EXECUTION COPY
INTERIM MANAGEMENT AGREEMENT
AGREEMENT, made as of this 2nd day of February, 2000 by and
among Filene's Basement, Inc. and Filene's Basement Corp. (collectively,
"Debtor"), Base Acquisition Corp. ("Manager") and Value City Department Stores,
Inc. (the "Guarantor").
R E C I T A L S:
WHEREAS, Debtor desires Manager to manage all of the Debtor's
operations relating to the retail sale and distribution of men's and women's
fashion apparel and accessories (the "Business") during the term of this
Agreement, and Manager is willing to manage the Business in accordance with
terms hereinafter set forth; and
WHEREAS, to induce Debtor to enter into this Agreement,
Guarantor is willing to guarantee the performance of all of Manager's
obligations under this Agreement on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
APPOINTMENT OF MANAGER
Subject to the approval of the United States Bankruptcy Court
for the District of Massachusetts or such other court having jurisdiction of the
Debtor's chapter
11 cases (the "Bankruptcy Court"), Debtor hereby appoints Manager as the
exclusive manager of the Business, and Manager accepts such appointment on the
terms and conditions herein set forth.
ARTICLE II.
TERM OF AGREEMENT
The term of this Agreement shall be for a period commencing on
the date the Bankruptcy Court approves this Agreement and terminating on the
date the transaction under the Asset Purchase Agreement between Debtor and
Manager (the "Purchase Agreement") closes (the "Purchase Agreement Closing") or
unless sooner terminated in accordance with the provisions of this Agreement
(the "Operating Period"), but in no event shall the Operating Period extend past
the date of the Purchase Agreement Closing.
ARTICLE III.
DUTIES OF MANAGER
During the Operating Period, Manager shall have complete and
exclusive control over, and responsibility for, the daily operation of the
Debtor's business, it being expressly agreed that the issues related to the
Debtor's rights and obligations in its chapter 11 cases shall remain in the sole
and exclusive control of the Debtor, as Debtor-in-Possession, subject to
approval of the Bankruptcy Court as needed and subject to the rights of other
parties in interest to be heard. Manager agrees that its duties shall include,
but not be limited to, the following:
1. To use commercially reasonable efforts and due diligence in the
management and operation of the Business.
2
2. To perform its duties in a commercially reasonable manner.
3. To supervise employees of the Debtor as is necessary or appropriate
to operate the Business, provided, however, during the Operating Period,
Manager will not cause Debtor to enter into any employment agreement with
any employee of Debtor whose duties relate to the operations of the
Business.
4. To supervise all administrative, bookkeeping, accounting and
clerical services, including the maintenance of payroll records, as
necessary for the operation and maintenance of the Business,
5. To approve the purchase of all inventory, materials and supplies
required for the operation of the Business. Debtor acknowledges that
Manager shall be permitted to purchase inventory from affiliates of Manager
at an amount not to exceed the cost of such inventory to such affiliates
plus 10% (the "Cost"). Manager shall cause Debtor to pay invoices relating
to such inventory in accordance with the terms and in the ordinary course
of the Debtor's Business. Debtor agrees that, to the extent Debtor closes a
transaction whereby Debtor sells all or substantially all of the assets of
the Business, or another transaction similar to the transaction
contemplated by the Purchase Agreement, with another purchaser other than
the Manager (a "Third Party Transaction"), the Cost of any such inventory,
materials or supplies not otherwise paid by Debtor shall be paid at, and
from the proceeds of, the closing of such Third Party Transaction.
6. To maintain the Debtor's property as is reasonably necessary for
the proper maintenance and operation of the Business.
3
7. To give Debtor prompt notice of any claims made against Debtor, or
Debtor and Manager, and to cooperate fully with Debtor and with any
insurance carrier to ensure that all such claims will be properly
investigated and defended.
8. To comply at Debtor's sole cost and expense (except as provided in
the Purchase Agreement in the event of a Purchase Agreement Closing), with
all the terms, conditions and obligations of all leases, contracts and
other agreements in connection with the Business and promptly notify Debtor
of the receipt of any notice of default or non-compliance received in
connection with such agreements.
