Exhibit
10.1
AGENCY
AGREEMENT
This Agency Agreement (the “
Agreement ”) is dated as of August 5, 2009, by and
between Gordon Brothers Retail Partners, LLC with a principal place
of business at 101 Huntington Avenue, 10 th Floor,
Boston, MA 02199 (the “ Agent ”) and Finlay Fine
Jewelry Corporation, with a principal place of business at 529
Fifth Avenue, New York, NY 10017 (the “ Merchant
”).
RECITALS
WHEREAS, Merchant contemplates
filing a voluntary petition for relief under Title 11 of the United
States Code (the “ Bankruptcy Code ”) on August
5, 2009 (such date, or the actual date of such filing, if
different, the “ Petition Date ”), in the United
States Bankruptcy Court for the Southern District of New York (the
“ Bankruptcy Court ”);
WHEREAS, Merchant will seek to
manage its affairs as a debtor and debtor in possession pursuant to
§§ 1107 and 1108 of the Bankruptcy Code in the chapter 11
case (“ Chapter 11 Case ”) in the Bankruptcy
Court;
WHEREAS, Merchant owns and operates
(i) specialty retail store locations under the brand names, Bailey
Banks & Biddle (the “ BBB Brand ”), Zell
Bros. (the “ Zell Brand ”) , Carlyle & Co.
(the “ Carlyle Brand ”, J.E. Caldwell & Co.
(the J.E. Caldwell Brand ”), Park Promenade Jewellers
(the “ Park Promenade Brand ”) and Congress
Jewelers (the “ Congress Brand ”, and
collectively with the BBB Brand, Zell Brand, the Carlyle Brand, the
J.E. Caldwell Brand, and the Park Promenade Brand, the “
Finlay Brands ”); and (ii) licensed jewelry
departments in over 500 department store locations, pursuant to
certain license agreements between Merchant and various department
store chains (collectively, the “ Department Store
Shops ”);
WHEREAS, commencing on or about
March 20, 2009, Merchant (i) commenced final clearance sales at all
of its Department Store Shops with the assistance of Gordon
Brothers Retail Partners, LLC (“ GBRP ”) who is
providing certain limited consulting services to Merchant in
connection with such self-liquidating sales; and (ii) commenced
promotional sales at its retail store locations identified on
Exhibit 1A attached
hereto (the “ Current Stores ”), pursuant to a
Consulting Agreement between Merchant and GBRP dated March 20,
2009, as amended as of May 20, 2009 (the “ Consulting
Agreement”) and a
certain Consignment Agreement among Merchant and certain of its
debtor-affiliates and GBRP dated April 6, 2009 (the “
Consignment Agreement ” and, together with the
Consulting Agreement, the “ Existing Agreements
”);
WHEREAS, Merchant intends to file a
motion on the Petition Date (or shortly thereafter) to allow for
continued performance in the ordinary course by Merchant and Agent
under the Existing Agreements pending rejection or assumption of
such Existing Agreements, pursuant to which Agent would be
authorized to continue the promotional sales at the Current Stores
under the terms of the Existing Agreements pending the results of
an auction, if any (the “ Auction ”), relating
to the Merchandise;
WHEREAS, Merchant desires that Agent
act as Merchant’s exclusive agent for the purpose of (a)
selling all of the Merchandise (as hereinafter defined) located in
the Current
Stores and in forty nine (49) of its
specialty retail store locations set forth on Exhibit
2 attached hereto (the
“ New Stores ” and, together with the Current
Stores, each a “ Store ”, and collectively, the
“ Stores ”) and Merchant’s two (2)
distribution centers and storage locations, all of which are
identified on Exhibit 2(b) attached hereto (collectively, the “
Distribution Centers ”), by means of a “going
out of business,” “sale on everything”,
“store closing”, or similar sale (as further described
below, the “ Sale ”); and (b) to the extent
elected by Merchant pursuant to Section 15 hereof, dispose of
Merchant’s owned FF&E located at the Stores.
