Exhibit 10.18

 

AGENCY AGREEMENT

 

by and between

 

a joint venture composed of

 

TRANS WORLD ENTERTAINMENT CORPORATION,

 

HILCO MERCHANT RESOURCES, LLC,

 

HILCO REAL ESTATE, LLC

 

GORDON BROTHERS RETAIL PARTNERS, LLC

 

and

 

THE OZER GROUP LLC

 

As Agent

 

and

 

WHEREHOUSE ENTERTAINMENT, INC.,

 

As Merchant

 

Dated as of September 19, 2003

 

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TABLE OF CONTENTS

 

Section 1.

Defined Terms

 

Section 2.

Appointment of Agent

 

Section 3.

Assets to be Sold to TWEC or by Agent

 

3.1

Assets

 

3.2

Excluded Assets

 

3.3

Assumed Liabilities

 

Section 4.

Consideration to Merchant

 

4.1

Payments to Merchant

 

4.2

Time of Payment

 

4.3

Additional Merchandise

 

4.4

Adjustments to Guaranteed Amount

 

Section 5.

Sale and Assignment of Properties or Assets

 

5.1

Leased Properties

 

5.2

Covenants of Merchant Regarding Sale of Properties

 

5.3

Assets

 

5.4

Transfers to TWEC

 

5.5

Other Closing Date Transfers

 

5.6

Executory Contracts

 

Section 6.

Deliveries

 

Section 7.

Expenses of the Sale

 

7.1

Expenses

 

7.2

Central Office Expense

 

7.3

Other Expenses of the Sale

 

Section 8.

Expenses with Respect to Properties

 

8.1

Marketing Period Costs - Leases.

 

8.2

Limitation on Marketing Period Costs

 

8.3

Occupancy Expense Letter of Credit

 

Section 9.

Inventory Taking and Valuation.

 

9.1

Inventory Taking

 

9.2

Merchandise.

 

9.3

Valuation

 

 

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Section 10.

Store Closing Sale Term; Marketing Period for Properties.

 

10.1

Term

 

10.2

Vacating the Stores

 

10.3

Marketing Period.

 

10.4

Gross Rings

 

Section 11.

Sale Proceeds.

 

11.1

Sale Proceeds

 

11.2

Deposit of Proceeds

 

Section 12.

Conduct of the Store Closing Sale.

 

12.1

Rights of Agent

 

12.2

Sales at TWEC Stores

 

12.3

Terms of Sales to Customers

 

12.4

Sales Taxes

 

12.5

Supplies

 

12.6

No Returns of Merchandise

 

Section 13.

Sale Reconciliation

 

Section 14.

Employee Matters.

 

14.1

Merchant’s Employees at Stores other than TWEC Stores

 

14.2

Termination of Retained Employees

 

14.3

Payroll Matters

 

14.4

Employee Retention Bonuses

 

14.5

Merchant’s Employees at TWEC Stores

 

Section 15.

Representations, Warranties, Covenants and Agreements.

 

15.1

Representations, Warranties, Covenants and Agreements of Merchant.

 

15.2

Representations, Warranties and Covenants of Agent

 

Section 16.

Covenants of the Merchant

 

16.1

Operations Prior to Closing Date

 

16.2

Operation of Business From and After Closing Date

 

Section 17.

Conditions Precedent to Effectiveness

 

17.1

Conditions Precedent to Obligations of Both Merchant and Agent

 

17.2

Additional Conditions Precedent to Obligations of Agent

 

Section 18.

Insurance; Risk of Loss.

 

18.1

Merchant’s Liability Insurance

 

 

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18.2

Merchant’s Property Casualty Insurance

 

18.3

Agent’s Insurance

 

18.4

Worker’s Compensation Insurance

 

18.5

Risk of Loss

 

18.6

Force Majeure

 

18.7

Non-Assumption of Liability

 

Section 19.

Indemnification.

 

19.1

Merchant Indemnification

 

19.2

Agent Indemnification

 

Section 20.

Events of Default and Remedies.

 

20.1

Events of Default

 

20.2

Remedies

 

Section 21.

Miscellaneous.

 

21.1

Notices

 

21.2

Governing Law; Consent to Jurisdiction

 

21.3

Entire Agreement

 

21.4

Amendments and Waivers

 

21.5

No Waiver

 

21.6

Successors and Assigns

 

21.7

Execution in Counterparts; Facsimile Signatures

 

21.8

Section Headings

 

21.9

Survival

 

21.10

Third Party Beneficiaries

 

21.11

Security Interest

 

21.12

Further Assurances; Power of Attorney

 

21.13

Joint and Several Liability of Partners

 

21.14

Authorized Representative of Partners

 

 

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LIST OF EXHIBITS

 

EXHIBIT 3.1

 

Leases

 

EXHIBIT 5.3(a)

 

TWEC Use Clause

 

EXHIBIT 5.4

 

TWEC Stores

 

EXHIBIT 8.2

 

Occupency Expenses

 

EXHIBIT 9.1

 

Inventory Taking

 

EXHIBIT 14.3

 

Payroll Matters

 

EXHIBIT 15.1(i)

 

Historic Sales

 

EXHIBIT 15.1(j)

 

Inventory Report

 

EXHIBIT 15.1(r)

 

Legal Proceedingst

 

EXHIBIT 16.1.

 

Promotional Calendar

 

EXHIBIT 17.1(a)

 

Order

 

EXHIBIT 17.3

 

Agent’s Insurance

 

 

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AGENCY AGREEMENT

 

This Agency Agreement (this “Agreement”) is made and entered into as of this
19th day of September, 2003, by and between a joint venture composed of Trans
World Entertainment Corporation (“TWEC”), Hilco Merchant Resources, LLC, Hilco
Real Estate, LLC, Gordon Brothers Retail Partners, LLC, and The Ozer Group LLC
(collectively, the “Agent”), on the one hand, and Wherehouse Entertainment Inc.,
its debtor affiliates and their respective chapter 11 estates (jointly and
severally, the “Merchant”), on the other hand.

 

RECITALS

 

WHEREAS, Merchant is a specialty retailer in the business of the retail
distribution of pre-recorded music and other home entertainment products;

 

WHEREAS, on January 21, 2003 (the “Filing Date”), Merchant filed voluntary
petitions (collectively, the “Petition”) for relief under chapter 11 of Title
11, United States Code (the “Bankruptcy Code”), in the United States Bankruptcy
Court for the District of Delaware (the “Bankruptcy Court”) where the Merchant’s
case (the “Case”) is currently pending;

 

WHEREAS, TWEC intends to assume certain of the Leases (as defined below),
receive the inventory located at the stores covered by such Leases, and continue
to operate such stores as going concerns;

 

WHEREAS, Agent seeks to act as the exclusive agent to Merchant in connection
with the disposition of the Assets other than those conveyed to TWEC (as further
described below, the “Sale”), including, without limitation, the conduct of a
going-out-of-business, store closing, or similar sales (as further described
below, the “Store Closing Sale”); and

 

WHEREAS, subject to the prior approval of the Bankruptcy Court, in the manner
provided for herein, Merchant desires that the Agent act as Merchant’s exclusive
agent in connection with the disposition of the Assets (other than those to be
conveyed to TWEC) and other matters as specified herein.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Agent and Merchant hereby agree as
follows:

 

Section 1.                            Defined Terms.  Each of the terms set
forth below is defined in the referenced section of this Agreement set forth
opposite such term below.

 

Defined Term

 

Section Reference

Additional Merchandise

 

4.3

Agency Accounts

 

11.2(a)

Agency Documents

 

15.1(c)

Agent

 

Preamble

Agent Claim

 

18.5

Agent Indemnified Parties

 

19.1

Agreement

 

Preamble

 

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Approval Order

 

5.3(a)

Assets

 

3.1

Assumed Liabilities

 

3.3

Bankruptcy Code

 

Recitals

Bankruptcy Court

 

Recitals

Benefits Cap

 

7.1(a)(iii)

Case

 

Recitals

Central Office

 

3.1(a)

Closing Date

 

17.1(c)

Cost Value

 

9.3

Defective Merchandise

 

9.2(a)

Display Merchandise

 

9.2(a)

Dropout Notice

 

5.2(f)

Events of Default

 

20.1

Excluded Assets

 

3.2

Excluded Benefits

 

7.1(j)

Expenses

 

7.1

Filing Date

 

Recitals

Gross Rings

 

10.4

Guaranteed Amount

 

4.1(a)

Inventory

 

4.4

Inventory Date

 

9.1(a)

Inventory Taking

 

9.1(a)

Lease Assumption Notice

 

5.2(b)

Leased Property Designee

 

5.2(b)

Leased Property Termination Date

 

10.3(c)

Leases

 

3.1(c)

Liens

 

15.1(x)

Marketing Period

 

10.3(a)

Merchandise

 

9.2

Merchant

 

Preamble

Motion

 

16.1(a)

Occupancy Expenses

 

7.1(a)(x))

Out-of-Date Merchandise

 

9.2(a)

Order

 

17.1(b)

Property

 

5

Property Sale Agreement

 

5.3(a)

Property Closing

 

5.3(e)

Property Closing Conditions

 

5.2(f)

Property Closing Date

 

5.3(e)

 

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REA

 

5.3(a)

Rental Merchandise

 

9.2(a)

Retention Bonuses

 

14.4

Retained Employee

 

14.1

Revocation Notice

 

8.2(b)

Sale

 

Recitals

Sale Proceeds

 

11.1

Sales Taxes

 

12.4

Sale Commencement Date

 

10.1

Sale Term

 

10.1

Sale Termination Date

 

10.1

SC Stores

 

7.1(a)

Store Closing Sale

 

Recitals

Store Inventory Taking

 

9.1(a)

Stores

 

3.1(a)

Supplies

 

12.5

TWEC

 

Recitals

TWEC Store Employees

 

14.5

TWEC Stores

 

5.5

Warehouse

 

3.1(a)

Warehouse Inventory Taking

 

9.1(b)

Warn Act

 

14.1

 

SECTION 2.                            APPOINTMENT OF AGENT

 

(a)  Merchant hereby appoints Agent, and Agent hereby agrees to serve, as
Merchant’s exclusive agent for the limited purpose of conducting the Sale in
accordance with the terms and conditions of this Agreement and exercising
Agent’s other rights, duties and obligations under this Agreement.

 

(b)  Merchant hereby appoints Agent, and Agent hereby agrees to serve, as
Merchant’s exclusive agent for the disposition of Merchant’s Leases.

 

SECTION 3.                            ASSETS TO BE SOLD TO TWEC OR BY AGENT.

 

3.1                   ASSETS.  THE ASSETS (COLLECTIVELY, THE “ASSETS”), WHICH
SHALL BE CONVEYED TO TWEC, PURSUANT TO SECTION 5.5, OR, AT THE DIRECTION OF THE
AGENT, IN AGENT’S SOLE DISCRETION, TO THIRD PARTIES OR AGENT’S DESIGNEE FREE AND
CLEAR OF ALL LIENS, CLAIMS, AND ENCUMBRANCES IN ACCORDANCE WITH THE TERMS AND
CONDITIONS OF THIS AGREEMENT AND THE ORDER, SHALL CONSIST OF ALL OF MERCHANT’S
RIGHT, TITLE AND INTEREST IN THE FOLLOWING:

 

(A)  THE INVENTORY, SIGNAGE, SUPPLIES, PARTS, MACHINERY, EQUIPMENT, VEHICLES,
AND GOODS LOCATED AT ANY OF THE RETAIL BUSINESS LOCATIONS OF MERCHANT (THE
“STORES”), MERCHANT’S

 

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CENTRAL OFFICE FACILITY (THE “CENTRAL OFFICE”), AND MERCHANT’S WAREHOUSE (THE
“WAREHOUSE”), AS WELL AS IN TRANSIT THERETO OR THEREFROM (OTHER THAN RETURN
INVENTORY TO VENDOR IN TRANSIT);

 

(B)  THE LEASES FOR THE STORES AND WAREHOUSE AS SET FORTH ON EXHIBIT 3.1 (THE
“LEASES”), INCLUDING, WITHOUT LIMITATION, ANY DEPOSITS OR OTHER SECURITY GIVEN
OR MADE IN RESPECT OF THE LEASES AND ANY OTHER RIGHTS GRANTED UNDER SUCH LEASES
(INCLUDING, WITHOUT LIMITATION, PURCHASE OPTIONS, RECONVEYANCE RIGHTS AND
EXPANSION RIGHTS), WHICH SHALL BE ASSUMED AND ASSIGNED OR REJECTED AT THE
DIRECTION OF THE AGENT PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE IN
ACCORDANCE WITH SECTION 5 HEREOF.   THE LEASES SHALL INCLUDE ALL SUBLEASES AND
SIMILAR AGREEMENTS FOR USE OF SPACE WITHIN PREMISES LEASED BY MERCHANT UNDER A
LEASE WHERE MERCHANT IS A LESSOR, SUBLESSOR OR LICENSOR.  ANY AMOUNTS RECEIVED
BY MERCHANT AS CONSIDERATION FOR THE ASSIGNMENT OF ANY LEASES ASSIGNED AFTER THE
DATE HEREOF SHALL BE CREDITED AGAINST THE GUARANTEED AMOUNT;

 

(C)  ALL FURNITURE, STORE FIXTURES AND IMPROVEMENTS LOCATED AT OR RELATED TO THE
STORES, WAREHOUSE, DISTRIBUTION CENTERS AND CENTRAL OFFICE, AS WELL AS ALL OTHER
FIXTURES;

 

(D)  ALL OTHER PERSONAL PROPERTY, TANGIBLE OR INTANGIBLE, WHEREVER LOCATED,
INCLUDING ALL INTELLECTUAL PROPERTY;

 

(E)  ALL INTELLECTUAL PROPERTY, INCLUDING, WITHOUT LIMITATION, KNOW-HOW,
TRADEMARKS, SERVICE MARKS, TRADE NAMES, DESIGNS, LOGOS, ART WORK, COPYRIGHTS,
PATENTS, LICENSES, DEVELOPMENTS, RESEARCH DATA, DESIGNS, TECHNOLOGY, TEST
PROCEDURES, MARKETING PLANS, PROCESSES, CONFIDENTIAL INFORMATION AND ALL OTHER
INTELLECTUAL AND INTANGIBLE PROPERTY RIGHTS, INVENTIONS (WHETHER OF NOT
PATENTABLE), DISCOVERIES, BUSINESS METHODS, AND TRADE SECRETS OF MERCHANT
WHATSOEVER (AND APPLICATIONS FOR, AND EXTENSIONS AND REISSUANCES OF, ANY OF THE
FOREGOING AND RIGHTS THEREIN);

 

(F)  ALL TRANSFERABLE GUARANTEES, WARRANTIES, LICENSES AND OTHER TRANSFERABLE
GOVERNMENTAL PERMITS, APPROVALS AND PERMISSIONS RELATED TO THE ASSETS;

 

(G)  ALL PREPAID EXPENSES, DEPOSITS, CREDITS, NOTES, AND UTILITY DEPOSITS
RELATING TO THE STORES OR LEASES;

 

(H)  OTHER THAN AS SET FORTH IN SECTION 3.2(II), CAUSES OF ACTION RELATED TO THE
ASSETS;

 

(I)  ANY INVESTMENT, EQUITY INTEREST, OR OWNERSHIP IN (X) ECHO AND (Y) ARTEMIS
RECORDS;

 

(J)  ANY CUSTOMER LISTS, AND WEBSITES OPERATED BY OR FOR MERCHANT, INCLUDING ANY
SERVER, SOFTWARE, OR OTHER EQUIPMENT OR PROGRAM ASSOCIATED WITH SUCH WEBSITES;
AND

 

(K)  TO THE EXTENT AGENT IS ENTITLED TO THE PROCEEDS, RIGHTS, OR BENEFIT OF THE
FOLLOWING HEREUNDER: ALL LIABILITY INSURANCE POLICIES, CONTRACTS, AND INSURANCE
ARRANGEMENTS, TOGETHER WITH ALL RIGHTS AND INCIDENTS THEREUNDER, AND ANY CLAIM,
ACTION OR OTHER RIGHT THE MERCHANT MAY HAVE FOR INSURANCE COVERAGE UNDER SUCH
POLICIES, CONTRACTS, AND ARRANGEMENTS.

 

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3.2                   EXCLUDED ASSETS.  THE ASSETS SHALL NOT INCLUDE (I)
ACCOUNTS RECEIVABLE (INCLUSIVE OF TAX REFUNDS); (II) ALL CASH AND CASH
EQUIVALENTS (INCLUDING ALL NEGOTIABLE INSTRUMENTS, MARKETABLE SECURITIES AND
CASH AND CASH EQUIVALENTS MAINTAINED IN ACCOUNTS WITH BANKS, BROKERAGE FIRMS AND
OTHER FINANCIAL INSTITUTIONS) AND ALL CASH RETAINERS HELD BY ANY PROFESSIONAL
RETAINED BY THE BANKRUPTCY COURT (OTHER THAN DEPOSITS DEFINED AS ASSETS PURSUANT
TO SECTION 3.1(H) HEREOF); AND (III) CAUSES OF ACTION THAT DO NOT RELATE TO
ASSETS, INCLUDING ANY CLAIMS OF MERCHANT FOR AVOIDANCE OF TRANSFERS,
OBLIGATIONS, OR LIENS ARISING UNDER CHAPTER 5 OF THE BANKRUPTCY CODE OR
MERCHANT’S CLAIMS IN THE CLASS ACTION SUIT RELATING TO COMPACT DISC PRICING;
(IV) EXCEPT AS OTHERWISE PROVIDED HEREIN, ALL LIABILITY INSURANCE POLICIES,
CONTRACTS, AND INSURANCE ARRANGEMENTS, TOGETHER WITH ALL RIGHTS AND INCIDENTS
THEREUNDER, AND ANY CLAIM, ACTION OR OTHER RIGHT THE MERCHANT MAY HAVE FOR
INSURANCE COVERAGE UNDER SUCH POLICIES, CONTRACTS, AND ARRANGEMENTS, (IV) ANY
REAL PROPERTY OWNED BY MERCHANT, AND (V) ANY EXECUTORY CONTRACTS OF MERCHANT
(OTHER THAN THE LEASES), AND THE FOREGOING SHALL BE DEEMED “EXCLUDED ASSETS,”
WHICH AGENT SHALL NOT ACQUIRE ANY RIGHTS THERETO.

 

3.3                   ASSUMED LIABILITIES.  AGENT SHALL ASSUME AS OF THE CLOSING
DATE THE FOLLOWING OBLIGATIONS AND LIABILITIES OF SELLERS RELATING TO THE ASSETS
(ALL SUCH LIABILITIES AND OBLIGATIONS HEREIN CALLED THE “ASSUMED LIABILITIES”):
(I) ALL AMOUNTS (SUBJECT TO THE PROVISIONS OF SECTION 5.1(D)) NECESSARY TO CURE
DEFAULTS EXISTING UNDER THE LEASES TO BE ASSUMED AND ASSIGNED PURSUANT TO THIS
AGREEMENT; (III) LIABILITIES ARISING OUT OF OR RELATING TO GIFT CARDS, STORE
CREDITS, OR GIFT CERTIFICATES SOLD BY MERCHANT ON OR SUBSEQUENT TO THE FILING
DATE IN AN AGGREGATE AMOUNT NOT TO EXCEED $1.4 MILLION, PROVIDED THAT SUCH GIFT
CARDS, STORE CREDITS, OR GIFT CERTIFICATES NEED ONLY BE ACCEPTED AT TWEC STORES
(AND AGENT SHALL HAVE NO OBLIGATION TO ACCEPT GIFT CARDS, STORE CREDITS, OR GIFT
CERTIFICATES AT SC STORES); (IV) LIABILITIES RELATING TO THE ACCRUED VACATION
PAY OF THE MERCHANT’S EMPLOYEES AT THE STORES AND WAREHOUSE AS OF THE CLOSING
DATE; AND (V) MERCHANT’S EMPLOYEES RETAINED LIABILITIES RELATING TO MERCHANT’S
EMPLOYEE PAYROLL AND OTHER EMPLOYEE BENEFITS OF MERCHANT’S EMPLOYEES IN AN
AGGREGATE AMOUNT NOT TO EXCEED $1.1 MILLION.

 

SECTION 4.                            CONSIDERATION TO MERCHANT.

 

4.1                   PAYMENTS TO MERCHANT.

 

(A)  SUBJECT TO THE ADJUSTMENTS OF THE GUARANTEED AMOUNT DESCRIBED IN
SECTION 4.4 BELOW, AS A GUARANTY OF AGENT’S PERFORMANCE HEREUNDER, MERCHANT
SHALL RECEIVE FROM AGENT THE SUM OF THE $35,600,000 (THE “GUARANTEED AMOUNT”).

 

(B)  AGENT SHALL PAY TO MERCHANT THE GUARANTEED AMOUNT IN THE MANNER AND AT THE
TIMES SPECIFIED IN SECTION 4.2 BELOW.

