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Exhibit 99.4
SUBORDINATION AGREEMENT
The He-Ro Group, Inc., a New York corporation having offices located at
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ (hereinafter referred to as "the
Company"), is indebted to each undersigned creditor (each hereinafter referred
to as "the Creditor" and, collectively, the "Creditors") in the following
amounts evidenced as follows:
The following Amended and Restated Subordinated Notes of even
date herewith, as hereafter further amended, supplemented or
restated (subject to the last paragraph hereof): (a) the Amended and
Restated Subordinated Note made by the Company in favor of Hong ▇.
▇▇▇ in the original principal amount of $4,269,000 and the Amended
and Restated Subordinated Note made by the Company in favor of ▇▇▇▇▇
▇▇▇▇▇▇▇ in the original principal amount of $1,257,676 which Notes
are pari passu to each other in terms of priority of payment and are
guarantied on a subordinated basis by The He-Ro Group, Ltd. and all
of its subsidiaries (collectively, the "Subordinated Indebtedness").
The Company has requested ▇▇▇▇▇▇ to extend financial accommodations to the
Company and certain of its affiliates pursuant to the Factoring and Revolving
Inventory Loan and Security Agreement among ▇▇▇▇▇▇, the Company, HRNL Inc. Nah
Nah Collection, Inc., N.N.C.S. LLC, NNCS-NJ LLC, The He-Ro Group, Ltd., H.R.I.
Inc., European Collections Of Reading Station, Inc., European Collections Of
▇▇▇▇▇▇▇▇, Inc., European Collections of Gilroy, Inc., European Collections of
Chattanooga, Inc., European Collections of Silverthorne, Inc., European
Collections of Queenstown, Inc., European Collections of Williamsburg, Inc. and
European Collections Outlet, Inc. (as amended, modified and supplemented, from
time to time, the "Factoring Agreement"), and ▇▇▇▇▇▇ is unwilling to do so
unless the Company and each Creditor shall join in this Subordination Agreement
pursuant to which each Creditor shall subordinate, to the extent and in the
manner hereinafter set forth, the Subordinated Indebtedness owing by the Company
to such Creditor, to all indebtedness, now existing or hereafter arising, of the
Company and each other Loan Party to and as defined under the Factoring
Agreement (the "Loan Parties") to ▇▇▇▇▇▇.
Accordingly, in order to induce ▇▇▇▇▇▇ to enter into the Factoring
Agreement, and in consideration of ▇▇▇▇▇▇'▇ entering in to the Factoring
Agreement, each Creditor and the Company warrant to and covenant with ▇▇▇▇▇▇ as
follows:
1. Each Creditor agrees to and does hereby subordinate all of the
Subordinated Indebtedness, together with all collateral, security and
evidence, if any, of such Subordinated Indebtedness for the payment of any
such Subordinated Indebtedness, to any and all debts, demands, claims,
liabilities or causes of action for which the Company may now or at any
time hereafter in any way be liable to ▇▇▇▇▇▇.
