AGENCY AGREEMENT

Exhibit 2.1

AGENCY AGREEMENT

This Agency Agreement (the “Agreement”) is made as of this September 22, 2006, by and between STOREHOUSE, INC., with a principal place of business located at 4200 Perimeter Park So., Chamblee, GA 30341 (“Merchant”), and HUDSON CAPITAL PARTNERS, LLC, with a principal place of business located at 403C Towne Center Blvd., Suite 3, Ridgeland, MS 39157 (the “Agent”).

RECITALS

WHEREAS, Merchant has filed a voluntary petition for relief under Title 11 of the United States Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”);

WHEREAS, Merchant is continuing to manage its affairs as a debtor and debtor in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code;

WHEREAS, Merchant desires that Agent act as Merchant’s exclusive agent for the limited purpose of: (a) selling, by conducting a “going out of business,” “store closing” “bankruptcy liquidation” or similar themed sale (the “Sale”), of all of the Merchandise (as hereinafter defined) located or to be located in: (i) those 70 Merchant retail store locations identified in Exhibit 1A annexed hereto, and (ii) Merchant’s warehouse/distribution center and cross dock locations identified on Exhibit 1B annexed hereto (each location identified on Exhibit 1A and 1B is sometimes referred to herein as a “Closing Store”, and collectively all such locations are referred to as the “Closing Stores”); and (b) disposing of Merchant’s owned FF&E located at the Closing Stores, subject to the terms and conditions set forth herein; and

WHEREAS, Agent is willing to serve as Merchant’s exclusive agent to conduct the Sale in accordance with the terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent and Merchant hereby agree as follows:

Section 1. Definitions and Exhibits

1.1 Defined Terms. The terms set forth below are defined in the Sections referenced of this Agreement:

 

 

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1.2 Exhibits. The Exhibits and Schedules annexed to this Agreement, as listed below, are an integral part of this Agreement:

 

1.3 Currency. Unless otherwise specified, all references to monetary amounts refer to United States dollars.

Section 2. Appointment of Agent.

2.1 Merchant hereby appoints Agent, and Agent hereby agrees to serve, as Merchant’s exclusive agent for the limited purpose of conducting the Sale in accordance with the terms and conditions of this Agreement. Merchant’s and Agent’s obligations hereunder are subject to the approval of the Bankruptcy Court and shall be of no force and effect in the event that the Approval Order (as defined in Section 2.3 below) is not entered on or before the date set forth in Section 10(d) hereof.

 

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2.2 Except for incurring Expenses in connection with the Sale and as otherwise specifically provided in this Agreement, Agent shall have no authority to enter into any contract, agreement or other arrangement or take any other action, by or on behalf of Merchant, that would have the effect of creating any obligation or liability, present or contingent, on behalf of or for the account of Merchant without Merchant’s prior written consent, which consent shall not be unreasonably withheld.

2.3 Merchant has or will file an expedited motion with the Bankruptcy Court for entry of an order approving this Agreement and authorizing Merchant and Agent to conduct the Sale in accordance with the terms hereof (the “Approval Order”). The Approval Order shall provide, in substantially the form of Exhibit 10 attached hereto and in any event in form reasonably satisfactory to the Merchant and Agent, among other things, that:

(a) the terms of this Agreement (and each of the transactions contemplated hereby) are approved;

(b) Merchant and Agent shall be authorized to continue to take any and all actions as may be necessary or desirable to implement this Agreement and each of the transactions contemplated hereby, including, without limitation, the actions contemplated in Sections 8.9 and 8.10 of this Agreement;

(c) Agent shall be entitled to sell all Merchandise hereunder free and clear of all liens, claims and encumbrances thereon (collectively, “Liens”), with any presently existing Liens encumbering all or any portion of the Merchandise or the Proceeds attaching only to the Guaranteed Amount and other amounts to be received by Merchant under this Agreement;

(d) Agent shall have the right to use the Closing Stores and all related store and distribution center services, furniture, fixtures, equipment and other assets of Merchant as designated hereunder for the purpose of conducting the Sale, free of any interference from any entity or person;

