This
Agency Agreement (this “ Agreement ”) is made as
of June 30, 2011, by and between Borders Group, Inc., a
Michigan corporation, with executive offices located at 100 Phoenix
Drive, Ann Arbor, MI 48108, and its affiliated companies set forth
in Exhibit A hereto (collectively, the “
Merchant ”) and Hilco Merchant Resources, LLC, Gordon
Brothers Retail Partners, LLC, SB Capital Group, LLC, Tiger Capital
Group, LLC and Great American Group, LLC (collectively, the “
Agent ”).
WHEREAS,
on February 16, 2011, the Merchant commenced voluntarily
bankruptcy cases (the “ Bankruptcy Cases ”)
under Chapter 11 of Title 11 of the United States Code (the
“ Bankruptcy Code ”) in the United States
Bankruptcy Court for the Southern District of New York (the “
Bankruptcy Court ”); and
WHEREAS,
the Merchant operates retail stores in the United States and
desires that the Agent act as the Merchant’s exclusive agent
for the limited purpose of (a) selling all of the Merchandise
located in Merchant’s retail store location(s) identified on
Exhibit 1 attached hereto (each individually a “
Store ” and collectively, the “ Stores
”) by means of a promotional “going out of
business,” “store closing” or similar themed
sale; (b) selling Distribution Center Inventory; and
(c) disposing of the Agent Sale FF&E, Corporate FF&E,
News Stand Inventory and Café/Candy Inventory (as further
described below, the “ Sale ”).
NOW,
THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
Agent and the Merchant hereby agree as follows:
Section 1.
Defined Terms . All capitalized terms shall have the meaning
as defined herein.
Section 2.
Appointment of Agent/Approval Order .
(a) Effective
on the date hereof and subject to the entry of the Approval Order,
the Merchant hereby appoints the Agent, and the Agent hereby agrees
to serve, as the Merchant’s exclusive agent for the limited
purpose of conducting the Sale at the Stores and Merchant’s
distribution centers (collectively referred to as the “
Distribution Centers ”) in accordance with the terms
and conditions of this Agreement.
(b) On
June 30, 2011, Merchant filed a motion with the Bankruptcy
Court for entry of an order approving this Agreement and
authorizing Merchant to conduct the Sale in accordance with the
terms hereof (the “ Approval Order ”). The
Approval Order shall be in substantially the form annexed hereto as
Exhibit 2(b) .
(c) Subject
to entry of the Approval Order, Agent shall be authorized to
advertise the Sale as a “going out of business,”
“store closing” or similar-themed sale, and
the
Approval Order
shall provide that Agent shall be required to comply with
applicable federal, state and local laws, regulations and
ordinances, including, without limitation, all laws and regulations
relating to advertising, permitting, privacy, consumer protection,
occupational health and safety and the environment, together with
all applicable statutes, rules, regulations and orders of, and
applicable restrictions imposed by, governmental authorities
(collectively, the “ Applicable General Laws ”),
other than all applicable laws, rules and regulations in respect of
“going out of business,” “store closing” or
similar-themed sales (collectively, the “ Liquidation Sale
Laws ”), provided that such Sale is conducted in
accordance with the terms of this Agreement, the Sale Guidelines
and Approval Order; and provided further that the Approval Order
shall provide that so long as the Sale is conducted in accordance
with the Sale Guidelines and in a safe and professional manner,
Agent shall be deemed to be in compliance with any Applicable
General Laws.
Section 3.
Consideration to Merchant and Agent .
3.1 Payments to
Merchant .
(a) As a
guaranty of Agent’s performance hereunder, Agent guarantees
that Merchant shall receive: (i) seventy two percent (72%)
(the “ Guaranty Percentage ”) of the aggregate
Cost Value of the Merchandise included in the Sale (the “
Guaranteed Amount ”) plus (ii) the aggregate
amount calculated in accordance with Section 7.4 and
(iii) the amounts set forth in Section 15.9.
(b) The
Guaranteed Amount shall be paid in the manner and at the times
specified in Section 3.3 below. The Guaranteed Amount will be
calculated based upon the aggregate Cost Value of the Merchandise
as determined by (A) the final certified report of the
Inventory Taking Service after verification and reconciliation
thereof by Agent and Merchant plus (B) amount of Gross
Rings, as adjusted for shrinkage per this Agreement.
