Exhibit 10.86

AGREEMENT

 

AGREEMENT made and entered into as of the 15th day of March, 2006 between ENCORE
MARKETING INTERNATIONAL, INC., a Delaware corporation (“Encore”), with offices
located at 4055 Forbes Boulevard, Lanham, Maryland 20706 and HANOVER DIRECT,
INC., a Delaware corporation (“HDI”), with offices located at 1500 Harbor
Boulevard, Weehawken, New Jersey 07086.

 

Recitals

Encore is a developer, marketer and administrator of consumer membership
services;

 

HDI is engaged in the direct marketing business and operates a portfolio of
catalogs (“HDI Catalogs”) and associated e-commerce websites (“HDI Websites”)
through the wholly owned corporations and limited liability companies listed on
attached Schedule A (“HDI Affiliates”). (A reference in this Agreement to HDI
shall be deemed, where the context requires, including the HDI Affiliates.) HDI
operates telephone call centers and markets membership programs on inbound order
calls placed by HDI Catalog customers. HDI also markets membership programs on
the HDI Websites.

 

Keystone Internet Services, LLC (“Keystone”), a wholly owned HDI subsidiary,
provides product fulfillment, distribution, call center, e-commerce and related
technical and support services to third party direct marketers. Some of
Keystone’s HDI Affiliates as indicated on attached Schedule B (such HDI
Affiliates are referred to as “Third Party HDI Affiliates”) permit Keystone,
from time to time, to market membership programs to their customers on inbound
order calls received at HDI call centers and/or on their related websites where
HDI/Keystone provides e-commerce services (“Third Party Websites”).

 

Encore and HDI wish to enter into this Agreement whereby HDI will market, and
Encore will supply, the membership programs described in Schedule C (“Programs”)
on inbound order calls placed by HDI Catalog customers and the customers of
Third Party HDI Affiliates (“Telephone Customers”) at HDI’s call centers and on
HDI Websites and the Third Party Websites (collectively, the “Participating
Websites”).

 

NOW, THEREFORE, in consideration of the mutual covenants and promises contained
in this Agreement, the receipt and sufficiency of which are hereby acknowledged,
HDI and Encore agree as follows:

 

1.

HDI RESPONSIBILITIES

 

1.1 Marketing Responsibilities. HDI shall market and offer the Programs on (i)
inbound order calls by Telephone Customers, (ii) the Participating Websites and
(iii) such other marketing channels as the parties may mutually agree. Except as
otherwise provided for in Section 1.1.1, (i) HDI will use its best efforts to
ensure that a Program offer is made to all Telephone Customers on inbound order
calls and to all customers who have purchased product online at the
Participating Websites and (ii) during the term of this Agreement the only
membership programs HDI will offer to its customers will be Encore supplied
membership programs. For purposes of this Agreement, a membership program shall
mean a program or service where discounts, information and/or benefits are
delivered to a consumer or business in exchange for a recurring membership fee
on a negative option or similar basis, including, but not limited to, programs
or services similar to Programs, but shall not include loyalty programs such as
HDI’s Buyer’s Clubs that are offered by HDI or any of the Third Party HDI
Affiliates that promote the sale of the offeror’s merchandise. The parties agree
that HDI may amend Schedules

 

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A and B, from time to time, in its sole discretion, provided that for additions
of Third Party HDI Affiliates, Encore shall have the right to approve such
additions, which approval shall not be unreasonably withheld or delayed.

 

1.1.1 Exception To Exclusivity. Notwithstanding the foregoing, HDI may in its
discretion not offer a Program on inbound order calls due to business
necessities such as call center volume constraints, a Telephone Service
Representative’s (TSR) reasonable judgment as to a Telephone Customer’s
receptivity to a Program offer or the fact that the Telephone Customer has
already purchased the same Program. In addition, commencing six months prior to
the expiration date of the Term (as defined in Section 5.1 below), HDI may
engage in limited test marketing of non-Encore provided membership programs. HDI
will provide Encore with prior written notice of any election to exercise its
right to conduct test marketing and will immediately terminate such marketing if
the parties agree to extend the Term as provided for in Section 5.1.

 

1.2 Reading of Scripts; Posting of Banner Ads. HDI, in connection with marketing
Programs to Telephone Customers on inbound order calls, shall be responsible for
reading the scripts (“Scripts”) developed, approved and revised in accordance
with Section 2.1. Offers of the Programs to Telephone Customers will be
communicated, at a minimum, in Substantial Conformity with the Scripts. For
purposes of this Agreement, Substantial Conformity means that the script has
been read in its entirety, and in obtaining an acceptance to the Program offer
and confirmation thereof from the Telephone Customer, the TSR has not made false
or misleading statements or placed undue emphasis on the premiums or “easy
cancellation”. HDI, in connection with marketing Programs to Customers on the
Internet, shall post the banner ads and other Encore developed Internet
marketing materials on the Participating Websites and provide hyperlinks to
Encore hosted landing pages (such Internet marketing materials are referred to
as “Website Marketing Materials”). (Scripts and Website Marketing Materials are
referred to as “Marketing Materials”). HDI shall in connection with all of the
above (i) comply with applicable federal, state and local laws, rules and
regulations as may be in effect from time to time with respect to the Marketing
Materials, (ii) use the intellectual property of Program benefit providers in
the Marketing Materials in conformance with Encore provided guidelines, (iii)
accurately represent Programs and their respective benefits, and (iv) have the
option to re-name a Program solely for purposes of use in the Marketing
Materials.

 

1.3 Transmission of Valid Gross Sales. HDI will transmit to Encore only Valid
Gross Sales. Encore will pay HDI the Compensation described in and referenced by
Section 4 on all Valid Gross Sales transmitted to it. For sales to Telephone
Customers, a Valid Gross Sale means a sale of a Program membership achieved in
Substantial Conformity with an Encore approved Script to a Telephone Customer
from which a Legally Compliant Recording has been made and for whom Encore has
received from HDI the Mandatory Customer Information. A Legally Compliant
Recording is a recording which evidences the express informed consent of the
Telephone Customer, as defined by the FTC Telemarketing Sales Rule, to be
charged for the Program in accordance with its terms using the identified
account, and if a debit card is to be charged contains the Telephone Customer’s
electronic signature compliant with the E-Sign Act, copies of which may be
obtained by the Telephone Customer, authorizing, in accordance with Regulation
E, recurrent charges for the Program to be billed to the debit card (except that
the absence of an electronic signature is excused if the Telephone Customer has
not identified the actual debit card to be charged despite reasonable procedures
being used by the HDI TSR during the call to elicit this information). For
Internet sales, a Valid Gross Sale means a sale of a Program membership achieved
from the presentation of mutually approved Website Marketing Materials to a
customer of the Participating Websites for whom Encore has received from HDI the
Mandatory Customer Information and who if using a debit card for payment has
provided an electronic signature as described above. Such persons described
above are referred to as

 

