Document:

Exhibit 10.1

 

AGREEMENT OF INDEMNIFICATION

 

This Agreement of
Indemnification (“Agreement”) is made and entered into as of October 22,
2008, by and between Matinee Media Corporation, a Nevada corporation (“Matinee”),
and Robert W. Walker, a resident of the State of Texas (“Walker”).

 

Recitals:

 

Matinee and Walker are
parties, as plaintiffs, to that certain legal proceeding in the United States
District Court for the Western District of Texas, Austin Division, styled
Robert W. Walker and Matinee Media Corporation v. John Wilkins, Voyager
Charters, L.L.C., KMR Aviation, Inc. and Guardian Air Services, L.L.C.
(the “Litigation”).

 

Voyager Charters, L.L.C., a
defendant in the Litigation, has filed a counterclaim against Matinee and
Walker.

 

Matinee and Walker agree
that any and all of the recovery received by either Matinee or Walker pursuant
to the Litigation (the “Proceeds”) will be the property of Walker.

 

In consideration of the
foregoing, Walker is willing to indemnify Matinee and hold it harmless from and
against any and all losses, including expenses, of Matinee related to the
Litigation.

 

The parties agree as
follows:

 

1.             Matinee hereby assigns to Walker all of its right to and
interests in the Proceeds and, subject to paragraph 3 below, will immediately
transfer to Walker any Proceeds Matinee receives.

 

2.             Walker hereby indemnifies and agrees to hold Matinee
harmless (without duplication) from any and all losses that Matinee suffers or
incurs as a result of or relating to the Litigation, including any and all
costs and expenses (including, without limitation, reasonable attorneys fees)
that may be incurred by Matinee relating in any way to the Litigation,
including without limitation the expenses incurred by the Special Committee of
the Board of Directors of Matinee incurred in connection with the Litigation
and this agreement, and in enforcing the terms hereof.

 

3.             Within ten days after written notice by Matinee to
Walker of any losses suffered by Matinee relating to the Litigation described
in paragraph 2 above, with reasonable supporting documentation, Walker agrees
to pay to Matinee all funds that Walker is obligated to pay hereunder.  To the extent Matinee is entitled to payments
from Walker for indemnification pursuant to paragraph 2 above, and such payment
is not made pursuant to this paragraph 3, Matinee may, at its option, set-off
against other sums payable to Walker, or any affiliate of Walker, by Matinee,
or any Proceeds received by Matinee, the indemnification obligation not paid by
Walker.

 

4.             This Agreement shall be binding upon and enforceable by
the successor and assigns of each of the parties hereto.

 

5.             This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, regardless of laws that might
otherwise govern under applicable principles of conflicts of laws thereof.

 

 

6.             This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.

 

	
   

  	
  MATINEE:

  
	
   

  	
   

  
	
   

  	
  MATINEE MEDIA CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  

  	
  /s/ KEVIN W. MISCHNICK

  
	
   

  	
   

  	
  Kevin W. Mischnick,

  
	
   

  	
   

  	
  V. P. and Chief Financial
  Officer

  
	
   

  	
   

  
	
   

  	
  WALKER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ ROBERT W. WALKER

  
	
   

  	
  Robert W. Walker, individually

  

 

2Exhibit 10.1

 

EXECUTION
DRAFT

 

AGENCY AGREEMENT

 

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

 

R E C I T A L S

 

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

 

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

 

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

 

Section 1.               Defined Terms.  The terms set forth below are defined in the Referenced
sections of this Agreement:

 

 

	
  Defined Term

  	
   

  	
  Section Reference

  
	
   

  	
   

  	
   

  
	
  Ad Hoc Note holder Committee

  	
   

  	
  Section 2.4(b)

  
	
  Agency Documents

  	
   

  	
  Section 11.1(b)

  
	
  Agent

  	
   

  	
  Preamble

  
	
  Agent Indemnified Parties

  	
   

  	
  Section 13.1

  
	
  Agent’s Fee

  	
   

  	
  Section 3.1(b)

  
	
  Applicable Cost Value

  	
   

  	
  Section 5.3(a)

  
	
  Applicable General Laws

  	
   

  	
  Section 2(c)

  
	
  Approval Order

  	
   

  	
  Section 2(b)

  
	
  Bankruptcy Case

  	
   

  	
  Recitals

  
	
  Bankruptcy Court

  	
   

  	
  Recitals

  
	
  Bankruptcy Code

  	
   

  	
  Recitals, Section 2(c)

  
	
  Beneficiary

  	
   

  	
  Section 3.4

  
	
  Benefits Cap

  	
   

  	
  Section 4.1(b)

  
	
  Central Service Expenses

  	
   

  	
  Section 4.1(i)

  
	
  Cost File

  	
   

  	
  Section 5.3(a)

  
	
  Cost Factor

  	
   

  	
  Section 11.1(m)

  
	
  Cost Factor Threshold

  	
   

  	
  Section 11.1(m)

  
	
  Cost Value

  	
   

  	
  Section 5.3(a)

  
	
  Court

  	
   

  	
  Section 2(b)

  
	
  Defective Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Designated Deposit Accounts

  	
   

  	
  Sections 7.2(b)

  
	
  DIP Credit Agreement

  	
   

  	
  Section 3.3(b)

  
	
  DIP Orders

  	
   

  	
  Section 2.4(b)

  
	
  Display Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Distribution Center Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Domestic Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Events of Default

  	
   

  	
  Section 14

  
	
  Excluded Benefits

  	
   

  	
  Section 4.1(ii)

  
	
  Excluded Defective Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Excluded Price Adjustments

  	
   

  	
  Section 11.1(m)

  
	
  Expenses

  	
   

  	
  Section 4.1

  
	
  FF&E

  	
   

  	
  Section 5.2(a)

  
	
  Final Inventory Report

  	
   

  	
  Section 3.5

  
	
  GECC

  	
   

  	
  Section 2(b)

  
	
  Global Inventory Adjustment

  	
   

  	
  Section 5.3(b)

  
	
  Gross Rings

  	
   

  	
  Section 6.3

  
	
  Guaranteed Amount

  	
   

  	
  Section 3.1(a)

  
	
  Guaranteed Amount Certificate

  	
   

  	
  Section 3.3(f)

  
	
  Guaranty Percentage

  	
   

  	
  Section 3.1(a)

  
	
  Imported Merchandise

  	
   

  	
  Section 5.2(b)

  
	
  Indenture Trustee

  	
   

  	
  Section 2.4(b)

  
	
  Intercreditor Agreement

  	
   

  	
  Section 2.4(b)

  
	
  Interim DIP Order

  	
   

  	
  Section 2.4(b)

  

 

2

 

	
  Initial Guaranty Payment

  	
   

  	
  Section 3.3(a)

  
	
  Interim Receipt Deadline

  	
   

  	
  Section 5.3(a)

  
	
  Inventory Location

  	
   

  	
  Section 5.1

  
	
  Inventory Taking

  	
   

  	
  Section 5.1(a)

  
	
  Inventory-Taking Service

  	
   

  	
  Section 5.1(a)

  
	
  Inventory-Taking Instructions

  	
   

  	
  Section 5.1(a)

  
	
  Lenders

  	
   

  	
  Section 2(b)

  
	
  Lenders’ Designated Account

  	
   

