EXHIBIT 10(e)
[Financo, Inc. LOGO]
February 21, 2002
▇▇▇▇▇▇▇▇ Stores Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: ▇▇▇▇▇▇▇▇ Stores Inc.
Ladies and Gentlemen:
This will set forth the understanding and agreement regarding the scope and
terms of the retention of Financo, Inc. ("Financo") as investment bankers to
▇▇▇▇▇▇▇▇ Stores Inc., as debtor and debtor-in-possession (the "Company").
1. As investment bankers to the Company, Financo shall:
1.1 analyze and perform the necessary due diligence on the
Company's financial condition, operations, business plan and
prospects, as requested by the Company;
1.2 assist in valuing the assets of the Company, as requested by
the Company;
1.3 assist in raising new investment capital for purposes of
funding a plan of reorganization ("POR"), repaying the
Company's obligations under its Debtor in Possession Loan in
connection with a POR and Security Agreement and/or funding
the Company's working capital needs in connection with a POR,
as set forth more particularly in paragraph 2 hereof;
1.4 assist in the sale or other disposition of the Company and/or
the Company's various assets, as set forth more particularly
in paragraph 2 hereof; and
1.5 attend meetings, including with the Official Committee of
Unsecured Creditors (the "Committee"), as reasonably
requested, and share information with the Committee in
accordance with any agreed upon protocol between the Company
and the Committee.
2. It is understood and agreed that ▇▇▇▇▇▇▇'s assignment will be to try
and facilitate (a) a New Investment (as defined in paragraph 3.1
hereof), and (b) a Sale transaction (as defined in paragraph 3.2
hereof). A New
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Investment and a Sale are hereinafter referred to as a "Transaction".
Unless the Company, through one of its executive officers, otherwise
directs Financo in writing, during the first 90 days after the date of
this letter, Financo shall solicit Sale Transactions only for the
entire Company or all or substantially all of its Assets, and shall not
solicit Sale Transactions for less than all or substantially all of its
Assets. Towards these ends, the Company hereby authorizes and engages
Financo to (a) identify Transaction opportunities and participants; (b)
negotiate Transaction opportunities, whether or not identified by
▇▇▇▇▇▇▇; and (c) assist in closing any and all such Transactions. It is
understood and agreed that the sole compensation for the services
provided by Financo under this Agreement, including the services
described in paragraphs 1 and 2, shall be the compensation provided in
paragraph 8 and any fee agreed upon by the parties pursuant to
paragraph 2.5. In connection with such Transactions, Financo shall:
2.1 assist with the preparation of descriptive information
materials concerning the Company and its various assets (each
an "Asset" and collectively the "Assets"), which memorandum(s)
shall be provided to prospective investors, acquirers or
partners of the Company or its Assets; provided that none of
such information will be made available to, or used in
discussions with, any third parties or potential investors,
acquirers or partners until such information has been approved
by the Company and the Company approves, in advance, the
disclosure of such descriptive data to the particular person
or entity to whom it is proposed to be disclosed;
2.2 develop, update and review with the Company on an ongoing
basis a list of parties which might be interested in entering
into a Transaction and initiate contact with such parties;
2.3 consult with and advise the Company concerning Transaction
opportunities that have been identified by ▇▇▇▇▇▇▇ or others,
and participate on the Company's behalf in negotiations in
furtherance of each such opportunity;
2.4 assist in the consummation of a Transaction;
2.5 if requested to do so by the Company, at a cost to the Company
to be determined by agreement of Financo and the Company,
provide a fairness opinion to the Board of Directors of the
Company in connection with a Transaction and permit the
Company to reproduce it in full, to refer to it and to quote
fairly
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from it in any disclosure document filed by the Company in
connection with such Transaction; provided that Financo shall
have the right to review and approve any reference to such
fairness opinion, which approval shall not unreasonably be
withheld or delayed; and
2.6 if requested to do so by the Company, testify or appear at any
judicial or regulatory hearing or deposition or other
appearance in connection with any legal process in connection
with services provided pursuant to this Agreement, and the
Company will reimburse Financo's expenses for doing so
pursuant to paragraph 8.5 and, if the testimony or appearance
is not in connection with a Transaction for which Financo has
or is expected to receive a fee pursuant to paragraph 8.2 or
8.3, the Company will pay Financo a fee of $1,000 per person
per day for such testimony or appearance.
3. Definitions
3.1 For the purposes hereof, a "NEW INVESTMENT" shall mean (a) any
new investment in the Company's equity in connection with a
POR, including without limitation common equity or preferred
stock, and (b) any new debt financing, including subordinated
or convertible debt, senior debt, and secured debt, or any
combination thereof, for purposes of funding a POR, repaying
the Company's obligations under its Debtor in Possession Loan
and Security Agreement and funding the Company's working
capital needs; provided that "New Investment" shall not
include any Transaction that also constitutes a "Sale" or any
financing with, or agented by, Fleet Retail Finance Inc., any
of the lenders party to the Company's Debtor In Possession
Loan and Security Agreement or any of their affiliates.