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“Customers”. “Mandatory Customer Information” means such Customer’s name,
address, type of credit card, account number and expiration date, wherein the
credit card number has been subjected by HDI to a Mod 10 check digit routine
card validation process, until such time as HDI is able to go live in obtaining
real- time (on-line) credit authorization from its merchant processor for its
upfront order transaction (anticipated by HDI to be in six months time or less)
at which time this process shall apply. For Internet sales, the parties will
implement a mutually agreed upon process whereby credit card information
provided by the Customer from his or her preceding order will be automatically
captured for the Program enrollment process without the Customer having to
reenter it. It is the expectation of the parties that Encore will not experience
hard declines other than those that derive from events occurring after Encore’s
receipt of the transaction and before Encore bills. Duplicate enrollments are
excluded from Valid Gross Sales. HDI shall use its best efforts to avoid
transmitting to Encore duplicate enrollments. A duplicate enrollment is the
transmission of an enrollment for a customer already enrolled in the same
membership program. HDI shall transmit Valid Gross Sales (and any Other Customer
Information pertaining thereto) to Encore on a daily basis (within 24 hours of
sale for telephone sales, and as close to real time as mutually agreed upon for
Internet sales) and in computer readable format reasonably agreed upon by HDI
and Encore, such to be in the form of a report containing the aforementioned
(the “Gross Sales Report”). “Other Customer Information” means such other
information with respect to a Customer apart from Mandatory Customer Information
as the parties may mutually agree and which may include the Customer’s telephone
number and email address. The provisions of Section 2.9 shall cover the handling
of Mandatory and Other Customer Information.

 

1.4 Taping. HDI, at its sole cost and expense and in compliance with applicable
laws, shall digitally record and retain the confirmation of the original sales
transaction and the entirety of each Program presentation (including the
acceptance and order confirmation) on inbound order calls where Telephone
Customers have ordered Programs so that there is a Legally Compliant Recording
for each order submitted to Encore as a Valid Gross Sale. Digital recordings
shall be of good audio quality. HDI will use its best efforts to promptly remedy
any recording issues with respect to poor audio quality or other system
irregularities. With respect to such digital recordings, (i) HDI shall maintain
such recordings for a minimum of 2 years from the initial order, and (ii) HDI
shall deliver to Encore copies of such recordings as may be reasonably requested
by Encore, made within the preceding 2 years by digital download in a format
reasonably acceptable to Encore or by overnight air courier service within 3
business days after Encore’s request for same. Encore may request recordings to
conduct quality assurance and audit HDI’s compliance with the terms of this
Agreement regarding the orders it submits for payment as Valid Gross Sales, or
in connection with a regulatory/ BBB contact. If the latter, HDI will cooperate
with Encore to ensure that Encore receives the recording (within 2 business days
of a request) and other information it has reasonably requested in order for
Encore to be fully informed in connection with its response process. The above
recordings will be digitally transmitted by HDI to Encore via WAV file format.
Encore acknowledges that such recordings will contain Customer Information and
agrees to handle them in compliance with Section 2.6

 

1.5 Maryland Residents. The parties shall cooperate to develop a strategy that
will permit the marketing of Programs to Maryland residents in compliance with
all applicable laws, rules and regulations while preserving the relative
economic arrangement between the parties. This may require, among other things,
for HDI to process billings for Maryland Customers, possibly using an HDI
merchant processing account, and/or Encore wholesaling memberships to HDI for
sale and fulfillment by HDI. Encore will perform as many functions as the
parties determine, in good faith, to be permissible under applicable laws, rules
and regulations. The parties’ economic arrangements will be structured so that
HDI receives, to the greatest extent practicable, the same remuneration for
Valid Gross Sales and renewal Memberships from Maryland residents as it receives
for Valid Gross Sales and renewal Memberships from non-

 

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Maryland residents.

 

2.

ENCORE RESPONSIBILITIES.

 

2.1 Development and Creation of Marketing Materials. Encore, with the assistance
of HDI and subject to HDI’s approval, shall, (i) create and develop the Scripts
for marketing the Programs to Telephone Customers on inbound order calls, and
(ii) create and develop the Website Marketing Materials and host the landing
pages for click throughs from banner ads and other hyperlinks displayed on the
Participating Websites for marketing the Programs to Internet Customers. Encore
shall (i) comply with applicable federal, state and local laws, rules and
regulations as may be in effect from time to time with respect to the Marketing
Materials, (ii) use the intellectual property of Program benefit providers in
the Marketing Materials in conformance with such party’s guidelines, (iii) use
the intellectual property of the HDI Catalogs and/or Third Party HDI Affiliates
in the Marketing Materials in conformance with HDI supplied guidelines, and (iv)
accurately represent Programs and their respective benefits.

 

2.1.1     Initial Approval Process. HDI shall have the right to review and
approve all Marketing Materials, which approval shall not be unreasonably
withheld or delayed. Encore shall provide HDI copies of all proposed Marketing
Materials no less than 5 business days prior to the proposed first use of such
Marketing Materials or with such other lead-time as the parties may mutually
agree on a case-by-case basis. HDI and/or Encore, as the case may be, shall
utilize Marketing Materials that have not been objected to by HDI within such
5-day time period, or any other agreed-upon time period.

 

2.1.2    Revision Process. Either party may propose revisions to the creative
content of the Marketing Materials, as well as choice of Program, shipping and
handling fees, monthly versus annual billing and the applicable Program initial
and renewal Membership price. Such proposed revisions shall be subject to the
written approval of the other party. The party to whom the proposed revisions
have been submitted shall use its reasonable commercial efforts to review all
proposed revisions to the Marketing Materials within 5 business days after
receipt thereof from the other party, or such other period of time as the
parties may mutually agree. HDI and/or Encore, as the case may be, shall utilize
such revised Marketing Materials as are mutually agreed to, within 3 business
days after their approval, or such other period of time as the parties may
mutually agree. The parties shall cooperate with regard to such proposed
revisions. The parties may agree to the testing of the proposed revision before
deciding whether it should be rolled-out. If a test or rollout requires an
adjustment to the commissions, such adjustment shall be subject to the parties’
mutual agreement which shall be a pre-condition of any such test or rollout.
Notwithstanding the foregoing, if Encore requests changes to the Marketing
Materials and HDI fails to respond to such approval request within the requisite
time period, such changes shall be deemed to have been approved.

 

2.2 Premiums. Encore agrees to test $50 in gas cards as a premium (“$50 Gas Card
Premium Offer”) for offers of the EasySaver Program on inbound order calls to
Telephone Customers (“EasySaver Inbound TM Offer”). If at any time after 60 days
from the commencement of the $50 Gas Card Premium Offer Encore reasonably
determines that the redemption cost of the $50 Gas Card Premium Offer is
unacceptable to it as a result of high rates of redemption and/or high rates of
cancellations by customers who have redeemed the gas cards, at Encore’s request
the premium will revert to a $25 gas card (“$25 Gas Card Premium Offer”). The
parties will use their best efforts to try to develop a mutually acceptable
alternative premium if the conversion rate for the EasySaver Inbound TM Offer
with the $25 Gas Card Premium Offer is less than it is with the $50 Gas Card
Premium Offer. Encore also agrees to test a $10 cash back premium for Internet
offers of the EasySaver Program. If at any time after 60 days from the
commencement of that premium offer Encore determines that the redemption cost of
that

 

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premium offer is unacceptable to it, at Encore’s request that premium offer will
be discontinued and the parties will mutually determine another premium to
offer. Encore will also consult with HDI on the premium to be offered with other
Programs. For any such premium offer that may be discontinued by Encore due to
unacceptable redemption cost or high cancellation rates, the parties will
mutually determine another premium to offer. Encore will determine the
redemption process for all premiums. If HDI receives complaints from its
Customers about the redemption process, HDI will refer the complaints to Encore
for a response that is mutually approved by the parties.