(e) Agent, as agent for Merchant, is authorized to conduct, advertise, post signs and otherwise promote the Sale without further consent of any person (other than Merchant as provided for herein), in accordance with the terms and conditions of this Agreement and the Sale Guidelines (as the same may be modified and approved by the Bankruptcy Court), and without further compliance with applicable federal, state or local laws governing, inter alia, the conduct of store closing sales, other than those designed to protect public health and safety (the “GOB Laws”);

(f) Agent shall be granted a limited license and right to use until the Sale Termination Date the trade names, logos and mailing lists relating to and used in connection with the operation of the Closing Stores, solely for the purpose of advertising the Sale in accordance with the terms of the Agreement;

 

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(g) all newspapers and other advertising media in which the Sale is advertised shall be directed to accept the Approval Order as binding and to allow Merchant and Agent to consummate the transactions provided for in this Agreement, including, without limitation, the conducting and advertising of the Sale in the manner contemplated by this Agreement;

(h) all utilities, landlords, creditors and all persons acting for or on their behalf shall not interfere with or otherwise impede the conduct of the Sale, institute any action in any court (other than in the Bankruptcy Court) or before any administrative body which in any way directly or indirectly interferes with or obstructs or impedes the conduct of the Sale;

(i) the Bankruptcy Court shall retain jurisdiction over the parties to enforce this Agreement;

(j) Agent shall not be liable for any claims against the Merchant other than as expressly provided for in this Agreement, and Agent shall have no successorship liabilities whatsoever; and

(k) Agent shall have a valid, duly perfected first priority lien and security interest in the Merchandise and any Proceeds to which Agent is entitled in accordance with the terms of this Agreement, which lien shall be subject and subordinate to the lien of Merchant’s secured lender(s) to the extent of any unpaid portion of the Guaranteed Amount, the Recovery Amount (if any), the Augment Recovery Amount (to the extent greater than the Minimum Augment Recovery Amount), and Expenses due from Agent to Merchant under this Agreement.

Section 3. Guaranteed Amount and Other Payments

3.1 Payments to Merchant and Agent.

(a) As a guaranty of Agent’s performance hereunder, in addition to the payment of Expenses as provided for in Section 4.1 hereof, Agent guarantees that Merchant shall receive the sum of eighty-five and sixteen one hundredths percent (85.16%) (the “Guaranty Percentage”) of the aggregate Cost Value of Merchandise located in Closing Stores (the “Guaranteed Amount”). The Guaranteed Amount will be calculated based upon the aggregate Cost Value of the Merchandise as determined by (A) the final certified report of the Inventory Taking Service after verification and reconciliation thereof by Agent and Merchant, and (B) the aggregate amount of Gross Rings (as adjusted for shrinkage per this Agreement).

(b) To the extent that Proceeds exceed the sum of: (x) the Guaranteed Amount, (y) Expenses of the Sale, and (z) six percent (6%) of the aggregate Cost Value of the Merchandise (the “Agent’s Fee”) (the sum of (x), (y) and (z), the “Sharing Threshold”), then all remaining Proceeds of the Sale above the Sharing Threshold shall be shared fifty percent (50%) to Merchant and fifty percent (50%) to Agent. All amounts, if any, to be received by Merchant from Agent in excess of the Sharing Threshold shall be referred to as the “Recovery Amount”.

 

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(c) In addition to the Guaranteed Amount, Agent hereby guarantees that the Merchant shall receive the greater of (x) nine percent (9%) from the net proceeds of the sale of Additional Agent Merchandise in the Closing Stores (subject to the terms of Section 8.9 hereof), or (y) $200,000 (the “Minimum Augment Recovery Amount”; the greater of (x) or (y), the “Augment Recovery Amount”). For purposes of this Section 3.1(c), “net proceeds” shall be deemed to exclude Sales Taxes, charges to customers for delivery services, and credit card fees associated with the sale of Additional Agent Merchandise.

