AGENCY AGREEMENT

 

                                                                   Exhibit 10.24

 

                                AGENCY AGREEMENT

 

 

     This Agency Agreement is made as of this 10th day of February, 2004, by and

between Garcel,   Inc. d/b/a The Great American Group, a California   corporation,

with a   principal   place of   business at 6330   Variel   Avenue,   Woodland   Hills,

California   91367   (the   "Agent")   and   Factory   2-U   Stores,   Inc.,   a Delaware

corporation   with a principal   place of business at 4000 Ruffin Road, San Diego,

CA 92123 (the "Merchant").

 

 

                                    RECITALS

 

     WHEREAS, the Merchant is a debtor and debtor-in-possession under Chapter 11

of   the   United   States   Bankruptcy   Code,   11   U.S.C.   Sections   101-1330   (the

"Bankruptcy   Code"),   pursuant to Chapter 11 Case No. 04-10111 (PJW), filed with

the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy

Court") on January 13, 2004 (the "Petition Date"), and

 

     WHEREAS,   Merchant desires that Agent act as Merchant's exclusive agent for

the limited purpose of selling all of the   Merchandise (as hereinafter   defined)

located   in   Merchant's    forty-four    (44)   retail   store    location(s)    (each

individually a "Store," and   collectively the "Stores") set forth on Exhibit "A"

attached hereto and made a part hereof,   by means of a store closing,   going out

of business or similar theme sale at the Stores (as further described below, the

"Sale").

 

     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

         Agency Accounts                                        Section 7.2

         Agency Documents                                        Section 11.1(b)

         Agent                                                  Preamble

         Agent Claim                                            Section 12.5

         Agent Indemnified Parties                               Section 13.1

         Approval Order                                         Section 2

         Bankruptcy Code                                        Recitals

         Bankruptcy Court                                       Recitals

         Benefits Cap                                           Section 4.1

         Central Service Expenses                               Section 4.1

         Clearance Merchandise                                  Section 5.2(b)

         Defective Merchandise                                   Section 5.2(b)

         Excluded Benefits                                      Section 4.1

         FF&E                                                   Section 5.2(a)

         Guaranteed Amount                                      Section 3.1(a)

         Gross Rings                                            Section 6.3

         Inventory Date                                         Section 5.1

         Inventory Taking                                       Section 5.1

         Layaway, Repair and Special Order

             Merchandise                                        Section 5.2(b)

         Letter of Credit                                       Section 3.4

         Merchandise                                            Section 5.2(a)

          Merchant                                               Preamble

         Merchant Consignment Goods                             Section 5.4

         Occupancy Expenses                                     Section 4.1

         On-Order Merchandise                                    Section 5.2(b)

         Out of Season Merchandise                              Section 5.2(b)

         Proceeds                                               Section 7.1

         Petition Date                                          Recitals

         Retail Price                                           Section 5.3

         Retained Employee                                      Section 9.1

         Retention Bonus                                        Section 9.4

         Returned Merchandise                                   Section 8.5

         Sale                                                   Recitals

         Sale Expenses                                          Section 4.1

         Sale Commencement Date                                  Section 6.1

         Sale Guidelines                                        Section 2

         Sale Term                                              Section 6.1

         Sale Termination Date                                  Section 6.1

         Sales Taxes                                            Section 8.3

         Store(s)                                               Recitals

         Supplies                                               Section 8.4

         WARN Act                                                Section 9.1

 

     Section 2. Appointment of Agent;   Bankruptcy   Court Approval.   The Merchant

hereby   appoints   the   Agent,   and the Agent   hereby   agrees   to   serve,   as the

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 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

obtain an order of the Bankruptcy Court approving this Agreement in its entirety

(the "Approval   Order").   The Approval Order shall be in a form   satisfactory to

the Agent.   Attached hereto as Exhibit "B" are Sale Guidelines setting forth the

Agent's conduct at the Sale (the "Sale Guidelines").

 

     Section 3. Payments to Merchant and Agent.