  	
  Section 3.3(a)

  
	
  Letter of Credit

  	
   

  	
  Section 3.4

  
	
  Liquidation Sale Laws

  	
   

  	
  Section 2(c)

  
	
  Lowest Location Price

  	
   

  	
  Section 11.1(m)

  
	
  Merchandise

  	
   

  	
  Section 5.2(a)

  
	
  Merchandise Threshold

  	
   

  	
  Section 3.1(c)

  
	
  Merchant

  	
   

  	
  Preamble

  
	
  Merchant Consignment Goods

  	
   

  	
  Sections 5.4

  
	
  Noteholders

  	
   

  	
  Section 2.4(b)

  
	
  Notes

  	
   

  	
  Section 2.4(b)

  
	
  Occupancy Expenses

  	
   

  	
  Section 4.1(iii)

  
	
  On-Order Merchandise

  	
   

  	
  Section 5.2

  
	
  Owned FF&E

  	
   

  	
  Section 15.9

  
	
  Payment Date

  	
   

  	
  Section 3.3(a)

  
	
  Petition Date

  	
   

  	
  Recitals, Section 2(b)

  
	
  Proceeds

  	
   

  	
  Section 7.1

  
	
  Recovery Amount

  	
   

  	
  Section 3.1(b)

  
	
  Remaining DC Merchandise

  	
   

  	
  Section 5.1(c)

  
	
  Remaining DC Merchandise Count

  	
   

  	
  Section 5.1(c)

  
	
  Remaining Merchandise

  	
   

  	
  Section 3.2(b)

  
	
  Retail Price

  	
   

  	
  Section 11.1(m)

  
	
  Retained Employee

  	
   

  	
  Section 9.1

  
	
  Retention Bonuses

  	
   

  	
  Section 9.4

  
	
  Returned Defective Merchandise

  	
   

  	
  Section 8.5

  
	
  Returned Merchandise

  	
   

  	
  Section 8.5

  
	
  Returned Merchandise Log

  	
   

  	
  Section 8.5

  
	
  Sale

  	
   

  	
  Recitals

  
	
  Sale Commencement Date

  	
   

  	
  Section 6.1

  
	
  Sale Guidelines

  	
   

  	
  Section 8.1

  
	
  Sale Term

  	
   

  	
  Section 6.1

  
	
  Sale Termination Date

  	
   

  	
  Section 6.1

  
	
  Sales Taxes

  	
   

  	
  Section 8.3

  
	
  Sales Taxes Account

  	
   

  	
  Section 8.3

  
	
  Sharing Threshold

  	
   

  	
  Section 3.1(b)

  
	
  Shipping Variance

  	
   

  	
  Section 5.1(c)

  
	
  Shipping Variance Response

  	
   

  	
  Section 5.1(c)

  
	
  Store(s)

  	
   

  	
  Recitals

  
	
  Store Final Inventory Report

  	
   

  	
  Section 3.5

  
	
  Supplies

  	
   

  	
  Section 8.4

  
	
  WARN Act

  	
   

  	
  Section 9.1

  

 

3

 

Section 2.
Appointment of Agent/Liquidation Sale Laws/Approval Order.  a) Effective upon the entry of the
Approval Order, the Merchant hereby appoints the Agent, and the Agent hereby
agrees to serve, as the Merchant’s exclusive agent for the limited purpose of
conducting the Sale at the Stores and disposing of the Owned FF&E in the
Stores in accordance with the terms and conditions of this Agreement.

 

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

 

4

 

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

 

(c)           Subject to entry of the Approval Order, Agent shall be
authorized to advertise the Sale as a “going-out-of-business”, store closing,” “sale
on everything,” “everything must go,” or similar-themed sale, and the Approval
Order shall provide that Agent shall be required to comply with applicable
federal, state and local laws, regulations and ordinances, including, without
limitation, all laws and regulations relating to advertising, permitting,
privacy, consumer protection, occupational health and safety and the
environment, together with all applicable statutes, rules, regulations and
orders of, and applicable restrictions imposed by, governmental authorities
(collectively, the “Applicable General Laws”), other than all applicable

 

5

 

laws, rules and regulations in respect of “going out of business,” “store
closing” or similar-themed sales (collectively, the “Liquidation Sale Laws”),
provided that such Sale is conducted in accordance with the terms of
this Agreement, the Applicable Sale Guidelines and Approval Order; and provided
further that the Approval Order shall provide that so long as the Sale is
conducted in accordance with the Sale Guidelines and in a safe and professional
manner, Agent shall be deemed to be in compliance with any Applicable General
Laws.

 

Section 3.                                            Consideration to Merchant and Agent.

 

3.1           Payments to
Merchant.

 

(a)           As a guaranty
of Agent’s performance hereunder, Agent guarantees that Merchant shall receive:
(i) ninety-five and one-tenth of one percent (95.1%) (the “Guaranty
Percentage”) of the aggregate Cost Value of the Merchandise included in the
Sale (the “Guaranteed Amount”).

 

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

 

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

 

(d)           The
Guaranteed Amount, Merchant’s Recovery Amount, if any, and the Augment Recovery
Amount, if any, shall be paid in the manner and at the times specified in Section 3.3
below.  The Guaranteed Amount and the
Merchant’s Recovery Amount will be calculated based upon the aggregate Cost
Value of the Merchandise as determined by (A) the final certified report
of the Inventory Taking Service after verification and reconciliation thereof
by Agent and Merchant, (B) the aggregate Cost Value of the Distribution
Center Merchandise and On-Order Merchandise included in the Sale; and (c) amount
of Gross Rings, as adjusted for shrinkage per 

 

6

 

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

 

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

 

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

 

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

 

(b)           After payment of (i) the
Guaranteed Amount in full and (ii) the Merchant’s Recovery Amount, if any,
and all other amounts payable to Merchant from Proceeds hereunder (which shall,
in each case, be subject to GECC’s , the Lenders’, and the Indenture
Trustee’s security interests, liens and claims in respect thereof), all
Merchandise remaining at the Sale Termination Date (the “Remaining
Merchandise”) shall become the property of Agent, free and clear of all
liens, claims and encumbrances of any kind or nature, and the proceeds received
by Agent from the disposition, in a commercially reasonable manner, of such
unsold Merchandise shall constitute Proceeds hereunder.  Notwithstanding the foregoing, Agent shall
exercise commercially reasonable efforts to dispose of all of the Merchandise
during the Sale Term.

 

3.3           Time of Payments.

 

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

 

7

 

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

 

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

 

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

 

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

 

(c)           Agent
shall pay the Merchant’s Recovery Amount and the Augment

 

8

 

Recovery
Amount, if any, as part of the weekly reconciliation conducted pursuant to Section 8.7(a),
subject to the Final Reconciliation under Section 8.7.

 

(d)           All
amounts required to be paid by Agent or Merchant under any provision of this
Agreement shall be made by wire transfer of immediately available funds which
shall be wired by Agent or Merchant, as applicable as, no later as 2:00 p.m.  (Eastern Time) on the date that such payment
is due; provided, however, that all of the information necessary
to complete the wire transfer has been received by Agent or Merchant, as
applicable, by 10:00 a.m. (Eastern Time) on the date that such payment is
due.  In the event that the date on which
any such payment is due is not a business day, then such payment shall be made
by wire transfer on the next business day.

