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 0000 Xxxxxx Xxxxxx, Xxxxxxxx Xxxxx,
Xxxxxxxxxx 00000 (the "Agent") and Factory 2-U Stores, Inc., a Delaware
corporation with a principal place of business at 0000 Xxxxxx Xxxx, Xxx Xxxxx,
XX 00000 (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 processors shall
permit the use of Merchant's credit card facilities on the same terms and
conditions as they did prior to the date hereof and Merchant shall not be
obligated to assure the availability of such credit card facilities.
Notwithstanding anything herein to the contrary, if Agent elects to use
Merchant's credit card facilities during the Sale, Agent shall be required to
make all arrangements necessary with Merchant's credit card processors regarding
the establishment of reserves for credit cards sales during the Sale Term, and
no funds of Merchant shall be used to establish any such reserves.
Section 8. Conduct of the Sale.
8.1 Rights of Agent. Agent shall be permitted to, in its sole discretion,
conduct the Sale, as a "store closing," or similar sale throughout the Sale
Term, but not a "going out of business" sale. Agent shall conduct the Sale in
the name of and on behalf of Merchant in a commercially reasonable manner and in
compliance with the terms of this Agreement and the Sale Guidelines. In addition
to any other rights granted to Agent hereunder, in conducting the Sale, Agent,
in the exercise of its sole discretion, shall have the right (subject to
compliance with the Sale Guidelines):
(a) to establish and implement advertising and promotion programs
consistent with a "store closing" theme sale, including hanging interior and
exterior signs and banners, provided, however, that Agent shall deliver copies
of all advertising materials for the Sale to Merchant, in addition to the notice
required in Section 18.1 hereof, via facsimile to Merchant to the attention of
Xxx Xxxxxx at (000) 000-0000, who shall have the right, within one (1) business
day of such delivery, to approve such materials (which approval shall not be
unreasonably withheld or delayed); and provided further that the failure of the
Merchant to reasonably respond to any request for approval within twenty-four
(24) hours shall be deemed to be approval of the subject materials;
(b) to establish Sale prices and Store hours which are consistent
with the terms of applicable leases;
(c) to use without charge during the Sale Term all FF&E,
advertising materials, bank accounts (consistent with Section 7.2), Store-level
customer lists and mailing lists, computer hardware and software, existing
supplies located at the Stores, intangible assets (including Merchant's name,
logo and tax identification numbers), Store keys, case keys, security codes, and
safe and lock combinations required to gain access to and operate the Stores,
and any other assets of Merchant located at the Stores or used in the ordinary
course of business at the Stores (whether owned, leased, or licensed);
(d) subject to applicable law, to transfer Merchandise between
Stores;
(e) subject to Agent's obligation to pay for Central Service
Expenses as provided above, to use without charge during the Sale Term (i)
Merchant `s central office facilities, central administrative services and
personnel to process payroll, perform MIS and provide other central office
services necessary for the Sale, provided that in no event shall Merchant be
required to provide services in excess of those it historically provided to
support sales in the Stores, and (ii) one (1) office located at Merchant's
central office facility.
8.2 Terms of Sales to Customers.
(a) All sales of Merchandise will be "final sales" and "as is,"
and all advertisements and sales receipts will reflect the same. Agent shall not
warrant the Merchandise in any manner, but will, to the extent legally
permissible, pass on all manufacturers' warranties to customers. Subject to
Section 8.2(b) below, all sales will be made only for cash and by nationally
recognized bank credit cards.
(b) For the first twenty-eight(28) days of the Sale Term, Agent
shall accept Merchant's gift certificates and cards issued by Merchant prior to
the Sale Commencement Date. Merchant shall reimburse Agent in cash in the
aggregate amount of any such gift certificates and cards during the weekly sale
reconciliation provided for in Section 8.7 hereof.
8.3 Sales Taxes. During the Sale Term, all sales, excise, gross receipts
and other taxes attributable to sales of Merchandise and Merchant Consignment
Goods (other than taxes on income) payable to any taxing authority having
jurisdiction (collectively, "Sales Taxes") shall be added to the sales price of
Merchandise and Merchant Consignment Goods and collected by Agent at the time of
sale. To the extent that Agent shall control the Sale Proceeds as provided in
Section 7 above, the Agent shall, at such times and in such manner as directed
by the Merchant, transfer immediately available funds from the Agency Accounts
to the Merchant, the applicable taxing authorities or the applicable escrow
account established by the Merchant's existing secured lender, as directed by
the Merchant, in the amount so collected in respect of such taxes, together with
the accompanying schedules, for payment of taxes when due. Merchant shall
promptly pay all Sales Taxes and file all applicable reports and documents
required by the applicable taxing authorities. Merchant will be given access to
the computation of gross receipts for verification of all such tax collections.
