Document:

Exhibit 4.1

 

Counterpart      of 75 Counterparts

 

	
 
    

DUKE ENERGY PROGRESS, LLC

(formerly Duke Energy Progress, Inc.)

 

TO

 

THE BANK OF NEW YORK MELLON

(formerly The Bank of New York (formerly Irving Trust Company))

 

AND

 

TINA D. GONZALEZ

(successor to Frederick G. Herbst, Richard H. West, J.A. Austin, E.J. McCabe,

G. White, D.W. May, J.A. Vaughan, Joseph J. Arney, Wafaa Orfy,

W.T. Cunningham, Douglas J. MacInnes and Ming Ryan)

 

		
as Trustees under Duke Energy Progress, LLC’s Mortgage and   Deed of Trust, dated as of May 1,1940
    

 

 

Eighty-sixth Supplemental Indenture

 

Providing among other things for

First Mortgage Bonds, 3.70% Series due 2046 (Ninety-ninth Series)

Dated as of September 1, 2016

	
 
    

 

Prepared by and Return to:

Hunton & Williams LLP

c/o S. Christina Kwon

200 Park Avenue, 52nd Floor

New York, New York 10166

 

 

EIGHTY-SIXTH SUPPLEMENTAL INDENTURE

 

INDENTURE, dated as of September 1, 2016, by and between DUKE ENERGY PROGRESS, LLC (formerly Duke Energy Progress, Inc.), a limited liability company of the State of North Carolina, whose post office address is 410 South Wilmington Street, Raleigh, North Carolina 27601-1748 (hereinafter sometimes referred to as the “Company”), and THE BANK OF NEW YORK MELLON (formerly The Bank of New York (formerly Irving Trust Company)), a corporation of the State of New York, whose post office address is 101 Barclay Street, New York, New York 10286 (hereinafter sometimes referred to as the “Corporate Trustee”), and TINA D. GONZALEZ (successor to Frederick G. Herbst, Richard H. West, J.A. Austin, E.J. McCabe, G. White, D.W. May, J.A. Vaughan, Joseph J. Arney, Wafaa Orfy, W.T. Cunningham, Douglas J. MacInnes and Ming Ryan), whose post office address is 10161 Centurion Parkway, Jacksonville, Florida 32256 (hereinafter sometimes referred to as the “Individual Trustee”; the Corporate Trustee and the Individual Trustee being hereinafter together sometimes referred to as the “Trustees”), as Trustees under the Mortgage and Deed of Trust, dated as of May 1, 1940 (hereinafter referred to as the “Original Mortgage” and, as supplemented from time to time by the eighty-five supplemental indentures mentioned below, by this Indenture, and by all other indentures, if any, supplemental to the Original Mortgage, hereinafter referred to as the “Mortgage”), which Original Mortgage was executed and delivered by the Company to Irving Trust Company (now The Bank of New York Mellon) and Frederick G. Herbst to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Original Mortgage, reference to which Original Mortgage is hereby made, this Indenture (hereinafter sometimes referred to as the “Eighty-sixth Supplemental Indenture”) being supplemental thereto:

 

WHEREAS, the Original Mortgage was recorded in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, the Original Mortgage was indexed and cross-indexed in the real and chattel mortgage records in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, an instrument, dated as of June 25, 1945, was executed by the Company appointing Richard H. West as Individual Trustee in succession to said Frederick G. Herbst (deceased) under the Original Mortgage, as theretofore supplemented, and by Richard H. West accepting said appointment, which instrument was recorded in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, an instrument, dated as of December 12, 1957, was executed by the Company appointing J.A. Austin as Individual Trustee in succession to said Richard H. West (resigned) under the Original Mortgage, as theretofore supplemented, and by J.A. Austin accepting said appointment, which instrument was recorded in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, an instrument, dated as of April 15, 1966, was executed by the Company appointing E.J. McCabe as Individual Trustee in succession to said J.A. Austin (resigned) under the Original Mortgage, as theretofore supplemented, and by E.J. McCabe accepting said appointment, which instrument was recorded in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, by the Seventeenth Supplemental Indenture mentioned below, the Company, among other things, appointed G. White as Individual Trustee in succession to said E.J. McCabe (resigned), and G. White accepted said appointment; and

 

 

WHEREAS, by the Nineteenth Supplemental Indenture mentioned below, the Company, among other things, appointed D.W. May as Individual Trustee in succession to said G. White (resigned), and D.W. May accepted said appointment; and

 

WHEREAS, by the Thirty-fifth Supplemental Indenture mentioned below, the Company, among other things, appointed J.A. Vaughan as Individual Trustee in succession to said D.W. May (resigned), and J.A. Vaughan accepted said appointment; and

 

WHEREAS, an instrument, dated as of June 27, 1988, was executed by the Company appointing Joseph J. Arney as Individual Trustee in succession to said J.A. Vaughan (resigned) under the Original Mortgage, as theretofore supplemented, and by Joseph J. Arney accepting said appointment, which instrument was recorded in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, by the Forty-fifth Supplemental Indenture mentioned below, the Company, among other things, appointed Wafaa Orfy as Individual Trustee in succession to said Joseph J. Arney (resigned), and Wafaa Orfy accepted said appointment; and

 

WHEREAS, by the Forty-ninth Supplemental Indenture mentioned below, the Company, among other things, appointed W.T. Cunningham as Individual Trustee in succession to said Wafaa Orfy (resigned), and W.T. Cunningham accepted said appointment; and

 

WHEREAS, by the Sixty-sixth Supplemental Indenture mentioned below, the Company, among other things, appointed Douglas J. MacInnes as Individual Trustee in succession to said W.T. Cunningham (resigned), and Douglas J. MacInnes accepted said appointment; and

 

WHEREAS, by the Seventy-sixth Supplemental Indenture mentioned below, the Company, among other things, appointed Ming Ryan as Individual Trustee in succession to said Douglas J. MacInnes (resigned), and Ming Ryan accepted said appointment; and

 

WHEREAS, by the Seventy-ninth Supplemental Indenture mentioned below, the Company, among other things, appointed Tina D. Gonzalez as Individual Trustee in succession to said Ming Ryan (resigned), and Tina D. Gonzalez accepted said appointment; and

 

WHEREAS, such instruments were indexed and cross-indexed in the real and chattel mortgage records in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, effective January 1, 2003, the Company began doing business under the name Progress Energy Carolinas, Inc., without changing the legal name of the Company; and certificates of doing business by the Company under such name were recorded in all counties in the State of North Carolina and South Carolina in which this Eighty-sixth Supplemental Indenture is to be recorded and were filed and indexed and cross-indexed in the real property records in each of such counties; and

 

WHEREAS, effective April 29, 2013, the Company changed its name to Duke Energy Progress, Inc. and evidence of such name change was (i) recorded in all counties in the States of North Carolina and South Carolina in which this Eighty-sixth Supplemental Indenture is to be recorded and (ii) filed and indexed and cross-indexed in the real property records in each of such counties; and

 

WHEREAS, the Company converted its form of organization effective August 1, 2015 from a North Carolina corporation to a North Carolina limited liability company named “Duke Energy Progress, LLC,” and evidence of such conversion was (i) recorded in all counties in the States of North Carolina

 

2

 

and South Carolina in which this Eighty-sixth Supplemental Indenture is to be recorded and (ii) filed and indexed and cross-indexed in the real property records in each of such counties;

 

WHEREAS, by the Original Mortgage, the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the lien of the Original Mortgage any property thereafter acquired intended to be subject to the lien thereof; and

 

WHEREAS, for said purposes, among others, the Company executed and delivered to the Trustees the following supplemental indentures:

 

	
Designation
    	
 
    	
Dated as of
    
	
First Supplemental Indenture
    	
 
    	
January 1, 1949
    
	
Second Supplemental Indenture
    	
 
    	
December 1, 1949
    
	
Third Supplemental Indenture
    	
 
    	
February 1, 1951
    
	
Fourth Supplemental Indenture
    	
 
    	
October 1, 1952
    
	
Fifth Supplemental Indenture
    	
 
    	
March 1, 1958
    
	
Sixth Supplemental Indenture
    	
 
    	
April 1, 1960
    
	
Seventh Supplemental Indenture
    	
 
    	
November 1, 1961
    
	
Eighth Supplemental Indenture
    	
 
    	
July 1, 1964
    
	
Ninth Supplemental Indenture
    	
 
    	
April 1, 1966
    
	
Tenth Supplemental Indenture
    	
 
    	
October 1, 1967
    
	
Eleventh Supplemental Indenture
    	
 
    	
October 1, 1968
    
	
Twelfth Supplemental Indenture
    	
 
    	
January 1, 1970
    
	
Thirteenth Supplemental Indenture
    	
 
    	
August 1, 1970
    
	
Fourteenth Supplemental Indenture
    	
 
    	
January 1, 1971
    
	
Fifteenth Supplemental Indenture
    	
 
    	
October 1, 1971
    
	
Sixteenth Supplemental Indenture
    	
 
    	
May 1, 1972
    
	
Seventeenth Supplemental Indenture
    	
 
    	
May 1, 1973
    
	
Eighteenth Supplemental Indenture
    	
 
    	
November 1, 1973
    
	
Nineteenth Supplemental Indenture
    	
 
    	
May 1, 1974
    
	
Twentieth Supplemental Indenture
    	
 
    	
December 1, 1974
    
	
Twenty-first Supplemental Indenture
    	
 
    	
April 15, 1975
    
	
Twenty-second Supplemental Indenture
    	
 
    	
October 1, 1977
    
	
Twenty-third Supplemental Indenture
    	
 
    	
June 1, 1978
    
	
Twenty-fourth Supplemental Indenture
    	
 
    	
May 15, 1979
    
	
Twenty-fifth Supplemental Indenture
    	
 
    	
November 1, 1979
    
	
Twenty-sixth Supplemental Indenture
    	
 
    	
November 1, 1979
    
	
Twenty-seventh Supplemental Indenture
    	
 
    	
April 1, 1980
    
	
Twenty-eighth Supplemental Indenture
    	
 
    	
October 1, 1980
    
	
Twenty-ninth Supplemental Indenture
    	
 
    	
October 1, 1980
    
	
Thirtieth Supplemental Indenture
    	
 
    	
December 1, 1982
    
	
Thirty-first Supplemental Indenture
    	
 
    	
March 15, 1983
    
	
Thirty-second Supplemental Indenture
    	
 
    	
March 15, 1983
    
	
Thirty-third Supplemental Indenture
    	
 
    	
December 1, 1983
    
	
Thirty-fourth Supplemental Indenture
    	
 
    	
December 15, 1983
    
	
Thirty-fifth Supplemental Indenture
    	
 
    	
April 1, 1984
    
	
Thirty-sixth Supplemental Indenture
    	
 
    	
June 1, 1984
    
	
Thirty-seventh Supplemental Indenture
    	
 
    	
June 1, 1984
    
	
Thirty-eighth Supplemental Indenture
    	
 
    	
June 1, 1984
    
	
Thirty-ninth Supplemental Indenture
    	
 
    	
April 1, 1985
    
	
Fortieth Supplemental Indenture
    	
 
    	
October 1, 1985
    
	
Forty-first Supplemental Indenture
    	
 
    	
March 1, 1986
    
	
Forty-second Supplemental Indenture
    	
 
    	
July 1, 1986
    

 

3

 

	
Designation
    	
 
    	
Dated as of
    
	
Forty-third Supplemental Indenture
    	
 
    	
January 1, 1987
    
	
Forty-fourth Supplemental Indenture
    	
 
    	
December 1, 1987
    
	
Forty-fifth Supplemental Indenture
    	
 
    	
September 1, 1988
    
	
Forty-sixth Supplemental Indenture
    	
 
    	
April 1, 1989
    
	
Forty-seventh Supplemental Indenture
    	
 
    	
August 1, 1989
    
	
Forty-eighth Supplemental Indenture
    	
 
    	
November 15, 1990
    
	
Forty-ninth Supplemental Indenture
    	
 
    	
November 15, 1990
    
	
Fiftieth Supplemental Indenture
    	
 
    	
February 15, 1991
    
	
Fifty-first Supplemental Indenture
    	
 
    	
April 1, 1991
    
	
Fifty-second Supplemental Indenture
    	
 
    	
September 15, 1991
    
	
Fifty-third Supplemental Indenture
    	
 
    	
January 1, 1992
    
	
Fifty-fourth Supplemental Indenture
    	
 
    	
April 15, 1992
    
	
Fifty-fifth Supplemental Indenture
    	
 
    	
July 1, 1992
    
	
Fifty-sixth Supplemental Indenture
    	
 
    	
October 1, 1992
    
	
Fifty-seventh Supplemental Indenture
    	
 
    	
February 1, 1993
    
	
Fifty-eighth Supplemental Indenture
    	
 
    	
March 1, 1993
    
	
Fifty-ninth Supplemental Indenture
    	
 
    	
July 1, 1993
    
	
Sixtieth Supplemental Indenture
    	
 
    	
July 1, 1993
    
	
Sixty-first Supplemental Indenture
    	
 
    	
August 15, 1993
    
	
Sixty-second Supplemental Indenture
    	
 
    	
January 15, 1994
    
	
Sixty-third Supplemental Indenture
    	
 
    	
May 1, 1994
    
	
Sixty-fourth Supplemental Indenture
    	
 
    	
August 15, 1997
    
	
Sixty-fifth Supplemental Indenture
    	
 
    	
April 1, 1998
    
	
Sixty-sixth Supplemental Indenture
    	
 
    	
March 1, 1999
    
	
Sixty-seventh Supplemental Indenture
    	
 
    	
March 1, 2000
    
	
Sixty-eighth Supplemental Indenture
    	
 
    	
April 1, 2000
    
	
Sixty-ninth Supplemental Indenture
    	
 
    	
June 1, 2000
    
	
Seventieth Supplemental Indenture
    	
 
    	
July 1, 2000
    
	
Seventy-first Supplemental Indenture
    	
 
    	
February 1, 2002
    
	
Seventy-second Supplemental Indenture
    	
 
    	
September 1, 2003
    
	
Seventy-third Supplemental Indenture
    	
 
    	
March 1, 2005
    
	
Seventy-fourth Supplemental Indenture
    	
 
    	
November 1, 2005
    
	
Seventy-fifth Supplemental Indenture
    	
 
    	
March 1, 2008
    
	
Seventy-sixth Supplemental Indenture
    	
 
    	
January 1, 2009
    
	
Seventy-seventh Supplemental Indenture
    	
 
    	
June 18, 2009
    
	
Seventy-eighth Supplemental Indenture
    	
 
    	
September 1, 2011
    
	
Seventy-ninth Supplemental Indenture
    	
 
    	
May 1, 2012
    
	
Eightieth Supplemental Indenture
    	
 
    	
March 1, 2013
    
	
Eighty-first Supplemental Indenture
    	
 
    	
June 1, 2013
    
	
Eighty-second Supplemental Indenture
    	
 
    	
March 1, 2014
    
	
Eighty-third Supplemental Indenture
    	
 
    	
November 1, 2014
    
	
Eighty-fourth Supplemental Indenture
    	
 
    	
August 1, 2015
    
	
Eighty-fifth Supplemental Indenture
    	
 
    	
August 1, 2015
    

 

which supplemental indentures (other than said Sixty-fifth Supplemental Indenture and said Sixty-seventh Supplemental Indenture) were recorded in various Counties in the States of North Carolina and South Carolina, and were indexed and cross-indexed in the real and chattel mortgage or security interest records in various Counties in the States of North Carolina and South Carolina; and

 

WHEREAS, no recording or filing of said Sixty-fifth Supplemental Indenture in any manner or place is required by law in order to fully preserve and protect the security of the bondholders and all rights of the Trustees or is necessary to make effective the lien intended to be created by the Original Mortgage or said Sixty-fifth Supplemental Indenture; and said Sixty-seventh Supplemental Indenture was recorded only in Rowan County, North Carolina to make subject to the lien of the Mortgage certain

 

4

 

property of the Company located in said County intended to be subject to the lien of the Original Mortgage, all in accordance with Section 42 of the Mortgage; and

 

WHEREAS, the Original Mortgage and said First through Eighty-fifth Supplemental Indentures (other than said Sixty-fifth and said Sixty-seventh Supplemental Indentures) were or are to be recorded in all Counties in the States of North Carolina and South Carolina in which this Eighty-sixth Supplemental Indenture is to be recorded; and

 

WHEREAS, in addition to the property described in the Original Mortgage, as heretofore supplemented, the Company has acquired certain other property, rights and interests in property; and

 

WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Original Mortgage, as from time to time then supplemented, the following series of First Mortgage Bonds:

 

	
Series
    	
 
    	
Principal
   Amount
   Issued
    	
 
    	
