requested by the Collateral Agent
regarding the filing of financing statements, mortgages, deeds of trust, notices
of lien, certificates of title or any other instruments (collectively, but
respectively, "Perfection Instruments") in order to validate or perfect the
liens and security interests granted to the Pre-Petition Lenders pursuant to the
Plan. If Perfection Instruments are filed, they will be deemed filed or recorded
at the time and on the date of such filing or recording unless permitted under
applicable law to relate back to the Effective Date. In lieu of filing such
Perfection Instruments, the Confirmation Order may provide that the Pre-Petition
Lenders or any of their agents may, at their sole discretion, choose to file
certified copies of the Plan, the Confirmation Order and the Consummation
Certificate in any place at which such Perfection Instruments would or could
otherwise be filed, together with such description of Post-Effective Date
Collateral located within the geographic area covered by such place of filing.
Such filing will have the same effect as if all such Perfection Instruments had
been filed or recorded at the time and on the date of such filing or recording
unless permitted under applicable law to relate back to the Effective Date. Any
filing of Perfection Instruments or other confirmation by the Pre-Petition
Lenders of the security interests granted by the Plan will in no way vitiate,
reduce or abrogate the first priority security interests in respect of the Post-
Effective Date Collateral granted to the Post-Effective Date Lender.
The Collateral Agent and the Pre-Petition Lenders on the one hand, and the
Debtor and/or Reorganized Rose's on the other, will take all action reasonably
necessary and appropriate to effectuate and implement the provisions of the
Plan, including the execution of any and all New Rose's Secured Notes Documents.
As of the Effective Date, all agreements entered into by and between the Debtor
and the Pre-Petition Lenders prior to the Effective Date relating to the
Debtor's pre-petition obligations to, and the Allowed Secured Claims of, the
Pre-Petition Lenders will be deemed superseded, and all obligations of any party
under such agreements will be released and of no further force or effect. The
aggregate distributions to the holders of Allowed Secured Claims in Class 2B
pursuant to Section 5.1 of the Plan will be deemed to constitute the indubitable
equivalent of such Allowed Secured Claims.
37 M-59
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In the event that (i) all or any of the Pre-Petition Lenders are authorized
by order of the Bankruptcy Court to exercise collateral realization remedies in
accordance with Section VI of Exhibit 5.1 of the Plan, and/or (ii) the
Post-Effective Date Lender is authorized to exercise collateral realization
remedies in the nature of the sale of collateral outside of the ordinary course
of business in accordance with the Post-Effective Date Financing Facility and
elects to do so, Reorganized Rose's will be authorized and directed to take the
following actions:
a. Reorganized Rose's will generally cease the ordering of merchandise and
promptly terminate non-essential personnel related thereto.
b. Reorganized Rose's will promptly terminate all other personnel not
essential for conducting the Final Sales (as defined below) and the Remaining
Asset Sales (as defined below) or winding up the administration of the Plan (the
expenses associated with the winding up of the administration of the Plan being
the "Wind-Up Expenses").
c. Reorganized Rose's will conduct going-out-of-business sales or auctions
of any remaining Inventory (including Inventory in transit and Inventory located
in Reorganized Rose's distribution center) (the "Distribution Center"), fixtures
and other assets located at all of its remaining stores (such sales being the
"Final Sales"), in the manner of a sale pursuant to Section 363(f) of the
Bankruptcy Code free and clear of any lien or interest with such lien or
interest to attach to the proceeds of such sales or auctions (all such proceeds
from the Final Sales being the "Final Proceeds").
d. Reorganized Rose's will promptly seek Bankruptcy Court approval of the
specific procedures for conducting the Final Sales, but such specific procedures
will, in any event, (i) include solicitation of bids from nationally known
liquidators to conduct the Final Sales on such basis designed to maximize net
sale proceeds; (ii) result in Reorganized Rose's employment on sound business
terms of a nationally known liquidator to conduct the Final Sales; (iii) provide
for the distribution of Inventory among some or all of Reorganized Rose's
remaining stores in a manner designed to maximize net sale proceeds; (iv) with
respect to the manner and method of such Final Sales at some or all of
Reorganized Rose's remaining stores, be substantially similar to those
procedures contained in the GOB2 Methodology Order (as defined in the Second
Supplemental Adequate Protection Consent Order) solely to the extent that such
procedures relate to the conduct of the sale and other disposition of assets and
the appointment of a liquidator entity to conduct such sales and other
dispositions but not to the extent such procedures distinguish between Covered
Stores and Noncovered Stores or the Inventory or assets related thereto; and (v)
provide for the completion of the Final Sales and the distribution of all of the
Final Proceeds within 120 days of Bankruptcy Court approval of such specific
procedures (the "Final Sales Approval Date").
e. Reorganized Rose's will distribute the "Net Final Proceeds" (as defined
below), promptly upon their receipt, in the following order and with the
following priority: (i) first, toward full satisfaction of the outstanding
obligations of Reorganized Rose's to the Post-Effective Date Lender in
accordance with the provisions of the Post-Effective Date Financing Facility and
the Plan; (ii) second, after the outstanding obligations of Reorganized Rose's
to the Post-Effective Date Lender will have been fully satisfied in accordance
with the provisions of the Post-Effective Date Financing Facility, toward full
satisfaction of the New Rose's Secured Notes, together with any unpaid interest,
costs and other charges (including attorneys' fees) accrued thereon; and (iii)
third, after satisfaction of the obligations of Reorganized Rose's to the
Post-Effective Date Lender in accordance with the provisions of the
Post-Effective Date Financing Facility and satisfaction of the New Rose's
Secured Notes, together with any unpaid interest, costs and other charges
(including attorneys' fees) accrued thereon, the remaining portion of the Net
Final Proceeds (the "Remaining Portion"), if any, will be distributed in
accordance with the provisions of the Plan, or as otherwise determined by the
Reconstituted Board of Directors, or pursuant to further order of the Bankruptcy
Court, as necessary. The "Net Final Proceeds" will mean the Final Proceeds less,
with respect to store locations at which the Final Sales are being conducted,
(i) actual occupancy costs, (ii) actual utility costs, (iii) allocated insurance
costs, and (iv) reasonable sale expenses and agent fees (as may be agreed upon
among Reorganized Rose's, the Post-Effective Date Trade Committee, the
Post-Effective Date Lender, the Pre-Petition Lenders and any auctioneer or
liquidator retained to conduct the Final Sales) attributable to the Final Sales
and (v) such other expenses proposed by Reorganized Rose's from time to time
during and relating to the 180 day period following the Final Sales Approval
Date to fund the Final Sales and Wind-up Expenses during such 180 day period in
a manner consistent with the cessation of business and sale of assets as
contemplated in the Plan, set forth in a detailed budget subject to approval by
the Post-Effective Date Lender and the Pre-Petition Lenders in their reasonable
discretion if any of their claims against Reorganized Rose's are then
unsatisfied, or, if and when such claims are satisfied in full, as the
Post-Effective Date Trade Committee may reasonably approve.
f. In the event the New Rose's Secured Notes, together with any unpaid
interest, fees, costs and other charges (including attorneys' fees) accrued
thereon, and all outstanding obligations of Reorganized Rose's to Post-Effective
Date Lender under the Post-Effective Date Financing Facility, have not been
satisfied in full within 120 days of the Final Sales Approval Date, Reorganized
Rose's will immediately thereafter commence the liquidation of all of its
remaining assets other than the assets
M-60 38
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which are the subject of the Final Sales (each such remaining asset being a
"Remaining Asset," and such sales of the Remaining Assets being the "Remaining
Asset Sales"), in the manner of a sale free and clear of any lien or interest
with such lien or interest to attach to the proceeds of such sales or auctions
(such gross proceeds from the Remaining Asset Sales being the "Remaining Asset
Proceeds").
g. In the event that the Debtor is required to undertake any Remaining
Asset Sales, Reorganized Rose's will promptly, and in no event later than 140
days following the Final Sales Approval Date, seek Bankruptcy Court approval of
the specific procedures for conducting the Remaining Asset Sales (the "Remaining
Asset Sales Procedure"), but the specific procedures will, in any event, (i) be
subject to the approval of the Post-Effective Date Lender or the Pre-Petition
Lenders if such entities have outstanding obligations at the time of sale of the
assets to be sold secured by a lien on the specific asset to be sold, and (ii)
provide for the completion of the Remaining Asset Sales within 60 days of
Bankruptcy Court approval of such specific procedures.
h. Reorganized Rose's will distribute the Net Remaining Asset Proceeds (as
defined below), promptly upon their receipt in the following order and with the
following priority: (i) first, toward full satisfaction of the outstanding
secured claims of any entity or entities holding the most senior lien on each
such Remaining Asset sold; (ii) second, after the secured claims of the holders
of the most senior lien have been satisfied in full, in full satisfaction of the
outstanding secured claims of the holders of any junior liens on such Remaining
Asset being sold in accordance with their relative priorities; and (iii) third,
after the outstanding secured claims of the holders of any junior liens have
been satisfied in full, the remaining portion of the Net Remaining Asset
Proceeds, if any, will be distributed in accordance with the provisions of the
Plan, or as otherwise determined by the Reconstituted Board of Directors or
pursuant to further order of the Bankruptcy Court. The "Net Remaining Asset
Proceeds" will mean the Remaining Asset Proceeds less (i) actual occupancy cost,
(ii) actual utility costs, (iii) allocated insurance cost, and (iv) reasonable
sale expenses attributable to the sale and agent fees (as may be agreed upon
among Reorganized Rose's, the Post-Effective Date Trade Committee, the
Post-Effective Date Lender, the Pre-Petition Lenders and any auctioneer or
liquidator retained to conduct the Remaining Asset Sales) attributable to the
sale of such Remaining Assets and (v) such other expenses proposed by
Reorganized Rose's from time to time during and relating to the 60 day period
following the Bankruptcy Court's approval of the Remaining Asset Sales
Procedures to fund the Remaining Asset Sales and Wind-up Expenses during such 60
day period in a manner consistent with the cessation of business and sale of
assets as contemplated in the Plan, set forth in a detailed budget subject to
approval by the Post-Effective Date Lender and the Pre-Petition Lenders in their
reasonable discretion if any of their claims against Reorganized Rose's are then
unpaid, or, if and when such claims are paid in full, as the Post-Effective Date
Trade Committee may reasonably approve.
i. The actions by Reorganized Rose's pursuant to Section 5.1.4 of the Plan
will be without prejudice to the Post-Effective Date Lender's rights under the
Post-Effective Date Financing Facility, and applicable law, including, without
limitation, to make protective or other advances under the Post-Effective Date
Financing Facility. Pursuant to the Post-Effective Date Financing Facility,
Reorganized Rose's will use the proceeds realized from the sale and other
disposition of Reorganized Rose's assets on which the Post-Effective Date Lender
has a lien to fully and finally satisfy its outstanding obligations to the
Post-Effective Date Lender (as defined in the Post-Effective Date Financing
Facility) prior to any distribution of such proceeds from such assets on which
the Post-Effective Date Lender has a lien senior to the Pre-Petition Lenders.
Notwithstanding the foregoing, in order to preserve the intercreditor
relationships between the Pre-Petition Secured Noteholders and the Bank of Tokyo
under the Intercreditor Agreements, Reorganized Rose's will account for and
deposit all proceeds received from the sale of Inventory in the BOT Stores (as
defined in the Second Supplemental Adequate Protection Consent Order) separately
from the proceeds of Inventory in the remaining stores of Reorganized Rose's.
Reorganized Rose's will first use the net proceeds realized from the sale of
Inventory in the stores other than the BOT Stores to satisfy its outstanding
obligations to the Post-Effective Date Lender and will thereafter use proceeds
from the sale of Inventory in the BOT Stores to the extent necessary to satisfy,
fully or partially, Reorganized Rose's obligations to the Post-Effective Date
Lender.
(G) CLASS 3 -- ALLOWED UNSECURED CLAIMS (IMPAIRED)
Except with respect to those holders of Damages Claims entitled to receive
a Cash payment in accordance with the ADR Procedure, within thirty days after
the Effective Date, holders of Claims in Class 3 will receive in exchange for
such Claims: (i) 70% of the Effective Date Shares which are not distributed to
holders of Common Stock Interests in Class 5 pursuant to the Class 5
Subscription, and (ii) in the event the Subscription Proceeds equal $25 million
or greater, and after return of any Subscription Proceeds, including interest
thereon, to the Class 5 Subscribers if required by the Class 5 Rights Notice,
Cash, together with interest thereon, from the Subscription Proceeds. The
distribution to Class 3 of such number of Effective Date
39 M-61
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Shares and Cash from Class 5 Subscription Proceeds will be made on a Pro-Rata
basis among all holders of Allowed Claims in Class 3 and Reserves established on
account of Disputed Claims in Class 3 in accordance with the Plan.24
In addition, on the Effective Date, the remaining Effective Date Shares, if
any, which are not distributed to holders of Claims in Class 3 or to holders of
Common Stock Interests in Class 5, as described above, will be deposited into
the New Rose's Common Stock Trust pursuant to the New Rose's Common Stock Trust
Agreement. Within thirty days after the Determination Date (defined as that date
which is ninety days following the Effective Date or the First Business Day
thereafter), the Distribution Agent, as trustee of the New Rose's Common Stock
Trust, will distribute, on a Pro-Rata basis, among all holders of Allowed Claims
in Class 3 and the Reserves established on account of Disputed Claims in Class 3
in accordance with the Plan: the lesser of (i) all of the shares of New Rose's
Common Stock maintained in the New Rose's Common Stock Trust, or (ii) such
number of shares of New Rose's Common Stock having an aggregate value equal to
the Full Recovery Target Amount when added to (x) the aggregate value of the
initial distribution of 70% of the Effective Date Shares, and (y) two (2) times
the Subscription Proceeds paid to all holders of Allowed Claims in Class 3 and
the Reserves established on account of Disputed Claims in Class 3.25 The Full
Recovery Target Amount is equal to the sum of (A) the dollar value of Allowed
Claims in Class 3 plus (b) the dollar value of the aggregate amount to be
reserved for distribution to holders of Disputed Claims in Class 3.
The determination of the value of New Rose's Common Stock for purposes of
distributions of shares of New Rose's Common Stock maintained in the New Rose's
Common Stock Trust will be calculated using the average of the intraday high and
low average trading price of the New Rose's Common Stock for the fifteen trading
days prior to the Determination Date, so long as not less than 2,000,000 shares
of New Rose's Common Stock shall have been distributed at least 20 days prior to
the Determination Date, unless the Post-Effective Date Committee, in its sole
discretion, waives the requirement that at least 2,000,000,000 shares shall have
been distributed.
The Effective Date Shares issued pursuant to the Plan to holders of Claims
in Class 3 and Class 5 will be subject to dilution by issuance of additional
shares of New Rose's Common Stock pursuant to the Management Incentive and
Retention Program and in connection with the New Rose's Warrants, discussed in
this Disclosure Statement.
Nothing provided for in the Plan will modify the Court's order approving
the ADR Procedure wherein the Debtor is authorized to settle Damages Claims with
a cash payment of no greater than $500.00 in full satisfaction of said Claims.
Distributions under the Plan on account of any Damages Claim which exceed
$500.00 will be in accordance with the provisions governing distributions to
Class 3.
(H) CLASS 4 -- INTERCOMPANY CLAIMS (IMPAIRED)
RSI will be merged with the Debtor or Reorganized Rose's on or before the
Effective Date; PROVIDED, HOWEVER, that said merger may occur prior to the
Effective Date only with the consent of the Unsecured Committee. Upon the
merger, any and all Intercompany Claims will be deemed canceled, annulled and
extinguished, and RSI will not receive any distribution whatsoever under this
Plan or otherwise on account of such Intercompany Claim.
24 For a discussion regarding establishment of Reserves, see the Section
entitled "Claims Resolution and Distribution."
25 For example, if the Full Recovery Target Amount is $120 million and $25
million is paid by the Class 5 Subscribers, they will acquire 41.6% of the
Effective Date Shares at $6.00 per share (see footnote 27). A total of 58.4%
of the Effective Date Shares will remain for distribution. On the Effective
Date, 70% of the remaining Effective Date Shares, or 4,083,333 shares, will
be distributed Pro-Rata to holders of Allowed Unsecured Claims and the
Reserve for Disputed Claims in Class 3. A total of 30% of the remaining
Effective Date Shares, or 1,750,001 will be maintained in the New Rose's
Common Stock Trust. If the New Rose's Common Stock which is purchased by
subscribers and issued to the Allowed Unsecured Claims is traded for $12.00
per share during the 90 days prior to the Determination Date, then from the
1,750,001 shares in the New Rose's Common Stock Trust, Class 3 will receive
the lesser of (i) the 1,750,001 shares or (ii) the number of shares needed to
provide $120 million to Class 3 when added to $48,999,996, (the value as of
the Determination Date of the 70% distribution/4,083,333 shares x $12.00)
plus $50,000,000 (two times the subscription proceeds). The number of shares
needed to satisfy (ii) must yield $21,000,004 in value (120 million -- $50
million -- $48,999,996), and this number will be 1,750,000 shares at $12.00
per share. Therefore, none of the shares in the New Rose's Common Stock would
be paid to Class 3. However, if the stock trades at greater than $12.00 per
share, Class 5 will receive part of the stock in the New Rose's Common Stock
Trust.
M-62 40
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(I) CLASS 5 -- COMMON STOCK INTERESTS (IMPAIRED)
Under the Plan, the distribution to Class 5 is potentially three-fold and,
in some respects, as described below, dependent upon the value of the
distributions to holders of Class 3 Claims. The Plan provides that holders of
Common Stock Interests will receive, in exchange for such interests, their
Pro-Rata share of (i) Subscription Rights entitling such holders to subscribe
for up to 100% of the Effective Date Shares otherwise allocable to holders of
Claims in Class 3, (ii) 4,285,714 New Rose's Warrants enabling such holders to
purchase up to 4,285,714 shares of New Rose's Common Stock, subject to
adjustment as provided in the New Rose's Warrant Agreement, and (iii) the shares
of New Rose's Common Stock remaining in the New Rose's Common Stock Trust on the
Determination Date to the extent that it is not necessary to distribute such
stock to holders of Claims in Class 3 to allow for a full recovery of their
Claims.
First, pursuant to the Class 5 Subscription and the Class 5 Rights Notice,
discussed more fully below, prior to the Effective Date, holders of Common Stock
Interests in Class 5 will receive their Pro-Rata share of non-transferable
rights ("Subscription Rights") to pay Cash to acquire up to 100% of the
Effective Date Shares. Second, within thirty days after the Effective Date, New
Rose's Warrants will be distributed to the warrant agent under the New Rose's
Warrant Agreement who, in turn, will distribute such warrants to all holders of
Common Stock Interests in Class 5 as of the Equity Record Date on a Pro-Rata
basis. The New Rose's Warrants will permit the purchase of the aggregate of up
to 4,285,714 shares of New Rose's Common Stock by Class 5 claimants subject to
adjustment as provided in the New Rose's Warrant Agreement. Each holder of a
Common Stock Interest will receive New Rose's Warrants in the amount of one new
Rose's Warrant for each X number of shares of Voting Common Stock or Class B
Non-Voting Common Stock held by such holder, where X equals the quotient of the
total numbers of shares of Voting Common Stock and Non-Voting Class B Common
Stock outstanding on the Equity Record Date divided by 4,285,714. For example,
assuming 18,758,006 shares of Voting Common Stock and Non-Voting Class B Common
Stock are outstanding on the Equity Record Date, a shareholder owning 100 such
shares would receive 1 warrant for each 4.377 shares, or a total of 22 warrants,
as follows: 18,758,006 divided by 4,285,714 equals 4.377, and 100 divided by
4.377 equals 22.847. No fractional warrants will be issued; however, see Section
V.H.5 hereof for a discussion of the treatment of fractional warrants.
Each New Rose's Warrant will entitle the holder thereof to purchase one
share of New Rose's Common Stock from the date the New Rose's Warrants are
issued until the seventh anniversary of the Effective Date at the per share
price equal to (i) on the Effective Date, and as adjusted on each of the first
three anniversaries of the Effective Date, the Full Recovery Target Amount
divided by the Effective Date Shares to be issued pursuant to the Plan and the
Warrant Agreement, and (ii) as adjusted on the fourth, fifth and sixth
anniversaries of the Effective Date, 105%, 110% and 115% respectively, of the
Full Recovery Target Amount divided by 10,000,000, the number of Effective Date
Shares.
Third, within thirty days of the Determination Date, holders of Common
Stock Interests in Class 5 will receive any shares remaining in the New Rose's
Common Stock Trust after distribution therefrom of such number of shares to
holders of Allowed Claims in Class 3 and the Reserves established for Disputed
Claims in Class 3 as is necessary to provide the holders of Claims in Class 3
with a full recovery on such Claims. Under the Plan, a full recovery on such
Claims will be realized if the value as of the Determination Date of all, or
less than all, of the shares of New Rose's Common Stock remaining in the New
Rose's Common Stock Trust, when added to (x) the aggregate value as of the
Determination Date of the initial distribution of 70% of the Effective Date
Shares, and (y) two (2) times the Subscription Proceeds, including interest
thereon, payable to all holders of Allowed Claims in Class 3 and the Reserves,
equals the Full Recovery Target Amount.26
As a Class, the holders of Common Stock Interests in Class 5 will
collectively have Subscription Rights to elect to subscribe for and purchase up
to 100% of the Effective Date Shares otherwise allocable and distributable to
Allowed Claims in Class 3 and the Reserves established for Disputed Claims in
Class 3 for Cash payments at the per share price equal to a maximum of 50% of
the Full Recovery Target Amount divided by 10,000,000, the number of Effective
Date Shares, provided that the aggregate amount of Subscription Proceeds equals
or exceeds $25 million, all in accordance with the terms and provisions of the
Class 5 Rights Notice.27 To effectuate the Class 5 Subscription and elections
thereunder, Reorganized Rose's will, within 5 days of the Equity Record Date
(February 7, 1995), send the Class 5 Rights Notice to each holder of a
26 SEE SUPRA note 27.
27 As discussed hereafter, the Full Recovery Target Amount is projected to total
$115 million to $130 million, which will result in a per share Subscription
Price of $5.75 ($57,500,000 divided by 10,000,000 shares) to $6.50
($65,000,000 divided by 10,000,000 shares). If the Subscription Price is
$5.75 per share and the Subscription Proceeds equal $25 million, then
4,347,826 shares, or 43.4% of the Effective Date Shares, will be purchased
for said sum. If the Subscription Price is $6.50 per share, then 3,846,154
shares or 38.5% of the Effective Date Shares can be purchased for $25
million.
41 M-63
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Common Stock Interest in Class 5 as of the Equity Record Date. The Debtor will
also send with the Rights Notice a Form 8-K filed on, or as soon as practicable
after, February 7, 1994 which will explain the Debtor's financial performance
through December 31, 1994. The Class 5 Rights Notice will notify such holders of
their respective rights to subscribe, and oversubscribe, for New Rose's Common
Stock by tender and payment of Cash in an amount equal to the number of shares
of New Rose's Common Stock sought to be acquired multiplied by the Class 5
Subscription Price. Such Cash will be payable to the Distribution Agent for
deposit into the Subscription Proceeds Escrow, which will be held and maintained
by the Distribution Agent.
In the event that the Subscription Proceeds in the Subscription Proceeds
Escrow as of March 31, 1995 do not equal or exceed $25 million, the Distribution
Agent will return to each Class 5 Subscriber the subscription payment made by
such Class 5 Subscriber, together with accrued interest thereon. Upon tender of
the fully executed Class 5 Rights Notice and upon the aggregate deposit of at
least $25 million of Subscription Proceeds into the Subscription Proceeds
Escrow, all on or prior to March 31, 1995, each Class 5 Subscriber will have the
irrevocable right to receive distributions of shares of the Effective Date
Shares28 constituting the Class 5 Subscription Stock Designation pursuant to the
following allocations: each Class 5 Subscriber will be allocated initially the
lesser of (i) the number of shares for which it has subscribed and tendered
payment pursuant to the Class 5 Subscription Notice, or (ii) its Pro-Rata share
of the Effective Date Shares. Any shares of the Effective Date Shares remaining
unallocated after the immediately forgoing allocation will be allocated to each
Class 5 Subscriber who subscribed for more than its Pro-Rata share of New Rose's
Common Stock in the amount of such over-subscription. If a sufficient number of
the Effective Date Shares is not available to satisfy all such
over-subscriptions, the available shares will be allocated among the Class 5
Subscribers who have over-subscribed based on each such Class 5 Subscriber's
Pro-Rata share of Common Stock Interests as of the Record Date for the Class 5
Subscription. The allocation process may involve a series of allocations to
ensure that the total number of shares available for over-subscription is
distributed on the pro-rata basis described immediately above.
The Class 5 Subscription will terminate on March 31, 1995 or such other
date as agreed to by the Debtor and the Committees. For not more than three
consecutive Business Days beginning on March 24, 1995, the Debtor will issue a
press release and will publish notice of the Class 5 Subscription Price as
adjusted as of March 24, 1995 in the Wall Street Journal at a total cost of no
more than $40,000. The purpose of this notice will be to advise potential Class
5 Subscribers of any change in the Class 5 Subscription Price.
Under the Plan, the Class 5 Subscription Price payable by Class 5
Subscribers for the shares to be issued upon exercise of the Rights is equal to
one-half of the Full Recovery Target Amount divided by 10,000,000 shares. The
Full Recovery Target Amount is equal to the sum of (A) the dollar value of
Allowed Claims in Class 3 plus (B) the dollar value of the aggregate amount to
be reserved for distribution to holders of Disputed Claims in Class 3.
Ultimately, upon resolution of all the Disputed Claims in Class 3, the Full
Recovery Target Amount will be equal to the dollar value of all Allowed Claims
in Class 3. Pending the resolution of all such Disputed Claims, the Full
Recovery Target Amount will include, in addition to the dollar value of the
Allowed Claims in Class 3 as of any given date, the dollar value of Disputed
Claims in Class 3. Notwithstanding the foregoing or any other provision of the
Plan or Disclosure Statement to the contrary, the Class 5 Subscription Price may
be fixed by order of the Bankruptcy Court entered upon the joint motion of the
Committees and on appropriate notice and hearing. Shortly after the Equity
Record Date, the Class 5 Rights Notice will be sent to all holders of record of
Common Stock Interests. The Class 5 Rights Notice will contain the Class 5
Subscription Price determined as of the Equity Record Date. Beginning on March
24, 1995, one week prior to the termination of this Rights offering, the Debtor
will, for not more than three Business Days, issue a press release and cause to
be published in the Wall Street Journal notice of the Subscription Price as
adjusted as of March 24, 1995. This adjusted Subscription Price will reflect any
adjustments that have been made to the Full Recovery Target Amount on account of
the resolution of Disputed Claims in Class 3. If a Disputed Claim upon
resolution becomes an Allowed Claim, the Full Recovery Target Amount will not
change. If a Disputed Claim upon resolution is disallowed, the Full Recovery
Target Amount will be reduced by the dollar amount of such disallowed Claim, and
the Subscription Price will also be reduced accordingly.
In Section V.B.7 of this Disclosure Statement, the Debtor estimates that
the aggregate amount of all Allowed Claims in Class 3 will total a maximum of
$115 million to $130 million, which would result in a Subscription Price of
$5.75 to $6.50
28 If, as discussed herein, the Full Recovery Target Amount is $115 million to
$130 million, all of the Effective Date Shares can be purchased by the Class
5 Subscribers for a total of 50% of the Full Recovery Target Amount, or $57.5
to $65 million. In such event, the Class 5 Subscribers will own all of the
Effective Date Shares, with the exception of shares allocated to the
Management and Incentive Program and the New Rose's Warrants.
M-64 42
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per share. For purposes of exercising the Rights pursuant to the Plan, however,
the determination of the Subscription Price will include the dollar value of the
Disputed Claims in Class 3 and may thus be higher than the price that will
ultimately be determined based only on the Allowed Claims in Class 3. After the
termination of this Rights offering, if upon resolution Disputed Claims in Class
3 are disallowed, Class 5 Subscribers are entitled to and shall receive a
refund, together with accrued interest thereon, equal to the number of shares
subscribed for by such subscriber times the difference between (A) the
Subscription Price paid by such subscriber and (B) the Subscription Price as
ultimately determined based on the dollar value of all Allowed Claims in Class
3.
Attached hereto as Exhibit "G" is an outline of key dates and events
affecting the holders of Common Stock Interests, as discussed above.
(J) CLASS 6 -- PRE-PETITION WARRANTS (IMPAIRED)
On the Effective Date, holders of Interests in Class 6 will not receive any
distribution whatsoever on account of such Interests, and all Interests in any
Pre-Petition Warrants, including, without limitation, Pre-Petition Secured
Noteholder Warrants, will be deemed canceled, annulled and extinguished. In
addition, all pre-petition agreements providing for the issuance of Pre-Petition
Warrants to any Persons will be deemed rejected, and all Allowed Claims arising
therefrom will be deemed subject to the subordination provisions of Section
510(b) of the Bankruptcy Code and such holders will receive no distribution on
account of any such Allowed Claims.
(K) CLASS 7 -- PRE-PETITION STOCK OPTIONS (IMPAIRED)
On the Effective Date, holders of Interests in Class 7 will not receive any
distribution whatsoever on account of such Interests, and all Interests in any
Pre-Petition Stock Options, including, without limitation, Employee Stock
Options, will be deemed canceled, annulled and extinguished. In addition, all
pre-petition agreements providing for the issuance of Pre-Petition Stock Options
to any Persons will be deemed rejected and/or terminated, provided that all
Allowed Claims arising therefrom will be deemed subject to the subordination
provisions of Section 510(b) of the Bankruptcy Code and such holders will
receive no distribution on account of any such Allowed Claims.
(L) CLASS 8 -- SUBORDINATED CLAIMS (IMPAIRED)
Holders of Subordinated Claims in Class 8 will not receive any distribution
whatsoever on account of such claims, and as of the Effective Date, all
Subordinated Claims will be deemed canceled, annulled and extinguished.
2. EVENTS TRIGGERING IMPLEMENTATION OF THE ALTERNATIVE TREATMENT PROVISIONS
The preceding description of the treatment of Claims and Interests pursuant
to the Plan is contingent upon the non-occurrence of certain events set forth
below and in Section 8.1 of the Plan and in the Second Supplemental Adequate
Protection Consent Order (singularly, "Alternative Treatment Event" and
collectively "Alternative Treatment Events"). In the event that an Alternative
Treatment Event occurs on or as of the applicable Alternative Treatment Date and
is not waived by GE Capital and all Plan Proponents (except with respect to
Sections 8.1(g) and (h) of the Plan, which need only be waived by the Unsecured
Committee), the Alternative Treatment Provisions of the Plan will be effective,
and all other provisions of the Plan will be null and void except as specified
in the Plan; PROVIDED, HOWEVER, that if an Alternative Treatment Event is
effective and GE Capital or the Pre-Petition Lenders are entitled to exercise
their respective rights and remedies in accordance with the DIP Facility and the
Second Supplemental Adequate Protection Consent Order, the provisions of the
Second Supplemental Adequate Protection Consent Order will govern with respect
to all matters addressed therein, including the sale of the Debtor's Assets and
the distribution of proceeds. With respect to the distribution of proceeds, the
Second Supplemental Adequate Protection Consent Order provides that, after
satisfaction in full of the outstanding obligations of the Debtor to GE Capital
and the Pre-Petition Lenders' Allowed Secured Claims, any remaining proceeds
will be distributed in accordance with the Plan, unless the Effective Date has
not occurred in which event the remaining proceeds will be distributed pursuant
to further order of the Bankruptcy Court. If an Alternative Treatment Event has
occurred and the Alternative Treatment Provisions of the Plan are effective, the
Effective Date cannot occur unless the GE Obligations and the Pre-Petition
Lenders' Allowed Secured Claims have been fully satisfied. The Alternative
Treatment Events are discussed and listed in Section IV.A of this Disclosure
Statement.
3. TREATMENT OF CLAIMS AND INTERESTS IF THE ALTERNATIVE TREATMENT PROVISIONS
ARE EFFECTIVE
(A) GE CAPITAL
With respect to the DIP Facility, prior to the Effective Date, all GE
Obligations will be fully and finally satisfied. Until all GE Obligations are
fully satisfied, all liens, claims and interests granted to GE Capital pursuant
to the DIP Facility will
43 M-65
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remain in full force and effect with priority over all liens, claims and
interests except as, and to the extent otherwise, specifically set forth in the
DIP Facility. The termination the DIP Facility must be on terms reasonably
agreeable to GE Capital and the Debtor, and in accordance with any and all
applicable provisions of (i) all DIP Financing Orders, DIP Financing Documents,
and all documents authorized thereunder, and entered into in connection
therewith, to effectuate the DIP Facility, (ii) the Supplemental Adequate
Protection Orders, or, if stayed or overturned, pursuant to the Plan, (iii) the
Confirmation Order, (iv) the Plan and (v) the Alternative Treatment
Implementation Orders. Notwithstanding anything to the contrary set forth herein
or in the Plan, on and after the Effective Date, the Debtor will be deemed to
have assumed, without any action or the execution of any document, any and all
GE Obligations which remain outstanding and unsatisfied as of the Effective
Date, including, without limitation, any indemnification obligations of the
Debtor under or pursuant to the DIP Facility; PROVIDED, HOWEVER, that such
assumption will not for any purpose constitute or be deemed to constitute a
satisfaction of the GE Obligations.
(B) PAYMENT OF ADMINISTRATIVE CLAIMS, PROFESSIONAL FEES AND RETIREE CLAIMS
On any Distribution Date commencing on the Effective Date, after full
satisfaction of all GE Obligations and payment in full, in Cash, of the
Pre-Petition Lenders' Allowed Secured Claims and Allowed Secured Claims, holders
of Administrative Claims will receive payment in full, in Cash, equal to the
amount of their Allowed Claim. The Professional Fees will be paid in the same
manner as if the Alternative Treatment Provisions were not effective.
Confirmation of the Plan shall not limit or expand the provisions of the
paragraph 15 of the Final DIP Order relating to unpaid fees, costs, expenses and
disbursements which are awarded by the Bankruptcy Court pursuant to Sections 330
and 331 of the Bankruptcy Code in an aggregate amount not to exceed $2 million.
All Allowed Retiree Claims arising prior to the Effective Date will be treated
as Administrative Claims. All other Allowed Claims for retiree benefits will be
treated pursuant to an order of the Bankruptcy Court to be entered prior to the
Effective Date and in accordance with Section 1114 of the Bankruptcy Code. In
the event the Debtor seeks to modify retiree benefits, the Debtor will request
the Bankruptcy Court to appoint a committee of retirees under Section 1114 to
represent the interests of the retirees in the determination of appropriate
treatment of Retiree Claims. Furthermore, the Debtor intends to provide all
retirees and employees who may become eligible for retiree benefits with
appropriate notice of a bar date for the filing of Claims.
(C) ALLOWED TAX CLAIMS
On any Distribution Date commencing on the Effective Date, after full
satisfaction of all GE Obligations and after payment in full, in Cash, of the
Pre-Petition Lenders' Allowed Secured Claims, Allowed Secured Claims,
Administrative Claims and Non-Tax Priority Claims, holders of Allowed Tax Claims
will receive payment in full, in Cash, equal to the amount of the Allowed Claim;
PROVIDED, HOWEVER, that (i) if such Allowed Tax Claim is for a tax assessed
against property of the Estate, the holder of the Allowed Tax Claim may not
receive more than the value of the Estate's interest in such property, and (ii)
in the event an Allowed Tax Claim may also be classified as a Secured Claim, the
Debtor may, at its option, elect to treat such Allowed Tax Claim as an Allowed
Secured Claim.
(D) CLASS 1 -- NON-TAX PRIORITY CLAIMS (UNIMPAIRED)
On any Distribution Date commencing on the Effective Date, after full
satisfaction of all GE Obligations and after payment in full, in Cash, of the
Pre-Petition Lenders' Allowed Secured Claims Allowed Secured Claims, and
Administrative Claims, holders of Allowed Non-Tax Priority Claims will receive
payment in full, in Cash, equal to their Allowed Claim.
(E) CLASS 2A -- ALLOWED SECURED CLAIMS (UNIMPAIRED)
The Debtor may, at its option, treat Allowed Secured Claims pursuant to one
of the following options: (i) on the Effective Date, or on such other date as
may be agreed to by the Debtor and the holder of an Allowed Secured Claim or
determined by the Bankruptcy Court, the Debtor may abandon the collateral
securing such Claim to the holder thereof in full satisfaction and release of
the secured value of that Claim; or (ii) on the Effective Date or as soon as
practicable thereafter, the holder of an Allowed Secured Claim will receive, on
account of such Claim, Cash equal to its Allowed Secured Claim, or such lesser
amount to which the holder of such Claim will agree, in full satisfaction and
release of such Claim; PROVIDED, HOWEVER, that the liens of any secured creditor
senior to that of a holder of an Allowed Secured Claim will be paid in full, in
Cash, before payment to the holder of the Allowed Secured Claim.
(F) CLASS 2B -- PRE-PETITION LENDERS' ALLOWED SECURED CLAIMS (UNIMPAIRED)
Prior to the Effective Date, after full satisfaction of all GE Obligations,
each holder of an Allowed Secured Claim in Class 2B will receive Cash pursuant
to the Supplemental Adequate Protection Orders, or if stayed, the Plan and/or
the Alternative Treatment Implementation Orders until it receives an aggregate
amount of Cash equal to its Allowed Secured
M-66 44
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Claim, in full, in accordance with the Intercreditor Agreements; PROVIDED,
HOWEVER, that in the event the Second Supplemental Adequate Protection Consent
Order is either (a) overturned on appeal or (b) the subject of a stay pending
appeal and such stay continues in a manner that materially impairs either the
payment of the Additional Adequate Protection Payments as set forth in the
Second Supplemental Adequate Protection Consent Order or the remedies granted
therein to the Pre-Petition Lenders, the following rules will apply:
(a) the Additional Adequate Protection Payments which would have been
made to the Pre-Petition Lenders but for the overturning on appeal of the
stay will be made pursuant to the terms of Section 7.16 of the Plan;
PROVIDED, HOWEVER, that if the stay of the Second Supplemental Adequate
Protection Consent Order is dissolved and any such Additional Adequate
Protection Payments may be made pursuant to the terms of the Second
Supplemental Adequate Protection Consent Order, then such Additional
Adequate Protection Payments will be made pursuant to the terms of such
order.
(b) The remedies granted to the Pre-Petition Lenders pursuant to the
provisions of the Second Supplemental Adequate Protection Consent Order
regarding the liquidation of the Debtor's assets will be exercisable by the
Pre-Petition Lenders pursuant to Section 7.16 of the Plan; PROVIDED,
HOWEVER, that if the stay of the Second Supplemental Adequate Protection
Consent Order is dissolved and such remedies may be exercisable in
accordance with the provisions of the Second Supplemental Adequate
Protection Consent Order, then such remedies will be exercisable pursuant
to the terms of such order.
(G) CLASS 3 -- ALLOWED UNSECURED CLAIMS (IMPAIRED)
On any Distribution Date commencing on the Effective Date, after full
satisfaction of all GE Obligations and after payment in full, in Cash, of the
Pre-Petition Lenders' Allowed Secured Claims, Allowed Secured Claims,
Administrative Claims, Allowed Tax Claims, and Allowed Non-Tax Priority Claims,
each holder of a Class 3 Allowed Claim will receive its Pro-Rata share of
remaining Available Cash, provided that in no event will the holder of a Class 3
Allowed Claim receive Cash aggregating more than the full amount of such Allowed
Claim.
Notwithstanding anything to the contrary in the Alternative Treatment
Provisions, the ADR Procedure will govern all matters relating to the
determination and allowance of Damage Claims; PROVIDED, HOWEVER, no Cash will be
paid to the holders of Damage Claims which become Allowed Claims after the
applicable Alternative Treatment Date in an amount less than $500 unless and
until Distributions are made to holders of Allowed Claims in Class 3 pursuant to
the Plan, and, then, only to the extent of such holder's Pro-Rata share of such
Available Cash as is distributed.
(H) CLASS 4 -- INTERCOMPANY CLAIMS (IMPAIRED)
If RSI is merged into the Debtor prior to the Effective Date, with the
written consent of the Unsecured Committee, and the Alternative Treatment
Provisions are effective, the Intercompany Claims will be deemed canceled,
annulled and extinguished upon merger. If RSI is not merged and the Alternative
Treatment Provisions are effective, the Debtor will retain its claim against RSI
and any Claim of RSI will be treated under the Plan in accordance with the
nature of the Claim filed by RSI and to the extent said Claim is allowed by the
Bankruptcy Court.
(I) CLASS 5 -- COMMON STOCK INTERESTS (IMPAIRED)
As of the Effective Date, all Class 5 Common Stock Interests then
outstanding and all certificates representing such Common Stock Interests will
remain outstanding pending entry of the Final Decree. On any Distribution Date
commencing on the Effective Date, after full satisfaction of all GE Obligations
and after payment in full, in Cash, of the Pre-Petition Lenders' Allowed Secured
Claims, Allowed Secured Claims, Administrative Claims, Allowed Tax Claims,
Allowed Non-Tax Priority Claims and Class 3 Allowed Claims, each holder of a
Common Stock Interest will receive its Pro-Rata share of any remaining Available
Cash and all other residual property of the Estate. Upon the entry of the Final
Decree, all Common Stock Interests will be deemed canceled, annulled and
extinguished; PROVIDED, HOWEVER, that the right to receive distributions
pursuant to the Plan will survive such cancellations, annulment and
extinguishment. Any Cash, including interest thereon, in the Subscription
Proceeds Escrow will be returned to the Class 5 Subscribers as provided in the
Class 5 Rights Notice.
(J) CLASS 6 -- PRE-PETITION WARRANTS (IMPAIRED)
In the event the Alternative Treatment Provisions of the Plan are
effective, holders of Interests in Class 6 will be treated in the same manner as
if the Alternative Treatment Provisions were not effective. Accordingly, on the
Effective Date, holders of Interests in Class 6 will not receive any
distribution whatsoever on account of such Interests, and all Interests in any
Pre-Petition Warrants, including without limitation, Pre-Petition Secured
Noteholder Warrants, will be deemed canceled, annulled and extinguished. In
addition, all pre-petition agreements providing for the issuance of Pre-Petition
Warrants to any Person will be deemed rejected, provided that all Allowed Claims
arising therefrom will be deemed subject to the subordination
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provisions of Section 510(b) of the Bankruptcy Code and such holders will
receive no distribution on account of any such Allowed Claims.
(K) CLASS 7 -- PRE-PETITION STOCK OPTIONS (IMPAIRED)
In the event the Alternative Treatment Provisions of the Plan are
effective, holders of Interests in Class 7 will be treated in the same manner as
if the Alternative Treatment Provisions were not effective. Accordingly, on the
Effective Date, holders of Interests in Class 7 will not receive any
distribution whatsoever on account of such Interests, and all Interests in any
Pre-Petition Stock Options, including, without limitation, Employee Stock
Options, will be deemed canceled, annulled and extinguished. In addition, all
pre-petition agreements providing for the issuance of Stock Options to any
Persons will be deemed rejected, provided that all Allowed Claims arising
therefrom will be deemed subject to the subordination provisions of Section
510(b) of the Bankruptcy Code and such holders will receive no distribution on
account of any such Allowed Claims.
(L) CLASS 8 -- SUBORDINATED CLAIMS (IMPAIRED)
In the event the Alternative Treatment Provisions of the Plan are
effective, holders of Subordinated Claims in Class 8 will be treated in the same
manner as if the Alternative Treatment Provisions were not effective.
Accordingly, on the Effective Date, holders of Subordinated Claims in Class 8
will not receive any distribution whatsoever on account of such claims, and as
of the Effective Date, all Subordinated Claims will be deemed canceled, annulled
and extinguished.
4. DISTRIBUTIONS OF CASH UNDER THE ALTERNATIVE TREATMENT PROVISIONS
All distributions of Available Cash required to be made pursuant to the
Alternative Treatment Provisions will be made, first, on any date required to be
made pursuant to the provisions of the Plan or the Supplemental Adequate
Protection Orders, second on the Effective Date, and thereafter, on the earlier
of (i) such date as there exists at least $5,000,000 of Available Cash, (ii) ten
(10) Business Days following the last day of each calendar quarter upon which
there is at least $2,500,000 of Available Cash, (iii) ten (10) Business Days
following the last day of each calendar year upon which there is at least
$1,000,000 of Available Cash, (iv) ten (10) Business Days following the entry of
the Final Decree, to the extent of any Available Cash and Cash maintained in the
Alternative Treatment Account, or (v) as otherwise required to GE Capital and to
the Pre-Petition Lenders pursuant to the Supplemental Adequate Protection Orders
and the Alternative Treatment Implementation Orders (each such date constituting
a "Distribution Date").
D. CONDITIONS PRECEDENT TO THE EFFECTIVE DATE OF THE PLAN
1. CONDITIONS PRECEDENT TO EFFECTIVE DATE
The following conditions must occur and be satisfied for the Plan to be
effective and for the Effective Date to occur regardless of whether the
Alternative Treatment Provisions of the Plan are operative:
(a) Confirmation must have occurred pursuant to the Confirmation Order;
PROVIDED, HOWEVER, that if the Alternative Treatment Provisions (as defined in
the Plan) are effective or any Alternative Treatment Event (as defined herein
and in the Second Supplemental Adequate Protection Consent Order) has occurred
and is not timely remedied or waived, all GE Obligations and the Pre-Petition
Lenders' Allowed Secured Claims must first be satisfied in full before the
Effective Date can occur.
(b) If the Alternative Treatment Provisions of the Plan are not effective,
the Debtor must enter into a Post-Effective Date Financing Facility sufficient
for the operations of Reorganized Rose's, or in the event such provisions are
effective, the Debtor must have effectuated the Final GOB Sales and unless the
Second Supplemental Adequate Protection Consent Order is stayed, fully satisfied
all GE Obligations and the Pre-Petition Lenders' Allowed Secured Claims,
respectively, pursuant to the Second Supplemental Adequate Protection Consent
Order, or if such order is stayed, the Plan and/or any Alternative Treatment
Implementation Orders.
(c) All documents and agreements contemplated to be executed or implemented
in connection with the Plan including, without limitation, those documents and
agreements which are expressly identified herein or in the Plan, must be filed
with the Bankruptcy Court in a substantially final form, and the New Rose's
Secured Notes Documents will be in a form reasonably acceptable to the
Pre-Petition Lenders and to the Post-Effective Date Lender. The Debtor expressly
reserves its right to seek a waiver of this condition, as discussed below in the
Section entitled "Waiver of Conditions to the Effective Date."
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(d) The Debtor must be able to effectuate all Cash distributions required
to be made under the Plan.
(e) The Effective Date will not occur before March 31, 1995.
2. WAIVER OF CONDITIONS TO THE EFFECTIVE DATE
The condition precedent set forth in paragraph (c) above with respect to
those documents requiring negotiations between or among any of the Debtor, GE
Capital, the Pre-Petition Lenders, the Equity Committee and the Unsecured
Committee may be waived with the consent of the respective applicable parties,
and in paragraph (e) may be waived with the consent of the Plan Proponents and
GE Capital. Otherwise, none of the other conditions precedent set forth above
may be waived, except upon the express written agreement of all Plan Proponents
and GE Capital.
E. MEANS OF EXECUTION IF THE ALTERNATIVE TREATMENT PROVISIONS ARE NOT EFFECTIVE
1. FUNDING OF THE DISTRIBUTIONS PROVIDED FOR IN THE PLAN
The funds utilized to make Cash payments under the Plan will be generated
from, among other things, the operation of the Debtor's business, asset
dispositions, including GOB2 Sales proceeds, the Post-Effective Date Financing
Facility and the possible closing of a small number of Core Stores. On any
Distribution Date or as soon as practicable thereafter, the Debtor and/or
Reorganized Rose's will cause to be available for distribution shares of New
Rose's Common Stock, New Rose's Secured Notes, and New Rose's Warrants.
2. POST-EFFECTIVE DATE FINANCING FACILITY
All loans, advances, debts, guarantees, liabilities and obligations for
monetary amounts (whether or not such amounts are liquidated or determinable)
owing by Reorganized Rose's to the Post-Effective Date Lender, and all covenants
and duties regarding such amounts, of any kind or nature, present or future,
whether or not evidenced by any note, agreement or other instrument, arising
under the Post-Effective Date Financing Facility, including, without limitation,
all interest, fees, charges, expenses, attorneys' fees and any other sum
chargeable to Reorganized Rose's under any of the documents and agreements
memorializing the Post-Effective Date Financing Facility, will be secured by
valid and enforceable liens on, and security interests in, the Post-Effective
Date Collateral. The documents and agreements memorializing the Post-Effective
Date Financing Facility will contain terms and provisions consistent with those
portions of Section 5.1 of the Plan and Exhibit 5.1 to the Plan which are
expressly applicable to the Post-Effective Date Facility. On the Effective Date,
Reorganized Rose's will grant, and will be deemed to have granted, to the
Post-Effective Date Lender liens and security interests in all of the Post-
Effective Date Collateral for the purpose of securing all obligations and
liabilities of Reorganized Rose's under the Post-Effective Date Financing
Facility, which security interests and liens will constitute valid and perfected
first-priority security interests in and liens upon all Post-Effective Date
Collateral, superior to and with priority over all other security interests and
liens whether consensual or non-consensual, statutory or otherwise, and whether
existing now or in the future, (including, without limitation, any liens and
security interests granted to the Pre-Petition Lenders pursuant to Section 5.1
of the Plan) except as to that portion of the Post-Effective Date Collateral
which is subject to any Permitted Encumbrance Collateral, as to which Permitted
Encumbrance Collateral the Post-Effective Date Lender will have valid and
perfected security interests and liens subordinate only to, or pari passu with,
as the case may be, all valid, perfected and unavoidable liens and security
interests existing thereon as of the Effective Date and described in the
Post-Effective Date Financing Facility. The terms of the Post-Effective Date
Financing Facility will be subject to the approval of the Bankruptcy Court by
entry of its order prior to the Effective Date in a form satisfactory to the
Plan Proponents, and the Post-Effective Date Lender.
The liens and security interests granted in favor of the Post-Effective
Date Lender will be effective and will be deemed created and fully perfected
immediately upon the Effective Date and without the necessity of the execution
by the Debtor or Reorganized Rose's of financing statements, mortgages, security
agreements or any other documents. The Post-Effective Date Lender will not be
required to file financing statements, mortgages, deeds of trust, notices of
lien, certificates of title or any other instruments (collectively,
"Instruments") in any jurisdiction or take any other action in order to validate
or perfect the liens and security interests granted to the Post-Effective Date
Lender, and the entry of the Confirmation Order and the occurrence of the
Effective Date will constitute immediate and full perfection of the liens and
security interests granted to the Post-Effective Date Lender, notwithstanding
any failure of the Post-Effective Date Lender to file or otherwise perfect said
security interests through such Instruments or otherwise in accordance with any
state or other applicable law.
Notwithstanding the foregoing, the Post-Effective Date Lender or any of its
agents may, at its sole discretion, choose to file any or all of such
Instruments or otherwise confirm perfection of such liens and security interests
and all such Instruments will be deemed to have been filed or recorded at the
time and on the date of the Effective Date. In lieu of filing some or
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all of such Instruments, the Post-Effective Date Lender or any of its agents
may, at its sole discretion, choose to file a certified copy of the
Confirmation Order in any place at which any of such Instruments would or
could otherwise be filed, together with such description of collateral located
within the geographic area covered by such place of filing as the
Post-Effective Date Lender may determine, and such filing will have the same
effect as if all such Instruments had been filed or
recorded at the time and on the date the Effective Date. Should the
Post-Effective Date Lender so choose to attempt to file such Instruments or a
certified copy of the Confirmation Order, or otherwise attempt to confirm
perfection of any or all such liens and security interests, no defect or failure
in connection with such attempt shall in any way limit, waive or alter the fact
that such liens and security interests are effective and fully perfected
immediately upon and forever after the Effective Date. The Pre-Petition Lenders
acknowledge that should they elect to file Instruments or otherwise confirm
perfection of the security interests granted as authorized by this Plan, said
filing or other confirmation of the security interests granted as authorized by
the Plan shall in no manner whatsoever vitiate, reduce or abrogate in any manner
the first priority security interests in respect of the collateral granted to
the Post-Effective Date Lender in accordance with the provisions of the Plan and
the Post-Effective Date Financing Facility, whether or not the Post-Effective
Date Lender ever chooses to file Instruments or otherwise confirm the respective
liens and security interests in the collateral granted to the Post-Effective
Date Lender as authorized (but not required) by this paragraph and irrespective
of the sequence of any such filings as between the Post-Effective Date Lender
and the Pre-Petition Lenders.
In addition, if GE Capital is the Post-Effective Date Lender, then,
notwithstanding any termination of the DIP Facility or the satisfaction of the
GE Obligations or the provisions of any other section of the Plan, the
documents, instruments, agreements and orders comprising all or a portion of the
DIP Facility will nonetheless remain in force and effect to the extent necessary
or desirable, in the sole discretion of GE Capital, to the extent necessary to
allow the continuous perfection of liens and encumbrances pursuant to the Plan.
If any obligations remain outstanding under the New Rose's Secured Notes at the
time of an event of default under the Post-Effective Date Financing Facility,
which event of default gives rise to a determination by the Post-Effective Date
Lender to exercise its right to effect the realization on Post-Effective Date
Collateral (through the sale of such Collateral outside the ordinary course of
Reorganized Rose's' business), the rights and remedies set forth in Section
5.1.4 of the Plan may and shall be exercised with respect to such realization on
Post-Effective Date Collateral under the Post-Effective Date Financing Facility
after such an event of default thereunder to the extent and so long as such
rights and remedies are actually enforced by the Bankruptcy Court; provided,
however, that (A) nothing will limit any rights and remedies of the
Post-Effective Date Lender except with respect to realization, through the sale
outside the ordinary course of Reorganized Rose's' business on Post-Effective
Date Collateral and (B) if for any reason the Bankruptcy Court fails to enforce
said rights and remedies with respect to the realization through the sale
outside the ordinary course of Reorganized Rose's' business, the Post-Effective
Date Lender will not be limited in any way with respect to the exercise of any
rights and remedies.
3. CORPORATE ACTION
Pursuant to the Plan and Section 303 of the Delaware General Corporation
Law, the following will be deemed to have occurred, if applicable, and will be
authorized and approved in all respects, without any requirement of further
action by the stockholders or directors of the Debtor or Reorganized Rose's, as
if such actions had been taken by unanimous action of the stockholders and
directors of the Debtor or Reorganized Rose's, as applicable: (i) the adoption
of the New Rose's Charter and the by-laws of Reorganized Rose's, and the initial
selection of directors and officers of Reorganized Rose's; (ii) the distribution
of Cash and the issuance and distribution of the New Rose's Common Stock, New
Rose's Secured Notes, and New Rose's Warrants, and implementation of the terms
and provisions of the Class 5 Subscription and all agreements thereunder; and
(iii) the implementation of the other matters provided for under the Plan
involving the corporate structure of the Debtor or Reorganized Rose's, as
applicable, including the merger of RSI into the Debtor or Reorganized Rose's
(if applicable), or any other corporate action to be taken by or required of the
Debtor or Reorganized Rose's, as applicable, and all agreements and transactions
provided for or contemplated in the Plan.
4. CANCELLATION OF COMMON STOCK INTERESTS, PRE-PETITION WARRANTS, PRE-PETITION
STOCK OPTIONS AND PRE-PETITION SECURED NOTES AND SURRENDER OF COMMON STOCK,
AND PRE-PETITION WARRANTS
All Common Stock Interests, Pre-Petition Warrants, Pre-Petition Stock
Options and all promissory notes under all agreements with the Pre-Petition
Lenders including, without limitation, Pre-Petition Secured Notes, will be
deemed canceled, annulled and extinguished as of the Effective Date; PROVIDED,
HOWEVER, that the right to receive distributions pursuant to the Plan will
survive such cancellation, annulment and extinguishment. As of the close of
business on the Effective Date (or with respect to Common Stock Interests, the
Equity Record Date), the records determining ownership of the Debtor's equity
and debt instruments maintained by the Debtor or the Collateral Agent in the
ordinary course will be deemed closed, and for purposes
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of the Plan, the Debtor will be entitled to recognize only those Persons who
were Pre-Petition Lenders or holders of such Interests on the records as of
the close of business on the Effective Date (or the Equity Record Date, as
applicable).
Each such holder will surrender the relevant instrument, if any, to
Reorganized Rose's for cancellation (or if such instrument has been stolen,
lost, or destroyed, in lieu thereof (x) a lost security affidavit and (y) a
bond, the terms of which are reasonably required by Reorganized Rose's). Until a
holder of record on the Effective Date surrenders or causes to be surrendered
the relevant instrument, such holder will not receive a distribution under the
Plan.
5. AUTHORIZATION AND ISSUANCE OF EQUITY AND DEBT INSTRUMENTS OF REORGANIZED
ROSE'S
Pursuant to the New Rose's Charter and the Plan, on the Effective Date or
as soon as practicable thereafter, among other things, Reorganized Rose's will
issue 10,000,0000 shares of New Rose's Common Stock (the "Effective Date
Shares") which will be distributed for the benefit of and on account of holders
of Claims in Class 3 and/or holders of Common Stock Interests. Reorganized
Rose's will also reserve for issuance 4,285,714 shares of New Rose's Common
Stock to effectuate the New Rose's Warrant Agreement and reserve for issuance
shares of New Rose's Common Stock in a sufficient number to effectuate the
Management Incentive and Retention Program. All shares of the New Rose's Common
Stock to be issued pursuant to the Plan will be, upon issuance, fully paid and
non-assessable and will be subject to dilution as set forth in the Plan, and the
holders thereof will have no preemptive or other rights to subscribe for
additional shares.
Reorganized Rose's will be authorized to issue New Rose's Warrants, as
provided in the Plan and in the New Rose's Warrant Agreement, for the purchase
of New Rose's Common Stock reserved for issuance pursuant to the Plan. Pursuant
to the New Rose's Charter, on the Effective Date, among other things,
Reorganized Rose's will be authorized and directed to issue New Rose's Secured
Notes to the Pre-Petition Lenders.
6. MERGER OF RSI INTO THE DEBTOR
On or before the Effective Date, but, if before the Effective Date, only
upon the consent of the Unsecured Committee if before the Effective Date, RSI
may be merged into the Debtor or Reorganized Rose's, in accordance with Delaware
General Corporation Law and any necessary orders of the Bankruptcy Court. Upon
any such merger, all common stock of RSI will deemed canceled, annulled and
extinguished. If such merger occurs, Reorganized Rose's will assume, to the
fullest extent permitted by law and only if such obligations have not been
previously rescinded or rejected prior to the Effective Date, all obligations
relating to indemnification and exculpation of RSI's directors, officers,
employees, fiduciaries, agents or controlling persons as of the Effective Date
as arise under applicable laws or as provided in any of the following: (i) RSI's
certificate of incorporation in effect prior to or as of the date hereof, (ii)
RSI's by-laws in effect prior to or as of the date hereof, or (iii) any
agreement with RSI, in each of these cases (i)-(iii) with respect to matters
occurring on or prior to the Effective Date.
7. NEW ROSE'S COMMON STOCK ALLOCABLE TO MANAGEMENT OF REORGANIZED ROSE'S
Pursuant to the Management Incentive and Retention Program, as and if
approved by the Committees and the Bankruptcy Court, and similar corporate
policies that may be implemented and administered by Reorganized Rose's on and
after the Effective Date, on the Determination Date, the employees identified in
accordance therewith will receive such shares, if any, of New Rose's Common
Stock, as may be approved. Any shares of New Rose's Common Stock distributed
pursuant to the Management Incentive and Retention Program will cause dilution
with respect to the interests provided to holders of Allowed Claims and Common
Stock Interests receiving distributions of New Rose's Common Stock pursuant to
the terms of the Plan.
8. PRESERVATION OR WAIVER OF RIGHTS OF ACTION OF THE ESTATE
Except as expressly provided to the contrary in the Plan (such as provided
in, without limitation, Section 9.2, 9.3 and 9.4 of the Plan), the Supplemental
Adequate Protection Consent Orders, the DIP Facility, or any other contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with Section 1123(b) of the Bankruptcy Code,
Reorganized Rose's will retain and may enforce any claims, rights and causes of
action that the Estate may hold against any Person, including without
limitation, any rights of setoff or recoupment. Reorganized Rose's or its
successors may pursue any such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of Reorganized Rose's.
Notwithstanding the foregoing, on the Effective Date, all preference and other
avoidance power actions not commenced prior to the Effective Date that the
Debtor or Reorganized Rose's could have commenced pursuant to Sections 544, 545,
547, 548, 550 and 553 of the Bankruptcy Code, and all rights to withhold any
distribution on account of the
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receipt of any payment that is recoverable under
such Bankruptcy Code sections will be deemed waived irrevocably; PROVIDED,
HOWEVER, unless waived pursuant to order of the Bankruptcy Court, in the event
that the Alternative Treatment Provisions of the Plan are effective, there will
be no waiver of preference claims or other avoidance power actions.
F. MEANS OF EXECUTION IF THE ALTERNATIVE TREATMENT PROVISIONS ARE EFFECTIVE
1. FUNDS FOR DISTRIBUTION
The funds utilized to make the Cash payments pursuant to the Alternative
Treatment Provisions will be generated, among other things, from Cash
constituting the net proceeds from the sale or disposition of substantially all
assets of the Estate pursuant to the Supplemental Adequate Protection Orders,
the Alternative Treatment Implementation Orders and/or Section 7.16 of the Plan.
2. CORPORATE ACTION
Pursuant to the Plan and Section 303 of the Delaware General Corporation
Law, the following will be deemed to have occurred and will be authorized and
approved in all respects, without any requirement of further action by the
stockholders or directors of the Debtor and with like effect as if such actions
had been taken by unanimous action of the stockholders and directors of the
Debtor: (i) the implementation of the Alternative Treatment Implementation
Orders and the Alternative Treatment Provisions; and (ii) the implementation of
the other matters provided for under this Plan involving the corporate structure
of the Debtor, or corporate action to be taken by or required of the Debtor and
all agreements and transaction provided for, or contemplated, in this Plan.
3. IMPLEMENTATION OF THE ALTERNATIVE TREATMENT PROVISIONS
If an Alternative Treatment Event occurs and GE Capital or the Pre-Petition
Lenders are entitled to exercise their respective rights and remedies in
accordance with the Second Supplemental Adequate Protection Consent Order and
the DIP Facility, the Alternative Treatment Provisions will be effective
pursuant to Sections 8.1 and 8.2 of the Plan, and the provisions of Sections
7.1, 7.3, 7.4, 7.10(c), 7.12, 7.15 and 7.16 of the Plan will constitute the
means of execution of the Plan and will be the only operative provisions of
Article VII of the Plan.
Prior to the Effective Date, the Debtor must obtain entry of certain of the
Alternative Treatment Implementation Orders, and pursuant thereto and the Plan,
if necessary, the Debtor must have effectuated the Final GOB Sales which sales
may not occur prior to January 1, 1995, and must satisfy in full all GE
Obligations and the Pre-Petition Lenders' Allowed Secured Claims. Upon the
occurrence of an Alternative Treatment Event which is not timely remedied or
waived or if the Alternative Treatment Provisions of the Plan are effective,
from and after the Effective Date, the Debtor will continue in existence for the
limited purposes of (i) the continuation until completion of the sales or other
disposition of all assets of the Estate, (ii) the resolution of all Disputed
Claims and the oversight of all Reserves established in connection therewith,
(iii) the prosecution, compromise or abandonment of all Avoiding Power Actions,
(iv) the investment, maintenance and distribution of the Disposition Proceeds,
Available Cash, all Unclaimed Property, the Reserves and the Alternative
Treatment Account, (v) the winding up of all business affairs and the corporate
existence of the Debtor, (vi) the taking of any and all action necessary and
appropriate to implement the Alternative Treatment Implementation Orders and the
Alternative Treatment Provisions of the Plan, and (vii) consummating the Plan as
a plan of liquidation.
(A) ALTERNATIVE TREATMENT ACCOUNT
After satisfaction in full of the GE Obligations and the Pre-Petition
Lenders' Allowed Secured Claims, the Debtor will establish the Alternative
Treatment Account as of the Effective Date with such amount of Cash as
determined pursuant to the Alternative Treatment Implementation Orders. From and
after the Effective Date through the Consummation Date, all costs and expenses
of the Debtor will be paid by the Debtor from Cash in the Alternative Treatment
Account in accordance with ordinary business terms. In the event that the Debtor
determines that additional Cash is required in the Alternative Treatment
Account, the Debtor may deposit additional Disposition Proceeds into the
Alternative Treatment Account upon the approval of the Post-Effective Date Trade
Committee.29 Prior to the entry of the Final Decree, all Cash maintained in the
Alternative Treatment Account will be converted into Available Cash except for
such amount determined by order of the Bankruptcy Court to be necessary to fund
any and all work and acts associated with the winding up of all business affairs
of the Debtor and the dissolution of its corporate existence.
29 See the Section entitled "Miscellaneous -- The Committees and Post-Effective
Date Trade Committee" for a discussion of the formation and duties of the
Post-Effective Date Trade Committee.
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(B) RETENTION OF CAUSES OF ACTION
Except as expressly provided otherwise in the Alternative Treatment
Implementation Orders, the Second Supplemental Adequate Protection Consent
Orders, the Alternative Treatment Provisions, the Plan (including Sections 9.2
and 9.3), or as
determined by order of the Bankruptcy Court, the Debtor will retain and may
enforce any claims, rights and causes of action that the Debtors or its Estate
may hold against any Person, including, without limitation, all Avoiding Power
Actions.
(C) ADR PROCEDURE
Notwithstanding anything to the contrary in the Alternative Treatment
Provisions, the ADR Procedure will govern all matters relating to the
determination and allowance of Damage Claims, PROVIDED, HOWEVER, no Cash will be
paid to the holders of Damage Claims which become Allowed Claims after the
Alternative Treatment Date in an amount less than $500 unless and until
Distributions are made to holders of Allowed Claims in Class 3 pursuant to the
Plan, and, then, only to the extent of such holder's Pro-Rata share of such
Available Cash as is distributed.
(D) RETENTION OF PROFESSIONALS
The Debtor, subject to the consent of the Post-Effective Date Trade
Committee (discussed hereafter), may retain the services of attorneys,
accountants and other agents necessary to assist and advise the Debtor in the
performance of its duties. The fees and expenses of such professionals will be
subject to the review of the Post-Effective Date Trade Committee for
reasonableness and paid without further order of the Bankruptcy Court upon the
monthly submission of such invoices in accordance with the following procedure.
Invoices for such fees and expenses will be submitted to the Post-Effective Date
Trade Committee simultaneously with or prior to the submission of such invoices
to the Debtor. Ten (10) days after the Debtor's receipt of any such invoice, the
Debtor will be authorized to pay such invoice without further order of the
Bankruptcy Court unless the Debtor and/or the Person seeking payment has
received a written objection to the payment thereof from the Post-Effective Date
Trade Committee within such period. In the event fees and expenses of any
professional retained by the Debtor are objected to by either the Debtor or the
Post-Effective Date Trade Committee, such fees and expenses will be subject to
and payable only upon Bankruptcy Court approval or prior agreement of the
parties.
(E) COMPENSATION AND INDEMNIFICATION OF OFFICERS
The officers of the Debtor who are necessary to effectuate the Alternative
Treatment Provisions of the Plan will receive compensation for services and will
be reimbursed for reasonable expenses incurred in connection with the
administration of the Debtor in accordance with the terms of the agreement
entered into by the Debtor and such officer with the consent of the Unsecured
Committee. Neither the officer of the Debtor nor the Debtor, nor any designees,
counsel or accountants or any duly designated agent or representative thereof,
will be liable for anything other than willful misconduct, gross negligence or
fraud. The officer and the Debtor may, in connection with the performance of
their functions, and in their sole and absolute discretion, consult with
counsel, accountants and their agents, and will not be liable for anything done
or omitted or suffered to be done in accordance with such advice or opinions. If
the officer or the Debtor determines not to consult with counsel, accountants or
their agents, such determination will not be deemed to impose any liability on
the officer or the Debtor and/or their designees. The officer will be
indemnified by the Debtor for all acts performed in his capacity as an officer,
which acts include, but are not limited to, the administration of the Debtor,
and performance of such other services required by the Plan in accordance with
the terms and provisions of the agreement entered into by the Debtor and such
officer with the consent of the Unsecured Committee. Pursuant to the terms of
the Plan, the officer's and the Debtor's designees, counsel, accountants,
representatives and duly designated agents will be indemnified for all acts
performed hereunder.
(F) LIQUIDATION OFFICER
After the occurrence of an Alternative Treatment Event that is not waived
by the necessary parties, and if and only if all GE Obligations and the
obligations owing to the Pre-Petition Lenders have been satisfied in full, the
Unsecured Committee will have the right to submit an EX PARTE order providing
for the appointment of an individual to be in charge of the Debtor's liquidation
or a responsible person, who shall thereafter govern and control the Debtor and
will be vested with all rights, privileges and powers of a Trustee appointed
pursuant to Section 1104 of the Bankruptcy Code. The individual in charge of the
liquidation, or the responsible person, as the case may be, will have no claim
against the collateral of GE Capital or the Pre-Petition Lenders under Section
506(c) of the Bankruptcy Code. From and upon appointment, the individual in
charge of liquidation, or the responsible person, as the case may be, will be
bound by the terms, conditions and provisions of the Plan in its entirety. The
respective rights, remedies and privileges of GE Capital and the Pre-Petition
Lenders under the Plan will not be impaired in any way by the appointment of
such individual or any actions taken by the Debtor after such appointment, and
all such rights and remedies will exist to the same extent as before such
appointment.
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G. DISCHARGE, RELEASES, INJUNCTIONS, AND RELATED PROVISIONS
1. RELEASES
(A) RELEASE OF RELEASED PARTIES
As of the Effective Date, each of the Released Parties will be released
from any and all claims asserted or that can be asserted against such Released
Party that arise out of such Released Party's relationship with or work
performed for the Debtor on or prior to the Effective Date, other than claims
which constitute (i) claims preserved against such Released Party pursuant to
the Plan, (ii) claims that arise from obligations created under or in connection
with the Plan, (iii) rights pursuant to the Plan or any agreement provided for
or contemplated in the Plan, or (iv) claims which may be asserted against such
Released Party by an insurance carrier or the issuer of a bond in connection
with any insurance contract, reinsurance contract, surety bond, fidelity bond,
or other type of insured or bonded obligation; PROVIDED, HOWEVER, that the
foregoing release provisions (i) shall not apply to such Released Party's gross
negligence or willful misconduct, and (ii) shall not apply to (a) any Released
Party who is the subject of any action or proceeding pending as of the Effective
Date to recover property or money for the benefit of the Estate, or (b) any
claims asserted by or against any of the Debtor's present or former officers or
directors in any action or proceeding pending as of the Effective Date; and
PROVIDED, HOWEVER, that (i) in the case of the Pre-Petition Lenders, the scope
of the foregoing release as and to the extent given by the Pre-Petition Lenders
will extend only to claims of the Pre-Petition Lenders arising on or prior to
the Effective Date against any of the Released Parties solely in the
Pre-Petition Lenders' capacity as the holders of the Pre-Petition Secured Notes
and not to the extent of any other claims of the Pre-Petition Lenders arising
out of any other relationship which any of the Pre-Petition Lenders may have
with the Debtor or any of the Released Parties, including, without limitation,
any insurance, fidelity bond or suretyship relationship; and (ii) in the case of
GE Capital, the scope of the foregoing release as and to the extent given by GE
Capital will extend only to the claims of GE Capital arising on or prior to the
Effective Date against any of the Released Parties solely in GE Capital's
capacity as the lender under the DIP Facility and will not extend to any other
relationship which GE Capital may have with the Debtor or any of the Released
Parties.
The staff of the SEC or other parties in interest may challenge at
Confirmation the release of Released Parties as provided above and in the Plan
on the grounds that such a release violates Section 524(e) and exceeds the
exculpation clause of Section 1125(e) of the Bankruptcy Code. The Debtor,
however, believes that the breadth of the release is necessary to provide the
Released Parties with the assurance that they will not be burdened with
frivolous actions or claims arising from matters which occurred on or prior to
the Effective Date and to encourage such parties to continue to provide their
services to the Debtor.
(B) RELEASES BY THE DEBTOR AND REORGANIZED ROSE'S
Except as, and only to the extent, provided otherwise in the Plan, as of
the Effective Date, the Debtor, the Estate and Reorganized Rose's will be deemed
to forever release, waive and discharge all known and unknown claims of any
nature that the Debtor, its Estate, or Reorganized Rose's has, had or may have
against any Released Party for all acts and omissions through the Effective Date
other than (i) claims preserved against such Released Party pursuant to the
Plan, (ii) claims that arise from obligations created under or in connection
with the Plan, (iii) any claims asserted against any of the Debtor's present or
former officers or directors in any action or proceeding pending as of the
Effective Date, or (iv) claims which may be asserted against such Released Party
through subrogation or otherwise by an insurance carrier or the issuer of a bond
in connection with any insurance contract, reinsurance contract, surety bond,
fidelity bond, or other type of bonded obligation. Except in the event that the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of the
Plan, as of the Effective Date, the Debtor and Reorganized Rose's will also be
deemed to forever release, waive and discharge all Avoiding Power Actions.
(C) RELEASES BY RECIPIENTS OF NEW ROSE'S COMMON STOCK, NEW ROSE'S SECURED
NOTES, NEW ROSE'S WARRANTS, CASH, OR AVAILABLE CASH (AS APPLICABLE), AND ALL
OTHER PERSONS
Except as, and only to the extent, otherwise provided in the Plan, each
Person receiving Cash, New Rose's Secured Notes, New Rose's Warrants, the right
to participate in the Class 5 Subscription and/or New Rose's Common Stock,
Available Cash (as applicable), or other distribution or payment pursuant to the
Plan on account of its Allowed Claim, Administrative Claim or Common Stock
Interest, as the case may be, will be deemed, as of the Effective Date, to
forever release, waive and discharge all known and unknown claims of any nature
arising on or prior to the Effective Date against each of the Released Parties
to the extent that such claims arise out of such Released Party's actions or
failure to act in connection with the Debtor, the Committees, the Chapter 11
Case, or claims otherwise treated and discharged under the Plan, other than
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claims which constitute (i) claims preserved against such Released Party
pursuant to the Plan, (ii) claims that arise from obligations created under or
in connection with the Plan, (iii) such Person's rights pursuant to this Plan or
any agreement provided for or contemplated in this Plan, or (iv) claims which
may be asserted against such Released Party by an insurance carrier or the
issuer of a bond in connection with any insurance contract, reinsurance
contract, surety bond, fidelity bond, or other type of insured or bonded
obligation; PROVIDED, HOWEVER, that the foregoing release provisions (i) shall
not apply to such Released Party's gross negligence or willful misconduct, and
(ii) shall not apply to (a) any Released Party who is the subject of any action
or proceeding pending as of the Effective Date to recover property or money for
the benefit of the Estate, or (b) any claims asserted by or against any of the
Debtor's present or former officers of directors in any action or proceeding
pending as of the Effective Date; and PROVIDED, HOWEVER, that (i) in the case of
the Pre-Petition Lenders, the scope of the foregoing release as and to the
extent given by the Pre-Petition Lenders will extend only to claims of the
Pre-Petition Lenders of any nature arising on or prior to the Effective Date
against any of the Released Parties solely in the Pre-Petition Lenders' capacity
as the holders of the Pre-Petition Secured Notes and not to the extent of any
other claims arising out of any other relationship which any of the Pre-Petition
Lenders may have with the Debtor or any of the Released Parties, including,
without limitation, any insurance, fidelity bond or suretyship relationship; and
(ii) in the case of GE Capital, the scope of the foregoing release as and to the
extent given by GE Capital will extend only to the claims of GE Capital arising
on or prior to the Effective Date against any of the Released Parties solely in
GE Capital's capacity as the lender under the DIP Facility and will not extend
to any other claims of GE Capital arising out of any other relationship which GE
Capital may have with the Debtor or any of the Released Parties. Nothing in the
Plan shall be construed as a release by GE Capital of any of the GE Obligations.
