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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 1, 1994
Commission file number 1-12082
HANOVER DIRECT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-0853260
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(State of incorporation) (I.R.S. Employer Identification No.)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 863-7300
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.66 2/3 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____
As of March 9, 1993, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $200.2 million (based on the closing price
of the Common Stock on the American Stock Exchange on March 9, 1994).
As of March 9, 1994, the registrant had 82,933,177 shares of Common Stock and
234,900 shares of Series A Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement for the 1994 Annual Meeting of Shareholders is incorporated by
reference into Part III of this Annual Report on Form 10-K.
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P A R T I
ITEM 1. BUSINESS
GENERAL
Hanover Direct, Inc. (the "Company") is a leading direct specialty retailer
that publishes a portfolio of 14 branded specialty catalogs offering home
furnishings, general merchandise and apparel. The Company's catalogs include
DOMESTICATIONS, the nation's leading specialty home textile catalog, which has
grown rapidly with revenues increasing from approximately $30 million in 1987
to approximately $311 million in 1993. The Company's portfolio of catalogs
also includes COLONIAL GARDEN KITCHENS, a leading specialty catalog featuring
worksaving and lifestyle enhancing items for the kitchen and home. During
1993, the Company mailed approximately 322 million catalogs and had total
revenues of approximately $643 million. The Company maintains a proprietary
customer list, containing approximately 19 million names of customers who have
made purchases from at least one of the Company's catalogs within the past 36
months. Approximately seven million of the names on the list represent
customers who have made purchases from at least one of the Company's catalogs
within the last 12 months.
The Company is incorporated in Delaware with its principal executive office
at 1500 Harbor Boulevard, Weehawken, New Jersey 07087. The Company's telephone
number is (201) 863-7300.
HISTORY AND ORGANIZATION
History. The Company's direct marketing subsidiary, founded in 1934,
initially operated as a chain of specialty retail women's fashion stores in
Pennsylvania and nearby states under the name Lana Lobell. In 1950, it
published its first catalog offering women's fashion by mail and, by the end of
the decade, a majority of the subsidiary's revenues was derived from catalog
sales. In 1962, the subsidiary first published HANOVER HOUSE, a catalog
featuring gifts, seasonal, household and novelty items. The Company's direct
marketing subsidiary was acquired in 1972 by The Horn & Hardart Company
("H&H"), a restaurant company founded in 1911. The Company's direct marketing
subsidiary continued its growth through internal development of new and
existing catalogs utilizing its proprietary customer list as well as through
acquisitions of other catalog companies.
Restructuring. The Company incurred a substantial amount of debt in
connection with the growth of its restaurant business in the 1970s and 1980s.
As the Company began the disposition of its restaurant operations in 1989,
management believed that the underlying asset values would at least enable it
to repay the debts secured thereby. However, the Company's withdrawal from the
restaurant business coincided with a severe decline in real estate values in
the northeastern United States and elsewhere in the country. Accordingly,
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the Company failed to generate sufficient cash proceeds to repay all of the
associated debt. As a result, a high level of debt remained and placed an
excessive burden on the cash flows of the direct marketing business, the
Company's only source of internally generated cash. By early 1991, vendors and
factors were restricting the availability of trade credit on normal terms,
hampering the Company's ability to purchase merchandise. Because of strong
demand for the merchandise in the Company's catalogs and its inability to
obtain adequate trade credit with which to purchase merchandise, the Company's
backorder level increased substantially and it incurred operating losses. In
response, the Company began to take additional actions and explore financial
alternatives available to it to solve its cash flow problems, including the
sale of an equity interest in the Company.
In the fall of 1991, NAR Group Limited, a British Virgin Islands
corporation (together with its affiliates, "NAR"), effectively gained control
of the Company. NAR is a private investment holding company that is a joint
venture between the family of Alan G. Quasha, a Director and the Chairman of
the Board of the Company, and Compagnie Financiere Richemont A.G., a Swiss
public company engaged in tobacco, luxury goods and other businesses. NAR
acquired a 48.9% interest in the Company through an equity investment of $40
million and the extension of a line of credit of up to $30 million (later
increased to $50 million) and implemented a restructuring program consisting of
operational changes, debt reduction and disposition of substantially all of the
Company's remaining non-direct marketing assets. By the end of 1992, through
the sale of assets and a series of transactions, including a rights offering, a
sale of preferred stock and exchange offers, the Company reduced its debt and
lease obligations (excluding working capital debt) by $182.8 million from
September 1991. As a result of these transactions, NAR increased its interest
in the Company to approximately 56% through an additional equity investment of
approximately $38.1 million.
In September 1993, the Company changed its name to Hanover Direct, Inc. and
eliminated its two-tier holding company structure. This reorganization was
accounted for similarly to a pooling-of-interests and, accordingly, the
Company's financial statements include the results of H&H and The Hanover
Companies ("THC") for all applicable periods presented.
RECENT ACQUISITIONS AND VENTURES
During 1993, the Company made the following acquisitions:
Gump's. In May 1993, the Company acquired substantially all of the assets
of Gump's Inc., the well known San Francisco retailer and a leading upscale
catalog marketer of exclusive gifts, for a total purchase price of $13.2
million, consisting of $6.9 million in cash and $6.3 million of Common Stock.
The Company is relocating its retail store to a new location in downtown San
Francisco, which is scheduled to open in the fall of 1994.
The Company Store. In August 1993, the Company acquired in Chapter 11
bankruptcy proceedings substantially all of the assets of Company Store
Holdings, Inc., an upscale direct marketer of down comforters and other down
and related products for the home, sold under THE COMPANY STORE and SCANDIA
DOWN names, for a total purchase price of $7 million, consisting of the
issuance of $4.6 million of notes and $2.4 million of Common Stock.
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Tweeds. In September 1993, the Company purchased all of the outstanding
stock of Tweeds, the European inspired women's fashion catalog, for a total
purchase price of $8.8 million, consisting of the assumption of $5.1 million of
liabilities, $.1 million in cash and $3.6 million of Common Stock.
In addition, the Company has recently entered into the following ventures:
Sears. In January 1994, the Company entered into a licensing agreement
(the "Sears Agreement") with the direct marketing subsidiary of Sears Roebuck
and Co. ("Sears"), to produce specialty catalogs for the 23 million customers
of the recently discontinued Sears catalog. The specialty catalogs include:
Show Place, based on the DOMESTICATIONS catalog, Great Kitchens, based on the
COLONIAL GARDEN KITCHENS catalog, and Beautiful Style, based on the SILHOUETTES
catalog. The Sears Agreement has an initial three-year term and continues
thereafter unless terminated by either party. Profits and losses from the
venture are to be shared between the parties on an equal basis. The Company
also issued to Sears a performance warrant to purchase 3.5 million shares of
Common Stock in 1999 if the licensed business with Sears has revenues of at
least $250 million and earnings before interest and taxes of at least $30
million in 1998. Alternately, Sears will be entitled to purchase 7 million
shares of Common Stock in 1999 if the licensed business with Sears has revenues
of at least $500 million and earnings before interest and taxes of at least $60
million in 1998. If neither of these goals is achieved, the performance
warrant will expire unexercised in 1999. The warrant exercise price is $10.57
per share. The Company is obligated to meet various operational performance
standards and, if the Company is unable to meet these standards, Sears would be
entitled to terminate the agreement. The Company is also entitled to terminate
the agreement if Sears fails to comply with any material provision thereof.
Show Place, Great Kitchens and Beautiful Style are trademarks of Sears.
The Safety Zone. In September 1993, the Company acquired 20% of the
outstanding common stock of Aegis Safety Holdings, Inc. ("Aegis"), a direct
marketer of safety and anti-hazard products through The Safety Zone catalog.
The consideration for the acquisition was the provision by the Company of
certain catalog fulfillment and production services to Aegis at the Company's
cost until August 1998, subject to certain early termination provisions. The
Company also acquired an option to increase its ownership to 50% of Aegis'
common stock until the end of 1996. Aegis has an option to require the Company
to acquire all of Aegis' then outstanding stock after December 31, 1998 if the
Company has exercised its option and certain other conditions have been
satisfied. The Company has agreed to extend a secured working capital line of
up to $1 million to Aegis. Aegis had approximately $9 million in net sales
for the eleven months ended January 1, 1994.
Boston Publishing Company. In February 1994, the Company acquired a 20%
ownership interest in Boston Publishing Company, Inc. ("BPC"), the publisher
of The Museum Collection, a catalog featuring reproductions, replicas and
adaptations of items contained in museum collections, and Finishing Touches, a
catalog featuring items for the home, in consideration for providing $3.0
million of secured working capital financing, a $.75 million short-term loan
and a $.5 million convertible term loan. As part of the acquisition the
Company will provide BPC with access to the Company's proprietary customer list
and catalog production assistance. BPC had approximately $12 million in
revenues in 1993.
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THE COMPANY'S CATALOGS
Each of the Company's specialty catalogs targets distinct market segments
and develops and executes its own merchandising strategy based on a focused
assortment of merchandise that is designed to meet the needs and preferences of
its target customers. Through market research and ongoing testing of new
products and concepts, the Company determines, on a catalog by catalog basis,
the appropriate price points, service levels, mailing plans and presentation of
its products.
The Company has placed an increasing emphasis on the use of exclusive or
private label products in a number of its catalogs, including DOMESTICATIONS,
TWEEDS and THE COMPANY STORE, to further enhance the brand identity of the
catalog. The Company's specialty catalogs typically range in size from 44 to
100 pages with four to six new editions per year depending on the seasonality
and fashion content of the products offered. Each edition may be mailed
several times each year with slight variations in format and content.
Depending on the catalog's product focus, approximately 30% to 70% of the
merchandise assortment in each edition is seasonal or new items. Catalogs
featuring women's fashions generally have the highest new product introduction
rate. Each catalog employs the services of an outside creative agency or has
its own creative staff which is responsible for the design, layout, copy, feel
and theme of the book. Generally, the initial sourcing of new merchandise for
a catalog begins two to six months before the catalog is mailed.
During 1993, the Company streamlined its catalog operations into two main
groups, Apparel and Non-Apparel. Revenues for 1993 and the percent of total
revenues for 1993 for each of the Company's catalogs are set forth below:
<TABLE>
<CAPTION>
PERCENT OF
REVENUES (a) TOTAL REVENUES
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
NON-APPAREL GROUP
DOMESTICATIONS $ 310,573 48.3%
HANOVER HOUSE 41,869 6.5
COLONIAL GARDEN KITCHENS 39,604 6.2
TAPESTRY 31,584 4.9
GUMP'S (b) (c) 22,653 3.5
THE COMPANY STORE (b) 15,244 2.4
MATURE WISDOM 13,420 2.1
Other (d) 2,478 .4
Discontinued Catalogs 6,451 1.0
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Total Non-Apparel $ 483,876 75.3%
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APPAREL GROUP
INTERNATIONAL MALE $44,759 7.0%
SILHOUETTES 25,268 3.9
SIMPLY TOPS 23,988 3.7
ESSENCE BY MAIL 16,475 2.6
UNDERGEAR 12,825 2.0
TWEEDS (b) 9,280 1.5
Sale catalogs and other(e) 12,773 2.0
Discontinued Catalogs 13,267 2.0
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Total Apparel $ 158,635 24.7%
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Total Company (f) $ 642,511 100%
========= ====
</TABLE>
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(a) Revenues are net of returns.
(b) Revenues were recorded for these catalogs from the dates of their
respective acquisitions in 1993.
(c) Represents revenues from both the GUMP'S catalog and retail store.
(d) Represents revenues from the outlet store and surplus inventory
liquidation.
(e) Represents revenues from sale catalogs, the outlet stores and surplus
inventory liquidation.
(f) Excludes Safety Zone which is accounted for on the equity method.
Non-Apparel Group. The catalogs comprising the Non-Apparel Group are as
follows:
DOMESTICATIONS(R): DOMESTICATIONS is the nation's leading specialty home
textiles catalog and the preferred fashion decorating sourcebook for today's
value-oriented and style-conscious consumer. DOMESTICATIONS features sheets,
towels, comforters, tablecloths and other items for the home. The catalog has
enjoyed significant growth and success, experiencing a 48% compound annual
growth rate during the period from 1987 to 1993. The layout and presentation
of DOMESTICATIONS has a decorator look offering coordinated decorating ideas
for the home. Over 60% of the items offered in the catalog are exclusive or
private label, designed by its in-house staff.
HANOVER HOUSE(R): HANOVER HOUSE features gifts, seasonal, household and
novelty items. HANOVER HOUSE is currently being repositioned to upgrade its
presentation and product mix.
COLONIAL GARDEN KITCHENS(R): COLONIAL GARDEN KITCHENS is a leading
specialty catalog, featuring work saving and lifestyle enhancing items for the
kitchen and home. The Company is currently testing a new upscale kitchen and
home product catalog called KITCHEN & HOME.
TAPESTRY(R): TAPESTRY is a value-oriented home accessories catalog
featuring flatware, dinnerware, furniture, rugs and other home decorating
items.
GUMP'S(R): GUMP'S is the well known San Francisco retailer and a leading
upscale catalog marketer of exclusive gifts.
THE COMPANY STORE(R): THE COMPANY STORE is an upscale direct marketer of
down comforters and other down and related products for the home.
MATURE WISDOM(R): MATURE WISDOM is one of the leading general merchandise
catalogs catering to the needs of older customers featuring fashions, health
care products and other items for greater ease of living.
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THE SAFETY ZONE: The Safety Zone is a direct marketer of safety and
anti-hazard products in which the Company has a 20% interest.
Apparel Group. The catalogs comprising the Apparel Group are as follows:
INTERNATIONAL MALE(R): INTERNATIONAL MALE is an authority for unique men's
fashion with an international flair.
UNDERGEAR(R): UNDERGEAR is a leader in activewear, workout wear and fashion
underwear for men.
SILHOUETTES(R): SILHOUETTES is a women's fashion catalog featuring special
occasion and career fashions in sizes 14 to 26.
SIMPLY TOPS(R): SIMPLY TOPS is a source for unique apparel, supplying
moderate-priced clothing to women interested in embellished clothing which
makes a statement.
ESSENCE BY MAIL(R): ESSENCE BY MAIL is the original catalog featuring
women's fashions and home decorating items reflecting African-American culture
and is a 50% joint venture with Essence Communications Inc., publisher of
Essence magazine.
TWEEDS(R): TWEEDS is a European inspired women's fashion catalog featuring
relaxed fashions uniquely designed by its in-house staff.
MARKETING AND DATABASE MANAGEMENT
The Company maintains one of the largest proprietary customer lists in the
industry containing approximately 19 million names of customers who have
purchased from one of the Company's catalogs within the past 36 months. The
list contains name, gender, residence and historical transaction data
(including catalog(s) purchased from, product classifications, recency of
purchase, average order size and payment method). This database is selectively
enhanced with demographic, socioeconomic, lifestyle and purchase behavior
overlays from other sources.
The Company utilizes proprietary modelling and sophisticated segmentation
analysis, on a catalog by catalog basis, to devise catalog marketing and
circulation strategies which are intended to maximize the contribution by
customer by catalog. This analysis is the basis for the Company's
determination of which of the Company's 14 catalogs (and how frequently) will
be mailed to a particular customer as well as the promotional incentive content
of the catalog(s) such customer receives.
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In addition to mailing to customers who exist on its database, the Company
has an ongoing prospect acquisition program designed to attract new customers
on a cost effective basis. The primary source of new customers for the
Company's catalogs is lists that have been rented from other mailers and
compilers. Prior to mailing to these non-proprietary lists, the lists are
edited using statistical segmentation tools to enhance their probable
performance. Other sources of new customers include space advertisements,
promotional inserts in outbound merchandise packages and friend's name cards
inserted in mailed catalogs.
During 1993, the Company mailed approximately 322 million catalogs. Of the
approximately 19 million names on the Company's proprietary customer list,
approximately seven million customers, or approximately 37%, have made at least
one purchase from one of the Company's catalogs within the preceding 12 months.
TELEMARKETING AND CUSTOMER SERVICE
The Company designs its service standards to exceed its customers'
expectations and supports this with an unconditional merchandise guarantee.
Under the Company's return policy, a customer may return merchandise for a
refund, exchange or replacement if not satisfied for any reason. The Company's
return rate for 1993 was approximately 13% of gross shipments.
In 1993, the Company received approximately 64% of its orders through its
toll-free telephone service which offers customer access seven days per week,
24 hours per day. Telemarketing facilities are located in San Diego,
California, Hanover, Pennsylvania, DeSoto, Texas, Roanoke, Virginia and La
Crosse, Wisconsin. The telemarketing facilities utilize state-of-the-art
telephone switching equipment which enables the Company to route calls between
telemarketing centers and enhance prompt customer service. During 1993, the
Company's telemarketing centers processed approximately 11.7 million calls and
received approximately 5.6 million orders. The remaining calls included
requests for copies of catalogs, order status inquiries and other general
inquiries.
The Company trains its telemarketing service representatives to be
courteous, efficient and knowledgeable about the Company's products. Each
telemarketing service representative initially receives 40 hours of training in
selling products, services, systems and communication skills through simulated
as well as actual phone calls. A substantial portion of the evaluation of
telemarketing service representatives' performance is based on meeting customer
service standards. While primarily trained with product knowledge to serve
customers of one or more specific catalogs, telemarketing service
representatives also receive cross-training which enables them to take overflow
calls from other catalogs. The Company utilizes customer surveys as an
important measure of performance and customer satisfaction.
The Company's computerized database provides its telemarketing service
representatives with information concerning a customer's previous orders,
permitting the service representative to establish a personalized dialogue with
the customer. Telemarketing service representatives are provided selling
information which they are trained to use to describe promotional items.
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DISTRIBUTION
The Company maintains distribution centers in Hanover, Pennsylvania,
DeSoto, Texas, Roanoke, Virginia and LaCrosse, Wisconsin. The Company's long
range plan is to maximize efficiencies in merchandise handling and distribution
by consolidating the warehousing and distribution of like items in specific
fulfillment centers. The Company plans to consolidate the Apparel Group
catalogs into the Tweeds Roanoke facility and to construct in 1994 a 500,000
square foot state-of-the-art facility on a separate site in Roanoke which,
upon its completion, will handle all of DOMESTICATIONS fulfillment needs. The
Company's facilities processed approximately 13 million packages in 1993.
The Company obtains rate discounts from the United States Postal Service by
automatically weighing each parcel and sorting and trucking packages to a
number of United States Postal Service drop points throughout the country. The
Company's size enables it to efficiently handle packages in this manner. From
time to time, the Company uses United Parcel Service, Federal Express and other
expedited delivery services. The Company, on average, shipped approximately
48,000 packages per day in 1993.
PURCHASING
The Company's large sales volume permits it to achieve a variety of
purchasing efficiencies, including the ability to obtain prices and terms which
are more favorable than those available to smaller companies. Major goods and
services used by the Company are purchased or leased from selected suppliers by
its central buying staff. These goods and services include: paper, catalog
printing and printing related services such as order forms and color
separations, communication systems including telephone time and switching
devices, packaging materials, expedited delivery services, computers and
associated network software and hardware. The Company's objective is to
achieve favorable "total costs" reflecting a long-term mutual commitment by the
Company and each supplier for competitive rates and terms as well as the
quality, future maintenance, replacement and modification needs of the Company.
The Company typically enters into annual agreements for paper and printing
with a limited number of suppliers. These agreements permit periodic price
increases or decreases based on prevailing market conditions, changes in
supplier costs and continuous productivity improvements. The Company's
telephone systems are typically contracted for on a three to four year basis.
During 1993, the Company purchased approximately 55 thousand tons of paper and
approximately 60 million minutes of telephone time. The Company believes it
has developed and maintains strong relationships with suppliers for key goods
and services.
MANAGEMENT INFORMATION SYSTEMS
The Company is currently in the process of upgrading its management
information systems by implementing new integrated software and migrating from
a centralized mainframe to mid-range mini-computers. The migration of the
Company's business applications is the first phase of the Company's overall
systems plan which defines the mid- and long-term systems and computing
strategy for the Company. As part of this plan, the Company has purchased and
will be installing new integrated software for use in managing all phases of
the Company's operations. The new software is an upgraded
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version of existing software installed in over 60 mail order companies which
has been designed to meet the Company's requirements as a high volume publisher
of multiple catalogs. The Company plans to bring the new systems on-line for
several catalogs in 1994 with expected completion in 1995. Delivery,
installation and implementation are expected to commence shortly. The Company
currently estimates that the total cost to install and implement the new
systems, including the cost of dedicated internal personnel, will be
approximately $13 to $15 million.
The new software system is an on-line, real-time system which includes
order processing, fulfillment, inventory management, list maintenance and
reporting. The implementation of the software will provide the Company with a
flexible system that offers highly sophisticated data manipulation, a high
degree of marketing-oriented and fulfillment functionality and extensive
reporting capabilities. The new management information systems are designed to
permit the Company to achieve substantial improvements in the way its
financial, merchandising and inventory functions are performed. The new system
was selected to support the Company's decentralized operating structure because
it can be customized for and by each catalog unit.
CREDIT MANAGEMENT
The Company's customers are able to purchase merchandise using checks or
money orders, the Company's credit cards or third party credit cards. Several
of the Company's catalogs, including DOMESTICATIONS, INTERNATIONAL MALE, and
GUMP'S, offer their own credit cards. Approximately 73% of 1993 sales were
paid using third party credit cards and 8% were paid with the Company's credit
cards.
In December 1992, the Company entered into a three year $75 million credit
facility with General Electric Credit Corporation ("GECC") which provides for
the sale and servicing of accounts receivable originating from the Company's
revolving credit cards. The Company is obligated to repurchase uncollectible
accounts and is required to maintain a specified percentage of all outstanding
receivables sold under the program as a deposit with GECC to service its
obligations under the agreement. The Company is required to pay certain
servicing fees to GECC and the Company earns the finance charge income that
GECC charges to the accounts. GECC's servicing responsibilities include credit
processing, collections, billing/payment processing, reporting and credit card
issuance.
INVENTORY MANAGEMENT
The Company's inventory management strategy is designed to maintain
inventory levels that provide optimum in-stock positions while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at the
end of each season. The Company manages inventory levels by monitoring sales
and fashion trends and making purchasing adjustments as necessary and by
promotional sales. Additionally, the Company sells excess inventory in its
special sale catalogs, its outlet stores and to jobbers.
The Company acquires products for resale in its catalogs from numerous
domestic and foreign vendors. No single source supplied more than 8% of the
Company's products in 1993. The Company's vendors are selected based on their
ability to reliably meet the Company's production and quality requirements, as
well as their financial strength and willingness to meet the Company's needs on
an ongoing basis.
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EMPLOYEES
The Company currently employs approximately 2,280 persons on a full time
basis and approximately 530 persons on a part time basis. Approximately 120
employees of The Company Store manufacturing facility are members of the
International Ladies Garment Workers Union. The Company believes its relations
with its employees are good.
SEASONALITY
Although the Company experiences quarterly variations in sales, such
variations are due primarily to fluctuations in circulation levels rather than
seasonality and are further ameliorated by the Company's diversified portfolio
of catalogs. The Company traditionally mails more catalogs in the second half
of the year.
COMPETITION
The mail order catalog business is highly competitive. The Company's
catalogs compete with other mail order catalogs and retail stores, including
department stores, specialty stores and discount stores. Competitors also
exist in each of the Company's catalog specialty areas, including Spiegel and
Chadwick's of Boston in women's fashion; Spiegel, Touch of Class, Linen Source,
Lands' End Coming Home and Horchow in home furnishings; Lillian Vernon, Taylor
Gift, Williams Sonoma, Chef's Corner, Harriet Carter and Dr. Leonards in
general merchandise; and Bachrach's, Collections, Road Runner Sports and J.
Crew in men's fashions. The Company also considers general catalog companies
such as J.C. Penney and retail stores as part of its competition. A number of
the Company's competitors have substantially greater financial, distribution
and marketing resources than the Company. The recent substantial sales growth
in the direct marketing industry has encouraged the entry of many new
competitors and an increase in competition from established companies. The
Company believes that the principal bases upon which it competes are quality,
value, service, product offerings, catalog design, convenience, efficiency and
safety.
TRADEMARKS
Each of the Company's catalogs has its own federally registered trademark.
DOMESTICATIONS, TAPESTRY, HANOVER HOUSE, COLONIAL GARDEN KITCHENS, MATURE
WISDOM, INTERNATIONAL MALE, UNDERGEAR, SILHOUETTES, SIMPLY TOPS, GUMP'S,
TWEEDS, THE COMPANY STORE, FASHION FAVORITES, FASHION GALAXY and OUTTAKES are
registered trademarks of the Company. "Essence" is a trademark used by the
Company under license by Essence Communications, Inc. The Company also owns
numerous trademarks, copyrights and service marks on its logos, products and
catalog offerings. The Company has also protected various trademarks
internationally. The Company vigorously protects such marks and believes there
is substantial goodwill associated with them.
GOVERNMENT REGULATION
The Company is subject to Federal Trade Commission regulations governing
its advertising and trade practices, Consumer Product Safety Commission
regulations governing the safety of the products it sells in its catalogs and
other regulations relating to the sale of merchandise to its customers. The
Company is also subject to the Department of Treasury-Customs regulations
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with respect to any goods it imports. To date, such governmental regulations
have not had a material adverse effect on the Company's business.
The imposition of a sales and use tax collection obligation on out-of-state
catalog companies in states to which they ship products is the subject of a
case recently decided by the United States Supreme Court. While the Court
reaffirmed an earlier decision which allowed direct marketers to make sales
into states where they do not have a physical presence without collecting sales
taxes with respect to such sales, the Court further noted that Congress has the
power to change this law. The Company believes that it collects sales tax in
all jurisdictions where it is currently required to do so.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in a modern
84,700-square-foot facility in Weehawken, New Jersey. The facility houses
merchandising and marketing personnel, an art department including photographic
studios, catalog production personnel and corporate and administrative offices.
The Weehawken facility is leased for a 15-year term expiring in 2005.
The Company also occupies a leased office building in Hanover, Pennsylvania
and five warehouse/fulfillment locations in the Hanover area providing a total
of approximately 1,200,000 square feet of space, including its principal
fulfillment center consisting of a twenty acre leasehold with a 265,000 square
foot warehouse and other improvements. The other four warehouse/fulfillment
locations are leased pursuant to short-term leases. The Company intends to
consolidate all or most of the facilities with short-term leases into its new
fulfillment center that will be constructed for DOMESTICATIONS in Roanoke,
Virginia.
Administrative offices in Hanover, Pennsylvania are located in a two- story
building of approximately 123,000 square feet, with a lease expiring in 1994,
which contains renewal options for three five-year periods. Brawn of
California, Inc., occupies 30,000 square feet of new office space in San Diego,
California pursuant to a fifteen-year lease that expires in 2004.
Gump's occupies 4,700 square feet of office space in addition to 49,800
square feet of space for its retail store in San Francisco, California. In
addition, Gump's occupies a leased warehouse/fulfillment center in DeSoto,
Texas of approximately 43,000 square feet. This lease expires in 1995.
The Company Store occupies 185,000 square feet for its
warehouse/fulfillment center pursuant to a short-term lease. Additionally, a
150,000 square ft. manufacturing and assembly facility and 58,000 square ft.
telemarketing and customer service facility in La Crosse are owned.
In January 1994, the Company purchased for $1.1 million a 50% interest in
Blue Ridge Associates (the "Partnership"), a partnership which owns the Tweeds
Roanoke, Virginia fulfillment center. In addition, the Partnership and the
Company entered into a 15 year lease covering the facility. Under the terms of
the lease agreement and subject to certain conditions specified therein, the
Partnership, as lessor, agreed to expand the facility by not less than 100,000
square feet in accordance with plans and specifications reasonably acceptable
to the parties. The expanded facility will be leased to the Company on the
same terms as the existing facility, subject to an adjustment in the amount of
rent payments and the expiration date.
11
<PAGE> 13
The following chart lists each of the Company's principal properties:
<TABLE>
<CAPTION>
OWNED
OR APPROXIMATE CATALOG
LOCATION LEASED SQUARE FOOTAGE USE (a)
-------- ------ -------------- --------
<S> <C> <C> <C>
Warehouse and
Fulfillment Centers:
Emigsville, PA Leased 144,000
Hanover, PA Owned 265,000
Hanover, PA Leased 433,300
Landsville, PA Leased 23,000
York, PA Leased 319,000
DeSoto, TX Leased 43,000 GUMP'S(b)
Roanoke, VA Leased 175,000 TWEEDS(c)
LaCrosse, WI Leased 185,000 THE COMPANY STORE
Corporate and
Administrative Offices:
San Diego, CA Leased 30,000 Men's Apparel(f)
San Francisco, CA Leased 4,700 GUMP'S
Edgewater, NJ Leased 65,000 TWEEDS
Weehawken, NJ Leased 84,700 Corporate Headquarters
Telemarketing and
Customer Service:
Hanover, PA Leased 123,300
LaCrosse, WI Owned 58,000(d)
Retail Stores:
Beverly Hills, CA Leased 1,200 SCANDIA DOWN
Costa Mesa, CA Leased 1,200 SCANDIA DOWN
San Diego, CA Leased 3,800 INTERNATIONAL MALE
San Francisco, CA Leased 49,800 GUMP'S(e)
West Hollywood, CA Leased 3,600 INTERNATIONAL MALE
Hanover, PA Leased 12,500 Outlet Store
La Crosse, WI Leased 13,000 THE COMPANY STORE
Oshkosh, WI Leased 2,000 THE COMPANY STORE
Kenosha, WI Leased 5,500 THE COMPANY STORE
Madison, WI Leased 5,500 THE COMPANY STORE
Manufacturing
and Assembly:
LaCrosse, WI Owned 150,000 THE COMPANY STORE
</TABLE>
(a) Unless otherwise noted, the facility services multiple catalogs.
(b) Also a telemarketing center for GUMP'S.
(c) Also a telemarketing center for TWEEDS.
(d) Also used for executive offices for THE COMPANY STORE.
(e) Also used for GUMP'S executive offices. To be replaced by a new store in
the fall of 1994.
(f) Also a telemarketing center for Men's Apparel.
12
<PAGE> 14
The Company also leases 18 properties, all of which are subleased. All of
such properties are part of the Company's discontinued restaurant operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine lawsuits of a nature which is
deemed customary and incidental to its businesses. In the opinion of
management, the ultimate disposition of such actions will not have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
13
<PAGE> 15
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the American Stock Exchange (Symbol: HNV).
The following table sets forth, for the periods shown, the high and low sale
prices of the Common Stock reported on the American Stock Exchange Composite
Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
1992
First Quarter $ 3 $ 1 1/2
Second Quarter 2 1/8 1 5/8
Third Quarter 2 1/4 1 3/8
Fourth Quarter 2 7/8 1 5/8
1993
First Quarter $ 4 $ 2 1/16
Second Quarter 4 1/2 2 3/4
Third Quarter 5 1/2 4 1/6
Fourth Quarter 7 5/8 4 1/2
</TABLE>
The Company is restricted from paying dividends on its Common Stock or from
acquiring any of its capital stock by certain debt covenants contained in
agreements to which the Company is a party. Cash dividends have not been paid
on the Common Stock since 1967.
As of March 9, 1994, there were approximately 4,359 holders of record of
Common Stock.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the years
indicated:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
INCOME STATEMENT DATA: (in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
REVENUES $ 382,637 $ 555,770 $ 623,650 $ 586,562 $ 642,511
Operating (loss) income 9,703 10,190 (26,078) 14,402 19,076
Interest expense, net... 11,084 11,426 18,341 13,135 2,757
Other income (expense).. 1,868 - (6,437) - 888
Income (loss) from
continuing operations.. 187 (2,136) (51,081) 1,048 17,337
(Loss) from discontinued
operations............. (9,146) (115,921) (21,119) - -
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items and
cumulative effect of
accounting change for
income taxes........... (8,959) (118,057) (72,200) 1,048 17,337
Extraordinary items..... - 2,146 6,915 9,201 -
Cumulative effect of
accounting change for
income taxes........... - - - 10,000 -
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)....... (8,959) (115,911) (65,285) 20,249 17,337
Preferred stock dividends - - (466) (3,197) (4,093)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
shareholders........... $ (8,959) $ (115,911) $ (65,751) $ 17,052 $ 13,244
========== ========== ========== ========== ==========
Per Share:
Income (loss) from
continuing operations.. $ .01 $ (.15) $ (3.16) $ (.06) $ .17
(Loss) from discontinued
operations (.64) (8.24) (1.30) - -
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary items.... (.63) (8.39) (4.46) (.06) .17
Extraordinary items..... - .15 .43 .24 -
Cumulative effect of
accounting change for
income taxes........... - - - .26 -
---------- ---------- ---------- ---------- ----------
Net (loss) income ...... $ (.63) $ (8.24) $ (4.03) $ .44 $ .17
========== ========== ========== ========== ==========
Weighted average number
of shares outstanding:
Primary... ............. 14,145,416 14,068,460 16,287,723 38,467,015 75,625,330
========== ========== ========== ========== ==========
Fully diluted........... 14,145,416 14,068,460 16,287,723 38,467,015 77,064,131
========== ========== ========== ========== ==========
BALANCE SHEET DATA
(END OF PERIOD):
Working capital
(deficit).............. $ 42,176 $ 8,913 $ (37,636) $ 31,566 $ 25,476
Total assets............ 324,148 234,761 162,800 134,352 188,838
Total debt.............. 179,251 155,649 127,918 43,362 36,160
Preferred stock of
subsidiary............. - - 35,247 32,842 -
Shareholders' (deficit)
equity................. 53,813 (61,484) (113,632) (19,758) 45,868
</TABLE>
There were no cash dividends declared on Common Stock in any of the periods.
See Notes to Consolidated Financial Statements.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the percentage
relationship to revenues of certain items in the Company's Consolidated
Statement of (Loss) Income:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales and operating expenses.... 65.6 65.1 63.6
Selling expenses........................ 28.0 23.6 24.6
General and administrative expenses..... 9.2 8.9 8.9
Income (loss) from operations............ (4.2) 2.5 3.0
Interest expense, net................... 2.9 2.2 .4
Income (loss) from continuing operations
before income taxes..................... (8.2) .2 2.7
Income tax provision (credit)........... - - -
Income (loss) from continuing operations (8.2)% .2% 2.7%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
1993 COMPARED WITH 1992
Net Income. The Company reported net income of $17.3 million or $.17 per
share for the year ended January 1, 1994, compared to net income of $1.0
million (before extraordinary items and cumulative effect of accounting change)
or a loss of $.06 per share in 1992. Net income for 1992 after extraordinary
items and cumulative effect of accounting change was $20.2 million or $.44 per
share. Per share amounts are expressed after deducting preferred dividends of
$3.2 million in 1992 and $4.1 million in 1993.
Revenues. Revenues increased 9.5% from $587 million in 1992 to $643
million in 1993. The higher revenues were due to a 10% increase in revenues
relating to continuing catalogs, which include the initial test marketing of
the Sears venture which began in mid-1993 and resulted in the Sears Agreement
in January 1994. Additionally, approximately $47 million of the increase was
generated by the acquisition of GUMP'S, THE COMPANY STORE AND TWEEDS in the
second half of 1993. Revenues from discontinued catalogs were $63 million and
$19.5 million in 1992 and 1993, respectively.
Non-Apparel revenues increased 23% from $395 million in 1992 to $484
million in 1993. This increase is a result of $38 million of revenues
generated by GUMP'S and THE COMPANY STORE which were acquired in the third
quarter of 1993 and a 14% increase in revenues related to continuing catalogs.
Substantially all of the increase in revenues from continuing catalogs is
related to DOMESTICATIONS, COLONIAL GARDEN KITCHENS and TAPESTRY, of which
approximately 40% is attributable to the Sears venture. Revenues from
discontinued catalogs (assuming such catalogs were discontinued at the
beginning of 1992) were $10 million and $6.5 million in 1992 and 1993,
respectively.
Apparel revenues declined 17% from $192 million in 1992 to $159 million in
1993. Revenues from discontinued catalogs were $53 million and $13 million in
1992 and 1993, respectively, while continuing catalog revenues declined by 2%
from 1992. Additionally, the acquisition of TWEEDS in the
16
<PAGE> 18
fourth quarter of 1993 contributed $9 million to revenues. As discussed below,
the Company is continuing to restructure its Apparel catalogs.
The Company mailed approximately 322 million catalogs in 1993, a 13%
increase over 1992, with variations in mailing strategies and volumes amongst
the catalogs. Additionally, the Company was able to increase its average order
size by 9%. Revenues also improved as the Company reduced its order
cancellation and return rates compared to 1992, principally as a result of
improving its in-stock inventory position.