Principal
   Amount
   Outstanding
    	
 
    
	
3-3/4%   Series due 1965
    	
 
    	
$
    	
46,000,000
    	
 
    	
None
    	
 
    
	
3-1/8%   Series due 1979
    	
 
    	
20,100,000
    	
 
    	
None
    	
 
    
	
3-1/4%   Series due 1979
    	
 
    	
43,930,000
    	
 
    	
None
    	
 
    
	
2-7/8%   Series due 1981
    	
 
    	
15,000,000
    	
 
    	
None
    	
 
    
	
3-1/2%   Series due 1982
    	
 
    	
20,000,000
    	
 
    	
None
    	
 
    
	
4-1/8%   Series due 1988
    	
 
    	
20,000,000
    	
 
    	
None
    	
 
    
	
4-7/8%   Series due 1990
    	
 
    	
25,000,000
    	
 
    	
None
    	
 
    
	
4-1/2%   Series due 1991
    	
 
    	
25,000,000
    	
 
    	
None
    	
 
    
	
4-1/2%   Series due 1994
    	
 
    	
30,000,000
    	
 
    	
None
    	
 
    
	
5-1/8%   Series due 1996
    	
 
    	
30,000,000
    	
 
    	
None
    	
 
    
	
6-3/8%   Series due 1997
    	
 
    	
40,000,000
    	
 
    	
None
    	
 
    
	
6-7/8%   Series due 1998
    	
 
    	
40,000,000
    	
 
    	
None
    	
 
    
	
8-3/4%   Series due 2000
    	
 
    	
40,000,000
    	
 
    	
None
    	
 
    
	
8-3/4%   Series due August 1, 2000
    	
 
    	
50,000,000
    	
 
    	
None
    	
 
    
	
7-3/8%   Series due 2001
    	
 
    	
65,000,000
    	
 
    	
None
    	
 
    
	
7-3/4%   Series due October 1, 2001
    	
 
    	
70,000,000
    	
 
    	
None
    	
 
    
	
7-3/4%   Series due 2002
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
7-3/4%   Series due 2003
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-1/8%   Series due November 1, 2003
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
9-3/4%   Series due 2004
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
11-1/8%   Series due 1994
    	
 
    	
50,000,000
    	
 
    	
None
    	
 
    
	
11%   Series due April 15, 1984
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-1/2%   Series due October 1, 2007
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
9-1/4%   Series due June 1, 2008
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
10-1/2%   Series due May 15, 2009
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
12-1/4%   Series due November 1, 2009
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series A
    	
 
    	
63,000,000
    	
 
    	
None
    	
 
    
	
14-1/8%   Series due April 1, 1987
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series B
    	
 
    	
50,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series C
    	
 
    	
6,000,000
    	
 
    	
None
    	
 
    
	
11-5/8%   Series due December 1, 1992
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series D
    	
 
    	
48,485,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series E
    	
 
    	
5,970,000
    	
 
    	
None
    	
 
    
	
12-7/8%   Series due December 1, 2013
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series F
    	
 
    	
34,700,000
    	
 
    	
None
    	
 
    
	
13-3/8%   Series due April 1, 1994
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series G
    	
 
    	
122,615,000
    	
 
    	
None
    	
 
    
							

 

5

 

	
Series
    	
 
    	
Principal
   Amount
   Issued
    	
 
    	
Principal
   Amount
   Outstanding
    	
 
    
	
Pollution   Control Series H
    	
 
    	
70,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series I
    	
 
    	
70,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series J
    	
 
    	
6,385,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series K
    	
 
    	
2,580,000
    	
 
    	
None
    	
 
    
	
Extendible Series due   April 1, 1995
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
11-3/4%   Series due October 1, 2015
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-7/8%   Series due March 1, 2016
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-1/8%   Series due July 1, 1996
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
8-1/2%   Series due January 1, 2017
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
9.174%   Series due December 1, 1992
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
9%   Series due September 1, 1993
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
9.60%   Series due April 1, 1991
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Secured   Medium-Term Notes, Series A
    	
 
    	
200,000,000
    	
 
    	
None
    	
 
    
	
8-1/8%   Series due November 15, 1993
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Secured   Medium-Term Notes, Series B
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-7/8%   Series due February 15, 2021
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
9%   Series due April 1, 2022
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
8-5/8%   Series due September 15, 2021
    	
 
    	
100,000,000
    	
 
    	
$
    	
100,000,000
    	
 
    
	
5.20%   Series due January 1, 1995
    	
 
    	
125,000,000
    	
 
    	
None
    	
 
    
	
7-7/8%   Series due April 15, 2004
    	
 
    	
150,000,000
    	
 
    	
None
    	
 
    
	
8.20%   Series due July 1, 2022
    	
 
    	
150,000,000
    	
 
    	
None
    	
 
    
	
6-3/4%   Series due October 1, 2002
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
6-1/8%   Series due February 1, 2000
    	
 
    	
150,000,000
    	
 
    	
None
    	
 
    
	
7-1/2%   Series due March 1, 2023
    	
 
    	
150,000,000
    	
 
    	
None
    	
 
    
	
5-3/8%   Series due July 1, 1998
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
Secured   Medium-Term Notes, Series C
    	
 
    	
200,000,000
    	
 
    	
None
    	
 
    
	
6-7/8%   Series due August 15, 2023
    	
 
    	
100,000,000
    	
 
    	
None
    	
 
    
	
5-7/8%   Series due January 15, 2004
    	
 
    	
150,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series L
    	
 
    	
72,600,000
    	
 
    	
72,600,000
    	
 
    
	
Pollution   Control Series M
    	
 
    	
50,000,000
    	
 
    	
50,000,000
    	
 
    
	
6.80%   Series due August 15, 2007
    	
 
    	
200,000,000
    	
 
    	
None
    	
 
    
	
5.95% Senior   Note Series due March 1, 2009
    	
 
    	
400,000,000
    	
 
    	
None
    	
 
    
	
7.50% Senior   Note Series due April 1, 2005
    	
 
    	
300,000,000
    	
 
    	
None
    	
 
    
	
Pollution   Control Series N
    	
 
    	
67,300,000
    	
 
    	
67,300,000
    	
 
    
	
Pollution   Control Series O
    	
 
    	
55,640,000
    	
 
    	
55,640,000
    	
 
    
	
Pollution   Control Series P
    	
 
    	
50,000,000
    	
 
    	
50,000,000
    	
 
    
	
Pollution   Control Series Q
    	
 
    	
50,000,000
    	
 
    	
50,000,000
    	
 
    
	
Pollution   Control Series R
    	
 
    	
45,600,000
    	
 
    	
45,600,000
    	
 
    
	
Pollution   Control Series S
    	
 
    	
41,700,000
    	
 
    	
41,700,000
    	
 
    
	
Pollution   Control Series T
    	
 
    	
50,000,000
    	
 
    	
50,000,000
    	
 
    
	
Pollution   Control Series U
    	
 
    	
50,000,000
    	
 
    	
50,000,000
    	
 
    
	
Pollution   Control Series V
    	
 
    	
87,400,000
    	
 
    	
87,400,000
    	
 
    
	
Pollution   Control Series W
    	
 
    	
48,485,000
    	
 
    	
None
    	
 
    
	
5.125%   Series due 2013
    	
 
    	
400,000,000
    	
 
    	
None
    	
 
    
	
6.125%   Series due 2033
    	
 
    	
200,000,000
    	
 
    	
200,000,000
    	
 
    
	
5.15%   Series due 2015
    	
 
    	
300,000,000
    	
 
    	
None
    	
 
    
	
5.70%   Series due 2035
    	
 
    	
200,000,000
    	
 
    	
200,000,000
    	
 
    
	
5.25%   Series due 2015
    	
 
    	
400,000,000
    	
 
    	
None
    	
 
    
	
6.30%   Series due 2038
    	
 
    	
325,000,000
    	
 
    	
325,000,000
    	
 
    
	
5.30%   Series due 2019
    	
 
    	
600,000,000
    	
 
    	
600,000,000
    	
 
    
	
3.00%   Series due 2021
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
	
2.80%   Series due 2022
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
	
4.10%   Series due 2042
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
							

 

6

 

	
Series
    	
 
    	
Principal
   Amount
   Issued
    	
 
    	
Principal
   Amount
   Outstanding
    	
 
    
	
4.10%   Series due 2043
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
	
Pollution   Control Series X
    	
 
    	
48,485,000
    	
 
    	
48,485,000
    	
 
    
	
Floating Rate   Series due 2017
    	
 
    	
250,000,000
    	
 
    	
250,000,000
    	
 
    
	
4.375%   Series due 2044
    	
 
    	
400,000,000
    	
 
    	
400,000,000
    	
 
    
	
Second Floating   Rate Series due 2017
    	
 
    	
200,000,000
    	
 
    	
200,000,000
    	
 
    
	
4.15%   Series due 2044
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
	
3.25%   Series due 2025
    	
 
    	
500,000,000
    	
 
    	
500,000,000
    	
 
    
	
4.20%   Series due 2045
    	
 
    	
700,000,000
    	
 
    	
700,000,000
    	
 
    

 

which bonds are herein sometimes referred to as bonds of the First through Ninety-eighth Series, respectively; and

 

WHEREAS, Section 8 of the Original Mortgage, as heretofore supplemented, provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Mortgage as said Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and

 

WHEREAS, Section 120 of the Original Mortgage, as heretofore supplemented, provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, or may establish the terms and provisions of any series of bonds other than said First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Mortgage shall be situated; and

 

WHEREAS, the Company now desires to create one new series of bonds and to add to its covenants and agreements contained in the Original Mortgage, as heretofore supplemented, certain other covenants and agreements to be observed by it; and

 

WHEREAS, the execution and delivery by the Company of this Eighty-sixth Supplemental Indenture, and the terms of the bonds of the Ninety-ninth Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate resolutions of said Board of Directors;

 

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

 

That the Company, in consideration of the premises and of One Dollar to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustees and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, according to their tenor and effect and the performance of

 

7

 

all the provisions of the Original Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of said bonds, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Original Mortgage, as heretofore supplemented) unto The Bank of New York Mellon and Tina D. Gonzalez, as Trustees under the Mortgage, and to their successor or successors in said trust, and to said Trustees and their successors and assigns forever, all the following described properties of the Company:

 

All electric generating plants, stations, transmission lines, and electric distribution systems, including permanent improvements, extensions or additions to or about such electrical plants, stations, transmission lines and distribution systems of the Company; all dams, power houses, power sites, buildings, generators, reservoirs, pipe lines, flumes, structures and works; all substations, transformers, switchboards, towers, poles, wires, insulators, and other appliances and equipment, and the Company’s rights or interests in the land upon which the same are situated, and all other property, real or personal, forming a part of or appertaining to, or used, occupied or enjoyed in connection with said generating plants, stations, transmission lines, and distribution systems; together with all rights of way, easements, permits, privileges, franchises and rights for or related to the construction, maintenance, or operation thereof, through, over, under or upon any public streets or highways, or the public lands of the United States, or of any State or other lands; and all water appropriations and water rights, permits and privileges; including all property, real, personal, and mixed, acquired by the Company after the date of the execution and delivery of the Original Mortgage, in addition to property covered by the above-mentioned supplemental indentures (except any herein or in the Original Mortgage, as heretofore supplemented, expressly excepted), now owned or, subject to the provisions of Section 87 of the Mortgage, hereafter acquired by the Company and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing or of any general description contained in this Eighty-sixth Supplemental Indenture) all lands, power sites, flowage rights, water rights, flumes, raceways, dams, rights of way and roads; all steam and power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water works, steam heat and hot water plants, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, street and interurban railway systems, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, electric and gas machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam, heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture, chattels and choses in action; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Original Mortgage, as heretofore supplemented, expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Original Mortgage, as heretofore supplemented, described.

 

TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in any wise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Original Mortgage, as heretofore supplemented) the tolls, rents, revenues, issues, earnings, income, product and

 

8

 

profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof.

 

IT IS HEREBY AGREED by the Company that, subject to the provisions of Section 87 of the Original Mortgage, as heretofore supplemented, all the property, rights, and franchises acquired by the Company after the date hereof (except any herein or in the Mortgage, as heretofore supplemented, expressly excepted) shall be and are as fully granted and conveyed hereby and as fully embraced within the lien hereof and the lien of the Original Mortgage as if such property, rights and franchises were now owned by the Company and were specifically described herein and conveyed hereby.

 

PROVIDED THAT the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of this Eighty-sixth Supplemental Indenture and from the lien and operation of the Mortgage, namely: (1) cash, shares of stock and obligations (including bonds, notes and other securities) not hereafter specifically pledged, paid, deposited or delivered under the Mortgage or covenanted so to be; (2) merchandise, equipment, materials or supplies held for the purpose of sale in the usual course of business and fuel, oil and similar materials and supplies consumable in the operation of any properties of the Company; rolling stock, buses, motor coaches, vehicles and automobiles; (3) bills, notes and accounts receivable, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or this Eighty-sixth Supplemental Indenture or covenanted so to be; (4) electric energy and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; (5) any property which does not constitute Property Additions, Funded Property or Funded Cash (each as defined in the Original Mortgage as supplemented) and (6) any property and rights heretofore released from the lien of the Original Mortgage, as heretofore supplemented; provided, however, that the property and rights expressly excepted from the lien and operation of the Original Mortgage, as heretofore supplemented, and this Eighty-sixth Supplemental Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XII of the Mortgage by reason of the occurrence of a Default as defined in said Article XII.

 

TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Trustees, their successors and assigns forever.

 

IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Original Mortgage, as heretofore supplemented, this Eighty-sixth Supplemental Indenture being supplemental to the Original Mortgage.

 

AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage, as heretofore supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and the Trustees and the beneficiaries of the trust with respect to said property, and to the Trustees and their successors as Trustees of said property in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Original Mortgage and had been specifically and at length described in and conveyed to the Trustees by the Original Mortgage as a part of the property therein stated to be conveyed.

 

9

 

The Company further covenants and agrees to and with the Trustees and their successor or successors in such trust under the Mortgage as follows:

 

ARTICLE I

NINETY-NINTH SERIES OF BONDS

 

SECTION 1.  (A) There shall be a series of bonds designated “3.70% Series due 2046” (herein sometimes referred to as the “Ninety-ninth Series”), each of which shall also bear the descriptive title “First Mortgage Bond”, and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the Ninety-ninth Series shall be initially issued in the aggregate principal amount of $450,000,000, mature on October 15, 2046, bear interest at the rate of 3.70% per annum, payable from September 16, 2016, if the date of said bonds is on or prior to April 15, 2017, or, if the date of said bonds is after April 15, 2017, from the April 15 or October 15 next preceding the date of said bonds, semi-annually on April 15 and October 15 of each year commencing on April 15, 2017, be issued as fully registered bonds in the denominations of Two Thousand Dollars and in any integral multiple of One Thousand Dollars in excess thereof and be dated as in Section 10 of the Mortgage provided, the principal of and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts.

 

Interest on bonds of the Ninety-ninth Series will be computed on the basis of a 360-day year comprised of twelve 30-day months. If a due date for the payment of interest, principal or any Redemption Price (as defined below) on the bonds of the Ninety-ninth Series, falls on a day that is not a Business Day, then the payment will be made on the next succeeding Business Day, and no interest will accrue on the amounts payable for the period from and after the original due date and until the next Business Day. The term “Business Day” means any day other than a Saturday or Sunday or day on which banking institutions in The City of New York are required or authorized to close.

 

(B)                               At any time on or after April 15, 2046 (the “Par Call Date”), the bonds of the Ninety-ninth Series shall be redeemable at the option of the Company, or with the Proceeds of Released Property (as contemplated by clause (4) of Section 61 of the Mortgage), in whole or in part and from time to time, prior to maturity, upon notice as provided in Sections 52 and 54 of the Mortgage (given by mail or, if the bonds of the Ninety-ninth Series are represented by one or more Ninety-ninth Series Global Bonds (as hereinafter defined),  given in accordance with the procedures of DTC (as hereinafter defined), not less than 30 days and not more than 90 days prior to the date fixed for redemption), at a redemption price equal to 100% of the principal amount of the bonds then Outstanding to be redeemed, plus in each case accrued but unpaid interest on such principal amount to, but excluding, such date fixed for redemption. At any time prior to the Par Call Date, the bonds of the Ninety-ninth Series shall be redeemable at the option of the Company, or with the Proceeds of Released Property (as contemplated by clause (4) of Section 61 of the Mortgage), in whole or in part and from time to time, upon notice as provided in Sections 52 and 54 of the Mortgage (given by mail or, if the bonds of the Ninety-ninth Series are represented by one or more Ninety-ninth Series Global Bonds (as hereinafter defined),  given in accordance with the procedures of DTC (as hereinafter defined), not less than 30 days and not more than 90 days prior to the date fixed for redemption (together with the date fixed for redemption referred to in the preceding sentence, each a “Redemption Date”)), at a redemption price (hereinafter sometimes referred to as the “Make-Whole Redemption Price” and, together with the redemption price referred to in the preceding sentence, each a “Redemption Price”) equal to the greater of (i) 100% of the principal amount of the bonds then Outstanding to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on such bonds being redeemed that would be due if such bonds matured on the

 

10

 

Par Call Date, computed by discounting such payments, in each case, to such Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined below) plus 20 basis points, plus in either case accrued but unpaid interest on such principal amount to, but excluding, such Redemption Date. On and after any Redemption Date, if sufficient cash shall have been deposited with the Corporate Trustee (and/or if the Company has irrevocably directed the Corporate Trustee to apply, from moneys held by it available to be used for the redemption of bonds, sufficient cash) to redeem all of the bonds of the Ninety-ninth Series called for redemption, interest on the bonds of the Ninety-ninth Series, or the portions of them so called for redemption, shall cease to accrue.