(d) Agent shall pay to Merchant the Guaranteed Amount, the Recovery Amount, and the Augment Recovery Amount in the manner and at the times specified in Section 3.3 below.

(e) If and to the extent that Agent over-funds any amounts due hereunder, then Merchant agrees to promptly reimburse such undisputed over-payment amounts to Agent. In the event that Merchant fails to reimburse such undisputed over-payment amount to Agent within five (5) days after Agent’s demand therefor, the Lender shall pay or reimburse Agent for such amount to the extent actually received by the Lender; provided, however, the Lender’s obligation to make repayment of any amount to Agent pursuant to this subclause 3.1(e) shall be limited in an amount not to exceed ten percent (10%) of the Estimated Guaranteed Amount (calculated in accordance with Section 3.3(a) hereof).

(f) Merchant agrees that any amounts due by Agent to Merchant pursuant to this Section 3 may in Agent’s discretion be offset by the undisputed amount of Proceeds which have not, as of the applicable date of payment by Agent to Merchant been transferred by Merchant to Agent.

(g) To insure accurate sales audit functions, as well as accurate calculations of the Recovery Amount and Augment Recovery Amount, if any, Agent shall be required to utilize Merchant’s existing point-of-sale system for recording all sales of goods and Additional Merchandise in the Closing Locations, provided, however, to the extent the existing point-of-sale system is inadequate to or not capable of processing all sales and transactions contemplated by this Agreement the Agent may install and use its own point-of-sale system in connection with the sale.

3.2 Payments to Agent. After payment in full of the Guaranteed Amount, the Recovery Amount, the Augment Recovery Amount, and the payment of all Expenses, Agent shall be entitled to retain any remaining Proceeds of the Sale. Provided that no Event of Default has occurred and continues to exist on the part of the Agent, all Merchandise remaining at the conclusion of the Sale shall become the property of Agent, free and clear of all liens, claims and encumbrances of any kind or nature (“Remaining Merchandise”); provided, however, the proceeds realized upon a sale or other disposition of the Remaining Merchandise shall constitute Proceeds hereunder for purposes of, inter alia, calculating the Recovery Amount due Merchant.

 

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3.3 Time of Payments; Control of Proceeds

(a) Payment of Guaranteed Amount. On the first business day following entry of the Approval Order, provided such Approval Order has not been stayed, Agent shall pay General Electric Capital Corporation, in its capacity as Merchant’s secured lender and designee (the “Lender”), ninety (90%) of the estimated Guaranteed Amount (the “Initial Guaranty Payment”), calculated based upon the estimated aggregate Cost Value of the Merchandise to be included in the Sale, as reflected on Merchant’s books and records on the last business day immediately preceding the Sale Commencement Date and after giving effect to the Global Inventory Adjustment (the “Estimated Guaranteed Amount”), with such Initial Guaranty Payment being made by wire transfer to such account(s) as are designated on Exhibit 3.3(a). The balance of the Guaranteed Amount, if any, shall be paid by Agent to the Lender, as Merchant’s designee, on the first business day following the issuance of the final audited report of the aggregate Cost Value of the Merchandise by the Inventory Taking Service, after verification and reconciliation thereof by Agent, Merchant and Lender (the “Final Inventory Report”). Agent’s failure to pay such balance shall entitle the Lender to draw upon the Guaranty L/C to the extent of such balance. In the event that the Final Inventory Report is issued after payment of the Estimated Guaranteed Amount, the Agent or Merchant, as the case may be, shall pay to the Merchant or Agent, as the case may be, the amount (the “Adjustment Amount”) by which the actual Guaranteed Amount exceeds or is less than the Estimated Guaranteed Amount actually paid as set forth above, within two (2) business days after the Final Inventory Report has been issued. In the event that Merchant shall fail to reimburse Agent for any Adjustment Amount within five (5) days after Agent’s demand therefor, the Lender shall pay or reimburse Agent for such amount to the extent actually received by the Lender; provided, however, the Lender’s obligation to make repayment to Agent in respect of the Adjustment Amount, or any portion thereof, shall be limited in amount as provided under section 3.1(e) hereof.

