FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 25, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-631
ROSE'S HOLDINGS, INC.
Incorporated Under the Laws of Delaware
I.R.S. Employer Identification No. 56-2043000
P. H. Rose Building
218 South Garnett Street
Henderson, North Carolina 27536
Telephone No. 919/430-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
As of November 19, 1997, of the 10,000,000 shares of common stock
delivered to First Union National Bank of North Carolina ("FUNB"), as Escrow
Agent pursuant to the Modified and Restated First Amended Joint Plan of
Reorganization, 8,612,661 of such shares of common stock are outstanding. The
remaining 19,680 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are resolved.
If all pending claims are resolved adversely to the Company, 8,632,341 shares
of common stock will be outstanding. To the extent that escrowed shares of
common stock are not used to satisfy claims, they will revert to the
Registrant and will be retired or held in the treasury of the Registrant.
On August 7, 1997, Rose's Holdings, Inc. was created as the parent of Rose's
Stores, Inc.
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ROSE'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
(Amounts in thousands except per share amounts)
On August 7, 1997, pursuant to an agreement and plan of merger among
Rose's Stores, Inc. ("Stores") and two newly created, wholly-owned
subsidiaries of Stores, Stores became a wholly-owned subsidiary of Rose's
Holdings, Inc. (the "Company"). As a result of such merger, each share of
common stock, no par value ("Stores Common Stock"), of Stores was converted
into common stock, no par value ("Common Stock"), of Rose's Holdings, Inc. and
each warrant, option or other right entitling the holder thereof to purchase
or receive shares of Stores Common Stock was converted into a warrant, option
or other right (as the case may be) entitling the holder thereof to purchase
or receive shares of Common Stock on identical terms. The powers, rights and
other provisions of the Common Stock are identical to the powers, rights and
other provisions of the Stores Common Stock.
The following summary of financial information of the Company, which is
unaudited, reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary to reflect a
fair statement of the information presented.
ROSE'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
October 25, 1997 October 26, 1996
<S> <C> <C>
Revenue:
Gross sales $ 156,482 160,796
Leased department sales 4,022 4,907
Net sales 152,460 155,889
Leased department income 1,046 1,124
Total revenue 153,506 157,013
Costs and Expenses:
Cost of sales 113,761 116,813
Selling, general and administrative (a) 38,872 37,757
Depreciation and amortization (453) (568)
Interest 2,358 2,563
Total costs and expenses 154,538 156,565
Net Earnings (Loss) $ (1,032) 448
Net Earnings (Loss) Per Share $ (.12) .05
Weighted Average Shares 8,632 8,632
</TABLE>
(a) Included in 1997 selling, general and administrative costs is a third
quarter charge of $500 for the estimated closing expenses of two stores
to close in the fourth quarter. Included in 1996 selling, general and
administrative costs is a third quarter charge of $657 related to a
merger agreement which was terminated on August 20, 1996.
See notes to financial statements.
PAGE
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ROSE'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended
October 25, 1997 October 26, 1996
<S> <C> <C>
Revenue:
Gross sales $ 450,485 481,066
Leased department sales 13,092 14,867
Net sales 437,393 466,199
Leased department income 3,404 3,364
Total revenue 440,797 469,563
Costs and Expenses:
Cost of sales 331,425 352,942
Selling, general and administrative (a) 111,532 113,241
Depreciation and amortization (1,465) (1,856)
Interest 5,631 5,928
Total costs and expenses 447,123 470,255
Loss Before Extraordinary Item (6,326) (692)
Extraordinary Item - Loss on Early
Extinguishment of Debt (b) - (914)
Net Loss $ (6,326) (1,606)
Loss Per Share Before Extraordinary Item $ (.73) (.08)
Net Loss Per Share $ (.73) (.19)
Weighted average shares 8,632 8,632
</TABLE>
(a) Included in 1997 selling, general and administrative costs is income of
$754 from the settlement of pre-petition insurance liabilities and a
loss of $689 related to store closings. Included in 1996 selling,
general and administrative costs is a third quarter charge of $657
related to a merger agreement which was terminated on August 20, 1996.
(b) The extraordinary item - loss on early extinguishment of debt represents
the deferred costs of a financing facility which were written off as a
result of Stores obtaining a new facility in 1996.
See notes to financial statements.
PAGE
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ROSE'S HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
October 25, January 25, October 26,
1997 1997 1996
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 596 1,241 582
Accounts receivable 21,621 5,101 20,192
Inventories 195,849 141,287 200,054
Other current assets 4,026 4,503 3,774
Total current assets 222,092 152,132 224,602
Property and Equipment, at cost
Less accumulated depreciation and amortization 8,719 7,710 7,638
Other Assets 504 480 458
$ 231,315 160,322 232,698
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 100,299 44,138 95,743
Bank drafts outstanding 4,605 - 3,657
Accounts payable 39,337 19,230 35,507
Accrued salaries and wages 4,673 6,422 4,879
Pre-petition liabilities 1,003 2,737 4,261
Other current liabilities 13,201 10,908 13,042
Total current liabilities 163,118 83,435 157,089
Excess of Net Assets Over Reorganization Value,
Net of Amortization 19,247 21,872 22,747
Reserve for Income Taxes 13,033 12,996 12,673
Deferred Income - 339 533
Other Liabilities 1,303 740 702
Stockholders' Equity
Preferred stock, authorized 10,000 shares;
none issued - - -
Common stock, authorized 50,000 shares;
issued 8,632 at 10/25/97, 1/25/97 and 10/26/96
(Note 1) 35,000 35,000 35,000
Paid-in capital 1,159 1,159 1,159
Retained earnings (accumulated deficit) (1,545) 4,781 2,795
Total stockholders' equity 34,614 40,940 38,954
$ 231,315 160,322 232,698
</TABLE>
See notes to financial statements.