 

“Treasury Rate” means, with respect to any Redemption Date, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date.

 

“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having an actual or interpolated maturity comparable to the remaining term of the bonds of the Ninety-ninth Series to be redeemed (assuming, for this purpose, that the bonds of the Ninety-ninth Series matured on the Par Call Date), that would be utilized at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of such bonds of the Ninety-ninth Series.

 

“Comparable Treasury Price” means, with respect to any Redemption Date, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Quotation Agent obtains fewer than four of such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations calculated by the Company.

 

“Quotation Agent” means one of the Reference Treasury Dealers appointed by the Company.

 

“Reference Treasury Dealer” means each of Credit Suisse Securities (USA) LLC, Wells Fargo Securities, LLC, and a Primary Treasury Dealer (as defined below) selected by MUFG Securities Americas Inc., plus two other financial institutions appointed by the Company at the time of any redemption, or their respective affiliates or successors, each of which is a primary U.S. Government securities dealer in the United States (a “Primary Treasury Dealer”); provided, however, that if any of the foregoing or their affiliates or successors shall cease to be a Primary Treasury Dealer, the Company shall substitute therefor another Primary Treasury Dealer.

 

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Quotation Agent, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date.

 

In case of a redemption of only a part of the bonds of the Ninety-ninth Series, absent any written agreement of the registered holders of all of the bonds of the Ninety-ninth Series satisfactory to the Corporate Trustee specifying the particular bonds of the Ninety-ninth Series to be redeemed, the Corporate Trustee shall draw by lot, according to such method as it shall deem proper in its discretion, the particular bonds of the Ninety-ninth Series, or portions of them, to be redeemed, provided, that if the bonds of the Ninety-ninth Series are represented by one or more Ninety-ninth Series Global Bonds, interests in the bonds of the Ninety-ninth Series shall be selected for redemption by DTC in accordance with its standard procedures therefor.

 

11

 

In case of any bonds of the Ninety-ninth Series called for redemption in whole or in part prior to the Par Call Date, the Company shall deliver to the Corporate Trustee promptly upon its calculation thereof, but in any event prior to the related Redemption Date, a Treasurer’s Certificate setting forth its calculation of the Make-Whole Redemption Price applicable to such redemption. The Corporate Trustee shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in relying upon the Company’s calculation of any Make-Whole Redemption Price of the bonds of the Ninety-ninth Series.

 

In lieu of stating any Make-Whole Redemption Price, notices of redemption of the bonds of the Ninety-ninth Series called for redemption in whole or in part shall state substantially the following: “The redemption price of the bonds to be redeemed shall equal the greater of (i) 100% of the principal amount of the bonds then Outstanding to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon being redeemed that would be due if such bonds matured on the Par Call Date, computed by discounting such payments, in each case, to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the Eighty-sixth Supplemental Indenture) plus 20 basis points, plus in each case accrued but unpaid interest on the principal amount thereof called for redemption to, but excluding, the Redemption Date.”

 

Except as provided herein, Article X of the Mortgage shall apply to redemptions of bonds of the Ninety-ninth Series.

 

(C)                               Subject to the provisions set forth below with respect to Ninety-ninth Series Global Bonds, at the option of the registered owner, any bonds of the Ninety-ninth Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations. The bonds of the Ninety-ninth Series may bear such legends as may be necessary to comply with any law or with any rules or regulations made pursuant thereto or with the rules or regulations of any stock exchange or to conform to usage or agreement with respect thereto.

 

Subject to the provisions set forth below with respect to Ninety-ninth Series Global Bonds, bonds of the Ninety-ninth Series shall be transferable upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York.

 

Upon any exchange or transfer of bonds of the Ninety-ninth Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge required to be paid by the Company, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of said Series.

 

(D)                               The bonds of the Ninety-ninth Series shall be issued in registered form without coupons and shall be issued initially in the form of one or more global bonds (each such global bond hereinafter sometimes referred to as a “Ninety-ninth Series Global Bond”) to or on behalf of The Depository Trust Company (hereinafter sometimes referred to as “DTC”), as depositary therefor, and registered in the name of such depositary or its nominee. Any bonds of the Ninety-ninth Series to be issued or transferred to, or to be held by or on behalf of DTC as such depositary or such nominee (or any successor of such depositary or nominee) for such purpose shall bear the depositary legends as required or otherwise agreed to by the Corporate Trustee and the Company, and in the case of a successor depositary, such legend or legends as such depositary and/or the Company shall require and to which each shall agree, in each case such agreement to be confirmed in writing to the Corporate Trustee. Notwithstanding any other provision

 

12

 

in this Eighty-sixth Supplemental Indenture, payment of interest on the bonds of the Ninety-ninth Series may be made at the option of the Company by check mailed to the registered holders thereof at their registered address, and, with respect to a Ninety-ninth Series Global Bond, the Company may make payments of principal of, any Redemption Price and interest on such Ninety-ninth Series Global Bond pursuant to and in accordance with such arrangements as are agreed upon by the Company and the depositary for such Ninety-ninth Series Global Bond.

 

Except under the limited circumstances described below, bonds of the Ninety-ninth Series represented by a Ninety-ninth Series Global Bond or Bonds shall not be exchangeable for, and shall not otherwise be issuable as, bonds of the Ninety-ninth Series in definitive form. The Ninety-ninth Series Global Bond or Bonds described in this Section 1(D) may not be transferred except by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or to a successor depositary or its nominee.

 

A Ninety-ninth Series Global Bond shall be exchangeable for bonds of the Ninety-ninth Series registered in the names of persons other than the depositary or its nominee only if (i) the depositary notifies the Company that it is unwilling or unable to continue as a depositary for such Ninety-ninth Series Global Bond and no successor depositary shall have been appointed by the Company within 90 days of receipt by the Company of such notification, or if at any time the depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when the depositary is required to be so registered to act as such depositary and no successor depositary shall have been appointed by the Company within 90 days after it becomes aware of such cessation, (ii) a Default has occurred and is continuing with respect to the bonds of the Ninety-ninth Series or (iii) the Company in its sole discretion, and subject to the procedures of the depositary, determines that such Ninety-ninth Series Global Bond shall be so exchangeable. Any Ninety-ninth Series Global Bond that is exchangeable pursuant to the preceding sentence shall be exchangeable for bonds of the Ninety-ninth Series registered in such names as the depositary shall direct.

 

In any exchange provided in the preceding paragraph the Company shall execute, and the Corporate Trustee, upon receipt of a Company request for the authentication and delivery of bonds of the Ninety-ninth Series in the form of definitive certificates in exchange in whole or in part for such Ninety-ninth Series Global Bond or Bonds, shall authenticate and deliver, without service charge, to each person specified by the depositary, bonds of the Ninety-ninth Series in the form of definitive certificates of like tenor and terms in an aggregate principal amount equal to the principal amount of such Ninety-ninth Series Global Bond or the aggregate principal amount of such Ninety-ninth Series Global Bonds in exchange for such Ninety-ninth Series Global Bond or Bonds. Upon the exchange of the entire principal amount of a Ninety-ninth Series Global Bond for bonds of the Ninety-ninth Series in the form of definitive certificates, such Ninety-ninth Series Global Bond shall be canceled by the Corporate Trustee. Bonds of the Ninety-ninth Series issued in exchange for a Ninety-ninth Series Global Bond shall be registered in such names and in such authorized denominations as the depositary for such Ninety-ninth Series Global Bond, acting pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Corporate Trustee. Provided that the Company and the Corporate Trustee have so agreed, the Corporate Trustee shall deliver such bonds of the Ninety-ninth Series to the persons in whose names the bonds of the Ninety-ninth Series are so to be registered.

 

Any endorsement of a Ninety-ninth Series Global Bond to reflect the principal amount thereof, or any increase or decrease in such principal amount, shall be made in such manner and by such person or persons as shall be specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Ninety-ninth Series Global Bond or in a Company request. Subject to the terms of the Mortgage, the Corporate Trustee shall deliver and redeliver any such Ninety-ninth Series Global Bond in the manner and upon instructions given by the

 

13

 

person or persons specified in or pursuant to any applicable letter of representations or other arrangement entered into with, or procedures of, the depositary with respect to such Ninety-ninth Series Global Bond or in any applicable Company request. If a Company request is so delivered, any instructions by the Company with respect to such Ninety-ninth Series Global Bond contained therein shall be in writing but need not be accompanied by or contained in a Treasurer’s Certificate and need not be accompanied by an opinion of counsel.

 

The depositary or, if there be one, its nominee, shall be the holder of a Ninety-ninth Series Global Bond for all purposes under the Mortgage and the bonds of the Ninety-ninth Series and beneficial owners with respect to such Ninety-ninth Series Global Bond shall hold their interests pursuant to applicable procedures of such depositary. The Company, the Corporate Trustee, any bond registrar, any paying agent and any other agent of the Company or the Corporate Trustee shall be entitled to deal with such depositary for all purposes of the Mortgage relating to such Ninety-ninth Series Global Bond (including the payment of principal, the Redemption Price, if applicable, and interest and the giving of instructions or directions by or to the beneficial owners of such Ninety-ninth Series Global Bond as the sole holder of such Ninety-ninth Series Global Bond and shall have no obligations to the beneficial owners thereof (including any direct or indirect participants in such depositary)). None of the Company, the Corporate Trustee, any paying agent, any bond registrar or any other agent of the Company or the Corporate Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a beneficial owner in or pursuant to any applicable letter of representations or other arrangement or transaction entered into with, or procedures of, the depositary with respect to such Ninety-ninth Series Global Bond or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests, or for any acts or omissions of a depositary.

 

ARTICLE II

DIVIDEND COVENANT

 

SECTION 2.  The Company covenants and agrees that, so long as any of the bonds of the Ninety-ninth Series remain Outstanding, the Company will not declare or pay any dividends upon its common stock (other than dividends in common stock) or make any other distributions on its common stock or purchase or otherwise retire any shares of its common stock, unless immediately after such declaration, payment, purchase, retirement or distribution (hereinafter in this Section referred to as “Restricted Payments”), and giving effect thereto, the amount arrived at by adding:

 

(a)                                 the aggregate amount of all such Restricted Payments (other than the dividend of fifty cents ($.50) per share declared on December 8, 1948 and paid on February 1, 1949 to holders of common stock) made by the Company during the period from December 31, 1948, to and including the effective date of the Restricted Payment in respect of which the determination is being made, plus

 

(b)                                 an amount equal to the aggregate amount of cumulative dividends for such period (whether or not paid) on all preferred stock of the Company from time to time outstanding during such period, at the rate or rates borne by such preferred stock, plus

 

(c)                                  an amount equal to the amount, if any, by which fifteen per centum (15%) of the Gross Operating Revenues of the Company for such period shall exceed the aggregate amount during such period expended and/or accrued on its books for maintenance and/or appropriated on its books out of income for property retirement, in each case in respect of the Mortgaged and Pledged Property and/or automotive equipment used primarily in the electric utility business of the Company (but excluding any provisions for amortization of any amounts included in utility plant acquisition adjustment accounts or utility plant adjustment accounts), will not exceed the

 

14

 

amount of the aggregate net income of the Company for said period available for dividends (computed and ascertained in accordance with sound accounting practice, on a cumulative basis, including the making of proper deductions for any deficits occurring during any part of such period), plus $3,000,000.

 

The Company further covenants and agrees that not later than May 1 of each year beginning with the year 2017 it will furnish to the Corporate Trustee a Treasurer’s Certificate stating whether or not the Company has fully observed the restrictions imposed upon it by the covenant contained in this Section 2.

 

The terms (i) “dividend” shall be interpreted so as to include distributions and (ii) “common stock” and “shares of common stock” shall be interpreted so as to include membership interests.

 

ARTICLE III
 CERTAIN PROVISIONS WITH RESPECT TO FUTURE ADVANCES

 

SECTION 3.  Upon the filing of this Eighty-sixth Supplemental Indenture for record in all counties in which the Mortgaged and Pledged Property is located, and until a further indenture or indentures supplemental to the Mortgage shall be executed and delivered by the Company to the Trustees pursuant to authorization by the Board of Directors of the Company and filed for record in all counties in which the Mortgaged and Pledged Property is located further increasing or decreasing the amount of future advances which may be secured by the Mortgage, the Mortgage may secure future advances and other indebtedness and sums not to exceed in the aggregate $2,500,000,000, in addition to $7,093,725,000 in aggregate principal amount of bonds to be Outstanding at the time of such filing, and all such advances and other indebtedness and sums shall be secured by the Mortgage, equally, to the same extent and with the same priority, as the amount originally advanced on the security of the Original Mortgage, namely, $46,000,000, and such advances and other indebtedness and sums may be made or become owing and may be repaid and again made or become owing and the amount so stated shall be considered only as the total amount of such advances and other indebtedness and sums as may be outstanding at one time.

 

ARTICLE IV
 MISCELLANEOUS PROVISIONS

 

SECTION 4.  Subject to any amendments provided for in this Eighty-sixth Supplemental Indenture, the terms defined in the Original Mortgage, as heretofore supplemented, shall, for all purposes of this Eighty-sixth Supplemental Indenture, have the meanings specified in the Original Mortgage, as heretofore supplemented.

 

SECTION 5.  The Trustees hereby accept the trusts herein declared, provided, created or supplemented and agree to perform the same upon the terms and conditions herein and in the Original Mortgage, as heretofore supplemented, set forth and upon the following terms and conditions:

 

The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Eighty-sixth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general each and every term and condition contained in Article XVI of the Original Mortgage, as heretofore supplemented, shall apply to and form part of this Eighty-sixth Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Eighty-sixth Supplemental Indenture.

 

SECTION 6.  Subject to the provisions of Article XV and Article XVI of the Mortgage, whenever in this Eighty-sixth Supplemental Indenture either of the parties hereto is named or referred to, this shall

 

15

 

be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Eighty-sixth Supplemental Indenture contained by or on behalf of the Company or by or on behalf of the Trustees shall bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not.

 

SECTION 7.  Nothing in this Eighty-sixth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the Outstanding bonds and coupons, any right, remedy or claim under or by reason of this Eighty-sixth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Eighty-sixth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the Outstanding bonds and coupons.

 

SECTION 8.  This Eighty-sixth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

 

[SIGNATURES ON THE FOLLOWING PAGES]

 

16

 

The laws of South Carolina provide that in any real estate foreclosure proceeding a defendant against whom a personal judgment is taken or asked may within thirty days after the sale of the mortgaged property apply to the court for an order of appraisal. The statutory appraisal value as approved by the court would be substituted for the high bid and may decrease the amount of any deficiency owing in connection with the transaction. THE COMPANY HEREBY WAIVES AND RELINQUISHES THE STATUTORY APPRAISAL RIGHTS, WHICH MEANS THE HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL BE APPLIED TO THE DEBT REGARDLESS OF ANY APPRAISED VALUE OF THE MORTGAGED PROPERTY.

 

IN WITNESS WHEREOF, Duke Energy Progress, LLC has caused its name to be hereunto affixed, and this instrument to be signed and sealed by its President or one of its Vice Presidents or its Treasurer and its company seal to be attested by its Secretary or one of its Assistant Secretaries, and The Bank of New York Mellon has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents, Senior Associates or Associates and its corporate seal to be attested by one of its Vice Presidents, Senior Associates or Associates, and Tina D. Gonzalez has hereunto set her hand and seal, all as of the day and year first above written.

 

	
 
    	
DUKE ENERGY   PROGRESS, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Stephen G.   De May
    
	
 
    	
 
    	
Stephen G. De   May
    
	
 
    	
 
    	
Senior Vice   President, Tax and Treasurer
    

 

Executed, sealed and delivered by DUKE

ENERGY PROGRESS, LLC by Stephen G.