 

(e)           After
the earlier of (i) indefeasible payment in full in cash of all obligations
(or, with respect to both letters of credit and other contingent obligations,
the cash collateralization thereof) owing to the Lenders under the DIP Credit
Agreement and the related documents and the termination of the lending
commitments under the DIP Credit Agreement and (ii) payment in full of the
Guaranteed Amount, Merchant and Agent agree that (A) if at any time during
the Sale Term Merchant holds any undisputed amounts due to Agent as Proceeds
hereunder, Agent may, in its discretion, offset such Proceeds being held by
Merchant against any amounts due and owing to Merchant pursuant to this Section 3.3
or otherwise under this Agreement, and (B) if at any time during the Sale
Term, Agent holds any undisputed amounts due to Merchant under this Agreement;
Agent may, in its discretion, offset such amounts being held by it against any
amounts due and owing by, or required to be paid by, Merchant hereunder.

 

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

 

9

 

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

 

3.4           Security.  In order to secure the Agent’s obligations
under this Agreement, in respect of (x) the payment of the Remaining
Guaranteed Amount and (y) Expenses of the Sale, on the First Installment
Payment Date, Agent shall furnish the Beneficiaries with an irrevocable standby
Letter(s) of Credit naming GECC and Merchant as co-beneficiaries (the “Beneficiaries”)
in the aggregate original face amount equal to the sum of (i) 15% of the
estimated Remaining Guaranteed Amount, plus (ii) two (2)  weeks
estimated Expenses) that would be payable by Merchant, which shall be in the
form of Exhibit 3.4 hereof (collectively, the “Letter of Credit”).  The Letter of Credit shall have an
expiry date of no earlier than sixty days after the Sale Termination Date.  Unless the parties shall have mutually agreed
that they have completed the final reconciliation under this Agreement, then,
at least thirty (30) days prior to the initial or any subsequent expiry date,
the Beneficiaries shall receive an amendment to the Letter of Credit solely
extending (or further extending, as the case may be) the expiry date by at
least sixty (60) days.  If the
Beneficiaries fail to receive such amendment to the Letter of Credit no later
than thirty (30) days before the expiry date, then all amounts hereunder shall
become immediately due and payable and GECC, individually, or the Beneficiaries
collectively, shall be permitted to draw under the Letter of Credit in payment
of amounts owed, and the Beneficiaries shall hold the balance of the amount
drawn under the Letter of Credit as security for amounts that may become due
and payable to Merchant hereunder.  Upon
the indefeasible payment in full in cash of all obligations (or, with respect
to both letters of credit and other contingent obligations, the cash
collateralization thereof) owing to the Lenders under the DIP Credit Agreement
and the related documents and the termination of the lending commitments under
the DIP Credit Agreement, GECC and Agent shall amend the Letter of Credit and
shall name Merchant and the Indenture Trustee as co-beneficiaries (the “Amended
Letter of Credit”), in which case any draws under the Amended Letter of
Credit shall be made jointly by Merchant and the Indenture Trustee.  At Agent’s request (which request shall not
be made more frequently than bi-weekly and shall not cause the Letter of Credit
to be reduced to an amount less than the sum of (i) the unpaid portion of
the Remaining Guaranteed Amount; and (ii) two (2) weeks estimated
Expenses, the Beneficiaries shall take all actions reasonably required to
reduce the amount available to be drawn under the Letter of Credit to an amount
not less than an amount equal to the sum of (A) the aggregate of disputed
and undisputed unpaid portion of the Remaining Guaranteed Amount; plus (B) two
(2) weeks of estimated Expenses of the Sale.  In the event that Agent, after receipt of
five (5) days notice (which notice shall not be required if Agent or any
member of Agent shall

 

10

 

be a debtor under title 11, United States Code), fails to pay the
Remaining Guaranteed Amount, or portion thereof, or any Expenses of the Sale or
other obligations hereunder when due, GECC, individually, or the Beneficiaries,
collectively, may draw on the Letter of Credit in an amount equal to the
unpaid, past due, amount of the Agent’s Payment Obligations hereunder that is
not the subject of a reasonable dispute.

 

3.5           Inventory
Reconciliation.  Within thirty (30)
days after the completion of the Inventory Taking, Merchant and Agent shall
review, reconcile and verify the final report of the aggregate Cost Value of
the Merchandise included in the Stores by the Inventory Taking Service (the “Store
Final Inventory Report”).  Within
fifteen (15) days after the Distribution Occupancy Period, Merchant and Agent
shall review, reconcile and verify the final report of the aggregate Cost Value
of the Merchandise, which shall include the Store Final Inventory Report plus
the Distribution Center Merchandise included in the Sale as determined by Section 5.1(c) hereof
(the “Final Inventory Report”).

 

Section 4.               Expenses
of the Sale.

 

4.1           Expenses.  Agent shall be unconditionally responsible
for all Expenses incurred in conducting the Sale during the Sale Term, which
expenses shall be paid by Agent in accordance with Section 4.2 below.  As used herein, “Expenses” shall mean
the Store-level operating expenses of the Sale which arise during the Sale Term
set forth below:

 

(a)           all payroll and
commissions, if applicable, for all Retained Employees used in conducting the
Sale for actual days/hours worked during the Sale Term as well as
payroll, to the extent retained by Agent for the Sale, for any of Merchant’s
former employees or temporary labor;

 

(b)           actual amounts
payable by Merchant for benefits for Retained Employees (including FICA,
unemployment taxes, workers’ compensation and healthcare insurance, and
vacation benefits that accrue during the Sale Term, but excluding Excluded
Benefits) for Retained Employees used in the Sale, in an amount not to exceed
23.6% of the aggregate base payroll for all Retained Employees in the Stores
(the “Benefits Cap”);

 

(c)           costs of all
security in the Stores (to the extent customarily provided in the Stores)
including, without limitation, security systems, courier and guard service,
building alarm service and alarm service maintenance;

 

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

 

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

 

(f)            [intentionally omitted]

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(n)           any and all costs relating to the processing,
transfer and consolidation of Merchandise between and among the Stores,
including delivery and freight costs, it being understood that Agent shall be
responsible for coordinating such transfer of Merchandise;

 

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

 

(p)           Store trash and snow removal;

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

(i)            “Central Service
Expenses” means costs and expenses for Merchant’s central administrative
services necessary for the Sale, including, but not limited to, MIS services,
payroll processing, cash reconciliation, inventory processing and handling and
data processing and reporting.

 

(ii)           “Excluded
Benefits” means benefits in excess of the Benefits Cap.

 

(iii)          “Occupancy
Expenses” means base rent, percentage rent, HVAC, utilities, CAM, storage
costs, real estate and use taxes, merchant’s association dues and expenses, , a
pro rata portion of property insurance attributable to the Merchandise subject
to the Sale and a pro rata portion of comprehensive public liability insurance
attributable to the Stores personal property leases (including, without
limitation, point of sale equipment), cash register maintenance, building
maintenance and rental for furniture, fixtures and equipment, all of the
foregoing as categorized and reflected on Exhibit 4.1(s) hereto.

