Exhibit 10.1

 

EXECUTION DRAFT

 

AGENCY AGREEMENT

 

This Agency Agreement (this “Agreement”) is made as of October 15, 2008, by and
between Linens Holding Co., a Delaware corporation, with a principal place of
business at 6 Brighton Road, Clifton, NJ, and its affiliated debtors and
debtors-in-possession (“LNT U.S.”) and Linens ‘n Things Investment Canada I
Company, Linens ‘n Things Investment Canada II Company, Linens ‘n Things Canada
Limited Partnership, and Linens ‘n Things Canada Corp., each an entry organized
and continued under the laws of the Province of Ontario (“LNT Canada”, and
together with LNT U.S, the “Merchant”) and a joint venture comprised of Gordon
Brothers Retail Partners, LLC, Hilco Merchant Resources, LLC, SB Capital Group,
LLC, Tiger Capital Group, LLC, Hudson Capital Partners, LLC, and Great American
Group, LLC (collectively, on a joint and several basis, the “Agent”).

 

R E C I T A L S

 

WHEREAS, on May 2, 2008 (the “Petition Date”), each entity comprising Merchant
filed a voluntary petition for relief under Chapter 11 of Title 11, United
States Code, 11 U.S.C. §§ 101-1330 (the “Bankruptcy Code”) in the United States
Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), Case
No. 08-10832 (CSS) (the “Bankruptcy Case”);

 

WHEREAS, the Merchant operates retail stores in the United States and Canada and
desires that the Agent act as the Merchant’s exclusive agent for the limited
purpose of (a) selling all of the Merchandise (as hereinafter defined) located
in (i) Merchant’s retail store location(s) located in the United States
(collectively, the “Stores”), which Stores are identified on Exhibit 1A attached
hereto, and (ii) Merchant’s distribution centers in the United States
(collectively, the “Distribution Centers”) listed on Exhibit 1B attached hereto,
by means of a promotional, “going out of business”, “store closing”, or
similarly themed sale (as further described below, the “Sale”); and (b) to the
extent that Merchant exercises the Canadian Put Option set forth in Section 5.6
hereof, selling all of the Canadian Merchandise (as hereinafter defined) located
in (i) Merchant’s retail store location(s) located in the Canada (collectively,
the “Canadian Stores”), and (ii) Merchant’s distribution centers (including
third party distribution centers used by Merchant) in Canada (collectively, the
“Canadian Distribution Centers”) by means of a promotional Sale as more fully
described in the Canadian Agency Agreement (as hereinafter defined); and
(c) subject to Section 15.9 hereof, disposing of the Owned FF&E in the Stores,
and to the extent Merchant exercised the Canadian Put Option, the Owned FF&E in
the Canadian Stores pursuant to the terms of the Canadian Agency Agreement.

 

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.  The terms set forth below are defined
in the Referenced sections of this Agreement:

 

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Defined Term

 

Section Reference

 

 

 

Ad Hoc Note holder Committee

 

Section 2.4(b)

Agency Documents

 

Section 11.1(b)

Agent

 

Preamble

Agent Indemnified Parties

 

Section 13.1

Agent’s Fee

 

Section 3.1(b)

Applicable Cost Value

 

Section 5.3(a)

Applicable General Laws

 

Section 2(c)

Approval Order

 

Section 2(b)

Bankruptcy Case

 

Recitals

Bankruptcy Court

 

Recitals

Bankruptcy Code

 

Recitals, Section 2(c)

Beneficiary

 

Section 3.4

Benefits Cap

 

Section 4.1(b)

Central Service Expenses

 

Section 4.1(i)

Cost File

 

Section 5.3(a)

Cost Factor

 

Section 11.1(m)

Cost Factor Threshold

 

Section 11.1(m)

Cost Value

 

Section 5.3(a)

Court

 

Section 2(b)

Defective Merchandise

 

Section 5.2(b)

Designated Deposit Accounts

 

Sections 7.2(b)

DIP Credit Agreement

 

Section 3.3(b)

DIP Orders

 

Section 2.4(b)

Display Merchandise

 

Section 5.2(b)

Distribution Center Merchandise

 

Section 5.2(b)

Domestic Merchandise

 

Section 5.2(b)

Events of Default

 

Section 14

Excluded Benefits

 

Section 4.1(ii)

Excluded Defective Merchandise

 

Section 5.2(b)

Excluded Price Adjustments

 

Section 11.1(m)

Expenses

 

Section 4.1

FF&E

 

Section 5.2(a)

Final Inventory Report

 

Section 3.5

GECC

 

Section 2(b)

Global Inventory Adjustment

 

Section 5.3(b)

Gross Rings

 

Section 6.3

Guaranteed Amount

 

Section 3.1(a)

Guaranteed Amount Certificate

 

Section 3.3(f)

Guaranty Percentage

 

Section 3.1(a)

Imported Merchandise

 

Section 5.2(b)

Indenture Trustee

 

Section 2.4(b)

Intercreditor Agreement

 

Section 2.4(b)

Interim DIP Order

 

Section 2.4(b)

 

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Initial Guaranty Payment

 

Section 3.3(a)

Interim Receipt Deadline

 

Section 5.3(a)

Inventory Location

 

Section 5.1

Inventory Taking

 

Section 5.1(a)

Inventory-Taking Service

 

Section 5.1(a)

Inventory-Taking Instructions

 

Section 5.1(a)

Lenders

 

Section 2(b)

Lenders’ Designated Account

 

Section 3.3(a)

Letter of Credit

 

Section 3.4

Liquidation Sale Laws

 

Section 2(c)

Lowest Location Price

 

Section 11.1(m)

Merchandise

 

Section 5.2(a)

Merchandise Threshold

 

Section 3.1(c)

Merchant

 

Preamble

Merchant Consignment Goods

 

Sections 5.4

Noteholders

 

Section 2.4(b)

Notes

 

Section 2.4(b)

Occupancy Expenses

 

Section 4.1(iii)

On-Order Merchandise

 

Section 5.2

Owned FF&E

 

Section 15.9

Payment Date

 

Section 3.3(a)

Petition Date

 

Recitals, Section 2(b)

Proceeds

 

Section 7.1

Recovery Amount

 

Section 3.1(b)

Remaining DC Merchandise

 

Section 5.1(c)

Remaining DC Merchandise Count

 

Section 5.1(c)

Remaining Merchandise

 

Section 3.2(b)

Retail Price

 

Section 11.1(m)

Retained Employee

 

Section 9.1

Retention Bonuses

 

Section 9.4

Returned Defective Merchandise

 

Section 8.5

Returned Merchandise

 

Section 8.5

Returned Merchandise Log

 

Section 8.5

Sale

 

Recitals

Sale Commencement Date

 

Section 6.1

Sale Guidelines

 

Section 8.1

Sale Term

 

Section 6.1

Sale Termination Date

 

Section 6.1

Sales Taxes

 

Section 8.3

Sales Taxes Account

 

Section 8.3

Sharing Threshold

 

Section 3.1(b)

Shipping Variance

 

Section 5.1(c)

Shipping Variance Response

 

Section 5.1(c)

Store(s)

 

Recitals

Store Final Inventory Report

 

Section 3.5

Supplies

 

Section 8.4

WARN Act

 

Section 9.1

 

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Section 2. Appointment of Agent/Liquidation Sale Laws/Approval Order.  a)
Effective upon 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 disposing of
the Owned FF&E in the Stores in accordance with the terms and conditions of this
Agreement.

 

(b)           On or about October 3, 2008 LNT U.S. filed a motion with the
Bankruptcy Court, for entry of an order approving this Agreement and authorizing
LNT U.S. to conduct the Sale in connection with the Merchandise and Owned FF&E
in the United States in accordance with the terms hereof (the “Approval
Order”).  To the extent Merchant exercised the Canadian Put Option, LNT Canada
shall apply to the Ontario Superior Court of Justice (Commercial List)
(“Canadian Court”) presiding over LNT Canada’s proceeding filed under the
Companies Creditors Arrangement Act (the “CCAA Case”), for an order approving
this Agreement and authorizing LNT Canada and the Agent to conduct the Sale
pursuant to the terms of the Canadian Agency Agreement (the “Canadian Sale
Approval Order”) in accordance with the terms of the Canadian Agency Agreement
as may be modified by the Canadian Sale Approval Order and the Sale Procedures
Protocol (the “Canadian Sale Guidelines”).  The Approval Order shall provide, in
a form reasonably satisfactory to the Merchant and Agent, inter alia,
that(i) this Agreement (and each of the transactions contemplated hereby) is
approved in its entirety; (ii) Merchant and Agent shall be authorized to
continue to take any and all actions as may be necessary or desirable to
implement this Agreement and each of the transactions contemplated hereby;
(iii) Agent shall be entitled to sell all Merchandise hereunder free and clear
of all liens, claims or encumbrances thereon, with any presently existing liens
encumbering all or any portion of the Merchandise or the Proceeds thereof, from
and after such sale, attaching only to the Guaranteed Amount and other amounts
to be received by Merchant and GECC under this Agreement; (iv) Agent shall have
the right to use the Stores and all related Store services, furniture, fixtures,
equipment and other assets of Merchant as designated hereunder for the purpose
of conducting the Sale, free of any interference from any entity or person
subject to compliance with the Sale Guidelines and Approval Order; (v) Agent, as
agent for Merchant, is authorized to conduct, advertise, post signs and
otherwise promote the Sale as a “going out of business”, “store closing”, “total
liquidation”, “everything must go”, or similarly themed sale, in accordance with
the Sale Guidelines (as the same may be modified and approved by the Bankruptcy
Court) and without further compliance with the Liquidation Sale Laws, subject to
compliance with the Sale Guidelines and Approval Order; (vi) Agent shall be
granted a limited license and right to use until the Sale Termination Date the
trade names, logos and customer lists relating to and used in connection with
the operation of the Stores, solely for the purpose of advertising the Sale in
accordance with the terms of the Agreement; (vii) all newspapers and other
advertising media in which the Sale is advertised shall be directed to accept
the Approval Order as binding and to allow Merchant and Agent to consummate the
transactions provided for in this Agreement, including, without limitation, the
conducting and advertising of the Sale in the manner contemplated by this
Agreement; (viii) all utilities, landlords, creditors and all persons acting for
or on their behalf shall not interfere with or otherwise impede the conduct of
the Sale, institute any action in any court (other than in the Bankruptcy Court)
with respect to Merchandise or before any administrative body which in any way
directly or indirectly interferes with or obstructs or

 

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impedes the conduct of the Sale; (ix) the Bankruptcy Court shall retain
jurisdiction over the parties to enforce this Agreement; (x) Agent shall not be
liable for any claims against the Merchant other than as expressly provided for
in this Agreement; (xi) subject to Agent having satisfied the Agent’s Payment
Obligations (as defined in Section 16 hereof), any amounts owed by Merchant to
Agent under this Agreement shall be granted the status of superpriority claims
in Merchant’s Bankruptcy Case pursuant to Bankruptcy Code section 364(a), but
such superpriority claims shall be subordinate and junior to the liens, claims,
and interests of GECC, the other Lenders, the Indenture Trustee and the
Noteholders to the extent of the Remaining Guaranteed Amount and, in any event,
to any credit extensions made by and other obligations owing to GECC and the
Lenders under DIP Credit Agreement up to the amount set forth on the Guaranteed
Amount Certificate or amounts and information set forth therein most recently
delivered to GECC prior to the time such credit extensions are made, such
Proceeds are used, or other obligations incurred (but subject to the last
sentence of Section 16 below); (xii) Agent shall be permitted to include in the
Sale Additional Agent Merchandise in accordance with the terms and provisions of
this Agreement, and to the extent that Agent complies with
Section 8.10(c) hereof, Agent shall be deemed to be in compliance with the
Liquidation Sale Laws and consumer protection laws (including consumer laws
relating to deceptive practices and false advertising); (xiii) Agent shall be
granted a valid, binding, enforceable and perfected security interest in the
Merchandise and the Proceeds as provided for in, and subject to the
subordination provisions of, Section 16 hereof (without the necessity of filing
financing statements to perfect the security interests); and (xiv) the time for
the Merchant to assume or reject the leases associated with the Stores under
section 365(d)(4) of the Bankruptcy Code has been extended, with the consent of
each landlord for each Store, to a time period after the Sale Termination Date,
except with respect to the Non-Extended Stores, in which case the deadline to
assume or reject remains, as of the date of this Agreement, November 28, 2008. 
Subject to the rights and limitations set forth in that certain Intercreditor
Agreement, dated February 14, 2006 (as amended by that certain Joinder and
Acknowledgement Agreement dated October 24, 2007, the “Intercreditor
Agreement”), and the interim order, dated May 2, 2008 and the final order, dated
May 28, 2008, authorizing Merchant to, inter alia, obtain postpetition secured
financing and use cash collateral (together, the “DIP Order”), any Approval
Order shall be in form and substance reasonably acceptable to General Electric
Capital Corporation (“GECC”), as agent for itself and Merchant’s other secured
lenders (collectively, and including GECC in its capacity as agent and as
lender, the “Lenders”), the Ad Hoc Committee (the “Ad Hoc Note holder
Committee”) of Holders (the “Noteholders”) of Senior Floating Rate Notes due
2014 issued by Linens ‘n Things, Inc. and Linens ‘n Things Center, Inc. (the
“Notes”) and The Bank of New York (the “Indenture Trustee”), as collateral agent
and trustee under the indenture, dated as of February 14, 2006, relating to the
Notes.

 

(c)           Subject to entry of the Approval Order, Agent shall be authorized
to advertise the Sale as a “going-out-of-business”, store closing,” “sale on
everything,” “everything must go,” 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

 

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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 Applicable 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) ninety-five and one-tenth of one percent
(95.1%) (the “Guaranty Percentage”) of the aggregate Cost Value of the
Merchandise included in the Sale (the “Guaranteed Amount”).

