SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 26, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-631
ROSE'S STORES, INC.
Incorporated Under the Laws of Delaware
I.R.S. Employer Identification No. 56-0382475
P. H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Telephone No. 919/430-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
As of May 14, 1997, of the 10,000,000 shares of common stock delivered
to First Union National Bank of North Carolina, as Escrow Agent ("FUNB"),
pursuant to the Modified and Restated First Amended Joint Plan of Reorgani-
zation, 8,575,331 of such shares of common stock are outstanding. The
remaining 424,503 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are resolved.
If all pending claims are resolved adversely to the Company, approximately
8,611,337 shares of common stock will be outstanding. If all pending claims
are resolved in accordance with the Company's records, approximately 8,600,590
shares of common stock will be outstanding. To the extent that escrowed
shares of common stock are not used to satisfy claims, they will revert to the
Company and will be retired or held in the treasury of the Company.
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ROSE'S STORES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(Amounts in thousands except per share amounts)
The following summary of financial information of Rose's Stores, Inc.
(the "Company"), which is unaudited, reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary to reflect a fair statement of the information presented.
ROSE'S STORES, INC.
STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
For the Thirteen Weeks Ended
April 26, 1997 April 27, 1996
Revenue:
Gross sales $ 140,281 154,426
Leased department sales 3,979 4,281
Net sales 136,302 150,145
Leased department income 1,034 1,080
Total revenue 137,336 151,225
Costs and Expenses:
Cost of sales 102,884 113,040
Selling, general and administrative 34,753 (a) 36,819
Depreciation and amortization (529) (672)
Interest 1,536 1,386
Total costs and expenses 138,644 150,573
Net Earnings (Loss) $ (1,308) 652
Net Earnings (Loss) Per Share $ (.15) .08
Weighted Average Shares 8,611 8,611
(a) Included in 1997 selling, general and administrative costs is income of
$754 from the settlement of pre-petition insurance liabilities and a
loss of $189 from the closing of a store during the first quarter.
See notes to financial statements
PAGE
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ROSE'S STORES, INC.
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
April 26, January 25, April 27,
1997 1997 1996
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 584 1,241 578
Accounts receivable 7,473 5,101 8,679
Inventories 155,485 141,287 172,294
Other current assets 3,355 4,503 4,246
Total current assets 166,897 152,132 185,797
Property and Equipment, at cost,
less accumulated depreciation and amortization 7,554 7,710 5,780
Other Assets 282 480 961
$ 174,733 160,322 192,538
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 44,243 44,138 53,220
Bank drafts outstanding 2,041 - 3,926
Accounts payable 36,539 19,230 34,521
Accrued salaries and wages 4,400 6,422 4,620
Pre-petition liabilities 1,908 2,737 4,597
Other current liabilities 11,123 10,908 11,497
Total current liabilities 100,254 83,435 112,381
Excess of Net Assets Over Reorganization Value,
Net of Amortization 20,997 21,872 24,496
Reserve for Income Taxes 13,033 12,996 12,673
Deferred Income 128 339 804
Other Liabilities 689 740 972
Stockholders' Equity
Preferred stock, Authorized 10,000 shares;
none issued - - -
Common stock, Authorized 50,000 shares;
issued 8,611 at 4/26/97, 1/25/97 and 4/27/96
(Note 1) 35,000 35,000 35,000
Paid-in capital 1,159 1,159 1,159
Retained earnings 3,473 4,781 5,053
Total stockholders' equity 39,632 40,940 41,212
$ 174,733 160,322 192,538
</TABLE>
See notes to financial statements
PAGE
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ROSE'S STORES, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
April 26, 1997 April 27, 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,308) 652
Expenses not requiring the outlay of cash:
Depreciation and amortization (529) (673)
Amortization of deferred financing costs 206 97
(Gain) loss on disposal of property and equipment - (2)
Settlement of pre-petition liabilities (754) -
Provision for closed store 189 -
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (2,372) (1,470)
(Increase) decrease in inventories (14,198) (19,104)
(Increase) decrease in other assets 1,150 462
Increase (decrease) in accounts payable 17,309 10,676
Increase (decrease) in other liabilities (1,439) (2,667)
Increase (decrease) in income tax reserves 37 -
Increase (decrease) in reserve for store closings (530) (24)
Increase (decrease) in deferred income (211) (170)
Increase (decrease) in accumulated PBO - (100)
Net cash provided by (used in) operating activities (2,450) (12,323)
Cash flows from investing activities:
Purchases of property and equipment (204) (860)
Proceeds from disposal of property and equipment - 2
Net cash used in investing activities (204) (858)
Cash flows from financing activities:
Net activity on line of credit 105 19,547
Payments of unsecured priority and administrative claims (75) (35)
Principal payments on capital leases (64) (106)
Increase (decrease) in bank drafts outstanding 2,041 (5,604)
Payments of deferred financing costs (10) (636)
Net cash provided by (used in) financing activities 1,997 13,166
Net decrease in cash (657) (15)
Cash and cash equivalents at beginning of period 1,241 593
Cash and cash equivalents at end of period $ 584 578
Supplemental disclosure of additional non-cash
investing and financing activities:
Retirement of net book value of assets in reserve
for store closings $ 14 -
</TABLE>
See notes to financial statements
PAGE
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Notes to Financial Statements:
(1) On September 5, 1993, the Company filed a voluntary Petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Eastern
District of North Carolina (the "Bankruptcy Court"). The Company's
Modified and Restated First Amended Joint Plan of Reorganization (the
"Plan") was approved by order of the Bankruptcy Court on April 24,
1995. On April 28, 1995 (the "Effective Date"), the Plan became
effective.
Since emergence, distributions of the common stock, no par value, of
the Company (the "Common Stock") have been made to holders of Allowed
Class 3 Unsecured Claims (as defined in the Plan) in accordance with
the provisions of the Plan. As a result of distributions of the Common
Stock pursuant to the Plan, as of May 14, 1997, the Company had 8,575
shares of Common Stock outstanding of the 10,000 shares of Common Stock
which were delivered pursuant to the Plan on the Effective Date to
First Union National Bank of North Carolina ("FUNB") as escrow agent.
In addition, as of May 14, 1997, and pursuant to the provisions of the
Plan, 1,000 shares have reverted to the Company from escrow to be
retired.
The remaining 425 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are
resolved.
The disputed Class 3 claims which remained unresolved at May 14, 1997
were primarily claims of landlords with respect to leases which were
rejected during the course of the Chapter 11 proceeding and general
liability claims being resolved under an alternative dispute resolution
program established by the Bankruptcy Court. If all pending claims are
resolved adversely to the Company, approximately 36 additional shares
of Common Stock will be issued and there will be a total of approxi-
mately 8,611 shares of Common Stock issued and outstanding. If all
pending claims are resolved in accordance with the Company's records
and/or position as to such claims, approximately 26 additional shares
of Common Stock will be issued, and there will be a total of
approximately 8,601 shares of Common Stock issued and outstanding. To
the extent that escrowed shares of Common Stock are not used to satisfy
claims, they will revert to the Company and will be retired or held in
the treasury of the Company.
PAGE
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Notes to Financial Statements (Continued):
(1) Continued
On the Effective Date, all shares of the Company's pre-emergence Voting
Common Stock and Non-Voting Class B Stock were cancelled and the record
owners of such stock as of such date received warrants to purchase the
new Common Stock of the Company. One warrant was issued for every
4.377 shares of pre-emergence Voting Common Stock or Non-Voting Class B
Stock and allows the holder to purchase one share of the new Common
Stock. The warrants may be exercised at any time until they expire on
April 28, 2002. The initial warrant exercise price of $14.45 was
calculated pursuant to a formula set forth in the Plan. The exercise
price was adjusted to $12.01 on April 28, 1996, the first anniversary
of the Effective Date, and was adjusted to $11.87 on April 28, 1997,
the second anniversary of the Effective Date. The exercise price will
be adjusted on the third anniversary of the Effective Date to reflect
adjustments to the total of allowed and disputed claims of the
Company's unsecured creditors. The exercise price will be further
adjusted on the fourth, fifth and sixth anniversaries of the Effective
Date to reflect 105%, 110% and 115%, respectively, of the total of the
allowed and disputed claims of the unsecured creditors.
Under the New Equity Compensation Plan, nonqualified stock options to
purchase 318 shares of Common Stock were outstanding on April 26, 1997.
The weighted average option price per share is $3.89. The options vest
over a three year period (unless earlier vested by reason of certain
acceleration events, including a change of control of the Company).
One half of the options expire five years from the date of issuance and
the remainder expire seven years from the date of issuance.
The exercise of outstanding stock options and warrants would not result
in a dilution of earnings per share and are excluded from the
calculation of earnings per share.
(2) Accounts receivable is net of an allowance for doubtful accounts of
$515 as of April 26, 1997; $420 as of January 25, 1997 and $298 as of
April 27, 1996.
(3) The operating results presented herein are not necessarily indicative
of the operating results for a full year due to seasonal factors, among
other reasons.
(4) The Company paid interest (including deferred financing costs) of
$1,279 in the first quarter of 1997 and $1,669 in the comparable
quarter of last year.
(5) Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 presentation.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Amounts in thousands)
Revenue
The Company reported sales for the first quarter of 1997 of $140,281, a
decrease of $14,145, or 9.2%, from the first quarter of 1996. The decline in
sales was primarily attributable to a decline in sales on a comparable store
basis of 8.4%, together with the decrease in the number of stores (104 in 1997
as compared to 105 in 1996).
Costs and Expenses
Cost of sales as a percent of net sales was 75.5% for the first quarter of
1997 and 75.3% for the comparable period of the prior year. Cost of sales
increased .2% for the quarter due to an increase in markdowns, increased .2%
for the quarter due to a decrease in the markon percent and increased .1% by a
decrease in advertising co-op income. These increases were offset somewhat by
a decrease in shrinkage resulting in a decrease of .2% in cost of sales, and a
decrease in freight costs resulting in a decrease of .1% in cost of sales.
Selling, general and administrative expenses (SG&A) as a percent of net sales
were 25.5 % for the first quarter of 1997 and 24.5% for the comparable quarter
of the prior year. Included in 1997 selling, general and administrative
expense was income of $754 resulting from the settlement of pre-petition
insurance liabilities and a loss of $189 from the closing of a store during
the first quarter.
Liquidity and Capital Resources
As of May 17, 1997, under the Company's three year revolving credit facility
(the "Credit Facility"), the Company had $48,692 outstanding in short-term
borrowings, $6,634 in outstanding letters of credit and unused availability of
$32,709. The Company's management believes that the Company's current
financing arrangement and cash flows are adequate to meet its liquidity needs.
Under the Credit Facility, trade suppliers which extend credit to the Company
are supported by a subordinated lien on all of the assets of the Company
including a subordinated lien of $15,000 in the real estate properties of the
Company (the "Trade Lien"). The Trade Lien expires April 29, 1998, was put
into place on April 30, 1997, and replaces the prior trade security package
(consisting of a $5,000 letter of credit and a subordinated lien in the real
estate properties of the Company), which expired on April 29, 1997.
The Company invested $204 in cash for property and equipment in the first
quarter of 1997 compared to $860 in the first quarter of 1996. The 1997
expenditures were for store improvements and computer software. The 1996
expenditures were primarily for store remodelings and new computer software.
Cash used in operating activities, primarily to fund inventory levels, was
$2,450 in the first quarter of 1997, and $12,323 in the comparable period last
year.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) 10.1 Second Amended and Restated Trade Debt Note dated as
of April 29, 1997, between the Company and M. J.
Sherman and Associates, Inc.
10.2 Collateral Trust Agreement dated as of April 29,
1997, between M. J. Sherman and Associates, Inc., as
Trustee, and the Company.
10.3 General Security Agreement dated as of April 29,
1997, by the Company to M. J. Sherman and Associates,
Inc., as Trustee.
10.4 Second Amendment to Second Deed of Trust, Assignment
of Rents and Security Agreement dated as of April 29,
1997, by and among the Company, Alan H. Peterson, and
M. J. Sherman and Associates, Inc.
(b) The Company filed the following reports on Form 8-K during
the quarter covered by this report:
(i) Report on Form 8-K, dated April 28, 1997, reporting
under Item 5 the adjustment of the exercise price of
the Company's Warrants.
<PAGE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSE'S STORES, INC.
Date: June 10, 1997 By /s/ R. Edward Anderson
R. Edward Anderson
President,
Chief Executive Officer
Date: June 10, 1997 By /s/ Jeanette R. Peters
Jeanette R. Peters
Senior Vice President,
Chief Financial Officer
SECOND AMENDED AND RESTATED TRADE DEBT NOTE
$15,000,000.00 April 29, 1997
Henderson, North Carolina
For Value Received, Rose's Stores, Inc., a Delaware
corporation, whose address is 218 South Garnett Street, Henderson,
North Carolina 27536 ("Mortgagor"), promises to pay to the order
of M.J. Sherman & Associates, Inc., whose address is 333 East 68th
Street, New York, New York 10021, as Trustee ("Beneficiary"), or
at such other place as may be designated from time to time in
writing, the principal sum of FIFTEEN MILLION DOLLARS
($15,000,000.00), or such portion thereof as may, from time to
time, be owing hereunder, with interest thereon as hereinafter
provided.
The Beneficiary is Trustee for the "Trade Vendors" of
the undersigned, under and as defined in the Collateral Trust
Agreement between the undersigned and the Beneficiary, dated the
date hereof, as from time to time amended, amended and restated,
supplemented or otherwise modified from time to time (the
"Collateral Trust Agreement"), which amends and restates in its
entirety the Letter of Credit and Mortgage Trust Agreement between
the undersigned and the Beneficiary, dated as of May 8, 1995, as
amended.
This Second Amended and Restated Trade Debt Note ("Note")
is given to evidence present and future obligations of the
undersigned to the Trade Vendors for the unpaid invoiced cost of
goods heretofore and hereafter delivered by them to the undersigned
as shown on and after May 8, 1995 and prior to an Event of Default,
as hereinafter defined, on the books and records of the
undersigned, provided, that the maximum principal amount of present
and future obligations which may be evidenced hereby at any one
time is FIFTEEN MILLION DOLLARS ($15,000,000.00). All such future
obligations shall be incurred on or before April 29, 1998, unless
the time for incurring such obligations is extended to a date
which, in no event, will be later than fifteen (15) years from May
8, 1995.
The unpaid principal balance hereof shall be due from an
"Event of Default", as that term is defined in the Collateral Trust
Agreement, and shall bear interest from an Event of Default at a
rate per annum equal to three and one-half percent (3.50%) above
the "base rate", "prime rate" or "reference rate" announced from
time to time by Norwest Bank Minnesota, National Association, or
any successor thereto, on the unpaid balance until paid. Both
principal and interest are payable in lawful money of the United
States of America at the office of the Beneficiary or at such place
as the legal holder hereof may designate in writing.
<PAGE>
Pursuant to the provisions of N.C. Gen. Stat. Sections
45-67 et seq., this Note secures the making of present and future
advances incurred hereunder. This Note shall become null and void
and of no further force or effect upon termination of the
Collateral Trust Agreement in accordance with its terms.
All parties to this Note, including maker and any
sureties, endorsers, or guarantors hereby waive protest,
presentment, notice of dishonor and notice of acceleration of
maturity and agree to continue to remain bound for the payment of
principal, interest and all other sums due under this Note
notwithstanding any change or changes by way of release, surrender,
exchange, modification or substitution of any security for this
Note or by way of any extension or extensions of time for the
payment of principal and interest; and all such parties waive all
and every kind of notice of such change or changes and agree that
the same may be made without notice or consent of any of them.
Upon the occurrence of an Event of Default the holder of
this Note may employ an attorney to enforce the holder's rights and
remedies and the maker, principal, surety, guarantor and endorsers
of this Note hereby agree to pay on demand the holder's reasonable
attorney's fees, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's rights and remedies upon
and after an Event of Default. The rights and remedies of the
holder as provided in this Note and any instrument securing this
Note shall be cumulative and may be pursued singly, successively,
or together against any security held by the holder for payment or
security in the sole discretion of the holder. The failure to
exercise any such right or remedy shall not be a waiver or release
of such rights or remedies or the right to exercise any of them at
another time.
In the event any interest is charged in excess of the
maximum allowed by law, the undersigned acknowledges and stipulates
that any such charge shall be the result of an accidental and bona
fide error and such excess shall be, first, applied to reduce the
principal due, and, second, returned to the undersigned, it being
the intention of the parties hereto not to enter at any time into
an usurious or otherwise illegal relationship.
This Note is to be governed and construed in accordance
with the laws of the State of North Carolina.
