EXHIBIT 10.4
[Execution Version]
NINETEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS NINETEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
December 18, 2001, is entered into by and among CONGRESS FINANCIAL CORPORATION,
a Delaware corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a
Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California
corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"),
GUMP'S CORP., a California corporation ("Gump's"), LWI HOLDINGS, INC., a
Delaware corporation ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), THE COMPANY STORE FACTORY, INC., a Delaware corporation ("TCS
Factory"), THE COMPANY OFFICE, INC., a Delaware corporation ("TCS Office"),
TWEEDS, LLC, a Delaware limited liability company ("Tweeds LLC"), SILHOUETTES,
LLC, a Delaware limited liability company ("Silhouettes LLC"), HANOVER COMPANY
STORE, LLC, a Delaware limited liability company ("HCS LLC"), DOMESTICATIONS,
LLC, a Delaware limited liability company ("Domestications LLC") and KEYSTONE
INTERNET SERVICES, INC., a Delaware corporation ("Keystone Internet"; and
together with HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, TCS Factory,
TCS Office, Tweeds LLC, Silhouettes, HCS LLC and Domestications, each
individually referred to herein as a "Borrower" and collectively, as
"Borrowers"), and HANOVER DIRECT, INC., a Delaware corporation, ("Hanover"),
AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation ("American Down"), X.X.
ADVERTISING, INC., a New Jersey corporation ("DM Advertising"), SCANDIA DOWN
CORPORATION, a Delaware corporation ("Scandia"), KEYSTONE LIQUIDATIONS, INC., a
Delaware corporation, formerly known as Tweeds of Vermont, Inc., HANOVER HOME
FASHIONS GROUP, LLC, a Delaware limited liability company ("HHFG LLC"), KITCHEN
& HOME, LLC, a Delaware limited liability company ("Kitchen & Home, LLC"),
DOMESTICATIONS KITCHEN & GARDEN, LLC, a Delaware limited liability company
("Domestications K&G, LLC"), ENCORE CATALOG, LLC, a Delaware limited liability
company ("Encore LLC"), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited
liability company ("Clearance World"), SCANDIA DOWN, LLC, a Delaware limited
liability company ("Scandia Down, LLC"), ERIZON, INC., a Delaware corporation
("erizon, inc."), HANOVER BRANDS, INC., a Delaware corporation ("Hanover
Brands"), XXXXXX.XXX, INC., a Delaware corporation ("xxxxxx.xxx"), LACROSSE
FULFILLMENT, LLC, a Delaware limited liability company ("LaCrosse, LLC") and SAN
DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC";
each individually a "Guarantor" and collectively "Guarantor").
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W I T N E S S E T H:
WHEREAS, Borrowers, Guarantors and Lender are parties to the Loan and
Security Agreement, dated November 14, 1995, as amended by First Amendment to
Loan and Security Agreement, dated February 22, 1996, Second Amendment to Loan
and Security Agreement, dated April 16, 0000, Xxxxx Xxxxxxxxx to Loan and
Security Agreement, dated May 24, 0000, Xxxxxx Xxxxxxxxx to Loan and Security
Agreement, dated May 31, 1996, Fifth Amendment to Loan and Security Agreement,
dated September 11, 1996, Sixth Amendment to Loan and Security Agreement, dated
as of December 5, 1996, Seventh Amendment to Loan and Security Agreement, dated
as of December 18, 1996, Eighth Amendment to Loan and Security Agreement, dated
as of March 26, 1997, Ninth Amendment to Loan and Security Agreement, dated as
of April 18, 1997, Tenth Amendment to Loan and Security Agreement, dated as of
October 31, 1997, Eleventh Amendment to Loan and Security Agreement, dated as of
March 25, 1998, Twelfth Amendment to Loan and Security Agreement, dated as of
September 30, 1998, Thirteenth Amendment to Loan and Security Agreement, dated
as of September 30, 1998, Fourteenth Amendment to Loan and Security Agreement,
dated as of February 28, 2000, Fifteenth Amendment to Loan and Security
Agreement, dated as of March 24, 2000, Sixteenth Amendment to Loan and Security
Agreement, dated as of August 8, 2000, Seventeenth Amendment to Loan and
Security Agreement, dated as of January 5, 2001, and Eighteenth Amendment to
Loan and Security Agreement (the "Eighteenth Amendment to Loan Agreement"),
dated as of November 12, 2001 (as so amended, the "Loan Agreement"), pursuant to
which Lender has made loans and advances to Borrowers; and
WHEREAS, Borrowers and Guarantors and Lender have agreed that Hanover
may, subject to the terms and conditions contained herein, repurchase, redeem or
retire approximately 1,400,000 shares of its Series A Participating Preferred
Stock and approximately 74,098,769 shares of its Common Stock from Richemont in
consideration of the issuance by Hanover of approximately 1,622,111 shares of
its Series B Participating Preferred Stock to Richemont, Lender may implement
the Asset Sale Lending Adjustments (as hereinafter defined) in respect of the
amounts that may be made available to Borrowers under the Revolving Loan
Formulas upon the consummation of Asset Sales (as hereinafter defined) as set
forth herein, and after Lender has implemented all Asset Sale Lending
Adjustments, Hanover may, subject to the terms and conditions contained herein,
repurchase, redeem or retire shares of its Series B Participating Preferred
Stock owned by Richemont using a portion of the Net Proceeds (as hereinafter
defined) from any Asset Sales consummated after the implementation of all Asset
Sale Lending Adjustments;
WHEREAS, the parties to the Loan Agreement desire to enter into this
Nineteenth Amendment to Loan and Security Agreement (this "Amendment") to
evidence and effectuate such consents, amendments and agreements, and certain
other amendments to the Financing Agreements relating thereto, in each case
subject to the terms and conditions and to the extent set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
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1. Definitions.
