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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
January 20, 1999
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Solo Serve Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-19994 74-2048057
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(Commission File Number) (I.R.S. Employer Identification Number)
1610 Cornerway Blvd.
San Antonio, Texas 78219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 662-6262
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ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Solo Serve Corporation filed a voluntary petition on January 20, 1999
under Chapter 11 of the Bankruptcy Act, Case No. 99-50272-C, in the United
States Bankruptcy Court, Western District of Texas, San Antonio Division, Judge
Ronald B. King presiding. Solo Serve Corporation, as Debtor in Possession, will
continue to operate and manage its affairs.
Among the initial pleadings filed with the Court were a motion seeking
approval of an interim debtor-in-possession financing facility with the
Company's existing lender (the "DIP Facility"). The DIP Facility provides for a
limit of $7 million on the aggregate amount of Pre-Petition Indebtedness and
Post-Petition Indebtedness outstanding through March 15, 1999, from and after
which the aggregate indebtedness may not exceed $5.5 Million. The interest rate
for all borrowings under the DIP Facility is equal to the Prime Rate plus one
and one-quarter percent (1.25%) per annum. The advance rate under the DIP
Facility is in an amount equal to 55% of eligible inventory, less at all time
any reserves as the lender may, at any time and from time to time, establish in
the exercise of reasonable credit judgment as a result of changing
circumstances. In addition to the Company's inventory, the DIP Facility is
secured by standby letters of credit posted by General Atlantic Corporation, the
holder of the Company's outstanding preferred stock, in the aggregate amount of
$1,350,000. On January 21, 1999, the Bankruptcy Court entered an order approving
the terms of the DIP Facility.
The Company also filed a motion seeking approval of an Agency Agreement
between the Company and a joint venture comprised of Hilco Trading Co., Inc.,
Garcel, Inc. and Nassi Group, LLC ("Hilco/Garcel/Nassi"), providing for the
immediate liquidation of inventory in ten of the Company's thirty stores and
granting the Company an option exercisable on or before January 29, 1999 to
require Hilco/Garcel/Nassi to liquidate the inventory in the Company's remaining
twenty stores. On January 21, 1999, the Bankruptcy Court approved the proposed
inventory liquidation in the initial ten stores. The discussion of the Agency
Agreement contained in this Report is qualified in its entirety by reference to
the complete text of the Agreement, which is filed as Exhibit 10.1 to this
Report.
The initial inventory liquidation is occurring in all of the Company's
Louisiana stores, and includes inventory transferred from four Texas stores, two
in San Antonio and one each in Kingsville and San Angelo. Proceeds from the
inventory liquidation in these stores are expected to be applied to reduce the
amount owed to the Company's senior lender.
After the initial inventory liquidation commenced, the Company and its
financial advisors continued discussions with parties potentially interested in
acquiring the Company's remaining stores, including the inventory in those
stores, but no definitive proposals in that regard were received. The expiration
date of the Company's option under the Hilco/Garcel/Nassi Agency Agreement was
extended to February 2, 1999, and at a hearing held on that date, the Bankruptcy
Court approved the Company's exercise of its option to liquidate the inventory
in the Company's remaining twenty stores. The liquidation of the inventory in
the remaining twenty stores began on February 3, 1999. As a result of the
inventory liquidation, the Company expects to pay off all amounts owed under the
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Company's DIP Facility and to provide funds necessary for continuing operation
of the Company on a reduced scale while the Company seeks to maximize the value
of its assets for the benefit of its creditors.
Of the remaining twenty seven store leases, eleven are located in San
Antonio, five in New Orleans, four in Texas/Mexico border communities, two each
in Corpus Christi and Austin, and one each in Brownwood and Athens, Texas and
Shreveport, Louisiana. The Company also has a lease on its corporate
headquarters/distribution center. Certain parties have expressed interest in
reopening some or all of the Company's existing stores after liquidation of the
remaining inventory and may utilize the Company's headquarters/distribution
center as well. No definitive proposals have been received. However, the Company
intends to promptly solicit definitive proposals from interested parties and
submit a proposal to the Court as soon as reasonably possible, hopefully by the
end of February.
There can be no assurances made that the Company will obtain proposals
from parties interested in acquiring some or all of the Company's stores, and no
assurances can be given regarding the likely proceeds to the Company from any
such transactions. None of the alternatives currently available to the Company
affords any value to the interests of holders of the Company's common stock or
preferred stock.
Forward-looking Statements
Forward-looking statements in this Report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors that could cause results to differ materially from
those anticipated by some of the statements made above. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Among the
principal uncertainties facing the Company at this time are uncertainty
regarding the amounts likely to be realized from sale of the Company's remaining
assets and the costs associated with the bankruptcy process. The Company does
not undertake to publicly update or revise its forward-looking statements even
if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
Copies of the bankruptcy petition and other pleadings may be obtained
by contacting the Office of the Clerk of the United States Bankruptcy Court for
the Western District of Texas, San Antonio Division, 615 E. Houston Street, San
Antonio, Texas 78205, (210) 472-6720.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Company and its financial advisors are continuing to evaluate
alternatives and entertain proposals regarding the Company's remaining assets,
which consist principally of the remaining twenty seven store leases, the lease
on the Company's headquarters/distribution center and the Company's furniture,
fixtures and equipment. While no definitive proposals have been received,
discussions are continuing with parties interested in acquiring some or all of
the leases and continuing to operate the stores under new ownership.
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(c) Exhibits. The following exhibits are filed as part of this report:
Number Document
10.1 Agency Agreement dated January 21, 1999 by and between the
Company and a joint venture comprised of Hilco Trading Co.,
Inc., Garcel, Inc., d/b/a Great American Asset Management,
and the Nassi Group, L.L.C.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOLO SERVE CORPORATION
By: /s/ Ross E. Bacon
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Ross E. Bacon,
Secretary and Chief Financial Officer
Dated: January 20, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Document
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<S> <C>
10.1 Agency Agreement dated January 21, 1999 by and between the
Company and a joint venture comprised of Hilco Trading Co.,
Inc., Garcel, Inc., d/b/a Great American Asset Management,
and the Nassi Group, L.L.C.
</TABLE>
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EXHIBIT 10.1
AGENCY AGREEMENT
This Agency Agreement is made as of this 20th day of January, 1999, by
and between a joint venture comprised of Hilco Trading Co., Inc. an Illinois
corporation, with a principal place of business at 5 Revere Drive, Suite 206,
Northbrook, Illinois 60062, Garcel, Inc., d/b/a Great American Asset Management,
a California corporation, with a principal place of business at 6338 Variel
Avenue, Woodland Hills, California 91367 and the Nassi Group, L.L.C., a
California limited liability corporation with a principal place of business at
23622 Calabasas Rd., Suite 333, Calabasas, California 91302 (collectively, the
"Agent") and Solo Serve Corporation, a Delaware corporation, with a principal
place of business at 1610 Cornerway Blvd., San Antonio, Texas 78219
("Merchant").