3.2 For the purposes hereof, a "Sale" shall mean any transaction
or series or combination of transactions whereby, directly or
indirectly, any amount of the Company's Assets or control of,
or a material interest in, the Company is transferred to one
or more third parties that were introduced to the Company by
Financo, whether by a sale or exchange of capital stock, a
sale or exchange of assets, a merger or consolidation, or any
similar transaction, but shall not mean
1. any transaction in the Company's ordinary course of
business,
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2. any sale-leaseback or other transaction with respect to the
East Grand Rapids, Michigan store with parties contacted by,
or who contacted, the Company or its advisors before the date
of this letter,
3. the closing of any of the Company's stores in Saginaw,
Michigan, Columbus or Toledo, Ohio or Clearwater, Osprey or
Tampa, Florida and any related sales of assets, including any
sales of the related inventory, receivables, real property,
furniture, fixtures or equipment,
4. any liquidation or other sale of the Company's inventories,
furniture, fixtures, equipment or any combination of them at
any of its stores pursuant to a "going out of business", store
closing or similar theme sale by the Company, through an
inventory liquidation agent acting as agent of the Company or
otherwise,
5. any transaction if Financo breaches its covenant in
paragraph 2 that, unless the Company, through one of its
executive officers, otherwise directs Financo in writing,
during the first 90 days after the date of this letter,
Financo shall solicit Sale Transactions only for the entire
Company or all or substantially all of its Assets, and shall
not solicit Sale Transactions for less than all or
substantially all of its Assets, or
6. any sale of receivables other than in connection with a
transaction involving the sale of all or substantially all of
the Company's Assets
It is contemplated that a Sale may be effectuated through
either (a) a confirmed POR, or (b) a transaction under and
pursuant to Section 363 of the United States Bankruptcy Code.
The Company acknowledges that, as "Sale" is defined herein,
more than one Sale may occur, and Financo shall be due a fee
on each Sale transaction as provided for in paragraph 8.3
hereof.
3.3 AGGREGATE VALUE: ▇▇▇▇▇▇▇'s compensation in connection with the
consummation of a Transaction shall be based on the "Aggregate
Value" thereof.
3.4 GENERAL: The Aggregate Value of a Transaction shall mean the
sum of (i) the value of all cash, securities, contractual
arrangements and other property (including contingent
consideration) paid or payable, directly or indirectly, by an
investor
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or acquiring party in connection with such Transaction, and
(ii) any indebtedness of the Company (or relating to an Asset)
for money-borrowed that is "assumed" (as defined below) in
connection with such Transaction. For the purposes of
paragraph 3.2(a), the Aggregate Value of a Transaction in a
POR context shall be calculated based upon the total value
contributed to the Company and/or paid directly to the
creditors or other stakeholders by the purchaser in the Sale
Transaction or the lender or investor in a New Investment
Transaction under such POR and the definitive agreement
governing the Transaction.
3.5 DETERMINING THE VALUE OF NON-CASH CONSIDERATION: The value of
any non-cash portion of Aggregate Value, such as securities
(whether debt or equity) or other property, shall be
determined as provided in the definitive agreement governing
the Transaction or, in the absence of such an agreement or
provision, as follows: (1) the value of securities that are
freely tradable in an established public market will be
determined on the basis of the last closing price prior to the
consummation of such Transaction; and (2) the value of
securities that are not freely tradable or have no established
public market, or of property other than securities, shall be
the fair market value thereof, determined by agreement of the
Company and Financo.
3.6 DEFINITION OF "ASSUMPTION OF INDEBTEDNESS": Indebtedness of
the Company shall be deemed to have been "assumed" if (A) such
indebtedness is repaid, assumed or otherwise defeased by an
acquirer (or a third party other than the Company), or (B) in
connection with a Transaction in the form of a "stock"
transaction (e.g., sale of stock, merger, consolidation, etc.
involving a sale of all or substantially all of the Company's
stock), such indebtedness remains an obligation of the Company
(or its successor or assignee) upon consummation of such
Transaction. For avoidance of doubt, if a Transaction includes
as one of its features a payment, purchase or defeasance of
indebtedness at a discount, the amount of indebtedness assumed
shall be calculated after reduction by such discount. The term
"indebtedness for money-borrowed" shall include all
interest-bearing and zero coupon debt, as well as proceeds
from factored assets.
4. Information regarding the Company:
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The Company shall (a) make available to Financo all information in the
Company's possession concerning the business, assets, operations and
financial condition of the Company and the Assets that Financo
reasonably requests in connection with the performance of its duties
hereunder, and (b) provide Financo with reasonable access to the
Company's officers, directors, employees, accountants and other
advisors and agents for the purpose of performing Financo's duties
hereunder.
