EXHIBIT 10.1
Schottenstein Xxxxxxxxx Capital Group, LLC
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxx, Xxx Xxxx 00000
Alco Capital Group, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
October 10, 1996
Best Products Co., Inc.
0000 Xxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xx. Xxxxxx X. Xxxx
Re: Best Products Co., Inc.
Gentlemen:
This letter sets forth the principal terms and conditions upon
which Best Products Co., Inc. ("Best"), a debtor and debtor in possession under
chapter 11 of the Bankruptcy Code, will sell and upon which Schottenstein
Xxxxxxxxx Capital Group, LLC and Alco Capital Group, Inc. or their designee
(collectively, "SBA") will purchase substantially all of the assets of Best, as
described herein. Upon finalization of the definitive documentation of the sale
and related transactions described herein (the "Sale"), Best shall file a
motion, in form and substance reasonably acceptable to SBA and containing such
terms and conditions described below, in the Bankruptcy Court for the Eastern
District of Virginia (the "Bankruptcy Court") pursuant to section 363(b) of the
Bankruptcy Code seeking authority to consummate the Sale. As soon as practicable
after the approval of the motion by the Bankruptcy Court, there shall be the
closing of the Sale (the "Closing").
1. Structure. In connection with the Sale, SBA shall form a
limited partnership or limited liability company, to be determined by SBA in its
sole and absolute discretion (hereinafter, "Newco"). Simultaneously therewith,
SBA shall form two special purpose entities (together, "SPE"), which shall be
wholly owned and controlled by SBA, and which shall be the sole general and
limited partners or two managing members, as the case may be, of Newco. SPE
shall have a 100% interest in the ownership of Newco. The limited partnership
agreement or limited liability company agreement for Newco shall provide for
quarterly tax distributions to each partner or member, as the case may be, based
on a fixed percentage of taxable income allocable to the equity interest of such
partner or member (as the case may be), as long as Newco shall be treated as a
partnership for tax purposes, which percentage shall be adjusted by the partners
or members (as the case may be) as and when the factors upon which such
percentage was originally based changes so as to reflect such changes; provided,
however, that any such distribution shall be increased to the extent necessary
to ensure that the tax distribution to such partner or member (as the case may
be) relative to that of all partners or members (as the case may be) is in
accordance with the percentage of the equity interest of such partner or member
(as the case may be) in Newco. The Warrant (as defined in subparagraph 2(b)
below and described in paragraph 11 below) shall contain a further covenant that
no adjustments shall be made to such fixed percentage so long as the Warrant is
outstanding. SBA represents and covenants that (i) neither SBA nor any affiliate
of SBA owns any Best stock nor will become the owner of any Best stock so long
as Newco or SBA has the right to acquire any additional assets from Best as
contemplated hereunder; (ii) to the best of SBA's knowledge (with reasonable due
diligence), no person that owns Best stock owns an equity interest in SBA; and
(iii) SBA shall use its best efforts to ensure that no person that owns Best
stock will become the owner of an equity interest in SBA or Newco (other than
through Best's ownership of the Warrant) for so long as Newco has the right to
acquire any additional assets from Best as contemplated hereunder. For this
purpose, ownership includes any indirect ownership taking into account the
attribution rules of sections 267(c) and 707(b)(3) of the Internal Revenue Code.
1A. Initial Store Closing Sales. SBA and Best have entered
into the initial store closing agreement (the "Initial Agreement") annexed
hereto as Exhibit 1A, providing for the conduct of store closing sales (the
"Initial Sales") in those 81 Best Stores (as defined in paragraph 8 below)
identified on Exhibit A to the Initial Agreement (and no more than those 81 Best
Stores) immediately following the entry of an order of the Bankruptcy Court
approving and authorizing the Initial Agreement. If such Initial Agreement is
approved by the Bankruptcy Court without competitive bidding of any nature or if
such competitive bidding occurs but there is no change in the price, then SBA
agrees that the Initial Sales shall be conducted for the benefit of Newco. If
such Initial Agreement is not approved by the Bankruptcy Court without
competitive bidding but the Court nonetheless enters an order authorizing SBA to
conduct the Initial Sales at a bid that is a higher and better bid than under
the Initial Agreement, then the Initial Sales shall be conducted by SBA for the
sole and exclusive benefit of SBA.
2. Transfers. The following transfers shall take place at the
Closing:
(a) SBA shall lend $395 million, subject to adjustment as set
forth in subparagraph 2(c) below, to Newco (the "Loan"), which Loan
shall be secured on a first priority basis by all of the assets of
Newco. The Loan shall be due and payable on the fifth anniversary of
the Closing. SBA shall be entitled to receive from Newco, in addition
to the repayment of the Loan, (i) reimbursement, as and when incurred
of all of its actual and out-of-pocket fees, costs and expenses
(including, without limitation, interest and fees actually incurred by
SBA in connection with any loan incurred by SBA in connection with the
Loan, to the extent of the amount of the Loan) incurred in connection
with the Loan, and (ii) a fee equal to 2% of the principal amount of
the Loan, which fee shall be added to the principal balance of the Loan
and be payable upon the maturity of the Loan, if not paid sooner. There
shall be no required amortization of the Loan; provided, however, that
all net operating cash flow of Newco in excess of those amounts which
SPE determines, in the exercise of its sole and absolute discretion, to
be reasonably necessary for the operation of Newco shall be applied,
without the imposition of any prepayment penalty, from time to time as
determined by SPE, to reduce the outstanding principal balance of the
Loan. Any loan incurred by SBA in connection with the Loan shall be
made by a third party lender that is not an affiliate of SBA, and no
compensation shall be paid to any affiliate of SBA in connection with
such loan.
(b) In exchange for the transfer and assignment to Newco, free
and clear of any and all liens, claims, rights, interests, violations,
hypothecations, pledges, equities and encumbrances, of all of Best's
assets, including, without limitation, all cash, trade names and other
intellectual property (the "Assets"), Newco shall (x) pay to Best $395
million, subject to adjustment as set forth in subparagraph 2(c) below,
in cash (the "Transfer Price") and (y) issue to Best or, at Best's
option, an entity (the "Entity") formed by Best a warrant, as described
more fully in paragraph 11 below (the "Warrant"). The Assets shall not
include (i) Best's owned real property (except for the Toledo and Chula
Vista owned real property), (ii) real property leases, except those
leases designated pursuant to paragraph 3 below, (iii) personal
property leases (including, without limitation, furniture, fixture and
equipment leases) and executory contracts, except those designated
pursuant to paragraph 3A below, (iv) avoidance actions, and (v) the
excluded assets set forth on the excluded asset schedule annexed hereto
as Exhibit 2(b) (the "Excluded Assets"). Notwithstanding the foregoing,
Best's inventory shall not be transferred and assigned to Newco at the
Closing, but (i) Newco shall have the right to sell such inventory and
retain all proceeds of any such sales, free and clear of liens, claims,
rights, interests, encumbrances, hypothecations, pledges, violations
and equities, and (ii) at the close of business on the first Saturday
following the nine month anniversary of the Closing, Best shall convey
title to all of Best's unsold inventory to Newco or its designee at no
additional fee, cost or expense to Newco or its designee. Except as
otherwise expressly provided herein, all liabilities or other
obligations of Best shall remain with Best and shall not be transferred
to Newco, and Best shall indemnify Newco and hold Newco harmless in
respect of such liabilities and the failure of Best to duly and
punctually perform any or all of its obligations under the definitive
documents contemplated by this agreement after the expiration of any
applicable notice and cure periods, if any.
(c) At or prior to Closing, the amount of each of the Loan and
the Transfer Price shall be reduced by an amount which is equal to the
"net proceeds to be paid pursuant to the Initial Agreement" and shall
be increased by the total amount of Best's expenses in connection with
the Initial Sales (which are not "Expenses of Sale" paid by "Agent"
under the Initial Agreement (each as defined in the Initial
Agreement)), without regard to any increased proceeds realized by Best
as a result of competitive bidding. (Any increase in the amount of the
net proceeds to be paid to Best as a result of competitive bidding
under the Initial Agreement which results in a bid over and above the
original bid contained in the Initial Agreement shall be for the
benefit of Best.) In addition, to the extent that the book value of the
Assets transferred to Newco upon Closing (exclusive of the inventory
transferred under the Initial Agreement), as determined following the
conduct of a physical inventory (the cost of which shall be shared
equally by Best and Newco), deviates from the projected book value of
the Assets at September 30, 1996 (exclusive of the inventory
transferred under the Initial Agreement) as provided by Best to SBA
prior to the execution of this letter, the amount of the Loan and the
Transfer Price shall be adjusted by the percentage change outlined in
the asset adjustment schedule annexed hereto as Exhibit 2(c) (the
"Asset Adjustment Schedule"). In the event that Best is unable to
transfer and assign to Newco any of the Assets described in
subparagraph 2(b), each of the Loan and the Transfer Price shall be
reduced by the value of any such Assets, as determined subject to and
in accordance with the Asset Adjustment Schedule.
3. Option Leases.
(a) For a period of nine months following the Closing, Newco
shall have the right, which right may be exercised at any time and from
time to time in its sole and absolute discretion, to request that Best,
under section 365 of the Bankruptcy Code, assume and assign to Newco or
a third party designated by Newco any or all of its real property
leases (the "Option Leases") at no additional cost or expense to Newco
other than cure amounts, subject to the provisions set forth below in
this subparagraph 3(a) with respect to cure amounts; it being
understood and agreed that the assumption and assignment of any one or
more Option Leases to Newco shall not be subject to higher and better
offers. Immediately following receipt of a written request delivered by
Newco to Best, at any time and from time to time within such nine-month
period, seeking the assumption and assignment of any Option Lease to
Newco or a third party designated by Newco, Best shall use its best
efforts to obtain the entry of an order of the Bankruptcy Court
approving the assumption of the Option Leases identified in writing by
Newco and the assignment of such Option Leases to Newco or a third
party, as designated in writing by Newco; it being understood and
agreed that the term "best efforts" as used in this subparagraph 3(a)
shall not require Best to pay any funds or any cure amounts or assume
any claims (subject to the provisions set forth below in this
subparagraph 3(a) with respect to cure amounts), but shall require Best
or its chapter 11 estate to expend or incur fees, costs and expenses
for the payment of attorneys and other professionals whose services may
reasonably be required by Newco in connection with the prosecution of
any motion seeking the entry of any such order. Newco shall provide
adequate assurance of future performance with respect to any Option
Lease that Newco seeks to have assigned to it. Upon assignment of any
Option Lease to Newco or a third party, such Option Lease shall no
longer be treated as an Excluded Asset for purposes of this agreement,
but rather shall constitute an Asset of Best transferred and assigned
to Newco pursuant to the provisions of the documents contemplated by
this agreement. Notwithstanding anything contained herein, Newco shall
be entitled to keep and retain, at no additional fee, cost or expense
to Newco of any nature (except for the payment of any cure amounts,
subject to and in accordance with the provisions of the next sentence),
as its sole and exclusive property and free and clear of any and all
liens, claims, rights, interests, pledges, encumbrances,
hypothecations, violations and equities, any and all proceeds generated
by or resulting from the assignment of any one or more Option Leases to
any one or more third parties. Newco shall pay any and all cure amounts
under section 365(b)(1) of the Bankruptcy Code in respect of any of the
Option Leases it elects to require Best to assume and assign to Newco
or any third party, except that Best and Newco shall share equally the
cure costs for any and all amounts, liabilities or any other
obligations due and owing under the Option Leases prior to September
24, 1996 (or otherwise allocable to the period prior to September 24,
1996, including, without limitation, base rent, taxes and percentage
rent), other than for repair and maintenance obligations.
Notwithstanding anything contained herein, Best covenants and agrees to
pay to the lessors under the Option Leases when due all amounts payable
under the Option Leases from and after September 24, 1996 (or otherwise
allocable to the period from and after September 24, 1996, including,
without limitation, base rent, taxes and percentage rent), provided
that Newco shall have reimbursed or advanced to Best, with respect to
amounts payable or otherwise allocable to the period from and after the
Closing, those amounts set forth in subparagraph 3(b)(x) below within
the time period set forth in such subparagraph for such reimbursement
or advance.
(b) (x) From and after the Closing, as consideration for
Newco's right to use and occupy the premises covered by the Option
Leases for the period from the Closing through and including the first
Saturday following the nine month anniversary of the Closing, Newco
shall reimburse or advance to Best, within three business days
following the presentation of invoices by Best, amounts for the payment
of rent, CAM, taxes, maintenance and repairs (as limited pursuant to
subparagraph 3(c) below), all other amounts due and owing by Best under
the Option Leases, and utilities and all other usual and customary
operating costs incurred in connection with the Option Leases and
consistent with Best's prior practices, and (y) from and after the date
hereof, Best shall not extend, reject or otherwise terminate (or assume
and assign to a third party, without Newco's prior written consent) any
of the Option Leases until the earlier to occur, in the case of both
(x) and (y), of (i) 14 days following the delivery by Newco to Best of
written notice indicating that Newco waives its right to require Best
to assume and assign to it or a third party (and, if applicable,
directing Best to obtain the entry of an order rejecting) any one or
more of the Option Leases specified therein, provided that Newco shall
have been given the opportunity and the right to inspect and copy all
of the Option Leases at least 20 days prior to the Closing, and (ii)
the first Saturday following the nine month anniversary of the Closing.
Upon the occurrence of either of the events specified in (i) and (ii)
of the preceding sentence, (A) Newco shall have no further obligation
or liability of any nature for any amounts payable to the lessor under
the applicable Option Leases, or for any costs associated with the Best
Stores (as defined in paragraph 8 below) to which such Option Leases
relate (other than for repair and maintenance obligations for which the
tenant is responsible under the applicable Option Lease and which were
not set forth on the list to be furnished by SBA to Best pursuant to
subparagraph 3(c) below), and (B) Best shall be solely responsible for
all amounts payable or other obligations or liabilities that may be
owed to the lessor under or in connection with such applicable Option
Leases, including without limitation any damages resulting from the
rejection of such Option Leases under section 365 of the Bankruptcy
Code or otherwise (subject only to the provisions of paragraph 5
below), and for all costs associated with the Best Stores (as defined
in paragraph 8 below) to which such Option Leases relate (other than
for repair and maintenance obligations for which the tenant is
responsible under the applicable Option Lease and which were not set
forth on the list to be furnished by SBA to Best pursuant to
subparagraph 3(c) below). If Newco fails to reimburse or advance to
Best, within three business days following the presentation of invoices
by Best, any of the amounts set forth in (x) of this subparagraph 3(b)
(as limited pursuant to subparagraph 3(c) below) with respect to any
Option Lease, then following the expiration of a five day cure period
after receipt (notwithstanding the provisions of paragraph 19 below) by
Newco of notice of such failure to reimburse or advance, Best shall be
entitled to revoke Newco's right to use and occupy the premises covered
by such Option Lease and to reject such Option Lease. Regardless of
whether Newco directs Best to reject any one or more Option Leases at
any time, the cost and expense of the rejection at any time of any one
or more Option Leases, including the filing and prosecuting of any
motions or other papers with respect to the same, shall be borne solely
by Best and its chapter 11 estate and paid for solely by Best and its
chapter 11 estate.