De May, one of its Senior Vice Presidents, and

attested by Robert T. Lucas III, one of its

Assistant Secretaries, in the presence of:

 

	
 
    	
ATTEST:
    
	
 
    	
 
    
	
 
    	
/s/ Robert T. Lucas
    
	
 
    	
Robert T. Lucas   III
    
	
 
    	
Assistant   Secretary
    

 

	
/s/ Delcia S. Dunlap
    	
 
    
	
Delcia S. Dunlap
    	
 
    
	
 
    	
 
    
	
/s/ Sohn E. Daniels
    	
 
    
	
Sohn E. Daniels
    	
 
    

 

[COMPANY’S SIGNATURE PAGE]

 

[EIGHTY-SIXTH SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 1, 2016

TO THE DUKE ENERGY PROGRESS, LLC MORTGAGE AND DEED OF TRUST

DATED AS OF MAY 1, 1940]

 

 

	
 
    	
THE BANK OF NEW YORK   MELLON,
    
	
 
    	
as   Trustee
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Francine   Kincaid
    
	
 
    	
 
    	
Francine Kincaid
    
	
 
    	
 
    	
Vice President
    
	
 
    	
 
    
	
Executed, sealed and   delivered
    	
 
    
	
by THE BANK OF NEW YORK
    	
 
    
	
MELLON, as Trustee, by   Francine Kincaid,
    	
 
    
	
one of its Vice   Presidents,
    	
 
    
	
and attested by Efren   Almazan,
    	
 
    
	
one of its Vice   Presidents, in the
    	
 
    
	
presence of:
    	
ATTEST:
    
	
 
    	
 
    
	
 
    	
/s/ Efren   Almazan
    
	
 
    	
Efren Almazan
    
	
 
    	
Vice President
    
	
 
    	
 
    
	
/s/ Thomas Hacker
    	
 
    
	
Thomas Hacker
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Ignazio   Tamburello
    	
 
    
	
Ignazio Tamburello
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/ Tina   D. Gonzalez
    
	
 
    	
TINA D. GONZALEZ, as Trustee
    
	
 
    	
 
    
	
Executed, sealed and   delivered by TINA
    	
 
    
	
D. GONZALEZ, as   Trustee, in the presence of:
    	
 
    
	
 
    	
 
    
	
/s/ Christie   Leppert
    	
 
    
	
Christie Leppert
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
/s/ Brittany   Lisotta
    	
 
    
	
Brittany Lisotta
    	
 
    

 

[TRUSTEES’ SIGNATURE PAGE]

 

[EIGHTY-SIXTH SUPPLEMENTAL INDENTURE DATED AS OF SEPTEMBER 1, 2016

TO THE CAROLINA POWER & LIGHT COMPANY MORTGAGE AND DEED OF TRUST

DATED AS OF MAY 1, 1940]

 

 

	
STATE OF NORTH CAROLINA
    	
)
    
	
 
    	
) SS.:
    
	
COUNTY OF MECKLENBURG
    	
)
    

 

This 16th day of September, A.D. 2016, personally came before me, Phoebe P. Elliot, a Notary Public, STEPHEN G. DE MAY, who, being by me duly sworn, acknowledged before me that he is Senior Vice President, Tax and Treasurer of DUKE ENERGY PROGRESS, LLC, and that the seal affixed to the foregoing instrument in writing is the company seal of said company, and that said writing was signed and sealed by him in behalf of said limited liability company by its authority duly given. And the said STEPHEN G. DE MAY acknowledged the said writing to be the act and deed of said limited liability company.

 

On the 16th day of September, in the year of 2016, before me personally came STEPHEN G. DE MAY, to me known, who, being by me duly sworn, did depose and say that he resides at 2023 Queens Road W, Charlotte, NC 28207-2707; that he is Senior Vice President and Treasurer of DUKE ENERGY PROGRESS, LLC, one of the limited liability companies described in and which executed the above instrument; that he knows the seal of said limited liability company; that the seal affixed to said instrument is such company seal; that it was so affixed by order of the Board of Directors of said limited liability company, and that he signed his name thereto by like order.

 

	
 
    	
/s/ Phoebe P. Elliot
    
	
 
    	
Phoebe   P. Elliot
    
	
 
    	
NOTARY PUBLIC,   State of North Carolina
    
	
 
    	
Mecklenburg   County
    
	
 
    	
My Commission   Expires:
    	
June 26, 2021
    

 

	
STATE OF NORTH CAROLINA
    	
)
    
	
 
    	
) SS.:
    
	
COUNTY OF MECKLENBURG
    	
)
    

 

This 16th day of September, A.D. 2016, personally came before me, Phoebe P. Elliot, a Notary Public, ROBERT T. LUCAS III, who, being by me duly sworn, acknowledged before me that he is the Assistant Secretary of DUKE ENERGY PROGRESS, LLC, and that the seal affixed to the foregoing instrument in writing is the company seal of said company, and that said writing was signed and attested by him on behalf of said limited liability company by its authority duly given.

 

On the 16th day of September, in the year of 2016, before me personally came ROBERT T. LUCAS III, to me known, who, being by me duly sworn, did depose and say that he resides at 1650 Myers Park Drive, Charlotte, NC 28207; that he is the Assistant Secretary of DUKE ENERGY PROGRESS, LLC, one of the limited liability companies described in and which executed the above instrument; that he knows the seal of said limited liability company; that the seal affixed to said instrument is such company seal; that it was so affixed by order of the Board of Directors of said limited liability company, and that he signed and attested his name thereto by the authority of the Board of Directors of said limited liability company.

 

	
 
    	
/s/ Phoebe P. Elliot
    
	
 
    	
Phoebe   P. Elliot
    
	
 
    	
NOTARY PUBLIC,   State of North Carolina
    
	
 
    	
Mecklenburg   County
    
	
 
    	
My Commission   Expires:
    	
June 26, 2021
    

 

 

	
STATE OF NEW YORK
    	
)
    
	
 
    	
) SS.:
    
	
COUNTY OF NEW YORK
    	
)
    

 

On September 14, 2016 before me, the undersigned, personally appeared FRANCINE KINCAID, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that she signed the same in her capacity as a Vice President of THE BANK OF NEW YORK MELLON, a New York banking corporation, as Trustee, and that by her signature on the instrument, the individual, or the person upon behalf of which the individual acted, signed the instrument.

 

I, Christopher J. Traina, a Notary Public of the State of New York, certify that FRANCINE KINCAID personally came before me this day and acknowledged that she is a Vice President of THE BANK OF NEW YORK MELLON, a New York banking corporation, as Trustee, and that she, as Vice President, being authorized to do so, signed the foregoing on behalf of the corporation.

 

Witness my hand and official seal, this the 14 day of September, 2016.

 

	
 
    	
/s/ Christopher J.   Traina
    
	
 
    	
Christopher J. Traina
    
	
 
    	
Notary Public, State of   New York
    
	
 
    	
No. 01TR6297825
    
	
 
    	
Qualified in Queens   County
    
	
 
    	
Certified in New York   County
    
	
 
    	
Commission Expires   March 03, 2018
    

 

	
STATE OF NEW YORK
    	
)
    
		
) SS.:
    
	
COUNTY OF NEW YORK
    	
)
    

 

On September 14, 2016 before me, the undersigned, personally appeared EFREN ALMAZAN, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he signed and attested the same in his capacity as a Vice President of THE BANK OF NEW YORK MELLON, a New York banking corporation, as Trustee, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, signed and attested the instrument.

 

I, Christopher J. Traina, a Notary Public of the State of New York, certify that EFREN ALMAZAN personally came before me this day and acknowledged that he is a Vice President of THE BANK OF NEW YORK MELLON, a New York banking corporation, as Trustee, and that he, as Vice President, being authorized to do so, signed and attested the foregoing on behalf of the corporation.

 

Witness my hand and official seal, this the 14 day of September, 2016.

 

	
 
    	
/s/ Christopher J.   Traina
    
	
 
    	
Christopher J. Traina
    
	
 
    	
Notary Public, State of   New York
    
	
 
    	
No. 01TR6297825
    
	
 
    	
Qualified in Queens   County
    
	
 
    	
Certified in New York   County
    
	
 
    	
Commission Expires   March 03, 2018
    

 

 

	
STATE OF FLORIDA
    	
)
    
	
 
    	
) SS.:
    
	
COUNTY OF DUVAL
    	
)
    

 

On September 15, 2016 before me, the undersigned, personally appeared TINA D. GONZALEZ, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her capacity as successor Individual Trustee, and that by her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

 

I, Barbara Salls, a Notary Public of the State of Florida, do hereby certify that TINA D. GONZALEZ, as successor Individual Trustee, personally appeared before me this day and acknowledged the due execution of the foregoing instrument.

 

Witness my hand and official seal, this the 15 day of September, 2016.

 

	
 
    	
/s/ Barbara Salls
    
	
 
    	
Barbara Salls
    
	
 
    	
Notary Public, State of   Florida
    
	
 
    	
No. FF 001080
    
	
 
    	
My Commission expires:   June 30, 2017Exhibit 10.1

 

EXECUTION VERSION

AGENCY AGREEMENT

 

This Agency Agreement (“Agreement”), effective upon the closing (the “Closing”) of the transactions contemplated by the APA (as defined below), is made as of September 12, 2016, by and among Aéropostale, Inc., a Delaware corporation (“Aéropostale”), and the other direct and indirect wholly-owned Subsidiaries of Aéropostale that are signatory hereto (together with Aéropostale, “Merchant”), a contractual joint venture composed of Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners, LLC (together, “Agent”), and Aero OpCo LLC (the “Buyer”).  Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the APA.

Section 1.  Recitals.

 

WHEREAS, on May 4, 2016, Merchant filed a chapter 11 case in the United States Bankruptcy Court for the Southern District of New York (such case, the “Bankruptcy Case” and such court, or other court of competent jurisdiction in which the Bankruptcy Case is filed, the “Bankruptcy Court”);

 

WHEREAS, simultaneously with the execution hereof, Buyer, Merchant, and certain other entities affiliated with Merchant entered into an Asset Purchase Agreement (the “APA”) pursuant to which Buyer will acquire certain assets of the Merchant and its subsidiaries, as set forth more particularly therein;

 

WHEREAS, currently, Merchant operates six hundred twenty-three retail stores (each a “Store” and collectively, the “Stores”); and

 

WHEREAS, Merchant and Buyer desire that the Agent act as Buyer’s and Merchant’s exclusive agent for the limited purposes of: (a) selling all of the Merchandise and Inventory subject to the Open Purchase Orders from (i) the Closing Stores (as defined below) by means of a “store closing”, “sale on everything”, “everything must go”, or similar sale, but expressly excluding “going out of business” and “total inventory liquidation” sales at the Closing Stores (“Closing Store Advertising”), (ii) the Continuing Stores (as defined below) through a “sale on everything,” “everything must go”, or similar sale, but expressly excluding “store closing,” and “total inventory liquidation” sales at the Continuing Stores absent the consent of each of Authentic Brands Group LLC, Simon Aero, LLC and GGP Aero NewCo, and expressly excluding “going out of business,” sales at the Continuing Stores, and provided that the Agent shall include “new Aeropostale store coming” or similar themed signage at the Continuing Stores (“Continuing Store Advertising”), and (iii) through the e-commerce websites (collectively, the “E-Commerce Sites”) in accordance with the terms of this Agreement; and (b) disposing of the Designated F&E at the Closing Stores only (the foregoing and as further described below, the “Sale”).

 

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

 

Section 2.  Appointment of Agent/Approval Order.

 

(a)           Upon the Closing, effective as of September 2, 2016, Merchant and Buyer hereby appoint the Agent, and the Agent hereby agrees to serve, as Merchant’s and Buyer’s exclusive agent for the limited purpose of conducting the Sale in accordance with the terms and conditions of this Agreement.

 

(b)           Upon Closing, effective as of September 2, 2016, Agent shall be authorized to use (i) Closing Store Advertising with respect to Closing Stores and (ii) Continuing Store Advertising for Continuing Stores and the E-Commerce Sites, 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, privacy, consumer protection, occupational health and safety and the environment, together with all applicable statutes, rules, regulations and orders of, and applicable restrictions imposed by, governmental authorities (collectively, the “Applicable General Laws”), other than all applicable laws, rules and regulations in respect of “going out of business”, "store closing" or similar-themed sales and permitting (collectively, the “Liquidation Sale Laws”), provided that the Sale is conducted in accordance with the terms of this Agreement, the Sale Guidelines and the 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 the Approval Order and in a safe and professional manner, Agent shall be deemed to be in compliance with any Applicable General Laws.

 

(c)           Closing Stores.  As used in this Agreement, “Closing Stores” shall mean the Closing Stores under and as defined in the APA, as such Stores are from time to time designated as Closing Stores thereunder pursuant to the procedures set forth in the APA.  Each Store that is not a Closing Store shall be referred to as a “Continuing Store” and, collectively, the “Continuing Stores”.

 

Section 3.  Proceeds.

 

3.1           Intentionally Omitted.

 

3.2           Intentionally Omitted:

 

3.3           Proceeds; Control of Proceeds.

 

(a)           For purposes of this Agreement, “Proceeds” shall mean the aggregate of (i) the total amount (in dollars) of all sales of Merchandise made under this Agreement and all service and shipping revenue, in each case during the Sale Term and exclusive of Sales Taxes; and (ii) all proceeds of Merchant’s or Buyer’s insurance for loss or damage to Merchandise arising from events occurring during the Sale Term.  For purposes of this Agreement, “Other Proceeds” shall mean (i) the total amount (in dollars) of all sales of Designated F&E made under this Agreement; (ii) the total amount (in dollars) of all sales of Excluded Goods; (iii) the total amount (in dollars) of all sales of Inventory under the Open Purchase Orders; (iv) all proceeds of Merchant’s or Buyer’s insurance for loss or damage to Inventory under Open Purchase Orders arising from events occurring during the Sale Term; and (v) the total amount (in dollars) of all sales of Additional Agent Goods made under this Agreement.  Subject to the terms and conditions of that certain letter agreement between the Agent and Buyer (the “Letter Agreement”), the Merchant and Buyer hereby irrevocably agree that, as compensation for Agent’s services hereunder, Agent shall receive and retain for its sole and exclusive benefit all Proceeds and Other Proceeds.

 

(b)           Intentionally Omitted.

 

(c)           Upon Closing, all Proceeds and Other Proceeds shall be controlled by Agent in the manner provided for below.

 

2

(1)          Agent may (but shall not be required to) establish its own accounts (including without limitation credit card accounts and systems), dedicated solely for the deposit of the Proceeds and Other Proceeds and the disbursement of amounts payable to Agent hereunder (the “Agency Accounts”), and Merchant or Buyer, as applicable, shall promptly, upon Agent’s reasonable request, execute and deliver all necessary documents to open and maintain the Agency Accounts (at Agent’s sole cost and expense, with any such costs and expenses constituting Expenses hereunder); provided, however, Agent shall have the right, in its sole and absolute discretion, to continue to use Merchant’s Designated Deposit Accounts (as defined below) as the Agency Accounts in which case Merchant’s Designated Deposit Accounts shall be deemed to be Agency Accounts.  Agent shall exercise sole signatory authority and control with respect to the Agency Accounts.  The Agency Accounts shall be dedicated solely to the deposit of Proceeds and Other Proceeds and other amounts contemplated by this Agreement and the distribution of amounts payable hereunder.  Upon request, Agent shall deliver to Merchant or Buyer copies of all bank statements and other information relating to such accounts.  Neither Merchant nor Buyer, as applicable, shall be responsible for, and Agent shall pay as an Expense hereunder, any bank fees and charges, including wire transfer charges, related to the Sale and the Agency Accounts, whether received during or after the Sale Term.  Upon Agent’s notice to Merchant and Buyer of Agent’s designation of the Agency Accounts (other than Merchant’s Designated Deposit Accounts), all Proceeds and Other Proceeds of the Sale (including processor receivables and credit card Proceeds and Other Proceeds) shall be deposited into the Agency Accounts.