Operating Costs and Expenses. Cost of sales and operating expenses as a
percentage of revenues decreased from 65.1% in 1992 to 63.6% in 1993. The
improvement was attributable to an increase in product margin due to changes in
the sales mix as well as lower inventory markdowns in 1993 and lower shipping
costs due to more efficient shipping methods. Shipping costs were also
positively impacted by fewer split-shipments due to the improved in-stock
inventory position.
Selling expenses increased from 23.6% of revenues in 1992 to 24.6% of
revenues in 1993 and represented an increase of $19.3 million. This increase
was due to lower response rates, related principally to an aggressive customer
acquisition campaign primarily in DOMESTICATIONS (which increased the size of
its 12 month customer list by 14%) and from the addition of the selling
expenses for the GUMP'S retail store. Selling expenses include catalog
creation and mailing costs and rentals of mailing lists from third parties, as
well as retail selling expenses.
General and administrative expenses represented 8.9% of revenues in 1992
and 1993. Such expenses increased $5.3 million, or 10.2%, from 1992 to 1993,
including $5.8 million of expenses for the three companies acquired in 1993.
General and administrative expenses were reduced by lower bad debt expense and
lower credit card commissions, offset by increases in merchandise and marketing
personnel.
Income (Loss) from Operations. Income from operations increased from $14.4
million in 1992, or 2.5% of revenues, to $19.1 million in 1993, or 3.0% of
revenues. Income from operations excluding the discontinued catalogs was $24.6
million in 1992 (comprised of $21.9 million and $2.7 million for Non-Apparel
and Apparel, respectively) compared to $26.7 million in 1993 (comprised of
$25.8 million and $.9 million for Non-Apparel and Apparel, respectively). Of
this, the three companies acquired in 1993 generated income from operations of
$3 million. Losses from discontinued catalogs were $9.0 million in 1992
compared to $4.3 million in 1993.
The restructuring of the Apparel catalogs continued in 1993 as the catalog
mix was changed further, with two catalogs being discontinued and the
acquisition of Tweeds. In order to improve operating results, each Apparel
catalog is being more sharply focused on its target audience and overhead and
circulation levels for certain catalogs have been reduced.
Interest and Other Income (Expense). Interest expense decreased
approximately $8.5 million from $13.4 million in 1992 to $4.9 million in 1993,
due to the Company's financial restructuring which began in the fourth quarter
of 1991 and included a debt reduction of $67 million from the beginning of 1992
to the end of 1993. Interest income was $2.2 million in 1993, an increase of
$1.9 million from 1992, due primarily to the interest portion of a Federal
income tax refund received in fiscal 1993.
17
<PAGE> 19
Other income of $.9 million in 1993 represents a settlement of a claim in
bankruptcy from a brokerage firm with which the Company had previously had a
contract.
Income Taxes. In 1992 the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes ("SFAS 109"). In
accordance with this statement, the Company recognized a deferred tax asset of
$10 million reflecting the cumulative effect of this accounting change for the
estimated future benefit expected to be realized from the utilization of net
operating loss carryforwards ("NOLs") and deductible temporary differences.
The deferred tax asset consisted of a $63 million gross deferred tax asset less
a $53 million valuation allowance that was established to reflect the annual
limitation on the utilization of certain of the NOLs and an assumed limitation
on the utilization of the remaining deferred tax asset. Realization of the
future tax benefits is dependent on the Company's ability to generate taxable
income within the carryforward period. Future levels of operating income and
taxable income are dependent, in part, upon general economic conditions,
competitive pressures on sales and margins, and other factors beyond the
Company's control.
In 1992 management determined that, based on the successful completion of
the financial restructuring, future operating income of the Company would be
sufficient to utilize $30 million of deductible timing differences and NOLs
prior to their expiration. (See Results of Operations for 1992 Compared with
1991 for additional details). At January 1, 1994, the Company had $147 million
of NOLs and has maintained the $30 million amount of expected future operating
income that will more likely than not utilize the NOLs prior to their
expiration. Management believes that, although the 1993 operating results
might justify a higher amount, in view of its history of operating losses, the
$30 million represents a reasonable conservative estimate of the future
utilization of the NOLs and the Company will continue to evaluate the
likelihood of future profit and the necessity of future adjustments to the
deferred tax asset valuation allowance.
The Federal income tax provision was $5.9 million in 1993 which was
offset by the utilization of certain NOLs. In addition, the Revenue
Reconciliation Act of 1993 raised the 1993 corporate income tax rate from 34%
to 35%, and, as a result, the Company recognized an additional deferred tax
benefit of $.6 million in 1993. In addition, the Company recorded a state tax
provision of $.2 million in 1992 and $.5 million in 1993.
Shareholders' Equity. The number of shares of Common Stock outstanding
increased by 13,396,345 in 1993 due to: i) 1,150,733 shares issued in
connection with the Company's equity and incentive plans, ii) 2,615,928 shares
issued in connection with the acquisitions of GUMP'S, THE COMPANY STORE AND
TWEEDS, iii) 2,278,128 shares issued upon the conversion of the 7.5% Preferred
Stock, iv) 18,937,169 shares issued in connection with the exchange of the
Class B Preferred Stock and Class B Common Stock (of which 12,270,503 shares
were exchanged) and v) 684,890 shares issued as dividends on the Class B
Preferred Stock. At January 1, 1994, there were 82,933,177 shares of Common
Stock outstanding compared to 69,536,832 shares outstanding at December 26,
1992.
The dividends of $3.2 million in 1992 and $4.1 million in 1993 represent
dividend requirements on the two preferred stocks. These preferred stocks were
converted into Common Stock in 1993, which resulted in the elimination of
future dividends.
18
<PAGE> 20
1992 COMPARED WITH 1991
Net Income. The Company generated net income of $17.1 million, or $.44 per
share, in 1992 compared to a net loss of $65.8 million, or $4.03 per share in
1991. Included in the 1992 net income are $9.2 million of extraordinary gains
resulting from the exchange offers (compared to extraordinary gains of $6.9
million in 1991) and $10 million due to the cumulative effect of the change in
the method of accounting for income taxes. The year ended December 28, 1991
included provisions for losses on disposal of discontinued operations of $21.1
million and restructuring and other non-recurring charges of $15.3 million.
Income (Loss) From Operations. Income from continuing operations improved
$52.1 million from a loss of $51.1 million in 1991 to income of $1 million in
1992. This improvement reflects the impact of the financial restructuring and
operational changes that began in the fourth quarter of 1991 with NAR's
investment in the Company. The financial restructuring has allowed the Company
to eliminate $142.8 million in debt and $40 million of lease obligations and
dispose of its discontinued restaurant operations. Without this cash drain,
the Company's liquidity has significantly improved. The operational changes
included the decentralization of the Company which resulted in a strategic
review throughout the organization of all catalogs, costs and service levels.
As a result, seven catalogs (six Apparel and one Non-Apparel) were discontinued
in late 1991 and early 1992. In 1991 and 1992, these catalogs had a combined
loss from operations of $16.2 and $6.7 million, respectively, on revenues of
$97 million and $25 million, respectively. The elimination of these catalogs
enabled the Company to redirect its resources into its core catalogs, thereby
improving its inventory position for the remaining catalogs and allowing for
investment in infrastructure improvements. Revenues from continuing catalogs
increased approximately $35 million or 7% from 1991 to 1992.
The Company's improved liquidity, as well as the elimination of the
uncertainty as to whether the Company would be able to satisfy its debt
obligations, enabled it to normalize its relationships with vendors. This
resulted in higher inventory receipts on a timely basis which significantly
reduced backorder levels and the associated costs. In addition, net interest
expense was reduced in fiscal 1992 by $5.2 million ($9 million on an annualized
basis) as a result of the debt and equity transactions. These reasons, as well
as the elimination of the $15.3 million of non-recurring restructuring,
transaction and other costs resulted in the significant turnaround in the
Company's operating results.
Revenues. Revenues decreased $37 million, or 5.9%, compared to 1991 as the
Company focused on its profitable catalogs and discontinued seven poorer
performing catalogs in late 1991 and early 1992. Revenues from continuing
catalogs increased 7% from $527 million in 1991 to $562 million in 1992. The
Company mailed approximately 375 million catalogs in 1991 compared to
approximately 285 million in 1992, a 24% decrease, but was able to increase its
average order size and response rates. Revenues were also improved as the
Company reduced its order cancellation and return rates by two percentage
points compared to 1991, principally as a result of the normalization of the
backorder levels which peaked at approximately $58 million in 1991 to a low of
$11 million at the end of 1992.
19
<PAGE> 21
Non-Apparel revenues increased 3% from $383 million in 1991 to $395 million
in 1992. Revenues from continuing catalogs increased 7% to $394 million in
1992. Revenues from discontinued catalogs were $15.6 million and $.7 million
in 1991 and 1992, respectively.
Apparel revenues declined 20% from $240 million in 1991 to $192 million in
1992, although revenues from continuing catalogs increased 6% to $168 million.
Revenues of the discontinued catalogs were $82 million and $24 million in 1991
and 1992, respectively.
Operating Costs and Expenses. Cost of sales and operating expenses as a
percentage of revenues decreased from 65.6% in 1991 to 65.1% in 1992, although
gross margin decreased $9.7 million from 1991 to 1992. The improvement in
margin percentage was attributable to reducing shipping costs by one percent of
revenues as there were less split-shipments and other operational
inefficiencies associated with the 1991 backorder situation. Partially
offsetting these improvements was a change in the sales mix from higher margin
fashion merchandise to lower margin home textile merchandise.
Selling expenses decreased $35.9 million in 1992, of which $23 million was
due to lower circulation resulting from discontinuing certain catalogs.
Selling expenses decreased as a percentage of revenues from 28.0% in 1991 to
23.6% in 1992 due to improved customer order response rates and lower paper
costs.
General and administrative expenses decreased $5.4 million, or 9.4%, from
1991 to 1992. Such expenses decreased as a percentage of sales, from 9.2% in
1991 to 8.9% in 1992. The decrease in expense was due to lower bad debt
expense ($1.3 million), lower credit card commissions ($2 million) and reduced
space advertising activity ($2 million). These decreases were partially offset
by increases in consulting and internal development costs for management
information systems and to support the decentralized organization ($2.2
million).
Interest and Other Income (Expense). Interest expense was $13.4 million in
1992, a decrease of $7.1 million over 1991, as a result of debt reduction due
to the rights offering relating to the H&H Common Stock (the "Rights Offering")
and two separate exchange offers for the Company's 14% senior subordinated
debentures due 1997 (the "14% Debentures") and the Company's 7 1/2% convertible
subordinated debentures due 2007 (the "7 1/2% Debentures" and the two exchange
offers being referred to herein as the "Exchange Offers"). Future interest
expense will be reduced on an annualized basis by $9 million, as a result of
this debt reduction. The closing of the transactions in 1991 had the effect of
reducing interest expense due to the retirement of $15.1 million of 7 1/2%
Debentures, the repayment of $5 million of principal amount of 8% Subordinated
Notes due 1994 (the "8% Notes"), as well as a reduction of the interest rate
from 11% to 8% thereon.
Interest income was $.2 million in 1992, a decrease of $1.9 million from
1991. The decrease is due to the Company's overall liquidity position in which
funds were not available to invest in interest bearing instruments.
Extraordinary Items. In 1991, the Company recognized a $6.9 million
extraordinary gain with respect to the retirement of $15.1 million of its 7
1/2% Debentures. The Company recorded extraordinary gains of $9.2 million in
1992 from the exchange of $11.9 million of 7 1/2% Debentures and $23.4 million
of 14% Debentures into equity.
20
<PAGE> 22
Income Taxes. At December 26, 1992, the Company had tax NOLs totalling
$142 million, which expire through 2007. Certain transactions the Company
entered into during 1991 resulted in an ownership change with respect to the
Company and, thus, in the imposition of an annual limitation of approximately
$4 million on the amount of future taxable income of the Company which may be
offset by the Company's pre-change NOLs. The Company's available NOLs for tax
purposes consists of $98 million of pre-change NOLs (subject to this
limitation) and $44 million of post-change NOLs (not subject to this
limitation).
SFAS 109 requires that the tax benefit of such NOLs be recorded as an asset
to the extent that management assesses the utilization of such NOLs to be "more
likely than not". The deferred tax asset of $10 million recognized in 1992
consists of a $63 million gross deferred tax asset (principally, the expected
tax benefit of the NOLs discussed above) less a $53 million valuation
allowance.
The Company believes, based upon successful completion of the financial
restructuring, the disposal of unprofitable discontinued operations, the
Company's history of prior operating earnings in its direct marketing business
and its expectations for the future, that the operating income of the Company
will be sufficient to utilize a substantial portion of the NOLs prior to their
expiration. Since the realization of the future tax benefits is dependent on
the Company's ability to generate taxable income within the carryforward period
(through 2007), the Company believes it would be imprudent to record the entire
benefit, based on income projections through 2007, due to the Company's recent
operating losses. The Company does believe that an appropriate measure of its
current earnings level is to adjust its 1992 income before extraordinary gains
of $1 million by $9 million, which represents the annual interest expense on
the debt that has been retired. Using this $10 million income as a base and
three years as a reasonable time frame, income would not have to grow from its
current level in order to generate the $30 million necessary to utilize NOLs
sufficient to realize the $10 million benefit that was recorded in 1992.
Shareholders' Equity. Net income for the year ended December 26, 1992 was
$17.1 million, or $0.44 per share, as compared to a net loss of $65.8 million,
or $4.03 per share in 1991. Net income from continuing operations in 1992 was
$1 million, or a loss of $.06 per share after deducting preferred dividends of
$3.2 million, compared to a net loss of $51.1 million, or $3.16 per share in
1991.
Extraordinary items in 1992 were $9.2 million or $.24 per share, compared
to $6.9 million or $.43 per share in 1991. The cumulative effect of accounting
change for income taxes in 1992 was $10 million, or $.26 per share as compared
to no cumulative adjustment in 1991. For the year ended December 26, 1992
there was no income or loss from discontinued operations compared to a loss of
$21.1 million, or $1.30 per share in 1991.
The number of shares of Common Stock outstanding increased in 1992
principally due to the Rights Offering in which 14,396,798 shares were issued,
the Exchange Offers in which 7,548,465 shares were issued and the exchange of
the preferred stock by NAR for 20 million shares of H&H Common Stock. At
December 26, 1992 there was a total of 69,535,089 shares of H&H Class B Common
and H&H Common Stock outstanding compared to 28,537,471 at December 28, 1991.
21
<PAGE> 23
The dividends of $3.2 million in 1992 represent dividend requirements on
the two preferred stocks that were issued in October 1991 and September 1992.
In 1991, the dividend accretion was $.5 million, representing the two months
during which the 8% preferred stock was outstanding in 1991.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $2.6 million in cash and cash equivalents at each of
December 26, 1992 and January 1, 1994. Working capital and the current ratio
were $25.5 million and 1.24 to 1 at January 1, 1994 versus $31.6 million and
1.42 to 1 at December 26, 1992. The Company had substantially paid down its
long-term revolving credit facility at January 1, 1994, compared to a balance
of $21.2 million outstanding at December 26, 1992.
The Company generated $28.0 million in cash from operations in 1993. Cash
was used primarily to support increases of i) $12.1 million of inventory as
part of the Company's strategy to increase its in-stock position at the time
customer orders are received; ii) $5.3 million in prepaid catalog costs to
support the spring mailing activity and iii) $4.2 million in capital
expenditures, primarily for its new management information system, while $21.0
million was used for the paydown of the Company's revolving credit facility.
These uses of cash were primarily financed by a $24.5 million increase in
accounts payable and operating profits. With the significant improvement in
the Company's financial condition in 1993, it has been successful in restoring
normal trade terms with its vendors, which has resulted in greater leverage of
its accounts payable.
The Company experiences seasonality in its working capital requirements and
fluctuations in the revolving credit facility will occur, usually within the
first and fourth quarters of the year.
With the Company's financial restructuring completed and the corresponding
improvement in its financial condition, the Company focused in 1993 on
refinancing its remaining indebtedness, simplifying its capital structure and
embarking on a program of investing in infrastructure improvements to support
its growth objectives.
Refinancing of Indebtedness. In May 1993, the Company refinanced its
revolving credit facility that had been previously provided by a subsidiary of
NAR with a new three-year $40 million facility with an independent financial
institution. In October 1993, the Company increased the maximum credit
available to $52.5 million to include GUMP'S, THE COMPANY STORE AND TWEEDS as
borrowers under the facility. A subsidiary of NAR has provided a secured
limited guarantee of $10 million which allows the Company to borrow in excess
of its availability based on a formula, up to the facility's limit. This
limited guarantee was reduced by approximately $5.1 million during the fourth
quarter of 1993, and the guarantee will be eliminated in March 1994 based on
the Company's 1993 operating results. At January 1, 1994, the Company's
borrowing base formula would have enabled the Company to borrow approximately
$40 million, compared to the $.2 million that was outstanding.
In August 1993, the Company issued $20 million of 9.25% Senior Subordinated
Notes ("the 9.25% Notes") in a private placement with an insurance company.
The Company retired its outstanding $12.4 million of 8% Notes that were due in
October 1994 and $.8 million of its 14% Notes using the proceeds of the 9.25%
Notes, with the remainder to be used for the purchase of additional fulfillment
and warehouse capacity. The Company is
22
<PAGE> 24
required to redeem $6 million of the 9.25% Notes without penalty by February
15, 1994 (subsequently amended to May 1, 1994) if the Company has not
established or acquired a new distribution facility by such date.
In 1993, the Company acquired three companies for $.1 million of its own
cash, $4.6 million of debt and $12.3 million of Common Stock. In addition, the
Company has agreed to provide an aggregate of up to $4 million of secured
working capital financing, a $.75 million short-term loan and a $.5 million
convertible note to two entities in which it has acquired an equity interest.
Simplification of Capital Structure. In September 1993, through a series
of mergers involving H&H and THC, the Company changed its name to Hanover
Direct, Inc. and eliminated its two-tier holding company structure.
On December 13, 1993, the Company converted its 7.5% Preferred Stock into
2,278,128 shares of Common Stock. The holders of the 7.5% Preferred Stock were
paid all accrued and unpaid dividends in cash amounting to $197,000. On
January 1, 1994, 12,270,503 shares of Class B Common Stock and 40,000 shares of
Class B Preferred Stock were exchanged into 18,937,169 shares of Common Stock.
All accrued and unpaid dividends amounting $886,000 were paid in cash in
February 1994. As a result of these transactions, the Company has eliminated
approximately $4 million of future annual preferred stock dividend
requirements.
On December 10, 1993, the Company issued 234,900 shares of its 6.0% Series
A Preferred Stock (6.0% Preferred Stock) for an installment note in the amount
of $2.4 million that it had assumed in its acquisition of Tweeds.
As a result of these transactions, the Company's capital structure consists
of 82,933,177 shares of Common Stock and 234,900 shares of 6.0% Preferred Stock
at January 1, 1994.
Infrastructure Investments. To improve its infrastructure to support its
growth objectives, the Company intends to construct a new 500,000 square foot
fulfillment center costing approximately $18 million in Roanoke, Virginia to
support the DOMESTICATIONS business and has acquired a 50% interest in a
partnership which owns the 175,000 square foot TWEEDS fulfillment center, into
which the Company plans to consolidate its Apparel group.
Additionally, the Company is currently in the process of upgrading its
management information systems by implementing new integrated software which it
expects to be fully operational in 1995 and is migrating from a centralized
mainframe to mid-range mini-computers at a total estimated cost of
approximately $13 to $15 million. As of January 1, 1994, the Company has
incurred costs of approximately $5.3 million as part of this plan, including
capital leases aggregating $2.4 million to be paid over four years.
Public Offering of Shares. On February 18, 1994, the Company filed a
registration statement on Form S-3 with the Securities and Exchange Commission
registering 10 million shares of its Common Stock, including 4,154,604 shares
on behalf of two selling shareholders. The net proceeds from the offering with
respect to the Company's shares will be used for general corporate purposes,
including the expansion of the Company's business.
23
<PAGE> 25
The Company plans to fund the remaining infrastructure costs through cash
generated from operations, the proceeds of the Common Stock offering and,
possibly, obtaining mortgage financing. The Company believes that it has
adequate sources of financing to service its capital requirements.
Effects of Inflation. The Company normally experiences increased cost of
sales and operating expenses as a result of the general rate of inflation in
the economy. Operating margins are generally maintained through selective
price increases where market conditions permit. The Company's inventory is
mail-order merchandise which undergoes sufficiently high turnover so that the
cost of goods sold approximates replacement cost. Because sales are not
dependent upon a particular supplier or product brand, the Company can adjust
product mix to mitigate the effects of inflation on its overall merchandise
base.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Hanover Direct, Inc.:
We have audited the accompanying consolidated balance sheets of Hanover
Direct, Inc. (a Delaware corporation) (successor to The Horn & Hardart Company,
see Note 1 to the Consolidated Financial Statements) and subsidiaries as of
December 26, 1992 and January 1, 1994, and the related consolidated statements
of income (loss), shareholders' (deficit) equity and cash flows for each of the
three fiscal years in the period ended January 1, 1994. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules referred to below based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hanover Direct, Inc. and
subsidiaries as of December 26, 1992 and January 1, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 1, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 10 to the Consolidated Financial Statements,
effective December 29, 1991 the Company changed its method of accounting for
income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statement schedules are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
New York, New York
February 28, 1994
25
<PAGE> 27
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 26, 1992 and January 1, 1994
<TABLE>
<CAPTION>
DECEMBER 26, JANUARY 1,
1992 1994
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,553 $ 2,583
Accounts receivable, net of allowance
for doubtful accounts of $2,892 in
1992 and $2,509 in 1993 22,840 19,043
Inventories 58,270 80,429
Deferred tax asset, net 2,800 2,975
Prepaid catalog costs 18,277 25,571
Other current assets 2,058 2,374
-------- --------
Total Current Assets 106,798 132,975
-------- --------
Property and Equipment, at cost
Land 205 1,171
Buildings and building improvements 4,462 7,862
Leasehold improvements 5,696 6,242
Furniture, fixtures and equipment 16,309 22,551
Construction in progress - 5,434
-------- --------
26,672 43,260
Accumulated depreciation
and amortization (15,761) (18,341)
-------- --------
Net Property and Equipment 10,911 24,919
-------- --------
Excess of Cost Over Net Assets of
Acquired Businesses, net 8,710 18,463
Deferred Tax Asset, net 7,200 7,656
Other Assets, net 733 4,825
-------- --------
Total Assets $134,352 $188,838
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 28
<TABLE>
<CAPTION>
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of December 26, 1992 and January 1, 1994 DECEMBER 26, JANUARY 1,
1992 1994
------------ ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Current portion of long-term debt and
capital lease obligations $ 73 $ 2,024
Accounts payable 49,741 78,905
Dividends payable - 886
Accrued liabilities 21,363 20,653
Customer prepayments and credits 4,055 5,031
--------- --------
Total Current Liabilities 75,232 107,499
--------- --------
Noncurrent Liabilities:
Long-term debt 43,184 32,313
Capital lease obligations 105 1,823
Other 2,747 1,335
--------- --------
Total Noncurrent Liabilities 46,036 35,471
--------- --------
Total Liabilities 121,268 142,970
--------- --------
Commitments and Contingencies
Preferred Stock:
7.5% cumulative, convertible, $.01 par
value, authorized 861,900 shares;
issued 529,114 shares in 1992 6,526 -
Class B 8% cumulative, convertible,
$.01 par value, authorized and issued
40,000 shares in 1992 26,316 -
--------- --------
Total Preferred Stock 32,842 -
--------- --------
Shareholders' (Deficit) Equity:
6% Preferred Stock, convertible, $10
stated value, authorized 5,000,000 shares;
issued 234,900 shares in 1993 - 2,378
Class B Common Stock, $.01 par value,
authorized and issued 12,270,503 shares
in 1992 123 -
Common Stock, $.66 2/3 par value, authorized
150,000,000 shares; issued 58,154,584 shares
in 1992 and 83,136,542 shares in 1993 38,774 55,423
Capital in excess of par value 178,149 209,834
Accumulated deficit (229,049) (215,805)
--------- --------
(12,003) 51,830
Less:
Treasury stock, at cost (2,169,713 shares
in 1992 and 1,120,032 shares in 1993) (7,170) (3,130)
Notes receivable from sale of Common Stock - (1,774)
Deferred compensation (585) (1,058)
--------- --------
Shareholders' (Deficit) Equity (19,758) 45,868
--------- --------
Total Liabilities and Shareholders' (Deficit)
Equity $ 134,352 $188,838
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 29
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For The Years Ended December 28, 1991, December 26, 1992 and January 1, 1994
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES $623,650 $586,562 $642,511
-------- -------- --------
Operating costs and expenses:
Cost of sales and operating expenses 409,098 381,716 408,387
Selling expenses 174,401 138,494 157,811
General and administrative expenses 57,329 51,950 57,237
Restructuring expenses 8,900 - -
-------- -------- --------
649,728 572,160 623,435
-------- -------- -------
INCOME (LOSS) FROM OPERATIONS (26,078) 14,402 19,076
Interest expense (20,525) (13,379) (4,925)
Interest income 2,184 244 2,168
Other income (expense) (6,437) - 888
-------- -------- --------
Income (loss) from continuing operations
before income taxes (50,856) 1,267 17,207
Income tax provision (benefit) 225 219 (130)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (51,081) 1,048 17,337
Provision for loss on disposal of
discontinued operations (21,119) - -
-------- -------- --------
Income (loss) before extraordinary items
and cumulative effect of accounting change (72,200) 1,048 17,337
Extraordinary items 6,915 9,201 -
Cumulative effect of accounting change for
income taxes - 10,000 -
-------- -------- --------
NET INCOME (LOSS) (65,285) 20,249 17,337
Preferred stock dividends (466) (3,197) (4,093)
-------- -------- --------
Net income (loss) applicable to Common
Shareholders $(65,751) $ 17,052 $ 13,244
======== ======== ========
Net income (loss) per share:
Income (loss) from continuing operations $ (3.16) $ (0.06) $ 0.17
(Loss) from discontinued operations (1.30) - -
-------- -------- --------
Income (loss) before extraordinary items
and cumulative effect of accounting change (4.46) (0.06) 0.17
Extraordinary items 0.43 0.24 -
Cumulative effect of accounting change for
income taxes - 0.26 -
-------- -------- --------
Net income (loss) per share $ (4.03) $ 0.44 $ 0.17
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 30
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1991, DECEMBER 26, 1992, AND JANUARY 1, 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Class B 8% Cumulative 7.5% Cumulative
Shares Amount Shares Amount
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 29, 1990 0 $0 0 $0
Net loss for the year
Issuance of warrants
Executive employment contracts
Shares to 401k savings plan
Payment on notes receivable
Issuance of Class B Common Stock
Amortization of deferred compensation
Termination of Employee Stock Ownership
Plan
-----------------------------------------------------
Balance at December 28, 1991 0 $0 0 $0
Net income for the year
Issuance of Common Stock to and redemption of
Class B Common Stock by NAR
Issuance of Class B Common Stock
Amortization of deferred compensation
Issuance of Common Stock in
connection with Rights Offering
14% Exchange Offer
7 1/2% Exchange Offer
Stock Dividend to NAR
Issuance of Common Stock
Transfer of ESOP shares to treasury
-----------------------------------------------------
Balance at December 26, 1992 0 $0 0 $0
Net income
Mergers of H&H & THC into Hanover Direct, Inc. 40,000 25,516 569,532 7,158
Exchange of Class B 8% Preferred and Common Stock (40,000) (25,516)
Conversion of 7.5% Preferred Stock (569,532) (7,158)
Issuance of Preferred Stock
Stock dividends
Amortization of deferred compensation
Issuance of Common Stock
-----------------------------------------------------
Balance at January 1, 1994 0 $0 0 $0
=====================================================
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock Class B Common Stock
Series A, 6.0% $.01 par value
Shares Amount Shares Amout
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 29, 1990 0 $0 0 $0
Net loss for the year
Issuance of warrants
Executive employment contracts
Shares to 401k savings plan
Payment on notes receivable
Issuance of Class B Common Stock 13,333,334 133
Amortization of deferred compensation
Termination of Employee Stock Ownership
Plan
----------------------------------------------------
Balance at December 28, 1991 0 $0 13,333,334 $133
Net income for the year
Issuance of Common Stock to and redemption of
Class B Common Stock by NAR (13,333,334) (133)
Issuance of Class B Common Stock 12,270,503 123
Amortization of deferred compensation
Issuance of Common Stock in
connection with Rights Offering
14% Exchange Offer
7 1/2% Exchange Offer
Stock Dividend to NAR
Issuance of Common Stock
Transfer of ESOP shares to treasury
----------------------------------------------------
Balance at December 26, 1992 0 $0 12,270,503 $123
Net income
Mergers of H&H & THC into Hanover Direct, Inc.
Exchange of Class B 8% Preferred and Common Stock (12,270,503) (123)
Conversion of 7.5% Preferred Stock
Issuance of Preferred Stock 234,900 2,342
Stock dividends 36
Amortization of deferred compensation
Issuance of Common Stock
--------------------------------------------------
Balance at January 1, 1994 234,900 $2,378 0 $0
==================================================
</TABLE>
<TABLE>
<CAPTION>
Capital
Common Stock in Excess
$.66 2/3 par value of par Accum. Treasury Stock
Share Amount Value (Deficit) Shares Amount
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1990 14,812,863 $9,874 $124,228 ($180,350) (900,943) ($7,865)
Net loss for the year (65,751)
Issuance of warrants 3,286
Executive employment contracts 1,281,458 854 6,287 (1,281,458) (3,845)
Shares to 401k savings plan (56) 12,502 109
Payment on notes receivable
Issuance of Class B Common Stock 1,867
Amortization of deferred compensation
Termination of Employee Stock
Ownership Plan
-----------------------------------------------------------------------------------
Balance at December 28, 1991 16,094,321 $10,728 $135,612 ($246,101) (2,169,899) ($11,601)
Net income for the year 17,052
Issuance of Common Stock to and
redemption of Class B Common
Stock by NAR 20,000,000 13,334 24,146
Issuance of Class B Common Stock 410
Amortization of deferred
compensation
Issuance of Common Stock in
connection with Rights Offering 14,396,798 9,603 11,086
14% Exchange Offer 4,099,625 2,733 5,123
7 1/2% Exchange Offer 3,448,840 2,299 5,773 45,006 393
Stock Dividend to NAR (3,764) 601,233 5,249
Issuance of Common Stock 115,000 77 (237)
Transfer of ESOP shares to
treasury (646,053) (1,211)
-----------------------------------------------------------------------------------
Balance at December 26, 1992 58,154,584 $38,774 $178,149 ($229,049) (2,169,713) ($7,170)
Net income 13,244
Mergers of H&H & THC into Hanover
Direct, Inc.
Exchange of Class B 8% Preferred
and Common Stock 18,937,169 12,625 13,014
Conversion of 7.5% Preferred Stock 2,278,128 1,519 5,639
Issuance of Preferred Stock
Stock dividends (438) 684,890 2,946
Amortization of deferred compensation
Issuance of Common Stock 3,766,661 2,505 13,470 364,791 1,094
----------------------------------------------------------------------------------
Balance at January 1, 1994 83,136,542 $55,423 $209,834 ($215,805) (1,120,032) ($3,130)
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable
From Sale
of Common Deferred
Stock Comp. Total
---------------------------------
<S> <C> <C> <C>
Balance at December 29, 1990 ($270) ($7,101) ($61,484)
Net loss for the year (65,751)
Issuance of warrants 3,286
Executive employment contracts (1,297) 1,999
Shares to 401k savings plan 53
Payment on notes receivable 270 270
Issuance of Class B Common Stock 2,000
Amortization of deferred compensation 1,145 1,145
Termination of Employee Stock
Ownership Plan 4,850 4,850
----------------------------------
Balance at December 28, 1991 $0 ($2,403) ($113,632)
Net income for the year 17,052
Issuance of Common Stock to and
redemption of Class B Common
Stock by NAR 37,347
Issuance of Class B Common Stock 533
Amortization of deferred
compensation 607 607
Issuance of Common Stock in
connection with Rights Offering 20,689
14% Exchange Offer 7,856
7 1/2% Exchange Offer 8,465
Stock Dividend to NAR 1,485
Issuance of Common Stock (160)
Transfer of ESOP shares to
treasury 1,211 0
----------------------------------
Balance at December 26, 1992 $0 ($585) ($19,758)
Net income 13,244
Mergers of H&H & THC into Hanover
Direct, Inc. 32,674
Exchange of Class B 8% Preferred
and Common Stock 0
Conversion of 7.5% Preferred Stock 0
Issuance of Preferred Stock 2,342
Stock dividends 2,544
Amortization of deferred compensation 599 599
Issuance of Common Stock (1,774) (1,072) 14,223
----------------------------------
Balance at January 1, 1994 ($1,774) (1,058) $45,868
==================================
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE> 31
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years ended December 28, 1991, December 26, 1992 and January 1, 1994
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($65,285) $20,249 $17,337
Adjustments to reconcile net
income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization ......... 11,568 5,188 4,122
Noncash portion of loss provision...... 19,516 - -
Noncash portion of extraordinary gains. (6,915) (9,201) -
Noncash portion of cumulative effect of
an accounting change.............. - (10,000) -
Noncash portion of ESOP termination.... 4,734 - -
Noncash portion of contract settlement. 2,652 - -
Deferred taxes......................... - - (631)
Other, net............................. 216 368 (33)
Changes in assets and liabilities, net
of effects of acquired businesses and
dispositions of assets:
Payment for repurchase of mail order
customer receivables.............. - (35,301) -
Net proceeds from sale of mail order
customer receivables.................. 11,332 37,008 -
Accounts receivable, net............... (4,427) 13,321 8,907
Inventories............................ 10,662 (9,854) (12,081)
Prepaid catalog costs.................. 12,606 9,470 (5,305)
Other current assets................... 3,254 (671) 282
Accounts payable....................... (23,937) (17,292) 24,530
Accrued liabilities.................... (9,811) (12,821) (10,650)
Dividend payable....................... - - 886
Customer prepayments and credits....... - (3,508) 684
------- ------- -------
Net cash provided (used) by operating
activities............................... (33,835) (13,044) 28,048
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash.............. 557 5,765 -
Acquisitions of property and equipment... (1,320) (1,431) (4,239)
Purchase of businesses................... - - (100)
Net proceeds from sales of property...... 3,025 17,256 -
Other, net............................... (647) - (313)
------- ------- -------
Net cash provided (used) by investing
activities................................ 1,615 21,590 (4,652)
------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 32
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 28, 1991, December 26, 1992 and January 1, 1994
<TABLE>
<CAPTION>
1991 1992 1993
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit
facility . . . . . . . . . . . . . . . . . $ - $ - $ (20,965)
Proceeds from issuance of debt . . . . . . . 21,602 9,583 20,000
Net proceeds from issuance of
Preferred Stock and Class B Common Stock . 29,281 27,533 -
Payments of long-term debt and capital
lease obligations . . . . . . . . . . . . (18,060) (68,720) (19,856)
Proceeds from Rights Offering . . . . . . . - 19,748 -
Cash dividends paid . . . . . . . . . . . . - - (890)
Payment of debenture issuance costs . . . . (2,665) (825) -
Payment of debt issuance costs . . . . . . . - - (1,560)
Loan to ESOP. . . . . . . . . . . . . . . . . (1,050) - -
Proceeds from issuance of Common Stock . . . - - 912
Other, net . . . . . . . . . . . . . . . . . (1,593) - (1,007)
-------- ----------- ----------
Net cash provided (used) by financing
activities . . . . . . . . . . . . . . . . . . 27,515 (12,681) (23,366)
-------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . (4,705) (4,135) 30
Cash and cash equivalents at the beginning
of the year . . . . . . . . . . . . . . . . . 11,393 6,688 2,553
-------- ----------- ----------
Cash and cash equivalents at end of the
year . . . . . . . . . . . . . . . . . . . . . $ 6,688 $ 2,553 $ 2,583
======== =========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . $ 21,325 $ 12,547 $ 4,883
Income taxes paid . . . . . . . . . . . . . 755 226 71
Issuance of warrants . . . . . . . . . . . . 3,286 - -
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1991, DECEMBER 26, 1992 AND JANUARY 1, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger - Hanover Direct, Inc. ("HDI") was formed in connection with
the September 8, 1993 merger (the "Merger") involving HDI, The Horn & Hardart
Company ("H&H") and The Hanover Companies ("THC"), a wholly-owned subsidiary of
H&H. The Merger consisted of the merger of H&H into HDI, followed by the
merger of THC into HDI. The purpose of the Merger was to create a single
corporation to replace the then-existing two-tier structure whereby H&H and THC
were both subject to the filing requirements of Section 13 of the Securities
Exchange Act of 1934, as amended. The financial statements of THC had
previously been included in the consolidated financial statements of H&H.