(c) Notwithstanding anything contained in subparagraph 3(b)(x)
or elsewhere in this agreement, any obligation on the part of Newco
(under any provision of this agreement) to pay for maintenance and
repairs shall be limited as follows: SBA shall have the right to
inspect all of the Option Lease premises and furniture, fixtures,
equipment and other personalty that is the subject of the Personalty
Leases (as defined in paragraph 3A below) prior to the Closing, and
shall furnish Best at or prior to Closing with a written list setting
forth any existing maintenance or repair problems with such Option
Lease premises or such personalty. Subject to Best's right, acting
reasonably, to challenge any item set forth on such list, Newco shall
have no obligation, liability or responsibility of any nature for any
of the repair or maintenance items set forth on the list, except in
connection with an assumption of the Option Lease to which such repair
or maintenance item relates. The definitive documents contemplated by
this agreement shall contain the following representation and warranty
with respect to the premises covered by the Option Leases: To the best
of Best's knowledge (limiting such knowledge to Xxx Xxxx, Xx Xxxxxxxx
and the director of facilities at Best), Best is not aware of any
existing repair or maintenance problems with respect to any of the
premises covered by the Option Leases or any of the furniture,
fixtures, equipment and other personalty covered by the Personalty
Leases, other than those problems set forth on a schedule to be annexed
to such definitive documents.
(d) In addition, the Best Stores (as defined in paragraph 8)
shall be delivered to Newco in a condition that they are each safely
operable in a manner consistent with Best's standard past practices as
retail stores at Closing; it being understood and agreed that if, for
any reason or under any circumstance, any Best Store (including the
Option Lease premises or any furniture, fixtures, equipment or other
personalty material to the operation of such Best Store) shall not be
safely operable at Closing in a manner consistent with Best's past
practices, then Newco shall have the right to refuse to operate such
Best Store by delivering notice of such refusal to Best. If Newco
elects to deliver such notice to Best, then Best shall have the right
to remedy the non-operable condition within 48 hours after
notification. If Best elects not to, or is unable to, make the
non-operable condition operable within such 48 hours, then Newco shall
be under no obligation to pay any of the costs associated with the
operation of such Best Store (including, without limitation, any
amounts under any Option Lease or any Personalty Leases relating
thereto) and Best shall pay for the inventory and moveable fixtures and
related items located in such Best Store to be transferred to another
Best Store mutually and reasonably agreed upon by Best and Xxxxx.
0X. Personalty Leases and Executory Contracts.
(a) For a period of nine months following the Closing, Newco
shall have the right, which right may be exercised at any time and from
time to time in its sole and absolute discretion, to request that Best,
under section 365 of the Bankruptcy Code, assume and assign to Newco or
a third party designated by Newco any or all of Best's furniture,
fixture and equipment leases and executory contracts (collectively, the
"Personalty Leases) at no additional cost or expense to Newco other
than cure amounts, subject to the provisions set forth below in this
subparagraph 3A(a) with respect to cure amounts; it being understood
and agreed that the assumption and assignment of any one or more
Personalty Leases to Newco shall not be subject to higher and better
offers. Immediately following receipt of a written request delivered by
Newco to Best, at any time and from time to time within such nine-month
period, seeking the assumption and assignment of any Personalty Lease
to Newco or a third party designated by Newco, Best shall use its best
efforts to obtain the entry of an order of the Bankruptcy Court
approving the assumption of the Personalty Leases identified in writing
by Newco and the assignment of such Personalty Leases to Newco or a
third party, as designated in writing by Newco; it being understood and
agreed that the term "best efforts" as used in this subparagraph 3A(a)
shall not require Best to pay any funds or any cure amounts or assume
any claims (subject to the provisions set forth below in this
subparagraph 3A(a) with respect to cure amounts), but shall require
Best or its chapter 11 estate to expend or incur fees, costs and
expenses for the payment of attorneys and other professionals whose
services may reasonably be required by Newco in connection with the
prosecution of any motion seeking the entry of any such order. Newco
shall provide adequate assurance of future performance with respect to
any Personalty Lease that Newco seeks to have assigned to it. Upon
assignment of any Personalty Lease to Newco or a third party, such
Personalty Lease shall no longer be treated as an Excluded Asset for
purposes of this agreement, but rather shall constitute an Asset of
Best transferred and assigned to Newco pursuant to the provisions of
the documents contemplated by this agreement. Notwithstanding anything
contained herein, Newco shall be entitled to keep and retain, at no
additional fee, cost or expense to Newco of any nature (except for the
payment of any cure amounts, subject to and in accordance with the
provisions of the next sentence), as its sole and exclusive property
and free and clear of any and all liens, claims, rights, interests,
pledges, encumbrances, hypothecations, violations and equities, any and
all proceeds generated by or resulting from the assignment of any one
or more Personalty Leases to any one or more third parties. Newco shall
pay any and all cure amounts under section 365(b)(1) of the Bankruptcy
Code in respect of any of the Personalty Leases it elects to require
Best to assume and assign to Newco or any third party, except that Best
and Newco shall share equally the cure costs for any and all amounts,
liabilities or other obligations due and owing under the Personalty
Leases prior to September 24, 1996 (or otherwise allocable to the
period prior to September 24, 1996). Notwithstanding anything contained
herein, Best covenants and agrees to pay to the lessors or other
non-Best parties under the Personalty Leases when due all amounts,
liabilities or other obligations payable under the Personalty Leases
from and after September 24, 1996 (or otherwise allocable to the period
from and after September 24, 1996), provided that Newco shall have
reimbursed or advanced to Best, with respect to amounts payable or
otherwise allocable to the period from and after the Closing, those
amounts set forth in subparagraph 3A(b)(x) below within the time period
set forth in such subparagraph for such reimbursement or advance.
(b) (x) From and after the Closing, as consideration for
Newco's right to use and occupy the personalty covered by the
Personalty Leases for the period from the Closing through and including
the first Saturday following the nine month anniversary of the Closing,
Newco shall reimburse or advance to Best, within three business days
following the presentation of invoices by Best, amounts for the
payments due and owing by Best under the Personalty Leases (subject to
the provisions of subparagraph 3(c) above, setting forth certain
parameters with respect to Newco's obligation to pay maintenance and
repairs), and (y) from and after the date hereof, Best shall not
extend, reject or otherwise terminate (or assume and assign to a third
party, without Newco's prior written consent) any of the Personalty
Leases until the earlier to occur, in the case of both (x) and (y), of
(i) 10 days following the delivery by Newco to Best of written notice
indicating that Newco waives its right to require Best to assume and
assign to it or a third party (and, if applicable, directing Best to
obtain the entry of an order rejecting) any one or more of the
Personalty Leases specified therein, provided that Newco shall have
been given the opportunity and the right to inspect and copy all of the
Personalty Leases at least 20 days prior to the Closing, and (ii) the
first Saturday following the nine month anniversary of the Closing.
Upon the occurrence of either of the events specified in (i) and (ii)
of the preceding sentence, (A) Newco shall have no further obligation
or liability of any nature for any amounts payable to the lessor or
other non-Best party under the applicable Personalty Leases, and (B)
Best shall be solely responsible for all amounts payable to the lessor
or other non-Best party under or in connection with such applicable
Personalty Leases, including without limitation any damages resulting
from the rejection of such Personalty Leases under section 365 of the
Bankruptcy Code or otherwise. If Newco fails to reimburse or advance to
Best, within three business days following the presentation of invoices
by Best, amounts for the payments due and owing by Best under any
Personalty Lease (subject to the provisions of subparagraph 3(c) above,
setting forth certain parameters with respect to Newco's obligation to
pay maintenance and repairs), then following the expiration of a five
day cure period after receipt (notwithstanding the provisions of
paragraph 19 below) by Newco of notice of such failure to reimburse or
advance, Best shall be entitled to revoke Newco's right to use the
personalty covered by such Personalty Lease and to reject such
Personalty Lease. Regardless of whether Newco directs Best to reject
any one or more Personalty Leases at any time, the cost and expense of
the rejection at any time of any one or more Personalty Leases,
including the filing and prosecuting of any motions or other papers
with respect to the same, shall be borne solely by Best and its chapter
11 estate and paid for solely by Best and its chapter 11 estate.
4. Store Closings. With respect to any of the Best Stores (as
defined in paragraph 8 below) other than those covered by the Initial Agreement,
Newco shall have the right to cause Best to conduct store closing sales,
restructuring sales, going out of business sales or any other similarly named
sales that Newco shall designate ("Closing Sales"), with Newco acting as Best's
agent in connection with such Closing Sales, under the Best trade name (which
shall be transferred and assigned to Newco pursuant to paragraph 2(b) above,
provided, however, that Best shall retain the right to use the Best trade name
solely for the purpose of conducting the Closing Sales with Newco acting as its
agent) at any one or more of the Best Stores (as defined in paragraph 8 below),
and the order approving the transactions contemplated herein shall provide for
the conduct of such Closing Sales on terms mutually acceptable to Best and SBA.
In connection with any such Closing Sales, Newco shall not incur any fees for a
liquidator or other third party to assist in the Closing Sales, but may incur
reasonable and customary expenses for the costs of supervisors, consultants and
other expenses necessary, in Newco's sole and exclusive judgment, for the
conduct of the Closing Sales. The Closing Sales may take place at any time and
from time to time from and after the Closing up to and including the first
Saturday following the nine (9) month anniversary of the Closing. Newco shall
have the right to keep and retain as its sole and exclusive property all
proceeds from the Closing Sales free and clear of any and all liens, claims,
rights, interests, hypothecations, pledges, violations, equities and
encumbrances. All expenses and liabilities attributable to the conduct of the
Closing Sales shall be the sole responsibility of Newco; provided, however, that
Newco shall have no responsibility for any lease rejection claims of any nature
whether under section 365 of the Bankruptcy Code or otherwise, subject only to
the provisions of paragraph 5 below. In order for the parties to accomplish the
objectives of paragraphs 3, 3A and 4 of this agreement, Best hereby agrees to
use its best efforts to obtain the entry by the Bankruptcy Court of an order
(or, if such order cannot be obtained, additional orders) providing that the
total time for Best to determine whether to assume or reject the Option Leases,
as set forth in section 365(d)(4) of the Bankruptcy Code, shall be extended for
a period of at least nine months from the Closing. If such 9-month extension
under section 365(d)(4) cannot be obtained, despite the use by Best of its best
efforts, Best shall have the right to elect not to proceed with the transactions
contemplated by this agreement. Best's initial motion for the entry of an order,
pursuant to section 365(d)(4) of the Bankruptcy Code, extending Best's time to
assume or reject shall be scheduled and heard simultaneously with Best's motion
for the entry of an order approving the transactions contemplated by this
agreement.
5. Lease Rejection Guarantee.
(a) At Closing, SBA shall deliver to Best a guarantee (the
"Lease Rejection Guarantee") with respect to the allowed amount of the
claims resulting from the rejection pursuant to section 365 of the
Bankruptcy Code of the Option Leases, as such claims are limited by
section 502(b)(6) of the Bankruptcy Code (the "Allowed Rejection
Claims"). For purposes of this paragraph 5, the Allowed Rejection
Claims shall not include any environmental claims or any liabilities,
obligations, fees, costs or expenses relating to such environmental
claims in any way. Pursuant to the Lease Rejection Guaranty, SBA shall
guarantee that the amount of the Allowed Rejection Claims shall not
exceed $40 million in the aggregate, subject to adjustment as set forth
below (the "Floor"). If the Allowed Rejection Claims ultimately do
exceed the Floor, then SBA shall be required to pay to Best the amount
to be paid by Best under a confirmed plan of reorganization (taking
into account the dividend rate on unsecured claims thereunder on a
percentage basis) on account of the Allowed Rejection Claims in excess
of the Floor; provided, however, that in no event and under no
circumstance shall SBA be required to pay to Best any amounts to be
paid by Best under a confirmed plan of reorganization on account of any
Allowed Rejection Claims in excess of $65 million, subject to
adjustment as set forth below (the "Ceiling"). If the Allowed Rejection
Claims are less than the Floor, Best shall be required to pay to Newco
that sum which is equal to the Floor minus the ultimate amount of the
Allowed Rejection Claims in the aggregate multiplied by 50% multiplied
by the ultimate amount of the distribution (on a percentage basis) to
be paid by Best under a confirmed plan of reorganization to unsecured
creditors on account of their claims as soon as practicable following
confirmation of such plan.
(b) In exchange for the Lease Rejection Guarantee, Best shall
pay to SBA a fee of $2 million payable at Closing (the "Guarantee
Fee").
(c) If any Option Lease shall be assumed by Best and assigned
to Newco, then each of the Floor, the Ceiling and the Guarantee Fee
shall be adjusted downward in accordance with the mechanism set forth
in Exhibit 5(c) annexed hereto; provided, however, if Newco requests
that any Option Lease be assigned to it for the purpose of subletting
the premises covered by such Option Lease to a third party on an
arms-length basis, there shall be no such adjustment. If the Bankruptcy
Court does not enter an order providing (or additional orders which in
their aggregate provide) that the time for Best to determine whether to
assume or reject any Option Lease, as set forth in section 365(d)(4) of
the Bankruptcy Code, shall be extended for a total period of at least
nine months from the Closing for each Option Lease, despite Best's best
efforts to obtain the entry of such order (or orders), then each of the
Floor, the Ceiling and the Guaranty Fee shall be adjusted in accordance
with the mechanism set forth in Exhibit 5(c) annexed hereto for each
such Option Lease for which such aggregate nine month extension period
has not been obtained. Any amounts to be paid by each of SBA and Best
to the other on account of the adjustments that may be made to the
Guarantee Fee pursuant to the provisions of this subparagraph 5(c)
shall be paid by SBA and Best as soon as practicable following
confirmation of a plan of reorganization for Best.