RECITALS
WHEREAS, Merchant desires that Agent act as Merchant's exclusive agent
for the limited purpose of selling all of the Merchandise (as hereinafter
defined) located in Merchant's 10 retail store location(s) listed on Exhibit 1A
attached hereto (each individually a "Store," and collectively the "Stores") by
means of a Store Closing, Going Out of Business at this Location or similar
theme sale (as further described below, the "Sale"), provided, however, that the
number of Stores subject to the Sale shall include all of Merchant's 30 Stores
in the event that Merchant elects the Additional Store Option as defined in
Section 8.8 below. The additional 20 retail store locations are set forth on
Exhibit 1B attached hereto.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Agent and Merchant hereby agree as
follows:
Section 1. Defined Terms. The terms set forth below are defined in the
Sections referenced in this Agreement:
<TABLE>
<CAPTION>
Defined Term Section Reference
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<S> <C>
Additional Store Option Section 8.8
Agency Accounts Section 7.2
Agency Documents Section 11.1(b)
Agent Preamble
Agent Claim Section 12.5
Agent Indemnified Parties Section 13.1
Agent's Fee Section 3.2
Agent's Goods Section 16
Central Administrative Expenses Section 4.1
Defective Merchandise Section 5.2(b)
Estimated Inventory Section 11.1(l)
Excluded Benefits Section 4.1
</TABLE>
EXHIBIT A
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<TABLE>
<S> <C>
Expenses Section 4.1
Final Reconciliation Section 3.3
FF&E Section 5.2(a)
Guaranteed Amount Section 3.1(a)
Initial Deposit Section 3.3
Inventory Date Section 5.1
Inventory Taking Section 5.1
Layaway Merchandise Section 5.2(b)
Merchandise Section 5.2(a)
Merchant Preamble
Merchant's Commission Section 16
Minimum Merchant's Commission Section 16
Occupancy Expenses Section 4.1
Proceeds Section 7.1
Retail Price Section 5.3
Retained Employee Section 9.1
Retention Bonus Section 9.4
Sale Recitals
Sale Commencement Date Section 6.1
Sale Term Section 6.1
Sale Termination Date Section 6.1
Sales Taxes Section 8.3
Store(s) Recitals
WARN Act Section 9.1
</TABLE>
Section 2. Appointment of Agent. Merchant hereby irrevocably appoints
Agent, and Agent hereby agrees to serve, as Merchant's exclusive agent for the
limited purpose of conducting the Sale in accordance with the terms and
conditions of this Agreement.
Section 3. Payments to Merchant and Agent.
3.1 Payments to Merchant.
(a) (i) As a guaranty of Agent's performance hereunder, Merchant
shall receive from Agent the sum of 33% of the aggregate Retail Price of the
Merchandise ("Guaranteed Amount"), provided, however, that if Merchant elects
the Additional Store Option, the Guaranteed Amount, with respect to both the
initial 10 Stores and the additional 20 Stores, shall be 36% of the aggregate
Retail Price of the Merchandise. In addition to the Guaranteed Amount, Merchant
shall receive the Merchant's Commission.
(ii) Agent shall pay the Guaranteed Amount and Merchant's
Commission to Merchant in the manner and at the times specified in Section 3.3
below.
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3.2 Payments to Agent. Agent shall receive as its compensation for
services rendered to Merchant all remaining Proceeds of the Sale after payment
of the Guaranteed Amount, Merchant's Commission and all Expenses. All
Merchandise remaining, if any, at the Sale Termination Date shall become the
property of Agent, free and clear of all liens, claims and encumbrances.
3.3 Time of Payments. Agent shall pay Merchant eighty-five (85%)
percent of thirty-three (33%) percent of the retail value of the book value of
inventory as of January 16, 1999 for the initial ten (10) Stores and if the
Additional Store Option is exercised, then Agent shall pay Merchant eighty-five
(85%) percent of thirty-six (36%) percent of retail value of the book value of
the inventory as of January 23, 1999 (which calculations shall be defined
hereafter as the "Initial Deposit"). As to the initial ten Stores, the Initial
Deposit plus the Minimum Merchant Commission shall be paid within twenty-four
(24) hours of entry of an Order approving this agreement. If Merchant elects the
Additional Store Option, Agent shall pay the Initial Deposit as to the
additional twenty (20) stores plus the remaining balance on the Minimum Merchant
Commission plus the additional three (3%) percent due on the Merchandise from
the initial ten (10) Stores, all within twenty-four (24) hours of delivery of
notice of the election of the Additional Store Option. Agent shall pay the
remaining balance of the Guaranteed Amount on a store by store basis within the
earlier of (a) one business day of the issuance of the final audited report of
the Merchandise by the inventory taking service after reconciliation and
verification thereof by Merchant and Agent or (b) three business days after
receipt of the certified report by the inventory taking service. Agent shall pay
any balance due on the Merchant's Commission to Merchant on a bi-weekly basis.
All payments made to Merchant shall be by wire transfer of immediately available
funds.
Within thirty (30) days after the end of the Sale Term Agent shall
prepare and deliver to Merchant a final reconciliation of the Sale including,
without limitation, a summary of Expenses and a summary of proceeds received
from the sale of Agent's Goods (the "Final Reconciliation").
Section 4. Expenses of the Sale.
4.1 Expenses. Agent shall be responsible for all Expenses incurred in
conducting the Sale. As used herein, "Expenses" shall mean all Store-level
operating expenses of the Sale which arise during the Sale Term at the Stores,
limited to the following: (a) base payroll for Retained Employees for actual
days/hours worked in the conduct of the Sale; (b) 17% of base payroll for each
Retained Employee as reimbursement for payroll taxes, worker's compensation and
benefits of Retained Employees; (c) 50% of the fees and costs of the inventory
taking service to conduct the Inventory Taking; (d) on-site supervision; (e)
advertising and signage in excess of $13,333.33 if the Additional Store Option
is not exercised and a cumulative total of Forty Thousand ($40,000) Dollars if
the Additional Store Option is exercised which advertising and signage shall be
at
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Merchant's contract rates, if available; (f) all utilities including water,
electricity and telephone expenses, including but not limited to, long distance
telephone expenses incurred in the conduct of the Sale; (g) credit card and bank
card fees, chargebacks and discounts and check cashing fees; (h) costs of
security; (i) a pro-rata portion of Merchant's casualty insurance premiums
attributable to the Merchandise; (j) costs of transfers of Merchandise between
the Stores during the Sale Term, including but not limited to, freight charges;
(k) 50% of the cost of initial packing of the Merchandise in the Texas Stores on
Exhibit 1A for delivery to the Louisiana Stores on Exhibit 1A; (l) Retention
Bonuses as described in Section 9.4 below; (m) per diem rent which is the amount
equal to monthly rent listed in Exhibit B divided by the number of days in the
month in question; (n) Occupancy Expenses on a per Store, per day basis, limited
to the amounts per store set forth on Exhibit 2 attached hereto; (o) routine
maintenance and repair as described in Section 11.1(p) and (p) the costs and
expenses of providing such additional goods and services which Agent in its sole
discretion deems appropriate.