 

     3.1 Payments to Merchant.

 

               (a) (i) As a guaranty of Agent's performance hereunder,   Merchant

shall receive from Agent the sum of 45.55% of the aggregate   Retail Price of the

Merchandise,   less any credits provided for Returned   Merchandise   under Section

8.5 hereof ("Guaranteed Amount"), plus the payment of all Sale Expenses.

 

               (ii) Agent shall pay to   Merchant   the   Guaranteed   Amount in the

manner and at the times   specified in Section 3.3 below.   The Guaranteed   Amount

will be   calculated   based upon (A) the final report of the   Merchandise   by the

inventory taking service after verification   thereof by Agent and Merchant,   and

(B) the   aggregate   amount of Gross   Rings (as   defined   herein),   adjusted   for

shrinkage as provided in Section 6.3 hereof.

 

               (iii) The Guaranteed   Amount has been   calculated and agreed upon

based upon Merchant's representation that the aggregate Retail Price (as defined

in section 5.3 hereof) of the Merchandise as of the Sale   Commencement   Date (as

defined herein) will not be less than $12 million (the "Merchandise Threshold"),

that all   such   Merchandise   will   conform   to   Merchant's   representations   and

warranties contained herein, and that no material representations, warranties or

covenants of Merchant   hereunder   have been or shall be   breached.   Merchant and

Agent   agree that in the event   that the final   report of the   inventory   taking

service   indicates   that the aggregate   Retail Price of the   Merchandise is less

than the Merchandise Threshold,   then the Guaranteed Amount shall be reduced pro

rata as follows:   for every $100,000 of Merchandise or pro rata portion   thereof

(at Retail Price) by which the aggregate   Retail Price of the Merchandise   falls

below the   Merchandise   Threshold,   the   Guaranteed   Amount   shall be reduced by

two-tenths of one percent (.2%) or pro rata portion thereof; provided,   however,

in no event shall the aggregate   Retail Price of the Merchandise be less than $9

million.

 

     3.2 Payments to Agent. Agent shall receive as its compensation for services

rendered to Merchant   all   remaining   Proceeds   (as defined   herein) of the Sale

after   payment of (i) the   Guaranteed   Amount,   and (ii) all Sale   Expenses   (as

defined   herein).   Provided   all   payments   are   made to   Merchant   as   required

hereunder, all Merchandise remaining, if any, at the Sale Termination Date shall

become   the   property   of   Agent,   free   and   clear   of all   liens,   claims   and

encumbrances,   provided   that Agent shall use its best   efforts to sell any such

remaining   Merchandise   in a   commercially   reasonable   manner and any   proceeds

generated   from   the sale of such   remaining   Merchandise   shall   be   considered

Proceeds under this Agreement.

 

     3.3 Time of   Payments.   The Agent shall pay to Merchant   via wire   transfer

eighty   percent   (80%)   of   the   estimated   Guaranteed   Amount   attributable   to

Merchandise in the Stores as of the Sale   Commencement   Date within one business

day after issuance of the Approval Order, which amount shall be calculated based

upon the net book   value of such   Merchandise   as of such   date as set   forth in

Merchant's books and records. Thereafter, on the earlier of (i) one (1) business

day after the reconciliation by Merchant and Agent of the final inventory report

by the   inventory   taking   service,   and (ii)   thirty   (30) days   after the Sale

Commencement   Date,   Agent shall pay to Merchant   via wire   transfer   the unpaid

balance   of the   Guaranteed   Amount or, to the extent   that   Agent's   payment on

account of the estimated Guaranteed Amount exceeds the actual Guaranteed Amount,

Merchant   shall   reimburse   such excess to Agent;   provided,   however,   that the

Inventory Taking shall be reconciled   within seven (7) days after its completion

(and the   Agent   and   Merchant   shall   use   their   reasonable   best   efforts   to

accomplish such reconciliation);   provided further however, that in the event of

a dispute   with   respect to the final   inventory   report,   Agent   shall pay that

portion of the unpaid balance of the Guaranteed Amount not in dispute.