 

(2)          Agent shall have the right to use Merchant’s or Buyer’s, as applicable, credit card facilities, including Merchant’s or Buyer’s credit card terminals and processor(s), credit card processor coding, Merchant’s or Buyer’s identification number(s) and existing bank accounts for credit card transactions relating solely to the Sale.  In the event that Agent elects to use Merchant’s or Buyer’s credit card facilities, Merchant or Buyer, as the case may be, shall process credit card transactions on behalf of Agent and for Agent’s account, applying customary practices and procedures.  Without limiting the foregoing, Merchant or Buyer, as applicable, shall cooperate with Agent to download data from all credit card terminals each day during the Sale Term to effect settlement with Merchant’s or Buyer’s, as applicable, credit card processor(s), and shall take such other actions necessary to process credit card transactions on behalf of Agent under Merchant’s or Buyer’s, as applicable, identification number(s).  At Agent’s request, Merchant or Buyer, as applicable, shall cooperate with Agent to establish Merchant’s or Buyer’s identification numbers under Agent’s name to enable Agent to process all such credit card Proceeds and Other Proceeds for Agent’s account.  Neither Merchant nor Buyer, as applicable, shall be responsible for, and Agent shall pay as an Expense hereunder, any credit card fees, charges, and chargebacks related to the Sale, whether received during or after the Sale Term.  Agent shall not be responsible for, as an Expense or otherwise, any credit card fees, charges, or chargebacks that do not relate to the Sale, whether received prior to, during or after the Sale Term.

 

(3)          Unless and until Agent establishes its own Agency Accounts (other than Merchant’s Designated Deposit Accounts), all Proceeds, Other Proceeds, and other amounts contemplated by this Agreement (including processor receivables and credit card Proceeds and Other Proceeds), shall be collected by Merchant and/or Buyer, as applicable, and deposited on a daily basis into depository accounts designated by, and owned and in the name of, Merchant or Buyer, as the case may be, for the Stores, which accounts shall be designated solely for the deposit of Proceeds and Other Proceeds and other amounts contemplated by this Agreement (including processor receivables and credit card Proceeds and Other Proceeds), and the disbursement of amounts payable to or by Agent hereunder (the “Designated Deposit Accounts”).  The Designated Deposit Accounts shall be cash collateral accounts, with all cash, credit card payments, checks and similar items of payment, deposits and any other amounts in such accounts being Proceeds, Other Proceeds, or other amounts contemplated hereunder, and each of Merchant and Buyer, subject to the security interests liens of the DIP Lenders until the DIP Obligations (as defined in the DIP Order) are paid in full, hereby grants to Agent a first priority senior security interest in each Designated Deposit Account and all proceeds (including Proceeds and Other Proceeds) in such accounts from and after the Sale Commencement Date.  If requested by Agent, each account shall be subject to an agreement between and among the Agent and Merchant or Buyer (as applicable), and the subject bank, providing for, among other things, that such bank will comply with instructions originated by Agent directing the disposition of funds in such account without further consent of Merchant or Buyer, as applicable (a “Control Agreement”).  If, notwithstanding the provisions of this Section 3.3(c), Merchant or Buyer receives or otherwise has dominion over or control of any Proceeds, Other Proceeds, or other amounts due to Agent under this Agreement, Merchant or Buyer, as applicable, shall be deemed to hold such Proceeds, Other Proceeds, and other amounts “in trust” for Agent and shall not commingle Proceeds, Other Proceeds, or other amounts due to Agent with any of Merchant’s or Buyer’s other funds or deposit such Proceeds, Other Proceeds, or other amounts in any account except a Designated Deposit Account or as otherwise instructed by Agent.

 

3

(4)          On each Business Day, Merchant and/or Buyer, as applicable, shall promptly pay to Agent by wire funds transfer all funds in the Designated Deposit Accounts (including, without limitation, Proceeds (including from credit card sales), Other Proceeds, and all other amounts) deposited into the Designated Deposit Accounts for the prior day(s) without any offset or netting of Expenses or other amounts that may be due to Merchant or Buyer.  Agent shall notify Merchant and/or Buyer, as applicable, of any shortfall in such payment, in which case, Merchant (or Buyer, as the case may be) shall promptly pay to Agent funds in the amount of such shortfall.

 

(d)           Agent shall purchase all cash in the Stores on and as of the start of business on the Sale Commencement Date on a dollar for dollar basis, which shall be paid to the Buyer as soon as practicable after the cash can be counted.

 

3.4           Bulk Sales.  Agent shall be authorized to sell Merchandise and Inventory under Open Purchase Orders in bulk to one or more purchasers, in which case Merchant shall execute any such documents of transfer prepared by Agent at Agent’s sole cost and expense.

 

3.5           Open Purchase Orders.  Agent agrees to pay the vendors (or to reimburse Merchant, as the case may be) amounts due (less any discounts obtained by Agent or its Representatives) under the Open Purchase Orders for Inventory for which Merchant has taken receipt, with such payment made as and when such Open Purchase Orders become due and payable.

 

Section 4.  Expenses of the Sale.

 

4.1           Expenses.  Agent shall be unconditionally responsible for all “Expenses,” which expenses shall be paid by Agent in accordance with Section 4.2 below.  Agent hereby agrees to pre-fund (x) any payroll-related expenses consistent with Merchant’s customary payroll funding practices and timing and (y) an amount equal to Occupancy Expenses payable by Merchant or Buyer for the period from September 2, 2016 through September 30, 2016 by no later than September 16, 2016 and for the period from October 1, 2016 through October 31, 2016 by no later than September 28, 2016 ((i) and (ii), collectively, the “Prefunding Obligations”); provided, however, that to the extent the actual Expenses related to the Prefunding Obligations are less than the Prefunding Obligations, Agent shall be entitled to a dollar for dollar credit against other Expenses or entitled to a refund of such overfunding.  As used herein, “Expenses” shall mean the Store-level operating expenses of the Sale which arise during the Sale Term and are attributable to the Sale, limited to the following:

 

(a)           actual payroll (including overtime) with respect to all Retained Employees used in connection with conducting the Sale for actual days/hours worked at a Store during the Sale Term (including hours worked by those employees performing the Inventory Taking) as well as payroll (including overtime) for any temporary employees/labor engaged for the Sale;

 

(b)           any amounts payable by Merchant or Buyer for benefits for Retained Employees (including FICA, unemployment taxes, workers’ compensation and healthcare insurance, but excluding Excluded Payroll Benefits) for Retained Employees used in the Sale, in an amount not to exceed 13.1% of the base payroll for each Retained Employee in the Stores (the “Payroll Benefits Cap”);

 

4

(c)           (i) the actual Occupancy Expenses categorized on Exhibit 4.1(c) in all cases limited on a per Store, per category, and per diem basis not to exceed the respective categories and amounts shown on Exhibit 4.1(c), and (ii) the portion of the actual Occupancy Expenses in excess of the Occupancy Expense Cap payable by Agent pursuant to Section 4.1(4);

 

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

 

(e)           advertising and direct mailings relating to the Sale, Store interior and exterior signage and banners, and signwalkers, in each case relating to the Sale;

 

(f)            credit card fees, bank card fees, and chargebacks and credit/bank card discounts with respect to Merchandise and Inventory under Open Purchase Orders sold in the Sale;

 

(g)           bank service charges (for Store, corporate accounts, and Agency Accounts), check guarantee fees, wire transfer costs, and bad check expenses to the extent attributable to the Sale;

 

(h)           costs for additional Supplies at the Stores necessary to conduct the Sale as requested by Agent;

 

(i)            all fees and charges required to comply with applicable laws in connection with the Sale as agreed to by Agent;

 

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

 

(k)           all costs and expenses associated with Agent’s on-site supervision of the Stores, Merchant’s and Buyer’s distribution centers (the “Distribution Centers”), and corporate offices, including (but not limited to) any and all fees, wages, taxes, third party payroll costs and expenses, and deferred compensation of Agent’s field personnel, travel to, from or between the Stores, Distribution Centers, and corporate offices, and costs and expenses relating thereto (including reasonable and documented corporate travel to monitor and manage the Sale);

 

(l)            postage, courier and overnight mail charges requested by Agent to the extent relating to the Sale;

 

(m)          one hundred percent (100%) of cost of the Inventory Taker;

 

(n)           Agent’s actual cost of capital (including letter of credit fees) and insurance;

 

(o)           Agent’s costs and expenses associated with this Agreement, the APA, the Sale, or the transactions contemplated by this Agreement, including, but not limited to, legal fees and expenses incurred in connection with the review of data, preparation, negotiation, and execution of this Agreement and any ancillary documents, and the Sale, and further including all costs and expenses associated with Inventory under Open Purchase Orders and Additional Agent Goods included in the Sale, if any;

 

(p)           third party payroll processing expenses associated with the Sale;

 

(q)           costs of transfers initiated by Agent of Merchandise and Inventory under Open Purchase Orders between and among the Stores during the Sale Term, including delivery and freight costs, it being understood that Agent shall be responsible for coordinating such transfer of Merchandise and Inventory under Open Purchase Orders, subject, however, to the provisions of Section 8.1(e);

 

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(r)            per unit processing and shipping costs for Merchandise and Inventory under Open Purchase Orders shipped from the Distribution Centers to the Stores in an amount not to exceed $0.22 per unit so shipped, it being understood that Agent shall be responsible for coordinating such transfer of such Merchandise and Inventory under Open Purchase Orders;

 

(s)           Merchant’s insurance premium obligations under Sections 12.1 and 12.2 of this Agreement for the period between the Sale Commencement Date and the Sale Termination Date equal to the per diem amount of $3,914.00 during the Sale Term;

 

(t)            actual costs and expenses attributable to the operation of the E-Commerce Sites, not to exceed amounts payable to GSI on account of operating the E-Commerce Sites as follows:  (1) shipping costs and expenses in an amount equal to twelve percent (12%) of the Cost Value of Merchandise sold through the E-Commerce Sites and shipped by GSI; plus (2) fees in an amount equal to twenty-two percent (22%) of gross sales (net of Sales Taxes) made through the E-Commerce Sites;

 

(u)           to the extent not included in CAM or otherwise included on Exhibit 4.1(c), cash register maintenance, routine repairs, trash and snow removal, housekeeping and cleaning expenses, local and long-distance telephone and internet/wifi expenses, security (including, without limitation, security systems, courier and guard service, building alarm service and alarm service maintenance); and

 

(v)           the actual costs and expenses of Agent providing such additional services as the Agent deems appropriate for the Sale.

 

Notwithstanding anything herein to the contrary, to the extent that any Expense category listed in Section 4.1 is also included on Exhibit 4.1(c), Exhibit 4.1(c) shall control and such Expenses shall not be double counted.   There will be no double counting or payment of Expenses to the extent that Expenses appear or are contained in more than one Expense category or are payable to Merchant and Buyer.

 

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

 

(1)          “Central Service Expenses” means costs and expenses for Merchant’s or Buyer’s central administrative services necessary for the Sale, including, but not limited to, internal payroll processing, MIS services, cash and inventory reconciliation, data processing and reporting, email preparation and distribution, information technology and E-Commerce Site operations, updates, maintenance and other services related thereto, and accounting (collectively, “Central Services”).

 

(2)          “Excluded Payroll Benefits” means (i) the following benefits arising, accruing or attributable to the period prior to, during, or after the Sale Term:  (w) vacation days or vacation pay, (x) sick days or sick leave or any other form of paid time off, (y) maternity leave or other leaves of absence and (z) ERISA coverage and similar contributions and/or (ii) any other benefits in excess of the Payroll Benefits Cap, including, without limitation, any payments due under the WARN Act.

 

(3)          “Occupancy Expenses” means, with respect to the Stores, base rent, percentage rent, HVAC, utilities, common area maintenance (“CAM”), storage costs, real estate and use taxes, Merchant’s/Buyer’s association dues and expenses, utilities expenses, cash register maintenance, routine repairs, building maintenance, trash and snow removal, housekeeping and cleaning expenses, local and long-distance telephone and internet/wifi expenses, security (including, without limitation, security systems, courier and guard service, building alarm service and alarm service maintenance), and rental for furniture, fixtures and equipment.

 

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(4)          Notwithstanding any other provision of this Agreement to the contrary, “Expenses” shall not include: (i) Excluded Payroll Benefits; (ii) Central Service Expenses (other than amounts payable relative to the E-Commerce Sites pursuant to Section 4.1(t) above), (iii) Occupancy Expenses or any occupancy-related expenses of any kind or nature in excess of the respective per Store, per diem occupancy-related categories and amounts expressly provided for as an Expense under Section 4.1(c) above to the extent actually incurred; (iv) any expenses of any kind relating to or arising from Merchant’s or Buyer’s home office or Distribution Centers, including (without limitation) the Distribution Center Expenses, (v) any item other than the Expenses specifically listed in Sections 4.1(a)-(v) (including, for the avoidance of doubt, any costs and expenses in excess of any monetary caps set forth in Sections 4.1(a)-(v)); and (vi) any other costs, expenses or liabilities payable by Merchant or Buyer (subject to the last sentence of this clause (4)) not provided for herein, all of which shall be paid solely by Merchant or Buyer (subject to the last sentence of this clause (4)), as applicable, promptly when due, subject to the provisions of the Bankruptcy Code, the APA, and the Approval Order.  For the avoidance of doubt, all costs, expenses and liabilities incurred in connection with the Sale and the transactions contemplated hereby (including those paid by Merchant) that do not constitute Expenses, including those expressly set forth in the immediately preceding sentence, shall be the responsibility of, and borne by, Buyer (or to the extent paid by Merchant, promptly reimbursed by Buyer); provided, however, that if the actual Occupancy Expenses for the Sale Term exceed the aggregate Occupancy Expenses set forth on Exhibit 4.1(c) calculated by (I) multiplying the aggregate per diem for each Store by the number of days beginning on the Sale Commencement Date and ending on the applicable Vacate Date for each such Store and (II) adding together the result of the equation in (I) for all Stores (such aggregate amount, “Occupancy Expense Cap”), the Agent shall be obligated to pay 50% of the amount by which the actual Occupancy Expenses exceed the Occupancy Expense Cap not to exceed $850,000 (and Buyer shall be obligated to pay the balance thereof).

 

4.2           Payment of Expenses.

 

Agent shall be responsible for the payment of all Expenses out of Proceeds (or from Agent’s own accounts if and to the extent there are insufficient Proceeds).  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 Buyer, as the case may be, or paid by Merchant or Buyer, as the case may be, and thereafter reimbursed by Agent as provided for herein, immediately following the Weekly Sale Reconciliation; 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 or Buyer and Agent, as the case may be, shall agree to an estimate of such amounts, which amounts will be reconciled once the actual amount of such Expense becomes available.  Agent, Buyer, and/or Merchant may review or audit the Expenses at any time.

 

4.3           Distribution Center Expenses

 

All Distribution Center Merchandise and certain Inventory under Open Purchase Orders (as agreed to by Agent and Buyer) shall be delivered from the Distribution Centers to the Stores in accordance with the Allocation Schedule and, solely as between Agent and Buyer, the Letter Agreement.  Notwithstanding the foregoing, all costs and expenses of operating the Distribution Centers, including, but not limited to, use and occupancy expenses, Distribution Center employee payroll and other obligations, and/or processing, transferring, consolidating, shipping, and/or delivering goods within or from the Distribution Centers (the “Distribution Center Expenses”), shall remain the sole obligation of Merchant for the period prior to Closing and Buyer after the Closing.

 

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Section 5.  Excluded Goods.

 

5.1           Intentionally Omitted.

 

5.2           Intentionally Omitted.

 

5.3           Intentionally Omitted

 

5.4           Excluded Goods.  If requested at the beginning of the Sale Term, Agent shall accept goods not included as “Merchandise” or not included as Inventory under Open Purchase Orders under the APA for sale at prices and through sale channels established by Agent (such goods, “Excluded Goods”) and the compensation payable to Agent in connection therewith as well as the division and distribution of proceeds from the sale of Excluded Goods shall be addressed in the Letter Agreement; otherwise, Agent shall have no responsibility whatsoever for Excluded Goods and Merchant (if prior to the Closing) or Buyer (if following the Closing) shall remove them from the sales floor.  In no event shall Excluded Goods be shipped to the Stores absent Agent’s express written consent.  Agent shall have no cost, expense or responsibility in connection with any goods not included in Merchandise or that are not Inventory under Open Purchase Orders.

 

Section 6.  Sale Term.

 

6.1           Term.  Subject to satisfaction of the conditions precedent set forth in Section 10 hereof, the Sale shall commence on September 2, 2016 (the “Sale Commencement Date”).  Agent shall complete the Sale (i) at each Store no later than December 31, 2016 and (ii) at each Closing Store no later than November 30, 2016 (subject to Agent’s ability to negotiate with the applicable landlord an extension thereof a Closing Store by Closing Store basis, but in no event later than December 31, 2016) (each such date, the “Sale Termination Date”, and the period from the Sale Commencement Date to the applicable Sale Termination Date as to each such Store being the “Sale Term”).  Notwithstanding the foregoing, Agent may, in its discretion, terminate the Sale earlier on a store-by-store basis upon not less than five (5) days’ prior written notice (a “Vacate Notice”) to Merchant or Buyer, as applicable, (the “Vacate Date”), provided, that the Agent's obligations to pay all Expenses, including Occupancy Expenses, for each Store subject to a Vacate Notice shall continue until the applicable Vacate Date for such Store.

