Exhibit 10.2
[Execution Version]
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT ("Intercreditor
Agreement"), dated as of July 8, 2004, is by and between CONGRESS FINANCIAL
CORPORATION, a Delaware corporation ("Senior Creditor" as hereinafter further
defined), and CHELSEY FINANCE, LLC, a Delaware limited liability company
("Junior Creditor" as hereinafter further defined). Senior Creditor and Junior
Creditor are sometimes individually referred to herein as a "Creditor" and
collectively as "Creditors."
W I T N E S S E T H:
WHEREAS, Junior Creditor has made a loan or provided other financial
accommodations to Brawn of California, Inc., Gump's By Mail, Inc., Gump's Corp.,
Hanover Realty, Inc., The Company Store Factory, Inc., The Company Office, Inc.,
Silhouettes, LLC, Hanover Company Store, LLC, Domestications, LLC, Keystone
Internet Services, LLC, and The Company Store Group, LLC (collectively,
"Borrowers" as hereinafter further defined), which loans or other financial
accommodations are secured by assets and properties of Borrowers and Hanover
Direct, Inc. ("Hanover" as hereinafter further defined), Hanover Home Fashions
Group, LLC, Clearance World Outlets, LLC, Scandia Down, LLC, LaCrosse
Fulfillment, LLC, D.M. Advertising, LLC, American Down & Textile, LLC and
Hanover Gifts, Inc. (collectively, "Guarantors"; and together with Borrowers,
collectively, "Debtors"); and
WHEREAS, Senior Creditor has entered or is about to enter into financing
arrangements with Debtors, pursuant to which Senior Creditor may, upon certain
terms and conditions, make loans and provide other financial accommodations to
Debtors secured by certain assets and properties of Debtors; and
WHEREAS, Creditors desire to enter into this Intercreditor Agreement to
(i) confirm the relative priority of the security interests of each Creditor in
the assets and properties of Debtors, (ii) provide for the orderly sharing among
Creditors, in accordance with such priorities, of proceeds of such assets and
properties upon any foreclosure thereon or other disposition thereof, and (iii)
agree upon the terms of the subordination of the obligations of Debtors to
Junior Creditor and related matters;
NOW, THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and in this Intercreditor Agreement, the following terms
shall have the meanings ascribed to them below:
1.1 "Agreements" shall mean, collectively, the Senior Creditor
Agreements and the Junior Creditor Agreements.
1.2 "Asset Sales" shall have the meaning given in the Loan Agreement.
1.3 "Borrowers" shall mean Brawn of California, Inc., a California
corporation, Gump's By Mail, Inc., a Delaware corporation, Gump's Corp., a
California corporation, Hanover Realty, Inc., a Virginia corporation, The
Company Store Factory, Inc., a Delaware corporation, The Company Office, Inc., a
Delaware corporation, Silhouettes, LLC, a Delaware limited liability company,
Hanover Company Store, LLC, a Delaware limited liability company,
Domestications, LLC, a Delaware limited liability company, Keystone Internet
Services, LLC, a Delaware limited liability, and The Company Store Group, LLC, a
Delaware limited liability company, and their respective successors and assigns.
1.4 "Business Day" shall have the meaning given in the Loan Agreement.
1.5 "Capital Stock" shall have the meaning given in the Loan Agreement.
1.6 "Certificate of Designation of the Series D Preferred Stock" shall
have the meaning given in the Loan Agreement.
1.7 "Chelsey Warrants" shall have the meaning given in the Loan
Agreement.
1.8 "Collateral" shall mean all of the property and interests in
property, real or personal, tangible or intangible, now owned or hereafter
acquired by any Debtor in or upon which either or both of Creditors at any time
has a Lien, and including, without limitation, all proceeds of such property and
interests in property.
1.9 "Creditors" shall mean, collectively, Senior Creditor and Junior
Creditor, and their respective successors and assigns.
1.10 "Debtors" shall mean, collectively, Borrowers and Guarantors, and
their successors and assigns, including, without limitation, a receiver, trustee
or debtor-in-possession on behalf of such person or on behalf of any such
successor or assign.
1.11 "EBITDA" shall have the meaning given in the Loan Agreement.
1.12 "Excess Availability" shall have the meaning given in the Loan
Agreement.
1.13 "Event of Default" shall have the meaning given in the Loan
Agreement.
1.14 "Guarantors" shall mean, collectively, Hanover, Hanover Home
Fashions Group, LLC, a Delaware limited liability company, Clearance World
Outlets, LLC, a Delaware limited liability company, Scandia Down, LLC, a
Delaware limited liability company, LaCrosse Fulfillment, LLC, a Delaware
limited liability company, D.M. Advertising, LLC, a Delaware limited liability
company, American Down & Textile, LLC, a Delaware limited liability
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company, and Hanover Gifts, Inc., a Virginia corporation, and their respective
successors and assigns.
1.15 "Hanover" shall mean Hanover Direct, Inc., a Delaware corporation,
and its successors and assigns.
1.16 "Incipient Default" shall have the meaning given in the Loan
Agreement.
1.17 "Junior Creditor" shall mean Chelsey Finance, LLC, a Delaware limited
liability company, and its successors and assigns.
1.18 "Junior Creditor Agreements" shall mean, collectively, the Loan and
Security Agreement, dated as of the date hereof, among Junior Creditor and
Debtors and all agreements, documents and instruments at any time executed
and/or delivered by Debtors or any other person to, with or in favor of Junior
Creditor in connection therewith or related thereto, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.19 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtors to Junior
Creditor, including principal, interest, charges, fees, premiums, indemnities
and expenses, however evidenced, whether as principal, surety, endorser,
guarantor or otherwise, whether arising under the Junior Creditor Agreements or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Junior Creditor
Agreements or after the commencement of any case with respect to Debtors under
the U.S. Bankruptcy Code or any similar statute (and including, without
limitation, any principal, interest, fees, costs, expenses and other amounts,
whether or not such amounts are allowable in whole or in part, in any such case
or similar proceeding), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and whether arising directly or howsoever
acquired by Junior Creditor.