8.4 Supplies. Agent shall have the right to use, without charge, all
existing supplies located at the Stores including, without limitation, boxes,
bags, paper, twine and similar sales materials (collectively, "Supplies"). In
the event that additional Supplies are required in any of the Stores during the
Sale, Merchant agrees to promptly provide the same to Agent, if available, for
which Agent shall reimburse Merchant at Merchant's cost therefor. Merchant does
not warrant that the existing Supplies in the Stores as of the Sale Commencement
Date are adequate for the purposes of the Sale. Supplies shall not be prior to
the Sale Commencement Date, transferred by Merchant between or among the Stores
so as to alter the mix or quantity of Supplies at the Stores from that existing
on such date, other than in the ordinary course of business.
8.5 Returns of Merchandise. During the first twenty eight (28) days of the
Sale Term, Agent shall accept returns of Merchandise sold by Merchant prior to
the Sale Commencement Date; provided that (i) such item was purchased within
thirty (30) days prior to the date of such return; (ii) the customer has the
original register receipt; (iii) such return is not being made in contemplation
of such customer repurchasing the item at the sale price being offered by Agent,
and (iv) such return is consistent with Merchant's prior practices (all
Merchandise meeting the foregoing criteria, the "Returned Merchandise") provided
that any credits for such Returned Merchandise may be used only for the purchase
of Merchandise and Agent shall not be required to provide any cash refund on
account of any such credits. Returned Merchandise shall be included in
Merchandise and valued at the Retail Price applicable to such item less the
prevailing Sale discount at the time of the return and the Guaranteed Amount
shall be reduced in the amount of any credits provided by Agent in respect of
the Returned Merchandise. Merchant shall provide Agent with the name and contact
information for a Merchant representative to coordinate with any customers
regarding any Returned Merchandise not accepted by Agent.
8.6 Layaway, Repair and Special Order Merchandise. Promptly after the
execution of this Agreement, Merchant shall notify each customer for whom
Merchant holds Layaway, Repair and Special Order Merchandise of the Sale and
request such customers to pick up and pay for the applicable item(s) on or
before February 7, 2004. Any Layaway, Repair and Special Order Merchandise
unclaimed by customers by such date shall be returned to the Store's sale floor
for sale by Agent. To the extent that any such Layaway Repair and Special Order
Merchandise is salable as first-quality Merchandise, it shall be included in
Merchandise and valued at the Retail Price applicable to such item at the time
of the return. If such Layaway, Repair and Special Order Merchandise constitutes
Defective Merchandise it shall be included in Merchandise and assigned a Retail
Price in accordance with the applicable provisions of Section 5.3 above. The
aggregate Retail Price of the Merchandise shall be increased by the Retail Price
of any Layaway, Repair and Special Order Merchandise included in Merchandise
(determined in accordance with this Section 8.6), and the Guaranteed Amount
shall be adjusted accordingly. To the extent that Agent is required to issue
refunds to customers in respect of any Layaway, Repair and Special Order
Merchandise, Merchant shall reimburse Agent in cash for any such amounts.
Layaway, Repair and Special Order Merchandise not included in Merchandise shall
be disposed of by Agent in accordance with instructions received from Merchant
or, in the absence of such instructions, returned to Merchant at the end of the
Sale Term. Any increases in the Guaranteed Amount in connection with Layaway,
Repair and Special Order Merchandise shall be accounted for and paid by Agent on
a weekly basis.
8.7 Sale Reconciliation. On each Wednesday during the Sale Term (for the
previous week ending Saturday), commencing on the second Wednesday after the
Sale Commencement Date, Agent and Merchant shall cooperate to reconcile Sale
Expenses, Gross Rings, if still applicable, Returned Merchandise, and such other
Sale related items as either party shall reasonably request, in each case for
the prior week or partial week (i.e. Sunday through Saturday), all pursuant to
procedures agreed upon by Merchant and Agent. Within thirty (30) days after the
end of the Sale Term, Agent and Merchant shall complete a final reconciliation
of the Sale Expenses and the sale of Merchandise, the written results of which
shall be certified by representations of each of Merchant and Agent as a final
settlement of accounts between Merchant and Agent.