 

6.2           Vacating the Stores.  At the conclusion of the Sale at each Store, Agent agrees to leave each Store in “broom clean” condition, ordinary wear and tear excepted, except for (i) all FF&E located in the Continuing Stores shall be left in place for the benefit the Buyer and (ii) unsold items of Designated F&E and other assets or property of the Merchant or Buyer, as applicable, which may (upon notice to the Pre-Petition Term Agent ) be abandoned by Agent in place in a neat and orderly manner pursuant to Section 7 below.  Agent shall vacate each Store 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 or, in the case of the Continuing Stores, to the Buyer.  Agent’s obligations to pay all Expenses for the Stores shall continue until the applicable Vacate Date for each Store.

 

Section 7.  FF&E.

 

7.1           Designated F&E.  Agent shall sell all Furnishings and Equipment at the Closing Stores (collectively, “Designated F&E”) and shall be responsible for the costs and expenses incurred in connection with the disposition of the Designated F&E; provided, that the Agent shall not commence the sale of Designated F&E until October 31, 2016 (or such earlier date as Buyer and Agent may agree).  For the avoidance of doubt, the Agent shall not sell any Furnishings and Equipment at any Continuing Store unless otherwise directed by the Buyer.  If Buyer has an interest in acquiring Designated F&E from one or more Closing Stores after the sale thereof is commenced by Agent, Agent agrees to cease selling such Furnishings and Equipment if requested by Buyer.

 

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7.2           Abandonment of Designated F&E.  Upon five days prior written notice to Merchant or Buyer, as applicable, and the Pre-Petition Term Agent, Agent shall be authorized to abandon any and all unsold Designated F&E in place without any cost or liability to any party.

Section 8.  Conduct of the Sale.

 

8.1           Rights of Agent.  In addition to any other rights granted to Agent elsewhere in this Agreement, Agent shall be permitted to conduct the Sale as follows:  (i) at the Closing Stores by means of Closing Store Advertising, (ii) at the Continuing Stores through Continuing Store Advertising, and (iii) through E-Commerce Sites through Continuing Store Advertising, in each case throughout the Sale Term without compliance with any Liquidation Sale Laws.  The Agent shall conduct the Sale in the name of and on behalf of the Merchant or Buyer, as applicable, in a commercially reasonable manner and in compliance with the terms of this Agreement and subject to the Approval Order.  Agent shall conduct the Sale in accordance with the sale guidelines attached hereto as Exhibit 8.1 (the “Sale Guidelines”).  In addition to any other rights granted to Agent hereunder in conducting the Sale the Agent, in the exercise of its reasonable discretion shall have the right, subject to the limitations set forth herein:

 

(a)           to establish Sale prices and discounts and Store hours;

 

(b)           except as otherwise expressly included as an Expense, to use without charge during the Sale Term all FF&E, computer hardware and software, existing Supplies, intangible assets (including Merchant’s name, logo and tax identification numbers), Store keys, case keys, security codes and safe and lock combinations required to gain access to and operate the Stores, and any other assets of the Merchant or Buyer, as applicable, located at the Stores (whether owned, leased, or licensed);

 

(c)           (i) to be provided by Merchant or Buyer, as applicable, (at no additional cost to Agent) with central office facilities, central administrative services and personnel to process and perform Central Services and provide other central office services reasonably necessary for the Sale; (ii) to use reasonably sized offices located at Merchant’s or Buyer’s, as applicable, central office facility to effect the Sale; and (iii) to use all Intellectual Property (but solely in connection with the Sale and pursuant to such reasonable restrictions requested by Merchant and/or Buyer in order for Merchant and/or Buyer to comply with its privacy policy and applicable laws governing the use and dissemination of confidential consumer personal data and the Letter Agreement);

 

(d)           to establish and implement advertising, signage and promotion programs consistent with this Agreement, including without limitation by means of media advertising, and similar interior and exterior signs and banners, and the use of sign walkers consistent with the provisions herein;

 

(e)           to transfer Merchandise and Inventory under Open Purchase Orders between and among the Stores at Agent's expense; provided, however, the Agent shall not transfer Merchandise between and among Stores so as to make the Merchandise unavailable for purposes of the Inventory Taking or otherwise take any action to prevent compliance by Buyer with Section 2.6 of the APA; and

 

(f)            subject to the provisions of Section 8.10 below, to include Additional Agent Goods as part of the Sale.

 

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8.2           Terms of Sales to Customers; Final/As Is Sales.  All sales of Merchandise and Inventory under Open Purchase Orders will be “final sales” and “as is,” and appropriate signage and sales receipts will reflect the same.  Agent shall not warrant the Merchandise or Inventory under Open Purchase Orders 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 debit and credit cards, or Gift Certificates.  Agent shall accept and honor Merchant’s or Buyer’s coupons during the Sale Term, including, but not limited to, Merchant’s or Buyer’s membership program as well as Merchant’s employee discount terms as are in effect immediately prior to the commencement of the Sale Term (collectively, “Discount Items”).  The Agent shall clearly mark all receipts for the Merchandise and Inventory under Open Purchase Orders sold at the Stores during the Sale Term so as to distinguish such Merchandise and Inventory under Open Purchase Orders from the goods sold prior to the Sale Commencement Date.  For Discount Items accepted during the Sale Term, the Buyer shall reimburse Agent in cash for all amounts related to such Discount Items during each 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 and Inventory under Open Purchase Orders, as indicated on Merchant’s and/or Buyer’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 Inventory under Open Purchase Orders and collected by Agent, on Merchant’s and Buyer’s behalf, at the time of sale.  All Sales Taxes shall be deposited into a segregated account designated by Merchant, Buyer,  and Agent solely for the deposit of such Sales Taxes (the “Sales Taxes Account”).  For the avoidance of doubt, Merchant will have payment authority on the Sales Tax Account from inception until Merchant no longer has any obligation with respect to the payment of Sales Taxes hereunder, and Buyer will have payment authority on the Sales Taxes Account after the Closing Date.  Merchant shall prepare and file all applicable reports and documents required by the applicable taxing authorities with respect to Sales Taxes incurred prior to the Closing, and Merchant shall promptly pay all such Sales Taxes from the Sales Taxes Account.  Buyer shall prepare and file all applicable reports and documents required by the applicable taxing authorities with respect to Sales Taxes incurred after the Closing, and Buyer shall promptly pay all such Sales Taxes from the Sales Taxes Account.  Merchant and Buyer 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, Agent shall have no further obligation to the Merchant, the Buyer, any taxing authority, or any other party, and Merchant and Buyer, as applicable, shall each 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 such party to promptly pay such Sales Taxes to the proper taxing authorities and/or the failure by such party 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 and/or Buyer, as applicable, comply with their obligations hereunder, Agent shall indemnify and hold harmless Merchant and/or Buyer, as applicable, from and against any and all costs, including, but not limited to, reasonable attorneys’ fees, assessments, fines or penalties which Merchant and/or Buyer, as applicable, 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 and/or Buyer, as applicable, 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 the Merchant and Buyer, various payments that this Agreement and the Letter Agreement contemplate that one party may make to the other party do not represent the sale of tangible personal property and, accordingly, are not subject to Sales Taxes.

 

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8.4           Supplies.  Agent shall have the right to use, without charge, all existing supplies located at the Stores, Distribution Centers and corporate office(s), 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 prior to Closing and Buyer from and after Closing agree to promptly provide the same to Agent at Merchant’s or Buyer’s, as applicable, cost therefor, if available, for which Agent shall promptly reimburse Buyer or Merchant, as applicable.

 

8.5           Returns of Merchandise.  During the first sixty (60) days of the Sale Term (the “Return Deadline”) Agent shall accept Returned Merchandise, provided that such return is in compliance with Merchant’s return policy in effect immediately prior to the Sale Commencement Date.  If such Returned Merchandise is first quality finished goods capable of being sold at normal retail price it shall be included in the Sale, but shall not be included for purposes of determining the Inventory Purchase Price Adjustment.   For refunds issued in respect of each item of Returned Merchandise that is first quality finished goods capable of being sold at normal retail price, Buyer shall promptly reimburse Agent in cash for the difference between (x) the refund Agent is required to issue to customers in respect of each such item of Returned Merchandise and (y) the Cost Value of each such item of Returned Merchandise.  For refunds issued in respect of each item of Returned Merchandise that is NOT first quality finished goods capable of being sold at normal retail price, but nonetheless capable of being resold, Buyer shall promptly reimburse Agent in cash the difference between (x) the refund Agent is required to issue to customers in respect of each such item of Returned Merchandise and (y) a Cost Value mutually agreed upon by Agent and Buyer for each such item of Returned Merchandise.  Buyer shall reimburse Agent on account of refunds issued by Agent in accordance with the previous two sentences during each Weekly Sale Reconciliation provided for in Section 8.7.  Except to the extent that Merchant and/or Buyer, as applicable, and Agent agree that Merchant’s and/or Buyer’s, as applicable, POS or other applicable systems can account for returns of goods, all returns must be noted and described in a mutually agreeable Returned Merchandise log on a weekly basis during the Sale.

 

8.6           Gift Certificates; Membership Program.

 

(a)           During the Sale Term, Agent shall accept Merchant’s gift certificates, gift cards, return credits, and similar merchandise credits issued by Merchant (collectively, the “Gift Certificates”). Agent shall not sell any Gift Certificates.  For Gift Certificates redeemed during the Sale Term, Buyer shall reimburse Agent in cash for redeemed Gift Certificates during the Weekly Sale Reconciliation provided for in Section 8.7.

 

(b)           During the Sale Term, customers may elect to take advantage of (i) discounts afforded customers in connection with Merchant’s or Buyer’s membership program benefits and/or Merchant’s or Buyer’s then valid coupons (collectively, “ Discounts”); or (ii) the then-prevailing Sale discounts being offered by Agent, but not both on a cumulative basis.

 

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8.7           Sale Reconciliation.  On each Wednesday during the Sale Term, Agent, Buyer, and Merchant shall cooperate (in reasonable consultation with the DIP Agent and the Pre-Petition Term Agent) to reconcile Expenses of the Sale, Proceeds and Other Proceeds of the Sale, and reconcile such other Sale-related items as any party shall reasonably request, in each case for the prior week or partial week (i.e. Sunday through Saturday), all pursuant to procedures reasonably agreed upon by Buyer, Merchant and Agent (the “Weekly Sale Reconciliation”).  Within thirty (30) days after the end of the Sale Term, or as soon as practicable thereafter, Agent, Buyer, and Merchant shall (in reasonable consultation with the DIP Agent and the Pre-Petition Term Agent) complete a final reconciliation of the Sale (the “Final Reconciliation”), the written results of which shall be certified by representatives of each of the Merchant, Buyer, and Agent as a final settlement of accounts between the Merchant, Buyer and Agent.  Within five (5) days after the completion of the Final Reconciliation and execution of a settlement letter including an appropriate mutual release, all unpaid amounts pursuant to the Final Reconciliation shall be paid to and by the appropriate parties.  Once executed by Merchant, Buyer, and Agent, such settlement and Final Reconciliation shall be deemed approved without further order of the Bankruptcy Court (other than the Approval Order).  During the Sale Term, and thereafter until all of Merchant’s, Buyer’s and Agent’s obligations under this Agreement have been satisfied, Merchant, Buyer, and Agent shall have reasonable access to Merchant’s, Buyer’s and Agent’s records with respect to the Sale (including, but not limited to, Merchandise, Inventory under Open Purchase Orders, Expenses, and Proceeds and Other Proceeds) to review and audit such records.  During the Pre-Closing Period, the Agent and Merchant shall conduct the applicable Weekly Sale Reconciliations in accordance with this Section 8.7; provided, however, that no amounts shall be payable by or to Merchant or Agent on account of such Weekly Sale Reconciliations pending the Closing.  At Closing, (i) the Pre-Closing Proceeds Credit shall be applied against the Purchase Price as and to the extent provided for in the APA, and (ii) the Agent shall reimburse Merchant under this Agreement for Expenses due to Merchant on account of the Weekly Sale Reconciliations completed prior to the Closing (for the avoidance of doubt, without reducing such Expenses by the Pre-Closing Proceeds Credit).

 

8.8           Force Majeure.  If any casualty, act or threatened act of terrorism, or act of God prevents or substantially inhibits the conduct of business in the ordinary course at any of the Stores for a period of five (5) consecutive days, the Merchandise located at such Store shall, in Agent’s reasonable discretion (after consultation with the Merchant and Buyer), be eliminated from the Sale and considered to be deleted from this Agreement as of the date of such event, and Agent, Buyer, and Merchant shall have no further rights or obligations hereunder with respect thereto; provided, however, that the proceeds of any insurance attributable to such Merchandise shall constitute Proceeds hereunder.

 

8.9           Right to Monitor.  Merchant, Buyer and the DIP Agent and the Pre-Petition Term Agent 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, Buyer’s and or the DIP Agent’s and Pre-Petition Term Agent’s presence does not unreasonably disrupt the conduct of the Sale.  Merchant and Buyer 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 Agent Goods.

 

(a)           Agent shall have the right to supplement the Merchandise in the Sale with additional goods procured by Agent which are of like kind, and no lesser quality to the Merchandise and Inventory under Open Purchase Orders in the Sale (“Additional Agent Goods”).  The Additional Agent Goods shall be purchased by Agent as part the Sale at Agent’s sole expense (and such purchase price shall not constitute an Expense).  Sales of Additional Agent Goods shall be run through Merchant’s or Buyer’s cash register systems, provided however, Agent shall mark the Additional Agent Goods using either a “dummy” SKU or department number, or in such other manner so as to distinguish the sale of Additional Agent Goods from the sale of Merchandise and Inventory under Open Purchase Orders.  Agent and Buyer and/or Merchant, as applicable, shall also cooperate so as to ensure that the Additional Agent Goods are marked in such a way that a reasonable consumer could identify the Additional Agent Goods as non-Merchant/Buyer goods.  Additionally, Agent shall provide signage in the Stores notifying customers that the Additional Agent Goods have been included in the Sale.

 

(b)           Agent, Buyer, and Merchant intend that the transactions relating to the Additional Agent Goods are, and shall be construed as, a true consignment from Agent to Merchant or Buyer, as applicable, in all respects and not a consignment for security purposes.  At all times and for all purposes the Additional Agent Goods and their proceeds shall be the exclusive property of Agent, and no other person or entity shall have any claim against any of the Additional Agent Goods or their proceeds.  The Additional Agent Goods shall at all times remain subject to the exclusive control of Agent.

 

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(c)           Merchant shall until the Closing, and Buyer shall until the Sale Termination Date, at Agent’s sole expense (and not as an Expense), insure the Additional Agent Goods and, if required, promptly file any proofs of loss with regard to same with Merchant’s insurers.  Agent shall be responsible for payment of any deductible under any such insurance in the event of any casualty affecting the Additional Agent Goods, which amount shall be deemed an Additional Agent Goods expense.

 

(d)           Merchant and Buyer acknowledge, and the Approval Order shall provide, that the Additional Agent Goods shall be consigned to Merchant and/or Buyer, as applicable, as a true consignment under Article 9 of the Code.  Agent is hereby granted a first priority security interest in and lien upon (i) the Additional Agent Goods and (ii) the Additional Agent Goods proceeds, which security interest shall be deemed perfected pursuant to the Approval Order without the requirement of filing UCC financing statements or providing notifications to any prior secured parties (provided that Agent is hereby authorized to deliver all required notices and file all necessary financing statements and amendments thereof under the applicable UCC identifying Agent’s interest in the Additional Agent Goods as consigned goods thereunder and the Merchant and Buyer as the consignee therefor, and Agent’s security interest in and lien upon such Additional Agent Goods and Additional Agent Goods proceeds).

 

8.11         Collective Bargaining Agreements; Leases.  Merchant hereby represents and warrants that Merchant is not and has not been within the prior twelve months a party to any collective bargaining agreement.  To the extent Buyer enters into any collective bargaining agreement Agent shall not be obligated to comply with Buyer’s collective bargaining agreements or leases/occupancy agreements; except as provided for in Sections 4.1(a) and 4.1(c) herein.

 

Section 9.  Employee Matters.

 

For purposes of this Section 9, all references to employees shall be deemed references to (i) employees of Merchant until such employees are terminated by Merchant to be hired by Buyer and (ii) employees of Buyer once hired.