"Expenses" shall not include: (i) Excluded Benefits; (ii) any rent or
occupancy expenses related to the Stores other than the Occupancy Expenses;
(iii) Central Service Expenses; and (iv) any other costs, expenses or
liabilities payable by Merchant and incurred during the Sale Term, all of which
shall be paid by Merchant promptly when due for and during the Sale Term.
As used herein, the following terms have the following respective
meanings:
"Central Service Expenses" means costs and expenses for Merchant's
central administrative services necessary for the Sale, including, but not
limited to, MIS services, payroll processing other than out-of-pocket actual
costs incurred by Merchant and payable to third parties for payroll processing
but not to exceed $50.00 per Store per month, inventory processing and handling
and data processing and reporting.
"Excluded Benefits" means vacation days or vacation pay, sick days or
sick leave, maternity leave or other leaves of absence, termination or severance
pay, pension benefits, ERISA coverage and similar contributions, and payroll
taxes, worker's compensation and benefits in excess of the percentage limitation
provided in Section 4.1(b) above.
"Occupancy Expenses" means percentage rent; CAM; real estate, ad
valorem, personal property, and use taxes; insurance; cleaning; trash removal;
and, Merchant's association dues and expenses.
4.2 Payment of Expenses. Upon presentation, all Expenses (other than
Payroll) shall be paid in full to or on behalf of the presenting party by each
Wednesday for the prior week's (i.e. Sunday through Saturday) Expenses.
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Payroll expenses shall be paid in accordance with Section 9.3. Reconciliation
and adjustments to expenses as to the amount presented by Merchant and paid by
Agent shall be made only at the Final Reconciliation.
Section 5. Inventory Valuation; Merchandise.
5.1 Inventory Taking. Merchant and Agent shall cause to be taken a
Retail Price physical inventory of the Merchandise located in the Stores on the
Inventory Date (the "Inventory Taking") commencing at the close of business at
each of the Stores on a date mutually agreed upon by Agent and Merchant (the
date of the Inventory Taking at each Store being the "Inventory Date" for such
Store). Merchant and Agent shall jointly employ RGIS or another mutually
acceptable nationally recognized inventory taking service to conduct the
Inventory Taking. Agent shall advance 100% of the costs and fees of the
inventory taking service as an Expense hereunder and shall have the right to
offset 50% of such cost from any sums due Merchant. Except as provided in the
immediately preceding sentence, Merchant and Agent shall each bear their
respective costs and expenses relative to the Inventory Taking. Merchant and
Agent shall each have representatives present during the Inventory Taking, and
shall each have the right to review and verify the listing and tabulation of the
inventory taking service. Merchant agrees that during the conduct of the
Inventory Taking at each Store such Store shall be closed to the public and no
sales or other transactions shall be conducted.
Immediately after the Inventory Taking with respect to the Texas
Stores included on Exhibit 1A, the Merchandise from such Stores shall be packed
and delivered to Louisiana Stores determined by Agent in its discretion.
5.2 Merchandise Subject to this Agreement.
(a) For purposes of this Agreement, "Merchandise" shall mean: (i)
all finished goods inventory owned by Merchant and located at the Stores as of
the Sale Commencement Date, including Defective Merchandise. Notwithstanding the
foregoing, "Merchandise" shall not include: (1) goods in any leased departments;
(2) goods which belong to sublessees, licensees or concessionaires of Merchant;
(3) goods held by Merchant on memo, on consignment, or as bailee; (4) defective
goods for which Merchant and Agent cannot agree upon a Retail Price; (5) Layaway
Merchandise; and (6) furnishings, trade fixtures and improvements to real
property which are located in the Stores (collectively, "FF&E");
(b) As used in this Agreement, the following terms have the
respective meanings set forth below:
"Defective Merchandise" means any item of Merchandise agreed upon
and identified by Agent and Merchant during the Inventory Taking as
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defective or otherwise not salable in the ordinary course because it or its
packaging is, damaged, worn, scratched, broken, or affected by other similar
defects rendering it not first quality, and as to which Agent and Merchant
mutually agree on its value to define its Retail Price. Sample Merchandise,
irregular Merchandise clearly marked and sold by Merchant in the ordinary course
of business and Merchandise on display shall not per se be deemed to be
Defective Merchandise so long as the original packaging for such Merchandise is
intact and available if needed to make the item salable in the ordinary course.
"Layaway Merchandise" means any items of Merchandise held at the
Stores on layaway, in each case pursuant to binding agreements, invoices or
other legal documentation, where (A) the documentation is clear as to the name,
address, telephone number, date of last payment and balance due from the
customer, and (B) the goods subject to layaway are fully described in the
documentation.
5.3 Valuation. For purposes of this Agreement, "Retail Price" shall
mean, with respect to each item of Merchandise, the lowest price offered to the
public by Merchant by any and all means after the close of business on January
12, 1999, except for:
(i) Defective Merchandise, where "Retail Price" shall mean such
value as to which Agent and Merchant shall agree.
The Retail Price of any item of Merchandise shall exclude all
Sales Taxes, and Merchant represents that the ticketed prices of items of
Merchandise at the Stores do not and shall not include any Sales Taxes. If an
item of Merchandise has more than one ticketed price, or if multiple items of
the same SKU are marked at different prices, the lowest ticketed price on any
such item shall prevail for such item or for all such items within the same SKU,
as the case may be, unless it is clear that the lowest ticket price was
mismarked and infrequent. Merchant represents and warrants that the lowest
ticketed price on any item as of Sales Commencement Date is the lowest price
which has been offered to the public by any and all means other than Club Solo
discounts offered in the ordinary course of business since January 12, 1999.
5.4 Excluded Goods. Merchant shall retain all responsibility for any
goods not included as "Merchandise" hereunder.
Section 6. Sale Term.
6.1 Term. Subject to satisfaction of the conditions precedent set
forth in Section 10 hereof, the Sale of Merchandise from the initial 10 Stores
shall commence at the six (6) Louisiana stores no later than January 23, 1999,
and with respect to the additional twenty Stores if the Additional Store Option
is elected by Merchant, January 30, 1999 (the "Sale Commencement Date"). Agent
shall
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complete the Sale in approximately 14 weeks, unless the Sale is extended by
mutual written agreement of Agent and Merchant (the "Sale Termination Date"; the
period from the Sale Commencement date to the Sale Termination Date as to each
Store being the "Sale Term"). Agent may, in its discretion, terminate the Sale
at any Store at any time within the Sale Term (i) upon the occurrence of an
Event of Default by Merchant, or (ii) upon not less than five (5) days' prior
written notice to Merchant.