(c) The
Guaranty Percentage has been fixed based upon the aggregate Cost
Value of the Merchandise not being less than $350,000,000 and no
more than $395,000,000 (the “ Merchandise Threshold
”) as of the Sale Commencement Date, excluding News Stand
Inventory and Café/ Candy Inventory, periodical items, and
other café items. To the extent that the aggregate Cost
Value of the Merchandise included in the Sale is less than or more
than the Merchandise Threshold, the Guaranty Percentage shall be
adjusted in accordance with Exhibit 3.1(c)
annexed hereto (in addition to any adjustment applicable pursuant
to section 11.1(m) hereof), as and where applicable. The aggregate
Cost Value of the Return to Vendor Inventory shall be no more than
$10,800,000, provided that, such amount can increase by an amount
up to $1,700,000 to the extent the Schuler Goods are returned to
the Merchant (the “ RTV Threshold ”). To the
extent that the aggregate Cost Value of the Return to Vendor
Inventory included in the Sale is more than the RTV Threshold, any
excess Return to Vendor Inventory shall be valued fifty percent
(50%) of the Cost Value of such inventory (the “ RTV
Adjustment ”) (in addition to any adjustment applicable
pursuant to this section and section 11.1(m) hereof), as and where
applicable.
(d) To the
extent that Proceeds exceed the sum of (i) the Guaranteed
Amount and (ii) Expenses of the Sale (the sum of (i) and
(ii), the “ Sharing Threshold ”), then all
Proceeds of the Sale above the Sharing Threshold shall be shared
fifty percent (50%) to Merchant and fifty percent (50%) to Agent.
All amounts, if any, to be received by Merchant from Proceeds in
excess of the Sharing Threshold shall be referred to as the “
Recovery Amount ” and amounts to be received by Agent
from Proceeds in excess of the Sharing Threshold shall be referred
to as the “ Agent Recovery Amount” . To the
extent that Merchant is entitled to receive the Recovery Amount,
such Recovery Amount shall be paid as part of the weekly and Final
Reconciliation under Section 8.6.
(e) In
addition to the Guaranteed Amount and the Recovery Amount, Agent
shall pay the Merchant an amount equal to four percent (4%) of the
gross proceeds (net of sales taxes) of the sale of Additional Agent
Merchandise (the “ Merchant’s Additional Goods
Recovery Amount ”). All proceeds of the sale of
Additional Agent Merchandise in excess of the Merchant’s
Additional Goods Recovery Amount shall be retained by Agent and be
referred to as the “Agent’s Additional Goods Recovery
Amount.”
3.2
Compensation to Agent . Subject to the entry of the Approval
Order, Agent shall be entitled to the Agent Recovery Amount and the
Agent’s Additional Goods Recovery Amount. Agent shall also be
entitled to receive all proceeds of the sale of the Agent Sale
FF&E as provided for in Section 15.9 hereof and a
commission based on the sale of the Corporate FF&E, News Stand
Inventory and Café/Candy Inventory and any other Merchant
Consignment Goods as provided for hereunder.
(b) Provided
that no Event of Default has occurred and continues to exist on the
part of the Agent, and after all payments are made to Merchant as
required hereunder, all Merchandise remaining at the Sale
Termination Date (the “ Remaining Merchandise ”)
shall become the property of Agent, free and clear of all liens,
claims and encumbrances of any kind or nature, and the proceeds
received by Agent from the disposition, in a commercially
reasonable manner, of such unsold Merchandise shall constitute
Proceeds hereunder. Notwithstanding the foregoing, Agent shall
exercise commercially reasonable efforts to dispose of all of the
Merchandise during the Sale Term. Merchant shall have the right to
audit Agent’s books and records to verify its share of the
Proceeds. Agent shall not sell any Remaining Merchandise to
wholesalers for return to publishers. To the extent that Agent
desires to sell any Merchandise or Remaining Merchandise in bulk to
a non-retail customer or abandon the Remaining Merchandise Agent
shall provide 48 hours written notice, via e-mail, to the official
committee of unsecured creditors so that the committee may verify
that the prospective purchaser does not have return to vendor
privileges or approve of the proposed abandonment. If the official
committee of unsecured creditors objects to the proposed sale or
the proposed abandonment, the parties will request the Bankruptcy
Court resolve the matter on an emergent basis.
(a) On
the first business day following issuance of the Approval Order
(the “ Payment Date ”), Agent shall pay
(i) 90% of the estimated Guaranteed Amount to Merchant (the
“ Guaranteed Amount Deposit ”) by wire transfer
to the account(s) designated on Exhibit 3.3(a)
annexed hereto
(the “ Merchant Account ”), (ii) the Agent
Sale FF&E Guarantee and (iii) the aggregate amount calculated
in accordance with Section 7.4. The Guaranteed Amount Deposit
shall be based on the estimated Cost Value (as determined in
accordance with Section 5.1 of the Agreement) of the
Merchandise on the Sale Commencement Date as reflected in the
master inventory file(s) provided to Agent on June 19, 2011,
which shall be rolled forward to the Sale Commencement Date (the
“ Perpetual Inventory File ”), provided that,
the Guaranteed Amount Deposit shall not take into account any
On-Order Goods or Schuler Goods, which shall be paid when received
in the applicable weekly reconciliation.