 

(b)           (i)            To the extent that Proceeds from the Sale of the
Merchandise exceed the sum of (x) the Guaranteed Amount, (y) Expenses of the
Sale and (z) three and seventy-five hundredths of one percent (3.75%) of the
aggregate Cost Value of the Merchandise (the “Agent’s Fee”) (the “Sharing
Threshold”), then all remaining Proceeds above the Sharing Threshold shall be
shared as follows: (1) the next Proceeds up to an aggregate amount equal to two
percent (2%) of the aggregate Cost Value of the Merchandise shall be paid to
Merchant (“Merchant’s Initial Sharing Recovery Amount”); (2) the next Proceeds
up to an aggregate amount equal to two percent (2%) of the aggregate Cost Value
of the Merchandise shall be paid to Agent (“Agent’s Initial Sharing Recovery
Amount”); and (3) all remaining Proceeds above the Agent’s Initial Sharing
Recovery Amount shall be shared fifty percent (50%) to Merchant (“Merchant’s
Additional Sharing Recovery Amount”, and together with Merchant’s Initial
Sharing Recovery Amount, the “Merchant’s Recovery Amount”) and fifty percent
(50%) to Agent (“Agent’s Additional Sharing Recovery Amount”, and together with
the Agent’s Initial Sharing Recovery Amount, the “Agent’s Recovery Amount”).

 

(c)           Augment Recovery Amount.  In addition to the Guaranteed Amount,
Agent shall pay the Merchant an amount equal to five percent (5%) of the gross
proceeds (net of sales taxes) of the sale of Additional Agent Merchandise (the
“Augment Recovery Amount”).  Agent agrees that the aggregate cost of the
Additional Agent Merchandise shall not exceed fifteen (15% of the aggregate Cost
Value of the Merchandise.  All proceeds of the sale of Additional Agent
Merchandise in excess of the Augment Recovery Amount shall be retained by Agent
(the “Augment Proceeds”).

 

(d)           The Guaranteed Amount, Merchant’s Recovery Amount, if any, and the
Augment Recovery Amount, if any, shall be paid in the manner and at the times
specified in Section 3.3 below.  The Guaranteed Amount and the Merchant’s
Recovery 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, (B) the aggregate Cost Value of the Distribution Center Merchandise
and On-Order Merchandise included in the Sale; and (c) amount of Gross Rings, as
adjusted for shrinkage per

 

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this Agreement.  To the extent that Merchant is entitled to receive Merchant’s
Recovery Amount from Proceeds, Agent shall pay the Merchant’s Recovery Amount as
part of the Weekly Sale Reconciliation commencing on the first week after the
Proceeds reached the Sharing Threshold, but in no event later than the first
business day following the completion of the Final Reconciliation under
Section 8.7.

 

(e)           The Guaranteed Percentage has been fixed based upon the aggregate
Cost Value of the Merchandise, without taking into account the Global Inventory
Adjustment, not being less than an amount equal to (i) $500,000,000, less
(ii) the aggregate Cost Value of Merchandise sold by Merchant on October 16,
2008 (floor) and no more than $520,000,000 (ceiling) (the “Merchandise
Threshold”); provided however, in the event Merchant exercises the Internet
Exclusion Option, the Merchandise Threshold (floor and ceiling) shall be subject
to a downward adjustment in an amount equal to the Cost Value of the Excluded
Internet Merchandise. To the extent that the aggregate Cost Value of the
Merchandise included in the Sale, without taking into account the Global
Inventory Adjustment, is less than or more than the Merchandise Threshold, the
Guaranty Percentage shall be adjusted in accordance with Exhibit 3.1(e) annexed
hereto (in addition to any adjustment applicable pursuant to section
11.1(m) hereof), as and where applicable.

 

3.2           Compensation to Agent.  Subject to entry of the Approval Order:

 

(a)           After payment of the Guaranteed Amount, Expenses of the Sale, the
Merchant’s Recovery Amount, if any, the Augment Recovery Amount, if any, and all
other amounts payable to Merchant from Proceeds hereunder, Agent shall receive,
as its compensation for services rendered to Merchant, the Agent’s Fee, plus the
Agents Recovery Amount, if any and the Augment Proceeds, if any. Agent shall
also be entitled to receive a commission based on the net proceeds of the sale
of Owned FF&E in the Stores, and the Owned FF&E in the Distribution Centers to
the extent Merchant exercises its option to have Agent dispose of the Owned FF&E
in the Designated Distribution Centers(s) as provided for in Section 15.9
hereof.

 

(b)           After payment of (i) the Guaranteed Amount in full and (ii) the
Merchant’s Recovery Amount, if any, and all other amounts payable to Merchant
from Proceeds hereunder (which shall, in each case, be subject to GECC’s , the
Lenders’, and the Indenture Trustee’s security interests, liens and claims in
respect thereof), 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.

 

3.3           Time of Payments.

 

(a)           On the first business day following issuance of the Approval Order
(the “First Installment Payment Date”), Agent shall pay $200,000,000 to Merchant
(the “Initial

 

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Guaranty Payment”) by wire transfer to the account(s) designated on
Exhibit 3.3(a) annexed hereto.

 

(b)           All Proceeds shall be applied and credited as follows:

 

(i) Application.  During each week’s reconciliation as provided for in section
8.7 during the Sale Term, all Proceeds of the Sale shall be deposited in
accordance with Section 7.2 hereof.  Merchant and Agent shall provide GECC, the
Indenture Trustee’s counsel and the Note Holders’ counsel with a copy of the
weekly Reconciliation Report prepared pursuant to Section 8.7 not later than
12:00 noon (Eastern time) on Wednesday of each week.  Not later than 12:00 noon
(Eastern time) on the next business day after receipt of the subject
Reconciliation Report, GECC will cause amounts on deposit in the Concentration
Account to be applied to Accrued Sale Expenses pursuant to instructions of Agent
and Merchant directing such disposition.  As between Merchant and Lenders, all
remaining amounts on deposit in the Concentration Account will be applied
(1) first, subject to the limitations set forth in the Merchant’s secured
debtor-in-possession credit agreement with GECC and the other Lenders (as
amended, together with all related loan documents the “DIP Credit Agreement”)
(including, without limitation, the “Budget” referred to therein) and the DIP
Order, to the payment of items specified by the Merchant (“Other Merchant
Disbursements”), (2) second, to the obligations (including the cash
collateralization of letters of credit and other contingent obligations) under
the DIP Credit Agreement, and (3) third, following payment in full of the entire
Guaranteed Amount, subject in all respects to Merchant’s rights to receive the
Merchant’s Recovery Amount, if any, and any other amounts due to Merchant
hereunder (and in each case subject to GECC’s , the Lender’s, the Noteholders,
and the Indenture Trustee’s security interests, liens, and claims in respect
thereof), all Proceeds shall be retained or remitted to Agent in accordance with
Section 7.2 hereof.

 

(ii) Credit.  Until the payment of the Guaranteed Amount (as defined below),
Proceeds shall be credited as follows: (x) first Proceeds shall credited towards
Agent’s obligations to reimburse Expenses that have been incurred and have
become due and owing and remain unpaid (collectively, the “Accrued Sale
Expenses”); and (y) then all remaining Proceeds net of Accrued Sale Expenses
(the “Remaining Sale Proceeds”) shall, without limiting Section 3.3(f), be
credited towards the unpaid portion of the Guaranteed Amount (such unpaid
portion of the Guaranteed Amount being hereinafter referred to as the “Remaining
Guaranteed Amount”) until the Guaranteed Amount shall have been paid in full. 
Following payment in full of the entire undisputed Guaranteed Amount, without
limiting Section 3.3(f) and subject in all respects to Merchant’s rights to
receive the Merchant’s Recovery Amount, if any, and any other amounts due to
Merchant hereunder (and in each case subject to GECC’s, the Lenders’, the
Noteholders’ and the Indenture Trustee’s security interests, liens, and claims
in respect thereof), and subject to face amount of the Letter of Credit being in
an amount not less than the sum of (i) an amount equal to any disputed portion
of the Guaranteed Amount, plus (ii) two weeks estimated Expenses) all Proceeds
shall be retained or remitted to Agent in accordance with Section 7.2 hereof.

 

(C)           AGENT SHALL PAY THE MERCHANT’S RECOVERY AMOUNT AND THE AUGMENT

 

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RECOVERY AMOUNT, IF ANY, AS PART OF THE WEEKLY RECONCILIATION CONDUCTED PURSUANT
TO SECTION 8.7(A), SUBJECT TO THE FINAL RECONCILIATION UNDER SECTION 8.7.

 

(d)           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 as, no
later as 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.

 

(e)           After the earlier of (i) indefeasible payment in full in cash of
all obligations (or, with respect to both letters of credit and other contingent
obligations, the cash collateralization thereof) owing to the Lenders under the
DIP Credit Agreement and the related documents and the termination of the
lending commitments under the DIP Credit Agreement and (ii) payment in full of
the Guaranteed Amount, Merchant and Agent agree that (A) 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, and (B) 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.

 

(f)            On a weekly basis on Wednesday (or such other day as Merchant,
Agent and GECC shall mutually agree) of each week, contemporaneously with the
delivery by the Merchant to GECC of the Borrowing Base Certificate under and as
defined in the DIP Credit Agreement, the Merchant and the Agent hereby agree to
deliver to GECC, counsel to the Indenture Trustee, and counsel to the
Noteholders a guaranteed amount certificate in form and substance satisfactory
to GECC (the “Guaranteed Amount Certificate”) setting forth the amount that has
been paid by the Agent in respect of the Guaranteed Amount as of the end of the
prior week (i.e., Saturday), the Remaining Guaranteed Amount as of the end of
the prior week and such other information required by GECC and the Lenders.  The
parties hereto agree and acknowledge that GECC and the Lenders may rely on the
most recent Guaranteed Amount Certificate delivered by the Merchant to GECC for
the purposes of determining the Borrowing Base (as defined in the DIP Credit
Agreement) or borrowing availability for all purposes under the DIP Credit
Agreement (including any adjustments of the Borrowing Base or borrowing
availability thereunder as a result of amounts paid by the Agent in respect of
the Guaranteed Amount, determining the amount of the Remaining Guaranteed Amount
or otherwise) and that any credit extensions made under the DIP Credit
Agreement, and any use of cash Proceeds by Merchant, or any other obligations
under the DIP Credit Agreement and the related documents, in each case which
occur, prior to the delivery of any updated Guaranteed Amount Certificate shall
be entitled to priority over the claims of the Agent (to the extent of the
Remaining Guaranteed Amount appearing on the most recent Guaranteed Amount
Certificate delivered to GECC pursuant to the terms of this Section) and the
Merchant, all as set forth in Section 16 hereof.  Further, if an event of
default shall have occurred and be continuing under the DIP

 

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Credit Agreement, immediately upon notice by GECC to the Merchant of such event
of default, (i) the Merchant shall not be permitted to deliver any subsequent
Guaranteed Amount Certificates, and (ii) GECC and the Lenders shall be entitled
to rely on the figures in respect of the Guaranteed Amount previously received
by GECC and the Remaining Guaranteed Amount appearing on the most recent
Guaranteed Amount Certificate accepted by GECC pursuant to this Section for
purposes of extending credit or permitting Merchant to use cash Proceeds;
provided, however, that there shall be credited against the Remaining Guaranteed
Amount set forth in such Guaranteed Amount Certificate the Proceeds received by
GECC, net of Accrued Sale Expenses after the receipt of such certificate.  In
the case of any difference between (x) amounts set forth in the relevant
Guaranteed Amount Certificate for any date of determination and (y) the
corresponding amounts as determined by the Merchant or the Agent, the parties
agree that the amount thereof set forth in the Guaranteed Amount Certificate
shall control.

 

3.4           Security.  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 First Installment Payment Date, Agent shall
furnish the Beneficiaries with an irrevocable standby Letter(s) of Credit naming
GECC and Merchant as co-beneficiaries (the “Beneficiaries”) in the aggregate
original face amount equal to the sum of (i) 15% of the estimated Remaining
Guaranteed Amount, plus (ii) two (2)  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 days after the Sale Termination Date. 
Unless the parties shall have mutually agreed 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 GECC, individually, or the Beneficiaries 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.  Upon the indefeasible payment in full in cash of all obligations
(or, with respect to both letters of credit and other contingent obligations,
the cash collateralization thereof) owing to the Lenders under the DIP Credit
Agreement and the related documents and the termination of the lending
commitments under the DIP Credit Agreement, GECC and Agent shall amend the
Letter of Credit and shall name Merchant and the Indenture Trustee as
co-beneficiaries (the “Amended Letter of Credit”), in which case any draws under
the Amended Letter of Credit shall be made jointly by Merchant and the Indenture
Trustee.  At Agent’s request (which request shall not be made more frequently
than bi-weekly and shall not cause the Letter of Credit to be reduced to an
amount less than the sum of (i) the unpaid portion of the Remaining Guaranteed
Amount; and (ii) two (2) weeks estimated Expenses, the Beneficiaries shall take
all actions reasonably required to reduce the amount available to be drawn under
the Letter of Credit to an amount not less than an amount equal to the sum of
(A) the aggregate of disputed and undisputed unpaid portion of the Remaining
Guaranteed Amount; plus (B) two (2) weeks of estimated Expenses of the Sale.  In
the event that Agent, after receipt of five (5) days notice (which notice shall
not be required if Agent or any member of Agent shall

 

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be a debtor under title 11, United States Code), fails to pay the Remaining
Guaranteed Amount, or portion thereof, or any Expenses of the Sale or other
obligations hereunder when due, GECC, individually, or the Beneficiaries,
collectively, may draw on the Letter of Credit in an amount equal to the unpaid,
past due, amount of the Agent’s Payment 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 and Agent shall review, reconcile
and verify the final report of the aggregate Cost Value of the Merchandise
included in the Stores by the Inventory Taking Service (the “Store Final
Inventory Report”).  Within fifteen (15) days after the Distribution Occupancy
Period, Merchant and Agent shall review, reconcile and verify the final report
of the aggregate Cost Value of the Merchandise, which shall include the Store
Final Inventory Report plus the Distribution Center Merchandise included in the
Sale as determined by Section 5.1(c) hereof (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 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)           ACTUAL AMOUNTS PAYABLE BY MERCHANT FOR BENEFITS FOR RETAINED
EMPLOYEES (INCLUDING FICA, UNEMPLOYMENT TAXES, WORKERS’ COMPENSATION AND
HEALTHCARE INSURANCE, AND VACATION BENEFITS THAT ACCRUE DURING THE SALE TERM,
BUT EXCLUDING EXCLUDED BENEFITS) FOR RETAINED EMPLOYEES USED IN THE SALE, IN AN
AMOUNT NOT TO EXCEED 23.6% OF THE AGGREGATE BASE PAYROLL FOR ALL RETAINED
EMPLOYEES IN THE STORES (THE “BENEFITS CAP”);