The Merger was consummated by (i) the exchange to holders of shares of
H&H Common Stock shares of HDI Common Stock, (ii) the exchange to holders of
shares of THC 7.5% Preferred Stock shares of HDI's 7.5% Preferred Stock, and
(iii) the exchange to holders of shares of THC Class B Preferred Stock, shares
of HDI's Class B Preferred Stock, each such distribution being on a one-for-
one-basis.
The Merger was accounted for similarly to a pooling-of-interests and,
accordingly, HDI's Consolidated Financial Statements include the results of H&H
and THC for all applicable periods presented.
Principles of Consolidation - The Consolidated Financial Statements
include the accounts of HDI and all subsidiaries (the "Company"). Intercompany
transactions and balances have been eliminated. Certain prior year amounts
have been reclassified to conform to the current year presentation.
Fiscal Year - The Company operates on a 52/53 week fiscal year. The
years ended December 28, 1991 and December 26, 1992 were 52 week years. The
year ended January 1, 1994 was a 53 week year.
Inventories - Inventories consist principally of merchandise held for
resale and are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Prepaid Catalog Costs - Costs related to mail order catalogs and
promotional material are amortized over their estimated productive lives, based
on projected net shipments, not exceeding six months.
Depreciation and Amortization - Depreciation and amortization of
property and equipment are provided on the straight-line method at rates based
on the lesser of the estimated useful lives of the assets or terms of leases as
follows: buildings and building improvements, 30 years; furniture, fixtures and
equipment, 3-10 years; and leasehold improvements, over the terms of the
related leases. Expenditures for maintenance and repairs are charged to
operations as incurred; major improvements are capitalized.
Construction in Progress - Construction in progress includes the
costs to upgrade the Company's management information systems. These costs
will be depreciated and amortized over five years or the life of any leases,
whichever is shorter, and depreciation will commence when the assets are placed
in service. The Company capitalized $5.3 million of such costs as of January
1, 1994.
32
<PAGE> 34
Excess of Cost Over Net Assets of Acquired Businesses - Excess of cost
over the net assets of acquired businesses is being amortized on a
straight-line basis over periods up to forty years. Accumulated amortization
was $3,458,000 and $3,878,000 at December 26, 1992 and January 1, 1994,
respectively.
Mailing Lists - The costs of acquired mailing lists are amortized
over a five year period. Mailing lists, included in Other Assets, amounted to
$89,000 and $2,274,000 at December 26, 1992 and January 1, 1994, respectively,
and are carried net of accumulated amortization of $6,020,000 and $6,295,000,
respectively.
Change in Accounting for Income Taxes - Effective December 29, 1991
(beginning of fiscal year 1992), the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes ("SFAS 109"). This
standard requires, among other things, recognition of future tax benefits,
measured by enacted rates, attributable to deductible temporary differences
between financial statement and income tax bases of assets and liabilities and
to tax net operating loss carryforwards, to the extent that realization of such
benefits is "more likely than not".
Cash and Cash Equivalents - For purposes of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid temporary
investments with an original maturity of less than ninety days as cash
equivalents.
Net Income (Loss) Per Share - Net income (loss) per share was computed
using the weighted average number of common shares outstanding. The weighted
average number of shares used in the calculation for both primary and fully
diluted net income (loss) per share in 1991 and 1992 were 16,287,723 and
38,467,015 shares, respectively. For 1993 the weighted average number of
shares for primary and fully diluted net income (loss) per share were
75,625,330 and 77,064,131 shares, respectively. Common share equivalents for
purposes of net income (loss) per share are stock options and warrants.
Supplemental Earnings Per Share - Assuming that the rights offering
and exchange offers discussed in Notes 2 and 7 had been consummated at the
beginning of fiscal year 1992, the weighted average number of shares
outstanding would have been 68,795,471, and earnings per share for 1992 would
have been as follows:
Income from continuing operations $.09
Net income $.37
The supplemental earnings per share was calculated assuming that the
Company eliminated $9 million of interest on the debt that was retired and the
Company incurred additional dividends on $.8 million on the preferred stock.
Assuming that the conversions of the 7.5% Preferred Stock and the
exchange of the Class B 8% Preferred Stock and the Class B Common Stock had
been consummated at the beginning of fiscal year 1993, the weighted average
number of shares outstanding for primary and fully diluted earnings per share
would have been 84,408,807 and 85,847,608 and earnings per share would have
been $.21 and $.20, respectively. This supplemental earnings per share
calculation assumes that the Company eliminated $4.1 million of preferred stock
dividends.
33
<PAGE> 35
Supplemental Disclosure of Noncash Activities
<TABLE>
<CAPTION>
1992 1993
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Exchange of THC 8% Cumulative Preferred
Stock and issuance of 20,000,000 shares
of Common Stock . . . . . . . . . . . $ 35,847 $ -
========= ========
Exchange of 14% Senior Subordinated
Debentures for Common Stock and THC 7.5%
Preferred Stock . . . . . . . . . . . $ 18,575 $ -
========= ========
Exchange of 7 1/2% Convertible Subordinated
Debentures for Common Stock and THC 7.5%
Preferred Stock . . . . . . . . . . . $ 11,900 $ -
========= ========
Dividend on 7.5% Preferred Stock paid -
in-kind . . . . . . . . . . . . . . . $ - $ 610
========= ========
Dividend on Class B 8% Preferred Stock
paid in Common Stock . . . . . . . . . $ - $ 2,508
========= ========
Exchange of 8.0% Class B Preferred Stock
for Common Stock . . . . . . . . . . . $ - $ 25,516
========= ========
Exchange of Class B Common Stock for
Common Stock . . . . . . . . . . . . . $ - $ 123
========= ========
Exchange of 7.5% Convertible Preferred
Stock for Common Stock . . . . . . . . $ - $ 7,158
========= ========
Issuance of 6% Preferred Stock . . . . . $ - $ 2,342
========= ========
Capital Lease Obligations . . . . . . . . $ - $ 2,541
========= ========
Issuance of Common Stock for notes
receivable . . . . . . . . . . . . . . $ - $ 1,915
========= ========
Acquisition of businesses:
Fair value of assets acquired . . . $ 38,578
Fair value of liabilities assumed . . (26,180)
Common stock issued . . . . . . . . (12,298)
--------
Net cash paid . . . . . . . . . . . $ 100
========
</TABLE>
There were no significant noncash activities in 1991.
2. TRANSACTIONS WITH NAR GROUP LIMITED
On October 25, 1991 the Company's shareholders approved several
transactions among the Company, THC and NAR Group Limited ("NAR") pursuant to
which NAR acquired 13,333,334 shares of Class B Common Stock of the Company
and 40,000 shares of 8% Cumulative Preferred Stock of THC (the "Hanover
Preferred Stock"), for an aggregate purchase price of $40 million. The
purchase price was paid by the surrender by NAR of $15.1 million principal
amount of the Company's 7-1/2% Convertible Subordinated Debentures due March 1,
2007 (valued under the Purchase Agreement at $7.5 million) plus $31.3 million
in cash (representing the difference between $32.5 million and the sum of (i)
accrued interest on the debentures and (ii) $1 million of reimbursable expenses
payable to NAR under the stock purchase agreement). NAR also received warrants
to purchase 1,210,901 shares of the Company's Common Stock at exercise prices
ranging from $4.00 to $5.25 per share and expiring in five years. The exercise
prices were subsequently adjusted to prices ranging from $2.19 to $2.42 per
share in accordance with the anti-dilution provisions of the warrant
agreements.
34
<PAGE> 36
The Company entered into this transaction in July 1991, expecting that
this transaction would close by September 30, 1991 so it could apply the
proceeds to repay an interim borrowing which matured on the same date.
Unforeseeable delays prevented the Company from obtaining required consents
from certain creditors which were conditions to closing the transactions. As a
result of these delays, the Company was required to satisfy the maturing
interim borrowing out of working capital. Using working capital to satisfy
these borrowings caused increased strain on the Company's already poor cash
flow which further strained its relationship with its vendors. The Company
closed the above transactions on October 25, 1991 and received an equity
infusion of approximately $40 million. A working capital line of credit of
approximately $30 million had previously been made available to the Company by
a subsidiary of NAR. Although the Company believed that the resulting capital
provided to it would be sufficient to return the Company to profitability and
enable the Company to pay off $46.1 million of debt that was due in October
1992, it became apparent thereafter, that due to the Company's high debt
service requirements and other operational difficulties, it still did not
possess the sufficient liquidity to obtain the necessary merchandise on a
timely basis. The Company, therefore, required additional capital to permit it
to maintain satisfactory credit relations with its vendors and other trade
creditors, as well as to satisfy the debt that was due in October 1992.
The stock purchase agreement had granted NAR an option to cause the
Company to conduct a rights offering in the event that the Company did not
achieve certain earnings in the fourth quarter of 1991. In the event that NAR
exercised that option it would have been committed to purchase any shares of
Common Stock not subscribed for in such Rights Offering by the Company's other
shareholders. Thus, it appeared to the Company that the most likely source of
additional capital was NAR. Because the Company had a significant loss in the
fourth quarter of 1991, in December 1991 NAR indicated to the Company that it
would not exercise its option to cause the Company to conduct a Rights Offering
but indicated that it would be willing to make an additional equity investment
in the Company on terms other than those contemplated by the agreement.
In July 1992, the Company and NAR entered into a Definitive Agreement,
the terms of which were subsequently approved by the Company's shareholders on
September 23, 1992, at which time the following transactions were consummated:
- - NAR exchanged its 40,000 shares of the Hanover Preferred Stock and
13,333,334 shares of the Class B Common Stock for 20 million shares of
Common Stock of the Company.
- - NAR purchased 12,270,503 shares of the Company's Class B Common Stock
and 40,000 shares of a newly-created Class B 8% Cumulative Preferred
Stock (the "Class B Preferred Stock"), for an aggregate purchase price
of $28.4 million. Pursuant to the terms of the Preferred Stock, the
Company had the right to require the exchange of the Hanover Preferred
Stock and the Class B Common Stock into 18,937,169 shares of Common
Stock at any time after the date on which the per-share closing price
had been greater than $6.00 for 20 consecutive trading days.
35
<PAGE> 37
- - The Company conducted a rights offering (the "Rights Offering") in
which the Company's shareholders (other than NAR) subscribed to
7,636,905 shares of Common Stock at $1.50 per share for an aggregate of
$11.5 million. NAR purchased the remaining 6,759,893 shares not
subscribed for $1.50 per share for an aggregate of approximately $10
million. NAR received a standby commitment fee of $177,000 and an
underwriting fee of $405,000 representing 4% of the offering price of
all shares it purchased that were not purchased by other shareholders
in the Rights Offering.
On January 1, 1994, the Company exercised its right to require the
exchange of 40,000 shares of the Class B Preferred Stock and 12,270,503 shares
of the Class B Common Stock into 18,937,169 shares of Common Stock.
3. ACQUISITIONS
Gump's
In July 1993, the Company acquired substantially all of the mail order
and retail assets of Gump's, Inc. ("Gump's"). Gump's is an upscale catalog
marketer of exclusive gifts and the legendary San Francisco retailer. The
consideration given for the assets acquired was $13.2 million and consisted of
$6.9 million in cash and 1,327,330 shares of Common Stock valued at $4.78 per
share or $6.3 million. The $6.9 million of cash used for the purchase of the
assets was comprised of (i) proceeds of the sale of Gump's accounts receivable
aggregating $2.8 million; (ii) $2.6 million of Gump's cash acquired by the
Company as part of the assets acquired; and (iii) $1.5 million of additional
credit under the Company's revolving credit facility, as amended.
In connection with the above transaction, the Company amended its
agreement with General Electric Capital Corp. ("GECC") for the sale and
servicing of accounts receivable to include the Gump's accounts receivable
under its $75 million facility. The Company also amended its revolving credit
facility to increase the maximum credit available by $5 million for Gump's and
to include two wholly-owned subsidiaries of the Company as borrowers under the
revolving credit facility.
The Company Store
In August 1993, the Company acquired certain assets of Company Store
Holdings, Inc. ("CSH"), The Company Store, Inc., Scandia Down Corporation and
Southern California Comfort Corporations (collectively, "The Company Store").
The Company Store is a direct marketer of down comforters, other down products
and home furnishings.
The consideration given for the assets acquired was $7 million and
consisted of (i) 516,824 shares of the Company's Common Stock, valued at $4.64
per share, or $2.4 million, and (ii) two promissory notes in the aggregate
principal amount of $1.1 million issued by a subsidiary of the Company, with
interest thereon at six percent (6%) per annum due on October 31, 1994 and $3.5
million principal amount of secured notes issued by certain subsidiaries of the
Company with interest thereon at six percent (6%) per annum, with principal and
interest payments payable monthly on a fifteen year amortization, with the
remaining balance due and payable on August 31, 1998.
36
<PAGE> 38
In October 1993, the Company amended its revolving credit facility to
increase the maximum credit available by $5 million for The Company Store and
to include The Company Store as a borrower under the facility.
Tweeds
In September 1993, the Company acquired all of the outstanding shares
of Tweeds, Inc. Tweeds is a well-known European- inspired women's fashion
catalog.
The purchase price was $8.8 million and consisted of: (i) $.1 million
in cash; (ii) 771,774 shares of the Company's Common Stock, valued at $4.60 per
share, or $3.6 million and (iii) the assumption of $5.1 million of liabilities.
In October 1993, the Company amended its revolving credit facility to increase
its maximum credit available by $2.5 million for Tweeds and to include Tweeds
as a borrower under the facility.
Accounting for Acquisitions
The acquisitions of Gump's, The Company Store and Tweeds have been
accounted for using the purchase method of accounting with an estimated excess
of cost over net assets of acquired businesses of approximately $10.2 million
recorded, based upon the fair values of the assets acquired and liabilities
assumed. In addition, the Company recorded $2.5 million representing the fair
value of acquired mailing lists. The operating results of the acquired
companies are included in consolidated net income from their respective dates
of acquisition.
The following represents the unaudited pro forma results of operations
for the years ended December 26, 1992 and January 1, 1994 as if these three
acquisitions had occurred at the beginning of fiscal years 1992 and 1993:
<TABLE>
<CAPTION>
(In thousands except per share amounts) (Unaudited)
1992 1993
--------- ----------
<S> <C> <C>
Revenues $ 733,454 $ 723,749
========= ==========
Income (loss) before extraordinary
items and cumulative effect of
accounting change for income taxes $ (3,720) $ 10,160
========= ==========
Net income applicable to Common
Shareholders $ 12,284 $ 6,067
========= ==========
Per Share:
Income (loss) per share before
extraordinary items and cumulative
effect of accounting change for income
taxes $ (.17) $ .08
Extraordinary items .23 -
Cumulative effect of accounting change
for income taxes .24 -
--------- ----------
Net income $ .30 $ .08
========= ==========
</TABLE>
37
<PAGE> 39
The pro forma information does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
The Safety Zone
In September 1993, the Company acquired 20% of the outstanding common
stock of Aegis Safety Holdings, Inc. ("Aegis"), a direct marketer of safety and
anti=hazard products through The Safety Zone catalog. The consideration for
the investment was the provision by the Company of certain catalog fulfillment
and financial services to Aegis at the Company's cost until August 1998,
subject to certain early termination provisions. The Company also acquired an
option to purchase an additional 460,714 shares at $7.00 per share, subject to
anti=dilution provisions which would increase its ownership to 50% of Aegis
common stock. This option expires at the end of 1996. Aegis has an option to
require the Company to acquire all of Aegis' then outstanding stock after
December 31, 1998 if the Company has exercised its option and certain other
conditions have been satisfied. The Company has agreed to extend a secured
working capital line of up to $1 million to Aegis in 1994. Aegis had
approximately $9 million in net sales for the eleven months ended January 1,
1994.
Boston Publishing Company
In February 1994, the Company entered into an agreement with Boston
Publishing Company, Inc. ("BPC") whereby the Company acquired a 20% equity
interest in BPC and agreed to provide certain catalog related services to the
Boston based publisher. The Company will also provide BPC with a secured
three=year revolving credit facility of up to $3 million, a secured $.75
million short=term loan, and a $.5 million five year convertible note. The
note is convertible into equity representing approximately 4% of BPC. The
Company also acquired an option to acquire an additional 1,536,345 shares at
$2.08 per share subject to anti=dilution provisions which would increase its
ownership to 50% in BPC. The BPC shareholders will have the right to require
the Company to purchase their shares in fiscal year 1997 under certain
circumstances.
BPC publishes the Museum Collections catalog featuring unique,
well=valued museum replicas, reproductions and adaptations; and the Finishing
Touches catalog, featuring decorative merchandise for the home. BPC had
approximately $12 million (unaudited) in revenues in 1993.
The investments in Aegis and BPC are accounted for by the equity
method of accounting.
4. SEARS LICENSING AGREEMENT
In January 1994, the Company entered into a licensing agreement (the
"Sears Agreement") with the direct marketing subsidiary of Sears Roebuck and
Co. ("Sears"), to produce specialty catalogs for customers of the recently
discontinued Sears catalog. The specialty catalogs include: Show Place, based
on the DOMESTICATIONS catalog, Great Kitchens, based on the COLONIAL GARDEN
KITCHENS catalog, and Beautiful Style, based on the SILHOUETTES catalog. The
Sears Agreement has an initial three-year term and continues thereafter unless
terminated by either party. Profits and losses from the venture are to be
shared between the parties on an equal basis.
38
<PAGE> 40
The Company also issued to Sears a performance warrant to purchase 3.5
million shares of Common Stock in 1999 if the licensed business with Sears has
revenues of at least $250 million and earnings before interest and taxes of at
least $30 million in 1998. Alternately, Sears will be entitled to purchase 7
million shares of Common Stock in 1999 if the licensed business with Sears has
revenues of at least $500 million and earnings before interest and taxes of at
least $60 million in 1998. If neither of these goals are achieved, the
performance warrant will expire unexercised in 1999. The Company will be
required to value the performance warrant at such time as it is deemed to have
become measurable for accounting purposes because the required events have
become probable or have occurred (which may be prior to the date the warrant is
exercisable under the Sears Agreement) (the "Measurement Date"). The value
would be the difference, if any, between the closing market price of the Common
Stock at the Measurement Date and the exercise price of the performance
warrant, multiplied by the applicable number of shares. The value would be
amortized from the Measurement Date through 1998 and would be subject to change
each reporting period based on the closing market price of the Common Stock as
of such reporting date. The warrant exercise price is $10.57 per share. The
Company is obligated to meet various operational performance standards and if
the Company is unable to meet these standards, Sears would be entitled to
terminate the agreement. The Company is also entitled to terminate the
agreement in certain circumstances, including if Sears fails to comply with any
material provision of the Sears Agreement.
5. ACCOUNTS RECEIVABLE, NET
On December 22, 1992, the Company repurchased all receivables then
owned by certain trusts ($52.7 million), and concurrently entered into an
agreement with an unrelated third party which provides for the sale and
servicing of accounts receivable originating from the Company's revolving
credit card.
The Company remains obligated to repurchase uncollectible accounts
pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables sold under the
program as a deposit with the third party to secure its obligations under the
agreement. The Company is required to pay certain servicing fees to the third
party and the Company earns the finance charge income that is charged to the
accounts.
The uncollected balances of accounts receivable sold under this
program were $51.3 million, of which $15.3 million represents deposits under
the agreement and $2.7 million are accounts not purchased under the agreement
which are included in Accounts receivable at December 26, 1992. At January 1,
1994, the uncollected balances of accounts receivable under this program were
$47.0 million, of which $13.0 million represents deposits under the agreement.
The total reserve balance maintained for the repurchase of uncollectible
accounts was $5.5 million and $3.1 million at December 26, 1992 and January 1,
1994, respectively, of which $3.5 million and $1.7 million, respectively, are
included in Accrued liabilities and the remaining balance is included in the
allowance for doubtful accounts.
Receivables sold under this agreement are considered financial
instruments with off=balance sheet risk as defined in Statement of Financial
Accounting Standards No. 105.
39
<PAGE> 41
Because the Company's sales are primarily made to individual customers
located throughout the United States, the Company believes there are no
concentrations of credit risks.
6. ACCRUED LIABILITIES
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, JANUARY 1,
1992 1994
------------ ----------
<S> <C> <C>
Compensation.............................. $ 3,298 $ 3,642
Interest.................................. 1,033 746
Insurance................................. 1,434 736
Reserve for future sales returns.......... 3,901 4,911
Reserve for repurchase of accounts
receivable sold with recourse............ 3,500 1,735
Net liabilities of discontinued
operations............................... 4,944 977
Other..................................... 3,253 7,906
---------- ---------
$ 21,363 $ 20,653
========== =========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, JANUARY 1,
1992 1994
------------ -----------
<S> <C> <C>
Revolving Credit Facility................. $ 21,195 $ 230
Industrial Revenue Bonds
with variable interest rates
averaging 4.3% in 1992 and 3.7% in 1993
due 2003................................. 8,000 8,000
6% Notes Payable due 1994................. - 1,100
6% Mortgage Notes Payable due 1998........ - 3,452
9.25% Senior Subordinated Notes due 1998.. - 20,000
7 1/2% Convertible Subordinated Debentures
due 2007................................. 751 751
14% Senior Subordinated Debentures........ 825 -
8% Subordinated Notes..................... 12,360 -
Other..................................... 76 56
---------- ----------
43,207 33,589
Less current portion...................... 23 1,276
---------- ----------
Noncurrent portion........................ $ 43,184 $ 32,313
========== ==========
</TABLE>
Revolving Credit Facility
On May 5, 1993, the Company consummated a three-year, $40 million credit
facility with a financial institution, replacing the previous facility with
Quadrant Capital Corporation ("QCC"), a subsidiary of NAR, that had been
entered into in 1991. The new facility (the "Revolving Credit Facility")
provides for cash borrowings and letters of credit based on eligible inventory,
with a $10 million sublimit for letters of credit. The interest rate on the
funds borrowed under the Revolving Credit Facility is the prime rate of
Philadelphia National Bank plus two percent per annum. Subsequent to May 5,
1993, the Company amended the Revolving Credit Facility to include Gump's, The
Company Store and Tweeds, as borrowers under the agreement and
40
<PAGE> 42
the limit was increased to $52.5 million. The facility is guaranteed by the
Company and is secured by inventory and other assets of its principal operating
subsidiaries. In addition, a subsidiary of NAR provided a secured limited
guarantee of $10 million which allowed the Company to borrow funds in excess of
its availability, based on a formula, up to the facility's limit. The
guarantee is reduced based upon availability under the agreement and the
Company's cash flow, as defined, and accordingly, was reduced by $5.1 million
in the fourth quarter of 1993 and will be eliminated in March 1994.
The loan agreement contains working capital and net worth covenants, debt
incurrence restrictions, dividend restrictions, and prepayment penalties.
The face amount of unexpired documentary letters of credit at December 26,
1992 and January 1, 1994 were $1.7 million and $5.7 million, respectively. In
addition, the Company had issued $5.7 million of standby letters of credit at
December 26, 1992.
Industrial Revenue Bonds due 2003
The Industrial Revenue Bonds are due on December 1, 2003 and are secured by
the related assets purchased from the proceeds of the bonds and by an
irrevocable letter of credit in the amount of $8.6 million. The obligations
are guaranteed by the Company.
6% Notes Payable due 1994
In connection with the purchase of The Company Store, a subsidiary of the
Company entered into two secured promissory notes in the aggregate amount of
$1.1 million. The promissory notes bear interest at 6% per annum and are due
October 31, 1994. The promissory notes are secured by equipment of The Company
Store.
6% Mortgage Notes Payable due 1998
In connection with the purchase of The Company Store, certain subsidiaries
of the Company entered into two secured notes in the aggregate amount of $3.5
million with interest at 6% per annum with principal and interest payments
payable monthly on a fifteen year amortization with the remaining balance due
on August 31, 1998. The mortgage notes payable are non-recourse notes and are
not guaranteed by the Company. The mortgage notes payable are secured by the
manufacturing and office facilities of The Company Store.
9.25% Senior Subordinated Notes due 1998
On August 17, 1993, the Company issued $20 million of 9.25% Senior
Subordinated Notes due 1998 ("9.25% Notes") in a private placement with an
insurance company. The Company utilized the funds to retire approximately $14
million of other subordinated debt. Under the terms of the 9.25% Notes, the
Company must redeem $6 million without penalty by February 15, 1994,
(subsequently amended to May 1, 1994) if the Company has not established or
acquired a new distribution facility by such date.
The 9.25% Notes mature on August 1, 1998 and require quarterly interest
payments. The 9.25% Notes require that the Company maintain certain minimum
net worth, working capital, debt to earnings and fixed charge coverage ratios.
Under the terms of the related Registration Rights Agreement, the
41
<PAGE> 43
Company is required to file a "shelf" registration statement under the
Securities Act of 1933, by February 13, 1994 (subsequently extended until March
15, 1994) and use its best effort to cause the registration to be declared
effective by June 13, 1994.
7 1/2% Convertible Subordinated Debentures due 2007
On September 23, 1992, the Company consummated an exchange offer with
holders of these debentures, pursuant to which the Company issued 40,500 shares
of its Common Stock and 13,500 shares of 7.5% Preferred Stock (hereinafter
defined) in exchange for $540,000 of the debentures that were tendered. This
resulted in an extraordinary gain of $.3 million in 1992.
On November 9, 1992, the Company, with the consent of a majority of holders
of these debentures, amended the indenture to allow, for the 30 day period
ending on December 4, 1992, holders of the debentures to be able to convert
their debentures into Common Stock at a conversion price of $3.33 per share
instead of $10.31 per share. As a result, the Company converted approximately
$11.4 million of these debentures into 3,408,340 shares of Common Stock and
recorded an extraordinary gain of approximately $1.6 million based on the fair
market value of the shares issued.
14% Senior Subordinated Debentures
In 1992, the Company defaulted with respect to the payment of interest on
these debentures. The Company and holders of 75% of the 14% Debentures entered
into an exchange agreement (the "14% Exchange Offer") by which such holders
would exchange their debentures for a combination of cash and 7.5% Preferred
Stock (hereinafter defined) and Common Stock of the Company. On September 23,
1992, the Company consummated the 14% Exchange Offer resulting in the exchange
of $23.5 million (of the $24.3 million) of 14% Debentures outstanding for $4.85
million in cash and 4,099,625 shares of its Common Stock and 403,088 shares of
7.5% Cumulative Convertible Preferred Stock ("7.5% Preferred Stock"). A
subsidiary of QCC owned and exchanged approximately $1.7 million or 7% of these
debentures.
The Company recorded an extraordinary gain in 1992 of approximately $6.2
million as a result of the 14% Exchange Offer. The gain was calculated based
on the cash and the fair market value of the securities issued in exchange for
the debt retired, net of approximately $1.3 million in transaction costs. The
gain also includes interest that was forgiven as part of the 14% Exchange Offer
amounting to approximately $3.7 million.
The defaulted interest was paid to the remaining bondholders on November 4,
1992 and the Company was no longer in default. On August 17, 1993, the Company
paid off the remaining $825,000 of 14% debentures with proceeds from the 9.25%
Notes.
8% Subordinated Notes
The 8% Subordinated Notes were due on October 15, 1994. They had
originally been due in October, 1991, and carried an interest rate of 11%. In
connection with the restructuring of the Company's debt obligations in 1991,
these notes were partially paid down by $5.0 million, and extended to 1994 with
the interest rate lowered to 8%. The Company was required to pay an amount
equal to 3% per year if, at final maturity or earlier redemption, NAR's
compound annual rate of return on the Company's Common Stock, together
42
<PAGE> 44
with any dividends on the Class B Preferred, had exceeded 20% after adjustment
to eliminate general market changes as reflected in movements of the Dow Jones
Industrial Average. The Company redeemed all of the outstanding notes at the
face amount plus accrued interest on August 17, 1993, with the proceeds of the
9.25% Notes.
General
At January 1, 1994, the aggregate annual principal payments required on all
long-term debt were as follows (in thousands): 1994 - $1,276, 1995 - $161,
1996 - $437, 1997 - $181, 1998 - $22,783 and thereafter $8,751.
8. CAPITAL STOCK
On September 8, 1993 HDI was formed through a series of mergers involving
H&H and THC. The Merger was consummated by (i) the exchange to holders of
shares of H&H Common Stock shares of the HDI's Common Stock, (ii) the exchange
to holders of shares of THC 7.5% Preferred Stock shares of 7.5% Preferred
Stock, and (iii) the exchange to holders of shares of THC Class B Preferred
Stock shares of the HDI's Class B Preferred Stock, each such distribution being
on a one-for-one-basis.
On December 13, 1993, the Company converted all of the 7.5% Preferred Stock
into 2,278,128 shares of Common Stock. The holders of the 7.5% Preferred Stock
were paid all outstanding dividends in cash amounting to $197,000. These
shares had been issued in connection with the 1992 7 1/2% Exchange Offer. Each
share was convertible into four shares of Common Stock at the time on which the
per-share closing price of the Common Stock on the American Stock Exchange
exceeded $6.00 for 20 trading days in a consecutive 30 day trading period,
which occurred on November 11, 1993.
On January 1, 1994, 12,270,503 shares of Class B Common Stock and 40,000
shares of Class B Preferred Stock were exchanged into 18,937,169 shares of
Common Stock.
Dividends on the Class B Preferred Stock aggregated $3.3 million in fiscal
1993 and were paid through the issuance of 684,890 shares of Common Stock and
$693,000 in cash. The Common Stock issued in connection with these dividends
was valued at the average per-share closing price of the Common Stock during
the 20 consecutive trading days immediately preceding the date on which the
dividends were paid. On January 1, 1994, the Company had accrued dividends
payable of $886,000 on the Class B Preferred Stock which were paid in cash on
February 22, 1994.
6% Series A Convertible Preferred Stock
On December 10, 1993, in connection with the Company's acquisition of
Tweeds, the Company entered into an exchange agreement with a major vendor of
Tweeds. Under the exchange agreement, the Company issued 234,900 shares of its
6% Series A Preferred Stock (6% Preferred Stock) for an installment note,
dated March 29, 1993, as amended, in the amount of approximately $2.4 million
issued by Tweeds. Dividends on the 6% Preferred Stock began accruing on
September 30, 1993.
The 6% Preferred Stock shall be converted into Common Stock of the
Company over a three year period on September 30, 1994, 1995, and 1996. The
43
<PAGE> 45
conversion price shall be an amount equal to the average of the per share
closing prices for the five trading days proceeding the conversion dates.
The 6% Preferred Stock has a stated value of $10 per share and has a
liquidation preference of an amount equal to the stated value of each share of
the 6% Preferred Stock plus accrued dividends or $2,385,000 at January 1, 1994.
The Company has the right to redeem the 6% Preferred Stock at its initial
stated value plus accrued dividends, payable in cash.
Warrants
The warrants outstanding at January 1, 1994, are as follows:
<TABLE>
<CAPTION>
WARRANTS EXERCISE EXPIRATION
ISSUED PRICE DATE
-------- -------- ----------
<S> <C> <C>
3,151,945 $ 2.42 05/08/96
349,601 2.19 05/10/96
3,157,884 2.91 07/08/96
334,550 2.19 07/10/96
----------
6,993,980
==========
</TABLE>
Of the above warrants issued, 5,033,735 warrants are held by NAR and
affiliates.
In addition, as previously discussed, the Company issued to Sears a
performance warrant to purchase up to 7 million shares of Common Stock in 1999.
This performance warrant is not reflected in the above table.
At January 1, 1994, there were 82,933,177 shares of Common Stock and
234,900 shares of 6% Series A Preferred Stock outstanding. Additionally, an
aggregate of 18,367,717 shares of Common Stock were reserved for (i) the
exercise of outstanding options (535,250), (ii) the exercise of outstanding
warrants (13,993,980) including the Sears performance warrant discussed above,
(iii) the Executive Equity Incentive Plan (1,736,170), (iv) the Restricted
Stock Award Plan (314,200), and (v) the All Employee Equity Investment Plan
(1,788,117).
Other Transactions
In July 1993, the Company filed a Form S-3 with the Securities and Exchange
Commission registering 3,750,000 shares of the Company's Common Stock for the
purpose of the Gump's acquisition and future business combination transactions.
As of January 1, 1994, 2,615,928 shares have been issued in connection with the
Gump's, The Company Store and Tweeds acquisitions.
On February 16, 1994, the Company entered into an agreement with Sun Life
Insurance Company of America ("Sun Life") whereby Sun Life will exercise its
1,960,245 warrants in a cashless or net-issue exchange with the Company and the
Company will issue 1,309,207 shares of Common Stock. The number of shares of
the Company's Common Stock to be received by Sun Life upon the "cashless"
exercise of its warrants was determined based upon the average closing price of
the Common Stock on the American Stock Exchange for the ten day trading period
ended on February 15, 1994, which is $7.163 per share.
44
<PAGE> 46
Dividend Restrictions
The Company is restricted from paying dividends on its Common Stock or from
acquiring any of its capital stock by certain debt covenants contained in
agreements to which the Company is a party.
9. EMPLOYEE BENEFIT PLANS
Stock Option Plan
Pursuant to the Company's Stock Option Plan (the "Plan"), an aggregate of
2,830,519 shares were approved by shareholders for issuance to employees and
consultants of the Company. The option price and the periods over which an
option is exercisable are specified by the Compensation Committee of the Board
of Directors.
Options expire five years from the date of grant and principally vest over
three to four years. Payment for shares purchased upon the exercise of an
option shall be in cash or stock of the Company. If paid in cash, a partial
payment may be made with the remainder in installments evidenced by promissory
notes at the discretion of the Compensation Committee.
Changes in options outstanding and options available for grant, expressed
in number of shares, are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
---------- ----------- ----------
<S> <C> <C> <C>
Options outstanding,
beginning of period 1,231,623 945,965 603,765
Expired (28,433) (164,200) (214,165)
Cancelled (257,225) (178,000) (24,350)
--------- --------- ---------
Options outstanding,
end of period 945,965 603,765 365,250
========= ========= =========
Options exercisable,
end of period 571,833 502,675 365,250
========= ========= =========
Available for grant of
options, end of period 1,012,118 1,345,318 1,583,833
========= ========= =========
</TABLE>
The option prices range from $2.75 per share to $9.625 per share, with
amounts as follows: $2.75 - 200,000 shares, $5.00 - 144,550 shares, $7.00
- -6,200 shares, $8.00 - 7,000 shares and $9.625 - 7,500 shares.
Prior to 1992, three directors were granted non-qualified options outside
of the Plan to purchase a total of 50,000 shares. Of these options 45,000
shares expire in 1994 and 5,000 shares expire in 1995. The option price ranges
from $5.00 per share to $7.25 per share. The table above does not include
these option grants.
On September 23, 1992, six directors were granted options to purchase
20,000 shares each, at market price, which at that time was $1.75 per share.
These option grants were approved at the 1993 annual meeting of shareholders
and expire in 1997. The table above does not include these option grants.
Hanover Direct, Inc. Savings Plan
The 401(K) Savings Plan (the "Plan") allows eligible employees to
contribute a percentage of their base compensation to the Plan. The Company
makes matching contributions of one-third of the employees' pre-tax
45
<PAGE> 47
contributions. Participants may invest contributions in various investment
funds, in addition to a guaranteed investment fund or in the Company's Common
Stock.
The Company's contributions charged to expense for 1991, 1992 and 1993 were
$241,000, $265,000 and $431,000, respectively.
Supplemental Retirement Plan
The Supplemental Retirement Plan (the "Plan") allows eligible employees to
make contributions to a trust where, prior to October 1993, they were invested
for each participant in life insurance having a cash surrender value and
carrying a term benefit payable to the beneficiary selected by the participant.
The Company makes matching contributions. In October 1993, the Company amended
and restated the Plan. Participant contributions are invested by the trust for
each participant in a tax free money market fund. Company contributions in
1991, 1992 and 1993 amounted to $130,000, $179,000 and $130,000, respectively.
The Plan permits eligible employees to contribute up to 4% of their salary.
The Company matches all participant contributions, up to the 4% threshold. The
Plan is not tax-qualified under the applicable provisions of the Internal
Revenue Code of 1986, as amended.
Incentive Compensation Plan
Bonus arrangements with certain executives and key employees generally
provide for additional compensation based upon the attainment of certain profit
levels, as well as other performance measures. These bonuses approximated $1.6
million and $.4 million in 1992 and 1993, respectively. There were no bonuses
paid in 1991. Under the bonus plan, 25% of the bonus is paid in restricted
stock that participants vest in over a three year period. In fiscal 1993,
89,220 shares were issued in connection with the Incentive Compensation Plan.
Executive Equity Incentive Plan
On December 17, 1992, the Board of Directors adopted the 1993 Executive
Equity Incentive Plan (the "Incentive Plan"). Such plan was approved by
Shareholders at the 1993 Annual Meeting. Pursuant to the Incentive Plan,
options to purchase shares of the Company's Common Stock will be granted from
time to time by the Compensation Committee of the Board of Directors to
selected executives of the Company or its affiliates. For each such option
granted, the selected executive will receive the right to purchase on a
specified date (the "Tandem Investment Date") a number of shares of the
Company's Common Stock ("Tandem Shares") equal to one-half the maximum number
of shares of the Company's Common Stock covered by such option. An aggregate
of 2,400,000 shares of the Company's Common Stock have been reserved for
issuance under the Incentive Plan. Company financing is available under the
Incentive Plan to pay for the purchase price of the Tandem Shares.