 

2.3 Fulfillment Materials and Program Benefits. Encore, in connection with
providing fulfillment information and Membership benefits to Members (as defined
below), shall be responsible for creating and developing such fulfillment
information and materials and for providing all Program benefits and any
premiums (collectively, and with Renewal Notices (as defined below),
“Fulfillment Materials”). Encore shall (i) comply with applicable federal, state
and local laws, rules and regulations as may be in effect from time to time with
respect to the Fulfillment Materials, (ii) use the intellectual property of the
HDI Catalogs and Third Party HDI Affiliates in conformance with HDI provided
guidelines, (iv) accurately represent the Programs and their respective
benefits. For purposes hereof, “Member” means a Customer who as the result of
Valid Gross Sale has accepted enrollment, and has been enrolled, in an Encore
Program.

 

2.3.1 Initial Review Process. HDI shall have the right to review and approve all
Fulfillment Materials, which approval shall not be unreasonably withheld or
delayed. Encore shall provide HDI copies of all proposed Fulfillment Materials
no less than 5 business days prior to Encore’s proposed first use of such
Fulfillment Materials or with such other lead-time as the parties may mutually
agree on a case-by-case basis. Each of the parties agrees to work together, in
good faith, to address in a mutually agreeable manner, any comments made by the
other party during the review periods described in this Section 2.3. Encore may
use only Fulfillment Materials that have not been objected to by HDI with
respect to the use of HDI Catalogs and Third Party HDI Affiliates provided
intellectual property within such 5-day time period, or any other agreed-upon
time period.

 

2.3.2 Revision Process. Either party may propose revisions to any such
Fulfillment Materials and the benefit providers and Program benefits (which does
not include premiums which may be modified as provided for in Section 2.2) which
may not be modified absent compliance with the following provisions. Such
proposed revisions shall be subject to the written approval of the other party.
The party to whom the proposed revisions have been submitted shall use its
reasonable commercial efforts to review all proposed revisions to the
Fulfillment Materials within 5 business days after receipt thereof from the
other party, or such other period of time as the parties may mutually agree.
Encore shall utilize such revised Fulfillment Materials as are mutually agreed
to, within 3 business days after their approval, or such other period of time as
the parties may mutually agree. The parties shall cooperate with regard to such
proposed revisions. The parties may agree to the testing of the proposed
revision before deciding whether it should be permanently adopted. If a test or
rollout requires an adjustment to the commissions, such adjustment shall be
subject to the parties’ mutual agreement which shall be a pre-condition of any
such test or rollout. Notwithstanding the foregoing, if with respect to a
Program benefit that is a primary benefit to the Program Encore requests a
change to the benefit provider or benefit, and HDI fails to respond to such
approval request within the requisite time period, such change shall be deemed
to have been approved. Notwithstanding this Section or any other provision of
this Agreement:

 

(i) If Encore, as a result of the use by Members of an EasySaver Program benefit
including a rebate benefit, is suffering economic hardship, Encore shall have
the right to change benefits and benefit providers, and change the mix of
benefits, so long as the

 

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overall value proposition provided by the Program to the Members, taken as a
whole, is not less than such mix for the EasySaver August 2005 test membership
program, and subject to Encore obtaining HDI’s prior approval of changes, which
approval shall not be unreasonably withheld.

 

(ii) For Programs other than EasySaver, Encore may change a Program benefit or
provider thereof in regard to a Program benefit that is a primary or material
benefit to the Program so long as the withdrawn benefit is replaced by a Program
benefit so that the overall value proposition provided by the Program to
Members, taken as a whole, is not reduced materially from the Program containing
the withdrawn benefit and HDI approves the substituted benefit, which approval
shall not be unreasonably denied. Encore will not be required to obtain HDI’s
prior approval to a change in Fulfillment materials or Program benefits where
the change is (a) made as a result of circumstances beyond Encore’s control, (b)
does not relate to a primary or material benefit to the Program, (c) required by
the Program benefit provider, or (d) required by a change in a law, rule or
applicable regulation. Encore shall notify and update HDI in regard to any such
changes that may occur and are described in the preceding sentence and shall use
its best efforts to replace, where commercially reasonable, any withdrawn
Program benefit with a Program benefit of at least perceived equivalent value.
If HDI objects to any such change, HDI may request that Encore substitute the
affected Program with another Encore Program.

 

(iii) If Encore proposes to include a Program benefit from a direct competitor
of HDI such as a discount program from Linen ‘n Things or Lane Bryant, HDI shall
have the right to substitute a Program benefit from an HDI Affiliate that
contains substantially similar terms as the benefit proposed to be provided by
the direct competitor. The parties agree to cooperate with each other with
regard to the development of the terms of the Program benefit to be supplied by
the HDI Affiliate.

 

2.4 Initial Membership Fulfillment. Encore shall provide, at its sole cost and
expense, membership Fulfillment Materials and customer service to each Member
appearing on a Gross Sales Report transmitted by HDI within three days of its
receipt of such Gross Order Report. By reason of the 30 day trial associated
with a Program, Encore shall process membership fee billing of such Customer’s
credit card no earlier than the 31st day and no later than the 45th day after
providing such Fulfillment Materials using its Merchant Account as provided for
in Section 3.1. Encore shall provide HDI with 10 days prior written notice, or
such shorter period of time if prior notice is not practicable of any State(s)
where Encore plans or is required to terminate marketing, offering and/or
fulfillment of Programs. The parties agree to use their best efforts to
restructure their operations, the Membership offer and/or the Programs in such
states so as to enable Programs to be sold therein with the parties preserving,
to the greatest extent practicable, their economic arrangement.

 

2.5 Renewal Materials. Encore shall prepare and send to the Members who are
still Members in the applicable Program a Renewal Notice (as hereinafter
defined), with such Member’s original membership number, such Renewal Notice to
be sent no later than the 11th month after his/her credit card was previously
charged the annual fee for the Program. Encore shall mail such Renewal Notice to
the most recent address for such Member on file with Encore. Encore shall bill
the credit cards on or about the 10th of each month for those Members who are
still Members after 11 months from the initial annual fee billing or 12 months
from the previous year’s renewal billing for such Members, at the then-current
annual renewal membership fee for the applicable Program. Encore shall (i)
comply with applicable federal, state and local laws, rules and regulations as
may be in effect from time to time with respect to the Renewal Notices, (ii) use
the intellectual property of the HDI Catalogs and Third Party HDI Affiliates in
conformance with HDI provided guidelines. Encore shall be solely responsible to
receive and process all cancellations as a result of the Renewal Notice.

 

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2.5.1 “Renewal Notice" shall mean a form of mailed notification advising the
Member in substantially the following form, that his/her membership (a) will
automatically renew; and (b) that the then-current specified renewal membership
fee shall be billed to his/her credit card which was used at the start of the
membership, unless the Member calls a toll-free number to cancel the membership
or offer another payment method. Encore shall provide to HDI copies of the
proposed Renewal Notice within five (5) business days of Encore’s proposed use
of same, or such other lead-time as the parties may mutually agree on a
case-by-case basis. Encore may use only such Renewal Notice that has not been
reasonably objected to by HDI within such 5-day time period, or any other
agreed-upon time period. Renewal Notices are not required and do not apply to
monthly billed Members (should there be any).