 

4.2                   TIME OF PAYMENT.

 

(A)  PAYMENT OF MERCHANDISE GUARANTEED AMOUNT.  NO LATER THAN TWO (2) BUSINESS
DAYS AFTER ENTRY OF THE ORDER, AGENT SHALL (I) PAY 75% OF THE GUARANTEED AMOUNT
(LESS ANY DEPOSIT POSTED BY AGENT) IN CASH; (II) DELIVER TO MERCHANT AN
IRREVOCABLE STANDBY LETTER OF CREDIT, IN FORM AND SUBSTANCE SATISFACTORY, TO
MERCHANT IN THE ORIGINAL FACE AMOUNT OF 25% OF THE GUARANTEED AMOUNT; (III)
DELIVER TO MERCHANT THE LETTER OF CREDIT SPECIFIED IN SECTION 8.3; AND (IV) PAY
TO MERCHANT THE DIFFERENCE BETWEEN $1.1 MILLION AND THE LIABILITIES ASSUMED BY
AGENT PURSUANT TO SECTION 3.3(V) TO THE EXTENT THAT THE LIABILITIES ASSUMED
PURSUANT TO SECTION 3.3(IV) ARE

 

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LESS THAN $1.1 MILLION.  SUBJECT TO THE ADJUSTMENTS OF THE GUARANTEED AMOUNT
DESCRIBED IN SECTION 4.4 BELOW, AGENT SHALL PAY THE UNPAID AND UNDISPUTED
BALANCE OF THE GUARANTEED AMOUNT IN CASH TO MERCHANT NO LATER THAN TWO (2)
BUSINESS DAYS FOLLOWING THE RECONCILIATION BY MERCHANT AND AGENT OF THE
INVENTORY TAKING.  IF MERCHANT AND AGENT DISAGREE AS TO THE AMOUNT OF THE UNPAID
GUARANTEED AMOUNT, MERCHANT AND AGENT SHALL ATTEMPT TO RESOLVE SUCH DISPUTE, IN
GOOD FAITH, WITHIN THIRTY (30) DAYS OF THE DATE ON WHICH THE DISPUTE ARISES.  IF
MERCHANT AND AGENT ARE UNABLE TO RESOLVE SUCH DISPUTE WITHIN SUCH THIRTY (30)
DAY PERIOD, THEN THE MERCHANT AND AGENT AGREE TO BRING SUCH DISPUTE BEFORE THE
EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT.  UPON PAYMENT OF THE GUARANTEED
AMOUNT, MERCHANT SHALL COOPERATE WITH AGENT IN ORDER TO TERMINATE THE LETTER OF
CREDIT REQUIRED TO BE POSTED UNDER CLAUSE (II) OF THIS PARAGRAPH.  TO THE EXTENT
THAT THE AMOUNT PAID PURSUANT TO CLAUSE (I) ABOVE IS IN EXCESS OF THE GUARANTEED
AMOUNT (AFTER ADJUSTMENT PURSUANT TO SECTION 4.4 HEREIN), MERCHANT SHALL PAY TO
AGENT SUCH EXCESS WITHIN TWO (2) BUSINESS DAYS FOLLOWING THE RECONCILIATION BY
MERCHANT AND AGENT OF THE INVENTORY TAKING.

 

4.3                   ADDITIONAL MERCHANDISE.  AGENT SHALL BE PERMITTED TO
SUPPLEMENT THE STORE CLOSING SALES AT STORES (HEREINAFTER DEFINED) AT STORES
OTHER THAN TWEC STORES WITH ADDITIONAL INVENTORY FROM PARTIES OTHER THAN
MERCHANT (“ADDITIONAL MERCHANDISE”).  ANY PROCEEDS OF THE SALE OF ADDITIONAL
MERCHANDISE SHALL BE TREATED AS SALES PROCEEDS, PROVIDED, HOWEVER, THAT MERCHANT
SHALL RECEIVE (I) TWO PERCENT (2%) OF ANY PROCEEDS OF ADDITIONAL MERCHANDISE
COMPRISED OF CATALOGUE GOODS OR NEW RELEASES AND (II) FIVE PERCENT (5%) OF ANY
PROCEEDS OF ALL OTHER ADDITIONAL MERCHANDISE (FOR THE AVOIDANCE OF DOUBT, THESE
AMOUNTS ARE ABOVE AND SEPARATE FROM THE GUARANTEED AMOUNT.  ANY EXPENSES
ASSOCIATED WITH THE PURCHASE OR SALE OF ADDITIONAL MERCHANDISE SHALL BE TREATED
AS EXPENSES PAID BY AGENT HEREUNDER.  AT THE REQUEST OF MERCHANT, AGENT SHALL
PROVIDE TO MERCHANT AND PERMIT MERCHANT’S INDEPENDENT ACCOUNTANTS TO REVIEW AND
VERIFY, AN ACCOUNTING OF ALL PURCHASES AND DISPOSITIONS OF ADDITIONAL
MERCHANDISE.

 

4.4                   ADJUSTMENTS TO GUARANTEED AMOUNT.  THE PARTIES HERETO HAVE
AGREED UPON THE GUARANTEED AMOUNT BASED UPON THE ASSUMPTION THAT AS OF THE
CLOSING DATE, COST VALUE (DEFINED IN SECTION 9.1 HEREOF) OF THE MERCHANT’S
INVENTORY (THE “INVENTORY”) PHYSICALLY LOCATED AT THE STORES OR THE WAREHOUSE OR
IN TRANSIT TO OR FROM THERE (OTHER THAN RETURNS TO VENDOR OF INVENTORY IN
TRANSIT) THAT IS SALABLE IN THE ORDINARY COURSE SHALL BE NO LESS THAN $60
MILLION.  IN THE EVENT THAT THE COST VALUE OF THE INVENTORY IS LESS THAN $60
MILLION, THEN THE GUARANTEED AMOUNT WILL BE REDUCED BY AN AMOUNT EQUAL TO 64% OF
THE DIFFERENCE BETWEEN THE COST VALUE AND $60 MILLION.  IN THE EVENT THAT THE
COST VALUE OF THE INVENTORY IS GREATER THAN $60 MILLION, THEN THE GUARANTEED
AMOUNT WILL BE INCREASED BY AN AMOUNT EQUAL TO 64% OF THE DIFFERENCE BETWEEN THE
COST VALUE AND $60 MILLION.  ANY ADJUSTMENT TO THE GUARANTEED AMOUNT SHALL BE
PAID IN THE MANNER DESCRIBED IN SECTION 4.2 HEREOF.

 

For purposes of calculating such adjustments, the Cost Value of the Inventory
will be calculated, pursuant to Section 9 hereof, based upon the final certified
report of the Inventory Taking Service less the amount of Gross Rings from the
completion of Inventory Taking to the Closing Date at each Store plus the amount
of Merchandise (valued in accordance with Section 9.3 of the Agreement) that is
delivered to a Store or the Warehouse subsequent to the Inventory Taking but
prior to the Closing Date, after verification and reconciliation by Merchant and
Agent.

 

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SECTION 5.                            SALE AND ASSIGNMENT OF PROPERTIES OR
ASSETS.  ON THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT AND THE ORDER,
ON THE CLOSING DATE, SUBJECT TO THE TRANSFERS CONTEMPLATED ON THE CLOSING DATE
TO TWEC AS SET FORTH IN SECTION 5.5 BELOW, AGENT SHALL PURCHASE FROM MERCHANT,
AND MERCHANT SHALL SELL, TRANSFER AND DELIVER TO AGENT PURSUANT TO SECTIONS 105,
363, 365 AND 1146(C) OF THE BANKRUPTCY CODE, THE EXCLUSIVE RIGHT, IN THE
EXERCISE OF ITS SOLE AND ABSOLUTE DISCRETION, TO MARKET AND ATTEMPT TO SELL ALL
OF MERCHANT’S RIGHT, TITLE AND INTEREST IN AND TO THE ASSETS, INCLUDING, WITHOUT
LIMITATION, THE LEASES, FREE AND CLEAR OF ALL LIENS OF ANY KIND WHATSOEVER.  AS
USED HEREIN, THE TERMS “PROPERTY” AND “PROPERTIES” SHALL MEAN, INDIVIDUALLY AND
COLLECTIVELY, THE PARCELS OF REAL PROPERTY IN WHICH MERCHANT HAS A LEASEHOLD
INTEREST PURSUANT TO THE LEASES ALONG WITH THE TENANT IMPROVEMENTS LOCATED
THEREON (TO THE EXTENT OWNED OR LEASED BY MERCHANT) AND THE RIGHTS OF MERCHANT
UNDER THE LEASE RELATING THERETO.

 

5.1                   LEASED PROPERTIES.

 

(A)  DURING THE MARKETING PERIOD FOR EACH LEASE, UNLESS OTHERWISE MUTUALLY
AGREED BY THE PARTIES, AGENT SHALL USE ITS REASONABLE COMMERCIAL EFFORTS TO
MARKET AND ATTEMPT TO ASSIGN THE LEASES.

 

(B)  SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 10.3(C) HEREOF, AT ANY TIME
PRIOR TO THE EXPIRATION OF THE MARKETING PERIOD FOR LEASES, AGENT SHALL HAVE THE
RIGHT, WHICH RIGHT MAY BE EXERCISED AT ANY TIME AND FROM TIME TO TIME IN AGENT’S
SOLE AND ABSOLUTE DISCRETION, TO PROVIDE NOTICE TO MERCHANT (EACH SUCH NOTICE, A
“LEASE ASSUMPTION NOTICE”) OF AGENT’S ELECTION TO REQUIRE MERCHANT TO SEEK
APPROVAL FROM THE BANKRUPTCY COURT TO ASSUME AND ASSIGN ONE OR MORE LEASES TO
ANY SUCH PARTY AS AGENT SHALL DESIGNATE, INCLUDING AGENT, AN AFFILIATE OF AGENT,
OR TWEC (EACH, A “LEASED PROPERTY DESIGNEE”).  EACH LEASE ASSUMPTION NOTICE
SHALL INCLUDE SUCH INFORMATION RELATING TO THE PROPOSED DESIGNEE, ITS PROPOSED
USE OF THE PROPERTY AND SUCH OTHER INFORMATION OR DOCUMENTATION RELATING TO
“ADEQUATE ASSURANCE OF FUTURE PERFORMANCE” AS SHALL BE REASONABLY REQUIRED IN
CONNECTION WITH THE FILING BY MERCHANT OF THE APPROVAL MOTION, PROVIDED, THAT
AGENT OR AGENT’S DESIGNEE SHALL BE SOLELY RESPONSIBLE FOR PROVIDING EVIDENCE OF
ADEQUATE ASSURANCE OF FUTURE PERFORMANCE.  TO THE EXTENT THAT THE REPRESENTATION
IN SECTION 15.2(E) HAS NOT BEEN MET PRIOR TO THE LAST DAY OF THE MARKETING
PERIOD, AGENT SHALL THE NEXT DAY NOTIFY MERCHANT OF ITS ASSUMPTION OF SUFFICIENT
LEASES TO CAUSE SUCH REPRESENTATION TO BE MET BY THE LAST DAY OF THE MARKETING
PERIOD.

 

(C)  WITHIN FIVE (5) BUSINESS DAYS FOLLOWING THE DATE UPON WHICH MERCHANT
RECEIVES A LEASE ASSUMPTION NOTICE FROM AGENT, OR ON SUCH LONGER TERM AS AGENT
MAY DESIGNATE IN ITS SOLE DISCRETION, MERCHANT SHALL FILE AN APPROVAL MOTION (AS
DEFINED BELOW) WITH THE BANKRUPTCY COURT AND MERCHANT SHALL THEREAFTER USE
REASONABLE COMMERCIAL EFFORTS TO OBTAIN AN APPROVAL ORDER (AS DEFINED BELOW). 
AS USED IN THIS SECTION 5.1(C), “REASONABLE COMMERCIAL EFFORTS” SHALL REQUIRE
MERCHANT TO PAY ANY AND ALL COSTS AND EXPENSES FOR THE PAYMENT OF ATTORNEYS AND
OTHER PROFESSIONALS WHOSE SERVICES MAY REASONABLY BE REQUIRED IN CONNECTION WITH
THE PROSECUTION OF THE APPROVAL MOTION AND TO OTHERWISE PROCEED IN ACCORDANCE
WITH SECTION 5.2(A) AND (B) BELOW.

 

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(D)  IN THE EVENT AGENT NOTIFIES MERCHANT TO ASSUME AND ASSIGN ANY LEASE, AGENT
SHALL BE SOLELY RESPONSIBLE FOR AND SHALL PAY ANY AND ALL CURE AMOUNTS WITH
RESPECT TO SUCH LEASE ARISING UNDER SECTION 365(B)(1) OF THE BANKRUPTCY CODE;
PROVIDED, HOWEVER, THAT AGENT SHALL NOT BE OBLIGATED TO PAY CURE AMOUNTS ARISING
PRIOR TO THE CLOSING DATE THAT, IN THE AGGREGATE, EXCEED $2.4 MILLION IN RESPECT
OF ALL LEASES ASSUMED AND ASSIGNED, AND MERCHANT SHALL BE SOLELY RESPONSIBLE FOR
ANY CURE AMOUNTS RELATING TO THE LEASES THAT AROSE ON OR PRIOR TO THE CLOSING
DATE IN EXCESS OF $2.4 MILLION.  MERCHANT SHALL BE SOLELY RESPONSIBLE FOR ANY
AND ALL COSTS OF PREPARING OR OBTAINING THE APPROVAL MOTION AND APPROVAL ORDER
AND ANY AGREEMENTS, MOTIONS OR BANKRUPTCY COURT ORDERS NECESSARY TO IMPLEMENT
THE ASSUMPTION AND ASSIGNMENT OF ANY LEASE WHICH AGENT NOTIFIES MERCHANT TO
ASSUME AND ASSIGN.  THE LEASED PROPERTY DESIGNEE SHALL BE RESPONSIBLE FOR AND
SHALL PAY ALL AMOUNTS, LIABILITIES, AND OBLIGATIONS UNDER SUCH LEASE FROM AND
AFTER THE PROPERTY CLOSING DATE.

 

(E)  AGENT SHALL HAVE THE RIGHT TO DIRECT THE MERCHANT TO SEEK BANKRUPTCY COURT
APPROVAL TO ASSUME AND ASSIGN ANY OF THE LEASES TO AGENT, ANY AFFILIATE OF
AGENT, OR TWEC SUBJECT TO THE PROCEDURES AND LIMITATIONS SET FORTH ABOVE AS IF
THE AGENT, SUCH AFFILIATE, OR TWEC WAS A LEASED PROPERTY DESIGNEE.  IF A
BANKRUPTCY COURT ORDER IS ENTERED ASSUMING AND ASSIGNING ANY LEASE TO AGENT, ANY
AFFILIATE OF AGENT, OR TWEC, AGENT, SUCH AFFILIATE, OR TWEC SHALL BE SOLELY
RESPONSIBLE FOR AND SHALL PAY ALL AMOUNTS, LIABILITIES AND OBLIGATIONS ARISING
UNDER SUCH LEASE FROM AND AFTER THE PROPERTY CLOSING DATE.

 

(F)  AT ANY TIME PRIOR TO THE EXPIRATION OF THE MARKETING PERIOD FOR ANY LEASE,
AGENT SHALL HAVE THE RIGHT, WHICH RIGHT MAY BE EXERCISED AT ANY TIME AND FROM
TIME TO TIME IN AGENT’S SOLE AND ABSOLUTE DISCRETION, TO PROVIDE NOTICE TO
MERCHANT (EACH SUCH NOTICE, A “DROPOUT NOTICE”) OF AGENT’S ELECTION TO
DISCONTINUE ITS EFFORTS TO MARKET AND ATTEMPT TO SELL SUCH LEASE; PROVIDED THAT
THE DELIVERY OF SUCH DROPOUT NOTICE SHALL NOT MAKE AGENT’S PERFORMANCE OF THE
REPRESENTATION OF SECTION 15.2(E) IMPOSSIBLE.  A DROPOUT NOTICE MAY BE DELIVERED
WITH RESPECT TO A PROPERTY FOR WHICH A LEASE ASSUMPTION NOTICE SHALL HAVE BEEN
PREVIOUSLY DELIVERED IN THE EVENT THAT A CONDITION TO THE CLOSING OF THE
TRANSFER OF THE LEASE TO THE PROPOSED DESIGNEE SHALL NOT HAVE BEEN SATISFIED. 
THE GUARANTEED AMOUNT SHALL NOT BE REDUCED BY SUCH EXCLUSION OF PROPERTIES
UNLESS THE EXCLUSION WAS A RESULT OF, OR BASED UPON, THE FAILURE BY MERCHANT TO
EXECUTE AND DELIVER SUCH CLOSING DOCUMENTS OR OTHERWISE TAKE SUCH ACTIONS AS ARE
REQUIRED TO BE DELIVERED AND TAKEN UNDER THIS AGREEMENT (THE “PROPERTY CLOSING
CONDITIONS”) TO THE PROPOSED DESIGNEE, IN WHICH CASE THE GUARANTEED AMOUNT SHALL
BE REDUCED BY THE REASONABLE VALUE OF THE APPLICABLE LEASE, AS REASONABLY
DETERMINED BY THE PARTIES (WITH ANY DISPUTES TO BE ADJUDICATED BY THE BANKRUPTCY
COURT).  AGENT AGREES TO DELIVER ANY DROPOUT NOTICE NO LATER THAN FIFTEEN (15)
DAYS PRIOR TO THE 1ST DAY OF ANY MONTH.  AS OF THE LEASED PROPERTY TERMINATION
DATE WITH RESPECT TO ANY LEASE, AGENT SHALL HAVE NO FURTHER OBLIGATION OR
LIABILITY WITH RESPECT THERETO AND MERCHANT SHALL BE SOLELY RESPONSIBLE FOR ALL
AMOUNTS PAYABLE OR OTHER OBLIGATIONS OR LIABILITIES THAT MAY BE OWED IN
CONNECTION WITH SUCH LEASE (INCLUDING, WITHOUT LIMITATION, ANY DAMAGES RESULTING
FROM THE REJECTION OF THE LEASE APPLICABLE TO ANY SUCH LEASE UNDER SECTION 365
OF THE BANKRUPTCY CODE OR OTHERWISE).  NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, REGARDLESS OF WHETHER AGENT DIRECTS MERCHANT TO REJECT ANY ONE OR MORE
LEASES AT ANY TIME, THE COST AND EXPENSES OF THE REJECTION AT ANY TIME OF ANY
ONE OR MORE LEASES, INCLUDING THE FILING AND PROSECUTING OF ANY MOTIONS OR OTHER
PAPERS WITH RESPECT TO THE SAME, SHALL BE BORNE SOLELY BY MERCHANT AND PAID FOR
SOLELY BY MERCHANT.

 

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5.2                   COVENANTS OF MERCHANT REGARDING SALE OF PROPERTIES.

