EXHIBIT 10.1
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AGENCY AGREEMENT
This Agency Agreement (the "Agreement") is made as of this 10th
day
of March, 2005, by and between GSNW, LLC, a
Delaware limited liability
company, with a principal place of business
at 40 Broad Street, Boston, MA
02109 (the "Agent") and Friedman's, Inc., a
Delaware corporation, on behalf of
itself and its affiliated debtors and
debtors-in-possession (collectively, the
"Merchant") each with a principal place of
business at 171 Crossroads Parkway,
Savannah, Georgia 31422.
RECITALS
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 one hundred and sixty
four (164) retail store locations
set forth on Exhibit 1 attached hereto
(each a "Store", and collectively, the
"Stores"), and (b) to the extent elected by
Merchant pursuant to Section 16
hereof, dispose of Merchant's owned
FF&E located at the Stores. The group 1
stores (the "Group 1 Stores") represent
those stores in markets that will be
closed in their entirety, and the group 2
stores (the "Group 2 Stores")
represent those stores in continuing
markets.
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
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Agency Account
Section 7.2(a)
Agency Documents
Section 12.1(b)
Agent
Preamble
Agent's Base Fee
Section 3.2
Agent Claim
Section 13.5
Agent's Fee
Section 3.1(b)
Agent Letter of Credit
Section 3.3(b)
Agent's Incentive Fee
Section 3.2
Agent Indemnified Parties
Section 14.1
Aggregate Cost Value of
Section 3.2
Remaining Merchandise
Agreed Expenses
Section 3.1(c)
Approval Order
Section 2
Augmented Merchandise
Section 17(a)
Benefits Cap
Section 4.1(A)(1)
Central Expenses
Section 3.1(B)(i)
Cost File
Section 5.2
Cost Value
Section 5.2
Defective Merchandise
Section 5.1(b)
Designated Merchant Accounts
Section 7.2(b)
Estimated Guarantee Amount
Section 3.3(a)
Events of Default
Section 15
Excluded Benefits
Section 4.1(B)(ii)
Expenses
Section 4.1
Expense Budget
Section 4.3
Expense Cap
Section 3.1(c)
Expense L/C
Section 4.2(b)
FF&E
Section 5.1(b)
FF&E Agent
Section 16
Final Reconciliation
Section 3.6(b)
Gross Rings
Section 3.5
Group 1 Stores
Recitals
Group 2 Stores
Recitals
Guaranteed Amount
Section 3.1(a)
Guaranteed Amount Deposit
Section 3.3(a)
Guaranty Percentage
Section 3.1(a)
Inventory Completion Date
Section 3.4
Inventory Date
Section 3.4
Inventory Report
Section 3.3(a)
Inventory Taking
Section 3.4
Inventory Taking Instructions
Section 3.4
Inventory Taking Service
Section 3.4
Inventory Threshold
Section 3.1(c)
Lender Agent
Section 3.3(b)
Memo Merchandise
Section 5.1(b)
Merchandise
Section 5.1(a)
Merchant
Preamble
Merchant Account Usage Period
Section 7.2(a)
Occupancy Expenses
Section 4.1(B)(iii)
Payment Date
Section 3.3(a)
Proceeds
Section 7.1
Recovery Amount
Section 3.1(b)
Remaining Merchandise
Section 3.2
Retained Employee
Section 10.1
Retention Bonus
Section 10.4
Sale
Recitals
Sale Commencement Date
Section 6.1
Sale Guidelines
Section 2
Sale Term
Section 6.1
Sale Termination Date
Section 6.1
Sales Taxes
Section 9.3
Sharing Threshold
Section 3.1(b)
Stores
Recitals
Supplies
Section 9.4
Transfer Goods
Section 5.1(b)
WARN Act
Section 10.1
Section 2.