(a) Additional Definitions. As used herein or in any of the other
Financing Agreements, the following terms shall have the meanings given to them
below, and the Loan Agreement shall be deemed and is hereby amended to include,
in addition and not in limitation, the following definitions:
(i) "Asset Sale" shall mean, as to Gump's, GBM, Brawn, San Diego
LLC, Silhouettes LLC, American Down, Scandia, Scandia Down LLC and Hanover
Brands, any sale, conveyance or other disposition (including, without
limitation, any sale or other disposition of Capital Stock of Gump's, GBM,
Brawn, San Diego LLC, Silhouettes LLC, American Down, Scandia or Scandia Down
LLC or disposition by way of merger or consolidation) of the Gump's Main Store
Assets, the GBM Catalog Assets, the International Male Catalog Assets, the San
Diego Telemarketing Center Assets, the Silhouettes Catalog Assets, the Scandia
Down Assets, and the General Intangibles related to the Gump's Main Store
Assets, the GBM Catalog Assets, the International Male Catalog Assets, the San
Diego Telemarketing Center Assets, the Silhouettes Catalog Assets and the
Scandia Down Assets, except in each case, for transactions in the ordinary
course of business consistent with past practices previously disclosed to
Lender.
(ii) "Asset Sale Lending Adjustments" shall mean the reductions in
the amount of Revolving Loans available to Revolving Loan Borrowers by applying
the Net Proceeds to repay any outstanding Obligations of Borrowers or Guarantors
at the time of an Asset Sale pursuant to Section 4(a) hereof and then
effectively reducing the amount of Revolving Loans that would have otherwise
been available to Revolving Loan Borrowers by such amount of Net Proceeds so
applied pursuant to the adjustments to the Inventory Loan Formulas as provided
in Section 5 hereof, the adjustments to the Accounts Loan Formulas provided for
in Section 6 hereof, the establishment of the Asset Sale Reserves as provided by
Section 7 hereof and the establishment of the Special Asset Sale Reserve as
provided by Section 8 hereof.
(iii) "Asset Sale Reserve" shall have the meaning given in Section
7 hereof.
(iv) "Certificate of Designation of the Series B Preferred Stock"
shall mean the Certificate of the Designations, Powers, Preferences and Rights
of Series B Participating Preferred Stock of Hanover Direct, Inc. to be filed
with the Delaware Secretary of State in connection with the Series B
Participating Preferred Offering, as the same will exist on the execution and
delivery date thereof or may thereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(v) "GBM Catalog Assets" shall mean all of the assets and
properties of GBM and the General Intangibles of Hanover Brands, in each case,
that are primarily related to or primarily used in connection with or arise from
the sale of merchandise or services through the "Gump's By Mail" mail order
catalog business, including, without limitation, all Accounts, Inventory,
Customer Lists and other General Intangibles so related, used or sold.
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(vi) "Gump's Main Store Assets" shall mean all of the assets and
properties of Gump's and the General Intangibles of Hanover Brands, in each
case, that are primarily related to or primarily used in connection with or
arise from the retail business and operations of the Gump's Main Store,
including, without limitation, all Accounts, Inventory, and other General
Intangibles so related, used or sold.
(vii) "International Male Catalog Assets" shall mean all of the
assets and properties of Brawn and the General Intangibles of Hanover Brands, in
each case, that are primarily related to or primarily used in connection with or
arise from the sale of merchandise or services through the "International Male"
mail order catalog business, including, without limitation, all Accounts,
Inventory, Customer Lists and other General Intangibles so related, used or
sold.
(viii)"Net Proceeds" shall mean the aggregate cash proceeds
received by any of Borrowers or Guarantors in respect of any Asset Sale, less
the amount of any sales or transfer taxes and other direct expenses of such
Borrowers or Guarantors relating to such Asset Sale.
(ix) "Scandia Down Assets" shall mean all of the assets and
properties of Scandia Down LLC, Scandia and American Down and the General
Intangibles of Hanover Brands, in each case, that are primarily related to or
primarily used in connection with or arise from the sale of merchandise or
services through license arrangements with retail stores and through the Scandia
Down mail order catalog business, including, without limitation, all Accounts,
Inventory, Customer Lists and other General Intangibles so related, used or
sold.
(x) "Series B Participating Preferred Agreements" shall mean,
collectively (as the same will exist on the execution and delivery date thereof
and as may thereafter be amended, modified, supplemented, extended, renewed,
restated or replaced): the Certificate of Designation for the Series B
Participating Preferred Stock, the Series B Participating Preferred Purchase
Agreement between Richemont and Hanover, and all related agreements, documents
and instruments to be executed, delivered or filed in connection with, or
otherwise evidencing, the Series B Participating Preferred Offering.
(xi) "Series B Participating Preferred Offering" shall mean the
proposed repurchase, redemption or retirement of approximately 1,400,000 shares
of its Series A Participating Preferred Stock and approximately 74,098,769
shares of its Common Stock from Richemont in consideration of the issuance by
Hanover to Richemont of approximately 1,622,111 shares of Series B Participating
Preferred Stock of Hanover in accordance with the terms and conditions of the
Series B Participating Preferred Agreements.
(xii) "Series B Participating Preferred Purchase Agreement" shall
mean the Agreement, to be dated as of the effective date of the Series B
Participating Preferred Offering, between Richemont and Hanover, as the same
will exist on the execution and delivery date thereof or may thereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
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(xiii)"Special Asset Sale Reserve" shall have the meaning given in
Section 8 hereof.
(b) Amendments to Definitions.