 

(C)           COSTS OF ALL SECURITY IN THE STORES (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)           50% of the fees and costs of the Inventory Taking Service to
conduct the Inventory Taking at the Stores; provided that Merchant shall be
responsible for the actual payroll and related costs for the Retained Employees
who work at a Store during the Inventory Taking at such Inventoried Location;

 

(e)           Retention Bonuses for Retained Employees, as provided for in
Section 9.4 below;

 

(f)            [intentionally omitted]

 

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(g)           advertising and direct mailings relating to the Sale, and Store
interior and exterior signage and banners relating to the Sale;

 

(h)           local and long-distance telephone expenses incurred at the Stores;

 

(i)            credit card fees, chargebacks and discounts with respect to
Merchandise sold in the Sale;

 

(j)            bank service charges (for Store and corporate accounts), check
guarantee fees, and bad check expenses to the extent attributable to the Sale;

 

(k)           costs for additional Supplies used at the Stores;

 

(l)            all fees and charges required to comply with Applicable General
Laws in connection with the Sale;

 

(m)          Store cash theft and other store cash shortfalls in the registers;

 

(n)           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;

 

(o)           housekeeping and cleaning expenses related to the Stores;

 

(p)           Store trash and snow removal;

 

(q)           on-site supervision of the Stores, including base fees and bonuses
of Agent’s field personnel, travel to and from the Stores and incidental
out-of-pocket and commercially reasonable travel expenses relating thereto
(including reasonable and documented corporate travel to monitor and manage the
Sale);

 

(r)            postage, courier and overnight mail charges to and from or among
the Stores and central office to the extent relating to the Sale;

 

(s)           actual Occupancy Expenses for the Stores on a per location and per
diem basis in an amount equal to the per Store per diem amount set forth on
Exhibit 4.1(s) hereto;

 

(t)            Central Service Expenses equal to $10,000 per week;

 

(u)           Agent’s actual cost of capital (including Letter of Credit fees)
and insurance; and

 

(v)           Agent’s reasonable out-of-pocket costs and expenses, including but
not limited to, legal fees and expenses, incurred in connection with the review
of data, preparation,

 

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negotiation and execution of this Agreement, the Approval Order and any
ancillary documents, in an amount not to exceed $150,000.

 

Notwithstanding anything herein to the contrary, to the extent that any Expense
listed in Section 4.1 is also included on Exhibit 4.1(s), then
Exhibit 4.1(s) shall control, and such Expenses shall not be double counted.

 

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 and data processing and reporting.

 

(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, , a pro rata portion of property insurance attributable to
the Merchandise subject to the Sale 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 as categorized and reflected on
Exhibit 4.1(s) hereto.

 

“Expenses” shall not include: (i) Excluded Benefits; (ii) Central Service
Expenses, except as provided in Section 4.1(t); (iii) Distribution Center
Expenses; (iv) Occupancy Expenses (including any portion of the percentage rent
obligations allocable to the sale of Merchandise during the Sale under
applicable leases or occupancy agreements, except as provided in Section 4.1(s);
(v) expenses of the type set forth in 4.1(a) – (u) above to the extent the same
shall not have been approved in advance by Agent; and (vi) any other costs,
expenses or liabilities payable by Merchant not provided for herein.

 

4.2           Payment of Expenses.  Effective from and after entry of the
Approval Order:

 

(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, or paid by Merchant and thereafter reimbursed by Agent as
provided for herein, immediately following the weekly Sale reconciliation by
Merchant and Agent pursuant to Section 8.7 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.

 

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(b)           Notwithstanding anything herein to the contrary, (i) to the extent
that Proceeds are insufficient, Merchant shall not be required to fund or
otherwise pay any Expenses of Sale 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.

 

5.1           INVENTORY TAKING.

 

(A)           5.1           INVENTORY TAKING.

 

(a)           Subject to the provisions of this paragraph, the parties have
agreed to use the current book value of inventory as of the Sale Commencement
Date, to determine the aggregate Cost Value of the Merchandise located in the
Stores on the Sale Commencement Date in accordance with this Agreement.  In
order to test the validity of the aggregate Cost Value of the Merchandise as
reflected on Merchant’s current books and records, subject to the availability
of the Inventory Taking Service, on or within twenty one (21) days after the
Sale Commencement Date (the “Inventory Completion Date”), Merchant and Agent
shall cause to be taken an SKU physical inventory (the “Inventory Taking”) of
the Merchandise located in 100 of the Stores, each with a representative
sampling of Stores located in each district (each a “Test Store” and
collectively, the “Test Stores”), which Test Stores shall be jointly selected by
Merchant and Agent.  (The date of the Inventory Taking at each Test Store shall
be referred to as the “Inventory Date” for such Test Store).  Merchant and Agent
shall jointly employ RGIS or another mutually acceptable inventory taking
service to conduct the Inventory Taking (and, if applicable, the Additional
Inventory Taking, as defined below) in accordance with procedures set forth on
Exhibit 5.1 annexed hereto.

 

(b)           The results of the Inventory Taking at the Test Stores and the
Additional Test Stores (as defined below), if any (the “Test Store Results”)
shall be used to determine any adjustment as may be required to the calculation
of the aggregate Cost Value of the Merchandise located in the Stores on the Sale
Commencement Date, as follows:

 

(i)            for purposes of calculating the aggregate Cost Value of the
Merchandise at the Test Stores and Additional Test Stores, if any (collectively,
the “Inventoried Stores”), the actual Test Store Results for the Inventoried
Stores, as adjusted by Gross Rings for the period between the Sale Commencement
Date and the applicable Inventory Date (the “Gross Rings Period”);

 

(ii)           for purposes of calculating the aggregate Cost Value of the
Merchandise at the Stores that do not constitute Inventoried Stores (the
“Non-Inventoried Stores”), the actual Test Store Results at the Inventoried
Stores, shall be compared to the “roll-forward” book value of the Merchandise at
the Inventoried Stores, as of the Sale Commencement Date (i.e Gross Rings and
receipts at each of the Stores during the Gross Rings Period) (the “Adjusted
Book Inventory”), and an average variance shall be calculated (the “Variance”),
and

 

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the Variance shall be applied to adjust Adjusted Book Inventory of the
Merchandise located at the Non-Inventoried Stores; provided however; for the
purposes of calculating the Variance, the Inventoried Stores having the results
from the three Stores with highest and three Stores with the lowest variance
percentage shall be excluded.  In the event that the initial Variance at the
Inventoried Stores is greater than six percent (6%) of the current book value of
the Merchandise in the Inventoried Stores, then either Merchant or Agent shall
have the right to request an Inventory Taking at additional Stores (the
“Additional Test Stores”), to be mutually and reasonably agreed upon by the
parties (the “Additional Inventory Taking”), to establish whether an adjustment
to the Variance is required, with the costs and fees associated with the
Additional Inventory Taking, to be paid by the party requesting such Additional
Inventory Taking

 

(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, the making available to the extent
necessary of books, records, work papers and personnel.

 

(d)           With respect to Distribution Center Merchandise, such Distribution
Center Merchandise shall be counted and reconciled within five Store business
days after receipt of such goods in the Stores in accordance with the procedures
set forth herein (“Reconciled DC Merchandise Receipts”), and absent prior
notification and agreement of Merchant, failure to report any variance between
the received shipment from the respective shipping documents (each a “Shipping
Variance”), within such five Store business day period shall, result in such
receipts being automatically confirmed received consistent with the applicable
shipping documents.  Merchant shall have five Distribution Center business days
to verify a timely issued Shipping Variance (each a “Shipping Variance
Response”), and absent prior notification and agreement of Agent, failure to
respond to an asserted Shipping Variance within such five Distribution Center
business day period shall result in such Shipping Variance being deemed valid. 
If Merchant timely issues a Shipping Variance Response that disputes the
asserted Shipping Variance, Merchant and Agent shall cooperate with each other
to verify and resolve such dispute.  Unless Merchant and Agent otherwise agree,
and subject to both Merchant’s and Agent’s compliance with their obligations
under Section 5.5 hereof, to the extent that there is any Distribution Center
Merchandise remaining in the Distribution Centers at the end of the Distribution
Center Occupancy Period provided for in Section 5.5 hereof (the “Remaining DC
Merchandise”), such Remaining DC Merchandise shall be jointly counted by
Merchant and Agent (Remaining DC Merchandise Count”) and included as
Merchandise.  Agent shall have ten (10) days after the reconciliation of the
Remaining DC Merchandise Count to remove such Remaining DC Merchandise from the
Distribution Centers, at Agent’s sole cost (including any Distribution Center
Expenses incurred after the expiration of the Distribution Center Occupancy
Period), and any Remaining DC Merchandise not timely removed shall be deemed
abandoned by Agent and Merchant shall be free to dispose of such abandoned
Merchandise as it deems appropriate.

 

5.2           Merchandise Subject to This Agreement.

 

(a)           For purposes of this Agreement, “Merchandise” shall mean:  (i) all
finished goods inventory (including Domestic Merchandise and Imported
Merchandise) that is owned by Merchant and (x) located at the Stores as of the
Sale Commencement Date, including (A) 

 

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Defective Merchandise; (B) Distribution Center Merchandise; (C) Aged
Merchandise; (D) the Display Merchandise, (E) subject to Merchant’s exercise of
the Internet Exclusion Option, Internet Store Merchandise, and (F) Merchandise
subject to Gross Rings; (ii) On-Order Merchandise received in the Distribution
Centers on or prior to December 5, 2008 (the “DC Receipt Deadline”). 
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) furnishings, trade fixtures, equipment and/or improvements to real property
which are located in the Stores (collectively, “FF&E”); provided that, Agent
shall be permitted to sell Owned FF&E as set forth in Section 15.9; (4) Excluded
Defective Merchandise; (5) Merchant Consignment Goods; (6) Additional Agent
Merchandise; (7) On-Order Merchandise received in the Distribution Centers after
the Sale Commencement Date and either on or before the DC Receipt Deadline that
Merchant elects to exclude from the Sale, provided that, such election is made
by the Interim Receipt Deadline (“On-Order Election Deadline”), (9) On-Order
Merchandise received in the Distribution Centers after the DC Receipt Deadline;
and (10) to the extent Merchant exercises the Internet Exclusion Option, the
Excluded Internet Merchandise .

 

(b)           As used in this Agreement, the following terms have the respective
meanings set forth below:

 

“Aged Merchandise” means items of merchandise which have been discontinued by
Merchant and have been offered at a point of sale discount for more than
thirteen (13) consecutive months.

 

“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 where such items of inventory have 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 Merchandise” means those items of inventory identified by
SKU on Exhibit 5.2(b) annexed hereto, that was located in Merchant’s
Distribution Centers and, which goods, to the extent not delivered to the Stores
prior to the Sale Commencement Date, shall be delivered by Merchant to the
Stores as directed by Agent after the Sale Commencement Date, in accordance with
Section 5.5 hereof.

 

“Domestic Merchandise” means those items of inventory that are being delivered
by a manufacturer/vendor located within the United States.

 

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“EXCLUDED DEFECTIVE MERCHANDISE” MEANS 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.  FOR
THE AVOIDANCE OF DOUBT, ELECTRONIC DISPLAY MERCHANDISE WITHOUT POWER CORDS SHALL
CONSTITUTE EXCLUDED DEFECTIVE MERCHANDISE.

 

“Internet Store Merchandise” means those items of merchandise maintained in a
third party owned facility (identified as Merchant’s Store #699) (the “Internet
Store Location”) having an aggregate Cost Value of approximately $13.9 million,
which goods have been used by Merchant (or its agent GSI) to service customer
orders placed on Merchant’s website.

 

“IMPORTED MERCHANDISE” MEANS ITEMS OF INVENTORY THAT ARE PURCHASED BY MERCHANT
FROM A MANUFACTURER/VENDOR LOCATED OUTSIDE THE UNITED STATES AND IMPORTED INTO
THE UNITED STATES BY MERCHANT.

 

“On-Order Merchandise” mean items of inventory that were ordered by Merchant in
the ordinary course of business as identified by SKU on
Exhibit 5.2(b)(i) 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 Distribution Centers prior to the DC Receipt Deadline.

 

5.3           Valuation.

 

(a)           For purposes of this Agreement, “Cost Value” shall mean (i) with
respect to each item of Domestic Merchandise, the last cost for the SKU for such
item of Domestic Merchandise as reflected on Merchant’s inventory item master
cost file (the “Cost File”), which amount does not include freight or any
additional vendor credits; and (ii) with respect to Imported Merchandise, the
landed cost for such item of Imported Merchandise as reflected in the Cost File,
which amount reflects last cost for the SKU for such item of Imported
Merchandise plus a damage allowance, duty rate, freight, and brokerage fee,
harbor maintenance fees, drayage, brokers’ fees, insurance, commissions,
processing costs and other costs directly associated with landing the product in
the Distribution Centers; provided, that in no event shall the Cost Value of any
Merchandise exceed the Retail Price for such item of Merchandise; provided
however, any adjustment to the Cost Value as a result of the immediately
preceding proviso shall not be factored into the calculation for purposes of
determining whether the aggregate Cost Value of the Merchandise has satisfied
the Merchandise Threshold provided for in Section 3.1(e) hereof.  Items of
On-Order Merchandise received in the Distribution Centers on or prior to the
date that is twenty-one (21) days after the Sale Commencement Date (excluding
the Sale Commencement Date for purposes of such calculation) (the “Interim
Receipt Deadline”), will be included in Merchandise at the applicable Cost Value
for Domestic Merchandise or Imported Merchandise, as applicable (the “Applicable
Cost Value”), for each such item; provided, however, that items of On-Order
Merchandise received at the Distribution Centers after the Interim Receipt
Deadline but prior to 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 Distribution Centers; provided further, items of On-Order Merchandise
received in the Distribution Centers after the DC Receipt Deadline shall not

 

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constitute Merchandise, shall be given no Cost Value, and shall be excluded from
Merchandise, and shall, at Merchant’s option either be sold by Agent as Merchant
Consignment Goods pursuant to Section 5.4 hereof, or excluded from the Sale and
removed by Merchant from the Distribution Centers.  The Cost File does not
account for any advertising co-op allowances or discounts associated with
expedited payment terms offered by any vendor, and, further, the Applicable Cost
Value of any item of Merchandise shall not be adjusted for any such amounts.