PAGE
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ROSE'S HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Thirty-Nine Weeks Ended
October 25, 1997 October 26, 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (6,326) (1,606)
Expenses not requiring the outlay of cash:
Depreciation and amortization (1,465) (1,855)
Amortization of deferred financing costs 509 435
(Gain) loss on disposal of property and equipment - (1)
Settlement of pre-petition liabilities (754) -
Provisions for store closings 689 -
Extraordinary loss on early extinguishment of debt - 914
Write-off of merger costs - 657
Reversal of severance reserve - (130)
Cash provided by (used in) assets and liabilities:
(Increase) decrease in accounts receivable (16,520) (12,983)
(Increase) decrease in inventories (54,562) (46,864)
(Increase) decrease in other assets 483 354
Increase (decrease) in accounts payable 20,107 11,662
Increase (decrease) in other liabilities (881) (712)
Increase (decrease) in income tax reserves 37 -
Increase (decrease) in reserve for store closings (86) (163)
Increase (decrease) in deferred income (339) (441)
Increase (decrease) in accumulated PBO - (300)
Net cash provided by (used in) operating activities (59,108) (51,033)
Cash flows from investing activities:
Purchases of property and equipment (1,296) (3,219)
Proceeds from disposal of property and equipment - 2
Net cash provided by (used in) investing activities (1,296) (3,217)
Cash flows from financing activities:
Net activity on line of credit 56,161 62,070
Payments of unsecured priority and administrative claims (227) (371)
Principal payments on capital leases (241) (225)
Increase (decrease) in bank drafts outstanding 4,605 (5,873)
Payments of deferred financing costs (539) (1,362)
Net cash provided by (used in) financing activities 59,759 54,239
Net decrease in cash (645) (11)
Cash and cash equivalents at beginning of period 1,241 593
Cash and cash equivalents at end of period $ 596 582
Supplemental disclosure of additional non-cash
investing and financing activities:
Retirement of net book value of assets in reserve
for store closings $ 14 -
Capital lease additions 887 -
</TABLE>
See notes to financial statements.
PAGE
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Notes to Financial Statements:
(1) On August 7, 1997, pursuant to an agreement and plan of merger among
Rose's Stores, Inc. ("Stores") and two newly created, wholly-owned
subsidiaries of Stores, Stores became a wholly-owned subsidiary of
Rose's Holdings, Inc. (the "Company"). As a result of such merger,
each share of common stock, no par value (the "Stores Common Stock")
was converted into common stock, no par value ("Common Stock"), of
Rose's Holdings, Inc. and each warrant, option or other right entitling
the holder thereof to purchase or receive shares of Stores Common Stock
was converted into a warrant, option or other right (as the case may
be) entitling the holder thereof to purchase or receive shares of
Common Stock on identical terms. The powers, rights and other
provisions of the Common Stock are identical to the powers, rights and
other provisions of the Stores Common Stock. In the presentation of
the Company's consolidated financial statements, intercompany accounts
and transactions are eliminated. Incident to the merger, the Company
entered into a guaranty of the obligations (the "Guaranty") of Stores
under the three year revolving credit agreement (the "Credit
Agreement") between Stores and the participating lenders in favor of
such lenders. The Guaranty is secured by a stock pledge and security
agreement (the "Security Agreement") covering all the assets of the
Company. In addition, Stores entered into a second amendment to the
Credit Agreement (the "Second Amendment") effecting certain changes
related to the merger.
(2) On September 5, 1993, Stores filed a voluntary Petition for Relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the Eastern
District of North Carolina (the "Bankruptcy Court"). Stores' Modified
and Restated First Amended Joint Plan of Reorganization (the "Plan")
was approved by order of the Bankruptcy Court on April 24, 1995. On
April 28, 1995 (the "Effective Date"), the Plan became effective.
Since emergence, distributions of the Common Stock have been made to
holders of Allowed Class 3 Unsecured Claims (as defined in the Plan) in
accordance with the provisions of the Plan. As a result of
distributions of the Common Stock pursuant to the Plan, as of
November 19, 1997, the Company had 8,613 shares of Common Stock
outstanding of the 10,000 shares of Common Stock which were delivered
pursuant to the Plan on the Effective Date to First Union National Bank
of North Carolina ("FUNB") as escrow agent. In addition, as of
November 19, 1997, and pursuant to the provisions of the Plan, 1,367
shares had reverted to the Company from escrow to be retired.
The remaining 20 shares held in escrow will be distributed by FUNB in
satisfaction of disputed Class 3 claims as and when such claims are
resolved. These claims are claims of landlords with respect to leases
which were rejected during the course of the Chapter 11 proceeding.
If all pending claims are resolved adversely to the Company, 20
additional shares of Common Stock will be issued and there will be a
<PAGE>
Notes to Financial Statements (Continued):
total of 8,632 shares of Common Stock issued and outstanding. To the
extent that escrowed shares of Common Stock are not used to satisfy
claims, they will revert to the Company and will be retired or held in
the treasury of the Company.
On the Effective Date, all shares of Stores pre-emergence Voting Common
Stock and Non-Voting Class B Stock were cancelled and the record owners
of such stock as of such date received warrants to purchase the new
Stores Common Stock. One warrant was issued for every 4.377 shares of
pre-emergence Voting Common Stock or Non-Voting Class B Stock and
allows the holder to purchase one share of the Common Stock. The
warrants may be exercised at any time until they expire on April 28,
2002. The current exercise price of $11.87 was effective April 28,
1997, the second anniversary of the Effective Date. The exercise price
will be adjusted on the third anniversary of the Effective Date to
reflect adjustments to the total of allowed and disputed claims of the
Company's unsecured creditors. The exercise price will be further
adjusted on the fourth, fifth and sixth anniversaries of the Effective
Date to reflect 105%, 110% and 115%, respectively, of the total of the
allowed and disputed claims of the unsecured creditors.