6.2 Vacating the Stores. Agent shall vacate the Stores on or before
the Sale Termination Date, at which time Agent shall surrender and deliver the
Store premises and Store keys to Merchant. Agent agrees to leave the Stores in
"broom clean" condition, ordinary wear and tear excepted. All assets of Merchant
used by Agent in the conduct of the Sale (e.g. FF&E, supplies, etc.) shall be
returned by Agent to Merchant at the end of the Sale Term to the extent the same
have not been used in the conduct of the Sale or have not been otherwise
disposed of with the consent of Merchant or otherwise through no fault of Agent.
6.3 Gross Rings. 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 until the Inventory Date for such Store,
Agent and Merchant shall jointly keep (i) a strict count of Gross Register
Receipts less applicable Sales Taxes ("Gross Rings"), and (ii) cash reports of
sales within such Store. Register receipts shall show for each item sold the
Retail Price for such item and the markdown or discount, if any, specifically
granted by Agent in connection with such Sale. All such records and reports
shall be made available to Agent and Merchant during regular business hours upon
reasonable notice. Gross Register Receipts shall be the Retail Price of cash
items sold.
Section 7. Sale Proceeds.
7.1 Proceeds. For purposes of this Agreement, "Proceeds" shall mean
the aggregate of: (a) the total amount (in U.S. dollars) of all sales of
Merchandise made under this Agreement, exclusive of Sales Taxes and (b) all
proceeds of Merchant's insurance for loss or damage to Merchandise or loss of
cash arising from events occurring during the Sale Term.
7.2 Deposit of Proceeds. All cash Proceeds shall be deposited by
Agent in Agency Accounts established by Agent ("Agency Accounts"). Agent shall
exercise sole signatory authority and control with respect to the Agency
Accounts.
7.3 Credit Card Proceeds. Agent and Merchant shall use their
reasonable efforts to allow Agents to process credit card transactions under
Agent's merchant identification numbers but using Merchant's credit card
systems. If, and to the extent, that such cannot be timely accomplished,
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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 numbers and existing bank
accounts) for credit card Proceeds. In the event that Agent elects so to use
Merchant's credit card facilities, Merchant shall process credit card
transactions on behalf of Agent, 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 necessary to process credit card transactions under Merchant's merchant
identification numbers. All credit card Proceeds will constitute the property of
Agent and shall be held by Merchant, In Trust, for Agent, free and clear of all
liens, claims or encumbrances of Merchant or its creditors. Merchant shall
deposit all credit card Proceeds into a segregated 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 (1) business day) by wire
transfer of immediately available funds. At Agent's request, Merchant shall
cooperate with Agent to establish merchant identification numbers under Agent's
name and to process all credit card Proceeds for Agent's account. Merchant shall
not be responsible for and Agent shall pay as an Expense hereunder, all credit
card fees, charges, and chargebacks related to the Sale, whether received during
or after the Sale Term.
Section 8. Conduct of the Sale.
8.1 Rights of Agent. Agent shall be permitted to, in its sole
discretion, conduct the Sale as a Going Out of Business at this Location, Store
Closing or similar theme sale throughout the Sale Term. Agent shall conduct the
Sale in the name of and on behalf of Merchant in a commercially reasonable
manner and in compliance with the terms of this Agreement. In addition to any
other rights granted to Agent hereunder, in conducting the Sale Agent, in the
exercise of its sole discretion, shall have the right:
(a) to establish and implement advertising and promotion programs
consistent with the Sale themes described above including the use of exterior
banners, provided, however, that Agent shall deliver copies of all advertising
materials for the Sale to Merchant, Attn. Chuck Siegel, who shall have the
right, within twenty-four hours of such delivery, to approve such materials
(which approval shall not be unreasonably withheld or delayed); and provided
further that the failure of such designee to reasonably respond to any request
for approval within twenty-four (24) hours shall be deemed to be approval of the
subject materials;
(b) to establish Sale prices and Store hours which are consistent
with the terms of applicable leases and shall give Merchant at least two (2)
business days notice of any changes to Sale prices;
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(c) to use without charge during the Sale Term all FF&E,
advertising materials, customer lists and mailing lists, computer hardware and
software, existing supplies located at the Stores, intangible assets (including
Merchant's name, logo and sales tax identification numbers), Store keys, case
keys, security codes, and safe and lock combinations required to gain access to
and operate the Stores, and any other assets of Merchant located at the Stores
(whether owned, leased, or licensed);
(d) to transfer Merchandise between Stores;
(e) to use without charge (i) Merchant's central office
facilities, central administrative services and personnel to process payroll,
perform MIS and provide other central office services necessary for the Sale,
and (ii) one (1) office located at Merchant's central office facility.
8.2 Terms of Sales to Customers. All sales of Merchandise will be
"final sales" and "as is", and all advertisements and sales receipts will
reflect the same. Agent shall not warrant the Merchandise in any manner, but
will, to the extent legally permissible, pass on all manufacturer's warranties
to customers. All sales will be made only for cash and by nationally recognized
bank credit cards. Unless Merchant requests, Agent will not accept Merchant's
gift certificates, Store credits, due bills and rain checks issued by Merchant
prior to the Sale Commencement Date. To the extent Merchant directs Agent to
accept Merchant's gift certificates, Store credits, due bills and rain checks
and after receipt of original media, Merchant shall reimburse Agent in cash on a
weekly basis for any such amounts or Agent shall setoff such amounts against
other amounts due Merchant hereunder.
8.3 Sales Taxes. During the Sale Term, all sales, excise, gross
receipts and other taxes attributable to sales of Merchandise (other than taxes
on income) payable to any taxing authority having jurisdiction (collectively,
"Sales Taxes") shall be added to the sales price of Merchandise and collected by
Agent at the time of sale. Agent shall draw checks on the Agency Accounts
payable to the applicable taxing authorities in the amount so collected, which
shall be delivered together with accompanying schedules to Merchant, In Trust,
on a timely basis for payment of Sales Taxes when due. Merchant shall promptly
pay all Sales Taxes and file all applicable reports and documents required by
the applicable taxing authorities. Merchant will be given access to the
computation of gross receipts for verification of all such tax collections.
8.4 Supplies. Agent shall have the right to use all existing supplies
(e.g. boxes, bags, twine) located at the Stores at no charge to Agent. In the
event that additional supplies are required in any of the Stores during the
Sale, Merchant agrees to promptly provide the same to Agent, if available, for
which Agent shall reimburse Merchant at Merchant's cost therefor. Supplies have
not been since January 1, 1999, and shall not be prior to the Sale
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Commencement Date, transferred by Merchant between or from the Stores so as to
alter the mix or quantity of supplies at the Stores from that existing on such
date, other than in the ordinary course of business.
8.5 Returns of Merchandise. During the Sale Term Agent shall not
accept returns of Merchandise sold by Merchant from the Stores prior to the Sale
Commencement Date ("Returned Merchandise").