 

          All   payments   by Merchant   to Agent   hereunder   shall be made by wire

transfer of immediately available funds. Merchant agrees that any amounts due by

Agent to Merchant pursuant to this Section 3 may in Agent's discretion be offset

by the amount of Proceeds   collected   by Merchant   for Agent's   account (if any)

which have not, as of the applicable date, been transferred by Merchant to Agent

in accordance with Sections 7.2 and 7.3 hereof.

 

     3.4 Security.   To secure Agent's   obligations to pay Expenses,   Agent shall

deliver to Merchant an irrevocable standby letter of credit in the original face

amount   equal   to   four   (4)   weeks   estimated   Expenses,    naming   Merchant   as

beneficiary,   substantially   in the form of Exhibit   3.4   attached   hereto   (the

"Letter of   Credit").   The Letter of Credit shall be delivered no later than one

(1) business day following the Sale Commencement Date, shall be issued by a bank

selected by Agent and reasonably   acceptable to Agent and Merchant. In the event

that Agent shall fail to pay any Expenses, Merchant shall be entitled to draw on

the Letter of Credit to fund such amount   following five (5) days written notice

to Agent of Merchant's   intention to do so, provided that no material default or

Event of Default has then   occurred on the part of the Merchant   hereunder.   The

Letter of Credit shall expire on May 31, 2004,   provided   that in the event that

Agent   shall   have paid all   Expenses   prior to such   date,   Merchant   agrees to

surrender   the original   Letter of Credit to the issuer   thereof   together   with

written   notification   that the Letter of Credit may be terminated;   and provide

further,   in the event there remain   outstanding   or unpaid   Expenses as of such

date,   Agent shall   cause the term of the Letter of Credit to be extended   for a

period mutually acceptable to Merchant and Agent.

 

     Section 4. Expenses of the Sale.

 

     4.1 Expenses.   Agent shall be responsible for all Sale Expenses incurred in

conducting   the Sale. As used herein,   "Sale   Expenses"   shall mean   Store-level

operating   expenses of the Sale which   arise   during the Sale Term at the Stores

limited to the following:

 

               (a) base payroll for   Retained   Employees   for actual   days/hours

worked in the conduct of the Sale;

 

               (b)   amounts   actually   payable in respect of FICA,   unemployment

taxes,   worker's   compensation   and health care insurance   benefits for Retained

Employees,   in an amount not to exceed   27% of base   payroll   for each   Retained

Employee (the "Benefits Cap");

 

                (c) 50% of the fees and costs of the inventory   taking service to

conduct the Inventory Taking;

 

               (d) Agent's supervision fees, expenses, and bonuses;

 

               (e)   advertising   and signage   expenses (at   Merchant's   contract

rates, if available, and excluding any allocation of Agent's overhead);

 

               (f)   telephone   expenses,   including   tie lines,   monthly   access

charges and local and long distance   telephone   expenses incurred in the conduct

of the Sale;

 

                (g)   utilities at the Stores,   including   but not limited to gas,

electric, water and sewer charges;

 

               (h) credit card and bank card fees,   chargebacks   and   discounts,

and check guaranty fees, including bank service charges;

 

                (i) costs of security personnel/loss prevention in the Stores and

armored car services;

 

               (j)   a   pro-rata    portion   of   Merchant's    insurance    premiums

attributable to the Merchandise and a pro-rata portion of   comprehensive   public

liability insurance attributable to the Stores;

 

               (k) all costs of transfers of Merchandise, including transfers of

Merchandise from the Warehouse, during the Sale Term;

 

               (l) Retention Bonuses as described in Section 9.4 below;

 

               (m) Occupancy Expenses, limited on a per diem per Store basis and

limited to those   amounts and   categories   as   described in Exhibit 4.1 attached

hereto;

 

               (n) housekeeping   and cleaning   expenses at the Stores during the

Sale Term, and expenses to leave the Stores in "broom clean condition"   pursuant

to section 6.2 hereof;