 

2.5.2 Renewal Report. Encore shall prepare and deliver to HDI, on a monthly
basis, a list of Members, and Customer Information related thereto, to the
extent permissible under applicable law and regulation, for all Members mailed a
Renewal Notice (“Renewal Report”) from the date of preparation of the
immediately preceding Renewal Report.

 

2.6 Call Center; Cancellation of Memberships. Encore shall maintain and
adequately staff a telephone call center to receive Customer calls including
calls forwarded by HDI and operate the call center using commercially best
efforts to achieve the standard of 80% of such calls being answered in no more
than 30 seconds, as determined on a monthly basis. Encore shall provide HDI with
a monthly report on its call center performance. Encore shall receive
cancellations by Members directly, provided that if HDI receives any calls to
cancel, it shall direct Members to the appropriate phone number to call Encore
for the particular Program being cancelled. HDI shall have right to accept the
cancellation of any irate calling customer and will transmit the cancellation to
Encore within 24 hours of the occurrence. Thereupon, Encore shall be responsible
for processing all such cancellations and credits where they may apply, and
shall report cancellations to HDI. HDI shall have the right, at its expense,
upon providing Encore with at least two days prior written notice, to visit
Encore’s customer service call center and conduct reasonable on-site monitoring
of customer service calls.

 

2.7

Treatment of Mandatory Customer Information.

 

2.7.1 Security Controls. Each party shall establish commercially reasonable
controls to ensure the confidentiality, integrity, and availability of Mandatory
Customer Information and to ensure that such information is not disclosed
contrary to the provisions of this Agreement, or any applicable privacy,
security or other laws, rules and regulations, including but not limited to
Payment Card Industry Data Security Standard (PCI-DSS) or other Card Association
rules and regulations, both during the Term of this Agreement or following the
expiration or termination of this Agreement. “Card Association” shall mean a
nationwide payment clearing network such as MasterCard International, Inc. Visa
U.S.A. Inc., Discover Bank, American Express Company or World Financial Network
National Bank (“WFNNB”). Without limiting the foregoing, each party shall
implement such physical and other security measures as are necessary to (i)
ensure the confidentiality, integrity, and availability of Mandatory Customer
Information and other confidential information, (ii) protect against any threats
or hazards to the confidentiality, integrity, or availability of Mandatory
Customer Information and other confidential information, and (iii) protect
against any unauthorized access to or use of Mandatory Customer Information and
other confidential information. Encore understands and agrees that as a result
of the possession of Mandatory Customer Information from HDI that Encore may be
subject to industry regulations as outlined above.

 

2.7.2 Procedure for Security Breach. Encore shall notify HDI if it believes, or
has reason to believe, that either a confidentiality or security breach, or any
other unauthorized

 

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intrusion, has occurred with respect to the Mandatory Customer Information or
with respect to customers’ Cardholder Personal Information (“Event(s)”) and also
if such Event requires notification to cardholders of such security breach by
Encore and/or HDI under applicable law or if such breach affects more than 10%
of the Members. In such Event, Encore shall estimate the intrusion’s affect on
HDI and shall specify the corrective action to be taken which shall be at
Encore’s sole cost and expense. For purposes of this section, “Cardholder
Personal Information” means a cardholder’s first name or first initial and last
name in combination with any one or more of the following data elements, when
either the name or the data elements are not encrypted: (i) social security
number; (ii) driver’s license number or other government identification number;
(iii) account number, credit or debit card number, in combination with any
required security code, access code, or password that would permit access to an
individual’s financial account; (iv) address; or (v) date of birth; provided,
however, that it shall not be deemed a confidentiality or security breach if the
name is encrypted but data element (v) is unencrypted. Encore acknowledges and
agrees that the Cardholder Personal Information it receives from HDI shall be
owned by HDI.

 

2.8 Insurance. Encore shall have and continue to keep in force for the life of
this Agreement full general liability insurance which insurance will cover
errors and omissions with respect to the Fulfillment Materials relating to the
claims for the Programs or their goods and services, sold or rendered to
Members, in amounts not less than $1 million per occurrence and $2 million in
the aggregate. Encore’s insurance overages will list Hanover Direct, Inc., 1500
Harbor Boulevard, Weehawken, NJ 07086, as an additional insured, and will
provide that the coverage will not be modified or terminated without at least
thirty (30) days prior written notice to HDI. Encore shall provide HDI with a
certificate evidencing such insurance coverage.

 

2.9 Training. Encore shall provide, at its sole cost and expense, training for
HDI telephone service representatives and customer service representatives
(“Reps”) no less than four times per calendar year. Encore shall be responsible
for developing training materials for use at such sessions. The training shall
be conducted at each of HDI’s telephone call centers at mutually agreed upon
times. Encore shall develop training programs for new Reps, refresher courses
for experienced Reps and training programs when new Programs and/or Marketing
Materials are introduced.

 

2.10

Program Member Contact.

 

2.10.1 Program Materials. Encore may contact Members to provide them with
Fulfillment Materials, Renewal Notices, other Program information, customer
service communication related to the Programs and Memberships and other
communications reasonably appropriate to carry out this Agreement’s purposes.

 

2.10.2 Encore Initiated Contact. Encore may, with HDI’s prior written approval,
contact the Member with offers from Encore, its benefit providers or Affiliates
that are related and complimentary in nature to the Program the Member enrolled
in, such as discounts, special offers and content from hoteliers, car rental
agencies, publishers, merchandisers (coins, jewelry, etc), florists and other
providers who may participate in the Program; such offers may, at times, be
presented in the form of upgrades and/or upsells to the Program (for example, a
Gold or Platinum version of the Program). Encore will provide HDI with marketing
and fulfillment materials for each offer it wishes to make and the proposed
terms of any economic sharing between HDI and Encore of any upsell proceeds, and
HDI shall have the right to approve such marketing and fulfillment materials,
such approval not to be unreasonably withheld. Only after HDI has given its
written approval will Encore market the offer to Members provided such contact
is made in accordance with that previously agreed upon by the parties. Encore
shall

 

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comply with applicable laws, rules and regulations including “do not call” rules
with regard to any Encore initiated marketing.

 

2.10.3 Member Initiated Contact. Encore may respond to any contact by a Member
and as part of such response, with HDI’s prior written approval, offer to the
Member programs or other benefits or services provided by Encore, its benefit
providers or Affiliates, as part of its retention process. Encore will provide
HDI with marketing and fulfillment materials for each offer it wishes to make
and the proposed terms of any economic sharing between HDI and Encore of any
upsell proceeds and HDI shall have the right to approve such marketing and
fulfillment materials, such approval not to be unreasonably withheld. Only after
HDI has given its written approval will Encore in response to Member contacts
market the offer to Members.

 

2.10.4 Compliance With Rules Applicable to Marketing. The provisions of this
Agreement applicable to HDI in Sections 1.2, 1.3 and 1.4 in regard to HDI’s
marketing such as reading scripts in Substantial Conformity, the requirement to
make Legally Compliant Recordings, and audit rights with regard to compliance
with these provisions, shall also apply to Encore initiated contacts and Member
initiated contacts permitted under Section 2.10.2 and 2.10.3 above, except that
unless required by the FTC Telemarketing Sales Rule or Regulation E Encore shall
not be required to make a recording.