(d) Subject to the provisions of the last sentence of
subparagraph 3(b) above, the prosecution, defense and settlement of any
and all rejection claims filed with respect to the Option Leases shall
be controlled solely by Newco, acting reasonably. Except as provided
below, any such prosecution, defense or settlement shall be performed
by Best at Best's reasonable expense. To enable Newco to manage and
control effectively the prosecution, defense and settlement of such
rejection claims, Best shall regularly (and in no event less frequently
than weekly) keep Newco apprised of the status of the litigation of any
such claims and any settlement discussions relating thereto. If Best
believes that Newco is not acting reasonably with respect to the
prosecution, defense or settlement of any rejection claim relating to
any Option Lease (including the expenditure of legal or other
professional fees in connection with such prosecution, defense or
settlement), then Best shall have the right to submit the issue of the
reasonableness of such prosecution, defense or settlement (and the
expenditure of such legal or other professional fees) to binding
mediation. A single mediator for such binding mediation shall be
selected by mutual agreement of Best and Newco from the judicial panel
for the Bankruptcy Court for the Eastern District of Virginia or, in
the absence of such a panel in the Bankruptcy Court for the Eastern
District of Virginia, the Bankruptcy Court for the Southern District of
New York. If Best and Newco are unable to agree on the selection of a
mediator, the bankruptcy judge assigned to the Best Chapter 11 case
shall select and appoint the mediator. The powers and decision of the
mediator (whether selected by mutual agreement of Best and Newco or
appointed by the bankruptcy judge) shall be final and binding. Any and
all fees, costs and expenses (including, without limitation, the fees
and expenses of attorneys and other professionals) incurred in
connection with the prosecution, defense or settlement of any rejection
claim filed with respect to any Option Lease shall be paid for solely
by Best unless Newco shall have been determined to be the loser in any
mediation relating to the prosecution, defense or settlement of such
rejection claim (or the expenditure of legal or other professional fees
in connection with such prosecution, defense or settlement), in which
case Newco shall be responsible for all such fees, costs and expenses
retroactive to the period from and after the commencement of the
mediation. The loser in connection with the mediation of a particular
rejection claim shall be solely responsible for the fees, costs and
expenses of the mediator. If the mediator is able to effect a
settlement between Best and Newco or if the mediator fails to render a
decision with respect to the prosecution, defense or settlement of a
particular rejection claim (or the expenditure of legal or other
professional fees in connection with such prosecution, defense or
settlement), the fees, costs and expenses of the mediator shall be
shared equally by Best and Newco.
(e) To secure SBA's guarantee as provided in subparagraph 5(a)
above, at the Closing, SBA shall deliver to Best a standby letter of
credit in the amount of $10 million. The definitive documents relating
to the transactions contemplated herein shall provide that the letter
of credit shall (i) be from National City Bank Columbus, Xxxxx Fargo or
Chase Manhattan Bank; (ii) have an expiration date of at least one year
following the Closing, which expiration date may be further extended by
SBA; and (iii) provide that Best may draw upon the letter of credit for
the full amount outstanding prior to the expiration date and shall
deposit such amount in an escrow account pending the entry by the
Bankruptcy Court of a final and non-appealable order with respect to
any and all claims resulting from the rejection pursuant to section 365
of the Bankruptcy Code of the Option Leases; provided, however, that
Best shall not draw on the letter of credit for purposes of depositing
funds in an escrow account so long as the term of the letter of credit
shall be continually extended sufficiently in advance of the expiration
of the letter of credit. The Bankruptcy Court shall be the court to
which each of Best and SBA shall submit all claims or controversies in
connection with the definitive agreement for adjudication.
6. Real Property Owned by Best.
a. Owned Stores. For a period of nine months following the
Closing, Newco shall have the right, in the exercise of its sole and
absolute discretion, to use and occupy any one or more of the store
locations owned by Best (the "Owned Stores") at a cost to Newco on an
Owned Store-by-Owned Store basis of $26,000 per Owned Store per month,
including rent, real estate taxes and CAM. So long as Newco uses and
occupies any Owned Store, Newco shall be responsible for all other
occupancy costs relating to the operation of such Owned Store. During
the nine month period following the Closing, Best shall use reasonable
efforts to arrange for the sale to Newco of those Owned Stores that
Newco, in its sole discretion, determines to purchase on terms
acceptable to each of Newco and Best in its sole and absolute
discretion. Newco shall be responsible for the payment of any and all
consideration to be paid to Best and/or the mortgagees of the Owned
Stores in connection with such sale. Newco shall be required to vacate
each Owned Store, which it has used and occupied for any period of time
and which it has not purchased, and to leave such Owned Store in
broom-clean condition by no later than the Saturday following the nine
month anniversary of the Closing.
b. Headquarters. For a period of nine months following the
Closing, Newco shall have the right, in the exercise of its sole and
absolute discretion, to use and occupy all or any portion of Best's
headquarters building located in Richmond, Virginia at a cost to Newco
of an annual $12 per square foot (the "Headquarters"); provided,
however, that Newco's only obligation hereunder shall be to pay for the
space it actually occupies in the Headquarters for the actual time that
it occupies such space; provided, further, however, that Newco shall
give Best reasonable notice of how much space, if any, it needs in the
Headquarters and reasonable notice prior to vacating the space or any
portion thereof that it occupies in the Headquarters. If and to the
extent that, following the Closing, Newco seeks to consolidate the
operations in the Headquarters, the cost of any such consolidation
(including, without limitation, moving costs) shall be paid solely by
Newco. Notwithstanding anything contained herein, from and after the
execution of this agreement up to the Closing, Best shall provide SBA
with a reasonable amount of space in the Headquarters at no charge of
any nature.
c. Owned Warehouses and Distribution Centers. For a period of
nine months following the Closing, Newco shall have the right, in the
exercise of its sole and absolute discretion, to use and occupy all of
the Ashland distribution center. In connection with any such use and
occupancy, Newco shall pay to Best that amount which is equal to the
cost actually incurred by Best in operating those premises designated
by Newco for use by Newco for the period in which Newco actually uses
and occupies such premises.
7. Excluded Assets. All proceeds from the sale or other
disposition of Excluded Assets shall be retained by Best as its sole and
exclusive property; provided, however, that any Option Leases or Personalty
Leases designated by Newco for assumption by Best and assignment to Newco or a
third party shall not be deemed or treated as Excluded Assets for purposes of
this agreement from and after such designation by Newco.
8. Management of Newco. Newco shall be managed by SPE, its
sole general and limited partners or two managing members, as the case may be.
From and after the Closing, and subject to the terms provided herein, Newco
shall operate for the sole and exclusive benefit of Newco all of Best's store
locations, the Best Jewelry Stores and the leased distribution centers
(collectively, the "Best Stores") and to the extent any Best Stores continue in
operation, Newco shall obtain such working capital and other credit facilities
as are reasonably necessary, in SPE's judgment, to support Newco's continuing
operations, which shall in all events be determined by SPE; provided, however,
that SPE shall be entitled at any time to terminate the operation of any or all
of the Best Stores, in the exercise of its sole and absolute discretion, and
liquidate the same in such manner as SPE shall determine. Newco shall be solely
responsible for any and all liabilities accruing from and after the Closing that
result from its operation of the Best Stores and shall indemnify Best for any
such liabilities and the failure of Newco to duly and punctually perform any or
all of its obligations under the definitive documents contemplated by this
agreement after the expiration of any applicable notice and cure periods. To
secure this indemnity, at the Closing, SBA shall deliver to Best a standby
letter of credit, having an expiration of one year following the Closing, in the
sum of $5 million; it being understood and agreed that Best shall be entitled to
draw on such letter of credit if it believes in good faith that it has valid
claims against Newco in respect of the indemnity set forth in the preceding
sentence and certifies the existence of such good faith belief in writing to
SBA. Best shall be entitled to draw on the letter of credit to the extent that
Newco fails to perform its obligations hereunder after the expiration of any
applicable notice and cure period. The terms of the letter of credit and the
identity of the issuing bank shall be acceptable to Best in its sole discretion.
Any and all costs incurred by SBA in connection with obtaining the letter of
credit and providing the same to Best shall be paid for by Newco at Closing.
Except for the delivery of such standby letter of credit, SBA shall have no
obligation or liability in respect of such indemnity. Newco shall procure, as of
the Closing, and maintain, following the Closing, general liability insurance
providing coverage in an amount not less than $10 million on a per occurrence
basis with a deductible of not more than $1 million, and naming Best and any
successor as an additional insured; provided, however, that with respect to the
81 Best Stores that are the subject of the Initial Agreement, Newco or SBA, as
the case may be, shall obtain such liability insurance as is required pursuant
to the Initial Agreement. Best recognizes and agrees that SBA and SPE shall have
no duty to continue to operate Newco as a going concern from and after the
Closing, and that from and after the Closing, SPE may liquidate all or any
portion of the Best Stores, or Newco as a whole, in its sole, unfettered and
unreviewable discretion, for any or for no reason at all, and that Best, its
creditors and any holders of the Warrant or the Best Newco Interest, shall have
no claims or rights against Newco, SBA or SPE (or any of their equity holders,
officers, directors or agents) relating to any such liquidations or Store
closings. (This language shall apply in this Agreement wherever there is a
statement which covers the right of SBA or SPE to liquidate all or any portion
of the Best Stores or Newco).
9. Wind-Down. Newco shall provide certain functions, services
and employees (including, without limitation, computer time) to Best to enable
it to further its wind down, at no cost to Best, so long as Newco's existing
operations (including its existing computer system, with no modifications or
changes to hardware or software, to the extent that Newco maintains a computer
system) and employees can accommodate Best's requests, which must in all events
be reasonable in scope and in time constraints; it being understood and agreed
that Newco shall be under no obligation of any nature to retain any functions,
services or employees, or to keep employees on Newco's payroll, for the purpose
of providing the functions, services and employees described in this paragraph 9
to Best. For one year following the Closing, Best shall have the right (at no
cost to Best) to use furniture, fixtures and equipment currently and actually
used by Best; provided, however, that such right in no way obligates Newco to
expend any additional monies or amounts, or incur any additional fees, costs or
expenses of any nature, in respect of such furniture, fixtures and equipment.
Notwithstanding the foregoing, the value of the services to be provided by Newco
to Best pursuant to the provisions of this paragraph 9 shall be no less than
$1.5 million, as determined in accordance with Exhibit 9 annexed hereto. For at
least seven years from the Closing, Newco shall make those books and records of
Best that are in the possession and control of Newco available to Best for
inspection and copying during ordinary business hours and upon reasonable prior
written notice to Newco. If Newco seeks to destroy such books and records prior
to the seventh (7th) anniversary of the Closing, Best or its successor shall
have the right to pick up such books and records.
10. Employees/Severance. At or immediately prior to the
Closing, Newco shall offer employment to substantially all of the store-level
employees in those Best Stores that Newco intends to operate for a period of
time following the Closing, at substantially the same wage rate, at
substantially the same position and location and on other terms and conditions
determined solely by Newco in its discretion; it being understood and agreed
that Newco shall be under no obligation to offer employment to those employees
in the 81 Best Stores that are the subject of the Initial Agreement. Without
limiting the foregoing, Newco shall have no obligation of any nature to retain
or employ any such employees for any specified period of time, or to maintain
with a specified wage, salary or benefit package with respect to such employees;
it hereby being understood and agreed that the duration of any such employment
by Newco and the amount of any wage, salary and benefit package associated with
any such employment shall be determined from time to time by Newco in its sole
and absolute discretion. Newco shall advise any such employees that they are no
longer employees of Best, and that Newco is neither assuming nor agreeing to
bear responsibility for any Best benefit, wages or severance liabilities. Best
and Newco agree that Newco is not a successor employer to Best. Best shall be
responsible for all liabilities, obligations and expenses relating to employees
or former employees of Best (the "Best Employees") with respect to their
employment by Best, including, but not limited to, liabilities and obligations
(i) for compensation accrued on or prior to the Closing, (ii) arising under any
employee benefit plan, program or arrangement sponsored, maintained or
contributed to by Best, whether accrued before, on or after the Closing, and/or
(iii) incurred as a result of or otherwise attributable directly or indirectly
to the termination of employment of any Best Employees by Best. Newco shall not
have any liabilities or obligations with respect to such liabilities,
obligations and expenses relating to the Best Employees, and Best hereby
indemnifies and holds Newco, SPE and SBA harmless in respect of any such claims,
liabilities or obligations. Newco shall work with Best to determine which of
Best's non store-level employees shall be employed by Newco on terms mutually
acceptable to Newco and the affected employees.
11. Warrant. The Warrant shall provide that, at any time on or
prior to the twelve month anniversary of the Closing, the holder of the Warrant
shall have the right in the exercise of its sole and absolute discretion to
purchase a 35% equity interest in Newco on a fully diluted basis (the "Best
Newco Interest") for an exercise price of $20 million in cash payable upon the
exercise of the Warrant; it being understood and agreed that upon any exercise
of such Warrant, SPE shall hold a 65% equity interest in Newco on a fully
diluted basis. Upon any exercise of the Warrant, the book capital accounts of
Best, on the one hand, and the entities comprising SPE, on the other, shall be
adjusted to the extent necessary to result in a 35:65 ratio. If the Warrant is
not exercised on or prior to the twelve month anniversary of the Closing, it
shall automatically expire without further act or instrument. Upon any exercise
of the Warrant by the holder of the Warrant, the holder of the Best Newco
Interest shall have certain tag along rights, registration rights, approval
rights over sales of all or substantially all of the assets of Newco outside the
ordinary course of business (but in the context of an on-going business) and
other similar rights on terms reasonably acceptable to SBA; provided, however,
that nothing herein shall be deemed to modify the sole and exclusive discretion
on the part of SPE to manage Newco and to make such liquidation, management and
asset disposition decisions as set forth in paragraphs 4 and 8 above, or to
preclude, limit, modify or interfere with SPE's right, in its sole and absolute
discretion, to terminate the operation of any or all of the Best Stores or to
liquidate all or substantially all of the Best Stores in any such manner as SPE
shall determine. Newco shall provide Best or the Entity, whichever holds the
Warrant, with unaudited financial statements on a monthly basis and audited
financial statements on a yearly basis. Newco shall also provide Best with
copies of any financial information that SBA furnishes to its lenders with
respect to Newco. Upon request by Best or the Entity, whichever holds the
Warrant, which request shall be made upon reasonable notice and at reasonable
times, Newco shall meet with Best or the Entity, as the case may be, to discuss
Newco's plans with respect to the Best Stores. On the nine month anniversary of
the Closing, Newco shall furnish a written business plan to Best or the Entity,
whichever holds the Warrant; provided, however, that if Newco has notified Best
or the Entity, as the case may be, on or prior to such nine month anniversary
that it is, has or shall shortly thereafter terminate the operation of all or
substantially all of the Best Stores or liquidate all or substantially all of
the Best Stores, then Newco shall not be required to deliver such business plan.
The Warrant and the definitive documents contemplated by this agreement shall
provide that Newco shall make no distributions with respect to the equity
interests therein so long as the Warrant shall not have expired, except for tax
distributions. The Warrant and the Best Newco Interest shall be held in a
manner, as relates to the number of holders, that does not cause Newco to be
treated as a "publicly traded partnership" within the meaning of Section 7704 of
the Internal Revenue Code; it being understood and agreed that the interests in
Best or the Entity, if it is taxable as a corporation, may be distributed to the
creditors or equity holders of Best. The Warrant shall contain standard
anti-dilution protection and other customary warrant provisions.
12. [Intentionally Deleted.]