 

(A)  AN “APPROVAL MOTION” SHALL MEAN A MOTION SERVED UPON ALL AFFECTED PARTIES
(INCLUDING, WITHOUT LIMITATION, LANDLORDS UNDER LEASES AND ANY PARTIES TO
RECIPROCAL EASEMENT AGREEMENTS OR OTHER SIMILAR AGREEMENTS (EACH, AN “REA”)
AFFECTING THE APPLICABLE PROPERTY) FOR AN ORDER OF THE BANKRUPTCY COURT (AN
“APPROVAL ORDER”) (I) APPROVING OF THE ASSUMPTION AND ASSIGNMENT OF THE
APPLICABLE LEASE TO THE PROPOSED DESIGNEE, (II) CONFIRMING THAT THE ASSUMPTION
AND ASSIGNMENT OF THE LEASE TO THE PROPOSED DESIGNEE SHALL BE FREE AND CLEAR OF
ANY CLAIMS OF DEFAULTS; (III) RULING THAT, IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 363 OF THE BANKRUPTCY CODE, THE LEASE SHALL BE TRANSFERRED AND ASSIGNED
TO THE PROPOSED DESIGNEE FREE AND CLEAR OF ALL LIENS, CLAIMS, MORTGAGES AND
ENCUMBRANCES (WITH SAME TO ATTACH TO THE PROCEEDS OF THE SALE, TRANSFER AND
ASSIGNMENT); (IV) PERMITTING THE PROPOSED DESIGNEE TO PERFORM ALTERATIONS AND
REMODELING TO THE EXTENT NECESSARY TO OPERATE ITS RETAIL OPERATIONS, AND TO
REPLACE AND MODIFY EXISTING SIGNAGE NOTWITHSTANDING ANY PROVISION IN THE LEASE,
ANY REA OR LOCAL LAW TO THE CONTRARY, (V) ORDERING THAT ANY EXTENSION OR RENEWAL
OPTION IN THE LEASE OR IN ANY REA WHICH PURPORTS TO BE “PERSONAL” ONLY TO
MERCHANT OR TO BE EXERCISABLE ONLY BY MERCHANT IS AN UNENFORCEABLE RESTRICTION
ON ASSIGNMENT AND, IN FACT, MAY BE FREELY EXERCISED BY THE PROPOSED DESIGNEE TO
ITS FULL EXTENT, (VI) ALLOWING AGENT’S PROPOSED DESIGNEE TO REMAIN “DARK” WITH
RESPECT TO PROPERTIES FOR UP TO AN ADDITIONAL TWELVE (12) MONTHS AFTER
ASSIGNMENT DESPITE ANY LEASE RESTRICTION, REA RESTRICTION OR LOCAL LAW TO THE
CONTRARY, (VII) ORDERING THAT IF NO OBJECTION TO THE ASSUMPTION AND ASSIGNMENT
OF A LEASE IS TIMELY MADE AND FILED WITH THE BANKRUPTCY COURT PRIOR TO THE
EXPIRATION OF THE APPLICABLE OBJECTION PERIOD, OR SUCH OBJECTION INVOLVES A
“CURE ISSUE” (WITH IT BEING DEEMED THAT ANY SUCH OBJECTION REGARDING A “CURE
ISSUE” WILL NOT AFFECT THE ASSUMPTION AND ASSIGNMENT), THE ASSUMPTION AND
ASSIGNMENT SHALL BE DEEMED EFFECTIVE AND BINDING UPON THE APPLICABLE AFFECTED
PARTIES AND SHALL REQUIRE NO FURTHER ORDER OF THE BANKRUPTCY COURT TO TAKE
PLACE, (VIII) ORDERING THAT ANY PROVISIONS CONTAINED IN THE LEASE OR ANY REAS
WHICH ARE, OR WOULD HAVE THE EFFECT OF BEING, PROVISIONS WHICH RESTRICT “GOING
DARK”, RECAPTURE PROVISIONS, PROVISIONS WHICH IMPOSE A FEE OR A PENALTY OR A
PROFIT SHARING UPON ASSIGNMENT, PROVISIONS WHICH SEEK TO INCREASE THE RENT OR
IMPOSE A PENALTY OR TO MODIFY OR TERMINATE A LEASE OR A REA AS A RESULT OF GOING
DARK OR UPON ASSIGNMENT, PROVISIONS WHICH DIRECTLY OR INDIRECTLY LIMIT OR
CONDITION OR PROHIBIT ASSIGNMENT, CONTINUOUS OPERATING COVENANTS, AND SIMILAR
PROVISIONS CONTAINED IN THE LEASES OR REAS SHALL NOT RESTRICT, LIMIT OR PROHIBIT
THE SALE AND ASSUMPTION AND ASSIGNMENT OF THE LEASE THE PROPOSED DESIGNEE AND
ARE DEEMED AND ARE FOUND TO BE UNENFORCEABLE ANTI-ASSIGNMENT PROVISIONS WITHIN
THE MEANING OF SECTIONS 365(F) AND (L) OF THE BANKRUPTCY CODE, (IX) APPROVING
THE PROPOSED DESIGNEE’S CONTEMPLATED USE OF THE STORE GOVERNED BY THE LEASE
IRRESPECTIVE OF WHETHER SUCH USE IS PROHIBITED BY THE LEASE, INCLUDING, WITHOUT
LIMITATION, IN THE CASE OF ANY LEASE TRANSFERRED TO TWEC, THE USE CLAUSE
ATTACHED HERETO AS EXHIBIT 5.3(A), (X) APPROVING THE TRADENAME(S) THAT THE
PROPOSED DESIGNEE INTENDS TO UTILIZE AT THE STORE COVERED BY SUCH LEASE,
INCLUDING, WITHOUT LIMITATION, IN THE CASE OF ANY LEASE TRANSFERRED TO TWEC, THE
FOLLOWING TRADENAMES: COCONUTS, STRAWBERRIES, SECOND SPIN, FYE (FOR YOUR
ENTERTAINMENT), PLANET MUSIC, AND SPEC’S; AND (XI) FINDING THAT THE PROPOSED
DESIGNEE HAS PROVIDED ADEQUATE ASSURANCE OF FUTURE PERFORMANCE.  IF THE HEARING
DATE OF ANY APPROVAL MOTION IS SCHEDULED TO BE HEARD ON A DATE THAT IS LATER
THAN SIX (6) MONTHS FOLLOWING THE CLOSING DATE, SUCH APPROVAL MOTION MAY REQUEST
THAT IN THE EVENT THAT SUCH APPROVAL MOTION IS DENIED, THE APPLICABLE LEASE IS
REJECTED PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE.

 

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(B)  IF A WRITTEN OBJECTION TO AN APPROVAL MOTION IS FILED PRIOR TO THE
EXPIRATION OF THE APPLICABLE OBJECTION PERIOD, WHICH IS AN OBJECTION WHICH WOULD
PROHIBIT OR OTHERWISE PREVENT A PROPERTY CLOSING (AS DEFINED BELOW) FROM
OCCURRING PURSUANT TO THE TERMS OF THIS AGREEMENT AND THE ORDER, MERCHANT SHALL
USE COMMERCIALLY REASONABLE EFFORTS TO CAUSE THE BANKRUPTCY COURT TO HOLD A
HEARING ON THE NEXT SCHEDULED OMNIBUS DATE (OR SUCH EARLIER DATE AS MAY BE
REASONABLY PRACTICABLE) AND RULE ON THE OBJECTION.  MERCHANT AND AGENT SHALL USE
COMMERCIALLY REASONABLE EFFORTS TO HAVE SUCH OBJECTION OVERRULED AND TO OBTAIN A
FINDING THAT AGENT’S DESIGNEE’S PROPOSED USE WILL NOT BREACH THE PROVISIONS OF
ANY LEASE OR REA, PROVIDED, HOWEVER, THAT EACH PARTY HERETO SHALL BEAR THEIR OWN
RESPECTIVE LEGAL FEES, COSTS AND EXPENSES OF RESPONDING TO ANY OBJECTION, AND
ANY APPEAL THEREOF AND OF LITIGATING AND/OR SETTLING ANY OBJECTIONS.  IF THE
OBJECTION IS OVERRULED OR WITHDRAWN, THE PROPERTY CLOSING DATE (AS DEFINED
BELOW) SHALL OCCUR.  IF THE OBJECTION IS UPHELD BY THE BANKRUPTCY COURT, AGENT
SHALL RETAIN ITS MARKETING RIGHTS UNDER THIS SECTION 5 TO SUCH PROPERTY AND THE
GUARANTEED AMOUNT SHALL NOT BE REDUCED (UNLESS THE FAILURE TO OBTAIN SUCH ORDER
WAS DUE TO A FAILURE BY MERCHANT TO SATISFY ANY OF THE PROPERTY CLOSING
CONDITIONS, OR DUE TO ANY ACTION OF MERCHANT WHICH CAUSED ANY OF THE PROPERTY
CLOSING CONDITIONS NOT TO BE SATISFIED, AND NOT DUE TO ANY FAILURE ON THE PART
OF AGENT, INCLUDING THE INABILITY OF A DESIGNEE TO SATISFY THE “ADEQUATE
ASSURANCE” REQUIREMENT OF THE BANKRUPTCY CODE).

 

(C)  FOLLOWING THE DELIVERY OF A LEASE ASSUMPTION NOTICE (WITH RESPECT TO
LEASES) TO MERCHANT, MERCHANT SHALL EXECUTE AND DELIVER THE DOCUMENTS DESCRIBED
IN SECTION 5.2(F).

 

(D)  FOLLOWING THE CLOSING DATE, MERCHANT AGREES TO COOPERATE WITH AGENT TO
ARRANGE FOR THE ASSUMPTION AND ASSIGNMENT OF THE LEASES AS PROVIDED IN THIS
AGREEMENT.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MERCHANT AGREES
(I) TO PROVIDE AGENT WITH ALL SUCH DILIGENCE MATERIALS AND INFORMATION IN
MERCHANT’S POSSESSION AS AGENT SHALL REASONABLY REQUEST IN CONNECTION WITH ITS
EFFORTS TO MARKET AND ATTEMPT TO ASSUME AND ASSIGN THE LEASES (INCLUDING,
WITHOUT LIMITATION, EXISTING REAL PROPERTY SURVEYS, ENVIRONMENTAL REPORTS, REAL
ESTATE TAX AND UTILITY RECORDS AND COMPLETE COPIES OF THE LEASES AND ALL
COMMUNICATIONS WITH LESSORS THEREUNDER) AND (II) TO COOPERATE WITH AGENT, ITS
AGENTS AND ANY POTENTIAL ASSIGNEES OF LEASES TO PROVIDE REASONABLE ACCESS TO
PROPERTIES COVERED BY THE LEASES.  IN THE EVENT MERCHANT RECEIVES ANY WRITTEN
OFFER OR LETTER OF INTENT FOR THE LEASES, MERCHANT SHALL PROVIDE AGENT WITH A
COPY OF SUCH OFFER OR LETTER OF INTENT.

 

(E)  THE CONSUMMATION OF THE SALE AND ASSIGNMENT OF EACH PROPERTY (A “PROPERTY
CLOSING”) SHALL TAKE PLACE ON (I) WITH RESPECT TO ASSIGNMENTS OF THE LEASES TO
THE DESIGNEES AS TO WHICH NO OBJECTION TO THE APPROVAL MOTION HAS BEEN FILED
WITH THE BANKRUPTCY COURT PRIOR TO THE EXPIRATION OF THE APPLICABLE OBJECTION
PERIOD (OR WHERE AN OBJECTION HAS BEEN TIMELY FILED BUT HAS BEEN CONSENSUALLY
RESOLVED OR WITHDRAWN OR WHICH IS AN OBJECTION WHICH DOES NOT PROHIBIT OR
OTHERWISE PREVENT A PROPERTY CLOSING FROM OCCURRING IN ACCORDANCE WITH THE TERMS
OF THIS AGREEMENT, THE ORDER AND THE APPROVAL ORDER), AS SOON AS REASONABLY
PRACTICABLE ON OR AFTER THE FIRST (1ST) BUSINESS DAY FOLLOWING THE EXPIRATION OF
THE APPLICABLE OBJECTION PERIOD, BUT NOT LATER THAN THE FIFTH (5TH) DAY (WHICH
MUST INCLUDE NOT LESS THAN THREE (3) BUSINESS DAYS) FOLLOWING THE EXPIRATION OF
THE APPLICABLE OBJECTION PERIOD (OR SUCH OTHER DATE AS MAY BE AGREED TO BY
MERCHANT AND AGENT), PROVIDED THAT NO STAY PENDING APPEAL OR OTHER INJUNCTION
AGAINST THE APPLICABLE PROPERTY CLOSING IS IN EFFECT, AND (II) WITH RESPECT TO
ASSIGNMENTS OF THE LEASES TO DESIGNEES AS TO WHICH AN OBJECTION TO THE APPROVAL
MOTION HAS BEEN FILED WITH THE BANKRUPTCY COURT PRIOR TO THE EXPIRATION OF THE
APPLICABLE OBJECTION PERIOD AND SUCH OBJECTION IS AN OBJECTION WHICH PROHIBITS

 

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OR OTHERWISE PREVENTS A PROPERTY CLOSING FROM OCCURRING IN ACCORDANCE WITH THE
TERMS OF THIS AGREEMENT AND THE ORDER AND SUCH OBJECTION IS NOT CONSENSUALLY
RESOLVED OR WITHDRAWN, AS SOON AS REASONABLY PRACTICABLE ON OR AFTER THE FIRST
(1ST) BUSINESS DAY FOLLOWING THE DATE THAT THE APPROVAL ORDER APPROVING SUCH
ASSIGNMENT HAS BEEN ENTERED PROVIDED THAT THE APPROVAL ORDER CONTAINS
PROTECTIONS AND FINDINGS UNDER SECTION 363(M) OF THE BANKRUPTCY CODE FOR THE
BENEFIT OF THE DESIGNEE(S) AND NO STAY OF THE APPROVAL ORDER IS IN EFFECT, BUT
NOT LATER THAN THE FIFTH (5TH) DAY (WHICH MUST INCLUDE NOT LESS THAN THREE (3)
BUSINESS DAYS) FOLLOWING THE ENTRY OF SUCH APPROVAL ORDER (OR SUCH OTHER DATE AS
MERCHANT AND AGENT MAY AGREE) (AS APPLICABLE, THE “PROPERTY CLOSING DATE”). 
EACH PROPERTY CLOSING SHALL BE SUBJECT TO THE PROPERTY CLOSING CONDITIONS FOR
SUCH PROPERTY.  MERCHANT AND AGENT SHALL EACH USE COMMERCIALLY REASONABLE
EFFORTS TO CAUSE ALL OF THE PROPERTY CLOSING CONDITIONS TO BE SATISFIED AS OF
THE PROPERTY CLOSING DATE.  TO THE EXTENT THAT AGENT SEEKS TO APPEAL THE DENIAL
OF AN APPROVAL MOTION, AGENT SHALL PAY ALL COSTS (INCLUDING ATTORNEYS FEES) AND
EXPENSES IN CONNECTION WITH SUCH APPEAL.

 

(F)  AT EACH PROPERTY CLOSING, MERCHANT SHALL DELIVER TO AGENT OR ITS DESIGNEES
THE FOLLOWING, AS APPLICABLE:  (I) AN EXECUTED ASSUMPTION AND ASSIGNMENT
AGREEMENT FOR THE APPLICABLE LEASE BEING ASSIGNED (AND TO THE EXTENT APPLICABLE,
ANY SUBLEASES NOT REJECTED BY MERCHANT AS CONTEMPLATED BY THIS AGREEMENT), WHICH
MAY BE THE APPROVAL ORDER, (II) IF THE APPLICABLE LEASE BEING ASSIGNED IS A
GROUND LEASE, AN EXECUTED QUIT CLAIM DEED CONVEYING MERCHANT’S RIGHT, TITLE AND
INTEREST IN THE IMPROVEMENTS LOCATED ON THE APPLICABLE LEASED PREMISES, (III) AN
EXECUTED BILL OF SALE CONVEYING TITLE TO ANY TENANT IMPROVEMENTS OR FIXTURES
OWNED BY MERCHANT AND LOCATED AT THE APPLICABLE PROPERTY AS OF THE PROPERTY
CLOSING DATE, (IV) ANY APPLICABLE LOCAL OR STATE TRANSFER TAX FORMS, (V)
EVIDENCE OF THE TERMINATION OR REJECTION, AS APPLICABLE, OF ANY SUBLEASES WHICH
MERCHANT IS REQUIRED TO TERMINATE OR REJECT PURSUANT TO SECTION 3.1(D) OF THIS
AGREEMENT, AND (VI) ALL OTHER DOCUMENTS (INCLUDING ASSIGNMENTS OF OPERATING
AGREEMENTS AFFECTING THE PROPERTIES), AFFIDAVITS, INSTRUMENTS AND WRITINGS
REASONABLY REQUIRED TO BE EXECUTED BY MERCHANT AT OR PRIOR TO THE PROPERTY
CLOSING DATE PURSUANT TO THIS AGREEMENT OR OTHERWISE REQUIRED BY LAW, OR
REASONABLY REQUESTED BY AGENT IN CONNECTION HEREWITH.  UNTIL SUCH TIME AS AGENT
HAS THE AMOUNTS PAID PURSUANT TO THIS SENTENCE EXCEED $2.4 MILLION IN THE
AGGREGATE, AT EACH PROPERTY CLOSING AGENT SHALL PAY MERCHANT THE CURE AMOUNT, IF
ANY, SPECIFIED IN THE APPROVAL ORDER APPROVING SUCH ASSIGNMENT.

 

(G)  AGENT SHALL PREPARE (AND DELIVER TO MERCHANT FOR EXECUTION BY MERCHANT) THE
ASSIGNMENTS, BILLS OF SALE, DEEDS, TRANSFER TAX DECLARATIONS AND OTHER CLOSING
DOCUMENTS TO BE DELIVERED IN CONNECTION WITH EACH PROPERTY CLOSING, ALL IN FORM
REASONABLY ACCEPTABLE TO MERCHANT, PROVIDED, HOWEVER, THAT MERCHANT SHALL
REASONABLY COOPERATE WITH AGENT IN SUCH PREPARATION.  ALL COSTS ASSOCIATED WITH
THE PROPERTY CLOSING AND TRANSACTIONS CONTEMPLATED UNDER THE AGREEMENT SHALL BE
ALLOCATED AS SET FORTH IN SECTION 7.1 BELOW OR ELSEWHERE IN THE AGREEMENT.

 

(H)  AS CONTEMPLATED BY SECTION 8 BELOW, ALL OCCUPANCY COSTS (AS DEFINED BELOW)
OTHER THAN CURE AMOUNTS PAYABLE BY AGENT HEREUNDER WHICH ARISE OR ARE
ATTRIBUTABLE TO THE PERIOD PRIOR TO THE CLOSING DATE WHETHER THE SAME ARE DUE
AND PAYABLE BEFORE OR AFTER THE APPLICABLE PROPERTY CLOSING SHALL BE THE
RESPONSIBILITY OF MERCHANT AND SHALL BE PRORATED AT THE APPLICABLE PROPERTY
CLOSING.  ALL OCCUPANCY COSTS WHICH ARISE OR ARE ATTRIBUTABLE TO THE PERIOD ON
OR AFTER THE CLOSING DATE WHETHER THE SAME ARE DUE AND PAYABLE BEFORE OR AFTER
THE APPLICABLE PROPERTY CLOSING SHALL BE THE RESPONSIBILITY OF AGENT (OR AGENT’S
DESIGNEE) AND SHALL BE PRORATED AT THE

 

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APPLICABLE PROPERTY CLOSING (SUBJECT TO AGENT’S OBLIGATIONS UNDER SECTION 8
BELOW WITH RESPECT TO CARRYING COSTS DURING THE MARKETING PERIOD).

 

(I)  FROM THE DATE HEREOF THROUGH AND UNTIL THE LEASED PROPERTY TERMINATION DATE
(WITH RESPECT TO LEASES), MERCHANT SHALL NOT ENTER INTO, EXTEND, REJECT OR
OTHERWISE TERMINATE ANY MATERIAL AGREEMENT WITH RESPECT TO A LEASE, OR GRANT ANY
PARTY A LIEN OR SECURITY INTEREST IN ANY OR ALL OF THE LEASES, IN EACH CASE
WITHOUT THE PRIOR WRITTEN CONSENT OF AGENT, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD.  WITHOUT THE PRIOR WRITTEN CONSENT OF AGENT, ABSENT
DELIVERY OF A DROPOUT NOTICE, MERCHANT WILL NOT CANCEL ANY INSURANCE POLICY
RELATING TO ANY PROPERTY AND SHALL USE ITS REASONABLE COMMERCIAL EFFORTS TO
EXTEND OR RENEW COMPARABLE COVERAGE IF ANY SUCH POLICY SHOULD EXPIRE PRIOR TO
THE APPLICABLE PROPERTY CLOSING DATE WITH RESPECT TO SUCH PROPERTY, PROVIDED,
HOWEVER, THAT AFTER THE END OF THE MARKETING PERIOD, MERCHANT MAY PERMIT ANY
SUCH INSURANCE TO EXPIRE UNLESS THE APPLICABLE COSTS OF RENEWAL ARE PAID TO
MERCHANT BY AGENT.

 

(J)  AT AGENT’S REQUEST, WITH RESPECT TO IDENTIFIED MORTGAGEES AND/OR FEE
OWNERS, MERCHANT SHALL USE COMMERCIALLY REASONABLE EFFORTS (AND AT AGENT’S SOLE
COST) TO OBTAIN EXECUTED NON-DISTURBANCE AGREEMENTS, IN A FORM REASONABLY
ACCEPTABLE TO AGENT, FROM ANY SUCH FEE OWNER OR MORTGAGE HOLDER WHO HOLDS A FEE
INTEREST OR A MORTGAGE WHICH ENCUMBERS THE FEE INTEREST, AS THE CASE MAY BE,
RELATING TO A LEASE TO BE ASSIGNED OR ITS DESIGNEES HEREUNDER.  THE FAILURE TO
OBTAIN ANY NON-DISTURBANCE AGREEMENT REQUESTED BY AGENT SHALL NOT RESULT IN A
REDUCTION OF THE GUARANTEED AMOUNT OR CONSTITUTE A BREACH OF THIS AGREEMENT.

 

(K)  MERCHANT AND AGENT WILL EXECUTE AND DELIVER SUCH FURTHER INSTRUMENTS OF
CONVEYANCE AND TRANSFER AND TAKE SUCH ADDITIONAL ACTION AS AGENT MAY REASONABLY
REQUEST TO EFFECT, CONSUMMATE, CONFIRM OR EVIDENCE THE ASSIGNMENT OF LEASES TO
AGENT’S DESIGNEES.  THIS SECTION 5.2(K) SHALL SURVIVE FOR SIX (6) MONTHS
FOLLOWING EACH RESPECTIVE PROPERTY CLOSING CONTEMPLATED BY THIS AGREEMENT.

 

5.3                   ASSETS.  IN ADDITION TO THE FOREGOING, DURING THE TERM OF
THIS AGREEMENT, AGENT, IN ITS SOLE DISCRETION, MAY, WITHOUT FURTHER BANKRUPTCY
COURT APPROVAL, UNDERTAKE THOSE ACTIONS IT DEEMS APPROPRIATE IN ORDER TO
FACILITATE THE SALE AND MAXIMIZE THE VALUE OF THE ASSETS, INCLUDING, WITHOUT
LIMITATION, CONDUCTING AND CONSUMMATING AUCTION SALES OR PRIVATE SALES THAT MAY
OR MAY NOT BE SUBJECT TO HIGHER AND BETTER OFFERS.  DURING THE TERM OF THIS
AGREEMENT, MERCHANT SHALL COOPERATE WITH AGENT IN ITS EFFORTS TO SELL THE
ASSETS, INCLUDING SEEKING BANKRUPTCY COURT APPROVAL OF THOSE PROCEDURES AGENT
DEEMS APPROPRIATE TO IMPLEMENT ANY SALE OF ANY OF THE ASSETS THAT THE AGENT, IN
ITS SOLE DISCRETION, DETERMINES TO PURSUE.