The staff of the SEC or other parties in interest may challenge at
Confirmation the release of Released Parties given by the recipients of New
Roses's Common Stock, New Rose's Secured Notes, New Rose's Warrants, Cash, or
Available Cash (as applicable) as provided above and in the Plan on the grounds
that such a release violates Section 524(e) and exceeds the exculpation clause
of Section 1125(e) of the Bankruptcy Code. The Debtor, however, believes that
the breadth of the release is necessary to provide the Released Parties and
their respective present and former stockholders, members, directors, officers,
employees, agents, attorneys, accountants, financial advisors and other
representatives with the assurance that they will not be burdened with frivolous
actions or claims arising from matters which occurred on or prior to the
Effective Date and to encourage such parties to continue to provide their
services to the Debtor.
(D) DISCHARGE
Except as otherwise expressly provided in Section 1141 of the Bankruptcy
Code or the Plan and except in the event the Alternative Treatment Provisions
are effective pursuant to Section 8.1 of the Plan, the distributions made
pursuant to and in accordance with the applicable terms and conditions of the
Plan will be in full and final satisfaction, settlement, release and discharge
as against the Debtor, of any debt that arose before the Effective Date and any
debt of a kind specified in Section 502(g), 502(h), or 502(i) of the Bankruptcy
Code and all Claims and interests of any nature, including, without limitation,
any interest accrued thereon from and after the Filing Date, whether or not (i)
a proof of Claim or Interest based on such debt, obligation or equity interest
is filed or deemed filed under Section 501 of the Bankruptcy Code, (ii) such
Claim or equity interest is allowed under Section 502 of the Bankruptcy Code or
(iii) the holder of such Allowed Claim or Interest has accepted the Plan.
Therefore, upon the Effective Date, except as otherwise provided in the
Plan, all Persons which are or could have been holders of Claims against, or
Interests in, the Debtor will be precluded from asserting against the Debtor or
Reorganized Rose's, or any of its assets or property, any other or further
Claims or Interests based upon any act or omission, transaction or other
activity of any kind or nature that occurred prior to the Effective Date, and
the Confirmation Order will permanently enjoin all said holders of Claims or
Interests from enforcing or seeking to enforce any such Claims or Interests,
subject to the occurrence of the Effective Date.
(E) GENERAL RELEASE OF LIENS
Except as otherwise provided in the Plan, the New Rose's Secured Notes, the
Post-Effective Date Financing Facility, or in any contract, instrument,
indenture or other agreement or document created in connection with the Plan, or
the implementation thereof, on the Effective Date, all mortgages, deeds of
trust, liens or other security interests against property of the Estate will be
released, and all the right, title and interest of any holder of such mortgages,
deeds of trust, liens or other security interests will revert to Reorganized
Rose's or the Debtor, as applicable, and the successors and assigns thereof.
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(F) RIGHTS OF FIREMAN'S FUND INSURANCE COMPANY
Notwithstanding any other provision in the Plan, including, without
limitation, those provisions set forth in Article IX of the Plan, unless
otherwise agreed, the Plan will not impair or prejudice in any manner the right
of Fireman's Fund Insurance Company or any of its subsidiaries (collectively,
"FFIC"), (i) to make draws or otherwise enforce their rights regarding any
letter of credit issued to FFIC; (ii) to seek to compel payment of any
administrative claim held by FFIC; (iii) to assert or enforce any rights of
setoff, subrogation or recoupment; (iv) to retain or enforce any liens held by
FFIC on funds held by FFIC; (v) to assert claims, including without limitation
contribution or indemnification claims, and obtain recovery thereon against any
Person other than a Released Party; (vi) to obtain repayment or recovery for
payments made to or for the benefit of a Released Party on account of a claim
made by such Released Party under an insurance policy issued by FFIC; or (vii)
to exercise any and all rights or remedies arising out of or in connection with
insurance services or coverage provided by FFIC after the Effective Date.
Notwithstanding the foregoing, nothing herein will be deemed to constitute an
admission by the Debtor as to the validity, priority or nature of any claim
filed by FFIC against the Debtor. In addition, the foregoing will not constitute
an assumption by the Debtor of any agreement between the Debtor and FFIC, and
the Debtor expressly reserves its right to reject any such agreement. Nothing
herein or in the Plan will be construed to limit or reduce any rights, remedies,
liens, priorities or protections granted to GE Capital pursuant to the DIP
Facility.
2. INJUNCTIONS
(A) INJUNCTION RELATED TO CLAIMS RELEASED BY THE DEBTOR AND REORGANIZED
ROSE'S (IF APPLICABLE), RECIPIENTS OF CASH, NEW ROSE'S COMMON STOCK, NEW ROSE'S
SECURED NOTES AND NEW ROSE'S WARRANTS, OR AVAILABLE CASH (IF APPLICABLE) AND ALL
OTHER PERSONS
The Plan provides that as of the Effective Date and subject to its
occurrence, all Persons that have held, currently hold or may have asserted a
Claim or other debt, or liability, or an interest or other right of a holder of
an Interest that is released or terminated pursuant to the Plan, are, except as
provided with respect to the New Rose's Secured Notes, the New Rose's Secured
Notes Documents, the Supplemental Adequate Protection Order, the New Rose's
Common Stock, and the New Rose's Warrants, permanently enjoined from taking any
of the following actions on account of such released Claims, debts or
liabilities or Interests: (i) commencing or continuing, in any manner or in any
place, any action or other proceeding; (ii) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or order; (iii) creating,
perfecting or enforcing any lien or encumbrance; (iv) asserting a set-off, right
or subrogation or recoupment of any kind against any debt, liability or
obligation due to any such releasing Person; and (v) commencing or continuing
any action, in any manner or in any place, that does not comply with or is
inconsistent with the provisions of the Plan.
(B) INJUNCTION RELATING TO THE PLAN
As of the Effective Date, except as otherwise provided in the Plan, all
Persons are permanently enjoined from commencing or continuing, in any manner or
in any place, any action or other proceeding, whether directly, derivatively or
otherwise against any or all of the Released Parties, on account of or
respecting any claims, debts, rights, causes of action or liabilities released
or discharged pursuant to the Plan, except to the extent permitted under the
Plan.
(C) CONSENT BY HOLDERS OF CLAIMS AND INTERESTS TO ENTRY OF INJUNCTIVE
RELIEF
Without limitation to the scope, extent, validity or enforceability of the
injunctive relief set forth in the Plan and in the Confirmation Order, by
accepting distributions pursuant to the Plan, each holder of an Allowed Claim or
Interest receiving distributions pursuant to the Plan will be deemed to have
specifically consented to the releases and injunctions set forth in the Plan.
(D) INJUNCTION AGAINST SUBSEQUENT BANKRUPTCY PROCEEDINGS
From and after the Effective Date, pursuant to Sections 105 and 1141 of the
Bankruptcy Code, until such time as obligations owing pursuant to the New Rose's
Secured Notes Documents, are satisfied in full, all creditors (including
creditors holding Claims entitled to administrative priority), all equity
security holders, the Debtor, Reorganized Rose's, and any officer, director,
professional or agent of the Debtor or Reorganized Rose's, together with their
respective successors and assigns, are hereby enjoined from (i) causing the
Debtor or Reorganized Rose's to be subject to or to seek or obtain relief under
any chapter of the Bankruptcy Code or (ii) in connection with an Event of
Default or event of default under the New Rose's Secured Notes Documents or
Post-Effective Financing Facility, taking any action (including seeking the
appointment of a trustee or an examiner or seeking conversion of the Chapter 11
Case to any other case under the Bankruptcy Code) inconsistent with or that
would delay, hinder or interfere with the rights and remedies of the
Pre-Petition Lenders or the Post-
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Effective Date Lender, or both, as the case may be. The foregoing will not be
construed as limiting the ability of any party-in-interest from seeking to
enforce any provision of the Plan or any Order of the Bankruptcy Court related
thereto, the DIP Facility, the Plan Support Consent Order (as discussed
earlier), the Second Supplemental Adequate Protection Consent Order, the New
Rose's Secured Notes, the New Rose's Secured Notes Documents, or the Post
Effective Date Financing Facility in the Bankruptcy Court or other appropriate
forum.
3. INDEMNIFICATION
Reorganized Rose's will assume, to the fullest extent permitted by law, and
only if such obligations have not been rejected or terminated prior to the
Effective Date, all obligations relating to indemnification and exculpation of
the Debtor and of all Persons who, as of the Effective Date, were the Debtor's
directors, officers, employees, fiduciaries, agents or controlling persons as
arise under applicable laws or as provided in any of (i) the Debtor's
certificate of incorporation in effect prior to or as of the date hereof, (ii)
the Debtor's by-laws in effect prior to or as of the date hereof, or (iii) any
agreement with or any corporate policy relating to indemnification in effect
prior to the Effective Date of the Debtor, in each of these cases (i)-(iii) with
respect to matters occurring on or prior to the Effective Date. Except as
otherwise provided in the Plan, all Claims based upon contractual, statutory or
common law indemnification obligations other than those described in this
paragraph will not survive confirmation of the Plan and will be discharged
pursuant to Section 1141 of the Bankruptcy Code. The staff of the Securities and
Exchange Commission may object to the assumption by the Debtor of the
obligations to indemnify and exculpate as set forth herein and in the Plan. The
Debtor, however, is providing this indemnification provision as consideration
for the indemnified parties' willingness to continue to work for the Debtor up
to and after the Effective Date and to protect such parties from claims or
actions which may be asserted against them as a result of their service to the
Debtor.
4. EFFECT OF CONFIRMATION
Pursuant to Section 1141(a) of the Bankruptcy Code, as of the Confirmation
Date, the provisions of the Plan will be binding on each of the Debtor,
Reorganized Rose's, holders of Allowed Claims acquiring property or receiving
distributions under the Plan, holders of Allowed Interests, and any creditor of
the Debtor, whether or not (i) the holder of such Claim or Interest is impaired
under the Plan, (ii) such creditor has accepted the Plan, or (iii) such holder
has received a distribution under the Plan.
H. CLAIMS RESOLUTION AND DISTRIBUTIONS
1. CLAIMS RESOLUTION
In order for the holder of a Claim to receive the treatment offered to the
Class in which it is classified, its Claim must be allowed. An Allowed Claim is
defined by the Bankruptcy Code as a claim or portion thereof (i) which has been
scheduled by the Debtor pursuant to Section 521(1) of the Bankruptcy Code and
Bankruptcy Rule 1007 and is not scheduled as disputed, contingent or
unliquidated, and as to which no proof of Claim or objection timely filed by any
party in interest is pending or (ii) which has been filed with the Bankruptcy
Court and as to which no objection to the allowance thereof has been interposed
within the period of time therefor fixed by the Bankruptcy Code, Bankruptcy
Rules or an order of the Bankruptcy Court, or as to which any objection has been
determined by a Final Order of the Bankruptcy Court allowing such claim or
portion of such claim.
As discussed previously in this Disclosure Statement, the Bankruptcy Court
has established certain Bar Dates for the filing of Claims. All Claims scheduled
by the Debtor as disputed, contingent or unliquidated as to amount and for which
no proof of Claim is filed by the applicable Bar Dates will be deemed
extinguished. Furthermore, any proof of Claim filed after the applicable Bar
Dates will be deemed extinguished under the terms of the Plan unless otherwise
provided by order of the Bankruptcy Court.
Through and after the Effective Date, the Debtor, or any other
party-in-interest desiring to file objections to proofs of Claim will file
objections to the allowance of the Claims to the extent they deem such
objections warranted. Each of the Debtor, the Unsecured Committee and the Equity
Committee will have standing to (i) move for an order of the Bankruptcy Court,
pursuant to Section 502(c) of the Bankruptcy Court, fixing or liquidating the
Reserve Amount for any and all Disputed Claims in Class 3 to be deposited into a
Reserve, and (ii) object to any Disputed Claim or any Reserve Amount fixed on
account of any Disputed Claim; PROVIDED, HOWEVER, that the Equity Committee will
have no such standing in the event that the Alternative Treatment Provisions are
effective. In the event that any Disputed Claim has not been fixed or liquidated
pursuant to the Plan, the Reserve Amount with respect to such Disputed Claim
will be equal to the face amount of the
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Disputed Claim. Claims listed in the schedules filed by the Debtor with the
Bankruptcy Court pursuant to Section 521(a) of the Bankruptcy Code and
Bankruptcy Rule 1007 and not identified as either disputed, contingent or
unliquidated and for which no proofs of Claim have been filed on or before the
Bar Date, will be treated in the Plan as Allowed Claims unless the scheduled
amounts are properly amended or objections are filed to the amounts set forth in
the schedules. Proofs of Claim for which no objection is filed by the Effective
Date or such other date set by further order of the Bankruptcy Court will be
deemed Allowed Claims in the amounts set forth in proofs of Claim filed with the
Bankruptcy Court. Proofs of Claim filed on or prior to the applicable Bar Dates
to which a timely objection has been asserted will be considered to be Disputed
Claims.
2. DISTRIBUTIONS IN CONNECTION WITH DISPUTED CLAIMS
All Cash, New Rose's Common Stock, or Available Cash to which a Disputed
Claim would be entitled as an Allowed Claim as of a Distribution Date, will not
be distributed, but, if necessary, will be held in Reserve on the applicable
Distribution Date by the Debtor, in such amount as would have been distributed
if the holder thereof had an Allowed Claim in the full amount of its Disputed
Claim; PROVIDED, HOWEVER, that if a holder of a Contingent Claim is not
receiving a distribution under the Plan and such Contingent Claim is not being
discharged by the Plan, or is assumed by Reorganized Rose's, the Debtor will not
be required to reserve any Cash, New Rose's Common Stock or Available Cash with
respect to said Claim.
The existence and/or pendency of litigation over any Disputed Claims will
not prevent or delay disbursement of the payments provided for under the Plan,
including payments or distributions on the portion of the Claim which is not
disputed, to the non-contested Claims or other Claims not subject to any
dispute. Upon request of the Debtor, on or prior to the Effective Date, or such
date or dates thereafter as the Bankruptcy Court may set, the Bankruptcy Court
may fix or liquidate the Reserve Amount on account of a particular Disputed
Claim pursuant to Section 502(c) of the Bankruptcy Code, in which event the
amount so fixed or liquidated will be deemed to be the amount of the Disputed
Claim pursuant to Section 502(c) of the Bankruptcy Code for purposes of
distribution under the Plan. In lieu of fixing or liquidating the amount of any
Disputed Claim, the Bankruptcy Court may determine the Reserve Amount for such
Disputed Claim, or such Reserve Amount may be fixed by agreement in writing by
and between the Debtor and the holder thereof. Each of the Debtor, the Unsecured
Committee, and the Equity Committee will have standing to (i) move for an order
of the Bankruptcy Court, pursuant to Section 502(c) of the Bankruptcy Code,
fixing or liquidating the Reserve Amount for any and all Disputed Claims in
Class 3 to be deposited into a Reserve, and (ii) object to any Disputed Claim or
any Reserve Amount fixed on account of any Disputed Claim. In the event that any
Disputed Claim has not been fixed or liquidated pursuant to the Plan, the
Reserve Amount with respect to such Disputed Claim will be equal to the face
amount of the Disputed Claim.
No holder of a Disputed Claim will have any Claim against the Cash and/or
New Rose's Common Stock, or Available Cash (as applicable) reserved with respect
to such Disputed Claim until such Disputed Claim becomes an Allowed Claim. The
holder of a Disputed Claim will not be entitled to receive (under the Plan or
otherwise) from the Debtor, Reorganized Rose's, or the Reserve, any payment
which is greater than that Reserve Amount deposited into a Reserve for such
Claim plus any interest earned thereon. The Debtor or the Disbursing Agent will
not have any responsibility or liability for any loss to or of any amount
reserved under the Plan.
When a Disputed Claim becomes an Allowed Claim, distribution on account
thereof will be made as soon as practicable after the date of subsequent
allowance of such Disputed Claim as provided in Article 6 of the Plan, by means
determined by Reorganized Rose's; provided, further, that to the extent any such
distributions include Cash, then such distributions will also include interest
accrued from the Effective Date (net of Pro-Rata assessment for reasonable fees
and expenses incurred in administering the Reserve).
To the extent a Disputed Claim ultimately becomes an Allowed Claim in an
amount less than the amount reserved for such Disputed Claim, then the resulting
surplus, including interest, if any, will be retained by Reorganized Rose's or
held in the treasury of Reorganized Roses, as applicable; PROVIDED, HOWEVER,
that any Cash remaining in the Subscription Proceeds Escrow including accrued
interest thereon, after distributions to Disputed Claims in Class 3 that become
Allowed Claims in Class 3, will be distributed pro-rata among the Class 5
Subscribers as set forth in the Plan.
As of the Equity Record Date, Reserve Amounts will have been fixed pursuant
to the Plan for all Disputed Claims in Class 3. Upon resolution of a Disputed
Claim in Class 3, any Reserve Amount which was previously fixed for such
disputed Claim will be set to zero, the total Reserve Amount for Disputed Claims
in Class 3 will be reduced accordingly, and any Cash deposited in a Reserve on
account of such Disputed Claim together with accrued interest thereon will be
distributed to the holder of such Disputed Claim to the extent that such
Disputed Claim has become an Allowed Claim, and will otherwise be deposited into
the Subscription Proceeds Escrow.
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3. DISPUTED PAYMENTS
Except as otherwise provided in the Supplemental Adequate Protection
Consent Orders, in the event of any dispute by holders of Claims or Interests as
to the right of any Person to receive or retain any payment or distribution to
be made to such Person or entity under the Plan, the Distribution Agent may, in
lieu of making such payment or distribution to such Person, instead hold such
payment or distribution until the disposition thereof is determined by the
Bankruptcy Court.
4. UNCLAIMED DISTRIBUTIONS
Except as provided in the Class 5 Rights Notice, the New Rose's Warrant
Agreement or the New Rose's Common Stock Trust Agreement, distributions to
holders of Allowed Claims or Common Stock Interests will be made: (a) at the
addresses set forth in the proofs of Claim filed by such holders; (b) at the
addresses set forth in any written notices of address change delivered to the
Debtor and transmitted to the Distribution Agent after the date on which any
related proof of Claim was filed; or if the information described in clauses (a)
or (b) is not available, (c) at the addresses reflected in the Debtor's
schedules of liabilities or the applicable stock register as maintained by or on
behalf of the Debtor on the applicable Record Date.
If the distribution to any holder of an Allowed Claim or Common Stock
Interest is returned to a Distribution Agent as undeliverable, no further
distributions will be made to such holder, but will be held by the Distribution
Agent, unless the Distribution Agent is notified in writing of such holder's
then-current address, at which time all previously missed distributions will be
mailed to such holder. The Distribution Agent will hold undeliverable
distributions until such time as a distribution becomes deliverable.
Undeliverable Cash will be held in trust in segregated bank accounts in the name
of the applicable Distribution Agent. Any Distribution Agent holding
undeliverable Cash can invest the Cash in a manner consistent with Reorganized
Rose's or the Debtor's, as applicable, investment and deposit guidelines and the
requirements of Section 345 of the Bankruptcy Code. Undeliverable shares of New
Rose's Common Stock or New Rose's Warrants will be held in trust for the benefit
of the potential claimants of such shares by the applicable Distribution Agent
in numbers of shares sufficient to fund the unclaimed amounts of such New Rose's
Common Stock.
Except upon a showing of (i) excusable neglect and (ii) no prejudice to any
Persons who have received a distribution under the Plan (as determined by the
Bankruptcy Court), any holder of an Allowed Claim or Common Stock Interest that
does not assert a right to receive a distribution of Cash or shares of New
Rose's Common Stock within one year after the first distribution will have its
right to receive such undeliverable distribution discharged and will be forever
barred from asserting any such right for an undeliverable distribution against
the applicable Distribution Agent and Reorganized Rose's or the Debtor, as
applicable, or its property. In such cases: (i) any Cash held will be property
of Reorganized Rose's or the Debtor, as applicable and (ii) any shares of New
Rose's Common Stock held for issuance on account of Claims or Common Stock
Interests will either be canceled or held as treasury shares, as Reorganized
Rose's may determine is appropriate. If undeliverable Cash or shares of New
Rose's Common Stock are held by a Distribution Agent, the Distribution Agent
will return such Cash or New Rose's Common Stock to Reorganized Rose's. Checks
issued by a Distribution Agent in respect of distributions to the holders of
Allowed Claims or Common Stock Interests will be null and void if not cashed
within 120 days of the date of issuance thereof. Any Claim in respect of such a
check voided pursuant to this Section must be made on or before the later of the
first anniversary of the first distribution or 90 days after the issuance of
such check. After such date, except upon a showing of (i) excusable neglect and
(ii) no prejudice to any Persons who have received a distribution under the Plan
(as determined by the Bankruptcy Court), all claims in respect of a check voided
will be discharged and forever barred. Nothing contained in the Plan will
require the Debtor, Reorganized Rose's, or any Distribution Agent to attempt to
locate any holder of an Allowed Claim or Common Stock Interest.
5. FRACTIONAL DISTRIBUTIONS AND FRACTIONAL CENTS; ROUND LOTS
Any other provision of the Plan notwithstanding, no fractional shares of
New Rose's Common Stock or New Rose's Warrants will be issued or distributed in
connection with the Plan. Each holder entitled under the Plan to receive New
Rose's Common Stock or New Rose's Warrants will receive the total number of
whole New Rose's Common Stock certificates or New Rose's Warrant certificates to
which such holder is entitled. Whenever any distribution to a particular holder
would otherwise call for distribution under the Plan of a fraction of a share of
New Rose's Common Stock or of a New Rose's Warrant, the Distribution Agent will
allocate separately to each such holder one whole share or warrant, as the case
may be, to such holders in order of the fractional portion of their
entitlements, starting with the largest such fractional portion, until all
remaining whole shares or warrants, as the case may be, have been allocated.
Upon the allocation of a whole share or warrant, as the case may be, to a holder
in respect of the fractional portion of its entitlement, such fractional portion
will be canceled. If two or more holders are entitled to equal fractional
entitlements and the number of holders so entitled exceeds
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the number of whole shares or warrants, as the case may be, which remain to be
allocated, the Distribution Agent will allocate the remaining whole shares or
warrants to such holders by random lot or such other impartial method that the
Distribution Agent deems fair. Upon the allocation of all the whole shares or
warrants, as the case may be, all remaining fractional portions of the
entitlements will be canceled and will be of no further force and effect.
Whenever any payment of a fraction of a cent would otherwise be called for, the
actual payment will reflect a rounding down of such fraction to the nearest,
lowest whole cent.
K. MISCELLANEOUS
1. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Unless specifically assumed by order of the Bankruptcy Court or the subject
of a motion to assume, or the subject of a motion or an order seeking additional
time to assume or reject, all executory contracts and unexpired leases (except
for Assumed Contracts and Leases) will be deemed rejected by the Debtor or
Reorganized Rose's as of the Effective Date or as otherwise provided for by
order of the Bankruptcy Court. In any event, the Debtor is expressly rejecting
and terminating the Employee Stock Option Plans and the Pre-Petition Secured
Noteholder Warrant Agreement. Claims arising from the rejection of these and
other executory contracts or unexpired leases will be treated in accordance with
the terms of the Plan.
With respect to the Assumed Contracts and Leases, if any, in accordance
with Section 1123(a)(5)(G) of the Bankruptcy Code, upon the later of the
Effective Date or assumption, or as soon as practicable thereafter, the Debtor
or Reorganized Rose's will cure all defaults thereunder by making a Cash payment
(i) of those amounts which are Allowed Claims, or (ii) on such terms as agreed
to in writing by such claimants and the Debtor or Reorganized Rose's. Any
disputes regarding the amount which will be paid to cure the Assumed Contracts
and Leases will be resolved by the Bankruptcy Court after notice and hearing. If
the Alternative Treatment Provisions of the Plan are not effective, the Debtor
estimates that cure payments on Assumed Contracts and Leases will total $3.3
million.30
If the Debtor rejects an executory contract pursuant to the Plan or obtains
an order approving the rejection of an executory contract within which no bar
date for the filing of a Rejection Claim is provided, then any Claim arising
from such rejection must be filed with the Bankruptcy Court and served on the
Reorganized Debtor within thirty (30) days after the Effective Date. Failure to
file a Claim before this deadline will forever bar the Claim and render it
unenforceable against the Debtor or Reorganized Rose's.
2. POST-CONFIRMATION CLAIMS
Claims assertable against the Debtor or Reorganized Rose's arising from
goods, inventory and services provided, or credit extended with respect to
goods, inventory and services provided, to the Debtor or Reorganized Rose's
during the period after the Confirmation Date and prior to the Effective Date,
will be deemed Administrative Claims and be entitled to treatment pursuant to
the Plan without the need for notice and hearing pursuant to Section 503(b) of
the Bankruptcy Code or further order of the Bankruptcy Court. Moreover, in
accordance with Section 365(d)(3) of the Bankruptcy Code, the Debtor will
perform all its obligations arising from and after the Filing Date under any
unexpired lease of nonresidential real property until such lease is assumed or
rejected. In addition, the Debtor will continue to comply with Section 365(d)(3)
of the Bankruptcy Code, and the Debtor will perform all its obligations, in full
and on time, to the extent not inconsistent with Section 365(d)(3), arising from
and after the Filing Date under any unexpired lease of nonresidential real
property until such lease is assumed or rejected. Such obligations will be
deemed Administrative Claims and will be entitled to treatment pursuant to the
Plan without the need for notice and hearing pursuant to Section 503(b) of the
Bankruptcy Code or further order of the Bankruptcy Court. The Debtor's
obligations under the leases subject to this section only include those
specified in the lease, if any, including but not limited to rent, real estate
taxes, percentage rent, and common area maintenance charges; such charges will
be pro-rated per diem if the lease is rejected or terminated during a payment
period.
3. THE COMMITTEES AND POST-EFFECTIVE DATE TRADE COMMITTEE
On the Effective Date, the Unsecured Committee will be deemed disbanded and
the duties of the Unsecured Committee, and the retention of its counsel and
other retained Professionals, will automatically terminate. The Equity Committee
will be deemed disbanded and the duties of the Equity Committee, and the
retention of its counsel and other retained Professionals, will automatically
terminate except with respect to any pending appeal to which the Equity
Committee is a party, on the
30 This total is primarily comprised of a cure payment totalling $1.9 million
which the Debtor may be required to pay if it assumes its executory contract
with J. Baker, Inc.
M-80 58
<PAGE>
sixtieth day after the Determination Date or the first Business Day thereafter,
unless such period is extended by order of the Bankruptcy Court on appropriate
notice and hearing. Until the duties of the Equity Committee terminate, the
Equity Committee will have the right to continue to retain its counsel and other
retained Professionals, and the reasonable fees and expenses of such
Professionals shall to be treated as set forth in Section 3.3 of the Plan.
From and after the Effective Date, the Post-Effective Date Trade Committee
will be formed and constituted and will consist of three (3) members who have
previously served on the Unsecured Committee. The Post-Effective Date Trade
Committee will continue in existence solely with respect to (1) any appeal of
the Confirmation Order, (2) applications for Professional Fees, (3) Claims
resolution (other than Damage Claims), until the aggregate amount of Disputed
Claims in Class 3 is less than $6,500,000, (4) in the event that the Alternative
Treatment Provisions of the Plan are effective, the effectuation of the
Alternative Treatment Provisions and the Alternative Treatment Implementation
Orders, through the Consummation Date, and (5) such other matters as may be
approved by the Debtor, the Reconstituted Board of Directors, or as otherwise
provided by a Final Order of the Bankruptcy Court.
The Post-Effective Date Trade Committee will have the right to retain the
services of attorneys and accountants which are necessary to assist the
Post-Effective Date Trade Committee in the performance of its duties. The
reasonable fees and expenses of such professionals will be paid monthly by
Reorganized Rose's in arrears in full in Cash upon the submission of invoices to
Reorganized Rose's. Ten (10) days after receipt by Reorganized Rose's and the
Post-Effective Date Trade Committee of any such invoice, Reorganized Rose's will
be authorized, unless it and/or the Person seeking payment has received a
written objection to the payment thereof from any of Reorganized Rose's or the
Post-Effective Date Trade Committee within such period. In the event the fees
and expenses of any such professional are objected to, such fees and expenses
will be payable only upon prior agreement of the parties or by order of the
Bankruptcy Court. The members of the Post-Effective Date Trade Committee shall
serve without compensation. Reasonable expenses of the members of the
Post-Effective Trade Committee will be reimbursed and paid by Reorganized Rose's
upon submission of bills to Reorganized Rose's or upon Final Order of the
Bankruptcy Court.
Neither the Post-Effective Date Trade Committee nor any of its members,
designees, counsel or accountants or any duly designated agent or representative
of the Post-Effective Date Trade Committee will be liable for the act, default
or misconduct of any other member of the Post-Effective Date Trade Committee,
nor will any member be liable for anything other than such member's gross
negligence, willful misconduct or fraud. None of the Post-Effective Date Trade
Committee's members, designees, agents or representatives or their respective
employees, will incur or be under any liability or obligation by reason of any
act done or omitted to be done, by any member of the Post-Effective Date Trade
Committee, designee, agent or representative. The Post-Effective Date Trade
Committee may, in connection with the performance of its functions, and in its
sole and absolute discretion, consult with counsel, accountants and its agents,
and will not be liable for acts or omissions done in accordance with such advice
or opinions. If the Post-Effective Date Trade Committee determines not to
consult with counsel, accountants or its agents, such determination will not be
deemed to impose any liability on the Post-Effective Date Trade Committee, or
its members and/or its designees.
4. MODIFICATION OF THE PLAN
The Plan Proponents may, with the approval of the Bankruptcy Court and
without notice to and consent of all holders of Claims and Interests, but after
notice to GE Capital and the Plan Proponents and consent by GE Capital and the
Plan Proponents, which consent may not be unreasonably withheld, insofar as they
do not materially and adversely affect the interests of holders of Claims and
Interests, correct any defect, omission or inconsistency in the Plan in such
manner and to such extent as may be necessary to expedite the execution of the
Plan. The Plan may be altered or amended before or after Confirmation as
provided in Section 1127 of the Bankruptcy Code if, in the opinion of the
Bankruptcy Court, the modification does not materially and adversely affect the
interests of holders of Claims and Interests; PROVIDED, HOWEVER, that any such
altered or amended plan will not be binding on GE Capital without the consent of
GE Capital. The Plan may be altered or amended before or after the Confirmation
Date in a manner which, in the opinion of the Bankruptcy Court, materially and
adversely affects holders of Claims and Interests, only on consent of all Plan
Proponents and GE Capital after a further hearing and acceptance of this Plan as
so altered or modified as provided in Section 1126 of the Bankruptcy Code.
5. REVOCATION OF THE PLAN
The Plan Proponents may revoke and withdraw the Plan at any time prior to
the Effective Date only by the unanimous written consent of all Plan Proponents;
PROVIDED, HOWEVER, that nothing in the Plan or herein will prejudice or affect
the rights of any Person under the Second Supplemental Adequate Protection
Consent Order or the Plan Support Consent Order. In the event of such
withdrawal, or if Confirmation or the Effective Date do not occur or cannot
occur as agreed in writing by all
59 M-81
<PAGE>
Plan Proponents, the Plan will be deemed null and void. In such event, nothing
contained herein or in the Plan will be deemed to constitute a waiver or release
of any Claims or Interests by or against the Debtor or Reorganized Rose's or any
other Person or to prejudice in any manner the rights of any Plan Proponent or
any Person in any further proceedings involving the Debtor. Nothing in Section
12.13 of the Plan or herein will prejudice or affect the rights of any Person
under the Second Supplemental Adequate Protection Consent Order or the Plan
Support Consent Order.
6. RETENTION OF JURISDICTION
Upon Confirmation and through the Effective Date, the Bankruptcy Court
shall retain full jurisdiction over the Chapter 11 Case notwithstanding that
Confirmation has occurred. From and after the Effective Date and until such time
as all payments and distributions required to be made, all events required to
have occurred under the Plan have occurred, and all other obligations required
to be performed under the Plan have been made or performed by the Debtor or
Reorganized Rose's, the Bankruptcy Court shall retain such jurisdiction as is
legally permissible, included, but not limited to the following:
(a) To hear and determine any and all objections to the allowance of a
Claim or Interest or any controversy as to the classification of Claims or
Interests or the Reserve;
(b) To hear and determine any and all applications by Professionals
for compensation and reimbursement of expenses;
(c) To hear and determine any and all pending motions for the
rejection and disaffirmance of executory contracts and unexpired leases and
fix and allow any Rejection Claims resulting therefrom;
(d) To enable the Debtor or Reorganized Rose's to prosecute any and
all proceedings which have been or may be brought prior to the Effective
Date to set aside liens or encumbrances and to recover any transfers,
assets, properties or damages to which the Debtor or Reorganized Rose's may
be entitled under applicable provisions of the Bankruptcy Code or any other
federal, state or local laws except as may be waived pursuant to this Plan;
(e) To liquidate any disputed, contingent or unliquidated Claims or
Interests;
(f) To enforce the provisions of the Plan and the injunction and
releases provided for in the Plan;
(g) To correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or in the Confirmation Order as may be necessary
to carry out its purpose and the intent of the Plan;
(h) To hear and determine any and all Avoiding Power Actions;
(i) To determine any Tax Claim which the Debtor or Reorganized Rose's
may incur as a result of the transactions contemplated herein;
(j) To determine such other matters as may be provided for in the
Confirmation Order confirming this Plan or as may be authorized under the
provisions of the Bankruptcy Code;
(k) To resolve any and all disputes that may arise under the Plan;
(l) To hear and determine any and all administrative matters that may
arise in closing this Chapter 11 Case;
(m) To enforce any rights and remedies pursuant to the New Rose's
Secured Notes and the New Rose's Secured Notes Documents, resolve and
adjudicate any and all issues arising under the New Rose's Secured Notes
and the New Rose's Secured Notes Documents and if any obligations remain
outstanding under the New Rose's Secured Notes, to enforce any rights and
remedies and to resolve and adjudicate any and all issues arising under the
Post-Effective Date Financing Facility, including any rights and remedies
of the Collateral Agent, any Pre-Petition Lender or the Post-Effective Date
Lender upon an Event of Default or an event of default under the New Rose's
Secured Notes Documents or the Post-Effective Date Financing Facility, as
the case may be (including issues relating to Section 5.1.4 of the Plan);
and
(n) To resolve all other matters with respect to which the Bankruptcy
Court's retention of jurisdiction over the Chapter 11 Case is legally
permissible, including without limitation, jurisdiction as is necessary to
ensure that the purpose and intent of the Plan are implemented.
M-82 60
<PAGE>
VI.
REORGANIZED ROSE'S31
A. FINANCIAL PROJECTIONS
The Debtor has prepared annual financial projections for 1994 through 1998,
quarterly projections for 1995 and other financial documents ("Financial
Projections") which are attached to this Disclosure Statement as Exhibit "C."
These projections include certain assumptions which are reflected in Exhibit C.
The Debtor has also prepared a Pro-Forma Balance Sheet which is attached hereto
as Exhibit "B."
B. VALUATION OF POTENTIAL RECOVERY BY HOLDERS OF ALLOWED CLAIMS IN CLASS 3 AND
HOLDERS OF COMMON STOCK INTERESTS
The amount of recovery of holders of Allowed Claims in Class 3 on account
of their Allowed Claims, as well as the value of any distributions to holders of
Common Stock Interests, depends on numerous factors. The principal factors
bearing upon the amount of recovery to holders of Allowed Claims in Class 3 and
Common Stock Interests are (i) the total amount of Allowed Claims in Class 3 and
(ii) the value of the New Rose's Common Stock to be issued to holders of Allowed
Claims in Class 3 and/or Common Stock Interests under the Plan. Either or both
of these amounts may vary materially from the estimates and valuations set forth
herein. In particular, the estimated value of the New Rose's Common Stock is not
intended to represent the value or trading price of such securities in the
market for such securities. The following valuation estimates have been prepared
by the Debtor in an effort to assist holders of Allowed Claims in Class 3 and
Common Stock Interests in valuing the distributions provided for under the Plan.
In preparing the valuations, the Debtor utilized methodologies that are commonly
used in valuing securities of companies emerging from bankruptcy. For additional
information concerning the potential allowed amounts of unsecured claims, see
Section V.B.7 of this Disclosure Statement. The Debtor's Financial Projections
are set forth in Exhibit C to this Disclosure Statement.
At present, the Debtor estimates that the ultimate aggregate amount of
Allowed Claims in Class 3 will range from approximately $115 million to $130
million. This estimated range is based upon the sum of all presently known or
anticipated Allowed Claims in Class 3 as of the date of this Disclosure
Statement and a high and low estimate of Disputed Claims that are expected to
become Allowed Claims in Class 3 in some amount. These estimates are based upon
the Debtor's analysis of the relative merits of each Disputed Claim, and the
prospects for settlement, if any. A more detailed discussion of the assumptions
made in arriving at this estimate is contained in Section V.B.7 of this
Disclosure Statement.
PLEASE NOTE THAT THE VALUATION INFORMATION CONTAINED HEREIN IS NOT A
PREDICTION OR GUARANTY OF EITHER THE FUTURE TRADING PRICE OF THE NEW ROSE'S
COMMON STOCK OR THE NEW ROSE'S WARRANTS TO BE ISSUED UNDER THE PLAN OR THE VALUE
OF THE SUBSCRIPTION RIGHTS TO BE ISSUED UNDER THE PLAN. THE TRADING PRICE OR
VALUE OF THE SECURITIES ISSUED UNDER THE PLAN IS SUBJECT TO MANY UNFORESEEABLE
CIRCUMSTANCES AND THEREFORE CANNOT BE ACCURATELY PREDICTED. IN ADDITION, THE
ACTUAL AMOUNTS OF ALLOWED CLAIMS IN CLASS 3 COULD MATERIALLY EXCEED THE AMOUNTS
ESTIMATED BY THE DEBTOR FOR PURPOSES OF VALUING THE ANTICIPATED RECOVERIES BY
THE HOLDERS OF SUCH CLAIMS AND OF COMMON STOCK INTERESTS. ACCORDINGLY, NO
REPRESENTATION CAN BE OR IS BEING MADE WITH RESPECT TO WHETHER SUCH RECOVERIES
WILL ACTUALLY BE REALIZED BY THE HOLDERS OF ALLOWED CLAIMS IN CLASS 3 AND COMMON
STOCK INTERESTS.
PLEASE FURTHER NOTE THAT, EXCEPT AS EXPLICITLY SET FORTH HEREIN, NEITHER
THE UNSECURED COMMITTEE OR THE EQUITY COMMITTEE, NOR THEIR PROFESSIONALS, HAVE
PERFORMED AN INDEPENDENT INVESTIGATION OF THE ACCURACY OR COMPLETENESS OF THE
VALUATION INFORMATION OR THE HISTORICAL AND PROJECTED FINANCIAL INFORMATION
REGARDING THE DEBTOR DISCUSSED IN THIS DISCLOSURE STATEMENT. THERE CAN BE NO
ASSURANCES REGARDING THE RANGE OF RECOVERIES AVAILABLE TO UNSECURED CREDITORS
AND HOLDERS OF COMMON STOCK INTERESTS UNDER THE PLAN OR THE VALUE OR TRADING
PRICES OF THE NEW ROSE'S COMMON STOCK OR THE NEW ROSE'S WARRANTS ISSUED UNDER
THE PLAN. SUCH SECURITIES ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND
31 This discussion of "Reorganized Rose's" applies if the Alternative Treatment
Provisions are not effective.
61 M-83
<PAGE>
CONTINGENCIES WHICH ARE BEYOND THE CONTROL OF THE
DEBTOR, THE UNSECURED COMMITTEE AND THE EQUITY COMMITTEE. IN ADDITION, BECAUSE
OF THE EXISTENCE OF DISPUTED CLAIMS, THE ACTUAL AGGREGATE AMOUNTS OF ALLOWED
CLAIMS IN CLASS 3 MAY MATERIALLY
EXCEED THE AMOUNTS ESTIMATED BY THE DEBTOR, THEREBY ADVERSELY EFFECTING THE
ESTIMATED RECOVERY THAT WILL ACTUALLY BE REALIZED BY THE HOLDERS OF ALLOWED
CLAIMS IN CLASS 3 AND THE HOLDERS OF COMMON STOCK INTERESTS.
ALL STATEMENTS WITH RESPECT TO THE FINANCIAL AND BUSINESS AFFAIRS OF THE
DEBTOR ARE MADE ONLY AS OF THE DATE OF THIS DISCLOSURE STATEMENT. THE FOLLOWING
VALUATIONS PREPARED BY THE DEBTOR MAY ONLY BE USED FOR PURPOSES OF VALUING
DISTRIBUTIONS TO BE RECEIVED UNDER THE PLAN AND ARE BASED ON THE FINANCIAL AND
BUSINESS RESULTS AND PROJECTIONS AS THEY EXIST ON THE DATE OF THIS DISCLOSURE
STATEMENT. THIS DISCLOSURE STATEMENT DOES NOT INCLUDE INFORMATION RELATING TO
EVENTS OCCURRING SUBSEQUENT TO ITS DATE. UNDER NO CIRCUMSTANCES SHALL THIS
DISCLOSURE STATEMENT CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE DEBTOR SINCE THE DATE OF THIS DISCLOSURE STATEMENT OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
1. ESTIMATED VALUATION OF REORGANIZED ROSE'S
In connection with certain matters relating to the Plan, the Debtor
determined that it was necessary to estimate post-confirmation values for the
securities to be issued under the Plan. Accordingly, the Debtor prepared a
valuation analysis of Reorganized Rose's. Specifically, the valuation was
developed only for purposes of (1) evaluating the relative recoveries of holders
of Allowed Claims in Class 3 and Common Stock Interests, and (2) evaluating
whether the Plan met the so-called "best interests test" under the Bankruptcy
Code. In preparing this analysis, the Debtor has, among other matters: (i)
prepared financial projections for its operations, including income statements,
balance sheets and cash flow statements of Reorganized Rose's through 1998, and
the assumptions underlying such projections, (ii) considered the market values
of publicly-held companies that are in businesses reasonably comparable to the
Debtor, (iii) considered economic and industry information relevant to the
business of Reorganized Rose's, (iv) considered the current operations and
prospects of the Debtor, and (v) made such other analyses and examinations as
the Debtor deemed necessary or appropriate.
Estimates of reorganization value do not purport to be appraisals nor do
they necessarily reflect the values that may be realized if assets are sold in
arm's length transactions between buyers and sellers. The estimates of value
prepared by the Debtor represent hypothetical reorganization values that were
developed solely for the purposes cited above. Such estimates reflect
computations of the estimated equity values of the Debtor through the
application of various valuation techniques and do not purport to reflect or
constitute appraisals of the actual market value that may be realized through
the sale of the New Rose's Common Stock to be issued pursuant to the Plan, which
may be significantly different from the amounts set forth herein. The valuation
of the New Rose's Common Stock is subject to uncertainties and contingencies,
all of which are difficult to predict.
The actual market price of the New Rose's Common Stock at the time of
issuance may be affected by factors including, among others, (i) the prevailing
conditions in the financial markets, particularly those affecting discount
retailers, (ii) the prospects of Reorganized Rose's and the discount retail
industry in general, (iii) that some of the holders of Allowed Claims in Class 3
who receive New Rose's Common Stock may prefer to liquidate their holdings
rather than retain them on a long-term basis, (iv) the Debtor's performance
during the pendency of the Chapter 11 Case, and (v) other factors which
generally influence the prices of securities that are not possible to predict as
of the date of this Disclosure Statement.
Many of the analytical assumptions upon which the valuations are based are
beyond the Debtor's control and there will be variations between such
assumptions and the actual facts. These variations may be material. The New
Rose's Common Stock is likely to trade at values that differ from the amounts
assumed herein. In the event that the estimated value of the Reorganized Rose's
is different from its actual trading market value after the Effective Date,
actual recoveries realized by the holders of Claims or Common Stock Interests
may be significantly higher or lower than estimated in this Disclosure
Statement. The Debtor's valuation assumes that its projected operating results
will be achieved in all material respects. No assurance can be given that the
projected results will be achieved, and any variations thereon could have a
material impact on the value of Reorganized Rose's. To the extent that the
valuation is dependent upon the Reorganized Rose's achievement of the
projections, the valuation must be considered speculative.
M-84 62
<PAGE>
As a result of such considerations and assumptions, the Debtor estimates
that the equity value, net of debt which will be outstanding as of the Effective
Date, will be in the range of $50 to $80 million. The equity value is an
estimate of the going concern value of Reorganized Rose's and is not a
prediction of the future trading prices of securities of Reorganized Rose's. The
Debtor's estimate is necessarily based on economic, market, financial and other
conditions as they exist on the date of
this Disclosure Statement. The equity value was estimated for the purposes
described above and is not binding on Plan Proponents for any other purpose.
2. SUBSCRIPTION RIGHTS
(A) CLASS 5 SUBSCRIPTION
Pursuant to the Class 5 Subscription, holders of Common Stock Interests
will have the non-transferable right to collectively subscribe for and purchase
up to 10,000,000 shares of New Rose's Common Stock at the Class 5 Subscription
Price determined pursuant to the Section V.C.1(h) of this Disclosure Statement.
If the aggregate number of shares which the Class 5 Subscribers indicate they
wish to purchase is greater than 10,000,000, the shares will be allocated on a
pro rata basis among such subscribers based on the number of shares of Voting
Common Stock and Non-Voting Class B Common Stock ("Old Common Stock") owned by
such holders. Payment, or guaranty of payment, for all shares of New Rose's
Common Stock elected to be purchased by such holders must be made by March 31,
1995. Neither the Debtor nor the Committees or their professionals can make any
recommendations concerning the exercise of this election, and holders are urged
to consult their own advisors with respect thereto.
(B) VALUATION OF SUBSCRIPTION RIGHTS
The value of the Subscription Rights depends upon the relationship between
the Class 5 Subscription Price, which is a function of the value of the Claims
in Class 3, and the valuation of Reorganized Rose's. The table below illustrates
the per share value of the Class 5 Subscription Rights assuming (i) all
10,000,000 Effective Date Shares are subscribed for and purchased by holders of
Common Stock Interests, (ii) the Debtor's estimated range of aggregate Allowed
Claims in Class 3 of $115 million to $130 million, and (iii) the Debtor's
estimated range of equity value of Reorganized Rose's of $50 million to $80
million.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
ESTIMATED VALUE OF REORGANIZED ROSE'S
EQUITY
$50,000,000 $65,000,000 $80,000,000
RANGE OF
CLASS 3 SUBSCRIPTION
ALLOWED RIGHTS
CLAIMS PROCEEDS
ESTIMATED VALUE OF RIGHTS AT APRIL 30,
1995
<S> <C> <C> <C> <C>
$115,000,000 $ 57,500,000 $0.00 $7,500,000 $22,500,000
$120,000,000 $ 60,000,000 $0.00 $5,000,000 $20,000,000
$125,000,000 $ 62,500,000 $0.00 $2,500,000 $17,500,000
$130,000,000 $ 65,000,000 $0.00 $ 0.00 $15,000,000
<CAPTION>
ESTIMATED VALUE OF RIGHTS PER CURRENT
SHARES
<S> <C> <C> <C> <C>
$115,000,000 $ 57,500,000 $0.00 $ 0.40 $ 1.20
$120,000,000 $ 60,000,000 $0.00 $ 0.27 $ 1.07
$125,000,000 $ 62,500,000 $0.00 $ 0.13 $ .93
$130,000,000 $ 65,000,000 $0.00 $ 0.00 $ .80
</TABLE>
3. NEW ROSE'S WARRANTS
(A) DETERMINATION OF EXERCISE PRICE
The exercise price of the New Rose's Warrants has been set to allow the
holders of Common Stock Interests to share in the going concern value of
Reorganized Rose's after satisfaction of the Allowed Claims in Class 3. The
exercise price of the New Rose's Warrants will be determined by dividing the
aggregate amount of Allowed Claims in Class 3 by 10,000,000 shares. See Section
V.C.1.(h) of this Disclosure Statement for a more complete description of the
determination and adjustment of the exercise price of the New Rose's Warrants.
Assuming a range of Allowed Claims in Class 3 of $115 million to $130 million,
the New Rose's Warrants will have an initial exercise price ranging from $11.50
to $13.00 per share, increasing to a maximum exercise price of $13.23 to $14.95
per share over the life of the warrant. Parties receiving New Rose's Warrants
must exercise their own judgment and should consult their own advisors with
respect to exercise of the New Rose's Warrants.
63 M-85
<PAGE>
(B) VALUATION OF NEW ROSE'S WARRANTS
The tables below illustrate the per share value of the New Rose's Warrants
and aggregate value of all the New Rose's Warrants at April 30, 1995,
respectively. Values shown are based on the Black-Scholes pricing model, as
applied by Pacholder Associates, Inc. ("Pacholder"), financial advisor to the
Equity Committee. Material assumptions incorporated into
this model in estimating the value of the warrants include the following: (i)
New Rose's Warrants are issued and first exercisable on April 30, 1995; (ii) New
Rose's Warrants expire on April 30, 2002; (iii) 10,000,000 shares are issued
pursuant to the Plan; (iv) 4,285,714 New Rose's Warrants are issued under the
Plan; (v) exercise price for valuation purposes is the exercise price in the
seventh year of the warrant (therefore based on 115% of Allowed Claims in Class
3); (vi) volatility of Reorganized Rose's equity of 32% based on average
volatility of, a group of publicly-traded discount retailers as of September 19,
1994; (vii) 18,758,006 shares of Old Common Stock outstanding; (viii) warrants
are valued as of April 30, 1995; and (ix) current market risk free rate of
return is 5.511%.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
ESTIMATED VALUE OF REORGANIZED ROSE'S
EQUITY
$50,000,000 $65,000,000 $80,000,000
ALLOWED EXERCISE
UNSECURED PRICE/
CLAIMS WARRANT
ESTIMATED VALUE OF ALL WARRANTS AT APRIL
30, 1995
<S> <C> <C> <C> <C>
$115,000,000 $13.23 $2,644,286 $5,202,857 $8,528,571
$120,000,000 $13.80 $2,460,000 $4,885,714 $8,065,714
$125,000,000 $14.38 $2,292,857 $4,590,000 $7,637,142
$130,000,000 $14.95 $2,138,571 $4,320,000 $7,234,285
<CAPTION>
ESTIMATED VALUE OF WARRANTS PER CURRENT
SHARES
<S> <C> <C> <C> <C>
$115,000,000 $13.23 $ 0.14 $ 0.28 $ 0.45
$120,000,000 $13.80 $ 0.13 $ 0.26 $ 0.43
$125,000,000 $14.38 $ 0.12 $ 0.24 $ 0.41
$130,000,000 $14.95 $ 0.11 $ 0.23 $ 0.39
</TABLE>
In connection with its valuation analysis of the New Rose's Warrants,
Pacholder assumed, without independent verification, the accuracy, completeness
and fairness of all of the financial and other information that was available to
it from public sources and that was provided to Pacholder by the Debtor or its
representatives. With respect to the Debtor's financial projections, Pacholder
assumed that the projections have been reasonably prepared on a basis reflecting
the best currently available estimates and judgment of the Debtor as to the
future operating and financial performance of the Debtor. Pacholder did not make
any independent evaluation of Reorganized Rose's assets, nor did Pacholder
verify any of the information it reviewed.
4. SECONDARY DISTRIBUTION OF NEW COMMON STOCK
(A) DESCRIPTION OF SECONDARY DISTRIBUTION
The Plan provides that on the Effective Date, 30% of the Effective Date
Shares that are not subscribed for in the rights offering will be deposited into
a trust for the benefit of holders of Claims in Class 3 and holders of Common
Stock Interests. Within thirty (30) days of the Determination Date (the date
that is ninety (90) days after the Effective Date), holders of Common Stock
Interests will be entitled to receive any shares remaining in the trust after
distribution therefrom of such number of shares to holders of Claims in Class 3
as is necessary to provide the holders of Claims in Class 3 with a full recovery
on such Claims. Under the Plan, a full recovery on such Claims will be realized
if the value as of the Determination Date of (A) the New Rose's Common Stock
received by such holders on the Effective Date and (B) two times the amount of
cash from the rights offering, equals the amount of Claims in Class 3. See
Section V.C.1(h) for a more detailed discussion of the secondary distribution
and the mechanics of determining full recovery for holders of Claims in Class 3.
(B) VALUATION OF SECONDARY DISTRIBUTION
The value of the secondary distribution depends upon (i) the market
capitalization as of the Determination Date of Reorganized Rose's, (ii) the
amount of subscription proceeds from the rights offering, and (iii) the total
amount of Allowed Claims in Class 3 and Reserve Amount on account of Disputed
Claims in Class 3. The table below illustrates the aggregate and per share value
of the secondary distribution assuming that (A) the subscription proceeds from
the rights offering total $25 million and (B) on the Determination Date, the
amount of Allowed Claims in Class 3 and the Reserve Amount on account of
Disputed Claims in Class 3 equals the range of Allowed Claims in Class 3
estimated by the Debtor.
M-86 64
<PAGE>
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
ESTIMATED MARKET VALUE OF REORGANIZED ROSE'S EQUITY ON
DETERMINATION DATE
$50,000,000 $65,000,000 $80,000,000 $130,000,000
ALLOWED
UNSECURED
CLAIMS
ESTIMATED AGGREGATE VALUE OF SECONDARY DISTRIBUTION
<S> <C> <C> <C> <C>
$115,000,000 $ 0 $ 0 $ 0 $ 8,478,261
$120,000,000 $ 0 $ 0 $ 0 $ 5,833,333
$125,000,000 $ 0 $ 0 $ 0 $ 3,000,000
$130,000,000 $ 0 $ 0 $ 0 $0
<CAPTION>
ESTIMATED VALUE OF SECONDARY DISTRIBUTION PER CURRENT
SHARES
<S> <C> <C> <C> <C>
$115,000,000 $ 0 $ 0 $ 0 $ 0.45
$120,000,000 $ 0 $ 0 $ 0 $ 0.31
$125,000,000 $ 0 $ 0 $ 0 $ 0.16
$130,000,000 $ 0 $ 0 $ 0 $0
</TABLE>
The table below illustrates the aggregate and per share value of the
secondary distribution assuming that (A) the subscription proceeds do not total
at least $25 million and (B) on the Determination Date, the amount of Allowed
Claims in Class 3 and the Reserve Amount on account of Disputed Claims in Class
3 equals the range of Allowed Claims in Class 3 estimated by the Debtor.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
ESTIMATED MARKET VALUE OF REORGANIZED ROSE'S EQUITY ON
DETERMINATION DATE
$50,000,000 $65,000,000 $80,000,000 $130,000,000
ALLOWED
UNSECURED
CLAIMS
ESTIMATED AGGREGATE VALUE OF SECONDARY DISTRIBUTION
<S> <C> <C> <C> <C>
$115,000,000 $ 0 $ 0 $ 0 $15,000,000
$120,000,000 $ 0 $ 0 $ 0 $10,000,000
$125,000,000 $ 0 $ 0 $ 0 $ 5,000,000
$130,000,000 $ 0 $ 0 $ 0 $0
<CAPTION>
ESTIMATED VALUE OF SECONDARY DISTRIBUTION PER CURRENT
SHARES
<S> <C> <C> <C> <C>
$115,000,000 $ 0 $ 0 $ 0 $ 0.80
$120,000,000 $ 0 $ 0 $ 0 $ 0.53
$125,000,000 $ 0 $ 0 $ 0 $ 0.27
$130,000,000 $ 0 $ 0 $ 0 $ 0
</TABLE>
The above table indicates a recovery for holders of Common Stock Interests
from the secondary distribution in the event the market value of Reorganized
Rose's equity equals $130,000,000. THE FIGURE OF $130,000,000 SIGNIFICANTLY
EXCEEDS THE DEBTOR'S ESTIMATED RANGE OF THE EQUITY VALUATION OF REORGANIZED
ROSE'S. AS OF THE DATE OF THIS DISCLOSURE STATEMENT, THE DEBTOR BELIEVES IT IS
HIGHLY UNLIKELY THAT THE MARKET VALUE OF REORGANIZED ROSE'S EQUITY WILL EXCEED
THE DEBTOR'S ESTIMATED EQUITY VALUATION RANGE OF $50 MILLION TO $80 MILLION.
FURTHERMORE, AS DISCUSSED ABOVE, THERE CAN BE NO ASSURANCE THAT THE MARKET VALUE
OF REORGANIZED ROSE'S EQUITY WILL FALL WITHIN THE DEBTOR'S ESTIMATED RANGE.
ACCORDINGLY, IT IS UNLIKELY THAT THE HOLDERS OF COMMON STOCK INTERESTS WILL
RECEIVE ANY VALUE FROM THE SECONDARY DISTRIBUTION. The Equity Committee
nevertheless negotiated for this distribution mechanism in order to ensure that
the unsecured creditors would not immediately receive more than a full recovery
of their Claims at the expense of existing shareholders.
65 M-87
<PAGE>
5. SUMMARY OF DISTRIBUTIONS TO HOLDERS OF COMMON STOCK INTERESTS.
The table below summarizes the combined aggregate and per share value of
Subscription Rights and the New Rose's Warrants to be distributed to holders of
Common Stock Interests under the Plan. The individual valuations of the
Subscription Rights and the New Rose's Warrants are set forth above in Sections
2(b) and 3(b), respectively. The valuation of the Subscription Rights assumes a
100% subscription, and therefore, no value is attributed to the secondary
distribution.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
ESTIMATED VALUE OF REORGANIZED ROSE'S
EQUITY
$50,000,000 $65,000,000 $80,000,000
ALLOWED
UNSECURED
CLAIMS
ESTIMATED VALUE OF ALL RIGHTS AND WARRANTS
AT APRIL 30, 1994
<S> <C> <C> <C>
$115,000,000 $ 2,644,286 $12,702,857 $31,028,571
$120,000,000 $ 2,460,000 $ 9,885,714 $28,065,714
$125,000,000 $ 2,292,857 $ 7,090,000 $25,137,142
$130,000,000 $ 2,138,571 $ 4,320,000 $22,234,285
<CAPTION>
ESTIMATED VALUE OF RIGHTS AND WARRANTS PER
CURRENT SHARES
<S> <C> <C> <C>
$115,000,000 $0.14 $0.68 $1.65
$120,000,000 $0.13 $0.52 $1.50
$125,000,000 $0.12 $0.38 $1.34
$130,000,000 $0.11 $0.23 $1.19
</TABLE>
C. MANAGEMENT OF REORGANIZED ROSE'S32
1. BOARD OF DIRECTORS
The Post-Effective Date Board of Directors will consist of the President
and Chief Executive Officer and such other individuals as the holders of issued
and outstanding shares of New Rose's Common Stock will elect under the terms
established in the New Rose's Charter. Pursuant to the New Rose's Charter, the
Reconstituted Board of Directors will have no less than seven and no more than
thirteen directors. The Unsecured Committee in its sole discretion will have the
right to select all but one director to serve on the Reconstituted Board of
Directors, and the Equity Committee in its sole discretion will have the right
to select one director to serve on the Reconstituted Board of Directors;
PROVIDED, HOWEVER, that if the Subscription Proceeds total $25 million or more,
then the Equity Committee in its sole discretion will have the right to select a
total of three directors to serve on the Reconstituted Board of Directors.
Further, if the Subscription Proceeds total more than 50% of the amount of the
Full Recovery Target Amount as of March 31, 1995, then the Equity Committee in
its sole discretion will have the right to select a majority of the directors to
serve on the Reconstituted Board of Directors. In the event the Subscription
Proceeds total $25 million or more, within 180 days of the Effective Date,
Reorganized Rose's will hold a special meeting of the stockholders for the
purpose of electing a new board of directors.
2. EXECUTIVE OFFICERS
The Executive Officers employed by the Debtor as of the Effective Date will
continue to be employed until a new Board of Directors is elected by the holders
of New Rose's Common Stock. The Reconstituted Board of Directors will determine
which individuals will serve as officers of Reorganized Roses.
3. COMPENSATION
Compensation of officers and the existing board of directors will continue
at the amount approved by the Bankruptcy Court during the Chapter 11 Case until
the Reconstituted Board of Directors is formed and reviews said compensation.
D. NEW ROSE'S CHARTER AND BYLAWS OF REORGANIZED ROSE'S
On the Effective Date, the New Rose's Charter will become effective. The
New Rose's Charter and the By-Laws of Reorganized Rose's will be substantially
in the form filed with the Court on or before the Confirmation hearing, and,
together with the provisions of the Plan, will provide for, among other things,
the authorization and issuance of New Rose's Common Stock, New Rose's Secured
Notes, New Rose's Warrants, issuance of New Rose's Common Stock to the employees
under
32 Sections VI.C and D hereof apply only if the Alternative Treatment Provisions
of the Plan are not effective.
M-88 66
<PAGE>
the Management Incentive and Retention Plan, the constitution of the
Reconstituted Board of Directors, and such other provisions that are necessary
to facilitate consummation of the Plan and the requirements of the Bankruptcy
Code, including a prohibition against the issuance of nonvoting equity
securities in accordance with Section 1123(a)(6) of the Bankruptcy Code. The New
Rose's Charter will provide that, until such time as all obligations owing to
the Pre-Petition Lenders are satisfied in full, neither Reorganized Rose's on
its own behalf, nor any director, officer, agent or professional thereof on
behalf of Reorganized Rose's, will have the power or authority to cause
Reorganized Rose's to be subject to or to seek to obtain relief or file or
commence any proceeding under any chapter of the Bankruptcy Code other than in
Case No. 93-01365-5 (ATS) in the Bankruptcy Court for the Eastern District of
North Carolina to effectuate the provisions of the Plan on and after the
Effective Date, pursuant to which Reorganized Rose's was created, and the New
Rose's Charter may not be amended to abrogate the foregoing without the consent
of the Pre-Petition Lenders until such time as all obligations owing to the
Pre-Petition Lenders have been satisfied in full.
VII.
APPLICABILITY OF SECURITIES AND OTHER FEDERAL LAWS
A. IN GENERAL
Certain holders of Claims and Interests will receive securities under the
Plan. Section 1145 of the Bankruptcy Code creates certain exemptions from the
registration and licensing requirements of federal and state securities laws
with respect to the distribution of securities pursuant to a plan of
reorganization. The Debtor is relying on the Section 1145 exemption with regard
to the Subscription Rights provided for in the Plan.
B. ISSUANCE OF NEW SECURITIES UNDER THE PLAN
Section 1145 of the Bankruptcy Code exempts the issuance of securities
under a plan of reorganization from registration under the Securities Act of
1933, as amended (the "Securities Act"), and under state securities laws if
three principal requirements are satisfied: (i) the securities must be issued
"under a plan" of reorganization by the debtor or its successor, or an affiliate
participating in a joint plan of reorganization with the debtor; (ii) the
recipients of the securities must hold a claim against the debtor, an interest
in the debtor or a claim for an administrative expense against the debtor; and
(iii) the securities must be issued entirely in exchange for the recipient's
claim against or interest in the debtor, or "principally" in such exchange and
"partly" for cash or property.
The staff of the Securities and Exchange Commission questions the
applicability of the Section 1145 exemption to the Subscription Rights provided
for in the Plan. Therefore, the Debtor and/or the Equity Committee intends to
take one or more of the following actions: (i) to seek a ruling from the
Bankruptcy Court that the Section 1145 exemption applies to the Subscription
Rights; (ii) to request the staff of the Commission to confirm to the Debtor
that Section 1145(a) exempts these securities from the registration requirements
of Section 5 of the Securities Act by issuing a "no-action" letter covering the
issuance of these securities; or (iii) with the consent of the Unsecured
Committee, to register the Subscription Rights pursuant to Section 5 of the
Securities Act by filing a registration statement with the Securities and
Exchange Commission.
C. TRANSFERS OF NEW SECURITIES
Securities issued pursuant to Section 1145 (a) of the Bankruptcy Code are
deemed to be issued in a "public offering" within the meaning of the Securities
Act. The securities to be issued pursuant to the Plan may be freely transferred
by most recipients thereof. All resales and subsequent transactions in the new
securities are exempt from registration under federal and state securities laws,
unless the holder is an "underwriter" with respect to such securities. Section
1145 (b) of the Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for administrative expense against the debtor with a view to distributing
any security received in exchange for such a claim or interest;
(ii) persons who offer to sell securities offered under a plan for the
holders of such securities;
(iii) persons who offer to buy such securities for the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities or (b) made under a distribution agreement; and
(iv) a person who is an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act.
67 M-89
<PAGE>
Under Section 2(11) of the Securities Act, an "issuer" includes any person
directly or indirectly controlling or controlled by the issuer, or any person
under direct or indirect common control with the issuer. Persons in any such
control relationship with an issuer are "affiliates" of the issuer. "Control,"
as that term is defined in Rule 405 of Regulation C under the Securities Act,
means the possession, direct or indirect, of the power to direct, or cause the
direction of, the policies of the person, whether through the ownership of
voting securities, by contract or otherwise. Accordingly, an officer or director
of a reorganized debtor (or its affiliate or successor) under a plan of
reorganization may be deemed to be an "affiliate" by reason of such person's
"control" of such debtor, particularly if such management position is coupled
with the ownership of a significant percentage of the debtor's voting
securities. Consequently, "affiliates" are deemed to be "underwriters" for
purposes of Section 1145 of the Bankruptcy Code. Moreover, the legislative
history of Section 1145 suggests that a creditor who owns at least 10% of the
securities of a reorganized debtor may be presumed to be a "control person." To
the extent that persons deemed to be "underwriters" receive securities pursuant
to the Plan, resales by such person would not be exempted by Section 1145(a)(1)
of the Bankruptcy Code from registration under the Securities Act or other
applicable law.
Rule 144A promulgated under the Securities Act provides a nonexclusive safe
harbor exemption from the registration requirements of the Securities Act for
resales of certain types of securities to certain "qualified institutional
buyers" of securities which are "restricted securities" within the meaning of
the Securities Act, irrespective of whether the seller of such securities
purchased the securities with a view toward reselling the securities under the
provisions of Rule 144A. If, however, at the time of issuance, the securities
are of the same class of securities (or, under certain circumstances, such
securities are convertible into, or exchangeable for, the same class of
securities) that are listed on a national securities exchange, quoted on a U. S.
automated inter-dealer quotation system or registered under Section 6 of the
Securities Exchange Act of 1934, as amended, such securities may not be resold
under Rule 144A. In addition, restrictions apply to use of Rule 144A for resales
by "underwriters" and "affiliates."
Persons deemed to be "underwriters" or "affiliates," however, may be able
to sell such securities without registration subject to the provisions of Rule
144 under the Securities Act, which permits the public sales of securities
received pursuant to the Plan by persons including "underwriters" and
"affiliates," subject to the availability to the public of current information
regarding the issuer and to volume limitations and certain other conditions.
Whether or not any particular person would be deemed to be an "underwriter"
with respect to any security to be issued pursuant to the Plan or an "affiliate"
of the issuer would depend upon various facts and circumstances applicable to
that person. Accordingly, the Debtor expresses no view as to whether any person
would be an "underwriter" with respect to any security to be issued pursuant to
the Plan or an "affiliate" of the issuer.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTIONS OF WHETHER A
PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE, THE DEBTOR MAKES NO
REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE SECURITIES TO
BE DISTRIBUTED PURSUANT TO THE PLAN. THE DEBTOR RECOMMENDS THAT POTENTIAL
RECIPIENTS OF THE SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY
MAY FREELY TRADE SUCH SECURITIES.
D. CERTAIN TRANSACTIONS BY STOCKBROKERS
Under Section 1145(a)(4) of the Bankruptcy Code, stockbrokers must deliver
a copy of the Disclosure Statement (and supplements hereto, if any, if ordered
by the Bankruptcy Court) at or before the time of delivery of securities issued
under the Plan to their customers for the first 40 days after the Effective
Date. This requirement specifically applies to trading and other aftermarket
transactions in such securities.
E. TRUST INDENTURE ACT
The Debtor intends to comply with the requirements of the Trust Indenture
Act of 1939 with respect to issuance of the New Rose's Secured Notes unless an
exemption from the Trust Indenture Act applies (and the Debtor is not aware of
any circumstances that would make an exemption applicable). Compliance could
include issuing the New Rose's Secured Notes pursuant to an indenture that is
qualified under the Trust Indenture Act. In the event the Debtor is required to
qualify an indenture prior to their issuance, the New Rose's Secured Notes,
although dated as of the Effective Date, will not be issued until such
qualification becomes effective.
F. ABSENCE OF PUBLIC MARKET
The Voting Common Stock and the Non-Voting Class B Stock of the Debtor are
currently quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the National Market System. The
M-90 68
<PAGE>
Debtor intends to apply to have the New Rose's Common Stock and the New Rose's
Warrants quoted on NASDAQ. There can be no assurance, however, that the
application of the Debtor for such quotation will be approved, or that approval
will not be delayed for a period after the Effective Date. Consequently, there
can be no assurance that a public trading market will develop, or if a public
trading market eventually develops, that it will be available at the Effective
Date. The Debtor does not intend to apply to NASDAQ or any national securities
exchange to have the New Rose's Secured Notes quoted or listed for trading.
Consequently, it is unlikely that a public trading market will develop for such
securities.
G. ADDITIONAL INFORMATION
The Debtor is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by the Debtor with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, DC 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, Northwest Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates.
The New Rose's Common Stock and the New Rose's Warrants are intended to be
listed on the NASDAQ National Market System and reports, proxy statements and
other information concerning the Debtor may be inspected at the offices of the
NASDAQ Stock Market, 1735 K Street, N.W., Washington, DC 20006.
Any statements contained herein concerning the provisions of any document
are not necessarily complete, and in each instance reference is made to the copy
of such document for the full text thereof. Each such statement is qualified in
its entirety by such reference. Certain documents referred to herein have not
been attached as exhibits because of the impracticability of furnishing copies
thereof to all of the Debtor's creditors. All of the exhibits and schedules to
the Plan and this Disclosure Statement, and all other documents referred to
herein, are available for inspection at Smith Debnam Hibbert & Pahl, 4700 New
Bern Avenue, Raleigh, North Carolina or at any other location designated by the
Debtor.
VIII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
I. INTRODUCTION
The following discussion addresses certain federal income tax consequences
of the Plan to the Pre-Petition Lenders, holders of Allowed Unsecured Claims,
and holders of Common Stock Interests (collectively, the "Claimants") and to the
Debtor. This discussion does not purport to set forth all aspects of federal
income taxation that may be relevant to particular Claimants in light of
individual circumstances or to certain types of Claimants (e.g., life insurance
companies, tax-exempt organizations and foreign persons) subject to special
treatment under the Internal Revenue Code, 26 U.S.C. (section mark) 1 ET SEQ.
(the "Revenue Code") and does not discuss any aspects of state, local or foreign
tax laws.
The analysis and conclusions set forth in this discussion are based upon
the interpretation of applicable provisions of the Revenue Code, final and
proposed Treasury regulations promulgated thereunder, and rulings and judicial
decisions in effect as of the date hereof, all of which are subject to change
(possibly with retroactive effect). It should be noted that certain tax
consequences of the Plan are unclear under existing law. Proposed regulations
are, in some instances, subject to varying interpretations and do not address
all of the issues relevant to the Debtor or Claimants. In addition, final
Treasury regulations relating to a specific issue may differ from the proposed
regulations and may retroactively affect tax consequences of the Plan.
This discussion of federal income tax consequences is not binding on the
Internal Revenue Service (the "Service"). Therefore, there can be no assurance
that the Service will not take a different position regarding the consequences
of the Plan or that any such position would not be sustained. The Debtor has not
obtained and does not intend to seek any advance rulings from the Service with
respect to any federal income tax matter and has not requested or obtained any
opinion of counsel with respect to any federal tax matter.
Unless otherwise noted, the following discussion is based on the assumption
that the Alternative Treatment Provisions of the Plan are not effective.
69 M-91
<PAGE>
A. FEDERAL INCOME TAX CONSEQUENCES TO CLAIMANTS
1. OVERVIEW
The Plan contemplates that each Pre-Petition Lender will receive the
following consideration if the Alternative Treatment Provisions are not
effective: Cash and New Rose's Secured Notes, bearing interest at 11% per annum,
payable as set forth in Exhibit 5.1 of the Plan and maturing on January 20,
1999. A holder of an Allowed Unsecured Claim (other than a Damages Claimant that
receives Cash) will receive its Pro-Rata share of 70 to 100 percent of the
Effective Date Shares and/or the Subscription Proceeds. A holder of a Common
Stock Interest will receive its Pro-Rata share of (i) Subscription Rights
entitling such holder to subscribe for up to 100% of the Effective Date Shares
otherwise allocable to holders of Allowed Claims in Class 3, (ii) 4,285,714 New
Rose's Warrants to purchase 4,285,714 shares of the common stock of Reorganized
Rose's, subject to adjustment as provided in the New Rose's Warrant Agreement,
and (iii) shares of New Rose's Common Stock remaining in the New Rose's Common
Stock Trust on the Determination Date to the extent that it is not necessary to
distribute such stock to holders of Allowed Unsecured Claims to allow for a full
recovery of their Claims.
The extent to which gain or loss realized by a Pre-Petition Lender or the
holder of an Allowed Unsecured Claim is recognized for federal income tax
purposes will depend on whether a New Rose's Secured Note and an Allowed
Unsecured Claim each constitutes a "security" of the Debtor for federal income
tax purposes. Whether a debt instrument constitutes a security is based on the
facts and circumstances surrounding the origin and nature of the debt and its
maturity date. Generally, claims arising out of the extension of trade credit
have been held not to be securities. Instruments with a five-year term or less
also rarely qualify as securities. On the other hand, bonds or debentures with
an original term of at least ten years have generally been considered to be
securities. The Debtor believes that neither the New Rose's Secured Notes nor
the Allowed Unsecured Claims are securities, and the following discussion is
based upon that treatment.
2. GAIN OR LOSS TO THE PRE-PETITION LENDERS
On the Effective Date, gain or loss will be recognized by each Pre-Petition
Lender to the extent of the difference between (i) the sum of the amount of Cash
and the "issue price" of the New Rose's Secured Notes (although a cash method
taxpayer possibly could use the fair market value of the notes, if different
from issue price) received (other than the portion of such consideration
allocated to unpaid interest that has economically accrued during the holding
period with respect to each Pre-Petition Lender) and (ii) the adjusted tax basis
of each Pre-Petition Lender's Allowed Secured Claim (other than the portion of
such Claim representing such accrued but unpaid interest).
The issue price of the New Rose's Secured Notes will be determined under
the following rules incorporated in recently promulgated Treasury regulations.
If the New Rose's Secured Notes are traded on an "established market" (within
the meaning of the regulations) at any time during the 60-day period ending 30
days after the date such notes are issued, their issue price will be equal to
their fair market value (probably the mean between the highest and lowest quoted
selling prices) as of the issue date. However, if the New Rose's Secured Notes
are not publicly traded within this 60-day period, but a substantial amount of
the Allowed Secured Claims held by the Pre-Petition Lenders are publicly traded
within this period, the fair market value of such Claims as of the issue date
will govern the issue price of the New Rose's Secured Notes. Moreover, if
neither such notes nor the Allowed Secured Claims are considered publicly
traded, their issue price will be equal to their face amount provided the notes
bear interest at a rate equal to or greater than the "applicable federal rate"
(the "AFR"). Should the interest rate be less than the AFR, the issue price of a
New Rose's Secured Note will be equal to its imputed principal amount, which is
generally the sum of all payments due under the note discounted at the AFR from
the date of payment to the issue date of the note. At the present time, it is
not known whether the New Rose's Secured Notes or the Allowed Secured Claims of
the Pre-Petition Lenders will be treated as traded on an established market
within 30 days of issue and, if they are not, whether the interest rate of the
notes will be equal to or greater than the AFR.