 

2.10.5 No Further Marketing Permitted. Apart from the additional marketing
permitted in this Section 2.10, Encore will not use Customer Information other
than for Program administrative purposes and as otherwise permitted in this
Agreement or otherwise contact the Members. This provision shall survive the
termination of this Agreement.

 

2.11 Third Party Customers. During the Term of this Agreement, Encore agrees not
to contact or solicit any Third Party HDI Affiliate as set forth in Schedule B
to this Agreement for the purpose of selling membership programs on inbound
order calls by the Third Party HDI Affiliate Customer or through the Third Party
HDI Affiliate Website, or enter into a contract or arrangement with a Third
Party HDI Affiliate to conduct such marketing. Schedule B contains a list of the
Third Party HDI Affiliates which HDI may update during the Term, subject to
Encore’s Section 1.1 approval rights.

 

3.

SET UP AND MAINTENANCE OF MERCHANT PROCESSING ACCOUNT.

 

3.1 Non-Maryland Residents. Encore shall, at its sole cost and expense, set up
and maintain merchant processing accounts (the “Merchant Processing Accounts”)
with merchant processors agreed upon by both parties and in place prior to the
Effective Date (the “Merchant Processor”). Encore shall coordinate with the
Merchant Processors (including, without limitation, by providing operational
support) in order to effect the processing of initial and renewal billing of
Members and membership cancellations for all major credit cards and the HDI
private label credit card.

 

3.2 Maryland Residents. As provided for in Section 1.5, HDI may be required to
maintain a merchant processing account to facilitate sale of Programs to
Maryland Members. In that event, HDI shall set up and/or maintain a merchant
processing account (“HDI Merchant Processing Account”) with a merchant processor
agreed upon by both parties (the “HDI Merchant Processor”). Encore shall
establish a bank account at a bank selected by HDI. The HDI Merchant Processor
shall be directed to deposit the proceeds from sale of Memberships to Maryland
residents in the bank account. Encore acknowledges and agrees (i) to pay all
bank fees associated with the establishment, maintenance, transactional costs,
and all other costs associated with the bank account, (ii) the monthly bank fees
will be debited directly from the account at such times as the bank may
determine and (iii) that the fees may cause an overdraft and/or reduce a

 

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subsequent day’s sweep amount and (iv) Encore shall be responsible for any fees
associated with any such overdrafts. The parties shall use their best efforts to
mirror the operational, reporting, and economic arrangement between the parties
so as to most closely approximate those applicable to non-Maryland Members. HDI
shall coordinate with the HDI Merchant Processor (including, without limitation,
by providing operational support) in order to effect the processing of initial
and renewal billing of Maryland Members and membership cancellations.

 

3.3 Private Label Cards. Encore acknowledges that HDI has a private label credit
card agreement with WFNNB under which WFNNB issues private label and co-branded
credit cards to HDI customers that can be used by such customers to purchase HDI
supplied goods and services and with respect to co-branded credit cards, goods
and services supplied by HDI and third parties. Encore agrees to accept the
WFNNB issued credit cards as payment for the Programs. The parties agree to: (i)
negotiate in good faith such agreements among the parties and WFNNB and (ii)
develop, institute and comply with such arrangements and procedures regarding
billings, file transfers, processing, etc., in both cases as are reasonably
necessary to enable HDI customers to use WFNNB supplied credit cards for
Membership purchases.

 

4.

COMPENSATION

 

4.1 Compensation. Encore shall from annual billed Programs pay HDI the
commissions for Valid Gross Sales and renewal Memberships in the amounts and on
the payment dates set forth in Schedule D, as Schedule D may be amended from
time to time by written agreement of the parties. Should the parties agree to
conduct marketing of Programs to be billed monthly (the parties agree such
approach may be tested), they will add an addendum to Schedule D to address
compensation to HDI from such Programs.

 

4.2 Fiscal Basis. All payment amounts and payment dates shall be determined and
made based on fiscal weeks and months. For purposes of this Agreement, a fiscal
week shall commence on Sunday.

 

4.3   Payment Method. Encore shall pay all Fees to HDI via wire transfer to the
following HDI bank account:

 

Wachovia Bank, National Association

Charlotte, North Carolina

ABA No.: 053 000 219

 

For credit to: Hanover Direct, Inc.

Account No.:

 

4.4   Deposit. Encore will post a deposit with HDI in the amount set forth on
Schedule D upon execution of this Agreement. The deposit will be earned by HDI
at the end of the Initial Term if the Term of this Agreement is extended
pursuant to Section 5.1. If this Agreement is not extended beyond the Initial
Term, the deposit shall be applied against Valid Gross Sale commissions to be
earned by HDI on such sales to be delivered to Encore through the end of the
Initial Term (which application process Encore may begin once the fact of
non-extension becomes definitive in accordance with Section 5.1: either some
number of days before the end of the Initial Term depending on when a valid
Section 5.1 extension notice is given or 90 days before the end of the Initial
Term if there is no valid Section 5.1 extension notice given). Any unearned
balance in regard to the deposit after the aforementioned application will be
remitted to Encore within ten (10) days after the end of the Initial Term. If
this Agreement is terminated prior to the end of the Initial Term, the
recoupment by Encore of the unearned balance in regard to the balance will
accelerate. The foregoing shall not in any way impact Encore’s continuing

 

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obligation to pay to HDI such renewal commissions as may be due to HDI under
this Agreement.

 

5.

TERM

 

5.1 Initial and Renewal Terms. This Agreement shall have an initial term of two
years, commencing on 12:01 a.m. on March 22, 2006 (“Initial Term”). No less than
90 days prior to the end of the Initial Term, either party may give written
notice to the other of its desire to extend the term for an additional year. The
other party shall respond within 15 days of its receipt of the extension notice
and indicate whether it accedes to the request to extend the term of the
Agreement. (The Initial Term and any extension term is referred to as the
“Term.”) If the other party does not agree to the one year extension, it shall
send written notice to the requesting party in which event the Agreement shall
terminate at the end of the Initial Term; if the other party does not respond to
a notice requesting renewal within the 15 day period, the request for an
extension shall be deemed agreed to.

 

5.2

Early Termination Rights.

Either party may terminate this Agreement if:

 

5.2.1 a voluntary or involuntary petition in bankruptcy is filed by or against
the other party, which is not dismissed, or the other party makes a general
assignment of its assets to its creditors or a similar event occurs;

 

5.2.2 the other party materially breaches its obligations hereunder. In the
event of a breach, the non-breaching party shall provide written notice to the
other party of the alleged breach. The other party shall have 15 days from
receipt of the termination notice to cure the breach in which event the
Agreement shall not terminate; or

 

5.2.3 in the event of the settlement of any investigation, proceeding, suit, or
other action by a Federal, State, or local regulatory or enforcement agency or
authority which will have a “material adverse effect” (as defined below) on the
other party’s business and (i) continuing to do business with such other party
would injure the reputation of the non-settling party in any material respect,
as reasonably determined, or (ii) such event causes a material change to the
method, content or delivery of the offer which would materially adversely effect
response or cancel rates. For purposes hereof, “material adverse effect” means
that the settling party would be required to report such settlement under the
first sentence of Instruction 2 to Item 103 of Regulation S-K under the Code of
Federal Regulations, Title 17, Part 229, whether or not the party is subject to
Regulation S-K.