 

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

 

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

 

(a)           Agent shall be
responsible for the payment of all Expenses, whether or not there are
sufficient Proceeds collected to pay such Expenses after the payment of the
Guaranteed Amount.  All Expenses incurred
during each week of the Sale (i.e., Sunday through Saturday) shall be paid by
Agent to or on behalf of Merchant, or paid by Merchant and thereafter
reimbursed by Agent as provided for herein, immediately following the weekly
Sale reconciliation by Merchant and Agent pursuant to Section 8.7 below; provided,
however, in the event that the actual amount of an Expense is
unavailable on the date of the reconciliation (such as payroll), Merchant and
Agent shall agree to an estimate of such amounts, which amounts will be
reconciled once the actual amount of such Expense becomes available.  Agent and/or Merchant may review or audit the
Expenses at any time.

 

13

 

(b)           Notwithstanding
anything herein to the contrary, (i) to the extent that Proceeds are
insufficient, Merchant shall not be required to fund or otherwise pay any
Expenses of Sale and (ii) without limitation on Expenses that may be
funded in advance by Agent at Merchant’s reasonable request, to the extent that
Proceeds are insufficient, Agent shall fund, in advance, all payroll and
related expenses for Retained Employees at least two (2) business days
prior to the date that such payments are due by Merchant.

 

Section 5.               Inventory
Valuation; Merchandise.

 

5.1           Inventory Taking.

 

(a)           5.1           Inventory
Taking.

 

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

 

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

 

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

 

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

 

14

 

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

 

(c)           The Agent and Merchant agree that
they will, and agree to cause their respective representatives to, cooperate
and assist in the preparation and the calculation of the aggregate Cost Value
of the Merchandise included in the Sale, including, without limitation, the
making available to the extent necessary of books, records, work papers and
personnel.

 

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

 

5.2           Merchandise
Subject to This Agreement.

 

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

 

15

 

Defective Merchandise; (B) Distribution Center Merchandise; (C) Aged
Merchandise; (D) the Display Merchandise, (E) subject to Merchant’s
exercise of the Internet Exclusion Option, Internet Store Merchandise, and (F) Merchandise
subject to Gross Rings; (ii) On-Order Merchandise received in the
Distribution Centers on or prior to December 5, 2008 (the “DC Receipt
Deadline”).  Notwithstanding the
foregoing, “Merchandise” shall not include: (1) goods which belong to
sublessees, licensees, department lessees, or concessionaires of Merchant; (2) goods
held by Merchant on memo, on consignment, or as bailee; (3) furnishings,
trade fixtures, equipment and/or improvements to real property which are
located in the Stores (collectively, “FF&E”); provided that,
Agent shall be permitted to sell Owned FF&E as set forth in Section 15.9;
(4) Excluded Defective Merchandise; (5) Merchant Consignment Goods; (6) Additional
Agent Merchandise; (7) On-Order Merchandise received in the Distribution
Centers after the Sale Commencement Date and either on or before the DC Receipt
Deadline that Merchant elects to exclude from the Sale, provided that, such
election is made by the Interim Receipt Deadline (“On-Order Election
Deadline”), (9) On-Order Merchandise received in the Distribution
Centers after the DC Receipt Deadline; and (10) to the extent Merchant
exercises the Internet Exclusion Option, the Excluded Internet Merchandise .

 

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

 

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

 

“Defective Merchandise” means any item of Merchandise that is
defective or otherwise not saleable in the ordinary course because it is worn,
scratched, broken, faded, torn, mismatched, tailored or affected by other
similar defenses rendering it not first quality.  Display Merchandise shall not per se be
deemed to be Defective Merchandise.

 

“Display Merchandise” means those items of inventory used in the
ordinary course of business as displays or floor models, including inventory
that has been removed from its original packaging where such items of inventory
have been removed from its original packaging for the purpose of putting such
item on display but not customarily sold or saleable by Merchant, which goods are
not otherwise damaged or defective.  For
the avoidance of doubt, Merchandise created for display and not saleable in the
ordinary course of business shall not constitute Display Merchandise.

 

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

 

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

 

16

 

“Excluded Defective
Merchandise” means those items of Defective Merchandise that are not
saleable in the ordinary course because they are so damaged or defective that
such inventory cannot reasonably be used for their intended purpose.  For the avoidance
of doubt, electronic Display Merchandise without power cords shall constitute
Excluded Defective Merchandise.

 

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

 

“Imported
Merchandise” means items of inventory that are purchased by Merchant from a
manufacturer/vendor located outside the United States and imported into the
United States by Merchant.

 

“On-Order Merchandise”
mean items of inventory that were ordered by Merchant in the ordinary course of
business as identified by SKU on Exhibit 5.2(b)(i) annexed
hereto, which inventory was not received in the Stores or Distribution Centers
as of the Sale Commencement Date, but which may be received in the Distribution
Centers prior to the DC Receipt Deadline.

 

5.3           Valuation.

 

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

 

17

 

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

 

(b)           Other than Excluded
Defective Merchandise, in lieu of any other adjustments to the Cost Value of
Merchandise under this Agreement (e.g., adjustments for
Defective Merchandise, clearance merchandise, mis-mates and near-mates, sample
merchandise and/or Excluded Price Adjustments), the aggregate Cost Value of the
Merchandise shall be adjusted (i.e., reduced)
by means of a single global downward adjustment equal to (i) one percent
(1%) of the sum of (x) the aggregate Cost Value of the Merchandise in the
Stores on the Sale Commencement Date and (y) the aggregate Cost Value of
the On-Order Merchandise included in the Sale; and (ii) one and one half
percent (1.5%) of the aggregate Cost Value of the Distribution Center
Merchandise in the Distribution Centers(s) on the Sale Commencement Date
(as applicable, the “Global Inventory Adjustment”).

 

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

 

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

 

18

 

towards the Guaranteed Amount.

 

5.5           Distribution Center Expenses.

 

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

 

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

 

19

 

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

 

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

 

Section 6.           Sale Term.

 

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

 

20

 

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

 

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

 

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

 

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

 

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

 

21

 

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

 

6.3           Gross Rings.  In the event that the Sale commences at any
Store subject to Inventory Taking prior to the completion of the Inventory
Taking at such Store, then, for the period from the Sale Commencement Date for
such Store until the Inventory Date for such Store, Agent and Merchant shall
jointly keep (i) a strict count of gross register receipts less applicable
Sales Taxes but excluding any prevailing discounts (“Gross Rings”), and (ii) cash
reports of sales within such Store. Agent and Merchant shall keep a strict
count of register receipts and reports to determine the actual Cost Value and
Retail Price of the Merchandise sold by SKU. 
All such records and reports shall be made available to Agent and
Merchant during regular business hours upon reasonable notice.  Any Merchandise included in the Sale using
the Gross Rings shall be included in Merchandise using the Gross Rings method
and, as soon as determinable, Agent shall pay that portion of the Guaranteed
Amount calculated on the Gross Rings basis, to account for shrinkage, on the
basis of 103% of the aggregate Cost Value of the Merchandise (without taking
into account any of Agent’s point of sale discounts or point of sale markdowns)
sold during the Gross Rings period.

 

Section 7.               Sale Proceeds.