(i) Net Orderly Liquidation Value. Effective the first time that
Lender implements an Asset Sale Lending Adjustment pursuant to Section 5 of this
Amendment, all references to the term "Net Orderly Liquidation Value" in the
Loan Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to mean, (A) as to Eligible Inventory other than
Gump's Eligible Inventory or TCS Eligible Inventory consisting of raw materials,
an amount equal to eighty (80%) percent of the gross proceeds that could be
realized in cash if such Inventory were sold within a six (6) to nine (9) month
period in an orderly liquidation sale, and (B) as to TCS Eligible Inventory
consisting of raw materials, an amount equal to seventy (70%) percent of the
gross proceeds that could be realized in cash if such Inventory were sold within
a six (6) to nine (9) month period in an orderly liquidation sale minus, in each
case under clauses (A) and (B), the estimated costs, expenses, fees, including
reasonable attorneys fees, taxes and other charges which would be incurred in
connection with such sales, and estimated returns, all as set forth in, or
calculated using, the most recent Appraisal.
(ii) Net GOB Value. Effective the first time that Lender implements
an Asset Sale Lending Adjustment pursuant to Section 5 of this Amendment, all
references to the term "Net GOB Value" in the Loan Agreement and the other
Financing Agreements shall be deemed and each such reference is hereby amended
to mean, as to Gump's Eligible Inventory, an amount equal to eighty percent
(80%) of the gross proceeds that could be realized in cash if such Inventory
were sold within a ninety (90) day period in a going out of business liquidation
sale, as set forth or calculated in the most recent Appraisal, minus the
estimated costs, expenses, fees, including reasonable attorneys fees, taxes and
other charges which would be incurred in connection with such sale, and
estimated returns, all as set forth in, or calculated using, the most recent
Appraisal.
(iii) San Diego Telemarketing Center Assets. All references to the
term "San Diego Telemarketing Center Assets" in the Loan Agreement and the other
Financing Agreements shall be deemed and each such reference is hereby amended
to mean (A) all of the fixed assets of San Diego LLC primarily related to or
primarily used in connection with the business and operations of the
telemarketing and call center located at 741 "F" Street, San Diego, California
and (B) the lease by Brawn of the premises located at 741 "F" Street, San Diego,
California.
(iv) Silhouettes Catalog Assets. All references to the term
"Silhouettes Catalog Assets" in the Loan Agreement and the other Financing
Agreements shall be deemed and each such reference is hereby amended to mean all
of the assets and properties of Silhouettes LLC and the General Intangibles of
Hanover Brands, in each case, that are primarily related to or primarily used in
connection with or arise from the sale of merchandise or services through the
"Silhouettes" mail order catalog business, including, without limitation, all
Accounts, Inventory, Customer Lists and other General Intangibles so related,
used or sold.
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(c) Interpretation. All capitalized terms used herein and not defined
herein shall have the meanings given to such terms in the Loan Agreement.
2. Series B Participating Preferred Offering.
(a) Lender hereby, subject to the terms and conditions contained in
this Amendment, consents to the redemption by Hanover of its Series A
Participating Preferred Stock held by Richemont in consideration of the issuance
by Hanover to Richemont of the Series B Participating Preferred Stock of Hanover
pursuant to the Series B Participating Preferred Offering, so long as each of
the following conditions shall have been satisfied as determined by Lender:
(i) the terms and conditions of the Series B Participating
Preferred Offering shall be satisfactory to Lender and all the Series B
Participating Preferred Agreements shall be in form and substance satisfactory
to Lender;
(ii) Lender shall have received, in form and substance satisfactory
to Lender, true, correct and complete photocopies of all of the Series B
Participating Preferred Agreements;
(iii) Neither the execution and delivery of the Series B
Participating Preferred Agreements or any other agreements, documents or
instruments in connection therewith, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof shall violate
any Federal or State securities laws or any other law or regulation or any order
or decree of any court or governmental instrumentality in any respect, or shall
conflict with or result in the breach of, or constitute a default in any respect
under any mortgage, deed of trust, security agreement, agreement or instrument
to which any Borrower or Guarantor is a party or may be bound, or shall violate
any provision of the Certificate of Incorporation or By-Laws of any Borrower or
Guarantor;
(iv) Lender shall have received, in form and substance satisfactory
to Lender Secretary's or Assistant Secretary's Certificates of Directors'
Resolutions evidencing the adoption and subsistence of corporate resolutions
approving the execution, delivery and performance by Hanover with respect to the
Series B Participating Preferred Offering and the Series B Participating
Preferred Offering Agreements and the opinion of counsel to Hanover delivered to
Richemont with respect to the Series B Participating Preferred Offering and the
Series B Participating Preferred Offering Agreements, upon which Lender shall be
expressly permitted to rely;
(v) each of Borrowers and Guarantors shall have delivered, or have
caused to be delivered, to Lender a true and correct copy of any consent, waiver
or approval to or of the Series B Participating Preferred Offering, which any
Borrower or Guarantor is required to obtain from any other Person, and such
consent, approval or waiver shall be in a form reasonably acceptable to Lender;
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(vi) as of the date of the closing of Series B Participating
Preferred Offering and after giving effect thereto, no Event of Default or
Incipient Default shall exist or have occurred and be continuing; and
(vii) the closing of Series B Participating Preferred Offering
shall have occurred on or before December 31, 2001, or such later date as Lender
may agree to in writing.
(b) Effective on the effective date Lender determines that conditions
set forth in Section 2(a) hereof have been satisfied, Borrowers and Guarantors
hereby acknowledge, confirm and agree that, notwithstanding anything to the
contrary that may be contained in Sections 6.3, 6.5 and 6.6 of the Loan
Agreement or in any other provisions of the Loan Agreement or in any of the
other Financing Agreements, or in any of the Series B Participating Preferred
Agreements, without the prior written consent of Lender, Borrowers and
Guarantors shall not, and shall not permit any of their Subsidiaries, directly
or indirectly, to make any loans, advances, dividends, redemptions or other
payments in respect of the Capital Stock of Hanover consisting of the Series B
Participating Preferred Stock, whether in cash, property or otherwise; provided,
that,
(i) Hanover may, on the effective date that Lender determines the
conditions set forth in Section 2(a) hereof have been satisfied, make a one time
payment for transaction fees and expenses in the amount of $1,000,000 to
Richemont in accordance with Section 2(b) of the Series B Participating
Preferred Purchase Agreement.