It is possible that there may be a small amount of accrued, but unpaid
interest on the Effective Date. The Plan provides that payments to the
Pre-Petition Lenders with respect to which there is accrued but unpaid interest
as of the Effective Date will be allocated first to the principal amount of the
claim and then to such accrued but unpaid interest to the extent that the amount
of the payments under the Plan to a Pre-Petition Lender exceeds the principal
amount of such claim. However, it is not entirely clear how a Pre-Petition
Lender receiving consideration that is less than the amount of its Allowed
Secured Claim should allocate such consideration between principal and interest.
The Service may require that the consideration be allocated proportionately
between the portion of the Allowed Secured Claim representing principal and the
portion of such claim representing interest.
If the Debtor is liquidated pursuant to the Alternative Treatment
Provisions of the Plan, rather than reorganized, gain or loss will be recognized
by each Pre-Petition Lender to the extent of the difference between (i) the
amount of Cash received by
M-92 70
<PAGE>
such Pre-Petition Lender (other than the portion of such consideration allocated
to unpaid interest that has economically accrued during the Pre-Petition
Lender's holding period with respect to its Allowed Secured Claim) and (ii) the
adjusted tax basis of each Pre-Petition Lender's Allowed Secured Claim (other
than the portion of such claim representing such accrued but unpaid interest).
3. GAIN OR LOSS TO HOLDERS OF ALLOWED UNSECURED CLAIMS
On the Effective Date, assuming Subscription Rights are not exercised, gain
or loss will be recognized by each holder of an Allowed Unsecured Claim (other
than a Damages Claimant whose Claim is for personal injuries) to the extent of
the difference between (i) the fair market value of the New Rose's Common Stock,
or Cash in the case of certain Damages Claimants, received by such holder and
(ii) the adjusted tax basis of such holder's Allowed Unsecured Claim. Should a
holder receive additional New Rose's Common Stock 90 days after the Effective
Date, such holder will recognize additional gain (or less loss) from the
exchange.
A Damages Claimant receiving stock or cash on account of personal injuries
suffered by such claimant should not be subject to federal income tax on the
recovery under Section 104 of the Revenue Code.
In the event, prior to the Effective Date, holders of Common Stock
Interests exercise, in whole or in part, the Subscription Rights, the
measurement of the gain or loss recognized by a holder of an Allowed Unsecured
Claim should be based on the cash received and not upon the New Rose's Common
Stock purchased by the holders of Common Stock Interests pursuant to the
Subscription Rights.
If the Debtor is liquidated pursuant to the Alternative Treatment
Provisions of the Plan, rather than reorganized, gain or loss will be recognized
by each holder of an Allowed Unsecured Claim (other than a Damages Claimant
whose claim is for personal injuries) to the extent of the difference between
(i) the amount of Cash received by such holder and (ii) the adjusted tax basis
of such holder's Allowed Unsecured Claim.
4. CERTAIN OTHER TAX CONSIDERATIONS FOR PRE-PETITION LENDERS AND HOLDERS OF
ALLOWED UNSECURED CLAIMS
A. CHARACTER OF GAIN OR LOSS
The character of any gain or loss as capital or ordinary gain or loss and,
in the case of capital gain or loss, as short-term or long-term, will depend on
a number of factors, including: (i) the nature and origin of a Pre-Petition
Lender's Allowed Secured Claim or an Allowed Unsecured Claim; (ii) the tax
status of a Pre-Petition Lender's Allowed Secured Claim or an Allowed Unsecured
Claim; (iii) whether the Pre-Petition Lender's Allowed Secured Claim or the
Allowed Unsecured Claim is a capital asset in the hands of the holder; (iv)
whether the Pre-Petition Lender's Allowed Secured Claim or the Allowed Unsecured
Claim has been held for more than one year; (v) the extent to which a loss, bad
debt deduction or charge to a reserve for bad debts has occurred with respect to
a Pre-Petition Lender's Allowed Secured Claim or an Allowed Unsecured Claim; and
(vi) the application of the "market discount" rules.
B. BASIS AND HOLDING PERIOD OF PROPERTY RECEIVED
The tax basis of New Rose's Secured Notes received by a holder of an
Allowed Secured Claim will be equal to their issue price (or possibly their fair
market value on the Effective Date, if different from issue price, in the case
of a cash method taxpayer). The holding period for the New Rose's Secured Notes
for a Pre-Petition Lender will begin on the day immediately after the exchange.
The tax basis of the New Rose's Common Stock to be distributed on the
Effective Date to a holder of an Allowed Unsecured Claim will be equal to its
fair market value on that date and the holding period for such stock for a
holder will begin on the day immediately after the exchange. If it is determined
90 days after the Effective Date that additional stock is to be distributed to a
holder of an Allowed Unsecured Claim, the tax basis of such additional stock
will be equal to its fair market value on that date and the holding period for
such additional stock will begin on the day immediately after the distribution.
C. EFFECT OF ORIGINAL ISSUE DISCOUNT
At this time, it is not known whether the New Rose's Secured Notes will be
issued with original issue discount ("OID"), which is the excess of a debt
instrument's "stated redemption price at maturity" over its issue price. In the
event the notes are issued with OID, a holder will be required to include
amounts in income in advance of cash payments.
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D. MARKET DISCOUNT ON RESALE
A Pre-Petition Lender or the holder of an Allowed Unsecured Claim (if such
claim had a fixed maturity date exceeding 1 year from the date of issue) may be
subject to the market discount provisions of the Revenue Code. The Revenue Code
generally requires a holder of a "market discount bond", as defined below, to
treat as interest income any gain recognized on the disposition of such bond to
the extent of the market discount accrued during the holder's period of
ownership (unless such holder had elected to include market discount in income
on a current basis). The accrued market discount generally equals a ratable
portion of the amount of the obligation's market discount, based on the number
of days the holder has held the obligation at the time of such disposition, as a
percentage of the number of days from the date the holder acquired the
obligation to its maturity. A "market discount bond" is a debt obligation
purchased at market discount (subject to a statutory de minimis exception).
5. GAIN OR LOSS TO HOLDERS OF COMMON STOCK INTERESTS
While the issue is not free from doubt, the Debtor believes the holders of
Common Stock Interests should be treated as receiving the Subscription Rights in
exchange for their common stock. Under this view, each holder of a Common Stock
Interest will recognize gain or loss equal to the difference between (i) the
fair market value of the New Rose's Warrants and the Subscription Rights on the
dates such New Rose's Warrants and Subscription Rights are received,
respectively and (ii) the adjusted tax basis of the holder's Common Stock
Interest. On the other hand, should such a holder also receive New Rose's Common
Stock in exchange for such holder's common stock, such exchange will qualify as
a tax-free recapitalization, with the result that the holders would recognize
gain, if any, but not loss, to the extent of the fair market value of the New
Rose's Warrants and Subscription Rights received.
The tax basis of the New Rose's Warrants will be equal to their fair market
value on the Effective Date. The holding period for the New Rose's Warrants will
begin on the date following the exchange. Should a holder also receive New
Rose's Common Stock, the holder's tax basis in such stock would be equal to the
basis in the common stock exchanged, decreased by the fair market value of any
New Rose's Warrants and Subscription Rights received and increased by any gain
recognized on the exchange. The holder's holding period for the New Rose's
Common Stock received would include the holding period for the common stock
exchanged by such holder.
If the Debtor is liquidated, rather than reorganized, the Alternative
Treatment Provisions of the Plan provide that the Common Stock Interests will
not be canceled until the entry of a Final Decree, and a holder of Common Stock
Interests likely will not receive any distributions under the Plan. On the
assumption such common stock is a capital asset in the hands of the holders,
each holder is entitled to claim a capital loss deduction, to the extent of its
adjusted basis in such stock, for the year in which the stock became worthless.
The capital loss is long-term or short-term depending upon whether the Common
Stock Interest has been held for more than 12 months, measured as of the last
day of the holder's taxable year in which the common stock became worthless.
Each holder should consult with its tax advisor to determine the year for which
it should claim such deduction in the event the Debtor is liquidated.
B. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR
1. OVERVIEW
The Debtor has one subsidiary, RSI Trading, Inc., with which it files a
consolidated federal income tax return (the "Debtor Group"). The Debtor Group's
NOL carryovers for regular federal income tax and alternative minimum tax
("AMT") purposes, as of January 31, 1993, were approximately $62 million and
approximately $50 million, respectively. The Debtor Group estimates that its NOL
carryovers for regular federal income tax purposes and AMT purposes, as of
January 30, 1994, are approximately $108 million and approximately $96 million,
respectively. It is noted that the Service has not audited the Debtor Group's
tax returns for taxable years ending subsequent to January 25, 1992. If these
returns were audited and the Service were to review the Debtor Group's NOL
carryovers, there can be no assurance that such NOLs would not be reduced and
that the courts would not sustain such reduction.
2. DEBT RESTRUCTURING
A. DISCHARGE OF INDEBTEDNESS
Under the Plan, it is expected that Allowed Unsecured Claims will be
satisfied at a discount.
Generally, the retirement of debt at a discount will result in income from
the cancellation of debt ("COD Income") to the debtor equal to the excess of (i)
the principal amount (as determined for federal income tax purposes) of the debt
retired, plus
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any previously accrued but unpaid interest (unless such interest was not
deducted by the debtor), over (ii) the amount of cash, issue price of new debt
and/or the fair market value of other property given in satisfaction of such
retired debt.
However, under Section 108 of the Revenue Code, if the discharge of the
debtor's indebtedness is pursuant to a plan approved by a bankruptcy court in a
Title 11 case, the debtor's COD Income is not required to be included in gross
income. Instead, the amount of COD Income that would otherwise be required to be
included in income is applied to reduce certain tax attributes of the debtor in
the following order: NOL carryovers, certain credit carryovers, capital loss
carryovers, the basis of the debtor's property (but not below its liabilities
after the discharge) and foreign tax credit carryovers. A judicially-developed
rule known as the "stock-for-debt" exception, now reflected in Section
108(e)(10) of the Revenue Code, generally provides, however, that the exchange
of stock for debt by a corporation in a Chapter 11 proceeding where COD Income
is otherwise realized will not result in tax attribute reduction or income
recognition.
In order for the stock-for-debt exception to apply, stock (excluding any
disqualified stock under Section 108 of the Revenue Code) issued in exchange for
the debt must meet the following two "de minimis" tests: (i) the
"nominal-or-token" test and (ii) the "proportionality" test.
The Service has recently issued final regulations which provide that the
relevant facts and circumstances must be considered in determining whether stock
issued for debt is nominal or token and do not base this determination on a
specified list of factors. In addition, this determination is made on an
aggregate basis with respect to all common stock issued for unsecured
indebtedness in the Title 11 case. The Debtor believes, based upon a revenue
procedure recently issued by the Service, that the amount of New Rose's Common
Stock to be issued to holders of Allowed Unsecured Claims pursuant to the Plan
will not be considered nominal or token, provided the holders of Allowed
Unsecured Claims receive at least 15% of New Rose's Common Stock. If such
holders receive an amount of New Rose's Common Stock below this percentage,
whether or not the stock-for-debt exception applies will depend upon the actual
facts. A second "de minimis" requirement that must be met for the stock-for-debt
exception to apply to an unsecured creditor's indebtedness is that the ratio of
the value of the stock received by such creditor to the amount of debt canceled
or exchanged in consideration thereof cannot be less than 50 percent of a
similar ratio computed for all unsecured creditors participating in the workout
(whether or not they receive stock). The New Rose's Common Stock to be issued
under the Plan to each holder of an Allowed Unsecured Claim should satisfy this
second requirement.
The Omnibus Budget Reconciliation Act of 1993, enacted on August 10, 1993,
repealed the stock-for-debt exception, effective with respect to stock
transferred after December 31, 1994, in satisfaction of any indebtedness, unless
the transfer is in a bankruptcy case filed on or before December 31, 1993. This
legislation will not apply to reorganized Rose's because its bankruptcy case was
filed on September 5, 1993, prior to the effective date of this legislation.
The Pre-Petition Lender's Allowed Secured Claims will not be retired at a
discount, unless the New Rose's Secured Notes are treated as issued with OID,
which is not known at this time. If such notes are issued with OID, the amount
of the COD Income should equal the amount of the OID and will reduce the
Debtor's tax attributes as discussed above.
B. FUTURE UTILIZATION OF NOL CARRYOVERS
Under Section 382 of the Revenue Code, a corporation's utilization of NOL
carryovers may be restricted if the corporation undergoes (or previously has
undergone) an "ownership change." A corporation will be considered as undergoing
an ownership change if at any time during a rolling three-year period (the
"testing period") the percentage of stock owned by one or more five-percent
shareholders or deemed five-percent shareholders (as defined under technical
rules under Section 382) increases by more than 50 percentage points over the
lowest percentage of stock owned by each of such shareholders during the testing
period. The Debtor believes that it has not undergone an ownership change to
date, and the following discussion (except as noted below) is based on the
assumption that no ownership change will occur prior to the Effective Date.
It is highly likely that the issuance of New Rose's Common Stock will cause
the Debtor Group to undergo an ownership change on the Effective Date, with the
result that its NOL carryovers will be subject to limitation under Section 382
of the Revenue Code. However, in the unlikely event the Subscription Rights are
exercised by the holders of Common Stock Interests in the right proportions, the
Debtor Group should not experience an ownership change in the Chapter 11 Case.
The following discussion is based upon the Debtor Group undergoing an ownership
change on the Effective Date.
Unless a debtor elects for it not to apply, Section 382(l)(5) of the
Revenue Code provides that in the case of a debtor under the jurisdiction of a
bankruptcy court in a Title 11 case, the annual formula limitations imposed by
Section 382 of the Revenue Code (as discussed below) will not apply to any
ownership change resulting from such a proceeding if qualifying
73 M-95
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creditors and shareholders (determined immediately before such ownership change)
own, after such ownership change as a result of being shareholders or creditors
immediately before such change, 50 percent or more of the stock of the loss
corporation. "Qualifying creditors" are persons that were creditors as of a date
eighteen months before filing of the petition under Title 11 or persons whose
claims arose in the ordinary course of the trade or business of the loss
corporation (and were at all times beneficially owned by such persons). It
should be noted, however, that if the loss corporation undergoes a subsequent
ownership change within the two-year period following an ownership change with
respect to which it avails itself of Section 382(l)(5) of the Revenue Code, its
NOL carryovers are effectively eliminated.
A cost of applying Section 382(l)(5) of the Revenue Code is that NOL
carryovers must be reduced by the sum of: (1) any deduction for interest claimed
by the loss corporation, with respect to any indebtedness converted into stock,
for any taxable year ending during the three-year period preceding the taxable
year of the ownership change and the portion of the year of the ownership change
prior to the date of the ownership change, and (2) 50 percent of the excess of
the discharged debt (other than the interest taken into account above) over the
value of the stock and other property transferred to creditors in a transfer
qualifying for the stock-for-debt exception described above.
Due to the uncertainties regarding the post-reorganization stock ownership
of the Debtor, and as a result of the Subscription Rights to be granted to
existing stockholders and the possibility under the Plan that up to 30% of New
Rose's Common Stock may be issued to existing stockholders, the Debtor cannot
now determine whether it will satisfy the "qualifying creditors and
shareholders" requirement with respect to the application of Section 382(l)(5),
as described above. Furthermore, the Debtor has not yet determined whether, in
the event Section 382(l)(5) does apply, it would be preferable to elect for that
provision not to apply.
If an ownership change occurs on the Effective Date and Section 382(l)(5)
is not applied, the NOL carryovers available each year to offset income would,
in general, then be limited under Section 382(l)(6) of the Revenue Code to the
product of (i) the fair market value of the Debtor's common stock immediately
after the ownership change, provided that the fair market value of the New
Rose's Common Stock for this purpose cannot exceed the fair market value of the
Allowed Unsecured Claims exchanged for such stock and, if New Rose's Common
Stock is issued for cash pursuant to the exercise of the Subscription Rights,
the amount of cash paid to the Debtor, and (ii) the federal long-term tax-exempt
interest rate in effect on the date of the ownership change (currently
approximately 6 percent), plus the portion of any such limitation amount not
utilized in prior years. Even this limitation would not be available if the
Debtor Group failed to conduct its historic business at all times during the
two-year period following the date of the ownership change.
In the event an ownership change should occur prior to the Effective Date
as a result of trading of the Debtor's common stock, reliance on Section
382(1)(5) will not be available with respect to NOLs incurred prior to the date
of that ownership change, and the above formula limiting the utilization of
prechange NOLs will be based on the fair market value of the Debtor's common
stock immediately before, rather than immediately after, the ownership change.
The disadvantage of this treatment is that the fair market value of the Debtor's
common stock would not reflect the exchange of the Allowed Unsecured Claims for
New Rose's Common Stock.
In addition, NOL carryovers otherwise available may be used without
restriction during a five-year period (the "recognition period") subsequent to
the ownership change to offset "built-in gains" (generally the excess of the
fair market value of the assets of the Debtor Group over their adjusted tax
basis) existing at the time of the ownership change and realized during the
recognition period, up to the amount of the net built-in gain on the date of the
ownership change, provided that on the date of the ownership change the amount
of built-in gain with respect to the assets of the Debtor Group (excluding cash,
cash equivalents and certain other assets) exceeds the lesser of $10 million or
15 percent of the fair market value of such assets. The Debtor Group believes
that its assets contain an amount of built-in gain sufficient to satisfy this
threshold. On the other hand, should the Debtor Group's assets contain an amount
of built-in loss (generally the excess of the adjusted tax basis of the assets
of the Debtor Group over their fair market value) in excess of the above
threshold on the date of the ownership change, the recognition of such built-in
losses within the recognition period up to an amount equal to the net unrealized
built-in loss on such date, would be treated in the same manner as NOLs in
existence prior to the ownership change.
Special rules apply to the allocation of taxable income to "pre-change" and
"post-change" periods of the tax year in which an ownership change occurs.
Generally, taxable income for the year is allocated to each period on a pro-rata
basis. Built-in gains (or losses) recognized on or after the ownership change
date (in an amount not exceeding the "net unrealized built-in gain" (or "loss"))
are not prorated, but are allocated to the post-change period. In the case of
built-in gains subject to the above rule, the Debtor Group's Section 382
limitation will be increased by a like amount.
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There is a significant risk that, if an ownership change does not occur on
the Effective Date, because holders of Common Stock Interests exercise
Subscription Rights in the right proportions, and there is an ownership change
within 2 years of the Effective Date, Section 382 will be interpreted to require
a reduction of the fair market value of the Debtor's common stock at the time of
the ownership change by the amount of the increase in value resulting from the
cancellation of the Allowed Unsecured Claims on the Effective Date. From the
standpoint of utilizing its NOLs, this treatment could place the Debtor in a
worse position than it would have been in if there had been an ownership change
on the Effective Date.
If the Debtor is liquidated, rather than reorganized, the Debtor's ability
to offset future income, if any, by its NOLs is subject to the possible
application of Section 382. The Debtor intends to take the position that the
implementation of the Alternative Treatment Provisions of the Plan will not
result in an ownership change under Section 382 of the Revenue Code because the
holders of Common Stock Interests will continue to hold such stock after the
Effective Date. However, because such holders likely will not receive any
distribution under the Plan with respect to their Common Stock Interests, the
IRS may assert that holders of Allowed Unsecured Claims, as a result of the
transactions contemplated by the Alternative Treatment Provisions of the Plan,
have effectively become the equity owners of the Debtor, resulting in an
ownership change under Section 382. Even in that event, the Debtor does not
anticipate that it will incur a material amount of federal income tax liability
from the disposition of assets (without regard to whether the benefits under
Sections 382(l)(5) and 382(l)(6) of the Revenue Code will be available). In
addition, even if the IRS should successfully assert that there has been a
deemed capitalization of all or a portion of the Pre-Petition Lender's Allowed
Secured Claims and/or the Allowed Unsecured Claims, the Debtor should not be
required to include the COD Income in gross income.
C. ALTERNATIVE MINIMUM TAX
A corporation is liable for AMT of 20 percent of alternative minimum
taxable income ("AMTI") if such tax exceeds its regular tax liability. In
addition, a corporation must separately compute and carry forward AMT NOL
deductions. AMTI is generally calculated by making a series of adjustments to
regular taxable income. An AMT NOL carryover cannot offset more than 90 percent
of AMTI for any taxable year.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION PURPOSES
ONLY. ACCORDINGLY, EACH HOLDER SHOULD CONSULT WITH SUCH HOLDER'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE PLAN AND THE OWNERSHIP
AND DISPOSITION OF NEW ROSE'S SECURED NOTES AND/OR NEW ROSE'S COMMON STOCK,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
IX.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
A. IN GENERAL
The Debtor has evaluated numerous reorganization alternatives to the Plan.
After studying these alternatives, the Debtor has concluded that the Plan
provisions for continuation of operations present the best alternative and will
maximize recoveries by holders of Claims and Interests, assuming that the
conditions to the Effective Date are achieved. Accordingly, if the Plan is not
confirmed, the following alternatives could occur:
1. SALE ALTERNATIVE
Peter J. Solomon Company Limited ("PJSC") was retained by the Debtor in May
1994 in order to identify potential parties interested in a potential investment
in, or purchase of, the Debtor. Absent an extension by the Debtor of PJSC's
initial four month engagement, PJSC will conduct an intense search for potential
investors and buyers. In the event that PJSC obtains an investor or a buyer, the
Debtor, with the advice of PJSC and the Debtor's financial advisors, will
evaluate a proposed transaction in order to determine the potential benefit to
the Estate resulting from the consummation of such transaction. It is likely
that the terms of any proposed sale or investment will be discussed fully with
other creditor constituencies. If such a transaction is deemed to be in the best
interest of the estate, the Debtor will consider amending the Plan and
incorporating the terms of any proposed transaction into the Plan, subject to
obtaining all required consents and subject to all terms and provisions of the
Second Supplemental Adequate Protection Consent Order. Without knowing even the
broad terms of any proposed transaction, the Debtor at this point is not in a
position to discuss the affect that such a transaction would have on the
treatment of Claims and Common Stock Interests.
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2. ENHANCED VALUE AS AN OPERATING UNIT
The Debtor has analyzed whether a higher return to creditors could be
secured through a sale of the business of the Debtor on a breakup basis, e.g.,
through sales of individual divisions, and has concluded that the business of
the Debtor enjoys a considerable enhanced value as a single operating unit
because of the overall integration of its system and discounts from volume
purchases for multiple stores, regional advertising and central accounting.
Thus, a breakup of the business of the Debtor would not likely result in an
aggregative higher return to creditors than that to be distributed pursuant to
the Plan.
3. CHAPTER 11 LIQUIDATION
If the Plan is not confirmed, the Debtor may seek to obtain, with the
consent of the Plan Proponents and GE Capital, permission to file an alternative
plan providing for a Chapter 11 liquidation. This would be an orderly wind-down
of the business and liquidation under the control of the Debtor's existing
management or a Liquidation Officer appointed by the Court at the request of the
Unsecured Committee. This alternative should not occur because the Plan
presently contains a liquidation alternative if the Alternative Treatment
Provisions are effective. Nevertheless, as discussed below, the Debtor believes
that a Chapter 11 liquidation would be preferable to a conversion of the Chapter
11 Case to a liquidation under Chapter 7 of the Bankruptcy Code, but not as
favorable as reorganization under the current Plan or liquidation in Chapter 11
in accordance with the current Plan.
4. CONVERSION TO CHAPTER 7
If the Plan is not confirmed, the Chapter 11 Case may be converted to
Chapter 7 of the Bankruptcy Code. A trustee would be appointed to liquidate the
assets of the Debtor for distribution to the creditors in accordance with the
priorities established by the Bankruptcy Code. The Debtor believes that in a
Chapter 7 liquidation, before creditors receive any distributions, additional
administrative expenses would be incurred through the appointment of a trustee
and employment of additional professionals to assist the trustee. The Chapter 7
trustee would have a difficult task in managing the liquidation due to the size
of the Debtor's case and its complexity. Further, the trustee would likely have
difficulty objecting to unreasonable claims unless key employees of the Debtor
are willing to assist in the Chapter 7 liquidation. The Debtor believes that the
ultimate return to creditors could be greater and faster in a Chapter 11
liquidation due to utilization of the knowledge and experience of existing
management to maximize recoveries.
5. DISMISSAL ALTERNATIVE
Dismissal of the Chapter 11 Case would have the effect of restoring (or
attempting to restore) all parties to the STATUS QUO ANTE. Upon dismissal, the
Debtor would lose the protection of the Bankruptcy Code, thereby requiring, at
the very least, an extensive and time consuming negotiation process and
resulting in costly and protracted litigation in various jurisdictions.
Dismissal of the Chapter 11 Case would also permit the Pre-Petition Lenders to
foreclose upon the assets of the Debtor which are subject to their respective
liens and permit unsecured creditors to obtain and enforce judgments against the
Debtor. The Debtor is presently a defendant in at least fifty (50) state court
actions which were commenced on behalf of parties who claim damages as a result
of personal injuries suffered in relation to the operations of the Debtor. The
Debtor is also a party in other actions and proceedings. Such lawsuits, claims
and actions routinely arise in the ordinary course of conducting business as a
retail company. If the Chapter 11 Case was dismissed, many of these actions
would proceed. In particular, legal action against the Debtor by the
Pre-Petition Lenders would undermine the ability of the Debtor to obtain
financing and potentially lead to the liquidation of the Debtor under Chapter 7
of the Bankruptcy Code. Therefore, the Debtor believes that dismissal of the
Chapter 11 Case is not a favorable alternative to the Plan.
6. OTHER ALTERNATIVES IF PLAN IS NOT CONFIRMED
If the Plan is not confirmed, any other party in interest in this Chapter
11 Case could attempt to formulate and propose a different plan or plans of
reorganization. Such plans might involve either a reorganization and
continuation of the business of the Debtor, a sale of the business of the Debtor
as a going concern, an orderly liquidation of the assets of the Debtor, or a
combination of these alternatives. Further, if it is impossible for a plan of
reorganization to be confirmed, the Chapter 11 Case will likely be converted to
Chapter 7 of the Bankruptcy Code.
For the reasons described in this Disclosure Statement, the Debtor believes
that the distributions to each Class of impaired Claims and impaired Common
Stock Interests under the Plan will be greater and will be received earlier than
the distributions which might be received after a Chapter 7 liquidation of the
Debtor. Further, the Debtor projects no distributions
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to the holders of Common Stock Interests in a Chapter 7 liquidation. The Debtor
believes that if the conditions to the Effective Date occur, the Plan maximizes
the property available for distribution and any alternative would result in
lesser recoveries.
X.
CONFIRMATION OF THE PLAN OF REORGANIZATION
A. STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN
1. IN GENERAL
At the Confirmation Hearing, the Bankruptcy Court will determine whether
the requirements of Section 1129 of the Bankruptcy Code have been satisfied, and
it will confirm the Plan only if it finds that all of the requirements set forth
in Section 1129 have ben met. The Debtor believes that the Plan satisfies or
will satisfy each of the requirements of Section 1129, as follows:
(a) The Plan complies with the applicable provisions of the Bankruptcy
Code. The Debtor, as a Plan Proponent, will have complied with the
applicable provisions of the Bankruptcy Code.
(b) The Plan has been proposed in good faith and not by any means
forbidden by law.
(c) Any payment made or promised by the Debtor under the Plan for
services or for costs and expenses in, or in connection with, the Chapter
11 Case, or in connection with the Plan and incident to the Chapter 11
Case, has been disclosed to the Bankruptcy Court, and any such payment made
before Confirmation of the Plan is reasonable, or if such payment is to be
fixed after Confirmation, such payment is subject to the approval of the
Bankruptcy Court as reasonable.
(d) The Debtor will disclose the identity and affiliations of any
individual proposed to serve, after Confirmation of the Plan, as a
director, officer or voting trustee of the Debtor or Reorganized Rose's,
any affiliate of the Debtor participating in the Plan with the Debtor or a
successor to the Debtor under the Plan. Moreover, the appointment to, or
continuance in, such office of such individual must be consistent with the
interests of the holders of Claims and Interests and with public policy,
and the Debtor will disclose the identity of any insider that will be
employed or retained by the Debtor or Reorganized Rose's, and the nature of
any compensation for such insider.
(e) With respect to each Class of impaired Claims or Interests, either
each holder of a Claim or Interest of such Class has accepted the Plan, or
will receive or retain under the Plan on account of such Claim or Interest,
property of a value, as of the Effective Date that is not less than the
amount that such holder would receive or retain if the Debtor were
liquidated on such date under Chapter 7 of the Bankruptcy Code.
(f) Each Class of Claims or Interests that is entitled to vote on the
Plan has either accepted the Plan or is not impaired under the Plan.
(g) Except to the extent that the holder of a particular Claim has
agreed to a different treatment of such Claim, the Plan provides that
Allowed Administrative and Priority Claims (other than Allowed Tax Claims)
will be paid in full on the Effective Date and that Allowed Tax Claims will
receive on account of such Claims deferred Cash payments, over a period not
exceeding six years after the date of assessment of such Claim, of a value,
as of the Effective Date, equal to the allowed amount of such Claim
(subject to the limitations of Section 1129 of the Bankruptcy Code).
(h) At least one Class of impaired Claims has accepted the Plan,
determined without including any acceptance of the Plan by any insider
holding a Claim of such Class.
(i) Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial reorganization, of the
Debtor or any successor to the Debtor under the Plan, unless such
liquidation or reorganization is proposed in the Plan.
(j) All fees payable under 28 U.S.C. (section mark) 1930, including
the fees of the United States Trustee, will be paid as of the Effective
Date.
(k) The Plan provides for the payment after the Effective Date of all
retiree benefits, as that term is defined in Section 1114 of the Bankruptcy
Code, at the level established pursuant to subsection (e)(1)(B) or (g) of
Section 1114, at any time prior to Confirmation, for the duration of the
period the Debtor has obligated itself to provide such benefits.
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The Debtor believes that (i) the Plan satisfies or will satisfy all of
the statutory requirements of Chapter 11 of the Bankruptcy Code; (ii) it
has complied or will have complied with all the requirements of Chapter 11;
and (iii) the Plan has been proposed in good faith.
2. BEST INTERESTS OF CREDITORS TEST/LIQUIDATION ANALYSIS
Before the Plan may be confirmed, the Bankruptcy Court must find (with
certain exceptions) that the Plan provides, with respect to each Class,
that each holder of a Claim or Interest in such Class either (a) has
accepted the Plan or (b) will receive or retain under the Plan property of
a value, as of the Effective Date, that is not less than the amount that
such Person would receive or retain if the Debtor was liquidated under
Chapter 7 of the Bankruptcy Code. If the Debtor were liquidated under
Chapter 7, based upon the Liquidation Analysis attached hereto as Exhibit
D, the Pre-Petition Lenders would likely foreclose on the Debtor's assets,
thereby leaving a dividend of approximately 23.3% on a Pro-Rata basis for
holders of Allowed Unsecured Claims. Common Stock Interests would likely
receive no distribution.
In Chapter 7 liquidation cases, unsecured creditors and interest
holders of a debtor are paid from available assets generally in the
following order, with no lower class receiving any payments until all
amounts due to senior classes have been paid fully or payment provided for:
(i) Secured creditors (to the extent of the value of their
collateral).
(ii) Administrative and Priority creditors.
(iii) Unsecured creditors.
(iv) Debt expressly subordinated by its terms or by order of the
Bankruptcy Court.
(v) Equity Interest holders.
Annexed hereto and made a part hereof as Exhibit D is a Liquidation
Analysis and accompanying assumptions which demonstrate that, in the opinion of
the Debtor, each holder of an impaired Claim or Interest will receive more under
the Plan than it would receive in an orderly liquidation of the Debtor's assets
under Chapter 7.
The Debtor also believes that substantial additional unsecured Claims would
result in the context of such a liquidation under Chapter 7. The amount of
Allowed General Unsecured Claims and Administrative Claims (especially those
incurred by the Trustee and professionals employed by the trustee) would be
significantly greater than that projected in this Disclosure Statement if the
Alternative Treatment Events do not occur. In addition, pursuant to the
Bankruptcy Code, a new bar date would be established, which would potentially
significantly increase the amount of asserted unsecured claims and which would
permit holders barred from receiving distributions under the Bar Date fixed in
connection with the Debtor's Chapter 11 Case to file and assert their Claims.
Based on the above analysis, the Debtor believes that the best interest
test will be satisfied at the Confirmation Hearing in connection with the Plan.
3. FINANCIAL FEASIBILITY
The Bankruptcy Code requires the Bankruptcy Court to find, as a condition
to confirmation, that Confirmation of the Plan is not likely to be followed by
the liquidation of Reorganized Rose's or the need for further financial
reorganization, except as is provided for under the Plan. Annexed hereto as
Exhibit C are the Debtor's Financial Projections for 1994 through 1998 on an
annual basis, quarterly projections for 1995, assumptions accompanying the
projections, actual and projected income statements for 1991 through 1998,
actual and projected balance sheets for 1991 through 1998, and actual and
projected changes in cash for 1991 through 1998.
The Financial Projections reflect an EBITDA of $20.197 million through the
Debtor's fiscal year ending January 28, 1995. The projected Actual EBITDA
through December 31, 1994 is $28.4 million. Assuming the Debtor achieves an
Actual EBITDA of no less than $25 million through December 31, 1994, no other
Alternative Treatment Events occur, and the conditions to the Effective Date are
met, the projections, with attached assumptions, demonstrate that, given
estimated expenses and income, and taking into account Cash reserves, the Debtor
will be able to satisfy its obligations under the Plan, as well as ongoing
business obligations. The Cash payments under the Plan will be made from funds
generated by the operation of Reorganized Rose's business, the Post-Effective
Date Financing Facility, and the possible additional closing of a small number
of Core Stores, or in the case of distributions to be made pursuant to the
Alternative Treatment Provisions of the Plan, from Cash constituting the net
proceeds of the sale or disposition of substantially all assets of the Estate.
The PRO
M-100 78
<PAGE>
FORMA financial projections indicate that Reorganized Rose's will have
sufficient financial resources to satisfy its ongoing business obligations and
to make the distributions required by the Plan.
4. ACCEPTANCE BY IMPAIRED CLASSES
The Bankruptcy Code requires, as a condition to Confirmation, that each
class of Claims or Interests that is impaired under the Plan accept the Plan,
with the exception described in the following Section. A class that is not
impaired under the plan of reorganization is deemed to have accepted the plan,
and, therefore, solicitation of acceptances with respect to such class is not
required.
5. CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to confirm
a plan, even if such plan has not been accepted by all impaired classes entitled
to vote on such plan, provided that such plan has been accepted by at least one
impaired class. If certain impaired classes reject the Plan, the Debtor reserves
its rights to seek the application of the statutory requirements set forth in
Section 1129(b) of the Bankruptcy Code despite lack of acceptance by all
impaired classes.
Section 1129(b) of the Bankruptcy Code states that notwithstanding the
failure of an impaired class to accept a plan of reorganization, the plan shall
be confirmed, on request of the proponent of the plan, in a procedure commonly
known as "cramdown," so long as the plan does not "discriminate unfairly," and
is "fair and equitable" with respect to each class of claims or interests that
is impaired under and has not accepted the plan.
The condition that a plan be "fair and equitable" with respect to a
nonaccepting class of secured claims includes the requirements that (a) the
holders of such secured claims retain the liens securing such claims to the
extent of the allowed amount of the claims, whether the property subject to the
liens is retained by the debtor or transferred to another entity under the plan
and (b) each holder of a secured claim in the class receives deferred cash
payments totalling at least the allowed amount of such claims with a present
value, as of the effective date of the plan, at least equivalent to the value of
the secured claimant's interest in the debtor's property subject to the liens.
The condition that a plan be "fair and equitable" with respect to a
nonaccepting class of unsecured claims includes the requirement that either: (a)
such class receive or retain under the plan property of a value as of the
effective date of the plan equal to the allowed amount of such claim or (b) if
the class does not receive such amount, no class junior to the nonaccepting
class may receive a distribution under the plan.
The condition that a plan be "fair and equitable" with respect to a
nonaccepting class of interests includes the requirements that either: (a) the
plan provides that each holder of an interest in such class receive or retain
under the plan, on account of such interest, property of a value, as of the
effective date of the plan, equal to the greatest of (i) the allowed amount of
any fixed liquidation preference to which such holder is entitled; (ii) any
fixed redemption price to which such holder is entitled; or (iii) (a) the value
of such interest, or (b) if the class does not receive such amount, no class of
interests junior to the nonaccepting class may receive a distribution under the
plan.
In the event that holders of Allowed Unsecured Claims or Common Stock
Interests reject the Plan, the Debtor believes that it will be able to confirm
the Plan despite such rejection in accordance with Section 1129(b) of the
Bankruptcy Code.
XI.
CERTAIN FACTORS TO BE CONSIDERED
A. AVOIDABLE PREFERENTIAL TRANSFER CLAIMS
Under Sections 544, 545, 547, 548, 549 or 550 of Bankruptcy Code, the
Debtor may bring actions to avoid liens and recover for the benefit of the
estate property transferred by the Debtor prior to or after the Filing Date (the
"Avoiding Power Actions"). Under Section 547, the most often utilized section,
the Debtor may seek to recover such property or its value from any creditor that
received that property on account of outstanding debts of the Debtor during the
90-day period (or one-year period if the creditor was also an insider of the
Debtor) immediately before the Filing Date, if at the time of the transfer, the
Debtor was insolvent within the meaning of the Bankruptcy Code. "Insolvent"
means that the amount of the Debtor's liabilities (including contingent
liabilities) exceeded the fair market value of its assets. Assuming that the
Debtor was insolvent during this period, the Debtor could allege that transfers,
such as payments made to trade vendors, constitute avoidable preferences under
Section 547 of the Bankruptcy Code. The Court might require the recipients of
preferential payments to return the funds to the Debtor for distribution under
the Plan.
79 M-101
<PAGE>
Recipients of preferential transfers have many defenses available under the
Bankruptcy Code. For example, if a payment is made and received in the ordinary
course of business with the Debtor, or if the recipient provides new value to
the Debtor in the nature of new merchandise or credit in exchange for the
payment, then the transfer cannot be avoided.
The Debtor, with the assistance of bankruptcy counsel and KPMG Peat
Marwick, is conducting an analysis to determine the magnitude of transfers which
could be recovered under Section 547 or otherwise. Due to the downsizing of the
Debtor's Information Systems Group and the significant amount of time this group
has expended in the reconciliation of reclamation claims, the Debtor has been
unable to complete its review of possible avoidable transfers.
The Debtor is very concerned with the negative impact on vendors of any
action to recover preferential transfers, particularly considering the fact that
trade vendors are receiving New Rose's Common Stock under the Plan. Any recovery
of preferential transfers would increase the claims of the transferees from whom
funds are recovered so that the amount of unsecured debt would increase.
If the Effective Date occurs and the Alternative Treatment Provisions are
not effective, the Debtor will forever release all Avoiding Power Actions.
However, if the Alternative Treatment Provisions are effective, the Debtor will
retain all rights to utilize its Avoiding Power Actions.
B. RISK FACTOR FOR REORGANIZED ROSE'S
The following discussion is intended to be a non-exclusive summary of
certain risks attendant to consummation of the Plan. Holders of Claims and
Interests are encouraged to supplement this summary with their own analysis and
evaluation of the Plan and the entire Disclosure Statement. Notwithstanding the
risk factors analyzed below, the Debtor believes that the Plan is viable and
will meet all requirements of Confirmation under the Bankruptcy Code.
The New Common Stock to be issued pursuant to the Plan to holders of Class
3 Claims, and possibly Class 5 Interests, will be subject to a number of
material risks. The risk factors enumerated below are set forth for purposes of
example only; other risk factors not discussed below may exist that affect the
value, marketability and/or other aspects of the New Common Stock, as well as
the business prospects of Reorganized Rose's.
1. POST-EFFECTIVE DATE CREDIT FACILITY
The Debtor's ability to fund its obligations under the Plan, assuming the
Alternative Treatment Provisions of the Plan are not effective, is dependent
upon procurement of a Post-Effective Date Financing Facility. As of the filing
of this Disclosure Statement, the Debtor has received a Commitment Letter from
GE Capital for a Post-Effective Date Financing Facility in the amount of $80
million. Of course, obtaining a Post-Effective Date Financing Facility from GE
Capital in accordance with the Commitment Letter is subject to various
conditions and contingencies which have not yet been satisfied and the
possibility exists that such conditions and contingencies may not be satisfied.
The Debtor is continuing to explore other financing alternatives under terms
permitted by the Commitment Letter, but is very pleased to have the commitment
in hand prior to consideration of the Plan by creditors.
2. LACK OF ESTABLISHED MARKET FOR NEW ROSE'S COMMON STOCK
Assuming that the Effective Date occurs, it is contemplated that
Reorganized Rose's will seek a listing for the New Rose's Common Stock and the
New Rose's Warrants on either the NASDAQ National Market System. However, there
can be no assurance that Reorganized Rose's will be successful in meeting the
listing requirements of such exchanges. This and other factors may hinder or
prevent the establishment of a trading market in the New Rose's Common Stock and
the New Rose's Warrants.
3. COMPETITION
The retailing industry, in general, and the discount department store
business are very competitive. Rose's is in competition with other discount
department stores in the geographic area in which it operates, but also with
other types of retail outlets, including specialty stores, general merchandise
stores, off-price stores and large national discount chains such as Wal-Mart and
Kmart. The discount department store business is seasonal in nature with a high
proportion of sales and operating income generated during the last quarter of
the year. It is critical that the Debtor maintain an adequate working capital
facility in order to maintain levels of inventory needed to attract customers,
particularly during the Christmas/Holiday season.
M-102 80
<PAGE>
The Debtor has closed 102 stores during the Chapter 11 Case. Most of the
remaining Core Stores have performed well due to the absence or limited adverse
impact of a major competitor in the area. Nevertheless, the Debtor cannot
predict with certainty the future effect of competitor activity on the continued
profitability of its remaining stores.
4. HISTORY OF THE DEBTOR
The Debtor failed to operate profitably for several years preceding the
Chapter 11 filing. It is the opinion of management that the overhead reductions
made during the Chapter 11 Case, including the liquidation of 102 stores, and
new marketing and merchandising strategies, will enhance operating profits.
However, it is critical that sales in the remaining stores attain the levels set
forth in the Financial Projections.
C. RECOMMENDATIONS
In the Debtor's opinion, the Plan is preferable to the alternatives
described above because it provides for a potentially larger distribution to
holders of Allowed Claims and Common Stock Interests than would otherwise result
in a liquidation of the Debtor under Chapter 7 of the Bankruptcy Code. In
addition, any alternative other than Confirmation of the Plan could result in
extensive delay and increased administrative expenses resulting in potentially
smaller distributions to holders of Allowed Claims and Common Stock Interests.
Accordingly, the Debtor supports Confirmation of the Plan.
D. CONCLUSION
For the reasons set forth herein, the Plan Proponents urge all holders of
Allowed Claims and Common Stock Interests which are or may be impaired under the
Plan to vote to accept the Plan and to evidence this acceptance by returning
their Ballots, so that they may be duly and timely received prior to deadline
for which all Ballots are to be submitted, in the manner prescribed herein and
the Disclosure Statement Approval Order.
This First Amended Disclosure Statement is respectfully submitted to the
United States Bankruptcy Court for the Eastern District of North Carolina,
Raleigh Division, by the Debtor and its counsel on the 4th day of October, 1994.
Respectfully submitted,
Rose's Stores, Inc.
By: R. EDWARD ANDERSON
R. EDWARD ANDERSON, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
81 M-103
<PAGE>
SMITH DEBNAM HIBBERT & PAHL
BANKRUPTCY COUNSEL FOR ROSE'S
STORES, INC.
4700 NEW BERN AVENUE
POST OFFICE BOX 26268
RALEIGH, NORTH CAROLINA 27611-6268
919/250-2000
By: TERRI L. GARDNER
LARKIN PAHL
N. C. STATE BAR NO. 3311
TERRI L. GARDNER
N. C. STATE BAR NO. 9809
PROSKAUER ROSE GOETZ & MENDELSOHN
SPECIAL BANKRUPTCY COUNSEL FOR
ROSE'S STORES, INC.
1585 BROADWAY
NEW YORK, NEW YORK 10036
212/969-3000
By: MICHAEL E. FOREMAN
ALAN B. HYMAN
MICHAEL E. FOREMAN
M-104 82
<PAGE>
EXHIBIT A
FIRST AMENDED JOINT PLAN OF REORGANIZATION FOR
ROSE'S STORES, INC.
(This document is on file with the United States Bankruptcy Court and is
incorporated herein by reference)
A-1 M-105
<PAGE>
[This Page Left Blank Intentionally]
M-106
<PAGE>
EXHIBIT B
ROSE'S STORES, INC.
In 1990, the American Institute of Certified Public Accountants issued
Statement of Position 90-7 ("Reorganization SOP") "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting").
The application of Fresh-Start Reporting requires adjusting assets and
liabilities to their estimated fair value at the effective date of the
reorganization. To facilitate the comparisons to prior years, the balance sheets
incorporated in the Long-Term Forecasts include reorganization adjustments but
not valuation adjustments. The following are the adjustments that will be
applied to the April 30, 1995 balance sheet to reflect the application of Fresh
Start Reporting and the terms of the Plan of Reorganization.
PROFORMA PRELIMINARY CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
"FRESH START
ACCOUNTING" PROFORMA
APRIL 30, 1995 DR CR APRIL 30, 1995
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
ASSETS
Cash..................................................................... 1,000 1,000
Accounts receivable...................................................... 10,232 3,463(H) 6,769
FIFO inventory........................................................... 181,668 181,668
LIFO reserve........................................................... (29,360) 29,360(B) --
LIFO inventory........................................................... 152,308 181,668
Prepaid merchandise...................................................... 6,000 6,000
Other current liabilities................................................ 7,084 3,000(C) 4,084
Total current assets................................................... 176,624 29,360 6,463 199,521
Net property............................................................. 35,508 35,508(H) --
Deferred tax benefits.................................................... 6,447 6,447
Other assets............................................................. 551 551(H) --
Total assets........................................................... 219,130 29,360 42,522 205,968
LIABILITIES & EQUITY
Accounts payable......................................................... 28,542 28,542
Current capital leases................................................... 1,424 1,424
Working capital facility................................................. 33,344 5,000(A) 38,344
Closed store reserve..................................................... 3,985 3,985(D) --
Taxes payable............................................................ (12) 947(E) 935
Deferred tax liability................................................... 6,447 6,447
Other current liabilities................................................ 16,707 16,707
Total current liabilities.............................................. 90,437 3,985 5,947 92,399
Pre-petition secured debt................................................ 26,579 26,579
Pre-petition unsecured claims............................................ 129,273 129,273(F) --
Capital leases........................................................... 212 212
Deferred income.......................................................... 692 692
Postretirement ABO....................................................... 6,086 6,086
Stockholders' equity..................................................... (34,149) 114,149(G) 80,000
Total debt & equity...................................................... 219,130 133,258 120,096 205,968
</TABLE>
(A) Borrowings have been adjusted to reflect payments to be made in accordance
with the plan of reorganization as follows:
(1) The payment of $1.7 million for reclamation claims.
(2) The payment if $3.3 million for cure amounts.
(B) Adjustment to write-up inventories by the current LIFO reserve.
B-1 M-107
<PAGE>
(C) Write-off of prepaid assets
(D) Reversal of excess closed store reserve
(E) Pre-petition tax liabilities have been reclassed to current liabilities.
(F) The elimination of pre-petition unsecured claims upon conversion into common
stock. This amount has been adjusted for certain cure and reclamation claims
to be satisfied in cash and certain tax claims which have been reclassified
to other current liablities.
(G) To reflect the new value of equity upon the issuance of new Roses common
stock with an estimated value of $50 to $80 million.
(H) The excess reorganization value which was not allocated to other assets and
liabilities of Roses as part of the adoption of fresh-start reporting is
attributed to PP&E, Other Assets, and Receivables.
M-108 B-2
<PAGE>
EXHIBIT C
ROSE'S STORES, INC.
SUMMARY OF PROJECTED FINANCIAL INFORMATION
1994-1998
<TABLE>
<CAPTION>
1994
REVISED
OPERATING
PLAN 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Net Sales -- Owned............................................... $ 756,948 772,984 796,143 827,987 869,353
Leased Sales..................................................... $ 25,638 26,174 26,960 28,038 29,440
FIFO Gross Margin -- % Net Sales................................. 23.27% 23.48% 23.64% 23.78% 23.94%
Expense -- % of Net Sales........................................ 21.32% 21.26% 20.99% 20.72% 20.55%
Operating Cash Flow (EBITDA -- FIFO basis)....................... $ 20,197 22,730 26,833 31,342 35,747
Operating Profit................................................. $ 9,115 9,713 13,851 20,562 26,707
Capital Expenditures............................................. $ 3,184 6,000 6,000 6,000 6,000
New Rose's Secured Notes......................................... $ 26,579 21,579 14,079 1,377 --
Revolver -- Direct Borrowings.................................... $ 3,800 12,652 -- -- --
Net Working Capital1............................................. $ 116,237 109,529 116,037 123,992 149,134
</TABLE>
1 Current Assets (Inventory at FIFO) less Current Liabilities (excluding New
Rose's Secured Notes)
NOTE: The projected financial data was prepared using the Company's current
financial reporting accounting practices in order to provide
comparable annual financial data. Adoption of Fresh Start accounting
may result in changes to those practices.
The accompanying Principal Assumptions -- Long Term Forecasts should be
read in conjunction with this table.
C-1 M-109
<PAGE>
ROSE'S STORES, INC.
SUMMARY OF PROJECTED FINANCIAL INFORMATION
QUARTERLY 1995
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
Net Sales -- Owned........................................................... $172,516 172,158 177,290 251,020
Leased Sales................................................................. $ 5,630 6,493 6,482 7,569
FIFO Gross Margin -- % Net Sales............................................. 25.55% 24.38% 23.92% 21.13%
Expense -- % of Net Sales.................................................... 22.86% 23.45% 22.90% 17.51%
Operating Cash Flow (EBITDA -- FIFO basis)................................... $ 5,874 2,857 3,089 10,910
Operating Profit............................................................. $ 3,422 (669) (743) 7,703
Capital Expenditures......................................................... $ 1,500 1,500 1,500 1,500
New Rose's Secured Notes..................................................... $ 26,579 26,579 26,579 21,579
Revolver/DIP -- Direct Borrowings............................................ $ 33,344 37,499 58,769 12,652
Net Working Capital1......................................................... $115,547 107,695 107,036 109,529
</TABLE>
1 Current Assets (Inventory at FIFO) less Current Liabilities (excluding New
Rose's Secured Notes)
NOTE: The projected financial data was prepared using the Company's current
financial reporting accounting practices. Adoption of Fresh Start
accounting may result in changes to those practices.
The accompanying Principal Assumptions -- Long Term Forecasts should be
read in conjunction with this table.
M-110 C-2
<PAGE>
ROSE'S STORES, INC.
PRINCIPAL ASSUMPTIONS -- LONG TERM FORECASTS
1994-1998
The Debtor believes that the Plan meets the Bankruptcy Code's feasibility
requirement that plan confirmation is not likely to be followed by a
liquidation, or the need for further financial reorganization of the Debtor or
successors of the Debtor under the Plan unless such liquidation is proposed in
the Plan. In connection with the development of the Plan, and for purposes of
determining whether the Plan satisfies this feasibility standard, the Debtor
analyzed its ability to satisfy its financial obligations while maintaining
sufficient liquidity and capital resources. In this regard, the management of
the Debtor developed and periodically refined the Debtor's business plan and
prepared financial projections (the "Projections") for fiscal 1994 and for the
four year period from fiscal 1995 through 1998. The Projections are summarized
in the accompanying Rose's Stores, Inc. SUMMARY OF PROJECTED FINANCIAL
INFORMATION, 1994-1998 and the SUMMARY OF PROJECTED FINANCIAL INFORMATION,
QUARTERLY 1995 (collectively, the "Forecasts") and certain of the underlying
assumptions are summarized below. The Debtor assumes no responsibility to update
the Forecasts.
ALTHOUGH EVERY EFFORT WAS MADE TO BE ACCURATE, THE FORECASTS WERE NOT
PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, THE FINANCIAL ACCOUNTING
STANDARDS BOARD, OR THE RULES AND REGULATIONS OF THE SECURITES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE FORECASTS HAVE NOT BEEN
AUDITED OR REVIEWED BY ROSE'S STORES, INC. INDEPENDENT CERTIFIED ACCOUNTANTS.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE FORECASTS ARE BASED UPON A
VARIETY OF ASSUMPTIONS, WHICH MAY NOT BE REALIZED, AND ARE SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES
WHICH ARE BEYOND THE CONTROL OF THE COMPANY. CONSEQUENTLY, THE FORECASTS SHOULD
NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY ROSE'S STORES, INC., OR ANY
OTHER PERSONS, THAT THE FORECASTS WILL BE REALIZED. ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE PRESENTED IN THE FORECASTS. HOLDERS OF CLAIMS AND
INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH
ASSUMPTIONS AND THE RELIABILITY OF THE FORECASTS IN REACHING THEIR
DETERMINATIONS AS TO WHETHER TO ACCEPT OR REJECT THE PLAN.
PRINCIPAL ASSUMPTIONS:
(Bullet) Reorganized Roses will operate 113 discount department stores in
the Southeastern region of the United States.
(Bullet) Net Sales -- Owned will increase over prior years by 2%, 3%, 4%
and 5% for 1995, 1996, 1997 and 1998, respectively, primarily as a
result of inflation.
(Bullet) FIFO Gross Margin % is expected to be relatively flat (reflecting
the pass through of merchandise price increases). Slight increases
are expected due to improved markdown results in 1995 and 1996 and
improved markon results in 1997 and 1998.
(Bullet) Leased Sales and Leased Department Income are expected to increase
at the same rate as Net Sales-Owned.
(Bullet) Variable expenses (hourly wages, percentage rent, supplies, etc.)
increase at the same rate as Net Sales -- Owned.
(Bullet) Cash generated from operations and availability under a Revolving
Credit Facility similar to that contemplated in the Plan are
sufficient to fund operations and debt amortization.
(Bullet) Inventory turnover rates are expected to increase from 1994
Business Plan (revised) rate of 3.36 annual turns to 3.42 annual
turns by 1998.
(Bullet) New Rose's Secured Notes is assumed to amortize at the guaranteed
rate, with annual payments made each January. In addition, excess
cash flow sweeps of approximately $6,125 and $1,377 are expected
in April, 1997 and 1998, respectively, fully amortizing the New
Rose's Secured Notes.
(Bullet) No equity transactions will occur during the forecast period.
(Bullet) No significant asset dispositions or new long-term financing
arrangements (other than those incorporated in the Plan) will
occur other than nominal equipment leasing activity.
(Bullet) Tax net operating loss carryforwards are expected to be available
(subject to certain limitations) to reduce federal taxable income.
C-3 M-111
<PAGE>
ROSE'S STORES, INC.
PROJECTED INCOME STATEMENTS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
ACTUAL ACTUAL ACTUAL PROJECT PROJECT PROJECT PROJECT PROJECT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN 000'S)
Gross sales.................................. 1,423,345 1,404,302 1,245,696 782,586 799,158 823,103 856,025 898,793
Less: Leased sales........................... 42,715 42,059 42,474 25,638 26,174 26,960 28,038 29,440
Net sales.................................. 1,380,630 1,362,243 1,203,222 756,948 772,984 796,143 827,987 869,353
FIFO Gross margin............................ 340,470 259,269 271,164 176,116 181,509 188,189 196,885 208,108
% to sales................................. 24.66% 19.03% 22.54% 23.27% 23.48% 23.64% 23.78% 23.94%
Leased Dept Income........................... 10,198 9,816 8,706 5,472 5,588 5,755 5,986 6,285
SG&A......................................... 314,971 300,866 281,722 161,391 164,367 167,111 171,529 178,646
% to sales................................. 22.81% 22.09% 23.41% 21.32% 21.26% 20.99% 20.72% 20.55%
EBITDA -- PRE-LIFO 35,697 (31,781) (1,852) 20,197 22,730 26,833 31,342 35,747
LIFO expense (credit)........................ (10,323) 186 179 (4,495) (2,572) (2,409) (2,707) (2,887)
Depreciation................................. 16,730 13,661 12,984 9,730 9,480 9,840 9,840 9,840
Interest expense............................. 13,924 13,881 12,054 5,847 6,109 5,551 3,647 2,087
Operating profit............................. 15,366 (59,509) (27,069) 9,115 9,713 13,851 20,562 26,707
Postretirement obligation.................... -- (5,031) -- -- -- -- -- --
Bank fees write-off.......................... -- -- (4,528) -- -- -- -- --
Close store/relay provision.................. (33,891) -- (26,474) (43,000) -- -- -- --
Reorganization costs......................... -- -- (8,136) (15,765) (6,828) -- -- --
Pretax proft (loss).......................... (18,525) (64,540) (66,207) (49,650) 2,885 13,851 20,562 26,707
Taxes (tax benefit).......................... 4,779 (949) -- -- 58 278 409 533
Net income (loss).......................... (23,304) (63,591) (66,207) (49,650) 2,827 13,573 20,153 26,174
</TABLE>
M-112 C-4
<PAGE>
ROSE'S STORES, INC.
PROJECTED BALANCE SHEETS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997 1998
ACTUAL ACTUAL ACTUAL PROJECT PROJECT PROJECT PROJECT PROJECT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN 000'S)
ASSETS
Cash.............................................. 5,660 19,101 11,955 1,000 1,000 9,915 16,705 38,378
Accounts receivable............................... 14,838 13,284 15,057 10,916 11,077 11,202 11,239 11,286
Inventory......................................... 316,652 233,042 203,150 124,264 129,248 136,539 145,028 155,239
Prepaid merchandise............................... -- -- 10,757 6,000 6,000 6,000 6,000 6,000
Deferred income tax............................... 6,650 -- -- -- -- -- -- --
Other current assets.............................. 7,922 9,297 7,457 6,404 6,128 5,696 5,264 6,328
Total current assets............................ 351,722 274,724 248,376 148,584 153,453 169,352 184,236 217,231
Net property...................................... 63,806 58,270 50,234 35,943 33,663 31,023 28,383 25,743
Deferred tax benefits............................. -- -- 6,447 6,447 6,447 6,447 6,447 6,447
Other assets...................................... 790 4,765 3,048 551 551 551 551 551
Total assets...................................... 416,318 337,759 308,105 191,525 194,114 207,373 219,617 249,972
LIABILITIES & EQUITY
Reclamation claims................................ -- -- 4,000 -- -- -- -- --
Accounts payable.................................. 69,957 89,512 35,507 25,926 25,857 44,259 45,653 46,916
Current portion of LTD............................ 34,000 16,600 -- -- 7,500 12,702 1,377 --
Current capital leases............................ 2,351 2,402 2,374 1,569 935 301 327 353
Bank drafts outstanding........................... 6,550 3,128 -- -- -- -- -- --
Short term debt................................... -- -- -- 3,800 12,652 -- -- --
Closed store/relay reserve........................ 27,412 6,000 -- 3,985 3,985 3,985 3,985 3,985
Taxes payable..................................... (5,412) (6,558) -- -- 621 427 364 447
Deferred tax liability............................ -- -- 6,447 6,447 6,447 6,447 6,447 6,447
Other current liabilities......................... 34,141 36,125 26,408 20,554 20,789 22,849 25,714 29,308
Total current liabilities....................... 168,999 147,209 74,736 62,281 78,786 90,970 83,867 87,456
Pre-petition debt
Pre-petition debt & interest.................... -- -- 91,778 26,579 -- -- -- --
Unsecured pre-petition claims................... -- -- 115,678 129,273 -- -- -- --
Long term debt.................................... 68,500 73,900 -- -- 14,079 1,377 -- --
Capital leases.................................... 6,396 4,237 1,907 160 368 576 784 992
Deferred income................................... 5,428 3,546 2,296 797 409 21 -- --
Closed store reserve.............................. 24,275 20,743 -- -- -- -- -- --
Postretirement ABO................................ -- 6,015 5,614 5,990 6,374 6,758 7,142 7,526
Stockholders' equity.............................. 142,720 82,109 16,096 (33,555) 94,098 107,671 127,824 153,998
Total debt & equity............................... 416,318 337,759 308,105 191,525 194,114 207,373 219,617 249,972
</TABLE>
C-5 M-113
<PAGE>
ROSE'S STORES, INC.
PROJECTED CHANGES IN CASH
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
ACTUAL ACTUAL ACTUAL PROJECT PROJECT PROJECT PROJECT
<S> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN 000'S)
NET EARNINGS (LOSS).................................... (23,304) (63,591) (66,207) (49,650) 2,827 13,573 20,153
Depreciation & amortization.......................... 16,730 13,661 12,985 9,730 9,480 9,840 9,840
(Gain) loss on asset sales........................... 75 (243) 104 (300) -- -- --
Deferred income taxes................................ 10,104 6,650 -- -- -- -- --
LIFO expense (credit)................................ (10,323) 186 179 (4,495) (2,572) (2,409) (2,707)
Write-off of bank fees............................... 4,528 --
Closed store/relay provision......................... 33,891 26,474 43,000
Stock bonus.......................................... 1,500
Postretirement transition obligation................. 5,031
CASH PROVIDED (USED) BY OPERATIONS
BEFORE ASSET/LIABILITY CHG........................... 27,173 (38,306) (21,937) (1,715) 11,235 21,004 27,286
(Inc.) dec. in accts receivable...................... (2,724) 1,554 (1,773) 4,141 (161) (125) (37)
(Inc.) dec. in Inventories........................... 33,980 78,167 (13,948) 83,381 (2,412) (4,882) (5,782)
(Inc.) dec. in Prepaid Mdse.......................... -- -- (10,757) 4,757 -- -- --
(Inc.) dec. in Other Assets.......................... (2,345) (2,564) 859 1,001 276 432 432
Inc. (dec.) in Accounts Payable...................... (24,612) 19,555 35,051 (15,396) (69) 18,402 1,394
Inc. (dec.) in Accrued Expenses...................... (1,549) 2,216 549 (5,772) 235 2,060 2,865
Inc. (dec.) in Taxes Payable......................... (4,230) (1,146) 8,005 -- (326) (194) (63)
Inc. (dec.) in Deferred Income....................... (1,728) (1,882) (1,250) (1,499) (388) (388) (21)
Inc. (dec.) in Closings/Relay Reserve................ (7,941) (17,799) 13,256 (14,065) -- -- --
Inc. (dec.) in Postretirement ABO.................... 57 276 319 376 384 384 384
CASH PROVIDED (USED) BY OPERATIONS..................... 16,081 40,071 8,374 55,209 8,774 36,693 26,458
INVESTING ACTIVITIES:
Purchases of P&E....................................... (3,109) (9,629) (9,109) (3,184) (6,000) (6,000) (6,000)
Proceeds from P&E disposal............................. 147 489 9 715 -- -- --
CASH USED IN INVESTING................................. (2,962) (9,140) (9,100) (2,469) (6,000) (6,000) (6,000)
FINANCING ACTIVITIES:
Proceeds (payments) working capital facility........... -- -- -- 3,800 8,852 (12,652) --
Proceeds (payments) of lt debt/secured claims.......... (5,000) (12,000) (1,127) (65,281) (5,000) (7,500) (12,702)
Proceeds (payments) unsecured claims................... -- -- -- -- (5,000) -- --
Cap Lease principal payments........................... (3,446) (2,337) (2,358) (2,214) (1,626) (1,626) (966)
Inc. (dec.) in bank drafts outstanding................. (258) (3,422) (3,128) -- -- -- --
Other.................................................. -- 269 193 -- -- -- --
CASH USED BY FINANCING ACTIVITIES...................... (8,704) (17,490) (6,420) (63,695) (2,774) (21,778) (13,668)
INCREASE (DECREASE) IN CASH............................ 4,415 13,441 (7,146) (10,955) -- 8,915 6,790
<CAPTION>
1998
PROJECT
<S> <C>
NET EARNINGS (LOSS).................................... 26,174
Depreciation & amortization.......................... 9,840
(Gain) loss on asset sales........................... --
Deferred income taxes................................ --
LIFO expense (credit)................................ (2,887)
Write-off of bank fees...............................
Closed store/relay provision.........................
Stock bonus..........................................
Postretirement transition obligation.................
CASH PROVIDED (USED) BY OPERATIONS
BEFORE ASSET/LIABILITY CHG........................... 33,127
(Inc.) dec. in accts receivable...................... (47)
(Inc.) dec. in Inventories........................... (7,324)
(Inc.) dec. in Prepaid Mdse.......................... --
(Inc.) dec. in Other Assets.......................... (1,064)
Inc. (dec.) in Accounts Payable...................... 1,263
Inc. (dec.) in Accrued Expenses...................... 3,594
Inc. (dec.) in Taxes Payable......................... 83
Inc. (dec.) in Deferred Income....................... --
Inc. (dec.) in Closings/Relay Reserve................ --
Inc. (dec.) in Postretirement ABO.................... 384
CASH PROVIDED (USED) BY OPERATIONS..................... 30,016
INVESTING ACTIVITIES:
Purchases of P&E....................................... (6,000)
Proceeds from P&E disposal............................. --
CASH USED IN INVESTING................................. (6,000)
FINANCING ACTIVITIES:
Proceeds (payments) working capital facility........... --
Proceeds (payments) of lt debt/secured claims.......... (1,377)
Proceeds (payments) unsecured claims................... --
Cap Lease principal payments........................... (966)
Inc. (dec.) in bank drafts outstanding................. --
Other.................................................. --
CASH USED BY FINANCING ACTIVITIES...................... (2,343)
INCREASE (DECREASE) IN CASH............................ 21,673
</TABLE>
M-114 C-6
<PAGE>
EXHIBIT D
ROSE'S STORES, INC.
HYPOTHETICAL LIQUIDATION ANALYSIS JANUARY 28, 1995
<TABLE>
<CAPTION>
ADJUSTED ESTIMATED
BOOK RECOVERY LIQUIDATION %
BASIS FACTOR VALUE RECOVERY
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
CASH................................................................ $ 1,000 100% $ 1,000
ACCOUNTS RECEIVABLE:
Layaways.......................................................... 2,500 55% 1,375
Vendor and other receivables...................................... 8,416 80% 6,733
$ 10,916 8,108
INVENTORIES:
Stores............................................................ $127,407 75% 95,849
Distribution Center and prepaid merchandise....................... 32,791 65% 21,314
Conforming import letters of credit............................... 5,000 60% 3,000
$165,198 120,163
PROPERTY AND OTHER:
Distribution Center............................................... 11,500
Aircraft.......................................................... 150
Fixtures.......................................................... 1,500
Land, building and equipment...................................... 1,400
Assignable lease interests and other.............................. 2,000
16,550
TOTAL PROCEEDS...................................................... $ 145,821 $ 145,821
LIQUIDATION COSTS:
Chapter 7 trustee and professional fees........................... $ 4,345
Stores ($77 each)................................................. 8,701
Winddown costs.................................................... 5,500
Severance, net of mitigation...................................... 5,300
$ 23,846 (23,846)
PROCEEDS NET OF LIQUIDATION COSTS................................... 121,976
SECURED AND ALLEGEDLY SECURED CLAIMS:
GECC (DIP lender)................................................. $ 13,753
Pre-petition Lenders.............................................. 26,560
Other secured claims..............................................
Accrued professional fees, Pre-petition Lenders................... 450
$ 40,763 (40,763) 100.0%
PROCEEDS NET OF LIQUIDATION COSTS AND SECURED CLAIMS................ 81,213
ADMINISTRATIVE AND PRIORITY COSTS:
Post-petition trade accounts payable.............................. $ 21,637
Post-petition payables, non-trade................................. 4,289
Accruals and other liabilities.................................... 14,977
Administrative contract damages................................... 200
Reclamations...................................................... 1,808
Professional fees................................................. 1,000
Chapter 11 priority unsecured (including taxes)................... 1,325
$ 45,236 (45,236) 100.0%
PROCEEDS AVAILABLE FOR GENERAL UNSECURED CREDITORS.................. 35,977
GENERAL UNSECURED CREDITORS:
Pre-petition unsecured claims and executory contract damages...... $ 96,700
Present value of retiree benefits................................. 4,425
Real property lease rejection damage claims....................... 53,350
$ 154,475 (154,475) 23.3%
PROCEEDS AVAILABLE FOR EQUITY....................................... $(118,498)
</TABLE>
D-1 M-115
<PAGE>
ROSE'S STORES, INC.
HYPOTHETICAL LIQUIDATION ANALYSIS JANUARY 28, 1995 -- CONTINUED
OVERVIEW
The January 28, 1995 Hypothetical Liquidation Analysis of Rose's Stores,
Inc. ("Rose's or Company") set forth below was prepared assuming a hypothetical
chapter 7 liquidation. Underlying this analysis are estimates and assumptions
which are inherently subject to significant uncertainties and contingencies,
many of which are beyond the control of the Company. Accordingly, there can be
no assurance that the values assumed in the liquidation analysis would be
realized if the Company were in fact liquidated. Nor can there be any assurance
that the Bankruptcy Court will accept such analysis or concur with such
assumptions in making its determination under Section 1129(a) of the United
States Bankruptcy Code.
In addition, any liquidation that would be undertaken would necessarily
take place in future circumstances which cannot presently be predicted. While
this liquidation analysis is necessarily presented with numerical specificity,
if the Company were in fact liquidated, the actual liquidation proceeds would
vary from the amounts set forth below.
The liquidation valuations have been prepared solely for the purposes of
estimating the proceeds available in a chapter 7 liquidation and do not
represent values that may be appropriate for any other purposes.
SIGNIFICANT UNCERTAINTIES
In addition to the principal assumptions set forth on the following pages,
significant areas of uncertainty exist. Some of these uncertainties, which could
have a material effect upon the results shown herein, are summarized below:
(Bullet) Liquidation values are predicated upon January 28, 1995 projected
financial data. The analysis does not take into account the effect
of operating results for fiscal 1994.
(Bullet) Actual liquidation proceeds from the sale of assets could be
materially more or less than the estimates indicated due to
various factors such as market conditions at the time of sale,
quality and marketability of inventories and positions asserted by
creditors, including current and former employees.
(Bullet) Upon liquidation, actual liabilities could vary significantly from
those reflected in this liquidation analysis. It is not possible
to predict with any certainty the inevitable increase in
liabilities that would occur in a liquidation or contingent and/or
unliquidated claims not reflected in Rose's financial data. In
addition, the pre-petition liabilities contained in this analysis
reflect information and estimates contained in Rose's financial
records, which do not necessarily agree with the Schedules of
Assets and Liabilities or filed proofs of claim.
$ IN THOUSANDS
RESULTS:
<TABLE>
<CAPTION>
CLASS % RECOVERY
<S> <C>
Post-petition secured lenders............................................................ 100%
Pre-petition Lenders..................................................................... 100%
Chapter 11 administrative and priority creditors......................................... 100%
Chapter 11 general unsecured claims...................................................... 23%
Equity holders........................................................................... NONE
</TABLE>
LIQUIDATION OF ASSETS
The liquidation analysis assumes that on January 28, 1995, (the "Conversion
Date") upon request by a party in interest, the court, for cause, converts the
case to chapter 7.
Commencement of Going Out of Business ("GOB") sales, covering all store and
distribution center inventory, is assumed to occur on or about the Conversion
Date with full shutdown of the stores occurring on or about April 8, 1995. It is
assumed that Rose's will maintain a corporate entity through approximately
October 15, 1995 for purposes of completing the final accounting and tax
returns. Proceeds from the May-July, 1994, 59 stores Going Out of Business sales
("GOB 2" sales) are assumed to be distributed in accordance with the Joint Plan
of Reorganization.
M-116 D-2
<PAGE>
ROSE'S STORES, INC.
HYPOTHETICAL LIQUIDATION ANALYSIS JANUARY 28, 1995 -- CONTINUED
ACCOUNTS RECEIVABLE:
Accounts receivable reflect the Company's best estimate of the likely
components as of the Conversion Date. Substantially all layaways are assumed to
be returned to stock and liquidated at 75% of inventory cost, or about 55% of
the receivable value. Collection of the receivables remaining, after giving
consideration to layaways, is estimated at 80% of recorded value, since
significant portion of the receivables will be entitled to offset against
administrative vendor payables.
INVENTORIES:
Inventories include merchandise in the stores and distribution center,
in-transit and pre-paid goods and goods expected to be received under conforming
open letters of credit. Inventories are expected to be sold through GOB's,
grossing approximately 90% of current replacement cost. Cost of liquidating the
store inventory under a chapter 7 liquidation, including liquidation agent fees,
payroll, security, advertising, shipping, etc. is estimated at approximately 15%
of current replacement cost, for a net recovery of 75%. This 75% factor is less
than the expected net recovery from the GOB 2 sales of approximately 81% due to
seasonality factors as well as the inventory imbalances that would most likely
occur in a complete liquidation. Lower realizations are anticipated on
distribution center and conforming letters of credit inventories due to higher
costs of disposal and seasonal factors.
PROPERTY AND OTHER:
Property and equipment include the distribution center with an estimated
net realizable value of $11,500. Net realization from the sale of store fixtures
is expected to average $10-15 per store, for a total of $1,500. All other land,
building, fixtures and machinery have an estimated net recoverable value of
$1,550.
The Company estimates that liquidation of sundry other assets (e.g.:
videotapes) and assignment of real property leases with measurable value yield a
net cash recovery of $2,000.
PREFERENTIAL TRANSFERS:
The accompanying analysis does not reflect potential recoveries under
possible preferential transfers causes of action. The Company has not completed
its analysis of possible preferential transfers.
ALL OTHER ASSETS:
All other assets, including trade names and other intangibles, are assumed
to have nominal, if any, value in a liquidation.
LIQUIDATION COSTS
CHAPTER 7 TRUSTEE AND PROFESSIONAL FEES:
Chapter 7 Trustee and related administrative and professional costs
approximating 3% of the gross cash value of the assets of the Company, excluding
cash on hand at Conversion Date.
STORES:
Store costs of $77 per store represent the occupancy, taxes and related
costs incurred during the 70 day GOB sale period that are normally not included
in a liquidating agent's contract.
WINDDOWN COSTS:
Winddown costs are the minimum necessary corporate administrative costs
required to winddown the affairs of the Company, including financial and tax,
data processing, human resources, insurance and security. The hypothetical
liquidation analysis assumes that significant corporate overhead reductions in
areas such as merchandising, marketing, and operations management will occur
within one week of conversion. Departments such as risk management, human
resources, and general management/real estate will effectively phase out over
the final GOB period. Other departments, such as finance, treasury and
information services will have periodic staff reductions through October 15,
1995.
D-3 M-117
<PAGE>
ROSE'S STORES, INC.
HYPOTHETICAL LIQUIDATION ANALYSIS JANUARY 28, 1995 -- CONTINUED
SEVERANCE:
The accompanying hypothetical liquidation analysis assumes that severance
will be disbursed in accordance with court approved policies, subject to an
estimated 35% mitigation.
LIABILITIES
GECC BORROWINGS:
GECC Borrowings ("DIP" or (section mark)364(d) obligations) are comprised
of direct borrowings, unmatured standby letters of credit aggregating $4,944 and
unmatured conforming merchandise letters of credit aggregating $5,000.
PRE-PETITION LENDERS:
This analysis assumes that proceeds of the May, 1994 GOB 2 sales will be
distributed as contemplated in the Joint Plan of Reorganization, with $65,089
paid to the Pre-petition Lenders by December 31, 1994. Periodic adequate
protection payments and payment of Pre-petition Lender's professional fees are
assumed to ultimately be characterized as interest and expense reimbursements,
respectively.