 

7.1           Proceeds.  For purposes of this Agreement, “Proceeds”
shall mean the aggregate of (a) the total amount (in dollars) of all sales
of Merchandise made under this Agreement, exclusive of Sales Taxes; and (b) all
proceeds of Merchant’s insurance for loss or damage to Merchandise or loss of
cash arising from events occurring during the Sale Term.  Proceeds shall also include any and all
proceeds received by Agent from the disposition, in a commercially reasonable
manner, of unsold Merchandise at the end of the Sale, whether through salvage,
bulk sale or otherwise.

 

7.2           Deposit of Proceeds.

 

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

 

22

 

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

 

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

 

7.3           Credit Card Proceeds.  Agent shall have the right to use Merchant’s
credit card facilities (including Merchant’s credit card terminals and
processor(s), credit card processor coding, Merchant identification number(s) and
existing bank accounts) for credit card Proceeds relating solely to the
Sale.  In the event that Agent elects to
use Merchant’s credit card facilities, Merchant shall process credit card
transactions on behalf of Agent and for Agent’s account, applying customary
practices and procedures.  To the extent
available, Agent may accept Merchant’s proprietary card.  Without limiting the foregoing, Merchant
shall cooperate with Agent to down-load data from all credit card terminals
each day during the Sale Term and to effect settlement with Merchant’s credit
card processor(s) and shall take such other actions necessary to process
credit card transactions on behalf of Agent under Merchant’s identification
number(s).  At Agent’s request following
the Payment Date and the payment of all amounts then due to Merchant by Agent,
Merchant shall cooperate with Agent to establish Merchant identification
numbers under Agent’s name to enable Agent to process all such credit card
Proceeds for Agent’s account.  Merchant
shall not be responsible for and Agent shall pay as an Expense hereunder, all
credit card fees, charges and chargebacks related to the Sale, whether received
during or after the Sale Term.

 

23

 

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

 

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

 

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

 

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

 

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

 

(c)           so long as such access does
not unreasonably disrupt the business operations of Merchant, to use (i) Merchant’s
central office facilities, central administrative services and personnel to
process payroll, perform MIS and provide other central office services
necessary for the Sale to the extent that such services are normally provided
by Merchant in house, at no additional cost to Agent (except where otherwise
designated as an Expense pursuant to Section 4.1(t) hereof); provided,
however, that, in the event that Agent expressly requests Merchant to
provide services other than those normally provided to the Stores and relating
to the 

 

24

 

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

 

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

 

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

 

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

 

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

 

8.2           Terms of Sales to Customers.

 

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

 

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

 

8.3           Sales Taxes.

 

(a)           During the Sale Term, all
sales, excise, gross receipts and other taxes attributable to sales of
Merchandise, as indicated on Merchant’s point of sale equipment (other than
taxes on income) payable to any taxing authority having jurisdiction
(collectively, “Sales Taxes”) shall be added to the sales price of
Merchandise and Additional Agent Merchandise and collected by Agent, on
Merchant’s behalf, at the time of sale. 
All Sales Taxes shall be deposited into a 

 

25

 

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

 

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

 

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

 

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

 

26

 

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

 

8.6.          [Intentionally Omitted]

 

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

 

8.8           Force Majeure.  If any casualty, act of terrorism, or act of
God prevents or substantially inhibits the conduct of business in the ordinary
course at any Store, such Store and the Merchandise located at such Store
shall, in Agent’s discretion, be eliminated from the Sale and considered to be
deleted from this Agreement as of the date of such event, and Agent and
Merchant shall have no further rights or obligations hereunder with respect
thereto; provided, however, that (i) subject to the terms of
Section 7.1 above, the proceeds of any insurance attributable to such
Merchandise shall constitute Proceeds hereunder, and (ii) the Guaranteed
Amount shall be reduced to account for any Merchandise eliminated from the Sale
which is not the subject of insurance proceeds, and Merchant shall reimburse
Agent for the amount the Guaranteed Amount is so reduced prior to the end of
the Sale Term.

 

27

 

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

 

8.10         Additional Merchandise.

 

(a)           Agent
shall be entitled, at its expense, to include in the Sale at the Stores
additional merchandise procured by Agent which is of like kind, and no lesser
quality to the Merchandise located in the Stores (“Additional Agent
Merchandise”).

 

(b)           At all times and for all
purposes, the Additional Agent Merchandise and its proceeds shall be the
exclusive property of Agent.  The
transactions relating to the Additional Agent Merchandise are, and shall be
construed as, a true consignment from Agent to Merchant.  The Additional Agent Merchandise shall be at
all times subject to the control of Agent.

 

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

 

Section 9.               Employee
Matters.

 

9.1           Merchant’s Employees.  Agent may use Merchant’s employees in the
conduct of the Sale to the extent Agent deems expedient, and Agent may select
and schedule the number and type of Merchant’s employees required for the
Sale.  Agent shall identify any such
employees to be used in connection with the Sale (each such employee, a “Retained
Employee”) prior to the Sale Commencement Date.  Notwithstanding the foregoing, Merchant’s
employees shall at all times remain employees of Merchant.  Agent’s selection and scheduling of Merchant’s
employees shall at all times comply with all applicable laws and regulations.
Merchant and Agent agree that, except to the extent that wages and benefits of
Retained Employees constitute Expenses hereunder, nothing contained in this
Agreement and none of Agent’s actions taken in respect of the Sale shall be
deemed to constitute an assumption by Agent of any of Merchant’s obligations
relating to any of Merchant’s employees including, without limitation, Excluded
Benefits, Worker Adjustment Retraining Notification Act (“WARN Act”)
claims and other termination type claims and obligations, or any other amounts
required to be paid by statute or law; nor shall Agent become liable under any
employment agreement or be deemed a joint or successor employer with respect to
such employees.  Agent shall comply in
the conduct of the Sale with all of Merchant’s employee rules, regulations,
guidelines and policies which have been provided to Agent in writing.  Merchant shall not, without the prior consent
of Agent, raise the salary or wages or increase the benefits for, or pay any
bonuses or other extraordinary payments to, any Store employees prior to the
Sale Termination Date.  Merchant 

 

28

 

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

 

9.2           Termination of Employees.  Agent may in its discretion stop using any
Retained Employee at any time during the Sale, subject to the conditions
provided for herein.  In the event that
Agent desires to cease using any Retained Employee, Agent shall notify Merchant
at least seven (7) days prior thereto, so that Merchant may coordinate the
termination of such employee; provided, however, that, in the
event that Agent determines to cease using an employee “for cause” (which shall
consist of dishonesty, fraud or breach of employee duties), the seven (7) day
notice period shall not apply, provided  further, however,
that Agent shall immediately notify Merchant of the basis for such “cause” so
that Merchant can arrange for termination of such employee.  From and after the date of this Agreement and
until the Sale Termination Date, Merchant shall not transfer or dismiss
employees of the Stores except “for cause” without Agent’s prior consent.  Notwithstanding the foregoing, Agent shall
not have the right to terminate the actual employment of any employee, but
rather may only cease using such employee in the Sale and paying any Expenses
with respect to such employee.