8.6 Transfer of Merchandise. Prior to election of the Additional
Store Option, Agent may not conduct any Sales in Texas. The costs, if any, of
packing and loading Merchandise for transfer from the Texas stores shall be paid
by Merchant and Agent shall reimburse Merchant fifty (50%) percent of such costs
to Merchant as an Expense. All costs of freight and other transportation shall
be treated as an Expense.
8.7 Force Majeure. If any casualty or act of God prevents or
substantially inhibits the conduct of business in the ordinary course at any
Store, such Store and the Merchandise located at such Store shall be eliminated
from the Sale and considered to be deleted from this Agreement as of the date of
such event, and Agent and Merchant shall have no further rights or obligations
hereunder with respect thereto; provided, however, that (i) the proceeds of any
insurance attributable to such Merchandise or business interruption shall
constitute Proceeds hereunder, and (ii) the Guaranteed Amount shall be reduced
to account for any Merchandise eliminated from the Sale which is not the subject
of insurance proceeds, and Merchant shall reimburse Agent for the amount the
Guaranteed Amount is so reduced prior to the end of the Sale Term.
8.8 Merchant's Additional Store Option. Merchant may elect in its
sole discretion at any time on or before January 29, 1999, to include all
Merchandise in the remaining twenty retail store locations in such locations set
forth on Exhibit 1B attached hereto in the Sale (the "Additional Store Option").
In the event Merchant elects the Additional Store Option, the Guaranteed Amount
with respect to both the 10 initial Stores and the 20 additional Stores shall be
36% of the aggregate Retail Price of the Merchandise. If Merchant elects the
Additional Store Option, Agent shall commence the Sale at the twenty additional
Stores one business day after Merchant elects Additional Store Option.
Section 9. Employee Matters.
9.1 Merchant's Employees. Agent may use Merchant's employees in the
conduct of the Sale to the extent Agent in its sole discretion deems expedient,
and Agent may select and schedule the number and type of Merchant's employees
required for the Sale. Agent shall identify any such employees to be used in
connection with the Sale (each such employee, a "Retained Employee") prior to
the Sale Commencement Date. Retained Employees shall at all times remain
employees of Merchant, and shall not be
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considered or deemed to be employees of Agent. Merchant and Agent agree that,
except to the extent that wages and benefits of Retained Employees constitute
Expenses hereunder, nothing contained in this Agreement and none of Agent's
actions taken in respect of the Sale shall be deemed to constitute an assumption
by Agent of any of Merchant's obligations relating to any of Merchant's
employees including, without limitation, Excluded Benefits, Worker Adjustment
Retraining Notification Act ("WARN Act") claims and other termination type
claims and obligations, or any other amounts required to be paid by statute or
law; nor shall Agent become liable under any collective bargaining or employment
agreement or be deemed a joint or successor employer with respect to such
employees. Merchant shall not, without Agent's prior written consent, raise the
salary or wages or increase the benefits for, or pay any bonuses or make any
other extraordinary payments to, any of its employees in anticipation of the
Sale or prior to the Sale Termination Date. Merchant has not terminated and
shall not during the Sale Term terminate any employee benefits or benefit
programs.
9.2 Termination of Employees. Agent may in its discretion stop using
any Retained Employee at any time during the Sale. In the event of termination
of any Retained Employee, Agent will use all reasonable efforts to notify
Merchant at least five (5) days prior thereto, except for termination "for
cause" (such as dishonesty, fraud or breach of employee duties), in which event
no prior notice to Merchant shall be required, provided Agent shall notify
Merchant as soon as practicable after such termination. From and after the date
of this Agreement and until the Sale Termination Date, Merchant shall not
transfer or dismiss employees of the Stores except "for cause" without Agent's
prior consent.
9.3 Payroll Matters. During the Sale Term, Merchant shall process the
base payroll for all Retained Employees. No later than 12:00 p.m. Central
Standard Time, on each Thursday during the Sale Term prior to a payroll being
due, Merchant shall receive from Agent cash or wire transfer of immediately
available funds, an amount equal to the base payroll for Retained Employees plus
seventeen (17%) percent for payment of related payroll taxes, worker's
compensation and benefits for such week which constitute Expenses hereunder.
9.4 Employee Retention Bonuses. In Agent's sole discretion Proceeds
may be used to pay, as an Expense, retention bonuses ("Retention Bonuses")
(which bonuses shall be inclusive of payroll taxes but as to which no benefits
shall be payable) to Retained Employees who do not voluntarily leave employment
and are not terminated "for cause". A copy of any Retention Bonus proposals
shall be initially communicated in writing to each potentially affected employee
and a copy shall be delivered to Merchant. Such Retention Bonuses shall be
payable within thirty (30) days after the Sale Termination Date, and shall be
processed through Merchant's payroll system.
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Section 10. Conditions Precedent. The willingness of Agent and Merchant to
enter into the transactions contemplated under this Agreement are directly
conditioned upon the satisfaction of the following conditions at the time or
during the time periods indicated, unless specifically waived in writing by the
applicable party:
(a) The Bankruptcy Court for the Western District of Texas (the
"Bankruptcy Court") shall have entered an Order (which shall not have been
stayed) satisfactory to Agent in form and substance (the "Order"), on or the
Sale Commencement Date approving this Agreement in its entirety and authorizing
the Sale pursuant to the terms of this Agreement (i) notwithstanding any state
or local laws or regulations otherwise governing or purporting to govern the
licensing and conduct of the Sale, (ii) notwithstanding provisions in leases,
reciprocal easement agreements or other contracts that purport to limit, govern
or restrict the Sale, (iii) without the necessity of obtaining any third party
consents and (iv) granting Agent a valid perfected and first priority security
interest in and lien upon the Merchandise and the proceeds thereof, upon payment
of the Guaranteed Amount.
(b) All representations and warranties of Merchant and Agent
hereunder shall be true and correct in all material respects and no Event of
Default shall have occurred at and as of the date hereof and as of the Sale
Commencement Date.
Section 11. Representations, Warranties and Covenants.
11.1 Merchant's Representations, Warranties and Covenants. Merchant
hereby represents, warrants and covenants in favor of Agent as follows:
(a) Merchant: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
stated above; (ii) has all requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as presently
conducted; and (iii) is and during the Sale Term will continue to be duly
authorized and qualified as a foreign corporation to do business and in good
standing in each jurisdiction where the nature of its business or properties
requires such qualification, including all jurisdictions in which the Stores are
located.