The purchase price per share of the Company's Common Stock upon exercise of
a stock option was $2.50 ("Option Price") for all options granted before the
ratification of the Incentive Plan by the Shareholders, and the fair market
value of a share of the Company's Common Stock on the date of grant of such
option for all other options. Options granted under the Incentive Plan become
exercisable three years after the date of grant and expire six years
46
<PAGE> 48
from the date of grant. The purchase price shall be paid in full at the time
of purchase in cash, or shares of the Company's Common Stock valued at their
fair market value or in combination thereof. The difference between the Option
Price and the fair market value of the Common Stock on the Tandem Investment
Date aggregated $601,000 and is being amortized over the three year period that
the options become exercisable. The amortization for fiscal 1993 was $170,000.
In 1993, 663,830 shares were purchased at prices ranging from $3.125 to
$4.50 for a total consideration of $2,133,156. The employees paid $710,000 and
the Company accepted notes in the amount of $1,423,000 which are due in 1999.
The notes bear interest at 3.96% to 5.54%, and 1,327,660 options were granted
to such employees at prices ranging from $2.50 to $4.50.
Restricted Stock Award Plan
On December 17, 1992, the Board of Directors adopted the 1993 Restricted
Stock Award Plan (the "Restricted Stock Plan"). Each full-time or permanent
part-time employee of the Company or its affiliates selected by the
Compensation Committee who holds a key position that the Compensation Committee
shall have designated for eligibility in the Restricted Stock Plan, has
attained the age of 18, has performed at least 12 months of continuous service
with the Company or an affiliate of the Company, and is not covered by a
collective bargaining agreement may participate in the Restricted Stock Plan.
Pursuant to the Restricted Stock Plan, the Compensation Committee from time to
time may award shares of the Company's Common Stock ("Award Shares") to such
participants. The Award Shares received by such participants are not
transferable (other than by will or the laws of descent and distribution) until
the vesting date or when such participant attains the age of 65, dies, or
becomes permanently disabled, and are subject to forfeiture in the event the
participant ceases to be an employee prior to that date. An aggregate of
500,000 shares of the Company's Common Stock have been reserved for issuance
under the Restricted Stock Plan. During 1993, 185,800 shares were awarded to
participants aggregating $650,000. Such amount is being amortized over a three
year vesting period. Amortization in 1993 was $188,000.
All Employee Equity Investment Plan
On December 17, 1992, the Board of Directors adopted the 1993 All Employee
Equity Investment Plan (the "Investment Plan"), subject to the approval of
Shareholders at the 1993 Annual Meeting. Each full-time or permanent part-time
employee of the Company or its affiliates who has attained the age of 18, has
met certain standards of continuous service with the Company or an affiliate of
the Company and is not covered by a collective bargaining agreement may
participate in the Investment Plan.
An eligible employee shall be granted a right to purchase a specific number
of shares of the Company's Common Stock by the Compensation Committee, based on
the eligible employee's salary level. The purchase price of the Company's
Common Stock in the Investment Plan shall be the average market value of a
share of the Company's Common Stock during the 20 days prior to the first day
of the subscription period, less a 40% discount. The Shares received by such
participants are not transferable (other than by will or the laws of descent
and distribution) until the vesting date or when such participant attains the
age of 65, dies, or becomes permanently disabled, and are subject to forfeiture
in the event the participant ceases to be an employee prior to that date. An
aggregate of 2,000,000 shares of the
47
<PAGE> 49
Company's Common Stock have been reserved for issuance under the Investment
Plan. During fiscal 1993, 211,883 shares were purchased by employees at an
average discounted price of $2.32. The difference between the market price and
discounted price aggregated $422,000 and is being amortized over a three year
vesting period. Amortization in 1993 was $46,000.
Employee Stock Ownership Plan
The Employee Stock Ownership Plan (the "ESOP") was terminated December 28,
1991. Because the value of the unallocated shares was not sufficient upon
termination to fully satisfy the ESOP's indebtedness to the Company, a charge
of $4.7 million was recognized in 1991 and is reflected in Other income
(expense). Shares allocated to participants at December 28, 1991 were
approximately 288,000. These shares became vested upon termination of the
ESOP. In November 1992, after receiving approval of the termination from the
Internal Revenue Service, the Company transferred 646,053 non-vested shares
into its Treasury. The vested shares were distributed in 1993.
10. INCOME TAXES
Effective December 29, 1991, the Company adopted Statement of Financial
Accounting Standards No. 109 - Accounting for Income Taxes (SFAS 109). In
accordance with this statement, for the year ended December 26, 1992, the
Company recognized a deferred tax asset of $10 million, reflecting the
cumulative effect of the accounting change for the benefit expected to be
realized from the utilization of net operating loss carryforwards ("NOLs") and
deductible temporary differences. For the year ended January 1, 1994, the
Company recognized an additional deferred tax asset of $.6 million, reflecting
the effect of the increase in the Federal corporate income tax rate (from 34%
to 35%) on the benefit expected to be realized from the utilization of NOLs
carryforwards and deductible temporary differences.
At January 1, 1994, the Company had tax NOLs totalling $147 million, which
expire as follows: In the year 2000 - $1 million, 2001 - $21 million, 2003 -
$15 million, 2004 - $14 million, 2005 - $21 million, 2006 - $47 million, 2007 -
$28 million.
The Company also has $.9 million of charitable contribution carryforwards
that expire in 1994 through 1997 and $1.7 million of general business tax
credit carryforwards that expire in 1998 through 2003.
Under Section 382 of the Internal Revenue Code of 1986, certain
transactions the Company entered into during 1991 resulted in an ownership
change with respect to the Company and, thus, in the imposition of an annual
limitation ("the Section 382 limitation") of approximately $4 million on the
amount of taxable income of the Company which may be offset by the Company's
pre-change NOL, charitable contribution and business tax credit carryforwards.
The Company's available NOLs for tax purposes consists of $97 million of
pre-change NOL (subject to the Section 382 limitation) and $50 million of
post-change NOL (not subject to the Section 382 limitation). The Company's
charitable contribution carryforwards and business tax credit carryforwards are
pre-change items subject to the Section 382 limitation.
The unused portion of the $4 million annual Section 382 limitation for any
year may be carried forward to succeeding years to increase the annual
limitation for those succeeding years. In addition, the Company's entire $97
million of pre-change NOL may be used to offset future taxable income
48
<PAGE> 50
realized within five years of the date of change of ownership from built-in
gains (generally, taxable income from the sale of appreciated assets held by
the Company at the date of change in ownership) without reference to the
Section 382 limitation.
A reconciliation of the Company's net income for financial statement
purposes to taxable income (loss) for the years ended December 26, 1992 and
January 1, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993
---------- ----------
<S> <C> <C>
Net income............................. $ 20,249 $ 17,337
Income tax provision (benefit)........ 219 (130)
---------- ---------
Income before income taxes............. 20,468 17,207
---------- ---------
Differences between income before taxes
for financial statement purposes and
taxable income:
Cumulative effect of accounting
change for income taxes............... (10,000) -
State income taxes.................... (219) (501)
Utilization of carryovers............. - (2,543)
Permanent differences................. 3,687 28
Net change in temporary
differences........................... (41,678) (14,191)
---------- ---------
(48,210) (17,207)
---------- ---------
Taxable income (loss).................. ($ 27,742) $ -
========== =========
</TABLE>
Changes during 1992 and 1993 in temporary differences principally relate to
restaurant closing expenses and losses on asset disposals accrued in 1990 and
1991, which are deductible for income tax purposes in the year in which the
assets are actually disposed and expenses are paid.
The components of the net deferred tax asset at January 1, 1994 are as
follows (in millions):
<TABLE>
<CAPTION>
Non-
Current current Total
------- ------- -----
<S> <C> <C> <C>
Federal tax NOL, charitable contribution
and business tax credit carryforwards...... $ - $55.2 $55.2
Allowance for doubtful accounts............. .8 - .8
Accrued liabilities......................... 3.6 - 3.6
Tax basis in net assets of discontinued
operations in excess of financial
statement amount........................... .3 - .3
Other....................................... .4 - .4
----- ----- -----
Deferred Tax Asset.......................... 5.1 55.2 60.3
Valuation allowance....................... (2.1) (47.6) (49.7)
----- ----- -----
Deferred Tax Asset, net..................... $ 3.0 $ 7.6 $10.6
===== ===== =====
</TABLE>
The Company has established a valuation allowance for a portion of the
deferred tax asset, due to the Section 382 limitation and limiting the
utilization of the remaining deferred tax asset.
SFAS 109 requires that the future tax benefit of such NOLs be recorded as
an asset to the extent that management assesses the utilization of such NOLs to
be "more likely than not". In 1992 management determined, based upon the
conversion of interest-bearing debentures to equity, the issuance of additional
Common Stock, the disposal of unprofitable discontinued restaurant
49
<PAGE> 51
operations, the Company's history of prior operating earnings in the direct
marketing business and its expectations for the future, that the operating
income of the Company will, more likely than not, be sufficient to utilize $30
million of deductible temporary differences and NOLs prior to their expiration.
In making such determination, the Company adjusted 1992 income by eliminating
interest expense related to retired debt and assumed that such adjusted 1992
income level could be obtained in each of the next three years.
Realization of the future tax benefits is dependent on the Company's
ability to generate taxable income within the carryforward period and the
periods in which net temporary differences reverse. Future levels of operating
income and taxable income are dependent upon general economic conditions,
competitive pressures on sales and margins, postal and other delivery rates,
and other factors beyond the Company's control. Accordingly, no assurance can
be given that sufficient taxable income will be generated for utilization of
the NOLs and reversals of temporary differences. At January 1, 1994, the
Company has maintained the $30 million amount of expected future operating
income that will "more likely than not" utilize the deductible temporary
differences and NOLs prior to their expiration. Management believes that
although the 1993 operating results might justify a higher amount,
in view of its history of operating losses, the $30 million represents
a reasonable conservative estimate of the future utilization of the
NOLs and will continue to evaluate the likelihood of future profit and the
necessity of future adjustments to the deferred tax asset valuation allowance.
The Company's tax returns for years subsequent to 1984 have not been
examined by the Internal Revenue Service ("IRS"). Availability of the NOLs
might be challenged by the IRS upon examination of such returns which could
affect the availability of NOLs incurred prior or subsequent to the change in
ownership or both. The Company believes, however, that IRS challenges that
would limit the utilization of NOLs will not have a material adverse effect on
the Company's financial position.
The Federal income tax provision was $5.9 million in 1993 which was offset
by the utilization of certain NOLs. In addition, a $.6 million deferred tax
benefit in 1993 was recorded as a result of the increase in the Federal
corporate income tax rates from 34% to 35%. The Company's Federal income tax
provision consists of zero in 1991 and 1992. The Company's provision for
state income taxes consists of $.2 million in 1991, $.2 million in 1992 and
$.5 million in 1993.
50
<PAGE> 52
Total tax expense for each of the three fiscal years presented differ from
the amount computed by applying the statutory tax rate of 35% (34% in 1992 and
1991) due to the following:
<TABLE>
<CAPTION>
1991 1992 1993
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
LOSS INCOME INCOME
---------- ---------- ----------
<S> <C> <C> <C>
Tax (benefit) at statutory
rate............................ (34.0%) 34.0% 35.0%
Cumulative effect of accounting
change for income taxes......... - (16.6) -
State and local taxes............ 0.3 1.1 1.9
Effect of federal rate change on
deferred tax asset.............. - - (3.7)
Stock issuance expenses.......... - 5.5 -
Net reversal of temporary
differences..................... - (69.2) (28.9)
Loss for which no tax benefit
could be recognized............. 30.8 - -
Utilization of contribution and
NOL carryover................... - - (5.4)
Tax NOL for which no benefit
could be recognized............. - 46.1 -
Other............................ 3.2 0.2 0.3
------- ------- --------
0.3% 1.1% (0.8%)
======= ======= ========
</TABLE>
11. LEASES
Certain leases to which the Company is a party provide for payment of real
estate taxes and other expenses. Most leases are operating leases and include
various renewal options with specified minimum rentals. Rental expense for
operating leases related to continuing operations were as follows (in
thousands):
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- -------
<S> <C> <C> <C>
Minimum rentals $ 6,807 $ 8,910 $ 9,458
======== ======== ========
</TABLE>
Future minimum lease payments under noncancellable operating and capital
leases relating to continuing operations, that have initial or remaining terms
in excess of one year, together with the present value of the net minimum lease
payments as of January 1, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING LEASES LEASES
------------- ------------ -----------
<S> <C> <C>
1994......................... $ 7,257 $ 873
1995......................... 4,527 732
1996......................... 3,425 694
1997......................... 2,703 454
1998......................... 2,627 -
Thereafter................... 17,706 -
------- --------
Total minimum lease
payments.................... $38,245 2,753
=======
Less amount representing
interest (a)............... 182
--------
Present value of minimum
lease payments (b).......... $ 2,571
========
</TABLE>
51
<PAGE> 53
(a) Amount necessary to reduce net minimum lease payments to present value
calculated at the Company's incremental borrowing rate at the inception of the
leases.
(b) Reflected in the balance sheet as current and noncurrent capital lease
obligations of $50,000 and $105,000 in 1992 and $748,000 and $1,823,000 in
1993, respectively.
12. DISCONTINUED RESTAURANT OPERATIONS
In 1992, the Company sold substantially all of the properties remaining
from its discontinued restaurant operations. The Company realized net proceeds
from such sales of approximately $17.3 million of which approximately $14.9
million was used to reduce outstanding indebtedness. In addition, in exchange
for notes, cash and stock valued at $3.9 million, the Company was relieved of
$20.4 million in future rent obligations.
Revenues applicable to discontinued operations were $10 million in 1991.
Interest expense allocated to discontinued operations was $1.6 million and $1.9
million for the years 1991 and 1992, respectively. There was no interest
expense allocated to discontinued operations for the year ended January 1,
1994.
At December 26, 1992 and January 1, 1994, reserves for discontinued
restaurant operations approximated $3.5 million and $2.6 million, respectively.
Charges against these reserves were $7.7 million and $0.9 million for the years
ended December 26, 1992 and January 1, 1994, respectively.
The future minimum lease payments under noncancellable leases as of January
1, 1994, are as follows: 1994 - $1.7 million; 1995 - $1.7 million; 1996 - $1.5
million; 1997 - $1.5 million; 1998 - $1.4 million and thereafter $14.8 million.
The above amounts exclude annual sublease income of $1.8 million from subleases
which have the same expiration as the underlying leases.
13. RESTRUCTURING CHARGES AND TRANSACTION COSTS
In 1991, in connection with the restructuring activities, the Company
recorded charges of approximately $5.8 million. These charges were primarily
related to severance costs ($.6 million), the costs associated with the
restructuring of certain catalogs, including inventory costs ($2.6 million),
and other restructuring costs ($2.6 million). The operating results of 1991
also include charges of approximately $4.8 million which were directly related
to the stock purchase agreement transaction. These charges include
approximately $1.7 million of transaction fees which have been classified as
Other income (expense) and increased compensation costs directly related to the
change in control provisions included in certain executive employment
contracts. In addition, the Company incurred a charge of $3.1 million in
connection with the settlement of the employment contract of the former
Chairman and CEO of the Company.
14. MANAGEMENT COMPENSATION AGREEMENTS
In connection with consummating the transactions in the stock purchase
agreement and as a condition thereto, the Company entered into an employment
agreement (the "Employment Agreement") with Jack E. Rosenfeld, the President
52
<PAGE> 54
and Chief Executive Officer of the Company. The Employment Agreement provides
for (1) a five-year term commencing on October 25, 1991, at a base salary of
$500,000 per year; (2) a payment to a trust on behalf of Mr. Rosenfeld of
916,667 shares of Common Stock in lieu of a cash payment of $1,564,000 to which
he would have been entitled in connection with a change in control, 250,000 of
such shares to vest in equal annual installments over three years with the
vested shares distributable to Mr. Rosenfeld at the end of the employment term
or the earlier termination of his employment; (3) the grant of an option to Mr.
Rosenfeld, which has expired, to purchase shares of Common Stock in the event
the Company achieved certain earnings in the fourth quarter of 1991; and (4)
the grant of registration rights under the Securities Act of 1933, as amended,
for shares of Common Stock owned by Mr. Rosenfeld. On October 25, 1991, NAR
entered into an agreement with Mr. Rosenfeld pursuant to which he may purchase
from NAR prior to October 25, 1996, 1,213,605 shares of Common Stock at a price
per share of $2.00 (subject to adjustment) plus 10% per year through the
exercise period. This agreement was amended on September 23, 1992 to provide
that NAR would grant to Mr. Rosenfeld in March 1993 the right to purchase an
additional 1,213,605 shares of Common Stock ("Rights Shares") at a price per
share of $1.50 (subject to adjustment) plus 10% per year from September 1992
through the exercise period.
In connection with the stock purchase agreement, the Company entered into
employment agreements with each of Messrs. Michael P. Sherman, Wayne P. Garten
and Edward J. O'Brien, executive officers of the Company. These agreements
were substantially the same as such officers' existing employment agreements,
except that they provided for cash payments to Messrs. Sherman, Garten and
O'Brien of $281,714, $221,621 and $90,000, respectively, and contribution to a
trust on behalf of such officers of 156,979 shares, 147,812 shares and 60,000
shares of Common Stock of the Company, respectively, in connection with the
change in control effected by the NAR transaction and in lieu of their right to
receive a cash change in control payment. Pursuant to the terms of the trust,
such Common Stock was distributed to each such officer during fiscal 1993.
Messrs. Sherman, Garten and O'Brien were granted certain registration rights
under the Securities Act of 1933, as amended, with respect to the shares of
Common Stock granted to each of them.
15. RELATED PARTY TRANSACTIONS
Approximately $85,000 was paid for the rental of property pursuant to an
operating lease to a partnership in which the wife of the Chief Executive
Officer and President of the Company, Jack E. Rosenfeld, is a partner. Jack E.
Rosenfeld is also a director of the Company.
On September 23, 1992, a transaction was approved by the Company's
shareholders pursuant to which NAR acquired 62% of the Company's Common Stock.
See Note 2 for a description of the transaction. At January 1, 1994, NAR owned
57% of the Company's outstanding Common Stock.
Since January 1993, pursuant to a consulting arrangement, QCC renders
management consulting, business advisory and investment banking services to the
Company for an annual fee of $750,000.
16. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various employment contracts with key
executives extending through 1995. The aggregate payments due under such
contracts is $2.0 million.
53
<PAGE> 55
In connection with certain disposal transactions, the Company remains
contingently liable with respect to lease obligations for 10 restaurant
properties, should the buyers fail to perform under the agreements. The future
minimum lease payments as of January 1, 1994, are as follows (in thousands):
1994 - $459; 1995 - $445; 1996 - $366; 1997 - $278; 1998 - $192 and thereafter
$737.
In January 1994, the Company purchased for $1.1 million a 50% interest in
Blue Ridge Associates (the "Partnership), a partnership which owns the Tweeds
Roanoke, Virginia fulfillment center. In connection with the Partnership, a
subsidiary of the Company is contingently liable with respect to the
obligations of the Partnership. The Partnership has a mortgage on the Roanoke
fulfillment center in the amount of $6.6 million.
In May 1992 the United States Supreme Court reaffirmed an earlier decision
which allowed direct marketing companies to make sales into states where they
do not have a physical presence without collecting sales taxes with respect to
those sales. The Court, however, noted that Congress has the power to change
this law. Forty-six states plus the District of Columbia have sales or use
taxes or authorize local governmental units to impose sales or use taxes. The
Company sells merchandise in all fifty states plus the District of Columbia.
Various states are increasing their efforts by various means, including
lobbying Congress, to impose on direct marketers the burden of collecting sales
and use taxes on the sale of products shipped to state residents. The
imposition of a sales and use tax collection obligation on the Company in
states to which it ships products would result in additional administrative
expense to the Company and higher costs to its customers for the same
merchandise currently being purchased by them. This may have a negative effect
on customer response rates and revenue levels, thereby negatively affecting the
Company's sales and profitability. Under the law as it presently exists, the
Company believes that it collects sales tax in all jurisdictions that it is
required to do so.
The Company is involved in other various routine lawsuits of a nature which
are deemed customary and incidental to its business. In the opinion of
management, the ultimate disposition of such actions will not have a material
adverse effect on the Company's financial position or results of operations.
17. SUBSEQUENT EVENT
On February 18, 1994, the Company filed a registration statement on Form
S-3 with the Securities and Exchange Commission registering 10 million shares
of its Common Stock, including 4,154,604 shares on behalf of two selling
shareholders. The net proceeds from the offering with respect to the Company's
shares will be used for general corporate purposes, including the expansion of
the Company's business. The registration statement has not yet become
effective.
54
<PAGE> 56
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(in thousands, except per share amounts)
1992
- --------
<S> <C> <C> <C> <C>
Revenues $128,787 $142,861 $144,769 $170,145
Gross profit 42,698 51,337 48,924 61,887
Income from operations 2,133 3,123 2,291 6,855
Income (loss) from continuing
operations (1,823) (899) (1,246) 5,016
Extraordinary items - 1,209 6,501 1,491
Cumulative effect of
accounting change for
income taxes 10,000 - - -
-------- ------- ------- -------
NET INCOME 8,177 310 5,255 6,507
Preferred stock dividends (700) (700) (800) (997)
-------- ------- ------- -------
Net income (loss) applicable to
Common Shareholders $ 7,477 $ (390) $ 4,455 $ 5,510
======== ======= ======= ========
Net income (loss) per share:
Income (loss) from continuing
operations $ (.09) $ (.05) $ (.07) $ .06
Extraordinary items - .04 .22 .02
Cumulative effect of
accounting change for
income taxes .35 - - -
-------- ------- ------- -------
Net income (loss) $ .26 $ (.01) $ .15 $ .08
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(in thousands, except per share amounts)
1993
- --------
<S> <C> <C> <C> <C>
Revenues $121,565 $144,319 $147,890 $228,737
Gross profit 43,585 52,578 51,233 86,728
Income from operations 2,937 3,963 3,056 9,120
NET INCOME 2,477 4,356 2,492 8,012
Preferred stock dividends (1,000) (1,005) (1,006) (1,082)
-------- -------- -------- --------
Net income applicable to
Common Shareholders $ 1,477 $ 3,351 $ 1,486 $ 6,930
======== ======== ======== ========
Net income per share $ .02 $ .05 $ .02 $ .09
======== ======== ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
55
<PAGE> 57
P A R T III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors.
The information required by this item is incorporated by reference
from the Company's definitive proxy statement to be filed by the
Company pursuant to Regulation 14A.
(b) Identification of Executive Officers.(a)
<TABLE>
<CAPTION>
TITLE AND OTHER OFFICE HELD
NAME AGE INFORMATION SINCE
- ---- --- --------------- -----------
<S> <C> <C> <C>
JACK E. ROSENFELD 55 Chief Executive Officer, 1990
President and Director. Mr.
Rosenfeld served as Executive
Vice President of the Company
from June 1988 until October 1990
He was elected to the Board of
Directors in 1974.
MICHAEL P. SHERMAN 41 Executive Vice President 1990
Corporate Affairs, General
Counsel and Secretary. He joined
the Company in 1983 and
was elected Vice President-Assistant
Secretary in the same year. From 1986
to 1990, Mr. Sherman held the position
of Senior Vice President, General
Counsel and Secretary.
WAYNE P. GARTEN 41 Executive Vice President, 1990
Chief Financial Officer since
1990. From 1989 to 1990, Mr.
Garten previously held the position
of Senior Vice President, Chief
Financial Officer. He joined the
Company in 1983 and was elected
Vice President in 1984. He was
elected Vice President-Finance
in 1989.
EDWARD J. O'BRIEN 50 Senior Vice President and 1991
Treasurer. Mr. O'Brien joined the
Company in 1986 and was elected
Vice President in 1988.
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
TITLE AND OTHER OFFICE HELD
NAME AGE INFORMATION SINCE
- ---- --------------- -----------
<S> <C> <C> <C>
DAVID E. ULLMAN 36 Vice President, 1992
Controller. Prior to joining
the Company, Mr. Ullman was with
Arthur Andersen & Co. for ten
years, most recently as a manager
in the Audit and Business Advisory
Group.
</TABLE>
(a) All references to dates and positions held by such executive officers refer
to the Company's predecessor, H&H. H&H merged with and into the Company
in September 1993, with the Company surviving.
Pursuant to the Company's By-Laws, its officers are chosen annually by the
Board of Directors and hold office until their respective successors are chosen
and qualified.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A.
57
<PAGE> 59
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
1. Index to Consolidated Financial Statements
Report of Independent Public Accountants 25
Hanover Direct, Inc. and Subsidiaries Financial
Statements:
Consolidated Balance Sheets as of December 26, 1992 26
and January 1, 1994
Consolidated Statements of Income/(Loss) for the three 28
years ended January 1, 1994
Consolidated Statements of Shareholders' (Deficit) 29
Equity for the three years ended January 1, 1994
Consolidated Statements of Cash Flows for the three 30
years ended January 1, 1994
Notes to Consolidated Financial Statements 32
Supplementary Data:
Selected quarterly financial information (unaudited)
for the two fiscal years ended January 1, 1994
2. Index to Financial Statement Schedules
Schedule II 61
Schedule VIII 63
Schedules other than those listed above are omitted
because they are not applicable or the required
information is shown in the financial statements or
notes thereto.
3. Exhibits 64
The exhibits required by Item 601 of Regulation S-K
filed as part of, or incorporated by reference in, this
report are listed in the accompanying Exhibit Index.
</TABLE>
58
<PAGE> 60
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 12, 1993 of H & H
Current Report on Form 8-K dated August 25, 1993 of H & H
Current Report on Form 8-K dated September 30, 1993
Current Report on Form 8-K dated January 1, 1994
(c) Exhibits required by Item 601 of Regulation S-K. See Exhibit Index.
59
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HANOVER DIRECT, INC.
(registrant)
Date: March 9, 1994 By: s/Jack E. Rosenfeld
---------------------------
Jack E. Rosenfeld, Director,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Principal Financial Officer:
s/Wayne P. Garten
- -----------------------------
Wayne P. Garten
Executive Vice President and
Chief Financial Officer
Board of Directors:
s/Ralph Destino s/Edmund R. Manwell
- ----------------------------- -----------------------------
Ralph Destino, Director Edmund R. Manwell, Director
s/J. David Hakman s/Alan G. Quasha
- ----------------------------- -----------------------------
J. David Hakman, Director Alan G. Quasha, Director
s/S. Lee Kling s/Geraldine Stutz
- ----------------------------- -----------------------------
S. Lee Kling, Director Geraldine Stutz, Director
s/Theodore H. Kruttschnitt s/Jeffrey Laikind
- ----------------------------- -----------------------------
Theodore H. Kruttschnitt Jeffrey Laikind, Director
Director
s/Elizabeth Valk Long s/Robert F. Wright
- ----------------------------- -----------------------------
Elizabeth Valk Long, Director Robert F. Wright, Director
Date: March 9, 1994
60
<PAGE> 62
SCHEDULE II
HANOVER DIRECT, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
YEAR ENDED JANUARY 1, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------- -------------- --------------- -------------------- -----------------------
Deductions Balance at end
Balance at -------------------- of period
beginning Amounts Amounts -----------------------
Name of debtor of period Additions Collected written off Current Non Current
- ------------------------- -------------- --------------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Spence Halper, E.V.P.(a)
Year Ended January 1, 1994 $ - $100,000 $- $ - $ - $100,000
Wayne P. Garten, E.V.P.(b)
Year Ended January 1, 1994 $ - $235,802 $135,802 $ - $ - $100,000
Edward J. O'Brien, Sr.V.P.(c)
Year Ended January 1, 1994 $ - $113,837 $63,837 $ - $ - $50,000
Charles Pellenberg, E.V.P.(a)
Year Ended January 1, 1994 $ - $125,000 $ - $ - $ - $125,000
Jack Rosenfeld, C.E.O.(a)
Year Ended January 1, 1994 $ - $187,500 $ - $ - $ - $187,500
Michael P. Sherman, E.V.P.(d)
Year Ended January 1, 1994 $ - $229,802 $129,802 $ - $ - $100,000
</TABLE>
61
<PAGE> 63
SCHEDULE II
HANOVER DIRECT, INC.
AMOUNTS RECEIVABLES FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
YEAR ENDED JANUARY 1, 1994
(a) Notes receivable issued in connection with Executive Equity Incentive
Plan. The Notes bear interest at 5.54% and are due March 1999.
(b) Notes receivable represents $100,000 for the Executive Equity
Incentive Plan bearing interest at 5.54% due March 1999. The $135,802
represents a personal loan with interest at 8% and such loan was
repaid in fiscal 1993.
(c) Notes receivable represents $50,000 for the Executive Equity Incentive
Plan bearing interest at 5.54% due March 1999. The remaining $63,837
represents a personal loan with interest at 8% and such loan was
repaid in fiscal 1993.
(d) Notes receivable represents $100,000 for the Executive Equity
Incentive Plan bearing interest at 5.54% due March 1999. The
remaining $129,802 represents a personal loan with interest at 8% and
such loan was repaid in fiscal 1993.
62
<PAGE> 64
SCHEDULE VIII
HANOVER DIRECT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 1, 1994, DECEMBER 26, 1992 AND DECEMBER 28, 1991
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------- ------------ ---------------------------------- ------------- -------------
Additions
-----------------------------------
Balance at Charged to
beginning Charged to costs other accounts Deductions - Balance at
Description of period and expenses describe describe end of period
- -------------------------- --------------- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1993:
- -------------------------
Allowance for doubtful
accounts receivable $6,386,000 $3,676,000 (5) $134,000 (1) $5,952,000 $4,244,000
Reserves for
discontinued operations 3,464,000 (2) 906,000 2,558,000
Deferred tax asset
valuation allowance 53,000,000 (6) 2,600,000 (4) 5,900,000 49,700,000
1992:
- ---------------------------
Allowance for doubtful
accounts receivable 7,040,000 6,024,000 (1) 6,678,000 6,386,000
Reserves for
discontinued operations 11,185,000 (2) 7,721,000 3,464,000
Deferred tax asset
valuation allowance (3)53,000,000 53,000,000
1991:
- ---------------------------
Allowance for doubtful
accounts receivable 4,994,000 6,756,000 (1) 4,710,000 7,040,000
Reserves for
discontinued operations 17,270,000 5,229,000 (2) 11,314,000 11,185,000
</TABLE>
(1) Accounts written-off.
(2) Utilization of reserves.
(3) The Company adopted SFAS 109 effective December 29, 1991
(4) Utilization of valuation allowance.
(5) Represents acquired allowance for doubtful accounts receivable.
(6) Represents increase in available net operating losses and effect of
increase in coporate income tax rates from 34% to 35%.
63
<PAGE> 65
EXHIBIT INDEX
EXHIBIT NUMBER PER
ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCOR-
REGULATION S-K PORATION REFERENCE WHERE APPLICABLE
2.1 Plan of Agreement and Merger dated as of April 15, 1993
between The Horn & Hardart Company and Hanover Direct,
Inc. Incorporated by reference to the Company's*
Registration Statement on Form S-4 filed on April 16,
1993, Registration No. 33-6152.
2.2 Plan of Agreement and Merger dated as of April 15, 1993
between The Hanover Companies and Hanover Direct, Inc.
Incorporated by reference to the Company's* Registration
Statement on Form S-4 filed on April 16, 1993,
Registration No. 33-6152.
2.3 Asset Purchase Agreement dated as of May 21, 1993 among
the Company*, GSF Acquisition Corp. ("GSF") and Gump's,
Inc. Incorporated by reference to the Company's* Current
Report on Form 8-K dated July 12, 1993.
2.4 Asset Purchase Agreement dated as of May 21, 1993 among
the Company*, Gump's By Mail, Inc. ("GBM") and Gump's,
Inc. Incorporated by reference to the Company's* Current
Report on Form 8-K dated July 12, 1993.
2.5 Order Confirming Sale of the Assets of The Company Store
to the Company, entered by the United States Bankruptcy
Court for the Western District of Wisconsin on August 20,
1993 in Bankruptcy No. 92-21810-11. Incorporated by
reference to the Company's* Current Report on Form 8-K
dated August 25, 1993.
2.6 Stock Purchase Agreement dated as of September 7, 1993
among Warburg, Pincus Capital Partners, L.P., WPM, Inc.,
Sprout Capital V, Sprout Technology Fund, DLJ Venture
Capital Fund, DLJ Venture Capital Fund II, L.P., Sprout
Growth, Ltd., Sprout Growth, L.P., Primus Capital Fund II,
L.P., PAS Associates, Tweeds, Inc., the Company* and TW
Acquisitions, Inc. Incorporated by reference to the
Company's Current Report on Form 8-K dated September 30,
1993.
64
<PAGE> 66
3.1 Certificate of Incorporation. FILED HEREWITH.
3.2 Certificate of Amendment of the Company's Certificate of
Incorporation together with Certificate of Designation of
Series A Convertible Additional Preferred Stock. FILED
HEREWITH.
3.3 Bylaws. Incorporated by reference to the Company's
Registration Statement on Form S-4 filed on April 16,
1993, Registration No. 33-6152.
4.1 Indenture between the Company and First Trust National
Association, as Trustee, dated as of August 17, 1993.
FILED HEREWITH.
4.2 Registration Rights Agreement dated as of August 17, 1993
by and between the Company* and Sun Life Insurance Company
of America. FILED HEREWITH.
4.3 Warrant Agreement dated as of October 25, 1991 between the
Company* and NAR. Incorporated by reference to the
Company's* Current Report on Form 8-K dated October 25,
1991.
4.4 Registration Rights Agreement dated as of July 8,1991
among the Company*, NAR and Intercontinental Mining &
Resources Limited ("IMR"). Incorporated by reference to
the Company's* Current Report on Form 8-K Dated July 10,
1991.
4.5 Shareholders' Agreement dated October 25, 1991 between the
Company* and NAR. Incorporated by reference to the
Company's Current Report on Form 8-K dated October 25,
1991.
4.6 Definitive Agreement dated July 20, 1992 between the
Company* and NAR. Incorporated by reference to the
Company's* Registration Statement on Form S-4 filed on
July 28, 1992, Registration Statement No. 33-50102.
65
<PAGE> 67
4.7 Form of Warrant Agreement dated as of January 1, 1994
between the Company and Sears Shop At Home Services, Inc.
("Sears"). Incorporated by reference to the Company's
Current Report on Form 8-K dated January 1, 1994.
10.1 1978 Stock Option Plan, as amended. Incorporated by
reference to the Company's* Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10.2 Stock Purchase Agreement dated as of July 8, 1991 among
the Company* and North American Resources ("NAR").
Incorporated by reference to the Company's* Current
Report on Form 8-K dated July 10, 1991.
10.3 Amendment to the Stock Purchase Agreement dated as of
October 14, 1991 between the Company* and NAR.
Incorporated by reference to the Company's Current Report
on Form 8-K dated October 25, 1991.
10.4 Agreement dated as of December 21, 1992 among the
Company*, Hanover Direct Pennsylvania, Inc. ("HDPI"),
Brawn of other than as noted California, Inc. ("Brawn")
and General Electric Capital Corporation ("GECC").
Incorporated by reference to the Company's* Annual Report
on Form 10-K for the fiscal year ended December 26, 1992.
10.5 Amendment to the Account Purchase Agreement dated as of
July 12, 1993 among the Company*, HDPI, Brawn and GECC.
Incorporated by reference to the Company's* Current Report
on Form 8-K dated July 12, 1993.
10.6 Loan and Security Agreement dated as of May 5, 1993 among
Congress Financial Corporation ("Congress"), HDPI and
Brawn. Incorporated by reference to the Companies
Registration Statement on Form S-4 filed on April 16, 1993,
Registration No. 33-6152.
10.7 Amended and Restated Loan and Security Agreement dated as
of July 9, 1993 among HDPI, Brawn, GBM, GSF and Congress.
Incorporated by reference to the Company's* Current
Report on Form 8-K dated July 12, 1993.
66
<PAGE> 68
10.8 Second Amended and Restated Loan and Security
Agreement dated as of October 27, 1993 among
Congress, HDPI, Brawn, GBM, Gump's Corp., TCSA, Inc.,
SDSA, Inc. and Tweeds. FILED HEREWITH.
10.9 Form of Stock Option Agreement between the Company*
and certain Directors of the Company, as amended.
Incorporated by reference to the Company's* Annual
Report on Form 10-K for the fiscal year ended
December 28, 1991.
