EXHIBIT 10.1
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT ("Agreement") is made and entered into
this 7th day of November, 2001, effective as of the close of business on
October 31, 2001, by and between Xxxxxx Xxxxxx, Inc., a Tennessee corporation
("Xxxxxx" or "Service Provider") with offices located at 000 Xxxxxx Xxxxx,
Xxxxxxxxx, Xxxxxxxxx 00000, and CRG Acquisition Corp., a Georgia corporation
("Buyer"), with offices located at 0000 Xxxxxxxxx Xxxx, Xxxxx X, Xxxxxxx,
Xxxxxxx 00000.
RECITALS:
WHEREAS, as of the date of this Agreement, Buyer is to acquire from The
X.X. Xxxxxx Company, a Delaware corporation ("Xxxxxx") (the "Sale")
substantially all of the assets of Xxxxxx comprising its gift business (the
"Business"), as more fully described in the Amended and Restated Asset Purchase
Agreement by and between Buyer, Xxxxxx and Xxxxxx dated October 31, 2001; and
WHEREAS, Service Provider currently provides certain services to Xxxxxx,
and Buyer desires that Service Provider continue to provide certain of those
same services to Buyer with respect to the Business following the Sale upon and
subject to the terms and conditions contained in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants which are made and to be performed by the respective parties, it is
agreed as follows:
ARTICLE I.
NATURE AND TERM OF AGREEMENT; RELATIONSHIP
1.1 Services.
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(a) During the Transition Period (as defined herein), Service Provider
shall provide Xxxxxx with the services as described in Section 1.2
(individually, a "Service" and collectively, "Services").
(b) It is agreed that the provision of Services contemplates that:
(i) Buyer shall not materially change the transactional nature of
Xxxxxx'x business acquired from Service Provider as it was conducted
immediately prior to the Sale;
(ii) Service Provider's system, operational and accounting
practices and operations shall be conducted as they were immediately
prior to the Sale (except that Service Provider shall be permitted to
upgrade its systems after 120 days notice to Buyer of any material
upgrade), and there shall be no materially detrimental changes during the
Transition Period without the prior approval of Buyer; and
(iii) If Buyer proposes a change in the transactional nature of the
Business, Buyer shall give Service Provider reasonable notice of such
change, and the parties will negotiate in good faith any necessary
adjustment in the Service Fees payable hereunder.
(c) The Services and annual charges relating thereto shall consist of the
following as defined in Section 1.2 and annual base charges for Service Fees
relating thereto:
(i) Accounting ($150,000);
(ii) Customer Services ($800,000);
(iii) Credit and Collections ($300,000);
(iv) IT ($300,000);
(v) Personnel and Central Services ($50,000); and
(vi) Warehouse and Fulfillment ($6,100,000).
1.2 Description of Services.
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The Services shall include all personnel necessary to perform the Services, and
the costs associated with such personnel, including payroll and benefits, and
shall be of the type, manner and scope provided by Service Provider through its
employees to Xxxxxx immediately prior to the Sale, such that the Services and
the employees of Service Provider performing such Services for Buyer will not
differ in any material respect from those provided to Xxxxxx prior to the Sale,
except as may be mutually agreed by the parties after the date of this
Agreement.
(a) "Accounting Services" shall mean a fully integrated computer
accounting system sufficient to enable the business of Buyer to be accounted
for in the manner as such business was accounted for prior to the sale with
such modifications as Buyer and Seller may agree and separately from Service
Provider's business and general/cost accounting services, order processing,
billing, accounts payable, and similar services.
(b) "Credit and Collections" shall mean, without limitation, review and
approval of all retailer and consumer orders against credit lines that have been
established by Buyer and guidelines for which have been provided to Service
Provider by Buyer and collection of customer accounts. Service Provider agrees
to provide such detailed reports of receivables balances and collections as
Buyer or its lenders reasonably may require. Service Provider acknowledges that
cash payments on Buyer's accounts will be directed to a lock box under the
control and supervision of Buyer's lenders and Service Provider shall reasonably
cooperate with Buyer and Buyer's lenders in the maintenance of accounting
records reflecting such collections. To the extent Service Provider receives
any collections of Buyer's accounts, Service Provider shall forward any such
amounts immediately to Buyer or its lenders, as directed.
(c) "Customer Services" shall mean, without limitation, handling
customers' incoming telephone, mail and internet orders and retailer/consumer
inquiries.