(b) Subject to the approval of the Bankruptcy Court, Merchant has
the right, power and authority to execute and deliver this Agreement and each
other document and agreement contemplated hereby (collectively, together with
this Agreement, the "Agency Documents") and to perform fully its obligations
thereunder. Merchant has taken all necessary actions required to authorize the
execution, delivery and performance of the Agency Documents, and no further
consent or approval is required for Merchant to enter into and deliver the
Agency Documents, to perform its obligations thereunder, and to consummate
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the Sale. Each of the Agency Documents has been duly executed and delivered by
Merchant and constitutes the legal, valid and binding obligation of Merchant
enforceable in accordance with its terms. Other than approval of the Bankruptcy
Court, no court order or decree of any federal, state or local governmental
authority or regulatory body is in effect that would prevent or impair, or is
required for Merchant's consummation of, the transactions contemplated by this
Agreement, and no consent of any third party which has not been obtained is
required therefor. No contract or other agreement to which Merchant is a party
or by which the Merchant is otherwise bound will prevent or impair the
consummation of the Sale and the other transactions contemplated by this
Agreement.
(c) Since January 1, 1999, Merchant (i) has operated the Stores
in the ordinary course of business consistent with historical operations, and
(ii) has not conducted any promotions or advertised sales at the Stores, except
promotions and sales in the ordinary course of business consistent with historic
promotions and sales for comparable periods last year.
(d) Subject to the entry of the Order, Merchant owns and will own
at all times during the Sale Term, good and marketable title to all of the
Merchandise free and clear of all liens, claims and encumbrances of any nature
and is not aware of any Merchandise not being in compliance with all applicable
consumer product safety rules or other applicable federal, state, or local
product safety standards or rules. Merchant shall not create, incur, assume or
suffer to exist any security interest, lien or other charge or encumbrance upon
or with respect to any of the Merchandise or the Proceeds, except for the lien
in favor of the Agent granted pursuant to Section 15 below, and except for
presently existing liens which, in accordance with the Order, shall attach only
to the Guaranteed Amount and Merchant's Commission.
(e) Merchant has maintained its pricing files in the ordinary
course of business, and prices charged to the public for goods (whether
in-Store, by advertisement or otherwise) are the same in all material respects
as set forth in such pricing files for the periods indicated therein, except for
the promotions and sales described in Section 11.1(c). All pricing files and
records since January 1, 1999 relative to the Merchandise have been made
available to Agent. All such pricing files and records are true and accurate in
all material respects as to the actual cost to Merchant for purchasing the goods
referred to therein and as to the selling price to the public for such goods as
of the dates and for the periods indicated therein. There are no material files,
logs, schedules, data or other documents in Merchant's possession or control
relative to the price, mix and quantities of inventory located at the Stores
which have not been or will not be made available to Agent.
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(f) As of the Inventory Date, the levels of goods (as to
quantity) and the mix of goods (as to type, category, style, brand and
description) at the Stores are as heretofore disclosed to Agent.
(g) As of the Inventory Date, all markdowns will have been taken
on a basis consistent with Merchant's historical practices.
(h) Merchant has not since January 1, 1999, and shall not up to
the Sale Commencement Date, (i) marked up or raised the price of any items of
Merchandise, or removed or altered any tickets or any indicia of clearance
merchandise, except in the ordinary course of business or (ii) transferred any
significant amount of inventory into any Store.
(i) Merchant shall ticket or mark all items of inventory received
at the Stores prior to the Sale Commencement Date in a manner consistent with
similar inventory located at the Stores and in accordance with Merchant's
historic practices and policies relative to pricing and marking inventory.
(j) All point of sale activity at the Stores has occurred and
will occur up to the Sale Commencement Date in the ordinary course of business
and consistent with promotions described in Section 11.1(c).
(k) Except as previously disclosed to and agreed to by Agent,
Merchant has not and shall not purchase or transfer to or from the Stores any
inventory outside the ordinary course in anticipation of the Sale or of the
Inventory Taking;
(l) As of the Sale Commencement Date, inventory constituting
Merchandise located at the Stores shall be no less than $4,000,000 at the Retail
Price, and if the Additional Store Option is elected by Merchant, the inventory
constituting Merchandise located at such additional Stores shall be no less than
$11,000,000 at the Retail Price (the $4,000,000 and the $11,000,000 shall
respectively be referred to as "Estimated Inventory.") If the amount of the
actual Inventory is less than the Estimated Inventory, then the only remedy for
Agent is to reduce the Guaranteed Amount by a pro-rata percentage equal to .1%
for each $100,000 reduction in the actual inventory as compared to the Estimated
Inventory (e.g. if the actual Inventory at the Initial Ten Stores is $3,850,000
and assuming that the Additional Store Option is not elected, then the
Guaranteed Amount would be reduced to 32.85%).
(m) No action, arbitration, suit, notice, or legal,
administrative or other proceeding before any court or governmental body has
been instituted by or against Merchant, or has been settled or resolved, or to
Merchant's knowledge, is threatened against or affects Merchant, relative to
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Merchant's business or properties, or which questions the validity of this
Agreement, or that if adversely determined, would adversely affect the conduct
of the Sale.
(n) Merchant covenants to continue to operate the Stores in the
ordinary course of business from the date of this Agreement to the Sale
Commencement Date, (i) selling inventory during such period at customary prices,
(ii) not promoting or advertising any sales or in-Store promotions (including
POS promotions) to the public (iii) not returning inventory to vendors and not
transferring inventory or supplies between or among Stores, and (iv) not making
any management personnel moves or changes at the Stores without Agent's prior
written consent.
(o) 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. Merchant shall provide Agent with its historic policies and
practices regarding product recalls prior to the Inventory taking.
(p) Throughout the Sale Term, Agent shall have the right to the
uninterrupted use and occupancy of, and peaceful and quiet possession of, each
of the Stores, the assets currently located at the Stores, and the services
provided at the Stores. Agent shall throughout the Sale Term provide routine
maintenance and repair, at its sole expense, on 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. Merchant shall be liable for all non-routine maintenance and repair,
provided, however, that Merchant and Agent shall agree as to the actions to be
taken in the event that there is single expenditure related to maintenance
and/or repair which may not be economically feasible for Merchant to incur and
nothing herein shall bind either party to provide any such repair.
(q) Subject to Court approval, Merchant has paid and will
continue to pay throughout the Sale Term, (i) all self-insured or Merchant
funded employee benefit programs for employees, including health and medical
benefits and insurance and all proper claims made or to be made in accordance
with such programs, (ii) all casualty, liability, workers' compensation and
other insurance premiums, (iii) all utilities provided to the Stores, and (iv)
all applicable taxes.
(r) Merchant has not and shall not throughout the Sale Term take
any actions the result of which is to increase the cost of operating the Sale,
including, without limitation, increasing salaries or other amounts payable to
employees.
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(s) Merchant is not a party to any collective bargaining
agreements with its employees at the Stores and, to the best of Merchant's
knowledge, no labor unions represent Merchant's employees at the Stores.
(t) All information provided by Merchant to Agent in the course
of Agent's due diligence and preparation and negotiation of this Agreement
(including information as to the Store inventories and operating expenses) is as
of the date delivered true and accurate in all material respects.
(u) Merchant shall cooperate with Agent and not compete with
Agent or the Sale.