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 is hereby acknowledged, Agent and Merchant hereby agree as
follows:
Section 1. Defined
Terms . The terms set forth below are defined in the Sections
referenced of this Agreement:
|
Defined Term
|
Section Reference
|
|
Additional Agent Merchandise
|
Section 8.10(a)
|
|
Adjustment Amount
|
Section 3.4(a)
|
|
Agency Accounts
|
Section 7.2(a)
|
|
Agency Documents
|
Section 11.1(b)
|
|
Agent
|
Preamble
|
|
Agent’s Additional Fee
|
Section 3.1(b)
|
|
Agent’s Additional Agent
Merchandise Fee
|
Section 3.2(a)
|
|
Agent’s Base Fee
|
Section 3.2(a)
|
|
Agent’s Fee
|
Section 3.2(a)
|
|
Agent Claim
|
Section 13.5
|
|
Agent Commission Sale Goods
|
Section 5.4
|
|
Agent Indemnified Parties
|
Section 14.1
|
|
Approval Order
|
Section 2.2
|
|
Aggregate Cost Value of Remaining
Merchandise
|
Section 3.3
|
|
Base Payroll
|
Section 4.1(A)(1)(a)
|
|
Beneficiaries
|
Section 3.4(d)
|
|
Benefits Cap
|
Section 4.1(A)(1)(a)
|
|
Break-Up Fee
|
Section 17.10(b)
|
|
Buying Discounts
|
Section 5.2
|
|
Central Expenses
|
Section 4.1(B)(i)
|
|
Competing Bidders
|
Section 17.10(a)
|
|
Consignment Agreement
|
Recitals
|
|
Consulting Agreement
|
Recitals
|
|
Cost Factor
|
Section 11.1(v)
|
|
Cost Value
|
Section 5.2
|
|
Current Stores
|
Recitals
|
|
Defective Merchandise
|
Section 5.1(b)(i)
|
|
DC Merchandise
|
Section 5.1(b)(iii)
|
|
Designated Deposit Accounts
|
Section 7.2(b)
|
2
|
Defined Term
|
Section Reference
|
|
Discretionary Discounts
|
Section 11.1(n)
|
|
Display Merchandise
|
Section 5.1(b)(iv)
|
|
Distribution Centers
|
Recitals
|
|
Estimated Guaranteed Amount
|
Section 3.4(a)
|
|
Events of Default
|
Section 15.1
|
|
Excluded Benefits
|
Section 4.1(B)(ii)
|
|
Excluded Goods
|
Section 5.4
|
|
Existing Agreements
|
Recitals
|
|
Expenses
|
Section 4.1
|
|
Expense Budget
|
Section 4.2(b)
|
|
Final Inventory Report
|
Section 3.4(a)
|
|
FF&E
|
Section 5.1(b)
|
|
FF&E Agent
|
Section 16
|
|
FF&E Election
|
Section 16
|
|
Final Reconciliation
|
Section 3.7(b)
|
|
Gross Rings
|
Section 3.6
|
|
Gross Rings Period
|
Section 3.6
|
|
Guaranteed Amount
|
Section 3.1(a)
|
|
Guaranty Percentage
|
Section 3.1(a)
|
|
Initial Guaranty Payment
|
Section 3.4(a)
|
|
Inventory Ceiling
|
Section 3.1(c)
|
|
Inventory Floor
|
Section 3.1(c)
|
|
Inventory Proceeds Threshold
|
Section 7.1
|
|
Inventory Cost File
|
Section 5.2(a)
|
|
Inventory Taking
|
Section 3.5(a)
|
|
Inventory Taking Instructions
|
Section 3.5(a)
|
|
Latent Defect
|
Section 8.5(b)
|
|
Latent Defect Returned Merchandise
|
Section 8.5(b)
|
|
Layaway/Special Order Merchandise
|
Section 5.1(b)(vi)
|
|
Layaway/Special Order Notice
|
Section 8.6
|
|
Layaway/Special Order Pick-up Date
|
Section 8.6
|
|
Lender Agent
|
Section 3.4(a)
|
|
Letter of Credit
|
Section 3.4(d)
|
|
Liens
|
Section 2.2(c)
|
|
Loss Prevention Policies
|
Section 11.1(w)
|
|
Memo Merchandise
|
Section 5.1(b)
|
|
Merchandise
|
Section 5.1(a)
|
|
Merchandise Removal Deadline
|
Section 5.1(b)(v)
|
|
Merchant
|
Preamble
|
|
New Stores
|
Recitals
|
|
Occupancy Agreements
|
Section 6.1
|
3
|
Defined Term
|
Section Reference
|
|
Occupancy Expenses
|
Section 4.1(B)(iii)
|
|
Owned FF&E
|
Section 16
|
|
Payment Date
|
Section 3.4(a)
|
|
Pre-Existing Liens
|
Section 11.1(c)
|
|
Pre-Sale Returned Merchandise
|
Section 8.5(a)
|
|
Pre-Sale Refund
|
Section 8.5(a)
|
|
Proceeds
|
Section 7.1
|
|
Recovery Amount
|
Section 3.1(b)
|
|
Reference Price
|
Section 5.2(b)
|
|
Remaining Merchandise
|
Section 3.3
|
|
Repair/Sizing Services
|
Section 8.9
|
|
Retained Employee
|
Section 9.1
|
|
Retention Bonus
|
Section 9.4
|
|
Sale
|
Recitals
|
|
Sale Commencement Date
|
Section 6.1
|
|
Sale Guidelines
|
Section 8.1
|
|
Sale Term
|
Section 6.1
|
|
Sale Termination Date
|
Section 6.1
|
|
Sales Taxes
|
Section 8.3
|
|
Secured Lenders
|
Section 3.4(a)
|
|
Sharing Threshold
|
Section 3.1(b)
|
|
Shipping Variance
|
Section 3.5(b)
|
|
Shipping Variance Response
|
Section 3.5(b)
|
|
SKU
|
Section 3.5(a)
|
|
Store Receipt Deadline
|
Section 5.1(a)
|
|
Stores
|
Recitals
|
|
Supplies
|
Section 8.4
|
|
WARN Act
|
Section 9.1
|
|
|
Section 2.
|
Appointment of Agent
.
|
2.1 Merchant
hereby irrevocably appoints Agent, and Agent hereby agrees to
serve, as Merchant’s exclusive agent for the limited purpose
of (i) conducting the Sale,and (ii) to the extent designated by
Merchant, disposing of Merchant’s owned FF&E, in each
case 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
below) is not entered by September 2, 2009.