This Note is issued pursuant to the terms of the
Collateral Trust Agreement and amends and restates in its entirety
the Trade Debt Note dated April 29, 1996 (the "Existing Trade Debt
Note") previously executed and delivered by the Mortgagor to the
Beneficiary pursuant to the terms of the Collateral Trust
Agreement. This Note is not intended to be and shall not
constitute a novation of the indebtedness evidenced by the Existing
Trade Debt Note, but is a restatement of such indebtedness as it
<PAGE>
currently exists and shall constitute evidence of the indebtedness
of the Mortgagor to the Trade Vendors as set forth herein.
IN WITNESS WHEREOF, the Mortgagor has caused this
instrument to be signed in its corporate name by its duly
authorized officer and its seal to be hereunto affixed by authority
of its Board of Directors, the day and year first above written.
ROSE'S STORES, INC.
a Delaware corporation
By:/s/ Jeanette Peters_______
Name: Jeanette Peters________
Title: Chief Financial Officer
Senior VP & Treasurer
ATTEST:
G. Templeton Blackburn, II
Secretary
(CORPORATE SEAL)
COLLATERAL TRUST AGREEMENT
dated as of April 29, 1997
between
ROSE'S STORES, INC.,
and
M.J. SHERMAN & ASSOCIATES, INC.,
as Trustee
PAGE
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TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . .- 4 -
SECTION 1.01 Certain Defined Terms. . . . . . . . . .- 4 -
SECTION 1.02 Certain References . . . . . . . . . . .- 8 -
ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY
OF TRADE VENDOR DOCUMENTS AND
INTERCREDITOR AGREEMENT . . . . . . . . . . .- 9 -
SECTION 2.01 Acceptance of Trust. . . . . . . . . . .- 9 -
SECTION 2.02 Execution and Delivery of Trade
Vendor Documents . . . . . . . . . . . .- 9 -
SECTION 2.03 Execution and Delivery of
Intercreditor Agreement. . . . . . . . .- 9 -
ARTICLE 3. INTENTIONALLY OMITTED . . . . . . . . . . . .- 9 -
ARTICLE 4. DEFAULT NOTICE; REMEDIES. . . . . . . . . . .- 9 -
SECTION 4.01 Default Notice . . . . . . . . . . . . .- 9 -
SECTION 4.02 Action Upon Receipt of Default Notice. .- 9 -
SECTION 4.03 Remedies Generally . . . . . . . . . . - 10 -
SECTION 4.04 Appointment of a Receiver. . . . . . . - 11 -
SECTION 4.05 Exercise of Powers . . . . . . . . . . - 11 -
SECTION 4.06 Remedies Not Exclusive . . . . . . . . - 11 -
SECTION 4.07 Limitation on Rights and Remedies
in Respect of Security . . . . . . . . - 12 -
SECTION 4.08 Right to Initiate Judicial
Proceedings, Etc.. . . . . . . . . . . - 12 -
SECTION 4.09 Limitation on Trustee's Duties in
Respect of Security. . . . . . . . . . - 12 -
SECTION 4.10 Limitation by Law. . . . . . . . . . . - 13 -
ARTICLE 5. DIRECTION BY TRADE COMMITTEE. . . . . . . . - 13 -
SECTION 5.01 Direction by Trade Committee . . . . . - 13 -
ARTICLE 6. INTENTIONALLY OMITTED . . . . . . . . . . . - 14 -
ARTICLE 7. NOTICE TO TRADE VENDORS . . . . . . . . . . - 14 -
SECTION 7.01 Notice to Trade Vendors . . . . . . . . - 14 -
ARTICLE 8. PROCEEDS ACCOUNT. . . . . . . . . . . . . . - 15 -
SECTION 8.01 The Proceeds Account . . . . . . . . . - 15 -
SECTION 8.02 Control of Proceeds Account. . . . . . - 15 -
SECTION 8.03 Investment of Funds Deposited
in Proceeds Account. . . . . . . . . . - 15 -
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ARTICLE 9. APPLICATION OF PROCEEDS . . . . . . . . . . - 16 -
SECTION 9.01 Application of Proceeds. . . . . . . . - 16 -
SECTION 9.02 Distribution of Proceeds . . . . . . . - 16 -
ARTICLE 10. ABSOLUTE RIGHTS OF TRADE VENDORS. . . . . . - 17 -
SECTION 10.01 Absolute Rights of Trade Vendors . . . - 17 -
ARTICLE 11. AGREEMENTS WITH THE TRUSTEE
AND THE MORTGAGE TRUSTEE. . . . . . . . . . - 18 -
SECTION 11.01 (a) Information as to Trade Vendors . - 18 -
(b) Confidentiality . . . . . . . . . - 18 -
SECTION 11.02 Compensation and Expenses. . . . . . . - 19 -
SECTION 11.03 Stamp and Other Similar Taxes. . . . . - 19 -
SECTION 11.04 Filing Fees, Excise Taxes, Etc.. . . . - 19 -
SECTION 11.05 Indemnification. . . . . . . . . . . . - 20 -
SECTION 11.06 Further Assurances . . . . . . . . . . - 20 -
SECTION 11.07 Notification of Event of Default
Under Loan Agreement . . . . . . . . . - 21 -
ARTICLE 12. THE TRUSTEE . . . . . . . . . . . . . . . . - 22 -
SECTION 12.01 Exculpatory Provisions . . . . . . . . - 22 -
SECTION 12.02 Delegation of Duties . . . . . . . . . - 22 -
SECTION 12.03 Reliance by Trustee. . . . . . . . . . - 22 -
SECTION 12.04 Limitations on Duties of the Trustee . - 23 -
SECTION 12.05 Moneys to Be Held in Trust . . . . . . - 24 -
SECTION 12.06 Resignation and Removal of Trustee . . - 24 -
SECTION 12.07 Trustee Appointed Attorney-in-Fact . . - 25 -
SECTION 12.08 Reasonable Care. . . . . . . . . . . . - 26 -
ARTICLE 13. MISCELLANEOUS . . . . . . . . . . . . . . . - 26 -
SECTION 13.01 Amendment or Waiver. . . . . . . . . . - 26 -
SECTION 13.02 Intercreditor and
Subordination Agreements . . . . . . . - 26 -
SECTION 13.03 Notices. . . . . . . . . . . . . . . . - 26 -
SECTION 13.04 Headings . . . . . . . . . . . . . . . - 27 -
SECTION 13.05 Severability . . . . . . . . . . . . . - 27 -
SECTION 13.06 Claims Against Trustee . . . . . . . . - 27 -
SECTION 13.07 Binding Effect . . . . . . . . . . . . - 28 -
SECTION 13.08 Governing Law. . . . . . . . . . . . . - 28 -
SECTION 13.09 Counterparts . . . . . . . . . . . . . - 28 -
SECTION 13.10 Termination. . . . . . . . . . . . . . - 28 -
PAGE
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EXHIBITS
EXHIBIT A Default Notice
EXHIBIT B Individual Trade Vendor Notice
EXHIBIT C Public Trade Vendor Notice
PAGE
<PAGE>
COLLATERAL TRUST AGREEMENT
This COLLATERAL TRUST AGREEMENT (as amended, amended and
restated, supplemented or otherwise modified from time to time in
accordance with the terms hereof, this "Agreement") is dated as of
April 29, 1997 and is entered into between Rose's Stores, Inc., a
Delaware corporation, with an office at U.S. Highway #1 Business,
Henderson, North Carolina 27536 (the "Company") and M.J. Sherman
& Associates, Inc., a New York corporation, with an office at 333
East 68th Street, New York, New York 10021, as trustee (the
"Trustee"). This Agreement amends and restates in its entirety the
Letter of Credit and Mortgage Trust Agreement between the Company
and the Trustee, dated May 8, 1995, as amended. Initially
capitalized terms used and not otherwise defined herein shall have
the meanings set forth in Article 1 hereof.
RECITALS
A. On September 5, 1993 the Company filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code with
the United States Bankruptcy Court for the Eastern District of
North Carolina (the "Bankruptcy Court").
B. On December 14, 1994 the Bankruptcy Court entered
an order confirming the Company's First Amended Joint Plan of
Reorganization dated October 4, 1994 (as so confirmed, and as
modified and restated by the Company's Modified and Restated First
Amended Joint Plan of Reorganization, dated April 19, 1995 which
was confirmed pursuant to an order of the Bankruptcy Court dated
April 24, 1995, the "Plan").
C. On April 28, 1995 the Company entered into a
Revolving Credit Agreement with The First National Bank of Boston
("FNBB") and The CIT Group/Business Credit, Inc., as facility
agents, FNBB, as administrative agent, and the lending institutions
parties thereto, (as amended, amended and restated, supplemented
or otherwise modified from time to time, "FNBB Credit Agreement"),
pursuant to which such lenders made financial accommodations to the
Company to facilitate consummation of the Plan and provide working
capital to the Company.
D. On May 21, 1996, the Company, as Borrower, entered
into a Loan and Security Agreement with Foothill Capital
Corporation ("Foothill"), as Agent, PPM Financing, Inc. as Co-
Agent, and the financial institutions name therein, as Lenders (as
amended, amended and restated, supplemented or otherwise modified
from time to time the "Foothill Loan Agreement") pursuant to which
all indebtedness of the Company to FNBB and the other lenders under
the FNBB Credit Agreement was paid in full.
E. It is important to the success of the Company's
business that the Company's Trade Vendors extend terms to the
<PAGE>
Company and deliver goods needed by the Company to successfully
operate its business.
F. To induce the Trade Vendors to continue to extend
terms to the Company and to continue to deliver to the Company the
goods it needed to successfully operate its business the Company,
as security for the Trade Obligations and the other Obligations,
(i) caused Foothill to cause the issuance of a standby letter of
credit, dated May 22, 1996 (as amended, amended and restated,
supplemented, renewed, replaced or otherwise modified from time to
time, the "Trade Vendor L/C"), in the face amount of $5,000,000 in
favor of the Trustee, as beneficiary, in trust for, and for the
benefit of, the Trade Vendors, which expires on April 29, 1997 and
(ii) granted to Alan H. Peterson, as substitute trustee (the
"Mortgage Trustee"), for the benefit of the Trustee, as
beneficiary, the Second Deed of Trust, Assignment of Rents and
Security Agreement, dated as of May 8, 1995, in the maximum
principal amount of $15,000,000, with respect to all of the
interests of the Company in the Henderson Property, subject and
subordinate to the Senior Mortgage, dated May 21, 1996, granted by
the Company to David L. Huffstetler, as trustee, for the benefit
of the Lenders under the Foothill Loan Agreement, (such Second Deed
of Trust granted for the benefit of the Trustee, as amended,
amended and restated, supplemented or otherwise modified from time
to time, the "Mortgage", as hereinafter further defined). The
Henderson Property is hereinafter sometimes referred to as the
"Mortgaged Property".
G. As further inducement to the Trade Vendors to
continue to extend terms to the Company and to continue to deliver
to the Company the goods it needs to operate its business, and in
lieu of the Trade Vendor L/C which expires on April 29, 1997, the
Company, as security for prompt payment and performance the Trade
Obligations and the other Obligations, has executed and delivered
to the Trustee the Security Agreements pursuant to which the
Company has granted to the Trustee, for the benefit of the Trade
Vendors, liens upon and security interests in certain of the
Company's personal property and fixtures as more fully described
in the Security Agreements (the "Collateral") subject and
subordinate to the liens of the Agent therein. The Collateral and
the Mortgaged Property are referred to collectively as the
"Security".
H. The rights and remedies of the Trustee in respect
of the Security Agreements, the Mortgage and the other Security
Documents are subject in all respects to the terms of the
Intercreditor Agreement, dated as of the date hereof, as amended,
<PAGE>
amended and restated, supplemented or otherwise modified from time
to time, the "Intercreditor Agreement") and the Subordination
Agreement, dated as of May 21, 1996, as amended, amended and
restated, supplemented or otherwise modified from time to time, the
"Subordination Agreement") between Foothill, as Agent for itself
and the other Lenders under the Loan Agreement, and the Trustee,
respectively.
I. This Agreement is intended to establish a trust
under which (i) the Security Documents, (ii) all cash and non-cash
proceeds of the Security (the "Proceeds") and (iii) the Proceeds
Account, (the right, title and interest of the Trustee in and to
the Security Documents, the Security, the Proceeds and the Proceeds
Account being herein collectively referred to as the "Trust
Estate") will be held by the Trustee in trust for, and for the
benefit of, the Trade Vendors who have not been paid in full for
goods heretofore delivered and hereafter delivered to the Company.
J. This Agreement is further intended to set forth the
terms and conditions upon which the Trust Estate will be
administered by the Trustee, the rights and remedies of the Trade
Vendors with respect to the Trust Estate and certain other related
matters.
DECLARATION OF TRUST
NOW, THEREFORE, in order to induce the Trade Vendors to
deliver goods to the Company and to provide security for payment
of the obligations the Company has heretofore incurred and
hereafter incurs to the Trade Vendors in the amount of the unpaid
invoiced cost of goods delivered to the Company by the Trade
Vendors as shown from time to time on the books and records of the
Company (the "Trade Obligations"), and in consideration of the
premises and the mutual agreements set forth herein, the Company
hereby confirms that it has caused the Trade Vendor Documents to
be executed and delivered to the Trustee, and the Trustee does
hereby declare that it holds and will hold the Trade Vendor
Documents as trustee in trust under this Agreement, and the Company
does hereby consent thereto.
TO HAVE AND TO HOLD, the Trust Estate unto the Trustee
and its successors in trust under this Agreement and its assigns
and the assigns of its successors in trust forever or until
terminated in accordance with the terms hereof;
<PAGE>
IN TRUST NEVERTHELESS, under and subject to the terms and
conditions set forth herein for the benefit of the Trade Vendors
and for the enforcement of the payment of the Trade Obligations,
and for the performance of and compliance with the covenants and
conditions of this Agreement, the Note, the Security Documents and
the Mortgage.
ARTICLE 1.
DEFINITIONS
SECTION 01 Certain Defined Terms. The following
terms shall have the following meanings as used herein (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Agent" has the meaning set forth in the Foothill Loan
Agreement.
"Agreement" has the meaning set forth in the preamble
to this Agreement.
"Authorized Officer" means the Chairman, the President,
any Vice President, the Secretary or the Treasurer of a Person or
any other officer designated as an "Authorized Officer" by the
Board of Directors (or equivalent governing body) of such Person
and shall include, with respect to the Trade Committee, the counsel
to the Trade Committee.
"Bankruptcy Code" means Title 11 of the United States
Code, 11 U.S.C. Sections 101 et seq., as amended.
"Bankruptcy Court" has the meaning set forth in
Paragraph A of the Recitals to this Agreement.
"Business Day" means a day other than a Saturday, Sunday
or other day on which national banks are required or authorized by
law to close.
"Collateral" has the meaning set forth in Paragraph G
of the Recitals to this Agreement.
"Company" has the meaning set forth in the preamble to
this Agreement.
<PAGE>
"Default Notice" has the meaning set forth in
Section 4.01.
"Event of Default" means an "Event of Default" under and
as defined in any of the Security Documents.
"FNBB" has the meaning set forth in Paragraph C of the
Recitals to this Agreement.
"FNBB Credit Agreement" has the meaning set forth in
Paragraph C of the Recitals to this Agreement.
"Foothill Loan Agreement" has the meaning set forth in
Paragraph D of the Recitals of this Agreement.
"General Security Agreement" means the General Security
Agreement, dated as of the date hereof, executed by the Company,
as debtor, in favor of Trustee, as secured party, as the same may
hereafter be amended, amended and restated, supplemented or
otherwise modified from time to time.
"Henderson Property" means the Company's warehouse
distribution center, corporate offices, data processing center and
graphics production center located in Henderson, North Carolina.
"Individual Trade Vendor Notice" has the meaning set
forth in Section 7.01.
"Intellectual Property Security Agreement" means the
Intellectual Property Security Agreement, dated as of the date
hereof, between the Company and the Trustee, as amended, amended
and restated, supplemented or otherwise modified from time to time.
"Intercreditor Agreement" has the meaning set forth in
Paragraph H of the Recitals to this Agreement.
"Intercreditor and Subordination Agreements" means,
collectively, the Intercreditor Agreement and the Subordination
Agreement.
"Lenders" has the meanings set forth in the Foothill
Loan Agreement.
"Mortgage" has the meaning set forth in Paragraph F of
the Recitals to this Agreement, as recorded in Book 749, at Page
<PAGE>
499 with the Vance County Registry of Deeds, as amended by the
First Amendment to Second Deed of Trust, Assignment of Rents and
Security Agreement, dated as of April 29, 1996, recorded on May 24,
1996 at Book 771, at Page 53 with the Vance County Registry of
Deeds, as further amended by the Second Amendment to Second Deed
of Trsut and as amended, amended and restated, supplemented or
otherwise modified from time to time.