(ii) Hanover may make dividend payments in Capital Stock, but not
cash, to the holders of the Series B Participating Preferred Stock, so long as
each of the following conditions shall have been satisfied as determined by
Lender:
(A) the declaration and payment of such dividends (1) shall
not violate any Federal or State securities laws or any other law or regulation
or any order or decree of any court or governmental authority, (2) shall not
conflict with or result in the breach of, or constitute a default under any
mortgage, deed of trust, security agreement, agreement or instrument to which
any Borrower or Guarantor is a party or may be bound, or (3) shall not violate
any provision of the Certificate of Incorporation or By-Laws of any Borrower or
Guarantor; and
(B) as of the date of the declaration and payment of such
dividends and after giving effect thereto, no Event of Default or Incipient
Default shall exist or have occurred and be continuing.
(iii) Hanover may, subject to the terms and conditions contained
herein, repurchase, redeem or retire in cash, Capital Stock consisting of the
Series B Participating Preferred Stock, so long as each of the following
conditions shall have been satisfied as determined by Lender:
(A) Lender shall have received at least thirty (30) days'
prior written notice of the intention of Hanover to repurchase, redeem or retire
any of the Series B Participating Preferred Stock, which notice shall set forth
the proposed number of shares
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Hanover intends to repurchase, redeem or retire, the price per share, the
aggregate purchase price of such shares and such other information related
thereto that Lender may reasonably request;
(B) no such repurchases, redemptions or retirements of Series
B Participating Preferred Stock shall be permitted until all of the Asset Sale
Lending Adjustments have been implemented by Lender;
(C) Excess Availability of Borrowers for each of the
immediately preceding thirty (30) days before any such repurchase, redemption or
retirement shall have been not less than $10,000,000 and on the date of any such
repurchase, redemption or retirement and after giving effect thereto, Excess
Availability of Borrowers shall be not less than $10,000,000;
(D) Borrowers and Guarantors shall furnish to Lender, upon
Lender's request, any agreements, documents or instruments evidencing or
relating to any such repurchases, redemptions or retirements of Series B
Participating Preferred Stock;
(E) any such repurchase, redemption or retirement of Series B
Participating Preferred Stock shall be paid using only Net Proceeds of Asset
Sales and not any other funds of Borrower or Guarantor and shall be paid with
legally available funds therefor;
(F) 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 as
provided in Section 4 hereof and the implementation of all Asset Sale Lending
Adjustments by Lender;
(G) any such repurchase, redemption or retirement (1) shall
not violate any Federal or State securities laws or any other law or regulation
or any order or decree of any court or governmental authority, (2) shall not
conflict with or result in the breach of, or constitute a default under any
mortgage, deed of trust, security agreement, agreement or instrument to which
any Borrower or Guarantor is a party or may be bound, or (3) shall not violate
any provision of the Certificate of Incorporation or By-Laws of any Borrower or
Guarantor; and
(H) as of the date of any such repurchase, redemption or
retirement of such Capital Stock and after giving effect thereto, no Event of
Default or Incipient Default shall exist or have occurred and be continuing.
(iv) Borrowers, Hanover and the other Guarantors shall not amend,
modify or supplement any of the Series B Participating Preferred Agreements
without the prior written consent of Lender.
3. Asset Sales. Notwithstanding anything to the contrary contained in
Section 6.9 of the Loan Agreement, Gump's, GBM, Brawn, San Diego LLC,
Silhouettes LLC, Scandia, American Down, Scandia Down LLC and Hanover Brands may
consummate an Asset Sale, so long as each of the following conditions shall have
been satisfied as determined by Lender as to any such Asset Sale:
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(a) Lender shall have received not less than fifteen (15) days' prior
written notice of the intention of such Borrower or Guarantor to enter into a
letter of intent in respect of an Asset Sale, which letter of intent shall
expressly provide that the closing of any such Asset Sale shall be conditioned
upon the prior written consent of Lender, and which notice shall set forth in
reasonable detail satisfactory to Lender, the parties to such Asset Sale, the
assets and related assets to be sold, the purchase price and the manner of
payment thereof and such other information with respect thereto as Lender may
request, and not less than thirty (30) days' prior written notice of the date of
the closing of any such Asset Sale;
(b) any such Asset Sale shall be on terms and conditions satisfactory
to Lender, and all agreements, documents and instruments related to such Asset
Sale shall be in form and substance satisfactory to Lender;
(c) the Net Proceeds of any such Asset Sale shall be paid directly to
Lender and shall be applied as provided in Section 4 hereof;
(d) to the extent that Lender in good faith determines any amendments,
modifications or changes may be necessary to any of the Financing Agreements in
connection with Lender's consent to any such Asset Sale or with Lender's
implementation of an Asset Sale Lending Adjustment, including, without
limitation, the right of Lender to adjust any of the financial covenants as
Lender in good xxxxx xxxxx necessary to take into account the effect of such
Asset Sale, Borrowers and Guarantors shall execute and deliver to Lender on or
before the consummation of any such Asset Sale or the implementation of an Asset
Sale Lending Adjustment, such amendments to the Loan Agreement or any of the
other Financing Agreements as Lender may in good faith request; and
(e) as of the date of such Asset Sale and after giving effect thereto,
no Incipient Default or Event of Default shall exist or have occurred and be
continuing.