(d) "IT" shall mean, without limitation, the provision and maintenance of
a computer system sufficient to enable the Business of Buyer, to be accounted
for separate and apart from all other business of the Service Provider, to
process orders, billing, accounts payable and similar services, which system
shall provide pass-through access to the extent available under the existing
system (viewing and printing only), to all of the system information and
activity that involves the Business, including the ability to view or perform
day-to-day operations to keep the Business running, as well as access and
support to permit Buyer to transition (at Buyer's expense) the data files to
Buyer's system. In addition, Service Provider shall maintain Buyer's web site.
Access to data shall include transmission daily or weekly of the information
listed on Schedule A hereto.
(e) "Personnel and Central Services" shall mean the administration of
payroll and employee benefits (but only through December 31, 2001) and
reporting to IRS and state authorities by January 31, 2002 for the period
ending December 31, 2001 for the former employees of Xxxxxx hired by Buyer, and
day-to-day office services for the Business (e.g., mailroom and telephone (but
not monthly service fees for Buyer's access or Buyer's long distance costs) and
assistance in the transition of such services and functions to Buyer; except
that Service Provider shall have no obligation for providing employee benefits,
and no benefit plans of Service Provider will be made available to employees of
Buyer.
(f) "Warehouse and Fulfillment" shall mean such services as are
reasonably necessary to receive, warehouse and distribute the products of the
Business, including: (i) the warehousing (including the subleasing or licensing
of warehouse space), distribution (including handling and packing) and shipping
services which shall enable Service Provider on behalf of Buyer to ship Buyer's
inventories of goods as well as customary stickering and other services
traditionally provided by Service Provider (but the monthly average scope and
volume of such stickering and other services shall be no more burdensome to
Service Provider than in the twelve months prior to the date hereof) for the
Value Added Service Charge described in Exhibit E to the Amended and Restated
Asset Purchase Agreement described above, and (ii) the processing and
refurbishing of all customer returns which shall be intended to enable Service
Provider on behalf of Buyer to ship Buyer's inventories of goods. The location
from which such warehouse and shipping services shall be performed shall be
consistent with Service Provider's past practice, except as Buyer may otherwise
direct, except Service Provider shall bear no cost in connection with the
change in location, if to a location not already in use on the date hereof.
Upon termination of Warehouse and Fulfillment Services, Service Provider shall
be responsible for warehousing, packaging and loading of any inventory to be
moved (but shall not be responsible for transportation) to any location as
requested by Buyer.
1.3 Compensation.
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(a) As compensation for the Services, Buyer shall pay Service Provider a
base fee equal to $7.7 million per year (subject to adjustment per Section 2.1
below); and
(b) If actual revenues of the Business (calculated in a manner consistent
with Xxxxxx'x historical method) exceed the following amounts for the following
periods, Buyer shall pay Service Provider an additional fee of five percent (5%)
of such revenues in excess of such amount (the "Excess Services Fee"):
(i) if actual revenues exceed $83 million for the first twelve
months after the date of this Agreement, an Excess Services Fee of
five percent (5%) of such revenues in excess of $83 million; and
(ii) if actual revenues exceed $41.5 million for months thirteen
through eighteen of the term of the Agreement, an Excess Services Fee of
five percent (5%) of such revenues in excess of $41.5 million.
(c) The fee calculated pursuant to clauses (a) and (b) above is referred
to herein as the "Service Fee."
(d) Service Provider will not charge Buyer for any services rendered as
a result of violations of Service Provider's vendor compliance policy, but
Buyer will assist Service Provider in obtaining payment from vendors for the
account of Buyer for violations of Service Provider's vendor compliance policy
as set forth on April 18, 2001. Service Provider and Buyer will split equally
the actual penalty amounts recovered from such vendors. Buyer shall pay directly
to freight carriers all expenses of freight or postage incurred in shipping or
receiving items in connection with the Services.
(e) Any additional services or changes in the nature of the Services shall
be compensated by Buyer at a rate mutually agreed by the parties at the time
such change or additional service is requested.
1.4 Payment.
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(a) Buyer shall remit payment of Six Hundred Forty-One Thousand Six
Hundred Sixty-Seven Dollars ($641,667) (subject to adjustment per Section 2.1
below) plus any applicable reimbursements in Section 1.3(b), to Service Provider
within thirty (30) calendar days of the end of each calendar month during the
Transition Period. Service Provider shall provide an invoice of such fees and
reimbursements due each month, reflecting categories of fees charged for each
Service.