1.20 "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance (including, but
not limited to, easements, rights of way and the like), lien (statutory or
other), security agreement or transfer intended as security, including without
limitation, any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease or any financing lease having
substantially the same economic effect as any of the foregoing.
1.21 "Loan Agreement" shall mean the Loan and Security Agreement, dated
November 14, 1995, among Senior Creditor, Borrowers and Guarantors, as
heretofore amended and as the same may hereafter be amended, modified,
supplemented, extended, renewed, restated, refinanced, replaced or restructured.
1.22 "Net Proceeds" shall have the meaning given in the Loan Agreement.
1.23 "Payment in full" or "payment in full" shall mean the indefeasible
payment and satisfaction in full in immediately available funds of all of the
Senior Debt and the termination of
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the financing arrangements provided by Senior Creditor to Debtors (but not
including for this purpose the refinancing or replacement of the Senior
Creditor). If after receipt of any payment of, or proceeds of collateral applied
to the payment of, any of the Senior Debt or Senior Creditor is required to
surrender or return such payment or proceeds to any person for any reason, then
the Senior Debt intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Subordination Agreement shall continue in full
force and effect as if such payment or proceeds had not been received by Senior
Creditor.
1.24 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without imitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock company, trust, joint venture, or other
entity or any government or any agency or instrumentality or political
subdivision thereof.
1.25 "Senior Creditor" shall mean Congress Financial Corporation, a
Delaware corporation, and its successors and assigns (and including any other
lender or group of lenders that at any time refinances, replaces or succeeds to
all or any portion of the Senior Debt or is otherwise party to the Senior
Creditor Agreements).
1.26 "Senior Creditor Agreements" shall mean, collectively, the Loan
Agreement and all agreements, documents and instruments at any time executed or
delivered by Debtors or any other person to, with or in favor of Senior Creditor
in connection therewith or related thereto, as all of the foregoing now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated,
refinanced, replaced or restructured (in whole or in part and including any
agreements with, to or in favor of any other lender or group of lenders that at
any time refinances, replaces or succeeds to all or any portion of the Senior
Debt).
1.27 "Senior Debt" shall mean any and all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtors to Senior
Creditor or its affiliates or participants, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, in connection with or
related to the Senior Creditor Agreements, whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal term
of the Senior Creditor Agreements or after the commencement of any case with
respect to Debtors under the U.S. Bankruptcy Code or any state insolvency law or
similar statute (and including, without limitation, any principal, interest,
fees, costs, expenses and other amounts, which would accrue and become due but
for the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in any such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and whether arising directly
or howsoever acquired by Senior Creditor.
1.28 "Solvent" shall have the meaning given in the Loan Agreement.
1.29 "Subsidiary" shall have the meaning given in the Loan Agreement.
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1.30 All terms defined in the Uniform Commercial Code as in effect in the
State of New York, unless otherwise defined herein shall have the meanings set
forth therein. All references to any term in the plural shall include the
singular and all references to any term in the singular shall include the
plural.
2. SECURITY INTERESTS; PRIORITIES; REMEDIES
2.1 Acknowledgement of Liens. Each Creditor hereby acknowledges that the
other Creditor has been granted a Lien upon the Collateral.
2.2 Priority of Liens. Notwithstanding the order or time of attachment, or
the order, time or manner of perfection, or the order or time of filing or
recordation of any document or instrument, or other method of perfecting a
security interest in favor of each Creditor in any Collateral, and
notwithstanding any conflicting terms or conditions which may be contained in
any of the Agreements, the Liens upon the Collateral of Senior Creditor have and
shall have priority over the Liens upon the Collateral of Junior Creditor and
such Liens of Junior Creditor are and shall be, in all respects, subject and
subordinate to the Liens of Senior Creditor therein to the full extent of the
Senior Debt.
2.3 Priorities Unaffected by Action or Inaction. The lien priorities
provided in Section 2.2 hereof shall not be altered or otherwise affected by any
amendment, modification, supplement, extension, renewal, restatement or
refinancing of either the Senior Debt or the Junior Debt, nor by any action or
inaction which any Creditor may take or fail to take in respect of the
Collateral.
2.4 Rights of Third Parties; No Contest of Lien. Each Creditor shall be
solely responsible for perfecting and maintaining the perfection of its Lien in
and to each item constituting the Collateral in which such Creditor has been
granted a Lien. The foregoing provisions of this Agreement are intended solely
to govern the respective lien priorities as between the Creditors and shall not
impose on Senior Creditor any obligations in respect of the disposition of
proceeds of foreclosure on any Collateral which would conflict with prior
perfected claims therein in favor of any other person or any order or decree of
any court or other governmental authority or any applicable law. Junior Creditor
agrees that it will not contest the validity, perfection, priority or
enforceability of the Liens upon the Collateral of Senior Creditor and that, as
between Senior Creditor and Junior Creditor, the terms of this Intercreditor
Agreement shall govern even if part or all of the Senior Debt or the Liens
securing payment and performance thereof are not perfected or are avoided,
disallowed, set aside or otherwise invalidated in any judicial proceeding or
otherwise.