"Mortgaged Property" has the meaning set forth in
Paragraph F of the Recitals to this Agreement.
"Mortgage Trustee" has the meaning set forth in
Paragraph F of the Recitals to this Agreement.
"Note" means the Second Amended and Restated Trade Debt
Note, dated the date hereof, in the maximum principal amount of
$15,000,000 made by the Company to the Trustee.
"Obligations" means, at any time, all obligations,
liabilities or indebtedness, whether matured or unmatured, of the
Company evidenced or arising out of this Agreement, the Note or any
of the Security Documents, whether principal, interest, fees or
expenses, including without limitation, the Trade Obligations, the
fees and expenses of the Trustee and the Mortgage Trustee and the
expenses of the Trade Committee, including the fees and
disbursements of counsel to the Trustee, counsel to the Mortgage
Trustee and counsel to the Trade Committee and any indemnity
obligations of the Company to the Trustee, the Mortgage Trustee or
the Trade Committee.
"Permitted Investments" means (a) marketable securities
issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof having
maturities of not more than three months from the date of
acquisition, (b) time deposits and certificates of deposit of, or
money market or similar accounts with, any domestic commercial bank
of recognized standing having capital and surplus in excess of U.S.
$100,000,000 and a Keefe Bank Watch Rating of C or better, with
maturities of not more than three months from the date of
acquisition, (c) commercial paper rated at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-
1 on the equivalent thereof by Moody's Investors Service, Inc. and
in each case maturing within three months after the date of
acquisition, (d) repurchase obligations with a term of not more
than thirty days for underlying securities of the types described
in clauses (a), (b) and (c) entered into with any bank meeting the
<PAGE>
qualifications specified in clause (b) above or with a securities
dealer acceptable to the Trustee.
"Person" means an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited
liability company, a trust, an unincorporated association, a joint
venture, a governmental entity or another entity of whatever
nature.
"Plan" has the meaning set forth in Paragraph B of the
Recitals to this Agreement.
"Proceeds" has the meaning set forth in Paragraph I of
the Recitals to this Agreement.
"Proceeds Account" has the meaning set forth in
Section 8.01.
"Public Trade Vendor Notice" has the meaning set forth
in Section 7.01.
"Second Amendment to Deed of Trust" means the Second
Amendment to Deed of Trust, Assignment of Rents and Security
Agreement, dated as of the date hereof, by and among the Company,
the Mortgage Trustee and the Trustee, as Beneficiary.
"Second Amendment to Subordination Agreement" means the
Second Amendment, dated the date hereof, to the Subordination
Agreement.
"Security" has the meaning set forth in Paragraph G of
the Recitals to this Agreement and includes all property and assets
of the Company, now existing or hereafter acquired, and all cash
and non-cash proceeds thereof, in respect of which any lien,
mortgage security interest or other encumbrance in favor of the
Trustee is granted or created under any, Security Document,
including, without limitation the Security Agreements and the
Mortgage.
"Security Agreements" means, collectively, the General
Security Agreement and the Intellectual Property Security
Agreement.
"Security Documents" means, collectively, the General
Security Agreement, the Intellectual Property Security Agreement,
the Mortgage, all UCC-1 financing statements now or hereafter
executed by the Company, as debtor, in favor of the Trustee or the
<PAGE>
Mortgage Trustee, as secured party, and all other documents and
agreements at any time executed with or in favor of the Trustee or
the Mortgage Trustee as security for the Obligations, as the same
may now exist or may hereafter be amended, amended and restated,
supplemented or otherwise modified.
"Senior Headquarters Mortgage" means the Future Advance
Deed of Trust, Assignment of Rents and Security Agreement, dated
as of May 21, 1996, executed by the Company, as grantor, to David
L. Huffstetler, as trustee for the benefit of the Banks (as defined
therein), as beneficiary, recorded on May 24, 1996 in Book 771, at
Page 93 in the Vance County Registry of Deeds encumbering a portion
of the Mortgaged Property identified as Parcels 1 though 12 on
Exhibit "A" thereto.
"Senior Indebtedness" has the meaning set forth in the
Subordination Agreement.
"Senior Mortgage" means, collectively, the Senior
Headquarters Mortgage and the Senior Warehouse Mortgage.
"Senior Warehouse Mortgage" means the Future Advance
Deed of Trust, Assignment of Rents and Security Agreement, dated
as of May 21, 1996, executed by the Company, as grantor to David
L. Huffstetler, as trustee, for the benefit of the Banks (as
defined therein), as beneficiary, recorded on May 24, 1996 in Book
771, at Page 131 encumbering a portion of the Mortgaged Property
identified as Parcel 13 on Exhibit "A" thereto in the Vance County
Registry of Deeds.
"Subordination Agreement" has the meaning set forth in
Paragraph H of the Recitals to this Agreement.
"Trade Committee" means the Post-Effective Date Trade
Committee under and as defined in the Plan.
"Trade Obligations" has the meaning set forth in the
Declaration of Trust made in the Recitals to this Agreement.
"Trade Vendor" means trade vendors of the Company who
have extended or who hereafter extend terms to the Company for
goods delivered to the Company, other than on consignment.
"Trade Vendor Documents" means the Note, the Mortgage,
the Security Agreement, the Intellectual Property Security
Agreement and the other Security Documents.
<PAGE>
"Trade Vendor Information" has the meaning set forth in
Section 11.01.
"Trade Vendor L/C" has the meaning set forth in
Paragraph F of the Recitals to this Agreement.
"Trade Vendor Payable Amount" has the meaning set forth
in Section 7.01.
"Trust Estate" has the meaning set forth in Paragraph G
of the Recitals to this Agreement.
"Trustee" has the meaning set forth in the preamble to
this Agreement.
SECTION 02 Certain References. The words "hereof",
"herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement and section, schedule
and exhibit references are to this Agreement unless otherwise
specified. References to Persons include their respective
permitted successors and assigns or, in the case of governmental
Persons, Persons succeeding to the relevant functions of such
Persons.
ARTICLE 2.
ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY
OF TRADE VENDOR DOCUMENTS AND INTERCREDITOR AGREEMENT
SECTION 01 Acceptance of Trust. The Trustee, for
itself and its successors, hereby accepts the trust created by this
Agreement upon the terms and conditions hereof. Further, the
Trustee, for itself and its successors, does hereby declare that
it will hold the Trust Estate for the benefit of the Trade Vendors
upon the trusts herein set forth.
SECTION 02 Execution and Delivery of Trade Vendor
Documents. On or about the date thereof the Company has executed
in favor of and delivered to the Trustee, for the benefit of the
Trade Vendors, the Note, the General Security Agreement, the
Intellectual Property Security Agreement and the Second Amendment
to Deed of Trust.
SECTION 03 Execution and Delivery of Intercreditor
Agreement. On or about the date hereof, the Trustee has executed
<PAGE>
and delivered to the Agent the Intercreditor Agreement in the form
approved by, and as directed, by the Trade Committee.
ARTICLE 3.
INTENTIONALLY OMITTED
ARTICLE 4.
DEFAULT NOTICE; REMEDIES
SECTION 01 Default Notice. If an Event of Default
shall have occurred, the Trade Committee shall have the right to
deliver to the Trustee at any time, at its option, an irrevocable
written notice ("Default Notice"), substantially in the form
attached hereto as Exhibit A, stating that an Event of Default has
occurred and directing the Trustee to take, and cause the Mortgage
Trustee to take, such action as therein requested by the Trade
Committee with respect to the Security Documents and the Security
(which action may include, without limitation, subject to the terms
and conditions of the Intercreditor and Subordination Agreements,
the institution of any remedies provided by any of the Security
Documents, by law or by this Agreement).
SECTION 02 Action Upon Receipt of Default Notice.
Upon receipt of a Default Notice (or at such later time as shall
be the first time when such action is not prohibited to be taken
by the Intercreditor Agreement or the Subordination Agreement),
the Trustee shall promptly take, and cause the Mortgage Trustee to
promptly take, such action as is requested by the Trade Committee
in such Default Notice or any notice supplemental thereto
authorized, or as the Trustee shall deem this necessary or
appropriate in its sole discretion, to collect the then unpaid
Obligations.
SECTION 03 Remedies Generally. (a) The Company
hereby irrevocably constitutes and appoints each of the Trustee
and the Mortgage Trustee and any officer or agent of either of them
with full power of substitution, as its true and lawful attorney-
in-fact with full power and authority in the name of the Company
or its own name, from time to time in the Trustee's and Mortgage
Trustee's discretion, after action by the Trustee and Mortgage
Trustee is not prohibited by the Intercreditor Agreement or the
Subordination Agreement, for the purpose of carrying out the terms
of the Security Documents, to take any and all appropriate action
<PAGE>
and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes hereof and
thereof and, without limiting the generality of the foregoing,
hereby gives each of the Trustee and the Mortgage Trustee the power
and right on behalf of the Company, without notice to or assent by
the Company, to do (to the extent permitted under the Security
Documents) the following:
(i) to ask for, demand, sue for, collect,
receive and give acquittance for any and all moneys due
or to become due upon or by virtue hereof and thereof,
(ii) to receive, take, endorse, assign and
deliver any and all checks, notes, drafts, acceptances,
documents and other negotiable and non-negotiable
instruments and chattel paper taken or received by the
Trustee or Mortgage Trustee in connection herewith and
therewith,
(iii) to commence, file, prosecute, defend,
settle, compromise or adjust any claim, suit, action or
proceeding with respect hereto and thereto or in
connection herewith and therewith,
(iv) to sell, transfer, assign, lease or rent
all or any portion of or otherwise deal in or with the
Security or any part thereof as fully and effectually as
if the Trustee or the Mortgage Trustee, as the case may
be, was the absolute owner thereof,
(v) to make demands, give consents and
releases or partial releases, and to exercise any other
rights contemplated or permitted by the Security
Documents, and
(vi) to do, at its option and at the expense
and for the account of the Company, at any time and from
time to time, all acts and things which it deems
necessary to protect or preserve the Security and to
realize upon the Security.
SECTION 04 Appointment of a Receiver. If a receiver
of the Mortgaged Property or other Security shall be appointed in
judicial proceedings, the Mortgage Trustee or the Trustee, as the
case may be, may be appointed as such receiver. Notwithstanding
the appointment of a receiver, the Mortgage Trustee or the Trustee,
as the case may be, shall be entitled to retain possession and
<page.
control of all cash held by or deposited with it or its agents in
accordance with the terms of the Security Documents.
SECTION 05 Exercise of Powers. Subject to the
provisions of Section 4.10, all of the powers, remedies and rights
of the Trustee and the Mortgage Trustee as set forth in this
Agreement may be exercised by the Trustee and the Mortgage Trustee
in respect of the Security Documents and the Security as though set
forth at length therein and all the rights, remedies and powers of
the Trustee and the Mortgage Trustee as set forth in the Security
Documents may be exercised from time to time as herein and therein
specified; provided, that, nothing in this Agreement shall be
construed to impose a duty on the Trustee or the Mortgage Trustee
to take any action without first receiving direction from the Trade
Committee in the case of the Trustee, and from the Trustee in the
case of the Mortgage Trustee to do the same.
SECTION 06 Remedies Not Exclusive. (a) No remedy
conferred upon or reserved to the Trustee or the Mortgage Trustee
herein or in the Security Documents is intended to be a limitation
exclusive of any other remedy or remedies, but every such remedy
shall be cumulative and shall be in addition to every other remedy
conferred herein or in the Security Documents or now or hereafter
existing at law or in equity or by statute. All rights and
remedies of the Trustee and the Mortgage Trustee shall be subject
to the terms of the Intercreditor and Subordination Agreements.
(b) No delay or omission of the Trustee or the Mortgage
Trustee, respectively, to exercise any right, remedy or power
accruing upon an Event of Default shall impair any such right,
remedy or power or shall be construed to be a waiver of such Event
of Default or any acquiescence therein; and every right, power and
remedy given by this Agreement or the Security Documents to the
Trustee or the Mortgage Trustee may be exercised from time to time
and as often as may be deemed expedient by the Trustee and the
Mortgage Trustee, respectively.
(c) The Company expressly agrees that all rights of
action and rights to assert claims upon or under any Security
Document may be enforced by the Trustee or the Mortgage Trustee,
as the case may be, without the possession of any debt instrument
or the production thereof in any trial or other proceeding relative
thereto, and any such suit or proceeding instituted by the Trustee
or the Mortgage Trustee shall be brought in its name as Trustee or
as Mortgage Trustee, as the case may be, and any recovery or
judgment shall be held as part of the Trust Estate.
<page.
SECTION 07 Limitation on Rights and Remedies in
Respect of Security. This Agreement does not enlarge or otherwise
modify the rights that the Trustee holds for the benefit of the
Trade Vendors with respect to the Security under the Security
Documents or under the law, and does not confer any additional such
rights, but rather is intended to provide a mechanism for the
Trustee, on behalf of the Trade Vendors, to enforce such rights.
Without limiting the generality of the foregoing, nothing in this
Agreement shall permit the Trustee or the Mortgage Trustee to
exercise any right or remedy with respect to the Security, except
to the extent specifically provided under the Security Documents
but subject to the terms of the Intercreditor and Subordination
Agreements.
SECTION 08 Right to Initiate Judicial Proceedings,
Etc. Upon the occurrence of an Event of Default, subject to the
terms of the Intercreditor and Subordination Agreements, (a) the
Trustee and the Mortgage Trustee shall have the right and power to
institute and maintain such suits and proceedings as either of them
may deem appropriate to protect and enforce the rights vested in
the Trustee and the Mortgage Trustee by this Agreement and the
Security Documents, and (b) the Trustee and the Mortgage Trustee
may either (and in the case of the Mortgage Trustee, after entry
or without entry), proceed by suit or suits at law or in equity to
enforce such rights and to foreclose upon the Security and to sell
all or, from time to time, any of the Security under the judgment
or decree of a court of competent jurisdiction; provided, that,
nothing in this Agreement shall be construed to impose a duty on
the Trustee to take any discretionary action without first
receiving direction from the Trade Committee to do the same.
SECTION 09 Limitation on Trustee's Duties in Respect
of Security. Beyond the duties set forth in this Agreement, the
Trustee shall not have any duty to the Company or the Trade
Committee as to any Security in the Trustee's possession or
control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto,
except that the Trustee shall be liable for its failure to exercise
reasonable care in the handling of moneys and securities actually
received by it.
SECTION 4.10 Limitation by Law. All rights, remedies
and powers provided to the Trustee and the Mortgage Trustee by this
Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all
the provisions of this Agreement are intended to be subject to all
<PAGE>
applicable mandatory provisions of law which may be controlling and
to be limited to the extent necessary so that they will not render
this Agreement invalid, unenforceable in whole or in part or not
entitled to be recorded, registered, or filed under the provisions
of any applicable law.
ARTICLE 5.
DIRECTION BY TRADE COMMITTEE
SECTION 01 Direction by Trade Committee.
(a) Subject to Section 4.10 and the terms of the Intercreditor and
Subordination Agreements, if an Event of Default shall have
occurred and the Trustee shall have received a Default Notice with
respect thereto:
(i) in addition to taking such action as is
required by Section 4.02 the Trustee shall take such
other action as is necessary and appropriate for the
performance of and compliance with the covenants and
conditions of this Agreement as the Trade Committee shall
request in writing; and
(ii) the Trustee shall follow the written
directions of the Trade Committee with respect to the
time, method and place of taking any action required by
the preceding paragraph (i), or, if no such direction is
provided, then the Trustee may take such action in the
manner it deems necessary and appropriate for the
performance of and compliance with the covenants and
conditions of this Agreement, provided that nothing in
this Agreement shall be construed to impose a duty on
the Trustee to take any discretionary action without
first receiving a direction from the Trade Committee to
do the same.
(b) Nothing in this Section 5.01 shall impair the right
of the Trustee in its discretion to take or omit to take any action
deemed proper by the Trustee and which action or omission is not
inconsistent with the direction of the Trade Committee; provided,
however, the Trustee shall not be under any obligation to take any
action pursuant to any Trade Vendor Document without first being
provided adequate security and indemnity by the Company against the
costs, expenses and liabilities which may be incurred by it in
complying with such direction (except any cost, expense or
liability caused by its own gross negligence or willful misconduct
<PAGE>
or its failure to exercise reasonable care in the handling of
moneys and securities actually received by it), including such
reasonable advances for such cost and expenses as may be requested
by the Trustee.
ARTICLE 6.
INTENTIONALLY OMITTED
ARTICLE 7.
NOTICE TO TRADE VENDORS
SECTION 01 Notice to Trade Vendors.