2.2 Merchant
shall file an expedited motion with the Bankruptcy Court for entry
of an order, in a form acceptable to Merchant, Agent, Lender Agent,
and the Trustee for the Indenture Lien Holders, approving this
Agreement and authorizing Merchant and Agent to conduct the Sale in
accordance with the terms hereof (the “ Approval Order
”). The Approval
4
Order shall provide, in a form
reasonably satisfactory to the Merchant, Agent, the Lender Agent,
and the Trustee for the Indenture Lien Holders 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 Section 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 Stores and Distribution Centers and all related store
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 shall have the right to
conduct, advertise, post signs, utilize sign walkers, 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, and without
further compliance with applicable federal, state or local laws
governing the conduct of store closing sales (“GOB
Laws”); provided that Agent shall comply with applicable
federal, state or local laws governing public health and
safety;
(f) Agent shall be granted a limited
license and right to use until the Sale Termination Date the trade
names and logos relating to and used in connection with the
operation of the Stores, solely for the purpose of advertising the
Sale in accordance with the terms of the Agreement;
(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;
5
(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,
prior to payment in full of the Guaranteed Amount, be subject and
subordinate to any secured pre-petition and post-petition
facilities to the extent of the unpaid portion of the Guaranteed
Amount, the Recovery Amount, and Expenses and any other amounts due
from Agent to Merchant under this Agreement.
|
|
Section 3.
|
Guaranteed Amount and Other
Payments .
|
|
|
3.1
|
Payments to Merchant
.
|
(a) As a guaranty of
Agent’s performance hereunder, Agent guarantees to Merchant
that the Proceeds of the Sale shall equal sixty-four and
seventy-five one-hundredths percent (64.75%) (the “
Guaranty Percentage ”) of the aggregate Cost Value of
the Merchandise as determined under Sections 3.4 and 3.5 hereof
(the “ Guaranteed Amount ”) plus an amount
sufficient to pay all Expenses.
(b) To the extent that Proceeds
exceed the sum of (x) the Guaranteed Amount, plus (y) the Expenses
plus (z) the Agent’s Fee (as defined below)(the sum of (x),
(y) and (z), the “ Sharing Threshold ”), then
all remaining Proceeds 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 in excess of the
Guaranteed Amount shall be referred to as the “ Recovery
Amount ”, and all amounts, if any, to be received by
Agent in excess of the Agent’s Fee, shall be referred to as
the “ Agent’s Additional Fee ” . Agent
shall pay to Merchant the Guaranteed Amount, unreimbursed Expenses
due to Merchant, and the Recovery Amount, if any, in the manner and
at the times specified in Sections 3.3 and 3.4 below. The
Guaranteed Amount and the Recovery Amount will be calculated based
upon the aggregate Cost Value of the Merchandise as determined by
(A) the Final Inventory Report, and (B) the aggregate amount of
Gross Rings (as adjusted for shrinkage in accordance with Section
3.6 of this Agreement).
(c) The Guaranty Percentage has
been calculated and agreed upon based upon the aggregate Cost Value
of the Merchandise in the New Stores not being (i) less than one
hundred twenty million dollars ($120,000,000) (the “
Inventory Floor ”) or (ii) greater than one hundred
twenty-three million dollars ($123,000,000 (the “
Inventory Ceiling ”). To the extent that the aggregate
Cost Value of the Merchandise in the New Stores is less than the
Inventory Floor or greater than the Inventory Ceiling, the Guaranty
Percentage shall be adjusted, on a pro rata basis, in accordance
with Exhibit 3.1(c) hereto, as and where
applicable.
6
(a) For purposes of this
Agreement, the following terms shall have the following
meanings:
“ Agent’s Additional
Agent Merchandise Fee ” shall mean an amount equal to two
and one hundred and twenty five thousandths percent (2.125%) of the
aggregate documented cost paid by Agent (exclusive of any
“lift,” handling fees or other expenses) for the
Additional Agent Merchandise actually sold during the Sale
Term.
“ Agent’s Base
Fee ” shall mean an amount equal to four and twenty-five
one hundredths percent (4.25%) of the Cost Value of the
Merchandise.
“ Agent’s Fee
” shall mean the sum of the Agent’s Base Fee
plus the Agent’s
Additional Agent Merchandise Fee.
(b) As its compensation for
services rendered to Merchant, after sufficient Proceeds have been
generated to reach the Agent’s Fee (i.e.: Guaranteed Amount
plus Expenses), Agent shall receive such excess Proceeds up to the
amount of the Agent’s Fee. In addition, if additional
Proceeds are generated from the Sale after payment of the
Agent’s Fee, Agent shall be entitled to retain the
Agent’s Additional Fee.
3.3
Remaining Merchandise . Provided that no Event of Default
has occurred and continues to exist on the part of the Agent, and
after all payments are made to the Merchant as required hereunder,
all Merchandise remaining, if any, at the Sale Termination Date
(the “ Remaining Merchandise ”) shall become the
property of Agent. Agent shall use commercially reasonable efforts
to sell all of the Merchandise during the Sale. Any proceeds
received from the sale of any Remaining Merchandise shall be deemed
Proceeds under this Agreement, provided that, for the purposes of
tracking Proceeds to be received by Agent from the subsequent
disposition of the Remaining Merchandise, at the conclusion of the
Sale, Merchant and Agent shall jointly conduct a physical inventory
taking of the Remaining Merchandise as an Expense of the Sale, to
calculate the aggregate Cost Value of such Remaining Merchandise
(the “ Aggregate Cost Value of Remaining Merchandise
”). Merchant shall have the right of last offer to repurchase
some or all of the Remaining Merchandise so long as such right of
last offer does not unreasonably interfere with Agent’s
ability to sell (on commercially reasonable terms) the Remaining
Merchandise; and until such time as Agent has disposed of all of
the Remaining Merchandise, Agent shall provide Merchant with a
weekly written report of the status of such dispositions, which
report shall set forth all of the offers that Agent has received
from parties seeking to purchase the Remaining Merchandise, and
Merchant shall have the right of last offer to repurchase some or
all of the Remaining Merchandise at the price offered by any such
third party.