10.10 Form of Stock Option Agreement between the Company*
and certain Directors of the Company. Incorporated
by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1991.
10.11 Executive Employment Agreement dated as of October
25, 1991 among the Company*, HDPI and Jack E.
Rosenfeld. Incorporated by reference to the
Company's Current Report on Form 8-K dated October
25, 1991.
10.12 Stock Option Agreement dated as of January 1, 1992
between the Company* and Jack E. Rosenfeld, as
amended. Incorporated by reference to the Company's*
Annual Report on Form 10-K for the fiscal year ended
December 26, 1992.
10.13 Registration Rights Agreement dated as of October 25,
1991 between the Company* and Jack E. Rosenfeld.
Incorporated by reference to the Company's* Current
Report on Form 8-K dated October 25, 1991.
10.14 Employment Agreement dated as of October 14, 1991
between the Company* and Michael P. Sherman.
Incorporated by reference to the Company's Report on
Form 8-K dated October 28, 1991.
10.15 Amendment No. 1 to the Employment Agreement dated as
of June 18, 1993 between the Company and Michael P.
Sherman. FILED HEREWITH.
67
<PAGE> 69
10.16 Registration Rights Agreement dated as of October 14,
1991 between the Company* and Michael P.Sherman.
Incorporated by reference to the Company's* Current
Report on Form 8-K dated October 25, 1991.
10.17 Employment Agreement dated as of October 14, 1991,
between the Company* and Wayne P. Garten.
Incorporated by reference to the Company's* Current
Report on Form 8-K dated October 25, 1991.
10.18 Amendment No. 1 to the Employment Agreement dated as
of June 18, 1993 between the Company and Wayne P.
Garten. FILED HEREWITH.
10.19 Registration Rights Agreement dated as of October 14,
1991 between the Company* and Wayne P. Garten.
Incorporated by reference to the Company's* Current
Report on Form 8-K dated October 25, 1991.
10.20 Form of Indemnification Agreement among the Company*
and each of the Company's directors and executive
officers. Incorporated by reference to the
Company's* Current Report on Form 8-K dated October
25, 1991.
10.21 Letter Agreement dated May 5, 1989 among the
Company*, Theodore H. Kruttschnitt, J. David Hakman
and Edmund R. Manwell. Incorporated by reference to
the Company's* Current Report on Form 8-K dated May
10, 1989.
10.22 Hanover Direct, Inc. Savings Plan as amended. FILED
HEREWITH.
10.23 Restricted Stock Plan. Incorporated by reference to
the Company's* Registration Statement on Form S-8
filed on February 24, 1993, Registration No.
33-58760.
10.24 All Employee Equity Investment Plan. Incorporated by
reference to the Company's* Registration Statement on
Form S-8 filed on February 24, 1993, Registration No.
33-58756.
68
<PAGE> 70
10.25 Executive Equity Incentive Plan. Incorporated by
reference to the Company's* Registration Statement on
Form S-8 filed on February 24, 1993, Registration No.
33-58758.
10.26 Form of Supplemental Retirement Plan. FILED HEREWITH.
10.27 Form of License Agreement dated as of January 1, 1994
between Hanover Ventures, Inc. and Sears.
Incorporated by reference to the Company's Current
Report on Form 8-K dated January 1, 1994.
21.1 Subsidiaries of the Registrant. FILED HEREWITH.
23.1 Consent of Independent Public Accountants. FILED
HEREWITH.
* Hanover Direct, Inc., a Delaware corporation, is the successor by merger to
The Horn & Hardart Company and The Hanover Companies.
69
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
HANOVER DIRECT, INC.
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Hanover Direct, Inc.
SECOND: The Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and purposes to be conducted or
promoted are to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 163,172,403 shares, of which
40,000 shares shall be class B 8% cumulative preferred stock, par value $.01
per share and stated value of $1,000 per share (the "Class B Preferred"),
861,900 shares shall be shares of 7.5% cumulative convertible preferred stock,
par value $.01 and stated value of $20.00 per share (the "7.5% Preferred"),
150,000,000 shares shall be shares of common stock, par value $.66-2/3 per
share (the "Common Stock"), and 12,270,503 shares shall be shares of class B
common stock, par value $.01 per share (the "Class B Common Stock").
The designation and the powers, preferences and rights, and the
qualifications, limitations or restrictions of each class of shares of the
Corporation which are fixed by this Certificate of Incorporation, and the
express grant of authority to the Board of Directors of the Corporation to fix
by resolution or resolutions certain designations and powers, preferences and
rights of such shares, and the qualifications, limitations or restrictions
thereof, are as follows:
1. Class B Preferred.
(a) Dividends. The holders of record of shares of the Class B
Preferred shall be entitled to receive preferential cumulative dividends, when
and as declared by the Board of Directors out of funds legally available
therefor, at a rate of 8% of the stated value per annum.
<PAGE> 2
Dividends on the Class B Preferred shall commence to accrue on March 18, 1993,
and shall accrue cumulatively on a daily basis whether or not earned or
expressly declared by the Board of Directors. Until June 30, 1993, all such
dividends shall be payable in cash or in Common Stock at the option of the
Corporation (an "8% Stock Dividend"). From July 1, 1993 through December 31,
1996, all such dividends shall be payable in cash or in Common Stock upon the
written request of the holders of record of 51% of the shares of the Class B
Preferred delivered to the Corporation within 20 days after service of written
notice by the Corporation upon the holders of the Class B Preferred of the
record date for such dividend. From January 1, 1997, all such dividends shall
be payable in cash only. If any dividend is paid in Common Stock, (i) no
fractional shares shall be issued, but a cash payment in an amount equal to the
value of such fractional share shall be made in lieu thereof, and (ii) such
stock shall be valued at the average per-share closing price (regular way) for
a round lot of the Common Stock during the 20 consecutive trading days
immediately preceding the date on which the dividend is paid if such stock is
listed for trading on the American Stock Exchange, the New York Stock Exchange
or the National Association of Securities Dealers, Inc. National Market System
(if not so listed, the stock shall be valued by an appraiser selected by mutual
agreement of the parties, or, if they cannot agree, selected by the American
Arbitration Association); provided, however, that, for this purpose, the Common
Stock shall never be valued at less than $2.00 or more than $5.00 per share.
In case the Corporation shall have taken any of the steps described in Section
2(g)(i) of this Article Fourth, then such dollar amount per share shall be
adjusted to equal (x) such dollar amount per share multiplied by the number of
shares of Common Stock to which the holder would have been entitled upon
exchange immediately prior to the taking of such step divided by (y) the number
of shares of Common Stock to which the holder shall be entitled upon exchange
immediately after the taking of any such step.
Dividends on the Class B Preferred shall be payable each year in
equal semi-annual installments on the 23rd day of September and March (the "8%
Dividend Payment Dates") when and as declared by the Board of Directors to
holders of record as they appear on the records of the Corporation on such
respective dates (not exceeding 60 days preceding such 8% Dividend Payment
Dates) as may be determined by the Board of Directors in advance of the payment
of each particular dividend. Dividends in arrears may be declared by the Board
and paid at any time out of funds legally available therefor, without reference
to any regular 8% Dividend Payment Date, to holders of record on such date (not
exceeding 60 days preceding the payment date thereof) as may be fixed by the
Board of Directors.
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<PAGE> 3
Dividends payable on the Class B Preferred shall be computed on the basis of a
360-day year consisting of twelve 30-day months.
No dividends shall be declared or paid or set aside for payment or
distribution on any stock or warrants of the Corporation (other than the 7.5%
Preferred) for any period unless full cumulative dividends through and
including the most recent 8% Dividend Payment Date in respect of the Class B
Preferred have been or contemporaneously are declared and either paid in cash
or Common Stock or a sum of money (or shares) sufficient for payment has been
set apart therefor. Additionally, commencing June 30, 1993, no Common Stock or
other stock of the Corporation (other than the 7.5% Preferred) or securities of
the Corporation convertible or exchangeable into Common Stock shall be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation.
(b) Liquidation Preference. In the event of any distribution of
assets upon any liquidation, dissolution or winding- up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holder of each share of the
then outstanding Class B Preferred shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital, surplus or
earnings, before any payments or distributions are made to, or set aside for,
the holders of the Common Stock or any other equity security of the Corporation
other than the holders of the then outstanding 7.5% Preferred, an amount equal
to the sum of (x) $710.14 and (y) all cumulative dividends accrued on such
share of Class B Preferred since April 7, 1992, which have not been paid. If
the assets of the Corporation are insufficient to pay such amounts in full,
then the entire assets of the Corporation shall be distributed pro rata to the
holders of shares of the Class B Preferred.
(c) Voting Rights. The holders of shares of Class B Preferred
shall not be entitled to any voting rights, except as hereinafter provided or
as otherwise required by law.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least a
majority of all of the shares of the Class B Preferred, at the time
outstanding, given in person or by proxy either in writing or by a vote at a
meeting called for such purpose at which the holders of such shares shall vote
as a separate class without regard to
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<PAGE> 4
shares of any other class or series, shall be necessary for (i) the creation by
the Corporation of any series or class of preferred stock of the Corporation
which is on a parity with the Class B Preferred as to dividends or upon
liquidation, dissolution or winding-up or which provides that any shares of
such preferred stock of the Corporation be mandatorily redeemed on the
redemption of the Class B Preferred, (ii) the Corporation to increase the
number of authorized shares of the Class B Preferred, and (iii) the Corporation
directly or indirectly to redeem, purchase or otherwise acquire for value any
preferred stock of any series, or stock of any other class, ranking, as to
dividends or on liquidation, dissolution or winding up, junior to the Class B
Preferred.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least
66-2/3% of all of the shares of the Class B Preferred at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of such shares shall vote as a separate
class without regard to any shares of any other class or series, shall be
necessary for (i) authorizing, effecting or validating the amendment,
alteration or repeal of any of the provisions of the Certificate of
Incorporation or of any amendatory certificate thereto so as to amend the
rights, preferences, privileges or voting power of shares of the Class B
Preferred and (ii) authorizing or increasing the authorized amount of any class
of stock, or establishing or designating any series of stock, or the issuing or
selling of any obligation, security or instrument convertible into,
exchangeable for, or evidencing the right to purchase, acquire or subscribe for
shares of a class or series of stock of the Corporation, if, in any such case,
such class or series of stock ranks prior to the Class B Preferred as to
dividends or distribution of assets upon liquidation, dissolution or winding up
or which provides that any shares of such class or series of stock be
mandatorily redeemed prior to the redemption of the Class B Preferred.
(d) Redemption of the Class B Preferred. The Corporation shall
have the right to redeem the Class B Preferred at any time and from time to
time after December 31, 1996 at the liquidation value of such shares payable in
cash together with any accrued but unpaid dividends accrued on the Class B
Preferred since March 18, 1993, which have not been paid. In the event the
Corporation shall redeem the Class B Preferred, notice of such redemption shall
be given by first-class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the redemption date (the "Redemption Date"), to each
holder of record of the shares to be redeemed at such
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<PAGE> 5
holder's address as the same appears on the stock register of the Corporation;
provided, however, that no failure to mail such notice nor any defect therein
shall affect the validity of the proceeding for the redemption of the Class B
Preferred to be redeemed except as to the holder to whom the Corporation has
failed to mail said notice or except as to the holder whose notice was
defective. Each such notice shall state: (i) the Redemption Date, (ii) the
redemption price (including accrued but unpaid dividends), (iii) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price, and (iv) that dividends on the shares to be redeemed will
cease to accrue on the day following the Redemption Date unless the Corporation
defaults in making such payment.
Upon the Redemption Date, the holders of the Class B Preferred
shares which are to be redeemed (the "Redemption Shares") shall deliver
certificates for their shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the Redemption Shares on the day
following the Redemption Date whether or not the certificates therefor are
delivered to the Corporation. During any period in which any shares of the
7.5% Preferred are then outstanding, the Corporation shall not redeem any
shares of the Class B Preferred unless simultaneously therewith or prior
thereto, it redeems that number of shares of 7.5% Preferred at the
consideration provided for in Section 2(h) of this Article Fourth, such that
the aggregate consideration paid by the Corporation for the shares of Class B
Preferred to be redeemed by it, pursuant to this Section 1(d), is no greater
than the aggregate consideration paid or to be paid by the Corporation for the
redemption of shares of 7.5% Preferred (unless the shares of 7.5% Preferred
redeemed by the Corporation constitute all of the then outstanding shares of
7.5% Preferred).
2. 7.5% Preferred.
(a) Dividends. The holders of record of shares of the 7.5%
Preferred shall be entitled to receive preferential cumulative dividends, when
and as declared by the Board of Directors out of funds legally available
therefor, at a rate of 7.5% of the stated value per annum. Dividends on the
7.5% Preferred shall commence to accrue on March 18, 1993, and shall accrue
cumulatively on a daily basis whether or not earned or expressly declared by
the Board of Directors. For one 360-day year from September 23, 1992, at the
option of the Corporation, the dividends may be paid in shares of 7.5%
Preferred (a "7.5% Stock Dividend"); provided, however, that the Corporation
shall not declare or pay a 7.5% Stock Dividend during any period with respect
to which dividends on the Class B Preferred shall have been
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<PAGE> 6
paid in cash; and provided further, however, that no fractional shares shall be
issued, but a cash payment in an amount equal to the value of such fractional
share shall be made in lieu thereof. At all times thereafter, as well as
during any period in which the Corporation is prohibited (pursuant to the
provisions of the preceding sentence) from declaring or paying a 7.5% Stock
Dividend, all dividends shall be payable in cash only. If any dividend is paid
in 7.5% Preferred, such stock shall be valued at its stated value.
Dividends on the 7.5% Preferred shall be payable each year in equal
semi-annual installments on the 23rd day of March and September (the "7.5%
Dividend Payment Dates") when and as declared by the Board of Directors to
holders of record as they appear on the records of the Corporation on such
respective dates (not exceeding 60 days preceding such 7.5% Dividend Payment
Dates) as may be determined by the Board of Directors in advance of the payment
of each particular dividend. Dividends in arrears may be declared by the Board
and paid at any time out of funds legally available therefor, without reference
to any regular 7.5% Dividend Payment Date, to holders of record on such date
(not exceeding 60 days preceding the payment date thereof) as may be fixed by
the Board of Directors. Dividends payable on the 7.5% Preferred shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
No payments shall be declared or paid or set apart for payment or
distribution on any stock or warrant of the Corporation for any period unless
full cumulative dividends through and including the most recent 7.5% Dividend
Payment Date in respect of the 7.5% Preferred have been or contemporaneously
are declared and paid.
As soon as practicable after the declaration of a 7.5% Stock
Dividend, the Corporation shall issue and register stock certificates
evidencing the shares of 7.5% Preferred (the "Dividend Shares") to which the
holders of the 7.5% Preferred are entitled. The Corporation shall pay all
documentary stamp taxes that are attributable to the issuance of the Dividend
Shares. The Corporation shall reserve and keep available a sufficient number
of authorized but unissued shares of 7.5% Preferred to enable the Board of
Directors to issue the Dividend Shares.
(b) Liquidation Preference. In the event of any distribution of
assets upon any liquidation, dissolution or winding- up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of the then
outstanding 7.5% Preferred shall be entitled to receive out of the assets of
the Corporation, whether such
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<PAGE> 7
assets are capital, surplus or earnings, before any payments or distributions
are made to, or set aside for, the holders of the Common Stock, or any other
equity security of the Corporation, an amount equal to the sum of (x) the
stated value of such shares and (y) all cumulative, accrued but unpaid
dividends. If the assets of the Corporation are insufficient to pay such
amounts in full, then the entire assets of the Corporation shall be distributed
pro rata to the holders of shares of the 7.5% Preferred.
(c) Voting Rights. The holders of shares of 7.5% Preferred shall
not be entitled to any voting rights, except as hereinafter provided or as
otherwise required by law.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least a
majority of all of the shares of the 7.5% Preferred, at the time outstanding,
given in person or by proxy either in writing or by a vote at a meeting called
for such purpose at which the holders of such shares shall vote as a separate
class without regard to shares of any other class or series, shall be necessary
for (i) the creation by the Corporation of any series or class of preferred
stock of the Corporation which is on a parity with the 7.5% Preferred as to
dividends or upon liquidation, dissolution or winding-up or which provides that
any shares of such preferred stock of the Corporation be mandatorily redeemed
on the redemption of the 7.5% Preferred, (ii) the Corporation to increase the
number of authorized shares of the 7.5% Preferred, and (iii) the Corporation
directly or indirectly to redeem, purchase or otherwise acquire for value any
preferred stock of any series (other than with respect to the Class B Preferred
as provided in Section 1(d) of this Article Fourth), or stock of any other
class, ranking, as to dividends or on liquidation, dissolution or winding up,
junior to the 7.5% Preferred.
If and whenever at any time or times dividends payable on the 7.5%
Preferred pursuant to Section 2(a) of this Article Fourth shall have been in
arrears and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable thereon for any four quarterly periods (whether or not
consecutive), then the number of directors constituting the Board of Directors
shall, without further action, be increased by two and the holders of the 7.5%
Preferred shall have the exclusive right, voting separately as a class, to
elect directors of the Corporation to fill such newly created directorships,
the remaining directors to be elected by the other class or classes of stock
entitled to vote therefor, at each meeting of stockholders held for the purpose
of electing directors.
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<PAGE> 8
Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the 7.5%
Preferred, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of the holders of the 7.5% Preferred
pursuant to Section 228 of the Delaware General Corporation Law. Such voting
right shall continue until such time as all cumulative dividends accumulated on
the 7.5% Preferred together with additional dividends accrued thereon, if any,
shall have been paid in full, at which time such voting right of the holders of
the 7.5% Preferred shall terminate, subject to re-vesting in the event of each
and every subsequent event of default of the character indicated above.
At any time when such voting right shall have vested in the holders
of the 7.5% Preferred, and if such right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the written request
of holders of record of 25% of the shares of the 7.5% Preferred then
outstanding, addressed to the Secretary of the Corporation, call a special
meeting of holders of the 7.5% Preferred and of any other class or classes of
stock having voting power with respect thereto for the purpose of electing
directors. Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of stockholders at the place for
holding annual meetings of stockholders of the Corporation or, if none, at a
place in the City of New York designated by the Secretary of the Corporation.
If such meeting shall not be called by the proper officers of the Corporation
within 30 days after the personal service of such written request upon the
Secretary of the Corporation, or within 30 days after mailing the same within
the United States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of 25% of the shares of the 7.5% Preferred then outstanding may designate in
writing a holder of the 7.5% Preferred to call such meeting at the expense of
the Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the same place as is elsewhere provided in this Section 2(c). Any holder of
the 7.5% Preferred entitled to vote at such meeting shall have access to the
stock books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of this Section 2(c).
Notwithstanding the provisions of this Section 2(c), however, no such special
meeting shall be called during a period within 60 days immediately preceding
the date fixed for the next annual meeting of stockholders.
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<PAGE> 9
At any meeting held for the purpose of electing directors at which
the holders of the 7.5% Preferred shall have the right to elect directors as
provided herein, the presence in person or by proxy of the holders of a
majority of the then outstanding shares of the 7.5% Preferred shall be required
and be sufficient to constitute a quorum of such class for the election of
directors by such class. At any such meeting or adjournment thereof (i) the
absence of a quorum of the holders of the 7.5% Preferred having such right
shall not prevent the election of directors other than those to be elected by
the holders of the 7.5% Preferred and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors shall not
prevent the election of directors to be elected by the holders of the 7.5%
Preferred entitled to elect such directors and (ii) in the absence of a quorum
of the holders of any class of stock entitled to vote for the election of
directors, a majority of the holders of such class present in person or by
proxy shall have the power to adjourn the meeting for the election of directors
which the holders of such class are entitled to elect, from time to time,
without notice (except as required by law) other than announcement at the
meeting, until a quorum shall be present.
The term of office of all directors elected by the holders of the
7.5% Preferred pursuant to this Section 2(c) in office at any time when the
aforesaid voting rights are vested in the holders of the 7.5% Preferred shall
terminate upon the election of their successors at any meeting of stockholders
for the purpose of electing directors (it being understood that such successors
shall be elected by the holders of the 7.5% Preferred). Upon any termination
of the aforesaid voting rights, the term of office of all directors elected by
the holders of the 7.5% Preferred pursuant to this Section 2(c) then in office
shall thereupon terminate and upon such termination the number of directors
constituting the Board of Directors shall, without further action, be reduced
by two, subject always to the increase of the number of directors pursuant to
this Section 2(c) in case of the future right of the holders of the 7.5%
Preferred to elect directors.
For the purposes of this Section 2(c) no shares of the 7.5%
Preferred held by the Corporation or a subsidiary of the Corporation shall be
deemed to be outstanding shares of the 7.5% Preferred.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least
66-2/3% of all of the shares of the 7.5% Preferred at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of such
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<PAGE> 10
shares shall vote as a separate class without regard to any shares of any other
class or series, shall be necessary for (i) authorizing, effecting or
validating the amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation or of any amendatory certificate thereto so as to
amend the rights, preferences, privileges or voting power of shares of the 7.5%
Preferred and (ii) authorizing or increasing the authorized amount of any class
of stock, or establishing or designating any series of stock, or the issuing or
selling of any obligation, security or instrument convertible into,
exchangeable for, or evidencing the right to purchase, acquire or subscribe for
shares of a class or series of stock of the Corporation, if, in any such case,
such class or series of stock ranks prior to the 7.5% Preferred as to dividends
or distribution of assets upon liquidation, dissolution or winding up or which
provides that any shares of such class or series of stock be mandatorily
redeemed prior to the redemption of the 7.5% Preferred.
(d) Conversion at the Option of the Holder. Subject to the
provisions of Section 2(f) of this Article Fourth, the holders of the 7.5%
Preferred shall be entitled at any time and from time to time to convert the
7.5% Preferred into shares of Common Stock.
(e) Conversion at the Option of the Corporation. At any time
subsequent to the date upon which the per-share closing price (regular way) for
a round lot of the Common Stock on the American Stock Exchange (or such other
exchange or system on which the Common Stock shall from time to time be traded)
has been greater than $6.00 for 20 trading days in a 30 consecutive trading
day period, the Corporation shall have the right to require the conversion of
the 7.5% Preferred subject to the provisions of Section 2(f) of this Article
Fourth. In case the Corporation shall have taken any of the steps described in
Section 2(g) of this Article Fourth during such period, then such price shall
be adjusted as provided for in, or as may be appropriate pursuant to the
provisions of, such Section. The Corporation shall provide holders of the 7.5%
Preferred with at least 30 days written notice of the date upon which
conversion of the 7.5% Preferred is required by the Corporation pursuant to
this Section 2(e) (the "7.5% Conversion Date"). Upon the 7.5% Conversion Date,
the holders of the 7.5% Preferred shares which are to be converted (the "7.5%
Conversion Shares") shall deliver certificates for their shares to the
Corporation against delivery of appropriate documentation for the securities
into which they are to be converted. Dividends shall cease to accrue on the
7.5% Conversion Shares on the day following the 7.5% Conversion Date whether or
not the certificates therefor are delivered to the Corporation.
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(f) Conversion Terms and Procedures. Each share of 7.5%
Preferred shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share, into a number of shares of
Common Stock determined by dividing the stated value of the share by the
Conversion Price.
The "Conversion Price" shall be $5.00 at all times except during the
Conversion Window (as defined hereafter), if one should occur, and shall be
subject to adjustment from time to time as provided herein. During the
Conversion Window, the Conversion Price shall be an amount equal to the average
per-share closing price (regular way) for a round lot of the Common Stock on
the American Stock Exchange (or such other exchange or system on which the
Common Stock shall from time to time be traded) on each of the 20 trading days
immediately preceding the Conversion Window; provided, however, that the
Conversion Price shall not be less than $2.50, subject to adjustment from time
to time as provided for in the next sentence. In case the Corporation shall
have taken any of the steps described in Section 2(g) of this Article Fourth
during such period, then such Conversion Price shall be adjusted as provided
for in, or as may be appropriate pursuant to the provisions of, such Section.
The "Conversion Window" shall occur only if the per-share closing
price (regular way) for a round lot of the Common Stock on the American Stock
Exchange (or such other exchange or system on which the Common Stock shall from
to time be traded) has never been $5.00 or more on 20 trading days during any
30 consecutive trading day period occurring prior to September 24, 1998. The
Conversion Window shall be a 60-calendar-day period beginning on September 24,
1998.
The conversion of the 7.5% Preferred shall be effected by the
surrender to the Corporation of the certificates representing the shares of the
7.5% Preferred to be converted at the principal office of the Corporation's
transfer agent at any time during its usual business hours, together with
written notice by the holder specifying the number of shares represented by
such certificate or certificates to be so converted. The notice shall also
state the name or names (and addresses) and denominations in which the
certificate or certificates shall be issued for the shares of Common Stock to
be delivered upon such conversion and shall include instructions for delivery
thereof.
Surrender of such certificates together with such notice shall
obligate the Corporation to deliver, in accordance with such instructions, the
certificate or certificates for the Common Stock deliverable upon such
conversion and, in the event that only a part of the shares
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<PAGE> 12
of the 7.5% Preferred evidenced by such certificate or certificates are
converted, the Corporation shall deliver a certificate evidencing the number of
shares of the 7.5% Preferred that are not converted. The Corporation shall
make such deliveries as soon as practicable after the surrender of the
certificate or certificates evidencing shares of the 7.5% Preferred for
conversion and shall pay all accrued but unpaid dividends on the 7.5%
Preferred. To the extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date on which such
certificates shall have been surrendered and such notice shall have been
received by the Corporation, and at such time the person or persons in whose
name or names any certificate or certificates for such shares are issuable upon
such conversion shall be deemed to have become the holder or holders of record
thereof.
(g) Anti-dilution Provisions. The Conversion Price shall be
subject to adjustment from time to time as set forth in this Section 2(g), and
as so adjusted or readjusted, shall remain in effect until a further adjustment
or readjustment thereof is required hereby.
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case, at
any time or from time to time, the Corporation shall
- take a record of the holders of the Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock or other securities convertible into
or exchangeable for Common Stock (in which latter event the number of
shares of Common Stock issuable upon the conversion or exchange of
such securities shall be deemed to be distributed) (collectively, a
"Dividend") or
- subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock (a "Subdivision"), or
- combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock (a "Combination"),
then the Conversion Price in effect immediately prior to such Subdivision or at
the record date of such Dividend shall, simultaneously with the effectiveness
of such Subdivision or immediately after the record date of such Dividend, be
proportionately reduced, and conversely, in the case of a Combination, the
Conversion Price in effect immediately prior to such Combination shall
simultaneously
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<PAGE> 13
with the effectiveness of such Combination, be proportionately increased.
Any adjustment to the Conversion Price under this Section 2(g)(i)
shall become effective at the close of business on the record date for such
Dividend or on the date such Subdivision or Combination referred to herein
becomes effective, as the case may be.
(ii) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In case, at any
time or from time to time, the Corporation shall make or issue, or take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of
- any evidence of its indebtedness, any shares of its stock
(other than Common Stock) or any other securities or property of any
nature whatsoever (other than cash), or
- any warrants or other rights to subscribe for or purchase any
evidence of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever,
then, and in each such event, the holder shall be entitled to receive upon
conversion of the shares of 7.5% Preferred such evidence of indebtedness,
shares of stock, warrants or other rights or any other securities or property
of any nature whatsoever as the holder would have actually been entitled to as
a holder of Common Stock if the holder had exercised the conversion rights
immediately prior thereto. Such evidence of indebtedness, shares of stock,
warrants or other rights or any other securities or other property shall be
paid to the holder at the time of delivery by the Corporation of the
certificate or certificates for the Common Stock deliverable upon conversion of
the 7.5% Preferred. A reclassification of the Common Stock into shares of
Common Stock and shares of any other class of stock shall be deemed a
distribution by the Corporation to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section and, if
the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
this shall be deemed a Subdivision or Combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 2(g)(i) of
this Article Fourth.
(iii) OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provision shall be applicable to the making of
adjustments of the number of
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<PAGE> 14
shares of Common Stock to which the holder shall be entitled upon conversion as
provided for in this Section 2(g):
- When Adjustments to be Made. The adjustments required shall
be made whenever and as often as required. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
- Fractional Interests. In computing adjustments under this
Section 2(g), fractional interests in Common Stock shall be taken into
account to the nearest one-tenth of a share.
- When Adjustment Not Required. If the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution and shall,
thereafter and before the distribution thereof to stockholders,
abandon its plan to pay or deliver such dividend or distribution under
circumstances such that it shall not have become (or shall no longer
remain) obligated under applicable law to pay or deliver the same,
then no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(iv) CHANGES IN CAPITAL STOCK. In case at any time the
Corporation shall be a party to any transaction (including, without limitation,
a merger, consolidation, sale or other disposition of all or substantially all
of the Corporation's assets or capital reorganization), in which previously
outstanding Common Stock shall be changed into or exchanged for common stock or
other securities of another corporation or interests in a non-corporate entity
or other property (including cash) or any combination of any of the foregoing
(each such transaction being hereinafter referred to as a "Transaction") then,
as a condition to the consummation of the Transaction, lawful and adequate
provision shall be made so that the holder, upon conversion at any time on or
after the consummation of the Transaction, shall be entitled to receive the
highest amount of securities, cash or other property to which the holder would
actually have been entitled as a holder of Common Stock upon the consummation
of the Transaction if the holder had converted immediately prior thereto
(subject to adjustments from and after the consummation of the Transaction as
nearly equivalent as possible to the adjustment provided for in this Section
2(g) (including, without limitation, provisions for adjustments of the
Conversion Price)).
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<PAGE> 15
(v) SALE OF ADDITIONAL SHARES. If at any time or from time to
time the Corporation shall issue or sell Additional Shares of Common Stock (as
hereinafter defined) other than as a dividend or other distribution on any
class of stock and other than as a subdivision or combination of shares of
Common Stock as provided in Section 2(g)(i) of this Article Fourth, for a
consideration per share less than the Then Existing Market Price (as
hereinafter defined), then, and in each such case, the then existing Conversion
Price shall be reduced, as of the opening of business on the date of such
issuance or sale, to a price determined by dividing (A) an amount equal to the
sum of (1) the Conversion Price immediately prior to such issue or sale
multiplied by the number of shares of Common Stock outstanding at the close of
business on the day next preceding the date of such issue or sale, plus (2) the
aggregate consideration, if any, received or to be received by the Corporation
upon such issue or sale, by (B) the number of shares of Common Stock
outstanding at the close of business on the date of such issue or sale after
giving effect to the issuance of such Additional Shares of Common Stock.
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Corporation, whether or not subsequently reacquired or retired by
the Corporation, other than shares of Common Stock issued upon the conversion
of the 7.5% Preferred. "Then Existing Market Price" as used in this Section
shall mean the per-share closing price (regular way) for a round lot of the
Common Stock on the American Stock Exchange (or such other exchange or system
on which the Common Stock shall from time to time be traded) on the day next
preceding the date of such issue or sale of Additional Shares of Common Stock.
For the purpose of making any adjustment in the Conversion Price or
number of shares of Common Stock to be issued upon conversion of the 7.5%
Preferred, as provided above, the consideration received by the Corporation for
any issue or sale of any securities shall:
- To the extent it consists of cash, be computed at the net
amount of cash received by the Corporation after deduction of any
expenses payable directly or indirectly by the Corporation and any
underwriting or similar commissions, compensations, discounts or
concessions paid or allowed by the Corporation in connection with such
issue or sale;
- To the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Corporation, at or about, but as
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<PAGE> 16
of, the date of the adoption of the resolution specifically
authorizing such issuance or sale, irrespective of any accounting
treatment thereof; provided, however, that such fair market value as
determined by such Board of Directors, when added to any cash
consideration received in connection with such issuance or sale, shall
not exceed the aggregate market price of the Additional Shares of
Common Stock being issued, as of the date of the adoption of such
resolution; and
- If Additional Shares of Common Stock, Convertible Securities
(as hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued
or sold together with other stock or securities or other assets of the
Corporation for consideration which covers both, the consideration
received for the Additional Shares of Common Stock, Convertible
Securities or rights or options shall be computed as that portion of
the consideration so received which is reasonably determined in good
faith by the Board of Directors of the Corporation to be allocable to
such Additional Shares of Common Stock, Convertible Securities or
rights or options.
For the purpose of making any adjustment in the Conversion Price
provided in this Section, if at any time, or from time to time, the Corporation
issues any stock or other securities convertible into Additional Shares of
Common Stock (such stock or other securities being hereinafter referred to as
"Convertible Securities") or issues any rights or options to purchase
Additional Shares of Common Stock or Convertible Securities (such rights or
options being hereinafter referred to as "Rights"), then, and in each such
case, if the Effective Conversion Price (as hereinafter defined) of such Rights
or Convertible Securities shall be less than the Conversion Price immediately
prior to the issuance of such Rights or Convertible Securities, the Corporation
shall be deemed to have issued at the time of the issuance of such Rights or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received in
consideration for the issuance of such shares an amount equal to the aggregate
Effective Conversion Price of such Rights or Convertible Securities. For the
purposes of this Section, "Effective Conversion Price" shall mean an amount
equal to the sum of the lowest amount of consideration, if any, received or
receivable by the Corporation with respect to any one Additional Share of
Common Stock upon issuance of the Rights or Convertible Securities and upon
their exercise or
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<PAGE> 17
conversion, respectively. No further adjustment of the Conversion Price
adjusted upon the issuance of such Rights or Convertible Securities shall be
made as a result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such Rights or the conversion of any such Convertible
Securities.
(vi) OTHER DILUTING EVENTS. In case any event shall occur as to
which the provisions of this Section 2(g) are not strictly applicable but the
failure to make any adjustment would not in the opinion of the holders fairly
protect the rights of the holders in accordance with the essential intent and
principles of this Section, then, in each such case, upon the written request
of the holders of at least 25% of all of the shares of the 7.5% Preferred at
the time outstanding, the Corporation shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Corporation), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section, necessary to preserve, without dilution
of the rights of the holders. Upon receipt of such opinion, the Corporation
will promptly mail a copy thereof to the holders and shall make the adjustments
described therein.
(vii) NO DILUTION OR IMPAIRMENT. The Corporation shall not, by
amendment of this Certificate of Incorporation or through any consolidation,
merger, reorganization, recapitalization, transfer of assets, dissolution,
issuance or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Section 2(g),
but shall at all times in good faith use its best efforts to assist in carrying
out all of such terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the holders against dilution
or other impairment.
(viii) COMMON STOCK. "Common Stock" as used in this Section 2(g)
shall mean any shares of any class of the Corporation's capital stock other
than the Corporation's preferred stock; provided that such class of preferred
stock has a fixed limit on dividends and a fixed amount payable in the event of
a voluntary or involuntary liquidation, dissolution or winding up of the
Corporation. The Common Stock issuable upon conversion of the 7.5% Preferred,
however, shall be the Common Stock of the Corporation as constituted on the
date hereof, except as otherwise provided in this Section 2(g).
(ix) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other
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<PAGE> 18
securities issuable upon conversion of the 7.5% Preferred, the Corporation, at
its expense, shall cause the independent public accountants then auditing the
books of the Corporation to compute such adjustment or readjustment in
accordance with this Article and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each registered holder of the 7.5% Preferred at the holder's
address as shown on the Corporation's stock transfer books. The certificate
shall set forth such adjustment or readjustment, showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of
(A) the consideration received or to be received by the Corporation for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (B) the Conversion Price at the time in effect for the 7.5% Preferred,
and (C) the number of Additional Shares of Common Stock and the type and
amount, if any, of other property which at the time would be received upon
conversion of the 7.5% Preferred. Such notice may be given in advance of such
adjustment or readjustment and may be included as part of a notice required to
be given pursuant to Section 2(g)(x) of this Article Fourth.
(x) NOTICES OF RECORD DATE. In the event the Corporation shall
propose to take any action of the type or types requiring an adjustment to the
Conversion Price or the number or character of the 7.5% Preferred as set forth
herein, the Corporation shall give notice to the holders of the 7.5% Preferred
in the manner set forth in Section 2(g)(ix) of this Article Fourth, which
notice shall specify the record date, if any, with respect to any such action
and the date on which such action is to take place. Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the number, kind or class
of shares or other securities or property which shall be deliverable upon the
occurrence of such action or deliverable upon the conversion of the 7.5%
Preferred. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action.
(xi) PAYMENT OF TAXES. The Corporation shall pay all documentary
stamp taxes that are attributable to the issuance of shares of Common Stock or
other securities or property upon conversion of shares of the 7.5% Preferred.
(xii) SURRENDERED SHARES. All certificates representing the 7.5%
Preferred surrendered for conversion
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<PAGE> 19
or redemption shall be appropriately canceled on the books of the Corporation,
and the shares so converted represented by such certificates shall be restored
to the status of authorized but unissued shares of the 7.5% Preferred of the
Corporation, but may not be reissued as part of the 7.5% Preferred.