(a) Promptly after receipt of a Default Notice from the
Trade Committee pursuant to Section 4.01 and thereafter of Trade
Vendor Information from the Company pursuant to Section 11.01, the
Trustee shall mail a notice (the "Individual Trade Vendor Notice")
substantially in the form attached hereto as Exhibit B, to each of
the Trade Vendors (i) notifying each of them that (x) an Event of
Default has occurred and (y) as to any action taken by the Trustee
or the Mortgage Trustee with respect to the Security, and (ii)
advising each of them of the amount of the Trade Obligations owing
to each of them, respectively, as of the date of such Trade Vendor
Information (the "Trade Vendor Payable Amount"). The Individual
Trade Vendor Notice shall further state that the Trade Vendor
Payable Amount set forth in the Payment Notice shall be deemed
correct and shall be the amount used by the Trustee in calculating
the distributions to be made to the Trade Vendors pursuant to this
Agreement, unless within 20 days of the mailing of the Individual
Trade Vendor Notice, a Trade Vendor shall provide to the Trustee
and the Company contrary information as to the Trade Vendor Payable
Amount owed to it, in which case, the Trustee shall reserve and to
the extent available funds in the Proceeds Account to provide for
any disputed amount until such dispute is resolved by the parties
thereto.
(b) Substantially contemporaneous with the mailing of
the Individual Trade Vendor Notices to the Trade Vendors in
accordance with clause (a) above, the Trustee shall publish a
notice (the "Public Trade Vendor Notice") in substantially the form
attached hereto as Exhibit C, which (i) shall be published in each
of the Wall Street Journal and Women's Wear Daily once during the
<page.
same business week and once during the immediately following
business week, (ii) contains the same information as is required
to be contained in the Individual Trade Vendor Notice, (iii) states
that if any Trade Vendor has not received an Individual Trade
Vendor Notice, such Trade Vendor may notify the Trustee and the
Company in writing of the amount of the Trade Obligations owed to
it and (iv) specifies a date, which shall be 20 days after the date
of first publication of the Public Payment Notice, on or before
which any Trade Creditor who has not received an Individual Trade
Vendor Notice shall, if it wishes to receive a distribution under
this Agreement, notify the Trustee and the Company in writing of
the amount of the Trade Obligations due and owing to such Trade
Vendor. In the event the Company shall have provided to the
Trustee contrary information with respect to such Trade Vendor, the
Trustee shall reserve, to the extent available, funds in the
Proceeds-Account to provide for any disputed amount until such
dispute is resolved by the parties thereto.
ARTICLE 8.
PROCEEDS ACCOUNT
SECTION 01 The Proceeds Account. After receipt of
a Default Notice and until the Proceeds have been fully distributed
in accordance with the terms of this Agreement, the Trustee shall
establish and maintain a bank account at a bank meeting the
qualifications of a bank in which Permitted Investments may be made
as provided for herein, which bank account shall be entitled the
"Rose's Trade Vendor Account" (the "Proceeds Account"). All
Proceeds shall be promptly deposited in the Proceeds Account, held
by the Trustee as part of the Trust Estate and distributed by the
Trustee as soon as practicable thereafter in accordance with
Section 9.01 and the other provisions of this Agreement.
SECTION 02 Control of Proceeds Account. All right,
title and interest in and to the Proceeds shall vest in the Trustee
and funds on deposit in the Proceeds Account shall constitute part
of the Trust Estate. The Proceeds Account shall be subject to the
exclusive dominion and control of the Trustee.
SECTION 03 Investment of Funds Deposited in Proceeds
Account. To the extent the Proceeds are on deposit in the Proceeds
Account in accordance with the terms of this Agreement, the Trustee
shall invest and reinvest such funds solely in Permitted
Investments. All such investments and the interest and income
received thereon shall be held in the Proceeds Account as part of
<PAGE>
the Trust Estate. The Trustee shall have no responsibility for any
loss resulting from a fluctuation in interest rates or the sale or
other disposition of any Permitted Investment prior to its maturity
date or otherwise. The Trustee shall have a reasonable period of
time in which to reinvest the moneys on deposit in the Proceeds
Account. In addition to the payment of expenses incurred by the
Trustee pursuant to any other Section of this Agreement, the
Trustee may deduct from the funds on deposit in the Proceeds
Account all of the actual and reasonable costs and expenses that
the Trustee or the Mortgage Trustee may incur in connection with
(a) the exercise or enforcement of any of the rights and remedies
of the Trustee hereunder or the Trustee or the Mortgage Trustee
under the Security Documents and (b) the custody or preservation
of Trust Estate.
ARTICLE 9.
APPLICATION OF PROCEEDS
SECTION 01 Application of Proceeds. All Proceeds and
all other moneys in the Proceeds Account shall promptly be applied
as follows:
FIRST: To the payment of (i) compensation due and
payable to the Trustee for services hereunder, and (ii)
all costs, expenses and liabilities incurred by the
Trustee and the Mortgage Trustee in connection with the
exercise or enforcement of the rights, duties and
remedies of the Trustee and the Mortgage Trustee under
this Agreement and the Security Documents, including,
without limitation, the reasonable fees and disbursements
of counsel for the Trustee and the Mortgage Trustee.
SECOND: After payment in full of the outstanding
obligations described in subsection 9.01 FIRST, to the
payment of all costs, expenses and liabilities incurred
by the Trade Committee in connection with the exercise
of its rights, duties or remedies under this Agreement,
including, without limitation, the reasonable fees and
disbursements of counsel for the Trade Committee.
THIRD: After payment in full of the outstanding
obligations described in subsection 9.01 SECOND, to the
ratable payment of the Trade Obligations then
outstanding; and
<PAGE>
FOURTH: After payment in full of all of the Trade
Obligations described in subsection 9.01 THIRD, to the
Company or to its order, or as a court of competent
jurisdiction may direct.
SECTION 02 Distribution of Proceeds. All
distributions required to be made hereunder to each of the Trade
Vendors in respect of the Trade Obligations shall be made directly
to each of the Trade Vendors, at the respective addresses for each
of the Trade Vendors provided to the Trustee by the Company
pursuant to Section 11.01 of this Agreement or at such other more
current address of which the Trustee shall become aware. All such
distributions shall be (subject to any decree of any court of
competent jurisdiction) final.
ARTICLE 10.
ABSOLUTE RIGHTS OF TRADE VENDORS
SECTION 01 Absolute Rights of Trade Vendors.
Notwithstanding any other provision of this Agreement or any
provision of any of the Security Documents, the right of each Trade
Vendor, which is absolute and unconditional, to receive payment of
the Trade Obligations owed to such Trade Vendor on or after the due
date thereof as set forth on the books and records of the Company,
to institute suit for the enforcement of such payment on or after
such due date, and to assert its position as a creditor in a case
under the Bankruptcy Code in which the Company is a debtor, and the
obligation of the Company, which is also absolute and
unconditional, to pay the Trade Obligations owed to such Trade
Vendor at the time and place expressed therein, shall not be
impaired or affected without the written consent of such Trade
Vendor. In addition, every right of each Trade Vendor to receive
payment or collateral security from sources other than the Trust
Estate shall not be, and is not hereby, impaired or affected.
Without limiting the generality of the foregoing, no Trade Vendor
shall be hereby obligated to share with any other Trade Vendor any
proceeds of such collateral security, any guaranty or right of set-
off; nor shall any Trade Vendors right to receive its ratable share
of proceeds of the Trust Estate or any part thereof hereunder be
diminished by or affected in any way by its right to receive
proceeds of any other collateral, set-off, payment upon a guaranty
or payment from any other source. In no event shall any Trade
Vendor have the right to receive more than the amount of Trade
Obligations owed to such Trade Vendor.
<PAGE>
ARTICLE 11.
AGREEMENTS WITH THE TRUSTEE
AND THE MORTGAGE TRUSTEE
SECTION 01 (a) Information as to Trade Vendors. In
connection with the distributions to be made by the Trustee after
the occurrence of an Event of Default pursuant to Section 9.01,
the Company agrees that it shall promptly deliver, or cause to be
delivered, to the Trustee, from time to time, upon the request of
the Trustee or the Trade Committee, but not more than once each
month, a list setting forth the following (the "Trade Vendor
Information"): (1) the aggregate outstanding amount of the Trade
Obligations, (2) the names and addresses of all Trade Vendors,
including the contact Person at each Trade Vendor, and the unpaid
principal amount and all other unpaid amounts in respect of Trade
Obligations known to the Company to be owing to each such Trade
Vendor and (3) such other information regarding the Trade Vendors
and the Trade Obligations necessary to effectuate such
distributions as the Trustee or the Trade Committee may reasonably
request. Unless otherwise specified herein, the Trustee may for
all purposes hereunder rely on such information provided by the
Company unless (i) the Trustee shall have actual knowledge of any
inaccuracy or (ii) any Trade Vendor shall provide contrary
information with respect to such Trade Vendor, in which case the
Trustee shall proceed as set forth in Section 7.01.
(b) Confidentiality. Except for (i) Trade Vendor
Information furnished by the Company to the Trustee pursuant to
Section 11.01(1) and 11.01 (2) which is disclosed by the Trustee
to the Trade Vendors in accordance with the terms of this
Agreement, and (ii) Trade Vendor Information which is or hereafter
becomes available to the public, the Trustee shall maintain the
confidentiality of any Trade Vendor Information designated by the
Company as confidential (the "Confidential Information") and the
content of all such Confidential Information, and shall not provide
or reveal the Confidential Information or its content to any Trade
Vendor or other person without the express written consent of the
Company. The Trustee shall not be permitted to use, and hereby
agrees not to use, any such Confidential Information for any
purpose other than to effectuate distributions to Trade Vendors
pursuant to this Agreement. In the event that the Trustee is
requested or required, by law or legal process, to disclose any of
the Confidential Information, the Trustee shall immediately notify
the Company of any such request, and, in any such event, the
Company may seek and pursue any such action, including, without
<PAGE>
limitation, the commencement of judicial or administrative
proceedings at law or in equity. In the event that, in the absence
of a protective order or the receipt of a written waiver from the
Company, the Trustee nonetheless, in the opinion of counsel, is
compelled by law to disclose Confidential Information concerning
the Company or else be liable for contempt or subject to other
censure or penalty, the Trustee shall be permitted to disclose such
information without liability under this Agreement only to the
extent necessary to avoid such liability, censure or penalty. The
Trustee acknowledges and agrees that the Company shall be entitled
to enforce the provisions of this Section 11.01(b) by specific
performance and injunctive relief in the event of any breach
thereof by the Trustee, any Trade Vendor or any other Person. The
Trustee's obligations under this Section 11.01(b) shall survive the
termination of the other provisions of this Agreement.
SECTION 02 Compensation and Expenses. The Company
agrees to pay to the Trustee and any successor trustee appointed
hereunder and to the Mortgage Trustee, as applicable, from time to
time upon demand, (i) reasonable compensation for the services of
the Trustee hereunder and for administering the Trust Estate
pursuant to a letter agreement, dated as of May 8, 1995, between
the Company and the Trustee as amended, supplemented or otherwise
modified from time to time and (ii) all the costs and expenses of
the Trustee and the Mortgage Trustee (including, without
limitation, the reasonable fees and disbursements of counsel to
the Trustee and the Mortgage Trustee and such special counsel as
the Trustee or the Mortgage Trustee elects to retain) (A) arising
in connection with the preparation, execution, delivery,
modification and termination of this Agreement or the enforcement
of any of the provisions hereof or the Note or any Security
Document or (B) incurred or required to be advanced in connection
with the administration of the Trust Estate, the sale or other
disposition of the Security or any part thereof and the exercise,
preservation, protection or defense of the Trustee's rights under
this Agreement and the Trustee's and Mortgage Trustee's rights
under the Security Documents and in and to the Trust Estate. The
Company's obligations under this Section 11.02 shall survive the
termination of the other provisions of this Agreement.
SECTION 03 Stamp and Other Similar Taxes. The
Company agrees to indemnify and hold harmless the Trustee and the
Mortgage Trustee from any present or future claim for liability
for any stamp or other similar tax and any penalties or interest
or other similar tax and any penalties or interest with respect
thereto, which may be assessed, levied or collected by any
jurisdiction in connection with this Agreement, the Note, the
<PAGE>
Security Documents or the Security. The obligations of the Company
under this Section 11.03 shall survive the termination of the other
provisions of this Agreement.
SECTION 04 Filing Fees, Excise Taxes, Etc. The
Company agrees to pay or reimburse the Trustee and the Mortgage
Trustee for any and all amounts in respect of all search, filing,
recording and registration fees, taxes, excise taxes and other
similar imposts which may be payable or determined to be payable
in respect of the execution, delivery, performance and enforcement
of this Agreement, the Note and the Security Documents. The
obligations of the Company under this Section 11.04 shall survive
the termination of the other provisions of this Agreement.
SECTION 05 Indemnification. (a) The Company agrees
to pay, indemnify, and hold harmless the Trustee and the Mortgage
Trustee and each of the agents thereof from and against any an all
liabilities, obligations, losses, damages, penalties, actions,
judgements, suits, costs, expenses and disbursements of any kind
or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the
Note, the Security Documents and the Trust Estate, unless arising
from the gross negligence or willful misconduct of the Trustee or
the Mortgage Trustee, as the case may be, or such agents thereof
as are seeking indemnification or the failure of the Trustee or the
Mortgage Trustee or any such agents to exercise reasonable care in
the handling of moneys or securities actually received by the
Trustee or the Mortgage Trustee or any such agents.
(b) In any suit, proceeding or action brought by the
Trustee or the Mortgage Trustee under or with respect to the Note,
any Security Document or any Security for any sum owing thereunder,
or to enforce any provision thereof, the Company will save,
indemnify and hold harmless the Trustee and the Mortgage Trustee
from and against all expense, loss or damage suffered by reason of
any defense, set-off, counterclaim, recoupment or reduction of
liability whatsoever of the obligee thereunder (unless such
expense, loss or damage is caused by the gross negligence or
willful misconduct of the Trustee or the Mortgage Trustee, or the
failure of the Trustee or Mortgage Trustee, as the case may be, to
(i) exercise reasonable care in the handling of moneys and
securities actually received by the Trustee or the Mortgage Trustee
or (ii) comply with the provisions of Section 11.01(b) of this
Agreement) arising out of a breach by the Company of any obligation
thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such obligee or its
successors from the Company and all such obligations shall be and
<PAGE>
remain enforceable against and only against the Company and shall
not be enforceable against the Trustee or the Mortgage Trustee, as
the case may be. The agreements in this Section 11.05 shall survive
the termination of the other provisions of this Agreement.
SECTION 06 Further Assurances. (a) Each of the
Company and the Trustee agrees that it will promptly correct any
defect or error that may be discovered in this Agreement, the Note
or any Security Document or in the execution, acknowledgment or
recordation thereof, as applicable.
(b) The Company agrees that from time to time it will,
promptly, upon reasonable request by the Trustee or the Mortgage
Trustee, and at its own expense, execute, acknowledge, deliver,
record, re-record, file, re-file, register and reregister any and
all further financing statements and continuations thereof, notices
of assignment, transfers, certificates, assurances, and other
instruments as the Trustee or the Mortgage Trustee may reasonably
request from time to time in order (i) to carry out more
effectively the purposes of this Agreement and (ii) to enable the
Trustee and the Mortgage Trustee to exercise and enforce is rights
and remedies hereunder and under the Security Documents, (iii) to
subject to the liens created by the Security Documents, any of the
properties, rights or interests of the Company covered or now or
hereafter intended to be covered by the Security Documents, (iv)
to perfect and maintain the validity, effectiveness and priority
of the Security Documents and the liens intended to be created
thereby, (v) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm unto the Trustee or the Mortgage
Trustee, as the case may be, the rights granted or now or hereafter
intended to be granted under the Security Documents or under any
other instrument executed in connection therewith to which the
Trustee or the Mortgage Trustee is or may become a party, and (vi)
to enable the Trustee and the Mortgage Trustee to exercise and
enforce its respective rights and remedies hereunder and under the
Security Documents provided, however, that this Section 11.06(b)
shall not be construed to require the Company to grant any lien
other than expressly provided for in this Agreement or affect the
limitations or the rights of the Trustee under the Intercreditor
Agreement or the Subordination Agreement.
(c) The Company hereby authorizes the Trustee and the
Mortgage Trustee to file one or more financing or continuation
statements, and amendments thereto, relative to the Security
without the signature of the Company where permitted by law. A
carbon, photographic or other reproduction of this Agreement or
any financing statement covering the Security or any part thereof
<PAGE>
shall be sufficient as a financing statement where permitted by
law.
(d) The Company shall furnish to the Mortgage Trustee
from time to time such reports in connection with the Mortgaged
Property as the Mortgage Trustee may reasonably request.
SECTION 07 Notification of Event of Default Under
Loan Agreement. The Company shall promptly notify the Trustee of
the occurrence of an "Event of Default" under and as defined in
the Foothill Loan Agreement.