OTHER SECURED CLAIMS:
Other secured claims are assumed to be fully satisfied by the turn over of
collateral securing such claims to the holder thereof.
POST-PETITION ACCOUNTS PAYABLE:
Post-petition accounts payable (primarily (section mark)364(a) credit)
includes approximately $21,637 payable to vendors and $4,289 in unpaid sales and
withholding taxes.
ACCRUALS AND OTHER CURRENT LIABILITIES:
Accruals and other current liabilities have been reduced from the operating
plan to reflect an estimated $2,000 of liabilities and reserves based on
going-concern accounting concepts that will not require cash payment in the
event of a liquidation. In addition, certain of the accruals are reflected
elsewhere in this analysis, including items to be satisfied by drawing on
standby letters of credit, professional fees and retiree life insurance. The
balance of the accruals and other current liabilities are assumed to be valid
(section mark)364(a) administrative claims and include rent and other lease
charges, employee benefits and related liabilities, property and other taxes and
various other accruals.
RECLAMATIONS:
Vendors with valid reclamation demands received partial payments during the
pendency of this case in accordance with court-approved formulas. Approximately
$1,808 of outstanding reclamation demands have been deferred as administrative
claims.
PRIORITY UNSECURED CREDITORS:
Priority unsecured claims are comprised almost exclusively of federal,
state and local tax claims, as estimated by Management. As the aggregate of
actual proofs of claim filed by taxing authorities and others claiming priority
significantly exceed Management's estimate, this analysis assumes that the
Company prevails in negotiations or adversarial proceedings.
GENERAL UNSECURED CREDITORS:
The balance presented herein reflects Management's current estimate of the
midpoint of the likely range of general unsecured claims (including damages on
executory contracts already rejected or to be rejected). As the aggregate of
actual proofs of claim filed significantly exceed Management's estimate, this
analysis assumes that the Company prevails in negotiations or adversarial
proceedings.
M-118 D-4
<PAGE>
ROSE'S STORES, INC.
HYPOTHETICAL LIQUIDATION ANALYSIS JANUARY 28, 1995 -- CONTINUED
PRESENT VALUE OF RETIREE BENEFITS:
Retiree benefits are assumed to be granted general unsecured status in a
liquidation. The balances in this analysis were computed as of January, 1994,
and reflect the following potential claims:
<TABLE>
<CAPTION>
PRESENT
TYPE VALUE
<S> <C>
Death benefit -- retired employees........................................................... $ 768(1)
Post-retirement death benefit -- eligible active employees................................... 348(1)
Post-retirement health insurance benefit -- retired employees................................ 1,730(2)
Post-retirement health insurance benefit -- eligible active employees........................ 1,577(2)
Post-retirement health insurance benefit -- not yet eligible employees....................... -- (3)
Total general unsecured claim -- retiree benefits..................................... $ 4,425
</TABLE>
Notes:
(1) Management assumed a 10% discount factor for purposes of computing the
present value of the accumulated death benefit obligation. In addition to
retired employees, substantially all eligible active employees are assumed
to have valid claims (unsecured in the context of a liquidation) equal to
the present value of their death benefit.
(2) Management assumed that the Company would contribute 55% of the cost of the
retiree health insurance and a 7% discount factor for purposes of computing
the present value of the accumulated post-retirement health insurance
benefit obligation. In addition to retired employees, all active employees
who otherwise meet the eligibility requirements (20 years service and 55
years old) are assumed to have valid claims (unsecured in the context of a
liquidation) equal to the present value of the Company's estimated share of
the likely health insurance cost.
(3) Active employees that have not yet met the post-retirement health insurance
benefits eligibility requirements are assumed to have no valid claims
against the estate in a liquidation.
REAL PROPERTY LEASE REJECTION CLAIMS
Lease rejection claims include pre-petition obligations and unmitigated
damages on the rejection all of real property leases, excluding those leases
which sale or assignment is deemed likely by Management. Final GOB store leases
are assumed to be rejected as of April 8, 1995.
ALL OTHER LIABILITIES
All other liabilities recorded on the Company's books as of the Conversion
Date, including deferred income taxes and deferred income, among others, are
assumed to be extinguished without the use of Company assets. It is assumed that
the winddown of the Company will not result in significant federal or state tax
consequences.
D-5 M-119
<PAGE>
[This Page Left Blank Intentionally]
M-120
<PAGE>
EXHIBIT E
DIRECTORS
BRUCE G. ALLBRIGHT
Mr. Allbright was president of Dayton Hudson Corporation (retail department
stores), and a director on its board, from 1987 until 1990. During 1984 through
1987, he was chairman and chief executive officer of Target Stores (discount
retail stores). Mr. Allbright is also director of TCF Financial, G & K Services,
Hannaford Brothers Company, Players Club International, Shopko and Sportstown,
Inc., which are public companies. He was elected as a director in 1990.
SAM AYOUB
Mr. Ayoub is a director of Cousins Properties, Inc. and of numerous
business, industrial, and international trade associations. He was senior
executive vice president and chief financial officer of The Coca-Cola Company
from 1981 to 1985, when he retired. He was elected as a director in 1982.
HONORABLE GEORGE D. BUSBEE
The Honorable George D. Busbee was Governor of the State of Georgia for two
consecutive terms, 1975 to 1983, and chairman of the National Governors'
Association. Now retired, he was a partner in the King & Spalding law firm in
Atlanta, Georgia from 1983 to 1992 and a former member of the President's Export
Council. Governor Busbee is a director of Union Camp Corporation and Delta Air
Lines, and was elected as a director in 1987.
JOHN T. CHURCH
Mr. Church is emeritus chairman of the board, having served as chairman
from 1972 until 1984. He was elected as a director in 1946.
MARIAN CHURCH
Mrs. Church has over 21 years of management experience with many non-profit
organizations through North Carolina and Virginia, including directorship of the
North Carolina Society To Prevent Blindness for 8 years. She was elected to as a
director in 1994 and is married to John T. Church, chairman emeritus of the
Board of Directors.
FRANK A. DANIELS, JR.
Mr. Daniels is president and Publisher of The News and Observer Publishing
Company of Raleigh, North Carolina and also serves as a director and trustee for
several publishing and educational institutions and associations. He was elected
as a director in 1992.
GEORGE M. HARVIN
Mr. Harvin is managing director of the Rosemyr Corporation, Emrose
Corporation, and a real estate leasing corporation, H.H.C. Company. He served as
vice president of Rose's Stores, Inc. from 1990 to 1993; secretary from 1987 to
1993; district manager from 1990 to 1992 and vice president, expansion and real
estate from 1986 to 1990. He was elected as a director in 1984.
JAMES MAYNARD
Mr. Maynard is chairman of the board of directors of Golden Corral
Corporation (family-style restaurants). He is also chairman and chief executive
officer of Investors Management Corporation, and a director of BB&T Financial
Corporation. He was elected as a director in 1989.
ROBERT K. MONTGOMERY
Mr. Montgomery is a partner of the law firm of Gibson, Dunn and Crutcher in
Los Angeles, California. He is also a director of Sizzler International, Inc.
(steak-house restaurants). He was elected as a director in 1992.
E-1 M-121
<PAGE>
ALBERT N. WHITING
Dr. Whiting is a former chancellor of North Carolina Central University in
Durham, North Carolina. He was elected as a director in 1981.
R. EDWARD ANDERSON
On August 22, 1994, the board of directors (the "Board") called a meeting
and elected Mr. R. Edward Anderson to the position of president and chief
executive officer. The Board also elected Mr. Anderson to the position of
chairman of the board. Mr. Anderson will replace Mr. Lucius H. Harvin who
resigned from that position effective August 23, 1994.1
Directors who are officers of Rose's Stores, Inc. receive no additional
compensation for service as a director or on committees.
Directors who are not officers are paid $8,000.00 per year as retainer,
$1,000.00 for each meeting of the Board attended plus $500.00 for attending
committee meetings on the same day as a regularly scheduled meeting, and
$1,000.00 for each committee meeting held on a day other than the date of a
regularly scheduled meeting. Committee members may receive a fee of $250.00 for
participation in meetings via telephone conference and are reimbursed for their
actual travel expenses.
1 Mr. Lucius Harvin was Rose's Chief Executive Officer from 1980 to 1991. He was
also a director of Wachovia Corporation of North Carolina and Wachovia Bank of
North Carolina, N.A. He was elected as a director in 1969 and resigned as
Chairman of the Board on August 23, 1994.
M-122 E-2
<PAGE>
EXHIBIT F
OFFICERS
Officers of the corporation include: chairman of the board, president, vice
presidents, treasurer and secretary designated by the Board as it deems
advisable. Each officer holds office until his successor is chosen and qualifies
and is subject to removal by the chief executive officer or by affirmative vote
of a majority of the whole Board. Vacancies are filled by a majority vote of
directors. As of the Filing Date, there were 23 officers.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
The president and chief executive officer of the Debtor is R. Edward
Anderson, replacing George L. Jones, who resigned on August 19, 1994. Prior to
joining Rose's in 1978 as controller, Mr. Anderson was a certified public
accountant with the accounting firm of Peat, Marwick, Mitchell. A native of
Goldsboro, North Carolina, Mr. Anderson earned a bachelor's degree in business
and accounting from the University of North Carolina at Chapel Hill. A motion
has been filed for court approval of an annual base salary of $395,000.00 (Mr.
Jones was paid an annual base salary of $595,000.00, which was approved by
Bankruptcy Court order dated June 7, 1994) and eligibility to receive the
standard employee benefits awarded to all other officers of the Debtor,
including the benefits provided by the severance program approved by the Court.
EXECUTIVE VICE PRESIDENT, STORE OPERATIONS
The executive vice president, Store Operations is Mr. Kevin R. Freeman. Mr.
Freeman joined Rose's in 1991, bringing with him more than twenty years of
experience in the retail industry. He served as senior vice president of
regional operations for Target Stores out of Minneapolis, Minnesota. During his
13 years with Target, Mr. Freeman was promoted from assistant store manager to
the senior vice president position. In his current position at Rose's, he is
responsible for all store operations in addition to special services,
construction, maintenance, and store planning. Court-approved annual
compensation is $270,000.00, plus an annual automobile allowance of $5,528.00
and eligibility to receive the standard employee benefits awarded to all other
officers of the Debtor, including the benefits provided by the severance program
approved by the Court.
SENIOR VICE-PRESIDENT OF MERCHANDISING
The senior vice-president of merchandising is Mr. Rob Gruen. Mr. Gruen
joined Rose's in 1991 as the vice president and general merchandise manager for
hardlines. Prior to joining Rose's, Mr. Gruen spent 9 years with Dayton Hudson
Corporation. He held merchandising positions at both Target Stores and Dayton
Hudson Department Stores and gained broad experience in both hardlines and
softlines areas. Mr. Gruen holds a bachelor's degree in business administration
from the University of Iowa and a master's degree in business administration
from Drake University. Court-approved annual compensation is $228,000.00, plus
an annual automobile allowance of $5,528.00 and eligibility to receive the
standard employee benefits awarded to all other officers of the Debtor,
including the benefits provided by the severance program approved by the Court.
VICE PRESIDENT, GENERAL MERCHANDISE MANAGER, SOFTLINES
Ms. Kathy M. Hurley, vice president, general merchandise manager,
softlines, came to Rose's in 1992 as vice president and general merchandise
manager for the softlines division. She has nearly 24 years experience in the
retail industry, and before joining Rose's, served in a key management position
with Weathervane Stores. Her background also includes management positions at
Gold Circle, Montgomery Ward, Service Merchandise, Hechts, and Lane Bryant. Ms.
Hurley holds a bachelor's degree from Ohio University. Ms. Hurley currently
directs the merchandising functions for the softlines division, including
apparel for women, men, boys, girls, and infants, as well as fashion
accessories, jewelry, and cosmetics. Her court approved annual compensation is
$170,000.00 and eligibility to receive the standard employee benefits awarded to
all other officers of the Debtor, including the benefits provided by the
severance program approved by the Court.
VICE-PRESIDENT, GENERAL MERCHANDISE MANAGER, HARDLINES
Mr. John M. Freise, vice-president, general merchandise manager, hardlines,
came to Rose's in 1991, bringing with him over 20 years experience in the retail
industry. He served as a district manager with Target Stores of Minneapolis,
Minnesota. His experience includes serving as vice president and divisional
merchandise manager for Macy's Department Stores in their midwest division, and
as a buyer with Donaldson Department Stores of Minneapolis. Mr. Freise holds a
bachelor of science degree in business from Southern Illinois University at
Carbondale. His previous responsibilities included directing store
F-1 M-123
<PAGE>
operation functions for Zone 1, which encompasses the northern tier of Rose's
stores. The Debtor recently re-hired John M. Freise to replace Mr. Gouge, who
resigned as vice president, general manager. Court-approved annual compensation
is $155,000.00 and eligibility to receive the standard employee benefits awarded
to all other officers of the Debtor, including the benefits provided by the
severance program approved by the Court.
VICE-PRESIDENT, STORE OPERATIONS
Mr. Howard R. Parge, vice-president, store operations, joined Rose's in
1992, bringing with him over 20 years experience in the retail industry. Prior
to joining Rose's, he served as a district manager with Target Stores of
Minneapolis, Minnesota. His background also includes serving as senior
merchandise manager with J.C. Penney Company. Mr. Parge holds a bachelor's
degree in business administration and history from Minot State University.
Court-approved annual compensation is $144,900.00 and eligibility to receive the
standard employee benefits awarded to all other officers of the Debtor,
including the benefits provided by the severance program approved by the Court.
VICE PRESIDENT, DISTRIBUTION
Mr. Dan L. Overby, vice president, distribution, joined Rose's in 1966 as a
stockperson, was promoted into the management development program and eventually
managed five different stores. He served as a district operations and personnel
manager, a district manager, zone vice president, and senior vice president of
store operations. Mr. Overby's previous responsibilities include video rental,
food service and in-store photography, as well as the administrative functions
for store operations such as budgeting, expense analysis, implementation of
information systems and training programs. Court-approved annual compensation is
$133,900.00 and eligibility to receive the standard employee benefits awarded to
all other officers of the Debtor, including the benefits provided by the
severance program approved by the Court.
VICE PRESIDENT HUMAN RESOURCES
Mr. Tom Dowd has been recently employed as vice president human resources
to replace Mr. Morgan, who replaced Mr. Bean. Mr. Dowd developed a nearly 30
year career with Sears Roebuck & Company ("Sears"), primarily in the area of
human resources. Mr. Dowd joined Sears in 1964, after graduating from the
College of Holy Cross with a bachelor of arts degree. Mr. Dowd held positions
such as group human resource manager, in which he managed 54 stores and
approximately 15,000 employees; territorial human resources manager, New
England/mid-Atlantic states; territorial human resources director, northern
united States, in which he was responsible for approximately 400 stores and
approximately 175,000 associates and finally, national manager, field human
resources, based out of the Chicago corporate offices. In that position, he had
field human resource responsibility for over 1,000 retail outlets and reported
directly to the president. Court-approved annual compensation is $130,000.00 and
eligibility to receive the standard employee benefits awarded to all other
officers of the Debtor, including the benefits provided by the severance program
approved by the Court.
VICE-PRESIDENT, LOSS PREVENTION
Mr. D. Carey Pylant, vice-president, loss prevention, joined Rose's in 1993
with over twenty-three years of retail loss prevention experience. He previously
held the title of regional asset protection director at Target Stores of
Minneapolis, Minnesota before recently joining the Rose's team. Mr. Pylant has
also been affiliated with Montgomery Ward Company, Gimbels Midwest and Federated
Department Stores. He holds an administration of justice degree and has served
as a staff sergeant in the United States Marines Corp. Mr. Pylant is responsible
for the loss prevention functions in stores and corporate offices which include
merchandise theft detection and apprehension, asset protection program
development and communication, and inventory shortage controls. Court approved
annual salary is $118,000.00 and eligibility to receive the standard employee
benefits awarded to all other officers of the Debtor, including the benefits
provided by the severance program approved by the Court.
VICE PRESIDENT, INFORMATION SERVICES
Mr. Dave Howard has been promoted to the position of vice president,
information services to replace Mr. Priode, who resigned. Mr. Howard joined
Rose's in 1989 as manager of applications development and was later promoted to
director of information systems. Prior to joining Rose's, Mr. Howard served as
senior information systems manager at Gold Circle Stores and as director of
information systems at Marshall Fields Department Stores. Court-approved annual
compensation is $105,000.00 and eligibility to receive the standard employee
benefits awarded to all other officers of the Debtor, including the benefits
provided by the severance program approved by the Court.
M-124 F-2
<PAGE>
VICE PRESIDENT MARKETING AND ADVERTISING
Ms. Shelia Moffitt, vice president marketing and advertising, has over
twenty years of experience in the retail industry. Prior to joining Rose's, she
served as vice president, advertising, for Fisher Big Wheel of New Castle,
Pennsylvania; vice president, sales promotion, J. Byron's of Miami, Florida and
vice president of creative service for the Main Street Division of Federated
Department Stores. Ms. Moffitt attended the Cooper School of Art in Cleveland,
Ohio. Currently, she directs the
full-range of marketing, advertising, sales promotion, and merchandise co-op
activities for the company. Court-approved annual compensation is $100,000.00
and eligibility to receive the standard employee benefits awarded to all other
officers of the Debtor, including the benefits provided by the severance program
approved by the Court.
VICE PRESIDENT, GENERAL MERCHANDISE MANAGER, HARDLINES
Mr. Horace Marshburn, vice president, general merchandise manager,
hardlines, assumed duties of merchandising functions for the hardlines division
which includes health and beauty aids, housewares, household chemicals, food,
domestics, crafts, stationary, and snack merchandise categories subsequent to
the resignation of Bob Sasser. Mr. Marshburn joined Rose's in 1972 as a manager
trainee and has held numerous positions with the Debtor since that time
including, district operations/personnel manager, senior buyer and divisional
manager for both hardlines and softlines. Court-approved annual salary is
$100,000.00 and eligibility to receive the standard employee benefits awarded to
all other officers of the Debtor, including the benefits provided by the
severance program approved by the Court.
VICE-PRESIDENT, CONTROLLER
Ms. Jeanette R. Peters, vice-president, controller, joined Rose's in 1983
as manager of financial planning. She also served as senior manager of financial
planning, and senior financial analysis manager. Ms. Peters is a graduate of
Virginia Polytechnic Institute, with a bachelor of science degree in accounting.
She became a certified public accountant while working for the accounting firm
of Peat, Marwick & Mitchell Co. Ms. Peters' current responsibilities include
accounting and financial reporting and control functions such as sales and
inventory audit, accounts payable, payroll processing, tax, financial analysis,
and financial reporting. Court-approved annual compensation is $96,700.00 and
eligibility to receive the standard employee benefits awarded to all other
officers of the Debtor, including the benefits provided by the severance program
approved by the Court.
TREASURER
Mr. William E. Triplett, III, treasurer, first joined Rose's as an internal
auditor in 1978. After a brief stint on the internal audit staff at NCNB Corp.,
Mr. Triplett returned to Rose's as internal audit manager in 1980 and was later
promoted to the position of director of internal audit. He was named assistant
treasurer of the company in 1987. Mr. Triplett is a graduate of the University
of North Carolina at Chapel Hill where he earned a bachelor of science in
business administration with a major in accounting. Mr. Triplett directs the
cash management, investing, and risk management functions for the company.
Court-approved annual compensation is $82,000.00 and eligibility to receive the
standard employee benefits awarded to all other officers of the Debtor,
including the benefits provided by the severance program approved by the Court.
VICE-PRESIDENT AND LEGAL COUNSEL
Mr. George T. Blackburn, II is vice-president and legal counsel. Mr.
Blackburn joined Rose's as vice president and general counsel in 1991, and was
elected secretary of the corporation in February 1993. Before joining Rose's, he
was a partner in the law firm of Perry, Kittrell, Blackburn and Blackburn of
Henderson, North Carolina, where he served for over 12 years as legal counsel
for Rose's. He completed undergraduate studies and received his Juris Doctorate
degree from the University of North Carolina at Chapel Hill. Court-approved
annual compensation is $77,000.00 and eligibility to receive the standard
employee benefits awarded to all other officers of the Debtor, including the
benefits provided by the severance program approved by the Court.
F-3 M-125
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M-126
<PAGE>
EXHIBIT G
IMPORTANT DATES RELATIVE TO HOLDERS OF COMMON STOCK INTERESTS
(Bullet) The date of entry of an order approving the Disclosure Statement
is the "Record Date" for determining the shareholders who will
vote on the Plan.
ASSUMING ALTERNATIVE TREATMENT EVENTS ARE NOT EFFECTIVE
FEBRUARY 7, 1995
(Bullet) Equity Record Date -- holders of Common Stock Interests on this
date receive treatment under the Plan
ON OR ABOUT FEBRUARY 12, 1995
(Bullet) The Class 5 Rights Notice and financial information will be sent
to each holder of a Common Stock Interest as of the Equity Record
Date.
MARCH 24, 27 AND 28, 1995
(Bullet) The Debtor will issue a press release and will publish notice of
the Class 5 Subscription Price as adjusted as of March 24, 1995 in
the Wall Street Journal at a cost of no more than $40,000.
MARCH 31, 1995
(Bullet) Date by which subscription proceeds must equal or exceed $25
million; termination of the Class 5 Subscription. If proceeds
exceed $25 million, then shares of New Rose's Common Stock will be
distributed to the subcribers.
APRIL 30, 1995
(Bullet) Estimated Effective Date
MAY 30, 1995 (THIRTY DAYS AFTER THE EFFECTIVE DATE OR SOONER IF
PRACTICABLE)
(Bullet) Distribution of New Rose's Warrants distributed to all holders of
Common Stock Interests in Class 5 on a pro-rata basis
(Bullet) Distribution to Class 3 on a pro-rata basis -- 70% of all shares
of New Rose's Common Stock issued and outstanding as of the
Effective Date which are not distributed to the Class 5 subcribers
as discussed above
(Bullet) Cash from the Class 5 Subscription will be paid pro-rata to Class
3.
(Bullet) All remaining New Rose's Common Stock issued and outstanding which
is not distributed under the Class 5 Subscription or to Class 3 as
discussed above will be distributed into the New Rose's Common
Stock Trust.
JULY 29, 1995 (OR NINETY DAYS AFTER THE EFFECTIVE DATE)
(Bullet) This is the Determination Date for valuation of the stock relative
to the New Rose's Common Stock Secondary Distribution, if any. The
value will be calculated using the average trading price of the
New Rose's Common Stock for the fifteen days prior to the
Determination Date.
AUGUST 28, 1995 (THIRTY DAYS AFTER THE DETERMINATION DATE OR SOONER IF
PRACTICABLE)
(Bullet) Class 3 will receive from the Distribution Agent, as trustee of
the New Rose's Common Stock Trust, on a pro-rata basis, all of the
stock in the New Rose's Common Stock Trust or such amount which is
required to provide Class 3 with the Full Recovery Target Amount.
(Bullet) Holders of Common Stock Interests in Class 5 may receive shares of
New Rose's Common Stock in respect of their respective Common
Stock Interests pursuant to the New Rose's Common Stock Secondary
Distribution if all of the New Rose's Common Stock is not
distributed to Class 3 as discussed above.
ASSUMING ALTERNATIVE TREATMENT EVENTS ARE EFFECTIVE
(Bullet) The treatment of Common Stock Interests as set forth above will
not occur. The Debtor will liquidate and holders of Common Stock
Interests will be paid following payment in full of all creditors.
G-1 M-127
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M-128
<PAGE>
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 29, 1994
OR
[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No 0-631
ROSE'S STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 56-0382475
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
218 S. GARNETT STREET
HENDERSON, NC 27536
(Address of principal executive offices)
(Zip Code)
(919) 430-2600
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, No Par Value
Non-Voting Class B Stock, No Par Value
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
As of April 22, 1994, 8,262,420 Voting Common shares and 10,495,586
Non-Voting Class B shares were outstanding, and the aggregate market value of
the Voting Common shares (based upon the quoted closing price of these shares on
that date) of Rose's Stores, Inc. held by nonaffiliates was approximately
$2,397,477.
M-129
<PAGE>
PART I
ITEM 1: BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Rose's* was organized in 1915 as a family partnership consisting of Paul H.
Rose and his wife, Emma M. Rose, who together opened a "5-10-25(cents)" store in
Henderson, North Carolina. By 1927, when there were 28 stores, the business was
incorporated in the state of Delaware under the name of "Rose's 5, 10 &
25(cents) Stores, Inc.". In 1962, the name was changed to "Rose's Stores, Inc.".
Over the years, Rose's has opened stores of a larger size. As a result,
Registrant's business has evolved from a chain of 5, 10 & 25(cents) stores to a
chain of general merchandise discount stores.
On September 5, 1993, Rose's filed a voluntary petition for Relief under
Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Eastern District of North
Carolina (the "Bankruptcy Court"). Rose's is presently operating its business as
a debtor-in-possession under Chapter 11 and is subject to the jurisdiction and
supervision of the Bankruptcy Court. In the Chapter 11 case, substantially all
liabilities as of the date of the filing of the petition for reorganization are
subject to settlement under a plan of reorganization to be voted upon by Rose's
impaired creditors and stockholders and confirmed by the Bankruptcy Court. As of
the date of this report, Rose's has not yet presented its plan of
reorganization. Details of the bankruptcy proceedings are discussed in Note 1 of
the Consolidated Financial Statements.
(b) INDUSTRY SEGMENTS Registrant's business does not include industry
segments as defined under the Act.
(c) NARRATIVE DESCRIPTION OF BUSINESS
At the end of its last fiscal year, Registrant was operating 172 retail
stores in a region extending from Delaware to Georgia and westward to the
Mississippi Valley. All store buildings are leased. The stores range in size
from 24,000 square feet to 76,000 square feet. During the year, Rose's opened no
new stores and closed 45 stores. Rose's anticipates closing approximately 58
stores during the 1994 fiscal year and realigning corporate and administrative
costs accordingly.
Registrant operates one class of stores, known as "ROSES". The stores carry
a wide range of general merchandise and popularly priced consumer goods such as
clothing, shoes, household furnishings, small appliances, toiletries, cosmetics,
sporting goods, automobile accessories, food, yard and garden products,
electronics and occasional furniture. Registrant operates all of the departments
in its stores with the exception of the shoe departments.
Sales are primarily for cash, although credit cards such as MASTER CARD,
VISA and DISCOVER are honored. During the past fiscal year, credit card sales
amounted to approximately 10% of gross sales. Sales are directly affected by
general economic conditions in the southeastern states, consumer spending, and
disposable income.
MERCHANDISING Inventories are purchased in two principal ways. Buyers
purchase and distribute merchandise to the various stores, and the store
managers purchase merchandise for their individual stores from listings and
sources approved by buyers. Rose's purchases from a large number of suppliers
and sells to a large number of customers and does not believe that the loss of
any one customer or supplier would have a materially adverse effect on it.
Rose's has registered some trademarks as private label brands. During the past
fiscal year, private label merchandise constituted approximately 11% of Rose's
gross sales. Rose's does not engage in any material research activities and has
no plans for new product lines.
DISTRIBUTION Approximately 20% of merchandise is shipped directly to stores
from suppliers, and 80% is shipped to stores from Rose's distribution and
consolidating facilities located in Henderson, North Carolina. The majority of
trailers used in shipping are owned by Roses; the majority of tractors are
leased.
SEASONAL ASPECTS OF OPERATIONS Rose's business is highly seasonal and
directly influenced by general economic conditions in its operating area. The
fourth quarter, which includes Christmas, is the period of highest sales volume.
During the past fiscal year, a total of approximately 30% of the year's gross
sales were made in the fourth quarter, beginning October 31, 1993.
COMPETITION Rose's business is intensely competitive. Some of Rose's lines
of merchandise compete directly with chains and independent stores including
Sears, J. C. Penney, Belk, Leggett's and other similar stores. Other lines
compete with chain and independent stores such as Wal-Mart, Kmart, Ames, Hills,
Jamesway, Jack Eckerd, Peoples Drug, A&P,
* Reference in this Annual Report on Form 10-K to "Rose's", the "Registrant", or
"the Company" shall mean Rose's Stores, Inc.
M-130 H-2
<PAGE>
Winn-Dixie, Lowe's, Phar-Mor, Marshall's, Office Depot and similar stores.
Wal-Mart and Kmart have been opening stores in the area in which Rose's stores
are located. In 1993, 15 Company stores faced new competitors' openings,
compared to 40 stores in 1992 and 26 stores in 1991. Increasing competition also
results from grocery and drug chains expanding merchandise lines to carry goods
and products normally identified with general merchandise and variety stores. In
addition, other distribution channels, such as telemarketing and catalogs also
compete with stores of the Registrant.
Associates* Rose's employed, on a full-time or part-time basis,
approximately 14,900 persons at fiscal year-end. Rose's considers its relations
with its associates to be good.
ITEM 2: PROPERTIES
The following table shows the geographical distribution of the 172 Rose's
stores in operation on January 29, 1994:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
<S> <C>
North Carolina........................................................... 79
Virginia................................................................. 40
South Carolina........................................................... 10
Georgia.................................................................. 13
Kentucky................................................................. 9
Tennessee................................................................ 6
Maryland................................................................. 4
Delaware................................................................. 4
Mississippi.............................................................. 4
Alabama.................................................................. 1
West Virginia............................................................ 2
TOTAL............................................................. 172
</TABLE>
During the fiscal year which ended January 29, 1994, Rose's opened no new
stores and closed 45 stores. Registrant expects to close approximately 58 stores
in the coming year. The Registrant occupies approximately 8,864,000 square feet
of store space (including office, stockroom, and other non-selling areas).
Rose's leases all store space from others under long-term leases which are
normally for initial terms of 15 to 20 years with one or more five-year renewal
options. (See Leased Assets and Lease Commitments, Note 14, to the Consolidated
Financial Statements for additional information about the Registrant's
commitments under terms of long-term leases.)
Following is a table of the number of stores opened, closed and remodeled
in the last 5 years:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Number of stores at the beginning of year.................................................. 217 232 256 259 250
Stores opened.............................................................................. -- -- 3 2 15
Stores closed.............................................................................. (45 ) (15 ) (27 ) (5 ) (6 )
Number of stores at the end of year........................................................ 172 217 232 256 259
Remodeled stores........................................................................... 21 7 -- 9 3
</TABLE>
Most of the store fixtures are owned by the Registrant. The remaining
fixtures are manufacturers' racks that are supplied by vendors. Most of the
electronic equipment located in the stores, including point of sale equipment,
is leased by Registrant.
The Registrant owns its Executive and Buying Offices, its 860,300 square
foot central warehouse, an additional consolidating warehouse containing 134,400
square feet, a 31,000 square foot graphic productions building and a 30,000
square foot data center all of which are located in Vance County, North
Carolina. Registrant also leases facilities in Henderson, North Carolina for
offices (approximately 75,000 square feet) and service facilities (approximately
10,000 square feet) and leases warehouse space in Wilmington, North Carolina
(approximately 30,000 square feet). Registrant also owns a 78,000 square foot
warehouse in Henderson, North Carolina, which is leased to a third party.
The Company has pledged inventories located in approximately 64% of its
stores and a collateral pool of $26.5 million consisting of the Distribution
Center and, to the extent necessary, its contents, and a secured interest in all
other property and
* Persons employed by Rose's Stores, Inc.
H-3 M-131
<PAGE>
equipment to both the short-term and long-term lenders in return for six and
one-half year notes and a working capital facility acquired May 29, 1992. Also,
the Company pledged approximately $3,000,000 of inventory to a long-term lender
to collateralize the lender's deferral of previously scheduled payments.
The Company entered into a Debtor-in-Possession Revolving Credit Agreement
(the DIP Facility) on September 20, 1993. The DIP Facility gives the lender,
G.E. Capital Corporation, a super-priority claim against the property of the
Company other than real property.
ITEM 3: LEGAL PROCEEDINGS
The Registrant'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. General damages are covered by insurance, subject to specified
self-retention amounts, and are defended by the Registrant's insurance carrier.
The Registrant's liability for uninsured general damages and punitive damages is
not considered material. No legal proceedings presently pending by or against
the Registrant are described because the Registrant believes that the outcome of
such litigation should not have a material adverse effect on the financial
position of the Registrant.
On September 5, 1993, the Company filed a voluntary petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the Eastern District of North
Carolina (the "Bankruptcy Court") Case No. 93-01365-5-ATS (the "Chapter 11
Case").
The following discussion sets forth certain aspects of the Chapter 11 Case,
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.
CHAPTER 11 REORGANIZATION UNDER THE BANKRUPTCY CODE
Pursuant to Section 362 of the Bankruptcy Code, the commencement of the
Chapter 11 Case created an automatic stay, applicable generally to creditors and
other parties in interest, of: (i) the commencement or continuation of a
judicial administrative or other action or proceeding against the Registrant
that was or could have been commenced prior to commencement of the Chapter 11
Case, or to recover for a claim that arose prior to commencement of the Chapter
11 Case; (ii) the enforcement against the Registrant or its property of any
judgments obtained prior to commencement of the Chapter 11 Case; (iii) the
taking of any action to obtain possession of property of the Registrant or to
exercise control over property of the Registrant; (iv) the creation, perfection
or enforcement of any lien against the property of the Registrant's bankruptcy
estate; (v) any act to create, perfect or enforce against property of the
Registrant any lien that secures a claim that arose prior to the commencement of
the Chapter 11 Case; (vi) the taking of any action to collect, assess or recover
claims against the Registrant that arose before commencement of the Chapter 11
Case; (vii) the setoff of any debt owing to the Registrant that arose prior to
commencement of the Chapter 11 Case against any claim against the Registrant or
(viii) the commencement or continuation of a proceeding before the United States
Tax Court concerning the Registrant. Any entity may apply to the Bankruptcy
Court, upon an appropriate showing of cause, for relief from the automatic stay
to exercise the foregoing remedies. The Registrant is authorized to operate its
business as a debtor-in-possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code.
PLAN OF REORGANIZATION -- PROCEDURES
Under Section 1121 of the Bankruptcy Code, for 120 days after the date of
the filing of a voluntary petition for relief under Chapter 11, only the
debtor-in-possession has the right to propose and file a plan of reorganization
with the Bankruptcy Court. If a debtor-in-possession files a plan of
reorganization during the 120-day exclusivity period, no other party may file a
plan of reorganization until 180 days after the date of filing of the Chapter 11
petition, during which period the debtor-in-possession has the exclusive right
to solicit acceptances of the plan. If a debtor-in-possession fails to file a
plan during the 120-day exclusivity period or such additional period as may be
ordered by the Bankruptcy Court or, after such plan has been filed, fails to
obtain acceptance of such plan from impaired classes of creditors and equity
security holders during the exclusive solicitation period, any party in
interest, including a creditors' committee, an equity security holders'
committee, a creditor, an equity security holder, or any indenture trustee may
file a plan of reorganization for such debtor. Additionally, if the Bankruptcy
Court were to appoint a trustee, the exclusivity period, if not previously
terminated, would terminate.
The Registrant 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 May 31, 1994. The Registrant intends to file a plan of
reorganization prior to May 31, 1994.
M-132 H-4
<PAGE>
After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court following a hearing, 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 of creditors 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 of 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 Registrant, 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
Registrant or any successors unless such liquidation or reorganization is
proposed in the plan.
If any impaired class of creditors or equity security holders does not
accept a plan and assuming that all of the other requirements of section 1129(a)
of the Bankruptcy Code are met, the proponent of the plan may invoke the
so-called "cramdown" provisions of section 1129(b) of the Bankruptcy Code. Under
these provisions, the Bankruptcy Court may confirm a plan, notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders, if certain requirements of the Bankruptcy Code are met, including that
(i) the plan does not discriminate unfairly and (ii) the plan is fair and
equitable, with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan. As used in the Bankruptcy Code, the
phrases "discriminate unfairly" and "fair and equitable" have narrow and
specific meanings unique to bankruptcy law.
ADVERSARY PROCEEDINGS
On February 3, 1994, NationsBank as Collateral Agent, for itself and other
pre-petition lenders (collectively, the "Pre-Petition Lenders") filed a
Complaint under 11 U.S.C. Section 506 to determine the validity, enforceability
and priority of the Pre-Petition Lenders' liens and security interests in
certain assets of the Company described as collateral in various loan documents
entered into by the Company and the Pre-Petition Lenders securing promissory
notes dated May 29, 1992.
The Company, under the provisions of the Bankruptcy Code, commenced an
Adversary Proceeding on February 4, 1994 against the Pre-Petition Lenders
seeking to reduce the claim of the Pre-Petition Lenders to unsecured status on a
variety of theories. The complaint alleged, inter alia, defects in financing
statements filed to perfect security interests, defects in the perfection of
security interests in after-acquired property and cash proceeds, and defective
documentation of collateral in a security instrument.
Most claims with respect to the secured status of the Pre-Petition Lenders
have been resolved by summary judgment dismissing specific challenges or by
dismissal of claims by the Company. Discovery has not been completed with
respect to the remaining claims.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
INVESTOR INFORMATION
CORPORATE DATA
Rose's Stores, Inc. is a Delaware Corporation. Rose's stock is listed on
the NASDAQ System for over-the-counter securities; the Voting Common Stock has
the symbol "RSTOQ" and the Non-Voting Class B Stock has the symbol "RSTBQ".
H-5 M-133
<PAGE>
COMMON STOCK
High and low prices of Rose's Voting Common Stock and Non-Voting Class B
Stock as reported on the NASDAQ are shown below.
MARKET PRICE RANGE AND DIVIDENDS (A)
<TABLE>
<CAPTION>
1993 1992
DIVIDENDS
HIGH LOW DECLARED HIGH
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1st Quarter.............................................................. 7 1/4 3 3/8 -- 6 1/4
2nd Quarter.............................................................. 5 1/2 3 1/8 -- 6
3rd Quarter.............................................................. 3 5/8 11/16 -- 4 5/8
4th Quarter.............................................................. 1 5/8 13/32 -- 7
<CAPTION>
DIVIDENDS
LOW DECLARED
<S> <C> <C>
1st Quarter.............................................................. 3 1/2 --
2nd Quarter.............................................................. 3 13/16 --
3rd Quarter.............................................................. 3 3/4 --
4th Quarter.............................................................. 3 1/2 --
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
<S> <C> <C> <C>
1993.................................................................................. 7 1/4 13/32 --
1992.................................................................................. 7 3 1/2 --
1991.................................................................................. 7 1/8 2 1/8 --
1990.................................................................................. 7 1/4 2 1/4 .210
1989.................................................................................. 9 5/8 5 .210
1988.................................................................................. 12 7 1/8 .210
1987.................................................................................. 22 1/2 7 7/8 .210
1986.................................................................................. 23 1/8 10 3/4 .200
1985.................................................................................. 13 1/2 8 3/4 .190
1984.................................................................................. 13 1/2 7 .185
1983.................................................................................. 14 1/2 3 .135
<CAPTION>
TOTAL
DIVIDENDS
<S> <C>
1993.................................................................................. --
1992.................................................................................. --
1991.................................................................................. --
1990.................................................................................. 3,991
1989.................................................................................. 4,138
1988.................................................................................. 4,194
1987.................................................................................. 4,316
1986.................................................................................. 4,115
1985.................................................................................. 3,900
1984.................................................................................. 3,798
1983.................................................................................. 2,660
</TABLE>
(a) Adjusted to reflect the 2-for-1 stock split effected in 1986, and the
3-for-2 and 3-for-1 stock splits in 1983.
On January 24, 1991, the Board of Directors adopted a resolution suspending
the payment of dividends until future operating profits warrant reinstatement.
Among other things, the Company's DIP financing agreement includes restrictions
on the payment of cash dividends and the repurchase of stock. In addition, the
Company is precluded from paying dividends while the Chapter 11 case is pending
and the Registrant does not believe it is likely that it will pay dividends for
the foreseeable future following termination of the Chapter 11 case. At January
29, 1994, such restrictions preclude the payment of dividends or the repurchase
of stock. The number of holders of record for the Company's Voting Common Stock
was 1,074 and for Non-Voting Class B Stock was 1,537 at April 22, 1994.
M-134 H-6
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS
Revenue:
Gross sales.......................................... $1,245,697 1,404,302 1,423,345 1,525,412 1,507,560
Leased department sales.............................. 42,474 42,059 42,715 23,382 --
Net sales............................................ 1,203,223 1,362,243 1,380,630 1,502,030 1,507,560
Leased department income............................. 8,707 9,816 10,198 5,805 --
Total revenue................................... 1,211,930 1,372,059 1,390,828 1,507,835 1,507,560
Costs and Expenses:
Cost of sales (a).................................... 932,238 1,103,160 1,029,837 1,143,547 1,117,025
Selling, general and administrative.................. 281,723 300,866 314,971 343,158 343,608
Provision for future store closings and
remerchandising (b)............................... -- -- 33,891 35,355 --
Depreciation and amortization........................ 12,984 13,661 16,730 18,503 19,637
Interest............................................. 12,054 13,881 13,924 14,648 12,964
Total costs and expenses........................ 1,238,999 1,431,568 1,409,353 1,555,211 1,493,234
Gain on sale of shoe department fixtures and
inventory (c)..................................... -- -- -- 5,415 --
Earnings (loss) before reorganization expense, income
taxes and cumulative effect of accounting
change............................................ (27,069) (59,509) (18,525) (41,961) 14,326
Reorganization expense (d)........................... (39,138) -- -- -- --
Earnings (loss) before income taxes and cumulative
effect of accounting change....................... (66,207) (59,509) (18,525) (41,961) 14,326
Income taxes (benefits).............................. -- (949) 4,779 (14,200) 5,400
Earnings (loss) before cumulative effect of
accounting change................................. (66,207) (58,560) (23,304) (27,761) 8,926
Cumulative effect of adopting SFAS 106 (e)........... -- (5,031) -- -- --
Net earnings (loss).................................. $ (66,207) (63,591) (23,304) (27,761) 8,926
Cash dividends declared................................ $ -- -- -- 3,991 4,138
FINANCIAL POSITION AT YEAR-END
Total assets......................................... $ 308,105 337,759 416,318 462,749 501,631
Long-term obligations (f)............................ -- 83,433 74,896 107,184 59,881
Stockholders' equity................................. 16,096 82,109 142,720 165,968 204,574
Working capital (f).................................. -- 127,515 182,723 213,852 191,273
Stores in operation.................................. 172 217 232 256 259
PER SHARE RESULTS
Earnings (loss) before cumulative effect of
accounting change................................. $ (3.53) (3.14) (1.25) (1.46) 0.45
Cumulative effect of adopting SFAS 106 (e)........... -- (0.27) -- -- --
Net earnings (loss).................................. (3.53) (3.41) (1.25) (1.46) 0.45
Dividends declared................................... -- -- -- 0.21 0.21
Weighted Average Shares Outstanding (000).............. 18,740 18,638 18,593 19,078 19,718
</TABLE>
(a) In 1991, the Company changed its method of accounting for LIFO inventories
from the use of the inflation index provided by the Bureau of Labor
Statistics to an internally generated price index to measure inflation in
the retail prices of its merchandise inventories. This change decreased 1991
cost of sales by $21,428 (or $1.15 per share). Net loss would have been
$44,732 in 1991 if the change in accounting method had not been made. The
information was not available to determine the cumulative effect of this
change nor the impact of any year prior to 1991.
H-7 M-135
<PAGE>
(b) The provision for future store closings and remerchandising represents the
anticipated costs of closing approximately 15 stores during fiscal year 1992
and 27 stores during fiscal 1991. The 1991 provision also includes the costs
incurred during fiscal 1992 in the remerchandising of the remaining stores.
(c) The gain on sale of shoe department fixtures and inventory results from an
agreement with a footwear merchandising company to assume total operations
of the shoe departments within all Company stores.
(d) On September 5, 1993, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Eastern District of North Carolina seeking
to reorganize under Chapter 11 of the Bankruptcy Code. The consolidated
financial statements contained herein have been prepared in accordance with
generally accepted accounting principles applicable to a going concern and
do not purport to reflect or to provide for all the consequences of the
ongoing Chapter 11 reorganization.
Included in the reorganization expense is a provision of $39,500 for the
costs of closing 43 stores in January 1994, as well as the DIP fee
amortization and expenses, professional fees and other reorganization costs.
Offsetting these expenses is a reversal of prior reserves for closings due
to the anticipated rejection of closed store leases.
(e) In 1992, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," requiring the Company to
accrue health insurance benefits over the period in which associates become
eligible for such benefits. The cumulative effect of adopting SFAS 106 was a
one-time charge of $5,031.
(f) Not comparable for 1993, the majority of the amounts comprising this item
have been reclassed to liabilities subject to settlement under
reorganization proceedings.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
FROM OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
which each item listed bears to net sales:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET
SALES
FISCAL YEARS
1993 1992 1991
<S> <C> <C> <C>
Revenue:
Gross sales........................................................................................ 103.5% 103.1% 103.1%
Leased department sales............................................................................ 3.5 3.1 3.1
Net sales.......................................................................................... 100.0 100.0 100.0
Leased department income........................................................................... 0.7 0.7 0.7
Total revenue................................................................................. 100.7 100.7 100.7
Costs and Expenses:
Cost of sales (a).................................................................................. 77.5 81.0 74.6
Selling, general and administrative................................................................ 23.4 22.1 22.8
Provision for future store closings and remerchandising (b)........................................ -- -- 2.5
Depreciation and amortization...................................................................... 1.0 1.0 1.2
Interest........................................................................................... 1.0 1.0 1.0
Total costs and expenses...................................................................... 102.9 105.1 102.1
Loss before reorganization expense, income taxes (benefits), and cumulative effect of
accounting change.................................................................................. (2.2) (4.4) (1.4)
Reorganization expense (c)........................................................................... (3.3) -- --
Loss before income taxes (benefits) and before cumulative effect of accounting change................ (5.5) (4.4) (1.4)
Income taxes (benefits).............................................................................. -- (0.1) 0.3
Loss before cumulative effect of accounting change................................................... (5.5) (4.3) (1.7)
Cumulative effect of adopting SFAS 106 (d)........................................................... -- (0.4) --
Net loss............................................................................................. (5.5)% (4.7)% (1.7)%
</TABLE>
M-136 H-8
<PAGE>
(a) In 1991, the Company changed its method of accounting for LIFO inventories
from the use of the inflation index provided by the Bureau of Labor
Statistics to an internally generated price index to measure inflation in
the retail prices of its merchandise inventories. This change decreased 1991
cost of sales by $21,428 (or $1.15 per share). Net loss would have been
$44,732 in 1991 if the change in accounting method had not been made.
(b) The 1991 provision for future store closings and remerchandising represents
the anticipated costs of closing approximately 15 stores during fiscal 1992
and the costs incurred during fiscal 1992 in the remerchandising of the
remaining stores.
(c) On September 5, 1993, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Eastern District of North Carolina seeking
to reorganize under Chapter 11 of the Bankruptcy Code. The consolidated
financial statements contained herein have been prepared in accordance with
generally accepted accounting principles applicable to a going concern and
do not purport to reflect or to provide for all the consequences of the
ongoing Chapter 11 reorganization.
Included in the reorganization expense is a provision of $39,500 for the
costs of closing 43 stores in January 1994, as well as the DIP fee
amortization and expenses, professional fees and other reorganization costs.
Offsetting these expenses is a reversal of prior reserves for closings due
to the anticipated rejection of closed store leases.
(d) In 1992, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the Company to
accrue health insurance benefits over the period in which associates become
eligible for such benefits. The cumulative effect of adopting SFAS 106 was a
one-time charge of $5,031.
CHAPTER 11 FILING
On September 5, 1993, the Company filed a voluntary petition for relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the Eastern District of North
Carolina (the "Bankruptcy Court"). The Company is in possession of its property
and is maintaining and operating its property as a debtor-in-possession pursuant
to the provisions of Sections 1107 and 1108 of the Bankruptcy Code.
For further discussion of the Chapter 11 proceedings, see Footnote 1 in the
Consolidated Financial Statements.
REVENUE
The Company reported sales in 1993 of $1,245,697, a decrease of $158,605 or
11.3% from 1992. Sales in same stores for 1993, on a comparable week-to-week
basis, decreased 7.7% compared to 1992. Prior to its bankruptcy filing, poor
sales were caused by out-of-stocks resulting from reduced purchases necessitated
by the Company's limited borrowing availability. Also, just prior to and
immediately after filing the petition under Chapter 11, many suppliers
interrupted their shipments of merchandise causing out-of-stock positions on
most seasonal merchandise. It took several months to restore inventory levels to
acceptable levels.
In 1992, the Company reported sales of $1,404,302, a decrease of $19,043 or
1.3% from fiscal 1991. 1992 same store sales, on a comparable week-to-week
basis, increased 2.5% from 1991. Sales in the first half of fiscal 1992 were
negatively affected by credit problems related to the Company's bank facility
negotiations and by the significant disruptions associated with the
remerchandising of all stores. Sales in the second half of 1992 were positively
impacted by the sale of clearance merchandise and stronger promotional sales.
Sales have been adversely affected over the last three years as a result of
new competition. For the stores open in 1993, 15 faced new competitors, compared
to 40 in 1992 and 26 in 1991. In 1994, the Company expects to have 6 stores
facing new competition. Also, the Company believes the soft and uncertain
economy had a negative impact on the sales results for the sales in 1992 and
1991.
Inflation has had little effect on the Company's operations in the last
three years.
COSTS AND EXPENSES
In 1993, the cost of sales as a percent of sales decreased 3.5% from the
1992 percent to sales. This was due to (1) decreased markdowns resulting in a
decrease in the cost of sales rate of 1.6%, (2) higher markup decreasing the
rate by 1.5%, and (3) lower shrinkage resulting in a decrease of the rate by
1.1%. These improvements were offset somewhat by increases in the freight costs.
The Company took proactive measures in 1993 to reduce the shrinkage to a normal
rate. Some
H-9 M-137
<PAGE>
of these measures included strengthening the Company's loss prevention
department, implementing systems that automatically calculate markdowns,
establishing a shrink incentive program for the stores, and implementing
stronger store front-end controls.
In 1992, the cost of sales as a percent of sales increased 6.4% over the
1991 percent to sales. This was due primarily to higher clearance markdowns
taken during the year to liquidate old and discontinued hardlines inventory and
seasonal apparel, resulting in an increase of 2.6% in the cost of sales rate.
Lower markup caused an increase to the 1992 cost of sales rate of 1.5%. Higher
inventory shrinkage increased the cost of sales rate by 1.3% over the 1991
percent to sales. The Company believes that this increase in shrinkage was
caused primarily by the disruptions in the stores due to the remerchandising in
the first half of 1992 and the large volumes of clearance markdowns taken in the
second half of 1992, and by higher internal and external theft. Finally, the
cost of sales rate in 1992 increased by .8% due to a higher LIFO charge.
In 1991, the Company developed and used internal price indices instead of
the inflation index provided by the Bureau of Labor Statistics. The 1991 pre-tax
LIFO provision included in cost of sales (a credit of $10,323) would have been a
charge of $11,105 if the accounting change had not been made; therefore, the
accounting change had the effect of decreasing cost of sales by $21,428. The net
loss for 1991 would have been $44,732 if the change in accounting method had not
been made. A decrease in mark-up in 1991 resulting from lowering competitive
prices was more than offset by a decrease in markdowns as a percent to sales.
Selling, general and administrative expenses as a percent of sales were
23.4% in 1993, 22.1% in 1992, and 22.8% in 1991. The increase in 1993 is largely
attributable to the decline in 1993 sales.
As part of its business plan, the Company decided to close 43 stores in
January of 1994 and recognized an expense of $39,500 associated with these
closings. Additionally, the Company recognized a $13,026 benefit associated with
the anticipated rejection of closed store leases on stores already closed. A net
reorganization expense of $39,138 before taxes, relating to these closed stores
and other bankruptcy costs, was recorded during 1993.
In addition, the Company made the decision in the first quarter of 1994 to
close approximately 58 stores and realign corporate and administrative costs
accordingly. It is expected that a charge of approximately $55,000 relating to
these closings will be included in the first quarter of 1994.
In 1991, a provision of $24,891 was recorded to provide for the costs of
closing 15 stores in 1992. In addition, the Company recorded a charge of $9,000
to provide for payroll costs and inventory reductions that were incurred in 1992
as a result of a significant change in the merchandise mix in the stores.
Interest expense decreased 13% in 1993 due to a decrease in long-term debt
outstanding. Generally, under the Bankruptcy Code, interest on pre-petition
claims ceases accruing upon the filing of a petition unless the claims are
collateralized by an interest in property with value exceeding the amount of
debt. Although no determination has yet been made regarding the value of the
property which collateralizes various creditors' claims, the Bankruptcy Court
has ordered the Company to make monthly adequate protection payments which have
been booked as interest. The Company is disputing the claims to collateral of
its pre-petition long-term debtholders. (See Item 3. Legal Proceedings) Interest
on the DIP facility and other related DIP fees and expenses were $1,238 in 1993
(0.1% of net sales), and were included in the reorganization costs. In addition,
the Company included in the reorganization costs, a write-off of $4,528 related
to unamortized costs of pre-petition debt. Interest expense decreased .3% in
1992 due to a decrease in average short-term debt offset by higher rates on
renegotiated long-term senior notes. Interest expense decreased 4.9% in 1991 due
to a decrease in average short-term debt outstanding.
OTHER
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Statement 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109 the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
M-138 H-10
<PAGE>
Effective the first quarter of 1993, the Company adopted Statement 109. The
only effect of adopting Statement 109 was the establishment of a $5,760 current
deferred tax liability and a $5,760 non-current deferred tax asset. Under the
guidelines provided by APB 11, the Company would have no current or non-current
deferred tax liability/asset.
In 1992, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the Company to
accrue health insurance benefits over the period in which associates become
eligible for such benefits. The cumulative effect of adopting SFAS 106 was a
one-time charge of $5,031 (or $.27 per share).
A write-off of deferred tax assets of $8,970 negatively impacted 1991. This
write-off was required so that the Company would not have deferred tax assets
greater than the tax carrybacks available. If the Company becomes profitable,
the reinstatement of these deferred tax assets will be used to reduce tax
expense in future years. Additional tax losses were incurred during 1992; thus
the remaining deferred tax assets were consumed with the resulting NOL which
eliminated the need for an additional write-off.
The Internal Revenue Service (IRS) has completed its examinations of the
Company's federal income tax returns for the years 1988 through 1991 and has
proposed tax adjustments of $2,882 plus interest and penalties. These
adjustments pertain to issues including the timing of deductions for inventory
shrinkage accruals, depreciation expense and amortization of movie rental
assets. The Company's management and tax counsel believe that certain of the
IRS's proposed adjustments are without merit and are vigorously contesting
these, and that the ultimate resolution of the proposed adjustments will not
have a material effect on the Company's financial position.
LIQUIDITY AND CAPITAL RESOURCES
On September 2, 1993, the Company received a notice of default for failure
to make an interest payment due on August 31, 1993 under its primary line of
credit facility under the Amended and Restated Loan Agreement dated May 29,
1992. The notice of default demanded payment in full of the $106,000 of
outstanding principal and declined to extend any further credit.
The Chapter 11 filing caused a default under many of the agreements to
which the Company is a party. Generally, actions to enforce or otherwise effect
the repayment of pre-petition liabilities are stayed while the Company is under
the protection of Chapter 11 of the Bankruptcy Code. These liabilities will be
resolved as a part of the reorganization proceedings. Additional liabilities
subject to similar resolution may arise as a result of claims filed by parties
related to the rejection of executory contracts, including expired leases, and
for the Bankruptcy Court's determination of allowed claims for contingencies and
other disputed amounts.
On September 6, 1993, the day after the Company filed for Chapter 11, the
Company and G. E. Capital Corporation ("GE Capital") entered into a commitment
letter pursuant to which GE Capital would provide debtor-in-possession post-
petition financing to the Company in the form of a two-year revolving credit
facility of up to the lesser of (i) 50% of the value of inventory of the
Registrant acceptable to GE Capital, less reserves to be established in the
discretion of GE Capital or (ii) $125,000. (This two-year credit agreement is
hereinafter referred to as the "DIP Facility".)
On October 14, 1993, the Bankruptcy Court approved the DIP Facility with
certain restrictions on the borrowing base pending approval of the Company's
1994 business plan by the secured lenders.
The DIP Facility provides for interest to accrue at a lower rate than the
Company's primary pre-petition revolving credit facility. As part of the cash
collateral order, the Company pays the interest on the pre-petition debt monthly
in the form of adequate protection payments.
With the approval of the DIP Facility, the Company's short-term liquidity
has improved significantly. The cash requirements for the payment of scheduled
principal payments, accrued interest, accounts payable and other liabilities
incurred prior to the Chapter 11 filing have in most cases been deferred until a
Plan of Reorganization is confirmed by the Bankruptcy Court. Pre-petition claims
of $207,456 were outstanding as of the end of 1993. In addition, $4,000 of
estimated reclamation claims to be paid according to court order are included in
current liabilities.
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.
Until such a plan is confirmed by the Bankruptcy Court and consummated, payments
on pre-petition debt will not be made (except as approved by the Bankruptcy
Court) and all existing unexpired contracts and leases will be reviewed to
determine whether they should be assumed or rejected (subject to Bankruptcy
Court approval). The adequacy of the Company's capital
H-11 M-139
<PAGE>
resources and long-term liquidity cannot be determined until a plan of
reorganization is developed and confirmed by the Bankruptcy Court.
The Company's current ratio for 1993, which includes $4,000 of reclamation
claims, is 3.32 compared to 1.87 in 1992 and 2.08 in 1991. In 1993, cash and
cash equivalents decreased $7,146 compared to increases of $13,441 in 1992 and
$4,416 in 1991. The Company's working capital was $173,640 in 1993, $127,515 in
1992, and $182,723 in 1991. The increase in working capital in 1993 of $46,125
was primarily due to a reclassification of pre-petition current liabilities to
liabilities subject to settlement under reorganization proceedings due to the
Chapter 11 filing.
The fixed charge coverage ratio was 0.00 in 1993, 0.10 in 1992 and 0.80 in
1991. The fixed charge coverage ratio is defined as the sum of net income before
taxes, LIFO provision, interest, depreciation, and minimum rent divided by the
sum of interest and minimum rent. The ratio, excluding items that are typically
non-recurring such as reorganization costs, reserves for store closings and
remerchandising, and the adoption of SFAS 106 was 0.74 in 1993, 0.19 in 1992 and
1.37 in 1991.
In 1993, $8,373 of cash was provided from operating activities, while
$40,071 was provided in 1992 and $16,081 was provided in 1991. Declining sales,
as well as an increased investment in inventory and inventory prepayments
contributed to the decline in cash.
Investing activities used cash of $9,100 in 1993, $9,140 in 1992, and
$2,962 in 1991. The Company invested cash in property and equipment totaling
$9,109 in 1993, $9,629 in 1992, and $3,102 in 1991. The 1993 expenditures were
primarily for store improvements, remodels and new computer software. The
Company closed 45 stores in 1993, closed 15 stores in 1992, and opened three
stores and closed 27 in 1991.
Financing activities used cash of $6,419 in 1993, $17,490 in 1992, and
$8,703 in 1991. The Company made $1,127 of payments on long-term debt in 1993,
and $12,000 in 1992. In 1991, the Company reduced its short-term debt by $5,000
through a reduction of inventory levels. The Board of Directors has suspended
dividend payments until future operating profits warrant reinstatement. The
Company's debt agreements include a restriction on the payment of cash dividends
and the repurchase of stock.
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS
See Consolidated Financial Statements contained elsewhere herein.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is furnished with respect to each of the members of the Board
of Directors of the Registrant as of January 29, 1994:
<TABLE>
<CAPTION>
FIRST YEAR
PRINCIPAL OCCUPATION DURING LAST FIVE YEARS, ELECTED A
NAME AND AGE DIRECTORSHIPS IN PUBLIC REGISTRANTS DIRECTOR
<S> <C> <C>
Bruce G. Allbright (65) Retired since 1990; President and Director of Dayton Hudson Corporation 1990
(department stores), 1987 until 1990; Chairman and Chief Executive Officer of
Target Stores (discount stores), 1984 to 1987. He is a director of TCF Financial,
G & K Services, Hannaford Brothers Company, Player's Club International, Shopko
and Sportstown, Inc.
Sam Ayoub (75) Retired since 1985; Senior Executive Vice President and Chief Financial Officer of 1982
the Coca-Cola Company, 1981 to 1985. Mr. Ayoub is a director of Cousins
Properties, Inc., and of numerous business, industrial and international trade
associations.
Hon. George D. Busbee (66) Retired since 1992; Partner, King & Spaulding (law firm), Atlanta, GA., 1983-1992. 1987
Mr. Busbee was Governor of the State of Georgia for two consecutive terms
(1975-1983) and Chairman of the National Governors' Association (1981-1982). He
has been a member of the President's Export Council (1979- 1985) and is a director
of Union Camp Corporation and Delta Air Lines.
</TABLE>
M-140 H-12
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR
PRINCIPAL OCCUPATION DURING LAST FIVE YEARS, ELECTED A
NAME AND AGE DIRECTORSHIPS IN PUBLIC REGISTRANTS DIRECTOR
<S> <C> <C>
Marion J. Church (49) Retired since 1992; Legislative Clerk for North Carolina General Assembly from 1994
1990 to 1992; Executive Director of North Carolina Society to Prevent Blindness
from 1990 until 1992.
John T. Church, Sr. (76) Chairman of the Board, Emeritus. Mr. Church was Chairman of the Board from 1972 to 1946
1984.
Frank A. Daniels, Jr. (62) President and Publisher of The News and Observer Publishing Company (newspapers 1992
and other publications), Raleigh, NC. He is Vice Chairman/Chairman Elect of the
Associated Press and a director and trustee of certain publishing and educational
institutions and associations.
George M. Harvin (47) Managing Director, The Rosemyr Corporation, Emrose Corporation and H.H.C. Co. 1984
(real estate leasing corporations); Vice President of Rose's Stores, Inc., from
1990 to 1993; Secretary from 1987 to 1993; District Manager from 1990 to 1992;
Vice President Expansion and Real Estate from 1986 to 1990.
Lucius H. Harvin, III (55) Chairman of the Board since 1984; Chief Executive Officer from 1980 to 1991. 1969
George L. Jones (43) President and Chief Executive Officer since 1991. Mr. Jones was Executive Vice 1991
President, Store Operations, of Target Stores, Division of Dayton Hudson
Corporation from 1988 to 1991; Chairman/CEO, Monica Scott, Inc. (speciality
stores) from 1987 to November, 1988(a); Senior Vice President, General Merchandise
Manager, Target Stores from 1986 to 1987; Vice President Ready to Wear, Target
Stores from 1985 to 1986.
James Maynard (54) Chairman of the Board of Directors of Golden Corral Corporation (restaurants); 1989
Chairman and Chief Executive Officer of Investors Management Corporation
(diversified holding company). Mr. Maynard is also a director of BB&T Financial
Corporation.
Robert K. Montgomery (55) Partner, Gibson, Dunn and Crutcher (law firm), Los Angeles, California. He is a 1992
director of Sizzler International, Inc.
Albert N. Whiting (76) Retired since 1983; Chancellor of North Carolina Central University, Durham, NC, 1981
from 1967 to 1983.
</TABLE>
(a) Monica Scott, Inc., which had remained current in payment of liabilities
during his tenure as CEO, later filed for protection under the provisions of
Chapter 11, U.S. Bankruptcy Code.
Mr. Lucius H. Harvin, III (Chairman of the Board) is the brother of George
M. Harvin (a Director); and they are nephews of Marion J. Church (a Director)
and John T. Church. Sr. (Chairman of the Board Emeritus and a Director). Mr. and
Mrs. Church are husband and wife.
The following information is furnished with respect to each of the
executive officers of the Registrant as of January 29, 1994:
<TABLE>
<CAPTION>
NAME, AGE, POSITION BUSINESS EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
Lucius H. Harvin, III (55) Chairman of the Board since March 12, 1984. Chief Executive Officer from January 1, 1980 to
Chairman of the Board July 25, 1991. He is Chairman of the Executive Committee and of the Nominating Committee and a
member of the Advisory Committee of the Profit Sharing Plan and the Variable Investment Plan.
George L. Jones (43) Elected President and Chief Executive Officer July 26, 1991; He is a member of the Company's
President and Chief Executive Committee. Executive Vice President, Store Operations, of Target Stores, Division of
Executive Officer Dayton Hudson Corporation from 1988 to 1991. Chairman and Chief Executive Officer, Monica
Scott, Inc. from 1987 to 1988.
R. Edward Anderson (44) Appointed Executive Vice President October 19, 1992; Appointed Chief Financial Officer January
Executive Vice President, 12, 1990; Senior Vice President, Systems and Accounting since May 28, 1986.
Chief Financial Officer
Kevin Freeman (43) Appointed Executive Vice President October 19, 1992; Senior Vice President Store Operations
Executive Vice President, September 16, 1991 to October 18, 1992; Regional Senior Vice President, Target Stores from
Store Operations 1989 to 1991; Regional Vice President, Merchandise Manager, Target Stores, from 1985 to 1989.
</TABLE>
H-13 M-141
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION BUSINESS EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
Rob Gruen (44) Appointed November 25, 1992; Vice President General Merchandise Manager November 18, 1991 to
Senior Vice President, November 24, 1992; Merchandise Manager, Dayton Hudson, Target Stores Division, 1982 to 1989;
Merchandising Division Merchandise Manager, Department Stores Division of Dayton Hudson, Childrens Apparel
and Toys from 1989 to November 1991.
George T. Blackburn, II (43) Elected Secretary February 17, 1993; Appointed Vice President, General Counsel April 19, 1991;
Vice President, formerly Partner of Perry, Kittrell, Blackburn & Blackburn law firm for the relevant period
General Counsel and preceding April 19, 1991.
Secretary
John Freise (48) Appointed January 9, 1992; Operations Special Assignment from November 26, 1991 to January 22,
Zone Vice President, 1992; Target Stores District Manager from June 1983 to November 1991.
Operations
(Held position until
April 19, 1994)
Barry L. Gouge (47) Appointed July 12, 1993; Vice President, Marketing from January 3, 1992 to July 11, 1993;
Vice President, McCrory Stores, York, PA; Senior Vice President Marketing from August 1987 to December 1991.
General Merchandise
Manager -- Hardlines B
M. Jane Hill (41) Appointed November 9, 1992; Senior Manager, Merchandise Presentation, March 1991 through
Vice President, November 1992; Senior Project Manager, Merchandise, Accounting and Replenishment Systems
Merchandise Planning (M.A.R.S. Project), August 1990 through March 1991; Project Manager, Merchandise
and Control Administration and Replenishment Systems, June 1987 through August 1990.
(Held position until
April 7, 1994)
Kathy M. Hurley (47) Appointed November 30, 1992; D & L Venture Corp., Divisional Merchandise Manager, Sportswear,
Vice President, May 1991 through November 1992; Lane Bryant, Divisional Merchandise Manager, Intimate Apparel,
General Merchandise May 1990 through March 1991; Hecks, Inc., Executive Vice President, General Merchandise
Manager -- Softlines Manager, August 1987 through March 1990; Service Merchandise, Inc., Senior Vice President
General Merchandise Manager, Apparel, April 1986 through July 1987.
Shelia R. Moffitt (44) Appointed August 13, 1993; Marketing Director from November 1992 to August 1993; Vice
Vice President, President Advertising of a subsidiary of Fishers Big Wheel, Inc. from July 1991 to November
Marketing 1992; Vice President Advertising and Sales Promotion of a subsidiary of Amcena Corporation
from February 1987 to January 1991.
Robert Morgan (34) Appointed December 15, 1993; Vice President of Organizational Development and Associate
Vice President, Relations, February 8, 1993; Director, Organizational Development and Human Resources 1992
Human Resources through February 1993; Senior Manager, Training and Development, 1990 through 1992; Senior
(Resigned March 4, 1994) Manager, Compensation, 1989 through 1990; Labor and Relations Manager, 1985 through 1989.
D. L. Overby (43) Appointed September 16, 1991; Senior Vice President Operations from January 1, 1991 to
Vice President, September 1991; Regional Vice President Operations from January 30, 1989 to December 1990.
Operations Administration (Appointed Vice President, Distribution on April 4, 1994)
Howard Parge (47) Appointed March 9, 1992; Target Stores, District Manager, 1989 through 1991; Regional
Zone Vice President, Merchandiser, 1988 through 1989.
Operations
Jeanette R. Peters (38) Appointed April 24, 1991; Senior Manager Financial Analysis for the relevant period preceding
Vice President and April 24, 1991.
Controller
Len Priode (50) Appointed May 23, 1988; Operating Vice President, Caldor (a Division of May Department Stores)
Vice President, from September 14, 1985 to May 21, 1988.
Information Services
(Resigned March 4, 1994)
D. Carey Pylant (44) Appointed May 17, 1993; Regional Asset Protection Director of Target Stores from June 1987 to
Vice President, May 1993.
Assets Protection
Bob Sasser (42) Appointed January 12, 1990; Vice President General Merchandise Manager of Home General
Vice President, Furnishings and Housewares from May 15, 1988 to January 12, 1990.
General Merchandise
Manager -- Hardlines A
(Resigned March 4, 1994)
</TABLE>
M-142 H-14
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION BUSINESS EXPERIENCE DURING PAST FIVE YEARS
<S> <C>
J. Michael Shuster (41) Appointed April 24, 1991; Vice President and Controller from May 23, 1990 to April 24, 1991;
Vice President, Controller from August 28, 1986 to May 23, 1990.
Distribution
(Resigned March 11, 1994)
William E. Triplett, III (40) Appointed May 23, 1990; Assistant Treasurer from January 30, 1987 to May 23, 1990.
Treasurer
Roger C. Trivette (55) Appointed November 7, 1988; Director of Design and Construction from March 6, 1986 through
Vice President, November 7, 1988.
Construction and
Maintenance
</TABLE>
Officers of the Registrant are elected each year at the Annual Meeting of
the Board of Directors to serve for the ensuing year and until their successors
are elected and qualified.
SECTION 16(A) REPORTING
The Registrant believes that all executive officers and directors of the
Registrant and all other persons known by the Registrant to be subject to
Section 16 of the Securities Exchange Act of 1934, filed all reports required to
be filed during fiscal year 1993 under Section 16(a) of that Act on a timely
basis. The Registrant's belief is based solely on its review of Forms 3, 4 and 5
and amendments thereto furnished to the Registrant during, and with respect to,
its most recent fiscal year by persons known to be subject to Section 16.
ITEM 11: EXECUTIVE COMPENSATION
CASH AND OTHER COMPENSATION
The following table sets forth all the cash compensation paid or to be paid
by the Registrant, as well as certain other compensation paid or accrued, during
the fiscal years indicated, to the Chairman of the Board, the Chief Executive
Officer, and the three other highest paid executive officers of the Registrant
for fiscal year 1993 in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS PAYOUTS
ANNUAL COMPENSATION
(F) (H)
(C) (D) (E) RESTRICTED (G) LTIP
(A) (B) SALARY BONUS OTHER ANNUAL STOCK OPTIONS/ PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) COMPENSATION (2) AWARDS ($) SARS (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
George L. Jones 1993 700,000 833,333(4) 4,487 -- -- --
President and 1992 716,181 833,333(4) 4,081 -- -- --
Chief Executive Officer 1991 355,385(6) 416,666(4) 165 -- -- --
Lucius H. Harvin, III 1993 350,000 -- 3,142 -- -- 62,952
Chairman of 1992 356,850 -- 844 -- 40,000 --
the Board 1991 275,000 -- 4,505 -- -- 25,785
Kevin Freeman 1993 267,462 -- 11,173 -- 23,750 --
Executive Vice 1992 264,129 75,000(5) 1,969 -- 40,000 --
President of Store 1991 91,346(6) 91,375(5) 221 -- 50,000 --
Operations
R. Edward Anderson 1993 265,923 -- 7,383 -- 12,750 29,806
Executive Vice 1992 251,168 29,000 1,296 -- 40,000 --
President and Chief 1991 177,865 73,861 3,511 -- 50,000 11,310
Financial Officer
Robert P. Gruen 1993 220,462 -- 9,783 -- 10,000 --
Senior Vice 1992 165,655 17,000 3,852 -- 40,000 --
President of Merchandising 1991 26,923(6) 2,423 -- -- -- --
<CAPTION>
(I)
(A) ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION ($)(3)
<S> <C>
George L. Jones 7,570
President and 9,313
Chief Executive Officer 2,384
Lucius H. Harvin, III 7,570
Chairman of 17,621
the Board 30,449
Kevin Freeman 6,900
Executive Vice 16,591
President of Store 1,276
Operations
R. Edward Anderson 6,900
Executive Vice 16,591
President and Chief 10,617
Financial Officer
Robert P. Gruen 6,897
Senior Vice 8,776
President of Merchandising --
</TABLE>
(1) 1993 Salary represents 52 weeks of base salary. 1992 Salary represents 53
weeks of base salary. 1991 Salary represents 52 weeks of base salary.
H-15 M-143
<PAGE>
(2) "Other Annual Compensation" consists of tax gross-ups on medical expense
reimbursements, and in 1991 also included earnings on LTIP compensation.
(3) "All Other Compensation" includes payments by the Registrant for the
following:
<TABLE>
<CAPTION>
AUTOMOBILE PROFIT
NAME ALLOWANCE SHARING PLAN
<S> <C> <C>
Jones............................... $6,198 $1,372
Harvin.............................. $6,198 $1,372
Freeman............................. $5,528 $1,372
Anderson............................ $5,528 $1,372
Gruen............................... $5,528 $1,369
</TABLE>
(4) Bonus awards to George L. Jones represent prorated amounts from bonus
agreement incident to initial employment with the Registrant and does not
represent bonus awards determined during the fiscal year. Amounts shown are
not payable until 1994.
(5) Bonus awards to Kevin Freeman represent prorated amounts from bonus
agreement incident to initial employment with the Registrant and does not
represent bonus awards determined during the fiscal year.
(6) Messrs. Jones, Freeman, and Gruen joined the Registrant in 1991.
STOCK OPTIONS GRANTED DURING FISCAL YEAR
The following table sets forth information about the stock options granted
to the named executive officers of the Registrant during fiscal year 1993. No
stock appreciation rights were granted to the named executive officers during
fiscal year 1993.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS OPTIONS GRANTED EXERCISE OR APPRECIATION FOR
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM (3)
NAME (#)(1) FISCAL YEAR (2) ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
George L. Jones.................................... -- -- -- -- --
Lucius H. Harvin, III.............................. -- -- -- -- --
Kevin Freeman...................................... 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
13,750 5.4% $5.00 June 1, 2003 34,838 96,196
R. Edward Anderson................................. 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
2,750 1.0% $5.00 June 1, 2003 6,968 19,239
Robert P. Gruen.................................... 10,000 3.9% $5.00 April 1, 2003 29,409 76,445
</TABLE>
(1) Options to purchase the above listed number of shares of the Registrant's
Non-Voting Class B Stock for $5.00 a share. Options expiring on April 1,
2003 vest and become receivable on April 1, 1995. Options expiring on June
1, 2003 vest and become receivable on June 1, 1994.
(2) Options to acquire an aggregate of 256,250 shares of Common Stock of the
Registrant were granted to all employees during fiscal year 1993. Options to
acquire an additional 50,000 shares of Common Stock were granted to
nonemployee directors of the Registrant during fiscal year 1993.
(3) The potential realizable value of the options reported above was calculated
by assuming 5% and 10% annual rates or appreciation of the Common Stock of
the Company from the date of grant of the options until the expiration of
the options. These assumed annual rates of appreciation were used in
compliance with the rules of the Securities and Exchange Commission and are
not intended to forecast future price appreciation of the Common Stock of
the Company. The Company chose not to report the present value of the
options because the Company does not believe any formula will determine with
reasonable accuracy a present value because of unknown or volatile factors.