4. Application of Proceeds.
(a) Upon receipt of the Net Proceeds of any Asset Sale, Lender shall
prior to an Event of Default that has occurred and is continuing apply such Net
Proceeds as follows:
(i) first, to pay the Obligations of the Borrower or Guarantor
whose assets are being sold pursuant to such Asset Sale in the amount equal to
the amount of the Obligations consisting of Revolving Loans then outstanding of
such Borrower or Guarantor and to hold as cash collateral for the Obligations of
such Borrower or Guarantor an amount equal to one hundred and ten percent (110%)
(or such greater amount in accordance with Lender's policies and practices) of
the Letter of Credit Accommodations then outstanding of such Borrower or
Guarantor;
(ii) second, to pay the Obligations of Borrowers and Guarantors in
such order and manner as Lender may determine in its sole discretion to give
effect to any Asset Sale Lending Adjustment; and
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(iii) third, after all Asset Sale Lending Adjustments have been
implemented by Lender, to pay the Obligations of Borrowers and Guarantors in
such order and manner as Lender may determine in its sole discretion (other than
a prepayment of any of the Term Loans), and immediately thereafter, the full
remaining amount of such proceeds after application pursuant to clauses (i) and
(ii) of this Section 4(a) shall be credited on a dollar for dollar basis to the
loan account(s) of Revolving Loan Borrowers for purposes of determining the
amount of Revolving Loans that may be made available to Revolving Loan Borrowers
in accordance with the terms and conditions of the Loan Agreement to then be
used, subject to the conditions set forth in Section 2 hereof and in the Loan
Agreement and the other Financing Agreements, for the purpose of repurchasing,
redeeming or retiring shares of the Series B Participating Preferred Stock held
by Richemont to the extent that Hanover may be required to repurchase, redeem or
retire such shares in accordance with the terms and conditions of the Series B
Participating Preferred Agreements as in effect on the date of execution and
delivery thereof.
(b) After an Event of Default that has occurred and is continuing,
Lender may apply Net Proceeds of any Asset Sales to any of the Obligations of
Borrowers and Guarantors in whatever order and manner Lender may in its
discretion determine.
5. Asset Sale Lending Adjustments to Revolving Inventory Loans.
(a) Effective on the effective date of an Asset Sale, Lender may
pursuant to Section 4(a) hereof apply a portion of the Net Proceeds from such
Asset Sale to repay Obligations of Borrowers and Guarantors consisting of
Revolving Inventory Loans. Lender may thereafter in its discretion reduce the
amounts available under the Inventory Loan Formulas by an amount equal to all or
a portion of the Net Proceeds of such Asset Sale applied to repay the
Obligations of Borrowers and Guarantors as provided in Section 4(a) hereof as
determined by Lender in its sole discretion.
(b) In addition to and not in limitation of Lender's rights in Section
5(a) hereof, Lender may implement a reduction in the Inventory Loan Formulas by
first determining the amount of Revolving Inventory Loans that would be
available to Revolving Loan Borrowers at the time of such Asset Sale and then
reducing the amount of such Revolving Inventory Loans by the amount of the Net
Proceeds that Lender applies to repay a portion of the outstanding amount of
Obligations pursuant to Section 4(a) hereof (such amount, the "Reduced Amount of
Revolving Inventory Loans"). Lender will then determine what the advance rates
under the Inventory Loan Formulas would be by taking into account the amendment
to the Net Orderly Liquidation Value and the Net GOB Value in order to yield the
Reduced Amount of Revolving Inventory Loans. The then existing advance rates
with respect to Revolving Inventory Loans pursuant to Section 2.1(b) of the Loan
Agreement will be reduced to such advance rates that will yield such Reduced
Amount of Revolving Inventory Loans; provided, that, such Inventory Loan
Formulas shall not be reduced such that the advance rates would be lower than
the rates set forth in Section 5(c) hereof.
(c) Lender may implement Asset Sale Lending Adjustments in respect of
the Inventory Loan Formulas until the advance rates are reduced to the advance
rates set forth below
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and at such time Section 2.1(b) of the Loan Agreement will be amended and
replaced with the following:
"(b) Revolving Inventory Loans. Subject to, and upon the terms and
conditions contained herein and in the other Financing Agreements, Lender
shall, from time to time, make Revolving Inventory Loans:
(i) to each Revolving Loan Borrower, other than Gump's, and other
than TCS with respect to TCS Eligible Inventory consisting of raw
materials, at such Revolving Loan Borrower's request, of up to the lesser
of (A) fifty-four percent (54%) of the Value of the Eligible Inventory of
such Revolving Loan Borrower or (B) the Net OLV Percentage of the Value of
such Eligible Inventory;
(ii) to Gump's, at its request, of up to the lesser of (A)
thirty-eight percent (38%) of the Value of Eligible Inventory of Gump's or
(B) the Net GOB Percentage of the Value of Eligible Inventory of Gump's;
and
(iii) to TCS, at its request, of up to the lesser of (A) thirty
percent (30%) of the Value of TCS Eligible Inventory consisting of raw
materials or (B) the Net OLV Percentage of the Value of such Eligible
Inventory; or,
(iv) in the case of each of clauses (b)(i), (b)(ii), and (b)(iii)
of this Section 2.1(b), such greater or lesser percentages thereof as
Lender shall, in its sole discretion, determine from time to time (the
"Inventory Loan Formulas"). Without limiting the foregoing, the
fifty-four (54%) percent lending formula component referred to in clause
(b)(i)(A), the thirty-eight (38%) percent lending formula component
referred to in clause (b)(ii)(A), and the thirty percent (30%) lending
formula component referred to in clause (b)(iii)(A) may be adjusted
downward by Lender based upon any adverse change, individually or in the
aggregate, in the turnover of Eligible Inventory or deterioration in mix,
nature or quality of Eligible Inventory in the respective categories of
Eligible Inventory, and any such downward adjustment made for such
reason(s) (or on the basis of the lending formula component(s) set forth
in clauses (b)(i)(B), (b)(ii)(B), or (b)(iii)(B) above) shall not be
considered solely discretionary for purposes of the provision contained
in the definition of Interest Rate and Section 2.7(c) hereof."