(a)
On the first business day
following the Sale Commencement Date (the “ Payment
Date ”), Agent shall pay to Merchant an amount (the
“ Initial Guaranty Payment ”) equal to eighty
percent (80%) of the product of (i) the Guaranty Percentage and
(ii) the estimated
7
aggregate Cost Value of the
Merchandise (including DC 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 (the
“ Estimated Guaranteed Amount ”) by wire
transfer to the account designated by Merchant. The balance of the
Guaranteed Amount, if any, shall be paid by Agent by wire transfer
to the account designated by Merchant on the earlier
of (i) the second business day
following the issuance of the final report of the aggregate Cost
Value of the Merchandise included in the Sale as reflected in the
Inventory Taking report (the “ Final Inventory Report
”), after review, reconciliation and verification thereof by
Agent and Merchant in consultation with HSBC Bank USA (the “
Trustee ”), as trustee for the lien holders under that
certain second lien indenture dated as of November 26, 2008 and
that certain third lien indenture dated as of November 26, 2008
(collectively the “ Indenture Lien Holders ”),
and General Electric Capital Corporation, in its capacity as Agent
for the lenders under that certain Fourth Amended and Restated
Credit Agreement dated as of November 9, 2007 by and between, among
other parties, the Merchant, Carlyle & Co. Jewelers LLC, L.
Congress, Inc, Finlay Enterprises, Inc., certain additional
subsidiaries thereof, the lenders party thereto (collectively, the
“ Secured Lenders ”), and General Electric
Capital Corporation, as Agent for the Secured Lenders (such agent,
the “ Lender Agent ”), as such Fourth Amended
and Restated Credit Agreement has been and may hereafter be
amended, supplemented, restated or otherwise modified from time to
time (the “ Credit Agreement ”), to the extent
that any amounts under the Credit Agreement remain unpaid;
provided , however , that Merchant and Agent shall
exercise reasonable best efforts to reconcile the Inventory Taking
within ten (10) days after its completion and (ii) the date that is
thirty (30) days after the Sale Commencement Date, in which case
the immediate payment to be made shall be of the undisputed balance
of the Guaranteed Amount. In the event that the Final Inventory
Report is issued after payment of the undisputed portion of the
Guaranteed Amount, or in the event that the Initial Guaranty
Payment and/or all other amounts funded by Agent on account of the
Guaranteed Amount exceeds the 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 sum of the Initial Guaranty Payment and the
undisputed balance of the Guaranteed Amount actually paid as set
forth above, within three (3) business days after the Final
Inventory Report has been issued. To the extent that Merchant is
entitled to receive a Recovery Amount from Proceeds, Agent shall
pay such Recovery Amount as part of the Final Reconciliation under
Section 3.7, as soon as commercially reasonable after the Sale
Termination Date. To the extent that the Agent is owed the
Adjustment Amount, Agent shall make demand for payment of Merchant
and Merchant shall promptly tender payment of the Adjustment Amount
to Agent. In the event that Merchant fails to tender payment of the
Adjustment Amount, Agent shall make demand for payment thereof upon
the Trustee and the Trustee shall make payment of the Adjustment
Amount, within five (5) business days after receipt of such
notice.
(b)
All amounts required to be paid
by Agent or Merchant under any provision of this Agreement shall be
made by wire transfer of immediately available funds which shall be
wired by Agent or Merchant, as applicable, no later than 2:00 p.m.
(Eastern Time) on the date that such payment is due;
provided , however , that all of the information
necessary to complete the wire transfer has been received by Agent
or Merchant, as applicable, by 10:00 a.m. (Eastern Time) on the
date that such payment is due. In the event that the date on which
any such payment is due is not a business day, then such payment
shall be made by wire transfer on the next business day.
8
(c) Agent
agrees that if at any time during the Sale Term, Merchant holds any
amounts due to Agent hereunder, Merchant may in its discretion
offset such amounts being held by Merchant against any amounts due
and owing by, or required to be paid by, Agent under this
Agreement. In addition, Merchant agrees that if at any time during
the Sale Term, Agent holds any amounts due to Merchant hereunder,
Agent may in its discretion offset such amounts being held by Agent
against any amounts due and owing by, or required to be paid by
Merchant under this Agreement. Any such setoffs should be
reconciled as part of the weekly reconciliation.
(d)
Letter of Credit . In
order to secure the Agent’s obligations under this Agreement,
in respect of (x) the payment of the unpaid portion of the
Guaranteed Amount, (y) Expenses, and (y) the Recovery Amount, if
any, on the Payment Date, Agent shall furnish Merchant with an
irrevocable standby Letter(s) of Credit naming the Merchant as
beneficiary (the “ Beneficiary ”) in the
aggregate original face amount equal to the difference between the
Estimated Guaranteed Amount and the Initial Guaranty Payment, plus
three (3) weeks estimated Expenses, which shall be substantially in
the form of Exhibit 3.4 hereof (collectively, the “ Letter of
Credit ”). The Letter of Credit shall have an expiration
date of no earlier than sixty days after the Sale Termination Date.