13. Exclusivity, Diligence and Break-Up Fees. Within two
business days from the execution of this letter, Best shall seek by expedited
motion the entry by the Bankruptcy Court of an order, in form and substance
reasonably acceptable to SBA, approving (A) the terms of this paragraph 13,
pursuant to which Best hereby agrees (i) not to solicit offers from any other
person or entity regarding any of the transactions described or contemplated
herein, (ii) to pay, promptly upon entry of such order but no later than 24
hours thereafter, $500,000 to SBA as reimbursement and payment for the
reasonable costs and expenses of SBA's due diligence and consulting services
provided by SBA during the transition period (the "Diligence/Consulting Fee"),
and (iii) to pay a break-up fee in an amount equal to one (1%) percent of the
Loan, after adjustment pursuant to paragraph 2(c) above, which break-up fee
shall be payable in the event that (x) Best and SBA shall have executed, subject
to Bankruptcy Court approval, final documentation setting forth definitive and
legally binding terms with respect to the transactions contemplated herein, and
(y) Best (a) with respect to any transaction of any nature, receives and accepts
an offer or offers for the Assets that the Bankruptcy Court determines to be
higher and better than the transaction contemplated by this agreement, and
consummates such higher and better offer(s), or (b) withdraws or elects not to
proceed with the transactions contemplated by this agreement and obtains
Bankruptcy Court approval for a transaction or series of transactions, within
six months following the date of the entry of the order described in this
paragraph 13, that actually results in the sale, liquidation or other
disposition of all or substantially all of the remaining assets of Best after
consummation of the Initial Agreement, and (B) the Initial Agreement. All of the
various elements of the relief sought pursuant to such expedited motion shall be
heard by the Bankruptcy Court on the same day in one motion.
14. Conditions. The transactions contemplated herein are
subject to (i) the performance of due diligence by SBA (including, without
limitation, with respect to the operation of the business) for a period from the
date hereof through and including the expiration of the second business day
following the payment of the Diligence/Consulting Fee to SBA (but no earlier
than October 18, 1996), during which period SBA may, in its sole, unfettered and
unreviewable discretion, for any reason or for no reason at all, elect not to
proceed with the transactions contemplated herein upon the delivery of written
notice to Best, (ii) the negotiation and execution of final documentation
setting forth definitive and legally binding terms with respect to the
transactions contemplated herein and such other terms and conditions as are
acceptable to each of SBA and Best, in its sole and absolute discretion, with
respect to the transactions described herein, by no later than 17 days following
the execution of this agreement, (iii) the entry by the Bankruptcy Court of an
order in form and substance reasonably acceptable to SBA approving such final
documents with respect to the transactions contemplated herein (it being
understood and agreed that Best shall use its best efforts to obtain the entry
of an order providing, among other things, that the transfers and assignments to
Newco contemplated herein (including without limitation the transfer and
assignment of any Option Leases or any Owned Stores) shall, pursuant to section
1146(c) of the Bankruptcy Code, not be subject to the imposition or payment of
any transfer taxes of any nature); (iv) the receipt by Best of all consents or
approvals that Best or SBA reasonably deems necessary for the consummation of
the transactions contemplated herein; and (v) the condition that Newco shall
have been given the opportunity and the right to inspect and copy all of the
Option Leases and Personalty Leases at least 20 days prior to the Closing. If,
pursuant to (i) of this paragraph 14, SBA elects not to proceed with the
transactions contemplated herein, SBA shall nonetheless be entitled to retain
the Diligence/Consulting Fee (to the extent that the same has been approved by
the Bankruptcy Court), notwithstanding its exercise of its right under (i) of
this paragraph 14 to elect not to proceed with the transactions contemplated
herein, and (a) SBA shall have no obligation or liability of any nature to Best
or its estate, other than as provided in this paragraph 14, and (b) Best shall
have no obligation or liability of any nature to SBA other than the obligation
to pay SBA the Diligence/Consulting Fee to the extent ordered by the Bankruptcy
Court. Notwithstanding anything contained herein, none of the conditions set
forth in this paragraph 14 shall be a condition to SBA's commitment to
consummate the Initial Agreement following the entry by the Bankruptcy Court of
an order, in form and substance reasonably acceptable to SBA, approving the
Initial Agreement and authorizing Best and SBA to consummate the same.
15. Additional Conditions.
(a) Notwithstanding SBA's failure to elect to terminate the
transactions contemplated herein as provided in paragraph 14(i) above,
SBA shall, nevertheless, have a continuing right to terminate the
transactions contemplated herein, at any time prior to the Closing, if
Best shall have failed to conduct its advertising and in-store
promotions, through the Closing, in a manner that is materially
consistent with its customary and past practices that have been in
effect from time to time, from and after April 9, 1996. If SBA elects
not to proceed with the transactions contemplated herein, SBA shall
nonetheless be entitled to retain the Diligence/Consulting Fee (to the
extent that the same has been approved by the Bankruptcy Court),
notwithstanding its right under this paragraph 15 not to proceed with
the transactions contemplated herein and, (A) SBA shall have no
obligation or liability of any nature to Best or its estate, other than
as otherwise provided in this paragraph 15, and (B) Best shall have no
obligation or liability of any nature to SBA other than the obligation
to pay SBA the Diligence/Consultation Fee to the extent ordered by the
Bankruptcy Court. Notwithstanding anything contained herein, none of
the conditions set forth in this paragraph 15 shall be a condition to
SBA's commitment to consummate the Initial Agreement following the
entry by the Bankruptcy Court of an order, in form and substance
reasonably acceptable to SBA, approving the Initial Agreement and
authorizing Best and SBA to consummate the same.
(b) If SBA has not consented in writing to any Best purchase
order with respect to which inventory arrives after the Closing or if
any inventory arrives on or prior to the Closing, then any such
inventory shall be included in the Assets being transferred at the
Closing to Newco, and the adjustment computation in respect thereof
shall be performed in accordance with the method set forth in the Asset
Adjustable Schedule. If SBA shall have consented in writing to any
purchase order with respect to which inventory arrives after the
Closing, then the inventory that is the subject of such purchase order
shall be paid for by Newco directly and shall be the sole
responsibility of Newco (or, if previously paid for by Best, shall be
promptly reimbursed by Newco to Best) based upon the actual and
documented "all-in" cost thereof (rather than as outlined in the Asset
Adjustment Schedule).
16. Entire Agreement. This letter represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior negotiations, representations and
agreements made by and between such parties.
17. Amendment; Waiver. No alteration, amendment or
modification of any of the terms or provisions of this letter shall be valid
unless made pursuant to an instrument in writing signed by both parties hereto,
provided that the waiver by either party of compliance with any provision hereof
or of any breach or default by the other party need be signed only by the party
waiving such provision, breach or default. Waiver by either party hereto of any
such breach or default by the other party shall not operate as a waiver of any
other breach or default, whether similar to or different from the breach or
default waived.
18. Binding Effect; Assignment. This letter shall be binding
upon and inure to the benefit of and shall be enforceable by the successors and
assigns of Best and SBA. This letter may not be assigned, and no obligation may
be delegated, without the prior written consent of all the parties hereto. Any
such attempted assignment or delegation without such written consent shall be
void and ineffective for all purposes.
19. Notices. All notices, requests, consents and other
communications given by either party hereto shall be in writing and shall be
deemed duly given if hand delivered or sent by Federal Express or other
reputable courier service, and shall be deemed given when sent to the other
party at its address set forth at the beginning of this letter.
20. Governing Law. This letter agreement shall be construed
and enforced in accordance with laws of the State of New York.
21. Outside Dates. The orders of the Bankruptcy Court referred
to in paragraphs 13 and 14 shall be entered by no later than Wednesday, October
23, 1996 and Thursday, November 21, 1996, respectively, in each case time being
strictly of the essence, and the conditions set forth in paragraph 14 shall be
satisfied by no later than Thursday, November 21, 1996. If either of such orders
shall not be entered on or prior to the deadlines set forth in the preceding
sentence for the entry of the same, if any stay shall be pending with respect to
either such order as of the close of business on the fourth calendar day
following the respective deadline for entry of the same or if any such condition
shall not have been satisfied on or prior to the deadline set forth in the
preceding sentence for satisfaction of the same (i) SBA shall have the right to
elect not to proceed with the transactions contemplated herein upon the delivery
of written notice to Best, (ii) SBA shall be entitled, to the extent that the
Bankruptcy Court has approved the Diligence/Consulting Fee, to retain the
Diligence/Consulting Fee notwithstanding its exercise of such right and (iii) if
SBA elects to exercise such right, (a) SBA shall have no obligation or liability
of any nature to Best or its estate other than with respect to the Initial
Agreement, and (b) Best shall have no obligation or liability of any nature to
SBA other than the obligation to pay SBA the Diligence/Consulting Fee to the
extent ordered by the Bankruptcy Court.
22. Counterparts. This agreement may be executed in telecopied
or original counterparts, each of which shall, for all purposes, be deemed and
original and all of such counterparts, taken together, shall constitute one and
the same agreement, even though all of the parties hereto may not have executed
the same counterpart of this agreement.
Kindly indicate below that the foregoing represents our mutual
agreement respecting the matters described herein by signing and returning a
copy of this letter. It is understood that, except for paragraph 1A hereof, this
letter is not binding upon either Best or SBA upon execution, but shall
automatically, without further act or instrument, become binding upon Best and
SBA upon the entry of the order of the Bankruptcy Court described in paragraph
13 above and the receipt of the Diligence/Consulting Fee by SBA, subject to the
conditions and outside dates set forth in paragraphs 14, 15 and 20 above.
SCHOTTENSTEIN XXXXXXXXX
CAPITAL GROUP, LLC
By:________________________
ALCO CAPITAL GROUP, INC.
By:_________________________
ACCEPTED AND AGREED TO:
BEST PRODUCTS CO., INC.
By:___________________________
EXHIBIT 1A -- INITIAL AGREEMENT
Exhibit 0x
XXXXXXXXXXXXX XXXXXXXXX XXXXXXX XXXXX, LLC
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx Xxxx, Xxx Xxxx 00000
ALCO CAPITAL GROUP, INC.
000 Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
As of October 10, 1996
Best Products Co., Inc.
X.X. Xxx 00000
Xxxxxxxx, XX 00000
Gentlemen:
Upon execution by BEST PRODUCTS CO., INC. (the "Merchant"), a
debtor in possession in a case under Chapter 11 of title 11 of the United States
Code (the "Bankruptcy Code") pending in the United States Bankruptcy Court for
the Eastern District of Virginia (the "Bankruptcy Court"), this letter shall
serve as the agreement (the "Agreement") between Merchant and SCHOTTENSTEIN
XXXXXXXXX CAPITAL GROUP, LLC ("SBC") and ALCO CAPITAL GROUP, INC. ("ACG,"
collectively with SBC, hereinafter the "Agent") for Agent to act as Merchant's
sole and exclusive agent pursuant to the terms of this Agreement for the limited
purpose of selling all of the Merchandise in Merchant's stores listed on Exhibit
A attached hereto (collectively, the "Stores" and individually, a "Store") by
means of a store closing or similar sale (the "Sale"). Merchant and Agent agree
that Merchant may, in its sole discretion, by written notice delivered to Agent
no later than two days prior to the date of commencement of the Inventory Count,
elect to include certain additional store locations in the Sale (each such store
being an "Additional Store" hereunder; the term "Stores" shall be deemed to
include all Additional Stores). In consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, Merchant
and Agent hereby agree as follows:
1. Sale and Agency. The Agent agrees to serve as Merchant's exclusive
agent for the limited purpose of conducting the Sale of the Merchandise (as
defined in Section 4(b) hereof) and, as may be directed by Merchant, the sale of
the Fixtures (as defined in Section 4(b) hereof) in accordance with the terms of
this Agreement.
2. Bankruptcy Court Approval. Merchant's and Agent's obligations
hereunder are subject to approval of the Bankruptcy Court and shall be of no
force and effect in the event that it is not so approved. As soon as practicable
after Merchant's execution of this Agreement, Merchant shall apply to the
Bankruptcy Court for an order approving this Agreement in its entirety (the
"Approval Order"). The Approval Order shall provide, in a form reasonably
acceptable to counsel for the Agent and Merchant, that: (a) this Agreement is in
the best interests of Merchant, Merchant's estate, creditors and other parties
in interest; (b) this Agreement (and each of the transactions contemplated
hereby) is approved in its entirety; (c) Merchant and Agent shall be authorized
to take any and all actions as may be necessary or desirable to implement this
Agreement and each of the transactions contemplated hereby; (d) Agent shall be
entitled to sell all Merchandise hereunder free and clear of all liens, claims
or encumbrances thereon; (e) Agent shall have the right to use the Stores and
all furniture, fixtures and equipment in the Stores for the purpose of
conducting the Sale, free of any interference from any entity or person; (f)
Agent, as agent for Merchant, is authorized to conduct the Sale as a store
closing or similar type sale (the "Store Closing Sale"); (g) Agent shall be
granted a limited license and right to use until the End Date the trade names,
logos and customer lists relating to and used in connection with the operation
of the Stores, solely for the purpose of advertising the Sales in accordance
with the terms of the Agreement; (h) Agent shall have the right to use all
Store-level assets and such other assets and services of Merchant designated in
this Agreement, solely for the purposes and to the extent and for the duration
set forth in this Agreement; (i) Agent is authorized to post signs, advertise
and otherwise promote the Sale only as a "Store Closing Sale" or "Bankruptcy
Court Authorized Store Closing Sale" without further consent of any person other
than Merchant, in a manner consistent with the Sale guidelines attached as
Exhibit B hereto (the "Guidelines"); provided, however, that no signs shall be
posted in or about any Store which shall be in violation of the lease for such
Store, except as may be modified by the Approval Order, including the
Guidelines; (j) each and every federal, state or local agency, department or
governmental authority with regulatory authority over the Sale (collectively,
the "Governmental Authority") and all newspapers and other advertising media in
which the Sale is advertised shall be directed to accept the Approval Order as
binding and to allow Merchant and Agent to consummate the transactions provided
for in this Agreement, including, without limitation, the conducting and
advertising of the Sale as a "Store Closing Sale" or "Bankruptcy Court
Authorized Store Closing Sale", and no further approval, license or permit of
any Governmental Authority shall be required; (k) all utilities, landlords,
creditors and all persons acting for or on their behalf shall not interfere with
or otherwise impede the conduct of the Sale, institute any action in any court
(other than in the Bankruptcy Court) or before any administrative body which in
any way directly or indirectly interferes with or obstructs or impedes the
conduct of the Sale; (l) the Bankruptcy Court shall retain jurisdiction over the
parties to enforce this Agreement; (m) Agent shall not be liable for any claims
against the Merchant other than as expressly provided for in this Agreement, and
Agent shall have no successorship liabilities whatsoever; (n) sales of
Merchandise shall be protected by section 363(m) of the Bankruptcy Code in the
event that the Approval Order is reversed or modified on appeal; and (o) Agent's
claims hereunder shall be entitled to priority under section 507(a)(1) of the
Bankruptcy Code.