2.5 Right to Enforce Agreement. Senior Creditor shall have the exclusive right
to manage, perform and enforce the terms of the Senior Creditor Agreements with
respect to the Collateral, to exercise and enforce all privileges and rights
thereunder according to its discretion and the exercise of its business
judgment, including, without limitation, the exclusive right to take or retake
control or possession of such Collateral and to hold, prepare for sale, process,
sell, lease, dispose of, or liquidate such Collateral. Junior Creditor shall not
have any right to direct Senior Creditor to exercise any right, remedy or power
with respect to the Collateral and Junior Creditor consents to the exercise by
Senior Creditor of any such right, remedy or power. Junior Creditor
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shall not institute any suit or assert in any suit, bankruptcy, insolvency or
other proceeding any claim against Senior Creditor seeking damages from or other
relief by way of specific performance, instructions or otherwise, with respect
to, and Senior Creditor shall not be liable for, any action take or omitted to
be taken by Senior Creditor with respect to the Collateral. Nothing contained in
this Section 2.5 shall be construed to relieve Senior Creditor from any
liability to Junior Creditor for any losses suffered by Junior Creditor as a
result of an action taken or omitted by Senior Creditor with respect to the
Collateral which is determined to constitute gross negligence or willful
misconduct pursuant to a final, non-appealable order of a court of competent
jurisdiction.
2.6 Sale and Release of Collateral.
(a) Notwithstanding anything to the contrary contained in any of the
Agreements, only Senior Creditor shall have the right to restrict or permit, or
approve or disapprove, the sale, transfer or other disposition of Collateral.
Junior Creditor shall, upon receipt of written notice from Senior Creditor of a
proposed sale or other disposition of Collateral:
(i) be deemed to have automatically and without further action
released and terminated any Liens it may have on the Collateral to the extent
such Collateral is sold or otherwise disposed of either by Senior Creditor, any
agent of Senior Creditor, or any Debtor with the consent of Senior Creditor,
(ii) be deemed to have authorized Senior Creditor to file UCC
amendments and terminations covering the Collateral so sold or otherwise
disposed of as to UCC financing statements between Debtors and Junior Creditor
to evidence such release and termination,
(iii) promptly upon the request of Senior Creditor execute and
deliver such other release documents and confirmations of the authorization to
file UCC amendments and terminations provided for herein, in each case as Senior
Creditor may reasonably require in connection with such sale or other
disposition by Senior Creditor, Senior Creditor's agents or any Debtor with the
consent of Senior Creditor to evidence and effectuate such termination and
release; provided, that, any such release or UCC amendment or termination by
Junior Creditor shall not extend to or otherwise affect any of the rights, if
any, of Junior Creditor to the proceeds from any such sale or other disposition
of Collateral; and
(iv) be deemed to have consented under the Junior Creditor
Agreements to such sale or other disposition. In the event that for any reason
Junior Creditor shall fail within five (5) days after the date requested by
Senior Creditor to execute and deliver to Senior Creditor any such release
documents, Senior Creditor is hereby irrevocably authorized to execute and
deliver such release documents on behalf of Junior Creditor.
(b) Notwithstanding anything to the contrary contained in this
Section 2.6, Junior Creditor shall not be deemed to release or terminate the
Liens of Junior Creditor to the extent that any proceeds of the sale, transfer
or other disposition of Collateral are in excess of the amount necessary to pay
in full all of the Senior Debt in immediately available funds.
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2.7 Limitation on Remedies.
(a) Notwithstanding any rights or remedies available to a Creditor under
any of the Agreements, applicable law or otherwise, Junior Creditor shall not,
directly or indirectly, (i) seek to collect from any Debtor (including, without
limitation, from or by way of any Collateral) any of the Junior Debt or exercise
any of its rights or remedies upon a default or event of default by any Debtor
under the Junior Creditor Agreements or otherwise, or (ii) seek to foreclose or
realize upon (judicially or non-judicially) its Lien on any Collateral or assert
any claims or interests therein (including, without limitation, by setoff or
notification of account debtors), or (iii) commence any action or proceeding
against any Debtor or its properties under the U.S. Bankruptcy Code or any state
insolvency law or similar present or future statute, law or regulation or any
proceedings for voluntary liquidation, dissolution or other winding up of any
Debtor's business, or the appointment of any trustee, receiver or liquidator for
any Debtor or any part of its properties or any assignment for the benefit of
creditors or any marshalling of assets of any Debtor, or (iv) take any other
action against any Debtor and the Collateral.
(b) The foregoing provisions of Section 2.7(a) hereof shall not in any way
limit or impair the right of Junior Creditor (i) to bid for and purchase
Collateral at any private or judicial foreclosure upon such Collateral initiated
by Senior Creditor, or (ii) to participate in any administrative, legal or
equitable action or proceeding against any Debtor seeking any reorganization,
liquidation, bankruptcy or any other action involving the readjustment of all or
any part of the Junior Debt, or other similar relief under the United States
Bankruptcy Code, or (iii) to send such notices of the existence of, or any
evidence or confirmation of, the Junior Debt under the Junior Creditor
Agreements or the Liens of Junior Creditor in the Collateral to Debtors or any
court or governmental agency, or file or record any such notice or evidence to
the extent necessary to prove or preserve the Liens of Junior Creditor in the
Collateral or the Junior Debt.
3. SUBORDINATION OF JUNIOR DEBT
3.1 Subordination. Except as specifically set forth in Section 3.2 hereof,
Junior Creditor hereby subordinates its right to payment and satisfaction of the
Junior Debt and the payment thereof, directly or indirectly, by any means
whatsoever, is deferred, to the payment in full of all Senior Debt.