 

(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 (i) one percent (1%) of the sum of
(x) the aggregate Cost Value of the Merchandise in the Stores on the Sale
Commencement Date and (y) the aggregate Cost Value of the On-Order Merchandise
included in the Sale; and (ii) one and one half percent (1.5%) of the aggregate
Cost Value of the Distribution Center Merchandise in the Distribution
Centers(s) on the Sale Commencement Date (as applicable, the “Global Inventory
Adjustment”).

 

(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.  Excluded Defective Merchandise included in
Distribution Center Merchandise and/or On-Order Merchandise must be identified
jointly by Merchant and Agent (with written notice provided to Barry Gold of
Asset Disposition Advisors, LLC at barrygold@aol.com), within five (5) business
days of such Distribution Center Merchandise and/or On-Order Merchandise receipt
in the Stores.  Other than as identified during the Inventory Taking at a Store,
or as provided for in this Section 5.3 with respect to Distribution Center
Merchandise and/or On-Order Merchandise, no other goods can be categorized as
Excluded Defective Merchandise, regardless of their condition.

 

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.  The Agent shall retain 20% of the sale price for all
sales of Merchant Consignment Goods, and Merchant shall receive 80% of the
receipts in respect of such sales.  Merchant shall receive its share of the
receipts of sales of Merchant Consignment Goods on a weekly basis, immediately
following the weekly Sale reconciliation by Merchant and Agent pursuant to
Section 8.7 below.  If Merchant does not elect to have Agent sell 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.  Except as expressly provided in this Section 5.4, Agent shall have no
cost, expense or responsibility in connection with any goods not included in
Merchandise.   All amounts received by the Merchant in respect of Merchant owned
goods not included as “Merchandise” hereunder shall be subject to the security
interests, claims and liens of the Lenders, the Indenture Trustee, and the
Noteholders and shall be applied by the Merchant to the obligations under the
DIP Credit Agreement.  For the avoidance of doubt, no amounts received by the
Merchant or the Lenders in respect of Merchant owned goods not included as
“Merchandise” hereunder shall be credited

 

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towards the Guaranteed Amount.

 

5.5           Distribution Center Expenses.

 

(i)            Although Agent shall be responsible for allocating and
designating the shipment of the Distribution Center Merchandise 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 Merchandise from the Distribution Center to the Stores
(collectively, the “Distribution Center Expenses”) for a period commencing on
the Sale Commencement Date through the earlier of:  (a) December 15, 2008; or
(b) the date that the subject Distribution Center is vacated (the “Distribution
Center Occupancy Period”) shall be the obligation of the Merchant; provided
however, (i) in the event Agent chooses to use a method of picking-up or
transportation in a manner that is not consistent with the Pre-Sale Allocation
(as defined below), 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); and (ii) in the event that all Distribution
Center Merchandise has not been removed at the conclusion of the Distribution
Center Occupancy Period, other than as a result of Merchant’s inability to
execute the transfer of the Distribution Center Merchandise in accordance with
its maximum weekly capacity, Agent shall be obligated to pay all Distribution
Center Expenses incurred after such date; provided however, in the event that
Distribution Center Merchandise cannot be transferred from the Distribution
Center to one or more Stores, because such Store does not have the capacity to
take in such Distribution Center Merchandise, as represented by Agent, such
inability shall not be deemed Merchant’s inability to execute the transfer. 
Agent acknowledges that Merchant’s maximum weekly capacity for shipping from the
Distribution Centers to the Stores is approximately $60,000,000 (retail price)
from Distribution Centers to the Stores.  On or prior to October 20, 2008, after
consulting with Merchant, Merchant and Agent shall cooperate with each other and
shall mutually agree upon a schedule and allocation of the Distribution Center
Merchandise and On-Order Merchandise to the Stores (as reflected on Exhibit 5.5
hereof), which schedule and allocation will be based upon an objective of having
the Distribution Center Merchandise shipped to the Stores prior to the Interim
Receipt Deadline (the “Pre-Sale Allocation”); provided however, notwithstanding
the Pre-Sale Allocation with respect to On-Order Merchandise, Merchant makes no
representation warranty as to the receipt and/or inclusion of any specific items
or minimum aggregate Cost Value of items of On-Order Merchandise in the Sale.

 

5.6           Canadian Put Option.  Up until 5:00 pm on October 16, 2008 (the
“Put Option Deadline”) Merchant shall have the absolute right, in its
discretion, to include the Canadian Stores and the Merchandise located in the
Canadian Stores and the Canadian Distribution Centers (the “Canadian
Merchandise”) in the Sale (the “Canadian Put Option”), with a Sale Commencement
Date of no later than October 24, 2008, and upon Merchant’s exercise of the
Canadian Put Option, Merchant and Agent shall enter into the agency agreement
annexed hereto as Exhibit 5.6 (the “Canadian Agency Agreement”), which agreement
shall provide: (a) as a guaranty of Agent’s performance under the Canadian Put
Option, Agent guarantees that Merchant shall receive one hundred and five-tenths
of one percent (100.5%) (the “Canadian

 

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Guaranty Percentage”) of the aggregate Cost Value of the Canadian Merchandise
(the “Canadian Guaranteed Amount”); (ii) Agent shall be unconditionally
responsible for all Expenses incurred in conducting the Sale at the Canadian
Stores, as enumerated in Section 4.1 of the Canadian Agency Agreement; and
(iii) to the extent that Proceeds from the Sale of the Canadian Merchandise (the
“Canadian Proceeds”) exceed the sum of (x) the Canadian Guaranteed Amount,
(y) Expenses of the Sale attributable to the conduct of the Sale in the Canadian
Stores (the “Canadian Expenses”) and (z) three and one-half of one percent
(3.50%) of the aggregate Cost Value of the Canadian Merchandise (the “Agent’s
Canadian Fee”) (the sum of (x), (y) and (z), the “Canadian Sharing Threshold”),
then all remaining Canadian Proceeds above the Canadian Sharing Threshold shall
be shared as follows: (1) the next two percent (2%) of Canadian Proceeds shall
be paid to Merchant (“Merchant’s Initial Canadian Sharing Recovery Amount”);
(2) the next two percent (2%) of Canadian Proceeds shall be paid to Agent
(“Agent’s Initial Canadian Sharing Recovery Amount”); and (3) all remaining
Canadian Proceeds in excess of the Agent’s Initial Canadian Sharing Recovery
Amount shall be shared fifty percent (50%) to Merchant (“Merchant’s Additional
Canadian Sharing Recovery Amount”) and fifty percent (50%) to Agent (“Agent’s
Additional Canadian Sharing Recovery Amount”).  All other terms and conditions
of the Sale at the Canadian Stores shall be governed by the Canadian Agency
Agreement, the Canadian Sale Guidelines and the Canadian Approval Order.

 

5.7           Internet Exclusion.  Merchant shall have the right (the “Internet
Exclusion Option”) up until 5:00  pm on October 16, 2008 (the “Internet
Exclusion Option Deadline”), to exclude all of the Internet Store Merchandise
from the Sale.  Merchant shall exercise the Internet Exclusion option in writing
and shall identify which of the Internet Store Merchandise is being excluded
from the Sale and the aggregate Cost Value thereof (collectively, the “Excluded
Internet Merchandise”).  In the even that Merchant exercises the Internet
Exclusion Option, the Merchandise Threshold (both floor and ceiling) shall be
adjusted downward by an amount equal to the aggregate Cost Value of the Excluded
Internet Merchandise.

 

Section 6.           Sale Term.

 

6.1           Term   (a) Subject to satisfaction of the conditions precedent set
forth in Section 10 hereof, the Sale shall commence at each Store on the first
business day following the entry of the Approval Order, but in no event later
than October 17, 2008 (the “Sale Commencement Date”).  Subject to the prior
expiration of the term of any Store Lease (as reflected on Exhibit 4.1(s)),
subject to Section 6.1(b) below with respect to the Non-Extended Stores, the
Agent shall complete the Sale at each Store and vacate such Store in broom-clean
condition by no later than January 31, 2009, unless the Sale is extended by
mutual written agreement of Agent and Merchant, with the consent of GECC and the
Indenture Trustee (the “Sale Termination Date”; the period from the Sale
Commencement Date to the Sale Termination Date as to each Store being the “Sale
Term”).  With respect to the Non-Extended Stores, Agent shall conclude the Sale
no later than the last date to assume or reject attributable to the November End
Stores and the December End Stores, as applicable.  The Agent may, in its
discretion, terminate the Sale at any Store upon not less than ten (10) days’
prior written notice (a “Vacate Notice”) to Merchant.  In the event the Agent
fails to provide Merchant with such timely notice, Agent shall be liable for and
pay the actual amounts payable to landlords for the days by which notice of a
Store closing was less than ten (10) days.

 

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(b)           Merchant has advised Agent that as of the date of this Agreement,
Merchant has not yet obtained extensions of the deadline to assume or reject the
leases pursuant to Section 365(d)(4) of the Bankruptcy Code (the
“365(d)(4) Extension”) for the Stores identified on Exhibit 6.1(b) annexed
hereto (the “Extension Leases”) and Agent has agreed to provide Merchant until
11:59 pm (Eastern) on October 22, 2008 (the “Extension Deadline”) to obtain the
necessary 364(d)(4) Extensions for the Extension Leases.  To the extent the
Merchant is unable to obtain a 364(d)(4) Extension for one or more of the
Extension Leases (the “Non-Extended Leases”), Merchant and Agent agree that the
Guaranty Percentage attributable to Merchandise located in the Non-Extended
Leases (including Distribution Center Merchandise and On-Order Merchandise
delivered to the Stores for the Non-Extended Leases) (collectively the
“Non-Extended Stores”), shall be adjusted as follows:

 

(i)            In the event that the aggregate Proceeds from the Sale of all of
the Merchandise in the Sale, net of Expenses (the “Net Sale Proceeds”) equal or
exceed one hundred two and eighty-five one hundredths of one percent (102.85%)
of the aggregate Cost Value of the Merchandise (the “Extension Adjustment
Threshold”) then there shall be no adjustment to the Guaranty Percentage for the
Non-Extended Stores;

 

(ii)           In the event that the Net Sale Proceeds are less than the
Extension Adjustment Threshold, then (x) with respect to the Non-Extended Stores
where the deadline to assume or reject is extended only through December 31,
2008 and the affected landlord has not agreed to allow the Debtors to continue
to occupy the Non-Extended Stores beyond December 31, 2008 (the “December End
Stores”); and provided that the Agent continues to operate substantially all of
the Stores after January 1, 2009, then the Guaranty Percentage attributed to the
Merchandise in the December End Stores shall be adjusted to 92.5%; and

 

(iii)          In the event that the Net Sale Proceeds are less than the
Extension Adjustment Threshold, then (x) with respect to the Non-Extended Stores
where the deadline to assume or reject expires on November 28, 2008 and the
affected landlord has not agreed to allow the Debtors to continue to occupy the
Non-Extended Stores beyond November 30, 2008 (the “November End Stores”), then
the Guaranty Percentage attributed to the Merchandise in the November End Stores
shall be adjusted to 90%.

 

6.2           Vacating the Stores.  At the conclusion of the Sale, Agent agrees
to leave the Stores in “broom clean” condition, ordinary wear and tear excepted,
except for unsold items of FF&E and remaining Supplies(except as provided for in
Section 15.9 below).  Agent shall vacate the Stores on or before the Sale
Termination Date, as provided for herein, at which time Agent shall surrender
and deliver the Store premises and Store keys to Merchant.  Agent’s obligations
to pay all Expenses, including Occupancy Expenses, for each Store subject to
Vacate Notice shall continue until the later of (a) the applicable vacate date
for such Store, or (b) the 15th day of the calendar month in which the vacate
date for such Store occurs.  All assets of Merchant used by Agent in the conduct
of the Sale (e.g. FF&E, etc.) shall be returned by Agent to Merchant at

 

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the end of the Sale Term to the extent the same have not been consumed in the
conduct of the Sale or sold (e.g., Supplies).  Agent shall be responsible for
all Occupancy Expenses (irrespective of any per diem cap on Occupancy Expenses)
for a Store for which Merchant is or becomes obligated resulting from Agent’s
failure to vacate such Store in a timely manner.

 

6.3           Gross Rings.  In the event that the Sale commences at any Store
subject to Inventory Taking 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.  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 Gross Rings method and, as soon as
determinable, 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.

 

Section 7.               Sale Proceeds.

 

7.1           Proceeds.  For purposes of this Agreement, “Proceeds” shall mean
the aggregate of (a) the total amount (in 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.  Proceeds shall also include any and
all proceeds received by Agent from the disposition, in a commercially
reasonable manner, of unsold Merchandise at the end of the Sale, whether through
salvage, bulk sale or otherwise.