9. To cause, at Debtor's sole cost and expense, all such acts and
things to be done in connection with the Business as shall be necessary to
comply with all statutes, ordinances, laws, rules, regulations, orders and
determinations affecting or issued in connection with the Business by any
governmental authority having jurisdiction thereon, in accordance with
Debtor's customary business practices.
10. Not to permit or suffer any lien, charge or encumbrance to be
placed on the Business or any of the Debtor's assets associated with the
Business by reason of actions taken by Manager after the effective date
hereof, other than those liens, charges or encumbrances asserted prior to
the date hereof.
11. Notwithstanding anything to the contrary contained herein, Manager
shall not, except in the ordinary course of business, (i) convey or pledge
any property of Debtor, except for the sale of inventory in the ordinary
course of business; (ii) institute or defend lawsuits or other legal
proceedings on behalf of the Debtor; or (iii) borrow money or execute any
promissory note or other obligation to pay money on
4
behalf of Debtor, other than in connection with the debtor in possession
financing facility (the "DIP Facility"), it being agreed that nothing
herein shall permit Manger to amend the DIP Facility, unless such amendment
is consented to by Debtor, such consent not to be unreasonably withheld.
12. Subject to availability of funds under the DIP Facility, Manager
shall pay the lawful obligations of the Debtor, including the
administrative expenses of the Debtor's estate.
13. To conduct GOB sales at the Debtor's Aisle 3 stores.
14. To do or cause to be done all such other acts and things as may be
reasonably necessary to protect Debtor's rights with respect to the
Business and Debtor's assets and the operation of the Business.
ARTICLE IV.
INSURANCE
Manager agrees to maintain, at Debtor's sole cost and expense
(except as provided in the Purchase Agreement in the event of a Purchase
Agreement Closing) Debtor's existing insurance coverage during the Operating
Period, or to otherwise procure and maintain insurance coverage on at least as
economically advantageous terms to Debtor. In the event that such existing
insurance coverage is involuntarily terminated, Manager agrees, with Debtor's
full cooperation and at Debtor's sole cost and expense (except as provided in
the Purchase Agreement in the event of a Purchase Agreement Closing), to use its
commercially reasonable efforts to procure and maintain for the
5
duration of the Operating Period property, liability, workmen's compensation
coverage and other insurance coverage on the Business, its assets and its
operation substantially of the types and in the amounts presently maintained by
Debtor. Manager shall ensure that all such insurance policies shall be carried
in the name of the Debtor, with Manager and such other persons named as
additional insureds or otherwise as may be required under the Debtor's leases,
contracts and financing agreements.
ARTICLE V.
WORKING CAPITAL
1. Notwithstanding any other provision of this Agreement, Manager
shall have no obligation hereunder to provide any working capital or funds
to Debtor for the Business during the Operating Period nor shall Manager be
responsible for any losses incurred by the Debtor, the Business or by the
Manager in connection with its operation of the Business, except as
expressly provided herein and in the Purchase Agreement in the event of a
Purchase Agreement Closing, in which case, as more fully set forth in the
Purchase Agreement, Manager will assume all losses directly related to
operation of the Business during the Operating Period.
2. All working capital and funds required for the operation of the
Business during the Operating Period shall be either generated by the
operation of the Business or provided in accordance with the DIP Facility
approved by the Bankruptcy Court.
3. Upon request no more than once per week, Manager will cause Debtor
to send to the lenders under the DIP Facility (the "DIP Lenders") and
Debtor's
6
Official Committee of Unsecured Creditors (the "Committee") a report or
reports with respect to the Business in a form prescribed by Debtor and
approved by the DIP Lenders and the Committee, which reports will contain
appropriate and reasonable information.
ARTICLE VI.