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2. The Company and each Creditor agree that until all indebtedness owing by
the Company, and each other Loan Party to ▇▇▇▇▇▇ has been paid in full,
the Company shall not make, directly or indirectly, any payment on account
of principal or interest of any such Subordinated Indebtedness or transfer
any evidence of such Subordinated Indebtedness or any collateral therefor,
and the Creditor will not accept payment of or assert or seek to enforce
against the Company any Subordinated Indebtedness or any collateral or
security relating thereto, unless and until ▇▇▇▇▇▇ shall have been paid in
full for all indebtedness, obligations and liabilities or causes of action
now or hereafter owing to ▇▇▇▇▇▇ by the Company and each other Loan Party;
provided, however, so long as (a) the undersigned have not received notice
from ▇▇▇▇▇▇ of ▇▇▇▇▇▇'▇ declaration of an Event of Default (as defined in
the Factoring Agreement) under the Factoring Agreement and (b) after
giving effect to any such payment outstanding Client Advances (as defined
under the Factoring Agreement) shall not exceed Advance Availability (as
defined in the Factoring Agreement) (without giving effect to the
Supplemental Amount), then each Creditor may receive and the Company may
pay regular monthly installments of interest on the Subordinated
Indebtedness as in effect on the date hereof. To the extent interest is
not permitted to be paid in accordance with the terms hereof, such
interest is permitted to accrue during such non-payment period. So long as
an Event (as herewith defined) shall not have occurred, nothing contained
in this Section 2 shall be deemed to prohibit conversion of the
Subordinated Debt to capital stock of the Company (the "Converted Capital
Stock") so long as such Creditor grants to ▇▇▇▇▇▇ a first priority
perfected security interest in the Converted Capital Stock and executes
all such documentation as shall be required by ▇▇▇▇▇▇ to evidence such
pledge. For the purposes of this Section 2, the term "Event" shall mean
any insolvency or bankruptcy proceedings relative to the Company or its
property, or any receivership, liquidation, reorganization or other
similar proceeding in connection therewith, or, in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of
the Company or distribution or marshalling of its assets or any
composition with creditors of the Company, whether or not involving
insolvency or bankruptcy, or if the Company shall cease its operations,
call a meeting of its creditors or no longer do business as a going
concern.
3. Each Creditor hereby assigns, transfers and sets over to ▇▇▇▇▇▇ all of the
Subordinated Indebtedness, whether evidenced by negotiable or
nonnegotiable instruments, debentures, bonds, securities or other
writings, book entries or otherwise, together with any collateral
therefor. The Company and each Creditor shall make appropriate notations
in their books to show the subordinated character of all such Subordinated
Indebtedness which may now or hereafter be carried on open account.
4. At any meeting of creditors of the Company or in the event of any
proceedings, voluntary or involuntary, for the distribution, division or
application of all or part of the assets of the Company or the proceeds
thereof, whether such proceedings be for the liquidation, dissolution or
winding up of the Company or its business, receivership, insolvency or
bankruptcy or reorganization (regardless of whether required under any
bankruptcy or insolvency law or any law relating to the relief of
debtors), readjustment of indebtedness, reorganization, arrangement,
composition or otherwise, if all of the indebtedness owing to ▇▇▇▇▇▇ has
not been paid in full at the
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time of any such meeting or proceeding, ▇▇▇▇▇▇ is hereby irrevocably
authorized at any such meeting or in any such proceeding:
(a) To enforce claims comprising any such Subordinated Indebtedness
either in its own name or the name of any Creditor, by proof of debt,
proof of claim, suit or otherwise;
(b) To collect any assets of the Company distributed, divided or
applied by way of dividend or payment or any securities issued, on account
of any of the Subordinated Indebtedness and apply the same, or the
proceeds of any realization upon the same, that ▇▇▇▇▇▇ in its discretion
elects to effect, to any indebtedness of the Company to ▇▇▇▇▇▇ until all
such indebtedness of the Company to ▇▇▇▇▇▇ shall have been paid in full
rendering any surplus to the applicable Creditor;
(c) To vote claims comprising any of the Subordinated Indebtedness
to accept or reject any plan for partial or complete liquidation,
reorganization, arrangement or composition of the Company or for any
extension of payment of the Subordinated Indebtedness; and
(d) To take generally any action in connection with any such meeting
or proceeding which any Creditor might otherwise be entitled to take.
5. Each Creditor represents and warrants to ▇▇▇▇▇▇ that such Creditor has not
assigned or transferred any of the Subordinated Indebtedness or any
interest therein or any collateral or security relating thereto to any
other person, and such Creditor covenants that such Creditor shall make no
assignment or transfer thereof other than to ▇▇▇▇▇▇ or to the other
Creditor (any such assignment or transfer shall remain subject to the
terms and provisions of this Agreement). Each Creditor further warrants
that no part of the Subordinated Indebtedness is evidenced by any
instrument, security or other writing which has not previously been or is
not concurrently being deposited with ▇▇▇▇▇▇ or appropriately legended to
reflect this Subordination Agreement.