ARTICLE 12.
THE TRUSTEE
SECTION 01 Exculpatory Provisions. (a) The Trustee
shall not be responsible in any manner whatsoever for the
correctness of any recitals, statements, representations or
warranties contained herein, all of which are made solely by the
Company. The Trustee makes no representation as to the value or
condition of the Trust Estate or any part thereof, or as to the
title of the Company to the Security or as to the validity,
execution (except the Trustee's own execution), enforceability,
legality or sufficiency of this Agreement, any of the Security
Documents or any of the Trade Obligations and, except as otherwise
expressly provided for herein, the Trustee shall incur no liability
or responsibility in respect of any such matters. The Trustee
shall not be responsible for insuring the Trust Estate or the
payment of any taxes, charges, assessments or liens upon the Trust
Estate or otherwise as to the maintenance of the Trust Estate,
except that in the event that the Trustee enters into possession
of a part or all of the Trust Estate, the Trustee shall preserve
the part in its possession.
(b) The Trustee shall not be required to ascertain or
inquire as to the performance by the Company of any of the
covenants or agreements contained herein, any Security Document or
with respect to any of the Trade Obligations.
(c) The Trustee shall not be personally liable for any
action taken or omitted to be taken by the Trustee in accordance
with this Agreement or any Security Document except for its own
gross negligence or willful misconduct and its failure to exercise
reasonable care in the handling of moneys or securities actually
received by it.
<PAGE>
SECTION 02 Delegation of Duties. The Trustee may
execute any of the trusts hereof and perform any duty hereunder
either directly or by or through agents or attorneys-in-fact (which
shall not include officers and employees of the Company or any
affiliate of the Company). The Trustee shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact
reasonably selected by it in good faith.
SECTION 03 Reliance by Trustee. (a) Whenever in
the administration of the trusts of this Agreement the Trustee
shall deem it necessary or desirable that a matter be proved or
established in connection with the taking, suffering or omitting
any action hereunder or under any Security Document unless
otherwise provided herein or therein, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved or established by a certificate
of an Authorized Officer of the Company or the Trade Committee
delivered to the Trustee, and such certificate shall constitute a
full warranty to the Trustee for any action taken, suffered or
omitted in reliance thereon unless the Trustee shall have actual
knowledge of an inaccuracy therein.
(b) The Trustee may consult with independent counsel
and any opinion of such counsel shall be full and complete
authorization and protection in respect of-any action taken or
suffered by it hereunder in accordance therewith unless the Trustee
has actual knowledge or a reason to question the validity or
accuracy of such opinion or of any assumption expressed therein as
the basis for such opinion. The Trustee shall have the right at
any time to seek instructions concerning the administration of the
Trust Estate from any court of competent jurisdiction.
(c) The Trustee may rely, and shall be fully protected
in acting, upon any resolution, statement, certificate, instrument,
opinion, report, notice, request, consent, order, bond, or other
paper or document which it reasonably believes to be genuine and
to have been signed or presented by the proper party or parties or,
in the case of cables, telecopies and telexes, to have been sent
by the proper party or parties. In the absence of gross negligence
or willful misconduct, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Trustee that conform to the requirements of this Agreement.
SECTION 04 Limitations on Duties of the Trustee.
<PAGE>
(a) The Trustee undertakes to perform only the duties
expressly set forth herein.
(b) The Trustee may exercise the rights and remedies
granted to it by this Agreement, the Note and the Security
Documents, but only pursuant to the terms hereof and thereof and
subject to the terms of the Intercreditor and Subordination
Agreements, and the Trustee shall not be liable with respect to
any action taken or omitted by it in accordance with the direction
of the Trade Committee subject to the terms hereof, the Note, the
Security Documents and the Intercreditor and Subordination
Agreements.
(c) Except as herein otherwise expressly provided, the
Trustee shall not be under any obligation to take any action which
is discretionary with the Trustee under the provisions hereof or
any Security Agreement except upon the written request of the Trade
Committee. Subject to the provisions of Section 11.01(b) of this
Agreement, the Trustee shall make available for inspection and
copying by the Trade Committee and each Trade Vendor, each
certificate or other paper furnished to the Trustee by the Company,
by the Trade Committee, by any Trade Vendor, or by any other
Person, under or in respect of this Agreement, any Security
Document, or any of the Trust Estate.
SECTION 05 Moneys to Be Held in Trust. All Proceeds
and other moneys and securities received by the Trustee under or
pursuant to any provision of this Agreement or any Security
Document shall be held in trust for the purposes of which they were
paid or held and the Trustee shall exercise reasonable care in the
handling of any such Proceeds, other moneys and securities actually
received by it.
SECTION 06 Resignation and Removal of Trustee.
(a) The Trustee may at any time, by giving 30 days prior
written notice to the Company and the Trade Committee, resign and
be discharged of the responsibilities hereby created, such
resignation to become effective upon the appointment of a successor
trustee by the Trade Committee and the acceptance of such
appointment by such successor trustee. The Trustee may be removed
at any time (with or without cause) and a successor trustee
appointed by the Trade Committee, provided that the Trustee shall
be entitled to its fees and expenses to the date of removal. If
no successor trustee shall be appointed and approved within 30 days
from the date of the giving of the aforesaid notice of resignation
or within 30 days from the date of such removal, the Trustee shall,
<PAGE>
or the Trade Committee may, apply to any court of competent
jurisdiction to appoint a successor trustee to act until such time,
if any, as a successor trustee shall have been appointed as above
provided. Any successor trustee so appointed by such court shall
immediately and without further act be superseded by any successor
trustee appointed by the Trade Committee as above provided.
(b) If at any time the Trustee shall become incapable
of acting, or if at any time a vacancy shall occur in the office
of the Trustee for any other cause, a successor trustee shall be
appointed by the Trade Committee and the powers, duties, authority
and title of the predecessor trustee terminated and cancelled
without procuring the resignation of such predecessor trustee, and
without any other formality (except as may be required by
applicable law) than the appointment and designation of a successor
trustee in writing, duly acknowledged, delivered to the predecessor
trustee and the Company and filed for record in each public office,
if any, in which this Agreement is required to be filed.
(c) The appointment and designation referred to in
Section 12.06(b) shall, after any required filing, be full evidence
of the right and authority to make the same and this Agreement
shall vest in such successor trustee, without any further act, deed
or conveyance, all of the estate and title of its predecessor, and
upon such filing for record, if any, the successor trustee shall
become fully vested with all the estates, properties, rights,
remedies, trusts, duties, authority and title of its predecessor;
but such predecessor shall, nevertheless, on the written request
of the Trade Committee, the Company or its or their successor
trustee, execute and deliver an instrument transferring to such
successor all the estates, properties, rights, remedies, trusts,
duties, authority and title of such predecessor hereunder and shall
deliver all moneys and securities held by it to such successor
trustee. Should any deed, conveyance or other instrument in
writing from the Company be required by any successor trustee for
more fully and certainly vesting in such successor trustee or
trustees the estate, properties, rights, powers, trusts, duties,
authority and title vested or intended to be vested in the
predecessor trustee, any and all such deeds, conveyances and other
instruments in writing shall, on request of such successor trustee,
be granted, acknowledged and delivered by the Company.
(d) Any required filing for record of the instrument
appointing a successor trustee as hereinabove provided shall be at
the expense of the Company. The resignation of any trustee and the
instrument or instruments removing any trustee, together with all
other instruments, deeds and conveyances provided for in this
<PAGE>
Article 12 shall, if permitted by law, be forthwith recorded,
registered and filed by and at the expense of the Company, wherever
this Agreement is recorded, registered and filed.
SECTION 07 Trustee Appointed Attorney-in-Fact. The
Company hereby irrevocably constitutes and appoints the Trustee
and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full power and
authority in the name of the Company or its own name and in the
place and stead of the Company, from time to time at the direction
of the Trade Committee, to take, subject to Section 5.01(b), any
action and to execute any instrument which the Trade Committee may
deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to the Company representing
payment, rents, issues or profits or other distribution in respect
of the Security, or any part thereof and to give full discharge for
the same.
SECTION 08 Reasonable Care. The Trustee shall be
deemed to have exercised reasonable care in the custody and
preservation of the Trust Estate if the Trust Estate is accorded
treatment substantially equal to that which he Trustee accords its
own property and reasonable care is exercised by the Trustee in
handling any moneys or securities in its possession, it being
understood that neither the Trustee nor the Mortgage Trustee shall
have any responsibility for taking any steps to preserve rights
against any parties with respect to the Security, except as
expressly provided for by or in accordance with this Agreement.
ARTICLE 13.
MISCELLANEOUS
SECTION 01 Amendment or Waiver. (a) None of the
terms and conditions of this Agreement, the Note or any Security
Document may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Trustee with the
consent of the Trade Committee. Any such amendment, waiver or
modification shall be binding upon the Company, the Trade
Committee, the Trade Vendors, and the Trustee and their respective
successors and assigns.
(b) Notwithstanding the provisions of paragraph (a),
the Trustee and the Company may, at any time and from time to time,
without the consent of the Trade Committee, enter into one or more
<PAGE>
agreements supplemental hereto or to any Security Document, in form
satisfactory to the Trustee, (i) to add to the covenants of the
Company, for the benefit of the Trade Vendors, or to surrender any
right or power herein conferred upon the Company, or (ii) to
mortgage, pledge or grant a security interest in favor of the
Trustee as additional security for the Trade Obligations any
property or assets which are required to be mortgaged or pledged,
or in which a security interest is required to be granted, to the
Trustee pursuant to the Security Documents.
SECTION 02 Intercreditor and Subordination
Agreements. Notwithstanding any provision of this Agreement to
the contrary, the Trustee shall comply with the provisions of the
Intercreditor and Subordination Agreements and shall not require
the consent of the Trade Committee or any Trade Vendor to comply
with any provision of the Intercreditor Agreement or the
Subordination Agreement.
SECTION 03 Notices. All notices, requests, demands
and other communications provided for or permitted hereunder shall,
unless otherwise stated herein, be in writing (including telex and
telecopy communications) and shall be sent by registered or
certified mail, return receipt requested, telex, telecopier or hand
delivery;
(a) If to the Company, to P.O. Box Drawer 947,
Henderson, North Carolina 27536, Attention: Chief Financial
Officer, or at such other address as shall be designated by it in
a written notice to the Trustee and the Trade Committee;
(b) If to the Trustee, to its address at 333 East 68th
Street, New York, New York 10021, Attention: Michael J. Sherman,
or at such other address as shall designated by it in a written
notice to the Company and the Trade Committee;
(c) If to any Trade Vendor, to it at the address
specified from time to time in the list provided by the Company to
the Trustee pursuant to Section 11.01.
(d) If to the Trade Committee, c/o Mattel Toys, 333
Continental Boulevard, El Segundo, California 90295, Attention:
Dorthy Fee, or at such other address as shall be designated by it
in a written notice to the Company and the Trustee, with a copy
to.Otterbourg, Steindler, Houston & Rosen, PC., 230 Park Avenue,
New York, New York 10169 Attention: Glenn B. Rice, Esq., counsel
the Trade Committee, or at such other address as shall be
designated by such firm to the Company and the Trustee.
<PAGE>
All such notices, requests, demands and communications shall be
deemed to have been duly given or made, (i) when delivered by hand,
(ii) five Business Days after being deposited in the United States
mail, postage prepared, (iii) when telexed with answer back
received or (iv) when telecopied with receipt acknowledged.
SECTION 04 Headings. Section, subsection and other
headings used in this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.
SECTION 05 Severability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction
shall not invalidate the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 06 Claims Against Trustee. This Agreement
is made for the benefit of the Trade Vendors, and the Trade
Committee may from time to time enforce the rights of the Trade
Vendors as explicit beneficiaries hereunder. Any claims or causes
of action which the Trade Vendors or the Company shall have against
the Trustee shall survive the termination of this Agreement and the
termination of the Trust Estate hereunder.
SECTION 07 Binding Effect. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto
and, additionally, shall inure to the benefit of the Trade
Committee and its successors and assigns and the Trade Vendors and
their respective successors and assigns and nothing herein is
intended or shall be construed to give any other Person any right,
remedy or claim under, to or in respect of this Agreement or the
Trust Estate or any part thereof.
SECTION 08 Governing Law. This Agreement and the
rights and obligations hereunder of the Trade Committee and the
Trade Vendors shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to the
conflicts of laws principles of such State.
SECTION 09 Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an
original and all of which taken together shall constitute one and
the same instrument.
<PAGE>
SECTION 13.10 Termination. This Agreement shall
terminate upon the earliest to occur of (a) midnight on April 29,
1998, (b) the sale or other disposition of all of the Security and
the final disposition of all Proceeds, and (c) the indefeasible
payment in full of the Obligations, provided, that, if this
Agreement is terminated pursuant to clause (a) of this Section
13.10, such termination shall not relieve or discharge the Company
of its duties, obligations or covenants under this Agremeent or the
other Vendor Documents until all Trade Obligations incurred prior
to such termination and all other Obligations at any time incurred
in connection with the collection of such Trade Obligations have
been fully and finally discharged and paid, and the Trustee's liens
upon and security interests in the Security and the rights and
remedies of the Trustee under the Agreement, the other Vendor
Documents and applicable law shall remain in full force and effect
until all such Trade and other Obligations have been fully and
finally paid.
<PAGE> <PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be duly executed by their
respective officers thereunto duly authorized as of the day and
year first above written.
M.J. SHERMAN & ASSOCIATES, INC.
as Trustee
By:/s/ Michael J. Sherman________________
Name: Michael J. Sherman_________________
Title: C. E. O. _________________________
ROSE'S STORES, INC.
By:/s/ Jeanette Peters __________________
Name: Jeanette Peters____________________
Title: Chief Financial Officer___________
PAGE
<PAGE>
EXHIBIT A
TRADE COMMITTEE OF ROSE'S STORES, INC.
c/o Mattel Toys
333 Continental Boulevard
El Segundo, California 90245
Attention: Ms. Dorthy Fee
DEFAULT NOTICE
______________, 1997
M.J. Sherman & Associates, Inc.,
Trustee
333 East 68th Street
New York, New York 10021
Attn: Michael J. Sherman, President
Gentlemen:
Reference is made to the Collateral Trust Agreement, dated as
of April 29, 1997, between Rose's Stores, Inc. and M.J. Sherman &
Associates, as Trustee (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Trust
Agreement"). Initially capitalized terms used and not otherwise
defined herein shall have their respective meanings as set forth
in the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trade
Committee hereby notifies the Trustee that an Event of Default has
occurred under the Trust Agreement and hereby irrevocably directs
the Trustee to take and to cause the Mortgagee Trustee to [take
such action as requested by the Trade Committee with respect to the
Security Documents and the Security].
Very truly yours,
TRADE COMMITTEE OF
ROSE'S STORES, INC.
By: MATTEL TOYS
By:___________________________
Name:_________________________
Title:________________________
cc: Rose's Stores, Inc.
Att: Chief Financial Officer
PAGE
<PAGE>
EXHIBIT B
TRADE COMMITTEE OF ROSE'S STORES, INC.
c/o Mattel Toys
333 Continental Boulevard
El Segundo, California 90245
Attention: Ms. Dorthy Fee
INDIVIDUAL TRADE VENDOR NOTICE
______________, 1997
[Name and Address
of Individual
Trade Vendor]
Attn: [Contact Person]
Gentlemen:
Reference is made to the Collateral Trust Agreement, dated as
of April 29, 1997 between Rose's Stores, Inc. and M.J. Sherman &
Associates, as Trustee (as amended, amended and restated,
supplemented or otherwise modified from time t time, the "Trust
Agreement"). Initially capitalized terms used and not otherwise
defined herein shall have their respective meanings as set forth
in the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trustee
hereby (i) notifies you that (x) an Event of Default has occurred
under the Trust Agreement and (y) the Trustee and the Mortgage
Trustee have [taken the following action with respect to the
Security] and (ii) advises you that the books and records of the
Company show that as of ______________, 19__ the unpaid amount of
Trade Obligations due and payable to you is $_______________ (the
"Trade Vendor Payable Amount").
The Trade Vendor Payable Amount shall be deemed correct and
shall be the amount used by the Trustee in calculating the
distribution to be made to you pursuant to the Trust Agreement
unless, within 20 days of the mailing of this Individual Trade
Vendor Notice, you shall provide to the Trustee and the Company
contrary information as to the Trade Payable Amount owed to you,
in which
PAGE
<PAGE>
case, the Trustee shall reserve, to the extent available, funds in
the Proceeds Account to provide for any disputed amount until such
dispute is resolved.