(xiii) CLOSING OF BOOKS. The Corporation will not close its
transfer books against the transfer of any shares of the 7.5% Preferred or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of the 7.5% Preferred in any manner that interferes with the timely conversion
of such 7.5% Preferred, except as may otherwise be required to comply with
applicable securities laws.
(h) Redemption of the 7.5% Preferred. The Corporation shall have
the right to redeem any or all of the outstanding shares of the 7.5% Preferred
at any time and from time to time at the stated value of such shares payable in
cash together with any accrued but unpaid dividends thereon. In the event the
Corporation shall redeem shares of the 7.5% Preferred, notice of such
redemption shall be given by first-class mail, postage prepaid, mailed not less
than 30 days nor more than 60 days prior to the redemption date (the "7.5%
Redemption Date"), to each holder of record of the shares to be redeemed at
such holder's address as the same appears on the stock register of the
Corporation; provided, however, that no failure to mail such notice nor any
defect therein shall affect the validity of the proceeding for the redemption
of any shares of the 7.5% Preferred to be redeemed except as to the holder to
whom the Corporation has failed to mail said notice or except as to the holder
whose notice was defective. Each such notice shall state: (i) the 7.5%
Redemption Date, (ii) the number of shares of the 7.5% Preferred to be redeemed
and, if less than all the shares held by such holder are to be redeemed from
such holder, the number of shares to be redeemed from such holder, (iii) the
redemption price (including accrued but unpaid dividends), (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price, and (v) that dividends on the shares to be redeemed will
cease to accrue on the day following the 7.5% Redemption Date unless the
Corporation defaults in making such payment.
Upon the 7.5% Redemption Date, the holders of the 7.5% Preferred
shares which are to be redeemed (the "7.5% Redemption Shares") shall deliver
certificates for those shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the 7.5% Redemption Shares on the
day following the 7.5% Redemption
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<PAGE> 20
Date whether or not the certificates therefor are delivered to the Corporation.
If less than all of the shares of the 7.5% Preferred are to be
redeemed, the Corporation shall select the shares of the 7.5% Preferred to be
redeemed in whole shares on a pro rata basis (or as close thereto as
practical).
3. Common Stock and Class B Common Stock.
(a) Except as otherwise provided in this Section 3, all shares of
common stock of whatever class or series shall be identical and shall entitle
the holders thereof to the same rights and privileges.
(b) Holders of shares of Common Stock shall be entitled to one
vote per share registered on the books of the Corporation on matters submitted
to stockholders. Holders of shares of Class B Common Stock shall be entitled
to one vote per share registered on the books of the Corporation on matters
submitted to stockholders. Except as otherwise required by law, holders of
Common Stock and Class B Common Stock shall vote together as one class on all
matters submitted to stockholders.
(c) In the event of a liquidation, dissolution or winding-up of
the Corporation whether voluntary or involuntary, subject to the proviso below
and subject to the rights of the holders of the Class A Preferred, the Class B
Preferred, the 7.5% Preferred and any other class or series of stock ranking
senior to the Common Stock or the Class B Common Stock as to liquidation
preferences, the holders of shares of Common Stock and Class B Common Stock
then outstanding shall be entitled to share ratably, according to the number of
shares held, in the distribution of assets; provided, however, that any such
distribution of assets to holders of shares of Class B Common Stock shall be
limited to an amount equal to $.01 per share.
FIFTH: The name and mailing address of the sole incorporator is
Monte E. Wetzler, Breed, Abbott & Morgan, 153 East 53rd Street, New York, New
York 10022.
SIXTH: The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting of not less than
three nor more than twelve directors, the exact number of directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the entire Board of Directors. The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-
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<PAGE> 21
third of the total number of directors constituting the entire Board of
Directors. Initially, the Class I director shall be Alan G. Quasha, Hanover
Direct, Inc., 1500 Harbor Boulevard, Weehawken, New Jersey 07087, the Class II
director shall be Jack E. Rosenfeld, Hanover Direct, Inc., 1500 Harbor
Boulevard, Weehawken, New Jersey 07087 and the Class III directors shall be
Michael P. Sherman and Wayne P. Garten, both at Hanover Direct, Inc., 1500
Harbor Boulevard, Weehawken, New Jersey 07087. From the date of
incorporation, Class III directors shall serve for a one-year term, Class II
directors for a two-year term and Class I directors for a three-year term. At
each annual meeting of stockholders beginning in 1994, successors to the class
of directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional
director of any class elected to fill a vacancy resulting from an increase in
each class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
registration, retirement, disqualification or removal from office. Any vacancy
on the Board of Directors that results from an increase in the number of
directors may be filled by a majority of the Board of Directors then in office,
and any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his predecessors.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
Sixth unless expressly provided by such terms.
The election of directors of the Corporation need not be by ballot
unless the Bylaws so require. The Board of Directors and stockholders may hold
their meetings and have
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<PAGE> 22
an office or offices outside the State of Delaware, if the Bylaws so provide.
Notwithstanding any other provision of this Certificate of
Incorporation, no amendment of this Certificate of Incorporation shall amend,
alter or repeal any provision of this Article Sixth unless such amendment shall
be approved by the holders of shares of stock of the Corporation representing
at least 75% of the votes entitled to be cast thereon at a meeting of the
stockholders duly called for the consideration of such amendment.
SEVENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional, misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification. Except as prohibited by Section 145 of the
Delaware General Corporation Law, every director and officer of the Corporation
shall be entitled as a matter of right to be indemnified by the Corporation
against reasonable expense and any liability paid or incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
civil, criminal, administrative, investigative or other, whether brought by or
in the right of the Corporation or otherwise, in which he or she may be
involved, as a party or otherwise, by reason of such person being or having
been a director or officer of the Corporation or by reason of the fact that
such person is or was serving at the request of the Corporation as a director,
officer, employee, fiduciary or other representative of the Corporation or
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity (such claim, action, suit or proceeding hereinafter being
referred to as an "action"); provided, however, that no such right of
indemnification shall exist with respect to an action brought by a director or
officer against the Corporation other than in a suit for indemnification as
provided hereunder. Such indemnification shall include the right to have
expenses incurred by such person in connection with an action paid in advance
by the Corporation prior to final disposition of such action, subject to such
conditions as may be prescribed by law. As used herein, "expense" shall
include, among other things, fees and expenses of counsel selected by such
person, and "liability" shall include amounts of judgments, excise taxes, fines
and penalties, and amounts paid in settlement.
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<PAGE> 23
Insurance; Other Funding. The Corporation may purchase and maintain
insurance to protect itself and any person eligible to be indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any action, whether or not the Corporation would have the power
to indemnify such person against such liability or expense by law or under the
provisions of this Article Seventh. The Corporation may make other financial
arrangements, which may include, among other things, a trust fund, program of
self-insurance, grant of a security interest or other lien on any assets of the
Corporation, or establishment of a letter of credit, guaranty or surety, to
ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
Non-Exclusive; Nature and Extent of Rights. The right of
indemnification provided for herein (i) shall not be deemed exclusive of any
other rights, whether now existing or hereafter created, to which those seeking
indemnification hereunder may be entitled under any agreement, by-law or
article provision, vote of the stockholders or directors or otherwise, (ii)
shall be deemed to create contractual rights in favor of persons entitled to
indemnification hereunder, (iii) shall continue as to persons who have ceased
to have the status pursuant to which they were entitled or were designated as
entitled to indemnification hereunder and shall inure to the benefit of the
heirs and legal representatives of persons entitled to indemnification
hereunder and (iv) shall be applicable to actions, suits or proceedings
commenced after the adoption of this Article Seventh, whether arising from acts
or omissions occurring before or after the adoption hereof. The right of
indemnification provided for herein may not be amended, modified or repealed so
as to limit in any way the indemnification provided for herein with respect to
any acts or omissions occurring prior to the adoption of any such amendment or
repeal.
The undersigned, being the sole incorporator, for the purposes of
forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate and does hereby declare and certify that
it is his act and deed and the facts stated herein are true, and accordingly
does hereunto set his hand this 14th day of April, 1993.
/s/ Monte E. Wetzler
--------------------------
Monte E. Wetzler
Sole Incorporator
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<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HANOVER DIRECT, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
_________________________________________________
The undersigned hereby certifies as follows:
1. That he is President of HANOVER DIRECT, INC.
2. That the Certificate of Incorporation was filed with
the Secretary of the State of Delaware on the 15th day of April, 1993.
3. That the amendment to the Certificate of
Incorporation as set forth herein and recommended by the Board of Directors was
duly adopted in accordance with Sections 228 and 242 of the General Corporation
Law of the State of Delaware.
RESOLVED: That the first paragraph of ARTICLE FOURTH be amended as
follows:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 168,172,403 shares, of
which 40,000 shares shall be class B 8% cumulative preferred stock, par value
$.01 per share and stated value of $1,000 per share (the "Class B Preferred"),
861,900 shares shall be shares of 7.5% cumulative convertible preferred stock,
par value $.01 and stated value of $20.00 per share (the "7.5% Preferred"),
5,000,000 shares shall be shares of additional preferred stock, par value $.01
per share (the "Additional Preferred Stock"), 150,000,000 shares shall be
shares of common stock, par value $.66-2/3 per share (the "Common Stock"), and
12,270,503 shares shall be shares of class B common stock, par value $.01 per
share (the "Class B Common Stock").
<PAGE> 2
RESOLVED: That the following paragraph be added to the end of ARTICLE
FOURTH:
4. Additional Preferred Stock
(a) The Additional Preferred Stock may be issued from time to
time in one or more series, with such distinctive designation or title and in
such number of shares as may be fixed by resolution of the Board of Directors
without further action by stockholders. The Board of Directors is expressly
granted authority to establish, by resolution or resolutions adopted before the
issuance of any shares of a particular series of Additional Preferred Stock,
the powers, preferences and rights of each series and the qualifications,
limitations or restrictions thereof, including but not limited to the
following:
(i) The voting powers, full, special or limited, or no voting
powers, of such series of Additional Preferred Stock;
(ii) The rate, terms and conditions on which dividends, if
any, shall be paid, whether such dividends will be cumulative and what
preference such dividends have in relation to the dividends on other series or
classes of stock;
(iii) The rights, terms and conditions, if any, for conversion
of such series of Additional Preferred Stock into shares of other series or
classes of stock;
(iv) Any right of the Corporation to redeem the shares of
such series of Additional Preferred Stock, and the price, time and conditions
of such redemption, including the provisions for any sinking fund; and
(v) The rights of holders of such series of Additional
Preferred Stock upon liquidation, distribution of assets, consolidation or sale
of assets by the Corporation.
(b) Unless the Board of Directors otherwise provides in the
resolution establishing a series of Additional Preferred Stock, upon repurchase
of the Corporation, redemption or conversion, the shares of Additional
Preferred Stock shall revert to authorized but unissued shares and may be
reissued as shares of any series of Additional Preferred Stock.
(c) In case the stated dividends and the amounts payable on
liquidation are not paid in full, each share of any series of Additional
Preferred Stock shall share ratably with each other share of any series of
Additional Preferred
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<PAGE> 3
Stock, but not with any shares of Common Stock, (a) in the payment of
dividends, including cumulations, if any, in accordance with the sums which
would be payable on such share if all dividends were declared and paid in full
and (b) in any distribution of assets other than by way of dividends, in
accordance with the sums which would be payable in such distribution if all
sums payable were discharged in full.
(d) The holders of Additional Preferred Stock shall be
entitled to receive when and as declared by the Board of Directors, but only
out of assets legally available for the payment of dividends, cash dividends at
the annual rate of each series fixed by the Board of Directors at the time of
the original authorization of the issue of the shares of such series.
(e) So long as any share of Additional Preferred Stock shall
be outstanding, the Corporation shall not declare, pay or set apart for payment
any dividends (other than dividends payable in Common Stock) on the Common
Stock, make any other distributions on the Common Stock, or redeem, purchase or
otherwise acquire for consideration or permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any Common Stock unless all
accrued dividends of the Additional Preferred Stock of all series, including
any unpaid cumulative dividends thereon, but without interest, shall have been
paid and full dividends thereon for the then current dividend period shall have
been paid or declared, and a sum sufficient for the payment thereof set apart.
Notwithstanding the foregoing, the Corporation may at any time redeem, purchase
or otherwise acquire shares of Common Stock in exchange for, or out of the net
proceeds from the sale of other use of, other shares of Common Stock.
(f) In the event of a liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, but before
any distribution or payment shall be made to the holders of the Common Stock,
the holders of each series of Additional Preferred Stock shall be entitled to
be paid in cash the applicable liquidation price per share fixed at the time of
the original authorization of shares of such series and, in the case of each
share of Additional Preferred Stock having cumulative dividend rights, an
amount equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon, but without interest, to the date fixed for such distribution
or payment.
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<PAGE> 4
IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this
Certificate of Amendment of the Certificate of Incorporation to be signed on
its behalf by Edward J. O'Brien, the Senior Vice President, and attested by
Michael P. Sherman, the Secretary, this 19th day of January, 1994.
HANOVER DIRECT, INC.
By:/s/ Edward J. O'Brien
---------------------
Edward J. O'Brien
Senior Vice President
Attest:
By:/s/ Michael P. Sherman
----------------------
Michael P. Sherman
Secretary
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<PAGE> 5
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE ADDITIONAL PREFERRED STOCK
OF
HANOVER DIRECT, INC.
__________________________________
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
___________________________________
Hanover Direct, Inc., a corporation organized and existing
under the laws of Delaware (the "Corporation"), does hereby certify that,
pursuant to authority conferred on the Board of Directors of the Corporation by
the Certificate of Incorporation of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution establishing
and creating a series of 234,900 shares of additional preferred stock, par
value $.01 per share, of the Corporation designated as "Series A Convertible
Additional Preferred Stock":
RESOLVED, that pursuant to the authority conferred on
the Board of Directors of the Corporation by the Certificate of
Incorporation, a series of additional preferred stock, par value $.01
per share, of the Corporation is hereby established and created, and
that the designation and number of shares and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such securities, and the qualifications,
limitations and restrictions thereof, are as follows:
Series A Convertible Additional Preferred Stock
(a) Designation and Amount. There shall be a series of
additional preferred stock, par value $.01 per share (the "Additional Preferred
Stock"), designated as "Series A Convertible Additional Preferred Stock," and
the number of shares constituting such series shall be 234,900, each share
having a stated value upon issuance of $10.00. Such series is referred to
herein as the "Series A Preferred."
<PAGE> 6
(b) Rank. As to payment of dividends and as to distributions
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, all shares of Series A Preferred shall rank
prior to all of the Corporation's Common Stock, par value $.66-2/3 per share
(the "Common Stock"), and Class B Common Stock, par value $.01 per share, shall
rank equal to any other hereinafter issued series of Additional Preferred Stock
and shall be subordinate to all of the Corporation's 7.5% cumulative
convertible preferred stock, par value $.01 and stated value of $20 per share
(the "7.5% Preferred"), and the class B 8% cumulative preferred stock, par
value $.01 per share and stated value of $1,000 per share (the "Class B
Preferred").
(c) Dividends. The holders of record of shares of the Series
A Preferred shall be entitled to receive dividends, out of funds legally
available therefor, at a rate of 6% of the stated value per annum. Dividends
on the Series A Preferred shall commence to accrue on September 30, 1993, and
shall accrue cumulatively and be added to the stated value on a daily basis
whether or not earned or expressly declared by the Board of Directors.
(d) Liquidation Preference. In the event of any distribution
of assets upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holder of each share of the
then outstanding Series A Preferred shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital, surplus or
earnings, an amount equal to the then stated value of each share of Series A
Preferred, before any payments or distributions are made to, or set aside for,
any other equity security of the Corporation other than the holders of the 7.5%
Preferred, the Class B Preferred and any other series of Additional Preferred
Stock. If the assets of the Corporation are insufficient to pay such amounts
in full, then the entire assets of the Corporation shall first be distributed
to the holders of the 7.5% Preferred and the Class B Preferred and then, pro
rata, to the holders of shares of Additional Preferred Stock. Neither a
consolidation, merger or other business combination of the Corporation with or
into another corporation or other entity nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or other property shall be
considered a liquidation, dissolution or winding up of the Corporation for
purposes of this paragraph (d).
(e) Conversion. On September 30, 1994, each holder of the
Series A Preferred shall automatically, without any action being required on
the part of such
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<PAGE> 7
holder, have one-third of each such holders holdings of Series A Preferred (the
"First Conversion Allotment") converted into a number of shares of Common Stock
of the Corporation determined by dividing the then stated value of the shares
by the Conversion Price. On September 30, 1995, each holder of the Series A
Preferred shall automatically, without any action being required on the part of
such holder, have one-half of each such holders holdings of Series A Preferred
(the "Second Conversion Allotment") converted into a number of shares of Common
Stock determined by dividing the then stated value of the shares by the
Conversion Price. On September 30, 1996, all shares of the Series A Preferred
that remain outstanding (the "Final Conversion Allotment") shall automatically,
without any action being required on the part of the holders thereof, be
converted into a number of shares of Common Stock determined by dividing the
then stated value of the shares by the Conversion Price. Each of September 30,
1994, September 30, 1995 and September 30, 1996 is referred to herein as a
"Conversion Date." The "Conversion Price" shall be an amount equal to the
average of the per-share closing prices (regular way) for a round lot of the
Common Stock on the American Stock Exchange (or, if the Common Stock is then
not listed for trading on the American Stock Exchange, such other exchange or
system on which the Common Stock shall from time to time be traded) on each of
the five trading days immediately preceding a Conversion Date.
Promptly upon the occurrence of a Conversion Date, the
Corporation, or its stock transfer agent at the direction of the Corporation,
shall give notice by first class mail, postage prepaid, to each holder of
record on the Conversion Date of the Series A Preferred at such holder's
address as it shall appear upon the stock transfer books of the Corporation.
Each such notice of conversion shall specify the Conversion Date and the number
of shares of Common Stock into which such shares of Series A Preferred have
been converted, and be accompanied by certificates representing the number of
full shares of Common Stock into which such Series A Preferred has been
converted, registered in the same name and address in which such Series A
Preferred is then registered, and any cash adjustment in lieu of fractional
shares as hereinafter provided.
Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of the
Series A Preferred receives such notice; and failure to give such notice by
mail, or any defect in such notice, to the holders of any of the shares of
outstanding Series A Preferred shall not affect the validity of the proceedings
for the conversion of any of the shares of Series A Preferred. Within 5 days
following receipt of such notice, holders of shares of Series A
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<PAGE> 8
Preferred shall surrender the certificate or certificates for such shares of
Series A Preferred at the office of the Corporation or the Corporation's stock
transfer agent, which certificate or certificates, if the Corporation shall so
require, shall be duly endorsed to the Corporation or in blank, or accompanied
by proper instruments of transfer to the Corporation or in blank.
Subject to the provisions hereof, such conversion shall be
deemed to have been made as of the Conversion Date, and the person or persons
entitled to receive the Common Stock deliverable upon conversion of such Series
A Preferred shall be treated for all purposes as the record holder or holders
of such Common Stock on such date.
No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon conversion of Series A Preferred. If more
than one certificate representing shares of Series A Preferred shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred so surrendered. Instead of
any fractional share of Common Stock that would otherwise be issuable upon
conversion of any shares of Series A Preferred, the Corporation will pay a cash
adjustment in respect of such fractional interest in an amount equal to the
same fraction of the Conversion Price per share of Common Stock.
The Corporation shall at all times receive and keep available,
out of its authorized and unissued stock, solely for the purpose of affecting
the conversion of the Series A Preferred, such number of shares of its Common
Stock free of preemptive rights as shall from time to time be sufficient to
effect the conversion of all shares of Series A Preferred from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, increase the authorized number of shares of
Common Stock if at any time the number of shares of Common Stock not
outstanding shall not be sufficient to permit the conversion of all the then
outstanding shares of Series A Preferred.
The Corporation will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of any shares of Series A Preferred. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series A Preferred
so converted were registered, and no such issue or delivery
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<PAGE> 9
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
(f) Redemption. The Corporation shall have the right to
redeem the First Conversion Allotment at any time prior to September 20, 1994,
the Second Conversion Allotment at any time prior to September 20, 1995 and the
Final Conversion Allotment at any time prior to September 20, 1996 at the
liquidation value (initial stated value plus all accrued but unpaid dividends)
of such shares payable in cash. In the event the Corporation shall redeem any
such shares of Series A Preferred, notice of such redemption shall be given by
first-class mail, postage prepaid, mailed not less than 10 days nor more than
30 days prior to the redemption date (the "Redemption Date"), to each holder of
record of the shares to be redeemed at such holder's address as the same
appears on the stock register of the Corporation; provided, however, that no
failure to mail such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of Series A Preferred to be
redeemed except as to the holder to whom the Corporation has failed to mail
said notice or except as to the holder whose notice was defective. Each such
notice shall state: (i) the Redemption Date, (ii) the redemption price, (iii)
the place or places where certificates for such shares are to be surrendered
for payment of the redemption price, and (iv) that dividends on the shares to
be redeemed will cease to accrue on the day following the Redemption Date
unless the Corporation defaults in making payment of the redemption price.
Upon the Redemption Date, the holders of the Series A
Preferred shares which are to be redeemed (the "Redemption Shares") shall
deliver certificates for their shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the Redemption Shares on the day
following the Redemption Date whether or not the certificates therefor are
delivered to the Corporation.
(g) Voting Rights. The holders of the Series A Preferred
shall not have any voting rights except as may be required by law.
(h) Status of Acquired Shares. Shares of Series A Preferred
received by the Corporation pursuant to paragraphs (e) or (f) hereof, or
otherwise acquired by the Corporation, will be restored to the status of
authorized and unissued shares of Additional Preferred Stock, without
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<PAGE> 10
designation as to series, and may thereafter be issued, but not as shares of
Series A Preferred.
(i) Preemptive Rights. The Series A Preferred is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
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IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this
Certificate of Designation of Series A Convertible Additional Preferred Stock
to be signed on its behalf by Edward J. O'Brien, the Senior Vice President, and
attested by Michael P. Sherman, the Secretary, this 19th day of January, 1994.
HANOVER DIRECT, INC.
By:/s/ Edward J. O'Brien
---------------------
Edward J. O'Brien
Senior Vice President
Attest:
By:/s/ Michael P. Sherman
----------------------
Michael P. Sherman
Secretary
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<PAGE> 12
STATE OF New Jersey, )
) ss.
COUNTY OF Hudson. )
On this 19th day of January, 1994, personally appeared before
me, a notary public, EDWARD J. O'BRIEN, as Senior Vice President of Hanover
Direct, Inc., personally known to me to be the person whose name is subscribed
to the above instrument and who acknowledged that he executed the above
instrument on behalf of the Corporation.
Patricia Linda Williams
Notary Public of New
Jersey
Commission expires Jan. 10, 1997
STATE OF New Jersey, )
) ss.
COUNTY OF Hudson. )
On this day of January, 1994, personally appeared before
me, a notary public, MICHAEL P. SHERMAN, as Secretary of Hanover Direct, Inc.,
personally known to me to be the person whose name is subscribed to the above
instrument and who acknowledged that he executed the above instrument on behalf
of the Corporation.
Patricia Linda Williams
Notary Public of New
Jersey
Commission expires Jan. 10, 1997
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<PAGE> 1
Exhibit 4.1
THE HANOVER COMPANIES, Issuer
and
THE HORN & HARDART COMPANY
and
CERTAIN SUBSIDIARIES OF
THE HANOVER COMPANIES,
Guarantors
_________________________
$20,000,000
9.25% Senior Subordinated Notes
_________________________
Indenture
Dated as of August 17, 1993
FIRST TRUST NATIONAL ASSOCIATION
Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.3. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . 18
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 2 THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.3. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.13. Home Office Payment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3 REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.2. Selection of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . 25
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.2. SEC Reports, Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.3. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.4. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.5. Limitations on Distributions and Investments . . . . . . . . . . . . . . . . . . 31
Section 4.6. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.7. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.8. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.9. Limitation on Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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Section 4.10. Indebtedness to Consolidated Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.11. Limitation on Incurrences of Additional Indebtedness . . . . . . . . . . . . . . . . . . . 34
Section 4.12. Maintenance of Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.13. Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.14. Restriction on Payment of Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.15. Limitation on Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.16. Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.17. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.18. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.19. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.20. Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.21 Repayment of Certain Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.22 Limitation on Ranking of Future Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.23 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.24 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.25 Limitation on Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . 42
Section 4.26. Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.27 PPN Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.28 Limitations on Sales of Assets and Subsidiary Stock . . . . . . . . . . . . . . . . . . . . 43
Section 4.29. Repurchase of the Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 4.30. Amendments of CFC Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 4.31. Execution of Guaranties by Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . 48
Section 4.32. Limitation on Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.33. Working Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.1. When Company, the Guarantor or Their Subsidiaries May Merge, etc . . . . . . . . . . . . . 49
Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.9. Trustee may File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
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ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.9. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 8 DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 8.1. Termination of Company's, Guarantor's and the Guarantor Subsidiaries' Obligations . . . . . 62
Section 8.2. Application of Trust Money . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 8.3. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 8.4. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 9 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 9.6. Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 10 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.1. Securities Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.2. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.3. Default on Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.4. When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.5. Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.6. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.7. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.8. Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . . . . . . . . . . 70
Section 10.9. Distribution or Notice to Representatives . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.10. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.11. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . 71
Section 10.12. Application by Trustee of Monies Deposited With It . . . . . . . . . . . . . . . . . . . . 71
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Section 10.13. Trustee's Compensation Not Prejudiced . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.14. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.15. Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.16. Names of Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.17. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate . . . . . . . . . 73
Section 10.18. Reliance by Holders of Senior Indebtedness on Subordination Provisions . . . . . . . . . . 73
Section 10.19. Proof of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.20. No Fiduciary Duty to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 73
Section 10.20. Limitations on Application of Article 10. . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE 11 GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 11.1. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 11.2. Execution and Delivery of Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE 12 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 12.1. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 12.2. Recording, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 12.3. Suits to Protect the Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 13 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 13.1. Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 13.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 13.3. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . 81
Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . 81
Section 13.6. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 13.8. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 13.9. Variable Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 13.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 13.11. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . 83
Section 13.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 13.14. Qualification of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 13.15. Table of Contents, Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 13.16. Consent to Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . 84
Section 13.17. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
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<PAGE> 6
INDENTURE dated as of August 17, 1993 among THE HANOVER
COMPANIES, a Nevada corporation (the "Company"), THE HORN & HARDART COMPANY, a
Nevada corporation (the "Guarantor"), the subsidiaries of the Company which
have executed this Indenture and First Trust National Association, a national
association, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the holders of the Company's
9.25% Senior Subordinated Notes due August 1, 1998 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Affiliate" of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities or by agreement or
otherwise.
"Agent" means any Registrar, Paying Agent or coregistrar.
"Average Life" means, as of the date of determination, with
respect to any security or instrument, the quotient obtained by dividing (i)
the sum of the products of the number of years from the date of determination
to the dates of each successive scheduled principal (or redemption) payment of
such security or instrument multiplied by the amount of such principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Benefit Plan" means a defined benefit plan as defined in
Section 3(35) of ERISA, other than a Multiemployer Plan, in respect of which
the Company, the Guarantor or any ERISA Affiliate is, or within the immediately
preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA;
provided, however, that the term "Benefit Plan" shall not include any such
defined benefit plan for any period during which the termination of or
withdrawal from such defined benefit plan by such ERISA
<PAGE> 7
Affiliate could not subject the Company, the Guarantor or any Guarantor
Subsidiary to any liability under the Internal Revenue Code or ERISA.
"Board of Directors" or "Board" means the Board of Directors
or any authorized committee of the Board of the Company or the Guarantor
empowered to act on such matters.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person, a certified copy
of which has been sent to the Trustee.
"Capital Stock" means with respect to any Person any and all
shares, interests, warrants, rights, options, participations or other
equivalents (however designated) of, in or to corporate stock, including of, in
or to common stock and preferred stock (whether or not included in
shareholders' equity).
"Capitalized Lease Obligation" means, as applied to any Person
for any period, any lease of any property (whether real, personal or mixed) by
that Person as lessee that, in conformity with GAAP, is or should be accounted
for as a capital lease on the balance sheet or for which the amount of the
asset or liability thereunder as if so capitalized should be disclosed in a
footnote to such balance sheet of that Person and the amount of such obligation
shall be the capitalized amount thereof, determined in accordance with such
principles.
"Cash and Marketable Securities" means cash, cash equivalents
of U.S. Government Obligations or certificates of deposit maturing within nine
months from the date of issuance thereof issued by a commercial bank or trust
company organized under the laws of the United States of America or any state
thereof or the District of Columbia or any other short-term money market type
obligations of such corporation, each having a rating for its unsecured
long-term debt of "A" or better from both Standard & Poor's Corporation ("S&P")
and Moody's Investors Service, Inc. ("Moody's") and commercial paper rated
A-1/P-1 by S&P and Moody's and not maturing more than 90 days from the date of
acquisition thereof.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section Section 9601,
et seq. or any analogous or similar state law.
"CFC Credit Agreement" means that certain Amended and Restated
Loan and Security Agreement, dated as of July 9, 1993, by and among Congress
Financial Corporation, a California corporation, Hanover Direct Fulfillment,
Inc., a Pennsylvania corporation, Brawn California, Inc., a California
corporation, Gump's By Mail, Inc., a Delaware corporation, and GSF Acquisition
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<PAGE> 8
Corp., a California corporation, as the same may be amended, modified or
supplemented.
"Change in Control" means (i) directly or indirectly a sale,
transfer or other conveyance of all or substantially all of the assets of the
Guarantor (or HDI after the Reorganization), on a consolidated basis, to any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), excluding transfers or
conveyances to or among Restricted Subsidiaries and to HDI, pursuant to the
Reorganization, as an entirety or substantially as an entirety in one
transaction or series of related transactions, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) other than NAR, directly or through its
subsidiaries, is or becomes the "beneficial owner" (as that term is used in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have "beneficial ownership" of all Capital
Stock that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of a sufficient number of issued and outstanding shares of Capital
Stock of the Company or the Guarantor on a fully diluted basis, to elect a
majority of the members of the respective Boards of Directors of the Company or
the Guarantor, as the case may be, or (iii) during any period of 24 consecutive
months, individuals who at the beginning of such period constituted the Board
of Directors of the Company or the Guarantor, as the case may be (together with
any new directors whose election by such Board or whose nomination for election
by the shareholders of the Company or the Guarantor was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company or the Guarantor then in office.
"Class B Preferred Stock" shall mean the Class B preferred
stock, par value $.01 per share, of the Company.
"Collateral" shall mean the collateral pledged pursuant to the
Collateral Documentation.
"Collateral Documentation" shall mean the Pledge and Security
Agreement, the Pledged Note, financing statements and all other deeds of trust,
assignments, endorsements, collateral assignments and other instruments,
documents, agreements or conveyances at any time creating or evidencing Liens
or assigning Liens to the Trustee, to secure the obligations of the Company,
the Guarantor or the Guarantor Subsidiaries under the Documents.
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<PAGE> 9
"Common Stock" shall mean the common stock, par value $.662/3
per share, of the Guarantor.
"Company" means the Person named as such above until a
successor replaces it in accordance with Article 5, including without
limitation pursuant to the Reorganization, and thereafter means the successor.
"Consolidated Current Assets" shall mean at any date, all
amounts which, in conformity with GAAP, would be included under current assets
on a consolidated balance sheet of the Company, the Guarantor and the
Restricted Subsidiaries, as at such date.
"Consolidated Current Liabilities" shall mean at any date, all
amounts which, in conformity with GAAP, would be included under current
liabilities on a consolidated balance sheet of the Company, the Guarantor and
the Restricted Subsidiaries, excluding the Revolving Loan Balance to the extent
included in such current liabilities, as at such date.
"Consolidated Earnings" shall mean, with respect to any
period, the sum for such period of (i) Consolidated Net Income, plus (ii) taxes
not currently due and payable of the Company and the Restricted Subsidiaries,
in each case as determined on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" shall mean, with respect to any
period, the net income (or loss) of the Company and the Restricted Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP
consistently applied for each period, adjusted to exclude (only to the extent
included in computing such net income (or loss)), extraordinary and
nonrecurring items and gains (or losses) on investments or assets, unremitted
equity in earnings of Affiliates (except for such unremitted equity that is
within the complete control of the Company and is not otherwise restricted and
for which funds are currently available for disbursement), minority interests,
gains on retirement of debt, cash dividends received in liquidation or
discontinuance of any Affiliate or in the form of intercompany transfer of cash
not constituting repayment of Indebtedness or payment in respect of liquidation
or discontinuance of the transferor or any write-up of any asset and any
deferred credit or amortization of a deferred credit arising from any
acquisition in any manner of any Person.
"Consolidated Assets" shall mean, at any date, the
consolidated assets of the Company, the Guarantor and their subsidiaries as
determined on a consolidated basis and in accordance with GAAP.
-4-
<PAGE> 10
"Consolidated Net Worth" shall mean, at any date, the total
shareholders' equity of each of the Company, the Guarantor and its respective
subsidiaries determined on a consolidated basis in accordance with GAAP , less
(i) any item that by its terms (or by the terms of any security which it is
convertible into or exchangeable for) or upon the happening of any event is (a)
convertible into or exchangeable for Indebtedness, or (b) matures or is
mandatorily redeemable pursuant to a sinking fund or otherwise, less (ii)
declared but unpaid dividends on any class of Capital Stock and less (iii) any
treasury stock.
"Consolidated Subsidiary" of any specific Person means any
subsidiary, all of whose shares of Capital Stock are owned by such Person
and/or by another Consolidated Subsidiary of such Person, and the accounts of
which are, or under GAAP are required to be, consolidated with the accounts of
such Person.
"Convertible Preferred Stock" shall mean the 7.5% cumulative
convertible preferred stock, par value $.01 per share and stated value $20 per
share, of the Company.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 13.9 or such other address of which
the Trustee may give notice to the Company and the Guarantors.
"Corporation" includes corporations, associations, companies
and business trusts.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Distribution Facility Subsidiary" shall mean a Consolidated
Subsidiary of the Company formed after the date hereof to acquire the New
Distribution Facility.
"Documents" means the Purchase Agreement, the Indenture, the
Registration Rights Agreement, the Securities, the Guaranty, the Collateral
Documentation, the Escrow Agreement and all other security agreements,
mortgages, deeds of trust, financing statements, lease assignments, guaranties
and other agreements and instruments, together with any assignments,
endorsements of, exhibits, schedules or other attachments to all of the
foregoing, delivered in connection with the transactions contemplated hereby or
thereby, all as amended, supplemented or otherwise modified from time to time.
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, license, order, permit or regulation pertaining to
health, industrial hygiene, hazardous waste or the environmental conditions on,
under, from or about any real property, including without limitation, CERCLA
and RCRA.
-5-
<PAGE> 11
"Equity Interests" means Capital Stock or warrants, options or
other rights to acquire Capital Stock or other equity participations, excluding
any debt securities that are convertible into or exchangeable for Capital Stock
or other equity participations.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"ERISA Affiliate" means any (i) corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Internal Revenue Code) as the Company, (ii) partnership or other
trade or business (whether or not incorporated) under common control (within
the meaning of Section 414(c) of the Internal Revenue Code) with the Company;
and (iii) member of the same affiliated service group (within the meaning of
Section 414(m) of the Internal Revenue Code) as the Company.
"Excess Availability" shall mean at any date, the aggregate
amount, as determined by any lender according to any revolving loans or lines
of credit that stipulates the amount of funds available to the Company, the
Guarantor and the Restricted Subsidiaries, for immediate and unrestricted
drawdown or advance, and which pursuant to any such drawdown or advance will by
its nature increase the aggregate outstanding balance owed to such lender by
the Company, the Guarantor and the Restricted Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fixed Charge Coverage Ratio" shall mean, for any period, the
ratio of (a) the sum for such period of (i) Consolidated Net Income, plus (ii)
Interest Expense (excluding interest income) (whether or not capitalized), plus
(iii) federal, state and local income tax expense to the extent deducted in
determining Consolidated Net Income, plus (iv) principal and interest on
Capital Lease Obligations, plus (v) operating rents less directly associated
sublease income to the extent that (x) such sublease income does not exceed the
associated rents of the Company and (y) the sublease is for a term equal to or
beyond the stated maturity of the Securities, to (b) the sum for such period of
(i) Interest Expense (excluding interest income) (whether or not capitalized),
plus (ii) Capital Lease Obligations, plus (iii) cash dividends declared or due
for payment (whether paid or not), plus (iv) operating rents less directly
associated sublease income to the extent that (x) such sublease income does not
exceed the associated rents of the Company and (y) the sublease is for a term
equal to or beyond the stated maturity of the Securities. For purposes of the
preceding
-6-
<PAGE> 12
definition, interest on Capital Lease Obligations shall be deemed to accrue at
an interest rate implicit in such Capital Lease Obligations in accordance with
GAAP.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by significant
segments of the accounting profession, which are applicable to the
circumstances as of the date of determination, consistently applied.