3. The Inventory Count; Fixtures List. Merchant and Agent shall cause
to be taken an "SKU" inventory of all Merchandise in the Stores (the "Inventory
Count") which shall be completed at all of the Stores within five (5) successive
days after the Approval Order is signed by the Bankruptcy Court, except to the
extent that extraordinary circumstances preclude completion of the Inventory
Count by such date. The date that the Inventory Count is taken in a particular
Store shall be agreed upon between Merchant and Agent and shall be referred to
as to each Store as the "Inventory Date." The Inventory Count shall be taken by
RGIS or another independent inventory service designated jointly by Merchant and
Agent (the "Inventory Service"). The cost of the Inventory Service shall be paid
equally by Merchant and Agent. Each Store shall be closed during the Inventory
Count and, once the Inventory Count commences and during the course of the
Inventory Count, neither Merchant nor Agent shall enter such Store without each
having a representative present; provided, however, that Merchant shall be
entitled to enter any Store at any time without prior notice to Agent in the
event of an emergency at such Store. Attached as Exhibit C hereto are
instructions to be delivered to the Inventory Service prior to the Inventory
Count. On the day immediately prior to the Inventory Date, representatives of
Merchant will take a physical count and prepare a list of all Fixtures located
in the Stores (the "Fixtures List"), which list will be verified, signed and
approved by an authorized representative of Agent within two (2) days of the
Inventory Date. The Fixtures will not be included in the Inventory Count for
purposes of determining Inventory Value (as defined in Section 4(a) hereof).
Prior to the completion of the Inventory Count, Merchant may transfer, at its
expense, certain merchandise between the Stores and/or into the Stores from
certain of Merchant's distribution centers and from certain of Merchant's
ongoing Store locations not subject to the Sale (collectively, the "Remaining
Stores") as agreed upon between Merchant and Agent. In order to facilitate the
Inventory Count, immediately following the execution of this Agreement by
Merchant and Agent, Merchant agrees to make its SKU and pricing data files and
related computer hardware and software available to the Agent and the Inventory
Service.
4. Inventory Value; Merchandise.
(a) The term "Inventory Value" shall mean the aggregate of the
Item Values (as defined in Section 5 hereof) of all items of Merchandise plus,
in the event that the Start Date occurs prior to the Inventory Count in one or
more Stores, the aggregate of the Item Values of all of the Merchandise included
in the Gross Rings (as defined in Section 7 hereof).
(b) The term "Merchandise" shall include (i) all merchandise
and goods owned by Merchant and located at the Stores on the Start Date, and
(ii) all On Order Merchandise (as hereinafter defined); provided, however, that
"Merchandise" shall not include (A) goods which belong to sublessees, licensees
or concessionaires of Merchant or which have been placed in the Stores on
consignment or bailment; and (B) furniture, fixtures, equipment and improvements
to realty located in the Stores (the "Fixtures"). Merchandise shall include the
"Damaged Merchandise", "Clearance Merchandise" and "Out-of-Season Merchandise"
as these terms are defined in subsection 4(c) hereof.
(c) As used herein the following terms have the following
respective meanings:
"Clearance Merchandise" means all items of merchandise which
are subject to one or more hard (i.e., permanent) markdowns and which are
treated as "clearance merchandise" in accordance with Merchant's present and
historic practices.
"Damaged Merchandise" means any item of merchandise reasonably
agreed upon and identified by Agent and Merchant during the taking of the
Inventory Count as (i) so damaged or defective that the Merchant would not have
offered such merchandise at regular retail price (inclusive of promotional and
clearance prices) prior to the Sale, and (ii) products with expiration dates
thirty (30) days or less after the Start Date. Sample Merchandise and
Merchandise on display shall not per se be deemed to be Damaged Merchandise so
long as (x) the original packaging (including any written instructions and
warranty information) for such Merchandise is intact and available if needed to
make the item salable in the ordinary course, and (y) such item remains subject
to its original warranty, if applicable. Damaged Merchandise shall not include
goods which have minor dents in the product packaging that do not affect the
salability of the product contained inside the package. Either Merchant or Agent
may, in its discretion, elect to exclude an item of damaged or defective
Merchandise from Damaged Merchandise, and in such event, Merchant shall as
promptly as practicable remove such item from the applicable Store; provided,
however, that Merchant shall have the right, but not the obligation, to include
all or a portion of the Damaged Merchandise, to be selected at Merchant's
discretion, in the Sale as Merchant Consignment Goods (as defined below) in
accordance with the terms of this Agreement.
"On Order Merchandise" means first quality in season goods (A)
to be received at the Stores in the ordinary course from Merchant's vendors on
or before November 15, 1996, (B) which are consistent as to type and quality as
Merchandise presently located in the Stores, (C) which are ticketed at
Merchant's expense upon delivery to the Merchant's distribution centers or the
Stores in a manner consistent with Merchant's historic practices and policies;
provided, however, that consistent with such historic practices and policies all
or a portion of such Merchandise may not physically display the price of such
merchandise, (D) having an aggregate Item Value not in excess of $22,229,405,
and (E) all of which is generally described in Exhibit D attached hereto.
"Out of Season Merchandise" means all items of Spring/ Summer
merchandise which are not normally sold in the current selling season as
in-season merchandise, including, without limitation, (i) merchandise in Store
Department number 39, and (ii) swing sets, playground sets, lawn and garden
merchandise, pools, outdoor furniture, outdoor tabletop merchandise, barbecue
grills and car carriers, and further including, in each case, such out of season
items which are packed away for future sale.
(a) Agent shall not bring any additional merchandise into any
Store with the exception of (i) Merchandise transferred from another Store, or
(ii) as Merchant and Agent may mutually agree, from a Remaining Store or one of
Merchant's distribution centers.
(b) 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 Damaged 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. If Merchant does not elect to have Agent sell Damaged
Merchandise, then all such items will be removed by Merchant from the Stores at
its expense as soon as practicable after the date hereof. Any layaway, repair or
special order goods not constituting Merchandise, together with all contracts
relating thereto, shall remain Merchant's liability and responsibility, but
Agent shall cooperate with Merchant in administering such matters. Except as
expressly provided in this Section 4(e), Agent shall have no cost, expense or
responsibility in connection with any goods not included in Merchandise.
1. Determining the Item Values. For purposes of this Agreement, "Item
Value" shall mean, with respect to each item of Merchandise, Merchant's "average
actual cost" of such item as set forth in Xxxxxxxx'x XXXX Report prepared as of
October 12, 1996, which report (i) shall be prepared by Merchant in a manner
consistent with Merchant's historic practices and similar in form to Xxxxxxxx'x
XXXX Report prepared as of September 21, 1996, a copy of which has been
delivered by Merchant to Agent, (ii) shall be delivered by Merchant to Agent as
soon as practicable after the completion thereof and in any event prior to the
Inventory Date, and (iii) shall be agreed upon by Merchant and Agent as to form
only, with such agreement to be evidenced by representatives of the parties
initialing such report (the "XXXX Report"), except for:
(i) items of Out of Season Merchandise, where "Item Value"
shall mean the product of (A) the lower of (x) fifty percent (50%) of the
original selling price of each such item, or (y) the lowest price offered to the
public for such item on or after August 1, 1996 by any and all means (including,
without limitation, by means of advertisement, coupon, circular, in-Store
promotion, point of sale discount or otherwise), times (B) the Adjusted Cost
Factor (as hereinafter defined);
(ii) items of Damaged Merchandise, where "Item Value" shall
mean the product of (A) fifty percent (50%) of the lowest ticketed or lowest
marked price of such item on or after August 1, 1996, times (B) the Adjusted
Cost Factor;
(iii) items of Clearance Merchandise, where "Item Value" shall
mean the product of (A) the current price to the consumer for such item as of
the Inventory Date, times (B) the Cost Factor of such item;
(iv) items of Merchandise on display in the Stores which do
not constitute Damaged Merchandise, where "Item Value" shall mean the product of
(A) sixty-seven percent (67%) of the selling price of such item as of the
Inventory Date, times (B) the Adjusted Cost Factor; provided, however, that if
sample or display Merchandise (including, without limitation, luggage and
assembled furniture) was salable as first quality goods by Merchant in
accordance with its present and historic practices, then the "Item Value" of
such Merchandise shall mean Merchant's "average actual cost" as provided for
above in this Section 5; and
(v) items of Merchandise offered on or after August 1, 1996 at
a discount of 50% or greater off of the original selling price in any flyer,
circular, advertisement or other means of promotion, where "Item Value" shall
mean the product of (A) the lowest offered price for such item by any and all
means from and after August 1, 1996, times (B) the Cost Factor of such item.
Merchant represents and warrants that since August 1, 1996,
Merchant has not (i) raised any prices, or (ii) removed any yellow clearance
stickers or other indication of "clearance merchandise" (including designations
of clearance merchandise in Merchant's SKU, pricing and cost files), or (iii)
altered any of its cost or pricing files including, without limitation, any of
the data used to prepare Xxxxxxxx'x XXXX Reports and Maintained Markup Reports
(as defined below), in contemplation of the Inventory Count or the Sale. The
ticketed price of any item of Merchandise shall not include any sales or gross
receipts taxes. If any item of Merchandise has more than one price, the lowest
"ticketed price" shall prevail unless it is obvious that the lower "ticket
price" was mismarked.
As used herein the following terms have the respective
meanings set forth below:
"Cost Factor" shall mean, with respect to each item of
Merchandise, the difference between one (1) minus the "maintained markup
percentage" for such item as set forth in Merchant's Maintained Markup Report
dated as of October 4, 1996, which report (i) shall be prepared by Merchant in a
manner consistent with the Merchant's historic practices and similar in form to
Merchant's Maintained Markup Report prepared as of August 31, 1996, which has
been delivered by Merchant to Agent, (ii) shall be delivered by Merchant to
Agent as soon as practicable after the completion thereof and in any event prior
to the Inventory Date, and (iii) shall be agreed upon by Merchant and Agent as
to form only, with such agreement to be evidenced by representatives of the
parties initialing such report (the "Maintained Markup Report").
"Adjusted Cost Factor" shall mean the difference between one
(1) minus the aggregate "maintained xxxx-up percentage" for all non-jewelry
Merchandise as set forth in the Maintained Markup Report.
1. Duration of the Sale; Vacating the Premises.
(a) The Sale shall start on the first day after the completion
of the Inventory Count (with respect to each Store such date shall be the "Start
Date"), and shall end no later than the close of business at each Store on
December 31, 1996, unless extended by agreement of the parties (the "End Date").
Agent may terminate the Sale prior to the End Date at any Store in its
discretion on ten (10) days' prior written notice to Merchant.
(b) At the conclusion of the Sale, Agent agrees to leave the
Stores in "broom clean" condition, except for removal of Fixtures and remaining
Supplies (as defined in Section 15 hereof) and to leave the Stores in the same
condition as on the Start Date, ordinary wear and tear excepted. Agent shall
vacate the Stores on or before the End Date. Agent shall surrender and deliver
each of the Store premises and keys thereto to Merchant, or as otherwise
directed by Merchant, as the Sale therein is completed. In the event that Agent
fails to vacate any Store on or before the End Date, Agent shall be responsible
for all Occupancy Costs (as defined in Section 18 hereof) for the period from
the End Date through the date that the Agent actually surrenders and vacates the
Stores.
2. Gross Rings. In the event that Merchant and Agent agree that the
Sale may commence in any particular Store prior to the completion of the
Inventory Count at such Store, then for the period from the Start Date for such
Store, until the Inventory Count is taken in such Store, Agent and Merchant
shall jointly keep a strict count of gross register receipts less applicable
sales tax ("Gross Rings") and cash reports of sales within such Store. The
register receipts shall show for each item sold the Item Value and the Storewide
or other discount granted by Agent in connection with such sales, All such
records and reports shall be made available to Agent and Merchant during regular
business hours upon reasonable notice.
3. The Guaranteed Amount; Proceeds.
(a) As a guaranty of Agent's performance hereunder, Agent
hereby agrees to pay to Merchant 85.15% of the aggregate Inventory Value of the
Merchandise, except for On Order Merchandise received at the Stores after
October 31, 1996, as to which such percentage shall be the product of 85.15%
times the compliment of the then prevailing Sale discount at the time of receipt
of such Merchandise at the Stores (the "Guaranteed Amount").
(b) On the Start Date, the Agent shall pay to Merchant 75% of
the estimated Guaranteed Amount, which amount shall be calculated based upon the
XXXX Report. In addition, on the Start Date, Agent shall deliver to Merchant the
Letter of Credit (as defined below). No later than Wednesday of each week during
the term of the Sale, until the Guaranteed Amount is paid in full, Agent shall
pay to Merchant 100% of the Proceeds from sales of Merchandise during the prior
week (i.e., Sunday through Saturday) which amounts shall be credited against the
Guaranteed Amount. The Agent shall make weekly payments of the portion of the
Guaranteed Amount relative to On Order Merchandise arriving at the Stores after
the Start Date upon receipt of such Merchandise at the Stores.
(c) The term "Proceeds" shall mean the proceeds received from
the sale of the Merchandise (which amount shall not include sales taxes) and the
proceeds of Merchant's insurance, if any, for loss or damage to the Merchandise,
or robbery of cash to the extent of insurance coverage of Merchant.
(d) In addition to the Guaranteed Amount, on the Start Date,
Agent shall reimburse Merchant as of the start of business on the Start Date for
all cash remaining in the Stores used for the purpose of refunds, exchanges, and
cash registers.
(e) After full payment of the Guaranteed Amount and all
Expenses of Sale, Agent shall retain all Proceeds of the Sale. All Merchandise
remaining at the conclusion of the Sale shall become the property of the Agent,
free and clear of all liens, claims, and encumbrances of any kind or nature.
(f) All amounts required to be paid by Agent or Merchant under
any provision of this Agreement shall be made by wire transfer of immediately
available funds which shall be wired by Agent or Merchant, as applicable, no
later than 2:00 p.m. (Eastern Time) on the date that such payment is due;
providing, however, that all of the information necessary to complete the wire
transfer has been received by Agent or Merchant, as applicable, by 9:00 a.m.
(Eastern Time) on the date that such payment is due. In the event that the date
on which any such payment is due is not a business day then such payment shall
be made by wire transfer on the next business day.
(g) Agent shall provide a complete accounting to Merchant
within thirty (30) days of the End Date of (i) all Proceeds from the Sale, (ii)
all Sales Taxes collected during the Sale, and (iii) any other accountings
required hereunder.
4. Conduct of the Sale. Agent shall conduct the Sale in the manner in
which Agent in its discretion reasonably deems fit, including, but not limited
to, advertising, pricing of Merchandise, number and type of personnel, Store
hours, Store maintenance and security, all in accordance with the applicable
Store lease as may be modified by the Approval Order. Agent shall conduct the
Sale in a commercially reasonable manner in accordance with the terms of this
Agreement and the Approval Order. Unless otherwise agreed by Merchant, Agent
shall only advertise the Sale as a "Store Closing Sale" or "Bankruptcy Court
Authorized Store Closing Sale" with reference to the specific Store location,
subject to the terms of the Approval Order. Merchant will have the right to
approve, within two (2) business days of notification to Merchant, all
advertising prior to any commitment being made therefor by Agent; provided,
however, that Merchant's approval shall not be unreasonably withheld and any
failure by Merchant to respond to any advertising so submitted (other than any
direct mailing to Merchant's customers) within two (2) business days shall be
deemed approved. All advertising shall be sent to Xxxxxx X. Xxxx and W. Xxxxxx
Xxxxxxxx, Xx. via facsimile number (000) 000-0000. Agent recognizes that
Merchant's name has an established reputation for quality in the community and
shall conduct the Sale in a manner consistent with Merchant's reputation.