Very truly yours,
M.J. SHERMAN & ASSOCIATES, INC.,
Trustee
By:_____________________________
Name:___________________________
Title:__________________________
PAGE
<PAGE>
EXHIBIT C
M.J. SHERMAN & ASSOCIATES, INC.
Trustee
333 East 68th Street
New York, New York 10021
PUBLIC TRADE VENDOR NOTICE
______________, 1997
TO: THE TRADE VENDORS
OF ROSE'S STORES, INC.
Reference is made to the Collateral Trust Agreement, dated as
of April 29, 1997, between Rose's Stores, Inc. and M.J. Sherman &
Associates, as Trustee (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Trust
Agreement"). Initially capitalized terms used and not otherwise
defined herein shall have their respective meanings as set forth
in the Trust Agreement.
Pursuant to the terms of the Trust Agreement, the Trustee
hereby (i) notifies you that (x) an Event of Default has occurred
under the Trust Agreement and (y) the Trustee and the Mortgage
Trustee have [taken the following action with respect to the
Security] and (ii) advises you that if you have not received an
Individual Trade Vendor Notice, then, if you wish to receive any
distribution made under the Trust Agreement, you must, on or before
______________, [20 days after the date of the first publication
of the Public Payment Notice], notify the Trustee and the Company
in writing of the amount of Trade Obligations owed to you.
In the event the Trustee and the Company shall have received
contrary information from the Company as to the amount of Trade
Obligations owed to you, the Trustee shall reserve, to the extent
available, funds in the Proceeds Account to provide for any
disputed amount until such dispute is resolved.
Very truly yours,
M.J. SHERMAN & ASSOCIATES, INC.,
Trustee
By:_____________________________
Name:___________________________
Title:__________________________
GENERAL SECURITY AGREEMENT
dated as of April 29, 1997
by
ROSE'S STORES, INC.,
to
M.J. SHERMAN & ASSOCIATES, INC.,
as Trustee
PAGE
<PAGE>
TABLE OF CONTENTS
Page No.
SECTION 1. Definitions . . . . . . . . . . . . . . . . .- 1 -
SECTION 2. Grant of Security Interest. . . . . . . . . .- 2 -
SECTION 3. Security for Obligations. . . . . . . . . . .- 3 -
SECTION 4. Representations and Warranties. . . . . . . .- 3 -
SECTION 5. Covenants as to the Collateral. . . . . . . .- 5 -
SECTION 5A. Acts Permitted Under the Foothill Loan
Agreement . . . . . . . . . . . . . . . . . .- 9 -
SECTION 6. Additional Provisions Concerning the
Collateral. . . . . . . . . . . . . . . . . .- 9 -
SECTION 7. Events of Default . . . . . . . . . . . . . - 11 -
SECTION 8. Remedies Upon Default . . . . . . . . . . . - 12 -
SECTION 9. Indemnity and Expenses. . . . . . . . . . . - 13 -
SECTION 10. Notices . . . . . . . . . . . . . . . . . . - 13 -
SECTION 11. Security Interest Absolute. . . . . . . . . - 14 -
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . - 14 -
PAGE
<PAGE>
GENERAL SECURITY AGREEMENT
GENERAL SECURITY AGREEMENT (this "Agreement"), dated as of
April 29, 1997, made by ROSE'S STORES, INC., a Delaware corporation
(the "Debtor") to M.J. SHERMAN & ASSOCIATES, INC., Trustee (as
defined in the Collateral Trust Agreement described below) for the
benefit of the Trade Vendors (as defined in the Collateral Trust
Agreement).
W I T N E S E T H:
WHEREAS, the Debtor is now and may hereafter become indebted
to its Trade Vendors for goods which have been and may hereafter
be sold by them to the Debtor to operate its business;
WHEREAS, the Trade Vendors require, as a condition for their
extension of credit to the Debtor, that the Debtor execute and
deliver to the Trustee, for the benefit of the Trade Vendors, this
Agreement, pursuant to which the Debtor, as security for such
indebtedness and the other Obligations (as defined herein), is
granting to the Trustee, for the benefit of the Trade Vendors, a
security interest in the Collateral (as defined herein);
WHEREAS, the Debtor and the Trustee have entered into a
Collateral Trust Agreement, dated as of the date hereof, (as the
same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "Collateral Trust
Agreement"), pursuant to which the Trustee will administer the
Collateral for the benefit of the Trade Vendors; and
WHEREAS, pursuant to the Loan and Security Agreement, dated
as of May 31, 1996, by and among Foothill Capital Corporation
("Foothill"), as Agent and Lender, the other Lenders, and Rose's
Stores, Inc., as Borrower, as amended, amended and restated,
supplemented, extended, renewed, or replaced from time to time (the
"Foothill Loan Agreement") the Debtor, as security for the
Obligations (as defined in the Foothill Loan Agreement), has
granted to the Agent, for the benefit of the Lenders, a first
priority security interest in the Collateral;
NOW THEREFORE, in consideration of the premises, and for other
good and valuable consideration, the receipt of which is hereby
acknowledged, the Debtor hereby agrees with the Trustee, for the
benefit of the Trade Vendors, as follows:
SECTION 1. Definitions. All initially capitalized terms
used in this Agreement which are defined in the Collateral Trust
<PAGE>
Agreement or in Article 9 of the Uniform Commercial Code as
currently in effect in the State of New York (the "Code") and which
are not otherwise defined herein shall have the same meanings
herein as set forth therein. In the event of any inconsistencies
in such definitions, the provisions of this Agreement shall
control.
SECTION 2. Grant of Security Interest. As security for
the payment in full of all of the Obligations, the Debtor hereby
pledges and assigns to the Trustee and grants to the Trustee, for
the benefit of the Trade Vendors, a continuing general lien upon
and second priority, perfected security interest in, subject only
to the security interest of the Agent therein, all of the
following, which is owned by the Debtor or in which the Debtor has
any interest, wherever held by the Debtor or others for its account
(collectively, the "Collateral"):
(a) Accounts,
(b) Debtor's Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Negotiable Collateral,
(g) any money, or other assets of Debtor that now
or hereafter come into the possession, custody,
or control of the Trustee, and
(h) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Debtor's
Books, Equipment, General Intangibles, Inventory,
Negotiable Collateral, real property, money,
deposit accounts, or other tangible or intangible
property resulting from the sale, exchange,
collection, or other disposition of any of the
foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
As used in this Agreement:
(a) "Accounts" means all currently existing and
hereafter arising accounts, contract rights, and all other forms
of obligations owing to the Debtor arising out of the sale or
lease of goods or the rendition of services by the Debtor,
irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
<PAGE>
(b) "Debtor's Books" means all of the Debtor's books
and records including: ledgers; records indicating, summarizing,
or evidencing the Debtor's properties or assets (including the
Collateral) or liabilities; all information relating to the
Debtor's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other
computer prepared information.
(c) "Equipment" means all of the Debtor's present and
hereafter acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, vehicles (including motor
vehicles and trailers), tools, parts, goods (other than consumer
goods, farm products, or Inventory), wherever located, including,
(a) any interest of the Debtor in any of the foregoing, and (b)
all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the
foregoing.
(d) "General Intangibles" means all of the Debtor's
present and future general intangibles and other personal property
(including contract rights, rights arising under common law,
statutes, or regulations, choses or things in action, goodwill,
patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment
and other rights under any royalty, franchise, or licensing
agreements, infringement claims, computer programs, information
contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
(e) "Inventory" means all present and future inventory
in which the Debtor has any interest, including goods held for
sale or lease or to be furnished under a contract of service and
all of the Debtor's present and future raw materials, work in
process, finished goods, and packing and shipping materials,
wherever located, and any documents of title representing any of
the above.
(f) "Negotiable Collateral" means all of the Debtor's
present and future letters of credit, notes, drafts, instruments,
certificated securities (including the shares of stock of
subsidiaries of the Debtor), documents, personal property leases
(wherein the Debtor is the lessor), chattel paper, and the
Debtor's Books relating to any of the foregoing.
SECTION 3. Security for Obligations. The security
interest hereby created in the Collateral constitutes continuing
<PAGE>
collateral security for payment and performance of all of the
Obligations. As used in this Agreement, "Obligations" means, all
obligations, liabilities and indebtedness, whether matured or
unmatured, of the Debtor arising out of or evidenced by the Note,
any Security Document or the Collateral Trust Agreement, whether
as principal, interest, fees or expenses, including, without
limitation, the Trade Obligations, the fees and expenses of the
Trustee and the Mortgage Trustee and the of the Trade Committee,
and the reasonable fees and disbursements of the respective
counsel to the Trustee, the Mortgage Trustee and the Trade
Committee payable pursuant to the Collateral Agreement or this
Agreement.
SECTION 4. Representations and Warranties. The Debtor
represents and warrants as follows:
(a) The Debtor (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state
of its incorporation as set forth on the first page hereof, and
(ii) has all requisite power and authority to execute, deliver and
perform this Agreement.
(b) The execution, delivery and performance by the
Debtor of this Agreement (i) have been duly authorized by all
necessary corporate action, (ii) do not and will not contravene
its charter or by-laws, any other applicable law or any
contractual restriction binding on or affecting the Debtor or any
of its properties, and (iii) do not and will not result in or
require the creation of any lien, security interest or other
charge or encumbrance upon or with respect to any of its
properties other than as set forth in this Agreement.
(c) This Agreement is a legal, valid and binding
obligation of the Debtor enforceable against the Debtor in
accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the rights of
creditors generally and limitations imposed by federal or state
law or equitable principles upon the specific enforceability of
any of the remedies, covenants or other provisions hereof and
thereof.
(d) All Equipment and Inventory now existing is, and
all Equipment and Inventory hereafter existing will be, unless
consented to in writing by the Trustee, located at the address(es)
specified therefor in Schedule I hereto. The Debtor's chief place
of business and chief executive office, the place where the Debtor
keeps its records concerning Accounts and General Intangibles and
all originals of all chattel paper which constitutes Accounts are
<PAGE>
located at the address(es) specified therefor in such Schedule I.
None of the Accounts or General Intangibles is evidenced by a
promissory note or other instrument. Set forth as Schedule II
hereto is a complete and correct list of each trade name used by
the Debtor.
(e) The Debtor is and will be at all times the owner of
the Collateral free and clear of any lien, security interest or
other charge or encumbrance, except for (i) the security interest
created by this Agreement, (ii) the security interest in favor of
the Agent and (iii) the security interests and other encumbrances
described in Schedule III hereto. No effective financing
statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording or filing
office, except (i) such as may have been filed in favor of the
Agent in connection with the Foothill Loan Agreement, (ii) such as
may have been filed in favor of the Trustee and (iii) such as may
have been filed to perfect or protect any security interest or
encumbrance described in Schedule III hereto.
(f) The exercise by the Trustee of any of its rights
and remedies hereunder will not contravene any law or any
contractual restrictions binding on or affecting the Debtor or any
of its properties and will not result in or require the creation
of any lien, security interest or other charge or encumbrance upon
or with respect to any of the Debtor's properties other than as
set forth in this Agreement.
(g) No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the due execution, delivery
and performance by the Debtor of this Agreement, (ii) the grant by
the Debtor, or the perfection, of the security interest purported
to be created hereby in the Collateral, or (iii) the exercise by
the Trustee of any of its rights and remedies hereunder, except
for the filing of the financing statements required to be filed to
perfect the security interest created by this Agreement.
(h) There is no pending or, to the best of Debtor's
knowledge, threatened action, suit, proceeding or claim before any
court or other governmental authority or any arbitrator, or any
order, judgment or award by any court or other governmental
authority or arbitrator, that may adversely affect the grant by
the Debtor, or the perfection, of the security interest purported
to be created hereby in the Collateral, or the exercise by the
Trustee of any of its rights and remedies hereunder.
(i) This Agreement creates a valid second priority
security interest in the Collateral in favor of the Trustee, for
<PAGE>
the benefit of the Trade Vendors, as security for the Obligations.
The filing of the financing statements required to perfect the
security interest created by this Agreement has been made and
results in the perfection of such security interest in that
portion of the Collateral in which a security interest may be
perfected by filing financing statements. Such security interest
is, or in the case of Collateral in which the Debtor obtains
rights after the date hereof and in which a security interest may
be perfected by filing financing statements, will be, a perfected,
second priority security interest, subject only to the security
interest of the Agent and the other encumbrances described in
Schedule III hereto.
SECTION 5. Covenants as to the Collateral. So long as
any of the Obligations shall remain outstanding, unless the
Trustee shall otherwise consent in writing:
(a) Further Assurances. The Debtor will at its
expense, at any time and from time to time, promptly execute and
deliver all further instruments and documents and take all further
action that may be necessary or desirable or that the Trustee may
reasonably request in order (i) to perfect and protect the
security interest created hereby; (ii) after the occurrence and
during the continuance of an Event of Default (as hereinafter
defined), to enable the Trustee to exercise and enforce it rights
and remedies hereunder in respect of the Collateral, or (iii) to
otherwise effect the purpose of this Agreement, including, without
limitation, (A) marking conspicuously each item of chattel paper
included in the Accounts and General Intangibles and, at the
request of the Trustee, each of its records pertaining to the
Collateral with a legend, in form and substance reasonably
satisfactory to the Trustee, indicating that such chattel paper or
Collateral is subject to the security interest created hereby,
(B) if any Account or General Intangible shall be evidenced by a
promissory note or other instrument or chattel paper, delivering
and pledging to the Trustee hereunder such note, instrument or
chattel paper duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance
satisfactory to the Trustee, (C) executing and filing such
financing or continuation statements, or amendments thereto, as
may be necessary or desirable or that the Trustee may reasonably
request in order to perfect and preserve the security interest
purported to be created hereby, and (D) furnishing to the Trustee
from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection
with the Collateral as the Trustee may reasonably request, all in
reasonable detail.
<PAGE>
(b) Location of Equipment and Inventory. The Debtor
will keep the Equipment and Inventory at the location(s) specified
therefor in Schedule I hereto, or, upon not less than 30 Business
Days' prior written notice to the Trustee accompanied by a new
Schedule I hereto indicating each new location of the Equipment
and Inventory, at such other location as the Debtor may elect,
provided that the Trustee's rights in such Equipment and
Inventory, including, without limitation, the existence,
perfection and priority of the security interest created hereby in
such Equipment and Inventory, are not materially adversely
affected thereby.
(c) Condition of Equipment. The Debtor will cause
Equipment necessary for the operation of its business to be
maintained and preserved in good repair and working order,
ordinary wear and tear excepted, and will forthwith, or in the
case of any loss or damage to any Equipment as quickly as
practicable after the occurrence thereof, make or cause to be made
all necessary repairs, replacement, and other improvements in
connection therewith so that the value and operating efficiency
thereof shall at all times be maintained and preserved. The
Debtor will promptly furnish to the Trustee a statement regarding
any loss or damage in excess of $100,000 to any Equipment.
(d) Taxes. The Debtor will pay timely (before
delinquency or the expiration of any extension period) when due
all property and other taxes, assessments and governmental charges
or levies imposed upon, and all claims (including claims for
labor, materials and supplies) against any Collateral, except to
the extent the validity thereof is being contested in good faith
by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof.
(e) Insurance.
(i) The Debtor will, at it own expense, maintain
insurance (including, without limitation, comprehensive
general liability insurance and all risk insurance
insuring against loss by fire, explosion, theft and such
other casualties as may be satisfactory to the Trustee)
with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such
insurers, as is currently in effect. Each policy for
liability insurance shall provide for all losses to be
paid on behalf of the Trustee and the Debtor as their
respective interests may appear, and each policy for
property damage shall provide for all losses to be paid
directly to the Trustee upon the occurrence and during
the continuance of an Event of Default. In addition,
<PAGE>
each such policy or property damage insurance shall
provide for all losses to be paid directly to the
Trustee and shall (A) include the Trustee as an insured
party thereunder (without any representation or warranty
by or obligation upon the Trustee) as its interest may
appear, (B) contain the agreement by the insurer that
any loss pursuant to clause (iii) of this Section 5(e)
shall be payable to the Trustee notwithstanding any
action, inaction or breach of representation or warranty
by the Debtor, (C) provide that there shall be no
recourse against the Trustee for payment of premiums or
other amounts with respect thereto, and (D) provide that
at least 10 days' prior written notice of cancellation
or of lapse shall be given to the Trustee by the
insurer. The Debtor will, if so requested by the
Trustee, deliver to the Trustee duplicate policies of
all liability and property damage insurance and, as
often as the Trustee may reasonably request, a report of
a reputable insurance broker with respect to such
insurance. The Debtor will also, after the occurrence
and during the continuance of an Event of Default, at
the request of the Trustee, duly execute and deliver
instruments of assignment of such insurance policies and
cause the respective insurer to acknowledge notice of
such assignment.