(b) Payment of Augment Recovery Amount. Agent shall tender payment of an amount equal to the Minimum Augment Recovery Amount to the Lender, as Merchant’s designee, on the first business day after the Sale Commencement Date. The balance, if any, of the Augment Recovery Amount shall be paid by Agent to Merchant (or its designee) as part of the weekly reconciliation conducted pursuant to Section 8.7(a), and subject to the Final Reconciliation under Section 8.7(b).

(c) Payment of Recovery Amount. Agent shall tender payment of an amount equal to the Recovery Amount to the Lender, as Merchant’s designee, on the first business day after the completion of the Final Reconciliation conducted pursuant to Section 8.7(b).

(d) Guaranty Security. To secure payment of the balance of any unpaid portion of the Guaranteed Amount, Recovery Amount, Augment Recovery Amount, if any, Agent shall deliver to the Lender, as Merchant’s designee, an irrevocable standby letter of credit in the original face amount equal to ten percent (10%) of the Estimated Guaranteed Amount, naming the Lender, as Merchant’s designee, as the beneficiary, substantially in the form of Exhibit 3.3(d) attached hereto (the “Guaranty

 

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L/C”). The Guaranty L/C shall be delivered to the Lender, as Merchant’s designee, one (1) business day following the Sale Commencement Date, and shall be issued by a U.S. national bank selected by Agent and reasonably acceptable to Merchant and the Lender. Provided no Event of Default by Merchant has occurred, in the event that Agent shall fail to pay to the Lender, as Merchant’s designee, any portion of the Guaranteed Amount, Recovery Amount, or Augment Recovery Amount, if any, as required under this Agreement, or fail to perform any obligation hereunder, the Lender, as Merchant’s designee, shall be entitled to draw on the Guaranty L/C to fund such amount or obligation following five (5) days written notice to Agent of the Lender’s intention to do so. The Guaranty L/C shall expire no earlier than sixty (60) days after the Sale Termination Date; provided, that, in the event that at the scheduled expiration date of the Guaranty L/C there remains any unresolved dispute as to the amount of the Guaranteed Amount, Recovery Amount, Augment Recovery Amount, if any, the Lender, as Merchant’s designee, may, in its discretion, exercise the right to require Agent to have the expiration date of the Guaranty L/C extended for thirty (30) day intervals (or such other longer duration as Merchant, the Lender and Agent may agree) until such time as the subject dispute has been resolved and any additional amounts due hereunder on account of the Guaranteed Amount, Recovery Amount, Augment Recovery Amount, if any, paid to the Lender, as Merchant’s designee; it being agreed that if Agent has for any reason not so extended the expiry date of the Guaranty L/C by the date which is five (5) days prior to the then expiry date, the Lender shall have the right to make a drawing under the Guaranty L/C in an amount equal to the amounts Merchant asserts are then owing to Merchant. Merchant, the Lender, and Agent agree that the face amount of the Guaranty L/C shall be reduced from time-to-time in an amount(s) to be agreed upon by Merchant, the Lender and Agent to account for payment made by the Agent in respect of the Guaranteed Amount, Recovery Amount, if any, and Augment Recovery Amount, as the case may be. Merchant and the Lender further agree that after payment of the Guaranteed Amount, Recovery Amount, Augment Recovery Amount, if any, in full, the Lender shall surrender the original Guaranty L/C to the issuer thereof together with written notification that the Guaranty L/C may be terminated.

(e) Control of Proceeds. (i) Within seven (7) business days after the Sale Commencement Date, Agent shall establish its own accounts, dedicated solely for the deposit of the Proceeds and the disbursement of amounts payable to Agent hereunder (the “Agency Accounts”) and Merchant shall promptly upon Agent’s request execute and deliver all necessary documents to open and maintain the Agency Accounts. Agent shall exercise sole signatory authority and control with respect to the Agency Accounts; provided, however, upon request, Agent shall deliver to Merchant copies of all bank statements and other information relating to such accounts. Merchant shall not be responsible for and Agent shall pay as an Expense hereunder, all bank fee and charges, including wire transfer charges, related to the Agency Accounts, whether received during or after the Sale Term. Upon Agent’s designation of the Agency Accounts, all Proceeds of the Sale (including credit card proceeds) shall be deposited into the Agency Accounts.