 

               (o) Cash overage, cash shortages and theft;

 

               (p) Store trash removal;

 

               (q) Agent's cost of capital and letter of credit expenses;

 

               (r) Intentionally omitted

 

               (s) Cost of additional supplies;

 

               (t) Bad checks;

 

               (u) the costs and expenses of providing such additional goods and

services which the Agent deems appropriate and to which Merchant shall consent;

 

               (v) costs of any music contracts for the Stores;

 

               (w) postage,   courier and   overnight   mail charges to and from or

among the Stores and central office (solely to the extent relating to the Sales)

or otherwise relating to the Sale;

 

               (x) Central Service   Expenses equal to $3,000 per week during the

Sale Term; and

 

               (y) Agent   and/or   employee   travel in   connection   with the Sale

(including   supervisor   travel   during   the   Sale);    provided,    however,   that

supervisor   travel to and from a Store at the commencement   and/or conclusion of

the Sale shall be excluded from Sale Expenses.

 

               "Sale Expenses" shall not include:   (i) Excluded   Benefits;   (ii)

Occupancy   Expenses   in excess of the amount   referred to above;   (iii)   Central

Service   Expenses in excess of the amount referred to above;   and (iv) 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.

 

               As used herein, the following terms have the following respective

meanings:

 

               "Central    Service    Expenses"    means   costs   and   expenses   for

Merchant's central   administrative   services necessary for the Sale,   including,

but   not   limited   to,   MIS   and   POS    services,    payroll    processing,    cash

reconciliation,   inventory   processing   and handling,   and data   processing   and

reporting.

 

               "Excluded   Benefits"   means   vacation   days or vacation pay, sick

days or sick   leave,   maternity   leave   or other   leaves   of   absence,   Warn Act

termination   or severance   pay,   pension   benefits,   ERISA   coverage and similar

contributions,   and payroll taxes,   worker's   compensation   and health insurance

benefits in excess of the Benefits Cap.

 

               "Occupancy    Expenses"    means    Merchant's    actually    incurred

Store-level   expenses   limited to those per diem per Store   amounts set forth on

Exhibit 4.1.

 

     4.2 Payment of Sale Expenses.   All Sale Expenses   incurred during each week

of the   Sale   (i.e.   Sunday   through   Saturday)   shall be paid by Agent to or on

behalf of   Merchant,   or offset   from   Proceeds   held by   Merchant,   immediately

following   the weekly   Sale   reconciliation   by Merchant   and Agent   pursuant to

Section   8.7   below,   based upon   invoices   and other   documentation   reasonably

satisfactory to Agent.

 

Section 5.         Inventory Valuation; Merchandise.

 

     5.1 Inventory   Taking.   Merchant and Agent shall cause to be taken a Retail

Price physical   inventory and SKU inventory of the   Merchandise   (the "Inventory

Taking")   commencing   at the close of   business   at each of the Stores on a date

mutually   agreed upon by Agent and Merchant,   but in no event later than two (2)

days after entry of the Approval Order (the date of the Inventory Taking at each

Store   being the   "Inventory   Date" for such   Store).   Merchant   and Agent shall

jointly employ Washington   Inventory Service and/or another mutually   acceptable

inventory   taking   service to   conduct   the   Inventory   Taking.   Agent   shall be

responsible for 50% of the costs and fees of the inventory   taking service as an

Expense   hereunder,   and the   balance   of such   costs and fees   shall be paid by

Merchant. Except as provided in the immediately preceding sentence, Merchant and

Agent shall bear their respective   costs and expenses   relative to the Inventory

Taking.   Merchant and Agent shall 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 at each Store such Store shall be closed to the

public and no sales or other transactions shall be conducted.   The procedures to

be used in the conduct of the   Inventory   Taking and its   verifications   are set

forth on Exhibit 5.1 to be mutually agreed upon and attached hereto. In order to

facilitate   the Inventory   Taking,   Merchant   agrees to make its SKU data files,

including retail, UPC to SKU cross-reference, and merchandising rollup data, and

related   computer   hardware   and software   available to Agent and the   inventory

taking service commencing prior to the Inventory Date.