(ii) Reimbursement under any liability insurance
maintained by the Debtor pursuant to this Section 5(e)
may be paid directly to the party who shall have
incurred liability covered by such insurance. In the
case of any loss involving damage to Equipment or
Inventory as to which clause (iii) of this Section 5(e)
is not applicable, the Debtor will make or cause to be
made the necessary repairs to or replacements to such
Equipment and Inventory, and any proceeds of insurance
maintained by the Debtor pursuant to this Section 5(e)
shall be paid to the Debtor as reimbursement for the
costs of such repair or replacements.
(iii) Upon the occurrence and during the
continuance of an Event of Default, or the actual or
constructive total loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance
payments in respect of such Equipment and Inventory and
all other Collateral shall be paid to the Trustee and
applied as specified in Section 8(b) hereof.
(f) Provisions Concerning the Accounts and General
Intangibles.
<PAGE>
(i) The Debtor will (A) give the Trustee at least
30 days' prior written notice of any change in the
Debtor's name, identity or corporate structure, (B) keep
its chief place of business and chief executive office
and all originals of all chattel paper which constitutes
Accounts or General Intangibles at the locations
specified therefor in Schedule I hereof, and (C) keep
adequate records concerning the Accounts and General
Intangible and such chattel paper and, after reasonable
notice, permit representatives of the Trustee to inspect
and make abstracts from such records and chattel paper
at any time during normal business hours.
(ii) The Debtor will, except as otherwise provided
in this subsection (f) continue to collect at its own
expense, all amounts due or to become due under the
Accounts and General Intangibles. In connection with
such collections, the Debtor may (and, at the Trustee's
direction, will) take such action as the Debtor or the
Trustee may deem necessary or advisable to enforce
collection or performance of the Accounts and General
Intangibles; provided, however, the Trustee shall have
the right at any time, upon the occurrence and during
the continuance of an Event of Default, to notify the
account debtors or obligors under any Account or General
Intangible of the assignment of such Account or General
Intangible to the Trustee and to direct such account
debtors or obligors to make payment of all amounts due
or to become due to the Debtor hereunder directly to the
Trustee and, upon such notification and at the expense
of the Debtor and to the extent permitted by law, to
enforce collection of any such Account or General
Intangible and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the
same extent as the Debtor might have done. In addition,
upon the occurrence and during the continuance of an
Event of Default, the Trustee shall have the right to
notify the United States Postal Service authorities to
change the address for delivery of mail addressed to the
Debtor at such address as the Trustee may designate and
to do all other acts and things necessary to carry out
this Agreement. Upon the occurrence and during the
continuance of an Event of Default, (A) all amounts and
proceeds (including instruments) received by the Debtor
in respect of the Accounts and General Intangibles shall
be received in trust for the benefit of the Trustee
hereunder, shall be segregated from other funds of the
Debtor and shall be forthwith paid over to the Trustee
<PAGE>
in the same form as so received (with any necessary
indorsement) to be held as cash collateral and either
(1) released to the Debtor so long as no Event of
Default, or an event which, with the giving of notice or
lapse of time or both, would constitute an Event of
Default shall have occurred and be continuing or (2) if
any Event of Default shall be continuing, applied as
specified in Section 8(b) hereof, and (B) the Debtor
will not adjust, settle or compromise the amount or
payment of any Account or General Intangible or release
wholly or partly any account debtor or obligor thereof
or allow any credit or discount thereon without the
express written consent of the Trustee.
(g) Transfers and Other Liens. The Debtor will not
(i) sell, transfer or assign (by operation of law or otherwise),
lease, exchange or otherwise dispose of any of the Collateral
except for (A) sales or disposal of Inventory in the ordinary
course of business and (B) sale and disposition of obsolete
equipment in the ordinary course of business so long as the amount
thereof sold in any fiscal year by the Debtor shall not have a
fair market value in excess of $100,000, or (ii) create or suffer
to exist any lien, security interest or other charge or
encumbrance upon or with resect to any of the Collateral, except
for (A) the security interest created hereby, (B) the security
interest in favor of the Agent and (C) the security interests and
other encumbrances described in or permitted under Schedule III
hereto.
SECTION 5A. Acts Permitted Under the Foothill Loan
Agreement. Notwithstanding anything to the contrary contained in
this Agreement, including, without limitation, the covenants set
forth in Section 5 hereof and the additional provisions concerning
the Collateral set forth in Section 6 hereof, the Debtor shall
have the right at any time, except (i) upon the occurrence and
during the continuance of an Event of Default or (ii) to the
extent not permitted under the Foothill Loan Agreement, to take
such acts permitted under, and exercise such rights as may be
provided for in, Section 6.6, 6.8, 7.1, 7.2, 7.4, 7.10 and 7.14 of
the Foothill Loan Agreement.
SECTION 6. Additional Provisions Concerning the
Collateral.
(a) So long as any of the Obligations remain
outstanding the Debtor hereby authorizes the Trustee to file,
without the signature of the Debtor where permitted by law, one or
more financing or continuation statements, and amendments thereto,
relating to the Collateral.
<PAGE>
(b) The Debtor hereby irrevocably appoints the Trustee,
the Debtor's attorney-in-act and proxy, with full authority in the
place and stead of the Debtor and in the name of the Debtor or
otherwise, from time to time in the Trustee's discretion, to take
any action and to execute any instrument which the Trustee may
reasonably deem necessary or advisable to accomplish the purpose
of this Agreement (subject to the rights of the Debtor under
Section 5(f) hereof), including, without limitation: (A) to
receive, take, endorse, sign, assign and deliver, all in the name
of the Trustee or the Debtor, any and all checks, notes, drafts,
and other documents or instruments relating to the Collateral (but
in all instances before an Event of Default in the name of the
Debtor and not the Trustee); (B) to obtain and adjust insurance
required to be paid to the Trustee pursuant to Section 5(e)
hereof, and to receive, indorse and collect any drafts or other
instruments, document and chattel paper in connection therewith;
and (C) in addition to the foregoing and without limitation, upon
the occurrence and during the continuation of an Event of Default,
(1) to receive, indorse and collect any notes, drafts or other
instruments, documents and chattel paper relating to the
Collateral; (ii) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any Collateral; (iii) to
receive, indorse, and collect any drafts or other instruments,
documents and chattel paper in connection with clause (B),
(C)(i) or (C)(ii) of this Subsection (b); and (iv) to file any
claim or take any action or institute any proceedings which the
Trustee may deem necessary or desirable for the collection of any
Collateral or otherwise to enforce the rights of the Trustee with
respect to any Collateral, including, without limitation, the
right, in the name of the Trustee, for the benefit of the Trade
Vendors, or the Debtor, to file claims under any insurance policy,
to receive, receipt and give acquittance for any payments that may
be payable thereunder, and to execute any and all endorsements,
receipts, release, assignment, reassignment or other documents
that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(c) If the Debtor fails to perform any agreement
contained herein, the Trustee may itself perform, or cause
performance of, such agreement or obligation, and the reasonable
expenses of the Trustee incurred in connection therewith shall be
payable by the Debtor pursuant to Section 9 hereof.
(d) The powers conferred on the Trustee hereunder are
solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for
the safe custody of any Collateral in its possession and the
<PAGE>
accounting for moneys actually received by it hereunder, the
Trustee shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
(e) Upon the termination of the Collateral Trust
Agreement and this Agreement and payment and satisfaction in full
by Debtor of all Obligations, the Trustee shall deliver to Debtor,
at Debtor's sole cost and expense, all UCC-3 termination
statements and any other documents necessary to terminate the
Collateral Trust Agreement and this Agreement and to release the
liens and security interests granted under this Agreement with
respect to the Collateral. Upon the Debtor's written request and
certification to the Trustee that a sale, disposition or
transaction is permitted under this Agreement (upon which
certification the Trustee may rely conclusively, without further
inquiry), the Trustee shall release any lien or security interest
granted under this Agreement on any Collateral (i) constituting
property being sold or disposed of if a release is required or
desirable in connection therewith, (ii) constituting property in
which Debtor owned no interest at the time the security interest
was granted or at any time thereafter, or (iii) constituting
property leased to Debtor under a lease that has expired or been
terminated in a transaction permitted under this Agreement;
provided, however, that (x) the Trustee shall not be required to
execute any document necessary to evidence such release on terms
that, in the Trustee's opinion, would expose the Trustee to
liability or create any obligation or entail any consequence other
than the release of such lien or security interest without
recourse, representation or warranty, and (y) such release shall
not in any manner discharge, affect or impair the Obligations or
any liens or security interests granted under this Agreement
(other than those expressly being released) upon (or obligations
of the Debtor in respect of) all interests retained by Debtor,
including the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
SECTION 7. Events of Default. Any one or more of the
following events shall constitute an event of default (each, an
"Event of Default") under this Agreement:
(a) The failure of the Debtor to pay when due and
payable any of the Obligations;
(b) If any material misstatement or material
misrepresentation now or hereafter exists in any warranty,
representation, statement or report made to the Trustee by the
Debtor or any officer, employee, agent, or director thereof;
<PAGE>
(c) The failure or neglect by the Debtor to
perform, keep or observe any term, provision, condition, covenant,
or agreement contained in this Agreement or any other Vendor
Document, which failure or neglect continues for ten (10) or more
days;
(d) The occurrence of an "Event of Default" under
and as defined in the Mortgage; or
(e) The occurrence of an "Event of Default" under
and as defined in Section 8.1, 8.5, 8.6 or 8.7 of the Foothill
Loan Agreement or Agent declares all "Obligations" under and as
defined in the Foothill Loan Agreement immediately due and
payable.
SECTION 8. Remedies Upon Default. If any Event of
Default shall have occurred and be continuing:
(a) The Trustee may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all of the rights and
remedies of a secured party on default under the Code (whether or
not the Code applies to the affected Collateral), and may also (i)
require the Debtor to, and the Debtor hereby agrees that it will
at its expense and upon request of the Trustee forthwith, assemble
all or part of the Collateral as directed by the Trustee and make
it available to the Trustee at a place to be designated by the
Trustee which is reasonably convenient to both parties, and
(ii) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at a public or private
sale, at any of the Trustee's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and
upon such other terms as the Trustee may reasonably deem
commercially reasonable. The Debtor agrees that, to the extent
notice of sale shall be required by law, at least five (5) days'
notice to the Debtor of the time and place of any public sale or
the time after which any private sale is to be made shall
constitute reasonable notification. The Trustee shall not be
obligated to make any sale of regardless of notice of sale having
been given. The Trustee may adjourn any public or private sale
from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Debtor
hereby waives any claims against the Trustee arising by reason of
the fact that the price at which the Collateral may have been sold
at a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of
the Obligations, even if the Trustee accepts the first offer
received and does not offer the Collateral to more than one
<PAGE>
offeree, provided that such sale has been conducted in a
commercially reasonable manner.
(b) Any cash held by the Trustee as Collateral and all
cash proceeds received by the Trustee in respect of any sale of,
collection from, or other realization upon, all or any part of the
Collateral may, in the discretion of the Trustee, be held by the
Trustee as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Trustee
pursuant to Section 9 hereof) in whole or in part by the Trustee
against, all or any part of the Obligations in the order provided
for in Article 9 of the Collateral Trust Agreement.
(c) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to
which the Trustee is legally entitled, the Debtor shall be liable
for the deficiency, together with interest thereon at the rate
specified in the Collateral Trust Agreement or such other rate as
shall be fixed by applicable law, together with the costs of
collection and the reasonable fees and expenses of any attorneys
employed by the Trustee to collect such deficiency.
SECTION 9. Indemnity and Expenses.
(a) The Debtor agrees to indemnify the Trustee from and
against any and all claims, losses and liabilities growing out of
or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or
liabilities resulting solely and directly from the Trustee's gross
negligence or willful misconduct.
(b) The Debtor will, upon demand, pay to the Trustee
the amount of any and all reasonable costs and expenses, including
the reasonable fees and disbursements of the Trustee's counsel and
of any experts and agents, which the Trustee may reasonably incur
in connection with (i) as applicable, the preparation,
administration, amendment, waiver or other modification this
Agreement, the other Security Documents, or the Collateral Trust
Agreement; (ii) the custody, preservation, use or operation of, or
the sale of, collection from, or other realization upon, any
Collateral; (iii) the exercise or enforcement of any of the rights
of the Trustee hereunder; or (iv) the failure by the Debtor to
perform or observe any of the provisions hereof.
SECTION 10. Notices. All notices, requests, demands and
other communications provided for or permitted hereunder shall,
unless otherwise stated herein, be in writing (including telex and
telecopy communications) and shall be sent by registered or
<PAGE>
certified mail, return receipt requested, telex, telecopier or
hand delivery;
(a) If to the Debtor, to P.O. Box Drawer 947,
Henderson, North Carolina 27536, Attention: Chief Financial
Officer, or at such other address as shall be designated by it in
a written notice to the Trustee with a copy to Proskauer, Rose,
Goetz & Mendelsohn, LLP, 1585 Broadway, New York, New York 10036-
8299 Attention: Michael E. Foreman, Esq., counsel to the Debtor,
or at such other address as shall be designated by such firm in a
written notice to the Trustee; and
(b) If to the Trustee, to its address at 333 East 68th
Street, New York, New York 10021, Attention: Michael J. Sherman,
or at such other address as shall designated by it in a written
notice to the Debtor, with a copy to Otterbourg, Steindler,
Houston & Rosen, PC., 230 Park Avenue, New York, New York 10169,
Attention: Glenn B. Rice, Esq., counsel the Trade Committee, or at
such other address as shall be designated by such firm in a
written notice to the Debtor.
All such notices, requests, demands and communications shall be
deemed to have been duly given or made, (i) when delivered by
hand, (ii) five Business Days after being deposited in the United
States mail, postage prepared, (iii) when telexed with answer back
received or (iv) when telecopied with receipt acknowledged.
SECTION 11. Security Interest Absolute. All rights and
the security interest of the Trustee hereunder and all obligations
of the Debtor hereunder shall be absolute and unconditional
irrespective of (i) any lack of validity or enforceability of this
Agreement or any other Vendor Document; (ii) any change in the
time, manner or place of payment of, or in any other term in
respect of, all or any of the Obligations, or any other amendment
or waiver of or consent to any departure from this Agreement or
any other Vendor Document; (iii) any increase in, addition to,
exchange or release of, or non-perfection of any lien on or
security interest in, any other collateral, or any release or
amendment or waiver of or consent to departure from any guaranty,
for all or any of the Obligations; or (iv) the absence of any
action on the part of the Trustee to obtain payment or performance
of the Obligations from the Debtor or any other party.
SECTION 12. Miscellaneous.
(a) Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by
the Debtor and the Trustee, and no waiver of any provision of this
Agreement shall be effective unless it is in writing and signed by
<PAGE>
the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for
which given.
(b) Waivers; Cumulative Rights; Etc. No failure on the
part of the Trustee to exercise, and no delay in exercising, any
right hereunder or under any other Vendor Document shall operate
as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies of the
Trustee provided herein are cumulative and are in addition to, and
not exclusive of, any rights or remedies provided by law. The
rights of the Trustee under this Agreement are not conditional or
contingent on any attempt by the Trustee to exercise any of its
rights against any other Person.
(c) Captions; Separability. The captions of the
various Sections, Subsections and paragraphs of this Agreement
have been inserted only for the purposes of convenience; such
captions are not a part of this Agreement and shall not be deemed
in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
(d) Continuing Security Interest; Assignments. This
Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the
payment in full of the Obligations in accordance with the terms of
the Collateral Trust Agreement and (ii) be binding on the Debtor
and its successors and assigns and shall inure, together with all
rights and remedies of the Trustee hereunder, to the benefit of
the Trustee and its successors, transferees and assigns.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
(f) CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
<PAGE>
EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT
ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT MAY BE TRIED AND LITIGATED IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT
THE SOLE OPTION OF TRUSTEE, IN ANY OTHER COURT IN WHICH TRUSTEE
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF DEBTOR AND TRUSTEE WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF
FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).
DEBTOR AND TRUSTEE HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
ANY OF THE VENDOR DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS. DEBTOR AND TRUSTEE REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
(g) Admissibility of Security Agreement. The Debtor
agrees that any copy of this Agreement signed by the Debtor and
transmitted by telecopier for delivery to the Trustee shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding, whether or not the original is in
existence.
(h) Binding Nature. This Agreement shall be binding
upon and inure to the benefit of the successors, assigns or other
legal representatives of the Debtor, and shall, together with the
rights and remedies of the Trustee hereunder, be binding upon and
inure to the benefit of the Trustee and the Trade Vendors and each
of their respective successors, assigns or other legal
representatives.
(i) Counterparts. This Agreement may be executed by
the parties hereto individually or in any combination, in one or
more counterparts, each of which shall be an original and all of
which shall together constitute one and the same agreement.