5. Employees.
(a) Agent may use Merchant's employees to the extent Agent
deems feasible, and Agent may select and schedule the number and type of
Merchant's employees required for the Sale. Notwithstanding the foregoing,
Merchant's employees shall at all times remain employees of Merchant and shall
not be considered or deemed to be employees of Agent; provided, however, that
Agent shall be responsible for supervising all such employees used by Agent
during the Sale and shall be responsible for the conduct or actions of such
employees during the Sale. Agent's selection and scheduling of Merchant's
employees shall at all times comply with all applicable laws and regulations.
Agent shall provide Merchant with seven (7) days' prior written notice as to the
number and type of employees, if any to be terminated prior to the End Date in
each Store. Following the date of this Agreement, Merchant shall not transfer or
dismiss any store-level employees (except "for cause") without Agent's consent,
which consent will not be unreasonably withheld.
(b) On and after the Start Date, Agent agrees to pay Merchant
within twenty four (24) hours after receipt of invoices therefor an amount equal
to the sum of (i) the gross wage payroll paid to Merchant's employees used in
the Stores by the Agent during the Sale plus (ii) an amount equal to twenty-one
percent (21%) of such gross wage payroll to pay for (x) the related payroll
taxes (including FICA and Unemployment), (y) worker's compensation and health
care insurance benefits, and (z) holiday pay for Store employees in respect of
the Thanksgiving and Christmas holidays (the amounts set forth in (x), (y) and
(z), collectively, the "Benefits"). Agent shall not be responsible for the
payment of Benefits in excess of 21% of the gross wage payroll (the "Fringe
Benefit Cap"), and any amounts in excess of the Fringe Benefit Cap shall be paid
by Merchant without reimbursement by Agent and shall not be an Expense of Sale
(as defined in Section 11 hereof).
(c) Except for Agent's obligations to reimburse Merchant for
wages and Benefits (subject to the Fringe Benefits Cap) of employees used in the
Stores by the Agent during the Sale as provided for above, Merchant and Agent
acknowledge and agree that (i) nothing herein nor any of Agent's actions taken
in respect hereto 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, pension, withdrawal, severance pay, vacation leave or pay,
sick leave or pay, maternity leave or pay, Worker Adjustment Retraining Act
("WARN") claims (if any) and other termination type claims and obligations; and
(ii) Merchant hereby indemnifies Agent in respect to any claims asserted by any
of Merchant's employees against Agent, except as to claims arising out of the
negligence of Agent or wrongful acts or omissions of Agent or its
representatives, and Merchant is solely and specifically responsible for all of
Merchant's obligations under any collective bargaining agreements and any
purported oral service contracts.
(d) Agent shall indemnify and hold harmless Merchant for
claims of Merchant's employees in the Stores arising with respect to the period
of the Sale and arising solely out of the negligence or wrongful acts or
omissions of Agent or its representatives. During the Sale, Agent shall maintain
a safe working environment consistent with Merchant's policies and procedures
applicable to the Stores which are furnished by Merchant to Agent prior to the
Start Date.
(e) In Agent's sole discretion, Proceeds may be used to pay,
as an Expense of Sale, retention bonuses ("Retention Bonuses") (which bonuses
shall be inclusive of payroll taxes but as to which no benefits shall be
payable) to Store 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 End Date, and shall be processed through Merchant's payroll
system. Prior to the Start Date Agent shall deliver to Merchant a description of
Agent's proposed Retention Bonus program for the Sale. Following the Start Date,
Agent shall not, without Merchant's consent, make any change to such program
which would adversely effect the interests of Store employees thereunder.
6. Agent's Expenses of Sale; Bank and Charge Accounts.
(a) Agent shall collect all Proceeds and shall pay all
Expenses of Sale. "Expenses of Sale" shall be (i) the actual gross wage payroll
paid to Merchant's employees used in the Stores by the Agent during the Sale,
plus the cost of the Benefits for such employees, subject to the Fringe Benefit
Cap, plus Retention Bonuses paid to such employees by Agent; (ii) advertising
expense (at Merchant's contract rates, if available), including costs
attributable to direct mail and other media; (iii) signage for the Sale; (iv)
security in the Stores including, without limitation, courier and guard
services; (v) bank service charges, bank card fees and chargebacks; (vi)
telephone charges for the Stores; (vii) Agent's expenses for supervisors at the
Stores and at Merchant's central office facilities, including costs of travel;
(viii) 50% of the fees and costs of the Inventory Service to conduct the
Inventory Count; (ix) a pro-rata portion of Merchant's casualty insurance
premiums attributable to the Merchandise; (x) costs of general liability
insurance required to be obtained under Section 24(b) below; (xi) costs of
transfers of Merchandise during the Sale Term, other than transfers of On Order
Merchandise to the Stores; (xii) Store trash removal; (xiii) personal property
taxes for Merchandise located at the Stores pro rated for the period of time
that the Agent is operating at such Stores, but in no event in excess of
$100,000; (xiv) all housekeeping and cleaning expenses related to the Stores,
which housekeeping and cleaning services shall be performed by Agent (including
cleanliness and frequency) in a manner consistent with Merchant's present
practices; (xv) all travel expenses payable to Merchant's employees relating to
travel by such employees at the direction of the Agent, which shall include,
without limitation, the cost of transferring Merchant's employees between
Stores; (xvi) all costs and expenses of providing such additional Store-level
services which the Agent in its reasonable discretion considers appropriate;
(xvii) subject to Merchant's compliance with the last sentence of Section 13
hereof, the sum of $10,000 per week during the Sale Term (pro rated for a period
less than a week) for access to and use of Merchant's central office facilities,
services and personnel; and (xviii) any other expenses directly attributable to
the Sale, including additional Supplies, and any other expenses expressly
required to be paid by Agent pursuant to this Agreement. To the extent that any
Expenses of Sale are advanced by Merchant, Agent shall reimburse Merchant the
total amount of same promptly following receipt of invoices therefor.
(b) All cash Proceeds shall be deposited by Agent in agency
accounts established by Agent (the "Agency Accounts"). 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.
(c) Agent shall establish merchant identification numbers
under Agent's name and shall process all credit card Proceeds under such numbers
for Agent's account, and Merchant shall cooperate with Agent in such regard.
Notwithstanding the foregoing, for a period not to exceed the first seven (7)
days of the term of the Sale (or, with Merchant's consent (which consent will
not be unreasonably withheld) a longer period), Agent shall have the right (but
not the obligation) to use Merchant's credit card facilities (including
Merchant's credit card terminals and processor(s), credit card processor coding,
merchant identification number(s) 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 processor(s), and shall take such other
actions reasonably necessary to process credit card transactions under
Merchant's merchant identification number(s). Merchant shall deposit all credit
card Proceeds actually received from Merchant's credit card processor(s) 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. Merchant shall
not be responsible for and Agent shall pay as an Expense of Sale hereunder, all
credit card fees, charges, and chargebacks related to the Sale, whether received
prior to or after the End Date.
7. Sales Taxes.
(a) During the Sale, Agent shall collect all sales, excise and
gross receipts taxes (but not income taxes) (collectively, the "Sales Taxes")
payable to any taxing authority having jurisdiction, which taxes shall be added
to the sales price and be paid by the customer at the time Merchandise is
purchased. Agent shall pay to Merchant by wire transfer the amount of the Sales
Taxes collected four (4) days prior to the due date and Merchant agrees to
deposit such taxes in Merchant's own name, such funds to be used solely for
payment of Sales Taxes when due. Merchant shall file all necessary tax returns,
reports and forms for Sales Taxes. Merchant will be given access to the
computation of gross receipts for verification of all Sales Tax collections, and
Agent warrants the accuracy of all information Agent provides to Merchant
relating to Sales Taxes.
(b) Provided Agent complies with its obligations under Section
12(a) hereof to collect and remit the Sales Taxes to Merchant, Merchant shall
indemnify and hold Agent harmless from and against any and all costs (including,
but not limited to, reasonable attorneys' fees), assessments, fines or penalties
which Agent actually sustains or incurs as a direct or indirect result or
consequence of the failure by Merchant to pay the Sales Taxes to the proper
taxing authorities and/or the failure by Merchant to promptly file with taxing
authorities any and all returns, reports and other documents required by
applicable law to be filed or delivered to such taxing authorities. The Agent
shall indemnify and hold Merchant and its officers, directors and other
"responsible persons" (as such term or similar term is defined under the law of
the applicable taxing jurisdiction) harmless from and against any and all costs
including, but not limited to, reasonable attorney's fees, assessments, fines or
penalties which Merchant and its officers, directors and other "responsible
persons" (as such term or similar term is defined under the law of the
applicable taxing jurisdiction) actually sustain or incur as a direct or
indirect result or consequence of the failure by the Agent to fulfill its
obligations under Section 12(a) hereof.
8. Use of Fixtures, Supplies, Trade Names, Logos, Customer Lists and
Central Office Services.
Agent shall have the right to use in connection with the Sale,
without any charge, all furniture, equipment, fixtures and supplies, including,
but not limited to, bags, boxes, twine, paper and similar sales materials
("Supplies"), located at the Stores on the Start Date. Agent shall have no
obligation to account to Merchant for any of the Supplies used during the Sale,
but all Supplies remaining in the Stores on the End Date shall be left on the
Store premises and remain Merchant's property. In the event that additional
Supplies are required in any of the Stores during the Sale, Merchant agrees to
promptly provide such additional Supplies to Agent, if available and not
required for use by Merchant in the Remaining Stores, for which Agent shall
reimburse Merchant at Merchant's cost plus shipping costs. Merchant covenants
and warrants that it has not and will not remove any Supplies from the Stores in
contemplation of this Agreement other than by use of Supplies in the ordinary
course of business prior to the Sale; provided, however, that Merchant does not
warrant that the existing Supplies in the Stores as of the Start Date are
adequate for the purposes of the Sale. In addition, Agent shall be granted a
limited license and right to use until the End Date the trade names, logos and
customer lists solely relating to and used in connection with the operation of
the Stores and solely for purpose of advertising the Sales in accordance with
the terms of this Agreement. Merchant shall have the right to approve all direct
mailing advertising proposed to be used by Agent prior to Agent's distribution
thereof, which approval, in the case of any such mailings to be used in markets
in which Merchant does not operate a Remaining Store, shall not be unreasonably
withheld. Agent shall have the right to use Merchant's central office
facilities, central and administrative services and personnel to perform the
functions described in Exhibit E attached hereto in a manner mutually acceptable
to Merchant and Agent, provided that the same shall not unreasonably disrupt or
interfere with ongoing business operations.
9. Terms of Sales to Customers. All sales to customers shall be for
cash or upon bank credit cards (excluding private label cards). All sales shall
be advertised as "FINAL," and all sales receipts shall be marked "FINAL." Any
consumer complaints or other matters relating to periods or sales prior to the
Start Date (e.g., gift certificates, layaways, credits, returns) shall be
referred to a designated representative of Merchant.
10. Return of Merchandise. During the Sale, Agent shall not accept
returns of merchandise sold by Merchant from the Stores prior to the Start Date.
11. Merchant's Expenses. During the Sale, Merchant shall be responsible
for payment of the following items, none of which shall be deemed an Expense of
Sale: (i) all occupancy costs, including rent, percentage rent, utilities
(excluding only telephone costs), common area charges, real and personal
property taxes (except as otherwise expressly provided above), insurance (except
as otherwise expressly provided above), sewage costs and costs and expenses
relating to the furniture, fixtures, equipment and leasehold improvements,
including, but not limited to, lease payments, service contracts, repair costs
and finance charges (all of the foregoing, collectively, the "Occupancy Costs");
(ii) any Benefits in excess of the Fringe Benefit Cap; (iii) all other employee
benefits, including but not limited to union dues, termination pay, pension
benefits, severance pay, vacation pay, sick leave or pay, maternity leave or
pay, and WARN claims (if any); (iv) major maintenance and structural repair; and
(v) any other expenses not directly attributable to the Sale and any other
expenses expressly required to be paid by Merchant pursuant to this Agreement.
To the extent that any expenses of Merchant under this Agreement are advanced by
Agent, Merchant shall reimburse Agent for the total amount of same promptly
following receipt of invoices therefor.
12. Reporting; Right of Access. Agent shall furnish Merchant with
weekly reports including, without limitation, reports that comply with the
Merchant's current reporting to its central office, reflecting the progress of
the Sale which shall specify the Proceeds received to date, and shall furnish
Merchant with such other information regarding the Sale as Merchant reasonably
requests. During the course of the Sale, Merchant shall have the right to have
representatives continually act as observers of the Sale in the Stores so long
as they do not interfere with the conduct of the Sale.
13. Fixtures. If requested by Merchant, Agent shall advertise in the
context of advertising for the Sale that Fixtures in the Stores are for sale,
and shall contact and solicit known purchasers and dealers of furniture and
fixtures. In consideration of providing such services, Agent shall retain a
commission of ten percent (10%) of the sales of all Fixtures sold by Agent, not
including sales taxes. Merchant shall notify Agent if any Fixtures are to be
excluded from Sale and shall have the right to determine the sales prices for
all Fixtures. On the End Date, Agent shall account and pay, in an amount equal
to the liquidation value, for any missing Fixtures as shown on the Fixtures
List; provided, however, that Agent shall have no liability for any missing
shopping carts provided that the aggregate number of missing shopping carts is
within ten percent (10%) of the number of such shopping carts set forth on the
Fixtures List. Agents right to the use of Fixtures during the Sale shall be
subject to the sale of such Fixtures in accordance with this Section 18;
provided, however, that no Fixtures sold during the Sale which are reasonably
required by Agent to conduct the Sale shall be removed during the Sale.
14. Letter of Credit. In order to secure all of Agent's obligations
under this Agreement, including the unpaid portion of the Guaranteed Amount, and
in addition to Agent's indemnification obligations under this Agreement, the
Agent shall furnish to Merchant, on the Start Date, an irrevocable standby
Letter of Credit in the original face amount equal to the sum of (i) 25% of the
estimated Guaranteed Amount, plus (ii) $8,000,000 (the "Letter of Credit") for
the benefit of Merchant and its officers, directors and other "responsible
persons" (as such term or similar term is defined under the law of the
applicable taxing jurisdiction), issued by Xxxxx Fargo Bank, N.A. and National
City Bank, Columbus Ohio or other similar national bank reasonably acceptable to
Merchant. At Agent's request (which request shall not be made more frequently
than bi-weekly), Merchant shall take all actions reasonably required to reduce
the amount available to be drawn under the Letter of Credit by amounts credited
against the Guaranteed Amount pursuant to the last sentence of Section 8(b)
hereof. On the sixtieth (60th) day after the End Date, the Letter of Credit
shall automatically be reduced to an amount equal to five million dollars
($5,000,000), which Letter of Credit shall have an expiry date of six months
after the End Date (the "Reduced Letter Of Credit"). The Reduced Letter of
Credit shall be used only to secure Agent's obligations for the payment of Sales
Taxes and chargebacks, if any.