(b) The
balance of the Guaranteed Amount (the “ Remaining
Guaranteed Amount ”), shall be paid as follows: Agent
shall pay the unpaid and undisputed balance of the Guaranteed
Amount, which amount shall be paid to the Merchant Account no later
than the earlier of (i) the date that is forty five
(45) days after the Sale Commencement Date (in which case
payment shall be of the undisputed portion of the balance of the
estimated Guaranteed Amount) and (ii) the second business day
following the issuance of the Final Inventory Report, and
Agent’s failure to pay such balance or undisputed portion
shall entitle the Merchant and GECC to draw upon the Agent Letter
of Credit (as defined below) in accordance with section 3.4 to the
extent of such balance or undisputed portion. In the event that
after the issuance of the Final Inventory Report as verified and
reconciled, the Guaranteed Amount is greater than the sum of the
Guaranteed Amount Deposit plus the payment of the undisputed
portion of the estimated Guaranteed Amount, Agent shall pay the
remainder of the Guaranteed Amount to the Merchant within two
(2) business days after the Final Inventory Report has been
issued as verified and reconciled. In the event that there is a
dispute with respect to the reconciliation of the aggregate Cost
Value of the Merchandise following the Inventory Taking, then any
such dispute shall be resolved in the manner and at the times set
forth in Section 8.6 hereof.
(c) 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; provided , however
, that all of the information necessary to complete the wire
transfer has been received by Agent or Merchant, as applicable, by
10:00 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.
(d) Merchant
agrees that if at any time during the Sale Term, Merchant holds any
undisputed amounts due to Agent as Proceeds hereunder, Agent may,
in its discretion, offset such Proceeds being held by Merchant
against any amounts due and owing to Merchant pursuant to this
Section 3.3 or otherwise under this Agreement. In addition,
Merchant and Agent further agree that except as provided in the
following sentence, if at any time during the Sale Term, Agent
holds any undisputed amounts due to Merchant under this Agreement,
Agent may, in its discretion, offset such amounts being held by it
against any amounts due and owing by, or required to be paid by,
Merchant hereunder. Notwithstanding the foregoing or any other
provision to the contrary herein, in no event shall Agent offset
any amounts against the proceeds realized from the disposition of
the Agent Sale FF&E.
(e) If
and to the extent that Agent over-funds any amounts in respect of
the Guaranteed Amount based on the results of the Final Inventory
Report, then Merchant agrees to promptly reimburse such undisputed
overpayment amounts to Agent. To the extent that any over-funded
amounts in respect of the Guaranteed Amount based on the results of
the Final Inventory Report have been received by GECC and have not
been reimbursed by Merchant, Agent shall inform GECC by written
notice of such overpayment and GECC agrees to disgorge such
overpayment to Agent within two (2) business days of such
notice.
3.4 Letter of
Credit . In order to secure the Agent’s obligations under
this Agreement, in respect of (x) the payment of the Remaining
Guaranteed Amount, and (y) Expenses of the Sale on the Payment
Date, Agent shall furnish Merchant an irrevocable standby letter of
credit naming Merchant and GECC as co-beneficiaries (collectively,
the “ Beneficiaries ”) as beneficiary in the
aggregate original face amount equal to the sum of (i) ten
percent (10%) of the estimated Guaranteed Amount, plus
(ii) three (3) weeks estimated Expenses that would be
payable by Merchant, which shall be in the form of
Exhibit 3.4 hereof (collectively, the “ Letter
of Credit ”). The Letter of Credit shall have an expiry
date of no earlier than sixty (60) days after the Sale
Termination Date. Unless the parties shall have mutually agreed, in
consultation with GECC, that they have completed the final
reconciliation under this Agreement, then, at least thirty
(30) days prior to the initial or any subsequent expiry date,
the Beneficiaries shall receive an amendment to the Letter of
Credit solely extending (or further extending, as the case may be)
the expiry date by at least sixty (60) days. If the
Beneficiaries fail to receive such amendment to the Letter of
Credit no later than thirty (30) days before the expiry date,
then all amounts hereunder shall become immediately due and payable
and the Beneficiaries, individually or collectively, shall be
permitted to draw under the Letter of Credit in payment of amounts
owed and the Beneficiaries shall hold the balance of the amount
drawn under the Letter of Credit as security for amounts that may
become due and payable to Merchant hereunder. At Agent’s
request, the Beneficiaries 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;
provided, however, that the Letter of Credit shall not be reduced
below three (3) weeks of estimated Expenses of the Sale. In
the event that Agent, after receipt of three (3) business days
notice (which notice shall not be required if Agent or any member
of Agent shall be a debtor under title 11, United States Code),
fails to pay the Guaranteed Amount, or portion thereof or any
Expenses when due, the Beneficiaries, individually or collectively,
may draw on the Letter of Credit in an amount equal to the unpaid,
past due, amount of the Agent’s obligations hereunder that is
not the subject of a reasonable dispute.