 

7.2           Deposit of Proceeds.

 

(a)           Prior to the issuance of the Store Final Inventory Report and
payment of the undisputed Remaining Guaranteed Amount, all Proceeds of the Sale
(including credit card proceeds) shall be collected by Agent and deposited on a
daily basis into depository accounts designated by Merchant (subject to the
liens of GECC and the Indenture Trustee to the extent of the Agent’s Payment
Obligations (as defined in Section 16 hereof) for the Stores, which accounts
shall be designated solely for the deposit of Proceeds of the Sale (including
credit card proceeds), and the disbursement of amounts payable by Agent
hereunder (the “Designated Deposit Accounts”).  The Designated Deposit Accounts
shall be dedicated solely to the deposit of Proceeds and the disbursement of
amounts payable hereunder, and Merchant (or GECC, as the case may be) shall
exercise sole signatory authority and control with respect to the Designated
Deposit Accounts subject in all respects to the first lien and security
interests in, and control of, such Designated Deposit Accounts by GECC and the
Lenders.  Upon request, Merchant shall deliver to Agent copies of all bank
statements and other information relating to such accounts.  Merchant shall not
be responsible for, and Agent shall pay as an Expense hereunder, all bank

 

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fees and charges, including wire transfer charges, related to the Designated
Deposit Accounts, whether received during or after the Sale Term.  Proceeds in
the Designated Deposit Accounts shall be transferred daily to a concentration
account maintained under the control of GECC (the “Concentration Account”). 
Amounts in the Concentration Account shall be subject to disbursement as set
forth in Section 3.3.  All Augment Proceeds will be distributed to Agent upon
receipt by the Merchant and the Lenders of the weekly reconciliation report
provided in accordance with Section 8.7 below.

 

(b)           Following the later of (i) the issuance of the Store Final
Inventory Report; or (ii) payment in full of the undisputed Remaining Guaranteed
Amount, Agent may establish its own accounts, dedicated solely for the deposit
of the Proceeds and the disbursement of amounts payable to Agent hereunder (the
“Agency Accounts”) and Merchant shall promptly upon Agent’s request execute and
deliver all necessary documents to open and maintain the Agency Accounts;
provided, however, Agent may elect to continue to use Merchant’s Designated
Deposit Accounts (as defined above) as the Agency Accounts.  The Agency Accounts
shall be dedicated solely to the deposit of Proceeds and the disbursement of
amounts payable hereunder, and Agent shall exercise sole signatory authority and
control with respect to the Agency Accounts.  Upon request, Agent shall deliver
to Merchant copies of all bank statements and other information relating to such
accounts.  Merchant shall not be responsible for and Agent shall pay as an
Expense hereunder, all bank fee and charges, including wire transfer charges,
related to the Agency Accounts, whether received during or after the Sale Term. 
Upon Agent’s designation of the Agency Accounts, all Proceeds of the Sale
(including credit card proceeds) shall be deposited into the Agency Accounts. 
To the extent that Agent uses the Merchant’s Designated Accounts as the Agency
Accounts, Merchant shall pay by wire funds transfer, on a daily basis, to Agent
all collected funds constituting Proceeds deposited in Merchant’s Designated
Deposit Accounts (but not any other funds, including, without limitation, any
proceeds of Merchant’s inventory sold prior to the Sale Commencement Date).

 

7.3           Credit Card Proceeds.  Agent shall have the right to use
Merchant’s credit card facilities (including Merchant’s credit card terminals
and processor(s), credit card processor coding, Merchant identification
number(s) and existing bank accounts) for credit card Proceeds relating solely
to the Sale.  In the event that Agent elects to use Merchant’s credit card
facilities, Merchant shall process credit card transactions on behalf of Agent
and for Agent’s account, applying customary practices and procedures.  To the
extent available, Agent may accept Merchant’s proprietary card.  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 on behalf of Agent under
Merchant’s identification number(s).  At Agent’s request following the Payment
Date and the payment of all amounts then due to Merchant by Agent, Merchant
shall cooperate with Agent to establish Merchant identification numbers under
Agent’s name to enable Agent to process all such 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.

 

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7.4           Petty Cash.  In addition to the Guaranteed Amount, Agent shall
purchase all cash in the Stores on and as of the start of business on the Sale
Commencement Date and shall reimburse Merchant on a dollar for dollar basis
therefor.  Agent also shall purchase, on a dollar for dollar basis, all cash
located in Merchant’s bank accounts which are used by Agent hereunder, which
shall be determined, and paid for, as of the Sale Commencement Date.

 

Section 8.               Conduct of the Sale.  From and after the entry of the
Approval Order:

 

8.1           Rights of Agent.  Subject to the provisions of Section 2 hereof
(except as may otherwise be provided for in the Approval Order, the Agent shall
be permitted to conduct the Sale as a “going-out-of-business sale”, “store
closing,” “sale on everything,” “everything must go,” or similar themed sale
throughout the Sale Term.  The Agent shall conduct the Sale in the name of and
on behalf of the Merchant in a commercially reasonable manner and in compliance
with the terms of this Agreement and, except as modified by the Approval Order,
all governing laws and applicable agreements to which Merchant is a party.  The
Agent shall conduct the Sale in accordance with the sale guidelines attached
hereto as Exhibit 8.1(a) (the “Sale Guidelines”) In addition to any other rights
granted to Agent hereunder in conducting the Sale, but subject to any applicable
agreements to which Merchant is a party except as modified by the Approval
Order, as applicable, the Agent, in the exercise of its reasonable discretion,
shall have the right:

 

(a)           to establish Sale prices and Store hours which are consistent with
the terms of applicable leases and local laws or regulations, including without
limitation Sunday closing laws; provided however, to the extent that Agent
extends the hours of operation at one or more of the Stores beyond the hours
historically operated by Merchant, which results in additional utilities and
increased Occupancy Expenses in excess of the amounts set forth on
Exhibit 4.1(s), Agent shall be obligated to reimburse Merchant the amounts, if
any, of such additional costs and such additional costs shall constitute
Expenses of the Sale.

 

(b)           except as otherwise expressly included as an Expense, to use
without charge during the Sale Term all FF&E, Store-level customer lists,
mailing lists and email lists for the Stores (provided, however, such access
shall be provided solely through Merchant’s outside advertisement services, and
the Agent shall not have direct access to any personally identifiable
information contained therein), computer hardware and software, existing
supplies located at the Stores, intangible assets (including Merchant’s name,
logo and tax identification numbers), Store keys, case keys, security codes and
safe and lock combinations required to gain access to and operate the Stores,
and any other assets of Merchant located at the Stores (whether owned, leased,
or licensed) consistent with applicable terms of leases or licenses (except as
modified by the Approval Order);

 

(c)           so long as such access does not unreasonably disrupt the business
operations of Merchant, to use (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 to the extent that
such services are normally provided by Merchant in house, at no additional cost
to Agent (except where otherwise designated as an Expense pursuant to
Section 4.1(t) hereof); provided, however, that, in the event that Agent
expressly requests Merchant to provide services other than those normally
provided to the Stores and relating to the

 

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sale of merchandise by Merchant, Agent shall be responsible for the actual
incremental cost of such services as an Expense; and (ii) sufficient office
space located at Merchant’s central office facility;

 

(d)           to establish and implement advertising, signage and promotion
programs consistent with the “going out of business,” “store closing” or similar
theme (including, without limitation, by means of media advertising, A-frame and
similar interior and exterior signs and banners and use of sign walkers) in a
manner consistent with the Sale Guidelines and the Approval Order;

 

(e)           to transfer Merchandise between and among the Stores; provided,
however, the Agent shall not transfer Merchandise between Stores unless the
Inventory Taking at the transferring Store has been completed;

 

(f)            to supplement the Merchandise at the Stores with Additional Agent
Merchandise in accordance with Section 8.10 hereof; and

 

(g)           upon entry of the Approval Order ,Agent shall be authorized to
conduct the Sale in accordance with the provisions of the Sale Guidelines and
Approval Order.

 

8.2           Terms of Sales to Customers.

 

(a)            All sales of Merchandise will be “final sales” and “as is,” and
all advertisements and sales receipts will reflect the same.  Agent shall not
warrant the Merchandise in any manner, but will, to the extent legally
permissible, pass on all manufacturers’ warranties to customers.  All sales will
be made only for cash, nationally recognized bank credit cards and, in Agent’s
discretion, personal checks, provided, however, if Agent determines to accept
personal checks, Agent shall bear the risk of nonpayment or loss with respect
thereto.  Agent shall not accept or honor any coupons issued by Merchant or
Merchant’s competitors.  Agent shall post signs in reasonable locations in the
Stores indicating that coupons shall not be honored.  Agent shall clearly mark
all tickets and receipts for the Merchandise sold at the Stores during the Sale
Term, so as to distinguish such Merchandise from the merchandise sold prior to
the Sale Commencement Date.

 

(b)           Gift Certificates.  During the Sale Term, Agent shall accept
Merchant’s gift certificates, gift cards and Merchandise credits issued by
Merchant prior to the Sale Commencement Date.  Merchant shall reimburse Agent in
cash for such amounts during the weekly sale reconciliation provided for in
Section 8.7.

 

8.3           Sales Taxes.

 

(a)           During the Sale Term, all sales, excise, gross receipts and other
taxes attributable to sales of Merchandise, as indicated on Merchant’s point of
sale equipment (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 Additional Agent Merchandise and collected by Agent, on
Merchant’s behalf, at the time of sale.  All Sales Taxes shall be deposited into
a

 

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segregated account designated by Merchant and Agent solely for the deposit of
such Sales Taxes (the “Sales Taxes Account”).   Merchant shall prepare and file
all applicable reports and documents required by the applicable taxing
authorities, and Merchant shall promptly pay all Sales Taxes from the Sales
Taxes Account.  Merchant will be given access to the computation of gross
receipts for verification of all such tax collections.  Provided that Agent
performs its responsibilities in accordance with this Section 8.3, Merchant
shall indemnify and hold harmless Agent from and against any and all costs,
including, but not limited to, reasonable attorneys’ fees, assessments, fines or
penalties which Agent sustains or incurs as a result or consequence of the
failure by Merchant to promptly pay such taxes to the proper taxing authorities
and/or the failure by Merchant to promptly file with such taxing authorities all
reports and other documents required, by applicable law, to be filed with or
delivered to such taxing authorities.  If Agent fails to perform its
responsibilities in accordance with this Section 8.3, and provided Merchant
complies with its obligations hereunder, Agent shall indemnify and hold harmless
Merchant from and against any and all costs, including, but not limited to,
reasonable attorneys’ fees, assessments, fines or penalties which Merchant
sustains or incurs as a result or consequence of the failure by Agent to collect
Sales Taxes and/or the failure by Agent to promptly deliver any and all reports
and other documents required to enable Merchant to file any requisite returns
with such taxing authorities.

 

(b)           Without limiting the generality of Section 8.3(a) hereof, it is
hereby agreed that, as Agent is conducting the Sale solely as agent for
Merchant, various payments that this Agreement contemplates that one party may
make to the other party (including the payment by Agent of the Guaranteed
Amount) do not represent the sale of tangible personal property and,
accordingly, are not subject to Sales Taxes.

 

8.4           Supplies.  Agent shall have the right to use, without charge, all
existing supplies located at the Stores, including, without limitation, boxes,
bags, paper, twine and similar sales materials (collectively, “Supplies”).  In
the event that additional Supplies are required in any of the Stores during the
Sale, Merchant agrees to promptly provide the same to Agent, if available, for
which Agent shall reimburse Merchant at Merchant’s cost therefor.  Merchant does
not warrant that the existing Supplies as of the Sale Commencement Date are
adequate for the purposes of the Sale.

 

8.5           Returns of Merchandise.  During the Sale Term, Agent shall accept
returns of merchandise sold by Merchant prior to the Sale Commencement Date
(“Returned Merchandise”), provided that such return is accompanied by the
original Store register receipt and is otherwise in compliance with Merchant’s
return and price adjustment policy in effect as of the date such item was
purchased.  Subject to Merchant’s right to return such defective goods to
Merchant’s vendors, if such Returned Merchandise is saleable as first-quality
Merchandise, it shall be included in Merchandise and valued at the Cost Value
(less the prevailing sale discount) applicable to such item as of the Sale
Commencement Date.  In the event that Returned Merchandise constitutes Defective
Merchandise (“Returned Defective Merchandise”), Merchant and Agent shall
mutually agree upon the Cost Value for such item of Returned Defective
Merchandise; provided, however, in the event that Merchant and Agent cannot
mutually agree upon the Cost Value for such Returned Defective Merchandise, or
such Returned Defective Merchandise constitutes Excluded Defective Merchandise,
then such Returned Defective

 

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Merchandise shall constitute Merchant Consignment Goods or Excluded Defective
Merchandise and excluded from the Sale.  The aggregate Cost Value of the
Merchandise shall be increased by the Cost Value of any Returned Merchandise
included in Merchandise (determined in accordance with this Section 8.5), and
the Guaranteed Amount shall be adjusted accordingly.  Merchant shall promptly
reimburse Agent in cash for any refunds Agent is required to issue to customers
in respect of any Returned Merchandise; provided, however, to the extent that
the Guaranteed Amount has been paid in full, unless and until Merchant and Agent
agree to a mutually acceptable escrow or reserve sufficient to insure that
Merchant will have sufficient funds to reimburse Agent pursuant to this
Section 8.5, Agent shall have no further obligations pursuant to this
Section 8.5.   Returned Merchandise not included in Merchandise shall be
disposed of by Agent in accordance with instructions received from Merchant or,
in the absence of such instructions, returned to Merchant at the end of the Sale
Term.  Any increases in the Guaranteed Amount in connection with returned
Merchandise shall be accounted for on a weekly basis.  Except to the extent that
Merchant and Agent agree that Merchant’s POS or other applicable systems can
account for returns of Merchandise, all returns must be noted and described in a
detailed log and shall identify the receipt number for the original receipt and
the date the item was purchased (the “Returned Merchandise Log”), to be
maintained by Agent in a form acceptable to Merchant.  Agent shall provide
Merchant with a copy of any Returned Merchandise Log on a weekly basis during
the Sale.  Agent shall not be entitled to any adjustment, credit or payment for
Returned Merchandise which is not properly noted and described in the Returned
Merchandise Log (or otherwise reflected in Merchant’s POS systems).