The actual value realized from the options could be substantially higher or
lower than the values reported above, depending upon the future appreciation
or depreciation of the Common Stock during the option period and the timing
of exercise of the options.
M-144 H-16
<PAGE>
STOCK OPTIONS EXERCISED DURING FISCAL YEAR AND YEAR END VALUES OF UNEXERCISED
OPTIONS
The following table sets forth information about unexercised stock options
and stock appreciation rights by the named executive officers of the Registrant
during fiscal year 1993. No stock options or stock appreciation rights were
exercised by the named executive officers during fiscal year 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS/SARS AT
EXERCISE REALIZED FY-END (#)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C>
George L. Jones.................................. -- -- -- /200,000
Lucius H. Harvin, III............................ -- -- -- /40,000
Kevin Freeman.................................... -- -- 50,000/63,750
R. Edward Anderson............................... -- -- 50,000/52,750
Robert P. Gruen.................................. -- -- 27,500/62,500
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE (1)
<S> <C>
George L. Jones.................................. --
Lucius H. Harvin, III............................ --
Kevin Freeman.................................... --
R. Edward Anderson............................... --
Robert P. Gruen.................................. --
</TABLE>
(1) All options were out of the money at fiscal year end.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Registrant has an employment contract with George L. Jones which
provides for his active employment for three years, through July 24, 1994. This
contract was negotiated with Mr. Jones prior to his initial employment by the
Registrant and became effective on July 25, 1991. All sums required to be paid
under the contract are shown on a prorated basis per year in the summary
compensation table above for the years to date. The bonus amount, shown on a
prorated annual basis in column (d) of the summary compensation table, is
payable upon the first to occur of (i) the third anniversary of the effective
date of the agreement, (ii) the date on which the price of the Registrant's
Non-Voting Class B Stock is quoted at a price per share of $15.50 on the NASDAQ
system, or (iii) termination of employment by reason of death, permanent
disability, discharge without cause, liquidation of substantially all of the
assets of the Registrant, resignation resulting from default by the Registrant
in its covenants under the agreement, or a change in control of the Registrant
as defined in the agreement. In lieu of the bonus, or any part thereof, Mr.
Jones has the option under the employment agreement and a Tandem Stock Option
Agreement to purchase up to 200,000 shares of the Class B Non-Voting Stock of
the Registrant at a price of $3.00 per share exercisable upon the first to occur
of the bonus vesting events listed above.
The Registrant maintains a severance program authorized by the Bankruptcy
Court on April 1, 1994, replacing prior individual agreements with each of
Messrs. Freeman, Anderson and Gruen providing for the payment of certain
benefits upon the cessation of employment of each such officer. Under this
program, these officers would be eligible to receive up to 18 months base
salary, up to one-half of such amount being paid in installments which would
cease upon re-employment. Each such officer would also be entitled to (i)
reimbursement for reasonable expenses incurred to obtain re-employment, not to
exceed ten thousand dollars ($10,000) and (ii) continued medical, dental and
disability coverage under existing Company plans for a period of three months
following cessation of employment. Benefits under the program would be payable
for cessation of employment by reason of: elimination of the employee's position
unless offered a comparable or better position with the Company, termination of
employment other than for misconduct as defined in the program, or constructive
or voluntary termination due to a material reduction in salary or due to a
material change in job responsibilities, termination on account of permanent
disability, or termination due to liquidation of the Company. As of the date
hereof no severance programs or agreements have been authorized by the
Bankruptcy Court with respect to Messrs. Harvin or Jones.
Other senior vice presidents of the Company are eligible for the same
benefits as those described for Messrs. Freeman, Anderson and Gruen. Other
executive officers of the Company are eligible for up to twelve (12) months base
salary, a maximum of $7,500 for re-employment expense reimbursement and three
months continued coverage under medical, dental and disability plans.
COMPENSATION OF DIRECTORS
Directors who are officers of the Registrant receive no additional
compensation for service on the Board of Directors or committees. Directors who
are not officers are paid $8,000.00 per year as retainer, plus $1,000.00 for
each meeting of the Directors attended and for each committee meeting held on a
day other than the date of a meeting of the Board of Directors, and
reimbursement for their actual travel expenses. Directors who are not officers
are paid $500.00 a day for each committee
H-17 M-145
<PAGE>
meeting held on the same day as a meeting of the Board of Directors and $250.00
for each telephone conference meeting. Committee members are reimbursed for
their actual travel expenses. In addition, outside directors receive options to
purchase 5,000 shares of the Non-Voting Class B Stock of the Registrant at a
purchase price of the greater fair market value on the date of award or $5.00 on
award dates occurring every two years up to a maximum of 15,000 shares per
outside director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Registrant during the fiscal year ended
January 29, 1994 was composed of Messrs. Busbee (Chairman), Allbright, Maynard,
and Montgomery. None of the members of the Compensation Committee were officers
or employees of the Registrant during the last fiscal year or in prior fiscal
years. Mr. Maynard is Chairman of the Golden Corral Corporation ("Golden
Corral"). Golden Corral leases certain restaurant facilities from The Rosemyr
Corporation and from Emrose Corporation, two corporations affiliated with
certain directors and executive officers of the Registrant. See Item 13 "Certain
Relationships and Related Transactions" below. Golden Corral paid said
corporations a total of $234,832 under these leases during the past fiscal year
of the Registrant.
Until April 16, 1993, Lucius H. Harvin, III, Chairman of the Board of the
Registrant, served as a director of Wachovia Corporation of North Carolina and
Wachovia Bank of North Carolina, N.A. (collectively "Wachovia"). No executive
officer of Wachovia served on the Compensation Committee or the Board of
Directors of the Registrant during the last fiscal year. Except for Mr. Harvin's
service as a director of Wachovia, none of the executive officers of the
Registrant served as a member of the board of directors or as a member of the
compensation committee of another entity during the last fiscal year.
Consequently, there are no interlocking relationships between the Registrant and
other entities that might affect the determination of the compensation of the
Directors and executive officers of the Registrant.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only stockholders known to the
Registrant to be the beneficial owners, as of January 29, 1994, of more than
five percent (5%) of the Voting Common Stock of the Registrant:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP (1) OF CLASS
<S> <C> <C>
Emma H. Currigan
P.O. Drawer 947 254,000(D) 3.1%
Henderson, NC 27536 173,836(B) 2.1%
George M. Harvin
P.O. Drawer 947 473,562(D) 5.7%
Henderson, NC 27536 176,618(B) 2.1%
Lucius H. Harvin, III
P.O. Drawer 947 437,224(D) 5.3%
Henderson, NC 27536 174,324(B) 2.1%
Rose Harvin
P.O. Drawer 947 279,784(D) 3.4%
Henderson, NC 27536 173,836(B) 2.1%
</TABLE>
(B) Shares which may be deemed by the SEC to be beneficially owned but as to
which the listed person may have disclaimed beneficial ownership.
(D) Shares held by direct ownership
(1) Includes 695,344 (8.4%) shares of Voting Common Stock beneficially
attributed in the table to Emma H. Currigan, George M. Harvin, Lucius H.
Harvin, III and Rose Harvin (173,836 shares of Voting Common Stock
respectively to each person) who exercise sole voting control and shared
investment power to such shares, but does not separately attribute such
shares to Mrs. L. H. Harvin, Jr. who shares investment power as to all such
shares.
M-146 H-18
<PAGE>
The table below gives the indicated information as to both classes of
equity securities of the Registrant beneficially owned by each director,
nominee, the chief executive officer and the four other most highly compensated
executive officers, and, as a group, by such person and other executive
officers:
<TABLE>
<CAPTION>
NON-VOTING
VOTING COMMON PERCENT CLASS B PERCENT
NAME STOCK (A) OF CLASS STOCK (A) OF CLASS
<S> <C> <C> <C> <C>
Bruce G. Allbright.......................................................... 5,500 * -- *
Sam Ayoub................................................................... 6,000 * -- *
George D. Busbee............................................................ 250 * -- *
John T. Church, Sr.......................................................... 217,256 2.6% 33,547 *
Marion J. Church............................................................ 500 * -- *
Frank A. Daniels, Jr........................................................ 3,000 * 10,000 *
George M. Harvin............................................................ 650,180 7.9% 181,362 1.7%
Lucius H. Harvin, III....................................................... 611,548 7.4% 453,536 4.3%
George L. Jones............................................................. 10,000 * 5,000 *
James H. Maynard............................................................ 3,000 * -- *
Robert K. Montgomery........................................................ -- * -- *
Albert N. Whiting........................................................... 450 * -- *
R. Edward Anderson.......................................................... 900 * 30,397 *
Kevin Freeman............................................................... -- * 5,000 *
Robert P. Gruen............................................................. -- * 10,000 *
All of the above and other executive officers as a group (31) persons....... 2,087,618 25.3% 1,401,558 13.4%
</TABLE>
* Less than 1% of outstanding shares.
(a) The following shares are not included in the figures for beneficial
ownership by individual directors and executive officers but are included in
the total figure for all directors, nominees and executive officers as a
group: 229,626 shares of Non-Voting Class B Stock held in the Registrant's
Variable Investment Plan; the 579,024 shares of Voting Common Stock shown in
the table of principal holders of voting securities of the Registrant which
are beneficially attributed as a group to John T. Church, Sr., Lucius H.
Harvin, III and George T. Blackburn, II, Trustees and 409,302 shares of Non-
Voting Class B Stock attributable to the same persons as trustees.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John T. Church, Sr. retired as a full-time employee of the Registrant on
December 31, 1982. The Registrant entered into a Consultation Agreement with Mr.
Church at that time. Under an extension of the agreement, Mr. Church was paid
$52,500 during the fiscal year which ended January 29, 1994.
Pursuant to existing leases, during the past fiscal year the Registrant
paid The Rosemyr Corporation ("Rosemyr") $213,809 as rent for its store building
in Morganton Shopping Center, Morganton, N.C.; $312,779 for its store building
in Newmarket Plaza Shopping Center, Newport News, Va. (Rosemyr owns a 31.5%
interest); $4,838 in rent for office space in Henderson, N.C.; and $11,700 for
parking facilities in Henderson, N.C. The Registrant leases a store in Nags
Head, N.C. (Rosemyr owns a 95% interest). Rental under the lease during the past
fiscal year was $151,875. The Registrant leased a store in Tryon Hills Shopping
Center, Raleigh, N.C. in which Rosemyr owns a 36/60ths interest. Rental under
the lease during the past fiscal year was $21,000. Eighty percent (80%) of the
stock of Rosemyr is owned by Mrs. L. H. Harvin, Jr. and her children and by the
Estate and trusts of the late Emma Rose Church, whose beneficiaries are Mr. John
T. Church, Sr. (Director of the Registrant), Mrs. E. C. Bacon and Mr. John T.
Church, Jr. During the past fiscal year, the Registrant paid Emrose Corporation
("Emrose ") under pre-existing leases $24,828 in rent for office space in
Henderson, N.C. and $12,014 for lease of storage facilities. Also during the
past fiscal year, the Registrant paid Arrowhead Plaza Limited Partnership (a
partnership in which Emrose owns a 51% interest) $12,487 in rent for a store in
Arrowhead Plaza Shopping Center in Norfolk, Virginia. Emrose is owned by Mrs.
L. H. Harvin, Jr. and Mr. John T. Church, Sr., Mrs. E. C. Bacon and Mr. John T.
Church, Jr. Messrs. John T. Church, Sr. and George M. Harvin, who are directors
of the Registrant, are executive officers of Rosemyr and Emrose. The Registrant
also paid H.H.C. Co., Inc. ("H.H.C.") $142,298 in rent during the past fiscal
year for a store building in High Point, N.C. Mrs. L. H. Harvin, Jr. and Mr.
John T. Church, Sr. own 61% of the stock of H.H.C. Golden Corral Corporation
("Golden Corral") leases certain restaurant facilities from Rosemyr and from
Emrose. Golden Corral paid
H-19 M-147
<PAGE>
said corporations a total of $234,832 under these leases. James H. Maynard (a
Director of the Corporation) is Chairman of Golden Corral.
In the opinion of Management, all of the foregoing leases and other
transactions are competitive, and the rents paid approximate the rate of rent
paid by the Registrant to independent landlords under leases for comparable
property negotiated at comparable times, and represent the fair market value for
comparable transactions.
PART IV.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Operations for the years ended January 29,
1994; January 30, 1993 and January 25, 1992
Consolidated Balance Sheets -- January 29, 1994 and January 30, 1993
Consolidated Statements of Stockholders' Equity for the years ended
January 29, 1994; January 30, 1993 and January 25, 1992
Consolidated Statements of Cash Flows for the years ended January 29,
1994; January 30, 1993 and January 25, 1992
Notes to the Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule X -- Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the financial statements or
notes thereto.
M-148 H-20
<PAGE>
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
<S> <C> <C>
10.1 The Registrant's Equity Compensation Plan (incorporated by reference to Incorporated
the identified exhibit under the Registrant's Quarterly Report on Form by reference
10-Q for its fiscal quarter ended October 26, 1991)
10.2 First Amendment to Equity Compensation Plan (incorporated by reference Incorporated
to the identified exhibit under the Registrant's Annual Report on Form by reference
10-K for its fiscal year ended January 30, 1993)
10.3 Second Amendment to Equity Compensation Plan (incorporated by reference Incorporated
to the identified exhibit under the Registrant's Annual Report on Form by reference
10-K for its fiscal year ended January 30, 1993)
10.4 The Registrant's Variable Investment Plan (the "Plan"), as amended and P
restated effective January 1, 1989.
10.5 The Registrant's Employment Agreement with George L. Jones (incorporated Incorporated
by reference to Exhibit 19 to Registrant's Quarterly Report on Form 10-Q by reference
for the Quarter Ended October 26, 1991 dated December 9, 1991).
10.6 Loan Agreement dated September 20, 1993 between the Registrant and Incorporated
General Electric Capital Corporation (Incorporated by reference to by reference
Exhibit 10.1 to the Registrant's Current Report on Form 10-K dated
September 20, 1993).
10.7 The Registrant's Severance Program, as adopted effective March 24, 1994 P
pursuant to order of the Bankruptcy Court presiding over the
Registrant's proceeding under chapter 11 of Title 11 of the United
States Code (the "Court")
10.8 The Registrant's obligations with respect to the compensation of its
officers and directors as specified in the following orders of the
Court:
(a) Order Authorizing Compensation of Senior Vice Presidents (dated
November 18, 1993)
(b) Order Authorizing Compensation of Executive Vice Presidents (dated
November 18, 1993)
(c) Order Authorizing Compensation of Vice Presidents and Treasurer
(dated November 18, 1993)
(d) Order Authorizing Compensation of George L. Jones (dated November
18, 1993)
(e) Order Continuing Compensation of Chairman of the Board of Directors
Pending Hearing (dated November 18, 1993)
(f) Order Authorizing Payment of Compensation to Directors (dated
November 18, 1993)
23. Consent of Independent Certified Public Accountants P
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by registrant during the last
quarter of the period covered by this report.
H-21 M-149
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Rose's Stores, Inc.:
Under date of April 4, 1994, we reported on the consolidated balance sheets
of Rose's Stores, Inc., Debtor-in-Possession (the Company), as of January 29,
1994 and January 30, 1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended January 29, 1994, contained elsewhere herein. Our report included
an explanatory paragraph discussing the Company's voluntary filing for
reorganization under Chapter 11 of the United States Bankruptcy Code. Our report
also included an additional explanatory paragraph indicating that the Company
adopted Statement of Financial Accounting Standards No. 106 in 1992 and changed
its method of determining retail price indices used in the valuation of LIFO
inventories in 1991. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK
Raleigh, North Carolina
April 4, 1994
M-150 H-22
<PAGE>
ROSE'S STORES, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
COLUMN B
CHARGED TO COSTS AND EXPENSES, YEARS
COLUMN A ENDED:
ITEM 1-29-94 1-30-93 1-25-92
<S> <C> <C> <C>
Maintenance and Repairs........................................................... $ 9,074,590 10,099,509 8,956,703
Taxes, Other than Payroll and Income Taxes........................................ 5,995,125 6,149,938 6,235,483
Advertising Costs................................................................. 30,870,842 32,022,144 34,084,177
</TABLE>
H-23 M-151
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Rose's Stores, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ROSE'S STORES, INC.
By:
GEORGE L. JONES, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
By:
R. EDWARD ANDERSON, EXECUTIVE VICE
PRESIDENT,
CHIEF FINANCIAL OFFICER
Date: April 26, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
By Director
SAM AYOUB
By Director
JOHN T. CHURCH
By Director
L. H. HARVIN, III
By Director
GEORGE M. HARVIN
By Director
GEORGE L. JONES
By Director
JAMES H. MAYNARD
</TABLE>
M-152 H-24
<PAGE>
MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
January 29, 1994
The consolidated financial statements on the following pages have been
prepared by management in conformity with generally accepted accounting
principles. Management is responsible for the reliability and fairness of
the financial statements and other financial information included herein.
To meet its responsibilities with respect to financial information,
management maintains and enforces internal accounting policies, procedures and
controls which are designed to provide reasonable assurance that assets are
safeguarded and that transactions are properly recorded and executed in
accordance with management's authorization. Management believes that the
Company's accounting controls provide reasonable, but not absolute,
assurance that errors or irregularities which could be material to the
financial statements are prevented or would be detected within a timely
period by Company personnel in the normal course of performing their
assigned functions. The concept of reasonable assurance is based on the
recognition that the cost of controls should not exceed the expected
benefits. Management maintains an internal audit function and an internal
control function which are responsible for evaluating the adequacy and
application of financial and operating controls and for testing compliance
with Company policies and procedures.
The responsibility of our independent auditors, KPMG Peat Marwick, is
limited to an expression of their opinion on the fairness of the financial
statements presented. Their opinion is based on procedures, described in the
second paragraph of their report, which include evaluation and testing of
controls and procedures sufficient to provide reasonable assurance that the
financial statements neither are materially misleading nor contain material
errors.
The Audit Committee of the Board of Directors meets periodically with
management, internal auditors and independent auditors to discuss auditing and
financial matters and to assure that each is carrying out its
responsibilities. The independent auditors have full and free access to the
Audit Committee and meet with it, with and without management being present,
to discuss the results of their audit and their opinions on the quality of
financial reporting.
George L. Jones
President and
Chief Executive Officer
R. Edward Anderson
Executive Vice President,
Chief Financial Officer
H-25 M-153
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
ROSE'S STORES, INC.:
We have audited the accompanying consolidated balance sheets of Rose's
Stores, Inc., Debtor-in-Possession (the Company), as of January 29, 1994 and
January 30, 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended January 29, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rose's
Stores, Inc., Debtor-in-Possession, at January 29, 1994 and January 30,
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended January 29, 1994, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company filed a voluntary
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court (Bankruptcy Court) on September
5, 1993. The Chapter 11 filing, the Company's leveraged financial structure,
and recurring net losses resulting in the substantial elimination of
stockholders' equity, raise substantial doubt about the Company's ability to
continue as a going concern. Additionally, as discussed in Note 17 to the
consolidated financial statements, on April 4, 1994 the Company announced a
first quarter charge aggregating approximately $55 million relating to its
plans to close approximately 58 stores during 1994. The Company is currently
operating its business as debtor-in-possession under the jurisdiction of the
Bankruptcy Court. The continuation of the Company as a going concern is
contingent upon, among other things, its ability to (1) formulate a plan of
reorganization that will be confirmed by the Bankruptcy Court, (2) achieve
satisfactory levels of future profitable operations, (3) maintain adequate
financing, and (4) generate sufficient cash from operations to meet future
obligations. The consolidated financial statements as of and for the year
ended January 29, 1994 do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 15 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1992. As discussed in Note 4 to the consolidated financial
statements, the Company changed its method of determining retail price
indices used in the valuation of LIFO inventories in 1991.
KPMG PEAT MARWICK
Raleigh, North Carolina
April 4, 1994
M-154 H-26
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
<S> <C> <C> <C>
Revenue:
Gross sales......................................................................... $ 1,245,697 1,404,302 1,423,345
Leased department sales............................................................. 42,474 42,059 42,715
Net sales........................................................................... 1,203,223 1,363,354 1,380,630
Leased department income............................................................ 8,707 9,816 10,198
Total revenue.................................................................... 1,211,930 1,372,059 1,390,828
Costs and Expenses:
Cost of sales (a)................................................................... 932,238 1,103,160 1,029,837
Selling, general and administrative................................................. 281,723 300,866 314,971
Provisions for future store closings and remerchandising (b)........................ -- -- 33,891
Depreciation and amortization....................................................... 12,984 13,661 16,730
Interest............................................................................ 12,054 13,881 13,924
Total costs and expenses......................................................... 1,238,999 1,431,568 1,409,353
Loss Before Reorganization Expense, Income Taxes, and Cumulative
Effect of Accounting Change......................................................... (27,069) (59,509) (18,525)
Reorganization Expense (c).......................................................... (39,138) -- --
Loss Before Income Taxes and Cumulative Effect of Accounting Change................. (66,207) (59,509) (18,525)
Income Taxes (Benefits)
Current............................................................................. -- (7,599) (5,325)
Deferred............................................................................ -- 6,650 10,104
Total............................................................................ -- (949) 4,779
Loss Before Cumulative Effect of Accounting Change.................................... (66,207) (58,560) (23,304)
Cumulative Effect of Adopting SFAS 106 (b)............................................ -- (5,031) --
Net Loss.............................................................................. $ (66,207) (63,591) (23,304)
Loss Per Share Before Cumulative Effect of Accounting Change.......................... $ (3.53) (3.14) (1.25)
Cumulative Effect of Adopting SFAS 106 (d)............................................ -- (0.27) --
Loss Per Share........................................................................ $ (3.53) (3.41) (1.25)
</TABLE>
(a) In 1991, the Company changed its method of accounting for LIFO inventories
from the use of the inflation index provided by the Bureau of Labor
Statistics to an internally generated price index to measure inflation in
the retail prices of its merchandise inventories. This change decreased 1991
cost of sales by $21,428 (or $1.15 per share). Net loss would have been
$44,732 in 1991 if the change in accounting method had not been made.
(b) The 1991 provision for future store closings and remerchandising represents
the anticipated costs of closing approximately 15 stores during fiscal 1992
and costs incurred during fiscal 1992 in the remerchandising of the
remaining stores.
(c) On September 5, 1993, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Eastern District of North Carolina seeking
to reorganize under Chapter 11 of the Bankruptcy Code. The consolidated
financial Statements contained herein have been prepared in accordance with
generally accepted accounting principles applicable to a going concern and
do not purport to reflect or to provide for all the consequences of the
ongoing Chapter 11 reorganization.
Included in the reorganization expense is a provision of $39,500 for the
costs of closing 43 stores in January 1994, as well as the DIP fee
amortization and expenses, professional fees and other reorganization costs.
Offsetting these expenses is a reversal of prior reserves for closings due
to the anticipated rejection of closed store leases.
(d) In 1992, the Company adopted SFAS 106 "Employers; Accounting for
Postretirement Benefits Other Than Pensions," which requires the Company to
accrue health insurance benefits over the period in which associates become
eligible for such benefits. The cumulative effect of adopting SFAS 106 was a
one-time charge of $5,031.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
H-27 M-155
<PAGE>
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 29, JANUARY 30,
1994 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................................................... $ 11,955 19,101
Accounts receivable............................................................................ 15,057 13,284
Inventories.................................................................................... 203,150 233,042
Prepaid merchandise............................................................................ 10,757 --
Other current assets........................................................................... 7,457 9,297
Total current assets......................................................................... 248,376 274,724
Property and Equipment, at cost, less accumulated depreciation and amortization................... 50,234 58,270
Deferred tax benefits............................................................................. 6,447 --
Other Assets...................................................................................... 3,048 4,046
$ 308,105 337,040
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Reclamation claims............................................................................. $ 4,000 --
Current installments of long-term debt......................................................... -- 16,600
Current maturities of capital lease obligations................................................ 2,374 2,402
Bank drafts outstanding........................................................................ -- 3,128
Accounts payable............................................................................... 35,507 89,512
Federal and state income taxes................................................................. -- (6,558)
Accrued salaries and wages..................................................................... 12,295 14,182
Reserve for store closings and remerchandising................................................. -- 6,000
Deferred tax liabilities....................................................................... 6,447 --
Other current liabilities...................................................................... 14,113 21,943
Total current liabilities.................................................................... 74,736 147,209
Liabilities Subject to Settlement Under Reorganization Proceedings................................ 207,456 --
Long-term Debt.................................................................................... -- 73,900
Capital Lease Obligations......................................................................... 1,907 4,237
Reserve for Future Store Closings................................................................. -- 20,743
Deferred Income................................................................................... 2,296 3,546
Accumulated Postretirement Benefit Obligation..................................................... 5,614 5,296
Stockholders' Equity
Voting common stock
Authorized 30,000 shares; issued 10,800 shares............................................... 2,250 2,250
Non-voting Class B stock
Authorized 30,000 shares; issued 12,659 shares............................................... 18,795 19,017
Paid-in capital-stock warrants................................................................. 2,700 2,700
Retained earnings.............................................................................. 10,969 77,176
34,714 101,143
Less cost of stock held in treasury............................................................ (18,618) (19,034)
Total stockholders' equity................................................................... 16,096 82,109
$ 308,105 337,040
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
M-156 H-28
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VOTING NON-VOTING PAID-IN
COMMON STOCK CLASS B STOCK CAPITAL-STOCK RETAINED TREASURY STOCK
SHARES AMOUNT SHARES AMOUNT WARRANTS EARNINGS SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 26, 1991............. 10,800 $2,250 12,659 $19,209 -- $164,071 (4,859) $(19,562)
Net loss for fiscal year 1991........ (23,304)
Other................................ 70 (7) (14)
Balance January 25, 1992............. 10,800 2,250 12,569 19,279 -- 140,767 (4,866) (19,576)
Net loss for fiscal year 1992........ -- (63,591)
Issuance of stock warrants........... 2,700
Other................................ (262) 91 542
Balance January 30, 1993............. 10,800 2,250 12,659 19,017 2,700 77,176 (4,775) (19,034)
Net loss for fiscal year 1993........ (66,207)
Other................................ (222) 74 416
Balance January 29, 1994............. 10,800 $2,250 12,659 $18,795 $ 2,700 $ 10,969 (4,701) $(18,618)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H-29 M-157
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss............................................................................... $ (66,207) (63,591) (23,304)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................ 12,984 13,661 16,730
(Gain loss on disposal of property and equipment..................................... 98 (243) 75
Deferred income taxes................................................................ -- 6,650 10,104
LIFO expense (credit)................................................................ 179 186 (10,323)
Write off of deferred financing costs................................................ 4,528 -- --
Provision for closed stores and remerchandising...................................... 26,474 -- 33,891
Cumulative effect of adopting SFAS 106............................................... -- 5,031 --
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable........................................... (1,773) 1,554 (2,724)
(Increase) decrease in prepaid merchandise........................................... (10,757) -- --
(Increase) decrease in inventories................................................... (13,948) 78,167 33,980
(Increase) decrease in other current and non-current assets.......................... 859 (2,564) (2,345)
Increase (decrease) in accounts payable.............................................. 35,051 19,555 (24,612)
Increase (decrease) in accrued expenses and other liabilities........................ 724 2,216 (1,549)
Increase (decrease) in federal and state income taxes payable........................ 8,005 (1,146) (4,230)
Increase (decrease) in reserve for future store closings and remerchandising......... 13,088 (17,799) (7,941)
Increase (decrease) in deferred income............................................... (1,250) (1,882) (1,728)
Increase (decrease) in accumulated postretirement benefit obligation................. 318 265 --
Other................................................................................ -- 11 57
Net cash provided by operating activities.............................................. 8,373 40,071 16,081
Cash flows from investment activities:
Purchases of property and equipment.................................................. (9,109) (9,629) (3,102)
Proceeds from disposal of property and equipment..................................... 9 489 140
Net cash used in investing activities.................................................. (9,100) (9,140) (2,962)
Cash flows from financing activities:
Net activity on lines of credit...................................................... -- -- (5,000)
Payments on long-term debt........................................................... (1,127) (12,000) --
Principal payments on capital lease obligations...................................... (2,358) (2,337) (3,446)
Increase (decrease) in bank drafts outstanding....................................... (3,128) (3,422) (257)
Other................................................................................ 194 269 --
Net cash (used in) financing activities................................................ (6,419) (17,490) (8,703)
Net increase (decrease) in cash and cash equivalents................................... (7,146) 13,441 4,416
Cash and cash equivalents at beginning of year......................................... 19,101 5,660 1,244
Cash and cash equivalents at end of year............................................... $ 11,955 19,101 5,660
Supplemental disclosure of additional noncash investing and financing activities:
Issuance of stock warrants........................................................... $ -- 2,700 --
Retirement of net book value of assets in reserve for future store closings.......... 4,054 1,888 3,046
Write-off of inventory in reserve for future store closings.......................... 43,661 5,257 6,572
Capital lease obligations entered into for new equipment............................. -- 418 2,340
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
M-158 H-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 29, 1994; JANUARY 30, 1993; AND JANUARY 25, 1992
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- PROCEEDINGS UNDER CHAPTER 11
On September 5, 1993 (the "Petition Date"), the Company filed a voluntary
petition for Relief under Chapter 11, Title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
Eastern District of North Carolina (the Bankruptcy Court). The Company is in
possession of its property and is maintaining and operating its property as a
debtor-in-possession pursuant to the provisions of Sections 1107 and 1109 of the
Bankruptcy Code.
The accompanying consolidated financial statements have been prepared on a
going concern basis assuming the realization of assets and liquidation of
liabilities in the ordinary course of business. However, under Chapter 11,
actions to enforce certain claims against the Company are stayed if such claims
arose, or are based on events that occurred, before the Petition Date. The terms
of the ultimate settlement of these liabilities will be determined based upon a
plan of reorganization to be confirmed by the Bankruptcy Court. Such liabilities
are reflected in the Consolidated Balance Sheets as liabilities subject to
settlement under reorganization proceedings. Additional liabilities subject to
settlement may arise subsequent to the Petition Date as a result of claims filed
by parties affected by the Company's rejection of executory contracts, including
leases, and from the Bankruptcy Court's resolution of allowed rejection of
executory contracts, including leases, and from the Bankruptcy Court's
resolution of allowed claims for contingencies and other disputed amounts.
During 1993, the Company endeavored to notify all known potential creditors of
the filing for the purpose of identifying all prepetition date claims.
Generally, creditors had until the January 13, 1994 "Bar Date" to file claims.
The Company is actively negotiating with creditors to reconcile and resolve the
balance of disputed claims totaling approximately $150,000. A significant
portion of this amount is comprised of disputed claims that, in the opinion of
management, will not result in additional liability to the Company.
Under Section 1121 of the Bankruptcy Code, for 120 days after the date of
the filing of a voluntary petition for relief under Chapter 11, only the
debtor-in-possession has the right to propose and file a plan of reorganization
with the Bankruptcy Court. If a debtor-in-possession files a plan of
reorganization during the 120-day exclusivity period, no other party may file a
plan of reorganization until 180 days after the date of filing of the Chapter 11
petition, during which period the debtor-in-possession has the exclusive right
to solicit acceptances of the plan. If a debtor-in-possession fails to file a
plan during the 120-day exclusivity period or such additional period as may be
ordered by the Bankruptcy Court or, after such plan has been filed, fails to
obtain acceptance of such plan from impaired classes of creditors and equity
security holders during the exclusive solicitation period, any party in
interest, including a creditors' committee, an equity security holders'
committee, a creditor, an equity security holder, or any indenture trustee may
file a plan of reorganization for such debtor. Additionally, if the Bankruptcy
Court were to appoint a trustee, the exclusivity period, if not previously
terminated, would terminate.
The Company has not yet filed a plan of reorganization with the Bankruptcy
Court and has obtained from the Bankruptcy Court an extension of the exclusivity
period to May 31, 1994. The Company intends to file a plan of reorganization
prior to May 31, 1994.
After a plan of reorganization has been filed with the Bankruptcy Court, it
will be sent, together with a disclosure statement approved by the Bankruptcy
Court following a hearing, 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 of creditors 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 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.
H-31 M-159
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- PROCEEDINGS UNDER CHAPTER 11 -- Continued
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 to reflect current values.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN BASIS
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, in accordance with
the American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities Under the Bankruptcy Code." Substantially
all current and long-term liabilities existing at the time the petition for
reorganization under Chapter 11 was filed has been reclassified as liabilities
subject to settlement under reorganization proceedings. The financial statements
do not include any adjustments or reclassifications that might be necessary
should be the Company be unable to continue in existence.
CONSOLIDATED FINANCIAL STATEMENTS
The Company's consolidated financial statements include the accounts of a
wholly-owned subsidiary. Intercompany accounts and transactions are eliminated.
FISCAL YEAR
Fiscal years 1993, 1992 and 1991 ended on January 29, 1994; January 30,
1993; and January 25, 1992, respectively. Fiscal year 1993 contained 52 weeks;
fiscal year 1992 contained 53 weeks and fiscal year 1991 contained 52 weeks.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Interest-bearing
cash equivalents are carried at cost, which approximates market. Bank drafts
outstanding have been reported as a current liability.
INVENTORIES
Substantially all merchandise inventories are valued on a last-in,
first-out (LIFO) cost basis.
REVENUE
Sales are recorded at the time merchandise is exchanged for tender. The
Company does not make any warranties on the merchandise sold, but allows
customers to return merchandise which reduces sales. In many cases, the Company
returns damaged goods to the vendor for credit or has negotiated a damage
allowance to offset the cost of writing off the merchandise. In the case of
layaways, sales are recorded for the total amount of the merchandise when the
customer puts it on a layaway. If the layaway is not paid in full by the end of
60 days, the Company's policy is to cancel the layaway, reduce sales and return
the merchandise to stock.
M-160 H-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
DEPRECIATION AND AMORTIZATION
The provision for depreciation and amortization is based upon the estimated
useful lives of the individual assets and is computed principally by the
declining balance and straight-line methods. The principal lives for
depreciation purposes are 40 to 45 years for buildings and 5 to 10 years for
furniture, fixtures, and equipment. Improvements to leased premises are
amortized by the straight-line method over the term of the lease or the useful
lives of the improvements, whichever is shorter. Capitalized leases are
generally amortized on a straight-line basis over the lease term.
STORE PRE-OPENING EXPENSES
Pre-Opening expenses associated with the opening of new stores are charged
to expense as incurred.
PROFIT-SHARING PLAN
The Company has a noncontributory trusteed profit-sharing plan for eligible
associates. The amount of the contribution is determined by a formula plus
additional amounts authorized by the Board of Directors, but may not exceed the
maximum allowable deduction for income tax purposes. The plan may be terminated
at any time, and if terminated, the Company will not be required to make any
further contributions to the trust.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 31, 1993, the Company adopted Statement 109 and reported
that the cumulative effect of the change in the method of accounting for income
taxes in the 1993 consolidated statement of operations is immaterial.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
RECLASSIFICATIONS
Certain reclassifications were made to 1992 balances to conform to the 1993
presentation. These reclassifications have no effect on stockholders' equity as
previously reported.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed on the weighted average number of
shares outstanding during the year. The average number of shares used to compute
earnings (loss) per share was 18,740 shares in 1993; 18,638 shares in 1992; and
18,593 shares in 1991. The exercise of outstanding stock options and warrants
would result in a anti-dilutive effect on earnings (loss) per share and are
excluded from the calculation.
POSTRETIREMENT HEALTH INSURANCE BENEFITS
The Company provides health insurance benefits for retirees who meet
minimum age and service requirements and are covered by the medical plan at
retirement. Beginning in 1992, the Company recognizes the cost of retiree health
insurance benefits over the associates' period of service.
H-33 M-161
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- ACCOUNTS RECEIVABLES
Accounts Receivables are comprised of layaway receivables ($3,262 and
$4,574 in 1993 and 1992, respectively) and other receivables ($11,795 and $8,710
in 1993 and 1992, respectively). Other receivables consist primarily of amounts
due from vendors for returns, co-op advertising, shoe department income, and
coupons.
The Company does not provide for an allowance for doubtful accounts for
layaways because the Company holds the merchandise or for other receivables
because the Company expects uncollectible amounts to be immaterial as deductions
can be taken against future amounts due to vendors.
NOTE 4 -- INVENTORIES
A summary of inventories as of January 29, 1994 and January 30, 1993 is as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Inventories valued at FIFO cost............................................... $237,579 $268,638
LIFO reserve.................................................................. (34,429) (35,596)
Inventories substantially valued at LIFO cost................................. $203,150 $233,042
</TABLE>
In the fourth quarter of 1991, the Company changes its method of accounting
for LIFO inventories. Prior to 1991, the Company used the inflation index
provided by the Bureau of Labor Statistics to measure inflation in retail
prices. In 1991, the Company developed and used internal price indices to
measure inflation in the retail prices of its merchandise inventories. The
Company believes the use of internal indices results in a more accurate
measurement of the impact of inflation in the prices of merchandise sold in its
stores. This change resulted in a LIFO credit of $10,323 compared to a charge of
$11,105 that would have been recorded if the accounting change had not been
made; therefore, the accounting change had the effect of decreasing cost of
sales by $21,428 (or $1.15 per share) in 1991.
During 1993 and 1992, inventories were reduced, resulting in the
liquidation of LIFO inventory layers. The effect of this inventory liquidation
was a reduction in the costs related to closed stores of approximately $1,347 in
1993, and an increase in cost of sales by approximately $3,564 in 1992.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Land........................................................................ $ 641 $ 641
Buildings................................................................... 19,883 19,772
Furniture, fixtures, and equipment.......................................... 107,540 118,710
Improvements to leased premises............................................. 18,896 19,897
Total..................................................................... 146,960 159,020
Less accumulated depreciation and amortization.............................. (100,065) (106,280)
46,895 52,740
Capitalized leases.......................................................... 11,894 12,697
Less accumulated amortization............................................... (8,555) (7,167)
3,339 5,530
Net property and equipment................................................ $ 50,234 58,270
</TABLE>
M-162 H-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT OUTSTANDING WAS AS FOLLOWS:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Senior notes, interest payable semi-annually at 11.00% and principal payable
1993 to 1998................................................................. $ 70,583 $ 72,500
Term note, interest payable monthly at 11.00% and principal payable 1993 to
1998......................................................................... 10,000 14,000
Term note, interest payable monthly at prime plus 3% and principal payable 1993
to 1998...................................................................... 7,335 4,000
Borrowings under revolving credit facilities................................... 3,646 --
Pre-petition interest.......................................................... 297 --
Total Debt................................................................ 91,861 90,500
Less: Liabilities subject to settlement under reorganization
proceedings.......................................................... (91,861) --
Current portion (See Note 7)............................................ -- (16,600)
Debt due after one year........................................................ $ -- $ 73,900
</TABLE>
As a result of the Company's Chapter 11 filing on September 5, 1993 (See
Note 1), debt and accrued interest at the time of filing totaling $91,861 have
been reclassified as "Liabilities Subject to Settlement Under Reorganization
Proceedings" (See Note 7). The Company wrote-off the unamortized balance of
deferred financing costs of $4,528 associated with the long-term debt as it was
determined no future benefit would be realized from these costs. The write-off
is included in reorganization costs for the year ended January 29, 1994.
Generally, under the Bankruptcy Code, interest on pre-petition claims
ceases accruing upon the filing of a petition; however, if the claims are
collateralized by an interest in property with value (less the cost of
preserving such property) exceeding the amount of the debt, post-petition
interest may be payable. No determination has yet been made regarding the value
of the property which allegedly collateralizes various creditors' claims. While
there can be no certainty that post-petition interest will be payable or paid,
interest may be paid pursuant to an order of the Bankruptcy Court. In the
absence of such an order, no principal or interest payments will be made until a
plan of reorganization defining such repayment terms is confirmed. The
Bankruptcy Court has ordered the Company to make adequate protection payments to
various creditors. Although payments have been made without prejudice to any
such future determination of payment classification, certain monthly payments
made since September 5, 1993 have been booked as interest expense. Additional
adequate protection payments were made to various creditors in January 1994 as
described more fully below.
On May 29, 1992 the Company signed an agreement with its long-term lenders
to restructure the principal payments of its long-term debt. The agreement
resulted in a six and one-half year amortization of the then outstanding
long-term notes of $102,500. The restructuring of the term note required a fee
payment. The agreement with some of the long-term lenders granted them warrants
exercisable into the Company's Non-Voting Class B stock at an option price of $5
per share. Also on May 29, 1992, the Company signed an agreement with its banks
to provide revolving credit facilities through May 31, 1994, including an amount
designated for letters of credit related to imports. The Company pledged
inventories located in approximately 50% (currently 64% of remaining stores) of
its stores and a collateral pool of $26,500 to its long-term lenders and banks.
The $26,500 collateral pool consisted of the Company's Distribution Center and,
to the extent necessary, the inventory located in the Distribution Center. In
addition, all other property and equipment were pledged as collateral. The
Company also pledged approximately $3,000 of inventory to a long-term lender to
collateralize the lender's deferral of previously scheduled payments.
At the time of the Company's filing on September 5, 1993, debt and accrued
interest totaling $92,762 were outstanding under its long-term notes and debt
and accrued interest totaling $15,617 were outstanding under its revolving
credit facilities. The Bankruptcy Court ordered the Company to make certain
adequate protection payments relating to cash collateral and proceeds resulting
from the stores closed in January 1994 that were pledged to its lenders and
banks. In January 1994, the Company made adequate protection payments totaling
$16,518 to its lenders in accordance with the related Bankruptcy Court orders.
Although the payments were made without prejudice to any such future
determination of payment classification, the
H-35 M-163
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT OUTSTANDING WAS AS FOLLOWS: -- Continued
payments were applied against debt and accrued interest outstanding as of
September 5, 1993, in accordance with the applicable loan documents.
The Company entered into a Debtor-in-Possession Revolving Credit Agreement
dated as of September 20, 1993, (the "DIP Facility") with G. E. Capital
Corporation, as lender, under which the Company is allowed to borrow or issue
letters of credit up to $125,000 for general corporate purposes, subject to
certain restrictions defined in the DIP Facility. The term of the DIP Facility
is for twenty-four months unless extended by the lender and the Bankruptcy Court
upon request by the Company. On October 14, 1993, a motion was entered in
Bankruptcy Court authorizing the Debtor-in-Possession to borrow funds with
priority over administrative expenses and secured by liens on property of the
Company, subject to certain defined restrictions as further amended on January
31, 1994. The DIP Facility included limitations on capital expenditures,
limitations on the incurrence of additional liens and indebtedness, limitations
on the sale of assets, limitations on adequate protection payments, and a
prohibition on paying dividends. The DIP Facility also includes financial
covenants pertaining to EBITDA (earnings before interest, taxes, depreciation,
and amortization) and net cash flows. The DIP Lender has a super-priority claim
against the property of the Company, other than real property.
The DIP Facility has a sub-limit of $35,000 for the issuance of letters of
credit. As of January 29, 1994, approximately $19,316 in letters of credit were
outstanding.
At the Company's option, the Company may borrow at an index rate, which is
the highest prime or base rates of interest quoted by specified banks or the
latest annualized yield on 90 day commercial paper, plus 1.25% or at the LIBOR
rate plus 2.25%. Although there are no compensating balance requirements, the
Company is required to pay a fee of .5% per annum of the average unused portion
of the DIP Facility.
At January 29, 1994, no borrowings were outstanding under the DIP Facility.
The average borrowings amount under the facility was $27,781 with a daily
weighted average annual interest rate of 5.9%. The maximum amount of borrowings
outstanding under the DIP Facility at any period end was $33,930.
The average amount of short-term borrowings under the Company's revolving
credit facilities prior to September 5, 1993, was $6,767 with a daily weighted
average annual interest rate of 9.0%. The maximum amount of short-term
borrowings at any period-end under the Company's revolving credit facilities
prior to September 5, 1993, was $15,500.
No short-term borrowings were outstanding at January 30, 1993 and January
25, 1992. The average amount of short-term debt outstanding was $10,849 for 1992
and $30,145 for 1991 with daily weighted average interest rates of 9.3% and
8.9%, respectively. The maximum amount of short-term debt outstanding at any
period-end was $40,500 in 1992 and $58,000 in 1991.
NOTE 7 -- LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to settlement under the reorganization proceedings have
been separately classified and consist of the following:
<TABLE>
<CAPTION>
FISCAL
1993
<S> <C>
Pre-petition debt and interest............................................................ $ 91,861
Accounts payable.......................................................................... 85,057
Lease rejection claims.................................................................... 21,314
Accrued liabilities....................................................................... 9,224
$ 207,456
</TABLE>
Included in current liabilities is $4,000 related to estimated vendor
reclamation claims for merchandise received immediately prior to the filing
date. Under the terms of the bankruptcy, once court approval is obtained, such
claims may be settled in full currently for 60% of their agreed upon value or
partially with 42% being paid currently and the remaining portion settled with
other administrative claims.
M-164 H-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION
PROCEEDINGS -- Continued
Actions to enforce liabilities subject to settlement are stayed while the
Company is under the protection of the Bankruptcy Code. As part of the Chapter
11 reorganization process, the Company has endeavored to notify all known or
potential creditors of the Filing for the purpose of identifying all
pre-petition claims against the Company. Generally, creditors whose claims arose
prior to the Petition Date had until the January 13, 1994 "Bar Date" to file
claims or be barred from asserting claims in the future, except in instances of
claims arising from the subsequent rejection of executory contracts by the
Company, the Company's subsequent recovery of property transferred to claimants
prior to September 5, 1993, and for claims related to certain other items
including income taxes.
The Company is actively negotiating with creditors to reconcile and resolve
the balance of disputed claims totaling approximately $150,000. A significant
portion of this amount is comprised of disputed claims that, in the opinion of
management, will not result in additional liability to the Company. The
additional liability, if any, relating to the remainder of outstanding disputed
claims is not subject to reasonable estimation. As a result, no provision has
been recorded for these claims. The Company will recognize the additional
liability, if any, as these amounts become subject to reasonable estimation.
Additional bankruptcy claims and pre-petition liabilities may arise from
the termination of other contractual obligations and the settlement of disputed
claims. Consequently, the amount included in the consolidation balance sheet as
liabilities subject to settlement under reorganization proceedings may be
subject to further adjustment.
NOTE 8 -- INTEREST EXPENSE
Interest expense consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992 1991
<S> <C> <C> <C>
Long-term debt.......................................................... $ 9,629 10,559 9,423
Short-term debt......................................................... 917 1,004 2,647
Capital leases.......................................................... 579 794 1,100
Other................................................................... 929 1,524 754
Interest expense........................................................ $12,054 13,881 13,924
</TABLE>
The Company paid interest of $10,747 in 1993, including $299 related to the
DIP facility classified as reorganization expense, $17,235 in 1992 and $15,325
in 1991.
NOTE 9 -- RESERVE FOR FUTURE STORE CLOSINGS AND REMERCHANDISING
Negatively impacting the results of 1991 was a $33,891 provision for future
store closings and remerchandising. $24,891 of this charge provided for the
closing expense of approximately 15 stores closed in 1992 including expected
losses on dispositions of related store fixtures and the present value of
anticipated future rental payments on these stores. The remaining $9,000 of the
provision related to the payroll costs and inventory reductions that were
incurred in 1992 in order to make a significant change in the Company's
merchandise mix.
The closed store reserve was increased by $39,500 in 1993 to provide for
the effect of 43 stores closed in January 1994. This expense was offset by
$13,026 relating to the rejection of certain closed store leases during the
reorganization process. Included under liabilities subject to settlement under
reorganization proceedings is $21,314 related to closed store lease rejection
claims.
H-37 M-165
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- RESERVE FOR FUTURE STORE CLOSINGS AND REMERCHANDISING -- Continued
The closed store reserve has decreased by $8,153 in 1993 and $24,944 in
1992. Following are the cash and noncash items charged to the reserves in 1993
and 1992:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Noncash activity:
Reserve for additional store closings................................................................. $(39,500) --
Closed store lease rejection benefit.................................................................. 13,026 --
Retirement of net book value of assets................................................................ 4,054 (1,888)
Write-off of inventory................................................................................ 43,661 (5,257)
Cash activity........................................................................................... (13,088) (17,799)
Reduction of the closed store and remerchandising reserve............................................... $ 8,153 24,944
</TABLE>
The cash expenses include the operating results until closing, rental
payments and costs of removing fixtures from closed stores, and the payroll
costs and inventory reductions associated with the remerchandising.
NOTE 10 -- STOCKHOLDERS' EQUITY
There are 30,000 shares (with no par value per share) each of Voting Common
and Non-Voting Class B Stock authorized. The number of shares issued and
outstanding was as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Voting Common Stock................................................................ 8,262 8,262
Non-Voting Class B Stock........................................................... 10,496 10,422
Total 18,758 18,684
</TABLE>
On January 24, 1991, the board of Directors adopted a resolution suspending
the payment of dividends until future operating profits warrant reinstatement.
Among other things, the Company's DIP Facility includes restrictions on the
payment of cash dividends and the repurchase of stock. At January 29, 1994, such
restrictions preclude the payment of dividends or the repurchase of stock. In
addition, the Company is precluded from paying dividends while the Chapter 11
case is pending and the Registrant does not believe it is likely that it will
pay dividends for the foreseeable future following termination of the Chapter 11
case.
NOTE 11 -- STOCK OPTIONS
The Company's Equity Compensation Plan, which was approved by the
stockholders on May 22, 1991, is designed to benefit the executives and key
employees of the Company by allowing the grant of a variety of different types
of equity-based compensation to eligible participants. The plan provides for the
granting of a maximum of 1,500 shares of Non-Voting Class B Stock. One half of
the options are exercisable one year after the date of grant with the balance
exercisable two years after grant date. The option price per share is equal to
the fair market value on the date of grant for all options granted prior to June
1992. Effective June 1992, the option price per share is equal to the greater of
$5 or the fair market value on the date of grant.
On October 19, 1992, the Board of Directors approved the Adjunct Stock Plan
for officers of the Company for issuance as of November 2, 1992, and authorized
842 shares of the Non-Voting Class B Stock currently held as treasury shares to
be made available for issuance under the Equity Compensation Plan. This plan was
approved by stockholders on May 26, 1993. The stock options granted to the
officers are contingent on a stock price of $15 being attained during the
three-year period beginning November 2, 1992 and the stock price remaining above
$12 for at least 30 days thereafter. The option price is $5.
On May 26, 1993, the stockholders approved a provision for nondiscretionary
grants of stock options to Outside Directors with an initial grant dated January
1, 1993. The stock options granted to Outside Directors consist of an option to
M-166 H-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- STOCK OPTIONS -- Continued
purchase 5 shares of Non-Voting Class B Stock. Each Outside Director is entitled
to receive a maximum of three such awards. The exercise price per share for each
Outside Director is the greater of the fair market value as of each option grant
date or $5. Each award of a nondiscretionary stock option to Outside Directors
is fully vested and may be exercised in full or in part. These options cease to
be exercisable three months after the optionee ceases to be an Outside Director,
unless attributable to death or disability, in which case such option expires
one year thereafter. The Company has granted 55 shares to Outside Directors
year-to-date at an exercise price of $5 per share.
Information regarding the Company's stock option plan is summarized below:
<TABLE>
<CAPTION>
PRICE NUMBER OF
RANGE SHARES
<S> <C> <C>
Outstanding, January 25, 1992....................................................................... $ 2.50-7.00 1,379
Granted............................................................................................. 3.63-6.22 275
Exercised........................................................................................... 2.50-3.88 (101)
Canceled............................................................................................ 2.50-6.38 (212)
Outstanding, January 30, 1993....................................................................... 2.50-7.00 1,341
Granted............................................................................................. 5.00-6.31 687
Exercised........................................................................................... 2.50-4.75 (74)
Canceled............................................................................................ 2.50-6.69 (224)
Outstanding, January 29, 1994....................................................................... 2.50-7.00 1,730
Exercisable, January 29, 1994....................................................................... 2.50-7.00 1,274
</TABLE>
NOTE 12 -- REORGANIZATION COSTS
Professional fees and expenditures directly related to the filing have been
segregated from normal operations and are disclosed separately. The major
components of these costs for fiscal 1993 are as follows:
<TABLE>
<S> <C>
Closed store provision..................................................................... $ 39,500
Closed store lease rejections.............................................................. (13,026)
DIP financing fees and expense amortization................................................ 1,238
Write-off of pre-petition debt issue costs................................................. 4,528
Professional fees and other bankruptcy related expenses.................................... 6,898
Total reorganization costs................................................................. $ 39,138
</TABLE>
The store closing provision covers both the costs incurred in closing 43
stores in January, 1994, together with penalties to be incurred upon the
rejection of related building and personal property leases. Offsetting these
expenses is a reversal of prior reserves for closings due to the rejection of
closed store leases.
NOTE 13 -- INCOME TAXES
Effective January 31, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As permitted under the new rule, prior years' financial statements have
not been restated. The cumulative effect of adopting this Statement as of
January 31, 1993 was immaterial to net earnings.
H-39 M-167
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- INCOME TAXES -- Continued
The components of income taxes (benefits) were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992 1991
<S> <C> <C> <C>
Taxes currently payable (receivable):
Federal......................................................................................... $ -- (7,578) (4,930)
State........................................................................................... -- (21) (395)
-- (7,599) (5,325)
Deferred:
Federal......................................................................................... -- 6,650 10,095
State........................................................................................... -- -- 9
-- 6,650 10,104
-- (949) 4,779
</TABLE>
A reconciliation of income taxes (benefits) from federal statutory rates to
actual tax rates follows:
<TABLE>
<CAPTION>
FISCAL YEARS
% OF PRETAX EARNINGS
AMOUNT (LOSS)
1993 1992 1991 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Income taxes (benefits) at federal statutory rates.................... $(22,510) (21,436) (6,299) 34% 34% 34%
State income taxes, net of federal income tax benefits................ (2,875) (21) (253) 4.3 -- 1.4
Targeted jobs tax credits............................................. -- -- (247) -- 1.3
Write-down deferred tax assets........................................ -- -- 8,970 -- (48.4)
Alternative minimum tax............................................... -- -- 2,417 -- (13.0)
Non-Deductible bankruptcy expense..................................... 1,649 -- -- (2.5) -- --
Net operating loss carryforward....................................... 23,570 20,542 -- (35.6) (32.6) --
Other................................................................. 166 (34) 191 (0.2) 0.1 (1.1)
$ -- (949) 4,779 -- % 1.5% (25.8)%
</TABLE>
As discussed above, the company changed its method of accounting for income
taxes from the deferred method to the liability method. The objective of the
liability method is to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
The significant components of deferred income tax expense for the year
ended January 29, 1994 are as follows:
<TABLE>
<S> <C>
Deferred tax expense (exclusive of the effects of other components listed below)................................... $(22,674)
Increase in beginning-of-the-year balance of the valuation allowance for deferred tax assets....................... 22,674
--
</TABLE>
M-168 H-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- INCOME TAXES -- Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January 29,
1994 are presented below:
<TABLE>
<CAPTION>
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
<S> <C> <C>
Depreciation........................................................................................ $ -- $ 2,579
Vacation pay accrual................................................................................ 1,300 --
Self insurance...................................................................................... 2,454 --
Accrued store closing costs......................................................................... 17,131 2,295
LIFO................................................................................................ -- 6,444
Postretirement health insurance..................................................................... 2,395 --
Net operating loss carryovers....................................................................... 36,984 --
TJTC carryforwards.................................................................................. 738 --
Altmin credit carryforwards......................................................................... 427 --
Other............................................................................................... 3,441 560
64,870 11,878
Valuation allowance................................................................................. (52,992) --
Total............................................................................................. $ 11,878 11,878
</TABLE>
Deferred income taxes prior to January 31, 1994 generally resulted from
timing differences in the recognition of income and expense for tax and
financial statement purposes. Such timing differences related primarily to
closed stores, depreciation, and the remerchandising reserve. For 1991, $8,970
of deferred tax assets were written off as having no realizable value. The
deferred tax assets that were written off represented the deferred taxes
primarily resulting from the 1990 and 1991 accruals of closed store expenses.
The write-down of deferred tax assets in 1991 was necessary because 1991
year-end deferred tax assets would have exceeded the potential Federal and State
carrybacks that remained after the carryback of the 1991 NOL. Additional tax
losses incurred during 1992 consumed the remaining deferred tax assets with the
resulting NOL, thus eliminating the need for an additional write-off.
For the years ended January 30, 1993, and January 25, 1992, deferred income
tax expense of $6,650 and $10,104, respectively, results from timing differences
in the recognition of income and expense for income tax and financial reporting
purposes.
The changes to deferred taxes were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
1992 1991
<S> <C> <C>
Write-down of excess deferred tax assets................................................................. $ -- 8,970
LIFO..................................................................................................... (249) 8,850
Remerchandising reserve.................................................................................. 2,383 (3 717)
Closed stores............................................................................................ 3,998 (3,672)
Depreciation............................................................................................. (551) (842)
Deferred income.......................................................................................... 372 533
Insurance................................................................................................ 633 (357)
Compensation............................................................................................. (31) (152)
Capitalized inventory costs.............................................................................. 145 117
Other.................................................................................................... (50) 374
$6,650 10,104
</TABLE>
The Company has federal net operating loss income tax carryforwards
totaling $108,776. These carryforwards consist of $63,434 from 1992 and $45,342
from 1993 that expire in January, 2008 and 2009, respectively, and will be
available to reduce future federal income tax liabilities.
H-41 M-169
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- LEASED ASSETS AND LEASE COMMITMENTS
The Company has entered into leases for store locations which expire during
the next 20 years. Computer equipment, transportation equipment and certain
other equipment are also leased under agreements which will expire during the
next five years. Management expects that leases which expire in the normal
course of business will be renewed or replaced by other leases. Under Chapter
11, the Company may renegotiate or reject leases that it may otherwise have
retained had no filing been made.
At January 29, 1994, minimum rental payments due under the above leases are
as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
<S> <C> <C>
1994................................................................. $2,701 38,066
1995................................................................. 1,336 34,704
1996................................................................. 342 32,798
1997................................................................. 225 31,731
1998................................................................. 145 28,173
Later Years.......................................................... 145 178,641
Total minimum lease payments......................................... 4,894 344,113
Imputed interest (rates ranging from 7.6% to 11.3%).................. (613)
Present value of net minimum lease payments.......................... 4,281
Less current maturities.............................................. 2,374
Capital lease obligations............................................ $1,907
</TABLE>
Executory costs, such as real estate taxes, insurance, and maintenance, are
generally the obligation of the lessor.
Amortization of capitalized leases was approximately $2,191 in 1993, $2,345
in 1992, and $3,402 in 1991.
Total rental expense for the three years ended January 29, 1994 was as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992 1991
<S> <C> <C> <C>
Operating Leases:
Minimum rentals............................................................................ $40,842 $42,652 $45,537
Continuing rentals......................................................................... 5,205 10,254 10,050
$46,047 $52,906 $55,587
</TABLE>
Contingent rentals are determined on the basis of a percentage of sales in
excess of stipulated minimums for certain store facilities and on the basis of
mileage for transportation equipment.
The Company is a guarantor on leases of property which have been re-leased
to other parties. The amount of the outstanding minimum rentals over the next
one to five years under those leases was $3,637 at January 29, 1994.
Included in rent expense was $908 for 1993, $1,071 for 1992, and $974 for
1991, paid to lessors controlled by or affiliated with certain current directors
of the Company.
NOTE 15 -- POSTRETIREMENT HEALTH INSURANCE BENEFITS
The Company provides health insurance benefits for retirees who meet
minimum age and service requirements. In addition, the associate must be covered
under the active medical plan at the time of retirement to be eligible for
postretirement benefits and must agree to contribute a portion of the cost. The
Company has the right to modify or terminate these benefits, including the
retiree contribution. The plan is not funded.
M-170 H-42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- POSTRETIREMENT HEALTH INSURANCE BENEFITS -- Continued
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," (SFAS 106), retroactive to January 26, 1992. SFAS 106 requires the
Company to recognize the cost of retiree health insurance benefits over the
associates' period of service. The cumulative effect of adopting SFAS 106 was a
one-time charge to net earnings of $5,031.
The periodic postretirement benefit cost under SFAS 106 was as follows:
NET PERIODIC POSTRETIREMENT BENEFIT COSTS:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Service costs......................................................................... $203 $181
Interest costs........................................................................ 451 426
Other................................................................................. 12 --
$666 $607
</TABLE>
The present value of accumulated postretirement benefit obligations and the
amount recognized in the consolidated balance sheets were as follows:
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATIONS:
<TABLE>
<CAPTION>
FISCAL YEARS
1993 1992
<S> <C> <C>
Retirees.......................................................................... $ 1,730 $1,710
Fully eligible active plan participants........................................... 1,577 1,251
Other active plan participants.................................................... 3,738 3,054
7,045 6,015
Unrecognized Loss................................................................. (1,431) (719)
Total accumulated postretirement benefit obligations.............................. $ 5,614 $5,296
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.0% for 1993 and 8.5% for 1992.
An increase in the cost of health insurance benefits of 9% was assumed for
fiscal year 1994. The rate is assumed to decline gradually to 5% in 2001, and
remain at that level thereafter. A 1% increase in the health-care cost trend
rate would increase the accumulated postretirement benefit obligation at January
29, 1994, by $605 and the 1993 annual expense by $67.
NOTE 16 -- CONTINGENCIES
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management and counsel, all material contingencies are either adequately covered
by insurance or are without merit.
H-43 M-171
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUBSEQUENT EVENTS
On April 4, 1994, the Company announced plans to close approximately 58
additional stores. An additional reorganization expense of approximately $55,000
will be included in the first quarter of 1994 to provide for these closings. The
following reflects, on a proforma basis, the impact of these store closings on
the consolidated balance sheet as of January 29, 1994:
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
<S> <C> <C>
Reserve for store closings and remerchandising -- current liability................................... $ -- $ 39,415
Liabilities subject to settlement under reorganization proceedings.................................... 207,456 223,041
Total stockholders' equity (deficit).................................................................. 16,096 (38,904)
</TABLE>
NOTE 18 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Following is a summary of the quarterly results of operations during the
years ended January 29, 1994 and January 30, 1993:
<TABLE>
<CAPTION>
FISCAL 1993
QUARTERS ENDED
MAY 1, JULY 31, OCTOBER 30, JANUARY 29,
1993 1993 1993 1994
<S> <C> <C> <C> <C>
Gross sales................................................................ $ 288,046 $301,831 $ 276,301 $ 379,519
Leased department sales.................................................... 9,062 12,087 10,192 11,133
Leased department income................................................... 2,013 2,110 1,927 2,657
Cost of sales.............................................................. 208,230 225,816 206,152 292,040
Income (loss) before reorganization expense................................ 1,174 (11,616) (17,448) 821
Reorganization expense (a)................................................. -- -- (40,416) 1,278
Net income (loss).......................................................... 1,174 (11,616) (57,864) 2,099
Income (loss) per share.................................................... $ 0.06 $ (0.62) $ (3.08) $ .11
<CAPTION>
FISCAL 1992
QUARTERS ENDED
APRIL 25, JULY 25, OCTOBER 24, JANUARY 30,
1993 1993 1993 1993
<S> <C> <C> <C> <C>
Gross sales................................................................ $ 301,053 $310,492 $ 328,217 $ 464,540
Leased department sales.................................................... 9,703 10,528 10,449 11,379
Leased department income................................................... 2,103 2,171 2,295 3,247
Cost of sales.............................................................. 224,088 231,364 247,423 400,285
Loss before cumulative effect of accounting change......................... (6,098) (5,742) (10,516) (36,204)
Cumulative effect of adopting SFAS 106 (b)................................. (5,031) -- -- --
Net loss................................................................... (11,129) (5,742) (10,516) (36,204)
Loss per share before cumulative effect of accounting change............... $ (0.33) $ (0.31) ($ 0.56) $ (1.94)
Cumulative effect of adopting SFAS 106 per share (b)....................... (0.27) -- -- --
Loss per share............................................................. $ (0.60) $ (0.31) $ (0.56) $ (1.94)
</TABLE>
(a) Included in the fourth quarter of 1993 reorganization cost is a $5,000
reduction of a $44,500 third quarter charge taken for the estimated costs of
closing 43 stores in January 1994. Included in 1993 reorganization costs, in
addition to the costs of closing the 43 stores, are DIP fee amortization and
expenses, professional fees and other reorganization costs. Offsetting these
expenses is a reversal of prior provisions for closings due to the
anticipated rejections of closed store leases.
(b) In 1992, the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the Company to
accrue health insurance benefits over the period in which associates become
eligible for such benefits. The cumulative effect of adopting SFAS 106 was a
one-time charge of $5,031.
M-172 H-44
<PAGE>
EXHIBIT I
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended July 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.
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING
<S> <C>
Voting common stock, no par value 8,262,420
Non-voting Class B stock, no par value 10,495,586
</TABLE>
M-173
<PAGE>
ROSE'S STORES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following summary of financial information, 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 twenty-six weeks ended July 30, 1994
and July 31, 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 consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
On August 1, 1994, the Company and the major constituencies in its Chapter
11 proceeding filed a joint plan of reorganization in the United States
Bankruptcy Court for the Eastern District of North Carolina. The Plan was
co-sponsored by the Company's significant secured creditors and its
unsecured creditors' and equity committees, and was consented to by GE
Capital, Rose's debtor-in-possession lender. The Company expects to obtain
approval of the Disclosure Statement by the Bankruptcy Court and submit the
Plan to the Company's creditors and stockholders for their acceptance in
accordance with the Bankruptcy Code by early October.
The following summary of the Plan is not intended as a solicitation of
acceptances, which can only be made after approval of the Disclosure
Statement by the Bankruptcy Court. The Plan provides secured creditors,
primarily senior secured noteholders, with payments reducing their debt from
$108,000 at the time of filing Chapter 11 to less than $40,000. The Plan
contemplates a four year amortizing note on the remaining debt balance at an
11% annual interest rate. The unsecured creditors will receive 100% of the
shares of common stock of the reorganized company, or such portion of the
stock which will provide total realization of the group's approved claims.
The existing stockholders will receive warrants for the purchase of up to
30% of the reorganized company's stock on a fully diluted basis. In
addition, existing stockholders will be entitled to purchase rights to
receive all or a portion of the new common stock which would otherwise be
distributed to the unsecured creditors. All currently outstanding shares of
stock, warrants and options will be canceled. In order for the Plan to be
effective, certain conditions must be met, including the following: (a) the
Company must have made all required adequate protection payments to the
secured lenders, and (b) the Company must have an operating cash flow of at
least $25,000 as of December 31, 1994.
The Company has received a post confirmation exit financing commitment. The
commitment is for a three year revolving credit agreement which would,
subject to the satisfaction of the terms and conditions contained therein,
allow the Company to borrow up to $80,000.
(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 second quarter of 1994 is a
$12,000 reduction of the first quarter charge of $55,000 for the costs of
closing 59 stores in 1994 and to realign corporate and administrative costs
accordingly. This reduction resulted from better than expected
going-out-of-business sales proceeds and less than expected closing costs.
(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.
M-174 I-2
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
THIRTEEN WEEKS ENDED ENDED
JULY 30, JULY 31, JULY 30, JULY 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Revenue:
Gross sales.............................................................. $175,231 301,831 $349,814 589,877
Leased department sales.................................................. 6,368 12,087 11,882 21,149
Net sales................................................................ 168,863 289,744 337,932 568,728
Leased department income................................................. 1,150 2,110 2,450 4,124
Total revenue......................................................... 170,013 291,854 340,382 572,852
Costs and Expenses:
Cost of sales............................................................ 127,535 225,816 254,231 434,046
Selling, general and administrative...................................... 39,406 71,169 79,587 136,566
Depreciation and amortization............................................ 2,387 3,262 4,862 6,476
Interest................................................................. 1,621 3,223 3,405 6,206
Total costs and expenses.............................................. 170,949 303,470 342,085 583,294
Earnings (Loss) Before Reorganization Expense.............................. (936) (11,616) (1,703) (10,442)
Reorganization Expense (Note 1)............................................ 7,971 -- (50,810) --
Net Earnings (Loss)........................................................ $ 7,035 (11,616) $(52,513) (10,442)
Earnings (Loss) Per Share.................................................. $ 0.38 (0.62) $ (2.80) (0.56)
Weighted Average Shares.................................................... 18,758 18,747 18,758 18,722
Note 1
Closed store reserve (59 closings)......................................... $ 12,000 $(43,000)
DIP financing fees, amortization & expenses................................ (510) (934)
Estimated professional fees................................................ (3,399) (6,514)
Other reorganization costs and expenses.................................... (120) (362)
TOTAL REORGANIZATION COSTS............................................ $ 7,971 $(50,810)
</TABLE>
See notes to consolidated financial statements
I-3 M-175
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30, JANUARY 29, JULY 31,
1994 1994 1993
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Assets
Current Assets
Cash and cash equivalents............................................................ $ 11,009 11,955 1,108
Accounts receivable.................................................................. 14,895 15,057 17,106
Inventories.......................................................................... 144,302 203,150 237,168
Prepaid merchandise.................................................................. 8,809 10,757 --
Other current assets................................................................. 6,324 7,457 9,519
Total current assets............................................................... 185,339 248,376 264,901
Property and Equipment, at cost
Less accumulated depreciation and amortization..................................... 38,411 50,234 56,381
Deferred Income Tax Benefits.............................................................. 6,447 6,447 5,760
Other Assets.............................................................................. 597 3,048 4,702
$230,794 308,105 331,744
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Reclamation claims................................................................... $ 384 4,000 --
Current installments of long-term debt............................................... -- -- 16,600
Current maturities of capital lease obligations...................................... 1,571 2,374 2,371
Bank drafts outstanding.............................................................. -- -- 4,194
Accounts payable..................................................................... 26,190 35,507 71,505
Federal and state income taxes....................................................... -- -- 1,153
DIP financing........................................................................ 595 -- --
Short-term debt...................................................................... -- -- 14,833
Accrued salaries and wages........................................................... 9,364 12,295 11,486
Reserve for store closings and remerchandising....................................... 10,747 -- 4,850
Deferred income tax liability........................................................ 6,447 6,447 5,760
Other current liabilities............................................................ 14,941 14,113 23,468
Total current liabilities.......................................................... 70,239 74,736 156,220
Liabilities Subject to Settlement Under Reorganization Proceedings........................ 188,420 207,456 --
Long-term Debt............................................................................ -- -- 73,900
Capital Lease Obligations................................................................. 1,198 1,907 3,073
Reserve for Future Store Closings......................................................... -- -- 17,443
Deferred Income........................................................................... 1,547 2,296 3,045
Accumulated Postretirement Benefit Obligation............................................. 5,807 5,614 6,203
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 18,795
Paid-in Capital-Stock Warrants.......................................................... 2,700 2,700 2,700
Retained earnings (Accumulated deficit)................................................. (41,544) 10,969 66,733
(17,799) 34,714 90,478
Treasury stock, at cost (4,701 shares at 7/31/94, 1/29/94 and 7/31/93).................. (18,618) (18,618) (18,618)
Total stockholders' equity (deficit)............................................... (36,417) 16,096 71,860
$230,794 308,105 331,744
</TABLE>
See notes to consolidated financial statements
M-176 I-4
<PAGE>
ROSE'S STORES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX WEEKS ENDED
JULY 30, 1994 JULY 31, 1993
<S> <C> <C>
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)............................................................................. $ (52,513) (10,442)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization................................................................. 4,862 6,476
(Gain) loss on disposal of property and equipment............................................. (300) 21
LIFO expense.................................................................................. (576) 47
Provision for closed stores................................................................... 43,000 --
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable.................................................... 162 (3,822)
(Increase) decrease in prepaid merchandise.................................................... 1,948 --
(Increase) decrease in inventories............................................................ 59,424 (4,952)
(Increase) decrease in other current and non-current assets................................... 1,035 (159)
Increase (decrease) in pre and post-petition accounts payable................................. (14,327) (18,007)
Increase (decrease) in accrued expenses and other liabilities................................. (2,021) (1,171)
Increase (decrease) in federal and state income taxes payable................................. -- 7,711
Increase (decrease) in reserves for closed stores............................................. $ 28,706 (4,450)
Non cash activities in closed store reserve:
Provision for closed stores................................................................ (43,000) --
Retirement of net book value of assets..................................................... 7,035 255
Write-off of leases........................................................................ (44) --
Write-off of inventory..................................................................... -- 779
Net cash increase (decrease) in provisions for closed stores.................................. (7,303) (3,416)
Increase (decrease) in deferred income........................................................ (749) (501)
Increase (decrease) in accumulated postretirement benefit obligation.......................... 193 188
Other, net.................................................................................... -- (1)
Net cash provided by (used in) operating activities........................................... 32,835 (28,028)
Cash flows from investing activities:
Purchases of property and equipment........................................................... (784) (4,865)
Proceeds from disposal of property and equipment.............................................. 715 3
Net cash provided by (used in) investing activities............................................. (69) (4,862)
Cash flows from financing activities:
Net activity on lines of credit............................................................... (33,134) 14,833
Proceeds (payments) of DIP Facility........................................................... 595 --
Principal payments on capital lease obligations............................................... (1,173) (1,196)
Increase (decrease) in bank drafts outstanding................................................ -- 1,066
Other......................................................................................... -- 194
Net cash provided by (used in) financing activities............................................. (33,712) 14,897
Net decrease in cash............................................................................ (946) (17,993)
Cash and cash equivalents at beginning of period................................................ 11,955 19,101
Cash and cash equivalents at end of period...................................................... $ 11,009 1,108
</TABLE>
See notes to consolidated financial statements
I-5 M-177
<PAGE>
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. On August 1, 1994,
the Company and the major constituencies in its Chapter 11 proceeding filed a
joint plan of reorganization in the United States Bankruptcy Court for the
Eastern District of North Carolina. The Plan was co-sponsored by the Company's
significant secured creditors and its unsecured creditors' and equity
committees, and was consented to by GE Capital, Rose's debtor-in-possession
lender. The Company expects to obtain approval of the Disclosure Statement by
the Bankruptcy Court and submit the Plan to the Company's creditors and
stockholders for their acceptance in accordance with the Bankruptcy Code by
early October. The Company anticipates seeking Court approval of the Plan prior
to November 30, 1994, but there can be no assurance as to the timing of
approval, the terms of the Plan upon approval or whether the Plan will be
approved.
The following summary of the Plan is not intended as a solicitation of
acceptances, which can only be made after approval of the Disclosure Statement
by the Bankruptcy Court. The Plan provides secured creditors, primarily senior
secured noteholders, with payments reducing their debt from $108,000 at the time
of filing Chapter 11 to less than $40,000. The Plan also contemplates a four
year amortizing note on the remaining debt balance at an 11% annual interest
rate. The unsecured creditors will receive 100% of the shares of common stock of
the reorganized company, or such portion of the stock which will provide total
realization of the group's approved claims. The existing stockholders will
receive warrants for the purchase of up to 30% of the reorganized company's
stock on a fully diluted basis. In addition, existing stockholders will be
entitled to purchase rights to receive all or a portion of the new common stock
which would otherwise be distributed to the unsecured creditors. All currently
outstanding shares of stock, warrants and options will be canceled. In order for
the Plan to be effective, certain conditions must be met, including the
following: (a) the Company must have made all required adequate protection
payments to the secured lenders, and (b) the Company must have an operating cash
flow of at least $25,000 as of December 31, 1994.
Following acceptance or rejection of the 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.
The Company has received a post confirmation exit financing commitment. The
commitment is for a three year revolving credit agreement which would, subject
to the satisfaction of the terms and conditions contained therein, allow the
Company to borrow up to $80,000.
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 plan of
reorganization permits the Company to fund its current operations and meet its
obligations to creditors (as they are restructured under the plan) out of the
projected 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 second quarter of 1994 of $175,231, a
decrease of $126,600 or 41.9% from the second quarter of 1993, and year-to-date
sales were $349,814, a decrease of $240,063 or 40.7% from last year. Sales on a
comparable store basis decreased 2.6% for the second quarter and .3%
year-to-date.