8.8 Force Majeure. If any casualty or act of God prevents or substantially
inhibits the conduct of the Sale at any Store, such Store and the Merchandise
located at such Store shall be eliminated from the Sale and considered to be
deleted from this Agreement as of the date of such event, and Agent and Merchant
shall have no further rights or obligations hereunder with respect thereto;
provided, however, that (i) the proceeds of any insurance attributable to such
Merchandise or business interruption shall constitute Proceeds hereunder, and
(ii) the Guaranteed Amount shall be reduced to account for any Merchandise
eliminated from the Sale which is not the subject of insurance proceeds, and
Merchant shall reimburse Agent for the amount the Guaranteed Amount is so
reduced prior to the end of the Sale Term.
8.9 Xxxxx Cash, Etc. All xxxxx cash funds, register funds, unprocessed
checks and credit card media (including proceeds of sales of goods) relating to
periods prior to the Sale Commencement Date shall constitute property of the
Merchant, and Agent shall have no rights or claims with respect thereto. Agent
shall purchase from Merchant, on a dollar for dollar basis, all xxxxx cash funds
and register funds in the Stores as of the Inventory Date for each Store.
Section 9. Employee Matters.
9.1 Merchant's Employees. Merchant shall permit all of its employees at the
Stores to be available to Agent for the Sale. Agent may use Merchant's
store-level employees in the conduct of the Sale to the extent Agent in its sole
discretion deems expedient, and Agent may select and schedule the number and
type of Merchant's employees required for the Sale. Agent shall identify any
such store-level employees to be used in connection with the Sale (each such
employee, a "Retained Employee") and shall notify Merchant of the identity of
all Retained Employees prior to the Sale Commencement Date. Retained Employees
shall at all times remain employees of Merchant, and shall not be considered or
deemed to be employees of Agent. Merchant and Agent agree that, except to the
extent that wages and benefits of Retained Employees constitute Sale Expenses
hereunder, nothing contained in this Agreement and none of Agent's actions taken
in respect of the Sale shall be deemed to constitute an assumption by Agent of
any of Merchant's obligations relating to any of Merchant's employees including,
without limitation, Excluded Benefits, Worker Adjustment Retraining Notification
Act ("WARN Act") claims and other termination type claims and obligations, or
any other amounts required to be paid by statute or law; nor shall Agent become
liable under any collective bargaining or employment agreement or be deemed a
joint or successor employer with respect to such employees. Merchant shall not,
without Agent's prior written consent, raise the salary or wages or increase the
benefits for, or pay any bonuses or make any other extraordinary payments to,
any of its employees in anticipation of the Sale or prior to the Sale
Termination Date, provided that Merchant may provide health insurance benefits
to newly eligible employees pursuant to Merchant's health insurance plan and may
implement scheduled raises in the ordinary course of business. Merchant has not
terminated and shall use its reasonable best efforts to continue all employee
benefits and benefit programs during the Sale Term.
9.2 Termination of Employees. Agent may in its discretion stop using any
Retained Employee at any time during the Sale. Agent shall so notify a
representative designated by Merchant at least five (5) days prior thereto,
except "for cause" (such as dishonesty, fraud or breach of employee duties), in
which event Agent may stop using such employee immediately provided however that
Agent shall immediately notify Merchant of the basis for such "cause" so that
Merchant can arrange for termination of such employee. Upon the expiration of
the applicable notice period, all costs associated with the employee shall not
be considered a Sale Expense and Agent shall have no further responsibility or
liability for such employees whatsoever. Merchant shall not transfer or dismiss
employees of the Stores without Agent's prior consent, which shall not be
unreasonably withheld, conditioned or delayed, but shall retain the right to
dismiss the employee "for cause."
9.3 Payroll Matters. During the Sale Term Merchant shall process the base
payroll for all Retained Employees. Beginning on Wednesday, February 25, 2004,
and every other Wednesday thereafter during the Sale Term, Agent shall transfer
from the Agency Accounts to Merchant's payroll accounts an amount equal to the
base payroll for Retained Employees plus related payroll taxes, worker's
compensation and benefits for such week which constitute Sale Expenses
hereunder.