 

5.2.4 in the event a governmental body with legislative, rule making,
prosecutorial, or judicial authority enacts a new rule of law or regulation or
issues an order or the like, which will prevent either party from substantially
performing its obligations hereunder (which may, among other things, be based
upon a party being advised of such by written opinion of outside counsel), the
parties shall then negotiate in good faith toward a restructuring of this
Agreement in manner that will, insofar as legally permissible, provide each
party with the benefits herein contemplated. Should the parties be unable to
come to an agreement in regard to an appropriate financial or other
restructuring of this Agreement, then either party may terminate this Agreement
upon at least ten (10) days written notice of termination.

5.3 Chargebacks If Encore receives notice from a Card Association or its
merchant processor that chargebacks during at least a thirty day period are in
excess of those levels permitted under such parties’ rules and regulations and
the chargebacks during that same period with respect to sales from HDI customers
have also exceeded that same threshold, Encore reserves the right at any time
thereafter, but with at least seven (7) days prior written notice to HDI, to
take any action it deems necessary to respond to the problem which may include,
at

 

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Encore’s sole discretion, suspending or terminating marketing of the Programs or
terminating this Agreement. Encore agrees it will, before sending a termination
notice, confer with HDI and determine whether any alternative course of action
that may be proposed by HDI may be acceptable, which may include HDI processing
orders for Programs using its merchant account. Encore shall have the right to
determine whether the proposed alternative course of action is acceptable in its
reasonable discretion. If no proposed alternative course of action is deemed by
Encore to be reasonably acceptable Encore may effect termination under this
Section by providing HDI with at least seven (7) days prior written notice.

 

5.3.1 Encore agrees to give HDI prompt written notice if during the Term
Encore’s chargeback rate is greater than 90% of the maximum permissible
chargeback rate.

 

5.4 Effect of Termination. Neither party shall be liable to the other for
damages of any sort resulting solely from terminating this Agreement in
accordance with its terms. During and after the Term, Encore shall have the
exclusive right and obligation to service and administer membership fee billing
for the memberships generated pursuant to this Agreement and shall continue to
be subject to Section 11 hereof with respect to Confidential Information.
Expiration or termination of this Agreement shall not terminate either party’s
right to bill and receive fees in accordance with the terms of this Agreement
with respect to all memberships in force prior to termination, and their
subsequent renewals in perpetuity. HDI and WFNNB will continue to regularly
update credit card account files for Members covered under Section 3.3 (and
provide such updated files to Encore) for membership fee billing purposes. All
fees due to each party pursuant to Section 4 outstanding as of the date of
termination shall be payable in accordance with the terms hereof.

 

5.4.1 Obligation to Continue Performance Pending Effective Date of Termination.
From the date any notice of termination is given by any party until the
effective date of the termination of this Agreement, the parties shall be
obligated to continue to perform pursuant to the terms of this Agreement.

 

6.

REPORTS; AUDIT RIGHTS AND COOPERATION

 

6.1 Reports and Information. HDI and Encore shall provide each other with
reports in such form and containing such information as reasonably required and
as mutually agreed upon by Encore and HDI. HDI shall provide reports to Encore
that shall include conversion rate reporting, the Gross Sales Report and monthly
compilation thereof. Encore shall provide reports to HDI that shall include
Memberships billed, Memberships paid, Memberships in process, Fulfillment
Materials mailed, cancellations received, the Renewal Report which shall include
the Members Available for Renewal, Renewals Notices sent and Renewals, and with
respect to marketing the Programs on Participating Websites, impressions, click
throughs and Internet orders and a report detailing the amount owed to HDI.

 

6.2 Audit Rights. Each party shall keep and maintain, at its principal place of
business, complete and accurate books and records relating to this Agreement.
During the Term and for so long as there are any Members whose Memberships were
acquired hereunder and which Memberships have been renewed, each party (or its
representatives) at its expense shall have the right upon no less than 30 days
prior written notice, to audit the other party’s books and records to verify and
confirm the accuracy of the reports delivered and the amount of fees paid or
payable under this Agreement. The party performing the audit shall have the
right to make copies of relevant excerpts of any such books and records which
shall be Confidential Information, as defined in and for purposes of Section 11.
Audits shall be conducted at the other party’s offices, during regular business
hours. If any audit discloses an underpayment or overpayment of 7.5% or more of
the correct amount owed, the other party agrees, in addition to re-computing and
making

 

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immediate payment of the amount owed based on the true items, to pay the
auditing party’s actual out of pocket third party expenses for the audit.

 

6.3 Collection Costs and Attorneys’ Fees. In any action or suit under this
Agreement, the prevailing party shall be entitled to recover its costs,
including, without limitation, reasonable attorneys’ fees.

 

6.4 Cooperation. The parties agree to cooperate with one another to further the
objectives of this Agreement and to promote the products and services of each of
the parties.

 

7.

WHOLESALE MODEL

 

Upon no less than 60 days prior written notice, during the term of this
Agreement HDI shall have the right to switch to a wholesale model. In that
event, the parties agree to negotiate in good faith an agreement covering the
offer, sale and fulfillment of membership programs by HDI of programs and
program benefits supplied by Encore. The pricing for Encore’s standard programs
are set forth on Schedule E as per the process outlined in said Schedule.
Pricing is subject to review and mutual approval if any revisions to the
programs or process is requested. The wholesale arrangement shall not apply to
Memberships and any renewals thereof of persons who were Members before the date
of the switch to the wholesale arrangement. Following termination of this
Agreement, for all Members enrolled during the term of this Agreement on a
wholesale basis HDI will continue to renew those Members in the Program and
Encore will continue to supply the Program to HDI in accordance with Schedule E.

 

8. REPRESENTATIONS, WARRANTIES AND COVENANTS

 

8.1

Encore. Encore hereby represents, warrants and covenants that:

 

8.1.1 Encore is duly qualified, authorized or licensed and in good standing in
all jurisdictions necessary to carry out its obligations under this Agreement;

 

8.1.2 the execution, delivery and performance by Encore of its obligations under
this Agreement will not result in a violation of or conflict with any law,
regulation, or contract to which Encore is a party;

 

8.1.3 all of the services to be performed by Encore hereunder will be rendered
using sound, professional practices and in a competent and professional manner
by knowledgeable, trained and qualified personnel;

 

8.1.4 all obligations owed to third parties with respect to the activities
contemplated to be undertaken by Encore pursuant to this Agreement are or will
be fully satisfied by Encore, so that HDI will not have any obligations with
respect thereto;

 

8.1.5 Encore will comply with all applicable federal, state and local laws in
the performance of its obligations hereunder;

 

8.1.6 Encore shall comply with all prevalent self-regulatory guidelines or
industry standards which may be in effect from time to time;

 

8.1.7 the materials used by Encore in fulfilling its obligations under this
Agreement shall not infringe upon any third party intellectual property right;
and

 

 

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8.1.8 at all times during the Term of this Agreement, Encore shall have in
effect no less than three Programs.