 

9.1           Merchant’s Employees.  Agent may use all of Merchant’s or Buyer’s, as applicable, Store level employees in the conduct of the Sale to the extent Agent deems reasonably necessary for the Sale (each such employee, a “Retained Employee”), and Agent may select and schedule the number and type of Retained Employees.  Notwithstanding the foregoing, Merchant’s or Buyer’s, as applicable, employees shall at all times remain employees of the Merchant or Buyer, as applicable.  Agent’s selection and scheduling of Merchant’s or Buyer’s, as applicable, employees shall at all times comply with all applicable laws and regulations.  Merchant, Buyer 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 or Buyer’s, as applicable, obligations relating to any of Merchant’s or Buyer’s, as applicable, employees including, without limitation, Excluded Payroll 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, collective bargaining agreement, or be deemed a joint or successor employer with respect to such employees.  Neither Merchant nor Buyer, as applicable, shall, 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.  Other than in the ordinary course of business, Merchant shall not transfer any employee in anticipation of the Sale nor any Retained Employee during the Sale Term, in each case without Agent’s prior consent.

 

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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 or Buyer, as applicable, at least five (5) days prior thereto; provided, however, that, in the event that Agent determines to cease using an employee “for cause” (such as dishonesty, fraud or breach of employee duties), the five (5) day notice period shall not apply; provided, further, however, that Agent shall immediately notify Merchant or Buyer, as applicable, of the basis for such “cause.”  From and after the date of this Agreement and until the Sale Termination Date, neither Merchant nor Buyer, as applicable, shall 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 (and all decisions relating to the termination or non-termination of such employees shall at all times rest solely with Merchant or Buyer, as applicable).

 

9.3           Payroll Matters.  During the Sale Term, Merchant or Buyer, as applicable, shall process the payroll for all Retained Employees and any former employees and temporary labor engaged for the Sale.  Each Wednesday (or such other date as may be reasonably requested by Merchant or Buyer, as applicable, to permit the funding of the payroll accounts before such payroll is due and payable) during the Sale Term, Agent shall transfer to Merchant’s or Buyer’s, as applicable, payroll accounts an amount equal to the base payroll for Retained Employees plus related payroll taxes, workers’ compensation and benefits for such week, to the extent such amount constitutes 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 Agent 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 or Buyer’s (as applicable) payroll system.

 

Section 10.  Conditions Precedent and Subsequent.

 

(a)           The willingness of Agent to enter into the transactions contemplated under this Agreement is directly conditioned upon the satisfaction of the following conditions at the time or during the time periods indicated, unless specifically waived in writing by Agent:

 

(1)          All representations and warranties of the Merchant and Buyer 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 on the Sale Commencement Date.

 

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(2)          No later than September 15, 2016 (or September 22, 2016 in the event that the proviso in Section 8.1(b)(ii) of the APA is applicable) or such later date as mutually agreed upon by the Merchant, Buyer, DIP Agent, Pre-Petition Term Agent, and the Agent  (such date, the “Approval Order Deadline”), the Bankruptcy Court shall have entered an order (the “Approval Order”) in a form reasonably satisfactory to Buyer, Merchant, Agent, Pre-Petition Term Agent, and DIP Agent that authorizes Buyer, Merchant, and Agent to enter into this Agreement and authorizes Merchant to conduct the Sale in accordance with the terms of this Agreement and provides, inter alia, that subject to the Closing and the repayment in full and in cash of all DIP Obligations owed to the DIP Lenders at Closing, (i) this Agreement is in the best interest of the Merchant, Merchant’s estates, creditors, and other parties in interest, (ii) this Agreement (and each of the transactions contemplated hereby) is approved in its entirety; (iii) Merchant, the Buyer, and Agent shall be authorized to continue to take any and all actions deemed necessary or desirable to implement this Agreement and each of the transactions contemplated hereby; (iv) upon payment of the Estimated Purchase Price, Agent shall be entitled to sell all Merchandise, Inventory under Open Purchase Orders and Designated F&E hereunder free and clear of all liens, claims or encumbrances thereon; (v) Agent shall have the right to use the Stores and all related Store services, furniture, fixtures, equipment and other assets of the Merchant or Buyer, as applicable, 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 (as defined below) and Approval Order; (vi) Agent, as agent for Merchant and Buyer, is authorized to conduct, advertise, post signs, utilize signwalkers, and otherwise promote the Sale consistent with the Closing Store Advertising and Continuing Store Advertising, 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 (as defined below), subject to compliance with the Sale Guidelines and Approval Order; (vii) Agent shall be granted a limited, non-exclusive license and right to use until the Sale Termination Date all Intellectual Property in connection with the Sale; (viii) 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, the Buyer, 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; (ix) all utilities, landlords, creditors and other interested parties and all persons acting for or on their behalf shall not interfere with or otherwise impede the conduct of the Sale, or institute any action in any court (other than in the Bankruptcy Court) with respect to Merchandise, Inventory under Open Purchase Orders or the Designated F&E or before any administrative body which in any way directly or indirectly interferes with or obstructs or impedes the conduct of the Sale; (x) the Bankruptcy Court shall retain jurisdiction over the parties to enforce this Agreement; (xi) Agent shall not be liable for any claims against Merchant or Buyer other than as expressly provided for in this Agreement; (xii) subject to Agent having satisfied its payment obligations hereunder, 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 section 364(c) of Title 11, United States Code, 11 U.S.C. §§ 101-1330 (the “Bankruptcy Code”) senior to all other superpriority claims; (xiii) Agent shall be granted a valid, binding, enforceable and perfected security interest for the obligations of Merchant as provided for in Section 16 hereof (without the necessity of filing financing statements to perfect the security interests); (xiv) the Bankruptcy Court finds that time is of the essence in effectuating this Agreement and proceeding with the Sale uninterrupted; (xv) the Bankruptcy Court finds that the Merchant’s decisions to (a) enter into this Agreement and (b) perform under and make payments required by this Agreement is a reasonable exercise of the Merchant’s sound business judgment consistent with its fiduciary duties and is in the best interests of the Merchant, its estate, its creditors, and other parties in interest; (xvi) the Bankruptcy Court finds that this Agreement was negotiated in good faith and at arms' length between the Merchant, Buyer, and Agent and that Agent is entitled to the protection of section 363(m) of the Bankruptcy Code; (xvii) the Bankruptcy Court finds that Agent's performance under this Agreement will be in good faith and for valid business purposes and uses, as a consequence of which Agent is entitled to the protection and benefits of sections 363(m) and 364(e) of the Bankruptcy Code; (xviii) this Agreement is approved pursuant to Bankruptcy Code section 363; and (xix) in the event any of the provisions of the Approval Order are modified, amended or vacated by a subsequent order of the Bankruptcy Court or any other court, Agent shall be entitled to the protections provided in Bankruptcy Code sections 363(m) and 364(e) and, no such appeal, modification, amendment or vacatur shall affect the validity and enforceability of the sale or the liens or priority authorized or created under this Agreement or the Approval Order.

 

(b)          The willingness of Merchant to enter into the transactions contemplated under this Agreement is 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 Merchant:

 

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(1)          All representations and warranties of Agent and Buyer 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 on the Sale Commencement Date.

 

Section 11. Representations, Warranties and Covenants.

 

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

 

(a)           Merchant (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware (except as may be a result of the commencement and/or pendency of the Bankruptcy 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, prior to the Closing, 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 would 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)           Subject to entry of the Approval Order, the Merchant has the right, power and authority to execute and deliver this Agreement and each other document and agreement contemplated hereby (collectively, together with this Agreement, the “Agency Documents”) and to perform fully its obligations thereunder.  Subject to entry of the Approval Order, 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 would 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.  Subject to entry of the Approval Order, each of the Agency Documents has been duly executed and delivered by the Merchant and constitutes the legal, valid and binding obligation of the Merchant enforceable against it in accordance with its terms.

 

(c)           Merchant owns, and will own at all times prior to the Closing, good and marketable title to all of the Merchandise, Inventory under Open Purchase Orders and Designated F&E to be included in the Sale, free and clear of all Liens (other than Permitted Liens and Liens granted to the Agent hereunder).  Merchant shall not create, incur, assume or suffer to exist any security interest, lien or other charge or encumbrance upon or with respect to any of the Merchandise, Inventory under Open Purchase Orders or the Proceeds (or the Designated F&E or Other Proceeds) other than as provided herein (including the Permitted Liens).

 

(d)           The Sellers have maintained their pricing files (including the File) in the Ordinary Course of Business. All pricing files and records are accurate in all material respects as to the actual cost to the Sellers 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 discounts.  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 with respect to the Merchandise, as such calculations have been identified to Merchant by its retained service provider.

 

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(e)           Through the Sale Commencement Date, Merchant shall continue to ticket or mark all items of inventory received at the Stores 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.  Since August 1, 2016, Merchant has not removed any POS promotions, sale stickers, or other markings indicating items are on sale or on clearance from the Merchandise prior to the Sale Commencement Date, and has not raised, and will not raise, prices of any Merchandise, in each case, in contemplation of the Sale.

 

(f)           Since August 1, 2016, 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; provided, however, that in no event shall Merchant transfer any goods into the Stores without Agent’s consent from and after the date hereof other than replenishing goods in the Stores in the ordinary course of business prior to the Sale Commencement Date or pursuant to the Allocation Schedule.

 

(g)           To Sellers’ Knowledge, all Merchandise is in compliance in all material respects with all applicable federal, state and 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.

 

(h)           Subject to the provisions of the Approval Order, Agent shall have the right to the unencumbered use and occupancy of, and peaceful and quiet possession of, the Stores, the assets currently located at the Stores, and the utilities and other services provided at the Stores.  Merchant shall, until the Closing, 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 Store.  Except as otherwise restricted by the Bankruptcy Code or as provided herein and absent a bona fide dispute, until the Closing, Merchant shall remain current on all expenses and payables necessary or appropriate for the conduct of the Sale (other than those relating to any period prior to the commencement of the Bankruptcy Cases).

 

(i)            Subject to approval by the Bankruptcy Court or the Approval Order, Merchant will continue to pay until the Closing (or such later date as Merchant and Buyer may agree and, effective such date, Buyer will continue to pay throughout the Sale Term) all self-insured or Merchant-funded employee benefit programs for Retained Employees, including health and medical benefits and insurance and all proper claims made or to be made in accordance with such programs.

 

(j)            Since August 1, 2016, Merchant has not intentionally taken, and shall not until the Closing take, any actions with the intent of increasing the Expenses of the Sale, including without limitation increasing salaries or other amounts payable to employees, except to the extent an employee was due an annual raise in the ordinary course or in an effort to encourage one or more employees to remain in Merchant’s employ (such action not being taken with any intent to increase any expense in anticipation of the Sale).

 

(k)           Except as otherwise restricted by the Bankruptcy Code, in connection with any “store closing”, “inventory liquidation” or similar sales conducted by Merchant in connection with the Bankruptcy Cases or as provided herein and absent a bona fide dispute, since August 1, 2016, through the Sale Commencement Date Merchant covenants to continue to operate through the Sale Commencement Date, the Stores in all material respects in the ordinary course of business including without limitation 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 outside of the Merchant’s ordinary course of business; (iii) except as may occur in the ordinary course of business, not returning inventory to vendors and not transferring inventory or supplies out of or to the Stores; (iv) except as may occur in the ordinary course of business, not making any management personnel moves or changes at the Stores; and (v) replenishing the Stores in the ordinary course of business.

 

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(l)            To Sellers’ Knowledge, Merchant has not since August 1, 2016 shipped any Excluded Defective Merchandise from the Distribution Centers to the Stores.  Merchant will not knowingly ship any Excluded Defective Merchandise from the date of this Agreement from the Distribution Centers to the Stores.

 

(m)          Other than filing the Bankruptcy Case, as of the date of this Agreement, no action, arbitration, suit, notice, or legal, administrative or other proceeding before any court or governmental body has been instituted by or against the Merchant, or has been settled or resolved, or to Sellers’ Knowledge, is threatened against or affects Merchant, which questions the validity of this Agreement, or that, if adversely determined, would have a material adverse effect on the ability of Merchant to perform its obligations under this Agreement.

 

(n)           Merchant shall not, from or after September 6, 2016, offer any promotions or discounts at the Stores, E-Commerce Sites, any other retail store location, or any other retail sales channel, except in the ordinary course of business or in connection with any “store closing,”  liquidation or similar sales commenced prior to the Sale Commencement Date.

 

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

 

(a)           Each entity comprising Agent: (i) is a limited liability company duly and validly existing and in good standing under the laws of the State of Delaware; (ii) has all requisite power and authority to carry on its business as presently conducted and to consummate the transactions contemplated hereby; (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 Agent to execute and deliver this Agreement and perform fully its obligations hereunder.

 

(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, and no consent of any third party which has not been obtained is required therefor, other than as provided herein.  No contract or other agreement to which Agent is a party or by which Agent is otherwise bound will prevent or impair the consummation of the transactions contemplated by this Agreement.

 

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

 

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

 

(e)           Absent prior consent by the Merchant, Agent will not cause any non-emergency repairs or maintenance (emergency repairs are repairs necessary to preserve the security of a Store premise or to ensure customer safety) to be conducted at the Stores.

 

(f)           To the best of Agent's Knowledge, all Additional Agent Goods are in compliance with all applicable federal, state or local product safety laws, rules and standards.  All Additional Agent Goods shall be of like kind and no lesser quality to the Merchandise or Inventory under Open Purchase Orders located in the Stores.

 

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

 

(a)           Buyer:  (i) is a limited liability company duly organized, 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)           Buyer 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.  Buyer 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 Buyer for Buyer 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 Buyer and, constitutes the legal, valid and binding obligation of Agent enforceable in accordance with its terms.  No court order or decree of any federal, provincial, state or local governmental authority or regulatory body is in effect that would prevent or impair or is required for Buyer’s consummation of the transactions contemplated by this Agreement, 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 Buyer is a party or by which Buyer 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 Buyer, or has been settled or resolved, or to Buyer’s Knowledge, has been threatened against or affects Buyer, which questions the validity of this Agreement or any action taken or to be taken by Buyer in connection with this Agreement, or which if adversely determined, would have a material adverse effect upon Buyer’s ability to perform its obligations under this Agreement.

 

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Section 12. Insurance.

 

12.1         Merchant’s Liability Insurance.  Subject to (a) Agent’s obligations to reimburse Merchant under Section 4.1(s) of this Agreement and (b) Buyer’s obligations to reimburse Sellers under Section 4.1(4) of this Agreement and Section 6.6 of the APA, Merchant and Buyer shall each continue at its respective cost and expense until the Sale Termination Date, in each case, in such amounts as it currently has in effect (or in the case of Buyer, in effect as of the Closing Date), all of its respective liability insurance policies, including, but not limited to, commercial general liability, products liability, comprehensive public liability, auto liability and umbrella liability insurance, covering injuries to persons and property in, or in connection with, Merchant’s or Buyer’s, as applicable, operation of the Stores and E-Commerce Sites, in each case, in effect on the date hereof (collectively, the “Liability Insurance Policies”); and Merchant and Buyer, as applicable, shall cause Agent to be named as an additional named insured (as its interest may appear) with respect to all such policies.  Merchant and Buyer, as applicable, 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, Buyer  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 willful misconduct or grossly negligent acts or omissions of Agent, or Agent’s employees, independent contractors or agents.  Neither Merchant nor Buyer, as applicable, shall make any change in the amount of any deductibles or self-insurance amounts prior to Sale Termination Date without Agent’s prior written consent.  Buyer’s obligations under this Section 12.1 may be satisfied through the insurance coverage provided by Sellers pursuant to Section 6.6 of the APA.

 

12.2         Merchant’s Casualty Insurance.  Subject to (a) Agent’s obligations to reimburse Merchant under Section 4.1(s) of this Agreement and (b) Buyer’s obligations to reimburse Sellers under Section 4.1(s) of this Agreement and Section 6.6 of the APA, Merchant and Buyer shall continue until the Sale Termination Date fire, flood, theft and extended coverage casualty insurance, in each case, in effect on the date hereof (collectively, the “Casualty Insurance Policies”) covering the Merchandise and Inventory under Open Purchase Orders in a total amount equal to no less than the Cost Value thereof.  From and after the date of this Agreement until the Closing and the Sale Termination Date, as applicable, all such policies will also name Agent as loss payee (as its interest may appear).  In the event of a loss to the Merchandise or Inventory under Open Purchase Orders on or after the date of this Agreement, the proceeds of such insurance attributable to the Merchandise shall constitute Proceeds hereunder, and the proceeds of such insurance attributable to the Inventory under Open Purchase Orders shall constitute Other Proceeds.  Merchant or Buyer, as applicable, shall deliver to Agent certificates evidencing such insurance, setting forth the duration thereof and naming the Agent as loss payee, in form and substance reasonably satisfactory to Agent.  All such policies shall require at least thirty (30) days’ prior notice to the Agent of cancellation, non-renewal or material change during the Sale Term.  Neither Merchant nor Buyer shall make any change in the amount of any deductibles or self-insurance amounts prior to the Closing or the Sale Termination Date, as applicable, without Agent’s prior written consent.  Buyer’s obligations under this Section 12.2 may be satisfied through the insurance coverage provided by the Sellers pursuant to Section 6.6 of the APA.