 

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

 

9.4           Employee Retention Bonuses.  Agent may pay, as an Expense, retention
bonuses (“Retention Bonuses”) (which bonuses shall be inclusive of payroll
taxes, but as to which no benefits shall be payable), up to a maximum of ten
percent (10%) of base payroll for all Retained Employees, to such Retained
Employees who do not voluntarily leave employment and are not terminated “for
cause,” as it may determine in its discretion. 
The amount of such Retention Bonuses shall be in an amount to be
determined by Agent, in its discretion, and shall be payable within thirty (30)
days after the Sale Termination Date, and shall be processed through Merchant’s
payroll system.  Agent shall provide
Merchant with a copy of Agent’s Retention Bonus plan within five (5) business
days after the Sale Commencement Date.

 

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

 

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

 

29

 

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

 

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

 

Section 11.             Representations, Warranties
and Covenants.

 

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

 

(a)           each entity comprising
Merchant (i) is a corporation duly organized, validly existing and in good
standing under the laws of the state or province of its formation (except as
may be a result of the commencement and/or pendency of the Merchant’s Chapter
11 Cases; (ii) has all requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
presently conducted; and (iii) is, and during the Sale Term will continue
to be, duly authorized and qualified to do business and in good standing in
each jurisdiction where the nature of its business or properties requires such
qualification, including all jurisdictions in which the Stores are located,
except, in each case, to the extent that the failure to be in good standing or
so qualified could not reasonably be expected to have a material adverse effect
on the ability of Merchant to execute and deliver this Agreement and perform
fully its obligations hereunder.

 

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

 

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

 

30

 

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

 

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

 

(e)           Except with respect to
Merchant’s termination of point of sale events prior to the Sale Commencement
Date in the manner previously disclosed to Agent, Merchant has not marked up or
raised, and shall not up to the Sale Commencement Date mark up or raise, the
price of any items of Merchandise, or removed or altered any tickets or any
indicia of clearance merchandise, except in the ordinary course of business and
except for the effects of the termination of promotional events.

 

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

 

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

 

31

 

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

 

(h)           To the best of Merchant’s
knowledge, all Merchandise is in compliance with all applicable federal, state
or local product safety laws, rules and standards.  Merchant shall provide Agent with its
historic policies and practices, if any, regarding product recalls prior to the
Sale Commencement Date.

 

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

 

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

 

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

 

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

 

32

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)           Agent has the right, power
and authority to execute and deliver each of the Agency Documents to which it
is a party and to perform fully its obligations thereunder.  Agent has taken all necessary actions
required to authorize the execution, delivery and performance of the Agency Documents,
and no further consent or approval is required on the part of Agent for Agent
to enter into and deliver the Agency Documents, to perform its obligations
thereunder and to consummate the Sale. 
Each of the Agency Documents has been duly executed and delivered by the
Agent and constitutes the legal, valid and binding obligation of Agent
enforceable in accordance with its terms. 
No court order or decree of any federal, state or local governmental
authority or regulatory body is in effect that would prevent or impair, or is
required for, Agent’s consummation of the transactions contemplated by this
Agreement (other than the Approval Order), and no consent of any third party
which has not been obtained is required therefor, other than as provided herein.  No contract or other agreement to which Agent
is a party or by which Agent is otherwise bound will prevent or impair the
consummation of the transactions contemplated by this Agreement.

 

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

 

34

 

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

 

Section 12.             Insurance.

 

12.1         Merchant’s Liability
Insurance.  Merchant
shall continue until the Sale Termination Date, in such amounts as it currently
has in effect, all of its liability insurance policies, including, but not
limited to, products liability, comprehensive public liability, auto liability
and umbrella liability insurance, covering injuries to persons and property in,
or in connection with, Merchant’s operation of the Stores and shall endeavor to
cause Agent to be named as an additional named insured (as its interest may
appear) with respect to all such policies. 
Merchant shall deliver to Agent certificates evidencing such insurance
setting forth the duration thereof and naming Agent as an additional named
insured, in form reasonably satisfactory to Agent.  All such policies shall require at least
thirty (30) days’ prior notice to Agent of cancellation, non-renewal or
material change during the Sale Term.  In
the event of a claim under any such policies, Merchant shall be responsible for
the payment of all deductibles, retentions or self-insured amounts thereunder,
unless it is determined that liability arose by reason of the wrongful acts or
omissions or negligence of Agent, or Agent’s employees, independent contractors
or agents (including Merchant’s employees being supervised by Agent).

 

12.2         Merchant’s Casualty
Insurance.  Merchant
will provide throughout the Sale Term, at Agent’s cost as an Occupancy Expense
hereunder, fire, flood, theft and extended coverage casualty insurance covering
the Merchandise in a total amount equal to no less than the retail value
thereof.  From and after the date of this
Agreement until the Sale Termination Date, all such policies will also name
Agent as loss payee (as its interest may appear).  In the event of a loss to the Merchandise on
or after the date of this Agreement, the Proceeds of such insurance
attributable to the Merchandise, plus any self insurance amounts and the amount
of any deductible or self-insured retention (which amounts shall be paid by
Agent as an Expense), shall constitute Proceeds hereunder.  Merchant shall deliver to Agent certificates
evidencing such insurance, setting forth the duration thereof and naming the
Agent as loss payee (as its interest may appear), in form and substance
reasonably satisfactory to Agent.  All
such policies shall require at least thirty (30) days’ prior notice to the
Agent of cancellation, non-renewal or material change during the Sale
Term.  Merchant shall not make any change
in the amount of any deductibles or self insurance amounts prior to the Sale
Termination Date without Agent’s prior written consent.

 

12.3         Agent’s Insurance.  Agent shall maintain as an Expense hereunder
throughout the Sale Term, in such amounts as it currently has in effect,
comprehensive public liability insurance policies covering injuries to persons
and property in or in connection with Agent’s agency at the Stores, and shall
cause Merchant to be named as additional insureds and loss payees with respect
to such policies.  Agent shall deliver to
Merchant certificates evidencing such insurance policies setting forth the
duration thereof and naming Merchant as additional insureds, in form and
substance reasonably satisfactory to Merchant. 
In the event of a claim under any such policies, Agent shall be
responsible for the payment of all deductibles, retentions or self-insured
amounts thereunder, unless it is determined that liability arose by reason of
the wrongful acts or omissions 

 

35

 

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

 

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

 

Section 13.     Indemnification

 

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

 

13.2         Agent Indemnification.  Agent shall indemnify and hold Merchant and
its officers, directors, employees, agents and representatives harmless from
and against all claims, demands, penalties, losses, liability or damage,
including, without limitation, reasonable attorneys’ fees and expenses,
directly or indirectly asserted against, resulting from, or related to: (i) Agent’s
material breach of or failure to comply with any of its agreements, covenants,
representations or warranties contained in any Agency Document; (ii) any
claims by any party engaged by Agent as an employee or independent contractor
arising out of such employment; and (iii) the gross negligence (including
omissions) or willful misconduct of Agent, its officers, directors, employees,
agents or representatives.

 

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

 

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

 

36

 

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

 

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

 

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

 

Section 15.             Miscellaneous.