3.5
Inventory Reconciliation . Within thirty (30) days
after the completion of the Inventory Taking, Merchant, Agent and
General Electric Capital Corporation (“ GECC ”),
in its capacity as administrative agent for itself and the other
lenders (the “ Lenders ”) party to the
Merchant’s senior secured, super-priority
debtor-in-possession credit facility (the “DIP
Facility”), shall review, reconcile and verify the final
report of the aggregate Cost Value of the Merchandise by the
Inventory Taking Service (the “ Final Inventory Report
”).
Section 4.
Expenses of the Sale .
4.1
Expenses . Agent shall be unconditionally responsible for
all Expenses incurred in conducting the Sale during the Sale Term,
which expenses shall be paid by Agent in accordance
with
Section 4.2 below. As used herein, “ Expenses
” shall mean the Store-level operating expenses of the Sale
which arise during the Sale Term limited to those set forth
below:
(a) all
payroll and commissions, if applicable, for all Retained Employees
used in conducting the Sale for actual days/hours worked during the
Sale Term as well as payroll, to the extent retained by Agent for
the Sale, for any of Merchant’s former employees or temporary
labor;
(b) any
amounts payable by Merchant for benefits for Retained Employees in
respect of FICA, unemployment taxes, workers’ compensation
and healthcare insurance, and vacation benefits that accrue during
the Sale Term, exclusive of Excluded Benefits for Retained
Employees used in the Sale, in an amount up to 24% of the base
payroll for each Retained Employee on a per store, per month basis
(the “ Benefits Cap ”);
(c) costs
of all security (to the extent customarily provided in the Stores)
including, without limitation, security systems, courier and guard
service, building alarm service and alarm service
maintenance;
(d) 100%
of the fees and costs of the Inventory Taking Service to conduct
the Inventory Taking at the Stores and the Distribution Centers to
the extent a third-party service is used;
(e) Retention
Bonuses for Retained Employees, as provided for in Section 9.4
below;
(f) except
as included in Section 4.1 (s), advertising and direct
mailings relating to the Sale, signwalking expenses, and Store
interior and exterior signage and banners relating to the
Sale;
(g) local
and long-distance telephone and internet/wifi expenses incurred at
the Stores;
(h) credit
card fees, chargebacks and discounts with respect to Merchandise
and other goods sold in the Sale;
(i) bank
service charges (for Store accounts), check guarantee fees, and bad
check expenses to the extent attributable to the Sale;
(j) costs
for additional Supplies used to the extent requested by
Agent;
(k) Intentionally
Omitted;
(l) Store
cash theft and other store cash shortfalls in the
registers;
(m) any
and all costs relating to the processing, transfer and
consolidation of Merchandise between and among the Stores,
including delivery and freight costs, it being understood that
Agent shall be responsible for coordinating such transfer of
Merchandise;
(n) housekeeping
and cleaning expenses related to the Stores;
(o) trash
and snow removal;
(p) on-site
supervision of the Stores and the Distribution Centers, including
base fees and bonuses of Agent’s field personnel, travel to
and from the Stores or the Distribution Centers and incidental
out-of-pocket and commercially reasonable travel expenses relating
thereto (including reasonable and documented corporate travel to
monitor and manage the Sale), provided that, the supervision costs
shall not exceed a budget that is mutually agreed to by Merchant
and Agent;
(q) postage,
courier and overnight mail charges to and from or among the Stores
and central office to the extent relating to the Sale;
(r) Occupancy
Expenses for the Stores listed on Exhibit 4.1(r) on a per
location and per diem basis in an amount up to the per Store per
diem amount set forth therein plus for the Stores designated on
Exhibit 4.1(r) hereto as “Percentage Rent Stores,”
on a per location basis, the amount calculated using the percentage
rent for such Store set forth therein;
(s) Central
Service Expenses equal to $50,000 per week plus the charges with
respect to e-mail distribution set forth on
Exhibit 4.1(s);
(t) Agent’s
actual cost of capital (including Letter of Credit fees), insurance
and legal fees;
(u) a
pro-rata portion of Merchant’s insurance attributable to the
Merchandise and other goods located in the Stores; and
(v) seventy
two percent (72%) of the aggregate cost value of the Books in
Storage included in the Sale, which cost value was fixed in
accordance with the reconciliation of the transactions contemplated
by that certain Agency Agreement by and between Merchant and a
joint venture composed of Hilco Merchant Resources, LLC, SB Capital
Group, LLC, Tiger Capital Group, LLC and Gordon Brothers Retail
Partners, LLC, dated February 16, 2011, provided that, the
cost value shall not exceed $3,800,000 and the Books in Storage
shall be counted as such goods leave the storage
facility.