 

5.4                   TRANSFERS TO TWEC.  ON THE CLOSING DATE, OR FROM TIME TO
TIME HEREAFTER, WITHOUT FURTHER ORDER OF THE BANKRUPTCY COURT, MERCHANT SHALL
TRANSFER ALL RIGHT, TITLE AND INTEREST OF MERCHANT TO TWEC OR ANY OF TWEC’S
DESIGNEES THE FOLLOWING ASSETS:

 

(A)  THE INVENTORY, SIGNAGE, SUPPLIES, PARTS, MACHINERY, EQUIPMENT, VEHICLES,
AND GOODS LOCATED AT ANY OF THE STORES IDENTIFIED ON EXHIBIT 5.4 ATTACHED HERETO
(THE “TWEC STORES”), CENTRAL OFFICE, OR THE WAREHOUSE, AS WELL AS IN TRANSIT
THERETO OR THEREFROM;  AND

 

(B)  ALL FURNITURE, STORE FIXTURES AND IMPROVEMENTS LOCATED AT OR RELATED TO THE
TWEC STORES, THE WAREHOUSE, AND THE CENTRAL OFFICE;

 

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(C)  ALL PERSONAL PROPERTY, TANGIBLE AND INTANGIBLE, LOCATED AT THE TWEC STORES;

 

(D)  ALL INTELLECTUAL PROPERTY, INCLUDING, WITHOUT LIMITATION, KNOW-HOW,
TRADEMARKS, SERVICE MARKS, TRADE NAMES, DESIGNS, LOGOS, ART WORK, COPYRIGHTS,
PATENTS, LICENSES, DEVELOPMENTS, RESEARCH DATA, DESIGNS, TECHNOLOGY, TEST
PROCEDURES, MARKETING PLANS, PROCESSES, CONFIDENTIAL INFORMATION AND ALL OTHER
INTELLECTUAL AND INTANGIBLE PROPERTY RIGHTS, INVENTIONS (WHETHER OF NOT
PATENTABLE), DISCOVERIES, BUSINESS METHODS, AND TRADE SECRETS OF MERCHANT
WHATSOEVER (AND APPLICATIONS FOR, AND EXTENSIONS AND REISSUANCES OF, ANY OF THE
FOREGOING AND RIGHTS THEREIN);

 

(E)  ANY INVESTMENT, EQUITY INTEREST, OR OWNERSHIP IN (X) ECHO AND (Y) ARTEMIS
RECORDS; AND

 

(F)  ANY CUSTOMER LISTS, AND ALL WEBSITES OPERATED BY OR FOR MERCHANT, INCLUDING
ANY SERVER, SOFTWARE, OR OTHER EQUIPMENT OR PROGRAM ASSOCIATED WITH SUCH
WEBSITES; AND

 

(G)  ALL TRANSFERABLE GUARANTEES, WARRANTIES, LICENSES AND OTHER TRANSFERABLE
GOVERNMENTAL PERMITS, APPROVALS AND PERMISSIONS RELATED TO THE ASSETS SET FORTH
IN PARAGRAPHS (A) – (F) ABOVE.

 

5.5                   OTHER CLOSING DATE TRANSFERS.  PRIOR TO THE CLOSING DATE,
AGENT SHALL HAVE THE RIGHT TO FURTHER DIRECT THE MERCHANT, ON THE CLOSING DATE,
TO TRANSFER DIRECTLY TO OTHER THIRD PARTIES ALL RIGHT, TITLE AND INTEREST IN ANY
ASSETS IN THE MANNER CONTEMPLATED HEREIN IN ACCORDANCE WITH SECTION 6.

 

5.6                   EXECUTORY CONTRACTS. PRIOR TO THE COMPLETION OF THE SALE,
AGENT SHALL HAVE THE RIGHT TO FURTHER DIRECT THE MERCHANT TO SEEK ASSIGNMENT AND
ASSUMPTION OF ANY EXECUTORY CONTRACT WHICH HAS NOT BEEN DIRECTED SO LONG AS
AGENT BEARS ALL COSTS (OTHER THAN MERCHANTS’ ATTORNEYS FEES AND COSTS) RELATED
TO SUCH ASSIGNMENT AND ASSUMPTION, INCLUDING ANY CURE AMOUNTS.

 

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SECTION 6.                            DELIVERIES.  THE TRANSFER AND SALE OF ANY
OF THE ASSETS SHALL BE EFFECTED BY DELIVERY BY MERCHANT TWEC OR TO THE DESIGNEE
OF AGENT AT ANY TIME AGENT SO DIRECTS OF SUCH AGREEMENTS, DEEDS, BILLS OF SALE,
ENDORSEMENTS, ASSIGNMENTS, AND OTHER GOOD AND SUFFICIENT INSTRUMENTS OF SALE,
TRANSFER, ASSIGNMENT, CONVEYANCE, AND WARRANT AND ALL CONSENTS OF THIRD PARTIES
NECESSARY THERETO AS ARE REQUIRED, PURSUANT TO COURT ORDER UNDER SECTION 363 AND
365 OF THE BANKRUPTCY CODE AND OTHER APPLICABLE BANKRUPTCY LAW, TO VEST IN THE
DESIGNEE OF AGENT GOOD TITLE TO THE ASSETS, FREE AND CLEAR OF ALL LIENS, CLAIMS,
ENCUMBRANCES FOR BORROWED MONEY INDEBTEDNESS AND SECURITY INTERESTS OF ANY
NATURE OR KIND WHATSOEVER.  IN ADDITION, IF REQUESTED TO DO SO BY AGENT,
MERCHANT WILL SEEK BANKRUPTCY COURT APPROVAL OR AUTHORITY TO EFFECTUATE ANY AND
ALL OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, SEEKING COURT APPROVAL OF
FURTHER AUCTION OR SALE PROCEEDINGS.  THE PROVISIONS OF THIS SECTION 6 ARE
SUBJECT TO ANY MORE SPECIFIC PROVISIONS SET FORTH IN SECTION 5 ABOVE.  IN
ADDITION, NOTWITHSTANDING THE FOREGOING, (I) MERCHANT SHALL NOT BE REQUIRED TO
PAY IN ORDER TO OBTAIN ANY THIRD PARTY CONSENTS, (II) NOTHING IN THIS SECTION 6
SHALL RELIEVE AGENT OF ITS ASSUMPTION OF THE ASSUMED LIABILITIES, AND (III)
SALES OF MERCHANDISE SHALL BE SUBJECT TO THE REQUIREMENTS OF SECTION 12.3.

 

SECTION 7.                            EXPENSES OF THE SALE.

 

7.1                   EXPENSES.  ON A WEEKLY BASIS IN ACCORDANCE WITH THE SALE
RECONCILIATION CONTEMPLATED UNDER SECTION 13 HEREOF, AGENT SHALL BE RESPONSIBLE
FOR AND SHALL PAY, FROM THE SALE PROCEEDS, ALL EXPENSES INCURRED IN CONDUCTING
THE SALE.  “EXPENSES” ARE LIMITED TO THE FOLLOWING:

 

(A)  THE FOLLOWING STORE LEVEL OPERATING EXPENSES OF THE STORE CLOSING SALE
WHICH ARISE DURING THE SALE TERM AT THE STORES THAT ARE NOT TWEC STORES (THE “SC
STORES”) ON A PER STORE PER DIEM BASIS:

 

(I)                                     BASE PAYROLL FOR RETAINED EMPLOYEES FOR
ACTUAL DAYS/HOURS WORKED IN THE CONDUCT OF THE STORE CLOSING SALE AT THE STORES;

 

(II)                                  MERCHANT’S ACTUAL COSTS AND EXPENSES
INCURRED IN RESPECT OF THIRD PARTY PAYROLL PROCESSING SERVICES FOR RETAINED
EMPLOYEES AT THE STORES;

 

(III)                               AMOUNTS ACTUALLY PAYABLE IN RESPECT OF FICA,
UNEMPLOYMENT TAXES, WORKER’S COMPENSATION (INCLUDING THE COST OF MAINTAINING
WORKER’S COMPENSATION INSURANCE), MERCHANT’S 401(K) MATCHING CONTRIBUTION,
HOLIDAY PAY, VACATION DAYS OR VACATION PAY, AND HEALTH CARE INSURANCE BENEFITS
FOR RETAINED EMPLOYEES (EXCLUDING SICK DAYS OR SICK LEAVE, MATERNITY LEAVE OR
OTHER LEAVES OF ABSENCE, TERMINATION OR SEVERANCE PAY, UNION DUES, PENSION
BENEFITS, ERISA COVERAGE AND SIMILAR CONTRIBUTIONS), IN AN AMOUNT NOT TO EXCEED
14% OF BASE PAYROLL FOR ALL RETAINED EMPLOYEES IN THE AGGREGATE DURING THE TERM
OF THE SALE (THE “BENEFITS CAP”);

 

(IV)                              COSTS OF SECURITY PERSONNEL IN THE STORES;

 

(V)                                 A PRO-RATA PORTION OF MERCHANT’S CASUALTY
INSURANCE PREMIUMS ATTRIBUTABLE TO THE INVENTORY;

 

(VI)                              COSTS AND EXPENSES OF ADDITIONAL SUPPLIES;

 

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(VII)                           THE COSTS AND EXPENSES OF PROVIDING SUCH
ADDITIONAL GOODS AND SERVICES IN CONNECTION WITH THE STORE CLOSING SALE WHICH
THE AGENT IN ITS SOLE DISCRETION DEEMS APPROPRIATE;

 

(VIII)                        LOCAL AND LONG DISTANCE TELEPHONE EXPENSES IN
CONNECTION WITH THE SALE;

 

(IX)                                COSTS OF ADVERTISING, SIGNAGE, AND DIRECT
MAILINGS RELATING TO THE SALE, INCLUDING, WITHOUT LIMITATION, POSTAGE, COURIER
AND OVERNIGHT MAIL CHARGES (AT MERCHANT’S CONTRACT RATES, IF AVAILABLE)(AGENT
ACKNOWLEDGES THAT MERCHANT SHALL NOT BE OBLIGATED TO ADVERTISE OR MAIL MATERIALS
FOR ANY PURPOSE NOT DIRECTLY ATTRIBUTABLE TO THE SALE); AND

 

(X)                                   BANK SERVICE CHARGES AND FEES FOR BANK
ACCOUNTS, CREDIT CARDS AND BANK CARDS, CHARGEBACKS AND DISCOUNTS, EXISTING OR
NEW, USED IN CONNECTION WITH THE SALE (AT MERCHANT’S CONTRACT RATES, IF
AVAILABLE);

 

(B)  COSTS OF TRANSFERS OF INVENTORY AND ADDITIONAL MERCHANDISE DURING THE SALE
TERM TO THE STORES;

 

(C)  COSTS OF ARMORED CAR SERVICES;

 

(D)  ANY COLLECTION FEES, COMMISSIONS, AUCTION FEES, BROKERAGE FEES OR OTHER
SIMILAR FEE, EXPENSE OR COST INCURRED WITH RESPECT TO THE SALE;

 

(E)  PROPERTY INSURANCE ATTRIBUTABLE TO THE ASSETS FOR WHICH AGENT IS
RESPONSIBLE DURING THE MARKETING PERIOD PURSUANT TO SECTION 8.1 HEREOF;

 

(F)  AGENT’S COST OF CAPITAL AND LETTER OF CREDIT FEES;

 

(G)  AGENT’S LEGAL FEES AND EXPENSES;

 

(H)  AGENT’S SUPERVISION FEES AND EXPENSES, INCLUDING, WITHOUT LIMITATION, FEES,
TRAVEL COSTS AND BONUSES;

 

(I)  ANY OTHER REASONABLE AND NECESSARY EXPENSE INCURRED DIRECTLY BY AGENT IN
CONNECTION WITH THE SALE, COLLECTION OR MONETIZATION OF THE ASSETS; AND

 

(J)  CLAIMS, LIABILITIES, EXPENSES, DAMAGES OR OTHER COSTS (INCLUDING COSTS OF
DEFENSE AND INVESTIGATION) ARISING FROM OR RELATED TO THE OPERATION, OWNERSHIP,
USE, CONDITION OR POLLUTION OF OR FROM THE TWEC STORES OR WAREHOUSE AFTER THE
CLOSING DATE.

 

“Expenses” shall not include:  (i) Excluded Benefits; (ii) any rent or occupancy
expenses related to the SC Stores in excess of the Occupancy Expenses as
described in Exhibit 8.1; (iii) attorneys’ fees and costs and other expenses of
Merchant in connection with preparing or obtaining any agreements, motions or
Bankruptcy Court orders to effectuate any sale of any Properties or other
Assets, (iv) any and all amounts due to release any liens on the Properties, all
of which shall be the sole responsibility of Merchant and shall be paid by
Merchant when due; and (v) Central Office expenses other than as set forth
herein.

 

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As used herein, the following terms have the following respective meanings:

 

“Excluded Benefits” means (i) sick days or sick leave, maternity leave or other
leaves of absence, termination or severance pay, union dues, pension benefits,
ERISA coverage and similar contributions (except for Merchant’s matching 401(k)
contribution), and (ii) payroll taxes, worker’s compensation and health
insurance benefits in excess of the Benefits Cap.

 

7.2                   CENTRAL OFFICE EXPENSE.  PRIOR TO THE CLOSING DATE, AGENT
AND MERCHANT SHALL MUTUALLY AGREE ON A BUDGET TO REIMBURSE MERCHANT FOR THOSE
SERVICES PROVIDED BY MERCHANT AT THE CENTRAL OFFICE FOR UP TO NINETY (90) DAYS
FOLLOWING THE CLOSING DATE IN ORDER TO SUPPORT THE SALE AND CERTAIN OTHER
TRANSITION MATTERS.

 

7.3                   OTHER EXPENSES OF THE SALE.  ALL EXPENSES REQUIRED FOR
MERCHANT AND AGENT TO PERFORM THEIR RESPECTIVE OBLIGATIONS HEREUNDER OTHER THAN
THE EXPENSES AND OCCUPANCY EXPENSES, AND CENTRAL OFFICE EXPENSES (AS DESCRIBED
HEREIN), INCLUDING, WITHOUT LIMITATION, THE ITEMS EXPRESSLY EXCLUDED FROM THE
DEFINITION OF “EXPENSES” IN SECTION 7.1 AND “OCCUPANCY EXPENSES” IN SECTION 8.1
SHALL BE BORNE BY MERCHANT AND PAID BY MERCHANT WHEN DUE.

 

SECTION 8.                            EXPENSES WITH RESPECT TO PROPERTIES.

 

8.1                   MARKETING PERIOD COSTS - LEASES.

 

(A)  DURING THE MARKETING PERIOD WITH RESPECT TO EACH LEASE COVERING A SC STORE,
AGENT SHALL REIMBURSE MERCHANT, WITHIN FIVE (5) BUSINESS DAYS, FOR ALL OCCUPANCY
EXPENSES ACCRUING DURING THE MARKETING PERIOD, LIMITED TO THOSE AMOUNTS AND
CATEGORIES AS DESCRIBED IN EXHIBIT 8.1 ATTACHED HERETO.  “OCCUPANCY EXPENSES”
MEANS BASE RENT, PERCENTAGE RENT, HVAC, UTILITIES, CAM, REAL ESTATE AND USE
TAXES, MERCHANT’S ASSOCIATION DUES, TRASH REMOVAL AND BUILDING INSURANCE, IN ALL
CASE LIMITED TO THOSE AMOUNTS AND CATEGORIES AS DESCRIBED IN EXHIBIT 8.1. 
EXHIBIT 8.1 SHALL BE MUTUALLY AGREED UPON BY AGENT AND MERCHANT AS OF THE
CLOSING DATE.

 

(B)  DURING THE MARKETING PERIOD WITH RESPECT TO EACH LEASE COVERING A TWEC
STORE OR THE WAREHOUSE, AGENT SHALL REIMBURSE MERCHANT, WITHIN FIVE (5) BUSINESS
DAYS, FOR ALL BASE RENT, PERCENTAGE RENT, HVAC, UTILITIES, CAM, REAL ESTATE AND
USE TAXES, MERCHANT’S ASSOCIATION DUES, TRASH REMOVAL, BUILDING AND INSURANCE,
AND OTHER OBLIGATIONS UNDER SUCH LEASE.

 

(C)  SUBJECT TO THE LIMITATION SET FORTH IN SECTION 10.3(C) HEREOF, IF AGENT
FAILS TO REIMBURSE OR ADVANCE TO MERCHANT ANY SUCH COSTS ON A TIMELY BASIS, THEN
FOLLOWING THE EXPIRATION OF A FIVE (5) DAY CURE PERIOD AFTER RECEIPT BY AGENT OF
NOTICE OF SUCH FAILURE TO REIMBURSE OR ADVANCE, PROVIDED THAT THE BASIS FOR
NON-PAYMENT IS NOT SUBJECT TO A BONA FIDE DISPUTE, IN ADDITION TO ALL OF ITS
OTHER RIGHTS AT LAW AND EQUITY, MERCHANT SHALL BE ENTITLED TO REVOKE AGENT’S
RIGHT TO USE, TO OCCUPY AND TO MARKET AND ATTEMPT TO SELL MERCHANT’S RIGHT,
TITLE AND INTEREST IN AND TO SUCH LEASES AND MAY REJECT THE LEASES.  SUCH
REVOCATION SHALL BE EFFECTIVE UPON AGENT’S RECEIPT OF WRITTEN NOTIFICATION FROM
MERCHANT (EACH, A “REVOCATION NOTICE”).

 

8.2                   LIMITATION ON MARKETING PERIOD COSTS.  DURING THE
MARKETING PERIOD, MERCHANT SHALL NOT MAKE ANY EXTRAORDINARY OR STRUCTURAL
MAINTENANCE REPAIRS WITHOUT THE PRIOR WRITTEN CONSENT OF AGENT, WHICH CONSENT
SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED.

 

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8.3                   OCCUPANCY EXPENSE LETTER OF CREDIT.  WITHIN TWO (2)
BUSINESS DAYS FROM THE ENTRY OF THE ORDER, AGENT WILL PROVIDE MERCHANT AN
IRREVOCABLE STANDBY LETTER OF CREDIT IN FORM AND SUBSTANCE SATISFACTORY TO
MERCHANT IN THE FACE AMOUNT OF ONE AND A HALF MONTHS OF OCCUPANCY EXPENSES FOR
LEASES AND UPON WHICH MERCHANT MAY DRAW UPON FOR ANY UNDISPUTED OCCUPANCY
EXPENSES NOT TIMELY PAID BY AGENT.  THE LETTER OF CREDIT WILL ALLOW FOR PARTIAL
DRAWS.  UPON TERMINATION OF THE MARKETING PERIOD FOR THE LEASES, AND PROVIDED
THAT AGENT HAS PAID ALL AMOUNTS DUE UNDER THIS AGREEMENT WITH RESPECT TO THE
LEASES, MERCHANT SHALL COOPERATE WITH AGENT TO TERMINATE THE LETTER OF CREDIT
DESCRIBED IN THIS SECTION 8.3.

 

SECTION 9.                            INVENTORY TAKING AND VALUATION.

 

9.1                   INVENTORY TAKING

 

(A)  INVENTORY TAKING.  MERCHANT AND AGENT SHALL CAUSE TO BE TAKEN A COST VALUE
PHYSICAL INVENTORY OF THE MERCHANDISE (THE “INVENTORY TAKING”) AT THE STORES AND
THE WAREHOUSE, COMMENCING ON THE DAY THAT THE ORDER IS ENTERED.  THE INVENTORY
TAKING SHALL BE COMPLETED PRIOR TO THE CLOSING DATE.  THE DATE OF THE INVENTORY
TAKING AT EACH STORE AND THE WAREHOUSE SHALL BE THE “INVENTORY DATE” FOR SUCH
STORE OR THE WAREHOUSE (AS THE CASE MAY BE).