6. Should any payment on account of or any collateral for any part of the
Subordinated Indebtedness subordinated hereby be received by any Creditor
in violation of this Agreement such payment or collateral shall be
delivered forthwith to ▇▇▇▇▇▇ for application to the indebtedness owing by
the Company to ▇▇▇▇▇▇, in the form received by such Creditor except for
the addition of any endorsement or assignment necessary to effect the
transfer thereof to ▇▇▇▇▇▇. ▇▇▇▇▇▇ is irrevocably authorized to supply any
required endorsement or assignment which may have been omitted.
7. Each Creditor and the Company waive notice of acceptance hereof by ▇▇▇▇▇▇,
notice of the creation of any indebtedness or liability of the Company to
▇▇▇▇▇▇, any extension granted or other action taken by ▇▇▇▇▇▇ in reliance
hereon, the giving or extension of credit by ▇▇▇▇▇▇ to the Company, the
taking or releasing of security or other obligors by ▇▇▇▇▇▇ for the
payment of any indebtedness or liability of the Company to ▇▇▇▇▇▇. Each
Creditor and the Company also waive presentment, demand, protest, notice
of protest or default and any and all other notices to which
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such Creditor might otherwise be entitled except as expressly provided for
herein. The Company and each Creditor agree to execute and deliver to
▇▇▇▇▇▇ such additional documents and take such further action as ▇▇▇▇▇▇
may hereafter reasonably require in order to effect the provisions and
intent of this Subordination Agreement.
8. This Subordination Agreement is intended to take effect as a sealed
instrument and shall be continuing, irrevocable and binding on the Company
and each Creditor, jointly and severally, and their respective heirs,
executors, representatives, successors and assigns, and shall inure to the
benefit of ▇▇▇▇▇▇ and its successors and assigns. This Subordination
Agreement shall be construed in accordance with the laws of the State of
New York.
9. Any notice to any party hereto shall be delivered to such party, as
applicable, as follows: if to (a) Hong Han at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, (b) ▇▇▇▇▇ ▇▇▇▇▇▇▇ at ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, and (e) ▇▇▇▇▇▇ at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Attention: The He-Ro Group Account Executive, in each case by a
nationally recognized overnight delivery service, by hand or by certified
mail return receipt requested.
So long as the Factoring Agreement remains in effect, neither the Company
nor any Creditor shall enter into any amendment to or modification of any
agreements, documents or instruments evidencing the Subordinated
Indebtedness which affect the principal amount, interest rate, payment
terms or any other material covenant or agreement of the Company
thereunder or in respect thereof without the prior written consent of
▇▇▇▇▇▇.
[SIGNATURE LINES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed this 24th day of December, 1997.
/s/ ▇▇▇▇▇▇▇▇ Della Pasvantidou Rounick
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▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Pasvantidou Rounick
/s/ Hong ▇. ▇▇▇
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Hong ▇. ▇▇▇
THE HE-RO GROUP, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
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Name:
Title: Vice President
▇▇▇▇▇▇ FINANCIAL INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name:
Title:
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▇
▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
) ss:
COUNTY OF NEW YORK )
On this 24th day of December, 1997, before me personally came Hong
▇. ▇▇▇ to me known, who being by me duly sworn, did depose and say that he is
the individual described in and who executed the foregoing instrument, and
acknowledges that he executed the same.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 17th day of December, 1997, before me personally came ▇▇▇▇▇
▇▇▇▇▇▇▇, to me known, who being by me duly sworn, did depose and say that she is
the individual described in and which executed the foregoing instrument, and
acknowledges that she executed the same.
/s/ Stuart Shorestein
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Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came ▇▇▇
▇▇▇▇▇▇, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of the He-Ro Group, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Notary Public
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STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 24th day of December, 1997, before me personally came ▇▇▇▇▇▇▇
▇▇▇▇▇▇, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of ▇▇▇▇▇▇ Financial, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Notary Public