Notwithstanding
anything herein to the contrary, to the extent that any Expense
category listed in Section 4.1 is also included on
Exhibit 4.1(r) , then Exhibit 4.1(r) shall
control, and such Expenses shall not be double counted. There will
be no double payment of Expenses to the extent that Expenses appear
or are contained in more than one Expense category.
As used herein,
the following terms have the following respective
meanings:
(i) “
Central Service Expenses ” means costs and expenses
for Merchant’s central administrative services necessary for
the Sale, including, but not limited to, MIS services, payroll
processing, cash reconciliation, inventory processing and handling,
data processing and reporting, loss prevention reporting (including
XBR Research), and, subject to separate charges set forth in
Exhibit 4.1(s), e-mail distribution.
(ii) “
Excluded Benefits ” means benefits in excess of the
Benefits Cap.
(iii) “
Occupancy Expenses ” means base rent, percentage rent,
HVAC, utilities, CAM, storage costs, real estate and use taxes,
merchant’s association dues and expenses, and a pro rata
portion of comprehensive public liability insurance attributable to
the Stores , personal property leases (including, without
limitation, point of sale equipment), cash register maintenance,
building maintenance and rental for furniture, fixtures and
equipment, all of the foregoing only as categorized and reflected
on Exhibit 4.1(r) hereto.
“Expenses”
shall not include: (i) Excluded Benefits; (ii) Central
Service Expenses, except as provided in Section 4.1(s);
(iii) Occupancy Expenses, except as provided in
Section 4.1(r); and (iv) any other costs, expenses or
liabilities payable by Merchant not provided for herein.
4.2
Payment of Expenses . Effective from the Sale Commencement
Date:
(a) Agent
shall be responsible for the payment of all Expenses, whether or
not there are sufficient Proceeds collected to pay such Expenses
after the payment of the Guaranteed Amount. All Expenses incurred
during each week of the Sale (i.e. Sunday through Saturday) shall
be paid by Agent to or on behalf of Merchant immediately following
the weekly Sale reconciliation by Merchant and Agent pursuant to
Section 8.6 below; provided , however , in the
event that the actual amount of an Expense is unavailable on the
date of the reconciliation (such as payroll), Merchant and Agent
shall agree to an estimate of such amounts, which amounts will be
reconciled once the actual amount of such Expense becomes
available. Agent and/or Merchant may review or audit the Expenses
at any time.
(b) Notwithstanding
anything herein to the contrary, (i) Merchant shall not be
required to fund or otherwise pay any Expenses of Sale except to
the extent there are sufficient Proceeds and (ii) without
limitation on Expenses that may be funded in advance by Agent at
Merchant’s reasonable request, to the extent that Proceeds
are insufficient, Agent shall fund, in advance, all payroll and
related expenses for Retained Employees at least two
(2) business days prior to the date that such payments are due
by Merchant.
Section 5.
Inventory Valuation; Merchandise .
(a) To
determine the aggregate Cost Value of the Merchandise located in
the Stores, commencing on the Sale Commencement Date, Merchant and
Agent shall cause to be taken a SKU level and Retail Price level
physical inventory of the Merchandise located in the Stores, which
Inventory Taking, subject to the availability of the Inventory
Taking Service, shall
be completed in
each of the Stores no later than twenty-one (21) days after
the Sale Commencement Date (the “ Inventory Completion
Date ”, and the date of the Inventory Taking at each
Store being the “ Inventory Date ” for each such
Store). Merchant and Agent shall jointly employ RGIS and/or another
mutually acceptable independent inventory taking service (the
“ Inventory Taking Service ”) in consultation
with GECC to conduct the Inventory Taking. The Inventory Taking
shall be conducted in accordance with the procedures and
instructions set forth in Exhibit 5.1(a) (the “
Inventory Taking Instructions ”). Merchant, Agent, and
at its election, GECC, shall each have representatives present
during the Inventory Taking, and shall each have the right to
review and verify the listing and tabulation of the Inventory
Taking Service. Merchant and Agent agree that during the conduct of
the Inventory Taking in each of the Stores, the applicable Stores
shall be closed to the public and no sales or other transactions
shall be conducted. Merchant and Agent agree to cooperate with each
other to conduct the Inventory Taking commencing at a time that
would minimize the number of hours that such locations would be
closed for business.
(b) With
respect to Distribution Center Inventory and Return to Vendor
Inventory that is allocated to be sent to the Stores in accordance
with the Pre-Sale Allocation, such Distribution Center Inventory
and Return to Vendor Inventory shall be counted as such inventory
leaves the Distrubution Centers in accordance with the procedures
to be mutually agreed to by Merchant and Agent, which procedures
shall determine the aggregate Cost Value of such
inventory.
(c) The
Agent and Merchant agree that they will, and agree to cause their
respective representatives to, cooperate and assist in the
preparation and the calculation of the aggregate Cost Value of the
Merchandise included in the Sale, including, without limitation,
making available to the extent necessary, books, records, work
papers and personnel.