ACCOUNTS, RECORDS AND REPORTS
1. Manager will cause the Debtor to maintain Debtor's bank accounts
and deposit into those accounts all monies received from the operation of
the Business; will disburse the same only in connection with the operation
of the Business; will not commingle such monies with other funds of Manager
or others; and will hold such monies for the benefit of Debtor in
accordance with the provisions of this Agreement.
2. Manager shall cause the Debtor to keep full and adequate books of
account and such other records in compliance with Debtor's past practice
and industry standards and as are necessary or advisable to reflect
correctly and completely the results of the operation of the Business.
3. Manager will cause the Debtor to deliver detailed statements of
receipts, disbursements, accruals, assets, liabilities, and results of
store operations in such detail and at such time or times as shall be
reasonably required by Debtor to satisfy its financial reporting
requirements. If this Agreement is terminated, Manager will deliver to
Debtor, DIP Lenders and the Committee at Debtor's sole cost and expense a
financial statement for the Operating Period, as certified by Manager's
independent auditor, within 45 days of the end of the Operating Period, as
well as
7
copies of all books, records, reports, documents and other media of an kind
or nature generated during the Operating Period in connection with this
Agreement.
4. Upon reasonable advance written notice, Manager shall cause Debtor
to provide reasonable access to the DIP Lenders and the Committee, and
their accountants, attorneys and agents, to the books and records of the
Business at mutually agreeable times during the Operating Period.
5. Debtor shall have access to the books and records of the Business.
ARTICLE VII.
EARLY TERMINATION
1. If Manager shall fail to keep, observe or perform any material
covenant, agreement, term or provision of this Agreement to be kept,
observed or performed by it for a period of five days after receipt of
written notice thereof, then Debtor shall have the right to terminate this
Agreement upon five days' written notice to Manager, given at any time
after the period of grace applicable thereto, and thereupon this Agreement
shall terminate upon the expiration of such five day period.
2. If Debtor shall fail to keep, observe or perform any material
covenant, agreement, term or provision of this Agreement to be kept,
observed or performed by it for a period of five days after receipt of
written notice thereof, then Manager shall have the right to terminate this
Agreement upon five days' written notice to Debtor, given at any time after
the period of grace applicable thereto, and thereupon this Agreement shall
terminate upon the expiration of such five day period.
8
3. If (i) Debtor closes the transaction contemplated in the Purchase
Agreement with Manager, (ii) Debtor closes a Third Party Transaction, or
(iii) the Purchase Agreement shall terminate, this Agreement shall
terminate as of the Purchase Agreement Closing or as of the closing of the
Third Party Transaction, or as of the termination of the Purchase
Agreement, respectively.
4. Except as provided in Article VII, Section 5, and Article VIII upon
the termination of this Agreement under the provisions of this Article VII,
neither party hereto shall have any liability to the other party for any
reason whatsoever.
5. Neither Debtor nor Manager will assert against the other, and each
hereby waives with respect to each other, any claims for any losses,
damages, liabilities or expenses (including attorneys' fees and expenses)
incurred or sustained by either of them on account of damage or injury to
persons or property or otherwise arising out of the operation or
maintenance of the Business, other than losses incurred or sustained due to
the gross negligence or willful misconduct of the other party and/or to the
extent that the same are covered by the aforesaid insurance policies.
6. From and after the date hereof, Debtor shall indemnify and save and
hold harmless Manager from, against, for and in respect of any and all
damages, losses, obligations, liabilities, deficiencies, costs, expenses,
including, without limitation, interest, penalties, reasonable attorneys'
fees and reasonable amounts paid in investigation, defense and/or
settlement, suffered, sustained, incurred or required to be paid by Manager
by reason of, or in connection with, or arising out of any demand, claim,
suit, action, investigation or proceeding by any person or entity not a
party to
9
this Agreement with respect to the conduct of the Business by Manager
during the Operating Period, other than conduct on the part of Manger
constituting willful misconduct or gross negligence.
ARTICLE VIII.