(b) Within 30 days after the one-year anniversary of this Agreement and
again within 30 days after the final six months of the term of this Agreement,
Service Provider shall compute the Excess Services Fee for such period using
the financial information available for each applicable period. Service
Provider shall be provided reasonable access to records of Buyer in order to
make such calculation. Buyer shall remit such additional amount to Service
Provider within 15 days after the invoice date.
1.5 Interest.
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All amounts due under this Article I and not paid on the applicable due date
shall bear interest from the due date until paid at a per annum interest rate
equal to the "Prime Rate" as then most recently reported in the Money Rate
table of the Wall Street Journal as of the date such payment is due.
1.6 Currency.
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All amounts payable under this Agreement shall be calculated and due and
payable in United States Dollars.
1.7 Term.
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Subject to Article II, the term of this Agreement (the "Transition Period")
shall begin on the date hereof and shall end at the end of the eighteenth
month from the date hereof.
ARTICLE II.
TERMINATION
2.1 Partial Termination By Buyer.
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Buyer may from time to time terminate one or more, including all, of the
Services upon not less than 90 days' written notice to Service Provider, and
the Service Fee after the date of such termination shall be adjusted to reflect
a reduction in the amount of Service Fee due to Service Provider based upon the
allocations of the Service Fee reflected in Section 1.1; provided Buyer may
terminate IT Services only after all other Services have been terminated.
Services may be terminated only as of the end of a month. For example, if Buyer
terminates the Personnel Services as of December 31, 2001, the total amount due
for Personnel/Central Services ($50,000 annually) shall be prorated on a monthly
basis for the period of this Agreement and the total amount due hereunder and
the monthly payment due to Service Provider shall be reduced by $4,166.67 per
month thereafter to reflect the cessation of such services for the balance of
the term. At the termination of any Service, and upon termination of this
Agreement, Buyer shall have the right, but shall be under no obligation, to
offer employment to any of Service Provider's employees who have been providing
the Services. Further, if Buyer terminates Warehouse and Fulfillment Services
prior to August 1, 2002, Buyer shall reimburse Service Provider for all rent
amounts, tax assessments, utilities and all other costs paid by Service Provider
pursuant to or arising from its lease obligations in connection with its lease
of facilities in Monroe, Connecticut and Shelton, Connecticut for the period
from the effective time of the termination of Warehouse and Fulfillment
Services through July 31, 2002. Buyer must vacate the leased premises at
Shelton, Connecticut on or before July 31, 2002, and no reduction in the
Service Fee shall result. Buyer will be responsible for removing all personal
property located in such premises on or prior to July 31, 2002, including
inventory, racking and owned equipment, and shall be responsible for all costs
relating thereto. Buyer agrees to indemnify and hold harmless Service Provider
and its affiliates from any costs in the event of Buyer's holding over,
including any required removal of property or damage to the premises resulting
therefrom. Service Provider shall send an invoice to Buyer each month for
amounts owing under this paragraph and Buyer shall pay such invoice upon
receipt. These reimbursement payments are also subject to Sections 1.5 and 1.6
hereof.
2.2 Breach.
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Buyer or Service Provider may terminate this Agreement if the other party has
materially breached any term of this Agreement and such other party has not
cured such breach within ten (10) days after receipt of notice of such breach.
Service Provider shall also give notice to Buyer's lender of any breach by
Buyer.
2.3 Force Majeure.
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Buyer may terminate this Agreement immediately if Service Provider shall have
been prevented or restricted from performing hereunder for a period of
ten (10) days by reason of Force Majeure (as defined in Article IV).
2.4 Effects of Termination.
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Upon any termination of this Agreement the right of a party to bring any cause
of action against any other party based upon the duties, responsibilities and
obligations specified in this Agreement shall survive termination of this
Agreement for a period of six months. Upon termination, the Service Fee shall
be determined based upon the same formula set forth above, except that the
amount due shall be calculated only for the period prior to the termination of
the Agreement.
ARTICLE III.
CONFIDENTIALITY
Service Provider and Buyer agree and acknowledge that financial and other
information relating to the other party to which it may have access under
this Agreement is confidential business information. Service Provider and
Buyer shall take reasonable actions to maintain the confidentiality of such
information and will not disclose it to third parties except as required in
the ordinary course of business. Upon termination of this Agreement, each
party shall, upon request of the other, deliver to the other any such
business information under its control.
ARTICLE IV.