 

8.6.          [Intentionally Omitted]

 

8.7           Sale Reconciliation.  On each Wednesday during the Sale Term,
commencing on the second Wednesday after the Sale Commencement Date, Agent and
Merchant shall cooperate to reconcile Proceeds, Expenses of the Sale, receipts
of Distribution Center Merchandise and/or On-Order Merchandise in the Stores
and/or Additional Agent Merchandise, Augment Proceeds, Augment Recovery Amount,
and such other Sale-related items as either party shall reasonably request, in
each case for the prior week or partial week (i.e., Sunday through Saturday),
all pursuant to procedures agreed upon by Merchant and Agent, with such
information being set forth in a written Reconciliation Report and a copy
thereof shall be provided to GECC.  Within thirty (30) days after the end of the
Sale Term, Agent and Merchant shall complete a final reconciliation of the Sale,
the written results of which shall be certified by representatives of each of
Merchant and Agent as a final settlement of accounts between Merchant and Agent.

 

8.8           Force Majeure.  If any casualty, act of terrorism, 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,
in Agent’s discretion, 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) subject to the terms of Section 7.1 above, the proceeds of any
insurance attributable to such Merchandise 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.

 

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8.9           Merchant’s Right to Monitor.  Merchant shall have the right to
monitor the Sale and activities attendant thereto and to be present in the
Stores during the hours when the Stores are open for business; provided that
Merchant’s presence does not unreasonably disrupt the conduct of the Sale. 
Merchant shall also have a right of access to the Stores at any time in the
event of an emergency situation and shall promptly notify Agent of such
emergency.

 

8.10         Additional Merchandise.

 

(A)           AGENT SHALL BE ENTITLED, AT ITS EXPENSE, TO INCLUDE IN THE SALE AT
THE STORES ADDITIONAL MERCHANDISE PROCURED BY AGENT WHICH IS OF LIKE KIND, AND
NO LESSER QUALITY TO THE MERCHANDISE LOCATED IN THE STORES (“ADDITIONAL AGENT
MERCHANDISE”).

 

(B)           AT ALL TIMES AND FOR ALL PURPOSES, THE ADDITIONAL AGENT
MERCHANDISE AND ITS PROCEEDS SHALL BE THE EXCLUSIVE PROPERTY OF AGENT.  THE
TRANSACTIONS RELATING TO THE ADDITIONAL AGENT MERCHANDISE ARE, AND SHALL BE
CONSTRUED AS, A TRUE CONSIGNMENT FROM AGENT TO MERCHANT.  THE ADDITIONAL AGENT
MERCHANDISE SHALL BE AT ALL TIMES SUBJECT TO THE CONTROL OF AGENT.

 

(c)           In order to distinguish the Additional Agent Merchandise from the
Merchandise located in the Stores, Agent shall mark the Additional Agent
Merchandise using either a “dummy” SKU or department number or in such other
manner so as to distinguish the sale of Additional Agent Merchandise from the
sale of Merchandise.  Additionally, Agent shall provide signage in the Stores
notifying customers that the Additional Agent Merchandise has been included in
the Sale.

 

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 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.  Notwithstanding the foregoing, Merchant’s employees shall at all times
remain employees of Merchant.  Agent’s selection and scheduling of Merchant’s
employees shall at all times comply with all applicable laws and regulations.
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 employment
agreement or be deemed a joint or successor employer with respect to such
employees.  Agent shall comply in the conduct of the Sale with all of Merchant’s
employee rules, regulations, guidelines and policies which have been provided to
Agent in writing.  Merchant shall not, without the prior consent of Agent, raise
the salary or wages or increase the benefits for, or pay any bonuses or other
extraordinary payments to, any Store employees prior to the Sale Termination
Date.  Merchant

 

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shall not transfer any Retained Employee during the Sale Term without Agent’s
prior consent, which consent shall not be unreasonably withheld.

 

9.2           Termination of Employees.  Agent may in its discretion stop using
any Retained Employee at any time during the Sale, subject to the conditions
provided for herein.  In the event that Agent desires to cease using any
Retained Employee, Agent shall notify Merchant at least seven (7) days prior
thereto, so that Merchant may coordinate the termination of such employee;
provided, however, that, in the event that Agent determines to cease using an
employee “for cause” (which shall consist of dishonesty, fraud or breach of
employee duties), the seven (7) day notice period shall not apply, provided
further, however, that Agent shall immediately notify Merchant of the basis for
such “cause” so that Merchant can arrange for termination of such employee. 
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.  Notwithstanding the foregoing, Agent
shall not have the right to terminate the actual employment of any employee, but
rather may only cease using such employee in the Sale and paying any Expenses
with respect to such employee.

 

9.3           Payroll Matters.  During the Sale Term, Merchant shall process the
base payroll for all Retained Employees as well as payroll for any of Merchant’s
former employees or temporary labor retained by Agent for the Sale.  Each
Wednesday (or such other date as may be reasonably requested by Merchant to
permit the funding of the payroll accounts before such payroll is due and
payable) during the Sale Term, Merchant shall transfer, or, to the extent that
the Payment Date has passed, Agent shall transfer, to Merchant’s payroll
accounts an amount equal to the base payroll for Retained Employees plus related
payroll taxes, workers’ compensation and benefits for such week which constitute
Expenses hereunder.

 

9.4           Employee Retention Bonuses.  Agent may 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), up to a maximum of
ten percent (10%) of base payroll for all Retained Employees, to such Retained
Employees who do not voluntarily leave employment and are not terminated “for
cause,” as it may determine in its discretion.  The amount of such Retention
Bonuses shall be in an amount to be determined by Agent, in its discretion, and
shall be payable within thirty (30) days after the Sale Termination Date, and
shall be processed through Merchant’s payroll system.  Agent shall provide
Merchant with a copy of Agent’s Retention Bonus plan within five (5) business
days after the Sale Commencement Date.

 

Section 10.             Conditions Precedent and Subsequent.  The willingness of
Agent and Merchant to enter into the transactions contemplated under this
Agreement are directly conditioned upon the satisfaction of the following
conditions at the time or during the time periods indicated, unless specifically
waived in writing by the applicable party:

 

(a)           All representations and warranties of Merchant and Agent hereunder
shall be true and correct in all material respects and no Event of Default shall
have occurred at and as of the date hereof and as of the Sale Commencement Date.

 

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(b)           Merchant. shall have obtained the Approval Order on or before
October 16, 2008.

 

(c)           Merchant shall have obtained the consent of GECC, as agent for the
Lenders, the Indenture Trustee, and the Ad Hoc Note holder Committee to this
Agreement.

 

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)           each entity comprising Merchant (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state or
province of its formation (except as may be a result of the commencement and/or
pendency of the Merchant’s Chapter 11 Cases; (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 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, except, in each case, to the extent that the failure to be
in good standing or so qualified could not reasonably be expected to have a
material adverse effect on the ability of Merchant to execute and deliver this
Agreement and perform fully its obligations hereunder.

 

(b)           Except as may be required in connection with the issuance of the
Approval Order, as applicable, and subject to the consent of the Lenders, the
Indenture Trustee, and the Ad Hoc Note holder Committee (subject to the rights
and limitations set forth in the Intercreditor Agreement and the DIP Orders ):
(i) the Merchant has the right, power and authority to execute and deliver this
Agreement and each other document and agreement contemplated hereby
(collectively, together with this Agreement, the “Agency Documents”) and to
perform fully its obligations thereunder; (ii) Merchant has taken all necessary
actions required to authorize the execution, delivery and performance of the
Agency Documents, and no further consent or approval is required for Merchant to
enter into and deliver the Agency Documents, to perform its obligations
thereunder and to consummate the Sale, except for any such consent the failure
of which to be obtained could not reasonably be expected to have a material
adverse effect on the ability of Merchant to execute and deliver this Agreement
and perform fully its obligations hereunder; and (iii) each of the Agency
Documents has been duly executed and delivered by Merchant and constitutes the
legal, valid and binding obligation of Merchant enforceable in accordance with
its terms.

 

(c)           Merchant owns, and will own at all times during the Sale Term,
good and marketable title to all of the Merchandise to be included in the Sale,
free and clear of all liens, claims and encumbrances of any nature, other than
the liens listed on Exhibit 11.1(c) and any applicable statutory liens; provided
however, it is understood that with respect to On-Order Merchandise, Merchant
shall not have title to such goods until such time as title passes and provided
for under the respective vendor agreements and purchaser order.  Merchant shall
not create, incur, assume or suffer to exist any security interest, lien or
other charge or encumbrance

 

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upon or with respect to any of the Merchandise or the Proceeds other than as
provided for herein (including those listed on Exhibit 11.1(c)).  Any Approval
Order shall provide that all such liens shall be transferred to and attach only
to the Guaranteed Amount or other amounts payable to Merchant hereunder.

 

(d)           Merchant has maintained its pricing files in the ordinary course
of business, and prices charged to the public for goods are the same in all
material respects as set forth in such pricing files for the periods indicated
therein (without consideration of any point of sale markdowns, except with
respect to Aged Merchandise, where the point of sale markdown is reflected in
the price files, and all 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
(without consideration of any point of sale markdowns, other than with respect
to Aged Merchandise) as of the dates and for the periods indicated therein. 
Merchant represents that (i) the ticketed prices of all items of Merchandise do
not and shall not include any Sales Taxes and (ii) all registers located at the
Stores are programmed to correctly compute all Sales Taxes required to be paid
by the customer under applicable law, as such calculations have been identified
to Merchant by its retained service provider.

 

(e)           Except with respect to Merchant’s termination of point of sale
events prior to the Sale Commencement Date in the manner previously disclosed to
Agent, Merchant has not marked up or raised, and shall not up to the Sale
Commencement Date mark up or raise, 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 and except for the effects of the termination
of promotional events.

 

(f)            Through the Sale Commencement Date, Merchant shall ticket or mark
all items of inventory received at the Stores prior to the Sale Commencement in
a manner consistent with similar Merchandise located at the Stores and in
accordance with Merchant’s ordinary course past practices and policies relative
to pricing and marking inventory.  To the extent Merchandise is not pre-ticketed
prior to its receipt in the Distribution Centers, Agent shall be responsible for
ticketing Distribution Center Merchandise and/or On-Order Merchandise as same is
received in the Stores after the Sale Commencement Date.

 

(g)           Since September 1, 2008 Merchant has not, and through the Sale
Commencement Date Merchant shall not purchase for or transfer to or from the
Stores any merchandise or goods outside the ordinary course, except for the
transfer of Distribution Center Merchandise to the Stores prior to the Sale
Commencement Date in a manner consistent with Merchant’s disclosures.  Since
September 1, 2008 Merchant has continued and will continue to replenish goods in
the Stores in a manner and at levels consistent with Merchant’s replenishment of
on-going stores, it being understood and agreed that such replenishment has not
and will not be consistent with historic and customary levels or practices, as a
result of, among other things, Merchant’s Chapter 11 filing and/or delays in
procuring shipments from its vendors.  From and after the date hereof, Merchant
shall discontinue issuing new orders for replenishment for the Stores; provided
however, On-Order Merchandise earmarked for the Stores prior to the date hereof,
to the extent received, may continue to flow through to the Stores, with some
arriving

 

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after the Sale Commencement Date, but in any event prior to the DC Receipt
Deadline.  Merchant reserves the right to cancel any orders for On-Order
Merchandise after the Sale Commencement Date and to exclude from the Sale any
On-Order Merchandise received in the Distribution Centers after the Sale
Commencement Date, provided that, such election is made by the On-Order Election
Deadline.

 

(h)           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, if any, regarding product recalls prior to the Sale Commencement
Date.

 

(i)            Subject to the provisions of the Approval Order, throughout the
Sale Term, the Agent shall have the right to the unencumbered use and occupancy
of, and peaceful and quiet possession of, each of the Stores, the assets
currently located at the Stores and the utilities and other services provided at
the Stores.  Merchant shall, throughout the Sale Term, maintain in good working
order, condition and repair all cash registers, heating systems, air
conditioning systems, elevators, escalators and all other mechanical devices
necessary for the conduct of the Sale at the Stores.  Except any amounts owing
as a result of the commencement of any Chapter 11 Case or CCAA case, and absent
a bona fide dispute, throughout the Sale Term Merchant shall remain current on
all expenses and payables necessary for the conduct of the Sale (other than
those relating to any period prior to the commencement of any Chapter 11 Case or
CCAA case), subject to any restrictions that may be imposed under the Bankruptcy
Code.

 

(j)            Except any amounts owing as a result of the commencement of any
Chapter 11 Case or CCAA cases, Merchant had paid, and will continue to pay
throughout the Sale Term, all self-insured or Merchant funded employee benefit
programs for Store employees, including health and medical benefits and
insurance and all proper claims made or to be made in accordance with such
programs (other than those relating to any period prior to the commencement of
any Chapter 11 Case or CCAA case).

 

(k)           Since September 1, 2008, Merchant has not intentionally taken, and
shall not throughout the Sale Term intentionally take, any actions with the
intent of increasing the Expenses of Sale, including, without limitation,
increasing salaries or other amounts payable to employees, except (i) there may
have been instances that, in an effort to encourage one or more employees to
remain in Merchant’s employ, Merchant increased the salaries of such employees
(such action not being with any intent to increase any Expense of the Sale or in
anticipation thereof); and (ii) to the extent an employee was due an annual
raise.

 

(l)            Except as may be impacted by the filing for Chapter 11 protection
or otherwise restricted by the Chapter 11 filing, Merchant covenants to continue
to operate the Stores in all material respects in the ordinary course of
business from the date of this Agreement to the Sale Commencement Date by:
(i) selling inventory during such period at customary prices consistent with the
ordinary course of business; (ii) not promoting or advertising any sales or
in-store promotions (including POS promotions) to the public (except for
Merchant’s pending advertisements as of the date of this Agreement and/or
Merchant’s promotions for the period through the Sale Commencement Date, as
reflected on Exhibit 11.1(l)); (iii) except as may occur

 

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in the ordinary course of business, not returning inventory to vendors and not
transferring inventory or supplies between or among Stores; and (iv) except as
may occur in the ordinary course of business, not making any management
personnel moves or changes at the Stores without prior written notice to and
consultation with (but not approval of) Agent.