Financo shall treat all information provided to it by the Company or
any of its advisors or developed by Financo based on such information
that is not already in the public domain as confidential, and shall not
disclose the same to anyone except to potential buyers or investors in
accordance with this Agreement and a signed confidentiality agreement
or pursuant to an order of the Bankruptcy Court.
5. ▇▇▇▇▇▇▇ understands that the Company has filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court for the Eastern District of Michigan,
Southern Division (the "Bankruptcy Court"). Financo and the Company
acknowledge that this Agreement and its effectiveness are subject to
the approval of the Bankruptcy Court, and the Company undertakes and
agrees as soon as reasonably practicable to take all reasonable actions
necessary to procure such approval.
6. In the performance of its services described herein, Financo will
conduct such financial review of the business and operations of the
Company as Financo and the Company shall agree. In connection
therewith, the Company shall make available to Financo all information
in the Company's possession concerning the business, assets, operations
and financial condition of the Company that Financo reasonably requests
in connection with the performance of its duties hereunder. It is
understood and agreed that the Company makes no representations to
Financo regarding such information, that such information is being
provided to Financo "as-is", that Financo cannot and will not make any
representations to third parties regarding the same, and that Financo
assumes no responsibility whatsoever regarding the same. It is further
understood that, in performing under this Agreement, ▇▇▇▇▇▇▇ has not
assumed, and will not assume, any responsibility for independent
verification of any information, data and material so furnished by the
Company.
7. ▇▇▇▇▇▇▇'s engagement hereunder shall commence on the date hereof,
subject to the approval nunc pro tunc of the Bankruptcy Court, and
shall
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continue until termination in accordance with the terms hereof. Subject
to the provisions of paragraphs 8 through 12, which shall survive any
termination of this Agreement, the Company may terminate ▇▇▇▇▇▇▇'s
engagement hereunder at any time by giving prior written notice.
Notwithstanding the termination of ▇▇▇▇▇▇▇'s retention hereunder,
▇▇▇▇▇▇▇ shall be entitled to keep and/or receive all the compensation
provided for in paragraph 8.1 (if this engagement letter is approved by
the Bankruptcy Court), paragraph 8.2 (if the New Investment closes by
one year after termination of Financo's retention under this
Agreement), paragraph 8.3 (if the Sale closes by one year after
termination of Financo's retention under this Agreement), paragraph 8.4
(to the extent accrued through the date of termination of Financo's
retention under this Agreement) and paragraph 8.5 (to the extent such
expenses are incurred during the term of Financo's engagement under
this Agreement), except that Financo shall not be entitled to receive
the compensation set forth under paragraph 8.2 or 8.3 hereof in
connection with a Transaction with an investor or buyer not identified,
solicited by, or in negotiations or discussions with Financo prior to
the effective date of Financo's termination; provided, that Financo
shall transmit to the Company a list of all potential buyers, lenders
and investors contacted by Financo within two business days after a
termination.
8. As compensation for the services rendered by Financo hereunder, ▇▇▇▇▇▇▇
shall receive the following (subject to the approval of the Bankruptcy
Court having jurisdiction over the Company's reorganization case (the
"Bankruptcy Court")):
8.1 A one-time retainer fee in the amount of $100,000 (the
"Retainer Fee"), which shall be paid to Financo by the Company
upon the approval of this engagement letter by the Bankruptcy
Court. The Retainer Fee shall be fully earned when received by
Financo and shall not be subject to return, forfeiture or
credit.
8.2 Upon the closing and funding of a New Investment, and
contingent on such New Investment actually closing and
funding, Financo shall receive additional compensation in the
amount of (a) six percent (6%) of the Aggregate Value of any
new equity capital raised (including common equity, preferred
equity, or convertible preferred equity) in a New Investment,
(b) one percent (1%) of the Aggregate Value of any new secured
debt capital raised in a New Investment, and (c) three percent
(3%) of the Aggregate Value of any other new debt capital
raised (including subordinated debt, convertible debt or
senior debt) in a New Investment, as applicable. Such
additional compensation
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shall be paid to Financo, in cash, upon the effective date of
a POR involving a New Investment.
8.3 Upon the occurrence of each Sale, and contingent on such Sale
actually closing, Financo shall receive additional
compensation, payable in cash at the closing of such Sale,
equal to one and one-half percent (1.5%) (1.25% if the Sale is
to the party that entered into a confidentiality agreement
with the Company before the date of this Agreement) of the
Aggregate Value involved in each such Sale (each a "Sale
Fee"); provided that Financo shall receive its Sale Fee with
respect to any deferred or contingent consideration included
as part of the Aggregate Value of such Sale when and if such
consideration is actually paid.