Unless the parties shall have mutually agreed that they have
completed the final reconciliation and verification of the Final
Inventory Report under this Agreement, then, at least thirty (30)
days prior to the initial or any subsequent expiration date of the
Letter of Credit, Agent shall secure and the Beneficiaries shall
receive an amendment to the Letter of Credit solely extending (or
further extending, as the case may be) the expiration date by at
least sixty (60) days. If the Beneficiaries fail to receive such
amendment to the Letter of Credit no later than thirty (30) days
before the expiration date of the Letter of Credit, then all
amounts hereunder shall become immediately due and payable and the
Beneficiaries shall be permitted to draw under the Letter of Credit
in payment of amounts owed and the Beneficiaries shall hold the
balance of the amount drawn under the Letter of Credit as security
for amounts that may become due and payable to Merchant. At
Agent’s request, the Beneficiaries shall take all actions
reasonably required to reduce the amount available to be drawn
under the Letter of Credit by amounts credited against the
Guaranteed Amount; provided , however , that the
Letter of Credit shall not be reduced below three (3) weeks of
estimated Expenses. In the event that Agent, after receipt of five
(5) days notice (which notice shall not be required if Agent or any
member of Agent shall be a debtor under title 11 of the United
States Code), fails to pay the Guaranteed Amount, or portion
thereof, or any Expenses when due, the Beneficiaries, individually
or collectively, may draw on the Letter of Credit in an amount
equal to the unpaid, past due amount of the Guaranteed Amount or
Expenses that is not the subject of a reasonable
dispute.
(a) As
soon as practicable following the Sale Commencement Date, but in no
event later than ten (10) days after the Sale Commencement Date,
Merchant and Agent shall cause a stock-keeping unit (“
SKU ”) and retail physical inventory taking at the
Stores (the “ Inventory Taking ”),
provided , however , that with respect to the Current
Stores only, the parties may (in their respective sole discretion)
elect by mutual agreement prior to the Sale Commencement Date to
count only a smaller sample of the Current Stores and agree on
customary procedures to extrapolate those findings to the remaining
Current Stores. The
9
Inventory Taking shall be conducted
by Merchant and Agent only without using any third party inventory
taking service. The Inventory Taking shall be conducted in
accordance with the procedures and instructions attached hereto as
Exhibit 3.5(a) (the
“ Inventory Taking Instructions ”). Agent shall
be responsible for fifty percent (50%) of the payroll and benefits,
subject to the Benefits Cap, for Retained Employees used during the
Inventory Taking as an Expense hereunder; and Merchant shall pay
the remaining fifty percent (50%) of the payroll and benefits for
Retained Employees used during the Inventory Taking. Except for the
Inventory Taking costs provided for in the two preceding sentences,
Merchant, Agent and the Secured Lenders shall each bear their
respective costs and expenses relative to the Inventory Taking.
Merchant, Agent (and the Secured Lenders in their discretion) shall
each have representatives present during the Inventory Taking and
each shall review and verify the listing and tabulation of the
Inventory Taking. Merchant agrees that, during the conduct of the
Inventory Taking in each of the Stores, the applicable Store shall
be closed to the public, and no sales or other transactions shall
be conducted. Merchant and the Agent further agree that until the
Inventory Taking in each particular Store is completed, neither
Merchant nor the Agent shall: (i) other than with respect to sales
of Merchandise in the ordinary course as part of the Sale at the
Stores, transfer any Merchandise to or from that Store, (ii) move
Merchandise within or about the Stores, so as to make any such
items unavailable for counting as part of the Inventory Taking,
and/or (iii) remove any hang tags, price tickets or inventory
control tags affixed to any Merchandise. Merchant and Agent agree
to cooperate with each other to conduct the Inventory Taking
commencing at a time that would minimize the number of hours that
such locations would be closed for business. The Agent and Merchant
agree that they will, and agree to cause their respective
representatives to, cooperate and assist in the preparation and the
calculation of the aggregate Cost Value of the Merchandise included
in the Sale, including, without limitation, making available, to
the extent necessary books, records, work papers and
personnel.
(b)
DC Merchandise delivered to the
Stores after the Inventory Taking at such location shall be counted
and reconciled within two (2) business days after receipt of such
goods at the subject Stores, in accordance with the procedures to
be agreed upon by Merchant and Agent prior to the Sale Commencement
Date. Failure by Agent to report any variance between the received
shipment and the applicable shipping documents (each a “
Shipping Variance ”) within such two (2) business day
period shall, absent manifest error, result in such receipts being
automatically confirmed as received, consistent with the applicable
shipping documents. Merchant shall have two (2) business days to
verify a timely reported Shipping Variance (each a “
Shipping Variance Response ”); failure to respond to
an asserted Shipping Variance within such two (2) business day
period shall result in such Shipping Variance being deemed valid;
provided however for the purposes of this Section 3.5(b),
Saturdays, Sundays and legal holidays do not count as business days
even if the receiving Store is open for business. If Merchant
timely issues a Shipping Variance Response that disputes the
asserted Shipping Variance, Merchant and Agent shall cooperate with
each other to verify and resolve such dispute.