 

(m)          The aggregate Cost Value of the Merchandise as a percentage of the
aggregate Retail Price of the Merchandise (as determined in accordance with the
Inventory Taking) (the “Cost Factor”) shall not be greater than 47% (the “Cost
Factor Threshold”) and to the extent that the actual Cost Factor for the
Merchandise is greater than the Cost Factor, then the Guaranty Percentage shall
adjust (in addition to any adjustment applicable pursuant to section
3.1(e) hereof) in accordance with Exhibit 11.1(m).  For the purposes of this
Agreement,  “Retail Price” means the current retail or aged price, as
applicable, for each item of Merchandise, as reflected in the Merchant’s Output
SKU Master File, dated as of September 29, 2008.  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 other than with respect to (A) Aged
Merchandise, for which the current selling price is reflective of point of sale
discounts, as reflected on the Output SKU Master File, dated as of September 29,
2008; (ii) employee discounts; (iii) member or customer appreciation points or
coupons; (iv) multi-unit purchase discounts; (v) adjustments for damaged,
defective or “as-is” items; (vi) coupons (Merchant’s or competitors’), catalog,
website, or circular prices, or “buy one get one” type discounts; (vii) customer
savings pass discounts or “bounce back” coupons, or discounts for future
purchases based on dollar value of past purchases; (viii) obvious ticketing or
marking errors; (x) instant (in-store) or mail in rebates; or (ix) similar
customer specific, temporary, or employee non-product specific discounts or
pricing accommodations.  If an item of Merchandise has more than one ticketed
price, or if multiple items of the same SKU are ticketed at different prices, or
have a different PLU price, and such pricing does not otherwise qualify as an
Excluded Price Adjustment, the lowest ticketed, marked or PLU price on any such
item shall prevail for such item or for all such items within the same SKU, as
the case may be, that are located within the same location (as the case may be,
the “Lowest Location Price”), unless it is reasonably determined by Merchant and
Agent that the applicable Lowest Location Price was mismarked or such item was
priced because it was damaged or marked as “as is,” in which case the higher
price shall control; provided, however, in determining the Lowest Location Price
with respect to any item of Merchandise at a Store, the Lowest Location Price
shall be determined based upon the lowest ticketed, marked or PLU price for such
item on a per Store basis.  No adjustment to Retail Price shall be made with
respect to different ticketed price, marked price, or PLU prices for items
located in different Stores.  For purposes of this Agreement, the Cost Factor
shall be calculated by dividing the aggregate Cost Value of the Merchandise by
the aggregate Retail Price (as defined herein) of the Merchandise. .

 

(n)           All documents, information and supplements provided by Merchant to
Agent in connection with Agent’s due diligence and the negotiation of this
Agreement were true and accurate in all material respects at the time provided.

 

(o)           To the best of Merchant’s knowledge, Merchant has not since
September 1, 2008 shipped any Excluded Defective Merchandise from the
Distribution Centers to the Stores. 

 

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Merchant will not ship any Excluded Defective Merchandise from the date of this
Agreement from the Distribution Centers to the Stores.

 

(p)           Merchant has not transferred any employees to or from any Store
within the past 45 days, except as detailed on Exhibit 11.1(p).

 

(q)           Merchant will not, prior to the Sale Termination Date, offer any
promotions or discounts at its retail store locations that are not closing,
except as detailed on Exhibit 11.1(q) and other than in connection with further
store closing sales approved by the Bankruptcy Court.

 

(r)            The time to assume or reject the leases associated with the
Stores under section 365(d)(4) of the Bankruptcy Code has been extended, with
the consent of each landlord for each Store, to a time period after the Sale
Termination Date.

 

11.2           Agent’s Representations, Warranties and Covenants.  Each entity
comprising Agent hereby represents, warrants and covenants in favor of Merchant
as follows:

 

(a)           Each entity comprising Agent: (i) is a limited partnership,
corporation or limited liability company (as the case may be) duly and validly
existing and in good standing under the laws of the State of its organization;
and (ii) has all requisite power and authority to carry on its business as
presently conducted and to consummate the transactions contemplated hereby.

 

(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, to perform its obligations
thereunder and to consummate the Sale.  Each of the Agency Documents has been
duly executed and delivered by the Agent and constitutes the legal, valid and
binding obligation of Agent enforceable in accordance with its terms.  No court
order or decree of any federal, state or local governmental authority or
regulatory body is in effect that would prevent or impair, or is required for,
Agent’s consummation of the transactions contemplated by this Agreement (other
than the Approval Order), and no consent of any third party which has not been
obtained is required therefor, other than as provided herein.  No contract or
other agreement to which Agent is a party or by which Agent is otherwise bound
will prevent or impair the consummation of the transactions contemplated by this
Agreement.

 

(c)           No action, arbitration, suit, notice or legal administrative or
other proceeding before any court or governmental body has been instituted by or
against Agent, or has been settled or resolved or, to Agent’s knowledge, has
been threatened against or affects Agent, which questions the validity of this
Agreement or any action taken or to be taken by Agent in connection with this
Agreement or which, if adversely determined, would have a material adverse
effect upon Agent’s ability to perform its obligations under this Agreement.

 

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(d)           The Sale shall be conducted in compliance with all applicable
state and local laws, rules and regulations and Merchant’s leases and other
agreements, except as provided for in the Sale Guidelines and Approval Order.

 

Section 12.             Insurance.

 

12.1         Merchant’s Liability Insurance.  Merchant shall continue 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 endeavor to cause Agent to be named as an
additional named insured (as its interest may appear) with respect to all such
policies.  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 during the Sale Term.  In the event of a claim
under any such policies, Merchant shall be responsible for the payment of all
deductibles, retentions 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
(including Merchant’s employees being supervised by Agent).

 

12.2         Merchant’s Casualty Insurance.  Merchant will provide throughout
the Sale Term, at Agent’s cost as an Occupancy Expense hereunder, fire, flood,
theft and extended coverage casualty insurance covering the Merchandise in a
total amount equal to no less than the retail value thereof.  From and after the
date of this Agreement until the Sale Termination Date, all such policies will
also name Agent as loss payee (as its interest may appear).  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 or self-insured retention (which amounts shall
be paid by Agent as an Expense), shall constitute Proceeds hereunder.  Merchant
shall deliver to Agent certificates evidencing such insurance, setting forth the
duration thereof and naming the Agent as loss payee (as its interest may
appear), in form and substance reasonably satisfactory to Agent.  All such
policies shall require at least thirty (30) days’ prior notice to the Agent of
cancellation, non-renewal or material change during the Sale Term.  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 as an Expense hereunder
throughout the Sale Term, in such amounts as it currently has in effect,
comprehensive public liability insurance policies covering injuries to persons
and property in or in connection with Agent’s agency at the Stores, and shall
cause Merchant to be named as additional insureds and loss payees with respect
to such policies.  Agent shall deliver to Merchant certificates evidencing such
insurance policies setting forth the duration thereof and naming Merchant as
additional insureds, 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, retentions or self-insured amounts thereunder,
unless it is determined that liability arose by reason of the wrongful acts or
omissions

 

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or negligence of Merchant or Merchant’s independent contractors or agents, other
than Agent or Agent’s employees, agents or independent contractors (including
Merchant’s employees under Agent’s supervision).

 

12.4         Worker’s Compensation Insurance.  Merchant shall at all times
during the Sale Term maintain in full force and effect workers’ compensation
insurance (including employer liability insurance) covering all Retained
Employees in compliance with all statutory requirements.

 

Section 13.     Indemnification

 

13.1         Merchant Indemnification. Merchant shall indemnify and hold Agent
and its officers, directors, employees, agents and independent contractors
(collectively, “Agent Indemnified Parties”) harmless from and against all
claims,  demands, penalties, losses, liability or damage, including, without
limitation, reasonable attorneys’ fees and expenses, directly or indirectly
asserted against, resulting from, or related to: (i)  Merchant’s material breach
of or failure to comply with any of its agreements, covenants, representations
or warranties contained in any Agency Document; (ii) subject to Agent’s
satisfaction of its obligations pursuant to Section 4.1(a) and (b) hereof, any
failure of Merchant to pay to its employees any wages, salaries or benefits due
to such employees during the Sale Term; (iii) subject to Agent’s compliance with
its obligations under Section 8.3 hereof, any failure by Merchant to pay any
Sales Taxes to the proper taxing authorities or to properly file with any taxing
authorities any reports or documents required by applicable law to be filed in
respect thereof; (iv) any 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); or (v) the
gross negligence (including omissions) or willful misconduct of Merchant, or 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 claims
by any party engaged by Agent as an employee or independent contractor arising
out of such employment; and (iii) the gross negligence (including omissions) or
willful misconduct of Agent, its officers, directors, employees, agents or
representatives.

 

Section 14.             Defaults.  The following shall constitute “Events of
Default” hereunder:

 

(a)           The Merchant or Agent shall fail to perform any material
obligation hereunder if such failure remains uncured ten (10) days after receipt
of written notice thereof; or

 

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(b)           Any representation or warranty made by Merchant or Agent proves
untrue in any material respect as of the date made and, to the extent curable,
continues uncured ten (10) days after written notice to the defaulting party.

 

(c)           The Sale is terminated or materially interrupted or impaired for
any reason other than (i) an Event of Default by Agent; or (ii) any other
material breach or action by Agent not authorized under the Agency Agreement;
provided however, it is expressly understood that Merchant’s conduct of “store
closing”, “going out of business” or similar themed sales pursuant to other
prior orders of the Bankruptcy Court (the “Other Store Closings”) during a
period that overlaps with the Sale Term shall not be deemed an Event of Default,
or a material interruption of impairment of the Sale or this Agreement and Agent
acknowledges that it has no remedies under this Agreement in connection with, or
a result of, such Other Store Closings.

 

Any party’s damages or entitlement to equitable relief on account of an Event of
Default shall be determined by the Bankruptcy Court.

 

Section 15.             Miscellaneous.

 

15.1         Notices.  All notices and communications provided for pursuant to
this Agreement shall be in writing and sent by email, by hand, by facsimile or
by Federal Express or other recognized overnight delivery service, as follows
(with Merchant and Agent to receive all notices regardless of their origin):

 

If to the Agent:

GORDON BROTHERS RETAIL

 

PARTNERS, LLC

 

101 Huntington Avenue, 10th Floor

 

Boston, MA 02199

 

Attention: Michael Chartock

 

Tel: 617-210-7116

 

Fax: 617-531-7906

 

Email: mchartock@gordonbrothers.com

 

 

 

HILCO MERCHANT RESOURCES, LLC

 

5 Revere Drive, Suite 206

 

Northbrook, IL 60062

 

Attn: Joseph Malfitano

 

Tel: 847-504-3257

 

Fax: 847-897-0868

 

Email: jmalfitano@hilcotrading.com

 

 

 

SB CAPITAL GROUP, LLC

 

1010 Northern Blvd, Suite 340

 

Great Neck, NY 11021

 

Attn:

Robert Raskin

 

Tel:

(516) 829-2400

 

Fax:

(516) 829-2404

 

Email: rraskin@sbcapitalgroup.com

 

37

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TIGER CAPITAL GROUP, LLC

 

84 State Street, Suite 420

 

Boston, MA 02109

 

Attn:

Steve Goldberger

 

 

Dan Kane

 

Tel:

(617) 523-7002

 

Fax:

(617) 523-3007

 

Email:

sgoldberger@tigercapitalgroup.com

 

 

dkane@tigercapitalgroup.com

 

 

 

HUDSON CAPITAL PARTNERS, LLC

 

One Gateway Plaza

 

Newton Ma 02458

 

Attn.: James Schaye and AR Williams

 

Tel:

617-630-1030

 

Email:

JSCHAYE@hudsoncpl.com

 

 

 

GREAT AMERICAN GROUP, LLC

 

Nine Parkway North, Suite 300

 

Deerfield, IL 60015

 

Attn.: Mark P. Naughton

 

Tel:

(847) 444-1400

 

Fax:

(847) 444-1401

 

Email:

mnaughton@greatamerican.com

 

 

 

 

With a copy to:

PEPPER HAMILTON, LLP

 

Hercules Plaza

 

1313 North Market Street

 

Suite 5100

 

Wilmington, DE 19801

 

Attn:

David Fournier

 

Tel:

(302) 777-6565

 

Fax:

(302) 656-8865

 

Email:

fournierd@pepperlaw.com

 

 

 

 

If to the Merchant:

LINENS HOLDING CO.

 

6 Brighton Road

 

Clifton, NJ 07012

 

Attn:

Michael Gries

 

 

Dave Coder

 

 

Scott Hurd

 

Fax:

(973) 836-0309

 

Email:

mgries@cdgco.com

 

 

dcoder@lnt.com

 

 

shurd@lnt.com

 

38

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With a copy to:

ASSET DISPOSITION ADVISORS, LLC

 

499 Park Avenue

 

New York, NY 10022

 

Attn:

Paul Traub

 

 

Steven Fox

 

Tel:

(212) 573-9084

 

Fax:

(212) 652-3863

 

 

 

 

RICHARDS, LAYTON, & FINGER, P.A.

 

920 N. King Street

 

Wilmington, DE 19801

 

Attn:

Mark D. Collins

 

 

Michael J. Merchant

 

Tel:

(302) 651-7700

 

Fax:

(302) 651-7701

 

Email:

Collins@rlf.com

 

 

Merchant@rlf.com

 

 

 

 

GARDERE WYNNE SEWELL LLP

 

1601 Elm Street, Suite 3000

 

Dallas, TX 75201

 

Attn:

Stephen A. McCartin, Esq.

 

 

Randy Ray, Esq.

 

Fax:

(214) 999-3544

 

Email:

smccartin@gardere.com

 

 

rray@gardere.com

 

 

 

 

MORGAN, LEWIS & BOCKIUS LLP

 

101 Park Avenue

 

New York, NY 10178

 

Attn:

Neil E. Herman, Esq.