(d) If sufficient Net Proceeds are available upon the consummation of
an Asset Sale to effect the adjustments to the Inventory Loan Formulas provided
for in the amendments to the definitions of "Net Orderly Liquidation Value"
provided for in Section 1(b)(ii) hereof and "Net GOB Value" provided for in
Section 1(b)(iii) hereof, then the first time that Lender implements an Asset
Sale Lending Formula Adjustment provided for in Section 5(a) hereof, the
amendments to those definitions shall be deemed to have occurred and be in full
force and effect.
(e) Nothing contained in this Amendment shall in any way limit or
affect Lender's rights or remedies to adjust the Inventory Loan Formulas for any
reason, other than in connection with an Asset Sale Lending Adjustment to the
extent provided in Sections 5(a) and (b) hereof, or limit or affect Lender's
rights or remedies upon an Event of Default or Incipient Default.
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6. Asset Sale Lending Adjustments to Revolving Accounts Loans.
(a) Effective on the date of an Asset Sale, Lender may pursuant to
Section 4(a) hereof apply a portion of the Net Proceeds from such Asset Sale to
repay Obligations of Borrowers and Guarantors consisting of Revolving Accounts
Loans made against the Net Amount of Eligible Fulfillment Contract Receivables.
Lender may thereafter in its discretion adjust the Accounts Loan Formulas such
that the amount of Revolving Accounts Loans that may be made available to
Revolving Loan Borrowers shall be reduced by the amount of Revolving Accounts
Loans then outstanding attributable to Revolving Loans made against the Net
Amount of Eligible Fulfillment Contract Receivables repaid pursuant to Section
4(a) hereof. Adjustments to the Accounts Loan Formulas may be made only in
respect of the Eligible Fulfillment Contract Receivables component and may be
made until all Revolving Loans made against the Net Amount of Eligible
Fulfillment Contract Receivables have been paid in full and the effective amount
of Revolving Loans available in respect of Eligible Fulfillment Contract
Receivables is $-0- pursuant to Section 4(a) hereof.
(b) Upon implementation of the adjustments to the Accounts Loan
Formulas under Section 6(a) hereof,
(i) No more Revolving Accounts Loans consisting of Revolving Loans
against the Net Amount of Eligible Fulfillment Contract Receivables shall be
made available to any Borrowers.
(ii) Section 2.1(a)(iv) of the Loan Agreement shall be deleted in
its entirety and replaced with the following:
"(iv) [Intentionally Omitted]"
(iii) Section 2.2(j) of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"(j) Without limiting the foregoing lending sublimits, (i) the
aggregate amount of Revolving Loans shall not at any one time
outstanding exceed the Revolving Loan Limit for all Revolving Loan
Borrowers and (ii) the aggregate amount of Revolving Accounts Loans for
all Deferred Billing Borrowers, Installment Billing Borrowers and any
other applicable Revolving Loan Borrowers shall not at any one time
outstanding exceed $15,000,000. Lender shall have the right, from time
to time, to establish and revise Revolving Accounts Loan sublimits for
each Deferred Billing Borrower, Installment Billing Borrower and each
other applicable Revolving Loan Borrower within the overall $15,000,000
sublimit applicable to all Revolving Accounts Loans."
(c) Nothing contained in this Amendment shall in any way limit or
affect Lender's rights or remedies to adjust the Accounts Loan Formulas for any
reason, other than in connection with an Asset Sale Lending Adjustment to the
extent provided in Sections 6(a) and (b) hereof, or limit or affect Lender's
rights or remedies upon an Event of Default or Incipient Default.
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7. Asset Sale Loan Availability Reserve.
(a) Effective on the date of an Asset Sale Lending Adjustment, Lender
may pursuant to Section 4(a) hereof apply a portion of the Net Proceeds from
such Asset Sale to repay Obligations of Borrowers and Guarantors consisting of
Revolving Loans. Lender shall then establish and maintain at all times
thereafter an availability reserve in such amount against the amount of
Revolving Loans and Letter of Credit Accommodations otherwise determined by
Lender to be available to Revolving Loan Borrowers under the Loan Agreement and
the other Financing Agreements (the "Asset Sale Reserve"); provided, that the
amount of such Asset Sale Reserves shall not exceed $7,500,000 in the aggregate.
(b) Lender agrees upon implementation of all of the Asset Sale Lending
Adjustments to release $2,500,000 of the Asset Sale Reserve to the extent that
Lender determines in its sole discretion the market value of the Real Property
covered by the Mortgages as set forth in one or more new written appraisals
delivered to Lender (collectively, the "Real Estate Appraisal"), are equal to or
greater than market value of $17,000,000 based on a marketing time of six to
twelve months in respect of the Real Property located in Roanoke, Virginia
covered by the Mortgage by Hanover Realty in favor of Congress as set forth in
the Appraisal dated December 10, 1999 by Xxxxxxx Xxxxx, market value of
$4,650,000 based on a marketing time of six to twelve months in respect of the
Real Property located at 0000 Xxxxxxx Xxxx, XxXxxxxx, Xxxxxxxxx covered by the
Mortgage by TCS Factory in favor of Congress as set forth in the Appraisal dated
December 8, 1999 by Xxxxxxx Xxxxx and $1,575,000 based on a marketing time of
six to twelve months in respect of the Real Property located at 000 Xxxx Xxxxx,
XxXxxxxx, Xxxxxxxxx covered by the Mortgage by TCS Office in favor of Congress
as set forth in the Appraisal dated December 8, 1999 by Xxxxxxx Xxxxx. The Real
Estate Appraisal shall be in form, scope and methodology acceptable to Lender,
conducted by an appraiser acceptable to Lender and which is addressed to Lender
or upon which Lender is expressly permitted to rely. The Real Estate Appraisal
shall be in addition to any appraisals of the Real Property delivered pursuant
to Section 6.15 of the Loan Agreement.