 

8.2 HDI. HDI (individually and on behalf of HDI Affiliates ) hereby represents
and warrants and covenants that:

 

8.2.1 HDI and each of its HDI Affiliates is duly qualified, authorized or
licensed and in good standing in all jurisdictions necessary to carry out their
respective obligations under this Agreement;

 

8.2.2 the execution, delivery and performance by HDI and its HDI Affiliates of
their respective obligations under this Agreement, including, without
limitation, the delivery of Customer Information to Encore hereunder, will not
result in a violation of or conflict with any law, regulation, or contract to
which HDI or any such Client, or any of their respective affiliates and
subsidiaries, is a party;

 

8.2.3 all of the services to be performed by HDI and its HDI Affiliates
hereunder will be rendered using sound, professional practices and in a
competent and professional manner by knowledgeable, trained and qualified
personnel;

 

8.2.4 all obligations owed to third parties with respect to the activities
contemplated to be undertaken by HDI and its HDI Affiliates pursuant to this
Agreement are or will be fully satisfied by HDI and HDI Affiliates, as the case
may be, so that Encore will not have any obligations with respect thereto;

 

8.2.5 each of HDI and its HDI Affiliates will comply with all applicable
federal, state and local laws in the performance of its obligations hereunder;

 

8.2.6 each of HDI and its HDI Affiliates shall comply with all prevalent
self-regulatory guidelines or industry standards which may be in effect from
time to time; and

 

8.2.7 the materials used by each of HDI and its HDI Affiliates in fulfilling its
obligations under this Agreement shall not infringe upon any third party
intellectual property right.

 

9. INTELLECTUAL PROPERTY

 

9.1 Limited License. Each party grants the other a limited license to use the
other party’s trademarks, service marks, trade names or logos owned or otherwise
used by the other party solely as expressly provided herein. Encore and HDI
trademarks, service marks and/or logos will be co-branded on Program Fulfillment
Materials to be used in connection with this Agreement and shall be located on
such materials, in each case as mutually agreed upon by the parties. Nothing
herein shall give Encore, HDI or any other individual or entity any rights,
title or interest to or in any such trademarks, service marks, trade names or
logos owned or otherwise used by the other party, other than the limited license
to display such trademarks, service marks, trade names or logos in connection
with the marketing and fulfillment of the services with respect to Programs.

 

9.2 Prior Approval Rights. Each party will have prior approval over any
permitted use of its property licensed hereunder and other intellectual property
in connection with marketing, promotion and advertising activities online and
offline under this Agreement, which approval will not be unreasonably withheld
or delayed. Neither party may amend, modify, or alter the

 

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promotion copy as it appears in the version delivered for pre-approval after
having been approved by the other party except with the explicit written
approval of such other party.

 

9.3 Ownership of Materials. All Marketing Materials, Fulfillment Materials and
Renewal Materials are the intellectual property of Encore, except for any such
materials that are created and/or developed solely by HDI, and shall not be used
or disclosed in any manner not authorized by Encore. Any such materials that are
created and/or developed solely by HDI are the intellectual property of HDI and
shall not be used or disclosed in any manner by Encore not authorized by HDI.

 

10. INDEMNIFICATION

 

10.1 HDI Indemnification. HDI, jointly and severally, shall defend, indemnify
and hold Encore and its officers, directors, employees and agents
(“Indemnitees”) harmless from and against any and all losses, liabilities,
damages and expenses (including reasonable attorneys’ fees and expenses and
excluding consequential damages) to which the Indemnitees may be subjected by
reason of any third party claim or action against the Indemnitees (i) resulting
from any breach or alleged breach by HDI or any HDI Affiliate, as the case may
be, of any of its representations, warranties or covenants contained herein,
(ii) resulting from the performance or failure to perform by HDI or any HDI
Affiliate under the terms of this Agreement or (iii) arising in connection with
its own product sales or material contained in issues of its catalog delivered
to Customers or Members pursuant to the terms hereof, which material is
unrelated to the Programs.

 

10.2 Encore Indemnification. Encore shall defend, indemnify and hold HDI and its
officers, directors, employees and agents (’Indemnitees”) harmless from and
against any and all losses, liabilities, damages and expenses (including
reasonable attorneys fees and expenses and excluding consequential damages) to
which the indemnities may be subjected by reason of any third party claim or
action against the Indemnitees (i) resulting from any breach or alleged breach
by Encore of any of its representations, warranties or covenants contained
herein, (ii) resulting from Encore’s performance or failure to perform under the
terms of this Agreement, (iii) arising in connection with material contained in
Fulfillment Materials prepared or distributed by Encore to Customers or Members,
excluding any content which may be prepared solely by HDI or any HDI Affiliate,
or (iv) arising in connection with the provision of, or failure to provide, the
services of the Encore Programs.

 

10.3 Terms Applicable to Indemnification Obligation. The indemnified party shall
provide the indemnifying party with (i) prompt written notice of such claim or
action; (ii) sole control and authority over the defense or settlement of such
claim or action (except the indemnifying party shall not enter into any
settlement that adversely affects the indemnified party’s rights or interests
without the indemnified party’s prior approval); and (iii) proper and full
information and reasonable assistance in connection with the defense or
settlement of any such claim or action. The indemnified party shall have the
right to participate in the defense at its own expense with a counsel of its
choosing.

 

10.4 Survival of Indemnification Obligations. The provisions of this Section 10
shall survive the expiration or earlier termination of this Agreement and shall
be binding upon any permitted transferee, assignee or successor of either party.

 

11. CONFIDENTIAL INFORMATION.

 

11.1 Confidential Information. “Confidential Information” means (a) information
concerning Programs and this Agreement, including but not limited to information
concerning purchase price, procedures, methods, technological developments,
financial results, solicitation

 

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methods, Members, enrollees and Customers, (b) Customer Information, (c)
business or technical information of either party, including but not limited to
information relating to either party’s product plans, designs, costs, product
prices and names, finances, marketing plans, business opportunities, personnel,
research, development or know-how; (d) any information designated by either
party as “confidential” or “proprietary” or which, under the circumstances taken
as a whole, would reasonably be deemed to be confidential; and (e) the specific
terms and conditions of this Agreement. "Confidential Information" does not,
however, include information that: (i) is in or enters the public domain without
breach of this Agreement; (ii) the receiving party lawfully receives from a
third party without restriction on disclosure and without breach of a
nondisclosure obligation; (iii) the receiving party knew prior to receiving such
information from the disclosing party; or (iv) the receiving party develops
independently without use of the disclosing party's Confidential Information.

 

11.2 Duty to Maintain Confidential Information. Each party agrees: (a) that it
will not disclose to any third party or use the Confidential Information
disclosed to it by the other party for any purpose other than as expressly
contemplated by this Agreement; and (b) that it will take all reasonable
measures to maintain the confidentiality of all Confidential Information of the
other party in its possession or control, which will in no event be less than
the measures it uses to maintain the confidentiality of its own information of
similar importance. Either party may disclose information if required by law or
court order, provided that the party from which the disclosure is required gives
the other party prior written notice and makes commercially reasonable good
faith efforts to obtain confidential treatment for such Confidential
Information.

 

12.

FORCE MAJEURE

 

12.1 Force Majeure. Neither party shall be held liable for failure to perform
any of its obligations hereunder if such failure is (i) due to an Act of God,
fire, explosion, accident, flood, landslide, lightning, earthquake, storm, civil
disturbance, power failure, strike or other labor disturbance affecting a party,
act of war (whether war be declared or not), national defense requirement,
failure of a non-party telecommunications carrier, failure or disruption of
machinery, apparatus or systems; acts, injunction, or restraint of government
(whether or not now threatened) and (ii) beyond the reasonable control of such
party.