"GECC Agreement" means the Account Purchase Agreement, dated
as of December 31, 1992, by and among the Company, Hanover Direct Fulfillment,
Inc., a Pennsylvania corporation, Brawn of California, Inc., a California
corporation, GSF Acquisition Corp., a California corporation, Gump's by Mail,
Inc., a Delaware corporation, Gump's Holdings, Inc., a Delaware corporation,
and General Electric Capital Corporation, a New York corporation, as the same
may be further amended or modified or supplemented.
"Governmental Authority" means any agency, authority, board,
bureau, commission, department, office or instrumentality of any nature
whatsoever of any city or other political subdivision or otherwise and whether
now or hereafter in existence, or any officer or official thereof.
"Guarantor" means the Person named as such above until a
successor replaces it in accordance with Article 5, including without
limitation pursuant to the Reorganization, and thereafter means the successor.
"Guarantor Subsidiaries" means the Restricted Subsidiaries of
the Company on the date hereof (except for Gump's Corp., a California
corporation) and any subsidiary of the Company that becomes a Restricted
Subsidiary after the date hereof pursuant to Section 4.31.
"Hazardous Materials" means any flammable, explosive,
radioactive, hazardous or toxic waste, substance, material or constituent
(whether in solid, liquid, gaseous or any other form) ("substance") and any
other substance defined, designated or regulated as a hazardous or toxic
substance, material, waste, contaminant or pollutant by any Environmental Law
presently in effect or as amended or promulgated in the future and shall
include, without limitation:
(i) those substances included within the
definitions of, or classified as "hazardous substances"
pursuant to CERCLA;
-7-
<PAGE> 13
(ii) petroleum or its constituents, products,
byproducts or related substances; and
(iii) such other substances which are or become
regulated, or which are classified as hazardous, toxic,
flammable, explosive, or radioactive, under any Environmental
Law.
"HDI" means Hanover Direct, Inc., a Delaware corporation.
"Holder" or "Securityholder" means a Person in whose name a
Security is registered from time to time.
"Indebtedness" means, without duplication, with respect to any
Person, (a) all obligations of such person (i) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the balance deferred and
unpaid of the purchase price of any property or services (other than accounts
payable outstanding less than ninety (90) days and arising in the ordinary
course of business), (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit
(other than trade letters of credit on which amounts have been owed for less
than 180 days and arising in the ordinary course of business and consistent
with past practices); (b) all obligations of such person under interest swap
obligations and foreign currency hedges; (c) all liabilities of others of the
kind described in the preceding clauses (a) or (b) that such person has
guaranteed or that is otherwise its legal liability; (d) all obligations
secured by a Lien to which the property or assets (including, without
limitation, leasehold interests and any other tangible or intangible property
rights) of such person are subject, whether or not the obligations secured
thereby shall have been assumed by or shall otherwise be such person's legal
liability; (e) indebtedness under conditional sales contracts and other types
of title retention agreements; and (f) any and all deferrals, renewals,
extensions, refinancings and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c) or (d), (e), or this
clause (f), whether or not between or among the same parties.
"Indenture" means this Indenture as amended or supplemented
from time to time.
-8-
<PAGE> 14
"Independent" when used with respect to any specified Person
means such a Person who (i) is in fact independent, (ii) does not have any
direct financial interest or any material indirect financial interest in the
Company or any other obligor upon the Securities or in any Affiliate of the
Company or such other obligor, and (iii) is not connected with the Company or
such other obligor or any Affiliate of the Company or such other obligor, as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions. Whenever it is herein provided that any
Independent Person's opinion or certificate shall be furnished to the Trustee,
such Person shall be appointed by a written order of the Company and approved
by the Trustee in the exercise of reasonable care and such opinion or
certificate shall state that the signer has read this definition and that the
signer is Independent within the meaning hereof.
"Independent Financial Advisor" means an accounting, appraisal
or investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, as the case may be,
(i) qualified to perform the task for which it has been engaged, and (ii)
disinterested and Independent insofar as it relates to such engagement with
respect to the Company, all of its subsidiaries, and each Affiliate of the
Company and/or their subsidiaries.
"Interest Expense" shall mean, for any period, the total
interest expense of the Company and its subsidiaries during such period,
determined on a consolidated basis in accordance with GAAP.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time hereafter, and any successor statute.
"Investments" means any direct or indirect purchase or other
acquisition by a Person of, or a beneficial interest in, Capital Stock or other
securities of any other Person other than a Person that prior to the relevant
time was a subsidiary of that Person, or any direct or indirect loan, advance
(other than advances to employees for moving and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business) or
capital contribution by that Person to any other Person including all
Indebtedness and accounts receivable from that other Person that are not
current assets or did not arise from sales to that other Person in the ordinary
course of business and any agreement to purchase, sell or lease assets,
products, supplies, materials, transportation or services, or to advance funds
and/or guaranty such, for the purpose of giving financial assurance to any
creditors of any Person, or grant any lien on property of such Person to secure
any obligations of another Person.
-9-
<PAGE> 15
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, collateral assignment, encumbrance or
adverse claim affecting title or resulting in a charge against real or personal
property of any kind in respect of such asset (including any agreement to give
any security interest). For the purposes of this Indenture, a Person shall be
deemed to own subject to a Lien any asset that it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement, any
option or other agreement to sell, Capitalized Lease Obligation or other title
retention agreement relating to such asset.
"Mail Order Joint Venture" shall mean any joint undertaking in
which any Person not an Affiliate of the Company, the Guarantor or their
subsidiaries is engaged with the Company, the Guarantor or their subsidiaries,
including, without limitation, a joint venture, partnership, business trust,
licensing agreement or other similar entity or arrangement, for the purpose of
research, marketing and development of the direct specialty retail business of
the Company.
"Management Fee" means any fee or other compensation payable
to NAR or any Affiliate or related party of NAR by the Company or any of its
subsidiaries or Affiliates for services rendered with respect to the management
of the Company or any of its subsidiaries or Affiliates.
"Management Incentive Stock Option Agreement" shall mean the
1993 Equity Incentive Plan of the Guarantor and the 1993 All-Employee Equity
Investment Plan of the Guarantor or any successor or replacement plan having
substantially similar terms.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA and subject to Title IV of ERISA which is, or
within the immediately preceding six (6) years was, contributed to by the
Company, the Guarantor, any Guarantor Subsidiary or any ERISA Affiliate;
provided, however, that the term "Multiemployer Plan" shall not include any
such multiemployer plan for any period during which the withdrawal from such
multiemployer plan by such ERISA Affiliate could not subject the Company, the
Guarantor or any Guarantor Subsidiary to any liability under the Internal
Revenue Code or ERISA.
"NAR" means North American Resources Limited, a British Virgin
Islands corporation.
"Net Cash Flow" shall mean four (4) times the Consolidated Net
Income for the immediately preceding fiscal quarter plus, to the extent
deducted in determining Consolidated Net Income for such quarter, depreciation,
amortization (including without limitation, amortization of assets under
Capitalized Lease Obligations), depletion, and provision for
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<PAGE> 16
taxes not currently due. To the extent that Net Cash Flow for the immediately
preceding fiscal quarter is less than zero, then "Net Cash Flow" shall mean two
(2) times Consolidated Net Income for the immediately preceding two (2) fiscal
quarters plus, to the extent deducted in determining Consolidated Net Income
for such quarters, depreciation, amortization (including without limitation,
amortization of assets under Capitalized Lease Obligations), depletion, and
provision for taxes not currently due.
"New Distribution Facility" means the new fulfillment center
and distribution facility established, acquired and improved by the
Distribution Facility Subsidiary to be used exclusively by the Company, the
Guarantor and their subsidiaries in their mail order and retail businesses.
"Officer's Certificate" means a certificate signed by any duly
authorized officer, who must be the President, the Chief Financial Officer, the
Treasurer or a Vice President of the Company or a Consolidated Subsidiary
thereof, as the context may indicate.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company, the Guarantor or the Trustee.
"Permitted Encumbrances" means (i) Liens (other than any Lien
imposed under ERISA or any Environmental Laws) for taxes, assessments, or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted, and with respect to which adequate reserves of other
appropriate provisions are being maintained in accordance with the provisions
of GAAP and enforcement thereof is not being sought or is stayed; (ii) Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other Liens
(other than any Lien imposed under ERISA) not voluntarily granted for amounts
not yet due or which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted, and with respect to
which adequate reserves or other appropriate provisions are being maintained in
accordance with the provisions of GAAP, and enforcement thereof is not being
sought or stayed; (iii) Liens (other than any Lien imposed under ERISA)
incurred or deposits made in the ordinary course of business (including,
without limitation, surety bonds, appeal bonds and letters of credit, in
connection with workers' compensation, unemployment insurance and other types
of social security benefits or to secure the performance of tenders, bids,
leases, contracts (other than for the repayment of Indebtedness), statutory
obligations and other similar obligations or arising as a result of progress
payments under government contracts; (iv)
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<PAGE> 17
easements (including, without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and other similar restrictions, charges or
encumbrances (whether or not recorded) and other Liens incurred in the ordinary
course of business, which do not secure Indebtedness or the deferred purchase
price of any asset and which do not interfere materially with the ordinary
conduct of the business of the Company or any subsidiary and which do not
materially detract from the value of the property to which they attach or
materially impair the use thereof to the Company or any subsidiary; (v)
building restrictions, zoning laws and other statutes, laws, rules,
regulations, ordinances and restrictions, and any amendments thereto, now or at
any time hereafter adopted by any governmental authority having jurisdiction;
(vi) the Liens set forth on Schedule II hereto, including renewals and
extensions thereof, (vii) a Lien in connection with a first mortgage on the New
Distribution Facility, provided that the associated Indebtedness is used for
expansion of the New Distribution Facility and other capital expenditures
associated with it and (viii) Liens pursuant to capital leases incurred
pursuant to Section 4.24.
"Permitted Investments" means (i) Cash and Marketable
Securities, (ii) investments in Restricted Subsidiaries that are Consolidated
Subsidiaries and (iii) investments in a Mail Order Joint Venture that is not a
subsidiary of the Company, the Guarantor or any of their subsidiaries, provided
that the aggregate amount of capital, investments, equity, loans, payments or
assets of any kind contributed, directly or indirectly, by the Company, the
Guarantor and its subsidiaries to all Mail Order Joint Ventures shall not
exceed (i) $5,000,000 for the period from the date hereof through December 31,
1993 and (ii) $10,000,000 for the period from the date hereof and thereafter.
"Person" and "person" mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust or estate,
unincorporated organization or government or any agency or political
subdivision thereof or any other entity, foreign or domestic.
"Pledged Note" means a demand note in an aggregate principal
amount as required under paragraph 6 of the Securities from the Distribution
Facility Subsidiary in favor of the Company in the form of Exhibit E attached
hereto.
"Purchase Agreement" means that certain Purchase Agreement
dated as of August 17, 1993 by and among the Company and the Purchaser.
"Purchaser" means Sun Life Insurance Company of America,
including its transferees and assigns.
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"RCRA" means the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section Section 6901, et seq.
"Registered Exchange Offer" means the offer by the Company,
pursuant to an effective registration statement filed with the SEC, to exchange
all of the Series B Securities for all of the outstanding Series A Securities
in accordance with the terms and provisions of the Registration Rights
Agreement.
"Registered Exchange Offer Consummation Date" means the date
on which the Registered Exchange Offer is consummated in accordance with the
terms and provisions of the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement attached as Annex B to the Purchase Agreement.
"Registration Statements" means the Company's Form S-4
Registration Statement containing a joint proxy statement prospectus relating
to the distribution of certain securities in connection with the Mergers
initially filed with the Securities and Exchange Commission on April 19, 1993.
"Reorganization" means the reorganization of the Company and
the Guarantor as described in the Registration Statement on Form S-4 (File No.
33-61252) of Hanover Direct, Inc., a Delaware corporation.
"Representative" means the indenture trustee or other trustee,
agent or representative, if any, for an issue of Senior Indebtedness.
"Restricted Investment" means any Investment, contribution or
transfer of property, assets or value in consideration or on account of any
Indebtedness or equity interest (by way of transfers of property, contribution
to capital, acquisitions of stock, securities or evidences of Indebtedness, or
otherwise) in or to any Person, except in any Permitted Investment.
"Restricted Securities" means Securities which were acquired
by the Holder thereof other than pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or acquired in a public
transaction that complies with Rules 144 or 144A (or any successor rules) under
such Act, whether or not the exemption provided by paragraph (k) of Rule 144
(or any comparable exemption) is available.
"Restricted Subsidiary" means any subsidiary of the Company,
including, without limitation, the Distribution Facility Subsidiary, that is
not an Unrestricted Subsidiary.
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"Revolving Loan Balance" shall mean any date, the aggregate
outstanding balance owed to one or more lenders by the Company, the Guarantor
and the Restricted Subsidiaries consisting of secured loans and advances made
on a revolving basis (involving advances, repayments and readvances) whose
primary purpose is to provide the Company, the Guarantor or the Restricted
Subsidiaries with working capital.
"SEC" means the Securities and Exchange Commission, or any
successor Governmental Authority.
"Securities" means the securities issued under this Indenture.
"Security and Pledge Agreement" means the agreement in the
form attached hereto as Exhibit D executed or to be executed by the Company
pledging the Pledged Note as security for the respective obligations under the
Documents.
"Senior Indebtedness" means the principal of, and interest on,
any Indebtedness of the Company, the Guarantor or the Guarantor Subsidiaries,
whether outstanding on the date of this Indenture or hereafter created,
incurred for borrowed money, including amounts drawn under letters of credit or
other similar financial accommodations, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same expressly provides
that such Indebtedness shall be pari passu or subordinate in right of payment
to the Securities; provided, however, Senior Indebtedness shall not include (a)
in the case of the respective obligation of the Company, the Guarantor and the
Guarantor Subsidiaries in respect of each Security, the respective obligation
of the Company, the Guarantor and the Guarantor Subsidiaries in respect of
other Securities, (b) Indebtedness of the Company, the Guarantor or any
Guarantor Subsidiary to a subsidiary of the Company, the Guarantor or any
Guarantor Subsidiary or an Affiliate of the Company, the Guarantor or any
Guarantor Subsidiary, (c) Indebtedness to, or guaranteed on behalf of, any
individual shareholder, director, officer or employee of the Company, the
Guarantor or of any subsidiary of the Company or the Guarantor (including,
without limitation, amounts owed for compensation), (d) Indebtedness and other
amounts incurred in connection with obtaining goods, materials or services, (e)
Indebtedness incurred in violation of this Indenture and (f) Indebtedness that
by its terms is subordinated to any other Indebtedness of the Company, the
Guarantor or the Guarantor Subsidiaries.
"Series A Securities" means the 9.25% Senior Subordinated
Notes due August 1, 1998, Series A, being issued and sold pursuant to the
Purchase Agreement and this Indenture.
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"Series B Securities" means the 9.25% Senior Subordinated
Notes due August 1, 1998, Series B (the terms of which are identical to the
Series A Securities except that the Series B Securities shall be registered
under the Securities Act of 1933, as amended, and shall not contain the
restrictive legend on the face of the form of Series A Securities), to be
issued in exchange for the Series A Securities pursuant to the Registered
Exchange Offer and this Indenture.
"Subordination Agreement" means the Subordination Agreement
among Congress Financial Corporation, a California corporation, Sun Life
Insurance Company of America, attached hereto as Exhibit C, as in effect on the
date hereof and as amended or modified.
"subsidiary" of any specified Person means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person or by such Person and a subsidiary or subsidiaries of such
Person or by a subsidiary or subsidiaries of such Person, (ii) any other Person
(other than a corporation) in which such Person or such Person and a subsidiary
or subsidiaries of such Person or a subsidiary or subsidiaries of such Person
directly or indirectly, at the date of determination thereof, has at least a
majority ownership interest, or (iii) any other person in which such person,
one or more subsidiaries of such person, directly or indirectly, at the date of
determination thereof is required by GAAP or the rules and regulations of the
SEC to be combined or consolidated with such person for purposes of general
financial reporting.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Section Section 77aaa-77bbbb), as amended, as in effect on the date of this
Indenture, until such time as this Indenture is qualified under the TIA, and
thereafter as in effect on the date on which this Indenture is qualified under
the TIA, except as otherwise provided in Section 9.3.
"Trustee" means the Person named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor.
"Trust Officer" means the any officer or assistant officer of
the Trustee assigned by the Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means the subsidiaries of the
Company or the Guarantor listed on Schedule 1.1 hereof. In addition,
Unrestricted Subsidiaries shall mean any subsidiary of the Company or the
Guarantor that:
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(i) is formed or acquired after the date hereof prior to the
occurrence of an Event of Default (or an event that, after notice or lapse of
time, or both, would become an Event of Default) which is continuing at the
time of receipt of such notice;
(ii) has been formed or acquired without any direct or
indirect investment, whether in cash or property, of the Company, the Guarantor
or any Restricted Subsidiary, other than Capital Stock of the Company or the
Guarantor upon which no dividends are paid or payable (except dividends paid or
payable in additional Capital Stock of the Company or the Guarantor similarly
restricted as to dividends), by the Company, the Guarantor or any Restricted
Subsidiary and without the incurrence of any Indebtedness, directly or
indirectly, by either of the Company, the Guarantor or any Restricted
Subsidiary in connection with such acquisition or the business to be engaged in
by such Unrestricted Subsidiary;
(iii) maintains separate books and records and engages in no
transaction, direct or indirect, with the Company, the Guarantor or any
Restricted Subsidiary, other than such Unrestricted Subsidiary's declaration
and payment to the Company, the Guarantor or any Restricted Subsidiary of
dividends in its own Capital Stock, or the payment by such Unrestricted
Subsidiary to the Company, the Guarantor or any Restricted Subsidiary, of
overhead and other administrative charges in the ordinary course of business;
and
(iv) obtains financing, if any, on a completely stand alone
basis, i.e., not requiring any direct or indirect guarantee or other form of
financial support or credit enhancement from the Company, the Guarantor or any
Restricted Subsidiary, other than the non-recourse pledge of the Capital Stock
of another Unrestricted Subsidiary and cross-corporate guaranties between or
among Unrestricted Subsidiaries formed or acquired at the same time as part of
a single transaction upon the consummation of which such cross-guaranties are
executed in favor of the provider of such stand alone financing.
Any subsidiary of the Company or the Guarantor formed or acquired after the
date hereof which at any time does not meet or no longer meets any of the
foregoing requirements shall not be considered, for purposes hereof, or if
initially so considered, shall lose its status as, an Unrestricted Subsidiary
and shall be subject to all of the requirements set forth herein with respect
to Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company or the
Guarantor; provided, however, that immediately after giving effect to such
designation, on a pro forma basis, as if such Unrestricted Subsidiary had been
a Restricted Subsidiary for the entire immediately preceding four (4)
consecutive fiscal
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quarters (x) the Company is in compliance with all of the terms, conditions and
covenants of the Securities and this Indenture and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officer's Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Legal Tender" shall mean such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public and private debts.
"8% Notes" shall mean the Amended 8% Senior Subordinated Notes
due 1994 of the Company.
"14% Debentures" shall mean the 14% Senior Subordinated
Debentures due 1997 of the Guarantor.
"71/2% Convertible Debentures" shall mean the 71/2%
Convertible Subordinated Debentures due 2007 of the Guarantor.
"8% Senior Subordinated Note Indenture" shall mean the
Indenture, dated as of October 15, 1984, by and between the Company, as
assignee of the Guarantor, and BankAmerica National Trust Company (formerly
BankAmerica Trust Company of New York), as Trustee, as amended, governing the
8% Notes.
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Terms Section
----- -------
<S> <C>
"Bankruptcy Law" 6.1
"Change in Control Date" 4.13
"Custodian" 6.1
"Event of Default" 6.1
"Guaranty" 11.1
"Legal Holiday" 13.7
"Officer" 13.9
"Paying Agent" 2.3
"Registrar" 2.3
"Repurchase Date" 4.13
"Repurchase Offer" 4.13
"Repurchase Price" 4.13
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
Defined in
Terms Section
----- -------
<S> <C>
"Restricted Payments" 4.5
"U.S. Government Obligations" 8.1
</TABLE>
Section 1.3. Incorporation by Reference of Trust Indenture
Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company, the Guarantor,
and any other obligor upon the Securities.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
in the plural include the singular; and
(5) provisions apply to successive events and
transactions.
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<PAGE> 24
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating.
The Series A Securities shall be substantially in the form of
Exhibit A-1, which is part of this Indenture. The Series B Securities shall be
substantially in the form of Exhibit A-2, which is part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Security shall be dated the date of its
authentication. After the Securities have ceased to be Restricted Securities,
the Company shall deliver to the Trustee a printed form of Security.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture, and to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Section 2.2. Execution and Authentication.
One Officer, duly authorized, shall sign the Securities for
the Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Securities.
If an officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence
that the Security has been authenticated under this Indenture.
The Trustee shall authenticate Series A Securities for
original issue in the aggregate principal amount of up to $20,000,000 upon a
written order of the Company signed by two Officers. In addition, on or prior
to the Registered Exchange Offer Consummation Date, the Trustee shall
authenticate Series B Securities issued at the time of the Registered Exchange
Offer in the aggregate principal amount of up to $20,000,000 upon a written
order of the Company signed by two Officers. The written order shall specify
the amount of Series B Securities to be authenticated and the date on which the
original issue of Series B Securities pursuant to the Registered Exchange Offer
is to be authenticated. The aggregate principal amount of Securities
outstanding at any time may not exceed $20,000,000, except as provided in
Section 2.7.
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The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. An authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or an Affiliate.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain in the county where the principal
corporate office of the Trustee is located and in such other locations as it
shall determine (i) an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar") and (ii) an office or
agency where Securities may be presented for payment ("Paying Agent");
provided, however, that neither the Company nor any of its Affiliates may
service as Paying Agent or Registrar. The Registrar shall keep a register of
the Securities and of their transfer and exchange. The Company shall appoint
one or more co-registrars and one or more paying agents. The term "Paying
Agent" includes any paying agent. Subject to the foregoing provisions, the
Company may change any Paying Agent, Registrar or co-registrar upon notice to
the Trustee. The Company shall notify the Trustee of the name and address of
any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee shall act as
such.
The Company shall, if the Securities are listed on the New
York Stock Exchange, designate as authenticating agent, co-registrar and Paying
Agent with respect to the Securities a bank or trust company in good standing,
organized under the laws of the United States of America or any State, doing
business in or having a correspondent relationship with a bank or trust company
doing business in the Borough of Manhattan, City of New York, State of New
York, and having a capital and surplus (including subordinated capital notes
and earned surplus) aggregating at least $100,000,000. Whenever, pursuant to
this Indenture, the Trustee is obligated, empowered or authorized to perform
any act with respect to the authentication and issuance of the Securities, or
their transfer, other than the authentication and issuance of Securities upon
original issue or in cases of Securities mutilated, destroyed, lost or stolen,
such act may be performed by the authenticating agent and co-registrar,
notwithstanding anything in this Indenture to the contrary. Whenever, pursuant
to this Indenture, the Trustee is obligated, empowered or authorized to perform
any act with respect to payment of the principal of (and premium, if any) or
interest on the Securities, such acts may be performed by the Paying Agent,
notwithstanding anything in this Indenture to the contrary.
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<PAGE> 26
The Company covenants that whenever necessary to avoid or fill
a vacancy in the office of authenticating agent, co-registrar and Paying Agent,
the Company will appoint a successor authenticating agent, co-registrar and
Paying Agent so that there shall, at all times that the Securities are listed
for trading on the New York Stock Exchange, be one or more offices or agencies
in the Borough of Manhattan, City of New York, State of New York, acceptable to
the New York Stock Exchange, where Securities may be presented or surrendered
for payment and where Securities may be surrendered for registration of
transfer or exchange.
In case, at the time of the appointment of a successor to the
authenticating agent, any of the Securities shall have been authenticated but
not delivered, any such successor may adopt the certificate of authentication
of the original authenticating agent or of any successor to it as
authenticating agent hereunder, and deliver such Securities so authenticated;
and in case at any time any of the Securities shall not have been
authenticated, any successor to the authenticating agent by merger or
consolidation may authenticate such securities either in the name of its
predecessor hereunder or in the name of the successor authenticating agent; and
in all such cases such certificate shall have the full force which it is
anywhere in the Securities or in this Indenture provided that the certificate
of authentication shall have.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Securityholders or the Trustee all money received by the Paying
Agent for the payment of principal or interest or other amounts owed on the
Securities (whether such money has been paid to it by the Company or any other
obligor on the Securities or any other Person), and will notify the Trustee of
any default by the Company (or any other obligor on the Securities or any other
Person) in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company or a subsidiary) shall have no further liability for the
money. The Trustee shall not be responsible for paying interest while holding
any money in trust, unless otherwise previously agreed to in writing. If the
Company or a subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Securityholders all money held by it
as Paying Agent.
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<PAGE> 27
Section 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Securityholders. If the Trustee is not the Registrar, the Company
and any other obligor shall furnish to the Trustee on or before each interest
payment date and at such other times as the Trustee may request in writing, but
in any event at least semi-annually, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.6. Transfer and Exchange.
(a) Where Securities are presented to the Registrar or a
co-registrar with a request to register a transfer or to exchange them for an
equal principal amount of Securities of other denominations, the Registrar
shall, subject to clause (c) of this Section 2.6 in the case of a Registered
Exchange Offer, register the transfer or make the exchange if its requirements
for such transactions are met (including, if required by the Company for
transfers with respect to which no registration statement has been declared
effective, an opinion of counsel to the Holder requesting transfer that an
exemption from registration under the Securities Act of 1933, as amended, is
available for such transfer). To permit registrations of transfer and
exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made to the
Holder for any registration of transfer or exchange (except as otherwise
expressly permitted herein), but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer tax or similar governmental
charge payable upon exchanges pursuant to Section 2.10, 3.6 or 9.5).
(b) The Company shall not be required (i) to issue,
register the transfer of or exchange Securities during a period beginning at
the opening of business 15 days before the day of any selection of Securities
for redemption under Section 3.02 and ending at the close of business on the
day of selection or (ii) to register the transfer or exchange of any Security
so selected for redemption in whole or in part, except the unredeemed portion
of any Security being redeemed in part.
(c) Any Series A Securities which are presented to the
Registrar or a co-registrar for exchange pursuant to a Registered Exchange
Offer shall be exchanged for Series B Securities of equal principal amount upon
surrender to the Registrar or coregistrar of the Series A Securities to be
exchanged; provided, however, that the Series A Securities surrendered for
exchange in a Registered Exchange Offer shall be duly endorsed and
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<PAGE> 28
accompanied by a letter of transmittal or written instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar or
co-registrar, duly executed by the Holder thereof or his attorney who shall be
duly authorized in writing to execute such document. Whenever any Series A
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver to the Registrar or coregistrar, the
same aggregate principal amount of Series B Securities as the aggregate
principal amount of Series A Securities that have been surrendered.
Section 2.7. Replacement Securities.
If the Holder of a Security claims that the Security has been
lost, damaged, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
are met. If required by the Trustee or the Company, an indemnity bond must be
provided which is sufficient in the judgment of both to protect the Company,
the Trustee, any Agent or any authenticating agent from any loss which any of
them may suffer if a Security is replaced. The Company may charge for its
expenses in replacing a Security. The Company is not required to provide a
replacement Security that is called for redemption in accordance with its
terms.
Every replacement Security is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
Section 2.8. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.1, they
cease to be outstanding and interest on them ceases to accrue.
Subject to Section 2.9, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
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<PAGE> 29
Section 2.9. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, the Guarantor, any of their subsidiaries or
any other obligor on the Securities or an Affiliate of the Company, the
Guarantor, any of their subsidiaries or any other obligor on the Securities
shall be considered as though they are not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which the Trustee knows
are so owned shall be so disregarded.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities without charge to the Securityholders. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive securities in exchange for temporary Securities without
charge to the Securityholders.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange (including, without limitation, exchange pursuant to a
Registered Exchange Offer), payment, replacement or cancellation and shall
dispose of cancelled Securities as the Company directs. The Company may not
issue new securities to replace Securities that it has paid or that have been
delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company fails to make a payment of interest on the
Securities, it shall pay such defaulted interest plus any interest payable on
the defaulted interest, if any, in any lawful manner. It may pay such
defaulted interest, plus any such interest payable on it, to the Persons who
are Securityholders on a subsequent special record date. The Company shall fix
any such record date and payment date. At least 15 days before any such record
date, the Company shall mail to Securityholders a notice that states the record
date, payment date and amount of such interest to be paid.
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Section 2.13. Home Office Payment Agreements.
Notwithstanding any provisions of this Indenture and of the
Securities to the contrary, payments of interest on, and all or any portion of
the principal of, any Security, other than the final payment of principal on a
Security, shall be made by the Paying Agent directly to the Holder of such
Security or their designee without surrender or presentation thereof to the
Paying Agent, if the Company has so agreed with such Holder and has filed with
the Trustee a copy of the Purchase Agreement or an agreement between the
Company and a Holder who is not a Purchaser (or the Person for whom such Holder
is a nominee) providing that (i) such payment will be so made and (ii) such
Holder (or the Person for whom such Holder is a nominee) will, before selling,
transferring or otherwise disposing of any such Security, make a notation
thereon, or submit the same to the Trustee for notation thereon, of the date to
which interest has been paid with respect thereof and, in the event redemptions
previously have been made thereof, surrender the same to the Trustee in
exchange for a Security or Securities aggregating the same principal amount as
the unredeemed principal amount of the Securities surrendered. The Company
will indemnify and save the Trustee and Paying Agent harmless against any
liability resulting from any act or omission to act on the part of the Company
in connection with any such agreement or which the Paying Agent may incur as a
result of making any payment in accordance with any such agreement.
ARTICLE 3
REDEMPTION
Section 3.1. Notices to Trustee.
If the Company elects to redeem the Securities pursuant to the
optional redemption provisions of Paragraph 5 of the Securities, or is required
to redeem Securities pursuant to the mandatory redemption provisions of
Paragraph 6 of the Securities, it shall notify the Trustee in writing of the
redemption date and the principal amount of the Securities to be redeemed.
The Company shall give each notice provided for in this
Section at least 60 days before the redemption date (unless a shorter notice
period shall be satisfactory to the Trustee); provided, however, that the
Trustee shall have no liability to any Holder if it deems such shorter notice
period satisfactory to it.
Section 3.2. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed as follows:
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(1) each redemption shall be pro rata as between
Restricted Securities and the remaining Securities,
(2) the Trustee shall select the Restricted
Securities to be redeemed on a substantially pro rata basis in
multiples of $1,000 among the Holders of Restricted Securities, and
(3) the Trustee shall select the remaining
Securities to be redeemed on a substantially pro rata basis among the
Holders of the remaining Securities in accordance with a method the
Trustee considers fair and appropriate (in such manner as complies
with applicable legal and stock exchange requirements, if any).
The amount of remaining Securities shall be calculated as the aggregate
principal amount of Securities originally issued hereunder less (i) the
aggregate principal amount of outstanding Restricted Securities and (ii) the
aggregate principal amount of any Securities previously redeemed. The Trustee
shall make the selection not more than 60 days and not less than 30 days before
the redemption date from outstanding Securities not previously called for
redemption.
The Trustee shall promptly notify the Company of the
Securities or portions of Securities to be called for redemption. The Trustee
may select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them it selects
shall be in amounts of $1,000 or integral multiples of $1,000. Provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail by first class mail, postage prepaid a notice of
redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part,
the portion of the principal amount of such Security to be
redeemed and that, after the redemption date, upon surrender
of such Security, a new Security or
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Securities in principal amount equal to the unredeemed portion
will be issued;
(4) the name and address of the Paying Agent;.
(5) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption
price;
(6) that interest on Securities called for
redemption ceases to accrue on and after the redemption date;
and
(7) the paragraph of the Securities pursuant to
which the Securities called for redemption are being redeemed.
At the Company's written request which shall include an
Officer's Certificate setting forth the information to be stated in such
notice, the Trustee shall give the notice of redemption in the Company's name
and at the Company's expense.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date at the price set forth
in the Security.
Section 3.5. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent immediately available funds
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date. The Trustee or the Paying Agent shall
return to the Company any money not required to pay the redemption price of all
Securities to be redeemed.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
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ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. With
respect to interest payments pursuant to Section 3(b) of the Registration
Rights Agreement, the Company shall notify the Trustee within five (5) business
days prior to any interest payment date of the amount of such interest payable
to each Holder. Principal and interest shall be considered paid on the date
due if the Paying Agent (other than the Company or a subsidiary or an
Affiliate) holds on that date money designated for and sufficient to pay all
principal and interest and any other amounts then due.
To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on (i) overdue principal at the rate borne by the Securities plus three percent
(3%) per annum, compounded annually (without regard to any applicable grace
period) and (ii) installments of interest overdue (without regard to any
applicable grace period), at the rate borne by the Securities plus three
percent (3%) per annum. The obligation of the Company described in the
preceding two (2) sentences is absolute and unconditional, irrespective of any
tax or accounting treatment of such obligation.
Section 4.2. SEC Reports, Financial Reports.
The Company and the Guarantor shall deliver to the Trustee and
the Holders of at least $1,000,000 in aggregate principal amount of Restricted
Securities, within 15 days after it files with the SEC, and shall make
available to all of the Holders upon request, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) which
it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act.
If the Company or the Guarantor is not subject to, or for any
reason is not complying with, the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Trustee and the Holders of at
least $1,000,000 in aggregate principal amount of Restricted Securities, within
15 days after any of them would have been required to file such with the SEC,
and shall make available to all of the Holders upon request, quarterly and
annual reports, including financial statements, notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
information, documents or other reports comparable to that which the Company
and the
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Guarantor would have been required to file with the SEC if each were subject to
the requirements of Section 13 or 15(d) of the Exchange Act.
The Company will deliver, at the time it delivers the reports,
including financial statements, as required above in this Section 4.2,
consolidated and consolidating unaudited balance sheets of the Company and the
Guarantor Subsidiaries as at the end of such period and consolidated and
consolidating unaudited statements of income and expense and changes in
financial position for the Company and the Guarantor Subsidiaries for such
period, together with the accompanying notes thereto, if any, all in reasonable
detail, fairly presenting the financial position and results of operation of
the Company and the Guarantor Subsidiaries as at the date thereof and for such
periods, prepared in accordance with GAAP.
The Company will deliver or cause to be delivered within ten
(10) days after requested by any holder of Restricted Securities, any other
information specified in subsection (d)(4) of Rule 144A.
Subsequent to the qualification of the Indenture under the
TIA, the Company, the Guarantor and the Guarantor Subsidiaries also shall
comply with the provisions of TIA Section 314(a). The Company, the Guarantor
and the Guarantor Subsidiaries shall timely comply with its reporting and
filing obligations under applicable federal securities law.
The foregoing requirements do not replace or supersede and are
in addition to the requirements set forth in the Purchase Agreement and in any
of the Documents.
Section 4.3. Compliance Certificate.
(a) The Company and the Guarantor shall deliver to the
Trustee and Holders of at least $1,000,000 in aggregate principal amount of
Securities, within ninety (90) days after the end of each fiscal year and
within forty-five (45) days after the end of each fiscal quarter, an Officer's
Certificate stating that a review of the activities of the Company, the
Guarantor and their respective subsidiaries during the preceding fiscal period
has been made under the supervision of the signing officers with a view to
determining whether the Company, the Guarantor and the Guarantor Subsidiaries,
as the case may be, have kept, observed, performed and fulfilled its
obligations under this Indenture and the Documents, as applicable, and further
stating (including all relevant calculations in reasonable detail), as to each
such officer signing such certificate, that to the best of his or her knowledge
the Company, the Guarantor and the Guarantor Subsidiaries have kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
the Documents,
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as applicable, and is not in default in the performance or observance of any of
the terms, provisions and conditions hereof or thereof (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he may have knowledge) and that to the best of his knowledge
no event has occurred and remains in existence by reason of which payments on
account of the principal of or interest, if any, on the Securities are
prohibited, or if such event has occurred, a description of the event.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants or to
a written policy adopted by the independent, public accountants of the Company
and the Guarantor or their subsidiaries which has been previously applied (a
copy of which shall be delivered to the Trustee), the annual financial
statements delivered pursuant to Section 4.2 shall be accompanied by a written
statement of the independent public accountants (which shall be a firm listed
in Section 4.26(b)) of the Company and the Guarantor that in making the
examination necessary for certification of such financial statements nothing
has come to their attention which would lead them to believe that the Company
or the Guarantor has violated any provisions of Article 4 or 5 of this
Indenture or any of the Documents pursuant to engagement instructions directing
such determination of compliance, or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation that would not be
disclosed in the course of an audit examination conducted in accordance with
generally accepted auditing standards.