11.2 Agent's Representations and Warranties. Agent hereby represents,
warrants and covenants in favor of Merchant as follows:
(a) Agent: (i) is a joint venture comprised of corporations
validly existing and in good standing under the laws of their respective states
of incorporation; (ii) has all requisite power and authority to consummate the
transactions contemplated hereby; and (iii) is and during the Sale Term will
continue to be, duly authorized and qualified to do business and in good
standing in each jurisdiction where the nature of its business or properties
requires such qualification.
(b) Agent has the right, power and authority to execute and
deliver each of the Agency Documents to which it is a party and to perform fully
its obligations thereunder. Agent has taken all necessary actions required to
authorize the execution, delivery, and performance of the Agency Documents, and
no further consent or approval is required on the part of Agent for Agent to
enter into and deliver the Agency Documents and to perform its obligations
thereunder. Each of the Agency Documents has been duly executed and delivered by
the Agent and, subject to the issuance of the Order, constitutes the legal,
valid and binding obligation of Agent enforceable in accordance with its terms.
No court order or decree of any federal, state or local governmental authority
or regulatory body is in effect that would prevent or impair or is required for
Agent's consummation of the transactions contemplated by this Agreement, and no
consent of any third party which has not been obtained is required therefor,
except for the Court. No contract or other agreement to which Agent is a party
or by which Agent is otherwise bound will prevent or impair the consummation of
the transactions contemplated by this Agreement.
(c) No action, arbitration, suit, notice, or legal administrative
or other proceeding before any court or governmental body has been instituted by
or against Agent, or has been settled or resolved, or to Agent's knowledge, has
been threatened against or affects Agent, which questions the validity of this
Agreement or any action taken or to be taken by Agent in connection with this
Agreement, or which if adversely determined, would have a
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material adverse effect upon Agent's ability to perform its obligations under
this Agreement.
Section 12. Insurance.
12.1 Merchant's Liability Insurance. Merchant shall continue at its
cost and expense until the Sale Termination Date, in such amounts as it
currently has in effect, all of its liability insurance policies including, but
not limited to, products liability, comprehensive public liability, auto
liability and umbrella liability insurance, covering injuries to persons and
property in, or in connection with Merchant's operation of the Stores, and shall
cause Agent to be named an additional named insured with respect to all such
policies. Prior to the Sale Commencement Date, Merchant shall deliver to Agent
certificates evidencing such insurance setting forth the duration thereof and
naming Agent as an additional named insured, in form reasonably satisfactory to
Agent. All such policies shall require at least thirty (30) days prior notice to
Agent of cancellation, non-renewal or material change. In the event of a claim
under any such policies Merchant shall be responsible for the payment of all
deductibles, retention's or self-insured amounts thereunder, unless it is
determined that liability arose by reason of the wrongful acts or omissions or
negligence of Agent, or Agent's employees, independent contractors or agents
(other than Merchant's employees).
12.2 Merchant's Casualty Insurance. Merchant will provide throughout
the Sale Term, at Agent's cost as an Expense hereunder, fire, flood, theft and
extended coverage casualty insurance covering the Merchandise in a total amount
equal to no less than Merchant's cost thereof. From and after the date of this
Agreement until the Sale Termination Date, all such policies will name Agent as
loss payee. In the event of a loss to the Merchandise on or after the date of
this Agreement, the proceeds of such insurance attributable to the Merchandise
plus any self insurance amounts and the amount of any deductible (which amounts
shall be paid by Merchant), shall constitute Proceeds hereunder and shall be
paid to Agent. In the event of such a loss Agent shall have the sole right to
adjust the loss with the insurer. Prior to the Sale Commencement Date, Merchant
shall deliver to Agent certificates evidencing such insurance setting forth the
duration thereof and naming Agent as loss payee, in form and substance
reasonably satisfactory to Agent. All such policies shall require at least
thirty (30) days prior notice to Agent of cancellation, non-renewal or material
change. Merchant shall not make any change in the amount of any deductibles or
self insurance amounts prior to the Sale Termination Date without Agent's prior
written consent.
12.3 Agent's Insurance. Agent shall maintain at Agent's cost and
expense throughout the Sale Term, in such amounts as it currently has in effect,
comprehensive public liability and automobile liability insurance policies
covering injuries to persons and property in or in connection with Agent's
agency at the
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Stores, and shall cause Merchant to be named an additional insured with respect
to such policies. Prior to the Sale Commencement Date, Agent shall deliver to
Merchant certificates evidencing such insurance policies setting forth the
duration thereof and naming Merchant as an additional insured, in form and
substance reasonably satisfactory to Merchant. In the event of a claim under any
such policies Agent shall be responsible for the payment of all deductibles,
retention's or self-insured amounts thereunder, unless it is determined that
liability arose by reason of the wrongful acts or omissions or negligence of
Merchant or Merchant's employees, independent contractors or agents (other than
Agent or Agent's employees, agents or independent contractors).
12.4 Worker's Compensation Insurance. Merchant shall at all times
during the Sale Term maintain in full force and effect worker's compensation
insurance (including employer liability insurance) covering all Retained
Employees in compliance with all statutory requirements. Prior to the Sale
Commencement Date, Merchant shall deliver to Agent a certificate of its
insurance broker or carrier evidencing such insurance.
12.5 Risk of Loss. Without limiting any other provision of this
Agreement, Merchant acknowledges that Agent is conducting the Sale on behalf of
Merchant solely in the capacity of an agent, and that in such capacity (i) Agent
shall not be deemed to be in possession or control of the Stores or the assets
located therein or associated therewith, or of Merchant's employees located at
the Stores, and (ii) except as expressly provided in this Agreement, Agent does
not assume any of Merchant's obligations or liabilities with respect to any of
the foregoing. Merchant and Agent agree that Merchant shall bear all
responsibility for liability claims of customers, employees and other persons
arising from events occurring at the Stores during and after the Sale Term,
except to the extent any such claim arises directly from the acts or omissions
of Agent, or its supervisors or employees located at the Stores (an "Agent
Claim"). In the event of any such liability claim other than an Agent Claim,
Merchant shall administer such claim and shall present such claim to Merchant's
liability insurance carrier in accordance with Merchant's historic policies and
procedures, and shall provide a copy of the initial documentation relating to
such claim to Agent. To the extent that Merchant and Agent agree that a claim
constitutes an Agent Claim, Agent shall administer such claim and shall present
such claim to its liability insurance carrier, and shall provide a copy of the
initial documentation relating to such claim to Merchant. In the event that
Merchant and Agent cannot agree whether a claim constitutes an Agent Claim, each
party shall present the claim to its own liability insurance carrier, and a copy
of the initial claim documentation shall be delivered to the other party.
Section 13. Indemnification.