3.2 Permitted Payments. Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 3.1 hereof,
Debtors may make and Junior Creditor may receive and retain from Debtors the
following payments of principal, cash interest and fees, on an unaccelerated
basis in respect of the Junior Debt in accordance with the terms of the Junior
Creditor Agreements as in effect on the date hereof (but not any prepayments,
non-mandatory payments or any payments pursuant to acceleration or claims of
breach or any payment to acquire any Junior Debt or otherwise in respect of any
Junior Debt):
(a) Borrowers may pay the closing fee in respect of the Junior Debt on the
date hereof in the amount of $200,000 in accordance with the terms and
conditions of the Junior Creditor Agreements out of the initial loan proceeds
made available by Junior Creditor to Borrowers;
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(b) Borrowers and Guarantors may make regularly scheduled payments of
interest in respect of the Junior Debt in accordance with the terms and
conditions of the Junior Creditor Agreement so long as no Incipient Default or
Event of Default shall exist or have occurred;
(c) during any fiscal quarter of Hanover and its Subsidiaries commencing
with the fiscal quarter of Hanover and its Subsidiaries ending September 25,
2004, Borrowers may make payments of principal in cash in respect of the Junior
Debt in accordance with the terms and conditions of the Junior Creditor
Agreements, so long as each of the following conditions shall have been
satisfied as determined by Senior Creditor:
(i) as of the date of any such payment and after giving effect
thereto, the aggregate amount of the Excess Availability of Borrowers on such
date and the immediately preceding thirty (30) consecutive days before such
payment shall be not less than $7,000,000;
(ii) the cumulative EBITDA of Hanover and its Subsidiaries,
calculated based on the four (4) fiscal quarters immediately preceding the
quarter in which the date of such payment occurs and for which fiscal quarter
Senior Creditor has received financial statements of Hanover and its
Subsidiaries, shall be not less than $14,000,000;
(iii) the aggregate amount of such principal prepayments shall not
exceed $2,000,000 in any such fiscal quarter;
(iv) any such payment shall not be made earlier than the date that
is five (5) Business Days after receipt by Senior Creditor of quarterly
financial statements of Hanover and its Subsidiaries for such immediately
preceding fiscal quarter delivered to Senior Creditor in accordance with the
terms and conditions of Section 6.18(a)(ii) of the Loan Agreement;
(v) as of the date of such payment and after giving effect thereto,
Borrowers and Guarantors are and shall continue to be Solvent; and
(vi) as of the date of such payment and after giving effect thereto,
no Incipient Default or Event of Default shall exist or have occurred;
(d) Borrowers may make payments of principal in cash in respect of the
Junior Debt in accordance with the terms and conditions of the Junior Creditor
Agreements using Net Proceeds of Asset Sales, so long as each of the following
conditions shall have been satisfied as determined by Senior Creditor:
(i) Senior Creditor shall have received at least ten (10) Business
Days' prior written notice of the intention of Debtors to repay such Junior
Debt, which notice shall set forth the proposed amount of principal to be repaid
and such other information related thereto that Senior Creditor may reasonably
request;
(ii) Excess Availability of Borrowers for each of the immediately
preceding thirty (30) days before any such repayment shall have been not less
than $7,000,000 and on the date of any such repayment and after giving effect
thereto, Excess Availability of Borrowers shall be not less than $7,000,000;
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(iii) any such repayment of such Junior Debt under this clause
(iii)(c) shall be paid using only Net Proceeds of Asset Sales and not any other
funds of Borrowers or Guarantors;
(iv) all of the Series C Preferred Participating Preferred Stock
shall have been repurchased, redeemed or retired in accordance with the terms
and conditions of Section 7 of the Thirty-First Amendment to Loan and Security
Agreement, dated July 8, 2004, among Senior Creditor, Borrowers and Guarantors
and the aggregate amount of all repurchases, redemptions and retirements of such
Capital Stock shall not exceed the amount of the Net Proceeds derived from the
Asset Sales after application of the Net Proceeds in accordance with the terms
and conditions of Section 7 of Thirty-First Amendment to Loan and Security
Agreement, dated July 8, 2004, among Senior Creditor, Borrowers and Guarantors;
(v) as of the date of such payment and after giving effect thereto,
Borrowers and Guarantors are and shall continue to be Solvent; and
(vi) as of the date of any such repayment and after giving effect
thereto, no Event of Default or Incipient Default shall exist or have occurred
and be continuing;
(e) Borrowers may make payments of reasonable fees and expenses as
determined by Senior Creditor in its discretion in respect of the Junior Debt in
accordance with the terms and conditions of the Junior Creditor Agreements, so
long as each of the following conditions shall have been satisfied as determined
by Senior Creditor:
(i) Senior Creditor shall have received at least five (5) Business
Days' prior written notice of the intention of Borrowers to pay such fees, which
notice shall set forth the proposed amount of the fees, and reason for the
incurrence of such fees and such other information related thereto that Senior
Creditor may reasonably request; and
(ii) as of the date of any such payment and after giving effect
thereto, no Event of Default or Incipient Default shall exist or have occurred
and be continuing;
(f) Borrowers and Guarantors may make payments of fees to Junior Creditor
on the date hereof in the form of the issuance of the Chelsey Warrants
exercisable for Series D Preferred Stock or for Capital Stock of Hanover
consisting of common stock, as the case may be; provided, that, Borrowers shall
not make and Junior Creditor shall not receive or retain any payments in respect
of the Chelsey Warrants, the Series D Preferred Stock or the Capital Stock of
Hanover consisting of common stock.
3.3 Distributions.
(a) In the event of any distribution, division, or application,
partial or complete, voluntary or involuntary, by operation of law or otherwise,
of all or any part of the assets of any Debtor or the proceeds thereof to the
creditors of any Debtor or readjustment of the obligations and indebtedness of
any Debtor, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors, marshalling of assets of
any Debtor or any other action or proceeding involving the readjustment of all
or any part of the indebtedness or other obligations of any Debtor or the
application of the assets of any Debtor to the payment or
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liquidation thereof, or upon the dissolution or other winding up of any Debtor's
business, or upon the sale of all or substantially all of any Debtor's assets,
then, and in any such event, (i) Senior Creditor shall first receive
indefeasible payment in full in cash of all of the Senior Debt prior to the
payment of all or any part of the Junior Debt, and (ii) Senior Creditor shall be
entitled to receive any payment or distribution of any kind or character,
whether in cash, securities or other property, which be payable or deliverable
in respect of any or all of the Junior Debt.