3.6
Gross Rings . For the period from the Sale Commencement Date
until the Inventory Date for each Store (the “ Gross Rings
Period ”), Agent and Merchant shall keep a strict count
of register receipts and reports to determine the actual Cost Value
of the merchandise sold by SKU (“ Gross Rings
”). All such records and reports shall be made
10
available to Agent and Merchant
during regular business hours upon reasonable notice. Agent shall
pay that portion of the Guaranteed Amount calculated on the Gross
Rings basis, to account for shrinkage, on the basis of one hundred
one percent (101%) of the aggregate Cost Value of Merchandise sold
during the Gross Rings Period.
(a) On each Thursday during the
Sale Term, commencing on the second Thursday after the Sale
Commencement Date, Agent and Merchant shall cooperate to jointly
prepare a reconciliation of the weekly Proceeds of the Sale,
Expenses and any other Sale related items that either party may
reasonably request. Merchant and Agent agree to provide the
Indenture Lien Holders with copies of all of the weekly
reconciliations.
(b) Within thirty (30) days
after the Sale Termination Date, Agent and Merchant shall jointly
prepare a final reconciliation of the Sale, including, without
limitation, a summary of Proceeds, Expenses, and any other
accounting required hereunder (the “ Final
Reconciliation ”). Within five (5) days of completion of
the Final Reconciliation, Agent shall pay to Merchant, or Merchant
shall pay to Agent, as the case may be, any and all amounts due the
other pursuant to the Final Reconciliation. During the Sale Term,
and until all of the Agent’s obligations under this Agreement
have been satisfied, Merchant and Agent shall have reasonable
access to Merchant’s and Agent’s records with respect
to Proceeds and Expenses to review and audit such
records.
(c) In the event that there is
a dispute with respect to the Final Reconciliation, such dispute
shall be promptly (and in no event later than the third business
day following the request by either Merchant or Agent) submitted to
the Bankruptcy Court for expedited resolution.
|
|
Section 4.
|
Sale Expenses
.
|
4.1
Expenses . Agent shall be responsible for all Expenses
arising and accruing during and attributable to the Sale Term,
which expenses shall be funded by Agent in accordance with Section
4.2 below. As used herein, “ Expenses ” shall
mean the following directly incurred Store-level Sale expenses
arising and accruing during and attributable to the Sale Term,
limited as follows:
(A) (1) (a) base payroll, inclusive
of any commissions earned by the Retained Employees consistent with
Merchant’s policies, or as otherwise agreed between Merchant
and Agent, managers’ salaries, and overtime premium payments
associated with overtime hours worked (collectively, as and how
applicable, “ Base Payroll ”), of
Merchant’s Retained Employees used in connection with the
Sale for actual days worked (or in the case of hourly employees,
the hours worked); plus (b) an amount equal to 21.60% of such Base
Payroll (the “ Benefits Cap ”) for the payment
of all related payroll taxes, workers’ compensation and
benefits of Merchant’s Retained Employees used in connection
with the Sale (including, without limitation, medical and dental
benefits, group life insurance, accidental death insurance, short
and long term disability, accrual for sick pay, and accrual for
vacation and holiday pay) for all such Retained Employees used, in
aggregate, which arise and are accrued during the Sale
Term
11
and are directly attributable to the
Sale, plus (c) actual costs payable to third party payroll
processors;
(2) costs
of all security in the Stores including, without limitation,
security systems, building alarm service, alarm service
maintenance, courier and guard service;
(3) Retention
Bonuses for Retained Employees, and related payroll taxes, as
provided for in Section 9.4 below;
(4) advertising
(including without limitation signwalkers, media advertising, and
internet, email, and direct mailings relating to the Sale) and
Store interior and exterior signage and banners relating to the
Sale;
|
|
(5)
|
long distance telephone
expenses;
|
(6) bank
card (including, Merchant’s propriety card, to the extent
acceptable by Agent) fees, bank card error fees, credit card fees,
and chargebacks in respect of disputed sales during the Sale Term
(however there shall be cooperation between Merchant and Agent to
resolve chargeback of any kind in respect of any authorized sale on
a credit card where Agent or Merchant produces a receipt evidencing
that the sale subject to such chargeback was a final
sale);
(7) bank
service charges (for Store and corporate accounts), check guarantee
fees, bad check expenses, missing deposits, cash overages and/or
shortages, data capture servicing for banking
information;
|
|
(8)
|
costs for additional Supplies in
accordance with Section 8.4 hereof;
|
(9) all
fees and charges required to comply with all laws and regulations
applicable to the Sale;
(10) any and all
costs, including delivery and freight costs, related to the
processing, transfer and consolidation of Merchandise between the
Stores and all costs incurred in connection with disposing of
and/or selling the Remaining Merchandise;
|
|
(11)
|
housekeeping and cleaning expenses
related to the Stores;
|
(12) all travel
expenses, including living expenses, payable to Merchant’s
employees relating to travel by such employees at the request of
Agent, which shall include, without limitation, the costs of
transferring Merchant’s employees between Stores;
(13) on-site
supervision during the Sale, including base fees and reasonable and
customary deferred compensation of Agent’s consultants,
supervisors and field personnel (provided that on or before the
Sale Commencement Date Agent shall provide Merchant with a copy of
its proposed deferred compensation plan, which plan shall be
subject to Merchant’s approval, with respect to any deferred