9.4 Employee Retention Bonuses. In Agent's reasonable discretion Proceeds
may be used to pay, as a Sale Expense, retention bonuses ("Retention Bonuses")
(which bonuses shall be inclusive of payroll taxes and workers' compensation
taxes to the extent assessable but as to which no benefits shall be payable) to
Retained Employees who do not voluntarily leave employment and are not
terminated "for cause". Such Retention Bonuses shall be payable within thirty
(30) days after the Sale Termination Date, and shall be processed through
Merchant's payroll system.
Section 10. Conditions Precedent. The willingness of Agent and Merchant to
enter into the transactions contemplated under this Agreement are directly
conditioned upon the satisfaction of the following conditions at the time or
during the time periods indicated, unless specifically waived in writing by the
applicable party:
(a) All representations and warranties of Merchant and Agent
hereunder shall be true and correct in all material respects and no Event of
Default shall have occurred and be continuing at and as of the date hereof and
as of the Sale Commencement Date.
(b) The Approval Order shall be entered on or before February 13,
2004.
(c) Merchant shall have provided Agent reasonable access to all
pricing and cost files, computer hardware, software and data files, inter-Store
transfer logs, markdown schedules, invoices, style runs and all other documents
relative to the price, mix and quantities of inventory located at the Stores.
Section 11. Representations, Warranties and Covenants.
11.1 Merchant's Representations, Warranties and Covenants. Merchant hereby
represents, warrants and covenants in favor of Agent as follows:
(a) Merchant: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware; (ii) has
all requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as presently conducted; and (iii) is
and during the Sale Term will continue to be duly authorized and qualified as a
foreign corporation to do business and in good standing in each jurisdiction
where the nature of its business or properties requires such qualification,
including all jurisdictions in which the Stores are located.
(b) Subject to the issuance of the Approval Order, (i) Merchant
has the right, power and authority to execute and deliver this Agreement and
each other document and agreement contemplated hereby (collectively, together
with this Agreement, the "Agency Documents") and to perform fully its
obligations thereunder; (ii) Merchant has taken all necessary actions required
to authorize the execution, delivery and performance of the Agency Documents,
and no further consent or approval is required for Merchant to enter into and
deliver the Agency Documents, to perform its obligations thereunder, and to
consummate the Sale; (iii) each of the Agency Documents has been duly executed
and delivered by Merchant and constitutes the legal, valid and binding
obligation of Merchant enforceable in accordance with its terms; (iv) no court
order or decree of any federal, state or local governmental authority or
regulatory body is in effect that would prevent or impair, or is required for
Merchant's consummation of, the transactions contemplated by this Agreement, and
no consent of any third party which has not been obtained is required therefor;
and (v) no contract or other agreement to which Merchant is a party or by which
the Merchant is otherwise bound will prevent or impair the consummation of the
Sale and the other transactions contemplated by this Agreement.
(c) Except as set forth in Sections 11.1(j) and 11.1(l), since
January1, 2004, Merchant has operated the Stores, and shall continue to operate
the Stores, in the ordinary course of business consistent with historical
operations and consistent in terms of pricing and operations in the manner in
which Merchant has operated the other stores in its chain that are not closing;
provided, however, Merchant has not and shall not prior to the Sale Commencement
Date increase the level of promotions or discounts at the Stores from the levels
currently in place.
(d) Merchant owns and will own at all times during the Sale Term,
good and marketable title to all of the Merchandise free and clear of all liens,
claims and encumbrances of any nature except existing liens, which, shall be
released and attached to the Guaranteed Amount and amounts reimbursed to
Merchant on account of Sale Expenses or any other amounts due Merchant
hereunder.
(e) Merchant has maintained its pricing files in the ordinary
course of business, and prices charged to the public for goods (whether
in-Store, by advertisement or otherwise) are the same in all material respects
as set forth in such pricing files for the periods indicated therein. All
pricing files and records relative to the Merchandise have been made available
to Agent. All such pricing files and records are true and accurate in all
material respects as to the actual cost to Merchant for purchasing the goods
referred to therein and as to the selling price to the public for such goods as
of the dates and for the periods indicated therein.
(f) As of the date hereof, the levels of goods (as to quantity)
and the mix of goods (as to type, category, style, brand and description) at the
Stores are as set forth in the information provided by Merchant to Agent.
(g) As of the Sale Commencement Date, all normal course permanent
markdowns on goods located at the Stores will have been taken on a basis
consistent with Merchant's historical practices and policies.