M-178 I-6
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COSTS AND EXPENSES
Year-to-date cost of sales as a percent to net sales was 75.2% for 1994 and
76.3% for 1993. Increases in markdowns as a percent of sales were more than
offset by increases in markon and decreases in the shrink percent to sales.
Selling, general and administrative expenses (SG&A) as a percent of sales
for the second quarter were 23.3% in 1994 and 24.6% in 1993. Year-to-date SG&A
expenses as a percentage of sales were 23.6% in 1994 and 24.0% in 1993.
Included in the reorganization costs for the second quarter of 1994 is a
$12,000 reduction of the first quarter provision of $55,000 for the costs of
closing 59 stores in 1994 and to realign corporate and administrative costs
accordingly. This reduction resulted from better than expected
going-out-of-business sales proceeds and less than expected closing costs.
Current year operating results exclude the results of these 59 stores.
Also included in reorganization costs for the second quarter of 1994 is
$4,029 and year-to-date is $7,810 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 second quarter of 1994, the Company had $595 outstanding
under its DIP facility. The Company invested $506 in cash for property and
equipment in the second quarter of 1994 compared to $3,074 invested in the
second quarter of 1993. Year-to-date cash investment in property and equipment
was $784 in 1994 compared to $4,865 in 1993.
The Company received over $78,000 in gross proceeds from the GOB2 sales in
the 59 stores. To-date, the Company has paid the pre-petition secured lenders
$37,800 of the net proceeds from the encumbered GOB2 stores.
Cash provided by operating activities was $55,853 in the second quarter of
1994 and $32,835 year-to-date. Cash used in operating activities during 1993
were $2,501 in the second quarter and $28,028 year-to-date. 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 the plan of reorganization is being confirmed. The adequacy of the
Company's capital resources and long-term liquidity cannot be determined until
the plan is confirmed by the Bankruptcy Court.
OTHER
The Board of Directors of Rose's Stores, Inc. announced on August 23, 1994
that R. Edward Anderson, previously the Company's Executive Vice President of
Finance, had been elected to the office of President and Chief Executive
Officer, succeeding George L. Jones who resigned on August 16, 1994. The
appointment was made at a meeting of the Board of Directors after consultation
with representatives of the major constituencies in the Company's Chapter 11
proceedings, including the Unsecured Creditors' Committee, the Equity Committee,
and the Pre-Petition Secured Noteholders. The Board also elected Mr. Anderson to
the additional position of Chairman of the Board of Directors, filling a vacancy
created by the resignation of Lucius H. Harvin, III.
I-7 M-179
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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 July 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 of the Company.
On September 5, 1993, the Company filed a voluntary Petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the Eastern District of North
Carolina (the "Bankruptcy Court") 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 and subsequent Form 10-Qs and Form 8-Ks. The
following discussion sets forth certain developments in the Chapter 11 Case
during the second 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.
On August 1, 1994 the Company filed with the Court a proposed Joint Plan of
Reorganization (the "Plan") with the consent of the official unsecured creditors
committee, the pre-petition secured senior noteholders, and the official equity
committee. A copy of the Plan is attached as Exhibit 10.1 to the Form 8-K dated
August 1, 1994. Various ancillary agreements required to effectuate the Plan are
expected to be negotiated with the official unsecured creditors committee, the
Pre-Petition Lenders, the official equity committee and any Plan/exit funder,
and filed at a later date.
The Company expects to obtain approval of the Disclosure Statement by the
Bankruptcy Court and submit the Plan to the Company's creditors and stockholders
for their acceptance in accordance with the Bankruptcy Code by early October.
The Company anticipates seeking Court approval of the Plan prior to November 30,
1994, but there can be no assurance as to the timing of approval, the terms of
the Plan upon approval or whether the Plan will be approved.
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. On June 14, 1994, the Court indicated that it would allow dismissal of
the fraud related causes of action against the Pre-Petition Lenders arising
under Section 547 of the Bankruptcy Code until the Company achieved an agreement
with the Pre-Petition Lenders regarding the terms of a consensual joint Plan.
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 10.1, Proposed Joint Plan of Reorganization dated August 1,
1994 is incorporated by reference from the Report on Form 8-K dated
August 1, 1994.
(b) Report on Form 8-K dated August 1, 1994, reporting under Item 5 the
filing with the Court of the proposed Joint Plan of Reorganization with
the consent of the official unsecured creditors committee, the
pre-petition secured senior noteholders, and the official equity
committee.
(c) Report on Form 8-K dated August 16, 1994, reporting under Item 5 the
election by the Board of Directors of R. Edward Anderson to President
and Chief Executive Officer, and a director of the Company, filling the
vacancy created by the resignation of George Jones as President, Chief
Executive Officer and a director. The Board also elected Mr. Anderson
Chairman of the Board of Directors filling the vacancy created by the
resignation of Lucius H. Harvin, III, as a director and as Chairman of
the Board of Directors.
M-180 I-8
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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.
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SIGNATURE CAPACITY DATE
<S> <C> <C>
By R. EDWARD ANDERSON President, Chief Executive Officer September 13, 1994
R. EDWARD ANDERSON
By JEANETTE R. PETERS Vice President and Controller September 13, 1994
(Chief Accounting Officer)
JEANETTE R. PETERS
</TABLE>
I-9 M-181
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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE: CASE NO. 93-01365-5-ATS
ROSE'S STORES, INC.,
(TAX ID #56-0382475), CHAPTER 11
DEBTOR.
FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF
ROSE'S STORES, INC.
OCTOBER 4, 1994
M-183
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS................................................................................... 1
1.1 "Actual EBITDA"......................................................................... 1
1.2 "Administrative Claim".................................................................. 1
1.3 "ADR Procedure"......................................................................... 1
1.4 "Allowed Claim"......................................................................... 1
1.5 "Allowed Non-Tax Priority Claim"........................................................ 2
1.6 "Allowed Secured Claim.................................................................. 2
1.7 "Allowed Tax Claim"..................................................................... 2
1.8 "Allowed Unsecured Claim"............................................................... 2
1.9 "Alternative Treatment Account"......................................................... 2
1.10 "Alternative Treatment Date"............................................................ 2
1.11 "Alternative Treatment Implementation Orders"........................................... 2
1.12 "Alternative Treatment Provisions"...................................................... 2
1.13 "Assumed Contracts and Leases".......................................................... 2
1.14 "Available Cash"........................................................................ 2
1.15 "Avoiding Power Actions"................................................................ 2
1.16 "Bankruptcy Code"....................................................................... 2
1.17 "Bankruptcy Court"...................................................................... 2
1.18 "Bankruptcy Rules"...................................................................... 2
1.19 "Bank Group"............................................................................ 3
1.20 "Bank of Tokyo"......................................................................... 3
1.21 "Bar Date".............................................................................. 3
1.22 "Board of Directors".................................................................... 3
1.23 "Business Day".......................................................................... 3
1.24 "Cash".................................................................................. 3
1.25 "Chapter 11 Case"....................................................................... 3
1.26 "Claim"................................................................................. 3
1.27 "Class"................................................................................. 3
1.28 "Class 3 Common Stock Designation"...................................................... 3
1.29 "Class 5 Rights Notice"................................................................. 3
1.30 "Class 5 Subscription Stock Designation"................................................ 3
1.31 "Class 5 Subscriber".................................................................... 3
1.32 "Class 5 Subscription".................................................................. 3
1.33 "Class 5 Subscription Price"............................................................ 3
1.34 "Collateral Agent"...................................................................... 3
1.35 "Committees"............................................................................ 3
1.36 "Common Stock Interest"................................................................. 4
1.37 "Confirmation".......................................................................... 4
1.38 "Confirmation Date"..................................................................... 4
1.39 "Confirmation Order".................................................................... 4
1.40 "Consolidated Net Cash Flow"............................................................ 4
1.41 "Consummation Certificate".............................................................. 4
1.42 "Consummation Date"..................................................................... 4
1.43 "Contingent Claim"...................................................................... 4
1.44 "Core Stores"........................................................................... 4
1.45 "Covered Stores"........................................................................ 4
1.46 "Damages Claims"........................................................................ 4
1.47 "Debtor"................................................................................ 4
1.48 "Determination Date".................................................................... 4
1.49 "DIP Facility".......................................................................... 4
1.50 "DIP Financing Documents"............................................................... 4
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i M-185
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1.51 "DIP Financing Orders".................................................................. 4
1.52 "Disclosure Statement".................................................................. 5
1.53 "Disposition Proceeds".................................................................. 5
1.54 "Disputed Claim"........................................................................ 5
1.55 "Distribution Agent".................................................................... 5
1.56 "Distribution Date"..................................................................... 5
1.57 "EBITDA"................................................................................ 5
1.58 "EBITDA Target"......................................................................... 5
1.59 "Effective Date"........................................................................ 5
1.60 "Effective Date Shares"................................................................. 5
1.61 "Employee Stock Options"................................................................ 5
1.62 "Equity Committee"...................................................................... 5
1.63 "Equity Record Date".................................................................... 5
1.64 "Estate"................................................................................ 5
1.65 "Event of Default"...................................................................... 5
1.66 "Filing Date"........................................................................... 6
1.67 "Final Decree".......................................................................... 6
1.68 "Final GOB Sales"....................................................................... 6
1.69 "Final Order"........................................................................... 6
1.70 "Full Recovery Target Amount"........................................................... 6
1.71 "GAAP".................................................................................. 6
1.72 "GE Capital"............................................................................ 6
1.73 "GE Obligations"........................................................................ 6
1.74 "Intercompany Claims"................................................................... 6
1.75 "Intercreditor Agreements".............................................................. 6
1.76 "Interests"............................................................................. 6
1.77 "Inventory"............................................................................. 6
1.78 "Management Incentive and Retention Program"............................................ 6
1.79 "Net GOB2 Proceeds"..................................................................... 6
1.80 "New Rose's Bank of Tokyo Secured Note"................................................. 6
1.81 "New Rose's Charter".................................................................... 6
1.82 "New Rose's Common Stock"............................................................... 6
1.83 "New Rose's Common Stock Secondary Distribution"........................................ 7
1.84 "New Rose's Common Stock Trust"......................................................... 7
1.85 "New Rose's Common Stock Trust Agreement"............................................... 7
1.86 "New Rose's Secured Notes".............................................................. 7
1.87 "New Rose's Secured Notes Documents".................................................... 7
1.88 "New Rose's Secured Notes Original Principal Amount".................................... 7
1.89 "New Rose's Warrant Agreement".......................................................... 7
1.90 "New Rose's Warrants"................................................................... 7
1.91 "Noncovered Stores"..................................................................... 7
1.92 "Non-Voting Class B Stock".............................................................. 7
1.93 "Perfection Instruments"................................................................ 7
1.94 "Permitted Encumbrance Collateral"...................................................... 7
1.95 "Person"................................................................................ 7
1.96 "Plan".................................................................................. 8
1.97 "Plan Proponents"....................................................................... 8
1.98 "Post-Effective Date Collateral"........................................................ 8
1.99 "Post-Effective Date Financing Facility"................................................ 8
1.100 "Post-Effective Date Lender"............................................................ 8
1.101 "Pre-Petition Lenders".................................................................. 8
1.102 "Pre-Petition Lenders' Allowed Secured Claims".......................................... 8
1.103 "Pre-Petition Secured Noteholders"...................................................... 8
1.104 "Pre-Petition Secured Noteholder Warrant Agreement"..................................... 8
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1.105 "Pre-Petition Secured Noteholder Warrants".............................................. 8
1.106 "Pre-Petition Secured Notes"............................................................ 8
1.107 "Pre-Petition Stock Option"............................................................. 8
1.108 "Pre-Petition Warrant".................................................................. 8
1.109 "Professional".......................................................................... 8
1.110 "Professional Fees"..................................................................... 9
1.111 "Projections"........................................................................... 9
1.112 "Pro-Rata".............................................................................. 9
1.113 "Reconstituted Board of Directors"...................................................... 9
1.114 "Record Date"........................................................................... 9
1.115 "Released Parties"...................................................................... 9
1.116 "Reorganized Rose's".................................................................... 9
1.117 "Reserve"............................................................................... 9
1.118 "Reserve Amount"........................................................................ 9
1.119 "Retiree Claim"......................................................................... 9
1.120 "RSI"................................................................................... 9
1.121 "Second Supplemental Adequate Protection Consent Order"................................. 9
1.122 "Subscription Proceeds Escrow".......................................................... 9
1.123 "Subscription Proceeds"................................................................. 9
1.124 "Subordinated Claims"................................................................... 9
1.125 "Supplemental Adequate Protection Orders"............................................... 10
1.126 "Unsecured Committee"................................................................... 10
1.127 "Voting Common Stock"................................................................... 10
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS........................................................ 10
2.1 Criterion of Class...................................................................... 10
2.2 Claims and Interests.................................................................... 10
ARTICLE III
PAYMENT OF ADMINISTRATIVE CLAIMS ALLOWED TAX CLAIMS, PROFESSIONAL FEES, AND RETIREE CLAIMS, AND
TREATMENT OF GE CAPITAL....................................................................... 11
3.1 Administrative Claims................................................................... 11
3.2 Allowed Tax Claims...................................................................... 11
3.3 Professional Fees....................................................................... 11
3.4 Retiree Claims and Benefits Under Section 114 of the Bankruptcy. Code................... 11
3.5 Treatment of GE Capital................................................................. 12
ARTICLE IV
CLAIMS NOT IMPAIRED UNDER THE PLAN............................................................ 12
4.1 Non-Impairment.......................................................................... 12
4.2 Class 1 (Non-Tax Priority Claims)....................................................... 12
4.3 Class 2A (General Secured Claims)....................................................... 12
ARTICLE V
CLAIMS AND INTERESTS IMPAIRED UNDER THE PLAN.................................................. 13
5.1 Class 2B (Pre-Petition Lenders' Allowed Secured Claims)................................. 13
5.2 Class 3 (Unsecured Claims).............................................................. 16
5.3 Class 4 (Intercompany Claims)........................................................... 16
5.4 Class 5 (Common Stock Interests)........................................................ 16
5.5 Class 6 (Pre-Petition Warrants)......................................................... 16
5.6 Class 7 (Pre-Petition Stock Options).................................................... 16
5.7 Class 8 (Subordinated Claims)........................................................... 17
5.8 Alternative Treatment Provisions........................................................ 17
5.8.1 Alternative Treatment of Class 2B.............................................. 17
5.8.2 Alternative Treatment of Class 3............................................... 17
5.8.3 Alternative Treatment of Class 5............................................... 17
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iii M-187
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5.8.4 Other Plan Provisions Operative In Conjunction With the Alternative Treatment
Provisions................................................................... 17
5.9 Effect of Bar Dates..................................................................... 18
5.10 Non-consensual Confirmation............................................................. 18
ARTICLE VI
PROVISIONS GOVERNING DISTRIBUTIONS............................................................ 19
6.1 Distributions by Reorganized Rose's or the Debtor, or Other Distribution Agent.......... 19
6.2 Distributions to Impaired Classes....................................................... 19
6.2.1 Distributions of New Rose's Secured Notes...................................... 19
6.2.2 Distributions of New Rose's Common Stock....................................... 19
6.2.3 Distribution of Subscription Proceeds.......................................... 19
6.2.4 Distribution of New Rose's Common Stock Secondary Distribution................. 20
6.2.5 Distribution of New Rose's Warrants............................................ 20
6.2.6 Listing of Common Stock and Warrants........................................... 20
6.2.7 Distributions of Cash Under Alternative Treatment Provisions................... 20
6.3 Timing of Distributions................................................................. 21
6.4 Disputed Payments....................................................................... 21
6.5 Delivery of Distributions and Undeliverable or Unclaimed Distributions.................. 21
6.5.1 Delivery of Distributions in Genera............................................ 21
6.5.2 Distributions Held by Distribution Agent....................................... 21
6.5.3 Failure to Claim Undeliverable Distributions................................... 21
6.6 Fractional Distributions and Fractional Cents; Round Lots............................... 22
6.7 Full and Final Satisfaction............................................................. 22
6.8 Allocation of Distributions to Holders of Allowed Secured Claims........................ 22
ARTICLE VII
MEANS OF EXECUTION.................................................................................. 22
7.1 Funds for Distribution.................................................................. 22
7.2 Post-Effective Date Financing Facility.................................................. 22
7.3 Corporate Action........................................................................ 24
7.4 Cancellation of Common Stock, Pre-Petition Warrants, Pre-Petition Stock Options and
Pre-Petition Secured Notes and Surrender of Common Stock, Pre-Petition Warrants and
Pre-Petition Secured Notes.............................................................. 24
7.5 New Rose's Charter...................................................................... 24
7.6 Voting Powers........................................................................... 25
7.7 Authorization and Issuance of Equity and Debt Instruments of Reorganized Rose's......... 25
7.7.1 New Rose's Common Stock........................................................ 25
7.7.2 New Rose's Warrants............................................................ 25
7.7.3 New Rose's Secured Notes....................................................... 25
7.8 New Rose's Common Stock Allocable to Management of Reorganized Rose's................... 25
7.9 Applicability of Sections 1125 and 1145 of the Bankruptcy Code to the New Rose's Common
Stock Issued under the Plan............................................................. 25
7.10 Class 5 Subscription.................................................................... 25
7.11 Merger of RSI and Cancellation of RSI Common Stock...................................... 26
7.12 Reserve Provisions for Disputed Claims.................................................. 26
7.13 Voting of Undistributed New Rose's Common Stock......................................... 27
7.14 Preservation or Waiver of Rights of Action of the Estate................................ 27
7.15 Use of ADR Procedure Regarding Determination and Allowance of
Damage Claims........................................................................... 28
7.16 Implementation of Alternative Treatment Provisions...................................... 28
7.16.1 Certain Requirements Under Alternative Treatment Provisions.................... 28
7.16.2 Liquidation Officer............................................................ 29
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ARTICLE VIII
CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN................................................... 29
8.1 Conditions to the Implementation of the Alternative Treatment Provisions................ 29
8.2 Conditions to the Effective Date........................................................ 30
8.3 Waiver of Conditions to the Effective Date.............................................. 31
ARTICLE IX
DISCHARGE, RELEASES, INJUNCTIONS AND RELATED PROVISIONS............................................. 31
9.1 Discharge............................................................................... 31
9.2 Releases of Released Parties............................................................ 31
9.3 Releases by the Debtor and Reorganized Rose's........................................... 31
9.4 Releases by Recipients of New Rose's Common Stock, New Rose's Secured Notes, New Rose's
Warrants and Cash, or Available Cash (as applicable), and by All Other Persons..........
32
9.5 Limitations on Amounts to be Distributed to Holders of Allowed Claims Which Are
Insured................................................................................. 32
9.6 General Release of Liens................................................................ 32
9.7 Injunctions............................................................................. 32
9.7.1 Injunction Related to Claims Released by the Debtor and Reorganized Rose's (if
applicable), Recipients of Cash, New Rose's Common Stock, New Rose's Secured
Notes and New Rose's Warrants, or Available Cash (if applicable), and All
Other Persons................................................................ 32
9.7.2 Injunction Relating to the Plan................................................ 33
9.7.3 Consent By Holders of Claims and Interests to Entry of Injunctive Relief....... 33
9.7.4 Injunction Against Subsequent Bankruptcy Proceedings........................... 33
9.8 Rights of Fireman's Fund Insurance Company.............................................. 33
ARTICLE X
EXECUTORY CONTRACTS, INDEMNIFICATION OBLIGATIONS, POST-CONFIRMATION TRADE CLAIMS, CONTINUED
APPLICABILITY OF BANKRUPTCY CODE.................................................................... 33
10.1 Executory Contracts and Unexpired Leases................................................ 33
10.2 Indemnification and Contribution Obligations............................................ 34
10.3 Post-Confirmation Claims................................................................ 34
10.4 Continued Applicability of the Bankruptcy Code.......................................... 34
ARTICLE XI
RETENTION OF JURISDICTION........................................................................... 34
11.1 Jurisdiction From Confirmation Through the Effective Date............................... 34
11.2 Jurisdiction From and After the Effective Date.......................................... 34
ARTICLE XII
MISCELLANEOUS....................................................................................... 35
12.1 The Committees and the Post-Effective Date Trade Committee.............................. 35
12.1.1 Dissolution of Committees...................................................... 35
12.1.2 Creation of Post-Effective Date Trade Committee................................ 35
12.1.3 Post-Effective Date Trade Committee Procedures................................. 36
12.1.4 Post-Effective Date Trade Committee Compensation............................... 36
12.1.5 Retention of Professionals..................................................... 36
12.1.6 Liability...................................................................... 36
12.2 Means of Cash Payments.................................................................. 36
12.3 Set-Offs................................................................................ 36
12.4 Withholding Taxes....................................................................... 36
12.5 Revesting............................................................................... 36
12.6 Headings................................................................................ 37
12.7 Defects, Omissions and Amendments....................................................... 37
12.8 Governing Law........................................................................... 37
12.9 Conflicts............................................................................... 37
12.10 Agreement Among the Plan Proponents..................................................... 37
12.11 Notices................................................................................. 37
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12.12 Severability............................................................................ 38
12.13 Revocation and Withdrawal............................................................... 38
12.14 Effect of Withdrawal or Revocation...................................................... 38
12.15 Ratification in Confirmation Order...................................................... 38
12.16 Post-Effective Date Effectuation of the Plan's Terms.................................... 38
12.17 Execution............................................................................... 39
</TABLE>
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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE: CASE NO. 93-01365-5-ATS
ROSE'S STORES, INC.,
(TAX ID #56-0382475), CHAPTER 11
DEBTOR.
FIRST AMENDED JOINT PLAN OF REORGANIZATION
Rose's Stores, Inc., debtor and debtor-in-possession, Nationwide Life
Insurance Company, Wausau Preferred Health Insurance Company, Equitable Variable
Life Insurance Company, The Equitable Life Assurance Society of the United
States, Jefferson-Pilot Life Insurance Company, The Franklin Life Insurance
Company, The Franklin United Life Insurance Company, Great-West Life & Annuity
Insurance Company, American Family Life Insurance Company, State Mutual Life
Assurance Company of America, SMA Life Assurance Company, Merrill Lynch Life
Insurance Company, ML Life Insurance Company of New York, Woodmen of the World
Life Insurance Society, Knights of Columbus, Washington National Insurance
Company, The Stonehill Investment Corp., Central Life Assurance Company, Lazard
Freres & Co., or their successors and assigns as the case may be, the Bank of
Tokyo, Ltd., the Official Committee of Unsecured Creditors and the Official
Committee of Equity Security Holders jointly propose the following Joint Plan of
Reorganization pursuant to Section 1121(a) of the Bankruptcy Code:
ARTICLE I
DEFINITIONS
For purposes of this Plan of Reorganization, the following terms shall have
the meanings herein set forth. Unless otherwise indicated, the singular shall
include the plural and the plural shall include the singular. Capitalized terms
shall at all times refer to the terms as defined in this Article. To the extent
that terms are used and not otherwise defined in this Plan, they shall have the
meanings ascribed to them in the Bankruptcy Code.
1.1 "Actual EBITDA" shall mean the EBITDA of the Debtor calculated as of
December 31, 1994 for the first 11 fiscal months ending on such date and
measured on January 20, 1995.
1.2 "Administrative Claim" shall mean a Claim that is allowed under Section
503(b) of the Bankruptcy Code and entitled to priority under Section 507(a)(1)
of the Bankruptcy Code or is otherwise determined to be entitled to such
priority by Final Order, including, without limitation, fees and expenses of
Professionals retained or to be compensated pursuant to the Bankruptcy Code, and
all fees and charges assessed against the Debtor's Estate pursuant to 28 U.S.C.
(section mark) 1930.
1.3 "ADR Procedure" shall mean the three-step alternative dispute
resolution procedure pursuant to which the Debtor and a holder of a Damages
Claims may seek to reach a determination of the amount of a Damages Claim for
purposes of allowance, and Cash payment only where a Damages Claim is determined
to be an Allowed Claim in an amount equal to or less than $500, pursuant to and
as instituted by that certain order of the Bankruptcy Court dated April 26, 1994
entitled, "Order Approving Alternative Dispute Resolution Procedure," and such
other orders of the Bankruptcy Court entered in connection therewith.
1.4 "Allowed Claim" shall mean a Claim that: (a) has been scheduled by the
Debtor pursuant to Section 521(1) of the Bankruptcy Code and Bankruptcy Rule
1007, is not scheduled as disputed, contingent or unliquidated, and is not a
Claim as to which a proof of Claim has been filed; (b) is a Claim as to which a
proof of Claim has been timely-filed as of the applicable Bar Date and no
objection thereto, or application to equitably subordinate or otherwise limit
recovery, has been made as of a given date, and on or before any applicable
deadline; (c) has been allowed by a Final Order of the Bankruptcy Court, or (d)
in the case of the claims of the Pre-Petition Lenders, the Pre-Petition Lenders'
Allowed Secured Claims. Allowed Claim shall include any portion of a Claim that
is not disputed, contingent or unliquidated. "Allowed Claim" shall not include
interest on the amount of any Claim except with respect to an Allowed Secured
Claim as permitted by Section 506(b) of the Bankruptcy Code or as otherwise
allowed by the Bankruptcy Court. Under no circumstances shall "Allowed Claim"
include Claims arising from the rejection of any agreement pursuant to which
Pre-Petition Warrants or Pre-Petition Stock Options may be, or have been, issued
or exercised.
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1.5 "Allowed Non-Tax Priority Claim" shall mean that portion of an Allowed
Claim entitled to priority treatment under Section 507(a) of the Bankruptcy
Code, exclusive of Allowed Tax Claims and Administrative Claims.
1.6 "Allowed Secured Claim" shall mean that portion of an Allowed Claim
equal to the value, as determined by Final Order of the Bankruptcy Court
pursuant to Section 506(a) of the Bankruptcy Code and Bankruptcy Rule 3012, of
the interest of the holder of the Allowed Secured Claim in the property of the
Estate which secures such Allowed Secured Claim by a valid and enforceable lien,
security interest and/or pledge. In the case of the claims of the Pre-Petition
Lenders, Allowed Secured Claim shall mean the Pre-Petition Lenders' Allowed
Secured Claims.
1.7 "Allowed Tax Claim" shall mean that portion of an Allowed Claim
entitled to priority under Section 507(a)(7) of the Bankruptcy Code.
1.8 "Allowed Unsecured Claim" shall mean any Allowed Claim that is not an
Administrative Claim, an Allowed Non-Tax Priority Claim, an Allowed Secured
Claim, an Allowed Tax Claim, a Subordinated Claim, or a Claim classified as an
Interest in Classes 5, 6, and 7.
1.9 "Alternative Treatment Account" shall mean a segregated account
established by the Debtor on the Effective Date in the event the Alternative
Treatment Provisions are effective pursuant to Section 8.1 of this Plan to
maintain such Cash constituting the Debtor's Cash or Disposition Proceeds in
such amount as determined by the Debtor, initially, pursuant to the budget
prepared by the Debtor in accordance with the Second Supplemental Adequate
Protection Consent Order, and, after the Effective Date, with the consent of the
Post-Effective Date Trade Committee or pursuant to order of the Bankruptcy
Court, to be necessary and appropriate to pay, all costs and expenses incurred
in connection with the implementation of the Alternative Treatment Provisions,
including, without limitation, customary closing costs, fees and commissions,
reasonable overhead and general administrative expenses of the Debtor, all Cash
required to be paid by the Debtor in connection with any compromises or
settlements entered into after the Effective Date, and the reasonable fees and
expenses of professionals and other agents retained by the Debtor or the
Post-Effective Date Trade Committee.
1.10 "Alternative Treatment Date" shall mean, with respect to such
conditions set forth in Section 8.1 of this Plan which occur and are not waived,
any of the following dates: for condition 8.1(a), as provided in the Second
Supplemental Adequate Protection Consent Order; for condition 8.1(b), December
31, 1994; for condition 8.1(c), January 20, 1995; for condition 8.1(d), December
31, 1994; for condition 8.1(e), January 20, 1995; for condition 8.1(f), April
30, 1995; for condition 8.1(g), January 20, 1995; and, for condition 8.1(h), on
the date which would otherwise be the Effective Date, as referred to therein.
1.11 "Alternative Treatment Implementation Orders" shall mean such orders
of the Bankruptcy Court as have been entered or as may be entered subsequent to
an Alternative Treatment Date which authorize the Debtor to take such actions as
are necessary and appropriate in connection with the cessation of the Debtor's
discount retail business and the sale and disposition of all assets of the
Estate in connection therewith, including, without limitation, the Second
Supplemental Adequate Protection Consent Order.
1.12 "Alternative Treatment Provisions" shall mean, collectively, Sections
5.8, 5.8.1, 5.8.2, 5.8.3, 5.8.4, 6.2.7 and 7.16 of the Plan.
1.13 "Assumed Contracts and Leases" shall mean those executory contracts
and unexpired, non-residential real or personal property leases which the Debtor
has assumed, or will assume, as of the Effective Date, pursuant to Section 365
of the Bankruptcy Code by Final Order(s) of the Bankruptcy Court.
1.14 "Available Cash" shall mean all Cash of the Debtor as of the Effective
Date and all Cash constituting Disposition Proceeds not maintained in the
Alternative Treatment Account.
1.15 "Avoiding Power Actions" shall mean all claims, rights and causes of
action of the Estate against any Person under Sections 544 to 550, inclusive, of
the Bankruptcy Code.
1.16 "Bankruptcy Code" shall mean the Title 11, United States Code, 11
U.S.C. (section mark)(section mark) 101 ET SEQ. as in effect on the Filing Date,
as the same thereafter has been, and may be, amended.
1.17 "Bankruptcy Court" shall mean the United States Bankruptcy Court for
the Eastern District of North Carolina, Raleigh Division, or such other court as
may hereafter be granted primary jurisdiction over the Chapter 11 Case.
1.18 "Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy
Procedure, effective August 1, 1991 in accordance with the provisions of 28
U.S.C. (section mark) 2075 as the same thereafter has been, and may be, amended.
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1.19 "Bank Group" shall mean, collectively, NationsBank of North Carolina,
N.A., Branch Banking & Trust Company, Crestar Bank, The Bank of New York, Credit
Lyonnais New York Branch, Credit Lyonnais Cayman Island Branch, Central Carolina
Bank and Wachovia Bank of North Carolina, N.A., and their successors, assigns
and participants.
1.20 "Bank of Tokyo" shall mean Bank of Tokyo, Ltd.
1.21 "Bar Date" shall mean any date fixed by order of the Bankruptcy Court
as the last date on which a particular Claim against the Debtor must be filed.
1.22 "Board of Directors" shall mean the board of directors of Rose's as of
the date immediately preceding the Effective Date.
1.23 "Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday as such term is defined in Bankruptcy Rule 9006(a).
1.24 "Cash" shall mean cash, cash equivalents (including personal checks
drawn on a bank insured by the Federal Deposit Insurance Corporation, certified
checks and money orders) and other readily marketable direct obligations of the
United States of America and certificates of deposit issued by banks.
1.25 "Chapter 11 Case" shall mean the Debtor's case pursuant to Chapter 11
of the Bankruptcy Code administered in the Bankruptcy Court under case number
93-01365-5-ATS.
1.26 "Claim" shall mean a Claim against the Debtor as defined in Sections
101(5) and 102(2) of the Bankruptcy Code.
1.27 "Class" shall mean a category of holders of Claims or Interests which
are substantially similar in nature to the Claims or Interests of the other
holders in such Class respectively, as classified pursuant to this Plan.
1.28 "Class 3 Common Stock Designation" shall mean all of the Effective
Date Shares which are not included in the Class 5 Subscription Stock
Designation, if any, or the New Rose's Common Stock Secondary Distribution, if
any.
1.29 "Class 5 Rights Notice" shall mean the notice sent to all holders of
Common Stock Interests in Class 5 within 5 days of the Equity Record Date
advising them of their rights under the Class 5 Subscription, including a return
notification form which a Class 5 Subscriber must use to indicate participation
in the Class 5 Subscription. The Class 5 Rights Notice shall effectuate the
Class 5 Subscription pursuant to Section 7.10 of this Plan and shall be
substantially in a form as negotiated among the Debtor and the Committees to
their satisfaction and filed with the Bankruptcy Court prior to entry of an
order of the Bankruptcy Court confirming the Plan or such later date as
consented to by the Committees and fixed by the Bankruptcy Court, as such
document may be modified or amended by consent of the foregoing parties and
effective as of the Effective Date.
1.30 "Class 5 Subscription Stock Designation" shall mean all shares of New
Rose's Common Stock purchased by and issued to Class 5 Subscribers pursuant to
Section 7.10 of this Plan and the Class 5 Rights Notice.
1.31 "Class 5 Subscriber" shall mean a holder of Common Stock Interests in
Class 5 who has irrevocably elected to acquire shares of New Rose's Common Stock
pursuant to Section 7.10 of this Plan and the Class 5 Rights Notice.
1.32 "Class 5 Subscription" shall mean the procedure by which a holder of
Common Stock Interests in Class 5 may elect to pay Cash to acquire shares of New
Rose's Common Stock, pursuant to Section 7.10 of this Plan and the Class 5
Rights Notice.
1.33 "Class 5 Subscription Price" shall mean the price per share of New
Rose's Common Stock payable by a Class 5 Subscriber pursuant to the Plan, which
shall be equal to 1/2 of the Full Recovery Target Amount divided by 10,000,000,
the number of Effective Date Shares. Notwithstanding the foregoing or any other
provision of the Plan to the contrary, the Class 5 Subscription Price may be
fixed by order of the Bankruptcy Court entered upon the joint motion of the
Committees and on appropriate notice and hearing.
1.34 "Collateral Agent" shall mean Shawmut Bank, N.A.,
(successor-in-interest to NationsBank of North Carolina, N.A., the
successor-in-interest to NCNB National Bank of North Carolina) in its capacity
as the collateral agent for the Pre-Petition Lenders, or any successor thereto,
pursuant to the Intercreditor Agreements.
1.35 "Committees" shall mean, collectively, the Unsecured Committee and the
Equity Committee.
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1.36 "Common Stock Interest" shall mean any equity interest in the Voting
Common Stock and Non-Voting Class B Stock registered on the applicable Record
Date in such stock register as may be maintained by or on behalf of the Debtor.
"Common Stock Interest" excludes any Pre-Petition Warrants or Pre-Petition Stock
Options.
1.37 "Confirmation" shall mean entry of an order of the Bankruptcy Court
confirming this Plan pursuant to Section 1129 of the Bankruptcy Code.
1.38 "Confirmation Date" shall mean the date upon which the Confirmation
Order is entered by the Bankruptcy Court.
1.39 "Confirmation Order" shall mean the Final Order of the Bankruptcy
Court confirming this Plan pursuant to Section 1129 of the Bankruptcy Code, in a
form acceptable to all Plan Proponents and GE Capital.
1.40 "Consolidated Net Cash Flow" shall mean for any period, as to the
Debtor or Reorganized Rose's, as the case may be, the actual increase or
decrease in Cash for such period determined in a manner consistent with the
calculation of "(Decreases) Increases in Cash" as set forth in the "Projected
Changes in Cash" projections (which shall include cash equivalents) annexed to
and made a part of Exhibit 5.1 hereto ("Projections"), provided that the same
shall be in accordance with generally accepted accounting principles in the
United States of America then in effect ("GAAP"), less the aggregate amount of
all advances under the Post-Effective Date Financing Facility or the DIP
Facility, as the case may be, during such period, plus (i) the aggregate amount
of all principal repayments under the Post-Effective Date Financing Facility or
the DIP Facility, as the case may be, during such period, (ii) the amount, if
any, by which actual capital expenditures (designated "Purchases of P&E" in the
Projections) for such period exceeded 110% of the amount of capital expenditures
projected for such period in the Projections for that period, (iii) the amount,
if any, of all unscheduled payments of capital lease obligations during such
period, and (iv) the amount, if any, of all amortization payments in respect of
the New Rose's Secured Notes during such period.
1.41 "Consummation Certificate" shall mean a certification of the chief
financial officer of Reorganized Rose's stating that the Effective Date has
occurred as of the calendar date thereof.
1.42 "Consummation Date" shall mean the date on which the Bankruptcy Court
enters the Final Decree.
1.43 "Contingent Claim" shall mean any Claim for which a proof of claim has
been timely filed with the Bankruptcy Court as of the applicable Bar Date but
was not filed in a sum certain and which Claim has not been disallowed or fixed
by the Bankruptcy Court at a sum certain.
1.44 "Core Stores" shall mean, collectively, the 113 discount retail stores
operated by the Debtor in the ordinary course of business and not pursuant to
any going-out-of-business sales as of August 1, 1994.
1.45 "Covered Stores" shall mean all Rose's stores containing Inventory
encumbered by pre-petition liens held by the Pre-Petition Lenders.
1.46 "Damages Claims" shall have the meaning of such term set forth in the
order of the Bankruptcy Court dated April 26, 1994 entitled, "Order Approving
Alternative Dispute Resolution Procedure."
1.47 "Debtor" shall mean Rose's Stores, Inc., a Delaware corporation, as
debtor and debtor-in-possession during the pendency of the Chapter 11 Case, and,
in the event that the Alternative Treatment Provisions are effective pursuant to
Section 8.1 of the Plan, as said corporation shall continue on and after the
Effective Date until its dissolution.
1.48 "Determination Date" shall mean that date which is the later of (i) 90
days following the Effective Date or the first Business Day thereafter or (ii)
20 days after the first date on which at least 2,000,000 shares of New Rose's
Common Stock shall have been distributed to holders of Allowed Claims in Class 3
and/or holders of Common Stock Interests in Class 5, unless the Post-Effective
Date Committee, in its sole discretion, waives the requirement that at least
2,000,000 shares of New Rose's Common Stock be distributed prior to the
Determination Date.
1.49 "DIP Facility" shall mean, collectively, the DIP Financing Documents
and the DIP Financing Orders, as amended.
1.50 "DIP Financing Documents" shall mean that certain
"Debtor-in-Possession Loan Agreement" dated as of September 20, 1993, together
with all agreements, documents and amendments entered into by the Debtor and GE
Capital in connection therewith.
1.51 "DIP Financing Orders" shall mean the "Final Order Authorizing
Debtor-In-Possession to Borrow Funds With Priority Over Administrative Expenses
and Secured by Liens on Property of the Estate" dated October 14, 1993 (the
"Final
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DIP Order"), as such order has been, and may be, amended and modified from time
to time during the Chapter 11 Case by further orders of the Bankruptcy Court.
1.52 "Disclosure Statement" shall mean the disclosure statement respecting
this Plan filed by the Debtor and approved by order of the Bankruptcy Court as
containing adequate information in accordance with Section 1125 of the
Bankruptcy Code.
1.53 "Disposition Proceeds" shall mean all of the proceeds realized from
the sale or other disposition of the assets of the Estate pursuant to the
Alternative Treatment Provisions and the Alternative Treatment Implementation
Orders.
1.54 "Disputed Claim" shall mean (i) that portion of any Claim as to which
an objection to the allowance thereof has been interposed, or an application to
equitably subordinate or otherwise limit recovery has been made, as of the
Effective Date or any other date fixed by order of the Bankruptcy Court and
which objection or application has not been determined by a Final Order, or (ii)
a Contingent Claim. Under no circumstances may any of the Pre-Petition Lenders'
Allowed Secured Claims constitute a Disputed Claim.
1.55 "Distribution Agent" shall mean an entity which is authorized to make
distributions required to be made under this Plan in accordance with Section 6.1
of this Plan.
1.56 "Distribution Date" shall mean any date on which a distribution is
required to be made under this Plan.
1.57 "EBITDA" shall mean for any period, as to the Debtor or Reorganized
Rose's, without duplication, the sum of the consolidated net income of the
Debtor or Reorganized Rose's for such period PLUS consolidated interest charges
of the Debtor or Reorganized Rose's for such period PLUS consolidated taxes of
the Debtor or Reorganized Rose's for such period deducted in arriving at
consolidated net income of the Debtor or Reorganized Rose's for such period PLUS
consolidated non-cash charges (including depreciation, amortization and
Last-in-First-Out (LIFO) reserve charges) of the Debtor or Reorganized Rose's
for such period LESS any consolidated non-cash income (including LIFO reserve
credits) of the Debtor or Reorganized Rose's for such period PLUS extraordinary
cash losses (including without limitation reorganization expenses and otherwise
calculated in accordance with GAAP in a manner consistent with the Projections)
of the Debtor or Reorganized Rose's for such period LESS extraordinary cash
gains of the Debtor or Reorganized Rose's for such period calculated in
accordance with GAAP in a manner consistent with the Projections (the terms GAAP
and Projections having the respective meanings ascribed to such terms in Section
1.40 of this Plan).
1.58 "EBITDA Target" shall mean $34 million, as such amount may be reduced
on a dollar for dollar basis by the amount by which the aggregate amount of all
payments made by the Debtor to the Collateral Agent pursuant to the Supplemental
Adequate Protection Orders on account of the Net GOB2 Proceeds exceeds $52
million; PROVIDED that in no event shall the EBITDA Target be less than $25
million.
1.59 "Effective Date" shall mean the first Business Day, or as soon as
practicable thereafter, upon which all the conditions set forth in Section 8.2
of this Plan have been satisfied or waived. In the event any of the Alternative
Treatment Provisions are effective, the Effective Date shall not occur unless
and until the GE Obligations and the Pre-Petition Lenders' Allowed Secured
Claims have been satisfied in full.
1.60 "Effective Date Shares" shall mean the 10,000,000 shares of New Rose's
Common Stock to be issued by Reorganized Rose's on the Effective Date for the
benefit of and on account of the holders of Claims in Class 3 and/or holders of
Common Stock Interests in Class 5.
1.61 "Employee Stock Options" shall mean those certain Pre-Petition Stock
Options granted prior to the Filing Date to employees of the Debtor.
1.62 "Equity Committee" shall mean the Official Committee of Equity
Security Holders appointed by the Office of the Bankruptcy Administrator for the
Eastern District of North Carolina to serve in the Chapter 11 Case, as the same
may be constituted from time to time.
1.63 "Equity Record Date" shall mean the Record Date for purposes of making
distributions under this Plan to holders of Common Stock Interests, which date
shall be February 7, 1995.
1.64 "Estate" shall mean the estate created in the Chapter 11 Case by
operation of Section 541 of the Bankruptcy Code.
1.65 "Event of Default" shall mean the occurrence of any of the events
specified in Section IV of Exhibit 5.1 annexed hereto.
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1.66 "Filing Date" shall mean September 5, 1993.
1.67 "Final Decree" shall mean the final decree entered by the Bankruptcy
Court on the Consummation Date pursuant to Bankruptcy Rule 3022.
1.68 "Final GOB Sales" shall mean any "going-out-of-business," "closing
out," "distress" or "bankruptcy liquidation" sales implemented with respect to
all Inventory and other assets of the Estate or Reorganized Rose's, as the case
may be, located at any of the Core Stores pursuant to (i) this Plan or (ii) the
Alternative Treatment Implementation Orders.
1.69 "Final Order" shall mean an order or judgment of the Bankruptcy Court
which has not been reversed, stayed, modified or amended and as to which (i) the
time to appeal or seek review, rehearing, reargument or certiorari has expired,
and (ii) as to which no appeal or petition for review, rehearing, reargument,
stay or certiorari proceeding is pending or as to which any right to appeal or
to seek review, rehearing, reargument or certiorari has been waived.
1.70 "Full Recovery Target Amount" shall mean, on any applicable date, the
amount of Allowed Claims in Class 3 (except for those to be satisfied by Cash
payment pursuant to this Plan or order of the Bankruptcy Court) plus the total
Reserve Amount as of such date, if any, determined pursuant to Section 7.12 of
this Plan for all Disputed Claims in Class 3.
1.71 "GAAP" shall have the meaning ascribed to such term in Section 1.40 of
this Plan.
1.72 "GE Capital" shall mean General Electric Capital Corporation, a New
York corporation.
1.73 "GE Obligations" shall mean all obligations of the Debtor to GE
Capital and certain individual and corporate affiliates under and pursuant to
the DIP Facility.
1.74 "Intercompany Claims" shall mean any and all Claims held by RSI
against the Debtor arising out of intercompany receivables or other Claims
arising from the interrelationship of the Debtor and RSI.
1.75 "Intercreditor Agreements" shall mean, collectively, those agreements
by and among the Pre-Petition Lenders providing, as among themselves, the terms
and conditions by which, among other things, they maintain and may enforce their
respective security interests and liens in or on certain property of the Estate.
1.76 "Interests" shall mean collectively, all Common Stock Interests, all
Pre-Petition Warrants and all Pre-Petition Stock Options.
1.77 "Inventory" shall mean any "inventory," as such term is defined in the
Uniform Commercial Code, now or hereafter owned or acquired by the Debtor or
Reorganized Roses's, wherever located, and, in any event, including goods in
transit in which the Debtor or Reorganized Rose's has an interest, all
inventory, merchandise, goods and other personal property which are held by or
on behalf of the Debtor or Reorganized Rose's for sale or lease or are furnished
or are to be furnished under a contract of service or which constitute raw
materials, work in process, or materials used or consumed or to be used or
consumed in the business of the Debtor or Reorganized Rose's, or in the
processing, packaging, advertising, promotion, delivery or shipping of the same,
and all finished goods. The value of Inventory for all purposes under this Plan
shall be its cost, determined on a First-In-First-Out basis.
1.78 "Management Incentive and Retention Program" shall mean that certain
incentive and retention program covering periods both prior and subsequent to
the Effective Date, authorized after the Filing Date and provided to certain of
the Debtor's management employees pursuant to Final Order of the Bankruptcy
Court.
1.79 "Net GOB2 Proceeds" shall mean, collectively, the Net Covered GOB2
Sale Proceeds and the Net Noncovered GOB2 Sale Proceeds as such terms are
defined in the Supplemental Adequate Protection Orders.
1.80 "New Rose's Bank of Tokyo Secured Note" shall mean the secured note to
be issued by Reorganized Rose's to the Collateral Agent for distribution to Bank
of Tokyo pursuant to Sections 5.1, 6.2.1 and 7.7.3 of this Plan and the New
Rose's Secured Note Documents and shall be deemed one of the New Rose's Secured
Notes as defined in Section 1.86 below.
1.81 "New Rose's Charter" shall mean the restated certificate of
incorporation of Reorganized Rose's, in substantially the form to be filed with
the Bankruptcy Court prior to Confirmation, or such later date as consented to
by the Committees and fixed by the Bankruptcy Court, as modified or amended by
consent of the foregoing parties and effective as of the Effective Date in
accordance with the Plan.
1.82 "New Rose's Common Stock" shall mean the no par value shares of common
stock of Reorganized Rose's authorized to be issued pursuant to the New Rose's
Charter.
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1.83 "New Rose's Common Stock Secondary Distribution" shall mean any and
all Effective Date Shares remaining in the New Rose's Common Stock Trust as of
the Determination Date for distribution to holders of Common Stock Interests in
Class 5, after distribution of shares of New Rose's Common Stock pursuant to
Section 6.2.2(b).
1.84 "New Rose's Common Stock Trust" shall mean the trust established
pursuant to the New Rose's Common Stock Trust Agreement, into which such number
of the Effective Date Shares shall be deposited as provided in Section 6.2.2 (a)
of this Plan.
1.85 "New Rose's Common Stock Trust Agreement" shall mean the trust
agreement between Reorganized Rose's and the trustee named therein which sets
forth the terms and conditions establishing the New Rose's Common Stock Trust,
which agreement shall be substantially in the form as negotiated among the
Debtor and the Committees to their satisfaction and filed with the Bankruptcy
Court prior to entry of an order of the Bankruptcy Court approving the
Disclosure Statement or such later date as consented to by the Committees and
fixed by the Bankruptcy Court, as such document may be modified or amended by
consent of the foregoing parties and effective as of the Effective Date.
1.86 "New Rose's Secured Notes" shall mean the secured notes to be issued
by Reorganized Rose's to the Collateral Agent for distribution to the
Pre-Petition Lenders pursuant to Sections 5.1, 6.2.1 and 7.7.3 of this Plan and
the New Rose's Secured Notes Documents.
1.87 "New Rose's Secured Notes Documents" shall mean such documents and
agreements between Reorganized Rose's, the Collateral Agent and the Pre-Petition
Lenders which set forth the terms and conditions governing the New Rose's
Secured Notes, which are substantially equivalent to the terms and conditions
are set forth in Section 5.1 of this Plan, as determined to the reasonable
satisfaction of the Collateral Agent, the Pre-Petition Secured Noteholders, Bank
of Tokyo and the Post-Effective Date Lender, and filed with the Bankruptcy Court
prior to Confirmation or such later date as consented to by the foregoing
applicable parties and fixed by the Bankruptcy Court, as such documents and
agreements may be modified or amended by the foregoing applicable parties and
effective as of the Effective Date.
1.88 "New Rose's Secured Notes Original Principal Amount" shall mean the
lesser of (i) $40 million or (ii) the amount of the Allowed Secured Claims of
the Pre-Petition Lenders as reduced by all payments required to be made to the
Pre-Petition Lenders through the Effective Date pursuant to the Supplemental
Adequate Protection Orders, Section 5.1 of this Plan, and any other order of the
Bankruptcy Court entered prior to the Effective Date authorizing payment to the
Pre-Petition Lenders, which other orders shall only be entered with the consent
of the Plan Proponents and GE Capital.
1.89 "New Rose's Warrant Agreement" shall mean the warrant agreement
between Reorganized Rose's and the warrant agent named therein which sets forth
the terms and conditions respecting exercise and issuance of the New Rose's
Warrants, which agreement shall be substantially in a form as negotiated among
the Debtor and the Committees to their satisfaction and filed with the
Bankruptcy Court prior to entry of an Order of the Bankruptcy Court approving
the Disclosure Statement or such later date as consented to by the Committees
and fixed by the Bankruptcy Court, as such document may be modified or amended
by consent of the foregoing parties and effective as of the Effective Date.
1.90 "New Rose's Warrants" shall mean the 4,285,714 warrants to purchase
New Rose's Common Stock issued to holders of Common Stock Interests in Class 5
in accordance with Section 6.2.5 of this Plan and the New Rose's Warrant
Agreement.
1.91 "Noncovered Stores" shall mean all Rose's stores containing Inventory
which is not encumbered by pre-petition liens held by the Pre-Petition Lenders.
1.92 "Non-Voting Class B Stock" shall mean the Non-Voting Class B Stock of
the Debtor, no par value, exclusive of any shares of Non-Voting Class B Stock
held in treasury.
1.93 "Perfection Instruments" shall have the meaning ascribed to such term
in Section 5.1.3 of this Plan.
1.94 "Permitted Encumbrance Collateral" shall mean any asset of Reorganized
Rose's with respect to which the Post-Effective Date Lender, with the consent of
the Pre-Petition Lenders (which consent shall not be unreasonably withheld) has
agreed may be encumbered by a security interest, lien or other encumbrance which
is not junior and subordinate to the liens and security interests granted to (i)
the Post-Effective Date Lender pursuant to the Post-Effective Date Financing
Facility, and (ii) to the Pre-Petition Lenders pursuant to Section 5.1 of this
Plan.
1.95 "Person" shall mean any individual, corporation, partnership, joint
venture, trust, estate, unincorporated association, committee, or organization,
governmental entity or political subdivision thereof, or any other entity.
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1.96 "Plan" shall mean this Chapter 11 first amended joint plan of
reorganization inclusive of any exhibits hereto and any documents incorporated
herein by reference, as it may from time to time be amended, as and to the
extent permitted herein or by the Bankruptcy Code.
1.97 "Plan Proponents" shall mean, collectively, the Debtor, each of the
Pre-Petition Secured Noteholders, the Bank of Tokyo, and each of the Committees,
as proponents of the Plan.
1.98 "Post-Effective Date Collateral" shall mean as of the Effective Date
all presently owned or thereafter acquired assets of every type of Reorganized
Rose's.
1.99 "Post-Effective Date Financing Facility" shall mean that financing
facility, effective as of the Effective Date, that shall be provided pursuant to
an agreement entered into by Reorganized Rose's and the financing institution
named therein, as approved prior to the Effective Date by order of the
Bankruptcy Court, on appropriate notice and hearing, on terms not materially
inconsistent with the terms of any financing commitment of the Post-Effective
Date Lender approved by the Bankruptcy Court.
1.100 "Post-Effective Date Lender" shall mean the financing institution
named in the Post-Effective Date Financing Facility.
1.101 "Pre-Petition Lenders" shall mean collectively, the Bank Group, the
Pre-Petition Secured Noteholders and the Bank of Tokyo.
1.102 "Pre-Petition Lenders' Allowed Secured Claims" shall have the meaning
set forth in the Second Supplemental Adequate Protection Consent Order, and the
Pre-Petition Lenders' Allowed Secured Claims as of the Effective Date shall
equal the amounts that are set forth in Exhibit C annexed to the Second
Supplemental Adequate Protection Consent Order (as of the date the Second
Supplemental Adequate Protection Consent Order was filed), less all amounts
received thereafter by the Pre-Petition Lenders toward satisfaction of such
claims through the Effective Date.
1.103 "Pre-Petition Secured Noteholders" shall mean the holders of the
Pre-Petition Secured Notes, to wit: Nationwide Life Insurance Company, Wausau
Preferred Health Insurance Company, Equitable Variable Life Insurance Company,
The Equitable Life Assurance Society of the United States, Jefferson-Pilot Life
Insurance Company, The Franklin Life Insurance Company, The Franklin United Life
Insurance Company, Great-West Life & Annuity Insurance Company, American Family
Life Insurance Company, State Mutual Life Assurance Company of America, SMA Life
Assurance Company, Merrill Lynch Life Insurance Company, ML Life Insurance
Company of New York, Woodmen of the World Life Insurance Society, Knights of
Columbus, Washington National Insurance Company, The Stonehill Investment Corp.,
Central Life Assurance Company, and Lazard Freres & Co., or their
predecessors-in-interest, or successors and assigns as of the Record Date.
1.104 "Pre-Petition Secured Noteholder Warrant Agreement" shall mean that
certain agreement executed in connection with the pre-petition refinancing of
the Debtor pursuant to which Pre-Petition Secured Noteholder Warrants were
issued and which agreement further provided for the future issuance of
additional such warrants.
1.105 "Pre-Petition Secured Noteholder Warrants" shall mean those certain
Pre-Petition Warrants held by Pre-Petition Secured Noteholders and any rights to
receive future warrants pursuant to the Pre-Petition Secured Noteholder Warrant
Agreement which were not exercised prior to the Filing Date.
1.106 "Pre-Petition Secured Notes" shall mean the 11% Senior Secured Notes
due December 31, 1998, issued by the Debtor pursuant to the terms of that
certain "Combined, Amended and Restated Note Agreement" dated May 29, 1992.
1.107 "Pre-Petition Stock Option" shall mean any option to purchase an
equity interest in the Debtor's Common Stock, including, without limitation,
Employee Stock Options, and any Claims arising thereunder, subject to
subordination pursuant to Section 510(b) of the Bankruptcy Code, arising from
rescission of a purchase or sale of a Pre-Petition Stock Option or for damages
arising from such purchase and sale or for reimbursement of contribution or
occurrence of such Claim.
1.108 "Pre-Petition Warrant" shall mean any warrant issued pre-petition to
purchase an equity interest in the Debtor, including, without limitation,
Pre-Petition Secured Noteholder Warrants, and any Claims subject to
subordination pursuant to Section 510(b) of the Bankruptcy Code, arising from
rescission of the purchase or sale of a Pre-Petition Warrant or for damages
arising from such purchase or sale or reimbursement of contribution or
occurrence of such Claim.
1.109 "Professional" shall mean any Person (i) retained pursuant to an
order of the Bankruptcy Court in accordance with Sections 327 and 1103 of the
Bankruptcy Code and to be compensated for services pursuant to Sections 327,
328, 329, 330
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and 331 of the Bankruptcy Code, or (ii) for which compensation and reimbursement
has been allowed by the Bankruptcy Court pursuant to Section 503(b)(4) of the
Bankruptcy Code.
1.110 "Professional Fees" shall mean compensation for services rendered and
reimbursement of expenses in connection with the Chapter 11 Case allowed to
Professionals by order of the Bankruptcy Court pursuant to Sections 330, 331,
1103 or 503(b) of the Bankruptcy Code. Professional Fees as defined herein shall
not include the fees of the professionals of the Pre-Petition Lenders, which
shall be paid in accordance with the provisions of the Second Supplemental
Adequate Protection Consent Order.
1.111 "Projections" shall have the meaning ascribed to such term in Section
1.40 of this Plan.
1.112 "Pro-Rata" shall mean the ratio of an Allowed Claim, Reserve Amount
or Interest in or respecting a particular Class to the aggregate amount of all
Allowed Claims plus Reserve Amounts or Interests in or respecting that Class.
1.113 "Reconstituted Board of Directors" shall mean the board of directors
of Reorganized Rose's as of and after the Effective Date, appointed pursuant to
Sections 7.5 and 7.6 of this Plan and as set forth in the Disclosure Statement.
1.114 "Record Date" shall mean (a) for the purpose of voting on this Plan,
the date of entry of the order approving the Disclosure Statement, (b) for the
purposes of any distribution and payments under and pursuant to this Plan other
than to holders of Common Stock Interests, the Effective Date, or (c) for the
purpose of any distributions to the holders of Common Stock Interests, the
Equity Record Date.
1.115 "Released Parties" shall mean, collectively, (i) all past and present
officers, directors, agents, employees, and Professionals of the Debtor, (ii)
all members, agents and Professionals of the Committees, (iii) each of the
Pre-Petition Lenders and their past and present officers, directors, agents,
employees and professionals and (iv) GE Capital, GE Capital Corporate Finance
Group, Inc. and GE Capital Commercial Finance, Inc., and all of their respective
past and present officers, directors, agents, employees and professionals.
1.116 "Reorganized Rose's" shall mean Rose's Stores, Inc., a Delaware
corporation, operating and conducting business pursuant to the New Rose's
Charter, as of the Effective Date.
1.117 "Reserve" shall mean any interest-bearing account established to hold
distributions on account of Disputed Claims, pursuant to Section 7.12 of this
Plan. The amount of the Reserve shall include interest and dividends accrued
thereon.
1.118 "Reserve Amount" shall mean the dollar value of a Disputed Claim for
purposes of determining the aggregate distribution to be reserved for a Disputed
Claim pursuant to Section 7.12 of this Plan.
1.119 "Retiree Claim" shall mean a Claim arising from or relating to
retiree benefits, if any, as defined in Section 1114(a) of the Bankruptcy Code,
which is allowed under Section 1114(e)(2) of the Bankruptcy Code.
1.120 "RSI" shall mean RSI Trading, Inc., a Delaware corporation that is a
wholly owned subsidiary of the Debtor.
1.121 "Second Supplemental Adequate Protection Consent Order" shall mean
the "Second Supplemental Consensual Adequate Protection Order In Connection with
Payment Of Net Proceeds From "GOB2" Sales And The Filing Of The Joint Plan Of
Reorganization Of Rose's Stores, Inc." signed by the Plan Proponents and GE
Capital and entered by the Bankruptcy Court, as modified by that certain order
of the Bankruptcy Court dated August 30, 1994.
1.122 "Subscription Proceeds Escrow" shall mean the escrow account
established pursuant to Section 7.10 of this Plan and the Class 5 Rights Notice
in connection with the Class 5 Subscription into which Subscription Proceeds
shall be deposited and from which the Subscription Proceeds shall be distributed
to holders of Allowed Unsecured Claims in Class 3 or otherwise in accordance
with Section 6.2.3 of this Plan.
1.123 "Subscription Proceeds" shall mean the aggregate amount of Cash
tendered by the Class 5 Subscribers to acquire shares constituting the Class 5
Subscription Stock Designation pursuant to Section 7.10 of this Plan and the
Class 5 Rights Notice, and maintained in the Subscription Proceeds Escrow in
accordance with the Class 5 Rights Notice pending distribution pursuant to
Section 6.2.3 of this Plan. The Subscription Proceeds shall not be property of
the Estate or of Reorganized Rose's.
1.124 "Subordinated Claims" shall mean all Claims subject to subordination
pursuant to Section 510(b) of the Bankruptcy Code arising from rescission of a
purchase or sale of Voting Common Stock and Non-Voting Class B Stock, or for
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damages arising from such purchase or sale, or for reimbursement, contribution
or indemnification on occurrence of such Claim.
1.125 "Supplemental Adequate Protection Orders" shall mean, collectively,
the "Supplemental Consensual Adequate Protection Order In Connection with
Debtor's Motion For Order Authorizing Debtor To Conduct Additional Going Out Of
Business Sales And Other Relief" signed by the Bankruptcy Court on May 17, 1994,
and the Second Supplemental Adequate Protection Consent Order.
1.126 "Unsecured Committee" shall mean the Official Committee of Unsecured
Creditors appointed by the Office of the Bankruptcy Administrator for the
Eastern District of North Carolina to serve in the Chapter 11 Case, as the same
may be constituted from time to time.
1.127 "Voting Common Stock" shall mean the Voting Common Stock of the
Debtor, no par value, exclusive of any shares of Voting Common Stock held in
treasury, registered as of the Record Date in such stock register as may be
maintained by or on behalf of the Debtor.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS
2.1 CRITERION OF CLASS. A Claim or Interest is in a particular Class only
to the extent that the Claim or Interest qualifies within the description of
that Class and is in a different Class to the extent that the remainder of the
Claim or Interest qualifies within the description of the different Class. The
Debtor reserves the right to have any Claim or Interest reclassified as
appropriate and to the extent permitted by the Bankruptcy Court. In particular,
a Claim filed as a Non-Tax Priority Claim but which does not comport with
provisions of Section 507(a) of the Bankruptcy Code shall be treated by the
Debtor pursuant to Bankruptcy Court Order as a Claim not entitled to priority,
or as an Interest (as appropriate), and the Debtor will ascribe a vote cast in
connection with this Plan by a holder of such Claim to the proper Class, to the
extent permitted by the Bankruptcy Court.
2.2 CLAIMS AND INTERESTS. All Allowed Claims and Interests are divided into
the following Classes pursuant to Sections 1122 and 1123(a)(1) of the Bankruptcy
Code, which Classes shall be mutually exclusive:
(a) CLASS 1 (NON-TAX PRIORITY CLAIMS). Class 1 consists of all Allowed
Non-Tax Priority Claims.
(b) CLASS 2 (SECURED CLAIMS). Class 2 consists of all Allowed Secured
Claims. Class 2 Claims are classified further into two subclasses:
(i) CLASS 2A (GENERAL SECURED CLAIMS). Class 2A consists of all
Allowed Secured Claims, other than those asserted by the Pre-Petition
Lenders, the collateral for which constitutes an asset which is property
of the Estate, and which property secures such Allowed Secured Claims by
a valid and enforceable lien, security interest and/or pledge; and
(ii) CLASS 2B (PRE-PETITION LENDERS SECURED CLAIMS). Class 2B
consists of the Pre-Petition Lenders' Allowed Secured Claims.
(c) CLASS 3 (UNSECURED CLAIMS). Class 3 consists of all Allowed
Unsecured Claims.
(d) CLASS 4 (INTERCOMPANY CLAIMS). Class 4 consists of all
Intercompany Claims.
(e) CLASS 5 (COMMON STOCK INTERESTS). Class 5 consists of all Common
Stock Interests.
(f) CLASS 6 (PRE-PETITION WARRANTS). Class 6 consists of all Interests
arising from Pre-Petition Warrants.
(g) CLASS 7 (PRE-PETITION STOCK OPTIONS). Class 7 consists of all
Interests arising from Pre-Petition Stock Options.
(h) CLASS 8 (SUBORDINATED CLAIMS). Class 8 consists of all
Subordinated Claims.
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ARTICLE III
PAYMENT OF ADMINISTRATIVE CLAIMS
ALLOWED TAX CLAIMS, PROFESSIONAL FEES, AND
RETIREE CLAIMS, AND TREATMENT OF GE CAPITAL
3.1 ADMINISTRATIVE CLAIMS. All Administrative Claims, other than
Professional Fees, shall be paid by the Debtor in full, in Cash, (a) in such
amounts as are incurred by the Debtor in the ordinary course of its business, or
(b) in such amounts as such Administrative Claims are allowed by Final Order of
the Bankruptcy Court (i) upon the later of the Effective Date or the date upon
which the Bankruptcy Court enters a Final Order allowing such Administrative
Claim, or (ii) upon such other terms as may exist in the ordinary course of the
Debtor's business, or (iii) as may be agreed upon between the holders of such
Administrative Claims and the Debtor. Those liabilities of the Debtor due and
payable in the ordinary course of business after the Effective Date shall be
treated as ordinary course of business obligations of Reorganized Rose's, except
in the event that the Alternative Treatment Provisions are effective pursuant to
Section 8.1 of the Plan, in which event they shall be provided payment as an
Administrative Claim as set forth in the preceding sentence.
3.2 ALLOWED TAX CLAIMS. Allowed Tax Claims shall be paid by the Debtor in
full, in Cash, on the later of the Effective Date or the date upon which the
Bankruptcy Court enters a Final Order allowing such Allowed Tax Claim, or upon
such other terms as may be agreed to between the Debtor and any holder of an
Allowed Tax Claim; PROVIDED, HOWEVER, that (i) the Debtor may make, at its
option, in lieu of payment in full of the Allowed Tax Claims on the Effective
Date, deferred Cash payments respecting Allowed Tax Claims to the extent
permitted by Section 1129(a)(9) of the Bankruptcy Code and, in such event,
interest shall be paid on the unpaid portion of such Allowed Tax Claim at a rate
to be agreed to by the Debtor and the appropriate governmental unit or, if they
are unable to agree, to be determined by the Bankruptcy Court, and (ii) if such
Allowed Tax Claim is for a tax assessed against property of the Estate, the
amount of such Allowed Tax Claim does not exceed the value of the Estate's
interest in such property, and (iii) in the event an Allowed Tax Claim may also
be classified as a Secured Claim, the Debtor may, at its option, elect to treat
such Allowed Tax Claim as an Allowed Secured Claim. All Allowed Tax Claims that
by their terms become due and payable after the Confirmation Date shall be paid
when due.
3.3 PROFESSIONAL FEES. Professionals shall continue to file applications
for Professional Fees for services rendered up to and including the Confirmation
Date in accordance with all orders of the Bankruptcy Court governing the
submission of applications for Professional Fees and payment thereon. Awards of
Professional Fees for all periods up to and including the Confirmation Date
shall be paid (i) first, from those trusts or escrows established by prior order
of the Bankruptcy Court, on account of Professional Fees for which payment was
requested but not authorized by the Bankruptcy Court prior to the Confirmation
Date, and, (ii) thereafter, by the Debtor in Cash, pursuant to order of the
Bankruptcy Court. During the period from the Confirmation Date through and
including the Effective Date, Professionals employed by the Debtor or the
Committees may be paid compensation and reimbursement of expenses monthly in
arrears in full in Cash upon the submission of invoices to the Debtor and the
Committees. Ten (10) days after receipt by the Debtor and the Committees of any
such invoice, the Debtor shall be authorized to pay such invoice without further
order of the Bankruptcy Court unless the Debtor and/or the Person seeking
payment has received a written objection to the payment thereof from any of the
Debtor or the Committees within such period. In the event fees and expenses of
any professional retained by the Debtor are objected to by either the Debtor or
the Committees, such fees and expenses shall be subject to and payable only upon
Bankruptcy Court approval or prior agreement of the parties. Confirmation of
this Plan shall not limit or expand the provisions of paragraph 15 of the Final
DIP Order relating to unpaid fees, costs, expenses and disbursements, which are
awarded by the Bankruptcy Court pursuant to Sections 330 and 331 of the
Bankruptcy Code in an aggregate amount not to exceed $2,000,000. All final
applications relating to Professional Fees for the period up to and including
the Confirmation Date shall be filed within sixty (60) days after the
Confirmation Date. All Professional Fees for services rendered after the
Effective Date in connection with the Debtor or Reorganized Rose's, as the case
may be, the Chapter 11 Case and/or this Plan shall be paid by the Debtor or
Reorganized Rose's, as the case may be, pursuant to the provisions of this Plan
or upon such terms as agreed to by the Debtor or Reorganized Rose's, as the case
may be, and the particular Professional without further Bankruptcy Court review
or authorization. In all circumstances, the fees of the professionals of the
Pre-Petition Lenders shall be paid in accordance with the Second Supplemental
Adequate Protection Consent Order.
3.4 RETIREE CLAIMS AND BENEFITS UNDER SECTION 1114 OF THE BANKRUPTCY CODE.
Except in the event that the Alternative Treatment Provisions are effective
pursuant to Section 8.1 of this Plan, on and after the Effective Date, all
Allowed Retiree Claims arising prior to the Effective Date shall be treated as
Administrative Claims, paid in full, and all retiree benefits, as such term is
defined in Section 1114(a) of the Bankruptcy Code, shall continue, at the level
established or modified pursuant to Section 1114 of the Bankruptcy Code, solely
to the extent, and for the period, that the Debtor and Reorganized Rose's is,
11 M-201
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or may be, contractually or legally obligated to provide such benefits. In the
event that the Alternative Treatment Provisions are effective pursuant to
Section 8.1 of this Plan, all Allowed Retiree Claims arising prior to the
Effective Date shall be treated as Administrative Claims pursuant to Section 3.1
of this Plan, and all other Allowed Claims for retiree benefits shall be treated
pursuant to an order of the Bankruptcy Court, to be entered prior to the
Effective Date and in accordance with Section 1114 of the Bankruptcy Code. In
the event that the Alternative Treatment Provisions are effective and the Debtor
seeks to modify Retiree benefits, the Debtor shall request the Bankruptcy Court
to appoint a committee of retirees pursuant to Section 1114 of the Bankruptcy
Code to represent holders of Retiree Claims.
3.5 TREATMENT OF GE CAPITAL. On or prior to the Effective Date, all of the
GE Obligations shall be fully and finally satisfied. Until all GE Obligations
are fully satisfied, all liens, claims, interests, rights, remedies and
protections granted to GE Capital pursuant to the DIP Facility shall remain in
full force and effect with priority over all liens, claims and interests except
as, and to the extent otherwise, specifically set forth in the DIP Facility. The
termination of the DIP Facility shall be done in accordance with any and all
applicable provisions of (i) all DIP Financing Orders, DIP Financing Documents,
and all documents authorized thereunder, and entered into in connection
therewith, to effectuate the DIP Facility, (ii) the Supplemental Adequate
Protection Orders, or, if stayed or overturned, pursuant to Section 7.16 of this
Plan, (iii) the Confirmation Order, (iv) this Plan and (v) if applicable, the
Alternative Treatment Implementation Orders. Notwithstanding anything to the
contrary set forth in this Plan, on and after the Effective Date, Reorganized
Rose's shall be deemed to have assumed, without any action or the execution of
any document, any and all GE Obligations which remain outstanding and
unsatisfied as of the Effective Date, including, without limitation, any
indemnification obligations of the Debtor under or pursuant to the DIP Facility;
PROVIDED, HOWEVER, that such assumption shall not for any purpose constitute or
be deemed to constitute a satisfaction of the GE Obligations.
ARTICLE IV
CLAIMS NOT IMPAIRED UNDER THE PLAN
4.1 NON-IMPAIRMENT. Claims in Class 1 and Class 2A are not impaired under
this Plan. In the event of a controversy as to whether any holders of Claims or
Interests are impaired, the Bankruptcy Court shall, after appropriate notice and
hearing, determine such controversy. The Debtor reserves the right to
re-classify Claims or Interests as appropriate and to the extent permitted by
the Bankruptcy Court. In particular, a Claim filed as a Non-Tax Priority Claim
but which does not comport with provisions of Section 507(a) of the Bankruptcy
Code shall be treated by the Debtor as a Claim not entitled to priority or an
Interest, as appropriate, and the Debtor will ascribe a vote cast in connection
with this Plan by a holder of such Claim to the proper Class, to the extent
permitted by the Bankruptcy Court.
4.2 CLASS 1 (NON-TAX PRIORITY CLAIMS). The Allowed Non-Tax Priority Claims
shall be paid in full, in Cash, on the later of the Effective Date or the date
of a Final Order allowing any such Claim in this Class 1, or upon such other
terms as may be agreed to between the Debtor and any holder of an Allowed Claim
in this Class 1.
4.3 CLASS 2A (GENERAL SECURED CLAIMS). The Allowed Secured Claims in Class
2A shall be treated as follows at the Debtor's option:
(a) (i) any default, other than of the kind specified in Section
365(b)(2) of the Bankruptcy Code, shall be cured, provided that accrued and
unpaid interest, if any, which the Debtor may be obligated to pay with
respect to such default shall be simple interest at the contract rate and
not at any default rate of interest;
(ii) the maturity of the Allowed Secured Claim shall be reinstated as
the maturity existed before any default;
(iii) the holder of the Allowed Secured Claim shall be compensated for
any damage incurred as a result of any reasonable reliance by the holder on
any provision that entitled the holder to accelerate maturity of the
Allowed Secured Claim; and
(iv) the other legal, equitable, or contractual rights to which the
Allowed Secured Claim entitles the holder shall not otherwise be altered;
PROVIDED, HOWEVER, that as to any Allowed Secured Claim which is a
nonrecourse claim and exceeds the value of the collateral securing such
Allowed Secured Claim, the collateral may be sold at a sale at which the
holder of such Allowed Secured Claim has an opportunity to bid; or
(b) on the Effective Date, or on such other date thereafter as may be
agreed to by the Debtor and the holder of such Allowed Secured Claim, the
Debtor shall abandon the collateral securing such Allowed Secured Claim to
the holder thereof in full satisfaction and release of such Allowed Secured
Claim; or
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(c) on the Effective Date or as soon as practicable thereafter, the
holder of such Allowed Secured Claim shall receive, on account of such
Allowed Secured Claim, Cash equal to its Allowed Secured Claim, or such
lesser amount to which the holder of such Allowed Secured Claim shall
agree, in full satisfaction and release of such Allowed Secured Claim.
ARTICLE V
CLAIMS AND INTERESTS IMPAIRED UNDER THE PLAN
5.1 CLASS 2B (PRE-PETITION LENDERS' ALLOWED SECURED CLAIMS).
5.1.1 Each Pre-Petition Lender shall have a Class 2B Allowed Secured Claim.
5.1.2 Except to the extent that (a) an Alternative Treatment Event (as
defined in the Second Supplemental Adequate Protection Consent Order) shall be
effective and GE Capital or the Pre-Petition Lenders shall be entitled to
exercise their respective rights and remedies in accordance with the Second
Supplemental Adequate Protection Consent Order and the DIP Facility (in which
event all distributions shall be made in accordance with the provisions of the
Supplemental Adequate Protection Orders and the DIP Facility), or (b) the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of this
Plan (in which event all distributions shall be made in accordance with the
Alternative Treatment Provisions), on the Effective Date, each holder of an
Allowed Secured Claim in Class 2B shall receive, in respect of its Allowed
Secured Claim and in accordance with the Intercreditor Agreements, its share of:
(a) Cash equal to the aggregate amount of all unpaid fees, charges and
expenses due and payable to the Collateral Agent and the Pre-Petition
Lenders as of the Effective Date; and
(b) New Rose's Secured Notes having an aggregate face amount equal to
the New Rose's Secured Notes Original Principal Amount. The primary terms
and conditions in respect of the New Rose's Secured Notes are set forth in
Exhibit 5.1 annexed hereto and made a part hereof and are incorporated
herein by this reference.