Under the New Equity Compensation Plan, nonqualified stock options to
purchase 288 shares of the Company Common Stock were outstanding on
October 25, 1997. The weighted average option price per share is
$3.63. The options vest over a three year period (unless earlier
vested by reason of certain acceleration events, including a change of
control of the Company). One half of the options expire five years
from the date of issuance and the remainder expire seven years from the
date of issuance.
Under the Long-Term Stock Incentive Plan, nonqualified stock options to
purchase 75 shares of Company Common Stock were outstanding on October
25, 1997. The weighted average option price per share is $1.75. The
options are fully vested and exercisable and expire five years from the
date of issuance.
The exercise of outstanding stock options and warrants would not result
in a dilution of earnings per share and are excluded from the
calculation of earnings per share.
(3) Accounts receivable is net of an allowance for doubtful accounts of
$533 as of October 25, 1997; $420 as of January 25, 1997 and $320 as of
October 26, 1996.
PAGE
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Notes to Financial Statements (Continued):
(4) The operating results presented herein are not necessarily indicative
of the operating results for a full year due to seasonal factors, among
other reasons.
(5) Stores paid interest (including deferred financing costs) of $1,974 in
the third quarter of 1997 and $2,180 in the comparable quarter of last
year. Year-to-date, Stores paid interest of $5,285 in 1997 and $5,220
in 1996.
(6) Certain reclassifications have been made to the 1996 financial
statements to conform with the 1997 presentation.
(7) Subsequent Event:
On December 2, 1997, Rose's Holdings, Inc. (the "Company") consummated
the sale to Variety Wholesalers, Inc. ("Variety") of all of the
outstanding capital stock of Rose's Stores, Inc. ("Stores"), a wholly
owned subsidiary of the Company (the "Sale") pursuant to a Stock
Purchase Agreement, dated as of October 24, 1997, between the Company
and Variety (the "Stock Purchase Agreement"). The Sale constituted the
disposition by the Company of substantially all of its assets and was
approved by the holders of a majority of the outstanding shares of
Common Stock of the Company at a special stockholders meeting of the
Company on December 2, 1997. The total purchase price for the Sale was
$19,200,000, including $1,920,000 which was placed in escrow. The
proceeds of the Sale, net of certain transaction, closing, and other
costs, are approximately $15,300,000 (including $1,920,000 which was
placed in escrow). For further information with respect to the Sale,
the Stock Purchase Agreement, and related matters, reference is made to
the Company's definitive proxy statement, dated November 10, 1997, as
filed with the Securities and Exchange Commission (the "Proxy
Statement").
PAGE
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Amounts in thousands)
On December 2, 1997, Rose's Holdings, Inc. (the "Company") consummated the
sale to Variety Wholesalers, Inc. ("Variety") of all of the outstanding
capital stock of Rose's Stores, Inc. ("Stores"), a wholly owned subsidiary of
the Company (the "Sale") pursuant to a Stock Purchase Agreement, dated as of
October 24, 1997, between the Company and Variety (the "Stock Purchase
Agreement"). The Sale constituted the disposition by the Company of
substantially all of its assets and was approved by the holders of a majority
of the outstanding shares of Common Stock of the Company at a special
stockholders meeting of the Company on December 2, 1997. The total purchase
price for the Sale was $19,200,000, including $1,920,000 which was placed in
escrow. The proceeds of the Sale, net of certain transaction, closing, and
other costs, are approximately $15,300,000 (including $1,920,000 which was
placed in escrow). For further information with respect to the Sale, the
Stock Purchase Agreement, and related matters, reference is made to the
Company's definitive proxy statement, dated November 10, 1997, as filed with
the Securities and Exchange Commission (the "Proxy Statement").
Effective December 2, 1997, R. Edward Anderson resigned his positions as
Chairman of the Board, President, and Chief Executive Officer of Rose's
Holdings. In addition, all of the other officers of the Company resigned
effective as of the closing of the Sale. Warren G. Lichtenstein, a member of
the Board of Directors, became the President, Chief Executive Officer, and the
principal accounting officer of the Company; and Jack L. Howard, also a member
of the Board of Directors, became Vice President, Secretary, Treasurer, and
principal financial officer.
Revenue
Sales for the third quarter of 1997 were $156,482, a decrease of $4,314, or
2.7%, from the third quarter of 1996, and year-to-date sales were $450,485, a
decrease of $30,581, or 6.4%, from the comparable period of the prior year.
The decline in sales was due primarily to a decline in sales on a comparable
store basis of 2.4% for the quarter and 5.9% year-to-date. On June 26, 1997,
two small stores, operating under the name Rose's Express, were opened.
During the fourth quarter, two stores will be closed.
Costs and Expenses
Cost of sales as a percent of net sales was 74.6% for the third quarter and
74.9% for the comparable period of the prior year. Year-to-date cost of sales
as a percent of net sales was 75.8% for 1997 and 75.7% for the comparable
period of the prior year. The decrease in the cost of sales as a percent of
net sales for the quarter was .3%. The decrease resulted from cumulative
increase in mark-on percent (.5%), a decrease in shrinkage (.5%) and an
increase in advertising co-op income (.1%) and cash discounts (.1%). These
decreases were partially offset by higher promotional markdowns (.9%). The
increase in the year-to-date cost of sales as a percent to net sales was .1%.
The increase in promotional markdowns (.6%) were partially offset by an
increase in mark-on percent (.1%) and a decrease in shrinkage (.4%).