(h) Merchant has not since January 1, 2004, and shall not up to
the Sale Commencement Date, marked up or raised the price of any items of
Merchandise, or removed or altered any tickets or any indicia of clearance
merchandise, except in the ordinary course of business or as previously
disclosed to Agent.
(i) Merchant shall ticket or xxxx all items of inventory received
at the Stores prior to the Sale Commencement Date, in a manner consistent with
similar inventory located at the Stores and in accordance with Merchant's
historic practices and policies relative to pricing and marking inventory.
(j) Merchant has not replenished the inventory in the Stores
since December 31, 2003. In addition, Merchant has not and shall not purchase or
transfer to or from the Stores any inventory outside the ordinary course in
anticipation of the Sale or of the Inventory Taking.
(k) To the best of Merchant's knowledge, except for Merchant's
Chapter 11 bankruptcy case pending before the Bankruptcy Court, no action,
arbitration, suit, notice, or legal, administrative or other proceeding before
any court or governmental body has been instituted by or against Merchant, or
has been settled or resolved, or to Merchant's knowledge, is threatened against
or affects Merchant, relative to Merchant's business or properties, or which
questions the validity of this Agreement, or that if adversely determined, would
adversely affect the conduct of the Sale.
(l) Merchant covenants to continue to operate the Stores in the
ordinary course of business prior to the Sale Commencement Date.
(m) To the best of Merchant's knowledge, all Merchandise is in
compliance with all applicable federal, state, or local product safety laws,
rules and standards.
(n) Throughout the Sale Term, Agent shall have the right to the
uninterrupted use and occupancy of, and peaceful and quiet possession of, each
of the Stores, the assets currently located at the Stores, and the services
provided at the Stores in order to conduct the Sale as contemplated herein.
(o) Except as otherwise set forth herein, Merchant has paid and
will use its reasonable best efforts to continue to pay throughout the Sale
Term, (i) all post-petition self-insured or Merchant funded employee benefit
programs for employees, including health and medical benefits and insurance and
all proper claims made or to be made in accordance with such programs, (ii) all
casualty, liability, workers' compensation and other similar insurance premiums,
and (iii) all applicable taxes.
(p) Merchant has not and shall not throughout the Sale Term take
any actions the result of which is to materially increase the cost of operating
the Sale, including, without limitation, increasing salaries or other amounts
payable to employees.
(q) Merchant is not a party to any collective bargaining
agreements with its employees at the Stores and, to the best of Merchant's
knowledge, no labor unions represent Merchant's employees at the Stores.
(r) To the best of Merchant's knowledge, all information provided
by Merchant to Agent in the course of Agent's due diligence and preparation and
negotiation of this Agreement (including information as to the Store inventories
and operating expenses) is as of the date hereof true and accurate in all
material respects.
(s) As of the date of this Agreement, Merchant is current in the
payment of all post-petition telephone, utilities, taxes and insurance.
11.2 Agent's Representations, Warranties and Covenants. The Agent hereby
warrants and covenants in favor of Merchant as follows:
(a) The Agent (i) is a corporation validly existing and in good
standing in its State of incorporation; (ii) has all requisite power and
authority to consummate the transactions contemplated hereby; and (iii) is and
during the Sale Term will continue to be, duly authorized and qualified to do
business and in good standing in each jurisdiction where the nature of its
business or properties requires such qualification.
(b) Agent has the right, power and authority to execute and
deliver each of the Agency Documents to which it is a party and to perform fully
its obligations thereunder. Agent has taken all necessary actions required to
authorize the execution, delivery, and performance of the Agency Documents, and
no further consent or approval is required on the part of Agent for Agent to
enter into and deliver the Agency Documents and to perform its obligations
thereunder. Each of the Agency Documents has been duly executed and delivered by
the Agent and constitutes the legal, valid and binding obligation of Agent
enforceable in accordance with its terms. No court order or decree of any
federal, state or local governmental authority or regulatory body is in effect
that would prevent or impair or is required for Agent's consummation of the
transactions contemplated by this Agreement, and no consent of any third party
which has not been obtained is required therefor. No contract or other agreement
to which Agent is a party or by which Agent is otherwise bound will prevent or
impair the consummation of the transactions contemplated by this Agreement.