(b) In order to enable Senior Creditor to enforce its rights under
Section 3.3(a) hereof, Senior Creditor is hereby irrevocably authorized and
empowered (in its own name or in the name of Junior Creditor or otherwise), but
shall have no obligation, to enforce claims comprising any of the Junior Debt by
proof of debt, proof of claim, suit or otherwise and take generally any action
which Junior Creditor might otherwise be entitled to take, as Senior Creditor
may deem necessary or advisable for the enforcement of its rights or interests
hereunder.
(c) To the extent necessary for Senior Creditor to realize the
benefits of the subordination of the Junior Debt provided for herein (including
the right to receive any payment and distributions which might otherwise be
payable or deliverable in respect of the Junior Debt in any proceeding described
in Section 3.3(a) hereof or otherwise), Junior Creditor shall execute and
deliver to Senior Creditor such instruments or documents (together with such
assignments or endorsements as Senior Creditor shall deem necessary), as may be
requested by Senior Creditor in good faith.
3.4 Payments Received by Junior Creditor. Except for payments received by
Junior Creditor as provided in Section 3.2 hereof, should any payment or
distribution or security or instrument or proceeds thereof be received by Junior
Creditor in respect of the Junior Debt, Junior Creditor shall receive and hold
the same in trust, as trustee, for the benefit of Senior Creditor, segregated
from other funds and property of Junior Creditor and shall forthwith deliver the
same to Senior Creditor (together with any endorsement or assignment of Junior
Creditor where necessary), for application to any of the Senior Debt. In the
event of the failure of the Junior Creditor to make any such endorsement or
assignment to Senior Creditor, Senior Creditor, or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same.
3.5 Instrument Legend and Notation. Any instrument at any time evidencing
the Junior Debt, or any portion thereof, shall be permanently marked on its face
with a legend conspicuously indicating that payment thereof is subordinate in
right of payment to the Senior Debt and subject to the terms and conditions of
this Intercreditor Agreement, and (a)after being so marked certified copies
thereof shall be delivered to Senior Creditor and (b)the original of any such
instrument shall be immediately delivered to Senior Creditor upon Senior
Creditor's request, at any time on or after the occurrence of an event of
default under the Senior Creditor Agreements. In the event any legend or
endorsement is omitted, Senior Creditor or any of its officers or employees, are
hereby irrevocably authorized on behalf of Junior Creditor to make the same. No
specific legend, further assignment or endorsement or delivery of notes,
guarantees or instruments shall be necessary to subject any Junior Debt to the
subordination thereof contained in this Agreement.
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4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 Additional Covenants. Junior Creditor and Debtors agree in favor of
Senior Creditor that:
(a) except as specifically set forth in Section 3.2 hereof, Debtors
shall not, directly or indirectly, make and Junior Creditor shall not, directly
or indirectly, accept or receive any payment of principal or interest or any
prepayment or non-mandatory payment or any payment pursuant to acceleration or
claims of breach or any payment to acquire Junior Debt or otherwise in respect
of any Junior Debt;
(b) Junior Creditor and Debtors shall not amend, modify, alter or
change in any material respect the terms of any of the Junior Creditor
Agreements or any other arrangements related to the Junior Debt except Debtors
may, after prior written notice to Senior Creditor, amend, modify, alter or
change the terms thereof so as to extend the maturity thereof or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of the Junior Debt, or to reduce the interest rate or any fees in connection
therewith, or to release any Liens in any assets and properties of Debtors, or
to make any covenants contained therein less restrictive or burdensome as to
Debtors or otherwise more favorable to Debtors;
(c) Junior Creditor shall not sell, assign, pledge, encumber or
otherwise dispose of any of the Junior Debt and guarantees, if any, except that
Junior Creditor may sell, assign, pledge, encumber or otherwise dispose of the
Junior Debt so long as Senior Creditor shall have received another instrument of
transfer or encumbrance in form and substance satisfactory to Senior Creditor,
from any purchaser, assignee, pledgee or other person acquiring any interest in
the Junior Debt, acknowledging receipt of a copy of this Intercreditor Agreement
together with the written Agreement of such person to be bound by the terms and
conditions of this Intercreditor Agreement;
(d) Junior Creditor shall not subordinate any of the Junior Debt to
any indebtedness of Debtors other than the Senior Debt;
(e) Junior Creditor and Debtors shall, at any time or times, upon
the request of Senior Creditor, promptly furnish to Senior Creditor a true,
correct and complete statement of the outstanding Junior Debt; and
(f) Junior Creditor and Debtors shall execute and deliver to Senior
Creditor such additional agreements, documents and instruments and take such
further actions as may be necessary or desirable in the good faith opinion of
Senior Creditor to effectuate the provisions and purposes of this Intercreditor
Agreement.
4.2 Additional Representations and Warranties.
(a) Junior Creditor and Debtors represent and warrant to Senior
Creditor that:
(i) as of the date hereof, the total principal amount of the
Junior Debt is $20,000,000;
11
(ii) as of the date hereof, no default or event of default, or
event which with notice or passage of time or both would constitute an event of
default, exists or has occurred under the Junior Creditor Agreements; and
(iii) none of the Junior Debt is subject to any lien, security
interest, financing statements, subordination, assignment or other claim, except
in favor of Senior Creditor.
(b) Junior Creditor further represents and warrants to Senior
Creditor that:
(i) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(ii) this Intercreditor Agreement constitutes the legal, valid
and binding obligations of Junior Creditor, enforceable in accordance with its
terms; and
(iii) to the best knowledge of Junior Creditor as of the date
hereof, no court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions contemplated by the Junior Creditor Agreements and, except as
previously disclosed to Senior Creditor by Debtors in writing pursuant to the
letter dated as of July 8, 2004, no governmental or other action or proceeding
has been threatened or commenced against Junior Creditor, seeking any
injunction, restraining order or other order which seeks to avoid or otherwise
modify the transactions contemplated by the Junior Creditor Agreements.