<PAGE>
Selling, general and administrative expenses ("SG&A") as a percent of net
sales for the third quarter were 25.5% in 1997 and 24.2% for the comparable
quarter of the prior year. Year-to-date SG&A expenses as a percentage of sales
were 25.5% in 1997 and 24.3% in 1996. SG&A expenses increased by $1,115 for
the quarter and decreased by $1,709 year-to-date. Included in 1997 third
quarter and year-to-date results was an expense of $500 related to two stores
that will close in the fourth quarter. Also included in 1997 year-to-date
selling, general and administrative expense was income of $754 resulting from
the settlement of pre-petition insurance liabilities and a loss of $189 from
the closing of a store during the first quarter. Included in 1996 SG&A is a
third quarter charge of $657 related to a merger agreement which was
terminated on August 20, 1996.
Liquidity and Capital Resources
In the third quarter of 1997, $449 in cash was invested in property and
equipment, as compared to $880 in the third quarter of 1996. Year-to-date
cash investment in property and equipment was $1,296 in 1997 compared to
$3,219 in 1996. The 1997 expenditures were for store improvements and
computer software. The 1996 expenditures were primarily for store remodelings
and new computer software. Cash used in operating activities, primarily to
fund inventory levels, was $42,139 in the third quarter of 1997, and $59,108
year-to-date. Cash used in operating activities during 1996 was $31,217 in
the third quarter and $51,033 year-to-date.
Subsequent to the Sale, the Company has no business operations and its
principal asset is the net proceeds from the Sale. The Company intends to
seek out and to obtain an acquisition and/or merger transaction in which to
employ its cash so that the Company's stockholders may benefit by owning an
interest in a viable enterprise. There can be no assurance that the Company
will be able to locate or purchase a business, or that such business, if
located and purchased, will be profitable. In order to finance an acquisition,
the Company may be required to incur or assume indebtedness. The Company has
not yet identified any potential acquisition candidates. Pending the use of
the net proceeds of the Sale, the Company plans to invest such net proceeds in
liquid, high quality investments.
Subsequent to the Sale, there can be no assurance that the Company will
continue to meet the continued listing requirements in order that the Company
Common Stock will remain listed on the NASDAQ National Market System, and any
delisting therefrom may adversely affect the liquidity of the Company Common
Stock.
PAGE
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PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) 10.1 Agreement of sale dated as of October 24, Incorporated
1997 by and between Variety Wholesalers, by reference
Inc. and the Registrant. (Incorporated by
reference to Annex I to Registrant's Form
DEF 14A for the current report date of
November 10, 1997.)
10.2 Amended and Restated Employment Agreement
with R. Edward Anderson, Chairman of the
Board, President and Chief Executive
Officer, dated October 23, 1997.
(b) The Company filed the following current reports on Form 8-K
during the quarter covered by this report:
(i) Report on Form 8-K dated October 24, 1997,
reporting under Item 5 the definitive agreement
providing for the sale to Variety Wholesalers, Inc.
of Rose's Holdings, Inc. wholly owned subsidiary,
Rose's Stores, Inc.
(ii) Report on Form 8-K dated December 2, 1997, reporting
under Item 5 the completion of the sale to Variety
Wholesalers, Inc. of Rose's Holdings, Inc. wholly
owned subsidiary, Rose's Stores, Inc.
PAGE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROSE'S HOLDINGS, INC.
Date: December 8, 1997 By /s/Warren G. Lichtenstein
Warren G. Lichtenstein
President,
Chief Executive Officer
Date: December 8, 1997 By /s/ Jack L. Howard
Jack L. Howard
Vice President,
Secretary and Treasurer
EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement, originally dated as of May 29, 1995 and amended
herein as of October 23, 1997, among Rose's Holdings, Inc. ("RHI" or
the "Company"), Rose's Stores, Inc. ("Rose's") (collectively, RHI and
Rose's are hereinafter referred to as the "Control Group"), and R.
Edward Anderson, residing in Raleigh, North Carolina (the
"Executive").
WHEREAS, the Executive is currently employed by Rose's pursuant
to the Employment Agreement dated as of May 29, 1995 (the "Existing
Employment Agreement");
WHEREAS, pursuant to a restructuring of Rose's, Rose's has become
a wholly-owned subsidiary of RHI; and
WHEREAS, Rose's and the Executive desire to amend and restate
the Existing Employment Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained herein, the parties agree as
follows:
1. Term of Employment. Except for earlier termination as
provided in Sections 4 through 11 hereof, the Executive's employment
under this Agreement shall continue in effect until May 28, 1998 (the
"Initial Term"). Subject to Sections 4 through 11 hereof, the Initial
Term shall be automatically extended for additional terms of
successive one-year periods (the "Additional Term(s)"), unless the
Company or the Executive gives written notice to the other party of
its intention not to extend this Agreement at least 90 days prior to
the expiration of the Initial Term or the current Additional Term, as
the case may be. The Initial Term and the Additional Term(s), if any,
shall be collectively referred to as the "Employment Term."
2. Duties and Services.
(a) During the Employment Term, the Executive shall serve as Chairman
of the Board of Directors of RHI (the "RHI Board" or the "Company
Board"), President and Chief Executive Officer of the Company, and
shall be the President, Chief Executive Officer and Chairman of the
Board of Directors of Rose's (the "Rose's Board"), reporting only to
the RHI Board and Rose's Board. The Executive agrees that in such
offices he shall perform such duties and functions as are commensurate
with his status as Chairman, President and Chief Executive Officer of
the Company and Rose's as may be determined by the RHI Board and/or
the Rose's Board from time to time. The Executive shall devote
substantially all of his working time, attention, skill and efforts
to the performance of his duties hereunder; provided, however, that
with the prior approval of the RHI Board, which it may grant or deny
in its sole
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discretion, the Executive may serve on the board of directors of other
corporations, if such service does not conflict with his duties hereunder
or with his fiduciary duties to the Company or Rose's. In addition,
nothing herein shall prevent the Executive from managing his passive personal
investments and participating in charitable and civic endeavors as long as
such activities do not interfere in more than a de minimis manner with the
Executive's performance of his duties hereunder. The services to be performed
by the Executive pursuant to the terms of this Agreement shall be
rendered principally at the Control Group's principal offices;
provided, however, that the Executive shall be available for
reasonable business travel as the needs of the business require.