(c) No action, arbitration, suit, notice, or legal administrative
or other proceeding before any court or governmental body has been instituted by
or against Agent, or has been settled or resolved, or to Agent's knowledge, has
been threatened against or affects Agent, which questions the validity of this
Agreement or any action taken or to be taken by Agent in connection with this
Agreement, or which if adversely determined, would have a material adverse
effect upon Agent's ability to perform its obligations under this Agreement.
Section 12. Insurance.
12.1 Merchant's Liability Insurance. Merchant shall continue at its cost
and expense (subject to Agent's payment of a pro rata portion as a Sale Expense)
until the Sale Termination Date, in such amounts as it currently has in effect,
all of its liability insurance policies including, but not limited to, products
liability, comprehensive public liability, auto liability and umbrella liability
insurance, covering injuries to persons and property in, or in connection with
Merchant's operation of the Stores, and shall cause Agent to be named an
additional insured with respect to all such policies. Prior to the Sale
Commencement Date, Merchant shall deliver to Agent certificates evidencing such
insurance setting forth the duration thereof and naming Agent as an additional
insured, in form reasonably satisfactory to Agent. All such policies shall
require at least thirty (30) days prior notice to Agent of cancellation,
non-renewal or material change. In the event of a claim under any such policies
Merchant shall be responsible for the payment of all deductibles, retention's or
self-insured amounts thereunder, unless it is determined that liability arose by
reason of the wrongful acts or omissions or negligence of Agent, or Agent's
employees, independent contractors or agents (other than Merchant's employees).
12.2 Merchant's Casualty Insurance. Except for flood insurance, Merchant
will provide throughout the Sale Term, at Agent's sole cost and expense, fire,
theft and extended coverage casualty insurance covering the Merchandise in a
total amount as it currently has in effect equal to no less than the Retail
Price thereof. From and after the date of this Agreement until the Sale
Termination Date, all such policies will name Agent as loss payee. In the event
of a loss to the Merchandise on or after the entry of the Approval Order, the
proceeds of such insurance attributable to the Merchandise plus any self
insurance amounts and the amount of any deductible (which amounts shall be paid
by Merchant), shall constitute Proceeds hereunder and shall be paid to Agent.
Following the full payment of the Guaranteed Amount, and so long as the
applicable Merchandise is not eliminated from the Sale pursuant to Section 8.8,
in the event of such a loss Agent shall have the sole right to adjust the loss
with the insurer. Prior to the Sale Commencement Date, Merchant shall deliver to
Agent certificates evidencing such insurance setting forth the duration thereof
and naming Agent as loss payee, in form and substance reasonably satisfactory to
Agent. All such policies shall require at least thirty (30) days prior notice to
Agent of cancellation, non-renewal or material change. Merchant shall not make
any change in the amount of any deductibles or self insurance amounts prior to
the Sale Termination Date without Agent's prior written consent.
12.3 Agent's Insurance. Agent shall maintain at Agent's cost and expense
throughout the Sale Term, in such amounts as it currently has in effect,
comprehensive public liability and automobile liability insurance policies
covering injuries to persons and property in or in connection with Agent `s
agency at the Stores, and shall cause Merchant to be named an additional insured
with respect to such policies. Prior to the Sale Commencement Date, Agent shall
deliver to Merchant certificates evidencing such insurance policies setting
forth the duration thereof and naming Merchant as an additional insured, in form
and substance reasonably satisfactory to Merchant. In the event of a claim under
any such policies Agent shall be responsible for the payment of all deductibles,
retention's or self-insured amounts thereunder, unless it is determined that
liability arose by reason of the wrongful acts or omissions or negligence of
Merchant or Merchant's employees, independent contractors or agents (other than
Agent or Agent's employees, agents or independent contractors).
12.4 Worker's Compensation Insurance. Merchant shall at all times during
the Sale Term maintain in full force and effect worker's compensation insurance
covering all Retained Employees in compliance with all statutory requirements.
Prior to the Sale Commencement Date, Merchant shall deliver to Agent a
certificate of its insurance broker or carrier evidencing such insurance.