15. Merchant's Warranties and Representations and Covenants. Merchant
hereby warrants and represents as follows:
(a) Merchant is a corporation, duly and validly
existing and in good standing under the laws of the Commonwealth of Virginia,
except for any such failure to be in good standing resulting from the failure of
Merchant to pay franchise taxes. Merchant is, and during the Sale will be,
authorized and duly qualified to do business and is in good standing in all
jurisdictions in which the Stores are located, except for any such failure to be
in good standing resulting from the failure of Merchant to pay franchise taxes.
(b) Except as affected by the provisions of the
Bankruptcy Code or as otherwise determined by the Bankruptcy Court or provided
for in the Approval Order, as of the date of entry of the Approval Order (i)
this Agreement and all other documents executed by Merchant in accordance with
this Agreement are the valid and binding obligations of Merchant enforceable in
accordance with their terms; (ii) Merchant has taken all necessary corporate
action required to authorize the execution, performance and delivery of this
Agreement and related documents; (iii) no court order or decree of any federal,
state or local government authority, or other action known to Merchant, is in
effect which will or may prevent or impair consummation of the transactions
contemplated by this Agreement; and (iv) the consent of any person or entity
(other than the Bankruptcy Court), including any landlord, is not required with
respect to the transaction contemplated herein.
(c) Merchant owns and will own at the Start Date and
during the Sale good and marketable title to all of the Merchandise, free and
clear of all liens, claims and encumbrances of any nature except for presently
existing liens which, in accordance with the Approval Order shall attach only to
the Guaranteed Amount.
(d) Except with respect to the ordering and
replenishment of new merchandise for the Stores, since August 1, 1996, Merchant
has operated and shall, up to the Start Date, continue to operate the Stores in
the normal and ordinary course (including, but not limited to pricing practices
and policies) and in a manner consistent with past practices and the practices
at Merchant's stores which are not closing, and except with respect to goods
excluded from the Merchandise hereunder, has not and shall not ship, receive or
transfer goods to or from any of the Stores except in the ordinary course of
business and consistent with past practices and the terms of this Agreement.
Since August 1, 1996, Merchant has not conducted any promotions or advertised
sales at the Stores, except promotions and sales in the ordinary course of
business, copies of which promotions and advertised sales have been provided by
Merchant to Agent and which are listed by publication and date in Exhibit F
attached hereto.
(e) No actions or proceedings have been instituted
against Merchant or, to the best of Merchant's knowledge, have been threatened,
preventing or which may prevent the consummation of the transactions
contemplated by this Agreement.
(f) No broker contributed to the transaction
contemplated by this Agreement, nor is any broker entitled to any commission
thereon. Merchant shall hold Agent harmless from and against all claims,
demands, suits and judgments for brokers fees arising out of this Agreement and
attributable to the actions of Merchant.
(g) The Inventory Value shall not be less than an
aggregate of $169,200,000 or more than an aggregate of $206,800,000 for all
Stores on the Start Date.
(h) Since August 1, 1996, 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, except for the promotions and sales described in Section
20(d). 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.
(i) As of the Inventory Date, all normal course
permanent markdowns on inventory located at the Stores will have been taken on a
basis consistent with Merchant's historical practices and policies and on a
basis consistent with markdowns taken at the Remaining Stores.
(j) Merchant shall ticket or xxxx all items of
inventory received at the Stores prior to the Start Date (including, without
limitation, all On Order Merchandise), in a manner consistent with similar
Merchandise located at the Stores and the Remaining Stores and in accordance
with Merchant's historic practices and policies relative to pricing and marking
inventory; provided, however, that consistent with such historic practices and
policies, all or a portion of such Merchandise may not physically display the
price of such merchandise.
(k) Since August 1, 1996, all point of sale activity
at the Stores has occurred and will occur up to the Start Date in the ordinary
course of business and consistent with promotions described in Section 20(d).
(l) Merchant covenants to continue to operate the
Stores in the ordinary course of business from the date of this Agreement to the
Start Date, (i) selling inventory during such period at customary prices, (ii)
not promoting or advertising any sales relating to the Stores or in-Store
promotions (including POS promotions) to the public other than as set forth in
Exhibit (F) attached hereto), (iii) not voluntarily returning inventory that
shall constitute Merchandise located at the Stores to vendors, (iv) not
transferring supplies or inventory that shall constitute Merchandise between or
among Stores, Remaining Stores and the Merchant's distribution centers, except
as expressly permitted herein, and (v) not making any management personnel moves
or changes at the Stores without Agent's prior written consent (which consent
will not be unreasonably withheld).
(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. To the extent presently existing and
available, Merchant shall provide Agent with its historic policies and practices
regarding product recalls prior to the taking of the inventory at the Stores.
(n) Throughout the Sale Term, the Agent shall have
the right to the unencumbered 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, subject to the terms of Store leases
and other agreements, all of which are made reasonably available by Merchant to
Agent prior to the Start Date, except to the extent the same are modified by the
Approval Order. Merchant shall throughout the Sale Term maintain in good working
order, condition and repair, at its sole expense, (except to the extent
resulting from Agent's negligence, wrongful acts or omissions, in which event
Agent shall bear such expense as an Expense of Sale), all cash registers,
heating systems, air conditioning systems, elevators, escalators, Store alarm
systems, and all other mechanical devices used in the ordinary course of
operation of the Stores.
(o) Merchant had paid and will continue to pay
throughout the Sale Term, all undisputed post-petition obligations in respect of
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.
(p) Merchant has not and shall not throughout the
Sale Term take any actions the result of which is to increase salaries or other
amounts payable to employees, other than increases to minimum wage as required
by applicable law.
(q) Except as disclosed on Exhibit G attached hereto
(i) Merchant is not a party to any collective bargaining agreements with its
employees, (ii) to the best of Merchant's knowledge, no labor unions represent
Merchant's employees at the Stores, and (iii) to the best of Merchant's
knowledge, there are currently no strikes, work stoppages or other labor
disturbances affecting the Stores, Merchant's central office facilities or
distribution centers.
(r) As of the date of this Agreement, Merchant is
current in the payment of all undisputed post-petition utility, tax, insurance
and advertising liabilities. Merchant agrees that in the event that Agent
receives notice that any such undisputed post-petition liability is overdue and,
as a direct result of such nonpayment, Agent is unable to advertise the Sale
with any newspapers, magazines, radio or television stations or other media
providers which target or serve the market areas of the Stores or is unable to
obtain Merchant's contract rate with any such provider, Merchant shall
immediately pay such post-petition, undisputed applicable balances in full.
16. Agent's Warranties, Representations and Covenants. Agent hereby
warrants and represents as follows:
(a) SBC is a limited liability corporation, duly and
validly existing and in good standing under the laws of the State of Delaware.
SBC is, and during the Sale will be, authorized and duly qualified to do
business in the State of Delaware and in each jurisdiction where the failure to
so qualify would have a material adverse effect on SBC's ability to perform
hereunder. ACG is a corporation, duly and validly existing and in good standing
under the laws of the State of Delaware. ACG is, and during the Sale will be,
authorized and duly qualified to do business in the State of Delaware and in
each jurisdiction where the failure to so qualify would have a material adverse
effect on ACG's ability to perform hereunder.
(b) (i) This Agreement and all other documents
executed by Agent in accordance with this Agreement are the valid and binding
obligations of Agent enforceable in accordance with their terms; (ii) Agent has
taken all necessary action required to authorize the execution, performance and
delivery of this Agreement and related documents; (iii) no court order or decree
of any federal, state or local government authority, or other action known to
Agent, is in effect which will or may prevent or impair consummation of the
transactions contemplated by this Agreement; and (iv) the consent of any person
or entity is not required with respect to the transaction contemplated herein.
(c) There is no outstanding order, judgment, injunction award or decree of any
court, governmental or regulatory body or arbitration tribunal by which the
Agent is bound which would materially interfere with this transaction, and there
shall be no action, suit, claim, legal, administrative or arbitral proceedings
or investigation (whether or not the defense thereof or liabilities in respect
thereof are covered by insurance) against the Agent which would, if determined
adversely to the Agent, be likely to have a material adverse effect upon the
transactions contemplated hereby, nor to the best of Agent's knowledge, are
there any facts which are likely to give rise to any such action, suit, claim or
legal, administrative or arbitral proceeding or investigation.
(c) No broker contributed to the transaction
contemplated by this Agreement, nor is any broker entitled to any commission
thereon. Agent shall hold Merchant harmless from and against all claims,
demands, suits and judgments for brokers fees arising out of this Agreement and
attributable to the actions of Agent.
(d) No actions or proceedings have been instituted
against Agent or, to the best of Agent's knowledge, have been threatened,
preventing or which may prevent the consummation of the transactions
contemplated by this Agreement.
(e) In conducting the Sale contemplated by the
Agreement, Agent shall comply with all applicable federal, state and local laws,
ordinances, rules and regulations with respect to such Sale, except for such
laws, ordinances, rules and regulations which have been superseded by the
Approval Order.
(f) As of September 30, 1996, Agent had tangible net
worth in excess of one million dollars ($1,000,000).
17. Conditions Precedent. As an express condition precedent to all of
Merchant's and Agent's obligations hereunder:
(a) Merchant shall have obtained the Approval Order
by October 25, 1996 and the Approval Order shall not have been stayed nor shall
an application for a stay of the Approval Order be pending;
(b) Merchant shall have received the payments on
account of the Guaranteed Amount provided in Section 8(b) hereof and the Letter
of Credit provided in Section 19 hereof; and
(c) All the representations and warranties of
Merchant and Agent made hereunder are and shall continue to be true and correct
in all material respects, and neither Merchant nor Agent shall have breached any
of its respective covenants or agreements hereunder.
18. Competing Store Closing Sales. During the Sale, neither Merchant
nor any affiliate of Merchant shall run a store closing or similar sale for all
Merchandise located at any store trading under the Best trade name within the
market area of any of the Stores without the prior written approval of Agent,
which approval shall not be unreasonably withheld.
19. Insurance.
(a) Merchant at its expense shall continue until the
End Date, in such amounts as Merchant currently has in effect, all of Merchant's
liability insurance policies, including but not limited to, comprehensive public
liability policies covering injuries to persons and property in or in connection
with Merchant's operation of the Stores and, from and after the Start Date,
shall cause Agent to be named as additional insured, as its interests may
appear, with respect to all such policies. On or before the Start Date, Merchant
shall deliver to Agent certificates evidencing such insurance policies, setting
forth the duration thereof and the naming of Agent as an additional insured, as
its interests may appear, in accordance with the provisions hereof, all in form
reasonably satisfactory to Agent. Merchant shall be responsible for the payment
of all deductibles, retentions or self-insured amounts under such policies
except in the event liability arises by reason of the wrongful acts or omissions
or negligence of Agent or Agent's employees, agents or independent contractors,
in which event such amounts shall be the responsibility of the Agent.
(b) Agent shall purchase on behalf of Merchant, as an
Expense of Sale hereunder, liability insurance coverage, which shall continue in
effect until the End Date, with limits in the amount of one million dollars
($1,000,000) per occurrence, two million dollars ($2,000,000) general aggregate
per location, with excess umbrella coverage with limits of fifteen million
dollars ($15,000,000), which shall include, but not be limited to, comprehensive
public liability policies covering injuries to persons and property in or in
connection with the operation of the Stores from and after the Start Date and
until the End Date. Agent shall be named as an additional insured, as its
interests may appear, with respect all such policies. On or before the Start
Date, Agent shall deliver to Merchant certificates evidencing such insurance
policies, setting forth the duration thereof, all in form reasonably
satisfactory to Merchant. Agent shall be responsible for the payment of all
deductibles, retentions or self-insured amounts under such policies except in
the event liability arises by reason of the wrongful acts or omission or
negligence of Merchant or Merchant's employees, agents (other than Agent or
Agent's employees, agents or independent contractors) or independent
contractors, in which event such amounts shall be paid by Merchant.
(c) At Agent's expense as an Expense of Sale
hereunder, Merchant shall continue its current property insurance on the
Merchandise in a total amount at least equal to the cost value thereof, with the
existing or, in Agent's discretion (and at Agent's expense) more favorable
deductibles. From and after the Start Date, said coverage will contain a loss
payable clause in Agent's favor. In the event of a loss to the Merchandise
included in the Inventory Value occurring on or after the Start Date, the
proceeds of such insurance attributable to the Merchandise shall be paid to
Agent and such proceeds shall be included as part of the Proceeds. On or before
the Start Date, Merchant shall deliver to Agent certificates evidencing such
insurance policies, setting forth the duration thereof and the naming of Agent
as a loss payee in accordance with the provisions hereof, all in form reasonably
acceptable to Agent. Agent shall be responsible for the payment of all
deductibles or self-insured amounts under such policies except in the event
liability arises by reason of the wrongful acts, omissions or negligence of
Merchant or Merchant's employees, agents and independent contractors (other than
Merchant's employees, agents and independent contractors under the direct
supervision of Agent), in which event such amounts shall be paid by Merchant.
(d) Merchant shall at all times during the Sale
maintain in full force and effect Worker's Compensation Insurance in compliance
with all statutory requirements.
(e) A list of all of Merchant's insurance policies
currently in effect setting forth the name of the insurer, the type of policy,
the limits of coverage, deductibles and self-insurance amounts is set forth on
Exhibit H hereto.
20. Agent's Right of Access and Usage of Equipment. Merchant agrees to
grant and provide Agent peaceful and quiet possession of the Stores during the
Sale subject to the terms of the Store leases, except as modified by the
Approval Order, and to take no action relating to the Stores which would disturb
such possession, including any action to modify or terminate any existing ADT or
similar security system or cash register maintenance agreements or remove any of
the furniture, fixtures or equipment from the Stores, except to the extent that
any Fixtures are sold during the Sale as provided for in Section 20 hereof.
Merchant agrees to maintain in operation at the expense of Merchant (except as
provided for above) for the benefit of Agent (i) the point of sale equipment in
the Stores during the period of the Sale and (ii) the management information
systems during the period of the Sale and for a period of ten (10) days after
the End Date. Agent shall have reasonable access to such systems for the
purposes of preparing any reports, monitoring the progress of the Sale,
rendering the accountings required hereunder, and for such other information
reasonably required to conduct the Sale.
21. Indemnification.
(a) In addition to the other indemnification
obligations of the parties provided for in this Agreement, Merchant agrees to
indemnify and defend and hold harmless Agent from any and all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees, costs and expenses, asserted against, resulting to or imposed
upon Agent, directly or indirectly, by reason of or resulting from the following
by Merchant: (i) any material breaches or failure to comply with any of the
agreements, covenants, representations or warranties contained in this
Agreement, (ii) any negligent or wrongful acts or omissions of Merchant or its
employees, agents or independent contractors (other than Merchant's employees,
agents or independent contractors under Agent's direct supervision), or (iii)
any failure to pay any and all obligations under this Agreement.