FORCE MAJEURE
"Force Majeure" for purposes of this Agreement shall be deemed to occur if a
party is prevented from performing any obligation under this Agreement by
reason of fire, explosion, casualty or accident resulting in plant closure,
war, revolution, civil commotion, acts of public enemies, blockade, or
embargo, or other event beyond the reasonable control of any party. Upon the
giving of prompt notice by the party that is unable to perform due to Force
Majeure, such party shall be excused from such performance to the extent of
such prevention. The other party shall likewise be excused from performance
of its obligations to the extent such obligations are related to the
performance so prevented; provided, however, that the party unable to perform
due to Force Majeure shall use its commercially reasonable efforts to avoid
and to remove such causes of non-performance and both parties shall continue
performance hereunder with the utmost dispatch whenever such causes are
removed. Notwithstanding this Article IV, Buyer shall have the right to
terminate this Agreement in conformity with the provisions of Section 2.2.
ARTICLE V.
RELATIONSHIP
Nothing in this Agreement shall be construed to constitute Buyer and Service
Provider as a partner, joint venturer, agent or representative of the other.
Each party is an independent company retaining complete control over and
complete responsibility for its operations and its employees. Nothing in this
Agreement shall be construed to grant to either party any right or authority
to assume or create any obligations on behalf or in the name of the other, to
accept summons or legal process for the other or to bind the other in any
manner whatsoever.
ARTICLE VI.
TAXES
Buyer shall pay any and all applicable sales or use taxes relating to the goods
or services purchased hereunder. This undertaking specifically excludes any
undertaking by Buyer to pay any and all other taxes including, but not limited
to, taxes based upon Service Provider's income or property.
ARTICLE VII.
CONFLICT OF TERMS
To the extent any term in an invoice or purchase order hereunder conflicts
with the terms contained hereunder, the terms of this Agreement shall govern.
ARTICLE VIII.
INDEMNITY
Service Provider shall provide the Services consistent with the manner in
which Service Provider provided the Services to Xxxxxx immediately prior to
the date hereof, and Service Provider shall, at its cost and expense,
promptly correct errors which result from action taken by it in rendering
Services under this Agreement. (Inventory shrinkage which does not exceed
Xxxxxx'x historical shrinkage amounts during the period from March 31, 2001
through the effective date of this Agreement shall be deemed not to be an
"error" for purposes of the preceding sentence.) Buyer shall, at its cost and
expense not to exceed the price paid for any such service, correct any errors
which result from actions taken by it under this Agreement; provided,
however, that no Service Fee shall be charged with respect to those errors
that occur in the ordinary course of business. Service Provider shall
indemnify and hold Buyer harmless from any and all losses, damages and costs
(including attorneys' fees) and from all claims for injury or death to
persons or loss of or injury to property, caused by the fault or negligence
of Service Provider, their employees and agents arising out of this Agreement
or the Services performed hereunder; provided, however, that Buyer must
receive Service Provider's consent prior to settlement of any claim, such
consent not to be unreasonably withheld by Service Provider, and provided
further, however, that the consent of Service Provider shall not be necessary
to pay judgments rendered by a court of competent jurisdiction or orders of
governmental agencies. Service Provider shall not be liable for consequential
damages, lost profits or punitive damages. This indemnity shall survive the
termination or expiration of this Agreement for a period of six months.
ARTICLE IX.
MISCELLANEOUS
9.1 Assignability; Parties in Interest.
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(a) Both Service Provider and Buyer may assign any or all of their
respective rights, duties, obligations or undertakings hereunder to any
affiliate or any of their direct or indirect subsidiaries or any successor in
a transfer of all or substantially all of the assets of either party and shall
advise the other party hereto of any such assignment and shall designate the
assignee and transferee. Any such assignee shall assume all duties, obligations
and undertakings of its assignor hereunder, but the assignor shall remain
liable in the event of any transfer to any affiliate or subsidiary. In the
event Service Provider enters into an agreement for such a transfer to a third
party of all or substantially all of its assets, the Buyer shall have the right
to terminate this Agreement on 90 days' notice if the transferee does not
provide assurances of its ability to perform hereunder.
(b) All the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective
successors, assigns and legal representatives of the parties hereto.
9.2 Entire Agreement; Amendments.
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This Agreement, including any exhibits or schedules referred to herein or
delivered pursuant hereto, which form a part hereof, contain the entire
understanding of the parties with respect to their subject matter. There are
no restrictions, agreements, promises, warranties, covenants or undertakings
other than those expressly set forth herein or therein. Except as otherwise
specifically provided herein, this Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.