4.3 Waivers. Notice of acceptance hereof, the making of loans, advances
and extensions of credit or other financial accommodations to, and the incurring
of any expenses by or in respect of, any Debtor by Senior Creditor, and
presentment, demand, protest, notice of protest, notice of nonpayment or default
and all other notices to which Junior Creditor and any Debtor are or may be
entitled are hereby waived (except as expressly provided for herein or as to any
such Debtor, in the Senior Creditor Agreements). Junior Creditor also waives
notice of, and hereby consents to, (a) any amendment, modification, supplement,
extension, renewal, or restatement of any of the Senior Debt or the Senior
Creditor Agreements, including, without limitation, extensions of time of
payment of or increase or decrease in the amount of any of the Senior Debt, the
interest rate, fees, other charges, or any collateral, (b) the taking, exchange,
surrender and releasing of Collateral or guarantees now or at any time held by
or available to Senior Creditor for the Senior Debt, (c) the exercise of, or
refraining from the exercise of, any rights against any Debtor or any other
obligor or any Collateral, (d) the settlement, compromise or release of, or the
waiver of any default with respect to, any of the Senior Debt, and/or (e)Senior
Creditor's election, in any proceeding instituted under the U.S. Bankruptcy
Code, of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. Any
of the foregoing shall not, in any manner, affect the terms hereof or impair the
obligations of Junior Creditor hereunder. All of the Senior Debt shall be deemed
to have been made or incurred in reliance upon this Intercreditor Agreement.
4.4 Subrogation; Marshalling.
(a) Junior Creditor shall not be subrogated to, or be entitled to
any assignment of any Senior Debt or of any Collateral or guarantees or evidence
of any thereof; provided, that, upon
12
the payment in full of all Senior Debt, Junior Creditor shall be subrogated to
the extent permitted by applicable law to any of the Senior Debt. For purposes
of such subrogation, no payments or distributions to Senior Creditor of any
cash, property or securities to which Junior Creditor would be entitled except
for the provisions of this Intercreditor Agreement and no payment over pursuant
to the provisions of this Intercreditor Agreement to the Senior Creditor by or
for the account of Junior Creditor shall, as among Debtors and their creditors
(other than Senior Creditor and Junior Creditor) be deemed to be a payment or
distribution by Debtors to or on account of the Senior Debt, it being understood
that the provisions of this Intercreditor Agreement are intended solely for the
purpose of defining the relative rights of Junior Creditor and Senior Creditor.
If Junior Creditor have any rights to payment from Debtors as a result of any
subrogation to Senior Creditor pursuant to this Section 4.4, Debtors shall, upon
the written request of Junior Creditor, take such actions as may be required in
order to enable Junior Creditor to obtain such payments but nothing contained
herein shall obligate Senior Creditor to take any action.
(b) Junior Creditor hereby waives any and all rights to have any
Collateral or any part thereof granted to Senior Creditor marshalled upon any
foreclosure or other disposition of such collateral by Senior Creditor or any
Debtor.
4.5 No Offset. In the event Junior Creditor at any time incurs any
obligation to pay money to any Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance with
the terms of the contract governing such obligation and shall not deduct from or
setoff against any amounts owed by the Junior Creditor to any Debtor in
connection with any such transaction any amounts Junior Creditor claims are due
to it with respect to the Junior Debt.
4.6 Bailee for Perfection.
(a) Each Creditor hereby appoints the other as agent and bailee
for the purposes of perfecting their respective Liens in and on any of the
Collateral. All Collateral of a type of which a secured party is required to
obtain possession in order to perfect a Lien in such Collateral under the
Uniform Commercial Code shall be held by Senior Creditor on behalf of the
Creditors, and possession of such Collateral by Senior Creditor shall be deemed
to be possession by the Creditors for purposes of perfecting and maintaining the
perfection of any Lien of any Creditor in such Held Collateral under the Uniform
Commercial Code.
(b) Notwithstanding the foregoing provisions of Section 4.6(a)
hereof, in no event shall any Creditor have any duty or liability to protect or
preserve any rights pertaining to any of the Collateral and, except for gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction, each Creditor hereby
waives, and releases the other Creditors from, all claims and liabilities
arising pursuant to the other's role as agent and bailee with respect to the
Collateral.
5. Junior Creditor Purchase Option in Bankruptcy.
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(a) To the extent that Debtors may be subject to a proceeding
under the United States Bankruptcy Code, Junior Creditor shall have the option
at any time upon not less than thirty (30) days' prior written notice to Senior
Creditor to purchase all of the Senior Debt from Senior Creditor. Such notice
from Junior Creditor to Senior Creditor shall be irrevocable.