(d) In
the event that the Sale commences at any Store prior to the
completion of the Inventory Taking at such Store, then, for the
period from the Sale Commencement Date for such Store until the
Inventory Date for such Store, Agent and Merchant shall jointly
keep (i) a strict count of gross register receipts less
applicable Sales Taxes but excluding any prevailing discounts
(“ Gross Rings ”), and (ii) cash reports of
sales within such Store. Agent and Merchant shall keep a strict
count of register receipts and reports to determine the actual Cost
Value and Retail Price of the Merchandise sold by SKU and the
markdown, if any, granted by the Agent. All such records and
reports shall be made available to Agent and Merchant during
regular business hours upon reasonable notice. Any Merchandise
included in the Sale using the Gross Rings shall be included in
Merchandise using the average landed cost of such Merchandise as
set forth in the Perpetual Inventory File. Agent shall pay that
portion of the Guaranteed Amount calculated on the Gross Rings
basis to account for shrinkage on the basis of 103% of the
aggregate Cost Value of the Merchandise (without taking into
account any of Agent’s point of sale discounts or point of
sale markdowns) sold during the Gross Rings period.
5.2 Merchandise
Subject to This Agreement .
(a) For
purposes of this Agreement, “ Merchandise ”
shall mean: all finished goods inventory that is owned by Merchant
wherever located as of the Sale Commencement Date,
including
(A) Defective Merchandise; (B) Display Merchandise,
(C) Distribution Center Inventory to the extent received by
the DC Receipt Deadline, (D) Merchandise subject to Gross
Rings, (E) Return to Vendor Inventory to the extent received
by the DC Shipment Deadline; (F) On-Order Goods to the extent
received by the On-Order Receipt Deadline; (G) Schuler Goods
to the extent received by the On-Order Receipt Deadline; and
(H) Calendar Inventory. Notwithstanding the foregoing,
“Merchandise” shall not include: (1) goods which
belong to sublessees, licensees, department lessees, or
concessionaires of Merchant; (2) goods held by Merchant on
memo, on consignment, or as bailee; (3) supplies not packaged
for retail sale to customers, furnishings, trade fixtures,
equipment and/or improvements to real property (collectively,
“ FF&E ”); provided that, Agent shall
sell Agent Sale FF&E as set forth in Section 15.9;
(4) Excluded Defective Merchandise; (5) Merchant
Consignment Goods which includes News Stand Inventory and
Café/Candy Inventory; (6) Books in Storage; and
(7) DC Damaged Goods.
(b) As used
in this Agreement, the following terms have the respective meanings
set forth below:
“
Books in Storage ” means those items of merchandise
located on the Sale Commencement Date at a storage facility in
North Carolina not to exceed $3,800,000 at cost, which goods shall
not be deemed Merchant Consignment Goods or Additional Agent
Merchandise.
“
Café/Candy Inventory ” means items of inventory
designated by Merchant, in the ordinary course of business, as
“café and candy”.
“Calendar
Inventory” means any 2012 calendar inventory located in the
Stores and Distribution Centers up to an aggregate Cost Value of
$200,000.
“
DC Damaged Goods ” means those items of merchandise
designated as “Saleable, Damaged and Refused Returns”
located at each of the Distribution Centers as identified on
Exhibit 5.2(i).
“
Defective Merchandise ” means any item of Merchandise
that is defective or otherwise not saleable in the ordinary course
because it is worn, scratched, broken, faded, torn, mismatched,
tailored or affected by other similar defenses rendering it not
first quality. Display Merchandise shall not per se be deemed to be
Defective Merchandise.
“
Display Merchandise ” means those items of inventory
used in the ordinary course of business as displays or floor
models, including inventory that has been removed from its original
packaging for the purpose of putting such item on display but not
customarily sold or saleable by Merchant, which goods are not
otherwise damaged or defective. For the avoidance of doubt,
Merchandise created for display and not saleable in the ordinary
course of business shall not constitute Display
Merchandise.
“
Distribution Center Inventory ” means those items of
merchandise located on the Sale Commencement Date at each of the
Distribution Centers as identified on
Exhibit 5.2(ii)
attached hereto
other than any stripped books (i.e., covers of books only) (the
“ Stripped Books ”). Merchant and Agent will use
commercially reasonable efforts to identify and exclude all
Stripped Books inventory from the Distribution Center Inventory. To
the extent that Stripped Books are received in Stores, and have not
already been excluded from the inventory at the Distribution
Centers, the aggregate Cost Value of the Distribution Center
Inventory shall be adjusted to exclude the Stripped Books provided
that Agent provides Merchant with at least five (5) business days
notice of receipt of any Stripped Books at the Stores.