(c) The availability reserve established in accordance with this
Section 7 is in addition to, and not in limitation of, all other existing
availability reserves and the rights of Lender from time to time to establish
other and further reserves against the availability of Revolving Loans and
Letter of Credit Accommodations under the Loan Agreement and the other Financing
Agreements, including, without limitation, the Special Asset Sale Reserve and
the availability reserve in the amount of $500,000 established in accordance
with Section 3 of the Eighteenth Amendment to Loan Agreement.
8. Special Asset Sale Loan Availability Reserve.
(a) Effective on the date of an Asset Sale Lending Adjustment, in
addition to any then existing availability reserves that may be in effect at
such time, including, without limitation, any Asset Sale Reserve, Lender may
establish and maintain an availability reserve against the amount of Revolving
Loans and Letter of Credit Accommodations otherwise determined by Lender to be
available to Revolving Loan Borrowers under the Loan Agreement
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and the other Financing Agreements in the amount equal to all or any portion of
the Net Proceeds of such Asset Sale that Lender determines in good faith is
equivalent at such time to the amount of any Asset Sale Lending Adjustment
implemented pursuant to Section 5, 6 or 7 hereof (the "Special Asset Sale
Reserve").
(b) The Special Asset Sale Reserve may be established by Lender upon
consummation of any Asset Sale in lieu of implementing any Asset Sale Lending
Adjustments pursuant to Section 5, 6 or 7 hereof at the time such Asset Sale is
consummated. Lender may from time to time release any Special Asset Sale Reserve
upon implementation of any such Asset Sale Lending Adjustment pursuant to
Section 5, 6 or 7 hereof. Upon the implementation of all Asset Sale Lending
Adjustments pursuant to Sections 5, 6 and 7 hereof, Lender agrees that any
Special Asset Sale Reserve being maintained by Lender at such time shall be
released.
(c) The availability reserve established in accordance with this
Section 8 is in addition to, and not in limitation of, all other existing
availability reserves and the rights of Lender from time to time to establish
other and further reserves against the availability of Revolving Loans and
Letter of Credit Accommodations under the Loan Agreement and the other Financing
Agreements, including, without limitation, any Asset Sale Reserve and the
availability reserve in the amount of $500,000 established in accordance with
Section 3 of the Eighteenth Amendment to Loan Agreement.
9. Effect of Certain Amendments to Financing Agreements.
(a) Solely in connection with the right of Hanover to redeem,
repurchase or retire the Series B Participating Preferred Stock as set forth in
Section 2 hereof, Lender agrees that any amendment or modification to the Loan
Agreement and the other Financing Agreements after the date hereof that amends
or modifies the definitions contained in Section 1 hereof, the terms and
conditions in respect of any redemptions of the Series B Participating Preferred
Agreements set forth in Section 2 hereof, the terms and conditions of any Asset
Sales set forth in Section 3 hereof, the terms and conditions of the application
of the proceeds set forth in Section 4 hereof, and the terms and conditions of
the adjustments to the lending formulas set forth in Sections 5, 6, 7 and 8
hereof shall not apply to any rights of Hanover in respect of any redemption,
repurchase, or retirement of the Series B Participating Preferred Stock
permitted in this Amendment as in effect on the date hereof to the extent that
any such amendment or modification would have the effect of making the
conditions to the right of Hanover to redeem, repurchase or retire the Series B
Participating Preferred Stock less favorable to the holders of the Series B
Participating Preferred Stock than the terms as in effect on the date hereof.
(b) Except as set forth in Section 9(a) hereof, nothing contained
herein shall in any way limit or affect Lender's right to amend, modify,
supplement, extend, renew, restate or replace any of the provisions of the
Financing Agreements or the exercise of Lender's rights or remedies in
accordance with the Financing Agreements, applicable law or otherwise. Lender is
agreeing to the terms of this Section 9 solely as an accommodation to Borrowers
and Guarantors and no other Person shall be, or be deemed to be a third party
beneficiary of the provisions of this Amendment.
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10. Costs and Expenses. The per diem charge per person for periodic field
examinations of the Collateral in clause (vi) of Section 9.2(a) of the Loan
Agreement is hereby amended by replacing the amount "Six Hundred Dollars ($600)"
with the amount "Seven Hundred Fifty Dollars ($750)".
11. Waiver of Event of Default.
(a) Lender hereby waives, subject to the terms and conditions contained
in this Amendment, the Event of Default arising under Section 7.1(j) of the Loan
Agreement as a result of the cessation of NAR, directly or through its
Subsidiaries, to be the direct or indirect beneficial owner of a sufficient
number of issued and outstanding shares of Capital Stock of Hanover and its
Subsidiaries on a fully diluted basis, to elect a majority of the members of the
respective Boards of Directors of Hanover and each member of the Affiliated
Borrower Group.
(b) The waiver contained in Section 11(a) hereof is conditioned upon
Lender obtaining, in form and substance satisfactory to Lender, an amendment to
Section 7.1(j) of the Loan Agreement by no later than January 21, 2002. Lender
has not waived and is not by this Amendment waiving, and has no intention of
waiving, any other Event of Default, which may have occurred before the date
hereof, or may be continuing on the date hereof or any Event of Default that may
occur after the date hereof, whether the same or similar to the Event of Default
described in Section 11(a) hereof or otherwise, other than the Event of Default
described in Section 11(a) hereof. Lender reserves the right, in its discretion,
to exercise its rights and remedies arising under the Financing Agreements,
applicable law or otherwise as a result of any other Events of Default that may
have occurred before the date hereof, or are continuing on the date hereof, or
any Event of Default that may occur after the date hereof, whether the same or
similar to the Event of Default described in Section 11(a) hereof or otherwise.