13.1 Merchant Indemnification. Merchant shall indemnify and hold
Agent and its officers, directors, employees, agents and independent contractors
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(collectively, "Agent Indemnified Parties") harmless from and against all
claims, demands, penalties, losses, liability or damage, including, without
limitation, reasonable attorneys' fees and expenses, directly or indirectly
asserted against, resulting from, or related to:
(i) Merchant's material breach of or failure to comply with
any of its agreements, covenants, representations or warranties contains in any
Agency Document;
(ii) any failure of Merchant to pay to its employees any
wages, salaries or benefits due to such employees during the Sale Term;
(iii) subject to Agent's compliance with its obligations under
Section 8.3 hereof, any failure by Merchant to pay any Sales Taxes to the proper
taxing authorities or to properly file with any taxing authorities any reports
or documents required by applicable law to be filed in respect thereof;
(iv) any consumer warranty or products liability claims
relating to Merchandise or Merchant Consignment Goods;
(v) any liability or other claims asserted by customers, any
of Merchant's employees, or any other person against any Agent Indemnified Party
(including, without limitation, claims by employees arising under collective
bargaining agreements, worker's compensation or under the WARN Act), except for
Agent Claims; and
(vi) the gross negligence or willful misconduct of Merchant or
any of its officers, directors, employees, agents or representatives.
13.2 Agent Indemnification. Agent shall indemnify and hold Merchant
and its officers, directors, employees, agents and representatives harmless from
and against all claims, demands, penalties, losses, liability or damage,
including, without limitation, reasonable attorneys' fees and expenses, directly
or indirectly asserted against, resulting from, or related to:
(i) Agent's material breach of or failure to comply with any
of its agreements, covenants, representations or warranties contained in any
Agency Document;
(ii) any harassment or any other unlawful, tortuous or
otherwise actionable treatment of any employees or agents of Merchant by Agent
or any of its representatives;
(iii) any claims by any party engaged by Agent as an employee
or independent contractor arising out of such employment;
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(iv) any Agent Claims; and
(v) the gross negligence or willful misconduct of Agent or any
of its officer, directors, employees, agents or representatives.
Section 14. Defaults. The following shall constitute "Events of Default"
hereunder:
(a) Merchant's or Agent's failure to perform any of their
respective material obligations hereunder, which failure shall continue uncured
seven (7) days after written notice thereof to the defaulting party; or
(b) Any representation or warranty made by Merchant or Agent
proves untrue in any material respect as of the date made; or
(c) The Sale is terminated or materially interrupted or impaired
at a Store for any reason other than (i) an Event of Default by Agent, or (ii)
any other material breach or action by Agent not authorized hereunder.
In the event of an Event of Default, the non-defaulting party, or
in the case of an Event of Default under Section 14(c), the Agent may, in its
discretion, elect to terminate this Agreement upon two (2) business days'
written notice to the other party.
Section 15. Security Interest. In consideration of Agent's payment of the
Guaranteed Amount and the Expenses, and the provision of services hereunder to
Merchant, subject to Court approval and payment in full of the Guaranteed
Amount, Merchant hereby grants to Agent a first priority security interest in
and lien upon the Merchandise and the Proceeds to secure all obligations of
Merchant to Agent hereunder. Merchant shall execute all such documents and take
all such other actions as are reasonably required to perfect and maintain such
security interest as a valid and perfected first priority security interest.
Section 16. Agent's Goods. Agent shall add additional goods owned by or
under the control of Agent to the Sale during the Sale Term ("Agent's Goods").
Merchant shall be entitled to and receive a commission equal to 8% of the
Proceeds from the Sale of Agent's Goods at the Stores during the Sale Term
("Merchant's Commission"). Agent hereby Guarantees to Merchant that the Minimum
Merchant's Commission shall be $50,000, and if Merchant elects the Additional
Store Option, Minimum Merchant's Commission shall be $100,000.
Section 17. Sale of FF&E. If requested by Merchant, Agent shall advertise
in the context of advertising for the Sale that FF&E at the Stores are for sale,
and shall contact and solicit known purchasers and dealers of furniture and
fixtures. Merchant shall notify Agent in writing if any such FF&E are to be
excluded from sale and/or if terms and conditions of sale are to be set or
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restricted in any manner. In consideration of providing such services, Agent
shall retain 15% of receipts (net of sales taxes) from all sales or other
dispositions of FF&E. All sales of FF&E shall be subject to parameters approved
by Merchant. Agent shall have no liability to Merchant for its failure to sell
any or all of the FF&E. Agent may, at its option, at any time during the Sale
Term offer to purchase the FF&E.
Section 18. Miscellaneous.
18.1 Notices. All notices and communications provided for pursuant to
this Agreement shall be in writing, and sent by hand, by facsimile, or a
recognized overnight delivery service, as follows:
If to the Agent: Hilco/Great American Group
5 Revere Drive, Suite 206
Northbrook, IL 60062
Attn.: Harvey M. Yellen
Executive Vice President
Benjamin L. Nortman
Vice President/General Counsel
Telecopy No. (847)509-1150
If to the Merchant: Solo Serve Corporation
1610 Cornerway Blvd.
San Antonio, Texas 78219
Attn: Chuck Siegel
Attn: Ross Bacon
18.2 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed and construed in accordance with the laws of the State of Texas without
regard to conflicts of laws principles thereof. The parties hereto agree that
any legal action or proceeding arising out of or in connection with this
Agreement shall be adjudicated by the Bankruptcy Court, and by execution of this
Agreement each party hereby irrevocably accepts and submits to the jurisdiction
of the Bankruptcy Court with respect to any such action or proceeding.
18.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes and cancels all prior agreements, including, but not limited to,
all proposals, letters of intent or representations, written or oral, with
respect thereto.
18.4 Amendments. This Agreement may not be modified except in a
written instrument executed by each of the parties hereto.
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18.5 No Waiver. No consent or waiver by any party, express or
implied, to or of any breach or default by the other in the performance of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance by such other party of the
same or any other obligation of such party. Failure on the part of any party to
complain of any act or failure to act by the other party or to declare the other
party in default, irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder.
18.6 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon Agent and Merchant, and their respective
successors and assigns.
18.7 Execution in Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one agreement. This Agreement may be
executed by facsimile, and such facsimile signature shall be treated as an
original signature hereunder.
18.8 Section Headings. The headings of sections of this Agreement are
inserted for convenience only and shall not be considered for the purpose of
determining the meaning or legal effect of any provisions hereof.
18.9 Survival. All representations, warranties, covenants and
agreements made by the parties hereto shall be continuing, shall be considered
to have been relied upon by the parties and shall survive the execution,
delivery and performance of this Agreement.
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IN WITNESS WHEREOF, Agent and Merchant hereby execute this Agreement by
their duly authorized representatives as of the day and year first written
above.
HILCO TRADING CO., INC.
On behalf of the Agent.
By: /s/ Harvey M. Yellen
-------------------------------------
Harvey M. Yellen
Executive Vice President
SOLO SERVE CORPORATION
By: /s/ Charles M. Siegel
-------------------------------------
Charles M. Siegel
President
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