 

(B)  COST AND PROCEDURES.  PRIOR TO THE INVENTORY TAKING, MERCHANT AND AGENT
SHALL JOINTLY EMPLOY A MUTUALLY ACCEPTABLE INVENTORY TAKING SERVICE TO CONDUCT
THE INVENTORY TAKING AND MUTUALLY AGREE ON THE WRITTEN DIRECTIONS TO BE GIVEN TO
SUCH SERVICE REGARDING THE CONDUCT OF THE INVENTORY TAKING.  THE AGENT AND
MERCHANT SHALL EACH BE RESPONSIBLE FOR 50% OF THE COSTS AND FEES OF THE
INVENTORY TAKING SERVICE.  EXCEPT AS PROVIDED IN THE IMMEDIATELY PRECEDING
SENTENCE, MERCHANT AND AGENT SHALL BEAR THEIR RESPECTIVE COSTS AND EXPENSES
RELATIVE TO THE INVENTORY TAKING.  MERCHANT AND AGENT SHALL EACH HAVE
REPRESENTATIVES PRESENT DURING THE INVENTORY TAKING, AND SHALL EACH HAVE THE
RIGHT TO REVIEW AND VERIFY THE LISTING AND TABULATION OF THE INVENTORY TAKING
SERVICE.  MERCHANT AGREES THAT DURING THE CONDUCT OF THE INVENTORY TAKING AT
EACH STORE SUCH STORE SHALL BE CLOSED TO THE PUBLIC AND NO SALES OR OTHER
TRANSACTIONS SHALL BE CONDUCTED.  THE PROCEDURES TO BE USED IN THE CONDUCT OF
THE INVENTORY TAKING AND ITS VERIFICATIONS ARE SET FORTH ON EXHIBIT 9.1 ATTACHED
HERETO.  IN ORDER TO FACILITATE THE INVENTORY TAKING, MERCHANT AGREES TO MAKE
ITS COST FILES AND RELATED COMPUTER HARDWARE AND SOFTWARE AVAILABLE TO AGENT AND
THE INVENTORY TAKING SERVICE COMMENCING PRIOR TO THE INVENTORY DATE.

 

9.2                   MERCHANDISE.

 

(A)  AS USED IN THIS AGREEMENT THE FOLLOWING TERMS HAVE THE RESPECTIVE MEANINGS
SET FORTH BELOW:

 

“Merchandise” means Inventory that is saleable in the ordinary course of
business.

 

“Defective Merchandise” means any item of Merchandise other than used CDs, DVDs,
and videogames saleable in the ordinary course 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 or similar defects
rendering it not first quality, including, but not limited to, such items of
inventory segregated by Merchant and marked “out of stock” in the ordinary
course of business.  Any items that have been segregated to return to vendor
because such items

 

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are damaged or, according to historic practices, should have been so segregated
shall be deemed to be Defective Merchandise.  Items that have been segregated to
return to vendor on account of a return allowance or, according to historic
practices, should have been so segregated shall not be deemed to be Defective
Merchandise.  Display Merchandise shall not per se be deemed to be Defective
Merchandise.

 

“Display Merchandise” shall mean any item of Merchandise that is removed from
its packaging, or installed, affixed or modified for purposes of a sample,
display or of demonstrating its function or design.

 

“Out-of-Date Merchandise” means any Merchandise that will have expired or be
past its expiration date within thirty (30) days of the Closing Date.

 

“Rental Merchandise” means any item of Merchandise, including dvds, videos, and
games that are rented to the public in the ordinary course of business.

 

9.3                   VALUATION.  FOR PURPOSES OF THIS AGREEMENT “COST VALUE” OF
MERCHANDISE SHALL MEAN THE WEIGHTED AVERAGE COST OF MERCHANDISE USING METHODS
AND ASSUMPTIONS HISTORICALLY APPLIED BY MERCHANT IN CALCULATING ITS INVENTORY
VALUE FOR FINANCIAL REPORTING PURPOSES AS REFLECTED ON DOCUMENT PROVIDED TO
AGENT ON SEPTEMBER 5, 2003 WITH THE INVENTORY FILENAME “INVENTORY AS OF
073103.MDB” EXCEPT THAT (A) THE COST VALUE OF RENTAL MERCHANDISE SHALL BE
DETERMINED AS FOLLOWS: DVDS AT $5 PER UNIT, VHS CASSETTES AT $3 PER UNIT, AND
VIDEOGAMES AT $6 PER UNIT; AND (B) THE COST VALUE OF DEFECTIVE MERCHANDISE,
DISPLAY MERCHANDISE, AND OUT-OF-DATE MERCHANDISE SHALL BE THE PRICE MUTUALLY
AGREED UPON BY MERCHANT AND AGENT, PROVIDED THAT ANY ADJUSTMENT TO THE COST
VALUE OF THE MERCHANDISE ON ACCOUNT OF DEFECTIVE MERCHANDISE, DISPLAY
MERCHANDISE, OR OUT-OF-DATE MERCHANDISE SHALL NOT EXCEED $500,000.

 

SECTION 10.                     STORE CLOSING SALE TERM; MARKETING PERIOD FOR
PROPERTIES.

 

10.1             TERM.  SUBJECT TO THE SATISFACTION OF THE CONDITIONS PRECEDENT
SET FORTH IN SECTION 16 HEREOF, THE STORE CLOSING SALE SHALL COMMENCE ON THE
CLOSING DATE (THE “SALE COMMENCEMENT DATE”).  THE AGENT SHALL COMPLETE THE STORE
CLOSING SALE WITHIN NINETY (90) DAYS OF THE SALE COMMENCEMENT DATE, UNLESS
TERMINATED EARLIER IN ACCORDANCE WITH THE LAST SENTENCE OF THIS SECTION 10.1
(THE “SALE TERMINATION DATE”; THE PERIOD FROM THE SALE COMMENCEMENT DATE TO THE
SALE TERMINATION DATE AS TO EACH STORE BEING THE “SALE TERM”).  THE AGENT MAY,
IN ITS DISCRETION, TERMINATE THE STORE CLOSING SALE AT ANY STORE AT ANY TIME
WITHIN THE SALE TERM (I) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT BY MERCHANT,
OR (II) UPON NOT LESS THAN FIVE (15) DAYS’ PRIOR WRITTEN NOTICE TO MERCHANT.

 

10.2             VACATING THE STORES.  AT THE CONCLUSION OF EACH STORE CLOSING
SALE AND/OR AT THE END OF THE MARKETING PERIOD FOR ANY LEASE, AGENT AGREES TO
RELINQUISH POSSESSION, INCLUDING

 

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RETURNING ANY KEYS TO MERCHANT, OF THE APPLICABLE STORE OR WAREHOUSE, AND LEAVE
SUCH STORES IN “BROOM CLEAN” CONDITION, ORDINARY WEAR AND TEAR EXCEPTED, EXCEPT
FOR REMAINING SUPPLIES AND UNSOLD ITEMS OF FF&E, WHICH REMAINING SUPPLIES AND
UNSOLD ITEMS OF FF&E MAY BE ABANDONED BY AGENT AT THE CONCLUSION OF EACH STORE
CLOSING SALE.

 

10.3             MARKETING PERIOD.

 

(A)  FOR EACH LEASE, THE PERIOD COMMENCING ON THE CLOSING DATE AND ENDING ON THE
LEASED PROPERTY TERMINATION DATE SHALL BE KNOWN AS THE “MARKETING PERIOD” FOR
SUCH LEASE.

 

(B)  WITH RESPECT TO EACH LEASE, THE “LEASED PROPERTY TERMINATION DATE” SHALL BE
(A) IF A LEASE ASSUMPTION NOTICE IS DELIVERED WITH RESPECT TO A LEASE, THE LATER
TO OCCUR OF (X) THE CLOSING DATE OF THE ASSIGNMENT OF THE LEASE OR (Y) THE DATE
THAT THE COURT DENIES THE APPLICABLE APPROVAL MOTION (IF THE DATE OF ENTRY OF
SUCH ORDER DENYING SUCH APPROVAL ORDER IS MORE THAN SIX MONTHS FOLLOWING THE
CLOSING DATE), OR (B) FOR LEASES THAT ARE NOT THE SUBJECT OF A LEASE ASSUMPTION
NOTICE, THE LATER TO OCCUR OF (X) THE LAST DAY OF THE MONTH IN WHICH AGENT
PROVIDES A DROPOUT NOTICE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, AND
(Y) THE DATE THAT IS SIX MONTHS FOLLOWING THE CLOSING DATE.  NOTWITHSTANDING
ANYTHING SET FORTH HEREIN TO THE CONTRARY, MERCHANT MAY NOT DELIVER A REVOCATION
NOTICE PURSUANT TO SECTION 8.1(C) WITH RESPECT TO ANY LEASE DURING A STORE
CLOSING SALE AT THE STORE COVERED BY SUCH LEASE.

 

10.4                           Gross Rings.  From the Inventory Taking until the
Closing Date, at such Store, Agent and Merchant shall jointly keep (i) a strict
count of gross register receipts less applicable Sales Taxes (“Gross Rings”),
and (ii) cash reports of sales within such Store.  Gross Rings shall be
converted to Cost Value in accordance with Section 9.3 hereof.  All such records
and reports shall be made available to Agent and Merchant during regular
business hours upon reasonable notice.

 

SECTION 11.                     SALE PROCEEDS.

 

11.1             SALE PROCEEDS.  FOR PURPOSES OF THIS AGREEMENT, “SALE PROCEEDS”
SHALL MEAN THE AGGREGATE OF (A) THE TOTAL AMOUNT (IN DOLLARS) OF ALL SALES,
COLLECTIONS, LIQUIDATIONS, DESIGNATIONS, LICENSING, TRANSFERS, ASSIGNMENTS,
DISPOSITIONS AND OTHER MONETIZATION OF OR ON ACCOUNT OF ASSETS SUBSEQUENT TO THE
CLOSING DATE, EXCLUSIVE OF SALES TAXES, INCLUDING, WITHOUT LIMITATION, ALL
PROCEEDS FROM THE STORE CLOSING SALES; (B) ALL PROCEEDS OF MERCHANT’S INSURANCE
FOR LOSS OR DAMAGE TO THE ASSETS OR LOSS OF CASH ARISING FROM EVENTS OCCURRING
AFTER THE CLOSING DATE; (C) ALL PROCEEDS FROM THE SALE OF ADDITIONAL
MERCHANDISE; AND (D) ALL INTEREST ACTUALLY EARNED ON SUCH AMOUNTS.  EXCEPT AS
OUTLINED IN SECTION 4.3, ALL SALE PROCEEDS SHALL BE RETAINED BY OR PAID TO THE
AGENT.

 

11.2             DEPOSIT OF PROCEEDS.

 

(A)  MERCHANDISE AGENCY ACCOUNT.  FROM AND AFTER THE CLOSING DATE, ALL SALE
PROCEEDS AND AMOUNTS COLLECTED IN RESPECT OF SALES TAXES SHALL BE DEPOSITED BY
AGENT IN AGENCY ACCOUNTS ESTABLISHED BY AGENT (THE “AGENCY ACCOUNTS”).  AGENT
MAY, IN ITS DISCRETION, DESIGNATE NEW OR EXISTING ACCOUNTS OF AGENT OR MERCHANT
AS THE AGENCY ACCOUNTS, PROVIDED THAT SUCH ACCOUNTS ARE DEDICATED SOLELY TO THE
DEPOSIT OF SALE PROCEEDS AND THE DISBURSEMENT OF AMOUNTS PAYABLE BY AGENT
HEREUNDER.  AGENT SHALL EXERCISE SOLE SIGNATORY AUTHORITY AND CONTROL WITH
RESPECT TO THE AGENCY ACCOUNTS.  MERCHANT SHALL PROMPTLY UPON AGENT’S REQUEST
EXECUTE AND DELIVER ALL NECESSARY DOCUMENTS TO OPEN AND MAINTAIN THE AGENCY
ACCOUNTS.  TO THE EXTENT THAT AGENT SHALL ELECT TO USE EXISTING ACCOUNTS OF
MERCHANT AS THE AGENCY ACCOUNTS, (A) ALL SALE PROCEEDS DEPOSITED IN SUCH
ACCOUNTS WILL CONSTITUTE THE PROPERTY OF AGENT AND SHALL BE HELD IN TRUST BY
MERCHANT FOR AGENT, (B) COMMENCING ON THE FIRST BUSINESS DAY FOLLOWING THE
CLOSING DATE, AND ON EACH BUSINESS DAY THEREAFTER, MERCHANT SHALL PAY TO AGENT
BY WIRE FUNDS TRANSFER ALL COLLECTED FUNDS CONSTITUTING SALE PROCEEDS DEPOSITED
IN SUCH ACCOUNTS, AND (C) UPON REQUEST,

 

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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 FEES AND CHARGES,
INCLUDING WIRE TRANSFER CHARGES, RELATED TO THE AGENCY ACCOUNTS, WHETHER
RECEIVED DURING OR AFTER THE SALE TERM.

 

(B)  CREDIT CARD SALE PROCEEDS.  AGENT SHALL HAVE THE RIGHT (BUT NOT THE
OBLIGATION) TO USE MERCHANT’S CREDIT CARD FACILITIES (INCLUDING MERCHANT’S
CREDIT CARD TERMINALS AND PROCESSOR(S), CREDIT CARD PROCESSOR CODING, MERCHANT
IDENTIFICATION NUMBER(S) AND EXISTING BANK ACCOUNTS) FOR CREDIT CARD SALE
PROCEEDS.  IN THE EVENT THAT AGENT ELECTS SO TO USE MERCHANT’S CREDIT CARD
FACILITIES, MERCHANT SHALL PROCESS CREDIT CARD TRANSACTIONS ON BEHALF OF AGENT
AND FOR AGENT’S ACCOUNT, APPLYING CUSTOMARY PRACTICES AND PROCEDURES.  WITHOUT
LIMITING THE FOREGOING, MERCHANT SHALL COOPERATE WITH AGENT TO DOWN-LOAD DATA
FROM ALL CREDIT CARD TERMINALS EACH DAY DURING THE SALE TERM AND TO EFFECT
SETTLEMENT WITH MERCHANT’S CREDIT CARD PROCESSOR(S), AND SHALL TAKE SUCH OTHER
ACTIONS NECESSARY TO PROCESS CREDIT CARD TRANSACTIONS ON BEHALF OF AGENT UNDER
MERCHANT’S MERCHANT IDENTIFICATION NUMBER(S).  ALL CREDIT CARD SALE PROCEEDS
WILL CONSTITUTE THE PROPERTY OF THE AGENT AND SHALL BE HELD BY MERCHANT IN TRUST
FOR AGENT.  MERCHANT SHALL DEPOSIT ALL CREDIT CARD SALE PROCEEDS INTO A
DESIGNATED ACCOUNT AND SHALL TRANSFER SUCH SALE PROCEEDS TO AGENT DAILY (ON THE
DATE RECEIVED BY MERCHANT IF RECEIVED PRIOR TO 12:00 NOON, OR OTHERWISE WITHIN
ONE BUSINESS DAY) BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS.  AT AGENT’S
REQUEST, MERCHANT SHALL COOPERATE WITH AGENT TO ESTABLISH MERCHANT
IDENTIFICATION NUMBERS UNDER AGENT’S NAME TO ENABLE AGENT TO PROCESS ALL CREDIT
CARD SALE PROCEEDS FOR AGENT’S ACCOUNT.  MERCHANT SHALL NOT BE RESPONSIBLE FOR
AND AGENT SHALL PAY AS AN EXPENSE HEREUNDER, ALL CREDIT CARD FEES, CHARGES, AND
CHARGEBACKS RELATED TO THE SALE, WHETHER RECEIVED DURING OR AFTER THE SALE TERM.

 

SECTION 12.                     CONDUCT OF THE STORE CLOSING SALE.

 

12.1             RIGHTS OF AGENT.  FROM AND AFTER THE CLOSING DATE, AGENT SHALL
CONDUCT THE SALE IN THE NAME OF AND ON BEHALF OF MERCHANT IN A COMMERCIALLY
REASONABLE MANNER AND IN COMPLIANCE WITH (I) THE TERMS OF THIS AGREEMENT AND
(II) THE ORDER.  IN CONNECTION THEREWITH AND AS PROVIDED IN THE ORDER, AGENT
SHALL BE PERMITTED TO OPERATE THE STORES ON ANY PROMOTIONAL OR NON-PROMOTIONAL
BASIS AND TO CONDUCT THE STORE CLOSING SALE AS A “STORE CLOSING,” “GOING OUT OF
BUSINESS” OR SIMILAR SALE THROUGHOUT THE SALE TERM.  EXCEPT AS IS NOT PERMITTED
BY THE ORDER, FROM AND AFTER THE CLOSING DATE, AGENT, IN THE EXERCISE OF ITS
SOLE DISCRETION, SHALL HAVE THE RIGHT:

 

(A)  TO ESTABLISH AND IMPLEMENT ADVERTISING, SIGNAGE, AND PROMOTION PROGRAMS
THAT AGENT DEEMS APPROPRIATE, INCLUDING ADVERTISING, SIGNAGE AND PROMOTION
PROGRAMS CONSISTENT WITH A “STORE CLOSING” OR “GOING OUT OF BUSINESS” THEME
(INCLUDING, WITHOUT LIMITATION, BY MEANS OF MEDIA ADVERTISING, BANNERS, A-FRAME,
AND SIMILAR INTERIOR AND EXTERIOR SIGNS);

 

(B)  TO ESTABLISH MERCHANDISE PRICES AND STORE HOURS;

 

(C)  UNLESS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, TO USE WITHOUT
CHARGE ALL FF&E, MOTOR VEHICLES, ADVERTISING MATERIALS, BANK ACCOUNTS,
STORE-LEVEL CUSTOMER LISTS AND MAILING LISTS, COMPUTER HARDWARE AND SOFTWARE,
SUPPLIES, 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);

 

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(D)  TO TRANSFER MERCHANDISE BETWEEN STORES AND/OR BETWEEN THE STORES AND THE
WAREHOUSE, PROVIDED, HOWEVER THAT NO TRANSFER OF MERCHANDISE FROM THE WAREHOUSE
SHALL OCCUR PRIOR TO THE DATE OF THE WAREHOUSE INVENTORY TAKING; AND

 

(E)  TO THE EXTENT PROVIDED IN SECTION 7.2 OF THE AGREEMENT, TO USE (I)
MERCHANT’S CENTRAL OFFICE FACILITIES, POS SYSTEMS, CENTRAL AND ADMINISTRATIVE
SERVICES AND PERSONNEL TO PROCESS PAYROLL, PERFORM MIS SERVICES, SALES AUDIT AND
CASH RECONCILIATION, AND PROVIDE OTHER CENTRAL OFFICE SERVICES, NECESSARY FOR
THE SALE, AND (II) ONE OFFICE LOCATED AT MERCHANT’S CENTRAL OFFICE FACILITY.

 

12.2             SALES AT TWEC STORES.  NOTHING CONTAINED HEREIN SHALL PROHIBIT
TWEC FROM OPERATING THE TWEC STORES AS A GOING CONCERN FROM AND AFTER THE
CLOSING DATE.  AT ANY TIME PRIOR TO THE EXPIRATION OF THE LEASED PROPERTY
TERMINATION DATE WITH RESPECT TO ANY LEASE COVERING A TWEC STORE, TWEC MAY
DIRECT AGENT TO COMMENCE A STORE CLOSING SALE AT SUCH TWEC STORE AND THE
PROVISIONS OF THE ORDER AND THIS AGREEMENT RELATING TO THE STORE CLOSING SALES
GENERALLY SHALL APPLY TO SUCH STORE CLOSING SALE.

 

12.3             TERMS OF SALES TO CUSTOMERS.  ALL SALES OF MERCHANDISE WILL BE
“FINAL SALES” AND “AS IS,” AND ALL ADVERTISEMENTS AND SALES RECEIPTS WILL
REFLECT THE SAME.  ALL SALES WILL BE MADE ONLY FOR CASH, BY APPROVED CHECK, AND
BY BANK CREDIT CARDS CURRENTLY ACCEPTED BY MERCHANT.

 

12.4             SALES TAXES.  FROM AND AFTER THE CLOSING DATE, ALL SALES,
EXCISE, GROSS RECEIPTS AND OTHER TAXES (OTHER THAN TAXES ON INCOME) ATTRIBUTABLE
TO SALES OF MERCHANDISE AT THE SC STORES PAYABLE TO ANY TAXING AUTHORITY HAVING
JURISDICTION (COLLECTIVELY, “SALES TAXES”) SHALL BE ADDED TO THE SALES PRICE OF
MERCHANDISE AT THE SC STORES AND COLLECTED BY AGENT AT THE TIME OF SALE.  THE
AGENT SHALL DRAW CHECKS ON THE AGENCY ACCOUNTS PAYABLE TO THE APPLICABLE TAXING
AUTHORITIES IN THE AMOUNT SO COLLECTED, WHICH SHALL BE DELIVERED TOGETHER WITH
ACCOMPANYING SCHEDULES TO MERCHANT ON A TIMELY BASIS FOR PAYMENT OF TAXES WHEN
DUE.  MERCHANT SHALL PROMPTLY PAY ALL SALES TAXES AND FILE ALL APPLICABLE
REPORTS AND DOCUMENTS REQUIRED BY THE APPLICABLE TAXING AUTHORITIES.  MERCHANT
WILL BE GIVEN ACCESS TO THE COMPUTATION OF GROSS RECEIPTS FOR VERIFICATION OF
ALL SUCH TAX COLLECTIONS.

 

12.5             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 AVAILABLE IN MERCHANT’S
CHAIN, AGENT SHALL HAVE THE RIGHT TO USE SUCH ADDITIONAL SUPPLIES.

 

12.6             NO RETURNS OF MERCHANDISE.  NOTWITHSTANDING MERCHANT’S CURRENT
OR PRIOR PRACTICES AND AS IS CONSISTENT WITH THE ORDER, AGENT SHALL NOT BE
REQUIRED TO AND SHALL NOT ACCEPT RETURNS OF GOODS SOLD BY MERCHANT FROM THE
STORES PRIOR TO THE CLOSING DATE.