Appointment of Agent. Merchant hereby irrevocably appoints
Agent, and Agent hereby agrees to serve, as
Merchant's exclusive agent for the
limited purpose of conducting the Sale and
to the extent designated by
Merchant, disposing of Merchant's owned
FF&E, in accordance with the terms and
conditions of this Agreement. Merchant's
and Agent's obligations hereunder are
subject to approval of the Bankruptcy Court
and shall be of no force and
effect in the event that it is not so
approved. As soon as practicable after
Merchant's execution of this Agreement,
Merchant shall apply to the Bankruptcy
Court for an order approving this Agreement
in its entirety in form and
substance satisfactory to Agent (the
"Approval Order"). The Approval Order
shall provide, among other things, that:
(i) this Agreement is in the best
interests of Merchant, Merchant's estate,
creditors and other parties in
interest; (ii) this Agreement (and each of
the transactions contemplated
hereby) is approved in its entirety; (iii)
Merchant and Agent shall be
authorized to take any and all actions as
may be necessary or desirable to
implement this Agreement and each of the
transactions contemplated hereby;
(iv) Agent shall be authorized to sell all
Merchandise and Merchant's owned
FF&E hereunder free and clear of all
liens, claims or encumbrances thereon;
(v) any presently existing liens
encumbering all or any portion of the
Merchandise or the Proceeds attaching only
to the Guaranteed Amount, the
Recovery Amount, if any, and amounts
reimbursed to Merchant on account of
Expenses; (vi) Agent shall have the right
to use the Stores 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;
(vii) Agent, as agent for Merchant, is
authorized to conduct, advertise, post
signs, hang interior, and with respect
to non-enclosed malls, exterior, banners,
and otherwise promote the Sale as a
"store closing" or similar type sale
without further consent of any person,
other than Merchant, which consent shall
not be unreasonably withheld, in a
manner consistent with the sale guidelines
for Group 1 Stores and the sale
guidelines for Group 2 Stores, attached
hereto as Exhibit 2 (the "Sale
Guidelines"), (viii) Agent shall be granted
a limited license and right to use
until the Sale Termination Date the trade
names, logos and customer lists
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; (ix) each and every federal,
state or local agency, department or
governmental authority with regulatory
authority over the Sale and 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,
and no further approval, license or
permit of any governmental authority shall
be required; (x) 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; (xi) the Bankruptcy Court shall
retain jurisdiction over the parties to
enforce this Agreement; (xii) 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;
(xiii) sales of Merchandise shall be
protected by Section 363(m) of the
Bankruptcy Code in the event that the
Approval Order is reversed or modified on
appeal; and (xiv) any amounts owed
by the Merchant to Agent under this
Agreement shall be granted the status of
superpriority claims in Merchant's Chapter
11 Case pursuant to section 364(a)
of the Bankruptcy Code and secured by valid
and perfected first-priority
security interests in the Merchandise and
the Proceeds granted pursuant to
section 364(d) of the Bankruptcy Code
junior only to an amount equal to the
unpaid portion of the Guaranteed Amount
(without the necessity of filing
financing statements to perfect the
security interests).
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 or exceed 41%
(the "Guaranty Percentage") of the
aggregate Cost Value (as defined below) 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, (y) the Agreed Expenses
of the Sale (as defined below) and
(z) two percent (2%) of the aggregate Cost
Value of the Merchandise (the
"Agent's Base 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 sixty percent (60%) to Merchant and
forty percent (40%) 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". 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 (as defined below), (B) the
aggregate amount of Gross Rings (as
adjusted for shrinkage per this
Agreement), and (C) with respect to the
Recovery Amount, the Agreed Expenses
of the Sale.
(c) Subject to the Expense Cap adjustment set forth in Exhibit
3.1(d), the "Expense Cap" shall mean 45% of
the aggregate Cost Value of the
Merchandise. The Expense Cap and the
Guaranty Percentage have been calculated
and agreed upon based upon the aggregate
Cost Value of the Merchandise not
being less than $32,500,000 (the "Inventory
Threshold"). To the extent that
the aggregate Cost Value of the Merchandise
is greater than or less than the
Inventory Threshold the Expense Cap and the
Guaranty Percentage shall be
adjusted in accordance with Exhibit 3.1(d)
hereto, as and where applicable.
The "Agreed Expenses" shall mean the lower
of the aggregate amount of actual
Expenses of the Sale and the Expense
Cap.