 

     5.2 Merchandise Subject to this Agreement.

 

               (a) For purposes of this Agreement, "Merchandise" shall mean: (i)

all finished goods   inventory of first quality,   consistent with Merchant's past

practices,   that is owned by   Merchant   and located at the Stores as of the Sale

Commencement   Date,   including:    (A)   Defective    Merchandise;    (B)   clearance

merchandise, (C) Out of Season Merchandise, and (D) Merchandise subject to Gross

Rings,    as   adjusted    for    shrinkage   as   provided   in   Section   6.3   hereof.

Notwithstanding the foregoing,   "Merchandise" shall not include: (1) goods which

belong to sublessees,   licensees or concessionaires of Merchant;   (2) goods held

by Merchant on memo,   on   consignment,   or as bailee;   (3)   Layaway,   Repair and

Special Order   Merchandise;   (4) Defective   Merchandise   for which   Merchant and

Agent   cannot   agree upon a Retail   Price;   (5)   equipment,   furnishings,   trade

fixtures (the "FF&E") and improvements to real property which are located in the

Stores; and (6) Merchant Consignment Goods;

 

               (b) As used in this   Agreement,   the   following   terms   have   the

respective meanings set forth below:

 

               "Defective    Merchandise"   means   Merchandise   that   is   damaged,

defective or   otherwise   not salable at   Merchant's   full retail in the ordinary

course because it or its packaging is damaged,   dented,   ripped,   soiled,   worn,

scratched,   broken, faded, torn, mismatched,   or affected with defects rendering

it not first quality.   Defective   Merchandise shall not include Merchandise that

has minor dents in product   packaging that do not affect the ability to sell the

product   contained   inside the package.   Sample   Merchandise   and Merchandise on

display shall not per se be deemed to be Defective Merchandise.

 

               "Out   of   Season    Merchandise"    means    items   of    Merchandise

specifically relating to holidays falling outside the Sale Term (e.g., Christmas

and Thanksgiving).

 

               "Layaway,   Repair, and Special Order Merchandise" means all items

of Merchandise held at the Stores on layaway or for repair, or customer-specific

special orders, in each case pursuant to binding   agreements,   invoices or other

legal   documentation,   where   (A) the   documentation   is clear   as to the   name,

address,   telephone   number,   date of last   payment   and   balance   due   from the

customer,   and (B) the goods   subject   to   layaway   are fully   described   in the

documentation.

 

               "On-Order   Merchandise"   means   merchandise   currently ordered by

Merchant   but   which   has not   been   received   in the   Stores   prior to the Sale

Commencement Date. Nothing herein shall obligate Merchant to purchase or include

any On-Order Merchandise in the Sale.

 

     5.3 Valuation.   For purposes of this   Agreement,   "Retail Price" shall mean

for each item of Merchandise   the lower of (a) the lowest ticketed price and (b)

Merchant's PLU, file or scan price (the "Retail Price"), except for:

 

               (i) Out of Season Merchandise,   where the Retail Price shall mean

the lower of (x) the   lowest   ticketed   price for such   Merchandise   and (y) the

lowest   price   offered by Merchant   for such   Merchandise   by POS   promotion   or

otherwise   at any time during the period 30 days prior to the Sale   Commencement

Date;

 

               (ii)   Defective   Merchandise,   where the Retail   Price shall mean

such value as to which Agent and Merchant shall mutually agree; and

 

               (iii)   Returned   Merchandise   where   the   Retail   Price   shall be

determined in Section 8.5 hereof.