“
Excluded Defective Merchandise ” means (i) those
items of Defective Merchandise that are not saleable in the
ordinary course because they are so damaged or defective that such
inventory cannot reasonably be used for their intended purpose,
(ii) DC Damaged Goods, and (iii) Out-Dated Goods.
“
News Stand Inventory ” means items of inventory
designated by Merchant, in the ordinary course of business, as
“news stand.”
“
On-Order Goods ” mean items of inventory that were
ordered by Merchant in the ordinary course of business as
identified on Exhibit 5.2(iii) annexed hereto, which
inventory was not received in the Stores or Distribution Centers as
of the Sale Commencement Date, but which may be received in the
Stores by the On-Order Receipt Deadline, provided that, the
aggregate Cost Value of the On-Order Goods shall not exceed
$17,000,000.
“
Out-Dated Goods ” means inventory that is near or
out-of-date, including 2011 calendars and previous year
almanacs.
“
Return to Vendor Inventory ” means those items of
inventory designated “Return to Vendor” by Merchant in
the ordinary course of its business as reflected on
Exhibit 5.2(iv) to the extent located in the
Distribution Centers as of the Sale Commencement Date. For the
avoidance of doubt, Merchandise located in the Stores as of the
Sale Commencement Date bearing the same SKU as Return to Vendor
Inventory shall not constitute Return to Vendor
Inventory.
“
Schuler Goods ” means items of inventory as identified
on Exhibit 5.2(v) that may be returned by
Merchant’s customer, Schuler, provided that, the aggregate
Cost Value of the Schuler Goods shall not exceed
$1,700,000.
(a) For
purposes of this Agreement, “ Cost Value ” shall
mean with respect to each item of Merchandise, the lower of
(i) average landed actual cost for such item of Merchandise,
as reflected in the Perpetual Inventory File; which landed actual
costs values include vendor cost, freight from the vendor to the
Distribution Centers, duties, harbor maintenance fees, drayage,
brokers fees, insurance, commissions, processing costs and other
costs directly associated with landing the product in the
Distribution Centers or (ii) the Retail Price for such item of
Merchandise. The Perpetual Inventory File does not account for any
advertising co-op allowances or discounts associated with expedited
payment terms offered by any vendor.
(b) Other
than Excluded Defective Merchandise, in lieu of any other
adjustments to the Cost Value of Merchandise under this Agreement (
e.g. , adjustments for Defective Merchandise, clearance
merchandise, mis-mates and near-mates, sample merchandise and/or
Excluded Price Adjustments), the aggregate Cost Value of the
Merchandise shall be adjusted ( i.e. , reduced) by means of
a single global downward adjustment equal to one half of one
percent (0.5%) of the aggregate Cost Value of the Merchandise in
the Stores and any On-Order Goods and one and one half of one
percent (1.5%) of the aggregate Cost Value of the Distribution
Center Inventory, Return to Vendor Inventory and Schuler Goods (the
“ Global Inventory Adjustment ”).
For the purposes
of this Agreement, “ Excluded Price Adjustments
” means the following discounts or price adjustments offered
by the Merchant: (i) point of sale discounts or similar
adjustments regardless of duration for which the current selling
price is reflective of point of sale discounts, as reflected on the
Perpetual Inventory File other than discounts for the following
e-readers, CDs, DVDs and Blue Ray; (ii) Borders Rewards Plus
Loyalty Program discounts; (iii) multi-unit purchase discounts;
(iv) adjustments for damaged, defective or “as-is”
items; (v) gift cards; (vi) obvious ticketing or marking
errors; (vii) instant (in-store) or mail in rebates; or
(viii) similar customer specific, temporary, or employee
non-product specific discounts or pricing
accommodations.
(c) Excluded
Defective Merchandise located in the Stores shall be identified and
counted during the Inventory Taking and thereafter removed from the
sales floor and segregated. To the extent that Excluded Defective
Merchandise is sent from the Distribution Centers to the Stores, it
shall be identified once received and thereafter
segregated.
(d) Items of
Distribution Center Inventory and Return to Vendor Inventory
received in the Stores on or prior to the date that is thirty
(30) days after the Sale Commencement Date (excluding the Sale
Commencement Date for purposes of such calculation) (the “
DC Interim Receipt Deadline ”), will be included in
Merchandise at the applicable Cost Value for each such item. Items
of Distribution Center Inventory and Return to Vendor Inventory
received at the Stores after the DC Interim Receipt Deadline but
prior to a date that is forty five (45) days after the Sale
Commencement Date (excluding the Sale Commencement Date for
purposes of such calculation) (the “ DC Receipt
Deadline ”) shall be included in Merchandise at the
applicable Cost Value for each such item multiplied by the inverse
of the prevailing discount on similar items of Merchandise as of
the date of receipt in the Stores. Items of Distribution Center
Inventory and Return to Vendor Inventory received in the Stores
after the DC Receipt Deadline shall not constitute Merchandise,
shall be given no Cost Value, and shall be excluded from
Merchandise, and shall be sold by Agent as Merchant Consignment
Goods pursuant to Section 5.4 hereof.