3.2
Payments to Agent. As its compensation for services rendered
to Merchant, after sufficient Proceeds have
been generated to pay the
Guaranteed Amount and all Expenses, which
do not exceed the Expense Cap, Agent
shall be entitled to receive such excess
Proceeds up to amount of the Agent's
Base Fee. In addition, if sufficient
Proceeds are generated from the Sale,
Agent shall be entitled to receive 40% of
any Proceeds remaining after payment
of the Guaranteed Amount, all Expenses
which do not exceed the Expense Cap,
and the Agent's Base Fee ("Agent's
Incentive Fee"). Subject to Merchant's
rights with respect to the Recovery Amount,
all Merchandise remaining, if any,
at the Sale Termination Date (the
"Remaining Merchandise") shall become the
property of Agent, free and clear of all
liens, claims and encumbrances,
provided however, that Agent shall use its
best 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 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").
3.3 Time
of Payments.
(a) No later than two (2) business days after the later of (x)
entry of the Approval Order and (y)
execution hereof (the "Payment Date"),
Agent shall pay seventy-five percent (75%)
of the Guaranteed Amount (the
"Guaranteed Amount Deposit") in cash, which
amount shall be wired to the
account to be designated by the Merchant.
Agent shall calculate the amount of
the Guaranteed Amount Deposit based upon
the Cost Value of the Merchandise as
of the Sale Commencement Date as reflected
in Merchant's books and records
(the "Estimated Guarantee Amount"). Agent
shall pay the unpaid and undisputed
balance of the Guaranteed Amount in cash to
Merchant no later than the earlier
of (i) the date ten (10) business days
after the Sale Commencement Date (in
which case payment shall be of the
undisputed portion of the balance of the
Estimated Guaranteed Amount) and (ii) the
second business day following the
issuance of the audit report of the
aggregate Cost Value of the Merchandise by
the Inventory Taking Service, after
verification thereof by the Agent and the
Merchant (the "Inventory Report"), and the
Agent's failure to pay such balance
or undisputed portion shall entitle the
Lender Agent on behalf of the Merchant
may draw upon the Agent Letter of Credit
(as defined below) to the extent of
such balance or undisputed portion. To the
extent that the Merchant is
entitled to receive a Recovery Amount from
Proceeds, such Recovery Amount
shall be paid to the Merchant as earned
weekly. In the event that after the
issuance of the Inventory Report, the
Guaranteed Amount is greater than the
sum of the Guaranteed Amount Deposit plus
the payment of the undisputed
portion of the Estimated Guaranteed Amount,
the Agent shall pay the remainder
of the Guaranteed Amount to the Lender
Agent for the benefit of the Merchant
within two (2) business days after the
Inventory Report has been issued. In
the event there is a dispute with respect
to the reconciliation of the
aggregate Cost Value of the Merchandise
following the Inventory Taking, then
any such dispute shall be resolved in the
manner and at the times set forth in
Section 3.6 hereof. To the extent that the
Final Reconciliation as provided
for below shows that the Agent has overpaid
the Guaranteed Amount, then the
Merchant, the Lenders and the Lenders
Agent, shall cause any overpayment to be
immediately refunded to Agent.
(b) To secure payment of the unpaid portion of the Guaranteed
Amount and any other amounts due from Agent
to Merchant hereunder, Agent shall
deliver to Merchant an irrevocable standby
letter of credit, naming those
parties to be designated by the Merchant
(the "x") as beneficiary,
substantially in the form of Exhibit 3.3(b)
attached hereto, in the original
face amount equal to the unpaid portion of
the Estimated Guaranteed Amount as
of the Payment Date, (the "Agent Letter of
Credit"). Agent shall use its best
efforts to cause the Agent Letter of Credit
to be delivered no later than the
Payment Date. In the event that Agent shall
fail to pay to those parties
designated by Merchant or any successor
agent under the Merchant's prepetition
and debtor-in-possession credit facilities
(the "Lender Agent"), for the
benefit of Merchant, any amount required to
be paid hereunder, the Lender
Agent shall be entitled to draw on the
Agent Letter of Credit to fund such
amount following five (5) days' written
notice to Agent of the Lender Agent's
intention to do so. The Agent Letter of
Credit shall expire 60 days after the
Sale Termination Date; provided however;
the Lender Agent, Merchant and Agent
agree that after payment of the unpaid
portion of the Guaranteed Amount
(whether the Estimated Guaranteed Amount or
the Guaranteed Amount calculated
pursuant to the Inventory Report) pursuant
to Section 3.3(a), the face amount
of the Agent Letter of Credit shall be
reduced in an amount(s) to be agreed
upon by Merchant, Lender Agent, and
Agent.