 

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

 

	
  If
  to the Agent:

  	
  GORDON BROTHERS RETAIL

  
	
   

  	
  PARTNERS, LLC

  
	
   

  	
  101 Huntington Avenue, 10th
  Floor

  
	
   

  	
  Boston, MA 02199

  
	
   

  	
  Attention: Michael Chartock

  
	
   

  	
  Tel: 617-210-7116

  
	
   

  	
  Fax: 617-531-7906

  
	
   

  	
  Email:
  mchartock@gordonbrothers.com

  
	
   

  	
   

  
	
   

  	
  HILCO MERCHANT RESOURCES, LLC

  
	
   

  	
  5 Revere Drive,
  Suite 206

  
	
   

  	
  Northbrook, IL 60062

  
	
   

  	
  Attn: Joseph Malfitano

  
	
   

  	
  Tel: 847-504-3257

  
	
   

  	
  Fax: 847-897-0868

  
	
   

  	
  Email: jmalfitano@hilcotrading.com

  
	
   

  	
   

  
	
   

  	
  SB
  CAPITAL GROUP, LLC

  
	
   

  	
  1010
  Northern Blvd, Suite 340

  
	
   

  	
  Great
  Neck, NY 11021

  
	
   

  	
  Attn:

  	
  Robert
  Raskin

  
	
   

  	
  Tel:

  	
  (516)
  829-2400

  
	
   

  	
  Fax:

  	
  (516)
  829-2404

  
	
   

  	
  Email:
  rraskin@sbcapitalgroup.com

  

 

37

 

	
   

  	
  TIGER
  CAPITAL GROUP, LLC

  
	
   

  	
  84
  State Street, Suite 420

  
	
   

  	
  Boston,
  MA 02109

  
	
   

  	
  Attn:

  	
  Steve
  Goldberger

  
	
   

  	
   

  	
  Dan
  Kane

  
	
   

  	
  Tel:

  	
  (617)
  523-7002

  
	
   

  	
  Fax:

  	
  (617)
  523-3007

  
	
   

  	
  Email:

  	
  sgoldberger@tigercapitalgroup.com

  
	
   

  	
   

  	
  dkane@tigercapitalgroup.com

  
	
   

  	
   

  
	
   

  	
  HUDSON CAPITAL PARTNERS, LLC

  
	
   

  	
  One Gateway Plaza

  
	
   

  	
  Newton Ma 02458

  
	
   

  	
  Attn.: James Schaye and AR Williams

  
	
   

  	
  Tel:

  	
  617-630-1030

  
	
   

  	
  Email:

  	
  JSCHAYE@hudsoncpl.com

  
	
   

  	
   

  
	
   

  	
  GREAT
  AMERICAN GROUP, LLC

  
	
   

  	
  Nine
  Parkway North, Suite 300

  
	
   

  	
  Deerfield,
  IL 60015

  
	
   

  	
  Attn.:
  Mark P. Naughton

  
	
   

  	
  Tel:

  	
  (847)
  444-1400

  
	
   

  	
  Fax:

  	
  (847)
  444-1401

  
	
   

  	
  Email:

  	
  mnaughton@greatamerican.com

  
	
   

  	
   

  
	
   

  	
   

  
	
  With
  a copy to:

  	
  PEPPER
  HAMILTON, LLP

  
	
   

  	
  Hercules
  Plaza

  
	
   

  	
  1313
  North Market Street

  
	
   

  	
  Suite 5100

  
	
   

  	
  Wilmington,
  DE 19801

  
	
   

  	
  Attn:

  	
  David
  Fournier

  
	
   

  	
  Tel:

  	
  (302)
  777-6565

  
	
   

  	
  Fax:

  	
  (302)
  656-8865

  
	
   

  	
  Email:

  	
  fournierd@pepperlaw.com

  
	
   

  	
   

  
	
   

  	
   

  
	
  If
  to the Merchant:

  	
  LINENS
  HOLDING CO.

  
	
   

  	
  6
  Brighton Road

  
	
   

  	
  Clifton,
  NJ 07012

  
	
   

  	
  Attn:

  	
  Michael
  Gries

  
	
   

  	
   

  	
  Dave
  Coder

  
	
   

  	
   

  	
  Scott
  Hurd

  
	
   

  	
  Fax:

  	
  (973)
  836-0309

  
	
   

  	
  Email:

  	
  mgries@cdgco.com

  
	
   

  	
   

  	
  dcoder@lnt.com

  
	
   

  	
   

  	
  shurd@lnt.com

  

 

38

 

	
  With
  a copy to:

  	
  ASSET
  DISPOSITION ADVISORS, LLC

  
	
   

  	
  499
  Park Avenue

  
	
   

  	
  New
  York, NY 10022

  
	
   

  	
  Attn:

  	
  Paul
  Traub

  
	
   

  	
   

  	
  Steven
  Fox

  
	
   

  	
  Tel:

  	
  (212)
  573-9084

  
	
   

  	
  Fax:

  	
  (212) 652-3863

  
	
   

  	
   

  	
   

  
	
   

  	
  RICHARDS,
  LAYTON, & FINGER, P.A.

  
	
   

  	
  920
  N. King Street

  
	
   

  	
  Wilmington,
  DE 19801

  
	
   

  	
  Attn:

  	
  Mark
  D. Collins

  
	
   

  	
   

  	
  Michael
  J. Merchant

  
	
   

  	
  Tel:

  	
  (302)
  651-7700

  
	
   

  	
  Fax:

  	
  (302)
  651-7701

  
	
   

  	
  Email:

  	
  Collins@rlf.com

  
	
   

  	
   

  	
  Merchant@rlf.com

  
	
   

  	
   

  	
   

  
	
   

  	
  GARDERE WYNNE SEWELL LLP

  
	
   

  	
  1601 Elm Street, Suite 3000

  
	
   

  	
  Dallas, TX 75201

  
	
   

  	
  Attn:

  	
  Stephen A. McCartin, Esq.

  
	
   

  	
   

  	
  Randy Ray, Esq.

  
	
   

  	
  Fax:

  	
  (214) 999-3544

  
	
   

  	
  Email:

  	
  smccartin@gardere.com

  
	
   

  	
   

  	
  rray@gardere.com

  
	
   

  	
   

  	
   

  
	
   

  	
  MORGAN, LEWIS & BOCKIUS LLP

  
	
   

  	
  101 Park Avenue

  
	
   

  	
  New York, NY 10178

  
	
   

  	
  Attn:

  	
  Neil E. Herman, Esq.

  
	
   

  	
  Fax:

  	
  (212) 309-6001

  
	
   

  	
  Email:

  	
  nherman@morganlewis.com

  
	
   

  	
   

  
	
   

  	
   

  
	
  If
  to Lenders:

  	
  GENERAL
  ELECTRIC CAPITAL

  
	
   

  	
  CORPORATION

  
	
   

  	
  401
  Merritt 7

  
	
   

  	
  125
  Summer Street, 12th Floor

  
	
   

  	
  Boston,
  MA 02110

  
	
   

  	
  Attention:
  Mark Forti

  
	
   

  	
  Tel:

  	
  (617)
  378-4779

  
	
   

  	
  Fax:

  	
  (617)
  261-1206

  

 

39

 

	
  With
  a copy to:

  	
  BINGHAM
  MCCUTCHEN LLP

  
	
   

  	
  150
  Federal Street

  
	
   

  	
  Boston,
  MA 02110

  
	
   

  	
  Attention: Robert A. J. Barry, Esq.