12.2 Impact on Affected Party’s Obligations. Upon such an occurrence, the party
whose performance is affected shall immediately give written notice of the
occurrence to the other party, and shall thereafter exert all reasonable efforts
to overcome the occurrence and resume performance of this Agreement. If, despite
such efforts, the affected party cannot overcome the occurrence and resume
performance within 90 days following notification given hereunder, then the
parties shall mutually agree on an equitable resolution. If the parties are
unable to reach mutual agreement, the matter shall be submitted for arbitration
as provided hereunder.

 

13. MISCELLANEOUS PROVISIONS.

 

13.1 Counterparts. This Agreement may be executed in one or more counterpart
copies. Each counterpart copy shall constitute an Agreement and all of the
counterpart copies shall constitute one fully executed agreement. This Agreement
may be executed on facsimile counterparts.

 

13.2 Assignment. Neither party may assign its rights or obligations hereunder,
in whole or in part, without the other party's prior written consent, which
consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, no such consent will be required (i) in connection with a merger,
reorganization, acquisition, consolidation, or sale of all,

 

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or substantially all, of such party's assets; or (ii) in connection with an
assignment to any majority-owned subsidiary or affiliate of the parent of either
party. Any attempt to assign such rights and obligations other than as permitted
herein will be null and void. These terms and conditions will inure to the
benefit of and bind the parties' respective successors and permitted assigns.

 

13.3 Entire Agreement. This Agreement and the schedules and exhibits hereto
constitute the entire agreement between the parties, supersede all prior
agreements and are solely for the parties’ benefit.

 

13.4 Governing Law. New York law, without regard to the conflict of laws
principles thereof, shall govern this agreement.

 

13.5 Amendments. This Agreement may be modified or amended only by a written
agreement executed and delivered by both of the parties.

 

13.6 Notices. All notices or other formal communications under this Agreement
must be in writing. They may be sent by personal delivery, facsimile, prepaid
recognized overnight air express delivery or prepaid certified mail, return
receipt requested. All notices shall be addressed as follows:

 

To Encore:

Encore Marketing International

4055 Forbes Boulevard

Lanham, Maryland 20706

 

ATTN:

Stephen Klein

 

Facsimile No. 301-306-0139

 

To HDI:

Hanover Direct, Inc.,

1500 Harbor Boulevard

Weehawken, New Jersey 07086

Attn: General Counsel

Facsimile No. 201-272-3498

 

If a party changes its address, facsimile number or notice party, it shall send
notice to the other party.

 

13.7 Costs and Expenses. Unless otherwise specifically provided in this
Agreement or separately agreed to by the parties in writing, each party shall be
solely responsible for bearing its own costs and expenses incurred in performing
its responsibilities under this Agreement, including all tariffs, taxes,
filings, licensing and/or other fees.

 

13.8

Headings. Paragraph headings are for convenience only.

 

13.9 Relationship of Parties. The execution and performance of this Agreement
shall not be construed to create a relationship between the parties as partners,
joint-venturers, or as principal and agent. Neither party shall have any
authority to bind the other in any fashion.

 

13.10 Cooperative Arrangements. The parties have entered into this Agreement
with the anticipation that the business described by this Agreement will perform
to their mutual satisfaction. If at any time conversion or retention rates
become unacceptable to HDI or the direct costs of the premiums and delivery and
servicing of Members and commission costs become unacceptable to Encore, the
other party will be advised of the matter and be provided with appropriate
details with respect thereto and the parties, recognizing the gravity of the

 

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situation, will use their best efforts to expeditiously mutually determine and
implement a mutually agreed upon solution to attempt to remedy the matter to the
parties satisfaction. If, despite the parties good faith efforts, in cooperation
with the other, the parties are unable to expeditiously arrive at and implement
a solution that resolves the matter to the parties mutual satisfaction, either
party may by written notice to the other terminate the affected marketing or
this Agreement. Any notice terminating this Agreement shall provide the other
with at least 60 days notice of termination.

 

13.11 Branded Fulfillment. If the parties mutually agree to market a customized
branded program, there will be a commitment to allow Encore to exhaust (i.e.,
use for its intended purpose) the branded materials Encore has printed. Any
branded materials shall be subject to HDI’s prior written approval including the
quantity to be printed before being used. Encore pursues in practice a quarterly
print cycle in regard to fulfillment materials based upon its projected need for
the quarter. Should Encore in regard to any quarter intend to print branded
fulfillment for a Program in excess of what it projects to need for that
quarter, it will notify and consult with HDI beforehand and the parties will
agree upon a mutually acceptable course of action.

 

13.12 Non-Solicitation. During and after the Term, HDI will not specifically
identify and as a result knowingly solicit any Program Member or allow any third
party to solicit any Program Member for any non-Encore fee-based membership
program that may result in the Program Member terminating his Program
Membership.

 

13.13 Severability. If any provision or portion of this Agreement shall be
deemed invalid, canceled, or unenforceable, the remaining rights and obligations
of the parties under this Agreement shall remain in full force and effect and
shall be construed and enforced accordingly.

 

13.14 Equitable Remedies. The parties agree that any breach of the other party’s
obligations regarding intellectual property and/or confidentiality would result
in irreparable injury for which there is no adequate remedy at law. Therefore,
in the event of any breach or threatened breach of a party’s obligations
regarding intellectual property or confidentiality, the aggrieved party will be
entitled to seek equitable relief in addition to its other available legal
remedies in a court of competent jurisdiction.

 

13.15 Mediation. The rights and obligations of the parties with respect to the
immediately preceding two sentences, and otherwise under this Agreement, shall
be governed by and construed in accordance with the internal laws of the State
of New York, without giving effect to the principles of conflicts of laws
thereof. In the event disputes between the parties arising from or concerning in
any manner the subject matter of this Agreement, other than disputes arising
from or concerning intellectual property or confidentiality, cannot be resolved
through good faith negotiation and mediation, the parties will first attempt to
resolve the dispute(s) through good faith negotiation. In the event that the
dispute(s) cannot be resolved through good faith negotiation within five (5)
business days after the commencement of such good faith negotiation, the parties
will refer the dispute(s) to mediation, which shall occur in New York City. The
parties will use a recognized mediation service staffed by retired judges and
will share equally the cost of the mediator, whose selection shall be mutually
agreed to by the parties. The parties hereby agree to waive their right to a
jury trial in regard to any court action. The provisions of this Section shall
survive the expiration or earlier termination of this Agreement.

 

13.16 Survival Any provision of this Agreement that contemplates performance or
observance subsequent to expiration or earlier termination of this Agreement,
such as those addressing servicing and billing of Program memberships and use
and protection of Intellectual

 

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Property and Confidential Information, shall survive the expiration or earlier
termination of this Agreement and continue in full force and effect.

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.

 

                

HANOVER DIRECT, INC (individually

and on behalf of HDI Affiliates)

 

ENCORE MARKETING INTERNATIONAL, INC

 

 

 

 

 

By:

/s/ Wayne Garten

 

By:

/s/ Stephen Klein

Name:

Wayne Garten

 

Name:

Stephen Klein

Title:

CEO and President

 

Title:

President

 

 

 

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