(b) Upon the request of the RHI Board, the Executive shall
also serve as an officer or director of any subsidiary or affiliate
of the Company or Rose's with no additional compensation.
3. Compensation, Benefits and Vacation.
(a) During the Employment Term, the Company and Rose's
shall pay the Executive, in accordance with their normal payroll
practices and subject to required withholding, a base salary at the
annual rate of not less than $425,000. Such annual salary rate shall
be reviewed by the RHI Board or its designee each year and upon such
review, the annual salary rate may be increased to such rate as shall
be considered appropriate and fixed by the RHI Board. The annual
salary rate and such annual increases shall collectively be referred
to as the "Base Salary."
(b) During the Employment Term, the Executive shall be
eligible to participate in such bonus, incentive or equity plans
maintained by the Company and/or Rose's from time to time for their
senior executives in accordance with the terms of such plans at the
time of participation. In the event that either (i) the Executive
is not eligible to participate in the annual incentive bonus plans
established by the Company and/or Rose's, or (ii) the Company and/or
Rose's has not established such plans, the Executive shall be eligible
to receive an incentive compensation bonus contingent upon the Company
and/or Rose's achieving targeted goals which are to be established by
the RHI Board from time to time, in its discretion.
(c) During the Employment Term, the Executive shall be
eligible to participate in all pension, health, insurance and fringe
benefit plans, as well as perquisites, maintained by the Company
and/or Rose's from time to time for their officers and directors in
accordance with the terms of such plans at the time of participation.
However, the Company and/or Rose's shall be under no obligation to
establish any such plan or otherwise to pay any such additional
compensation in lieu of a plan.
(d) During the Employment Term, the Executive shall be
entitled to reimbursement for all reasonable out-of-pocket travel and
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entertainment expenses incurred in connection with the performance of
his duties hereunder, upon submission of appropriate documentation,
in accordance with the Company's and/or Rose's, as applicable,
policies for senior officers as then in effect.
(e) The Executive shall be entitled to four weeks vacation
for each fiscal year of the Company during the Employment Term, to be
taken at such time as is mutually convenient to the Executive and the
Company.
4. Death.
Upon the death of the Executive during the Employment Term,
the Employment Term shall terminate and the Company and Rose's shall
pay, as soon as administratively possible, the Executive's estate (or,
if properly designated under an applicable plan or arrangement, his
beneficiary) any accrued and unpaid amounts of Base Salary through the
date of termination, any unreimbursed travel and entertainment
expenses and a lump sum payment of One Million Dollars ($1,000,000).
In addition, all stock options and stock subject to vesting
requirements under any of the Company's and Rose's plans shall become
fully vested as of the date of the Executive's death. Upon such
payment and vesting, the Company and Rose's shall have no liability
or further obligations to the Executive's estate.
5. Disability. If the RHI Board reasonably shall determine
that the Executive has become physically or mentally incapable of
performing his material duties as provided in Section 2 hereof and
that such incapacity is likely to last for a period of at least six
months from the onset of such incapacity, the Company and Rose's may,
at their election at any time thereafter while the Executive remains
incapable of performing his duties, terminate the Employment Term and
the Executive's employment with the Control Group effective
immediately by giving the Executive written notice of such
termination. In such event, the Company and Rose's shall have no
obligation to the Executive except as follows:
(a) a lump sum payment equal to One Million Dollars
($1,000,000) to be paid to the Executive as soon as administratively
possible; and
(b) all stock options and stock subject to vesting
requirements under any of the Company's and Rose's plans shall become
fully vested as of the date of termination.
6. Cause.
(a) If the RHI Board shall determine that there are grounds
for terminating the Employment Term and Executive's employment with
the Control Group for "cause" (as hereinafter defined), the Company
may, at its election at any time within six months after the Company
shall obtain knowledge of the grounds for
<PAGE>
termination, give the Executive notice of its intention to terminate the
Executive for cause, stating the grounds for termination and specifying
a reasonable date (the "Meeting Date") on which the Executive shall be given an
opportunity to discuss such grounds for termination at a meeting of
the RHI Board, if he so desires.
(b) If the grounds for termination are those specified in
clause (ii)(X), (iv) or (v) of paragraph (d) hereof, the Executive
shall have a period of ten days from the Meeting Date to cure the
neglect, refusal or breach, as the case may be, provided that if
similar grounds arise again within one year of such cure, no new
notice need be given and the Company, at its option, may immediately
terminate the Executive for cause.
(c) If the grounds for termination are those specified in
clauses (i), (ii)(Y) or (iii) of paragraph (d) hereof, it is
understood and agreed that no satisfactory cure is available. If,
following discussion with the Executive of the grounds for his
termination at the RHI Board meeting or, if the Executive does not
appear, following the RHI Board meeting, the Company shall continue
to be intent on discharging the Executive for cause on the grounds
specified in clause (i), (ii)(Y) or (iii) of paragraph (d), the
Company shall so notify the Executive, and such termination shall be
effective immediately.