3.4
Inventory Taking. Merchant and Agent shall cause to be taken
a SKU and "Retail Price" physical inventory
of the Merchandise located in the
Stores (the "Inventory Taking"), which
Inventory Taking shall be completed in
all of the Stores pursuant to a schedule
mutually agreed upon between Merchant
and Agent, but in no later than ten (10)
days after the Sale Commencement Date
(the "Inventory Completion Date"), and the
date of the Inventory Taking at
each Store being the "Inventory Date" for
each such Store). Merchant and Agent
shall jointly employ RGIS or another
mutually acceptable independent inventory
taking service (the "Inventory Taking
Service") to conduct the Inventory
Taking. The Inventory Taking shall be
conducted in accordance with the
procedures and instructions attached hereto
as Exhibit 3.4, including a
requirement that senior representatives of
Merchant and Agent shall be
personally present at the Inventory Taking
at the first Stores as mutually
agreed to by the Agent and Merchant in
order to establish the standards for
the Inventory Taking in the remaining
Stores (the "Inventory Taking
Instructions"). Agent shall be responsible
for fifty percent (50%) of the fees
and expenses of the Inventory Taking
Service. Except for the Inventory Taking
costs payable to RGIS or other third party,
Merchant and Agent shall each bear
their respective costs and expenses
relative to the Inventory Taking. Merchant
and Agent may each have representatives
present during the Inventory Taking,
and shall each have the right to review and
verify the listing and tabulation
of the Inventory Taking Service. Merchant
agrees that during the conduct of
the Inventory Taking in each of the Stores,
the applicable Stores shall be
closed to the public and no sales or other
transactions shall be conducted.
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.
3.5 Gross
Rings. For the period from the Sale Commencement Date
until the Inventory Date for each Store,
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. All
such records and reports shall be
made 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
102% of the aggregate Cost Value of
Merchandise sold during the Gross Rings
period.
3.6
Reconciliation.
(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.
(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 a
determination. Merchant and Agent
hereby agree to submit to the jurisdiction
of the Bankruptcy Court for such
determination.
Section 4. Sale
Expenses.
4.1 Expenses. The Merchant is obligated to pay, subject to its
right
to receive reimbursement on a weekly basis
pursuant to the reconciliation
procedures set forth in Section 4.2, all
expenses directly incurred in
connection with and attributable to the
Sale (collectively, the "Expenses"),
limited to:
(A) (1) (a) base
payroll, which has been adjusted to include SPIFS as
set forth as Premium Base Compensation
(only) in the Merchant's Store
Liquidation Compensation Plan, dated
February, 2005, which includes Merchant's
estimate of SPIFS ("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 not to exceed 11.3% 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 and dismemberment
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 are either due or accrue
during the period of the Sale and
are 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, courier and guard service;
(3) Retention Bonuses for Retained Employees, plus payroll taxes,
as
provided for in Section 10.4 below;
(4) (a) advertising and direct mailings relating to the Sale and
(b)
Store interior and exterior signage and
banners;
(5) [intentionally omitted];
(6) bank card fees, bank card error fees, credit card fees, and
chargebacks in respect of disputed sales
(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, and bad check expenses;
(8) costs for additional supplies in accordance with Section
9.4
hereof;
(9) except to the extent that compliance is waived pursuant to
the
Approval Order, 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 (excluding all costs, including
delivery and freight costs, to deliver
the Transfer Goods to the Stores, but
including, from and after the Sale
Commencement Date, all costs of processing
the Transfer Goods upon its arrival
at the Stores to the extent such goods are
delivered to the Stores after the
Sale Commencement Date);
(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 direction 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 bonuses of Agent's
field personnel, travel to and
from the Stores, and incidental
out-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 and implemented
through Merchant's human resources
department), which the Agent in its
discretion considers appropriate, and
other 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) actual Occupancy Expenses on a per diem, per store basis and
up
to and limited to the per diem total, by
Store as described in Exhibit 4.1;
(17) Central Expenses of $25.00 per Store per week during the
Sale
Term;
(18) Agent's legal fees and cost of capital;
(19) Agent's due diligence in connection with the Sale,
including
travel related expenses, in an aggregate
amount not to exceed $50,000;
(20) [intentionally left blank];
(21) Actual cost of Agent's insurance required under Section
13.4
hereof; and
(22) any other expense approved by Merchant 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.