(j) Schedules. The Trustee is authorized to annex
hereto any schedules referred to herein.
(k) Acknowledgment of Receipt. The Debtor acknowledges
receipt of a copy of this Agreement.
<PAGE>
(l) This Agreement is subject to the terms and
conditions of the Intercreditor Agreement, dated on or about the
date hereof, between the Agent and the Trustee relating to the
priorities of their respective security interests in, and
respective rights and remedies in and to, the Collateral.
PAGE
<PAGE>
IN WITNESS WHEREOF, the Debtor has caused this Agreement to
be executed and delivered by its officer thereunto duly
authorized, as of the date first above written.
ROSE'S STORES, INC.
By:/s/ Jeanette Peters____
Name: Jeanette Peters_____
Title: Chief Financial Officer
PAGE
<PAGE>
SCHEDULE I
TO
GENERAL SECURITY AGREEMENT
1. Location(s) of Equipment and Inventory:
2. The Debtor's (a) chief executive office, (b) chief place of
business, and (c) place where the Debtor keeps its records
concerning Accounts and General Intangibles.
PAGE
<PAGE>
SCHEDULE II
TO
GENERAL SECURITY AGREEMENT
Trade Names
<PAGE> SCHEDULE III
TO
GENERAL SECURITY AGREEMENT
Permitted Encumbrances
NORTH CAROLINA SECOND AMENDMENT TO
SECOND DEED OF TRUST,
VANCE COUNTY ASSIGNMENT OF RENTS AND
SECURITY AGREEMENT
THIS SECOND AMENDMENT TO SECOND DEED OF TRUST, ASSIGNMENT
OF RENTS AND SECURITY AGREEMENT (this "Second Amendment"), dated
as of April 29, 1997, is by and among ROSE'S STORES, INC., a
Delaware corporation whose address is 218 South Garnett Street,
Henderson, North Carolina 27536 (the "Mortgagor"), ALAN H.
PETERSON, Substitute Trustee, whose address is Two Hanover Square,
434 Fayetteville Street Mall, Raleigh, North Carolina 27602 (the
"Trustee"),and M.J. SHERMAN & ASSOCIATES, INC., a New York
corporation, as trustee, whose address is 333 East 68th Street, New
York, New York 10021 (the "Mortgagee" or the "Beneficiary").
W I T N E S S E T H:
WHEREAS, the Mortgagor executed a Second Deed of Trust,
Assignment of Rents and Security Agreement, dated as of May 8,
1995, on the Mortgaged Property (as defined therein) in favor of
the Beneficiary which was recorded in the records of the Vance
County, North Carolina, Register of Deeds on May 10, 1995 in Book
749, at Page 499 (the "Mortgage" or "Deed of Trust") to secure
obligations then and thereafter owing by the Mortgagor to its
merchandise vendors for the unpaid invoiced cost of goods
theretofore and thereafter delivered by them to the Mortgagor in
accordance with the terms of the Letter of Credit and Mortgage
Trust Agreement, dated as of May 8, 1995, between the Mortgagor and
the Beneficiary (as amended, the "Letter of Credit and Mortgage
Trust Agreement"); and
WHEREAS, the Deed of Trust was amended by the First
Amendment to Second Deed of Trust, Assignment of Rents and Security
Agreement dated as of April 29, 1996 which was recorded in the
records of the Vance County, North Carolina, Registry of Deeds on
May 24, 1996 in Book 771 at Page 53;
WHEREAS, pursuant to a Revolving Credit Agreement dated
as of April 28, 1995 (as from time to time amended, the "Original
Loan Agreement") among the Mortgagor, The First National Bank of
Boston ("FNBB") and CIT Group/Business Credit, Inc. ("CIT"; FNBB
and CIT and any other lending institution party to the Original
Loan Agreement being referred to herein collectively as the
"Original Banks"), the Mortgagor executed and delivered to the
<PAGE>
Original Banks as beneficiary, as security for the "Obligations"
of the Mortgagor to the Original Banks, a First Deed of Trust,
Assignment of Rents and Security Agreement dated as of April 27,
1995 (as from time to time amended, the "Original First Mortgage")
constituting a first lien and security interest on the Mortgaged
Property;
WHEREAS, on May 21, 1997, the Company, as Borrower,
entered into a Loan and Security Agreement with Foothill Capital
Corporation ("Foothill"), as Agent, PPM Financing, Inc. as Co-
Agent, and the financial institutions named therein, as Lenders and
referred to herein as the "Banks" (as amended, amended and
restated, supplemented or otherwise modified from time to time the
"Loan Agreement") pursuant to which all indebtedness of the Company
to the Original Banks under the Original Credit Agreement was paid
in full and the Original First Mortgage was released;
WHEREAS, as security for the "Obligations" of the
Mortgagor to the Banks under and as defined in the Loan Agreement,
the Mortgagor executed and delivered (a) that certain Future
Advance Deed of Trust, Assignment of Rents and Security Agreement
(the "Senior Headquarters Mortgage") dated as of May 21, 1996 to
David L. Huffstetler, as trustee (the "First Mortgage Trustee") for
the benefit of the Banks, as beneficiary, recorded on May 24, 1996
in Book 771, at Page 93 in the records of the Vance County, North
Carolina Registry of Deeds encumbering a portion of the Mortgaged
Property identified as Parcels 1 through 12 on Exhibit "A", and
(b) that certain Future Advance Deed of Trust, Assignment of Rents
and Security Agreement (the "First Warehouse Mortgage") dated as
of May 21, 1996 executed by Mortgagor, as grantor to the First
Mortgage Trustee for the benefit of the Banks, as beneficiary,
recorded in the records of the Vance County, North Carolina
Registry of Deeds on May 24, 1996 in Book 771, at Page 132
encumbering a portion of the Mortgaged Property identified Parcel
13 on Exhibit "A" (the First Warehouse Mortgage and the First
Headquarters Mortgage being hereinafter collectively referred to
as the "First Mortgage");
WHEREAS, the Mortgage is subordinate, junior, and subject
to the First Mortgage as a result of that certain Subordination
Agreement (the "Subordination Agreement") dated as of May 21, 1996,
executed by the Beneficiary, the Trustee and Foothill, recorded on
May 24, 1996 in Book 771, at Page 159 in the records of the Vance
County, North Carolina Registry of Deeds and encumbering the
Mortgaged Property;
<PAGE>
WHEREAS, the Letter of Credit and Mortgage Trust
Agreement was amended and restated in its entirety by the
Collateral Trust Agreement, dated as of April 29, 1997, between the
Mortgagor and the Beneficiary (as from time to time amended,
amended and restated, supplemented or otherwise modified, the
"Trade Credit Trust Agreement");
WHEREAS, the Mortgagor has requested the Beneficiary to
amend the Deed of Trust to, among other things, extend the date on
or before which future obligations of the Beneficiary to its
merchandise vendors must be incurred if such obligations are to be
secured by the Deed of Trust;
WHEREAS, the Beneficiary is willing to make such
amendment to the Deed of Trust upon the terms and subject to the
conditions set forth in this Second Amendment;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein
shall have the meanings ascribed to such terms in this Second
Amendment. Capitalized terms that are not otherwise defined herein
shall have the meanings ascribed to such terms in the Deed of
Trust.
Section 2. Amendments to Deed of Trust.
1 Amendment to Definition of Trade Credit Trust
Agreement. The definition of Trade Credit Trust Agreement in the
recitals to the Deed of Trust is hereby amended and restated in its
entirety so that "Trade Credit Trust Agreement" means the
Collateral Agreement, dated as of April 29, 1997, between the
Mortgagor and the Beneficiary, as amended, amended and restated,
supplemented, or otherwise modified, from time to time.
2 Amendment to Definition of Loan Agreement. The
definition of "Loan Agreement" in the recitals to the Deed of Trust
is hereby amended and restated in its entirety so that Loan
Agreement means the Loan and Security Agreement, dated May 21,
1996, by and among Foothill Capital Corporation ("Foothill"), as
Agent, PPM Financing, Inc., as Co-Agent, and the financial
institutions named therein as Lenders, and referred to herein as
the "Banks", as amended, amended and restated, supplemented,
renewed, extended, replaced or otherwise modified, from time to
time.
<PAGE>
3 Amendment to Definition of Banks. The definition
of "Banks" in the Deed of Trust is amended and restated in its
entirety so that "Banks" means the financial institutions named as
Lenders in the Loan Agreement.
4 Amendment to Definition of First Mortgage. The
definition of "First Mortgage" is amended and restated in its
entirety so that "First Mortgage" means, collectively, (a) that
certain Future Advance Deed of Trust, Assignment of Rents and
Security Agreement (the "Senior Headquarters Mortgage") dated as
of May 21, 1996 to David L. Huffstetler, as trustee (the "First
Mortgage Trustee") for the benefit of the Banks, as beneficiary,
recorded on May 24, 1996 in Book 771, at Page 93 in the records of
the Vance County, North Carolina Registry of Deeds encumbering a
portion of the Mortgaged Property identified as Parcels 1
through 12 on Exhibit "A", and (b) that certain Future Advance Deed
of Trust, Assignment of Rents and Security Agreement (the "First
Warehouse Mortgage") dated as of May 21, 1996 executed by
Mortgagor, as grantor to the First Mortgage Trustee for the benefit
of the Banks, as beneficiary, recorded in the records of the Vance
County, North Carolina Registry of Deeds on May 24, 1996 in
Book 771, at Page 132 encumbering a portion of the Mortgaged
Property identified Parcel 13 on Exhibit "A", as the Senior
Headquarters Mortgage and the Senior Warehouse Mortgage may be
amended, amended and restated, supplemented or otherwise modified,
from time to time.
5 Amendment to Definition of Subordination Agreement.
The definition of Subordination Agreement in the recitals to the
Deed of Trust is hereby amended and restated in its entirety so
that "Subordination Agreement" means the Subordination Agreement,
dated as of May 21, 1996, among Foothill, as Agent for itself and
the other Banks, and the Beneficiary, recorded in the records of
the Vance County North Carolina Registry of Deeds on May 24, 1996
in Book 771, at Page 159, and encumbering the Mortgaged Property,
as amended, amended and restated, or otherwise modified from time
to time.
6 Amendment to Section 1.1 of Deed of Trust.
Section 1.1 of the Deed of Trust is hereby amended and restated in
its entirety to read as follows:
1.1 The Obligations. This Deed of Trust
is executed to secure the payment and
performance of the "Trade Obligations" and
other "Obligations" under and as defined in
<page.
the Trade Credit Trust Agreement
(collectively, the "Obligations") including,
but not limited to, (i) the Second Amended and
Restated Trade Debt Note, dated as of
April 29, 1997, in the maximum principal
amount of $15,000,000.00 made by the Mortgagor
to the Beneficiary (as amended, amended and
restated, supplemented, extended, renewed,
replaced or modified from time to time, the
"Trade Debt Note") which amends and restates
in its entirety the Amended and Restated Trade
Debt Note, dated April 29, 1996, in the
maximum principal amount of $15,000,000.00
made by the Mortgagor to the Beneficiary;
(ii) the payment and performance of the
covenants and agreements contained in the Deed
of Trust, and (iii) the payment of all
additional sums as herein provided and agreed
to be made by or on behalf of Mortgagor, plus
any sums advanced or expended by Mortgagee to
protect the security for the indebtedness
secured hereby.
7 Amendment to Section 1.2 of the Deed of Trust.
Section 1.2 of the Deed of Trust is hereby amended and restated in
its entirety to read as follows:
1.2 Future Advances Secured. This Deed
of Trust secures all present and future
indebtedness owing by Mortgagor pursuant to
the Trade Credit Trust Agreement, the Trade
Debt Note and this Deed of Trust (as the same
may be amended, amended and restated,
supplemented, renewed, replaced or otherwise
modified from time to time, (to the extent
permitted by the Subordination Agreement)
collectively, the "Loan Documents"). The
amount of present obligations secured by this
Deed of Trust is Fifteen Million Dollars
($15,000,000.00) and the maximum principal
amount of present and future obligations which
may be secured by this Deed of Trust at any
one time is $15,000,000.00. All such future
obligations shall be incurred on or before
April 29, 1998, unless the time for incurring
such obligations is extended to a date which,
in no event, will be later than 15 years from
<PAGE>
May 8, 1995. Pursuant to the provisions of
N.C.G.S. Sections 45-67 et seq., this Deed of
Trust secures the making of present and future
advances incurred hereunder.
8 Amendment to Article V of the Deed of Trust. The
following is added to the Deed of Trust as Section 5.7 thereof:
5.7 Default under General Security
Agreement. The occurrence of an "Event of
Default" under and as defined in the General
Security Agreement, dated as of April 29,
1997, executed by the Mortgagor in favor of
the Mortgagee, as the same may be amended,
amended and restated, supplemented or
otherwise modified from time to time.
Section 3. Deed of Trust in Full Force and Effect.
Except as hereby amended, the terms and conditions of the Deed of
Trust remain in full force and effect.
PAGE
<PAGE>
Section 4. Execution of this Amendment by Trustee.
The Beneficiary requests and directs the Trustee to execute and
enter into this Second Amendment.
Section 5. Governing Law. This Second Amendment
shall be governed by and construed in accordance with the laws of
the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have this First
Amendment under seal as of the date above written.
ATTEST: ROSE'S STORES, INC.
a Delaware corporation
G. Templeton Blackburn, II By: /s/ Jeanette Peters________
Secretary
Name: Jeanette Peters _________
(CORPORATE SEAL) Title: Chief Financial Officer
Senior VP & Treasurer
M.J. SHERMAN & ASSOCIATES, INC.
as Trustee
Illegible_______________ By: /s/ Michael J. Sherman_____
Secretary
Name: Michael J. Sherman_______
(CORPORATE SEAL) Title: C. E. O. President_____
ALAN H. PETERSON,
Substitute Trustee
________________________ By: /s/ Alan H. Peterson_______
Secretary
Name: Alan H. Peterson_________
(CORPORATE SEAL) Title: Substitute Trustee______
page><PAGE>
STATE OF NORTH CAROLINA
COUNTY OF VANCE
I, a Notary Public for said County and State aforesaid,
do hereby certify that _Jeanette Peters_ personally appeared
before me this day, who, being by me duly sworn, says she is
Chief Financial Officer, Senior Vice President and Treasurer of
ROSE'S STORE, INC., a corporation, that the seal affixed to the
foregoing instrument in writing is the corporate seal of said
corporation, that said writing was signed and sealed by her on
behalf of said corporation by its authority duly given, and that
the said _Jeanette Peters_ acknowledged the said writing to be the
act and deed of the corporation.
Witness my hand and official stamp or seal, this _28th_ day
of April, 1997.
_/s/ Farrel W. Oakes______________
Notary Public
My Commission Expires
Oct. 16, 2000________
(SEAL)
PAGE
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
I, a Notary Public for said County and State aforesaid,
do hereby certify that Michael J. Sherman personally appeared
before me this day, who, being by me duly sworn, says he is CEO and
President of M.J. SHERMAN & ASSOCIATES, INC., a corporation, that
the seal affixed to the foregoing instrument in writing is the seal
of said corporation, that said writing was signed and sealed by him
on behalf of said corporation by its authority duly given, and that
the said Michael J. Sherman acknowledged the said writing to be the
act and deed of the corporation.
Witness my hand and official stamp or seal, this _24th_ day
of April, 1997.
_/s/ Cathleen A. Pellegrino______
Notary Public
My Commission Expires
November 30, 1998__
(SEAL)
PAGE
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF _Wake _____
I, a Notary Public for said County and State aforesaid,
do hereby certify that on this day before me came Alan H. Peterson
to me known to be the individual described in, and who executed,
the foregoing instrument as Substitute Trustee, and acknowledged
that he executed the same as Substitute Trustee.
Witness my hand and official stamp or seal, this _28th_ day
of April, 1997.
_/s/ Kristen L. Rosendale_________
Notary Public
My Commission Expires
10-23-2001____________
(SEAL)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Rose's
Stores, Inc., Form 10-Q for the quarter ended April 26, 1997, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000085149
<NAME> ROSE'S STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-26-1997
<CASH> 584
<SECURITIES> 0
<RECEIVABLES> 7,988
<ALLOWANCES> 515
<INVENTORY> 155,485
<CURRENT-ASSETS> 166,897
<PP&E> 9,176
<DEPRECIATION> 1,622
<TOTAL-ASSETS> 174,733
<CURRENT-LIABILITIES> 100,254
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 4,632
<TOTAL-LIABILITY-AND-EQUITY> 174,733
<SALES> 136,302
<TOTAL-REVENUES> 137,336
<CGS> 102,884
<TOTAL-COSTS> 102,884
<OTHER-EXPENSES> (529)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,536
<INCOME-PRETAX> (1,308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,308)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