This Agreement may be amended only by a written instrument duly executed by all
parties or their respective successors, assigns or legal representatives. Any
condition to a party's obligations hereunder may be waived, but only by a
written instrument signed by the party entitled to the benefits thereof. The
failure or delay of any party at any time or times to require performance of
any provision or to exercise its rights with respect to any provision hereof,
shall in no manner operate as a waiver of or affect such party's right at a
later time to enforce the same.
9.3 Headings.
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The section and paragraph captions contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretations of this Agreement.
9.4 Severability.
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The invalidity of any term or terms of this Agreement shall not affect any
other term of this Agreement which shall remain in full force and effect.
9.5 Notices.
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All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
or mailed (registered or certified mail, postage prepaid, return receipt
requested) or if sent by telecopy as follows:
If to Service Provider: Xxxxxx Xxxxxx, Inc.
000 Xxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxx X. Xxxxxx
Vice President and General Counsel
Telecopy Number: (000) 000-0000
with a copy to: Bass, Xxxxx & Xxxx PLC
AmSouth Center
315 Xxxxxxxxx Street, Suite 2700
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxx X. Xxxxx, III
Telecopy Number: (000) 000-0000
If to Buyer: Xxxxxx X. Xxxxxxxx
Chief Executive Officer
Treat Entertainment, Inc.
0000 Xxxxxxxxx Xxxx, Xxxxx X
Xxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
with a copy to: Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, P.C.
600 SunTrust Bank
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
If to Buyer's lender:
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or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
9.6 Governing Law.
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This Agreement shall be construed in accordance with and governed by the laws
of the State of Tennessee applicable to agreements made and to be performed
wholly within that jurisdiction. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
county of the State of Tennessee and of the United States of America, in each
case located in Davidson County, for any litigation between Service Provider
and Buyer arising out of or relating to this Agreement and the transactions
contemplated hereby (and agree not to commence any litigation relating thereto
except in such courts), and further agreed that service of any process,
summons, notice or document by U S. registered mail to its respective address
set forth in Section 9.5 shall be effective service of process for any
litigation brought against it in any court. Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any litigation arising out of this Agreement or the transactions contemplated
hereby in the courts of the State of Tennessee or the United States of America,
in each case located in Davidson County, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such litigation brought in any such court has been brought in an
inconvenient forum.
9.7 No Third Party Beneficiaries.
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This Agreement is intended and agreed to be solely for the benefit of the
parties hereto and no other party shall accrue any benefit, claim or right of
any kind whatsoever pursuant to, under, by or through this Agreement.
9.8 Counterparts.
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This Agreement may be executed simultaneously in one or more counterparts, with
the same effect as if the signatories executing the several counterparts had
executed one counterpart. All such executed counterparts shall together
constitute one and the same instrument.
9.9 Time of the Essence.
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Time is of the essence of this Agreement.
9.10 Buyer's Assignment to Lender.
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At the time of execution of this Agreement, Service Provider will enter into an
agreement acknowledging that Buyer has collaterally assigned its rights
hereunder to its lender under certain circumstances.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of Buyer and by Service Provider on the date
first above written.
BUYER:
CRG ACQUISITION CORP.
By: /s/ Xxxxxx Xxxxxxxx
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Name: Xxxxxx Xxxxxxxx
Title: Chairman and CEO
SERVICE PROVIDER:
XXXXXX XXXXXX, INC.
By: /s/ Xxx X. Xxxxxx
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Name: Xxx X. Xxxxxx
Title: Executive Vice Presiden
SCHEDULE A
I.S. Data Transmission Summary
Initial Data Definitions Required
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Item Master Information - Daily
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Customer Master Information - Daily
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Minimum 1 Yr of AR and AP detail - Historical One time
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Chart of Accounts Definition - Monthly
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Customer EDI matrix - One time, then as updated
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Physical Inventory as of transaction close date - One time
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AR balances - Weekly
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AP balances - Weekly
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Sales History 2 Yrs - One time
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Daily/Weekly Data Transmissions Required
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EDI (want a copy sent to TREAT of EDI transactions sent and received) - Daily
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Inventory Affecting transactions (All of the below is Daily):
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Invoicing (shipped goods)
Receipts
Adjustments
Purchase Orders
Customer Orders
Financial Recordkeeping transactions (All of the below is Weekly):
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Journal Entries made
Payments Received from Customer
Payments made to vendors
Credits Issues (Returns, adjustments, etc.)