12.5 Risk of Loss. Without limiting any other provision of this Agreement,
Merchant acknowledges that Agent is conducting the Sale on behalf of Merchant
solely in the capacity of an agent, and that in such capacity (i) Agent shall
not be deemed to be in possession or control of the Stores or the assets located
therein or associated therewith, or of Merchant's employees located at the
Stores, and (ii) except as expressly provided in this Agreement, Agent does not
assume any of Merchant's obligations or liabilities with respect to any of the
foregoing. Merchant and Agent agree that Merchant shall bear all responsibility
for liability claims of customers, employees and other persons arising from
events occurring at the Stores during and after the Sale Term, except to the
extent any such claim arises from the acts or omissions of Agent, or its
supervisors or employees located at the Stores (an " Agent Claim"). In the event
of any such liability claim other than an Agent Claim, Merchant shall administer
such claim and shall present such claim to Merchant's liability insurance
carrier in accordance with Merchant's historic policies and procedures, and
shall provide a copy of the initial documentation relating to such claim to
Agent. To the extent that Merchant and Agent agree that a claim constitutes an
Agent Claim, Agent shall administer such claim and shall present such claim to
its liability insurance carrier, and shall provide a copy of the initial
documentation relating to such claim to Merchant. In the event that Merchant and
Agent cannot agree whether a claim constitutes an Agent Claim, each party shall
present the claim to its own liability insurance carrier, and a copy of the
initial claim documentation shall be delivered to the other party.
Section 13. Indemnification.
13.1 Merchant Indemnification. Merchant shall indemnify and hold Agent and
its officers, directors, employees, agents and independent contractors
(collectively, "Agent Indemnified Parties") harmless from and against all
claims, demands, penalties, losses, liability or damage, including, without
limitation, reasonable attorneys' fees and expenses, directly or indirectly
asserted against, resulting from, or related to:
(i) Merchant's material breach of or failure to comply with any
of its agreements, covenants, representations or warranties contained in any
Agency Document;
(ii) Subject to Agent's compliance with its obligations under
Section 9.3 hereof, any failure of Merchant to pay to its employees any wages,
salaries or benefits due to such employees during the Sale Term;
(iii) Subject to Agent's compliance with its obligations under
Section 8.3 hereof, any failure by Merchant to pay any Sales Taxes to the proper
taxing authorities or to properly file with any taxing authorities any reports
or documents required by applicable law to be filed in respect thereof;
(iv) any consumer warranty or products liability claims relating
to Merchandise;
(v) any liability or other claims asserted by customers, any of
Merchant's employees, or any other person against any Agent Indemnified Party
(including, without limitation, claims by employees arising under collective
bargaining agreements, worker's compensation or under the WARN Act), except for
Agent Claims; and
(vi) the gross negligence or willful misconduct of Merchant or
any of its officers, directors, employees, agents or representatives.
13.2 Agent Indemnification. Agent shall indemnify and hold Merchant and its
officers, directors, employees, agents and representatives harmless from and
against all claims, demands, penalties, losses, liability or damage, including,
without limitation, reasonable attorneys' fees and expenses, directly or
indirectly asserted against, resulting from, or related to:
(i) Agent's material breach of or failure to comply with any of
its agreements, covenants, representations or warranties contained in any Agency
Document;
(ii) any harassment or any other unlawful, tortuous or otherwise
actionable treatment of any employees or agents of Merchant by Agent or any of
its representatives;
(iii) any claims by any party engaged by Agent as an employee or
independent contractor arising out of such employment and any governmental
claims related thereto;
(iv) any Agent Claims; and
(v) the gross negligence or willful misconduct of Agent or any of
its officer, directors, employees, agents or representatives.
(vi) Agent's failure to pay to Merchant any Sales Taxes when due
under Section 8.3 hereof and any payroll when due under Section 9.3 hereof.
Section 14. Defaults. The following shall constitute "Events of Default"
hereunder:
(a) Merchant's or Agent's failure to perform any of their
respective material obligations hereunder, which failure shall continue uncured
seven (7) days after written notice thereof to the defaulting party; or
(b) Any representation or warranty made by Merchant or Agent
proves untrue in any material respect as of the date made; or
(c) The Sale is terminated or materially interrupted at more than
four (4) Stores for any reason other than (i) an Event of Default by Agent, or
(ii) any other breach or action by Agent not authorized hereunder, or (iii) any
event administered pursuant to Section 8.8 above.
Section 15. Security Interest. In consideration of Agent's payment of the
Guaranteed Amount and the Sale Expenses, and the provision of services hereunder
to Merchant, effective upon the later of (i) payment by Agent of the initial
eighty percent (80%) of the Guaranteed Amount as provided in Section 3.3 hereof,
and (ii) Agent's delivery of the Letter of Credit as provided in Section 3.4
hereof, Merchant hereby grants to Agent a first priority security interest in
and lien upon the Merchandise and the Proceeds to secure all obligations of
Merchant to Agent hereunder, junior only to the lien of Lender to the extent of
any unpaid balance of the Guaranteed Amount or the Expenses, and any and all
valid and perfected pre-petition liens. Merchant shall execute all such
documents and take all such other actions as are reasonably required to perfect
and maintain such security interest as a valid and perfected first priority
security interest.