(ii) "Excluded Benefits" means the
following benefits, except as provided in
Section 4.1(A)(1), in excess of the
Benefits Cap: vacation days or vacation
pay, sick days or sick leave, maternity
leave or other leaves of absence,
termination or severance pay, 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, security
systems, building alarm service,
alarm service maintenance and store trash
and snow removal expenses, all of
the foregoing as categorized or reflected
on Exhibit 4.1 hereto.
"Expenses" shall not include: (i) Excluded Benefits; (ii) any rent
or
occupancy expenses related to the Stores
other than Occupancy Expenses as
limited to those categories as described in
Exhibit 4.l; and (iii) any other
costs, expenses or liabilities payable by
Merchant, all of which shall be paid
by Merchant promptly when due for and
during the Sale Term.
4.2
Payment of Expenses. (a) Merchant shall be responsible for the
payment of all Expenses up to the amount of
the Agreed Expenses during the
Sale; provided, however, Agent shall be
responsible to reimburse Merchant for
all Expenses of the Sale (whether or not in
excess of the Agreed Expenses).
All Expenses up to the amount of the Agreed
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 3.6. 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.
(b) To secure payment of the Expenses, Agent shall deliver to
Lender Agent an irrevocable and
unconditional standby letter of credit, naming
Lender Agent, as beneficiary, in the
original face amount equal to three (3)
weeks estimated Occupancy Expenses and
payroll Expenses, substantially in the
form of Exhibit 4.2(b) attached hereto (the
"Expense L/C"). The Expense L/C
shall be delivered to Lender Agent no later
than two (2) business days after
the Sale Commencement Date, shall be issued
by a bank selected by Agent and
reasonably acceptable to Merchant and
Lender Agent, and shall contain terms,
provisions and conditions mutually
acceptable to Merchant, Lender Agent, and
Agent. The Expense L/C shall expire no
earlier than sixty (60) days after the
Sale Termination Date. Unless the parties
shall have mutually agreed that they
have completed the final reconciliation
under this Agreement, then, at least
thirty (30) days prior to the initial or
any subsequent expiry date, Lender
Agent or Merchant, as the case may be,
shall receive an amendment to the
Expense L/C solely extending (or further
extending, as the case may be) the
expiry date by at least sixty (60) days. If
Lender Agent does not receive such
amendment to the Expense L/C no later than
thirty (30) days before the expiry
date, then all amounts hereunder shall
become immediately due and payable and
Lender Agent shall be permitted to draw
under the Expense L/C in payment of
amounts owed and Merchant shall hold the
balance of the amount drawn under the
Expense L/C as security for amounts that
may become due and payable to
Merchant hereunder.
4.3
Expense Budget. On the Sale Commencement Date, Agent shall
deliver is the budget (the "Expense
Budget") to Merchant, setting forth in
reasonable detail Agent's estimated budget
for the Expenses (as defined above)
of the Sale.
Section 5.
Merchandise.
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; or
(ii) goods held by Merchant on
memo, on consignment, or as bailee (unless
excluded by Merchant) ("Memo
Merchandise"). Merchandise shall include,
Transfer Goods, Defective
Merchandise, Layaway Merchandise that is
not picked up by customer on or prior
to the Layaway Pick-Up Date, and
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; and (3) 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) "Transfer Goods" means those items of merchandise
identified by Merchant and substantially
similar to the merchandise identified
on Exhibit 5.1(b)(i) annexed hereto, that
Merchant has transferred, or will
transfer to the Stores, from Merchant's
on-going stores and/or distribution
centers on or before March 15, 2005 (the
"Store Receipt Deadline").