(e) Items of
On-Order Goods and Schuler Goods received in the Stores on or prior
to the date that is fourteen (14) days after the Sale
Commencement Date (excluding the Sale Commencement Date for
purposes of such calculation) (the “ On-Order Interim
Receipt Deadline ”), will be included in Merchandise at
the applicable Cost Value for each such item. Items of On-Order
Goods and Schuler Goods received at the Stores after the On-Order
Interim Receipt Deadline but prior to a date that is thirty
(30) days after the Sale Commencement Date (excluding the Sale
Commencement Date for purposes of such calculation) (the “
On-Order
Receipt
Deadline ”) shall
be included in Merchandise at the applicable Cost Value for each
such item multiplied by the inverse of the prevailing discount on
similar items of Merchandise as of the date of receipt in the
Stores. Items of On-Order Goods and Schuler Goods received in the
Stores after the On-Order Receipt Deadline shall not constitute
Merchandise, shall be given no Cost Value, and shall be excluded
from Merchandise, and shall be sold by Agent as Merchant
Consignment Goods pursuant to Section 5.4 hereof.
5.4 Excluded
Goods . Merchant shall retain all responsibility for any goods
not included as “Merchandise” hereunder. If Merchant
elects at the beginning of the Sale Term, Agent shall accept goods
not included as “Merchandise” hereunder for sale as
“Merchant Consignment Goods” at prices established by
the Agent. News Stand Inventory, Café/Candy Inventory, DC
Damaged Goods, calendar inventory located in the Stores and
Distribution Centers with a Cost Value exceeding $200,000, those
items referenced by SKU on Exhibit 5.4 or items
otherwise identified herein shall be deemed Merchant Consignment
Goods. 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 in accordance with Section 3.3, immediately
following the weekly Sale reconciliation by Merchant and Agent
pursuant to Section 8.6 below. If Merchant does not elect to
have Agent sell goods not included as Merchandise, then all such
items will be removed by Merchant from the Stores at its expense as
soon as practicable after the Sale Commencement Date.
5.5
Distribution Center Expenses . Agent shall be responsible
for allocating and designating the shipment of the Distribution
Center Inventory and Return to Vendor Inventory to the Stores. The
actual costs and expenses, including use and occupancy at the
Distribution Centers, transfer and delivery (ticketed in the
ordinary course consistent with historic practices), related to the
processing, transfer and consolidation of Distribution Center
Inventory and Return to Vendor Inventory from the Distribution
Center to the Stores (collectively, the “ Distribution
Center Expenses ”) for a period commencing on the Sale
Commencement Date through the Sale Termination Date shall be the
obligation of the Merchant; provided however, that in the event
Agent chooses to use a method of picking-up or transportation in a
manner that is not consistent with Merchant’s ordinary course
method of transport, then Agent shall be solely responsible for all
increased costs and expenses associated with such modification
(such additional costs shall be treated as an Expense hereunder);
provided further, no Distribution Center Inventory or Return to
Vendor Inventory shall be shipped to the Stores prior to the
Inventory Date for any applicable Store unless Merchant and Agent
can mutually agree on a method to account for such inventory. On or
prior to July 14, 2011, Merchant and Agent shall cooperate
with each other and shall mutually agree upon a schedule and
allocation of the Distribution Center Inventory and Return to
Vendor Inventory to the Stores (the “ Pre-Sale
Allocation ”).
6.1 Term .
Subject to satisfaction of the conditions precedent set forth in
Section 10 hereof, the Sale shall commence at each Store no
event later than July 29, 2011; provided ,
however , that the Sale shall commence by no later than
July 22, 2011 at each Store with a real property lease subject
to an assumption/rejection deadline on or prior to
September 30, 2011,
5:00 p.m., New
York City time or subject to imposition of “holiday
protection” payments if not vacated on or prior to
September 30, 2011, 5:00 p.m., New York City time (the “
Sale Commencement Date ”). Subject to the prior
expiration of the term of any Store Lease or expiration of the
deadline for the Merchant to assume or reject any Store Lease
pursuant to section 365(d)(4) of the Bankruptcy Code or, if
earlier, the date by which the Merchant must vacate a Store to
avoid triggering a “holiday protection” payment (as
reflected on Exhibit 6.1 ), the Agent shall complete
the Sale at each Store and vacate such Store in broom-clean
condition by no later than November 13, 2011, unless the Sale
is extended by mutual written agreement of Agent, Merchant and GECC
(the “ Sale Termination Date ”; the period from
the Sale Commencement Date to the Sale Termination Date as to each
Store being the “ Sale Term ”). The Agent may,
in its discretion, termin
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