Section 16. Furniture, Fixtures and Equipment. At Merchant's option, Agent
shall sell the FF&E and be entitled to receive a commission equal to twenty
(20%) of the proceeds from the sale of such FF&E, net of sales taxes and
expenses incurred in connection with the disposition of the FF&E in accordance
with a budget to be mutually agreed upon between Merchant and Agent; provided
further however, Merchant may elect to receive (the "FF&E Election"), in lieu of
proceeds net of expenses and Agent's commission, a lump sum payment, on a per
Store basis, in an amount to be agreed upon between Merchant and Agent, in which
case all costs and expenses associated with the disposition thereof shall be
borne by Agent. In either event, as of the Sale Termination Date, Agent may
abandon, to Merchant, in place in a neat and orderly manner any unsold FF&E at
the Stores. In the event that Merchant elects to have someone other than the
Agent dispose of the FF&E, Agent agrees that it shall cooperate with such party,
provided however, it is understood that such third party's efforts shall not
unreasonably interfere with Agent's conduct of the Sale, and removal of any FF&E
shall be done in coordination with, and the consent of, the Agent, which consent
shall not be unreasonably withheld. As to any unsold FF&E, Agent shall have the
right to leave such FF&E at the Stores without liability or costs; provided,
however, the Stores are left in broom clean condition.
Section 17. Intentionally Omitted.
Section 18. Miscellaneous.
18.1 Notices. All notices and communications provided for pursuant to this
Agreement shall be in writing, and sent by hand, by facsimile, or a recognized
overnight delivery service, as follows:
If to the Agent: Garcel, Inc. d/b/a The Great American Group
Xxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxx Xxxxxxxx
Telecopy No. (000) 000-0000
If to Merchant: Factory 2-U Stores, Inc.
0000 Xxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx
Secretary
Telecopy No. (000)-000-0000
With a copy to: Xxxxxxxx, Xxxxxxx & Xxxxxx LLP
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Telecopy No. (000) 000-0000
18.2 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed and construed in accordance with the laws of the State of California
without regard to conflicts of laws principles thereof, except where governed by
the Bankruptcy Code. Agent and Merchant agree that the Bankruptcy Court shall
retain jurisdiction to resolve any and all disputes arising under this Agreement
and accepts and submits to the jurisdiction of the Bankruptcy Court.
18.3 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated hereby and
supersedes and cancels all prior agreements, including, but not limited to, all
proposals, letters of intent or representations, written or oral, with respect
thereto.
18.4 Amendments. This Agreement may not be modified except in a written
instrument executed by each of the parties hereto.
18.5 No Waiver. No consent or waiver by any party, express or implied, to
or of any breach or default by the other in the performance of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance by such other party of the same or
any other obligation of such party. Failure on the part of any party to complain
of any act or failure to act by the other party or to declare the other party in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such party of its rights hereunder.
18.6 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Agent and Merchant, and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by Merchant
or Agent without the prior written consent of the Court.
18.7 Execution in Counterparts. This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one agreement. This Agreement may be executed by
facsimile, and such facsimile signature shall be treated as an original
signature hereunder.
18.8 Section Headings. The headings of sections of this Agreement are
inserted for convenience only and shall not be considered for the purpose of
determining the meaning or legal effect of any provisions hereof.
18.9 Survival. All representations, warranties, covenants and agreements
made by the parties hereto shall be continuing, shall be considered to have been
relied upon by the parties and shall survive the execution, delivery,
performance and/or termination of this Agreement.
IN WITNESS WHEREOF, Agent and Merchant hereby execute this Agreement by
their duly authorized representatives as of the day and year first written
above.
Factory 2-U Stores, Inc.
By: /s/Xxxxxx X. Xxxxxxx
------------------------------------------------
Xxxxxx X. Xxxxxxx
Chief Executive Officer
Garcel, Inc. d/b/a The Great American Group
By: /s/ Xxxx Xxxxxxxx
------------------------------------------------
Xxxx Xxxxxxxx
Vice President and General Counsel