 

Fax:

(212) 309-6001

 

Email:

nherman@morganlewis.com

 

 

 

 

If to Lenders:

GENERAL ELECTRIC CAPITAL

 

CORPORATION

 

401 Merritt 7

 

125 Summer Street, 12th Floor

 

Boston, MA 02110

 

Attention: Mark Forti

 

Tel:

(617) 378-4779

 

Fax:

(617) 261-1206

 

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With a copy to:

BINGHAM MCCUTCHEN LLP

 

150 Federal Street

 

Boston, MA 02110

 

Attention: Robert A. J. Barry, Esq.

 

Tel: (617) 951-8624

 

Email:

raj.barry@bingham.com

 

 

 

 

 

 

If to Indenture Trustee:

ROPES & GRAY LLP

 

1211 Avenue of the Americas

 

New York, NY 10036-8704

 

Attn:

Mark I. Bane, Esq.

 

 

Anne H. Pak, Esq.

 

Tel:

(212) 596-9000

 

Fax:

(212) 596-9090

 

Email:

mark.bane@ropesgray.com

 

 

anne.pak@ropesgray.com

 

 

 

If to Ad Hoc Noteholders

 

Committee:

KASOWITZ, BENSON, TORRES

 

& FRIEDMAN LLP

 

1633 Broadway

 

New York, NY 10019

 

Attn:

David M. Friedman, Esq.

 

 

Adam L. Shiff, Esq.

 

Tel:

(212) 506-1700

 

Fax:

(212) 506-1800

 

Email:

dfriedman@kasowitz.com

 

 

ashiff@kasowitz.com

 

 

 

 

 

 

If to the Official Committee

 

of Unsecured Creditors:

OTTERBOURG, STEINDLER, HOUSTON

 

& ROSEN, P.C.

 

230 Park Avenue

 

New York, NY 10169-0075

 

Attn:

Glenn B. Rice, Esq.

 

Tel:

(212) 661-9829

 

Fax:

(212) 982-6104

 

Email:

grice@oshr.com

 

15.2         Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Delaware without regard to conflicts of laws
principles thereof, except

 

40

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where governed by the Bankruptcy Code in the event of the commencement of the
Chapter 11 Cases.

 

15.3         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.

 

15.4         Amendments.  This Agreement may not be modified except in a written
instrument executed by each of the parties hereto (including the GECC); provided
however, Merchant shall consult with the Indenture Trustee, the Ad Hoc Note
holder Committee and the Official Committee prior to execution of any amendment
of this Agreement and shall afford such parties with a reasonable opportunity
(as determined by the circumstances associated with the amendment) to object to
the amendment and seek an order of the Bankruptcy Court preventing such
amendment.

 

15.5         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.

 

15.6         Successors and Assigns.  This Agreement shall inure to the benefit
of and be binding upon Agent and Merchant and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by Merchant
or Agent to any party without the prior written consent of the other.  Great
American Group LLC may assign its rights, but not any of its obligations, under
this Agreement to any of its affiliates.  GECC and the Lenders are intended
third-party beneficiaries of this Agreement.

 

15.7         Execution in Counterparts.  This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute but one agreement.  This Agreement may be executed by
facsimile, and such facsimile signature shall be treated as an original
signature hereunder.

 

15.8         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.

 

15.9         FF&E.   With respect to the FF&E owned by Merchant (the “Owned
FF&E”) and located at the Stores and Distribution Centers, Agent shall sell the
Owned FF&E in any such Stores, and at Merchant’s sole option, exercisable by
Merchant in writing within thirty (30)  days after the Sale Commencement Date,
at the Distribution Centers, on a Distribution Center by Distribution Center
basis (the “Designated Distribution Center(s)”). Agent be entitled to receive a
commission equal to twenty percent (20%) of the net proceeds from the sale of
such Owned

 

41

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FF&E in the Stores and the designated Distribution Center(s), if any, (net of
sales taxes and the expenses of disposing of the FF&E); provided however
Merchant shall be responsible for payment of expenses incurred in connection
with the disposition of the Owned FF&E in accordance with a budget to be
mutually agreed upon between Merchant and Agent; provided further however,
Merchant may elect to receive, in lieu of proceeds net of expenses and Agent’s
commission, a lump sum payment, on a per Store basis, and/or a per designated
Distribution Center basis, in an amount to be agreed upon between Merchant, in
consultation with Lenders, the Indenture Trustee and the Ad Hoc Noteholders
Committee (in accordance with their respective rights under the Intercreditor
Agreement and the DIP Orders), and Agent, in which case all costs and expenses
associated with the disposition thereof shall be borne by Agent.   In either
event, as of the Sale Termination Date, Agent may abandon, in place, any unsold
Owned FF&E, at the Stores and the Designated Distribution Centers, if any.  In
the event that Merchant elects to have someone other than the Agent dispose of
the Owned FF&E at one or more of the Distribution Centers, it is understood that
such third party’s efforts shall not interfere with or delay the transfers of
Distribution Center Merchandise and/or On-Order Merchandise to the Stores.  All
net proceeds from the disposition of the Owned FF&E at the Stores and/or
Designated Distribution Center, net of sales taxes, Agent’s commission, and the
expenses associated with the disposition of such Owned FF&E (collectively, the
“Net FF&E Proceeds”), shall be deposited in a segregated account designated
solely for the deposit of the Net FF&E Proceeds.

 

15.10       Reporting.  If requested, Agent shall furnish Merchant with weekly
reports reflecting the progress of the Sale, which shall specify the Proceeds
received to date and shall furnish Merchant with such other information
regarding the Sale as Merchant reasonably requests.  The Agent will maintain and
provide to Merchant sales records to permit calculation of and compliance with
any percentage of rent obligations under Store leases.  During the course of the
Sale, Merchant shall have the right to have representatives continually act as
observers of the Sale in the Stores, so long as they do not interfere with the
conduct of the Sale.

 

15.11       Agent.  All references to “Agent” hereunder shall mean each
of Gordon Brothers Retail Partners, LLC, Great American Group, LLC, Hilco
Merchant Resources, LLC, Hudson Capital Partners, LLC, SB Capital Group, LLC,
and Tiger Capital Group, LLC jointly and severally.

 

Section 16.             Security Interest.  Upon issuance of the Letter of
Credit and payment of the Initial Guaranty Payment, and effective as of date of
Merchant’s and Lenders’ receipt of the Initial Guaranty Payment and the Letter
of Credit, and subject to the provisions of this Section 16, Merchant hereby
grants to Agent pursuant to Bankruptcy Code § 364(d) a valid and perfected first
priority security interest (subject to the subordination provisions set forth
below in this Section 16) in and lien upon (i) the Merchandise; (ii) the
Proceeds; and (iii) to the extent that Merchant and Agent agree upon a lump sum
payment for the Owned FF&E in the Stores and/or the Designated Distribution
Center(s), if any, pursuant to Section 15.9 hereof), in the Owned FF&E in the
Stores and/or the Designated Distribution Center(s); provided, however, that the
security interest granted to Agent hereunder shall remain junior and subordinate
in all respects to (a) Merchant’s rights to receive payment of the Guaranteed
Amount, Expenses and the Merchant’s Recovery Amount, all in full (collectively,
the “Agent’s Payment Obligations”), (b) 

 

42

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the liens, security interests and claims of the GECC and the Lenders, to the
extent of the unpaid portion of Agent’s Payment Obligations, and (c) the
security interests of the Indenture Trustee and the Noteholders, to the extent
of the unpaid portion of Agent’s Payment Obligations.  In addition,
notwithstanding anything to the contrary contained herein, the security
interest, liens and claims of GECC and Lenders shall be senior and superior in
all respects to the claims, liens and security interest granted to Agent
hereunder to the extent of any and all credit extensions made by, and other use
of cash Proceeds by the Merchant, and other obligations incurred by (or
otherwise owing to), GECC and the Lenders under DIP Credit Agreement up to the
amount of the Remaining Guaranteed Amount set forth on the Guaranteed Amount
Certificate most recently delivered to GECC prior to the time such credit
extensions are made, such Proceeds are used, or other obligations incurred, in
each case, as such Remaining Guaranteed Amount set forth in any Guaranteed
Amount Certificate delivered to GECC under this Agency Agreement may be adjusted
in accordance with Sections 3.1(a), 3.1(e), 6.1(b), 8.8, and 11.1(m) hereof
(provided that Agent and Merchant shall immediately notify GECC of any such
adjustment in the Remaining Guaranteed Amount and the Agent and the Merchant
provide an updated Guaranteed Amount Certificate to GECC reflecting the amount
of such adjustment).  Upon entry of the Approval Order and payment of the
Initial Guaranty Payment pursuant to Section 3.3 hereof, and the issuance of the
Letter of Credit, the security interest granted to Agent hereunder shall be
deemed properly perfected without the need for further filings or documentation
(but such security interests shall have the priority afforded thereto (and shall
be subordinated as set forth) in the two (2) immediately preceding sentences).

 

Section 17.             Concerning the Joint and Several Liability of the
Agents. Each of the entities that comprise the Agent (for the purposes of this
Section 17, each a “Liquidator”) hereby irrevocably and unconditionally agrees
that it is jointly and severally liable for all of the liabilities, obligations,
covenants and agreements of the Agent hereunder, whether now or hereafter
existing or due or to become due. The obligations of each Liquidator hereunder
that may be enforced by the Merchant, GECC, the Lenders, the Indenture Trustee
and/or the Noteholders against any such Liquidator or all such Liquidators in
any manner or order selected by the Merchant, GECC, the Lenders, the Indenture
Trustee and the Noteholders in their sole discretion (but subject to the
Intercreditor Agreement). Each Liquidator hereby irrevocably waives, for the
benefit of GECC, the Lenders, the Indenture Trustee, the Noteholders and the
Merchant, any defense to payment based on (i) any rights of subrogation,
(ii) any rights of contribution, indemnity or reimbursement, and (iii) all
suretyship defenses generally, in each case, that it may acquire or that may
arise against any of GECC, the Lenders, the Indenture Trustee, the Noteholders,
and/or the Merchant due to any payment or performance made under this Agreement.

 

[Signature Pages Follow]

 

43

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IN WITNESS WHEREOF, the Agent and Merchant hereby execute this Agreement by
their duly authorized representatives as a sealed instrument as of the day and
year first written above.

 

 

LINENS HOLDING CO.,

 

On Behalf of Itself and its Affiliated Debtors

 

and Debtors-in-Possession

 

 

 

By:

/s/ F. DAVID CODER

 

Name: F. David Coder

 

Its:       President & Chief Operating Officer

 

 

 

LINENS ‘N THINGS INVESTMENT

 

CANADA I COMPANY

 

 

 

By:

/s/ SCOTT M. HURD

 

Name: Scott M. Hurd

 

Title:   Chief Financial Officer

 

 

 

GORDON BROTHERS RETAIL

 

PARTNERS, LLC

 

 

 

By:

/s/ GARY KULP

 

Name:  Gary Kulp

 

Title:    Co-President

 

 

 

GREAT AMERICAN GROUP, LLC

 

 

 

 

 

By:

/s/ MARK P. NAUGHTON

 

Name: Mark P. Naughton

 

Title:   Senior Vice President/General Counsel

 

 

 

HILCO MERCHANT RESOURCES, LLC

 

 

 

 

 

By:

/s/ JOSEPH MALFITANO

 

Name:  Joseph Malfitano

 

Title:   Vice President, Assistant General Counsel,

 

            Member

 

 

 

HUDSON CAPITAL PARTNERS, LLC

 

 

 

By:

/s/ JAMES L. SCHAYE

 

Name: James L. Schaye

 

Title:   President and Chief Executive Officer

 

44

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SB CAPITAL GROUP, LLC

 

 

 

By:

/s/ DATHARD V. STEELE

 

Name:  Dathard V. Steele

 

Title:    Chief Financial Officer

 

 

 

TIGER CAPITAL GROUP, LLC

 

 

 

/s/

DANIEL M. KANE

 

By:         Daniel M. Kane

 

Name:

 

Its:          Manager

 

 

CONSENTED AND AGREED TO

 

AS IT RELATES TO SECTIONS 3.3, 3.4, 15.9 AND 16 HEREOF, BY:

 

 

GENERAL ELECTRIC CAPITAL CORPORATION

 

 

 

By:

 

 

Name

 

Title

 

 

 

CONSENTED AND AGREED TO

 

AS IT RELATES TO SECTIONS 3.3, 3.4, 15.9 AND 16 HEREOF, BY:

 

 

AD HOC COMMITTE

 

 

 

By:

 

 

Name

 

Title

 

 

 

 

 

CONSENTED AND AGREED TO

 

AS IT RELATES TO SECTIONS 3.3, 3.4, 15.9 AND 16 HEREOF, BY:

 

 

THE BANK OF NEW YORK

 

AS INDENTURE TRUSTEE

 

 

 

By:

 

 

Name

 

Title

 

 

45

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LIST OF OMITTED EXHIBITS

 

The exhibits to the foregoing Agency Agreement listed below have been omitted. 
Except to the extent separately filed as an exhibit with the Securities and
Exchange Commission, as noted below, the registrants agree supplementally to
furnish any omitted exhibit to the Securities and Exchange Commission upon
request.

 

Document

 

Description

 

 

 

Exhibit 1A

 

List of Closing Stores

Exhibit 1B

 

DC List

Exhibit 3.1(e)

 

Inventory Level Remedy Schedule

Exhibit 3.4

 

Form of Agent Letter of Credit

Exhibit 4.1(s)

 

Per Store Per Diem Occupancy Expenses

Exhibit 5.1

 

Inventory Taking Procedures

Exhibit 5.2(b)

 

Distribution Center Merchandise

Exhibit 5.2(b)(i)

 

On Order Merchandise

Exhibit 5.6

 

Canadian Agency Agreement (to be included)

Exhibit 6.1(b)

 

Extension Leases

Exhibit 8.1

 

Store Closing Guidelines (separately filed as an exhibit with the Securities and
Exchange Commission)

Exhibit 11.1(c)

 

List of Permitted Liens

Exhibit 11.1(m)

 

Cost Factor

Exhibit 11.1(p)

 

Transferred Employees

 

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