(ii) During the period between the Sale Commencement Date and the date Agent designates the Agency Accounts, all Proceeds of the Sale (including credit card proceeds), shall be collected by Agent and deposited on a daily basis into

 

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depository accounts designated by Merchant for the Closing Stores, which accounts shall be designated solely for the deposit of Proceeds of the Sale (including credit card proceeds), and the disbursement of amounts payable by Agent hereunder (the “Designated Deposit Accounts”). Commencing on the first business day following the payment of the Initial Guaranty Amount and the posting of the Guaranty L/C, and on each business day thereafter (or as soon thereafter as is practicable), Merchant shall promptly pay to Agent by wire funds transfer all collected funds constituting Proceeds deposited into the Designated Deposit Accounts (but not any other funds, including, without limitation, any proceeds of Merchant’s inventory sold prior to the Sale Commencement Date).

 

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4. Expenses of the Sale

4.1 Expenses. Agent shall be unconditionally responsible for all Expenses incurred in conducting the Sale during the Sale Term, which expenses shall be paid by Agent in accordance with Section 4.2 below. As used herein, “Expenses” shall mean all Closing Store-level operating expenses of the Sale which arise during the Sale Term, limited to the following:

(a) Actual Occupancy Expenses for the Closing Stores on a per location and per diem basis in an amount up to the aggregate per diem totals set forth on Exhibit 4.1(a) hereto plus (i) the portion of any percentage rent obligations allocable to the sale of Merchandise during the Sale and (ii) all of the percentage rent obligations attributable to the sale of Additional Merchandise during the Sale (as determined in the manner described in the definition of “Occupancy Expenses” below in this Section 4.1) incurred by Merchant under applicable leases or occupancy agreements.

(b) payroll and commissions, if applicable, for all Closing Store-level Retained Employees used in conducting the Sale as well as payroll for any of Merchant’s former employees hired by Agent for the Sale as independent contractors;

(c) any amounts payable by Merchant for benefits for Retained Employees (including FICA, unemployment taxes, workers’ compensation and health care insurance benefits, but excluding Excluded Benefits) for Retained Employees used in the Sale, in an amount equal to 19.5% of base payroll for each Retained Employee in the Closing Stores (the “Benefits Cap”);

(d) Retention Bonuses for Retained Employees, as provided for in Section 9.4 below;

(e) actual costs of Agent’s employees, independent contractors, on-site supervision, supervisor travel and supervisor bonuses, on-site living/housing expenses and all other reasonable compensation paid to such persons;

(f) banners and in-Store signs which are produced for the Sale;

(g) promotional costs including, without limitation, advertising, and direct mail;

 

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(h) the costs and expenses of obtaining additional supplies as may be required by Agent in the conduct of the Sale;

(i) long distance telephone, postage/overnight delivery/courier charges;

(j) credit card and bank card fees, chargebacks and discounts;

(k) costs of moving, transferring or consolidating Merchandise between the Closing Stores;

(l) Distribution Center Transfer Costs;

(m) a pro rata portion for the Sale Term of Merchant’s premiums in respect of casualty, property, inventory, boiler, earthquake and other insurance policies attributable to the Merchandise and the Closing Stores;

(n) third party payroll processing fees;

(o) armored car service, security personnel and monthly alarm services;

(p) actual cost of Agent’s capital and letter of credit fees;

(q) reasonable fees of Agent’s legal counsel incurred in implementing the transactions contemplated by this Agreement (for the avoidance of doubt, not including any attorneys’ fees incurred by Agent in connection with any dispute with Merchant unless Agent prevails in a dispute with Merchant);

(r) trash removal and ordinary course third party cleanings;

(s) Closing Store security and building alarm service;

(t) Agent’s 50% of cost of the physical inventory taking by the Inventory Taking Service;