(b) Senior Creditor agrees, subject to the terms and conditions
set forth herein, to sell to Junior Creditor the Senior Debt so long as each of
the following conditions shall have been satisfied as determined by Senior
Creditor:
(i) Senior Creditor shall have obtained all necessary approvals
and consents of any court, governmental authority or other Person that Senior
Creditor may determine is necessary or desirable in its good faith judgment,
(ii) Senior Creditor shall retain all rights to be indemnified or
held harmless by Borrowers and the other Debtors in accordance with the terms of
the Senior Creditor Agreements;
(iii) Junior Creditor shall pay to Senior Creditor as the purchase
price for the Senior Debt the full amount of all the Senior Debt then
outstanding and unpaid (including, without limitation, all principal, interest,
fees and expenses, including attorneys' fees and legal expenses and including
the early termination fee payable pursuant to the terms of the Senior Creditor
Agreements),
(iv) Junior Creditor shall furnish cash collateral to Senior
Creditor in such amounts as Senior Creditor determines are reasonably necessary
to secure Senior Creditor in connection with any issued and outstanding letters
of credit provided by Senior Creditor (or letters of credit that Senior Creditor
has arranged to be provided by third parties pursuant to the financing
arrangements of Senior Creditor with Borrower or any Obligor) to Borrower or any
Obligor (in an amount equal to 110% of the aggregate undrawn face amount of such
letters of credit or such greater or lesser amount in accordance with Senior
Creditors practices),
(v) Junior Creditor shall agree to reimburse Senior Creditor for any
loss, cost, damage or expense (including attorneys' fees and legal expenses) in
connection with any commissions, fees, costs or expenses related to any issued
and outstanding letters of credit as described above and any checks or other
payments provisionally credited to the Senior Debt, or as to which Senior
Creditor has not yet received final payment,
(vi) Junior Creditor shall agree to reimburse Senior Creditor in
respect of indemnification obligations of Debtors under the Senior Creditor
Agreements,
(vii) Junior Creditor shall pay to Senior Creditor the early
termination fee payable pursuant to the terms and conditions of the Senior
Creditor Agreements; and
(viii) the sale by Senior Creditor shall be expressly made without
any representation or warranty of any kind or nature by Senior Creditor as to
the Senior Debt or otherwise and without recourse to Senior Creditor, except
that Senior Creditor shall represent and warrant: (A) the amount of the Senior
Debt being purchased, (B) that Senior Creditor owns
14
the Senior Debt free and clear of all Liens and (C) Senior Creditor has the
right to assign the Senior Debt.
6. MISCELLANEOUS
6.1 Amendments. Any waiver, permit, consent or approval by any Creditor of
or under any provision, condition or covenant to this Intercreditor Agreement
must be in writing and shall be effective only to the extent it is set forth in
writing and as to the specific facts or circumstances covered thereby. Any
amendment of this Intercreditor Agreement must be in writing and signed by each
of the parties to be bound thereby.
6.2 Successors and Assigns.
(a) This Intercreditor Agreement shall be binding upon the parties
hereto and their respective successors and assigns and shall inure to the
benefit of each of Creditors and its respective successors, participants and
assigns.
(b) Senior Creditor reserves the right to grant participations in,
or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and the Collateral securing same; provided, that,
Junior Creditor shall not be obligated to give any notices to or otherwise in
any manner deal directly with any participant in the Senior Debt and no
participant shall be entitled to any rights or benefits under this Intercreditor
Agreement except through Senior Creditor. In connection with any participation
or other transfer or assignment, Senior Creditor (i)may disclose to such
assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or the Collateral and (ii)shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Intercreditor Agreement.
(c) Junior Creditor agrees to execute and deliver an agreement
containing terms substantially identical to those contained herein in favor of
any assignee or transferee of any or all of the Senior Debt, or any or all
rights of Senior Creditor in the property of any Debtor (other than pursuant to
a participation) or any third person who otherwise refinances, succeeds to or
replaces any or all of Senior Creditor's financing of Debtors
6.3 Insolvency. This Intercreditor Agreement shall be applicable both
before and after the filing of any petition by or against any Debtor under the
U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof,
and all references herein to any Debtor shall be deemed to apply to a trustee
for such Debtor and any Debtor as debtor-in-possession. The relative rights of
Senior Creditor and Junior Creditor to repayment of the Senior Debt and the
Junior Debt, respectively, and in or to any distributions from or in respect of
such Debtor or any Collateral or proceeds of Collateral, shall continue after
the filing thereof on the same basis as prior to the date of the petition,
subject to any court order approving the financing of, or use of cash collateral
by, such Debtor as debtor-in-possession.
6.4 Bankruptcy Financing. If any Debtor shall become subject to a
proceeding under the U.S. Bankruptcy Code and if Senior Creditor desires to
permit the use of cash collateral or to
15
provide financing to Such Debtor under either Section 363 or Section 364 of the
U.S. Bankruptcy Code, Junior Creditor agrees as follows: (a)adequate notice to
Junior Creditor shall have been provided for such financing or use of cash
collateral if Junior Creditor receives notice two (2) business days prior to the
entry of the order approving such financing or use of cash collateral and (b)no
objection will be raised by Junior Creditor to any such financing or use of cash
collateral on the ground of a failure to provide "adequate protection" for
Junior Creditor's junior Liens on the Collateral or any other grounds, provided
Junior Creditor retains a Lien on the post-petition Collateral with the same
priority as existed prior to the commencement of the proceeding under the U.S.
Bankruptcy Code. For purposes of this Section, notice of a proposed financing or
use of cash collateral shall be deemed given when given, in the manner
prescribed by Section 5.5 hereof, to Junior Creditor.
6.5 Notices. All notices, requests and demands to or upon the respective
parties hereto shall be in writing and shall be deemed duly given, made or
received: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by certified mail, return receipt requested, five (5)
days after mailing to the parties at their addresses set forth below (or to such
other addresses as the parties may designate in accordance with the provisions
of this Section):
To Senior Creditor: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: Hanover Direct, Inc.
Attention: Regional Portfolio Manager
To Junior Creditor: Chelsey Finance, LLC
712 Fifth Avenue, 45th Floor
New York, New York 10019
Attention: Stuart Feldman
With a copy to: Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Attention: Richard A. Goldberg, Esq.
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 5.5, but such
change shall not be effective until notice of such change has been received by
the other Creditors.
16
6.6 Counterparts. This Intercreditor Agreement may be executed in any
number of counterparts, each of which shall be an original with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument.
6.7 Governing Law. The validity, construction and effect of this
Intercreditor Agreement shall be governed by the internal laws of the State of
New York but excluding any principles of conflict of laws or other rule of law
that would result in the application of the law of any jurisdiction other than
the laws of the State of New York.