(d) For purposes of this Agreement, the term "cause" shall
mean:
(i) the conviction (or plea of guilty or nolo
contendere) of the Executive of any felony, or of any crime
involving fraud, dishonesty or misappropriation, or moral
turpitude or, if any of the foregoing involves any member
of the Control Group, the commission of any of the foregoing
(other than good faith disputes involving expense account
items);
(ii) the Executive's (X) continued willful neglect of
his duties and responsibilities under this Agreement or (Y)
gross negligence;
(iii) the Executive's willful misconduct with regard
to the Control Group;
(iv) the Executive's refusal to follow the written
direction of the RHI Board and/or Rose's Board with regard
to the Executive's responsibilities as set forth herein; and
(v) material breach of any of the provision of this
Agreement by the Executive.
<PAGE>
(e) If the Company shall terminate the Employment Term and
the Executive's employment with the Control Group pursuant to this
Section 6, the Company and Rose's shall have no liability or further
obligation hereunder except as provided in Section 9.
7. Good Reason. In the event that the Company or Rose's shall
(i) reduce the Executive's annual salary below the Base Salary, (ii)
materially change or diminish the duties and responsibilities of the
Executive as Chairman, President and Chief Executive Officer of RHI
and Rose's (except in connection with the termination of the
Executive's employment for cause, disability or death), (iii) assign
to the Executive duties and responsibilities inconsistent with his
positions, (iv) relocate the Company's and/or Rose's principal
executive offices to a location outside a 100-mile radius of Raleigh,
North Carolina, (v) give the Executive written notice of its intention
not to extend the Employment Term as provided in Section 1, or (vi)
breach a material provision of this Agreement (including without
limitation a failure to deliver a Direct Pay Letter of Credit to the
Executive in accordance with Section 12 hereto) (each of the
foregoing, a "Triggering Event"), then the Executive may give notice
to the Company of his intention to terminate the Employment Term and
the Executive's employment with the Control Group pursuant to this
Section 7, effective 60 days from the date of such notice, unless the
Company and/or Rose's shall have cured the default within such notice
period (or if the breach can be cured but is not capable of being
cured within 60 days, is diligently pursuing a cure). If the
Employment Term is terminated pursuant to this Section 7, the Company
and Rose's shall have no liability or further obligation hereunder
except as provided in Section 8. If the Executive does not notify the
Company of his intention to terminate within 90 days from the date
on which the Executive had knowledge of a Triggering Event, the
Executive shall be deemed to have waived his right to terminate based
on such Triggering Event but such waiver shall not prejudice his right
to terminate pursuant to this Section 7 based on the occurrence of a
subsequent Triggering Event.
8. Termination of Employment for Good Reason or Without Cause.
(a) In the event that (X) the Executive terminates the
Employment Term and his employment with the Control Group for good
reason pursuant to Section 7, or (Y) the Company terminates the
Employment Term and his employment with the Control Group other than
pursuant to Sections 4, 5 or 6, in which event the Employment Term
shall terminate on the date specified in such plan or proposal, or if
not specified, on the date of approval, then the Company and Rose's
shall have no obligation to the Executive except as follows:
(i) a lump sum payment to be made as soon as
administratively possible equal to One Million Dollars
($1,000,000)
<PAGE>
(ii) all stock options and stock subject to vesting
requirements under any of the Company's and Rose's plans
held by the Executive which would vest within 60 days from
the date of termination shall become fully vested as of the
date of termination.
(b) The Executive shall not be required to mitigate the
amount of any payment or benefit provided for in this Section 8 by
seeking other employment nor shall any amount to be received by the
Executive pursuant to this Section 8 be reduced by any other
compensation earned.
9. Termination of Employment for Cause or Without Good Reason.
In the event that (i) the Company terminates the Employment Term for
cause pursuant to Section 6, or (ii) the Executive terminates the
Employment Term and his employment with the Control Group without good
reason (as described in Section 7) pursuant to a written notice of
resignation to the RHI Board, specifying a termination date that shall
be no sooner than 90 days after the submission of such notice, the
Executive shall be entitled to receive only his Base Salary through
the date of termination, any bonus that was due and payable at the
time of termination and any unreimbursed business expenses.
10. Change of Control.
(a) In the event of a Change of Control, as defined below,
the Executive may terminate the Employment Term and his employment
with the Control Group by giving 30-days written notice to the RHI
Board at any time during the six-month period following the date on
which the Change of Control event occurred. Such termination shall
be effective as of the date of such notice. In such event, or if the
Employment Term is terminated by the Company, without cause pursuant
to Section 6, or by the Executive during the seven-month period after
a Change of Control event for good reason pursuant to Section 7, the
Company and Rose's shall have no obligation to the Executive except
as follows:
(i) a lump sum payment to be made as soon as
administratively possible equal to One Million Dollars
($1,000,000)
(ii) all stock options and stock subject to vesting
requirements under any of the Company's and Rose's plans
held by the Executive shall become fully vested as of the
date of termination.
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) any "person" (as such term is defined
in Sections 3(a)(9) and 13 (d)(3) of the Exchange Act) (a "Person")
becomes a "beneficial owner" (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) (a "Beneficial Owner") of
securities of the Company and/or Rose's representing
<PAGE>
50.1% or more of the total combined voting power of the Company's and/or
Rose's then outstanding voting securities, (ii) the Company and/or Rose's
merges or is consolidated with any Person or substantially all of the
Company's and/or Rose's assets are sold or disposed of to a Person
other than (A) in a merger or consolidation which would result in the
voting securities of the Company and/or Rose's outstanding immediately
prior to such event to continue to represent (either by remaining
outstanding or by conversion into voting securities of the surviving
or parent entity) 50.1% or more of the combined voting power of the
voting securities of the Company and/or Rose's or such surviving or
parent entity outstanding immediately after such merger or
consolidation or (B) a merger or capitalization effected to implement
a recapitalization of the Company and/or Rose's (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities representing more than 50.1% or
more of the total combined voting power of the Company's and/or Rose's
then outstanding voting securities, or (iii) during any period of not
more than two consecutive years, individuals who at the beginning of
such period constitute the RHI Board, and any new director (other than
a director designated by a Person who has entered into an agreement
with the Company to effect a transaction described in (i) and (ii) of
this paragraph) whose election by the RHI Board or nomination for
election by the Company's stockholders was approved by at vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof.