8.4 Financo shall receive an additional fee (the "Additional Fee")
of up to $200,000. The Additional Fee shall accrue daily
during the period (the "Period") beginning on the one-month
anniversary of the date of this Agreement and ending on the
earlier of (1) the date Financo's engagement under this
Agreement is terminated and (2) the day before the four-month
anniversary of the date of this Agreement. The amount of the
Additional Fee that will accrue on each day during the Period
shall equal $200,000 divided by the number of days from and
including the one-month anniversary of the date of this
Agreement through and including the day before the four-month
anniversary of the date of this Agreement. The Company shall
pay the Additional Fee to Financo in cash within five business
days after the end of the Period. Any Additional Fee actually
paid to ▇▇▇▇▇▇▇ shall be credited against, and shall reduce,
any fee otherwise payable under paragraph 8.2 or 8.3, and any
fee actually paid to Financo under paragraph 8.2 or 8.3 shall
be credited against, and shall reduce, any Additional Fee
otherwise payable under this paragraph.
8.5 Reimbursement for all reasonable out-of-pocket expenses
incurred in connection with this engagement; provided that
Financo obtains the Company's prior approval, through one of
its executive officers, for any expense in excess of $1,000.
Out-of-pocket expenses shall include, without limitation,
counsel fees and disbursements (if such counsel was retained
with the written approval of the Company), travel and lodging
expenses, outside database charges or outside word processing
charges, communication charges, courier services and other
customary and reasonable expenses.
8.6 The Company has no obligation to discuss, negotiate, enter
into or
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close any Transaction and shall have the right to reject any
proposed Transaction or to terminate negotiations with respect
to any Transaction at any time. If a Transaction does not
close or is not consummated, no fee or other compensation
under paragraph 8.2 or paragraph 8.3 will be payable to
Financo with respect to the Transaction regardless of whether
the failure to close or consummate is due to any action or
failure to act on the Company's part or on the part of the
Company's shareholders or creditors, the bankruptcy trustee,
the Bankruptcy Court, or the prospective other party to the
Transaction. The Company has the right to enter into, or
permit to exist, any agreement or arrangement pursuant to
which a third party is entitled to a fee for selling any of
its assets.
9. Except as otherwise provided in this Agreement, no one other than the
Company is authorized to rely upon this engagement of Financo or any
statements by or advice or conduct of Financo, except that ▇▇▇▇▇▇▇
agrees that the Company may make available to the Company's secured
lenders, the Committee and any other party designated by the Company in
writing to Financo any work product prepared for the Company (and shall
make such work product available to the Committee), it being understood
that Financo is being retained only by the Company and shall not owe
any obligations or responsibilities to, nor be in privity with, any of
such other parties. Except as otherwise provided in this Agreement or
required by applicable law, any advice to be provided by Financo under
this Agreement shall not be disclosed publicly or made available to
third parties without the prior written approval of Financo.
10. Following the completion of its engagement hereunder, ▇▇▇▇▇▇▇ shall
have the right to place advertisements in financial and other
newspapers and journals, at its own expense, describing its services to
the Company hereunder, subject to the approval of the Company, which
approval shall not be unreasonably withheld.
11. This Agreement shall be deemed to have been made and entered into in
the State of New York. This Agreement and all controversies arising
from or relating to performance under this Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
without giving effect to such State's rules concerning conflicts of
laws. The parties hereto hereby agree that all claims or causes of
action arising out of this Agreement or any of the agreements or
transactions contemplated hereby shall be heard and determined by the
Bankruptcy Court. Each of the parties hereto hereby consents to the
service of process in any such suit, action or proceeding by the
mailing of copies thereof by registered or
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certified mail, postage prepaid, to its address set forth above [NEED
FINANCO ADDRESS ABOVE], such service to become effective ten (10) days
after mailing. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
ACTION ARISING OUT OF THIS AGREEMENT OR CONDUCT IN CONNECTION WITH THIS
ENGAGEMENT IS HEREBY WAIVED.
12. This letter shall constitute the entire agreement between the parties
hereto. This Agreement shall be binding upon and inure to the benefit
of any successors, assigns, heirs and personal representatives of the
Company, Financo and any Indemnified Person. This Agreement may be
executed via facsimile transmission and may be executed in separate
counterparts, each of which shall be deemed to be an original and all
of which together shall constitute a single instrument. This Agreement
may not be amended or modified except in writing. The foregoing
Agreement shall be in addition to any rights that Financo may have at
common law or otherwise.
If the foregoing correctly sets forth the understanding and agreement
between Financo and the Company, please sign in the space indicated below.
FINANCO, INC.
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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ACCEPTED AND AGREED TO:
▇▇▇▇▇▇▇▇ STORES INC.
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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