6.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties
hereto hereby irrevocably consents to the non-exclusive jurisdiction of the
Supreme Court of the State of New York for New York County and the United States
District Court for the Southern District of New York and waives trial by jury in
any action or proceeding with respect to this Intercreditor Agreement.
6.9 Complete Agreement. This written Intercreditor Agreement is intended
by the parties as a final expression of their agreement and is intended as a
complete statement of the terms and conditions of their agreement.
6.10 No Third Parties Benefited. Except as expressly provided in Section
5.2 hereof, this Intercreditor Agreement is solely for the benefit of the
Creditors and their respective successors, participants and assigns, and no
other person shall have any right, benefit, priority or interest under, or
because of the existence of, this Intercreditor Agreement.
6.11 Disclosures; Non-Reliance. Each Creditor has the means to, and shall
in the future remain, fully informed as to the financial condition and other
affairs of Debtors and no Creditor shall have any obligation or duty to disclose
any such information to any other Creditor. Except as expressly set forth in
this Intercreditor Agreement, the parties hereto have not otherwise made to each
other nor do they hereby make to each other any warranties, express or implied,
nor do they assume any liability to each other with respect to: (a) the
enforceability, validity, value or collectability of any of the Junior Debt or
Senior Debt or any guarantee or security which may have been granted to any of
them in connection therewith, (b) any Debtor's title to or right to transfer any
of the Collateral, or (c)any other matter except as expressly set forth in this
Intercreditor Agreement.
6.12 Term. This Intercreditor Agreement is a continuing agreement and
shall remain in full force and effect until the indefeasible satisfaction in
full of all Senior Debt and the termination of the financing arrangements
between Senior Creditor and Debtors.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
17
IN WITNESS WHEREOF, the parties have caused this Intercreditor Agreement
to be duly executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
By: ___/s/ Eric Storz________________
Title:_A/V//P____________________
CHELSEY FINANCE, LLC
By: ____Scott Lesser_________
Title: _Executive Vice President___
18
ACKNOWLEDGMENT
The undersigned hereby acknowledges and agrees to the foregoing terms and
provisions. By its signature below, the undersigned agrees that it will,
together with its successors and assigns, be bound by the provisions hereof.
The undersigned agrees that any Creditor holding Collateral does so as
bailee (under the UCC) for the other and is hereby authorized to and may turn
over to such other Creditor upon request therefor any such Collateral, after all
obligations and indebtedness of the undersigned to the bailee Creditor have been
fully paid and performed.
The undersigned acknowledges and agrees that: (i) although it may sign
this Intercreditor Agreement, it is not a party hereto and does not and will not
receive any right, benefit, priority or interest under or because of the
existence of the foregoing Intercreditor Agreement, (ii) in the event of a
breach by the undersigned or Junior Creditor of any of the terms and provisions
contained in the foregoing Intercreditor Agreement, such a breach shall
constitute an "Event of Default" as defined in and under the Senior Creditor
Agreements and (iii) it will execute and deliver such additional documents and
take such additional action as may be necessary or desirable in the opinion of
any Creditor to effectuate the provisions and purposes of the foregoing
Intercreditor Agreement.
BRAWN OF CALIFORNIA, INC.
By: /s/ Steven Seymour
-----------------------------
Name: Steven Seymour
Title: President
GUMP'S BY MAIL, INC.
By: /s/ Jed Pogran
-------------------------------
Name: Jed Pogran
Title: President
GUMP'S CORP.
By: /s/ Jed Pogran
-------------------------------
Name: Jed Pogran
Title: President
HANOVER REALTY, INC.
By: /s/ Doug Mitchell
--------------------------------
Name: Doug Mitchell
Title: President
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
19
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE COMPANY STORE FACTORY, INC.
By: /s/ David Pipkorn
---------------------------------
Name: David Pipkorn
Title: President
THE COMPANY OFFICE, INC.
By: /s/ David Pipkorn
----------------------------------
Name: David Pipkorn
Title: President
SILHOUETTES, LLC
By: /s/ Charles E. Blue
---------------------------------
Name: Charles E. Blue
Title: President
HANOVER COMPANY STORE, LLC
By: /s/ Charles E. Blue
----------------------------------
Name: Charles E. Blue
Title: President
DOMESTICATIONS, LLC
By: /s/ Charles E. Blue
-----------------------------------
Name: Charles E. Blue
Title: Vice President
KEYSTONE INTERNET SERVICES, LLC
By: /s/ Charles E. Blue
-----------------------------------
Name: Charles E. Blue
Title: Vice President
THE COMPANY STORE GROUP, LLC
By: /s/ Charles E. Blue
------------------------------------
Name: Charles E. Blue
Title: President
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
20
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT, INC.
By: /s/ Charles E. Blue
-------------------------------------
Name: Charles E. Blue
Title: Senior Vice President and
Chief Financial Officer
HANOVER HOME FASHIONS GROUP, LLC
By: /s/ Charles E. Blue
-------------------------------------
Name: Charles E. Blue
Title: Vice President
CLEARANCE WORLD OUTLETS, LLC
By: /s/ Charles E. Blue
------------------------------------
Name: Charles E. Blue
Title: President
SCANDIA DOWN, LLC
By: /s/ David Pipkorn
-------------------------------------
Name: David Pipkorn
Title: President
LA CROSSE FULFILLMENT, LLC
By: /s/ Charles E. Blue
--------------------------------------
Name: Charles E. Blue
Title: President
D.M. ADVERTISING, LLC
By: /s/ Charles E. Blue
--------------------------------------
Name: Charles E. Blue
Title: President
AMERICAN DOWN & TEXTILE, LLC
By: /s/ David Pipkorn
--------------------------------------
Name: David Pipkorn
Title: President
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
21
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER GIFTS, INC.
By: /s/ Doug Mitchell
---------------------------------------
Name: Doug Mitchell
Title: President
22