(ii) "Defective Merchandise" means any item of merchandise
agreed upon and identified by Agent and
Merchant as defective or otherwise not
salable in the ordinary course because it
is dented, worn, scratched, broken,
broken sets, faded, torn, mismatched,
non-redeemed or layaway altered
merchandise or merchandise affected by
other similar defects rendering it not
first quality (such as, for example,
watches that are not running, watches
without boxes, watches without applicable
instructions, and pierced earrings
without backs), that is sold by Agent
during the Sale Term, and as to which
Agent and Merchant mutually agree on its
value to define its Cost Value.
(iii) "Layaway Merchandise" means all items of Merchandise
held at the Stores on layaway, in each
case, where the goods subject to
layaway are properly identified,
segregated, and in a condition as described
in the documentation.
5.2
Valuation.
(a) For purposes of this Agreement, "Cost Value" shall mean,
with respect to each item of Merchandise,
other than Defective Merchandise and
Transfer Goods received in the Stores after
March 9, 2005 (the "Non-Adjustment
Receipt Deadline"), the average standard
cost (determined by applicable
merchant accounting unit for such item of
Merchandise as reflected in
Merchant's master cost file as of the Sale
Commencement Date (the "Cost
File"), which average cost is inclusive of
freight and shipping charges (the
"Unadjusted Cost Value"). With respect to
Defective Merchandise, "Cost Value"
shall mean the value the Merchant and Agent
agree upon for such item during
the Inventory Taking. With respect to
Transfer Goods received in the Stores
after the Non-Adjustment Receipt Deadline,
"Cost Value" shall mean the
Unadjusted Cost Value multiplied by the
inverse of the prevailing discount in
effect on the date such Transfer Goods is
received in the Stores. Merchant and
Agent agree that the 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 further that the Cost Value of any item
of Merchandise shall not be
adjusted for any such amounts.
(b) For purposes of this Agreement, "Retail Price" shall mean
with respect to each item of Merchandise,
other than Transfer Goods received
in the Stores after the Non-Adjustment
Receipt Deadline, ticketed price for
such item of Merchandise (the "Base Retail
Price"). With regard to Transfer
Goods that are received in the Stores after
the Non-Adjustment Receipt
Deadline, "Retail Price" shall mean the
Base Retail price for such item of
Merchandise multiplied by the inverse of
the prevailing discount in effect on
the date such Transfer Goods were received
in the Stores.
5.3 Excluded Goods. Merchant shall retain all responsibility for
any
goods not included as Merchandise
hereunder.
Section 6. Sale
Term.
6.1 Term. The Sale shall commence at the Stores on the first
business
day after entry of the Approval Order (the
"Sale Commencement Date"). The
Agent shall complete the Sale at the
Stores, and shall vacate all of the Store
premises on or before the ninety-eighth
(98th) day after the Sale Commencement
Date, but, in no event sooner than March
31, 2005 (the "Sale Termination
Date"), unless the Sale is extended by
further order of the Bankruptcy Court
following the filing of a motion on no less
than ten (10) days notice to the
affected landlord and Governmental Units
(as defined in the Approval Order),
with an opportunity to be heard. Agent may
terminate the Sale at any Store
upon ten day's notice to Merchant. The
period for the Sale Commencement Date
to the Sale Termination Date shall be
referred to herein as the "Sale Term."
The Sale Termination Date may be extended
by mutual written agreement of Agent
and Merchant.
6.2 Vacating the
Stores. On the Sale Termination Date, the Agent
shall leave the Stores in "broom clean"
condition (ordinary wear and tear
excepted). All assets of Merchant used by
Agent in the conduct of the Sale
(e.g. FF&E, supplies, etc.) shall be
returned by Agent to Merchant or left at
the Stores premises at the end of the Sale
Term to the extent the same have
not been used in the conduct of the Sale or
have not been otherwise disposed
of through no fault of Agent; provided
however, Agent shall remove all unsold
Merchandise at the end of the Sale Term at
each of the Stores and Agent shall
retain title of the unsold Merchandise.
Section 7. Sale
Proceeds.
7.1
Proceeds. For purposes of this Agreement, "Proceeds" shall
mean the aggregate of: (a) the total amount
(in U.S. dollars) of all sales of
Merchandise made under this Agreement,
exclusive of Sales Taxes, and (