  
	
   

  	
  Tel:
  (617) 951-8624

  
	
   

  	
  Email:

  	
  raj.barry@bingham.com

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If
  to Indenture Trustee:

  	
  ROPES &
  GRAY LLP

  
	
   

  	
  1211
  Avenue of the Americas

  
	
   

  	
  New
  York, NY 10036-8704

  
	
   

  	
  Attn:

  	
  Mark
  I. Bane, Esq.

  
	
   

  	
   

  	
  Anne
  H. Pak, Esq.

  
	
   

  	
  Tel:

  	
  (212)
  596-9000

  
	
   

  	
  Fax:

  	
  (212)
  596-9090

  
	
   

  	
  Email:

  	
  mark.bane@ropesgray.com

  
	
   

  	
   

  	
  anne.pak@ropesgray.com

  
	
   

  	
   

  	
   

  
	
  If
  to Ad Hoc Noteholders

  	
   

  
	
  Committee:

  	
  KASOWITZ,
  BENSON, TORRES

  
	
   

  	
  &
  FRIEDMAN LLP

  
	
   

  	
  1633
  Broadway

  
	
   

  	
  New
  York, NY 10019

  
	
   

  	
  Attn:

  	
  David
  M. Friedman, Esq.

  
	
   

  	
   

  	
  Adam
  L. Shiff, Esq.

  
	
   

  	
  Tel:

  	
  (212)
  506-1700

  
	
   

  	
  Fax:

  	
  (212)
  506-1800

  
	
   

  	
  Email:

  	
  dfriedman@kasowitz.com

  
	
   

  	
   

  	
  ashiff@kasowitz.com

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If
  to the Official Committee

  	
   

  
	
  of
  Unsecured Creditors:

  	
  OTTERBOURG,
  STEINDLER, HOUSTON

  
	
   

  	
  &
  ROSEN, P.C.

  
	
   

  	
  230
  Park Avenue

  
	
   

  	
  New
  York, NY 10169-0075

  
	
   

  	
  Attn:

  	
  Glenn
  B. Rice, Esq.

  
	
   

  	
  Tel:

  	
  (212)
  661-9829

  
	
   

  	
  Fax:

  	
  (212)
  982-6104

  
	
   

  	
  Email:
  

  	
  grice@oshr.com

  

 

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

 

40

 

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

 

15.3         Entire
Agreement.  This Agreement contains
the entire agreement between the parties hereto with respect to the
transactions contemplated hereby and supersedes and cancels all prior
agreements, including, but not limited to, all proposals, letters of intent or
representations, written or oral, with respect thereto.

 

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

 

15.5         No
Waiver.  No consent or waiver by any
party, express or implied, to or of any breach or default by the other in the
performance of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other party of the same or any other obligation of such party.  Failure on the part of any party to complain
of any act or failure to act by the other party or to declare the other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder.

 

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

 

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

 

15.8         Section Headings.  The headings of sections of this Agreement
are inserted for convenience only and shall not be considered for the purpose
of determining the meaning or legal effect of any provisions hereof.

 

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

 

41

 

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

 

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

 

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

 

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

 

42

 

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

 

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

 

[Signature Pages Follow]

 

43

 

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

 

	
   

  	
  LINENS
  HOLDING CO.,

  
	
   

  	
  On Behalf of
  Itself and its Affiliated Debtors

  
	
   

  	
  and
  Debtors-in-Possession

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ F. DAVID
  CODER

  
	
   

  	
  Name: F.
  David Coder

  
	
   

  	
  Its:       President &
  Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  LINENS
  ‘N THINGS INVESTMENT

  
	
   

  	
  CANADA I
  COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SCOTT M.
  HURD

  
	
   

  	
  Name: Scott
  M. Hurd

  
	
   

  	
  Title:   Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
  GORDON
  BROTHERS RETAIL

  
	
   

  	
  PARTNERS,
  LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ GARY
  KULP

  
	
   

  	
  Name:  Gary
  Kulp

  
	
   

  	
  Title:    Co-President

  
	
   

  	
   

  
	
   

  	
  GREAT
  AMERICAN GROUP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK P.
  NAUGHTON

  
	
   

  	
  Name: Mark
  P. Naughton

  
	
   

  	
  Title:   Senior
  Vice President/General Counsel

  
	
   

  	
   

  
	
   

  	
  HILCO
  MERCHANT RESOURCES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOSEPH
  MALFITANO

  
	
   

  	
  Name:  Joseph
  Malfitano

  
	
   

  	
  Title:   Vice
  President, Assistant General Counsel,

  
	
   

  	
              Member

  
	
   

  	
   

  
	
   

  	
  HUDSON
  CAPITAL PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JAMES L.
  SCHAYE

  
	
   

  	
  Name: James
  L. Schaye

  
	
   

  	
  Title:   President
  and Chief Executive Officer

  

 

44

 

	
   

  	
  SB
  CAPITAL GROUP, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DATHARD
  V. STEELE

  
	
   

  	
  Name:  Dathard
  V. Steele

  
	
   

  	
  Title:    Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
  TIGER
  CAPITAL GROUP, LLC

  
	
   

  	
   

  
	
   

  	
  /s/

  	
  DANIEL M.
  KANE

  
	
   

  	
  By:         Daniel
  M. Kane

  
	
   

  	
  Name:

  
	
   

  	
  Its:          Manager

  
				

 

 

	
  CONSENTED
  AND AGREED TO

  	
   

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

  
	
   

  	
   

  
	
  GENERAL
  ELECTRIC CAPITAL CORPORATION

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name

  	
   

  
	
  Title

  	
   

  
	
   

  	
   

  
	
  CONSENTED
  AND AGREED TO

  	
   

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

  
	
   

  	
   

  
	
  AD HOC
  COMMITTE

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name

  	
   

  
	
  Title

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CONSENTED
  AND AGREED TO

  	
   

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

  
	
   

  	
   

  
	
  THE BANK OF
  NEW YORK

  	
   

  
	
  AS INDENTURE
  TRUSTEE

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name

  	
   

  
	
  Title

  	
   

  

 

45

 

LIST OF OMITTED EXHIBITS

 

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

 

	
  Document 

  	
   

  	
  Description

  
	
   

  	
   

  	
   

  
	
  Exhibit 1A

  	
   

  	
  List of Closing Stores

  
	
  Exhibit 1B

  	
   

  	
  DC List

  
	
  Exhibit 3.1(e)

  	
   

  	
  Inventory Level Remedy Schedule

  
	
  Exhibit 3.4

  	
   

  	
  Form of Agent Letter of Credit

  
	
  Exhibit 4.1(s)

  	
   

  	
  Per Store Per Diem Occupancy Expenses

  
	
  Exhibit 5.1

  	
   

  	
  Inventory Taking Procedures

  
	
  Exhibit 5.2(b)

  	
   

  	
  Distribution Center Merchandise

  
	
  Exhibit 5.2(b)(i)

  	
   

  	
  On Order Merchandise

  
	
  Exhibit 5.6

  	
   

  	
  Canadian Agency Agreement (to be included)

  
	
  Exhibit 6.1(b)

  	
   

  	
  Extension Leases

  
	
  Exhibit 8.1

  	
   

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

  
	
  Exhibit 11.1(c)

  	
   

  	
  List of Permitted Liens

  
	
  Exhibit 11.1(m)

  	
   

  	
  Cost Factor

  
	
  Exhibit 11.1(p)

  	
   

  	
  Transferred Employees

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]