 

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SECTION 13.                     SALE RECONCILIATION.  ON EACH WEDNESDAY DURING
THE SALE TERM, COMMENCING ON THE SECOND WEDNESDAY AFTER THE CLOSING DATE, AGENT
AND MERCHANT SHALL COOPERATE TO RECONCILE EXPENSES ASSOCIATED WITH THE STORE
CLOSING SALES, GROSS RINGS, AND SALE PROCEEDS ASSOCIATED WITH ADDITIONAL
MERCHANDISE, 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.  WITHIN THIRTY (30) DAYS AFTER THE END OF THE SALE TERM WITH RESPECT TO
ALL STORES, AGENT AND MERCHANT SHALL COMPLETE A FINAL RECONCILIATION OF THE
STORE CLOSING SALE, THE WRITTEN RESULTS OF WHICH SHALL BE CERTIFIED BY MERCHANT
AND AGENT AS A FINAL SETTLEMENT OF ACCOUNTS BETWEEN MERCHANT AND AGENT.  IN
ADDITION, ON EACH WEDNESDAY DURING THE PERIOD FROM THE CLOSING DATE UNTIL THE
END OF THE MARKETING PERIOD WITH RESPECT TO ALL PROPERTIES, COMMENCING ON THE
SECOND WEDNESDAY AFTER THE CLOSING DATE, AGENT AND MERCHANT SHALL COOPERATE TO
RECONCILE EXPENSES NOT ASSOCIATED WITH THE STORE CLOSING SALE 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.  WITHIN THIRTY (30) DAYS AFTER THE
END OF THE MARKETING PERIOD WITH RESPECT TO ALL PROPERTIES, 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 ALL ACCOUNTS BETWEEN MERCHANT AND AGENT.

 

SECTION 14.                     EMPLOYEE MATTERS.

 

14.1             MERCHANT’S EMPLOYEES AT STORES OTHER THAN TWEC STORES.  ON THE
CLOSING DATE, IN CONNECTION WITH THE STORE CLOSING SALES, AGENT WILL USE THOSE
MERCHANT’S STORE-LEVEL EMPLOYEES EMPLOYED AT STORES OTHER THAN TWEC STORES (EACH
SUCH EMPLOYEE, A “RETAINED EMPLOYEE”).  MERCHANT SHALL NOT BE OBLIGATED TO PAY
BONUSES OR INCREASE COMPENSATION OF ANY EMPLOYEE IN ORDER TO RETAIN EMPLOYEES
AND BOTH PARTIES ACKNOWLEDGE THAT MERCHANT MAY NOT BE ABLE TO RETAIN EMPLOYEES
THAT AGENT WISHES TO USE AS RETAINED EMPLOYEES.  RETAINED EMPLOYEES SHALL AT ALL
TIMES REMAIN EMPLOYEES OF MERCHANT, AND SHALL NOT BE CONSIDERED OR DEEMED TO BE
EMPLOYEES OF AGENT.  MERCHANT AND AGENT AGREE THAT EXCEPT TO THE EXTENT THAT
WAGES AND BENEFITS OF RETAINED EMPLOYEES CONSTITUTE EXPENSES HEREUNDER, NOTHING
CONTAINED IN THIS AGREEMENT AND NONE OF AGENT’S ACTIONS TAKEN IN RESPECT OF THE
SALE SHALL BE DEEMED TO CONSTITUTE AN ASSUMPTION BY AGENT OF ANY OF MERCHANT’S
OBLIGATIONS RELATING TO ANY OF MERCHANT’S EMPLOYEES INCLUDING, WITHOUT
LIMITATION, EXCLUDED BENEFITS, WORKER ADJUSTMENT RETRAINING NOTIFICATION ACT
(“WARN ACT”) CLAIMS AND OTHER TERMINATION TYPE CLAIMS AND OBLIGATIONS, OR ANY
OTHER AMOUNTS REQUIRED TO BE PAID BY STATUTE OR LAW; NOR SHALL AGENT BECOME
LIABLE UNDER ANY COLLECTIVE BARGAINING OR EMPLOYMENT AGREEMENT OR BE DEEMED A
JOINT OR SUCCESSOR EMPLOYER WITH RESPECT TO SUCH EMPLOYEES.  OTHER THAN WITH
RESPECT TO EXISTING PLANS, WHICH PLANS WILL BE SOLELY THE OBLIGATION OF
MERCHANT, MERCHANT SHALL NOT, WITHOUT AGENT’S PRIOR WRITTEN CONSENT, RAISE THE
SALARY OR WAGES OR INCREASE THE BENEFITS FOR, OR PAY ANY BONUSES OR MAKE ANY
OTHER EXTRAORDINARY PAYMENTS TO, ANY OF ITS EMPLOYEES ON OR AFTER THE DATE OF
THIS AGREEMENT.

 

14.2             TERMINATION OF RETAINED EMPLOYEES.  AGENT MAY ELECT, IN ITS
SOLE DISCRETION, STOP USING ANY RETAINED EMPLOYEE PRIOR TO THE COMPLETION OF THE
SALE.  IN THE EVENT OF SUCH ELECTION FOR ANY RETAINED EMPLOYEE, AGENT WILL
NOTIFY MERCHANT AT LEAST FIVE (5) DAYS PRIOR THERETO, EXCEPT FOR AN ELECTION
MADE “FOR CAUSE” (SUCH AS DISHONESTY, FRAUD OR BREACH OF EMPLOYEE DUTIES), IN
WHICH EVENT NO PRIOR NOTICE TO MERCHANT SHALL BE REQUIRED, PROVIDED AGENT SHALL
NOTIFY

 

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Merchant as soon as practicable after such election.  From and after the date of
this Agreement and until the Closing Date, Merchant shall not transfer or
dismiss employees of the SC Stores except “for cause” without Agent’s prior
consent, which consent shall not be unreasonably withheld.  Without limiting the
foregoing, Merchant has not distributed, and shall not distribute any notice to
its SC Store employees under the WARN Act without Agent’s prior written
consent.  Agent shall not be liable for expenses relating to Retained Employees
arising from and after the 5th day after giving notice of a termination
election.

 

14.3             PAYROLL MATTERS.  MERCHANT SHALL PROCESS THE BASE PAYROLL FOR
ALL RETAINED EMPLOYEES.  ATTACHED HERETO AS EXHIBIT 14.3 IS A DESCRIPTION OF
MERCHANT’S BASE PAYROLL, RELATED PAYROLL TAXES, WORKER’S COMPENSATION AND
EMPLOYEE BENEFITS, WHICH MERCHANT REPRESENTS IS TRUE AND ACCURATE AS OF THE DATE
HEREOF.

 

14.4             EMPLOYEE RETENTION BONUSES.  IN AGENT’S SOLE DISCRETION, AGENT
AT ITS SOLE COST MAY PAY RETENTION BONUSES (“RETENTION BONUSES”) TO RETAINED
EMPLOYEES WHO DO NOT VOLUNTARILY LEAVE EMPLOYMENT AND ARE NOT TERMINATED “FOR
CAUSE.”  SUCH RETENTION BONUSES SHALL BE ADVANCED BY AGENT TO MERCHANT PRIOR TO
THE DATE PAYABLE AND SHALL BE PROCESSED THROUGH MERCHANT’S PAYROLL SYSTEM.

 

14.5             MERCHANT’S EMPLOYEES AT TWEC STORES.  ON THE CLOSING DATE,
MERCHANT SHALL TERMINATE THOSE EMPLOYEES (“TWEC STORE EMPLOYEES”) EMPLOYED AT
THE TWEC STORES AND WAREHOUSE.  TWEC, IN ITS SOLE AND COMPLETE DISCRETION, SHALL
OFFER EMPLOYMENT TO THE TWEC STORE EMPLOYEES ON TERMS AND CONDITIONS
SUBSTANTIALLY SIMILAR TO THOSE THAT EXISTED AS OF THE CLOSING DATE.

 

SECTION 15.                     REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS.

 

15.1             REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
MERCHANT.  MERCHANT HEREBY REPRESENTS, WARRANTS, COVENANTS AND AGREES IN FAVOR
OF AGENT, UNLESS OTHERWISE SPECIFIED IN THIS SECTION 15, AS OF THE DATE OF THIS
AGREEMENT AND AS OF THE CLOSING DATE, AS FOLLOWS:

 

(A)  GOOD STANDING.  MERCHANT (I) IS A CORPORATION DULY ORGANIZED, VALIDLY
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF ITS ORGANIZATION;
(II) HAS ALL REQUISITE 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 UNTIL THE END OF THE MARKETING PERIOD WITH RESPECT TO ALL PROPERTIES 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.

 

(B)  MOTION.  MERCHANT SHALL USE ITS REASONABLE COMMERCIAL EFFORTS TO OBTAIN THE
ENTRY OF THE ORDER (AS DEFINED BELOW) AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

(C)  DUE AUTHORIZATION; BINDING AGREEMENT.  SUBJECT TO ENTRY OF THE ORDER, 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.  SUBJECT TO ENTRY OF THE ORDER AND
COMPLIANCE (IF REQUIRED) WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT
OF

 

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1976, as amended, 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.  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.  Except for the Order, 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 the
Merchant’s consummation of, the transactions contemplated by this Agreement, and
no consent of any third party which will not be obtained prior to the Closing
Date is required therefor.  No contract or other agreement to which the Merchant
is a party or by which the Merchant is otherwise bound will prevent or impair
the consummation of the Sale and the transactions contemplated by this
Agreement.

 

(D)  COST AND RETAIL PRICE FILES.  MERCHANT HAS MAINTAINED ITS COST AND RETAIL
PRICE FILES IN THE ORDINARY COURSE OF BUSINESS.  ALL COST AND RETAIL PRICE FILES
AND RECORDS SINCE JULY 25, 2003 RELATIVE TO THE MERCHANDISE HAVE BEEN MADE
AVAILABLE TO AGENT.  ALL COST AND RETAIL PRICE FILES AND RECORDS ARE TRUE AND
ACCURATE IN ALL MATERIAL RESPECTS AS TO MERCHANT’S ACTUAL LANDED COST.

 

(E)  MARKDOWNS.  EXCEPT AS SET FORTH ON THE PROMOTIONS SCHEDULE (AS DEFINED
HEREAFTER), AS OF THE CLOSING DATE, ALL NORMAL COURSE PERMANENT MARKDOWNS ON
INVENTORY WILL HAVE BEEN TAKEN ON A BASIS CONSISTENT WITH MERCHANT’S HISTORICAL
PRACTICES AND POLICIES.

 

(F)  PRICE INCREASES.  EXCEPT AS SET FORTH ON THE PROMOTIONS SCHEDULE, SINCE
JULY 25, 2003 THROUGH THE CLOSING DATE, OTHER THAN IN THE ORDINARY COURSE OF
BUSINESS, MERCHANT HAS NOT INCREASED, MARKED UP OR RAISED THE PRICE OF ANY ITEMS
OF INVENTORY, OR REMOVED OR ALTERED ANY TICKETS OR ANY INDICIA OF CLEARANCE
MERCHANDISE, INCLUDING THE ELIMINATION OF POINT OF SALE DISCOUNTS.

 

(G)  SHELF PRICING.  EXCEPT AS SET FORTH ON THE PROMOTIONS SCHEDULE, TO THE BEST
OF MERCHANT’S KNOWLEDGE AND BELIEF, MERCHANT HAS SHELF PRICED OR OTHERWISE
MARKED ALL ITEMS OF INVENTORY RECEIVED AT THE STORES PRIOR TO THE CLOSING DATE,
IN A MANNER CONSISTENT WITH SIMILAR INVENTORY LOCATED AT THE STORES AND IN
ACCORDANCE WITH MERCHANT’S HISTORIC PRACTICES AND POLICIES RELATIVE TO THE
PRICING AND MARKING OF INVENTORY.

 

(H)  TRANSFERS OF INVENTORY.  MERCHANT HAS NOT PURCHASED OR TRANSFERRED ANY
INVENTORY OUTSIDE THE ORDINARY COURSE OF BUSINESS.

 

(I)  HISTORIC SALES AND INVENTORY.  EXHIBIT 15.1(I) ATTACHED HERETO SETS FORTH
HISTORIC SALES AT THE STORES FOR THE 4 MONTHS ENDING AUGUST 31, 2003.

 

(J)  INVENTORY REPLENISHMENT AND MIX AS OF CLOSING DATE.  MERCHANT HAS
REPLENISHED ITS INVENTORY IN A MANNER SUFFICIENT TO MAINTAIN AN INVENTORY MIX
THAT IS SUBSTANTIALLY SIMILAR TO THE INVENTORY MIX AS REPRESENTED BY THE
INVENTORY REPORT DATED AS OF AUGUST 31, 2003, WHICH IS ATTACHED HERETO AS
EXHIBIT 15.1(J).

 

(K)  USE AND OCCUPANCY.  AS OF THE CLOSING DATE, NO EVENT OF DEFAULT OR EVENT
WHICH WITH THE GIVING OF NOTICE, THE PASSAGE OF TIME, OR BOTH HAS OCCURRED ON
THE PART OF THE MERCHANT UNDER ANY LEASE, RECIPROCAL EASEMENT AGREEMENT OR OTHER
OCCUPANCY AGREEMENT WHICH

 

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WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE SALE OTHER THAN DEFAULTS THAT MAY BE
CURED IN ACCORDANCE WITH § 365 OF THE BANKRUPTCY CODE.  FROM AND AFTER THE
CLOSING DATE, SO LONG AS THE REQUIREMENTS OF § 365 OF THE BANKRUPTCY CODE ARE
SATISFIED, 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.

 

(L)  PHYSICAL PLANT.  TO THE BEST OF MERCHANT’S KNOWLEDGE AND BELIEF, MERCHANT
HAS MAINTAINED ALL CASH REGISTERS, HEATING SYSTEMS, AIR CONDITIONING SYSTEMS,
ELEVATORS, ESCALATORS, STORE ALARM SYSTEMS, AND ALL OTHER MECHANICAL DEVICES
USED IN THE ORDINARY COURSE OF OPERATION OF THE STORES.

 

(M)  REQUIRED MERCHANT PAYMENTS.  SINCE THE FILING DATE, MERCHANT HAS PAID AND
IS CURRENT IN THE PAYMENT OF (I) ALL POST-PETITION SELF-INSURED OR MERCHANT
FUNDED EMPLOYEE BENEFIT PROGRAMS FOR EMPLOYEES, INCLUDING HEALTH AND MEDICAL
BENEFITS, WORKER’S COMPENSATION AND INSURANCE AND ALL PROPER CLAIMS MADE OR TO
BE MADE IN ACCORDANCE WITH SUCH PROGRAMS, (II) ALL POST-PETITION CASUALTY,
LIABILITY AND OTHER INSURANCE PREMIUMS, (III) ALL POST-PETITION UTILITIES
PROVIDED TO THE STORES, AND (IV) ALL POST-PETITION APPLICABLE TAXES, WHICH ARE
NOT SUBJECT TO A CURRENT OR PENDING BONA FIDE DISPUTE.

 

(N)  INCREASED COSTS.  SINCE JULY 25, 2003 THROUGH THE CLOSING DATE, MERCHANT
HAS NOT AND SHALL NOT TAKE ANY ACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS
THE RESULT OF WHICH IS TO MATERIALLY INCREASE THE COST OF OPERATING THE SALE,
INCLUDING, WITHOUT LIMITATION, INCREASING SALARIES OR OTHER AMOUNTS PAYABLE TO
EMPLOYEES

 

(O)  LABOR MATTERS.  AS OF THE CLOSING DATE, (I) MERCHANT IS NOT A PARTY TO ANY
COLLECTIVE BARGAINING AGREEMENTS WITH ITS EMPLOYEES, (II) NO LABOR UNIONS
REPRESENT MERCHANT’S EMPLOYEES AT THE STORES, AND (III) THERE ARE CURRENTLY NO
STRIKES, WORK STOPPAGES OR OTHER MATERIAL LABOR DISTURBANCES AFFECTING THE
STORES OR THE WAREHOUSE.

 

(P)  ADVERTISING.  AS OF THE DATE OF THIS AGREEMENT, MERCHANT IS CURRENT IN THE
PAYMENT OF ALL UNDISPUTED ADVERTISING LIABILITIES INCURRED SUBSEQUENT TO THE
FILING DATE.  MERCHANT AGREES THAT IN THE EVENT THAT AGENT RECEIVES NOTICE THAT
ANY SUCH LIABILITY IS OVERDUE OR UNPAID, OR AGENT IS UNABLE TO ADVERTISE THE
SALE WITH ANY NEWSPAPERS, MAGAZINES, RADIO OR TELEVISION STATIONS OR OTHER MEDIA
PROVIDERS WHICH TARGET OR SERVE THE MARKET AREAS OF THE STORES OR IS UNABLE TO
OBTAIN MERCHANT’S CONTRACT RATE WITH ANY SUCH PROVIDER AS A RESULT OF THE
MERCHANT’S FAILURE TO PAY ITS POSTPETITION UNDISPUTED OUTSTANDING BALANCES WITH
SUCH PROVIDERS, MERCHANT SHALL IMMEDIATELY PAY SUCH APPLICABLE BALANCES IN FULL.

 

(Q)  TITLE.

 

(I)             MERCHANT OWNS AND WILL OWN AT ALL TIMES UNTIL SOLD PURSUANT TO
THE TERMS OF THIS AGREEMENT, GOOD AND MARKETABLE TITLE TO ALL OF THE ASSETS AND
MERCHANT SHALL CONVEY THE ASSETS TO AGENT OR ITS DESIGNEE IN ACCORDANCE WITH THE
TERMS OF THIS AGREEMENT FREE AND CLEAR OF ALL LIENS, CLAIMS AND ENCUMBRANCES.
FROM THE DATE HEREOF, MERCHANT SHALL NOT CREATE, INCUR, ASSUME OR SUFFER TO
EXIST ANY SECURITY INTEREST, LIEN OR OTHER CHARGE OR

 

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ENCUMBRANCE UPON OR WITH RESPECT TO ANY OF THE ASSETS OR THE SALE PROCEEDS.

 

(II)          AFTER ENTRY OF THE ORDER, THERE SHALL BE NO LIENS, CLAIMS, OR
ENCUMBRANCES RELATING TO BORROWED MONEY INDEBTEDNESS ON ANY ASSETS.  TO THE BEST
OF MERCHANT’S KNOWLEDGE AND BELIEF, THERE ARE NO PENDING OR THREATENED
CONDEMNATION PROCEEDINGS AFFECTING ANY OF THE PROPERTIES.

 

(R)  RELATIONSHIP WITH AGENT.  MERCHANT’S RELATIONSHIP WITH AGENT IS INTENDED TO
BE SOLELY THAT OF AGENT AND PRINCIPAL, NOT THAT OF JOINT VENTURERS OR PARTNERS.

 

(S)  LEGAL PROCEEDINGS.  OTHER THAN THE PETITION, MATTERS OF RECORD IN
MERCHANT’S CHAPTER 11 CASES, OF AS SET FORTH ON EXHIBIT 15.2(R), SINCE THE
FILING DATE, NO ACTION, ARBITRATION, SUIT, NOTICE, OR LEGAL, ADMINISTRATIVE OR
OTHER PROCEEDING BEFORE ANY COURT OR GOVERNMENTAL BODY HAS BEEN INSTITUTED BY OR
AGAINST MERCHANT OR ANY PROPERTY, OR HAS BEEN SETTLED OR RESOLVED, OR HAS BEEN
THREATENED AGAINST OR AFFECTS MERCHANT OR ANY ASSETS, WHICH IF ADVERSELY
DETERMINED, WOULD GIVE RISE TO A LIEN OR OTHER ENCUMBRANCE ON ANY PROPERTY, OR
HAVE A MATERIAL ADVERSE EFFECT, TAKEN AS A WHOLE, UPON THE PROPERTIES OR UPON
MERCHANT’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE
CONDUCT OF THE SALE.