 

               In the event On-Order Merchandise is received in the Stores after

the   Sale   Commencement   Date   but   less   than   fourteen   (14)   days   after   the

Commencement   Date,   the Retail Price shall be as set forth in this section.   If

the On-Order   Merchandise is received   after 14 days from the Sale   Commencement

Date, then the Retail Price shall mean the lower of (i) lowest ticketed price of

such item as of the Sale Commencement   Date and (ii) the lowest marked,   SKU, or

PLU file price for such item of   Merchandise   multiplied,   in either the case of

(i) or (ii), by the inverse of the prevailing discount in place on the date such

On-Order Merchandise is received.

 

               Except in the case of Out of Season Merchandise, it is the intent

of the parties that in   determining   the Retail Price of any item of Merchandise

the parties shall exclude all temporary promotional activity, including, without

limitation,   point-of-sale   discounting   and   temporary   promoting   or discounts

advertised by any and all methods,   and all Sales Taxes, and Merchant represents

that the ticketed   prices of items of Merchandise at the Stores do not and shall

not include any Sales Taxes. If, at the time of the Inventory Taking, an item of

Merchandise has more than one Retail Price, or if multiple items of the same SKU

are marked at different   prices,   the lowest Retail Price on any such item shall

prevail for such item or for all such items within the same SKU, as the case may

be, unless it is clear that the Retail Price was mismarked.

 

     5.4 Excluded Goods.   Merchant shall retain all responsibility for any goods

not included as "Merchandise"   hereunder. If Merchant elects at the beginning of

the Sale Term,   Agent shall accept defective goods not included as "Merchandise"

hereunder for sale as "Merchant   Consignment Goods" at prices established by the

Agent.   The Agent   shall   retain 20% of the sale price for all sales of Merchant

Consignment   Goods, and Merchant shall receive 80% of the receipts in respect of

such   sales.   Merchant   shall   receive   its   share of the   receipts   of sales of

Merchant Consignment Goods on a weekly basis,   immediately   following the weekly

Sale   reconciliation   by Merchant   and Agent   pursuant to Section 8.7 below.   If

Merchant   does   not   elect   to have   Agent   sell   such   goods   not   included   as

Merchandise,   then all such items will be removed by Merchant from the Stores at

its expense as soon as   practicable   after the date hereof.   Except as expressly

provided   in   this    Section   5.4,    Agent   shall   have   no   cost,    expense   or

responsibility in connection with any goods not included in Merchandise.

 

     Section 6. Sale Term.

 

     6.1 Term. Subject to satisfaction of the conditions   precedent set forth in

Section 10 hereof,   the Sale shall   commence at each Store on the date following

issuance of the Approval Order by the   Bankruptcy   Court (such date with respect

to each Store being the "Sale Commencement   Date"). The Agent shall complete the

Sale at each Store no later than March 31, 2004,   unless the Sale is extended by

mutual written   agreement of Agent and Merchant (the "Sale   Termination   Date"),

the period from the Sale   Commencement   Date to the Sale   Termination Date as to

each Store being the "Sale Term"). Notwithstanding the foregoing, the Agent may,

in its   discretion,   terminate the Sale at any Store at any time within the Sale

Term (i) upon the   occurrence   of an Event of Default by Merchant,   or (ii) upon

not less than seven (7) days' prior written notice to Merchant.

 

     6.2   Vacating   the Stores.   Agent shall   vacate the Stores on or before the

Sale Termination Date, at which time Agent shall surrender and deliver the Store

premises and Store keys to Merchant.   Agent agrees to 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 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   hereunder   or through   no fault of Agent by leaving   such items in

place at the Stores.

 

     6.3   Gross   Rings.   In the   event   that   the   Sale   commences   prior to the

completion   of the Inventory   Taking at any Store,   then for the period from the

Sale   Commencement   Date   until the   Inventory   Date for such   Store,   Agent and

Merchant shall jointly keep (i) a strict count of gross   register   receipts less

applicable   Sales Taxes ("Gross   Rings"),   and (ii) cash reports of sales within

such Stores.   Register   receipts   shall show for each item sold the Retail Price

for such item and the   markdown or   discount,   if any,   specifically   granted by

Agent in connection   with such Sale.   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   Retail   Price of   Merchandise   sold   during   the Gross   Rings   period

(without   taking   into   account   any   point of sale   discounts   or point of sale

markdowns taken by the Agent.