12. Fees. In addition to all other fees, charges, interest and expenses
payable by Borrowers to Lender under the Loan Agreement and the other Financing
Agreements, Borrowers shall pay to Lender the following additional fees:
(a) Borrowers shall pay to Lender, contemporaneously herewith, a
closing fee in the amount of $375,000, which fee is fully earned as of the date
hereof and may be charged into the loan account(s) of any Borrower.
(b) Tranche B Term Loan Borrowers shall pay to Lender,
contemporaneously herewith, a closing fee in the amount of $125,000, which fee
is fully earned as of the date hereof and may be charged into the loan
account(s) of any Tranche B Term Loan Borrower.
13. Representations, Warranties and Covenants. Borrowers and Guarantors
represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:
15
(a) This Amendment and each other agreement or instrument to be
executed and delivered by each Borrower or Guarantor hereunder have been duly
authorized, executed and delivered by all necessary action on the part of each
of Borrower and each Guarantor which is a party hereto and thereto and, if
necessary, their respective stockholders (with respect to any corporation) or
members (with respect to any limited liability company), and is in full force
and effect as of the date hereof, as the case may be, and the agreements and
obligations of each Borrower and Guarantor, as the case may be, contained herein
and therein constitute legal, valid and binding obligations of each Borrower and
Guarantor, as the case may be, enforceable against them in accordance with their
terms.
(b) No action of, or filing with, or consent of any governmental or
public body or authority, and no consent of any other party, is required to
authorize, or is otherwise required in connection with, the execution, delivery
and performance of this Amendment and each other agreement or instrument to be
executed and delivered pursuant to this Amendment.
(c) Neither the execution and delivery of this Agreement or any other
agreements, documents or instruments in connection therewith, nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof has violated or shall violate any Federal or State securities
laws or any other law or regulation or any order or decree of any court or
governmental instrumentality in any respect, or does, or shall conflict with or
result in the breach of, or constitute a default in any respect under any
mortgage, deed of trust, security agreement, agreement or instrument to which
any Borrower or Guarantor is a party or may be bound, or does or shall violate
any provision of the Certificate of Incorporation or By-Laws of any Borrower or
Guarantor.
(d) All of the representations and warranties set forth in the Loan
Agreement as amended hereby, and the other Financing Agreements, are true and
correct in all material respects after giving effect to the provisions of this
Amendment, except to the extent any such representation or warranty is made as
of a specified date, in which case such representation or warranty shall have
been true and correct as of such date.
(e) After giving effect to the provisions of this Amendment, no Event
of Default or Incipient Default exists or has occurred and is continuing.
(f) Any event of default or default under any of the Series B Preferred
Participating Preferred Agreements shall constitute an Event of Default under
the Financing Agreements.
14. Conditions Precedent. Concurrently with the execution and delivery
hereof (except to the extent otherwise indicated below), and as a further
condition to the effectiveness of this Amendment and the agreement of Lender to
the modifications and amendments set forth in this Amendment:
(a) Lender shall have received a photocopy of an executed original or
executed original counterparts of this Amendment by facsimile (with the
originals to be delivered within
16
five (5) Banking Days after the date hereof), as the case may be, duly
authorized, executed and delivered by Borrowers and Guarantors;
(b) Lender shall have received, in form and substance satisfactory to
Lender, Secretary's or Assistant Secretary's Certificates of Directors'
Resolutions with Shareholders' Consent evidencing the adoption and subsistence
of corporate resolutions approving the execution, delivery and performance by
Borrowers and Guarantors that are corporations of this Amendment and the
agreements, documents and instruments to be delivered pursuant to this
Amendment; and
(c) each of Borrowers and Guarantors shall deliver, or cause to be
delivered, to Lender a true and correct copy of any consent, waiver or approval
to or of this Amendment, which any Borrower or Guarantor is required to obtain
from any other Person, and such consent, approval or waiver shall be in a form
reasonably acceptable to Lender.
15. Effect of this Amendment. This Amendment constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.
16. Further Assurances. Borrowers and Guarantors shall execute and
deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.
17. Governing Law. The validity, interpretation and enforcement of this
Amendment in any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise shall be governed by the
internal laws of the State of New York, without regard to any principle of
conflict of laws or other rule of law that would result in the application of
the law of any jurisdiction other than the State of New York.
18. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
19. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By:/s/ Xxxxx Last
---------------------------
Title: First Vice President
------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
BRAWN OF CALIFORNIA, INC.
GUMP'S BY MAIL, INC.
GUMP'S CORP.
LWI HOLDINGS, INC.
HANOVER DIRECT VIRGINIA INC.
HANOVER REALTY, INC.
THE COMPANY STORE FACTORY, INC.
THE COMPANY OFFICE, INC.
KEYSTONE INTERNET SERVICES, INC.
TWEEDS, LLC
SILHOUETTES, LLC
HANOVER COMPANY STORE, LLC
DOMESTICATIONS, LLC
By: /s/ Xxxxx Xxxxxxx
---------------------------------
Title: Vice President
------------------------------
By their signatures below, the
undersigned Guarantors acknowledge
and agree to be bound by the
applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
By: /s/ Xxxxx Xxxxxxx
--------------------------------
Title: EVP & Chief Financial Officer
-----------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AMERICAN DOWN & TEXTILE COMPANY
X.X. ADVERTISING, INC.
SCANDIA DOWN CORPORATION
KEYSTONE LIQUIDATIONS, INC.
HANOVER HOME FASHIONS GROUP, LLC
KITCHEN & HOME, LLC
DOMESTICATIONS KITCHEN & GARDEN, LLC
ENCORE CATALOG, LLC
CLEARANCE WORLD OUTLETS, LLC
SCANDIA DOWN, LLC
ERIZON, INC.
HANOVER BRANDS, INC.
XXXXXX.XXX, INC.
LA CROSSE FULFILLMENT, LLC
SAN DIEGO TELEMARKETING, LLC
By: /s/ Xxxxx Xxxxxxx
--------------------------------
Title: Vice President
-----------------------------
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