 

(T)  GOVERNMENTAL CONSENTS AND PERMITS.  OTHER THAN THE ORDER AND FOR
COMPLIANCE, IF APPLICABLE, WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT
OF 1976, AS AMENDED, NO CONSENT, APPROVAL, LICENSE, PERMIT, AUTHORIZATION,
DECLARATION, FILING, REGISTRATION OR OTHER DOCUMENT WITH ANY GOVERNMENT OR
REGULATORY AUTHORITY IS REQUIRED TO BE MADE OR OBTAINED BY THE MERCHANT IN
CONNECTION WITH THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT OR THE
SALE, COLLECTION, LIQUIDATION, DESIGNATION, LICENSE, TRANSFER, ASSIGNMENT,
DISPOSITION AND OTHER MONETIZATION OF OR ON ACCOUNT OF ASSETS.  FURTHERMORE, TO
THE BEST OF MERCHANT’S KNOWLEDGE AND BELIEF, ANY CONSENT, APPROVAL, LICENSE,
PERMIT, AUTHORIZATION, DECLARATION, FILING, REGISTRATION OR OTHER DOCUMENT WITH
ANY GOVERNMENT OR REGULATORY AUTHORITY CURRENTLY HELD BY MERCHANT OR MERCHANT’S
ESTATE FOR USE IN THE SALE, COLLECTION, LIQUIDATION, DESIGNATION, LICENSE,
TRANSFER, ASSIGNMENT, DISPOSITION AND OTHER MONETIZATION OF OR ON ACCOUNT OF
ASSETS REMAINS VALID AND IN FORCE AND EFFECT.  FINALLY, MERCHANT HAS NOT
RECEIVED ANY NOTICE TO THE EFFECT THAT, OR OTHERWISE BEEN ADVISED THAT, MERCHANT
IS NOT IN COMPLIANCE WITH ANY CONSENT, APPROVAL, LICENSE, PERMIT, AUTHORIZATION,
DECLARATION, FILING, REGISTRATION OR OTHER DOCUMENT WITH ANY GOVERNMENT OR
REGULATORY AUTHORITY, WHICH NON-COMPLIANCE WOULD HAVE THE EFFECT OF MATERIALLY
INTERRUPTING, HINDERING OR CREATING AN OBSTACLE TO THE SALE, COLLECTION,
LIQUIDATION, DESIGNATION, LICENSE, TRANSFER, ASSIGNMENT, DISPOSITION AND OTHER
MONETIZATION OF OR ON ACCOUNT OF ASSETS EXCEPT FOR SUCH FAILURES TO COMPLY AS
ARE NOT MATERIAL.

 

(U)  LEASED PROPERTY.

 

(I)  SUBJECT TO ENTRY OF THE ORDER BY THE BANKRUPTCY COURT, MERCHANT HAS, WITH
RESPECT TO THE LEASES, LEASEHOLD TITLE, AND VALID LEASES AS TO ALL OF THE
PROPERTIES, FREE AND CLEAR OF ALL LIENS.

 

(II)  COMPLETE AND CORRECT COPIES OF THE LEASES AND ANY SUBLEASES HAVE BEEN
DELIVERED TO OR MADE AVAILABLE FOR INSPECTION BY AGENT AND NONE OF THE LEASES OR
SUBLEASES HAVE BEEN MODIFIED IN ANY MATERIAL RESPECT EXCEPT TO THE

 

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EXTENT THAT SUCH MODIFICATIONS ARE DISCLOSED BY THE COPIES DELIVERED TO OR MADE
AVAILABLE FOR INSPECTION BY PURCHASER.

 

(V)  WAGES AND SALARY OF TWEC STORE EMPLOYEES.  SINCE JULY 25, 2003, MERCHANT
HAS NOT MATERIALLY INCREASED THE WAGES OR SALARIES, TAKING INTO CONSIDERATION
THE PROVISION OF ANY EMPLOYEE BENEFIT, OF ANY TWEC STORE EMPLOYEE OTHER THAN IN
THE ORDINARY COURSE OF BUSINESS.

 

(W)  VACATION ACCRUAL.  MERCHANT’S EMPLOYEES AT THE STORES AND THE WAREHOUSE
HAVE ACCRUED VACATION IN THE ORDINARY COURSE OF BUSINESS AND AS OF THE CLOSING
DATE, THE AMOUNT OF ACCRUED VACATION PAY OF MERCHANT’S EMPLOYEES AT THE STORES
AND THE WAREHOUSE IS APPROXIMATELY $680,000.

 

15.2             REPRESENTATIONS, WARRANTIES AND COVENANTS OF AGENT.  AGENT
HEREBY REPRESENTS, WARRANTS AND COVENANTS IN FAVOR OF THE MERCHANT AS FOLLOWS:

 

(A)  GOOD STANDING.  EACH MEMBER OF AGENT (I) IS A CORPORATION OR LIMITED
LIABILITY COMPANY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER
THE LAWS OF THE STATE OF ORGANIZATION; (II) HAS ALL REQUISITE POWER AND
AUTHORITY UNDER ITS CHARTER AND BYLAWS TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY; AND (III) IS AND DURING THE SALE TERM WILL CONTINUE TO BE,
DULY AUTHORIZED AND QUALIFIED TO DO BUSINESS AND IN GOOD STANDING IN EACH
JURISDICTION WHERE THE NATURE OF ITS BUSINESS OR PROPERTIES REQUIRES SUCH
QUALIFICATION.

 

(B)  DUE AUTHORIZATION.  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
UNDER ITS OPERATING AGREEMENT TO AUTHORIZE THE EXECUTION, DELIVERY, AND
PERFORMANCE OF THE AGENCY DOCUMENTS.  EACH OF THE AGENCY DOCUMENTS HAS BEEN DULY
EXECUTED AND DELIVERED BY AGENT AND CONSTITUTES THE LEGAL, VALID AND BINDING
OBLIGATION OF AGENT ENFORCEABLE IN ACCORDANCE WITH ITS TERMS.  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)  LEGAL PROCEEDINGS.  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.

 

(D)  RELATIONSHIP WITH MERCHANT.  THE RELATIONSHIP BETWEEN MERCHANT AND AGENT IS
SOLELY THAT OF AGENT AND PRINCIPAL, NOT THAT OF JOINT VENTURERS OR PARTNERS.

 

(E)  REQUIRED NUMBER OF LEASE ASSUMPTIONS.  ON OR PRIOR TO THE DATE THAT IS SIX
(6) MONTHS FOLLOWING THE CLOSING DATE, NOT LESS THAN SEVENTY (70) OF THE LEASES
SHALL BE ASSUMED AND ASSIGNED TO LEASED PROPERTY DESIGNEES.

 

(F)  COMPLIANCE WITH LAW.  AGENT SHALL, AND CAUSE OF ALL OF ITS EMPLOYEES,
AGENTS AND CONSULTANTS TO, USE THE ASSETS, PERFORM THE SALE, AND OPERATE THE
TWEC STORES IN ACCORDANCE WITH THE TERMS OF ALL APPLICABLE LAW, THE ORDER, AND
ANY OTHER ORDER OF THE BANKRUPTCY COURT.

 

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(G)  USE OF ASSETS LOCATED AT CENTRAL OFFICE.  AGENT AGREES TO PROVIDE MERCHANT
AND ITS EMPLOYEES AND AGENTS AND REPRESENTATIVES REASONABLE ACCESS TO AND USE OF
THE ASSETS LOCATED AT THE CENTRAL OFFICE FOR NO COST UNTIL SUCH TIME AS THE
LEASE COVERING THE CENTRAL OFFICE IS REJECTED.

 

(H)  NO MERCHANT LIABILITY FOR GIFT CARDS, GIFT CERTIFICATES, OR STORE CREDITS. 
AGENT AGREES THAT WITH RESPECT TO GIFT CARDS, GIFT CERTIFICATES, OR STORE
CREDITS, AGENT WILL NOT SEEK COMPENSATION, REIMBURSEMENT, INDEMNIFICATION, OR
OTHER RIGHT OF PAYMENT FROM MERCHANT FOR PURPORTED LIABILITIES RELATING TO GIFT
CARDS, GIFT CERTIFICATES, OR STORE CREDITS.

 

(I)  PETTY CASH.  IN CONNECTION WITH THE INVENTORY TAKING AT A STORE, A
DETERMINATION OF ALL CASH LOCATED AT THE STORES AS OF THE CLOSING DATE WILL BE
TAKEN AND AT SUCH TIME, AGENT WILL PAY TO MERCHANT SUCH AMOUNT.

 

SECTION 16.                     COVENANTS OF THE MERCHANT

 

16.1    OPERATIONS PRIOR TO CLOSING DATE.

 

From August 15, 2003 through the Closing Date, the Merchant has operated and
will operate in the ordinary course of business.  Without limiting the
foregoing, from August 15, 2003 through the Closing Date, (i) Merchant has not
conducted and will not conduct any promotions or advertised sales at the Stores
except for promotions contained in newspapers or mailers or radio for goods that
may be replenished at the Store level, all as described in the Promotional
Calendar on Exhibit 16.1 attached hereto; (ii) Merchant has replenished its
Store inventories in the ordinary course, including specifically with respect to
top-50 and other category goods; (iii) all rack jobbers and service vendors have
continued and will continue to service Merchant in the ordinary course;
(iv) Merchant has not and will not return inventory to vendors other than in the
ordinary course of business; (v)  Merchant has not and will not make any
management personnel moves or changes that would be reasonably likely to
materially affect the transactions contemplated hereby; provided that, Agent
acknowledges that Merchant’s employees may terminate their employment and
Merchant shall have no liability to Agent for any voluntary termination; and
(vi) Merchant has not and will not enter into real estate contracts, renew
Leases, enter into Leases, terminate Leases, reject Leases, amend Leases,
consent to the assignment of Leases or grant or terminate any other interests in
any Assets without Agent’s prior written consent, which consent shall not be
unreasonably withheld or delayed.

 

16.2             OPERATION OF BUSINESS FROM AND AFTER CLOSING DATE.

 

After the Closing Date, the Merchant shall operate its business in accordance
with the terms of this Agreement.  Specifically, unless otherwise expressly
permitted by this Agreement, Merchant shall not, without the prior written
consent of Agent (i) order any inventory, (ii) sell any Assets, (iii) grant any
security interests or liens on the Assets or proceeds thereof; or (iv) abandon
any of the Assets.  Merchant shall not reject or cause the rejection of any
Lease except in accordance with the terms of this Agreement.

 

SECTION 17.                     CONDITIONS PRECEDENT TO EFFECTIVENESS

 

17.1             CONDITIONS PRECEDENT TO OBLIGATIONS OF BOTH MERCHANT AND
AGENT.  MERCHANT OR AGENT MAY TERMINATE THIS AGREEMENT IF ANY OF THE FOLLOWING
CONDITIONS PRECEDENT ARE NOT SATISFIED AT THE TIMES OR DURING THE PERIODS
INDICATED AND THE TERMINATION OF THIS AGREEMENT

 

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PURSUANT TO THIS SECTION 17.1 SHALL NOT RESULT IN ANY LIABILITY TO AGENT AND
SHALL NOT RESULT IN ANY LIABILITY OF MERCHANT, PROVIDED, HOWEVER, THAT IF THE
FAILURE OR NON-OCCURRENCE OF ANY OF THE FOLLOWING CONDITIONS ARE THE FAULT OR A
RESULT OF EITHER PARTY’S NON-ACTION OR A FAILURE TO TAKE ANY REASONABLE ACTION,
SUCH PARTY MAY NOT RELY ON THIS SECTION IN ORDER TO TERMINATE THIS AGREEMENT:

 

(A)  ORDER.  ON OR PRIOR TO SEPTEMBER 30, 2003, THE COURT SHALL HAVE ENTERED AN
ORDER (THE “ORDER”) SUBSTANTIALLY IN THE FORM ATTACHED HERETO AS EXHIBIT 17.1(A)
APPROVING THIS AGREEMENT, WHICH ORDER SHALL NOT HAVE BEEN REVERSED, STAYED,
MODIFIED OR AMENDED AND AS TO WHICH (A) THE TIME TO APPEAL OR SEEK REVIEW,
REARGUMENT OR REHEARING HAS EXPIRED AND AS TO WHICH NO APPEAL OR PETITION FOR
CERTIORARI, REVIEW OR REHEARING IS PENDING, OR (B) IF APPEAL, REVIEW,
REARGUMENT, REHEARING OR CERTIORARI OF SUCH ORDER HAS BEEN SOUGHT, SUCH ORDER
HAS BEEN AFFIRMED AND THE REQUEST FOR FURTHER REVIEW, REARGUMENT, REHEARING OR
CERTIORARI HAS EXPIRED, AS A RESULT OF WHICH SUCH ORDER HAS BECOME FINAL AND
NONAPPEALABLE IN ACCORDANCE WITH APPLICABLE LAW.  NOTWITHSTANDING THE FOREGOING
CLAUSE, AGENT, IN ITS SOLE DISCRETION, MAY CLOSE THE TRANSACTIONS CONTEMPLATED
HEREIN PRIOR TO THE ORDER BECOMING FINAL; PROVIDED THAT THE COURT ENTERS AN
ORDER IN FORM AND SUBSTANCE SATISFACTORY TO AGENT APPROVING THIS AGREEMENT AND
AUTHORIZING THE MERCHANT TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, IN
WHICH ORDER THE COURT FINDS THAT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT
WERE NEGOTIATED AT ARMS-LENGTH AND IN GOOD FAITH AND AGENT ACTED IN GOOD FAITH
IN ALL RESPECTS, AND SUCH ORDER IS NOT STAYED PENDING APPEAL.

 

(B)  EXTENSION OF 365(D)(4) DEADLINE.  THE TERMS OF THE ORDER SHALL EXTEND THE
TIME WITHIN WHICH MERCHANT MAY ASSUME OR REJECT THOSE EXECUTORY CONTRACTS OR
UNEXPIRED LEASES OF REAL PROPERTY THAT ARE ASSETS HEREUNDER TO A DATE NO EARLIER
THAN SIX MONTHS FOLLOWING THE CLOSING DATE.

 

(C)  CLOSING DATE.  THE DATE ON WHICH THE CLOSING OF THIS AGREEMENT OCCURS IS
REFERRED TO HEREIN AS THE “CLOSING DATE.”  THE CLOSING DATE SHALL OCCUR AS OF
12:01 A.M. (PREVAILING EASTERN TIME) ON OCTOBER 2, 2002 IF THE ORDER IS
UNSTAYED; OTHERWISE, THE CLOSING DATE SHALL OCCUR AS OF 12:01 A.M. (PREVAILING
EASTERN TIME) ON THE FIRST BUSINESS DAY THE ORDER IS ENTERED AND UNSTAYED,
PROVIDED, HOWEVER, THAT, IN ALL RESPECTS, THE CLOSING DATE SHALL OCCUR AND BE
EFFECTIVE ON OR BEFORE OCTOBER 9, 2003.

 

17.2             ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF AGENT.  AGENT
MAY TERMINATE THIS AGREEMENT IF ANY OF THE FOLLOWING CONDITIONS PRECEDENT ARE
NOT SATISFIED AT THE TIMES OR DURING THE PERIODS INDICATED AND THE TERMINATION
OF THIS AGREEMENT BY AGENT PURSUANT TO THIS SECTION 16.2 SHALL NOT RESULT IN ANY
LIABILITY TO AGENT:

 

(A)  AGENT ACCESS.  PRIOR TO THE CLOSING DATE, MERCHANT SHALL HAVE PROVIDED
AGENT REASONABLE ACCESS TO ALL PRICING AND COST FILES, COMPUTER HARDWARE,
SOFTWARE AND DATA FILES, INTER-STORE TRANSFER LOGS, MARKDOWN SCHEDULES,
INVOICES, STYLE RUNS AND ALL OTHER DOCUMENTS RELATIVE TO THE PRICE, MIX AND
QUANTITIES OF INVENTORY LOCATED AT THE STORES.

 

(B)  AGENT INSPECTION.  PRIOR TO THE CLOSING DATE, MERCHANT SHALL HAVE PROVIDED
AGENT REASONABLE ACCESS TO THE STORES, THE WAREHOUSE AND THE INVENTORY ON THE
DATE IMMEDIATELY PRECEDING THE INVENTORY DATE.

 

(C)  NO BREACH OR DEFAULT.  ALL REPRESENTATIONS AND WARRANTIES OF MERCHANT
HEREUNDER SHALL BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AND NO EVENT OF
DEFAULT BY MERCHANT

 

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SHALL HAVE OCCURRED AT AND AS OF THE DATE, UNLESS SUCH BREACH OR EVENT OF
DEFAULT WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE TRANSACTION.

 

SECTION 18.                     INSURANCE; RISK OF LOSS.

 

18.1             MERCHANT’S LIABILITY INSURANCE.  AS OF THE CLOSING DATE, TWEC
SHALL PROVIDE (AND MERCHANT SHALL HAVE NO OBLIGATION TO PROVIDE) 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, THE
OPERATION OF THE STORES OR WAREHOUSE, AND SHALL CAUSE AGENT AND MERCHANT TO BE
NAMED AN ADDITIONAL NAMED INSURED WITH RESPECT TO ALL SUCH POLICIES.

 

18.2             MERCHANT’S PROPERTY CASUALTY INSURANCE.  MERCHANT WILL PROVIDE
UNTIL THE END OF THE SALE, FIRE, FLOOD, THEFT AND EXTENDED COVERAGE CASUALTY
INSURANCE COVERING THE UNSOLD ASSETS (OTHER THAN ASSETS CONVEYED TO TWEC) IN A
TOTAL AMOUNT EQUAL TO NO LESS THAN THE APPRAISED VALUE THEROF.  FROM AND AFTER
THE CLOSING DATE UNTIL THE END OF THE SALE, ALL SUCH POLICIES WILL NAME AGENT AS
LOSS PAYEE.  IN THE EVENT OF A LOSS TO THE ASSETS ON OR AFTER THE DATE OF THIS
AGREEMENT, THE PROCEEDS OF SUCH INSURANCE ATTRIBUTABLE TO THE ASSETS PLUS ANY
SELF INSURANCE AMOUNTS AND THE AMOUNT OF ANY DEDUCTIBLE (WHICH AMOUNTS SHALL BE
PAID BY MERCHANT), SHALL CONSTITUTE SALE PROCEEDS HEREUNDER.  IN THE EVENT OF
SUCH A LOSS AGENT SHALL HAVE THE SOLE RIGHT TO ADJUST THE LOSS WITH THE
INSURER.  WITHIN TWO (2) DAYS AFTER THE CLOSING DATE, MERCHANT SHALL DELIVER TO
AGENT CERTIFICATES EVIDENCING SUCH INSURANCE SETTING FORTH THE DURATION THEREOF
AND NAMING THE AGENT AS LOSS PAYEE, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO AGENT.  ALL SUCH POLICIES SHALL REQUIRE AT LEAST THIRTY (30)
DAYS PRIOR NOTICE TO THE AGENT OF CANCELLATION, NON-RENEWAL OR MATERIAL CHANGE. 
MERCHANT SHALL NOT MAKE ANY CHANGE IN THE AMOUNT OF ANY DEDUCTIBLES OR SELF
INSURANCE AMOUNTS PRIOR TO THE END OF THE SALE FOR ALL OF THE PROPERTIES WITHOUT
AGENT’S PRIOR WRITTEN CONSENT.

 

18.3             AGENT’S INSURANCE.  AGENT SHALL MAINTAIN AT AGENT’S COST AND
EXPENSE, UNTIL THE END OF THE MARKETING PERIOD FOR ALL OF THE PROPERTIES, IN
SUCH AMOUNTS AS IT CURRENTLY HAS IN EFFECT, COMPREHENSIVE PUBLIC LIABILITY AND
AUTOMOBILE LIABILITY INSURANCE POLICIES COVERING INJURIES TO PERSONS AND
PROPERTY IN OR IN CONNECTION WITH AGENT’S AGENCY AT THE STORES, AND SHALL CAUSE
MERCHANT TO BE NAMED AN ADDITIONAL INSURED WITH RESPECT TO SUCH POLICIES. 
EXHIBIT 17.3 ATTACHED HERETO CONTAINS A DESCRIPTION OF ALL SUCH POLICIES.  PRIOR
TO THE CLOSING DATE, AGENT SHALL DELIVER TO MERCHANT CERTIFICATES EVIDENCING
SUCH INSURANCE POLICIES SETTING FORTH THE DURATION THEREOF AND NAMING MERCHANT
AS AN ADDITIONAL INSURED, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
MERCHANT.  IN THE EVENT OF A CLAIM UNDER ANY SUCH POLICIES AGENT SHALL BE
RESPONSIBLE FOR THE PAYMENT OF ALL DEDUCTIBLES, RETENTIONS OR SELF-INSURED
AMOUNTS THEREUNDER IF SUCH CLAIMS ARE DIRECTLY ATTRIBUTABLE TO THE NEGLIGENCE OF
AGENT.

 

18.4             WORKER’S COMPENSATION INSURANCE.  MERCHANT SHALL AT ALL TIMES
MAINTAIN WORKER’S COMPENSATION INSURANCE (INCLUDING EMPLOYER LIABILITY
INSURANCE) COVERING ALL RETAINED EMPLOYEES IN COMPLIANCE WITH ALL STATUTORY
REQUIREMENTS.  PRIOR TO THE CLOSING DATE, MERCHANT SHALL DELIVER TO AGENT A
CERTIFICATE OF MERCHANT’S INSURANCE BROKER OR CARRIER EVIDENCING SUCH INSURANCE.