Notwithstanding the foregoing, an initial public offering of the
common stock of Rose's or a spinoff of the shares of common stock of
Rose's to RHI's stockholders whereby Rose's becomes a separate
publicly held corporation shall not be considered a Change of Control
of Rose's.
11. Termination on Account of Bankruptcy or Liquidation of
Rose's or the Company. If the Executive's employment with the Control
Group terminates during the Employment Term, whether voluntarily or
involuntarily, within three (3) years following: (i) the date of the
Company's or Rose's filing of a bankruptcy petition pursuant to
Chapter 7 or 11 of Title 11, Unites States Code, as amended (the
"Bankruptcy Code"); (ii) the filing of a bankruptcy petition against
the Company or Rose's pursuant to Chapter 7 or 11 or the Bankruptcy
Code (a) which is not dismissed within thirty (30) days of the filing
thereof, or (b) with respect to which an order for relief is entered
for any reason whatsoever; or (iii) approval by the RHI Board of the
liquidation of all or substantially all of the assets of the Company's
or Rose's, the Executive shall be entitled to receive the One Million
Dollar ($1,000,000) lump sum payment as soon as administratively
possible and accelerated vesting of all stock options and other stock,
all as described in Section 10 above.
<PAGE>
12. Direct Pay Letter of Credit. The Company shall deliver to
the Executive an irrevocable direct pay letter of credit (the "Direct
Pay Letter of Credit") satisfying the requirements of this Section 12
simultaneously with the execution of this Agreement. The Direct Pay
Letter of Credit shall be in an amount equal to One Million Dollars
($1,000,000) and shall not expire prior to three (3) years after the
termination of this Agreement as described in Section 1 above. Upon
each May 28, the Company shall extend the expiration of the Direct Pay
Letter of Credit for one (1) additional year so that the above-
mentioned three (3) year period shall be preserved. The Executive
(or, if applicable, his personal representative) shall be entitled to
draw on the Direct Pay Letter of Credit upon presentation to the
issuing bank of a demand for payment signed by the Executive (or, if
applicable, his personal representative) stating (as applicable) that:
(i) the Executive is entitled to payment pursuant to Sections 5, 8,
10 or 11 of this Agreement, or (ii) the Executive's estate (or, if
applicable, his designated beneficiary) is entitled to payment
pursuant to Section 4 of this Agreement. There shall be no other
requirements (including no requirement that the Executive first make
demand for payment upon RHI or Rose's) with regard to payment of the
Direct Pay Letter of Credit. To the extent the Direct Pay Letter of
Credit is not adequate to cover the amounts owed the Executive for
any such amounts, RHI and Rose's shall remain jointly and severally
liable to the Executive for any such amount. To the extent any amount
is paid under the Direct Pay Letter of Credit it shall be credited
against any amounts RHI or Rose's then or thereafter would owe the
Executive under this Agreement. The Direct Pay Letter of Credit shall
be issued by a bank or trust company reasonably acceptable to RHI and
the Executive. RHI shall bear all costs relating to the Direct Pay
Letter of Credit.
13. Confidentiality and Non-Competition.
(a) The Executive acknowledges that as a result of his
employment by the Company and Rose's, the Executive will obtain secret
and confidential information as to the Control Group, that the Company
will suffer substantial damage, which would be difficult to ascertain,
if the Executive shall enter into Competition, as defined below, with
any member of the Control Group and that because of the nature of the
information that will be known to the Executive it is necessary for
the Company and Rose's to be protected by the prohibition against
Competition set forth herein, as well as the Confidentiality
restrictions set forth herein. The Executive acknowledges that the
provisions of this Agreement are reasonable and necessary for the
protection of the business of the Control Group and that part of the
compensation paid under this Agreement and the agreement to pay
severance in certain instances is in consideration for the agreements
in this Section 13.
(b) Competition shall mean: (i) participating, directly
or indirectly, as an individual proprietor, partner, stockholder,
<PAGE>
officer, employee, director, joint venturer, investor, lender,
consultant or in any capacity whatsoever (in any country where any
member of the Control Group does business) in a business having retail
locations in the states of Delaware, Georgia, Kentucky, Maryland,
Mississippi, North Carolina, South Carolina, Tennessee, Virginia or
West Virginia in competition with any business conducted by any member
of the Control Group, with regard to which the Executive worked or
otherwise had responsibilities or had access to material confidential
information while employed by the Company and Rose's; provided,
however, that such participation shall not include (X) the mere
ownership of not more than one percent (1%) of the total outstanding
stock of a publicly held company; or (Y) the performance of services
for any enterprise to the extent such services are not performed,
directly or indirectly, for a business in the aforesaid competition;
or
(ii) recruiting, soliciting or inducing, any
nonclerical employee or employees of any member of the Control Group
to terminate their employment with, or otherwise cease their
relationship with, the Control Group or hiring or assisting another
person or entity to hire any nonclerical employee of the Control Group
or any person who had been a nonclerical employee of the Control Group
within six months before the date of solicitation. Notwithstanding
the foregoing, if requested by an entity with which the Executive is
not affiliated, the Executive may serve as a reference for any person
who at the time of the request is not an employee of the Control
Group.
(c) If any restriction with regard to Competition is found
by a court of competent jurisdiction, or an arbitrator, to be
unenforceable due to the length of time of the covenant, the range
of activities covered or the size of the geographic area, such
restriction shall be interpreted to extend over the maximum period
of time, range of activities or geographic area as to which it may
be enforceable.