MANAGEMENT FEE
1. Manager shall earn a monthly management fee (the "Management Fee")
of 1% of sales in the stores operated pursuant to this Agreement, which fee
shall be paid to Manager at the closing of the Third Party Transaction with
another bidder, or upon termination of this Agreement for any reason other
than Manager's default.
2. If the transaction contemplated by the Purchase Agreement closes
with Manager, Manager shall waive its Management Fee hereunder.
ARTICLE IX.
CONFIDENTIALITY
The Manager shall not dispense, copy, use, sell or disclose,
directly or indirectly, any Confidential Information without obtaining the
express written consent of the Debtor, or otherwise as may be required by
applicable law. For purposes of this section, "Confidential Information" shall
include non-public, proprietary information concerning the Debtor and its
Business. The term Confidential Information shall not include, however,
information which was made available by Debtor to any other party on a
non-confidential basis or becomes generally available to the public other than
as a result of a disclosure by the Manager.
10
ARTICLE X.
LICENSE TO USE INTELLECTUAL PROPERTY
During the Operating Period, Debtor shall grant to Manager a
non-exclusive license to use the tradenames, trademarks and other intellectual
property of Debtor used in connection with the Business (as more fully described
in Schedules 3.6(a) and 3.6(k) of the Purchase Agreement), but solely in
connection with its obligations hereunder. Such license will terminate upon the
termination of this Agreement.
ARTICLE XI.
AGREEMENT NOT AN INTEREST IN REAL PROPERTY
This Agreement shall not be deemed at any time to grant an
interest in or a lien of any nature or kind against any of the Debtor's real or
personal property.
ARTICLE XII.
NO PARTNERSHIP OR JOINT VENTURE
Nothing contained in this Agreement shall constitute or be
construed to be or create a partnership or joint venture between Debtor, its
successors or assigns, on the one part, and either Manager or Guarantor, or
both, or their successors or assigns, on the other part.
ARTICLE XIII.
JURISDICTION
11
Any unresolved controversy or claim between the parties hereto
relating to, arising out of, or in any way connected with this Agreement or any
term or condition hereof or the performance by any party of its obligations
hereunder, shall be submitted to the Bankruptcy Court for resolution.
ARTICLE XIV.
GENERAL PROVISIONS
1. This Agreement contains the entire agreement between the parties
regarding the management of the Business and shall supersede all previous
communications and agreements, whether oral or written, with respect to the
subject matter hereof and the provisions hereof may not be modified or
superseded except by an instrument in writing signed by a duly authorized
officer or representative of each of the parties hereto.
2. If any term or provision of this Agreement is held to be illegal or
unenforceable, then this Agreement, except for such part or parts thereof,
shall continue to be in full force and effect.
3. This Agreement shall inure to the benefit of and be binding upon
each of the parties hereto and their respective successors and assigns and
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder. Neither the rights nor the duties of Manager
hereunder may be assigned, in whole or in part.
12
4. All questions relating to the validity, interpretation, rights and
remedies of the parties under this Agreement shall be decided solely in
accordance with the laws of the State of New York.
5. Any notice, request or other communication with respect to this
Agreement shall be in writing and shall be deemed to have been duly given
it delivered personally or sent by overnight mail or by receipted facsimile
to the parties at the addresses set forth below:
If to Debtor: Filene's Basement Corp.
Filene's Basement, Inc.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which Mintz ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
shall not constitute Popeo PC
notice) to: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇▇ White LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Purchaser: Base Acquisition Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇ ▇▇▇▇
and
Schottenstein Stores Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which Weil, Gotshal & ▇▇▇▇▇▇ LLP
shall not constitute ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
notice) to: ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party by written notice to the others may change than
address to which notices shall be directed.
6. This Agreement is expressly subject to the approval of the
Bankruptcy Court.
14
IN WITNESS WHEREOF, the parties have caused their respective
corporate names to be hereunto subscribed as of the date and year first above
written.
FILENE'S BASEMENT, INC. and
FILENE'S BASEMENT CORP.
By:
---------------------------------
BASE ACQUISITION CORP.
By:
---------------------------------
15