 

18.5             RISK OF LOSS.  WITHOUT LIMITING ANY OTHER PROVISION OF THIS
AGREEMENT, MERCHANT ACKNOWLEDGES THAT AGENT IS CONDUCTING THE SALE ON BEHALF OF
MERCHANT SOLELY IN THE CAPACITY OF

 

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AN AGENT, AND THAT IN SUCH CAPACITY (I) AGENT SHALL NOT BE DEEMED TO BE IN
POSSESSION OR CONTROL OF THE STORES OR THE ASSETS LOCATED THEREIN OR ASSOCIATED
THEREWITH, OR OF MERCHANT’S EMPLOYEES LOCATED AT THE STORES, AND (II) EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, AGENT DOES NOT ASSUME ANY OF MERCHANT’S
OBLIGATIONS OR LIABILITIES WITH RESPECT TO ANY OF THE FOREGOING.  MERCHANT AND
AGENT AGREE THAT MERCHANT SHALL BEAR ALL RESPONSIBILITY FOR LIABILITY CLAIMS OF
CUSTOMERS, EMPLOYEES AND OTHER PERSONS ARISING FROM EVENTS OCCURRING AT THE
STORES DURING AND AFTER THE SALE TERM, EXCEPT TO THE EXTENT ANY SUCH CLAIM
ARISES DIRECTLY FROM THE ACTS OR OMISSIONS OF AGENT, OR ITS SUPERVISORS OR
EMPLOYEES LOCATED AT THE STORES (AN “AGENT CLAIM”).  IN THE EVENT OF ANY SUCH
LIABILITY CLAIM OTHER THAN AN AGENT CLAIM, MERCHANT SHALL ADMINISTER SUCH CLAIM
AND SHALL PRESENT SUCH CLAIM TO MERCHANT’S LIABILITY INSURANCE CARRIER IN
ACCORDANCE WITH MERCHANT’S HISTORIC POLICIES AND PROCEDURES, AND SHALL PROVIDE A
COPY OF THE INITIAL DOCUMENTATION RELATING TO SUCH CLAIM TO AGENT.  TO THE
EXTENT THAT MERCHANT AND AGENT AGREE THAT A CLAIM CONSTITUTES AN AGENT CLAIM,
AGENT SHALL ADMINISTER SUCH CLAIM AND SHALL PRESENT SUCH CLAIM TO ITS LIABILITY
INSURANCE CARRIER, AND SHALL PROVIDE A COPY OF THE INITIAL DOCUMENTATION
RELATING TO SUCH CLAIM TO MERCHANT.  IN THE EVENT THAT MERCHANT AND AGENT CANNOT
AGREE WHETHER A CLAIM CONSTITUTES AN AGENT CLAIM, EACH PARTY SHALL PRESENT THE
CLAIM TO ITS OWN LIABILITY INSURANCE CARRIER, AND A COPY OF THE INITIAL CLAIM
DOCUMENTATION SHALL BE DELIVERED TO THE OTHER PARTY.

 

18.6             FORCE MAJEURE.  IF ANY CASUALTY OR ACT OF GOD OR ACT OF
TERRORISM 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 TRANSFER TO TWEC OR
THE SALE AND CONSIDERED TO BE DELETED FROM THIS AGREEMENT AS OF THE DATE OF SUCH
EVENT, AND AGENT AND MERCHANT SHALL HAVE NO FURTHER RIGHTS OR OBLIGATIONS
HEREUNDER WITH RESPECT THERETO; PROVIDED, HOWEVER, THAT (I) THE PROCEEDS OF ANY
INSURANCE ATTRIBUTABLE TO SUCH STORE, SUCH MERCHANDISE AND ANY OTHER ASSETS
LOCATED AT SUCH STORE SHALL CONSTITUTE SALE PROCEEDS HEREUNDER, AND (II) THE
GUARANTEED AMOUNT SHALL BE REDUCED TO ACCOUNT FOR ANY ASSETS ELIMINATED FROM THE
FROM THE TRANSFER TO TWEC OR THE SALE WHICH IS NOT THE SUBJECT OF INSURANCE
PROCEEDS, AND MERCHANT SHALL REIMBURSE AGENT FOR THE AMOUNT THE GUARANTEED
AMOUNT IS SO REDUCED UPON DEMAND BY AGENT.

 

18.7             NON-ASSUMPTION OF LIABILITY.  AGENT SHALL NOT ASSUME ANY DEBT,
LIABILITY OR OBLIGATION OF MERCHANT, EXCEPT AS EXPRESSLY AGREED TO HEREIN.  EVEN
WITH RESPECT TO SUCH EXPRESSLY ASSUMED DEBTS, LIABILITIES AND OBLIGATIONS,
AGENT’S ONLY LIABILITY FOR SUCH AMOUNTS SHALL BE ITS OBLIGATIONS TO MERCHANT
HEREUNDER.  UNDER NO CIRCUMSTANCES SHALL AGENT HAVE ANY DIRECT LIABILITY TO ANY
THIRD PARTY BY VIRTUE OF THIS AGREEMENT, SPECIFICALLY AGENT SHALL NOT HAVE ANY
LIABILITY WHATSOEVER ARISING OUT OF ANY CLAIMS OR CURRENTLY PENDING ACTIONS
REGARDING CLAIMS OF MERCHANT’S EMPLOYEES CONCERNING OVERTIME WAGES ON OR PRIOR
TO THE CLOSING DATE.

 

SECTION 19.                     INDEMNIFICATION.

 

19.1             MERCHANT INDEMNIFICATION.  PROVIDED THAT AGENT MAKES A WRITTEN
DEMAND ON MERCHANT FOR INDEMNIFICATION WITHIN ONE YEAR FOLLOWING THE CLOSING
DATE, MERCHANT SHALL INDEMNIFY AND HOLD AGENT AND THE AGENT AND ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES (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:

 

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(A)  MERCHANT’S MATERIAL BREACH OF OR FAILURE TO COMPLY WITH ANY OF ITS
AGREEMENTS, COVENANTS, REPRESENTATIONS OR WARRANTIES CONTAINED IN ANY AGENCY
DOCUMENT;

 

(B)  ANY FAILURE OF MERCHANT TO PAY TO ITS EMPLOYEES ANY WAGES, SALARIES OR
BENEFITS DUE TO SUCH EMPLOYEES DURING THE SALE TERM;

 

(C)  SUBJECT TO AGENT’S COMPLIANCE WITH ITS OBLIGATIONS UNDER SECTION 12.3
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;

 

(D)  ANY CONSUMER WARRANTY OR PRODUCTS LIABILITY CLAIMS RELATING TO MERCHANDISE;

 

(E)  ANY LIABILITY OR OTHER CLAIMS ASSERTED BY CUSTOMERS (EXCEPT WITH ANY CLAIMS
RELATING TO GIFT CARDS, GIFT CERTIFICATES, OR STORE CREDIT), ANY OF MERCHANT’S
EMPLOYEES, OR ANY OTHER PERSON AGAINST ANY AGENT INDEMNIFIED PARTY (INCLUDING,
WITHOUT LIMITATION, CLAIMS BY EMPLOYEES ARISING UNDER COLLECTIVE BARGAINING
AGREEMENTS, WORKER’S COMPENSATION OR UNDER THE WARN ACT), EXCEPT FOR AGENT
CLAIMS; AND

 

(F)  THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF MERCHANT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES.

 

19.2             AGENT INDEMNIFICATION.  PROVIDED THAT MERCHANT MAKES A WRITTEN
DEMAND ON AGENT FOR INDEMNIFICATION WITHIN ONE YEAR FOLLOWING THE CLOSING DATE,
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:

 

(A)  AGENT’S MATERIAL BREACH OF OR FAILURE TO COMPLY WITH ANY OF ITS AGREEMENTS,
COVENANTS, REPRESENTATIONS OR WARRANTIES CONTAINED IN ANY AGENCY DOCUMENT;

 

(B)  ANY HARASSMENT OR ANY OTHER UNLAWFUL, TORTIOUS OR OTHERWISE ACTIONABLE
TREATMENT OF ANY EMPLOYEES OR AGENTS OF MERCHANT BY AGENT OR ANY OF ITS
REPRESENTATIVES;

 

(C)  ANY CLAIMS BY ANY PARTY ENGAGED BY AGENT AS AN EMPLOYEE OR INDEPENDENT
CONTRACTOR ARISING OUT OF SUCH EMPLOYMENT;

 

(D)  ANY AGENT CLAIMS;

 

(E)  THE ASSUMED LIABILITIES;

 

(F)  THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AGENT OR THE AGENT OR ANY OF
ITS OFFICER, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES; AND

 

(G)  WITH RESPECT TO TWEC STORES ONLY, ANY CLAIMS OR OTHER LIABILITIES ARISING
FROM OR RELATED TO THE OWNERSHIP, USE, CONDITION, OR POLLUTION (ON OR FROM) ANY
ASSETS ON OR AFTER THE CLOSING DATE.

 

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SECTION 20.                     EVENTS OF DEFAULT AND REMEDIES.

 

20.1             EVENTS OF DEFAULT.  THE FOLLOWING SHALL CONSTITUTE “EVENTS OF
DEFAULT” HEREUNDER:

 

(A)  MERCHANT’S OR AGENT’S FAILURE TO PERFORM ANY OF THEIR RESPECTIVE MATERIAL
OBLIGATIONS HEREUNDER;

 

(B)  THE BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY MERCHANT OR AGENT
PROVES UNTRUE IN ANY MATERIAL RESPECT AS OF THE DATE MADE OR THE BREACH OF ANY
COVENANT AT ANY TIME;

 

(C)  PRIOR TO ENTRY OF THE ORDER, THE ENTRY OF AN ORDER OF THE BANKRUPTCY COURT
IN ANY OF THE MERCHANT’S CHAPTER 11 CASES (I) APPOINTING A TRUSTEE UNDER CHAPTER
7 OR CHAPTER 11 OF THE BANKRUPTCY CODE, (II) APPOINTING AN EXAMINER WITH
ENLARGED POWERS RELATING TO THE OPERATION OF THE MERCHANT’S BUSINESS UNDER
SECTION 1106(B) OF THE BANKRUPTCY CODE, (III) DISMISSING ANY OF THE MERCHANT’S
CHAPTER 11 CASES, (IV) CONVERTING ANY OF THE MERCHANT’S CHAPTER 11 CASES TO
CHAPTER 7 CASES OR (V) CONFIRMING A PLAN OF REORGANIZATION OR LIQUIDATION IN ANY
OF THE MERCHANT’S CHAPTER 11 CASES; OR

 

(D)  THE OCCURRENCE AND CONTINUANCE OF A BREACH, DEFAULT OR EVENT OF DEFAULT BY
MERCHANT UNDER ANY PROPERTY SALE AGREEMENT AFTER THE EXPIRATION OF ANY
APPLICABLE CURE PERIOD SET FORTH THEREIN.

 

20.2             REMEDIES.  UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, THE
NON-DEFAULTING PARTY (OR, IN THE CASE OF AN EVENT OF DEFAULT UNDER SECTIONS
20.1(C) OR 20.1(D), AGENT) MAY, IN ITS DISCRETION, UPON FIVE (5) DAYS WRITTEN
NOTICE TO THE OTHER PARTY (UNLESS SUCH OTHER PARTY CURES WITHIN SUCH 5-DAY
PERIOD), (X) ELECT TO TERMINATE THIS AGREEMENT AND ALL OTHER AGENCY DOCUMENTS
WITHOUT LIABILITY AND (Y) EXERCISE ANY AND ALL OTHER RIGHTS AND REMEDIES AT LAW
AND EQUITY.  IN THE EVENT THAT THE MERCHANT FAILS TO IMPLEMENT, AS REQUIRED
UNDER THIS AGREEMENT, THE TRANSFER OF ANY ASSET OR LEASE AT AGENT’S DIRECTION,
AGENT WILL SUFFER MATERIAL AND IRREPARABLE DAMAGE FOR WHICH THERE IS NO ADEQUATE
REMEDY AT LAW, AND AGENT SHALL BE ENTITLED TO THE REMEDIES OF INJUNCTION,
SPECIFIC PERFORMANCE AND OTHER EQUITABLE RELIEF.

 

SECTION 21.                     MISCELLANEOUS.

 

21.1             NOTICES.  ALL NOTICES AND COMMUNICATIONS PROVIDED FOR PURSUANT
TO THIS AGREEMENT SHALL BE IN WRITING, AND SENT BY HAND, BY FACSIMILE, OR A
RECOGNIZED OVERNIGHT DELIVERY SERVICE, AS FOLLOWS:

 

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If to Agent:

 

Trans World Entertainment Corporation
38 Corporate Circle
Albany, NY 12203
Attn:  John Sullivan
Telecopy No. (518) 452-1242

 

 

 

 

 

Hilco Merchant Resources, LLC
One Northbrook Place
5 Revere Drive, Suite 206
Northbrook, IL  60062
Attn:  Jeffrey Linstrom
Telecopy No. (847) 509-1150

 

 

 

 

 

Gordon Brothers Retail Partners, LLC
40 Broad Street
Boston, MA 02109
Attn:  Bradley Snyder

 

 

 

 

 

The Ozer Group LLC
75 Second Avenue
Needham, MA 02494
Attn:  David Peress
Telecopy No. (781) 707-4255

 

 

 

With a copy to:

 

Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, IL  60106
Attn:  Timothy R. Pohl
Telecopy No. (312) 407-0411

 

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If to Merchant: 

 

Wherehouse Entertainment, Inc.
19701 Hamilton Avenue
Torrance, CA 90502
Attn:  Charles Fuertsch
Telecopy No. (650) 965-8300

 

 

 

With a copy to:

 

O’Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071
Attn:  Ben Logan
Telecopy No. (213) 430-6407

 

 

 

 

 

O’Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, CA 90071

Attn:  Suzzanne Uhland

Vicki Nash

Telecopy No. (949) 823-6994

 

21.2             GOVERNING LAW; CONSENT TO JURISDICTION.  THIS AGREEMENT SHALL
BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.  THE PARTIES HERETO AGREE
THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT SHALL BE ADJUDICATED BY THE BANKRUPTCY COURT, AND BY EXECUTION OF THIS
AGREEMENT EACH PARTY HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO THE JURISDICTION
OF THE BANKRUPTCY COURT WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING.

 

21.3             ENTIRE AGREEMENT.  THIS AGREEMENT AND THE EXHIBITS HERETO
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.

 

21.4             AMENDMENTS AND WAIVERS.  NO AMENDMENT, MODIFICATION,
TERMINATION OR WAIVER OF ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGENCY
DOCUMENT SHALL BE EFFECTIVE UNLESS IN A WRITTEN INSTRUMENT EXECUTED BY EACH OF
THE PARTIES HERETO.

 

21.5             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.

 

21.6             SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL INURE TO THE
BENEFIT OF AND BE BINDING UPON AGENT, THE AGENT, AND MERCHANT, AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS, INCLUDING, WITHOUT LIMITATION, ANY
LIQUIDATING TRUSTEE OR POST-CONFIRMATION COMMITTEE IN MERCHANT’S CHAPTER 11
CASE, OR ANY SUCCEEDING CHAPTER 11 OR CHAPTER 7 CASE.

 

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21.7             EXECUTION IN COUNTERPARTS; FACSIMILE SIGNATURES.  THIS
AGREEMENT MAY BE EXECUTED IN TWO (2) OR MORE COUNTERPARTS, EACH OF WHICH SHALL
BE DEEMED AN ORIGINAL AND ALL OF WHICH TOGETHER SHALL CONSTITUTE BUT ONE
AGREEMENT.  THIS AGREEMENT MAY BE EXECUTED BY FACSIMILE, AND EACH SUCH FACSIMILE
SIGNATURE SHALL BE TREATED AS AN ORIGINAL SIGNATURE FOR ALL PURPOSES.

 

21.8             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.

 

21.9             SURVIVAL.  ALL REPRESENTATIONS AND WARRANTIES MADE BY THE
PARTIES HERETO SHALL BE CONTINUING, SHALL BE CONSIDERED TO HAVE BEEN RELIED UPON
BY THE PARTIES AND SHALL SURVIVE THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS
AGREEMENT FOR A PERIOD NOT TO EXCEED SEVEN (7) MONTHS FOLLOWING THE CLOSING DATE
AT WHICH POINT SUCH REPRESENTATIONS AND WARRANTIES SHALL HAVE NO FURTHER FORCE
AND EFFECT.

 

21.10       THIRD PARTY BENEFICIARIES.  THIS AGREEMENT IS SOLELY FOR THE BENEFIT
OF THE PARTIES HERETO, AND NOTHING IN THIS AGREEMENT, WHETHER EXPRESS OR
IMPLIED, IS INTENDED TO CONFER ANY RIGHTS OR REMEDIES ON ANY PERSON OR ENTITY
OTHER THAN MERCHANT, AGENT, AND AGENT.

 

21.11       SECURITY INTEREST.  AS OF THE CLOSING DATE, MERCHANT SHALL GRANT,
PURSUANT TO THE ORDER, AGENT A FIRST PRIORITY SECURITY INTEREST IN THE ASSETS TO
SECURE MERCHANT’S OBLIGATIONS HEREUNDER.

 

21.12       FURTHER ASSURANCES; POWER OF ATTORNEY.  MERCHANT HEREBY AGREES TO
USE ALL REASONABLE EFFORTS AND TO PROCEED WITH DUE DILIGENCE TO CAUSE THE
CONDITIONS TO THE OBLIGATIONS HEREIN SET FORTH TO BE SATISFIED.  MERCHANT HEREBY
AGREES TO EXECUTE AND DELIVER ANY AND ALL FURTHER AGREEMENTS, DOCUMENTS OR
INSTRUMENTS REASONABLY NECESSARY TO EFFECTUATE THIS AGREEMENT.  IMMEDIATELY UPON
THE FILING OF ANY MOTION OR REQUEST TO DISMISS MERCHANT’S CHAPTER 11 CASE OR ANY
SUBSEQUENT CASE OR ANY REQUEST FOR CONFIRMATION OF A PLAN OF REORGANIZATION OR
LIQUIDATION (A) MERCHANT SHALL PROVIDE NOTICE OF THE HEARING THEREON TO AGENT
AND (B) MERCHANT SHALL BE DEEMED TO HAVE GRANTED TO AGENT A POWER OF ATTORNEY TO
TAKE ALL ACTIONS AND SIGN ALL DOCUMENTS ON MERCHANT’S BEHALF THAT ARE NECESSARY
OR DESIRABLE TO PERFECT AGENT’S SECURITY INTEREST GRANTED HEREIN UNDER
APPLICABLE STATE LAW.  ALL POWERS CONFERRED UPON AGENT PURSUANT TO THE PRECEDING
SENTENCE, BEING COUPLED WITH AN INTEREST, SHALL BE IRREVOCABLE UNTIL THE
TERMINATION OF THE MARKETING PERIOD FOR ALL PROPERTIES.

 

21.13       JOINT AND SEVERAL LIABILITY OF PARTNERS .  THE UNDERSIGNED MEMBERS
OF THE AGENT, JOINTLY AND SEVERALLY, GUARANTEE THE PROMPT PAYMENT BY AND
PERFORMANCE OF THE OBLIGATIONS OF, THE AGENT SET FORTH IN THIS AGREEMENT.

 

21.14       AUTHORIZED REPRESENTATIVE OF PARTNERS.  ANTON CARACCIOLO IS HEREBY
DESIGNATED AS AN AUTHORIZED REPRESENTATIVE OF THE AGENT AND THE MERCHANT AND ITS
PERSONNEL ARE HEREBY AUTHORIZED TO RELY ON SUCH AUTHORIZED REPRESENTATIVE OR
SUCH OTHER INDIVIDUALS AS THE AUTHORIZED REPRESENTATIVE MAY INDICATE IN WRITING.

 

[Signature Page Follows]

 

36

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

 

 

WHEREHOUSE ENTERTAINMENT, INC.

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

 

TRANS WORLD ENTERTAINMENT
CORPORATION

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

 

HILCO MERCHANT RESOURCES, LLC

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

 

HILCO REAL ESTATE, LLC

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

 

GORDON BROTHERS RETAIL PARTNERS,
LLC

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

37

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THE OZER GROUP LLC

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

38

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EXHIBIT 5.3(a)

TWEC Use Clause

 

Permitted Use: Only for the retail sale or rental of new and used:

 

(a)          pre-recorded entertainment products, now known or hereafter
developed, including, but not limited to pre-recorded music, video and sound,
records, pre-recorded and blank audio and video tapes and video discs, compact
discs, cassettes, music-related CD ROMs, music-related digital software and
digital downloads and other forms of recorded music, video and sound, compact
disc and record care products, and video recordings; and

 

(b)         the display and sale at retail of audio/video equipment and devices,
now known or hereafter developed for the display, transmission, interception and
reproduction of visual images and/or sound, accessories and/or component parts
such as headphones, jacks and wires; video and computer game hardware and
software; musical instruments and synthesizers; sheet music and music books;
tickets for entertainment events; and other entertainment and related products
sold in substantially all of Tenant’s stores operated under the same trade name
used by Tenant for its business operations in the Leased Premises.  In addition,
Tenant shall be permitted to display and sell, at retail, audio/video equipment
including but not limited to tape players, compact disc players and stereos
provided, that, said audio/video equipment is sold in substantially all of
Tenant’s other stores operated under the same trade name used by Tenant for its
business operations in the Leased Premises; and

 

(c)          the display and sale at retail of related products including, but
not limited to, computer hardware, software, wireless phones, soft drink
coolers, posters, pictures, buttons, stickers, books, magazines, stationary,
cards, games, note pads, stuffed animals, decorated wearing apparel, costume
jewelry, sunglasses, key rings and lighters provided that the related products
are associated with the records, tapes, discs and video recordings sold or
rented from the Leased Premises; and any legal use not prohibited.

 

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