5.1.3 Except to the extent that an Alternative Treatment Event (as defined
in the Second Supplemental Adequate Protection Consent Order) shall be effective
and GE Capital or the Pre-Petition Lenders shall be entitled to exercise their
respective rights and remedies in accordance with the Second Supplemental
Adequate Protection Consent Order and the DIP Facility (in which event all
distributions shall be made in accordance with the provisions of the
Supplemental Adequate Protection Orders and the DIP Facility), and except in the
event that the Alternative Treatment Provisions are effective pursuant to
Section 8.1 of the Plan (in which event all distributions shall be made in
accordance with the Alternative Treatment Provisions), on the Effective Date,
Reorganized Rose's shall grant to the Collateral Agent liens on and security
interests in all of the Post-Effective Date Collateral for the purpose of
securing all obligations and liabilities of Reorganized Rose's under the New
Rose's Secured Notes, which security interests and liens shall be junior in
right and priority only to the security interests and liens granted to the
Post-Effective Date Lender, pursuant to this Plan and such orders of the
Bankruptcy Court authorizing or otherwise relating to the Post-Effective Date
Financing Facility, and otherwise shall be superior to and with priority over
all other security interests and liens whether consensual or nonconsensual,
statutory or otherwise, and whether existing now or in the future, provided,
however, that, as to the Permitted Encumbrance Collateral, the Pre-Petition
Lenders' security interests and liens shall be subordinate to (i) the security
interests and liens of the Post-Effective Date Lender in the Permitted
Encumbrance Collateral, and (ii) all valid, perfected and unavoidable liens and
security interests existing on the Permitted Encumbrance Collateral as of the
Effective Date that are not released or discharged pursuant to this Plan.
Reorganized Rose's shall take such action, at its own expense, as is reasonably
necessary and appropriate and requested by the Collateral Agent regarding the
filing of financing statements, mortgages, deeds of trust, notices of lien,
certificates of title or any other instruments (collectively, but respectively,
"Perfection Instruments") in any jurisdiction or take any other action in order
to validate or perfect the liens and security interests granted to the
Pre-Petition Lenders pursuant to this Plan, in the event that the Pre-Petition
Lenders or any of their agents, may, at their sole discretion, choose to file
such Perfection Instruments or otherwise confirm perfection of such liens and
security interests, and all such Perfection Instruments shall be deemed to have
been filed or recorded at the time and on the date of such filing or recording
unless permitted under applicable law to relate back to the Effective Date. In
lieu of filing such Perfection Instruments, the Confirmation Order shall provide
that the Pre-Petition Lenders or any of their agents, may, at their sole
discretion, choose to file certified copies of this Plan, the Confirmation Order
and the Consummation Certificate in any place at which such Perfection
Instruments would or could otherwise be filed, together with such description of
Post-Effective Date Collateral located within the geographic area covered by
such place of filing as the Pre-Petition Lenders may determine, and such filing
shall have the same effect as if all such Perfection Instruments had been filed
or recorded at the time and on the date of such filing or recording unless
permitted under applicable law to relate
13 M-203
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back to the Effective Date. The Pre-Petition Lenders acknowledge that should
they elect to file Perfection Instruments or otherwise confirm perfection of the
security interests granted herein as authorized by the provisions of this
paragraph, said filing or other confirmation of the security interests granted
herein shall in no manner whatsoever vitiate, reduce or abrogate in any manner
the first priority security interests in respect of the Post-Effective Date
Collateral granted to the Post-Effective Date Lender, irrespective of the
sequence of any such filings as between the Post-Effective Date Lender and the
Pre-Petition Lenders.
5.1.4 In the event that (i) all or any of the Pre-Petition Lenders are
authorized by order of the Bankruptcy Court to exercise collateral realization
remedies in accordance with Section VI of Exhibit 5.1 hereto, and/or (ii) the
Post-Effective Date Lender is authorized to exercise collateral realization
remedies in the nature of the sale of collateral outside of the ordinary course
of business in accordance with the Post-Effective Date Financing Facility and
elects to do so, Reorganized Rose's shall be, and hereby is, authorized,
empowered and directed to take the following actions:
(a) Reorganized Rose's shall generally cease the ordering of
merchandise and promptly terminate non-essential personnel related thereto.
(b) Reorganized Rose's shall promptly terminate all other personnel
not essential for conducting the Final Sales (as defined below) and the
Remaining Asset Sales (as defined below) or winding up the administration
of the Plan (the expenses associated with the winding up of the
administration of the Plan being the "Wind-Up Expenses").
(c) Reorganized Rose's shall conduct going-out-of-business sales or
auctions of any remaining Inventory (including Inventory in transit and
Inventory located in Reorganized Rose's' distribution center) (the
"Distribution Center"), fixtures and other assets located at all of its
remaining stores (such sales being the "Final Sales"), in the manner of a
sale pursuant to Section 363(f) of the Bankruptcy Code free and clear of
any lien or interest with such lien or interest to attach to the proceeds
of such sales or auctions (all such proceeds from the Final Sales being the
"Final Proceeds").
(d) Reorganized Rose's shall promptly seek Bankruptcy Court approval
of the specific procedures for conducting the Final Sales, but such
specific procedures shall in any event (i) include solicitation of bids
from nationally known liquidators to conduct the Final Sales on such basis
designed to maximize net sale proceeds, (ii) result in Reorganized Rose's'
employment on sound business terms of a nationally known liquidator to
conduct the Final Sales, (iii) shall provide for the distribution of
Inventory among some or all of Reorganized Rose's' remaining stores in a
manner designed to maximize net sale proceeds, (iv) with respect to the
manner and method of such Final Sales at some or all of Reorganized Rose's'
remaining stores, be substantially similar to those procedures contained in
the GOB2 Methodology Order (as defined in the Second Supplemental Adequate
Protection Consent Order) solely to the extent that such procedures relate
to the conduct of the sale and other disposition of assets and the
appointment of a liquidator entity to conduct such sales and other
dispositions but not to the extent such procedures distinguish between
Covered Stores and Noncovered Stores or the Inventory or assets related
thereto, and (v) provide for the completion of the Final Sales and the
distribution of all of the Final Proceeds within 120 days of Bankruptcy
Court approval of such specific procedures (the "Final Sales Approval
Date").
(e) Reorganized Rose's shall distribute the "Net Final Proceeds" (as
defined below), promptly upon their receipt, in the following order and
with the following priority: (i) first, toward full satisfaction of the
outstanding obligations of Reorganized Rose's to the Post-Effective Date
Lender in accordance with the provisions of the Post-Effective Date
Financing Facility and Section 5.1.4(i) of this Plan, (ii) second, after
the outstanding obligations of Reorganized Rose's to the Post-Effective
Date Lender shall have been fully satisfied in accordance with the
provisions of the Post-Effective Date Financing Facility, toward full
satisfaction of the New Rose's Secured Notes, together with any unpaid
interest, costs and other charges (including attorneys' fees) accrued
thereon, and (iii) third, after satisfaction of the obligations of
Reorganized Rose's to the Post-Effective Date Lender in accordance with the
provisions of the Post-Effective Date Financing Facility and satisfaction
of the New Rose's Secured Notes, together with any unpaid interest, costs
and other charges (including attorneys' fees) accrued thereon, the then
remaining portion of the Net Final Proceeds (the "Remaining Portion"), if
any, shall be distributed in accordance with the provisions of this Plan,
or as otherwise determined by the Reconstituted Board of Directors, or
pursuant to further order of the Bankruptcy Court, as necessary. The "Net
Final Proceeds" shall mean the Final Proceeds less, with respect to store
locations at which the Final Sales are being conducted, (i) actual
occupancy costs, (ii) actual utility costs, (iii) allocated insurance
costs, and (iv) reasonable sale expenses and agent fees (as may be agreed
upon among Reorganized Rose's, the Post-Effective Date Trade Committee, the
Post-Effective Date Lender, the Pre-Petition Lenders and any auctioneer or
liquidator retained to conduct the Final Sales) attributable to the Final
Sales and (v) such other expenses proposed by Reorganized Rose's from time
to time during and relating to the 180 day period following the Final Sales
Approval Date to fund the Final Sales and Wind-up
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Expenses during such 180 day period in a manner consistent with the
cessation of business and sale of assets as contemplated herein, set forth
in a detailed budget subject to approval by the Post-Effective Date Lender
and the Pre-Petition Lenders in their reasonable discretion if any of their
claims against Reorganized Rose's are then unpaid, or, if and when such
claims are paid in full, as the Post-Effective Date Trade Committee may
reasonably approve.
(f) In the event the New Rose's Secured Notes, together with any
unpaid interest, fees, costs and other charges (including attorneys' fees)
accrued thereon, and all outstanding obligations of Reorganized Rose's to
Post-Effective Date Lender under the Post-Effective Date Financing
Facility, shall not have been satisfied in full within 120 days of the
Final Sales Approval Date, Reorganized Rose's shall immediately thereafter
commence the liquidation of all of its remaining assets other than the
assets which are the subject of the Final Sales (each such remaining asset
being a "Remaining Asset," and such sales of the Remaining Assets being the
"Remaining Asset Sales"), in the manner of a sale pursuant to Section
363(f) of the Bankruptcy Code, free and clear of any lien or interest with
such lien or interest to attach to the proceeds of such sales or auctions
(such gross proceeds from the Remaining Asset Sales being the "Remaining
Asset Proceeds").
(g) In the event that the Debtor is required to undertake any
Remaining Asset Sales, Reorganized Rose's shall promptly, and in no event
later than 140 days following the Final Sales Approval Date, seek
Bankruptcy Court approval of the specific procedures for conducting the
Remaining Asset Sales (the "Remaining Asset Sales Procedures"), but the
specific procedures shall in any event (i) be subject to the approval of
the Post-Effective Date Lender or the Pre-Petition Lenders if such entities
have outstanding obligations at the time of sale of the assets to be sold
secured by a lien on the specific asset to be sold, and (ii) provide for
the completion of the Remaining Asset Sales within 60 days of Bankruptcy
Court approval of such specific procedures.
(h) Reorganized Rose's shall distribute the Net Remaining Asset
Proceeds (as defined below), promptly upon their receipt in the following
order and with the following priority: (i) first, toward full satisfaction
of the outstanding secured claims of any entity or entities holding the
most senior lien on each such Remaining Asset sold, (ii) second, after the
secured claims of the holders of the most senior lien have been satisfied
in full, in full satisfaction of the outstanding secured claims of the
holders of any junior liens on such Remaining Asset being sold in
accordance with their relative priorities, and (iii) third, after the
outstanding secured claims of the holders of any junior liens have been
satisfied in full, the remaining portion of the Net Remaining Asset
Proceeds, if any, shall be distributed in accordance with the provisions of
this Plan, or as otherwise determined by the Reconstituted Board of
Directors or pursuant to further order of the Bankruptcy Court. The "Net
Remaining Asset Proceeds" shall mean the Remaining Asset Proceeds less (i)
actual occupancy cost, (ii) actual utility costs, (iii) allocated insurance
cost, and (iv) reasonable sale expenses attributable to the sale and agent
fees (as may be agreed upon among Reorganized Rose's, the Post-Effective
Date Trade Committee, the Post-Effective Date Lender, the Pre-Petition
Lenders and any auctioneer or liquidator retained to conduct the Remaining
Asset Sales) attributable to the sale of such Remaining Assets and (v) such
other expenses proposed by Reorganized Rose's from time to time during and
relating to the 60 day period following the Bankruptcy Court's approval of
the Remaining Asset Sales Procedures to fund the Remaining Asset Sales and
Wind-up Expenses during such 60 day period in a manner consistent with the
cessation of business and sale of assets as contemplated herein, set forth
in a detailed budget subject to approval by the Post-Effective Date Lender
and the Pre-Petition Lenders in their reasonable discretion if any of their
claims against Reorganized Rose's are then unsatisfied, or, if and when
such claims are satisfied in full, as the Post-Effective Date Trade
Committee may reasonably approve.
(i) The actions by Reorganized Rose's pursuant to this Section 5.1.4
shall be without prejudice to the Post-Effective Date Lender's rights under
the Post-Effective Date Financing Facility, and applicable law, including,
without limitation, to make protective or other advances under the
Post-Effective Date Financing Facility. Pursuant to the Post-Effective Date
Financing Facility, Reorganized Rose's shall use the proceeds realized from
the sale and other disposition of Reorganized Rose's' assets on which the
Post-Effective Date Lender has a lien to fully and finally satisfy its
outstanding obligations to the Post-Effective Date Lender (as defined in
the Post-Effective Date Financing Facility) prior to any distribution of
such proceeds from such assets on which the Post-Effective Date Lender has
a lien senior to the Pre-Petition Lenders. Notwithstanding the foregoing,
in order to preserve the intercreditor relationships between the Pre-
Petition Secured Noteholders and the Bank of Tokyo under the Intercreditor
Agreements, Reorganized Rose's shall account for and deposit all proceeds
received from the sale of Inventory in the BOT Stores (as defined in the
Second Supplemental Adequate Protection Consent Order) separately from the
proceeds of Inventory in the remaining stores of Reorganized Rose's.
Reorganized Rose's shall first use the net proceeds realized from the sale
of Inventory in the stores other than the BOT Stores to satisfy its
outstanding obligations to the Post-Effective Date Lender and shall
thereafter use
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proceeds from the sale of Inventory in the BOT Stores to the extent
necessary to satisfy, fully or partially, Reorganized Rose's' obligations
to the Post-Effective Date Lender.
5.1.5 Except to the extent that (a) an Alternative Treatment Event (as
defined in the Second Supplemental Adequate Protection Consent Order) shall be
effective and GE Capital or the Pre-Petition Lenders shall be entitled to
exercise their respective rights and remedies pursuant to the Second
Supplemental Adequate Protection Consent Order and the DIP Facility (in which
event all distributions shall be made in accordance with the provisions of the
Supplemental Adequate Protection Orders and the DIP Facility), or (b) that the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of the
Plan (in which event all distributions shall be made in accordance with the
Alternative Treatment Provisions), on the Effective Date, the Collateral Agent
and the Pre-Petition Lenders on the one hand, and the Debtor and/or Reorganized
Rose's, on the other, shall take any and all action reasonably necessary and
appropriate to effectuate and implement the provisions of this Section 5.1,
including the execution of any and all New Rose's Secured Notes Documents. As of
the Effective Date, all agreements entered into by and between the Debtor and
the Pre-Petition Lenders prior to the Effective Date relating to, or underlying,
the Debtor's pre-petition obligations to, and the Allowed Secured Claims of, the
Pre-Petition Lenders shall be deemed superseded, and all obligations of any
party under such agreements shall be released and no further force or effect,
except that such agreements and documents shall not be null and void to the
extent necessary to allow the continuous perfection of liens and encumbrances as
contemplated by this Plan. The foregoing aggregate distributions to the holders
of Allowed Secured Claims in Class 2B pursuant to this Section 5.1 shall be
deemed to constitute the indubitable equivalent of such Allowed Secured Claims.
5.2 CLASS 3 (UNSECURED CLAIMS). Except in the event that the Alternative
Treatment Provisions are effective pursuant to Section 8.1 of this Plan, and
except with respect to those holders of Class 3 Allowed Unsecured Claims which
are Damage Claims entitled to receive a Cash payment in accordance with the ADR
Procedure as ratified and incorporated into this Plan pursuant to Section 7.15
of this Plan, each holder of an Allowed Unsecured Claim in Class 3 shall receive
in exchange for such claim its Pro-Rata share of (i) the Class 3 Common Stock
Designation, on such Distribution Dates specified by, and otherwise in
accordance with, Section 6.2.2 of this Plan, and (ii) the Subscription Proceeds,
if any, not returnable to the Class 5 Subscribers pursuant to the Class 5 Rights
Notice, on such Distribution Dates specified by, and otherwise in accordance
with, Section 6.2.3 of this Plan.
5.3 CLASS 4 (INTERCOMPANY CLAIMS). In the event that RSI is merged into the
Debtor or Reorganized Rose's, as described in Section 7.11 herein, all
Intercompany Claims shall be deemed canceled, annulled and extinguished, and RSI
shall not receive any distribution whatsoever under this Plan or otherwise on
account of such Intercompany Claim. In the event that RSI is not merged into the
Debtor or Reorganized Rose's, any Claim of RSI will be treated under the Plan in
accordance with the nature of the Claim filed by RSI and to the extent and in
the nature allowed by the Bankruptcy Court.
5.4 CLASS 5 (COMMON STOCK INTERESTS). Except in the event that the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of this
Plan, each holder of a Common Stock Interest in Class 5 shall receive in
exchange for such interest (i) its Pro-Rata share of the New Rose's Warrants, on
such Distribution Dates as set forth in Section 6.2.5 of this Plan, (ii) its
Pro-Rata share of the New Rose's Common Stock Secondary Distribution, if any, on
such Distribution Dates as set forth in Section 6.2.4 of this Plan, and (iii)
the non-transferrable right to pay Cash to acquire shares of New Rose's Common
Stock in accordance with the Class 5 Subscription pursuant to Section 7.10 of
this Plan and the Class 5 Rights Notice.
5.5 CLASS 6 (PRE-PETITION WARRANTS). Holders of Interests in Class 6 shall
not receive any distribution whatsoever on account of such Interests, and as of
the Effective Date, all Interests in any Pre-Petition Warrants, including,
without limitation, Pre-Petition Secured Noteholder Warrants, shall be deemed
canceled, annulled and extinguished. In addition, all agreements, including,
without limitation, the Pre-Petition Secured Noteholder Warrant Agreement,
providing for the issuance of Pre-Petition Warrants to any Persons shall be
deemed rejected, provided that any and all Allowed Claims arising therefrom
shall be deemed subject to the subordination provisions of Section 510(b) of the
Bankruptcy Code, and such holders shall receive no distribution on account of
any such Allowed Claims.
5.6 CLASS 7 (PRE-PETITION STOCK OPTIONS). Holders of Interests in Class 7
shall not receive any distribution whatsoever on account of such Interests, and
as of the Effective Date, all Interests in any Pre-Petition Stock Options,
including, without limitation, Employee Stock Options, shall be deemed canceled,
annulled and extinguished. In addition, all agreements providing for the
issuance of Pre-Petition Stock Options, including, without limitation, the
Employee Stock Option Plans, to any Persons shall be deemed rejected and/or
terminated, provided that any and all Allowed Claims arising therefrom shall be
deemed subject to the subordination provisions of Section 510(b) of the
Bankruptcy Code, and such holders shall receive no distribution on account of
any such Allowed Claims.
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5.7 CLASS 8 (SUBORDINATED CLAIMS). Holders of Subordinated Claims in Class
8 shall not receive any distribution whatsoever on account of such Claims, and
as of the Effective Date, all Subordinated Claims shall be deemed canceled,
annulled and extinguished.
5.8 ALTERNATIVE TREATMENT PROVISIONS. In the event that the Alternative
Treatment Provisions of the Plan are effective pursuant to Section 8.1 of this
Plan and are not waived by all Plan Proponents (or, with respect to Sections
8.1(g) and (h) of the Plan, by the Unsecured Committee), Sections 5.1, 5.2 and
5.4 of this Plan shall not be operative and shall be null and void and of no
force and effect. Rather, Classes 2B, 3 and 5 shall be treated in accordance
with Sections 5.8.1, 5.8.2 and 5.8.3, respectively, of this Plan, the other
Alternative Treatment Provisions, and pursuant to such other provisions as, and
only to the extent, specified in Section 5.8.4 of this Plan.
5.8.1 ALTERNATIVE TREATMENT OF CLASS 2B. Except to the extent that an
Alternative Treatment Event (as defined in the Second Supplemental Adequate
Protection Consent Order) shall be effective and GE Capital or the Pre-Petition
Lenders shall be entitled to exercise their respective rights and remedies
pursuant to the Second Supplemental Adequate Protection Consent Order and the
DIP Facility (in which event all distributions shall be made in accordance with
the provisions of the Supplemental Adequate Protection Orders and the DIP
Facility), in the event that the Alternative Treatment Provisions shall be
effective, on any Distribution Date after full satisfaction of all of the GE
Obligations, each holder of an Allowed Secured Claim in Class 2B shall receive
Cash pursuant to this Plan, and/or the Alternative Treatment Implementation
Orders until it receives an aggregate amount of Cash equal to its Allowed
Secured Claim in full in accordance with the Intercreditor Agreements. In the
event the Second Supplemental Adequate Protection Consent Order shall be either
(a) overturned on appeal or (b) the subject of a stay pending appeal and such
stay shall be continuing in a manner that materially impairs either the payment
of the Additional Adequate Protection Payments as set forth and defined in the
Second Supplemental Adequate Protection Consent Order or the remedies granted
therein to the Pre-Petition Lenders, the following rules shall apply:
(a) The Additional Adequate Protection Payments which would have been
made to the Pre-Petition Lenders thereunder but for the overturning on
appeal or the stay will be made pursuant to this Plan and, where
applicable, in accordance with the terms of Section 7.16 of this Plan;
PROVIDED, HOWEVER, that if the stay of the Second Supplemental Adequate
Protection Consent Order shall be dissolved and any such Adequate
Protection Payments may be made pursuant to the terms of the Second
Supplemental Adequate Protection Consent Order, then such Additional
Adequate Protection Payments shall be made pursuant to the terms of such
order.
(b) The remedies granted to the Pre-Petition Lenders pursuant to the
provisions of the Second Supplemental Adequate Protection Consent Order
regarding the liquidation of the Debtor's assets shall be exercisable by
the Pre-Petition Lenders pursuant to Section 7.16 of this Plan; PROVIDED,
HOWEVER, that if the stay of the Second Supplemental Adequate Protection
Consent Order shall be dissolved and such remedies may be exercisable in
accordance with the provisions of the Second Supplemental Adequate
Protection Consent Order, then such remedies shall be exercisable pursuant
to the terms of such order.
5.8.2 ALTERNATIVE TREATMENT OF CLASS 3. On any Distribution Date commencing
on the Effective Date, after full satisfaction of all of the GE Obligations
pursuant to and in accordance with Section 3.5 of this Plan, and after payment
in full in Cash of the Pre-Petition Lenders' Allowed Secured Claims, all
Administrative Claims, all Allowed Tax Claims, and all Allowed Non-Tax Priority
Claims, each holder of a Class 3 Allowed Claim shall receive its Pro-Rata share
of any remaining Available Cash; PROVIDED, that in no event shall the holder of
a Class 3 Allowed Claim receive Cash aggregating more than the full amount of
such Allowed Claim.
5.8.3 ALTERNATIVE TREATMENT OF CLASS 5. As of the Effective Date, all Class
5 Common Stock Interests then outstanding, and all certificates representing
such Common Stock Interests, shall remain outstanding pending entry of the Final
Decree. On any Distribution Date commencing on the Effective Date, after full
satisfaction of all of the GE Obligations pursuant to and in accordance with
Section 3.5 of this Plan, and after payment in full in Cash of the Pre-Petition
Lenders' Allowed Secured Claims, all Administrative Claims, all Allowed Tax
Claims, all Allowed Non-Tax Priority Claims, and all Class 3 Allowed Claims,
each holder of a Common Stock Interest shall receive its pro-rata share of any
remaining Available Cash and all other residual property of the Estate. Upon the
entry of the Final Decree, all Common Stock Interests shall be deemed canceled,
annulled and extinguished; PROVIDED, HOWEVER, that the right to receive
distributions pursuant to this Section 5.8.3 shall survive such cancellations,
annulment and extinguishment.
5.8.4 OTHER PLAN PROVISIONS OPERATIVE IN CONJUNCTION WITH THE ALTERNATIVE
TREATMENT PROVISIONS. In the event that the Alternative Treatment Provisions of
the Plan are effective pursuant to Section 8.1 of this Plan, only the following
additional provisions of the Plan also shall be effective and operative, and
then only to the extent the effectiveness and operation of such
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provisions is consistent with the Alternative Treatment Provisions and the
Alternative Treatment Implementation Orders: Articles I, II, III, IV, VIII, IX,
X, XI and XII in their entirety; and, Sections 5.9, 5.10, 6.1, 6.2, 6.3, 6.5.1,
6.5.2, 6.5.3, 6.6, 6.7, 6.8, 7.1, 7.3, 7.4, 7.10(c), 7.12 and 7.15.
5.9 EFFECT OF BAR DATES. As of the Effective Date, any Claim arising solely
on account of a proof of claim filed after an applicable Bar Date shall be
deemed disallowed and expunged, and the holder of such Claim shall be forever
barred from asserting such Claim against the Debtor or its property, and from
voting on this Plan and/or sharing in any distribution hereunder in respect of
such Claim unless otherwise provided pursuant to further order of the Bankruptcy
Court. All Claims scheduled by the Debtor as contingent, unliquidated or
disputed on its voluntary petition under Chapter 11, or on its Lists, Schedules
and Statements filed pursuant to Section 521(1) of the Bankruptcy Code and
Bankruptcy Rule 1007, shall be deemed extinguished if the respective proofs of
claim in connection with such Claims were not filed by the applicable Bar Dates,
unless otherwise provided pursuant to further order of the Bankruptcy Court.
5.10 NON-CONSENSUAL CONFIRMATION. In the event that any impaired Class of
Claims or Interests shall not accept this Plan in accordance with Section
1129(a) of the Bankruptcy Code, the Plan Proponents, with the exception of (a)
the Unsecured Committee if Class 3 does not accept this Plan, or (b) the Equity
Committee if Class 5 does not accept this Plan, reserve the right to (i) request
that the Bankruptcy Court confirm this Plan in accordance with Section 1129(b)
of the Bankruptcy Code, or (ii) with the approval of the Plan Proponents and GE
Capital, amend this Plan in accordance with Section 12.7 of this Plan.
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ARTICLE VI
PROVISIONS GOVERNING DISTRIBUTIONS
6.1 DISTRIBUTIONS BY REORGANIZED ROSE'S OR THE DEBTOR, OR OTHER
DISTRIBUTION AGENT. With the approval of the Board of Directors and the
Bankruptcy Court, and subject to the terms and provisions of the New Rose's
Common Stock Trust, the Class 5 Rights Notice and the New Rose's Warrant
Agreement to the extent applicable, either Reorganized Rose's or the Debtor, as
applicable, or its designee, as Distribution Agent, shall make all distributions
required to be made under this Plan on the Effective Date or such other
Distribution Date as is specified in this Plan or the Supplemental Adequate
Protection Orders. Any entity designated by either Reorganized Rose's or the
Debtor, as applicable, or authorized by other agreement to be a Distribution
Agent and to make such distributions may employ or contract with other entities
to assist in or make the distributions required by this Plan to the extent
agreed by Reorganized Rose's or the Debtor, as applicable. The Distribution
Agent shall serve without bond, and to the extent that the Distribution Agent is
not Reorganized Rose's or the Debtor, as applicable, the Distribution Agent
shall receive from Reorganized Rose's or the Debtor, as applicable, without
further Bankruptcy Court approval, reasonable compensation and reimbursement of
reasonable out-of-pocket expenses on terms acceptable to Reorganized Rose's or
the Debtor, as applicable.
6.2 DISTRIBUTIONS TO IMPAIRED CLASSES. The following shall constitute the
means of distributions to the holders of Allowed Claims and Interests in their
respective Classes:
6.2.1 DISTRIBUTIONS OF NEW ROSE'S SECURED NOTES. The New Rose's Secured
Notes shall be delivered to the Collateral Agent, or its designee, on the
Effective Date. The Collateral Agent shall thereafter distribute the New Rose's
Secured Notes to the individual holders of Pre-Petition Lenders' Allowed Secured
Claims and to the Reserve in accordance with Section 7.12 of this Plan, pursuant
to the Intercreditor Agreements and Section 5.1 hereof.
6.2.2 DISTRIBUTIONS OF NEW ROSE'S COMMON STOCK. (a) Within thirty days
after the Effective Date, (i) an amount of shares, if any, equal to 70% of the
Effective Date Shares which are not included in the Class 5 Subscription Stock
Designation shall be distributed on a Pro-Rata basis among all holders of
Allowed Claims in Class 3 and the Reserves established on account of Disputed
Claims in Class 3 in accordance with Section 7.12 of this Plan, (ii) an amount
of shares equal to 100% of the Class 5 Subscription Stock Designation shall be
distributed among all Class 5 Subscribers in the manner specified in Section
7.10 of this Plan and the Class 5 Rights Notice, and (iii) the remaining
Effective Date Shares, if any, which are not distributed pursuant to
subparagraphs (i) and (ii) above shall be deposited into the New Rose's Common
Stock Trust pursuant to the New Rose's Common Stock Trust Agreement.
(b) Within thirty days after the Determination Date, the Distribution Agent
which is the trustee of the New Rose's Common Stock Trust shall distribute on a
Pro-Rata basis among all holders of Allowed Claims in Class 3 and the Reserves
established on account of Disputed Claims in Class 3 in accordance with Section
7.12 of this Plan, the lesser of (i) all of the shares of New Rose's Common
Stock maintained in the New Rose's Common Stock Trust, or (ii) such number of
shares of New Rose's Common Stock having an aggregate value, as determined in
accordance with subparagraph (c) below, when added to (x) the aggregate value,
also as determined in accordance with subparagraph (c) below, of that portion of
Class 3 Common Stock Designation distributed or deposited in accordance with
subparagraph (a)(i) above and (y) two (2) times the Subscription Proceeds
payable to all holders of Allowed Claims in Class 3 and the Reserves established
on account of Disputed Claims in Class 3 as specified in Section 6.2.3 of this
Plan, equal to the Full Recovery Target Amount.
(c) The determination of value for purposes of distributions of shares of
New Rose's Common Stock maintained in the New Rose's Common Stock Trust pursuant
to subparagraph (b) above shall be the average of the intra day high and low
average price of the New Rose's Common Stock for the fifteen trading days prior
to the Determination Date, so long as not less than 2,000,000 shares of New
Rose's Common Stock shall have been distributed at least 20 days prior to the
Determination Date unless the Post-Effective Date Committee, in its sole
discretion, waives the requirement that at least 2,000,000 shares shall have
been distributed.
(d) The shares of New Rose's Common Stock issued pursuant to this Plan
shall be subject to dilution arising from the issuance of shares by Reorganized
Rose's of New Rose's Common Stock as may be authorized or required, from time to
time, (i) pursuant to the Management Incentive and Retention Program, and (ii)
by operation or exercise of the New Rose's Warrants.
6.2.3 DISTRIBUTION OF SUBSCRIPTION PROCEEDS. (a) In the event that the
Subscription Proceeds total $25 million or greater, the Subscription Proceeds in
the Subscription Proceeds Escrow, after the return of any Subscription Proceeds,
including interest thereon, to the Class 5 Subscribers if required by the Class
5 Rights Notice, shall be distributed together with interest
19 M-209
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thereon Pro-Rata among all holders of Allowed Claims in Class 3 and the
Reserves established on account of Disputed Claims in Class 3 pursuant
to Section 7.12 of this Plan. Upon the resolution of all Disputed Claims
in Class 3 in accordance with Section 7.12 of this Plan, any Cash remaining in
the Subscription Proceeds Escrow, including interest thereon that has
not been distributed, to holders of Disputed Claims in Class 3 which became
Allowed Claims in Class 3 shall be distributed pro-rata among the Class 5
Subscribers in accordance with the allocations set forth in Section 7.10(a) of
this Plan and the Class 5 Rights Notice. Prior to the resolution of all Disputed
Claims in Class 3, if at any time or times the Subscription Proceeds Escrow
contains more than enough Subscription Proceeds to satisfy all of the remaining
Disputed Claims in Class 3 by payment of 50% of the Reserve Amounts established
therefor, such excess Subscription Proceeds may be distributed from time to time
among the Class 5 Subscribers as provided in the preceding sentence.
(b) In the event that the Subscription Proceeds total less than $25
million, the Subscription Proceeds, together with accrued interest thereon,
shall be returned to the Class 5 Subscribers pursuant to the Class 5 Rights
Notice.
6.2.4 DISTRIBUTION OF NEW ROSE'S COMMON STOCK SECONDARY DISTRIBUTION.
Within thirty days of the Determination Date, shares of New Rose's Common Stock
constituting the New Rose's Common Stock Secondary Distribution, if any, shall
be distributed Pro-Rata to all holders of Common Stock Interests in Class 5 in
accordance with the New Rose's Common Stock Trust Agreement.
6.2.5 DISTRIBUTION OF NEW ROSE'S WARRANTS. Within thirty days of the
Effective Date, the 4,285,714 New Rose's Warrants shall be distributed by
Reorganized Rose's to the warrant agent under the New Rose's Warrant Agreement,
who, as a Distribution Agent, shall distribute the New Rose's Warrants on a
Pro-Rata basis to all holders of Common Stock Interests in Class 5 pursuant to
the Plan and the New Rose's Warrant Agreement. Each New Rose's Warrant shall
entitle the holder thereof to purchase one share of New Rose's Common Stock from
the date the New Rose's Warrants are issued until the seventh anniversary of the
Effective Date at the per share price equal, subject to adjustment as provided
in the New Rose's Warrant Agreement, to (i) on the Effective Date, and as
adjusted on each of the first three anniversaries of the Effective Date, the
Full Recovery Target Amount divided by 10,000,000, the number of Effective Date
Shares and (ii) as adjusted on the fourth, fifth, and sixth anniversaries of the
Effective Date, 105%, 110% and 115%, respectively, of the Full Recovery Target
Amount divided by 10,000,000, the number of Effective Date Shares.
6.2.6 LISTING OF COMMON STOCK AND WARRANTS. The Debtor intends to apply for
listing of the New Rose's Common Stock and the Warrants on a national securities
exchange or quotation on the National Association of Securities Dealers
Automated Quotation National Market System.
6.2.7 DISTRIBUTIONS OF CASH UNDER ALTERNATIVE TREATMENT PROVISIONS. Except
to the extent that an Alternative Treatment Event (as defined in the Second
Supplemental Adequate Protection Consent Order) shall be effective and GE
Capital or the Pre-Petition Lenders shall be entitled to exercise their
respective rights and remedies pursuant to the Second Supplemental Adequate
Protection Consent Order and the DIP Facility (in which event all distributions
shall be made in accordance with the provisions of the Adequate Protection
Orders and the DIP Facility), in the event that the Alternative Treatment
Provisions are effective pursuant to Section 8.1 of this Plan, on any
Distribution Date, the Debtor shall distribute all Cash available for payment or
reserve in accordance with Sections 7.12 and 7.16 of this Plan, as follows:
first, to GE Capital toward satisfaction in full of all of the GE Obligations;
second, after the GE Obligations have been satisfied in full, to the Collateral
Agent for distribution to the Pre-Petition Lenders pursuant to the Intercreditor
Agreements toward satisfaction in full of each of the Pre-Petition Lenders'
Allowed Secured Claims (including accrued interest, costs, expenses and
attorneys' fees, if any); third, after the GE Obligations and the Pre-Petition
Lenders' Allowed Secured Claims have been satisfied in full, to each holder of
an Allowed Administrative Claim, Allowed Tax Claim and Allowed Non-Tax Priority
Claim, or into a Reserve established for a Disputed Claim which if allowed would
be an Administrative Claim, an Allowed Tax Claim or an Allowed Non-Tax Priority
Claim toward satisfaction in full of such Claims; fourth, to each holder of a
Class 3 Allowed Claim or into a Reserve established for a Class 3 Disputed Claim
toward satisfaction in full of such Claims; and fifth, on a Pro-Rata basis to
each holder of a Common Stock Interest toward satisfaction in full of such
Interests; PROVIDED, HOWEVER, that Cash from Disposition Proceeds that are
derived from assets in which GE Capital does not have a lien, but in which the
Pre-Petition Lenders do have a lien, shall be distributed first toward payment
in full to the Collateral Agent for distribution to the Pre-Petition Lenders,
and, thereafter, to other Allowed Claims (including the GE Obligations), and,
after satisfaction in full of all Allowed Claims in order of priority as
indicated above, to Common Stock Interests, in the order as set forth above. All
distributions of Available Cash required to be made pursuant to this Section
6.2.7 shall be made on the following dates (each date constituting a
"Distribution Date") first, on any date required to be made pursuant to the
provisions of this Plan or the Supplemental Adequate Protection Orders, second,
on the Effective Date, and thereafter, on the earlier of (i) such date as there
exists at least $5,000,000 of Available Cash, (ii) ten (10) Business Days
following the last day of each calendar quarter upon which
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there is at least $2,500,000 of Available Cash, (iii) ten (10) Business Days
following the last day of each calendar year upon which there is at least
$1,000,000 of Available Cash, (iv) ten (10) Business Days following the
entry of the Final Decree, to the extent of any Available Cash and Cash
maintained in the Alternative Treatment Account, or (v) as otherwise required to
GE Capital and to the Collateral Agent pursuant to the Supplemental Adequate
Protection Orders and the Alternative Treatment Implementation Orders.
6.3 TIMING OF DISTRIBUTIONS. Except as otherwise provided in this Article
6, or as may be ordered by the Bankruptcy Court, all distributions shall be made
on the respective Distribution Dates as specified in this Plan, or as soon as
practicable thereafter, and all distributions shall be deemed timely made if
made on such respective Distribution Dates or as soon as practicable thereafter.
6.4 DISPUTED PAYMENTS. Except as otherwise provided in the Supplemental
Adequate Protection Consent Orders, in the event of any dispute between and
among the holders of Claims or Interests as to the right of any Person to
receive or retain any payment or distribution to be made to such Person under
this Plan, the Distribution Agent may, in lieu of making such payment or
distribution to such Person, instead hold such payment or distribution until the
disposition thereof shall be determined by the Bankruptcy Court.
6.5 DELIVERY OF DISTRIBUTIONS AND UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS.
6.5.1 DELIVERY OF DISTRIBUTIONS IN GENERAL. Except as provided in the Class
5 Rights Notice, the New Rose's Warrant Agreement or New Rose's Common Stock
Trust Agreement, distributions to holders of Allowed Claims or Common Stock
Interests shall be made: (a) at the addresses set forth in the proofs of Claim
filed by such holders; (b) at the addresses set forth in any written notices of
address change delivered to the Debtor and transmitted to the Distribution Agent
after the date on which any related proof of Claim was filed; or if the
information described in clauses (a) or (b) is not available, (c) at the
addresses reflected in the Debtor's schedules of liabilities or the applicable
stock register as maintained by or on behalf of the Debtor on the applicable
Record Date.
6.5.2 DISTRIBUTIONS HELD BY DISTRIBUTION AGENT. If the distribution to any
holder of an Allowed Claim or Common Stock Interests is returned to a
Distribution Agent as undeliverable, no further distributions shall be made to
such holder, but shall be held by the Distribution Agent, unless and until the
applicable Distribution Agent is notified in writing of such holder's
then-current address, at which time all previously missed distributions shall be
mailed to such holder. Undeliverable distributions shall remain in the
possession of the applicable Distribution Agent until such time as a
distribution becomes deliverable. Undeliverable Cash shall be held in trust in
segregated bank accounts in the name of the applicable Distribution Agent for
the benefit of the potential claimants of such funds, and shall be accounted for
separately. Any Distribution Agent holding undeliverable Cash shall invest such
Cash in a manner consistent with Reorganized Rose's or the Debtor, as
applicable, investment and deposit guidelines and the requirements of Section
345 of the Bankruptcy Code. Undeliverable shares of New Rose's Common Stock or
New Rose's Warrants shall be held in trust for the benefit of the potential
claimants of such shares by the applicable Distribution Agent in numbers of
shares sufficient to fund the unclaimed amounts of such New Rose's Common Stock
and shall be accounted for separately.
6.5.3 FAILURE TO CLAIM UNDELIVERABLE DISTRIBUTIONS. Except upon a showing
of (i) excusable neglect and (ii) no prejudice to any Persons who have received
a distribution under the Plan (as determined by the Bankruptcy Court), any
holder of an Allowed Claim or Common Stock Interest that does not assert a right
to receive a distribution of Cash or shares of New Rose's Common Stock pursuant
to this Plan with respect to an undeliverable distribution within one year after
the first distribution shall have its right to receive such undeliverable
distribution discharged and shall be forever barred from asserting any such
right for an undeliverable distribution against the applicable Distribution
Agent and Reorganized Rose's or the Debtor, as applicable, or its property. In
such cases: (i) any Cash held for distribution on account of such Allowed Claims
for undeliverable distributions (including Cash interest and maturities on
undeliverable dividends and other distributions on undeliverable shares of New
Rose's Common Stock) shall be property of Reorganized Rose's or shall be
maintained by the Debtor in the Alternative Treatment Account, as applicable,
free of any restrictions thereon, and (ii) any shares of New Rose's Common Stock
held for issuance on account of such Claims or Common Stock Interest for
undeliverable distributions shall either be canceled or held as treasury shares
as Reorganized Rose's may determine is appropriate. To the extent that such
undeliverable Cash or shares of New Rose's Common Stock is held by a
Distribution Agent, such Distribution Agent shall return such Cash or shares or
other instruments evidencing such New Rose's Common Stock to Reorganized Rose's
or the Debtor, as applicable. Checks issued by a Distribution Agent in respect
of distributions to the holders of Allowed Claims or Common Stock Interest shall
be null and void if not cashed within 120 days of the date of issuance thereof.
Any amount paid by Reorganized Rose's or the Debtor, as applicable, to a
Distribution Agent in respect of such a check shall be promptly returned to
Reorganized Rose's or the Debtor, as applicable, by such Distribution Agent.
Requests for the reissuance of any
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check shall be made directly to the applicable Distribution Agent by the
holder of the Allowed Claim or Common Stock Interest with respect to which
such check was originally issued. Any Claim in respect of such a check voided
pursuant to this Section shall be made on or before the later of the first
anniversary of the first distribution or 90 days after the issuance of
such check. After such date, except upon a showing of (i) excusable neglect and
(ii) no prejudice to any Persons who have received a distribution under the Plan
(as determined by the Bankruptcy Court), all claims in respect of a check voided
pursuant to this Section shall be discharged and forever barred. Nothing
contained in this Plan shall require the Debtor, Reorganized Rose's, or any
Distribution Agent to attempt to locate any holder of an Allowed Claim or Common
Stock Interest.
6.6 FRACTIONAL DISTRIBUTIONS AND FRACTIONAL CENTS; ROUND LOTS. Any other
provision of this Plan notwithstanding, no fractional shares of New Rose's
Common Stock or New Rose's Warrants shall be issued or distributed in connection
with this Plan. Each holder entitled under the Plan to receive New Rose's Common
Stock or New Rose's Warrants shall receive the total number of whole New Rose's
Common Stock certificates or New Rose's Warrant certificates to which such
holder is entitled. Whenever any distribution to a particular holder would
otherwise call for a distribution under the Plan of a fraction of a share of New
Rose's Common Stock or of a New Rose's Warrant, the Distribution Agent will
allocate separately to each such holder one whole share or warrant, as the case
may be, to such holders in order of the fractional portion of their
entitlements, starting with the largest such fractional portion, until all
remaining whole shares or warrants, as the case may be, have been allocated.
Upon the allocation of a whole share or warrant, as the case may be, to a holder
in respect of the fractional portion of its entitlement, such fractional portion
shall be canceled. If two or more holders are entitled to equal fractional
entitlements and the number of holders so entitled exceeds the number of whole
shares or warrants, as the case may be, which remain to be allocated, the
Distribution Agent shall allocate the remaining whole shares or warrants to such
holders by random lot or such other impartial method that the Distribution Agent
deems fair. Upon the allocation of all the whole shares or warrants, as the case
may be, all remaining fractional portions of the entitlements shall be canceled
and shall be of no further force and effect. Whenever any payment of a fraction
of a cent would otherwise be called for, the actual payment shall reflect a
rounding down of such fraction to the nearest, lowest whole cent.
6.7 FULL AND FINAL SATISFACTION. Except as otherwise expressly provided
herein, full and complete performance by the Debtor and Reorganized Rose's
hereunder shall be in full and final satisfaction, settlement, release and
discharge of all Claims and Interests.
6.8 ALLOCATION OF DISTRIBUTIONS TO HOLDERS OF ALLOWED SECURED CLAIMS.
Except with respect to payments to the Pre-Petition Lenders, all payments made
hereunder to a holder of an Allowed Secured Claim with respect to which there is
accrued but unpaid interest as of the Effective Date shall be allocated first to
the principal amount of the Allowed Secured Claim and then to such accrued but
unpaid interest to the extent that the amount of the payments made under this
Plan to such a holder exceeds the principal amount of such claim.
ARTICLE VII
MEANS OF EXECUTION
In addition to the provisions set forth elsewhere in this Plan regarding
the means of execution, the following shall constitute the means of execution of
this Plan. Upon the implementation of the provisions of Section 7.16 of this
Plan, of the provisions of Article VII of this Plan, only Sections 7.1, 7.3,
7.4, 7.10(c), 7.12, 7.15 and 7.16 shall be operative and all remaining
provisions of this Article VII shall not be operative and shall be void and of
no force and effect.
7.1 FUNDS FOR DISTRIBUTION. The funds utilized to make the Cash payments
hereunder have been and will continue to be generated by, among other things,
the operation of the Debtor's businesses, asset dispositions and any
Post-Effective Date Financing Facility, or, in the case of distributions to be
made pursuant to the Alternative Treatment Provisions, from Cash constituting
the net proceeds of the sale or disposition of substantially all assets of the
Estate pursuant to the Supplemental Adequate Protection Orders, the Alternative
Treatment Implementation Orders, and/or Section 7.16 of this Plan. On any
Distribution Date, Reorganized Rose's shall cause to be available for
distribution shares of New Rose's Common Stock, the New Rose's Secured Notes and
the New Rose's Warrants.
7.2 POST-EFFECTIVE DATE FINANCING FACILITY. All loans, advances, debts,
guarantees, liabilities and obligations for monetary amounts (whether or not
such amounts are liquidated or determinable) owing by Reorganized Rose's to the
Post-Effective Date Lender, and all covenants and duties regarding such amounts,
of any kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under the Post-Effective Date Financing
Facility, including, without limitation, all interest, fees, charges, expenses,
attorneys' fees and any other sum chargeable to Reorganized
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Rose's under any of
the documents and agreements memorializing the Post-Effective Date Financing
Facility, shall be secured by valid and enforceable liens on, and security
interests in, the Post-Effective Date Collateral. The documents and agreements
memorializing the Post-Effective Date Financing Facility shall contain terms and
provisions consistent with those
portions of Section 5.1 of this Plan and Exhibit 5.1 to this Plan which are
expressly applicable to the Post-Effective Date Financing Facility. On the
Effective Date, Reorganized Rose's shall grant, and shall be hereby deemed to
grant, to the Post-Effective Date Lender liens and security interests in all of
the Post-Effective Date Collateral for the purpose of securing all obligations
and liabilities of Reorganized Rose's under the Post-Effective Date Financing
Facility, which security interests and liens shall constitute valid and
perfected first-priority security interests in and liens upon all Post-Effective
Date Collateral, superior to and with priority over all other security interests
and liens whether consensual or non-consensual, statutory or otherwise, and
whether existing now or in the future (including, without limitation, any liens
and security interests granted to the Pre-Petition Lenders pursuant to Section
5.1 of this Plan), except as to that portion of the Post-Effective Date
Collateral which is Permitted Encumbrance Collateral, as to which Permitted
Encumbrance Collateral the Post-Effective Date Lender shall have valid and
perfected security interests and liens subordinate only to, or PARI PASSU with,
as the case may be, all valid, perfected and unavoidable liens and security
interests existing thereon as of the Effective Date and described in the
Post-Effective Date Financing Facility. The terms of the Post-Effective Date
Financing Facility shall be subject to the approval of the Bankruptcy Court by
entry of its order prior to the Effective Date in form satisfactory to the Plan
Proponents, and the Post-Effective Date Lender. The liens and security interests
granted in favor of the Post-Effective Date Lender shall be effective and shall
be deemed created and fully perfected immediately upon the Effective Date and
without the necessity of the execution by the Debtor or Reorganized Rose's of
financing statements, mortgages, security agreements or any other documents. The
Post-Effective Date Lender shall not be required to file financing statements,
mortgages, deeds of trust, notices of lien, certificates of title or any other
instruments (collectively, "Instruments") in any jurisdiction or take any other
action in order to validate or perfect the liens and security interests granted
to the Post-Effective Date Lender and the entry of the Confirmation Order and
the occurrence of the Effective Date shall constitute immediate and full
perfection of the liens and security interests granted to the Post-Effective
Date Lender, notwithstanding any failure of the Post-Effective Date Lender to
file or otherwise perfect said security interests through such Instruments or
otherwise in accordance with any state or other applicable law. Notwithstanding
the foregoing, the Post-Effective Date Lender or any of its agents may, at its
sole discretion, choose to file any or all of such Instruments or otherwise
confirm perfection of such liens and security interests and all such Instruments
shall be deemed to have been filed or recorded at the time and on the date of
the Effective Date. In lieu of filing some or all of such Instruments, the
Post-Effective Date Lender or any of its agents may, at its sole discretion,
choose to file a certified copy of the Confirmation Order in any place at which
any of such Instruments would or could otherwise be filed, together with such
description of collateral located within the geographic area covered by such
place of filing as the Post-Effective Date Lender may determine, and such filing
shall have the same effect as if all such Instruments had been filed or recorded
at the time and on the date the Effective Date. Should the Post-Effective Date
Lender so choose to attempt to file such Instruments or a certified copy of the
Confirmation Order, or otherwise attempt to confirm perfection of any or all
such liens and security interests, no defect or failure in connection with such
attempt shall in any way limit, waive or alter the fact that such liens and
security interests are effective and fully perfected immediately upon and
forever after the Effective Date. The Pre-Petition Lenders acknowledge that
should they elect to file Instruments or otherwise confirm perfection of the
security interests granted as authorized by this Plan, said filing or other
confirmation of the security interests granted as authorized by the Plan shall
in no manner whatsoever vitiate, reduce or abrogate in any manner the first
priority security interests in respect of the collateral granted to the
Post-Effective Date Lender in accordance with the provisions of this Plan and
the Post-Effective Date Financing Facility, whether or not the Post-Effective
Date Lender ever chooses to file Instruments or otherwise confirm the respective
liens and security interests in the collateral granted to the Post-Effective
Date Lender as authorized (but not required) by this paragraph and irrespective
of the sequence of any such filings as between the Post-Effective Date Lender
and the Pre-Petition Lenders. In addition, if GE Capital is the Post-Effective
Date Lender, then, notwithstanding any termination of the DIP Facility or the
satisfaction of the GE Obligations or the provisions of any other section of
this Plan (including without limitation Section 9.1 hereunder), the documents,
instruments, agreements and orders comprising all or a portion of the DIP
Facility shall nonetheless remain in force and effect to the extent necessary or
desirable, in the sole discretion of GE Capital to allow the continuous
perfection of liens and encumbrances pursuant to Section 12.5 below. If any
obligations remain outstanding under the New Rose's Secured Notes at the time of
an event of default under the Post-Effective Date Financing Facility, which
event of default gives rise to a determination by the Post-Effective Date Lender
to exercise its right to effect the realization on Post-Effective Date
Collateral (through the sale of such Collateral outside the ordinary course of
Reorganized Rose's business), the rights and remedies set forth in Section 5.1.4
of the Plan may and shall be exercised with respect to such realization on
Post-Effective Date Collateral under the Post-Effective Date Financing Facility
after such an event of default thereunder to the extent and so long as such
rights and remedies are actually enforced by the Bankruptcy Court; PROVIDED,
HOWEVER, that (A) nothing shall limit any rights and remedies of the Post-
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Effective Date Lender except with respect to realization, through the sale
outside the ordinary course of Reorganized Rose's business, on Post-Effective
Date Collateral and (B) if for any reason the Bankruptcy Court fails to enforce
said rights and remedies with respect to the realization through the sale
outside the ordinary course of Reorganized Rose's business on Post-
Effective Date Collateral, the Post-Effective Date Lender shall not be limited
in any way with respect to the exercise of any rights and remedies.
7.3 CORPORATE ACTION. Pursuant to this Plan and Section 303 of the Delaware
General Corporation Law, the following shall be deemed to have occurred and be
effective, if applicable, as provided herein, and shall be authorized and
approved in all respects, without any requirement of further action by the
stockholders or directors of the Debtor or Reorganized Rose's, and with like
effect as if such actions had been taken by unanimous action of the stockholders
and directors of the Debtor or Reorganized Rose's, as applicable: the adoption
of the New Rose's Charter and the by-laws of Reorganized Rose's and the initial
selection of directors and officers of Reorganized Rose's; the distribution of
Cash and the issuance and distribution of the New Rose's Common Stock, New
Rose's Secured Notes, New Rose's Warrants and implementation of the terms and
provisions of the Class 5 Subscription, and all agreements thereunder; the
implementation of the Alternative Treatment Implementation Orders and the
Alternative Treatment Provisions, if applicable; and the implementation of the
other matters provided for under this Plan involving the corporate structure of
Reorganized Rose's or the Debtor, as applicable, including the merger of RSI
into Reorganized Rose's (if applicable), or any other corporate action to be
taken by or required of Reorganized Rose's or the Debtor, as applicable, and all
agreements and transactions provided for, or contemplated in this Plan.
7.4 CANCELLATION OF COMMON STOCK, PRE-PETITION WARRANTS, PRE-PETITION STOCK
OPTIONS AND PRE-PETITION SECURED NOTES AND SURRENDER OF COMMON STOCK,
PRE-PETITION WARRANTS AND PRE-PETITION SECURED NOTES. All Common Stock
Interests, Pre-Petition Warrants, Pre-Petition Stock Options and all promissory
notes under all agreements with the Pre-Petition Lenders including, without
limitation, Pre-Petition Secured Notes, shall be canceled, annulled and
extinguished as of the Effective Date; PROVIDED, HOWEVER, that the right to
receive distributions pursuant to Section 6.2 of this Plan shall survive such
cancellation, annulment and extinguishment. As of the close of business on the
Effective Date (or, with respect to Common Stock Interests, the Equity Record
Date), the transfer ledgers or registers and any other records determining
record ownership of the Debtor's equity and debt instruments maintained by the
Debtor or the Collateral Agent in the ordinary course shall be closed and there
shall be no further changes in the record holders of Interests and promissory
notes held by the Pre-Petition Lenders including, without limitation, the
Pre-Petition Secured Notes, on the books of the Debtor. The Debtor shall have no
obligation to recognize any thereafter occurring transfers of Interests or
transfers of the Pre-Petition Secured Notes held by the Pre-Petition Lenders,
but shall be entitled instead to recognize only those Persons who were
Pre-Petition Lenders or holders of such Interests as of the close of business on
the Effective Date (or the Equity Record Date, as applicable), as reflected on
the transfer ledgers or registers and any other records maintained by the Debtor
or the Collateral Agent in the ordinary course. Each such holder shall surrender
or cause to be surrendered the relevant instrument, if any, to Reorganized
Rose's for cancellation (or if such instrument has been stolen, lost, or
destroyed, in lieu thereof (x) a lost security affidavit and (y) a bond the
terms of which are reasonably required by Reorganized Rose's). Until a holder of
record on the Effective Date surrenders or causes to be surrendered the relevant
instrument, such holder shall have no rights with respect to any distribution
under this Plan.
7.5 NEW ROSE'S CHARTER. On the Effective Date, the New Rose's Charter will
become effective. The New Rose's Charter shall, together with the provisions of
this Plan, provide for, among other things, the authorization and issuance of
New Rose's Common Stock, New Rose's Secured Notes, New Rose's Warrants, the
constitution of the Reconstituted Board of Directors, and such other provisions
that are necessary to facilitate consummation of this Plan and the requirements
of the Bankruptcy Code, including a prohibition against the issuance of
nonvoting equity securities in accordance with Section 1123(a)(6) of the
Bankruptcy Code. The Reconstituted Board of Directors shall have no less than
seven and no more than thirteen directors. The Unsecured Committee in its sole
discretion shall have the right to select all but one director to serve on the
Reconstituted Board of Directors, and the Equity Committee in its sole
discretion shall have the right to select one director to serve on the
Reconstituted Board of Directors; PROVIDED, HOWEVER, that if the Subscription
Proceeds total $25 million or more, then the Equity Committee in its sole
discretion shall have the right to select a total of three directors to serve on
the Reconstituted Board of Directors; and further provided, that if the
Subscription Proceeds total more than 50% of the amount of the Full Recovery
Target Amount as of March 31, 1995, then the Equity Committee in its sole
discretion shall have the right to select a majority of the directors to serve
on the Reconstituted Board of Directors. In the event the Subscription Proceeds
total $25 million or more, within 180 days of the Effective Date, Reorganized
Rose's shall hold a special meeting of the stockholders for the purpose of
electing a new board of directors. The New Rose's Charter shall also provide
that, until such time as all obligations owing to the Pre-Petition Lenders'shall
be satisfied in full, neither Reorganized Rose's on its own behalf, nor any
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director, officer, agent, or professional thereof on behalf of Reorganized
Rose's, shall have the power or authority to cause Reorganized Rose's to be
subject to or to seek or obtain relief or file or commence any proceeding under
any chapter of the
Bankruptcy Code other than in Case No. 93-01365-5 (ATS) in the Bankruptcy Court
for the Eastern District of North Carolina to effectuate the provisions of the
Plan on and after the Effective Date, pursuant to which Reorganized Rose's was
created, and the New Rose's Charter shall not be amended to abrogate the
foregoing without the consent of the Pre-Petition Lenders until such time as all
obligations owing to the Pre-Petition Lenders have been satisfied in full.
7.6 VOTING POWERS. The certificate of incorporation of Reorganized Rose's
will provide that the holders of such of the New Rose's Common Stock as may,
from time to time, be issued and outstanding, may elect, using non-cumulative
voting, all directors of Reorganized Rose's subsequent to the initial
installation of the Reconstituted Board of Directors pursuant to Section 7.5 of
this Plan.
7.7 AUTHORIZATION AND ISSUANCE OF EQUITY AND DEBT INSTRUMENTS OF
REORGANIZED ROSE'S.
7.7.1 NEW ROSE'S COMMON STOCK. Pursuant to the New Rose's Charter, among
other things, Reorganized Rose's will be authorized to issue up to 50,000,000
shares of New Rose's Common Stock. On the Effective Date, Reorganized Rose's
will issue the Effective Date Shares pursuant to this Plan and shall reserve for
issuance 4,285,714 shares of New Rose's Common Stock to effectuate the New
Rose's Warrant Agreement and shares of New Rose's Common Stock in sufficient
number to effectuate the Management Incentive and Retention Program. All shares
of the New Rose's Common Stock to be issued pursuant to this Plan will be, upon
issuance, fully paid and non-assessable and shall be subject to dilution as set
forth in Section 6.2.2 (d) of this Plan, and the holders thereof will have no
preemptive or other rights to subscribe for additional shares.
7.7.2 NEW ROSE'S WARRANTS. Reorganized Rose's shall be authorized to issue
New Rose's Warrants, as provided in Sections 5.4 and 6.2.5 of this Plan and in
the New Rose's Warrant Agreement, for the purchase of New Rose's Common Stock
reserved for issuance pursuant to this Plan.
7.7.3 NEW ROSE'S SECURED NOTES. Pursuant to the New Rose's Charter, among
other things, Reorganized Rose's will be authorized and directed to issue New
Rose's Secured Notes to the Pre-Petition Lenders.
7.8 NEW ROSE'S COMMON STOCK ALLOCABLE TO MANAGEMENT OF REORGANIZED ROSE'S.
Pursuant to the Management Incentive and Retention Program, as and if approved
by the Committees and the Bankruptcy Court, and similar corporate policies that
may be implemented and administered by Reorganized Rose's on and after the
Effective Date, on the Determination Date the employees identified in accordance
therewith shall receive such shares, if any, of New Rose's Common Stock, as may
be approved. Any shares of New Rose's Common Stock distributed pursuant to the
Management Incentive and Retention Program will cause dilution with respect to
the interests provided to holders of Allowed Claims and Common Stock Interests
receiving distributions of New Rose's Common Stock pursuant to the terms of this
Plan.
7.9 APPLICABILITY OF SECTIONS 1125 AND 1145 OF THE BANKRUPTCY CODE TO THE
NEW ROSE'S COMMON STOCK ISSUED UNDER THE PLAN. The protection afforded by
Section 1125 of the Bankruptcy Code with regard to the solicitation of
acceptances or rejections of this Plan, and with regard to the offer, issuance,
sale or purchase of the New Rose's Secured Notes, New Rose's Common Stock, the
New Rose's Warrants and the rights to participate in the Class 5 Subscription
issued to and distributed pursuant to this Plan, shall apply to the full extent
provided by law, and the entry of the Confirmation Order shall constitute the
determination by the Bankruptcy Court that the Plan Proponents and Reorganized
Rose's (and if applicable, GE Capital, GE Capital Corporate Finance Group, Inc.
and GE Capital Commercial Finance, Inc.) and each of their respective officers,
directors, partners, employees, members or agents, and each Professional,
attorney, accountant, or other professional employed by any of them, shall have
acted in good faith and in compliance with the applicable provisions of the
Bankruptcy Code pursuant to Section 1125 of the Bankruptcy Code. In addition,
the Confirmation Order shall provide that the exemption from the requirements of
Section 5 of the Securities Act of 1933, 15 U.S.C. (section mark) 77e, and any
state or local law requiring registration for the offer or sale of a security
provided for in Section 1145 of the Bankruptcy Code shall apply to the New
Rose's Secured Notes, New Rose's Common Stock, the New Rose's Warrants and the
rights to participate in the Class 5 Subscription issued under this Plan.
7.10 CLASS 5 SUBSCRIPTION.
(a) As a Class, the holders of Common Stock Interests in Class 5 shall
collectively have rights to subscribe for and purchase up to 100% of the
Effective Date Shares at the per share price equal to 50% of the aggregate of
all Allowed Class 3 Claims and Class 3 Reserve Amounts divided by 10,000,000,
the number of Effective Date Shares, provided that the aggregate amount of
Subscription Proceeds equals at least $25 million, all in accordance with the
terms and provisions of the Class
25 M-215
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5 Rights Notice. To effectuate the Class 5 Subscription and elections
thereunder, Reorganized Rose's shall, within 5 days of the Equity Record
Date, send the Class 5 Rights Notice to each holder of a Common Stock
Interest in Class 5 as of the Equity Record Date. The Class 5 Rights
Notice shall notify such holders of their respective rights to acquire
New Rose's Common Stock by tender and payment of Cash, in an amount
equal to the number of shares of New Rose's Common Stock sought to
be acquired multiplied by the Class 5 Subscription Price. Such Cash
shall be payable to the Distribution Agent for deposit into the Subscription
Proceeds Escrow, which shall be held and maintained by the Distribution Agent
designated therein. In the event that the Subscription Proceeds in the
Subscription Proceeds Escrow as of March 31, 1995 do not equal or exceed $25
million, the Distribution Agent shall return to each Class 5 Subscriber the
subscription payment made by such Class 5 Subscriber, together with accrued
interest thereon. Upon tender of the fully executed Class 5 Rights Notice and
payment of the Subscription Price, and, upon the aggregate deposit of at least
$25 million of Subscription Proceeds into the Subscription Proceeds Escrow, all
of which having occurred prior to March 31, 1995, each Class 5 Subscriber shall
have the irrevocable right to receive distributions of shares of New Rose's
Common Stock constituting the Class 5 Subscription Stock Designation pursuant to
the following allocations: each Class 5 Subscriber shall be allocated initially
the lesser of (i) the number of shares for which it has subscribed and tendered
payment pursuant to the Class 5 Rights Notice, or (ii) its Pro-Rata share of
100% of the Effective Date Shares issued and outstanding on the Effective Date.
Any shares of the New Rose's Common Stock remaining unallocated after the
immediately foregoing allocation shall be allocated to each Class 5 Subscriber
who subscribed for more than its Pro-Rata share of New Rose's Common Stock in
the amount of such over-subscription. If a sufficient number of shares of New
Rose's Common Stock is not available to satisfy all such over-subscriptions, the
available shares will be allocated among the Class 5 Subscribers who have
over-subscribed based on each such Class 5 Subscriber's Pro-Rata share of Common
Stock Interests as of the Equity Record Date for the Class 5 Subscription. The
allocation process may involve a series of allocations to ensure that the total
number of shares available for over-subscription is distributed on the pro-rata
basis described immediately above.
(b) The Class 5 Subscription shall terminate on March 31, 1995 or such
other date as agreed to by the Debtor and the Committees. For not more than
three consecutive Business Days beginning on March 24, 1995, the Debtor will
issue a press release and cause to be published in the Wall Street Journal, at a
cost of no more than $40,000, notice of the Class 5 Subscription Price as
adjusted as of March 24, 1995.
(c) In the event that the Alternative Treatment Provisions are effective
pursuant to Section 8.1 of this Plan, any Cash including interest thereon in the
Subscription Proceeds Escrow shall be returned to the Class 5 Subscribers as
provided in the Class 5 Rights Notice.
7.11 MERGER OF RSI AND CANCELLATION OF RSI COMMON STOCK. On the Effective
Date, RSI shall be merged into Reorganized Rose's, in accordance with Delaware
General Corporation Law and any necessary orders of the Bankruptcy Court. Prior
to the Effective Date, RSI may be merged into the Debtor with the written
consent of the Unsecured Committee. Upon any merger of RSI into Reorganized
Rose's, all common stock of RSI shall deemed canceled, annulled and
extinguished. If such merger occurs, Reorganized Rose's shall assume, to the
fullest extent permitted by law and only if such obligations have not been
previously rescinded, canceled, terminated, or rejected prior to the Effective
Date, all obligations relating to indemnification and exculpation of RSI's
directors, officers, employees, fiduciaries, agents or controlling persons as of
the Effective Date as arise under applicable laws or as provided in any of (i)
the RSI's certificate of incorporation in effect prior to or as of the date
hereof, (ii) RSI's by-laws in effect prior to or as of the date hereof, or (iii)
any agreement with the RSI, in each of these cases (i) -- (iii) with respect to
matters occurring on or prior to the Effective Date.
7.12 RESERVE PROVISIONS FOR DISPUTED CLAIMS.
(a) All Cash, New Rose's Common Stock, or Available Cash, (as applicable),
to which a Disputed Claim otherwise would be entitled as an Allowed Claim in a
particular class as of a Distribution Date, shall not be distributed, but, if
necessary, shall be held in Reserve on the applicable Distribution Date by the
Debtor, in such amount as would have been distributed if the holder thereof had
an Allowed Claim in the full amount of its Disputed Claim; PROVIDED, HOWEVER,
that if a holder of a Contingent Claim is not receiving a distribution under
this Plan and such Contingent Claim is not being discharged by this Plan, or is
assumed by Reorganized Rose's, the Debtor shall not be required to reserve any
Cash, New Rose's Common Stock or Available Cash (as applicable), with respect
thereto.
(b) For the purposes of effectuating the provisions of this Section 7.12
and the distributions to holders of Allowed Claims and Common Stock Interests,
the Bankruptcy Court may fix or liquidate the Reserve Amount on account of a
particular Disputed Claim pursuant to Section 502(c) of the Bankruptcy Code, in
which event the amount so fixed or liquidated shall be deemed the amount of the
Disputed Claim pursuant to Section 502(c) of the Bankruptcy Code for purposes of
distribution
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under this Plan. In lieu of fixing or liquidating the amount of any Disputed
Claim, the Bankruptcy Court may determine the Reserve Amount for such Disputed
Claim, or such Reserve Amount may be fixed by agreement in writing by and
between the Debtor and the holder thereof. Each of the Debtor, the Unsecured
Committee and the Equity Committee shall have standing to (i) move for an
order of the Bankruptcy Court, pursuant to Section 502(c) of the Bankruptcy
Court, fixing or liquidating the Reserve Amount for any and all Disputed
Claims in Class 3 to be deposited into a Reserve, and (ii) object to any
Disputed Claim or any Reserve Amount fixed on account of any Disputed Claim;
PROVIDED, HOWEVER, that the Equity Committee shall have no such standing in
the event that an Alternative Treatment Event is effective and not waived.
In the event that any Disputed Claim has not been fixed or liquidated pursuant
to this Section 7.12(b), the Reserve Amount with respect to such Disputed
Claim shall be equal to the face amount of the Disputed Claim.
(c) No holder of a Disputed Claim shall have any Claim against the Cash
and/or New Rose's Common Stock, or Available Cash (as applicable), reserved with
respect to such Claim until such Disputed Claim shall become an Allowed Claim.
In no event shall any holder of any Disputed Claim or unliquidated Claim be
entitled to receive (under this Plan or otherwise) from the Debtor, Reorganized
Rose's or the Reserve, any payment, in Cash and New Rose's Common Stock or other
property, or Available Cash (as applicable), which is greater than the Reserve
Amount deposited into a Reserve for such Claim pursuant to this Section 7.12
plus any interest, if applicable, earned thereon. In no event shall the Debtor
or Reorganized Rose's have any responsibility or liability for any loss to or of
any amount reserved under this Plan.
(d) When a Disputed Claim becomes an Allowed Claim, distribution on account
thereof shall be made as soon as practicable after the date of subsequent
allowance of such Disputed Claim as provided in Article 6 of this Plan, by means
determined by Reorganized Rose's; PROVIDED, FURTHER, to the extent that any such
distributions include Cash, then such distributions shall also include interest
accrued from the Effective Date (net of Pro-Rata assessment for reasonable fees
and expenses incurred in administering the Reserve).
(e) To the extent a Disputed Claim ultimately becomes an Allowed Claim in
an amount less than the amount reserved for such Disputed Claim, then the
resulting surplus of Cash, and New Rose's Common Stock, or Available Cash (as
applicable) (together with any interest, if applicable, thereon), shall be
retained by Reorganized Rose's or held in the treasury of Reorganized Rose's, as
applicable; PROVIDED, HOWEVER, that any cash remaining in the Subscription
Proceeds Escrow including accrued interest thereon, after distributions to
Disputed Claims in Class 3 that become Allowed Claims in Class 3, shall be
distributed as set forth in Section 6.2.3 of this Plan.
(f) As of the Equity Record Date, Reserve Amounts shall have been fixed
pursuant to Section 7.12(b) of this Plan for all Disputed Claims in Class 3.
Upon resolution of a Disputed Claim in Class 3, any Reserve Amount which was
previously fixed for such Disputed Claim shall be set to zero, the total Reserve
Amount for Disputed Claims in Class 3 shall be reduced accordingly, and any Cash
deposited in a Reserve on account of such Disputed Claim together with accrued
interest thereon shall be distributed to the holder of such Disputed Claim to
the extent that such Disputed Claim has become an Allowed Claim, and shall
otherwise be deposited into the Subscription Proceeds Escrow.
7.13 VOTING OF UNDISTRIBUTED NEW ROSE'S COMMON STOCK. Shares of New Rose's
Common Stock issued or reserved for issuance under this Plan shall not be voted
in any election of directors of Reorganized Rose's, or any other matter
requiring the vote of shareholders, until such time as the New Rose's Common
Stock has actually been distributed to a holder of an Allowed Claim or Common
Stock Interest, or to an employee of Reorganized Rose's entitled to receive
shares of New Rose's Common Stock pursuant to the Management Incentive and
Retention Program. In addition, a holder of a Disputed Claim shall not be
entitled to vote in any election of directors of Reorganized Rose's, or any
other matter requiring the vote of shareholders until such time as the Disputed
Claim has become an Allowed Claim, and the holder of such Allowed Claim has
received its distribution and become a shareholder of record of Reorganized
Rose's.
7.14 PRESERVATION OR WAIVER OF RIGHTS OF ACTION OF THE ESTATE. Except as
expressly provided to the contrary in this Plan, such as provided in, without
limitation, Sections 9.2, 9.3 and 9.4, the Supplemental Adequate Protection
Consent Orders, the DIP Facility, or any other contract, instrument, release,
indenture or other agreement entered into in connection with this Plan, in
accordance with Section 1123(b) of the Bankruptcy Code, Reorganized Rose's shall
retain and may enforce any claims, rights and causes of action that the Estate
may hold against any Person, including, without limitation, any rights of setoff
or recoupment. Reorganized Rose's or its successors may pursue any such retained
claims, rights or causes of action, as appropriate, in accordance with the best
interests of Reorganized Rose's. Notwithstanding the foregoing, on the Effective
Date, all preference and other avoidance power actions not commenced prior to
the Effective Date that the Debtor, the Estate or Reorganized Rose's could have
commenced pursuant to Sections 544, 545, 547, 548, 550 and 553 of the Bankruptcy
Code, and all rights to withhold any distribution on account of the receipt of
any payment that is recoverable under such Bankruptcy Code sections shall be
deemed waived irrevocably, PROVIDED, HOWEVER, unless waived or released pursuant
to
27 M-217
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order of the Bankruptcy Court, in the event that the Alternative Treatment
Provisions of this Plan are effective, there shall be no waiver of preference
claims or other avoidance power actions.
7.15 USE OF ADR PROCEDURE REGARDING DETERMINATION AND ALLOWANCE OF DAMAGE
CLAIMS. Notwithstanding anything contained in this Plan to the contrary, the ADR
Procedure shall govern all matters relating to the determination and allowance
of Damage Claims, and the payment of Cash only to Damage Claims which become
Allowed Claims in an amount less than $500 in lieu of the treatment set forth in
this Plan for Claims in Class 3. Reorganized Rose's shall be authorized and
empowered to take all action reasonably necessary and appropriate to effectuate
the ADR Procedure.
7.16 IMPLEMENTATION OF ALTERNATIVE TREATMENT PROVISIONS. Except to the
extent that an Alternative Treatment Event (as defined in the Second
Supplemental Adequate Protection Consent Order) shall be effective and GE
Capital or the Pre-Petition Lenders shall be entitled to exercise their
respective rights and remedies pursuant to the Second Supplemental Adequate
Protection Consent Order and the DIP Facility (in which event all distributions
shall be made in accordance with the provisions of the Supplemental Adequate
Protection Orders and the DIP Facility), and except as provided in Section
5.8.1(a) and (b) of this Plan, in the event that the Alternative Treatment
Provisions are effective pursuant to Sections 8.1 and 8.2 of this Plan, the
provisions of this Section 7.16, together with Sections 7.1, 7.3, 7.4, 7.10(c),
7.12 and 7.15 of this Plan, shall constitute the means of execution of this Plan
and shall be the only operative provisions of this Article VII. Prior to the
Effective Date, the Debtor shall have obtained entry of certain of the
Alternative Treatment Implementation Orders, and pursuant thereto and this Plan,
as necessary, the Debtor shall have effectuated the Final GOB Sales, which shall
not occur prior to January 1, 1995, in accordance with all provisions of Section
5.1.4 of this Plan provided that the following terms used in Section 5.1.4 shall
be substituted for in such event as follows: "Section VI of Exhibit 5.1" by
"Section 7.16 of this Plan"; "Reorganized Rose's" by "the Debtor";
"Post-Effective Date Lender" by "GE Capital"; "Post-Effective Date Financing
Facility" by "DIP Facility"; "New Rose's Secured Notes" by "Pre-Petition
Lenders' Allowed Secured Claims"; "Plan" by "estate"; "Reconstituted Board of
Directors" by "Unanimous Consent of the Debtor, the Pre-Petition Lenders, the
Unsecured Committee and GE Capital"; and "Post-Effective Date Trade Committee"
by "Unsecured Committee"; and shall have satis-
fied in full the GE Obligations and the Pre-Petition Lenders' Allowed Secured
Claims as required pursuant to Section 5.8.1 of this Plan.