 

     Section 7. Sale Proceeds

 

     7.1 Proceeds.   For purposes of this   Agreement,   "Proceeds"   shall mean the

aggregate   of: (a) the total amount (in United   States   dollars) of all sales of

Merchandise   made under this Agreement,   exclusive of (i) Sales Taxes,   and (ii)

returns,   allowances   and customer   credits;   and (b) all proceeds of Merchant's

insurance for loss or damage to   Merchandise or loss of cash arising from events

occurring   during the Sale Term.   Until 80% of the Guaranteed   Amount is paid in

full,   Merchant shall retain the Proceeds of the Sale from the prior week (which

amount shall be applied to the Guaranteed Amount). Following the payment in full

of the Guaranteed   Amount,   Agent may, in its   discretion,   elect to control the

Sale Proceeds in the manner provided below in this Section 7.

 

     7.2 Deposit of Proceeds.   Following payment of 80% of the Guaranteed Amount

in full, all cash Proceeds shall be deposited in agency accounts   established by

Agent (the "Agency   Accounts").   Agent may, in its discretion,   designate new or

existing   accounts of Agent or Merchant as the Agency   Accounts,   provided   that

such   accounts   are   dedicated   solely   to   the   deposit   of   Proceeds   and   the

disbursement   of amounts payable by Agent   hereunder.   Agent shall exercise sole

signatory   authority and control with respect to the Agency   Accounts.   Merchant

shall promptly upon Agent's request execute and deliver all necessary   documents

to open and   maintain the Agency   Accounts.   To the extent that   following   full

payment of the Guaranteed Amount,   Agent shall elect to use existing accounts of

Merchant   as the Agency   Accounts,   (i)   commencing   on the first   business   day

following   the Sale   Commencement   Date,   and on each   business day   thereafter,

Merchant   shall   pay to   Agent   by   wire   funds   transfer   all   collected   funds

constituting   Proceeds   deposited   in such   accounts,   and   (ii)   upon   request,

Merchant   shall   deliver   to Agent   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 fees and charges,   including

wire transfer charges,   related to the Agency Accounts,   whether received during

or after the Sale Term.

 

     7.3   Credit   Card   Proceeds.   Agent   shall   have   the   right   (but   not the

obligation)   to use   Merchant's   credit card   facilities   (including   Merchant's

credit card terminals and   processors,   credit card processor   coding,   Merchant

identification   numbers and existing bank accounts) for credit card Proceeds. In

the   event   that   Agent   elects so to use   Merchant's   credit   card   facilities,

Merchant   shall   process   credit   card   transactions   on behalf of Agent and for

Agent's account,   applying customary practices and procedures.   Without limiting

the foregoing,   Merchant   shall   cooperate with Agent to down-load data from all

credit   card   terminals   each day during the Sale Term and to effect   settlement

with   Merchant's   credit   card   processors,   and shall take such   other   actions

necessary   to   process   credit   card   transactions   on   behalf   of   Agent   under

Merchant's   Merchant   identification   numbers.   Following payment in full of the

Guaranteed   Amount, all credit card Proceeds will constitute the property of the

Agent and shall be held by Merchant in trust for Agent.   Merchant   shall deposit

all credit card   Proceeds   into a   designated   account and shall   transfer   such

Proceeds to Agent daily (on the date   received by Merchant if received   prior to

12:00   noon,   or   otherwise   within   one   business   day)   by   wire   transfer   of

immediately   available funds. At Agent's request,   Merchant shall cooperate with

Agent to establish Merchant   identification numbers under Agent's name to enable

Agent to process all credit card Proceeds for Agent's   account.   Merchant   shall

not be responsible for and Agent shall pay as an Expense   hereunder,   all credit

card fees, charges, and chargebacks related to the Sale, whether received during

or after the Sale Term.

 

     Merchant   makes no   representation   that the credit card   p