(d) During and after the Employment Term, the Executive
shall hold in a fiduciary capacity for the benefit of the Control
Group all secret, proprietary or confidential information, knowledge
or data relating to the Control Group, and their respective
businesses, including any confidential information as to customers of
the Control Group, (i) obtained by the Executive during his employment
by the Control Group and (ii) not otherwise public knowledge or known
within the Company's or Rose's industry. The Executive shall not,
without prior written consent of the Company and Rose's, unless
compelled pursuant to the order of a court or other governmental or
legal body having jurisdiction over such matter, communicate or
divulge any such information, knowledge or data to anyone other than
the Company and Rose's and those designated by them. In the event the
Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge
or data to anyone other than the Company and Rose's and those
designated by them, he shall
<PAGE>
promptly notify the Company and Rose's of any such order and he shall
cooperate fully with the Company and Rose's in protecting such information
to the extent possible under applicable law.
(e) Upon termination of his employment with the Control
Group, or at any time as the Company and/or Rose's may request, the
Executive will promptly deliver to the Company and/or Rose's, as
applicable, all documents (whether prepared by a member of the Control
Group, the Executive or a third party) relating to the Control Group
or any of its businesses or property which he may possess or have
under his direction or control.
(f) During the Employment Term and, except in connection
with a termination by the Executive pursuant to Sections 7, 10 or 11,
or by the Company and Rose's without cause as defined in Section 6,
for one year thereafter, Executive will not enter into Competition
with the Control Group.
(g) In the event of a breach or potential breach this
Section 13, the Executive acknowledges that the Control Group will
be caused irreparable injury and that money damages may not be an
adequate remedy and agree that the Control Group shall be entitled
to injunctive relief (in addition to its other remedies at law) to
have the provisions of this Section 13 enforced.
14. Executive's Representation. The Executive represents and
warrants to the Company and Rose's that there is no legal impediment
to the performance by him of his obligations under this Agreement and
that entering into this Agreement and performing his contemplated
services hereunder will not violate any agreement to which he is a
party or any other legal restriction.
15. Independent Review. The Executive acknowledges that he has
been advised by the Company and Rose's to have the Agreement reviewed
by independent counsel and has been given the opportunity to do so.
16. Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
personally, telecopy, or overnight courier against receipt to the
party to whom it is to be given at the address set forth in the
introductory paragraph of this Agreement (or to such other address
as the party shall have furnished in writing in accordance with the
provisions of this Section 16). Any notice or other communication
given by hand, telecopy or overnight courier shall be deemed given
at the time of receipt thereof.
17. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration conducted in New York under the Commercial Arbitration
Rules then prevailing of the American Arbitration Association and such
submission shall request the American Arbitration Association to: (i)
appoint an arbitrator experienced
<PAGE>
and knowledgeable concerning the matter then in dispute, (ii) require the
testimony to be transcribed, (iii) require the award to be accompanied by
finding of fact and the statement for reasons for the decision, and (iv)
request the matter to be handled by and in accordance with the expedited
procedures provided for in the Commercial Arbitration Rules. The determina-
tion of the arbitrators, which shall be based upon a de novo interpretation
of this Agreement, shall be final and binding and judgment may be
entered on the arbitrators' award in any court having jurisdiction.
The Company and the Executive shall each pay 50% of the costs of the
American Arbitration Association and the arbitrator.
18. Assignment; Successors.
(a) The Executive's rights and benefits under this
Agreement are personal to him and such rights and benefits shall not
be subject to voluntary or involuntary assignment, alienation or
transfer, except to the extent such rights and benefits are lawfully
available to the Executive's spouse, beneficiary or estate upon his
death.
(b) The Company and Rose's shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of
the Company or Rose's to expressly assume and agree in writing to
perform this Agreement in the same manner and to the same extent that
the Company and/or Rose's would be required to perform if such
succession had not taken place, or in the event the Company and/or
Rose's remains in existence after such purchase, merger consolidation
or otherwise, the Company and/or Rose's may continue to employ the
Executive under the terms hereof. Upon such assignment and
assumption, the Company and/or Rose's shall be released of any further
obligation or liability hereunder.
19. Governing Law. This Agreement shall be governed by and
enforce in accordance with the law of the State of North Carolina,
without regard to its conflict of law provisions.
20. Miscellaneous.
(a) This Agreement constitutes the entire agreement between
the parties hereto, and supersedes all prior agreements and
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or provisions of this Agreement
may be changed, waived, modified or discharged unless such change,
waiver, modification or discharge is agreed to in writing by the
paries hereto. All references to any law shall be deemed also to
refer to any successor provisions to such laws.
(b) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
(c) If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, shall not affect
the remaining provisions hereof which shall remain in full force and
effect.
(d) The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction
or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date opposite each party's signature.
Date: _________, 1997 ROSE'S HOLDINGS, INC.
By:__________________________
Name:
Title:
Date: _________, 1997 R. EDWARD ANDERSON
_____________________________
ROSE'S STORES, INC.
By:__________________________
Name:
Title:
R. EDWARD ANDERSON
_____________________________
<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 October 25, 1997, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-25-1997
<CASH> 596
<SECURITIES> 0
<RECEIVABLES> 22,154
<ALLOWANCES> 533
<INVENTORY> 195,849
<CURRENT-ASSETS> 222,092
<PP&E> 11,155
<DEPRECIATION> 2,436
<TOTAL-ASSETS> 231,315
<CURRENT-LIABILITIES> 163,118
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> (386)
<TOTAL-LIABILITY-AND-EQUITY> 231,315
<SALES> 437,393
<TOTAL-REVENUES> 440,797
<CGS> 331,425
<TOTAL-COSTS> 331,425
<OTHER-EXPENSES> (1,465)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,631
<INCOME-PRETAX> (6,326)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,326)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,326)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