(b) In addition to the other indemnification
obligations of the parties provided for in this Agreement, Agent agrees to
indemnify and defend and hold harmless Merchant from any and all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees, costs and expenses, asserted against, resulting to
or imposed upon Merchant, directly or indirectly, by reason of or resulting from
the following by Agent: (i) any material breaches or failure to comply with any
of the agreements, covenants, representations or warranties contained in this
Agreement, (ii) any negligent or wrongful acts or omissions of Agent or its
employees, agents or independent contractors, or (iii) any failure to pay any
and all obligations under this Agreement, including without limitation, the
Guaranteed Amount, the reimbursement of Expenses of Sale.
22. Events of Default. The following shall be "Events of Default"
hereunder:
(a) Merchant or Agent shall fail to perform any
material obligation hereunder if such failure remains uncured for five (5) days
after written notice thereof; or
(b) any representation or warranty made by the
Merchant or Agent proves untrue when made; or
(c) the Sale is terminated at a Store for reasons
other than a default, breach or other action by the Agent that is not authorized
hereunder. Any party's entitlement to damages or equitable relief on account of
an Event of Default shall be determined by the Bankruptcy Court.
23. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia without regard to the
conflicts of laws principles thereof, except where governed by the provisions of
the Bankruptcy Code.
24. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to this transaction 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.
25. Amendments. This Agreement may not be modified except in a writing
executed by each of the parties.
26. Successors and Assigns. This Agreement shall not inure to the
benefit of, nor shall it be assignable to, any person or entity other than
Merchant and Agent. All of the terms and provisions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the successors in
interest of the respective parties hereto.
27. Notices. All notices under this Agreement shall be sent by hand, by
reputable overnight courier service or by facsimile to:
(a) Merchant at the address listed on the first page
hereof, to the attention of W. Xxxxxx Xxxxxxxx, Xx., Esquire (facsimile number
(000) 000-0000), with a copy to Weil, Gotshal & Xxxxxx LLP, 000 Xxxxx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxx X. Xxxxxx, Esquire (facsimile number
(000) 000-0000); and
(b) Agent, at the address listed on the first page
hereof to the attention of Xxxxx Xxxxxxxxx (facsimile number (000) 000-0000) and
Xxxx Xxxxx (facsimile number (000) 000-0000) with a copy to Battle Xxxxxx LLP,
00 Xxxx 00xx Xxxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxxxx Xxxxxxx, Esquire
(facsimile number (000) 000-0000).
28. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Such execution may be by
facsimile. Any party signing via facsimile shall forward an original hard copy
of such signature to the other party, but the failure to send said original
signature shall not affect the enforceability of this Agreement against such
party, the parties hereto agreeing that a facsimile signature may be treated as
an original signature hereunder.
(END OF PAGE)
29. Section Headings. The headings of the 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 of the provisions of this
Agreement.
Please acknowledge your acceptance hereof by signing a copy and
returning it to us.
Very truly yours,
SCHOTTENSTEIN XXXXXXXXX CAPITAL
GROUP, LLC
By: s/Xxxxx X. Xxxxxxxxx
Name: Xxxxx X. Xxxxxxxxx
Title: Vice President
ALCO CAPITAL GROUP, INC
By: s/Xxxxxxx X. Xxxxxxxx
Name: Xxxxxxx X. Xxxxxxxx
Title: Secretary
ACCEPTED THIS 10th DAY OF
OCTOBER, 1996
BEST PRODUCTS CO., INC.
By: s/Xxxxxx X. Xxxx
Name:
Title:
EXHIBIT A
LIST OF THE STORES
STORE STORE
NUMBER NAME
000 Xxxxxxxxx, XX
000 Xxxxxx Xxxx, XX
169 Springfield, PA
000 Xxxxxxxx Xxxx, XX
000 Xxxxxxxxxxx, XX
00 Xxxxxxx, XX
129 Sandusky, OH
000 Xxxxxxxx, XX
000 Xxxxxxx, XX
56 Montclair, CA
00 Xxxx Xxxxxx, XX
00 Xxxxx Xxx, XX
59 Westminster, CA
66 Cerritos
80 Torrance, CA
00 Xxxxxxx Xxxxx, XX
00 Xxxxxxxxx, XX
90 Oceanside, CA
91 Xx Xxxx, XX
000 Xxxxxxxxxx, XX
000 Xxx Xxxxxxxxx, XX
000 Xxxxxxxx Xxxx, XX
167 Xxxxxxx, XX
000 Xxxxxxx, XX
000 Xxx Xxxxx, XX
000 Xxxxxxxxx, XX
00 Xxxxxxxx, XX
40 S. Xxxxxxxxxx, XX
00 Xxx Xxxx, XX
00 Xxxxxxxx Xxxx, XX
00 Xxxxxxxx Xxxx, XX
62 Xxxxxxxx, XX
000 Xxxxxxxxxx, XX
119 Pinole, CA
000 Xxx Xxxxxxx, XX
000 Xxxxxxxxxx, XX
212 Bellevue, WA
000 Xxxxxxxx, XX
000 Xxxxxx, XX
000 Xxxxxxxxxx, XX
000 Xxxxxxx, XX
000 Xxxxxxx Xxx, XX
000 Xxxxxxx, XX
000 Xxx Xxxxxx, XX
000 Xxxxxxx, XX
230 Milwaukie, OR
000 Xxxxxxxxx, XX
000 Xxxxxxx, XX
235 Eugene, OR
236 Salem, OR
000 Xxxxxxx Xxxxxx, XX
000 Xxxxxxxx, XX
319 Puyallup, PA
000 Xxxxxxxxxx, XX
345 Tannasbourne, OR
000 Xxxxx Xxxxx, XX
000 Xxxxx Xxxx, XX
000 Xxxxxxx, XX
000 Xxxxx Xxxxx, XX
000 Xxxxxx, XX
000 Xxxxxxxx, XX
000 Xxxxxxxxxxx, X0
000 Xxxxxxxx, XX
000 Xxxxx Xxxxx, XX
000 Xxxxxxxxx, XX
000 Xxxxxxxx, XX
000 Xxxx Xxxxxxx
000 Xxxxxxx, XX
000 XX Xxxxxx, XX
000 Xxxxxxxx, XX
00 X. Xxx Xxxxxxx, XX
00 Xxxxxx Xxxxxxx, XX
35 Xxxxxxx, XX
00 Xxxxxxxx, XX
00 X. Xxx Xxxxxxx, XX
000 Xx Xxxx, XX
000 X. Xxxxxx, XX
342 Kileen, TX
000 X. Xxxxxx, XX
000 X. Xxxxxx, XX
000 Xxxx, XX
EXHIBIT B
GUIDELINES FOR CONDUCT OF STORE CLOSING SALES
BEST PRODUCTS CO., INC.
The sale shall be conducted so that the subject Store
remains open during that Store's normal hours of operation
provided for in the lease for that Store, and the existing
terms of Merchant's leases for the Stores shall control (i)
the operation of the Stores during the Store Closing Sales
and (ii) the conduct of the Store Closing Sales, except as
otherwise expressly provided for in the Approval Order
(including these Guidelines).
The Sale shall be conducted in accordance with applicable
state and local "Blue Laws".
The Agent shall not use flashing lights or any type of
amplified sound on the leased premises or on any common
areas to advertise the Sales or solicit customers for the
Sale at that Store.
A Sale shall end no later than December 31, 1996, except as
otherwise provided for in the Agreement. The Agent shall
give notice to the affected landlord, as soon as
practicable, as to the anticipated end date for the Sale.
At the conclusion of a Sale, the Agent shall vacate the
Stores in broom-clean condition, except for the removal of
furniture, fixtures, equipment and remaining supplies, and
shall leave the Stores in the same condition as on the
commencement of the Sales, ordinary wear and tear excepted.
After the commencement of the Store Closing Sales, Agent
shall not augment or otherwise bring any new merchandise
into the Stores, other than merchandise presently owned by
Merchant or On-Order Merchandise from Merchant's existing
vendors.
With respect to the advertising of the Store Closing Sales,
Merchant and/or Agent may not use the term "Going Out of
Business" but shall be permitted to promote and advertise
the Sale as a "Store Closing" and "Bankruptcy Court
Authorized Store Closing Sale", including, without
limitation, by means of electronic and print media
advertising and in-Store and exterior signage (i.e.,
banners, A-frame, display and hanging signs); provided that
all such signage shall be professionally lettered, and all
banners and hanging signs shall be hung in a professional
manner.
With respect to any Store located in a mall, store front
signs must be on a pedestal or hung inside the Store at
least one (1) foot from the window and there may be no more
than one sign for every eight feet of window. Nothing
contained herein shall be construed to create or impose
upon the Agent any additional restrictions not contained in
the applicable lease agreement.
Conspicuous signs shall be posted at the Stores to the
effect that all sales are "final."
The Agent shall not make any alterations to the storefront
or exterior walls of any of the Stores (including the
removal of Store signs).
The Agent shall not make any alterations to interior or
exterior Store lighting.
The Agent shall keep Store premises and surrounding areas
clean and orderly consistent with present practices.
The landlord of the Store shall have reasonable access to
the Store premises upon conclusion of the Sales solely for
the purpose of dressing Store windows to minimize the
appearance of a dark Store.
Merchant and/or Agent shall not, without further
authorization of the Bankruptcy Court, conduct an auction
for the sale of Fixtures in the Stores. Merchant, however,
reserves its right to request, upon notice to creditors,
authorization by the Bankruptcy Court to auction any
Fixtures remaining unsold at the end of the Store Closing
Sales.
Except as modified by these guidelines, or any order of the
Bankruptcy Court in which the Merchant's chapter 11 case is
pending, all provisions of any lease with respect to the
affected premises shall remain in full force and effect.
Removal by the Agent of inventory or equipment must be
before or after regular business hours of the Store, so as
not to disrupt the operations of other tenants or disturb
customers, and in a manner reasonably satisfactory to
Store's landlord.
The Agent shall not remove from any Store any property so
affixed to the real estate that an interest therein arises
under real estate law (i.e., "fixtures" within the meaning
of the Uniform Commercial Code).
All defined terms shall have the meaning ascribed to same
in the Approval Order and the Agreement.
EXHIBIT C
INVENTORY SERVICE INSTRUCTIONS
Intentionally left blank upon execution of Agreement. To be completed upon
mutual agreement after Approval Order is signed by the Bankruptcy Court.
EXHIBIT E
Central Administrative Services
Daily sales information, including:
* gross sales, net sales and discount by category
* sales tax reporting
* sales by store, by department and by week only for comparable periods
last year
Daily cash reconciliation, including:
* cash management and reconciliation prepared by Agent on a daily basis
* credit card processing and management (if applicable)
* daily deposit information to reconcile weekly
Weekly payroll processing and management, including detailed accounting of hours
and benefits and presently performed payroll functions.
Physical inventory taking and management, including management and tracking of
inventory transfers and receipts.
Management of POS to manage the sales process, including downloading of
discounts (by SKU and/or by department) throughout the term of the Sale.
Access and analysis of current SKU, price and cost files, including all
information on which XXXX and Maintained Markup reports are based.
EXHIBIT 2(b)
EXCLUDED ASSET SCHEDULE
1. All causes of action, rights, claims and counterclaims that Best may
have: (a) against present and former employees, officers, directors,
shareholders, professional advisors, and lenders; (b) arising under the
terms of this letter and definitive agreement to be entered by the
parties hereto; (c) that can be used as a defense against any claim
asserted in Best's bankruptcy; or (d) not reflected on books and
records of the Company which relate to matters arising prior to the
Closing;
2. All cash in excess of $5,000,000, and all cash, rights, and claims
received by Best pursuant to, and arising out of, the terms of the
Initial Agreement;
3. All amounts on deposit in sales tax depository accounts;
4. All vendor receivables, including debit memos, arising before September
24, 1996;
5. All prepaid amounts for workers' compensation, and insurance policies
and programs;
6. All tax refunds;
7. All documents that are subject to the attorney client privilege or work
product immunity.
8. At Best's option, all federal, state and income tax records of Best,
whether in documentary or electronic form.
EXHIBIT 2(c) ASSET ADJUSTMENT SCHEDULE
I. Projected September 30 Book Assets and L/C Inventory
----------------------------------------------------
(000's)
Cash $ 5,000
Inventory $479,888 A
L/C Inventory (before
adjustment for import costs) $ 61,694 B
Other Current Assets $ 20,465
Equipment and Leasehold Imports $ 77,259
Other Assets $ 9,515
II. Adjustment Percentages
Cash 100%
Inventory and L/C Inventory 68.5%
III. Inventory and L/C Inventory Difference Calculation
Equals the difference between (I) the sum of A plus B and (II)
physical inventory pursuant to the initial agreement plus the
physical inventory at Closing (including layaway merchandise)
plus in-transit domestic inventory where Best has title and
has or will be obligated to pay for merchandise plus L/C
inventory where Best will be obligated to pay for merchandise
plus capitalized freight calculated in accordance with the
Company's past policies minus valuation reserves calculated in
accordance with the Company's past policies.
IV. Equipment and Leasehold Improvements Adjustment
$25,000 per store reduction in price (excluding jewelry
stores), where equipment and fixtures cannot be conveyed.
If Best cannot convey movable furniture, fixtures, and
equipment in the headquarters and distribution centers, then
Best shall retain such furniture, fixtures, and equipment and
reduce the transfer price by one million dollars. SBA will be
responsible for any removal costs associated with fixtures
conveyed.
V. Other Assets
If assets held for resale are not delivered, Transfer Price
will be reduced by 90% of the book value for the Chula Vista
property, and $1,000,000 for the Toledo property.
VI. Other Current Assets
The Transfer Price will be adjusted by the differences to book
values listed below multiplied by the percentages associated
with such differences:
Adjustment
Book Value Percentage
($000's)
Trade A/R 1,003 50%
Amex A/R 24 90%
Coupons 40 100%
Bankcard - XxxxXxx 00 000%
Xxxxxxxx - Xxxxxxx 00 100%
Other A/R 440 50%
Freight Claims 351 50%
Prepaid Supplies 629 25%
Prepaid VEBA expenses 426 100%
Prepaid Rent Real Estate 1,941 100%
Prepaid Rent Equipment 152 100%
Site Fuel 105 100%
Security Deposits 128 25%
Recovery Claim 355 25%
* Book values will be calculated in accordance with Best's
historical practices.
EXHIBIT 5(c) -- ADJUSTMENTS TO FLOOR, CEILING AND GUARANTY FEE
1. Floor = (A/$77,600,000) X $40 Million
2. Ceiling = (A/$77,600,000) X $65 Million
3. Guarantee
Fee = (A/$77,600,000) X $2 Million
A = Lease adjustment numerator per this Exhibit 5(c) for leases assumed
by Newco (but subject to subparagraph 5(c) regarding subletting) and
leases where Bankruptcy Court does not extend for nine months from
Closing the time to assume or reject any Option Lease.
EXHIBIT 9
VALUE OF WIND-DOWN SERVICES TO BE PROVIDED BY NEWCO
(TO BE FURNISHED BY BUSINESSPEOPLE)