compensation in excess of base fees, and which approval shall not
be unreasonably withheld or delayed), travel to and from the
Stores, and incidental out-
12
of-pocket and commercially
reasonable travel expenses relating thereto;
(14) all costs and
expenses of providing such additional Store-level services,
including, without limitation, the employment of temporary help
(which shall be coordinated, approved and implemented through
Merchant’s human resources department), which the Agent in
its reasonable discretion considers appropriate, and other
Merchant-approved miscellaneous Store-level expenses incurred by
Agent;
(15) postage,
courier and overnight mail charges to and from or among the Stores
and central office (solely to the extent relating to the
Sale);
(16) Occupancy
Expenses on a per diem, per Store basis in an amount equal to the
per diem total, by Store as described in Exhibit 4.1,
plus percentage rent, to the extent
that percentage rent provisions, resulting in amounts due to the
landlord in excess of the annual base rent due under the subject
lease for such Store, are triggered (but with respect to such
percentage rent obligation, only to the extent the applicable
percentage rent formula is specifically disclosed and quantified on
Exhibit 4.1 on a per
Store basis);
(17) fifty percent
(50%) of the costs of the payroll and benefits, subject to the
Benefits Cap, for Retained Employees used during the Inventory
Taking;
(18) Agent’s cost
of capital, reasonable legal, and letter of credit fees associated
with the Sale;
|
|
(19)
|
Actual cost of Agent’s
insurance required under Section 12.4 hereof;
|
(20) Central
Expenses in the amount of $10,000 per week during the Sale Term;
and
(21) The actual
documented cost paid by Agent for (which shall not include any
“lift”, handling fees or other similar type expenses)
the Additional Agent Merchandise sold during the Sale, plus all
actual documented freight, handling and insurance expenses and/or
any other actual documented costs relating to all of the Additional
Agent Merchandise included in the Sale (whether or not sold during
the Sale); provided however, to the extent that Agent was reimbursed
for any of the foregoing items as Additional Goods Expenses, such
amounts shall not be included as an Expense under this
Agreement
(22) any other
expense approved by Merchant in writing and that is directly
incurred by Agent in connection with the Sale.
(B) As used
herein, the following terms have the following respective
meanings:
(i) “
Central Expenses ” means costs and expenses for
Merchant’s central administrative services necessary for the
Sale consisting of sales audit, MIS services, POS systems, payroll
processing, cash reconciliation, inventory processing and handling,
data processing and reporting and any similar services.
13
(ii) “
Excluded Benefits ” means all benefits of any kind and
nature in excess of the Benefits Cap, including without limitation
vacation days or vacation pay, sick days or sick leave, maternity
leave or other leaves of absence, termination or severance pay,
WARN Act obligations, union dues or other amounts due under any
union contract or collective bargaining agreement, pension
benefits, ERISA coverage and similar contributions, and payroll
taxes, worker’s compensation and health insurance
benefits.
(iii) “
Occupancy Expenses ” means base rent, percentage rent,
HVAC, utilities, CAM, real estate and use taxes, merchant’s
association dues and expenses, personal property leases (including,
without limitation, point of sale equipment), cash register
maintenance, telephone base fees, rental for furniture, fixtures
and equipment, and store trash and snow removal expenses, all of
the foregoing as categorized or reflected on Exhibit
4.1 hereto; but limited
to the per diem, per Store amounts/formulas set forth on Exhibit
4.1 .
“ Expenses ”
shall not include: (i) Excluded Benefits; (ii) any rent, occupancy,
or occupancy-related expenses other than Occupancy Expenses as
limited to those categories and amounts/formulas as described in
Exhibit 4.1 ; (iii) Central Expenses, all of which (other
than the amount contemplated by Section 4.1(A)(20)) shall be
provided/paid by Merchant in connection with the Sale and (iv) any
other costs, expenses or liabilities associated with the Sale or
the Stores (arising before, during or after the Sale), all of which
shall be paid by Merchant promptly when due.
|
|
4.2
|
Payment of Expenses
.
|
(a) Agent shall reimburse
Merchant for all Expenses. All Expenses incurred during each week
of the Sale (i.e., Sunday through Saturday) shall be paid by
Merchant as provided for herein, subject to reimbursement by Agent
immediately following the weekly Sale reconciliation pursuant to
Section 3.7. Agent and/or Merchant may review or audit the Expenses
at any time. To the extent that any Expenses may be described in
more than one section hereof, then such Expenses shall be paid,
reimbursed or accounted for only once (and any applicable cap shall
apply in the case).
(b) Expense Budget .
Prior to the Sale Commencement Date, Agent shall deliver its budget
(the “ Expense Budget ”) to Merchant, setting
forth in reasonable detail Agent’s estimated budget for the
Expenses of the Sale; provided however that Agent shall not be
bound by such estimate.
|
|
5.1
|
Merchandise Subject to this
Agreement .
|
(a) For purposes of this
Agreement, “ Merchandise ” shall mean: (i) all
finished goods inventory that is owned by Merchant and located at
the Stores as of the Sale Commencement Date; (ii) DC Merchandise
received in the Stores on or before the 14 th day after
the Sale Commencement Date (the “ Store Receipt
Deadline ”), in the amount not to exceed the amounts set
forth on Exhibit 5.1(a)(ii) ; (iii) Defective Merchandise,
Display Merchandise, and
14
Layaway/Special Order Merchandise
that is not picked up by customers on or prior to the
Layaway/Special Order Pick-Up Date; and (iv) Merchandise subject to
Gross Rings.