 

12.3         Agent’s Insurance.  Agent shall maintain at Agent’s cost as an Expense hereunder throughout the Sale Term, in such amounts as it currently has in effect, commercial general liability policies covering injuries to persons and property in or in connection with Agent’s agency at the Store, and shall cause Merchant or Buyer, as applicable, to be named as an additional insured with respect to such policies.  Agent shall deliver to Merchant or Buyer, as applicable, certificates evidencing such insurance policies setting forth the duration thereof and naming Merchant or Buyer, as applicable, as an additional insured, in form and substance reasonably satisfactory to Merchant or Buyer, as applicable.  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 willful misconduct or grossly negligent acts or omissions of Merchant or Buyer or Merchant’s or Buyer’s employees, as applicable, independent contractors or agents (other than Agent or Agent’s employees, agents or independent contractors).  Agent shall not make any change in the amount of any deductibles or self insurance amounts prior to the Sale Termination Date without Merchant’s or Buyer’s, as applicable, prior written consent.

 

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12.4         Worker’s Compensation Insurance.  Merchant shall continue until the Benefits TSA Expiration Date and, thereafter, Buyer shall maintain, in full force and effect workers’ compensation insurance (including employer liability insurance) covering all Retained Employees in compliance with all statutory requirements.  For the avoidance of doubt, all cost, expenses and liabilities incurred in connection with such continuation and maintenance of workers’ compensation insurance shall be the responsibility of, and borne by, Buyer (or to the extent paid by Merchant, promptly reimbursed by Buyer), pursuant to Section 4.1(4).

 

Section 13. Indemnification.

 

13.1         Merchant’s and Buyer’s Indemnification.  Merchant and Buyer shall, severally as to themselves only,  indemnify and hold Agent and its officers, directors, employees, agents, representatives, and independent contractors (collectively, “Agent Indemnified Parties”) harmless from and against all claims, causes of action, demands, penalties, losses, liability, damage, or other obligations, including, without limitation, reasonable attorneys’ fees and expenses, directly or indirectly asserted against, resulting from or related to: (i) Merchant’s or Buyer’s, as applicable, material breach of or failure to comply with any of its agreements, covenants, representations or warranties contained in this Agreement; (ii) subject to Agent’s compliance with its obligations under Section 8.3 hereof, any failure by Merchant (for which Merchant shall have the indemnity obligations hereunder) or Buyer (for which Buyer shall have the indemnity obligations hereunder), 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; (iii) any failure of Merchant or Buyer, as applicable, to pay to its employees any wages, salaries or benefits due to such employees during the Sale Term; (iv) any consumer warranty or products liability claims relating to Merchandise or Inventory under Open Purchase Orders (in the case of Merchant, with respect to any such claims that arose prior to the Closing); (v) any liability or other claims asserted by customers, any of Merchant’s or Buyers, as applicable, 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); (vi) any harassment or any other unlawful, tortious, or otherwise actionable treatment of any customers, employees or agents of Agent by Merchant or Buyer, as applicable, or any of their respective representatives (other than Agent); (vi) any failure of Merchant or Buyer to pay to any Occupancy Expenses or Central Service Expenses during the Sale Term; and (vii) the gross negligence (including omissions) or willful misconduct of the Merchant or Buyer, as applicable, or their respective officers, directors, employees, agents (other than Agent) or representatives.

 

13.2         Agent Indemnification.  Agent shall indemnify and hold the Merchant and Buyer and their officers, directors, employees, agents and representatives harmless from and against all claims, causes of action, demands, penalties, losses, liability, damage, or other obligations, 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 this Agreement; (ii) any claims by any party engaged by Agent as an employee or independent contractor arising out of such employment; (iii) any harassment or any other unlawful, tortious or otherwise actionable treatment of any customers, employees or agents of the Merchant or Buyer, as applicable, by Agent or any of its representatives; (iv) any consumer warranty or products liability claims relating to Additional Agent Goods; (v) as set forth in Section 8.3 above; and (vi) the gross negligence (including omissions) or willful misconduct of Agent, its officers, directors, employees, agents or representatives.

 

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

 

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

 

(b)          Any representation or warranty made by Merchant, Buyer 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 entry of an order converting the Merchant’s bankruptcy case to a case under another chapter of the Bankruptcy Code (other than chapter 11) or the entry of an order appointing a chapter 11 trustee; or

 

(d)           The Sale is terminated prior to the Sale Termination Date 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 hereunder.

 

Upon an Event of Default, the non-defaulting party (in the case of (a) or (b) above), or Agent (in the case of (c) above) may in its discretion elect to terminate this Agreement, and any party’s damages or entitlement to equitable relief on account of an Event of Default shall (in addition to the right to terminate as provided above) be determined by a court of competent jurisdiction.

 

Section 15. Agent’s Security Interest.

 

(a)          Subject to entry of the Approval Order and payment of the Estimated Purchase Price at Closing (and the repayment in full at Closing from the Estimated Purchase Price of all DIP Obligations owed the DIP Lenders), each of Merchant and Buyer hereby grants to Agent first priority, senior security interests in and liens upon: (i) the Merchandise; (ii) the Additional Agent Goods; (iii) all Proceeds (including, without limitation, processor receivables and credit card Proceeds); (iv) the Designated F&E; (v) Inventory under Open Purchase Orders; (vi) Other Proceeds; and (vii) all “proceeds” (within the meaning of Section 9-102(a)(64) of the Code) of each of the foregoing (all of which are collectively referred to herein as the “Agent Collateral”).  Upon entry of the Approval Order, but subject to the Closing and to the preceding sentence, the security interests and liens granted to the Agent hereunder shall be deemed properly perfected without the necessity of filing UCC-1 financing statements or any other documentation.

 

(b)          Subject to entry of the Approval Order and payment of the Estimated Purchase Price at Closing (and the repayment in full at Closing from the Estimated Purchase Price of all DIP Obligations owed the DIP Lenders), neither Merchant nor Buyer shall sell, grant, assign or transfer any security interest in, or permit to exist any lien or encumbrance on, any of the Agent Collateral other than in favor of the Agent.

 

(c)           In the event of an occurrence of an Event of Default other than by Agent, in any jurisdiction where the enforcement of its rights hereunder is sought, the Agent shall have, in addition to all other rights and remedies, the rights and remedies of a secured party under the Code.

 

(d)          “Code” shall mean the Uniform Commercial Code as the same may be in effect from time to time in the State of New York.

 

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Section 16. Intentionally Omitted.

Section 17. Miscellaneous.

17.1         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:

	
If to the Agent:

	 	
HILCO MERCHANT RESOURCES, LLC

	 	 	
5 Revere Drive, Suite 206

	 	 	
Northbrook, IL 60062

	 	 	
Attention: Ian S. Fredericks

	 	 	
Tel: (847) 418-2075

	 	 	
Fax: (847) 897-0859

	 	 	
Email: ifredericks@hilcotrading.com

	 	 	 
	 	 	
GORDON BROTHERS RETAIL PARTNERS, LLC

	 	 	
Prudential Tower

	 	 	
800 Boylston Street

	 	 	
Boston, MA 02119

	 	 	
Attn: Michael Chartock

	 	 	
Tel: 617.210.7116

	 	 	
Email: mchartock@gordonbrothers.com

	 	 	 
	 	 	
With a copy (which shall not constitute notice to Agent) to:

	 	 	 
	 	 	
Paul Hastings LLP

	 	 	
71 South Wacker Drive, Suite 4500

	 	 	
Chicago, Illinois 60606

	 	 	
Attn: Chris Dickerson

	 	 	
Tel:   (312) 499-6045

	 	 	
Email: chrisdickerson@paulhastings.com

	 	 	 
	
If to Merchant:

	 	
Aéropostale, Inc.

	 	 	
112 West 34th Street

	 	 	
22nd Floor

	 	 	
New York, NY 10120

	 	 	
Attention: Marc Schuback

	 	 	
E-mail: mschuback@aeropostale.com

	 	 	 
	 	 	
With a copy (which shall not constitute notice to Sellers) to:

	 	 	 
	 	 	
Weil, Gotshal & Manges LLP

	 	 	
767 Fifth Avenue

	 	 	
New York, New York 10153

	 	 	
Attention: Michael J. Aiello , Ray C. Schrock, P.C., and Gavin Westerman

	 	 	
Facsimile: (212) 310-8007

	 	 	
E-mail: michael.aiello@weil.com;

	 	 	ray.schrock@weil.com; gavin.westerman@weil.com

 

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If to Buyer:

	 	
Authentic Brands Group

	 	 	
1411 Broadway

	 	 	
New York, New York 10001

	 	 	
Attention:  Jay Dubiner

	 	 	
General Counsel

	 	 	
Phone:  (212) 760-2418

	 	 	
E-mail:   jdubiner@abg-nyc.com

	 	 	 
	 	 	
Simon Aero, LLC

	 	 	
c/o Simon Property Group

	 	 	
225 West Washington Street

	 	 	
Indianapolis, Indiana 46204

	 	 	
Attention: Stanley Shashoua

	 	 	
Steven Fivel

	 	 	
E-Mail:   SShashoua@simon.com

	 	 	
SFivel@simon.com

	 	 	
GGP-Aero, LLC

	 	 	
c/o General Growth Properties

	 	 	
110 N. Wacker Dr.

	 	 	
Chicago, IL 60606

	 	 	
Attention: Shobi Kahn, Marvin Levine

	 	 	
shobi.kahn@generalgrowth.com

	 	 	
marvin.levine@generalgrowth.com

	 	 	 
	 	 	
With a copy (which shall not constitute notice to Buyer) to:

	 	 	 
	 	 	
DLA Piper LLP (US)

	 	 	
1251 Avenue of the Americas

	 	 	
New York, New York 10020

	 	 	
Attention: John K. Lyons

	 	 	
Ann Lawrence

	 	 	
E-mail: John.Lyons@dlapiper.com

	 	 	
Ann.Lawrence@dlapiper.com

	 	 	 
	 	 	
Paul, Weiss, Rifkind, Wharton & Garrison LLP

	 	 	
1285 Avenue of the Americas

	 	 	
New York, New York 10019

	 	 	
Attention: Brian Hermann

	 	 	
Edward T. Ackerman

	 	 	
E-mail: bhermann@paulweiss.com

	 	 	
eackerman@paulweiss.com

	 	 	 
	 	 	
Kelley Drye & Warren LLP

	 	 	
101 Park Avenue, 27th Floor

	 	 	
New York, NY 10178

	 	 	
Attention: Robert L. LeHane

	 	 	
Email:  rlehane@kelleydrye.com

 

24

17.2         Governing Law; Exclusive Jurisdiction.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, without reference to any conflict of laws provisions thereof, except where governed by the Bankruptcy Code.  Each of the parties hereto irrevocably and unconditionally submits, for itself and its properties, to the exclusive jurisdiction of the Bankruptcy Court, in any action or proceeding arising out of or relating to this Agreement.

17.3         Amendments; Third Party Rights.  This Agreement may not be modified except in a written instrument executed by each of the parties hereto; provided, however, that, (a) until the DIP Agent has received payment in full of all DIP Obligations, the DIP Agent’s and Pre-Petition Term Agent’s consent shall be required to amend provisions of this Agreement pertaining to either or both of the DIP Agent or Pre-Petition Term Agent (b) upon payment in full of the DIP Obligations, the Pre-Petition Term Agent’s consent shall be required to amend provisions of this Agreement if such amendment would adversely affect the rights or interests of the Pre-Petition Term Loan Agent for the duration of the Sale Term.  Additionally, the DIP Agent, DIP Lenders, the Pre-Petition Term Agent, and the Pre-Petition Term Loan Lenders shall be third party beneficiaries with respect to those provisions of this Agreement that expressly reference them.

17.4         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.

  

17.5         Currency.  All reference to dollars in this Agreement and all schedules, exhibits, and ancillary documents related to this Agreement shall refer to US dollars.

17.6         Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon Agent, Buyer and Merchant and their respective successors and permitted assigns, including, but not limited to, any chapter 11 or chapter 7 trustee; provided, however, that this Agreement may not be assigned by Merchant, Buyer, or Agent to any party without the prior written consent of the other.

17.7         Execution in Counterparts.  This Agreement may be executed in one or more counterparts.  Each such counterpart shall be deemed an original but all such counterparts together shall constitute one and the same agreement.  This Agreement, to the extent signed and delivered by means of a facsimile machine, electronic mail or other electronic transmission in which the actual signature is evident, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto, each other party hereto or thereto shall re-execute original forms hereof and deliver them to all other parties.  No party hereto shall raise the use of a facsimile machine, electronic mail, or other electronic transmission in which the actual signature is evident to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine, electronic mail or other electronic transmission in which the actual signature is evident as a defense to the formation of a contract and each party forever waives such defense.  In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against which enforcement is sought.

25

17.8         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.

17.9         Wiring of Funds.  All amounts required to be paid by Merchant, Agent or Buyer under any provision of this Agreement shall be made by wire transfer of immediately available funds which shall be wired by Merchant, Agent or Buyer, as applicable, 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 Merchant, Agent or Buyer, 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.

17.10       Nature of Remedies.  No failure to exercise and no delay in exercising, on the part of the Agent, any right, remedy, power, privilege or adjustment hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, privilege, or adjustment hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, privilege, or adjustment.

17.11       Effectiveness.  For the avoidance, unless otherwise agreed to by the Merchant, Buyer, and Agent in writing, this Agreement shall only become effective upon the Closing.

17.12       APA Obligations.  Agent hereby covenants and agrees to comply with the provisions of the APA applicable to Agent, including, without limitation, to comply with its obligations under Section 2.3(b), Section 2.6, Section 2.7(b)(iii), Section 2.8(d) and Section 9.11 of the APA and clause (q) of the definition of “Excluded Liabilities” in the APA.

17.13       Entire Agreement.  This Agreement and the APA contain the entire agreement between the Merchant and Agent, and this Agreement, the APA, the Letter Agreement, and such other written agreements executed between the Buyer and Agent contain the entire agreement between the Buyer and Agent 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.  In the event of any ambiguity, conflict or inconsistency between the terms of this Agreement and the terms of the APA, the applicable terms of the Agency Agreement will govern and control in all respects, except that in the event of any ambiguity, conflict or inconsistency between the terms of this Agreement and Section 2.3(b), Section 2.6, Section 2.7(b)(iii), Section 2.8(d) or Section 9.11 of the APA or clause (q) of the definition of “Excluded Liabilities” in the APA, the applicable provisions of the APA will govern and control in all respects.

 

26

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

	 	
AGENT:

	 	 
	 	 	 	 	 
	 	
HILCO MERCHANT RESOURCES, LLC

	 
	 	 	 	 	 
	 	
By:

	
/s/ Ian S. Fredericks

	 
	 	 	
Name:

	
 Ian S. Fredericks

	 
	 	 	
Title:

	
SVP & CLO

	 
	 	 	 	 	 
	 	
GORDON BROTHERS RETAIL PARTNERS, LLC

	 
	 	 	 	 	 
	 	
By:

	
/s/ Richard Edwards

	 
	 	 	
Name:

	
 Richard Edwards

	 
	 	 	
Title:

	
Co-President - Retail

	 

 

[Signature Page to Agency Agreement]

 

	 	
MERCHANT:

	 	 
	 	
AÉROPOSTALE, INC.

	 	
AÉROPOSTALE WEST, INC.

	 	
AEROPOSTALE PROCUREMENT COMPANY, INC.

	 	
JIMMY’Z SURF CO., LLC

	 	
AEROPOSTALE HOLDINGS, INC.

	 	
AERO GC MANAGEMENT LLC

	 	
AEROPOSTALE PUERTO RICO, INC.

	 	
AEROPOSTALE LICENSING, INC.

	 	
P.S. FROM AEROPOSTALE, INC.

	 	
GOJANE LLC

	 	
By:

	
/s/ David Dick

	 
	 	 	
Name:

	
David Dick

	 
	 	 	
Title:

	
Senior Vice President and Chief Financial Officer

	 

 

[Signature Page to Agency Agreement]

 

	 	
BUYER:

	 
	 	 	 	 	 
	 	
AERO OPCO LLC

	 
	 	 	 	 	 
	 	
By:

	
/s/ Stanley Shashoua

	 
	 	 	
Name:

	
Stanley Shashoua

	 
	 	 	
Title:

	
 Authorized Signatory

	 

 

[Signature Page to Agency Agreement]

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