7.16.1 CERTAIN REQUIREMENTS UNDER ALTERNATIVE TREATMENT PROVISIONS. Upon
the occurrence of an Alternative Treatment Event (as defined in the Second
Supplemental Adequate Protection Consent Order), or if the Alternative Treatment
Provisions of this Plan are effective, from and after the Effective Date, the
Debtor shall continue in existence for the limited purposes of (i) the
continuation until completion of sales or other disposition of all assets of the
Estate, (ii) the resolution of all Disputed Claims and the oversight of all
Reserves established in connection therewith, (iii) the prosecution, compromise
or abandonment of all Avoiding Power Actions, (iv) the investment, maintenance
and distribution of the Disposition Proceeds, Available Cash, all Unclaimed
Property, the Reserves and the Alternative Treatment Account, (v) winding up all
business affairs and the corporate existence of the Debtor, (vi) taking any and
all action necessary and appropriate to implement the Alternative Treatment
Implementation Orders and the Alternative Treatment Provisions of the Plan, and
(vii) consummating this Plan as a plan of liquidation. Prior to the Effective
Date, RSI may be merged into Reorganized Rose's with the written consent of the
Unsecured Committee. Without limiting the generality of the foregoing, on and
after the Effective Date:
(a) After satisfaction in full of (i) the GE Obligations and (ii) the
Pre-Petition Lenders' Allowed Secured Claims, the Debtor shall establish the
Alternative Treatment Account as of the Effective Date with such amount of Cash
as determined pursuant to the Alternative Treatment Implementation Orders. From
and after the Effective Date through the Consummation Date, all costs and
expenses of the Debtor shall be paid by it from Cash in the Alternative
Treatment Account in accordance with ordinary business terms. In the event that
the Debtor determines that additional Cash is required in the Alternative
Treatment Account, the Debtor may deposit additional Disposition Proceeds into
the Alternative Treatment Account upon the approval of the Post-Effective Date
Trade Committee. Prior to the entry of the Final Decree, all Cash maintained in
the Alternative Treatment Account shall be converted into Available Cash except
for such amount determined by order of the Bankruptcy Court to be necessary to
fund any and all work and acts associated with the winding up of all business
affairs of the Debtor and the dissolution of its corporate existence.
(b) Except as expressly provided otherwise in the Alternative Treatment
Implementation Orders, the Second Supplemental Adequate Protection Consent
Order, the Alternative Treatment Provisions, this Plan (including Sections 9.2
and 9.3 hereof), or as determined by order of this Court, the Debtor shall
retain and may enforce any claims, rights and causes of action that the Debtors
or its Estate may hold against any person, including, without limitation, all
Avoiding Power Actions.
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(c) Notwithstanding anything to the contrary in the Alternative Treatment
Provisions, the ADR Procedure shall govern all matters relating to the
determination and allowance of Damage Claims, PROVIDED, that no Cash shall be
paid to the holders of Damage Claims which become Allowed Claims after the
Alternative Treatment Date in an amount less than $500 unless
and until Distributions are made to holders of Allowed Claims in Class 3
pursuant to Section 6.2.7 of this Plan, and, then, only to the extent of such
holder's Pro-Rata share of such Available Cash as is so distributed.
(d) The Debtor, subject to the consent of the Post-Effective Date Trade
Committee, may retain the services of attorneys, accountants and other agents
necessary to assist and advise the Debtor in the performance of its duties. The
fees and expenses of such professionals shall be subject to the review of the
Post-Effective Date Trade Committee for reasonableness and paid without further
order of the Bankruptcy Court upon the monthly submission of such invoices in
accordance with the following procedure. Invoices for such fees and expenses
shall be submitted to the Post-Effective Date Trade Committee simultaneously
with or prior to the submission of such invoices to the Debtor. Ten (10) days
after the Debtor's receipt of any such invoice, the Debtor shall be authorized
to pay such invoice without further order of the Bankruptcy Court unless the
Debtor and/or the Person seeking payment has received a written objection to the
payment thereof from the Post-Effective Date Trade Committee within such period.
In the event fees and expenses of any professional retained by the Debtor are
objected to by either the Debtor or the Post-Effective Date Trade Committee,
such fees and expenses shall be subject to and payable only upon Bankruptcy
Court approval or prior agreement of the parties.
(e) Such officers of the Debtor who are necessary to effectuate the
Alternative Treatment Provisions of this Plan shall receive compensation for
services and shall be reimbursed for reasonable expenses incurred in connection
with the administration of the Debtor in accordance with the terms of such
agreement entered into by the Debtor and such officer with the consent of the
Unsecured Committee. Neither the officer of the Debtor nor the Debtor, nor any
designees, counsel or accountants or any duly designated agent or representative
thereof, shall be liable for anything other than willful misconduct, gross
negligence or fraud. The officer and the Debtor may, in connection with the
performance of their functions, and in their sole and absolute discretion,
consult with counsel, accountants and their agents, and shall not be liable for
anything done or omitted or suffered to be done in accordance with such advice
or opinions. If the officer or the Debtor determines not to consult with
counsel, accountants or their agents, such determination shall not be deemed to
impose any liability on the officer or the Debtor and/or their designees. The
officer shall be indemnified by the Debtor for all acts performed in his
capacity as officer, which acts shall include, but not be limited to, the
administration of the Debtor, and performance of such other services required by
the Plan in accordance with the terms and provisions of such agreement entered
into by the Debtor and such officer with the consent of the Unsecured Committee.
Pursuant to the terms of the Plan, the officer's and the Debtor's designees,
counsel, accountants, representatives and duly designated agents shall be
indemnified for all acts performed hereunder.
7.16.2 LIQUIDATION OFFICER. After the occurrence of an Alternative
Treatment Event (as defined in the Second Supplemental Adequate Protection
Consent Order) that is not waived, and if and only if all the obligations owing
to GE Capital and the Pre-Petition Lenders have been satisfied in full, the
Unsecured Committee shall have the right to submit an EX PARTE order providing
for the appointment of an individual to be in charge of the Debtor's liquidation
or a responsible person, who shall thereafter govern and control the Debtor and
shall be vested with all rights, privileges and powers of a Trustee appointed
pursuant to Section 1104 of the Bankruptcy Code. The individual in charge of the
liquidation, or the responsible person, as the case may be, shall have no claim
against the collateral of GE Capital or the Pre-Petition Lenders under Section
506(c) of the Bankruptcy Code. From and upon appointment, the individual in
charge of liquidation, or the responsible person, as the case may be, shall be
bound by the terms, conditions and provisions of this Plan in its entirety. The
respective rights, remedies and privileges of GE Capital and the Pre-Petition
Lenders under this Plan shall not be impaired in any way by the appointment of
such individual or any actions taken by the Debtor after such appointment, and
all such rights and remedies shall exist to the same extent as before such
appointment.
ARTICLE VIII
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF THE PLAN
8.1 CONDITIONS TO THE IMPLEMENTATION OF THE ALTERNATIVE TREATMENT
PROVISIONS. In the event that any of the following shall have occurred on or as
of the applicable Alternative Treatment Date and shall not have been waived by
all Plan Proponents and GE Capital (or, with respect to Sections 8.1(g) and (h),
by the Unsecured Committee), the Alternative Treatment Provisions shall be
effective; PROVIDED, HOWEVER, that if an Alternative Treatment Event (as defined
in the Second Supplemental Adequate Protection Consent Order) shall be effective
and GE Capital or the Pre-Petition Lenders shall be entitled to exercise
29 M-219
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their respective rights and remedies pursuant to the Second Supplemental
Adequate Protection Consent Order and the DIP Facility, the provisions of the
Supplemental Adequate Protection Orders shall govern with respect to all matters
addressed therein, including the sale of the Debtor's assets and the
distribution proceeds.
(a) The Debtor shall not have made the First Payment, the Supplemental
Payment, the Second Payment (or any and all Second Payment Installments) or the
Final Payment (or any and all Final Payment Installments), as such terms are
defined in the Second Supplemental Adequate Protection Consent Order,
notwithstanding the occurrence, satisfaction or waiver of all First Payment
Conditions, all Second Payment Conditions, or all Final Payment Conditions (as
such terms are defined in the Second Supplemental Adequate Protection Consent
Order) as applicable.
(b) The Debtor shall not, by December 31, 1994, have made payments to the
Pre-Petition Lenders pursuant to the Supplemental Adequate Protection Orders
(excluding payments with respect to any Supplemental Payment as defined in the
Second Supplemental Adequate Protection Consent Order) aggregating at least $52
million.
(c) The Debtor shall not have made the full amount of the Final Payment (as
defined in the Second Supplemental Adequate Protection Consent Order) to the
Pre-Petition Lenders, by a single payment or installments, in full, by January
20, 1995.
(d) The Joint Plan shall not have been confirmed by this Court pursuant to
Section 1129 of the Bankruptcy Code by December 31, 1994.
(e) The Actual EBITDA is less than $25 million.
(f) The Effective Date shall not have occurred by April 30, 1995, or such
later date as the Plan Proponents shall have agreed upon in writing.
(g) Unless waived by the Unsecured Committee, the Debtor (i) as of January
20, 1995, has not paid post-petition trade payables pursuant to invoice terms
which are due and payable by January 15, 1995 which are not the subject of a
BONA FIDE dispute, (ii) has failed to issue and deliver to the Unsecured
Committee and the Pre-Petition Lenders the Certification provided for in
paragraph 8 of the Second Supplemental Adequate Protection Consent Order or
(iii) has failed to make available to the financial advisors of the Unsecured
Committee such financial data of the Debtor necessary to verify the statements
contained in the Certification.
(h) Unless waived by the Unsecured Committee, on the date that would
otherwise be the Effective Date, after taking into account the effect of making
all cash payments required to be made under this Plan by the Effective Date, the
actual DIP Cushion (as defined in the Second Supplemental Adequate Protection
Consent Order) is (or would be) more than $8 million less than the budgeted DIP
Cushion amount set forth on the chart annexed to and made a part of the Second
Supplemental Adequate Protection Consent Order.
(i) In the event that (i) none of the foregoing conditions shall have
occurred on or as of the applicable Alternative Treatment Date, or (ii) all of
the foregoing conditions which occurred on or as of the applicable Alternative
Treatment Date have been waived in writing by all Plan Proponents and GE Capital
(except with respect to Sections 8.1(g) and (h), which need only be waived by
the Unsecured Committee), the Alternative Treatment Provisions and any other
provisions of this Plan effective only in conjunction with the Alternative
Treatment Provisions shall not be operative, and shall be null and void, and of
no force and effect.
8.2 CONDITIONS TO THE EFFECTIVE DATE. The following conditions must occur
and be satisfied for this Plan to be effective and for the Effective Date to
occur:
(a) Confirmation must have occurred pursuant to the Confirmation Order;
PROVIDED, HOWEVER, that if the Alternative Treatment Provisions (as defined in
this Plan) are effective, or any Alternative Treatment Event (as defined in the
Second Supplemental Adequate Protection Consent Order) has occurred and is not
timely remedied or waived, then the Pre-Petition Lenders' Allowed Secured Claims
and GE Obligations must first be satisfied in full before the Effective Date can
occur.
(b) The Debtor shall (i) have entered into a Post-Effective Date Financing
Facility sufficient for the operations of Reorganized Rose's, or, (ii) in the
event any Alternative Treatment Provisions are effective, have effectuated the
Final GOB Sales and, unless the Second Supplemental Adequate Protection Consent
Order is stayed, fully satisfied all GE Obligations and the Pre-Petition
Lenders' Allowed Secured Claims, respectively, pursuant to the Second
Supplemental Adequate Protection Consent Order, or if such order is stayed, this
Plan and/or any Alternative Treatment Implementation Orders.
M-220 30
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(c) All documents and agreements contemplated to be executed or implemented
in connection with this Plan including, without limitation, those documents and
agreements which are expressly identified herein or in the Disclosure Statement,
shall be filed with the Bankruptcy Court in a substantially final form, and the
New Rose's Secured Notes Documents shall be in a form reasonably acceptable to
the Pre-Petition Lenders and to the Post-Effective Date Lender.
(d) The Debtor shall be able to effectuate all Cash distributions required
to be made on the Effective Date under this Plan.
(e) The Effective Date shall not occur before March 31, 1995.
8.3 WAIVER OF CONDITIONS TO THE EFFECTIVE DATE. The condition precedent set
forth in Section 8.2(c) of this Plan with respect to those documents requiring
negotiations between or among any of the Debtor, GE Capital, the Pre-Petition
Lenders, the Equity Committee, and the Unsecured Committee, may be waived with
the consent of the respective applicable parties, and in Section 8.2(e), may be
waived with the consent of the Plan Proponents and GE Capital. Otherwise, none
of the conditions precedent set forth in Sections 8.2(a), (b), or (d) of this
Plan may be waived except upon the express written agreement of all Plan
Proponents and GE Capital.
ARTICLE IX
DISCHARGE, RELEASES, INJUNCTIONS AND RELATED PROVISIONS
9.1 DISCHARGE. Except as otherwise expressly provided in Section 1141 of
the Bankruptcy Code or this Plan, and except in the event the Alternative
Treatment Provisions are effective pursuant to Section 8.1 of the Plan, the
distributions made pursuant to and in accordance with the applicable terms and
conditions of this Plan will be in full and final satisfaction, settlement,
release and discharge as against the Debtor, of any debt that arose before the
Effective Date and any debt of a kind specified in Section 502(g), 502(h) or
502(i) of the Bankruptcy Code and all Claims and Interests of any nature,
including without limitation any interest accrued thereon from and after the
Filing Date whether or not (i) a proof of Claim or Interest based on such debt,
obligation or interest is filed or deemed filed under Section 501 of the
Bankruptcy Code, (ii) such Claim or Interest is allowed under Section 502 of the
Bankruptcy Code or (iii) the holder of such Allowed Claim or Interest has
accepted this Plan. Therefore, upon the Effective Date, except as otherwise
provided in this Plan, all Persons which are or could have been holders of
Claims against, or Interests in, the Debtor shall be precluded from asserting
against the Debtor or Reorganized Rose's, or any of their assets or properties,
any other or further Claims or Interests based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date, and the Confirmation Order shall permanently enjoin said holders
of Claims or Interests, their successors and assigns, from enforcing or seeking
to enforce any such Claims or Interests, subject to the occurrence of the
Effective Date.
9.2 RELEASES OF RELEASED PARTIES. As of the Effective Date, each of the
Released Parties are hereby released from any and all claims asserted or that
can be asserted against such Released Party that arise out of such Released
Party's relationship with or work performed for the Debtor on or prior to the
Effective Date, other than claims which constitute (i) claims preserved against
such Released Party pursuant to the Plan, (ii) claims that arise from
obligations created under or in connection with the Plan, (iii) rights pursuant
to this Plan or any agreement provided for or contemplated in this Plan, or (iv)
claims which may be asserted against such Released Party by an insurance carrier
or the issuer of a bond in connection with any insurance contract, reinsurance
contract, surety bond, fidelity bond, or other type of insured or bonded
obligation; PROVIDED, HOWEVER, that the foregoing release provisions (i) shall
not apply to such Released Party's gross negligence or willful misconduct, and
(ii) shall not apply to (a) any Released Party who is the subject of any action
or proceeding pending as of the Effective Date to recover property or money for
the benefit of the Estate, or (b) any claims asserted by or against any of the
Debtor's present or former officers or directors in any action or proceeding
pending as of the Effective Date; and PROVIDED, HOWEVER, that (i) in the case of
the Pre-Petition Lenders, the scope of the foregoing release as and to the
extent given by the Pre-Petition Lenders shall extend only to claims of the
Pre-Petition Lenders arising on or prior to the Effective Date against any of
the Released Parties solely in the Pre-Petition Lenders' capacity as the holders
of the Pre-Petition Secured Notes and not to the extent of any other claims
arising out of any other relationship which any of the Pre-Petition Lenders may
have with the Debtor or any of the Released Parties, including, without
limitation, any insurance, fidelity bond or suretyship relationship; and (ii) in
the case of GE Capital, the scope of the foregoing release as and to the extent
given by GE Capital shall extend only to the claims of GE Capital arising on or
prior to the Effective Date against any of the Released Parties solely in GE
Capital's capacity as the lender under the DIP Facility and shall not extend to
any other claims of GE Capital arising out of any other relationship which GE
Capital may have with the Debtor or any of the Released Parties.
31 M-221
<PAGE>
9.3 RELEASES BY THE DEBTOR AND REORGANIZED ROSE'S. Except as, and only to
the extent, provided otherwise in this Plan, as of the Effective Date, the
Debtor, the Estate and Reorganized Rose's shall be deemed to forever release,
waive and discharge all known and unknown claims of any nature that the Debtor,
its Estate, or Reorganized Rose's has, had or may have against any Released
Party for all acts and omissions through the Effective Date other than (i)
claims preserved against such Released Party pursuant to the Plan, (ii) claims
that arise from obligations created under or in connection with the Plan,
(iii) any claims asserted against any of the Debtor's present or former officers
or directors in any action or proceeding pending as of the Effective Date or
(iv) claims which may be asserted against such Released Party through
subrogation or otherwise by an insurance carrier or the issuer of a bond in
connection with any insurance contract, reinsurance contract, surety bond,
fidelity bond, or other type of bonded obligation. Except in the event that the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of the
Plan, as of the Effective Date, the Debtor and Reorganized Rose's shall also be
deemed to forever release, waive and discharge all Avoiding Power Actions.
9.4 RELEASES BY RECIPIENTS OF NEW ROSE'S COMMON STOCK, NEW ROSE'S SECURED
NOTES, NEW ROSE'S WARRANTS AND CASH, OR AVAILABLE CASH (AS APPLICABLE), AND BY
ALL OTHER PERSONS. Except as, and only to the extent, otherwise provided in this
Plan, each Person receiving Cash, New Rose's Secured Notes, New Rose's Warrants,
the right to participate in the Class 5 Subscription and/or New Rose's Common
Stock, Available Cash (as applicable), or other distribution or payment pursuant
to this Plan on account of its Allowed Claim, Administrative Claim or Common
Stock Interest, as the case may be, shall be deemed, as of the Effective Date,
to forever release, waive and discharge all known and unknown claims of any
nature arising on or prior to the Effective Date against each of the Released
Parties to the extent that such claims arise out of such Released Party's
actions or failure to act in connection with the Debtor, the Committees, the
Chapter 11 Case, or claims otherwise treated and discharged under this Plan,
other than claims which constitute (i) claims preserved against such Released
Party pursuant to the Plan, (ii) claims that arise from obligations created
under or in connection with the Plan, (iii) such Person's rights pursuant to
this Plan or any agreement provided for or contemplated in this Plan or (iv)
claims which may be asserted against such Released Party by an insurance carrier
or the issuer of a bond in connection with any insurance contract, reinsurance
contract, surety bond, fidelity bond, or other type of insured or bonded
obligation; PROVIDED, HOWEVER, that the foregoing release provisions (i) shall
not apply to such Released Party's gross negligence or willful misconduct, and
(ii) shall not apply to (a) any Released Party who is the subject of any action
or proceeding pending as of the Effective Date to recover property or money for
the benefit of the Estate, or (b) any claims asserted by or against any of the
Debtor's present or former officers of directors in any action or proceeding
pending as of the Effective Date; and PROVIDED, HOWEVER, that (i) in the case of
the Pre-Petition Lenders, the scope of the foregoing release as and to the
extent given by the Pre-Petition Lenders shall extend only to claims of the
Pre-Petition Lenders arising on or prior to the Effective Date against any of
the Released Parties solely in the Pre-Petition Lenders' capacity as the holders
of the Pre-Petition Secured Notes and not to the extent of any other claims
arising out of any other relationship which any of the Pre-Petition Lenders may
have with the Debtor or any of the Released Parties, including, without
limitation, any insurance, fidelity bond or suretyship relationship; and (ii) in
the case of GE Capital, the scope of the foregoing release as and to the extent
given by GE Capital shall extend only to the claims of GE Capital arising on or
prior to the Effective Date against any of the Released Parties solely in GE
Capital's capacity as the lender under the DIP Facility and shall not extend to
any other claims of GE Capital arising out of any other relationship which GE
Capital may have with the Debtor or any of the Released Parties. Nothing in this
Plan shall be construed as a release by GE Capital of any of the GE Obligations.
9.5 LIMITATIONS ON AMOUNTS TO BE DISTRIBUTED TO HOLDERS OF ALLOWED CLAIMS
WHICH ARE INSURED. Notwithstanding any provision in this Plan to the contrary,
no property shall be distributed to or retained by the holders of Allowed Claims
whose Claims may be satisfied solely pursuant to the terms of the Debtor's
applicable insurance policies. Except as otherwise provided for in this Plan,
nothing in this Section 9.5 shall constitute a waiver of any claim, debt, right,
cause of action or liability that any Person may hold against any other entity,
including any of the Debtor's insurance carriers.
9.6 GENERAL RELEASE OF LIENS. Except as otherwise provided in this Plan,
the New Rose's Secured Notes or the Post-Effective Date Financing Facility, or
in any contract, instrument, indenture or other agreement or document created in
connection with this Plan or the implementation hereof, on the Effective Date,
all mortgages, deeds of trust, liens or other security interest against property
of the Estate will be released, and all the right, title and interest of any
holder of such mortgages, deeds of trust, liens or other security interests
shall revert to Reorganized Rose's or the Debtor, as applicable, and the
successors and assigns thereof.
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9.7 INJUNCTIONS.
9.7.1 INJUNCTION RELATED TO CLAIMS RELEASED BY THE DEBTOR AND REORGANIZED
ROSE'S (IF APPLICABLE), RECIPIENTS OF CASH, NEW ROSE'S COMMON STOCK, NEW ROSE'S
SECURED NOTES AND NEW ROSE'S WARRANTS, OR AVAILABLE CASH (IF APPLICABLE), AND
ALL OTHER PERSONS. As of the Effective Date and subject to its occurrence, all
Persons that have held, currently hold or may have asserted a Claim or other
debt, or liability or an interest or other right of a holder of an Interest,
that is released or terminated pursuant to Sections 9.1 (if applicable), 9.2,
9.3, 9.4 or 9.6 above are, except as provided with respect to the New Rose's
Secured Notes, the New Rose's Secured Notes Documents, the Supplemental Adequate
Protection Orders, the New Rose's Common Stock and the New Rose's Warrants,
permanently enjoined from taking any of the following actions on account of such
released Claims, debts or liabilities or Interests: (i) commencing or
continuing, in any manner or in any place, any action or other proceeding, (ii)
enforcing, attaching, collecting or recovering in any manner any judgment,
award, decree or order, (iii) creating, perfecting or enforcing any lien or
encumbrance, (iv) asserting a set-off, right or subrogation or recoupment of any
kind against any debt, liability or obligation due to any such releasing Person,
and (v) commencing or continuing any action, in any manner or in any place, that
does not comply with or is inconsistent with the provisions of this Plan.
9.7.2 INJUNCTION RELATING TO THE PLAN. As of the Effective Date, except as
otherwise provided herein and in Section 9.7.4 of this Plan, all Persons are
permanently enjoined from commencing or continuing, in any manner or in any
place, any action or other proceeding, whether directly, derivatively or
otherwise against any or all of the Released Parties, on account of or
respecting any claims, debts, rights, causes of action or liabilities released
or discharged pursuant to this Plan, except to the extent permitted under the
Plan.
9.7.3 CONSENT BY HOLDERS OF CLAIMS AND INTERESTS TO ENTRY OF INJUNCTIVE
RELIEF. Without limitation to the scope, extent, validity or enforceability of
the injunctive relief set forth in this Section 9.7 and in the Confirmation
Order, by accepting distributions pursuant to this Plan, each holder of an
Allowed Claim or Interest receiving distributions pursuant to this Plan shall be
deemed to have specifically consented to the releases and injunctions set forth
in this Article IX.
9.7.4 INJUNCTION AGAINST SUBSEQUENT BANKRUPTCY PROCEEDINGS. From and after
the Effective Date, pursuant to Sections 105 and 1141 of the Bankruptcy Code,
until such time as obligations owing pursuant to the New Rose's Secured Notes
Documents shall be satisfied in full, all creditors (including creditors holding
claims entitled to administrative priority), all equity security holders, the
Debtor, Reorganized Rose's, and any officer, director, professional or agent of
the Debtor or Reorganized Rose's, together with their respective successors and
assigns, are hereby enjoined from (i) causing the Debtor or Reorganized Rose's
to be subject to or to seek or obtain relief under any chapter of the Bankruptcy
Code or (ii) in connection with an Event of Default or event of default under
the New Rose's Secured Notes Documents or the Post-Effective Date Financing
Facility, taking any action (including seeking the appointment of a trustee or
an examiner or seeking conversion of this case to any other case under the
Bankruptcy Code) inconsistent with or that would delay, hinder or interfere with
the rights and remedies of the Pre-Petition Lenders or the Post-Effective Date
Lender or both, as the case may be, as set forth in Section 5.1.4 and other
provisions of this Plan. The foregoing shall not be construed as limiting the
ability of any party-in-interest from seeking to enforce any provision of this
Plan or any Order of the Bankruptcy Court related thereto or the DIP Facility,
the Plan Support Consent Order (as defined in the Second Supplemental Adequate
Protection Consent Order), the Second Supplemental Adequate Protection Consent
Order, the New Rose's Secured Notes, the New Rose's Secured Notes Documents, or
the Post-Effective Date Financing Facility in the Bankruptcy Court or other
appropriate forum.
9.8 RIGHTS OF FIREMAN'S FUND INSURANCE COMPANY. Notwithstanding any other
provision in this Plan, including, without limitation, those provisions set
forth in this Article IX, unless otherwise agreed, the Plan shall not impair or
prejudice in any manner the right of Fireman's Fund Insurance Company or any of
its subsidiaries (collectively,"FFIC"), (i) to make draws or otherwise enforce
their rights regarding any letter of credit issued to FFIC, (ii) to seek to
compel payment of any administrative claim held by FFIC, (iii) to assert or
enforce any rights of setoff, subrogation or recoupment; (iv) to retain or
enforce any liens held by FFIC on funds held by FFIC, or (v) to assert claims,
including without limitation contribution or indemnification claims, and obtain
recovery thereon against any Person other than a Released Party, (vi) to obtain
repayment or recovery for payments made to or for the benefit of a Released
Party on account of a claim made by such Released Party under an insurance
policy issued by FFIC, or (vii) to exercise any and all rights or remedies
arising out of or in connection with insurance services or coverage provided by
FFIC after the Effective Date. Notwithstanding the foregoing, nothing herein
shall be deemed to constitute an admission by the Debtor as to the validity,
priority or nature of any claim filed by FFIC against the Debtor. In addition,
the foregoing shall not constitute an assumption by the Debtor of any agreement
between the Debtor and FFIC, and the Debtor expressly reserves its right to
reject any such agreement. Nothing herein shall be construed to limit or reduce
any rights, remedies, liens, priorities or protections granted to GE Capital
pursuant to the DIP Facility.
33 M-223
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ARTICLE X
EXECUTORY CONTRACTS, INDEMNIFICATION OBLIGATIONS,
POST-CONFIRMATION TRADE CLAIMS, CONTINUED
APPLICABILITY OF BANKRUPTCY CODE
10.1 EXECUTORY CONTRACTS AND UNEXPIRED LEASES. Unless specifically assumed
by Order of the Bankruptcy Court, the subject of a motion to assume, or the
subject of a motion or an order seeking additional time to assume or reject, on
the Effective Date (i) all executory contracts and unexpired leases except for
Assumed Contracts and Leases shall be deemed rejected by the Debtor or
Reorganized Rose's as of the Effective Date or as otherwise provided for by
order of the Bankruptcy Court, and (ii) the Debtor expressly rejects and
terminates the Employee Stock Option Plan and the Pre-Petition Secured
Noteholder Warrant Agreement, and Claims arising from the rejection and
termination of these and other executory contracts or unexpired leases shall be
treated in accordance with the terms of this Plan. With respect to the Assumed
Contracts and Leases, in accordance with Section 1123(a)(5)(G) of the Bankruptcy
Code, upon the later of the Effective Date or assumption, the Debtor or
Reorganized Rose's shall cure all defaults thereunder by (i) making a Cash
payment of only those amounts which are allowed, as determined by the Debtor or
Reorganized Rose's or (ii) on such terms as agreed to in writing between such
claimants and the Debtor or Reorganized Rose's. Any disputes regarding the
amount which will be paid to cure the Assumed Contracts and Leases will be
resolved by the Bankruptcy Court after notice and hearing. All non-Debtor
parties to executory contracts or unexpired leases rejected by order of the
Bankruptcy Court or, by operation of this Section 10.1 shall be required to file
a proof of claim with respect to any and all Claims arising from or relating to
such rejection no later than 30 days following the Effective Date. Failure to so
file timely such a proof of claim shall be a waiver of such Claim, and shall
have such effect and consequences as provided for in Section 5.9 of this Plan
regarding the failure to file as proof of claim by an applicable Bar Date.
10.2 INDEMNIFICATION AND CONTRIBUTION OBLIGATIONS. Reorganized Rose's shall
assume, to the fullest extent permitted by law and only if such obligations have
not been rejected or terminated prior to the Effective Date, all obligations
relating to indemnification and exculpation of the Debtor and of all Persons who
as of the Effective Date were the Debtor's directors, officers, employees,
fiduciaries, agents or controlling persons as arise under applicable laws or as
provided in any of (i) the Debtor's certificate of incorporation in effect prior
to or as of the date hereof, (ii) the Debtor's by-laws in effect prior to or as
of the date hereof, or (iii) any agreement with, or any corporate policy
relating to indemnification in effect prior to the Effective Date of, the
Debtor, in each of these cases (i)-(iii) with respect to matters occurring on or
prior to the Effective Date. Except as otherwise provided in this Plan, all
Claims based upon contractual, statutory or common law indemnification
obligations other than those described in this paragraph shall not survive
confirmation of this Plan and shall be discharged pursuant to Section 1141 of
the Bankruptcy Code.
10.3 POST-CONFIRMATION CLAIMS. Claims assertable against the Debtor or
Reorganized Rose's arising from goods, inventory and services provided, or
credit extended with respect to goods, inventory and services provided, to the
Debtor or Reorganized Rose's during the period after the Confirmation Date and
prior to the Effective Date, shall be deemed Administrative Claims and be
entitled to treatment pursuant to Section 3.1 of this Plan without the need for
notice and hearing pursuant to Section 503(b) of the Bankruptcy Code or further
order of the Bankruptcy Court. Moreover, in accordance with Section 365(d)(3) of
the Bankruptcy Code, the Debtor shall perform all its obligations arising from
and after the Filing Date under any unexpired lease of nonresidential real
property until such lease is assumed or rejected. In addition, the Debtor will
continue to comply with Section 365(d)(3) of the Bankruptcy Code, and the Debtor
shall perform all its obligations, in full and on time, to the extent not
inconsistent with Section 365(d)(3) of the Bankruptcy Code, arising from and
after the Filing Date under any unexpired lease of nonresidential real property
until such lease is assumed or rejected. Such obligations shall be deemed
Administrative Claims and be entitled to treatment pursuant to Section 3.1 of
this Plan without the need for notice and hearing pursuant to Section 503(b) of
the Bankruptcy Code or further order of the Bankruptcy Court. The Debtor's
obligations under the leases subject to this section only include THOSE
SPECIFIED IN THE LEASE, IF ANY, INCLUDING BUT NOT LIMITED TO rent, real estate
taxes, percentage rent, and common area maintenance charges; such charges will
be pro-rated per diem if the lease is rejected or terminated during a payment
period.
10.4 CONTINUED APPLICABILITY OF THE BANKRUPTCY CODE. Upon Confirmation and
through the Effective Date, the operations of the Debtor shall be subject to the
terms and provisions of the Bankruptcy Code notwithstanding that Confirmation
has occurred, unless otherwise expressly provided for in this Plan.
M-224 34
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ARTICLE XI
RETENTION OF JURISDICTION
11.1 JURISDICTION FROM CONFIRMATION THROUGH THE EFFECTIVE DATE. Upon
Confirmation and through the Effective Date, the Bankruptcy Court shall retain
full jurisdiction over the Chapter 11 Case notwithstanding that Confirmation has
occurred.
11.2 JURISDICTION FROM AND AFTER THE EFFECTIVE DATE. From and after the
Effective Date and until such time as all payments and distributions required to
be made, all events required to have occurred under this Plan have occurred, and
all other obligations required to be performed under this Plan have been made
and performed by the Debtor or Reorganized Rose's, the Bankruptcy Court shall
retain such jurisdiction as is legally permissible, including, but not limited
to, the following:
(a) To hear and determine any and all objections to the allowance of a
Claim or Interest or any controversy as to the classification of Claims or
Interests or Reserves;
(b) To hear and determine any and all applications by Professionals for
compensation and reimbursement of expenses;
(c) To hear and determine any and all pending applications for the
rejection and disaffirmance of executory contracts and unexpired leases and fix
and allow any Claims resulting therefrom;
(d) To enable the Debtor, or Reorganized Rose's to prosecute any and all
proceedings which have been or may be brought prior to the Effective Date, to
set aside liens or encumbrances and to recover any transfers, assets, properties
or damages to which the Debtor or Reorganized Rose's may be entitled under
applicable provisions of the Bankruptcy Code or any other federal, state or
local laws except as may be waived pursuant to this Plan;
(e) To liquidate any disputed, contingent or unliquidated Claims or
Interests;
(f) To enforce the provisions of this Plan and the injunction and releases
provided for in Article IX of this Plan;
(g) To correct any defect, cure any omission, or reconcile any
inconsistency in this Plan or in the Confirmation Order as may be necessary to
carry out its purpose and the intent of this Plan;
(h) To hear and determine any and all Avoiding Power Actions;
(i) To determine any Tax Claim which the Debtor or Reorganized Rose's, as
applicable, may incur as a result of the transactions contemplated herein;
(j) To determine such other matters as may be provided for in the
Confirmation Order confirming this Plan or as may be authorized under the
provisions of the Bankruptcy Code;
(k) To resolve any and all disputes that may arise under this Plan;
(l) To hear and determine any and all administrative matters that may arise
in closing the Chapter 11 Case, including the entry of the Final Decree;
(m) To enforce any rights and remedies pursuant to the New Rose's Secured
Notes and the New Rose's Secured Notes Documents, and to resolve and adjudicate
any and all issues arising under the New Rose's Secured Notes and the New Rose's
Secured Notes Documents, and if any obligations remain outstanding under the New
Rose's Secured Notes, to enforce any rights and remedies and to resolve and
adjudicate any and all issues arising under the Post-Effective Date Financing
Facility, including any rights or remedies of the Collateral Agent, any
Pre-Petition Lender or the Post-Effective Date Lender upon an Event of Default
or an event of default under the New Rose's Secured Notes Documents or the Post-
Effective Date Financing Facility, as the case may be (including issues relating
to Section 5.1.4 of this Plan); and
(n) all other matters with respect to which the Bankruptcy Court's
retention of jurisdiction over the Chapter 11 Case as is legally permissible,
including without limitation, jurisdiction as is necessary to ensure that the
purpose and intent of this Plan are implemented.
35 M-225
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ARTICLE XII
MISCELLANEOUS
12.1 THE COMMITTEES AND THE POST-EFFECTIVE DATE TRADE COMMITTEE.
12.1.1 DISSOLUTION OF COMMITTEES. On the Effective Date, the Unsecured
Committee shall be deemed disbanded and the duties of the Unsecured Committee,
and the retention of its counsel and other retained Professionals, shall
automatically terminate. The Equity Committee shall be deemed disbanded and the
duties of the Equity Committee, and the retention of its counsel and other
retained Professionals, shall automatically terminate except with respect to any
pending appeal to which the Equity Committee is a party, on the sixtieth day
after the Determination Date or the first Business Day thereafter, unless such
period is extended by order of the Bankruptcy Court on appropriate notice and
hearing. Until the duties of the Equity Committee terminate pursuant to this
Section 12.1.1, the Equity Committee shall have the right to continue to retain
its counsel and other retained Professionals, and the reasonable fees and
expenses of such Professionals shall to be treated as set forth in Section 3.3
of this Plan.
12.1.2 CREATION OF POST-EFFECTIVE DATE TRADE COMMITTEE. From and after the
Effective Date, a committee shall be formed and constituted and shall consist of
three (3) members who have previously served on the Unsecured Committee (the
"Post-Effective Date Trade Committee"). The Post-Effective Date Trade Committee
shall continue in existence solely with respect to (i) any appeal of the
Confirmation Order, (ii) applications for Professional Fees, (iii) claims
resolution (other than Damage Claims), until the aggregate amount of Disputed
Claims in Class 3 is less than $6,500,000, (iv) in the event that the
Alternative Treatment Provisions are effective pursuant to Section 8.1 of this
Plan, the effectuation of the Alternative Treatment Provisions and the
Alternative Treatment Implementation Orders, through the Consummation Date, and
(5) such other matters as may be approved by the Debtor, the Reconstituted Board
of Directors, or as otherwise provided by a Final Order of the Bankruptcy Court.
12.1.3 POST-EFFECTIVE DATE TRADE COMMITTEE PROCEDURES. A majority of the
Post-Effective Date Trade Committee shall constitute a quorum. One member of the
Post-Effective Date Trade Committee shall be designated by the majority of its
members as its chairperson ("Chairperson"). Meetings of the Post-Effective Date
Trade Committee shall be called by the Chairperson upon such notice and in such
manner as its Chairperson may deem advisable. The Post-Effective Date Trade
Committee shall function by decisions made by a majority of its members in
attendance at any meeting. The Post-Effective Date Trade Committee shall adopt
by-laws which shall otherwise control its functions.
12.1.4 POST-EFFECTIVE DATE TRADE COMMITTEE COMPENSATION. The members of the
Post-Effective Date Trade Committee shall serve without compensation. Reasonable
expenses of the members of the Post-Effective Trade Committee shall be
reimbursed and paid by Reorganized Rose's upon submission of bills to
Reorganized Rose's or upon Final Order of the Bankruptcy Court.
12.1.5 RETENTION OF PROFESSIONALS. The Post-Effective Date Trade Committee
shall have the right to retain the services of attorneys and accountants which
are necessary to assist the Post-Effective Date Trade Committee in the
performance of its duties. The reasonable fees and expenses of such
professionals shall be paid monthly by Reorganized Rose's in arrears in full in
Cash upon the submission of invoices to Reorganized Rose's. Ten (10) days after
receipt by Reorganized Rose's and the Post-Effective Date Committee of any such
invoice, Reorganized Roses's shall be authorized to pay such invoice unless it
and/or the Person seeking payment has received a written objection to the
payment thereof from any of Reorganized Rose's or the Post-Effective Date
Committee within such period. In the event fees and expenses of any such
professional are objected to, such fees and expenses shall be payable only upon
prior agreement of the parties or by order of the Bankruptcy Court.
12.1.6 LIABILITY. Neither the Post-Effective Date Trade Committee nor any
of its members, designees, counsel or accountants or any duly designated agent
or representative of the Post-Effective Date Trade Committee shall be liable for
the act, default or misconduct of any other member of the Post-Effective Date
Trade Committee, nor shall any member be liable for anything other than such
member's gross negligence, willful misconduct or fraud. None of the
Post-Effective Date Trade Committee's members, designees, agents or
representatives or their respective employees, shall incur or be under any
liability or obligation by reason of any act done or omitted to be done, by any
member of the Post-Effective Date Trade Committee, designee, agent or
representative. The Post-Effective Date Trade Committee may, in connection with
the performance of its functions, and in its sole and absolute discretion,
consult with counsel, accountants and its agents, and shall not be liable for
anything done or omitted or suffered to be done in accordance with such advice
or opinions. If the Post-Effective Date Trade Committee determines not to
consult with counsel, accountants or its agents, such determination shall not be
deemed to impose any liability on the Post-Effective Date Trade Committee, or
its members and/or its designees.
M-226 36
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12.2 MEANS OF CASH PAYMENTS. Cash payments made pursuant to this Plan shall
be in United States dollars by checks drawn on a domestic bank selected by the
Debtor or Reorganized Rose's, as applicable, or by wire transfer from a domestic
bank.
12.3 SET-OFFS. Except as expressly provided herein, nothing contained in
this Plan shall constitute a waiver or release by the Debtor of any right of
set-off the Debtor may have, or which may be assertable by Reorganized Rose's or
the Debtor, as applicable, against any holder of a Claim or an Interest.
12.4 WITHHOLDING TAXES. The Debtor, Reorganized Rose's, (if applicable), or
any agent making distributions under this Plan shall be entitled to deduct any
federal, state or local withholding taxes from any Cash payments made with
respect to Allowed Claims or interest thereon and Interests. If distributions of
New Rose's Common Stock are subject to any tax withholding, the Debtor,
Reorganized Rose's or the agent shall be permitted, but not required, to
withhold from any Cash otherwise to be distributed to the holder or to sell the
appropriate amount of New Rose's Common Stock otherwise to be issued to the
holder and to apply the proceeds of such sale to satisfy all or a portion of the
tax withholding obligation.
12.5 REVESTING. Except as otherwise provided by this Plan or the Second
Supplemental Adequate Protection Consent Order, upon the Effective Date, title
to all properties and assets provided for in this Plan shall pass to Reorganized
Rose's or the Debtor, as applicable, free and clear of all Claims and Interests,
including liens or other encumbrances, of creditors and of equity security
holders, and the Confirmation Order shall be a judicial determination of
discharge of all of the Debtor's liabilities except as provided in this Plan;
PROVIDED, HOWEVER, that liens and encumbrances granted pursuant to the Plan that
are granted in satisfaction, exchange, release and discharge of existing liens
(including, without limitation, in favor of GE Capital, if GE Capital is the
Post-Effective Date Lender, as part of the process, INTER ALIA, of satisfying
the GE Obligations), shall be deemed to have attached and to have become
perfected at the time of the attachment and perfection of those existing liens
so that attachment and perfection shall be deemed to have been continuous
notwithstanding this paragraph, the revesting of property in the Debtor and the
granting of new liens and encumbrances.
12.6 HEADINGS. Headings are utilized in this Plan for the convenience of
reference only, and shall not constitute a part of this Plan for any other
purpose.
12.7 DEFECTS, OMISSIONS AND AMENDMENTS. The Plan Proponents may, with the
approval of the Bankruptcy Court and without notice to and consent of all
holders of Claims and Interests, but after notice to GE Capital and the Plan
Proponents, and consent by GE Capital and the Plan Proponents, which consent
shall not be unreasonably withheld, insofar as they do not materially and
adversely affect the interests of holders of Claims and Interests, correct any
defect, omission or inconsistency in this Plan in such manner and to such extent
as may be necessary to expedite the execution of this Plan. This Plan may be
altered or amended before or after Confirmation as provided in Section 1127 of
the Bankruptcy Code if, in the opinion of the Bankruptcy Court, the modification
does not materially and adversely affect the interests of holders of Claims and
Interests; PROVIDED HOWEVER, that any such altered or amended plan shall not be
binding on GE Capital without the consent of GE Capital. This Plan may be
altered or amended before or after the Confirmation Date in a manner which, in
the opinion of the Bankruptcy Court, materially and adversely affects holders of
Claims and Interests, only on consent of all Plan Proponents and GE Capital
after a further hearing and acceptance of this Plan as so altered or modified as
provided in Section 1126 of the Bankruptcy Code.
12.8 GOVERNING LAW. Except to the extent that the Bankruptcy Code is
applicable, and unless otherwise specified in an agreement entered into to
effectuate this Plan, the rights and obligations arising under this Plan shall
be governed by and construed and enforced in accordance with the internal laws
of the State of North Carolina.
12.9 CONFLICTS. In the event of any conflict between the provisions of any
of the Second Supplemental Adequate Protection Consent Order and this Plan, the
Confirmation Order, or any other order which may be entered in this Chapter 11
Case after entry of the Second Supplemental Adequate Protection Consent Order or
any succeeding case or proceeding, the provisions of the Second Supplemental
Adequate Protection Consent Order shall govern with regard to the matters
addressed therein, unless otherwise agreed in writing by each of the Plan
Proponents and GE Capital.
12.10 AGREEMENT AMONG THE PLAN PROPONENTS. The terms, provisions and
conditions of this Plan constitute a mutual agreement reached among each of the
Plan Proponents in conjunction with their agreement regarding the terms,
provisions and conditions of the Supplemental Adequate Protection Orders and the
Plan Support Consent Order. In the event that the Second Supplemental Adequate
Protection Consent Order, or the Plan Support Consent Order, shall be either (a)
overturned on appeal or (b) the subject of a stay pending appeal and such stay
shall be continuing in a manner which materially impairs either the payment of
the Adequate Protection Payments set forth in the Second Supplemental Adequate
Protection Consent
37 M-227
<PAGE>
Order or the remedies granted therein to the Pre-Petition Lenders, or, in the
event that this Plan is either (x) abandoned or (y) fails to become effective,
the Plan Proponents agree as follows:
a. The Plan Proponents will endeavor to preserve for the benefit of the
Pre-Petition Lenders the rights and remedies afforded the Pre-Petition Lenders
in the Supplemental Adequate Protection Orders.
b. Under no circumstances, other than circumstances arising as a result of
the Balloting Pre-Petition Lenders' breach of their agreement in paragraph 7 of
the Plan Support Consent Order as determined by Bankruptcy Court Order, shall
any of the Plan Proponents support any plan of reorganization which treats the
claims of the Pre-Petition Lenders in a manner materially worse than the
treatment afforded such claims pursuant to Exhibit 5.1 to this Plan.
The foregoing agreement shall survive notwithstanding the abandonment of
this Plan or the failure of the Plan to become effective.
12.11 NOTICES. All notices, requests or demands for payments provided for
in this Plan shall be in writing and shall be deemed to have been given when
personally delivered by hand, delivered by courier or deposited in any general
or branch post office of the United States Postal Service or received by telex
or telecopier. Notices, requests and demands for payments shall be addressed and
sent, postage prepaid, or delivered, to:
(a) ROSE'S STORES, INC.: P.O. Box Drawer 947, Henderson, North Carolina
27536, Attn: Chief Financial Officer, with a copy to Proskauer Rose Goetz &
Mendelsohn, 1585 Broadway, New York, New York 10036, Attn: Alan B. Hyman, Esq.,
and Smith Debnam Hibbert & Pahl, P.O. Box 26268, Raleigh, North Carolina 27611,
Attn: J. Larkin Pahl, Esq.;
(b) GENERAL ELECTRIC CAPITAL CORPORATION: 3379 Peachtree Rd NE, Suite 600,
Atlanta, GA 30326, Attn: Region Operations Manager, with a copy to Long,
Aldridge & Norman, One Peachtree Center, Suite 5300, 303 Peachtree Street,
Atlanta, Georgia 30308, Attn: Bruce W. Moorhead, Jr., Esq.;
(c) THE PRE-PETITION SECURED NOTEHOLDERS: at their addresses as set forth
on documents relating to the New Rose's Secured Notes, or in the event the
Alternative Treatment Provisions are implemented, at the addresses listed on
their proofs of claim filed by the Pre-Petition Secured Noteholders with the
Bankruptcy Court in the Debtor's Chapter 11 case, or such other address as has
been provided by any Pre-Petition Secured Noteholder to the Debtor, with a copy
to Hebb & Gitlin, One State Street, Hartford, Connecticut 06103-3178, Attn:
Michael J. Reilly, Esq., and Merriman, Nicholls & Crampton, P.A., 100 Saint
Albans Drive, Suite 200, P.O. Box 18237, Raleigh, North Carolina 27619, Attn:
Gregory B. Crampton, Esq.;
(d) BANK OF TOKYO: 1251 Avenue of the Americas, 14th Floor, New York, New
York 10116-3138, Attn: Mr. John Blasi, with a copy to Anderson Kill Olick &
Oshinsky, P.C., 1251 Avenue of the Americas, New York, New York 10020, Attn:
Jeffrey L. Glatzer, Esq. and Ragsdale, Liggett & Foley, CrossPointe Plaza, 2840
Plaza Place, Raleigh, North Carolina 27612, Attn: William A. Mann, Esq.;
(e) THE UNSECURED COMMITTEE: Mattel Toys, Attn: Ms. Dorothy Fee, Director
Customer Relations, 333 Continental Boulevard, El Seguendo, California 90245;
with a copy to Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue,
New York, New York 10956, Attn: Scott L. Hazan, Esq and Glenn B. Rice, Esq. and
Wyche & Story, Post Office Drawer 1389, Raleigh, North Carolina 27602-1389,
Attn: N. Hunter Wyche, Jr.;
(f) THE EQUITY COMMITTEE: J. David Rosenberg, Esq., c/o Keating, Muething &
Klekamp, 1800 Provident Tower, One East Fourth Street, P.O. Box 1800,
Cincinnati, Ohio 45202 with a copy to Lord Bissell & Brook, 115 South LaSalle,
Chicago, Illinois 60603, Attn: Benjamin Waisbren, Esq. and Burns, Day &
Presnell, P.A., 2626 Glenwood Avenue, Suite 560, P.O. Box 10867, Raleigh, North
Carolina 27608, Attn: Lacy M. Presnell, III; and/or
(g) at any other address designated by a Plan Proponent by notice to each
holder of an Allowed Claim or Interest, and, in the case of notices to holders
of Allowed Claims and Interests, at the last known address according to the
Debtor's books and records or at any other address designated by a holder of an
Allowed Claim on its proof of claim (or by a holder of an Interest on its proof
of interest, if any) or filed with the Bankruptcy Court, provided that any
notice of change of address shall be effective only upon receipt.
12.12 SEVERABILITY. Should any provision in this Plan be determined to be
unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any or all other provisions of this Plan.
12.13 REVOCATION AND WITHDRAWAL. The Plan Proponents may revoke and
withdraw this Plan at any time on or before the Effective Date only by the
unanimous written consent of all Plan Proponents; PROVIDED, HOWEVER, that
nothing herein shall
M-228 38
<PAGE>
prejudice or affect the rights of any Person under the Second Supplemental
Adequate Protection Consent Order or the Plan Support Consent Order.
12.14 EFFECT OF WITHDRAWAL OR REVOCATION. If the Plan Proponents
unanimously revoke or withdraw this Plan pursuant to Section 12.13 above, or if
Confirmation or the Effective Date do not occur or cannot occur as agreed in
writing by all Plan Proponents, then this Plan shall be deemed null and void,
and in such event nothing contained herein shall be deemed to constitute a
waiver or release of any Claims or Interests by or against any Plan Proponent or
any other Person or to prejudice in any manner the rights of any Plan Proponent
or any Person in any further proceedings involving the Debtor; PROVIDED,
HOWEVER, that nothing herein shall prejudice or affect the rights of any Person
under the Second Supplemental Adequate Protection Consent Order or the Plan
Support Consent Order.
12.15 RATIFICATION IN CONFIRMATION ORDER. The Confirmation Order shall
ratify all transactions effected by the Debtor and/or any successors to, or
designees of, the Debtor, including Reorganized Rose's (if applicable), by
operation of an order of the Bankruptcy Court, during the period commencing on
the Filing Date and ending on the Confirmation Date.
12.16 POST-EFFECTIVE DATE EFFECTUATION OF THE PLAN'S TERMS. From and after
the Effective Date, the Chairman of the Board, President, any Executive Vice
President, Senior Vice President or Vice President of Reorganized Rose's or the
Debtor, as applicable, shall be authorized to execute, deliver, file or record
such contracts, instruments, releases, indentures and other agreements or
documents and take such actions as may be necessary or appropriate to effectuate
and further evidence the terms and conditions of this Plan. The Secretary or any
Assistant Secretary of the Debtor or Reorganized Rose's, as applicable, shall be
authorized to certify or attest to any of the foregoing actions. Pursuant to
Section 1146(c) of the Bankruptcy Code, none of the following executed in
connection with any transactions consummated pursuant to this Plan shall be
subject to any stamp tax, real estate transfer tax or similar tax: (i) the
issuance, transfer or exchange of New Rose's Common Stock, New Rose's Warrants
or New Rose's Secured Notes, (ii) the creation of any mortgage, deed of trust or
other security interest or instrument necessary to perfect the same, (iii) the
making or assignment of any lease or sublease, or (iv) the making or delivery of
any deed or other instrument of transfer under, in furtherance of, or in
connection with, this Plan, including any merger agreements or agreements of
consolidation, deeds, bills of sale or assignments.
12.17 EXECUTION. Each of the parties receiving distributions under this
Plan shall take all steps, and execute all documents, including appropriate
releases, necessary to effectuate the foregoing.
This Plan of Reorganization is respectfully submitted to the United States
Bankruptcy Court for the Eastern District of North Carolina, Raleigh Division,
on the day of October, 1994.
Respectfully Submitted,
ROSE'S STORES, INC.,
Debtor and Debtor-in-Possession
By: /s/ R. EDWARD ANDERSON
R. Edward Anderson
Chairman, President and
Chief Executive Officer
SMITH DEBNAM HIBBERT & PAHL
Counsel to the Debtor and
Debtor-in-Possession
By: /s/ J. LARKIN PAHL
J. Larkin Pahl
N.C. State Bar No. 3311
Terri L. Gardner
N.C. State Bar No. 9809
4700 New Bern Avenue
P.O. Box 26268
Raleigh, NC 27611
(919) 250-2000
39 M-229
<PAGE>
PROSKAUER ROSE GOETZ & MENDELSOHN
Special Bankruptcy Counsel to the
Debtor and Debtor-in-Possession
By: /s/ MICHAEL E. FOREMAN
Alan B. Hyman
Michael E. Foreman
Members of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
HEBB & GITLIN
A Professional Corporation
Counsel to the Pre-Petition
Secured Noteholders
By: /s/ MICHAEL J. REILLY
Michael J. Reilly
G. Eric Brunstad, Jr.
Thomas H. Day
Renu Nanda
One State Street
Hartford, CT 06103-3178
(203) 240-2700
MERRIMAN, NICHOLLS & CRAMPTON, P.A.
Counsel to the Pre-Petition
Secured Noteholders
By: /s/ GREGORY B. CRAMPTON
Gregory B. Crampton
N.C. State Bar No. 991
Stephani W. Humrickhouse
N.C. State Bar No. 9528
100 St. Albans Dr.
P.O. Box 18237
Raleigh, NC 27619
(919) 781-1311
ANDERSON KILL OLICK & OSHINSKY, P.C.
Counsel to Bank of Tokyo, Ltd.
By: /s/ JEFFREY L. GLATZER
Jeffrey L. Glatzer
Linda Gerstel
1251 Avenue of the Americas
New York, New York 10020
(212) 278-1000
M-230 40
<PAGE>
RAGSDALE, LIGGETT & FOLEY
Counsel to Bank of Tokyo, Ltd.
By: /s/ WILLIAM A. MANN
William A. Mann
N.C. State Bar No. 2854
CrossPointe Plaza
2840 Plaza Place
Raleigh, NC 27612
(919) 787-5200
OTTERBOURG, STEINDLER,
HOUSTON & ROSEN, P.C.
Counsel to the Official Committee of
Unsecured Creditors
By: /s/ SCOTT L. HAZAN
Scott L. Hazan
Glenn B. Rice
230 Park Avenue
New York, New York 10169
(212) 661-9100
WYCHE & STORY
Counsel to the Official Committee of
Unsecured Creditors
By: /s/ N. HUNTER WYCHE, JR.
N. Hunter Wyche, Jr.
N.C. State Bar No. 9533
Post Office Drawer 1389
Raleigh, NC 27602-1389
(919) 821-7700
LORD BISSELL & BROOK
Counsel to the Official Committee of
Equity Security Holders
By: /s/ BENJAMIN WAISBREN
Benjamin Waisbren
Michael Yetnikoff
115 South LaSalle Street
Chicago, Illinois 60603
(312) 443-0700
BURNS, DAY & PRESNELL, P.A.
Counsel to the Official Committee of
Equity Security Holders
By: /s/ LACY M. PRESNELL, III
Lacy M. Presnell, III
N.C. State Bar No.
2626 Glenwood Avenue
Suite 560
P.O. Box 10867
Raleigh, NC 27608
(919) 782-1441
41 M-231
<PAGE>
RSI TRADING, INC.
By: /s/ R. EDWARD ANDERSON
Authorized Officer
1105 North Market Street
Suite 1300
Wilmington, DE 19801
M-232 42
<PAGE>
EXHIBIT 5.1 TO PLAN
OUTLINE OF PRIMARY TERMS OF NEW ROSE'S
SECURED NOTES UNDER PLAN
This Exhibit 5.1 is attached to, made a part of, and incorporated by
reference into the Plan pursuant to Section 5.1 of the Plan. All terms not
defined herein shall have the meanings ascribed to them in the Plan and the
Second Supplemental Adequate Protection Consent Order.
I. INITIAL PRINCIPAL AMOUNT:
The original issue face amount of the New Rose's Secured Notes is set forth
in the definition of "New Rose's Secured Notes Original Principal Amount" in the
Plan.
II. PAYMENT TERMS
A. Term/Amortization:
(Bullet) Final maturity at January 20, 1999 with scheduled amortization
as follows:
<TABLE>
<C> <C> <S>
(1) 1/20/96: $5 million;
(2) On or before
4/30/96: EXCESS (if any) of Cash Sweep Amount for the fiscal year of Reorganized Rose's then most
recently ended, over aggregate principal amount previously paid pursuant to clause (1) above;
(3) 1/20/97: $7.5 million;
(4) On or before
4/30/97: EXCESS (if any) of Cash Sweep Amount for the fiscal year of Reorganized Rose's then most
recently ended, over aggregate principal amount previously paid pursuant to clause (3) above;
(5) 1/20/98: 50% of the remaining principal balance outstanding on such payment date;
(6) On or before
4/30/98: EXCESS (if any) of Cash Sweep Amount for the fiscal year of Reorganized Rose's then most
recently ended, over aggregate principal amount previously paid pursuant to clause (5); and
(7) 1/20/99: entire then remaining principal balance.
</TABLE>
(BULLET) "CASH SWEEP AMOUNT" -- means, as of any payment date, an amount
equal to 80% of Consolidated Net Cash Flow for the fiscal year of
Reorganized Rose's then most recently ended. As of any payment
date, the Cash Sweep Amount shall be calculated based upon
audited financial results, as specified above with respect to
such payment date. Cash Sweep Amount payment due date shall be
the earlier of (i) 3 business days after issuance to the Debtor
by its auditors of the year-end audited financial statements or
(ii) April 30 of each year.
(Bullet) Subject to the agreement between the Post-Effective Date Lender
and the holders of the New Rose's Secured Notes concerning the
allocation of proceeds in event of any asset disposition outside
the ordinary course of business, the portion of any proceeds of
all such asset dispositions allocable to the New Rose's Secured
Notes will be applied to prepay the maturity date principal
balance of the New Rose's Secured Notes without reduction of the
minimum payments due 1/20/96 or 1/20/97.
(Bullet) Each of the above payments shall be made to each of the holders
of the New Rose's Secured Notes pro rata based on the then
outstanding principal balances.
B. Interest:
(Bullet) Fixed rate of 11% per annum, default rate 3% over the non-default
rate. In lieu of such fixed rate, members of the Bank Group may
elect on or before the closing to receive a floating rate note
for their portion of the New Rose's Secured Notes at the same
non-default base rate and spread, and the same default rate, as
their prepetition notes.
(Bullet) Payable monthly in arrears on the first business day of each
calendar month and at maturity.
(Bullet) Computed on the basis of a 360-day year of twelve 30-day months
M-233
<PAGE>
III. COVENANTS:
A. Financial Performance Tests:
(Bullet) As of the last day of each fiscal month for the 12 fiscal
months then ended:
<TABLE>
<C> <S>
(1) EBITDA shall not be less than $18 million (the "EBITDA Test");
(2) Consolidated Net Cash Flow shall not be less than $15 million below the amounts projected on the line entitled
"(Dec.) Inc. in Cash" in the Debtor's financial projections dated "7/25/94 Version" and attached hereto and
made a part hereof (the "Net Cash Flow Test"); and
(3) The ratio of (a) Earnings Available for Fixed Charges (defined as EBITDA less capital expenditures) to (b)
Fixed Charges (defined as scheduled minimum principal payments plus interest expense including imputed
interest on capitalized leases) for such period of 12 consecutive fiscal months shall not be less than .8 to 1
(the "Fixed Charge Test").
</TABLE>
B. Collateral:
(Bullet) maintain grant, attachment and perfection at all times of
blanket lien on all presently owned or after acquired assets of
every type (subject only to senior lien of Post-Effective Date
Financing Facility not to exceed $80 million principal amount of
advances and face amount of letters of credit plus related
interest, fees and expenses, and reasonable discretionary
advances after acceleration to facilitate a collateral
liquidation, and having a maturity of no sooner than two years
from closing; the "Permitted Senior Working Capital Lien").
(Bullet) for any period of 21 consecutive days, the average total secured
debt (advances and letters of credit outstanding under
Post-Effective Date Financing Facility, and outstanding
principal on Secured Notes) shall not exceed, at any time, 60%
of the average value of inventory at lower of fair market value
or FIFO cost PROVIDED, that on no day in such 21 day period
shall the daily secured debt exceed 65% of the daily value of
inventory at lower of fair market value or FIFO cost. In the
event that, and for so long as, the Debtor shall not be in
compliance with the Net Cash Flow Test or the Fixed Charge Test,
the foregoing collateral coverage percentages shall be 57% and
60% instead of 60% and 65%, respectively.
(Bullet) tested on each draw date and each borrowing base compliance date
under Post-Effective Date Financing Facility, and in no event
less than weekly.
C. Negative/Affirmative Covenants:
(Bullet) DIVIDENDS/RESTRICTED PAYMENTS: none permitted.
(Bullet) ASSET SALES OR OTHER DISPOSITIONS OUTSIDE ORDINARY COURSE:
-- no sale, transfer or disposition permitted out of ordinary course
(other than an annual fiscal year permitted basket of asset
dispositions having a value of less than $100,000 in the aggregate
for such year) without consent of holders of 51% principal amount of
the New Rose's Secured Notes (provided notwithstanding the above,
the separate and independent consent of Bank of Tokyo shall be
required for a BOT Store, and the separate and independent consent
of the holders of 51% principal amount of the New Rose's Secured
Notes other than Bank of Tokyo and the Bank Group shall be required
for the Distribution Center).
-- Post-Effective Date Lender may have similar (or more restrictive)
asset disposition prohibition.
-- disposition of sale proceeds will be determined by the mutual
agreement of the Post-Effective Date Lender and the holders of the
New Rose's Secured Notes in connection with any asset disposition
consent requested by the Debtor.
(Bullet) MERGER/CONSOLIDATION, ETC.: none permitted.
(Bullet) INCURRENCE OF DEBT FOR BORROWED MONEY: none permitted (excluding
capital lease obligations and purchase money obligations with
limited dollar amount baskets to be discussed and to be
reasonably determined).
(Bullet) LIENS: none permitted, other than liens in favor of the New
Rose's Secured Notes and the Permitted Senior Working Capital
Lien.
-- customary exceptions with limited dollar amount baskets for
capitalized leases, purchase money liens, and involuntary or
statutory liens (mechanics liens, deposits, etc.) to be discussed
and reasonably determined.
M-234 2
<PAGE>
(Bullet) LINE OF BUSINESS:
-- no material change in the general nature of the Debtor's line of
business (discount department retailer).
(Bullet) RESTRICTED INVESTMENTS:
-- as defined in the DIP Financing Documents.
-- customary permissions for "cash equivalents".
-- no subsidiaries allowed.
-- Debtor to merge in its sole subsidiary "RSI" (whose sole asset is
the "Rose's" name) as a condition to confirmation of Plan, but in no
event later than 12/31/94, or such other arrangements satisfactory
to the holders of the New Rose's Secured Notes and the
Post-Effective Date Lender to assure the availability of the Rose's
name in the event of the exercise of remedies.
(Bullet) CUSTOMARY MISCELLANEOUS COVENANTS (substantially similar in
scope to the Combined Amended and Restated Note Agreement dated
as of May 29, 1992, between the Debtor and the Pre-Petition
Secured Noteholders and the Amended and Restated Loan Agreement
dated as of May 29, 1992 between the Debtor and the Bank of
Tokyo (collectively referred to as the "Pre-Petition
Agreements"), except where noted)
-- payment of taxes and claims
-- ERISA compliance
-- maintenance of properties and corporate existence (including
corporate charter limitations described in Plan on subsequent
bankruptcy relief other than liquidation as per Plan)
-- compliance with law
-- transactions with affiliates
-- no sale or discount of receivables
(Bullet) FINANCIAL INFORMATION AND COMPLIANCE CERTIFICATES
-- delivery of monthly, quarterly, and annual financial information and
other reasonably requested information
-- on the 30th day of each fiscal month (except for the 90th in respect
of January and the 45th day in respect of February), compliance
certificate calculated as of the last day of the previous fiscal
month covering Financial Performance Tests, Negative/Affirmative
Covenant Compliance, and no other defaults. Similar annual
compliance certificate due within 90 days of fiscal year end based
on audited financial statements.
IV. EVENTS OF DEFAULT:
A. Payment Defaults:
(Bullet) interest (5 days grace)
(Bullet) scheduled minimum principal payments (no grace).
(Bullet) Cash Sweep Amount payments (10 days grace if good faith dispute
on calculation).
(Bullet) reasonable fees/expenses, including attorneys' fees and
financial advisor fees (due 45 days after invoice, and 10 days
grace after demand if failure to pay within terms).
B. Cross Defaults:
(Bullet) Post-Effective Date Lender declares default, terminates lending
commitment or accelerates debt, unless waived or reinstated
prior to Court order commencing liquidation remedies under the
Plan.
(Bullet) Judgment creditor greater than $5 million levies execution on
collateral unless within 30 days such judgment is satisfied
(without creating any other default), stayed or fully bonded.
3 M-235
<PAGE>
(Bullet) Landlords exercise remedies to terminate leases having aggregate
rentals due in the succeeding 12 months in excess of $3.5
million in annual rentals, or more than 12 stores (with 90 days
grace for pending contested good faith disputes).
C. EBITDA Test Default: 14 days grace if good faith dispute on calculation.
D. Collateral Defaults (Para. III.B.): 14 days grace if good faith dispute
on calculation.
E. Negative/Affirmative Covenant Default (Para. III.C. other than Customary
Miscellaneous covenants): 14 days grace.
F. Failure to Deliver Monthly Compliance Certificate: 7 days grace.
G. Any Other Failure to Perform: 30 days grace after notice PROVIDED,
however, the failure to comply with the Net Cash Flow Test or the Fixed
Charge Test shall result only in a lowering of the percentages in the
collateral coverage test as provided herein, and shall not constitute
independent Events of Default.
V. MISCELLANEOUS:
(Bullet) References to the Debtor's financial projections or business plan
shall mean the 5-year financial projections contained in the
Disclosure Statement.
(Bullet) Customary representations, warranties, closing opinions and closing
certificates (substantially similar in scope and substance as
Pre-Petition Secured Note Agreement and Post-Effective Date
Financing Facility).
(Bullet) New Rose's Secured Notes pre-payable at any time without penalty or
premium.
(Bullet) Customary miscellaneous private placement note issuance provisions
substantially similar to the Pre-Petition Secured Note Agreements
(i.e. private placement number, private registry for notes, delivery
expenses and issue taxes, direct wire transfer payment provisions
for each noteholder, etc.).
(Bullet) Customary miscellaneous bank lending provisions substantially
similar to pre-petition agreements (i.e. including, but not limited
to compensation fees, regulatory change costs, etc.).
(Bullet) New York governing law.
(Bullet) Other miscellaneous loan agreement provisions reasonably required by
Pre-Petition Lenders and substantially similar in scope and
substance as Pre-Petition Agreements.
(Bullet) No debt, lien or collateral realization remedies subordination
provisions or intercreditor provisions regarding the Post-Effective
Date Financing Facility (lien subordination, remedies and allocation
of collateral proceeds are covered in, and governed by, the Plan).
(Bullet) Pre-petition intercreditor relationships and agreements among
Pre-Petition Lenders to remain in place, with such amendments as are
necessary to (i) allocate pro rata the new collateral received upon
the Plan Effective Date (e.g. formerly Non-Covered Stores and
"Rose's" name etc.); and (ii) reflect the provisions of the Plan,
including this Outline of Primary Terms.
(Bullet) Amendments and Waivers:
-- unanimous for monetary provisions, Financial Performance Tests and
Collateral Coverage Test;
-- all other require consent of holders of 51% of principal amount of
New Rose's Secured Notes.
VI. REMEDIES:
(Bullet) Neither the New Rose's Secured Note nor the Post-Effective Date
Facility will have independent or customary collateral realization
remedies of a private contractual lending arrangement. Instead, as
provided in the Plan, upon the occurrence of an Event of Default
(after the expiration of grace periods, if applicable) the holders
of 51% of the outstanding principal amount of the New Rose's
Secured Notes (or any holder in the event of a payment default)
can, upon motion to the Bankruptcy Court on 7 days notice, initiate
a Court-supervised liquidation of the Debtor in accordance with the
terms and conditions of the Plan. The Post-Effective Date Lender
will have the same (and no other) collateral realization remedies
upon default under its facility. Disputes as to whether an Event of
Default exists shall be as determined by the Bankruptcy Court at
any such hearing.
M-236 4
<PAGE>
VII. CLOSING CONDITIONS:
(Bullet) All conditions precedent to the occurrence of the "Effective Date"
shall have occurred, other than the issuance of the New Rose's
Secured Notes.
(Bullet) No event or condition shall exist on the closing date that
constitutes, or with the passage of time or the giving of notice
(or both) would constitute, an Event of Default.
(Bullet) All documentation relating to the Secured Notes and proceedings
regarding the closing shall be in accord with this Outline of
Primary Terms as determined to the reasonable satisfaction of the
Pre-Petition Secured Lenders and their respective counsel.
5 M-237
<PAGE>
"JULY 25, 1994 VERSION"
ROSE'S STORES, INC.
SUMMARY OF PROJECTED FINANCIAL INFORMATION
1994-1998*
<TABLE>
<CAPTION>
1994
BUSINESS
($ IN THOUSANDS) PLAN 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net Sales -- Owned.................................................... $775,425 814,198 838,626 872,172 915,782
Leased Sales.......................................................... $ 27,261 28,588 29,446 30,623 32,157
FIFO Gross Margin -- % Net Sales...................................... 23.71% 23.74% 23.90% 23.90% 23.89%
Expense -- % of Net Sales............................................. 21.09% 20.13% 20.33% 20.43% 20.54%
Operating Cash Flow (EBITDA).......................................... $ 25,019 34,345 34,877 35,374 36,065
Operating Profit...................................................... $ 7,106 16,082 18,196 20,604 23,126
Capital Expenditures.................................................. $ 7,000 6,000 6,000 6,000 6,000
Subordinated Secured Term Debt (1).................................... $ 31,778 26,778 19,278 6,576 --
Revolver-Direct Borrowings............................................ $ -- -- -- -- --
Net Working Capital (1)(2)............................................ $117,753 116,395 131,838 144,681 166,373
</TABLE>
(1) 1994 per Joint Plan of Reorganization
(2) Current Assets (Inventory at FIFO) less Current Liabilities (excluding
Subordinated Secured Term Debt)
The accompanying Principal Assumptions -- Long Term Forecasts should be read in
conjunction with this table.
* -- The following Summary of Projected Financial Information and accompanying
Principal Assumptions (pgs. 6-8) were prepared in conjunction with an earlier
version of the Plan and Disclosure Statement filed on August 1, 1994. Exhibit C
to the First Amended Disclosure Statement enclosed herewith contains the most
recent Summary of Projected Financial Information and Principal Assumptions.
M-238 6
<PAGE>
"JULY 25, 1994 VERSION"
ROSE'S STORES, INC.
SUMMARY OF PROJECTED FINANCIAL INFORMATION
QUARTERLY 1995
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
($ IN THOUSANDS) QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net Sales -- Owned............................................................... $177,220 185,907 191,984 259,087
Leased Sales..................................................................... $ 5,794 7,798 7,164 7,832
FIFO Gross Margin -- % Net Sales................................................. 24.89% 24.31% 25.91% 20.96%
Expense -- % of Net Sales........................................................ 21.31% 21.83% 21.42% 17.14%
Operating Cash Flow (EBITDA)..................................................... $ 7,466 5,729 9,754 11,396
Operating Profit................................................................. $ 3,058 1,133 4,972 6,919
Capital Expenditures............................................................. $ 1,500 1,500 1,500 1,500
Subordinated Secured Term Debt................................................... $ 31,778 31,778 31,778 26,778
Revolver-Direct Borrowings....................................................... $ 33,558 19,731 39,014 --
Net Working Capital (1).......................................................... $107,339 108,722 113,990 116,395
</TABLE>
(1) Current Assets (Inventory at FIFO) less Current Liabilities (excluding
Subordinated Secured Term Debt)
The accompanying Principal Assumptions -- Long Term Forecasts should be read in
conjunction with this table.
7 M-239
<PAGE>
ROSE'S STORES, INC.
PRINCIPAL ASSUMPTIONS -- LONG TERM FORECASTS
1994-1998
The Debtor believes that the Plan meets the Bankruptcy Code s feasibility
requirement that plan confirmation is not likely to be followed by a
liquidation, or the need for further financial reorganization of the Debtor or
successors of the Debtor under the Plan unless such liquidation is proposed in
the Plan. In connection with the development of the Plan, and for purposes of
determining whether the Plan satisfies this feasibility standard, the Debtor
analyzed its ability to satisfy its financial obligations while maintaining
sufficient liquidity and capital resources. In this regard, the management of
the Debtor developed and periodically refined the Debtor s business plan and
prepared financial projections (the "Projections") for fiscal 1994 and for the
four year period from fiscal 1995 through 1998. The Projections are summarized
in the accompanying Rose's Stores, Inc. SUMMARY OF PROJECTED FINANCIAL
INFORMATION, 1994-1998 and the SUMMARY OF PROJECTED FINANCIAL INFORMATION,
QUARTERLY 1995 (collectively, the "Forecasts") and certain of the underlying
assumptions are summarized below. The Debtor assumes no responsibility to update
the Forecasts.
ALTHOUGH EVERY EFFORT WAS MADE TO BE ACCURATE, THE FORECASTS WERE NOT
PREPARED WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, THE FINANCIAL ACCOUNTING
STANDARDS BOARD, OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE FORECASTS HAVE NOT BEEN
AUDITED OR REVIEWED BY ROSE'S STORES, INC. INDEPENDENT CERTIFIED ACCOUNTANTS.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE FORECASTS ARE BASED UPON A
VARIETY OF ASSUMPTIONS, WHICH MAY NOT BE REALIZED, AND ARE SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES
WHICH ARE BEYOND THE CONTROL OF THE COMPANY. CONSEQUENTLY, THE FORECASTS SHOULD
NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY ROSE'S STORES, INC., OR ANY
OTHER PERSONS, THAT THE FORECASTS WILL BE REALIZED. ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE PRESENTED IN THE FORECASTS. HOLDERS OF CLAIMS AND
INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH
ASSUMPTIONS AND THE RELIABILITY OF THE FORECASTS IN REACHING THEIR
DETERMINATIONS AS TO WHETHER TO ACCEPT OR REJECT THE PLAN.
PRINCIPAL ASSUMPTIONS:
(Bullet) Reorganized Roses will operate 113 discount department stores in
the Southeastern region of the United States.
(Bullet) Net Sales -- Owned will increase over prior years by 5%, 3%, 4%
and 5% for 1995, 1996, 1997 and 1998, respectively, primarily as a
result of inflation.
(Bullet) FIFO Gross Margin % is expected to be relatively flat (reflecting
the pass through of merchandise price increases). A slight
increase is expected in 1996 due to improved shrink results.
(Bullet) Leased Sales and Leased Department Income are expected to increase
at the same rate as Net Sales -- Owned.
(Bullet) Expenses (rent, salaries, wages, insurance, supplies, etc.)
increase at the same rate as Net Sales -- Owned.
(Bullet) Cash generated from operations and availability under a Revolving
Credit Facility similar to that contemplated in the Plan are
sufficient to fund operations and debt amortization.
(Bullet) Inventory turnover rates are expected to increase from 1994
Business Plan rate of 3.45 annual turns to 3.61 annual turns by
1998.
(Bullet) Subordinated Secured Term Debt is assumed to amortize at the
guaranteed rate, with annual payments made each January. In
addition, excess cash flow sweeps of approximately $6,125 and
$6,576 are expected in April, 1997 and 1998, respectively, fully
amortizing the Subordinated Secured Term Debt.
(Bullet) No equity transactions will occur during the forecast period.
(Bullet) No significant asset dispositions or new long-term financing
arrangements (other than those incorporated in the Plan) will
occur other than nominal equipment leasing activity.
(Bullet) Tax net operating loss carryforwards are expected to be available
(subject to certain limitations) to reduce federal taxable income.
M-240 8