(b) Notwithstanding the
foregoing, Merchandise shall not include: (1) goods which belong to
sublessees, licensees or concessionaires of Merchant; (2) Defective
Merchandise for which Merchant and Agent cannot agree upon a Cost
Value; (3) goods held by Merchant on memo, on consignment, or as
bailee (“ Memo Merchandise ”), unless otherwise
agreed to by Merchant and Agent; (4) Removed Goods, if any; (5)
Additional Agent Merchandise; (6) Latent Defect Returned
Merchandise; (7) Department Store Merchandise; and (8) furnishings,
trade fixtures, equipment and improvements to real property which
are located in the Store (collectively, “ FF&E
”). As used in this Agreement the following terms have the
respective meanings set forth below:
(i)
“ Defective
Merchandise ” means any item of inventory that is not
saleable as first quality inventory because it is dented, worn,
scratched, faded, torn, tailored or merchandise affected by other
similar defenses rendering it not first quality (such as, for
example, watches that are not running, watches without boxes and/or
paperwork, watch bands, semi-mounts, broken sets (e.g., bridal sets
missing components or single earrings), unsold goods requiring
repair, or pierced earrings without backs), and as to which Agent
and Merchant mutually agree on its value to define its Cost
Value.
(ii) “
Department Store Merchandise ” means merchandise from
Merchant’s department store operations.
(iii) “
DC Merchandise ” means those items of inventory
located in Merchant’s distribution center;
provided however that the DC Merchandise shall conform to the
information set forth on Exhibit 5.1(b)(iii)
and provided
further that DC Merchandise shall not include any goods
which had been offered for sale in, or allocated to, any of
Merchant’s department store operations. Agent agrees to
furnish Merchant promptly after the conclusion of any Auction with
respect to this Agreement (and, in any event, no later than on the
Sale Commencement Date) with Agent’s designation of DC
Merchandise for transfer to the Stores.
(iv)
“ Display Merchandise
” means those items of inventory used in the ordinary course
of business as displays or floor models, including inventory that
has been removed from its original packaging for the purpose of
putting such item on display but not customarily sold or saleable
by Merchant, which goods are not otherwise damaged or defective.
For the avoidance of doubt, Merchandise created solely for display
and that is not saleable in the ordinary course of business shall
not constitute Display Merchandise and shall not be sold by
Agent.
(v)
“ Layaway/Special
Order Merchandise ” means all items of Merchandise held
at the New Stores on layaway, or on special order and delivered by
Merchant to the New Stores, in each case, where the goods subject
to layaway or special order are properly identified, segregated,
and in a condition as described in the documentation.
15
(a) For
purposes of this Agreement, “ Cost Value ” shall
mean with respect to each item of Merchandise (other than Defective
Merchandise), the lower of: (i) the Cost Value as reflected in the
files entitled:
(1) with respect to the
Current Stores:
#02C(2) -
BBB_Item_20090716.txt
#02D -
CCJ_ITEM_06302009.txt
#02E - Congress Item Master and SKU
File 6-27-09.txt
#02U - BBB Hierarchy
6-27-09.txt
#02V - Carlyle Hierarchy
6-27-09.txt
#02W - Congress Hierarchy
6-27-09.txt
#02X -
BBB_INV_SKU_58_20090716.txt
#02Y -
CCJ_INV_SKU_58_20090716.txt
#02Z -
CON_INV_SKU_58_20090716.txt
and
(2) with respect to the New
Stores:
02Q -
BBB_INV_SKU_49_20090716.txt
_02R -
CCJ_INV_SKU_49_20090716.TXT
_02P - Carlyle Hierarchy
6-27-09.TXT
_02O - BBB Hierarchy
6-27-09.txt
_02C(2) -
BBB_Item_20090713.txt
_02D(2) -
CCJ_ITEM_06302009.TX
as posted to Merchant’s due diligence data
room on July ___, 2009 (the “Inventory Cost File”) or
(ii) the Reference Price of such item; provided ,
however , that only in connection with calculation of the
Inventory Floor and Inventory Ceiling under Section 3.1(c) and the
Cost Factor under Section 11.1(v), the Cost Value shall be as set
forth in Section 5.2(a)(i) and will not include any Reference Price
data. With respect to Defective Merchandise, “ Cost
Value ” shall mean the value that Merchant and Agent
reasonably agree (it being the parties expectation that Defective
Merchandise for which Merchant and Agent cannot agree on a
“Cost Value” will be excluded from the Sale). Merchant
represents that the Inventory Cost File does not account for any
volume discounts, advertising co-op discounts, rebates or discounts
associated with expedited payment terms offered by any vendor
(collectively, the “ Buying Discounts ”), and
Merchant and Agent agree that the Cost Value of any item of
Merchandise shall not be adjusted for any such amounts.
(b) For
purposes of this Agreement, “ Reference Price ”
shall mean with respect to each item of Merchandise the
“Ticket Retail” price identified for such item of
Merchandise, as reflected in the Inventory Cost File.
5.3
Removed Goods . In the event that Merchant elects or is
required to remove goods from the Sale prior to the Auction (the
“ Removed Goods ”), and that such
16
removal results in one or more
breaches of the representations and warranties in this Agreement,
Merchant and Agent shall negotiate in good faith to amend this
Agreement prior to the auction to provide for (a) an equitable
reduction of the Guaranty Percentage to take into account the
removal of the Removed Goods, and (b) to conform the applicable
representation and warranties (and to the extent necessary, other
provisions) hereof to the Merchandise levels and mix remaining
after such removal.
5.4
Excluded Goods . Merchant shall retain all rights and
responsibility for any goods not included as &ldq