(c) The Company and the Guarantor will, so long as any of
the Securities are outstanding, deliver to the Trustee and the Securityholders,
within two days of becoming aware of (i) any Default, Event of Default or
default in the performance of any covenant, agreement or condition contained in
this Indenture or any Document or (ii) any default under the CFC Credit
Agreement or (iii) any event of default under any other mortgage, indenture,
instrument or agreement as that term is used in Section 6.1(4), an Officer's
Certificate specifying such Default, Event of Default, default, or event of
default.
(d) The Company and the Guarantor shall deliver to the
Trustee and the Holders of the Restricted Securities, and shall make available
to all of the Holders upon request, copies of all information and calculations
provided to the lenders under the CFC Credit Agreement if a Default or Event of
Default shall have occurred and be continuing and copies of all notices
delivered or received by the Company and the Guarantor under the CFC Credit
Agreement, within 5 days of the provision of such information and calculations
by the Company and the Guarantor to such lenders or
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<PAGE> 36
the delivery by or receipt of such notices by the Company and the Guarantor.
Section 4.4. Stay, Extension and Usury Laws.
Each of the Company, the Guarantor and the Guarantor
Subsidiaries covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, plead or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture or any other Document; and the Company, the
Guarantor and the Guarantor Subsidiaries (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law has been
enacted.
Section 4.5. Limitations on Distributions and Investments.
(a) Neither the Company nor the Guarantor shall,
directly or indirectly, nor cause or permit any Restricted Subsidiary or
any person controlled by the Company, the Guarantor or any Restricted
Subsidiary to, declare, pay or make any dividends or distributions on any
shares of Capital Stock (other than dividends or distributions payable in the
Guarantor's Capital Stock, or warrants to purchase the Guarantor's Capital
Stock, or splitups or reclassifications of the Guarantor's Capital Stock into
additional or other shares of the Company's or the Guarantor's Capital Stock or
dividends from Consolidated Subsidiaries solely to the Company or Consolidated
Subsidiaries of the Company), or pay any Management Fee permitted under Section
4.14 in excess of $750,000 in the aggregate in any fiscal year or make or
permit or suffer to exist any Restricted Investments (collectively, "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(i) the aggregate amount of Restricted Payments
(and to the extent applicable, the amount of any Restricted Payment
shall be the original principal or capital or guarantee amount thereof
less returns of principal or equity thereon without adjustment by
reason of the financial condition or results of operations of any
subsidiary or investment), declared, paid or made during the period
beginning July 1, 1993 to and including the date any such Restricted
Payment is made (excluding any amounts permitted under subsection (c)
below) would not exceed twenty percent (20%) of aggregate Consolidated
Net Income (plus, in determining the amount available to make any
Restricted
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Payment consisting solely of a Restricted Investment, the amount of
the net proceeds from the issuance and sale of Capital Stock by the
Company, the Guarantor or any Restricted Subsidiary) for the period
from July 1, 1993 to the end of the immediately preceding ended fiscal
quarter at the date any such Restricted Payment is made (it being
agreed that the amount of any Restricted Payment made by transfer of
property of any Person other than cash shall be the greater of (A) the
fair market value of such property, as determined in good faith by the
Board of Directors of such Person and evidenced by a Board Resolution
or (B) the book value of such property);
(ii) the Company could incur $1.00 of additional
Indebtedness pursuant to the covenants of the Indenture, the CFC
Credit Agreement and any other instrument or evidence of Indebtedness;
and
(iii) no Default or Event of Default (and no event
that, after notice or lapse of time, or both, would become an Event of
Default) shall have occurred and be continuing.
(b) Neither the Company nor the Guarantor shall, directly
or indirectly, nor cause or permit any Restricted Subsidiary or any person
controlled by the Company, the Guarantor or any Restricted Subsidiary to, (1)
redeem, purchase, repurchase, prepay, defease or otherwise acquire, reduce or
retire for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking final payment or pay interest on, any debt of the Guarantor, the
Company or any subsidiary pari passu with or subordinated to the Securities,
(2) redeem, purchase, repurchase or otherwise acquire, reduce or retire for
value any shares of the Company's, the Guarantor's or any Restricted
Subsidiary's Capital Stock, other than through conversion of the Company's
Convertible Preferred Stock into the Company's Common Stock.
(c) Notwithstanding subsections (a) and (b) above, the
Company and the Guarantor shall be permitted to (i) pay interest on debt
subordinated to the Securities; provided that such interest payment is fully
subordinated in all respects to the Securities and subject to subordination
provisions that are consented to in writing by a majority of Holders in
principal amount of the then outstanding Securities, (ii) make payments in
respect of cancellation of options to purchase the Common Stock pursuant to the
Management Incentive Stock Option Agreement; provided that (x) at the time of
and after giving effect to such payment, no Event of Default shall have
occurred and be continuing and (y) the redemption price is not greater than the
then market price of the Common Stock, (iii) make loans to employees of the
Company or the Guarantor for the purpose of acquiring Common Stock pursuant to
an equity incentive or equity
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investment plan; provided that such loans do not result in the transfer of any
assets of the Company or the Guarantor other than Capital Stock and the
purchase price therefor, (iv) make one-time loans to employees of the Company
or the Guarantor not to exceed $350,000 in the aggregate, and (v) pay dividends
to the holders of Convertible Preferred Stock and Class B Preferred Stock;
provided that (x) at the time of and after giving effect to such payment, no
Event of Default shall have occurred and be continuing and (y) the aggregate
amount of such payments made during the immediately preceding four (4)
consecutive fiscal quarters does not exceed $4,060,000.
(d) Notwithstanding anything else contained herein,
neither the Company nor the Guarantor shall, directly or indirectly, increase
the dividend rate or other consideration paid with respect to any class of
preferred stock of the Company, the Guarantor or any Restricted Subsidiary.
(e) Without limiting the foregoing, neither the Company
nor the Guarantor shall permit to exist any Unrestricted Subsidiary except as
permitted by this Section 4.5.
Section 4.6. Corporate Existence.
Subject to Article 5 hereof, each of the Company and the
Guarantor will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence and the corporate, partnership
or other existence of each subsidiary of the Company or the Guarantor in
accordance with the respective organizational documents of each such subsidiary
and the rights (charter and statutory), licenses and franchises of the Company,
the Guarantor and their subsidiaries; provided, however, that the Company and
the Guarantor shall not be required to preserve any such right, license or
franchise, or corporate, partnership or other existence of any subsidiary, if
the Board of Directors of the Company or the Guarantor, as the case may be,
shall determine in good faith in accordance with the Company's or the
Guarantor's charter, as applicable, that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its subsidiaries or
the Guarantor and its subsidiaries, if any, in each case taken as a whole, and
that the loss thereof is not adverse in any material respect to the Holders.
Section 4.7. Payment of Taxes and Claims.
The Company and the Guarantor shall, and shall cause each of
their subsidiaries to, pay, prior to delinquency, all taxes, assessments and
other governmental levies imposed upon the Company, the Guarantor or any of
their subsidiaries, except as contested in good faith by appropriate
proceedings or where failure to pay would not have a material adverse effect on
the
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Company, the Guarantor or the Guarantor and its subsidiaries taken as a whole.
Section 4.8. Investment Company Act.
Neither the Company, the Guarantor nor any Restricted
Subsidiary shall become an investment company subject to registration under the
Investment Company Act of 1940, as amended.
Section 4.9. Limitation on Encumbrances.
The Company and the Guarantor will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist or otherwise cause or suffer to become effective any Lien of
any kind other than Permitted Encumbrances.
Section 4.10. Indebtedness to Consolidated Earnings Ratio.
The Company shall not permit, as at the end of any fiscal
quarter commencing during each period set forth below, the ratio of (i)
Indebtedness of the Company and its Restricted Subsidiaries and the Guarantor,
determined on a consolidated basis as at such date, to (ii) Consolidated
Earnings on such date of determination, to exceed the ratio set forth opposite
such period:
<TABLE>
<CAPTION>
Period Ratio
- ------------------------------------ -----------
<S> <C>
December 31, 1993 to December 31, 1994 5.0 to 1.0
January 1, 1995 to December 31, 1996 4.5 to 1.0
January 1, 1997 to July 1, 1998 4.0 to 1.0
</TABLE>
For the purposes of this Section 4.10, Consolidated Earnings shall be
calculated on the basis of the financial performance for the immediately
preceding four (4) consecutive fiscal quarters.
Section 4.11. Limitation on Incurrences of Additional
Indebtedness.
The Company and the Guarantor shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, suffer to exist or otherwise in any manner become liable or commit
to become liable with respect to any Indebtedness except for:
(a) the Securities;
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(b) Indebtedness existing on the date hereof as
set forth in Schedule 2.5 (except Indebtedness which is to be repaid
from the proceeds of the sale of the Securities); and
(c) intercompany Indebtedness between (i) the
Company and a Restricted Subsidiary and (ii) a Restricted Subsidiary
and another Restricted Subsidiary, provided that such intercompany
Indebtedness is fully subordinated in all respects to the Securities
and subject to subordination provisions that are consented to in
writing by a majority of Holders in principal amount of the then
outstanding Securities; and
(d) other Indebtedness that on a proforma basis,
as if such Indebtedness were outstanding for the entire immediately
preceding four (4) consecutive fiscal quarters, complies with all the
terms, conditions and covenants of the Securities and this Indenture,
provided, that (i) on the date such Indebtedness is incurred, created
or assumed, and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing and (ii) if such
Indebtedness is to be used to redeem any Securities pursuant to
paragraph 5 of the Securities, such Indebtedness shall (x) have an
interest cost that is equal to or less than the interest cost on the
Securities and (y) not have an Average Life shorter than the remaining
Average Life of the Securities at the time of such redemption.
Section 4.12. Maintenance of Consolidated Net Worth.
The Company and the Guarantor shall not permit Consolidated
Net Worth of the Company or the Guarantor at the end of any fiscal quarter
commencing during each period set forth below to be less than the amount set
forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated Net
Period Worth
------------------------------------ ----------------
<S> <C>
July 1, 1993 to December 31, 1993 $13,000,000
January 1, 1994 to December 31, 1994 18,000,000
January 1, 1995 to December 31, 1998 28,000,000
January 1, 1996 to July 1,1998 40,000,000
</TABLE>
Section 4.13. Change in Control.
If there is a Change in Control (such time of a Change in
Control being referred to as the "Change in Control Date"), then the Company
shall within ten (10) business days following the Change in Control Date, (a)
commence an offer to repurchase
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(the "Repurchase Offer") all of the then outstanding Securities at the price
(the "Redemption Price") equal to 101% of the principal amount of each
Security, plus accrued interest to the Repurchase Date (as defined below) and
other amounts owing under the Securities, and (b) deposit with the Paying Agent
an amount equal to the aggregate Repurchase Price for all Securities then
outstanding so as to be available for payment to the Holders of Securities who
elect to require the Company to repurchase all or a portion of their
Securities.
If the Repurchase Date is on or after an interest payment
record date and on or before the related interest payment date, any accrued
interest will be paid to the Person in whose name a Security is registered at
the close of business on such record date, and no additional interest will be
payable to Holders who tender Securities pursuant to the Repurchase offer.
Notice of any Repurchase Offer shall be mailed by certified
mail by the Company to the Trustee and the Holders of the Securities at their
last registered addresses. The Repurchase Offer shall remain open from the
time of mailing until the repurchase date which shall be no earlier than 30
days nor later than 60 days from the date of such mailing (the date on which
the Repurchase Offer closes being the "Repurchase Date"). The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Repurchase Offer. The notice, which shall
govern the terms of the Repurchase Offer, shall state:
(1) that the Repurchase Offer is being made
pursuant to this Section 4.11 and that Securities will be accepted for
payment either (A) in whole or (B) in part in integral multiples of
$1,000;
(2) the Repurchase Price and the Repurchase Date;
(3) that any Security not tendered will continue
to accrue interest;
(4) that any Security accepted for payment
pursuant to the Repurchase Offer shall cease to accrue interest from
and after the Repurchase Date;
(5) that Holders electing to have a Security
purchased pursuant to the Repurchase Offer will be required to
surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the
Paying Agent at the address specified in the notice prior to the close
of business on the Repurchase Date;
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(6) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than three
business days before the Repurchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of Securities the Holder delivered for repurchase and
a statement that such Holder is withdrawing his election to have such
Securities repurchased; and
(7) that Holders whose Securities are purchased
only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
If any consent under the CFC Credit Agreement is necessary to
permit the Company to effect the Repurchase Offer, the Company will obtain the
requisite consent under the CFC Credit Agreement; provided, however, that the
failure to obtain such consent will not in any event excuse any failure by the
Company to perform its obligations under this Section 4.13.
On the Repurchase Date, the Company shall, to the extent
lawful, (i) accept for payment Securities or portions thereof tendered pursuant
to the Repurchase Offer and (ii) deliver to the Trustee Securities so tendered
together with an Officer's Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent shall in
accordance with written wire transfer instructions promptly wire transfer in
immediately available funds to Holders of Securities so accepted payment in an
amount equal to the Repurchase Price. The Trustee shall promptly authenticate
and mail or deliver to each Holder who tendered a Security, a new Security or
Securities equal in outstanding principal amount to any untendered portion of
the Security surrendered. The Paying Agent shall invest funds deposited with
it pursuant to this Section 4.13 for the benefit of, and at the written
direction of, the Company to the Repurchase Date.
Section 4.14. Restriction on Payment of Management Fees.
The Company and the Guarantor shall not, directly or
indirectly, nor cause or permit any Restricted Subsidiary or any person
controlled by the Company, the Guarantor or any Restricted Subsidiary to, pay
any Management Fees except for Management Fees paid in equal quarterly
installments that in the aggregate do not exceed $750,000 in any twelve-month
period, provided that such Management Fees may not be paid unless (i) at the
time of and after giving effect to payment of any Management Fee, no Event of
Default shall have occurred and be continuing, (ii) an independent committee of
the Board of Directors of the Company or the Guarantor, as the case may be, has
approved the management
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agreement applicable to the relevant period and the payment of such Management
Fee as evidenced by a Board Resolution and (iii) any Management Fee payment is
fully subordinated in all respects to the Securities and made subject in right
and time of payment to amounts owing under the Securities, and, provided,
further, however, that the aggregate amount of any Management Fees paid
pursuant to this Section 4.14 in excess of $750,000 in any fiscal year shall be
Restricted Payments and permitted only to the extent allowed under Section
4.5(a).
Section 4.15. Limitation on Transactions With Affiliates.
Neither the Company nor the Guarantor shall, nor shall either
of them permit any Restricted Subsidiary to (i) sell, lease, transfer or
otherwise dispose of any of its properties, assets or securities to, (ii)
purchase or lease any property, assets or securities from, (iii) make any
Restricted Investment in, (iv) make any loan or advance on the guaranty of any
Indebtedness, or (v) obtain services or enter into or amend any contract or
agreement with or for the benefit of, either an (A) Affiliate of any of them,
(b) any person or person who is a member of a group (as such term is used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) that, directly or indirectly, is the beneficial holder of 5% or
more of any class of equity securities of the Company, the Guarantor or any of
their subsidiaries or any Affiliates thereof, (C) any person who is an
Affiliate of any such holder, or (D) any officers, directors, or employees of
any of the above (each case, an "Affiliate Transaction"), except for
transactions evidenced by an Officer's Certificate addressed and delivered to
the Trustee stating that such Affiliate Transaction is made in good faith, and
that the terms of such Affiliate Transaction are fair and reasonable to the
Company and on terms no less favorable than those obtainable in an arm's length
transaction with a third party that is not an Affiliate, the Guarantor or such
Restricted Subsidiary, as the case may be, provided, that with respect to any
Affiliate Transaction with an aggregate value (to either party) in excess of
$1,000,000, the Company must, prior to the consummation thereof, obtain a
written favorable opinion that such transactions is favorable to the Company
and to the Holders from an Independent Financial Advisor from a financial point
of view. Notwithstanding the foregoing, (x) transactions exclusively between
or among the Company, the Guarantor and any Restricted Subsidiaries, (y) loans
and advances to employees of the Company, the Guarantor or any Restricted
Subsidiaries for expenses in the ordinary course of business and consistent
with past practices and (z) Restricted Payments made in compliance with Section
4.5, payments made in compliance with Section 4.14 and transactions permitted
by, and complying with, the provisions of Article Five shall not constitute
"Affiliate Transactions."
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Section 4.16. Maintenance of Properties; Insurance.
The Company and the Guarantor shall maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in its business and from time to time shall make or cause to be made all
appropriate repairs, renewals and replacements thereof. The Company and the
Guarantor shall maintain or cause to be maintained, with financially sound and
reputable insurers, insurance in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company, the Guarantor and
their subsidiaries operate. All insurance policies shall be maintained and
renewed with insurance carriers having an A.M. Best & Co. rating of "A" or
better.
Section 4.17. Compliance with Laws.
The Company, the Guarantor and their subsidiaries shall comply
with all laws, rules, regulations and judicial decisions or decisions of
arbitrators applicable to or binding upon each of them and any property owned
or leased by each of them (including without limitation, all Legal Requirements
and all Environmental Laws) noncompliance with which could have a material
adverse effect upon the condition (financial or otherwise), business,
operations, assets, nature of assets, liabilities or prospects of the Company,
the Guarantor and their subsidiaries, taken as a whole, or the ability of the
Company or the Guarantor to perform their obligations under the Indenture and
other Documents.
Section 4.18. ERISA.
(a) The Company, the Guarantor and the Guarantor
Subsidiaries shall not, and shall not permit any of their subsidiaries or any
ERISA Affiliate to:
(i) permit to exist with respect to any Benefit
Plan any accumulated funding deficiency (as defined in Section 302 of
ERISA or Section 412 of the Internal Revenue Code) whether or not
waived;
(ii) fail to make any contribution or payment to
any Multiemployer Plan required to be made by it under any agreement
relating to such Multiemployer Plan, or a law pertaining thereto,
which shall have become due;
(iii) terminate any Benefit Plan other than in a
"standard termination" within the meaning of Section 4041(b) of ERISA;
(iv) fail to pay with respect to any Benefit Plan
any installment or other payment required under Section 412
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of the Internal Revenue Code on or before the due date for such
installment or other payment; or
(v) amend any Benefit Plan so as to increase
current liability for the plan year such that the Company, the
Guarantor, the Guarantor Subsidiaries, any of their subsidiaries or
any ERISA Affiliate is required to provide security to such Benefit
Plan under Section 401(a)(29) of the Internal Revenue Code; and
(b) the Company, the Guarantor, the Guarantor
Subsidiaries and their subsidiaries will not engage in any prohibited
transaction (within the meaning of Section 406(a) of ERISA or Section
4975(c)(1)(A), (B), (C) or (D) of the Internal Revenue Code) for which an
administrative or statutory exemption is not available;
if any such event or condition described in clauses (a)(i) through (a)(iv) and
clause (b) above could reasonably be expected to result in a liability on the
part of, or any event described in clause (a)(v) above results in the posting
of security under section 401(a)(29) of the Internal Revenue Code by, the
Company, the Guarantor or any Guarantor Subsidiary which liability or posting
of security, individually or in the aggregate, would have a material adverse
effect on the business, operations, condition (financial or otherwise),
properties or assets of the Company, the Guarantor and the Guarantor
Subsidiaries, taken as a whole.
Section 4.19. Environmental Matters.
None of the Company, the Guarantor, the Guarantor Subsidiaries
or any of their subsidiaries (i) will use, generate, manufacture, produce,
store, discharge, dispose of, place, handle or release (collectively,
"manage"), or cause any Person to manage, any Hazardous Materials on, from or
under, any real property now or hereafter owned, operated or leased by the
Company, the Guarantor or any of their subsidiaries or (ii) will transport or
cause any Person to transport any Hazardous Materials to or from such real
property, in a manner so that such management or transport of Hazardous
Materials constitutes a violation of, or could lead to liability under,
applicable Environmental Law that could reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise), business,
operations, assets, nature of the assets, liabilities or prospects of the
Company, the Guarantor and their subsidiaries, taken as a whole. None of the
Company, the Guarantor or any of their subsidiaries will cause any real
property now or hereafter owned, operated or leased by any of them to be used
in a manner that could constitute a violation of, or could lead to liability
under, applicable Environmental Law that could reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise), business,
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operations, assets, nature of the assets, liabilities or prospects of the
Company, the Guarantor and their subsidiaries, taken as a whole.
Section 4.20. Fixed Charge Coverage Ratio.
The Company shall not permit, as at the end of any fiscal
quarter commencing during each period set forth below, the Fixed Charge
Coverage Ratio of the Company to be less than the ratio set forth opposite such
period:
<TABLE>
<CAPTION>
Minimum
Fixed Charge
Period Coverage Ratio
- ------------------------------------ --------------
<S> <C>
July 1, 1993 to December 31, 1993 1.70 to 1.00
January 1, 1994 to December 31, 1994 1.80 to 1.00
January 1, 1995 to December 31, 1996 2.00 to 1.00
January 1, 1997 to December 31, 1998 2.15 to 1.00
and at all times thereafter
</TABLE>
For purposes of this Section 4.20, the Fixed Charge Coverage Ratio shall be
calculated on the basis of the financial performance for the immediately
preceding four (4) consecutive fiscal quarters.
Section 4.21 Repayment of Certain Existing Indebtedness.
(a) The Company shall have on or prior to the date hereof
delivered an irrevocable notice of redemption to all holders of the 8% Notes
and deposited with the trustee under the 8% Subordinated Note Indenture an
amount of money sufficient to pay the principal amount of, and accrued interest
on, all of the outstanding 8% Notes and (b) the Guarantor shall redeem in full
or retire the 14% Debentures in connection with the Reorganization.
Section 4.22 Limitation on Ranking of Future Indebtedness.
Neither the Company nor the Guarantor shall, directly or
indirectly, incur, create, or suffer to exist any Indebtedness which is
subordinated or junior in right of payment (to any extent) to any Senior
Indebtedness and senior or superior in right of payment (to any extent) to the
Securities.
Section 4.23 Books and Records.
The Company and the Guarantor shall, and shall cause each of
their subsidiaries to, keep books and records which
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accurately reflect all of their respective material business affairs and
transactions.
Section 4.24 Sale and Leaseback.
Neither the Company nor the Guarantor shall, nor shall either
permit any Restricted Subsidiary to, (i) enter into any arrangement with any
lender or investor or to which such lender or investor is a party providing for
the lease by the Company, the Guarantor or any such Restricted Subsidiary of
real or personal property or any other asset, tangible or intangible, which has
been or is to be sold or transferred by the Company, the Guarantor or such
Restricted Subsidiary to such lender or investor or to any person to whom the
funds have been or are to be advanced by such lender or investor, which advance
is secured by such property, assets or rental obligations of the Company, the
Guarantor or such Restricted Subsidiary or (ii) sell or transfer any real or
personal property or any other asset, tangible or intangible, that is used or
useful in conducting the business of the Company, the Guarantor or any
Restricted Subsidiary and then or thereafter rent or lease any other real or
personal property or other asset that is to be used for substantially the same
purpose as such property or asset that has been sold or transferred.
Notwithstanding the foregoing, and subject to the provisions set forth in this
Indenture, the Company, the Guarantor or any Restricted Subsidiary shall be
permitted to (A) enter into a transaction described in the foregoing clauses
(i) and (ii) provided that such transaction is only between or among the
Company, the Guarantor and any Restricted Subsidiary, (B) enter into a capital
lease at the time of, or within four (4) months after, the initial acquisition
or completion of construction by the Company, the Guarantor or any Restricted
Subsidiary of the property or other asset that is subject to such capital lease
and (C) renew or extend any capital lease permitted under the foregoing clause
(B) of this sentence.
Section 4.25 Limitation on Payment Restrictions Affecting
Subsidiaries.
The Company and the Guarantor shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create or suffer to exist
or allow to become effective any consensual encumbrance or restriction on the
ability of (i) any of the subsidiaries of the Company or the Guarantor to (a)
pay dividends or make other distributions on its Capital Stock or pay any
obligation, liability or any Indebtedness owed to the Company, the Guarantor or
any Restricted Subsidiary, (b) make loans or advances to the Company, the
Guarantor or any Restricted Subsidiary or (c) transfer any of its properties or
assets to the Company, the Guarantor or any Restricted Subsidiary, or (ii) the
Company, the Guarantor or any Restricted Subsidiary to receive or retain
vis-a-vis the transferor any such amounts set forth in
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clauses (i) (a), (i) (b) or (i) (c) above, except for encumbrances or
restrictions existing on the date hereof contained in this Indenture, the CFC
Credit Agreement, any replacement of the CFC Credit Agreement, provided that
such encumbrances or restrictions are no more restrictive with respect to
matters set forth in clauses (i) and (ii) above than those under the CFC Credit
Agreement as in effect on the date hereof, or under or by reason of applicable
law.
Section 4.26. Accounting Changes.
(a) The Company and the Guarantor shall not, and shall not
permit any of their subsidiaries to, (i) make or permit any change in
accounting principles or reporting practices, except as permitted by GAAP or
(ii) change its fiscal year other than with respect to any subsidiary acquired
after the date hereof to that of the Company.
(b) The Company, the Guarantor and the Restricted
Subsidiaries will use one of the following accounting firms, or their
respective successors:
KPMG Peat Marwick
Arthur Andersen
Coopers & Lybrand
Ernst & Young
Deloitte & Touche
Price Waterhouse
Section 4.27. PPN Application.
Promptly after the date hereof, the Company shall file an
application with Standard & Poor's Corporation CUSIP Service Bureau for the
assignment of a Private Placement Number with respect to each of the Securities
and the Company shall file with such bureau all documents and materials
required to be submitted with such application. All of the costs associated
with the filing of such application or the obtaining of such a Private
Placement Number shall be borne solely by the Company.
Section 4.28. Limitations on Sales of Assets and Subsidiary
Stock.
(a) Neither the Company, the Guarantor nor any Restricted
Subsidiary shall in one or a series of related transactions convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets, tangible or intangible (including shares of
Capital Stock of any direct or indirect subsidiaries of the Company or the
Guarantor, by sale, issuance or otherwise) whether now owned or hereafter
acquired (an "Asset Sale"), unless (A) the Net Cash Proceeds (as defined below)
therefrom (1) within a period of not
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greater than twelve (12) months after the date of such Asset Sale, are invested
in assets or property that are directly related to the fundamental nature of
the business of the Company, the Guarantor and the Restricted Subsidiaries as
of the date of this Indenture or in the acquisition of a Restricted Subsidiary
that is engaged in a business that is directly related to the fundamental
nature of the business of the Company, the Guarantor and the Restricted
Subsidiaries as of the date of the Indenture, or, (2) if such Net Cash Proceeds
are not invested within twelve (12) months as provided for in the foregoing
clause (1), the Company applies the amount not so invested of such Net Cash
Proceeds to the redemption of the Securities pursuant to paragraph 5 of the
Securities or the repurchase of the Securities pursuant to an Offer to Purchase
(as defined below), (B) 50% of the value of the consideration for such Asset
Sale consists of U.S. Legal Tender or unrestricted marketable securities and
(C) any promissory note received in connection with such Asset Sale shall not
have a maturity, including any extensions thereof, greater than seven (7)
years. Notwithstanding the foregoing provisions of this Section 4.28:
(i) the Company, the Guarantor and any Restricted
Subsidiary may convey, sell, transfer or otherwise dispose of assets
or Capital Stock of any Unrestricted Subsidiary of the Company or the
Guarantor, provided that such conveyance, sale, transfer or other
disposition is without recourse, except for warranties, indemnities
and price adjustments, to the Company, Guarantor or any Restricted
Subsidiary;
(ii) the Company, the Guarantor and any Restricted
Subsidiary may in the ordinary course of business and consistent with
past practices lease customer and mailing lists;
(iii) the Company, the Guarantor and any Restricted
Subsidiary may convey, sell, lease, transfer or otherwise dispose of
assets pursuant to and in accordance with the provisions of Article
Five of this Indenture;
(iv) the Company, the Guarantor and any Restricted
Subsidiary may for value convey, sell, transfer or otherwise dispose
of inventories in the ordinary course of business and consistent with
past practices;
(v) the Company, the Guarantor and any Restricted
Subsidiary may for value convey, sell, lease, transfer, or assign
property no longer necessary for the proper conduct of the business
(as evidenced by a Board Resolution and as disclosed to the Trustee in
an Officer's Certificate immediately thereupon for Asset Sales with a
fair market value of at least $250,000);
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(vi) the Company, the Guarantor and any Restricted
Subsidiary may abandon assets and properties of the Company or the
Guarantor which are no longer useful in its business and cannot be
sold and may for value convey, sell, lease, transfer, or assign
damaged, worn out or other obsolete property in the ordinary course of
business;
(vii) the Company, the Guarantor and any Restricted
Subsidiary may sell accounts pursuant to the GECC Agreement and may in
the ordinary course of business and consistent with past practices
sell accounts receivable for fair market value and without recourse or
claim against the Company, the Guarantor or any Restricted Subsidiary;
(viii) the Company, the Guarantor and any Restricted
Subsidiary may convey, sell, lease, transfer, assign or otherwise
dispose of assets to the extent that the aggregate Net Cash Proceeds
from all such Asset Sales occurring on or after the date of this
Indenture in any consecutive twelve (12) months (other than Asset
Sales otherwise permitted in clauses (i) through (vii) above) do not
exceed ten percent (10%) of the Consolidated Assets of the Company,
the Guarantor and the Restricted Subsidiaries as at the end of the
most recent fiscal quarter.
For purposes of this Section 4.28, "Net Cash Proceeds" means
the aggregate amount of U.S. Legal Tender received by the Company, the
Guarantor and the Restricted Subsidiaries in respect of an Asset Sale, other
than those expressly permitted in clauses (i) through (viii) above, less the
sum of (a) all reasonable fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated reasonably in
good faith by the Company and the Guarantor and evidenced by a Board
Resolution) of income, franchise, sales and other applicable taxes required to
be paid by the Company, the Guarantor or any Restricted Subsidiary in
connection with such Asset Sale; provided, however, that if actual taxes paid
are less than such estimated taxes, the difference shall be reincluded in Net
Cash Proceeds and (b) the aggregate amount of U.S. Legal Tender so received
which is used to retire any existing Indebtedness of the Company, the Guarantor
or the Restricted Subsidiaries which is required by the express terms of the
instruments to which they relate to be repaid in connection with such Asset
Sale.
The Company shall accumulate all Net Cash Proceeds in excess
of the amount provided in clause (viii) above, and the aggregate amount of such
accumulated Net Cash Proceeds not used for the purposes permitted by this
Section 4.28(a) and within the time provided by this Section 4.28(a) shall be
referred to as the "Accumulated Amount."
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Notwithstanding anything contained in this Section 4.28, none
of the Company, the Guarantor or any Restricted Subsidiary shall convey, sell,
transfer, assign or otherwise dispose of, any of its property, business or
assets, if immediately before or immediately after giving effect to such
transaction, a Default or an Event of Default (including an event that, after
notice or lapse of time, or both, would become an Event of Default) shall have
occurred and be continuing.
(b) For the purposes of this Section 4.28, "Minimum
Accumulation Date" means each date on which the Accumulated Amount exceeds
$3,000,000. Not later than 10 Business Days after each Minimum Accumulation
Date the Company shall make an unconditional offer (an "Offer to Purchase") to
the Holders to purchase, on a pro rata basis, Securities having a principal
amount (the "Offer Amount") equal to the Accumulated Amount, at a purchase
price (the "Offer Price") equal to 100% of principal amount, plus (i) accrued
but unpaid interest to, and including, the date (the "Purchase Date") the
Securities tendered are purchased and paid for in accordance with this Section
4.28 and, (ii) any premium that would be payable if the Company were to have,
on such Purchase Date, redeemed the Securities pursuant to Article Three and
paragraph 5 of the Securities. Notice of an Offer to Purchase shall be sent,
at least twenty (20) Business Days prior to the close of business on the Final
Put Date (as defined below), by first- class mail, by the Company to each
Holder at its registered address, with a copy to the Trustee. The notice to
the Holders shall contain all information, instructions and materials required
by applicable law or otherwise material to such Holders' decision to tender
Securities pursuant to the Offer to Purchase. The Notice, which shall govern
the terms of the Offer to Purchase shall state:
(1) that the Offer to Purchase is being made pursuant to
such notice and this Section 4.28;
(2) the Offer Amount, the Offer Price (including the
amount of accrued and unpaid interest and any premium over the principal
amount), the Final Put Date (as defined below), and the Purchase Date, which
Purchase Date shall be on or prior to 25 Business Days following the date the
Accumulated Amount was at least $3,000,000;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(4) that, unless the Company defaults in depositing U.S.
Legal Tender with the Paying Agent in accordance with the last paragraph of
this clause (b) or payment to Holders is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest after the Purchase Date;
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(5) that Holders electing to have a Security, or portion
thereof, purchased pursuant to an Offer to Purchase will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent (which
may not for purposes of this Section 4.28, notwithstanding any other provision
of this Indenture, be the Company or any Affiliate of the Company) at the
address specified in the notice prior to the close of business on the third
Business Day prior to the Purchase Date (the "Final Put Date");
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for purposes
of this Section 4.28, notwithstanding any other provision of this Indenture, be
the Company, the Guarantor or any Affiliate of the Company or the Guarantor)
receives, up to the close of business on the Final Put Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder is withholding and a statement
containing a facsimile signature that such Holder is withdrawing his election
to have such principal amount of Securities purchased;
(7) that if Securities in a principal amount in excess of
the principal amount of Securities to be acquired pursuant to the Offer to
Purchase are tendered and not withdrawn, the Company shall purchase Securities
on a pro rata basis (with such adjustments as may be deemed appropriate by the
Company so that only Securities in denominations of $1,000 or integral
multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such
Asset Sales.
Any such Offer to Purchase shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture that conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
On or before a Purchase Date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Offer
to Purchase on or prior to the Final Put Date (on a pro rata basis if required
pursuant to paragraph (7) above, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the Offer Price for all Securities or portions thereof
so accepted and (iii) deliver to the Trustee Securities so accepted together
with an Officer's Certificate
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setting forth the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Offer Price for such
Securities, and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased
portion of the Security surrendered. Any Securities not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
will publicly announce the results of the Offer to Purchase on or as soon as
practicable after the Purchase Date.
(c) If the amount required to acquire all Securities
tendered by Holders pursuant to the Offer to Purchase (the "Acceptance Amount")
shall be less than the Offer Amount, the excess of the Offer Amount over the
Acceptance Amount may be used by the Company for general corporate purposes
without restriction, unless otherwise restricted by the other provisions of
this Indenture. Upon consummation of any Offer to Purchase made in accordance
with the terms of this Section 4.28, the Accumulated Amount as of the Minimum
Accumulation Date shall be reduced to zero and accumulations thereof shall be
deemed to recommence from the day next following such Minimum Accumulation
Date.
Section 4.29. Repurchase of the Securities.
Notwithstanding anything to the contrary contained herein,
other than pursuant to a Registered Exchange Offer, Section 4.13 or 4.28 of
this Indenture or as set forth in paragraph 5 of the Securities, neither the
Guarantor, the Company, any of their subsidiaries nor any Affiliate of any of
the foregoing may, directly or indirectly, purchase, acquire, hold, redeem,
prepay, or own any Securities prior to July 1, 1998.
Section 4.30. Amendments of CFC Credit Agreement.
None of the Company, the Guarantor or any of their
subsidiaries shall amend, supplement or otherwise modify the CFC Credit
Agreement in any respect that would (a) accelerate the repayment of any
Indebtedness thereunder or (b) limit the Company's or the Guarantor's ability
to receive distributions or dividends from any of their subsidiaries.
Section 4.31. Execution of Guaranties by Restricted
Subsidiaries.
The Company shall cause any Restricted Subsidiary that is not
a Guarantor Subsidiary on the date hereof, except for Gump's Corp., to execute
and deliver to the Trustee, immediately after such subsidiary becomes a
Restricted Subsidiary, a guaranty
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agreement pursuant to which such Restricted Subsidiary will guarantee payment
of the Securities and the performance of the Company's other obligations under
this Indenture to the extent set forth in Article 11 hereof.
Section 4.32. Limitation on Activities.
The Company and the Guarantor shall not, and shall not permit
any material Restricted Subsidiary to, primarily engage in any business or
investment activities other than those necessary for, incident to, connected
with or arising out of the Company's and the Guarantor's principal activities
in direct specialty retailing or directly related activities.
Section 4.33. Working Capital Adequacy
The Company shall not permit, as at the end of any fiscal
quarter, the sum of Consolidated Current Assets plus Net Cash Flow plus Excess
Availability to be less than the sum of Consolidated Current Liabilities plus
Revolving Loan Balance.
ARTICLE 5
SUCCESSORS
Section 5.1. When Company, the Guarantor or Their
Subsidiaries May Merge, etc.
The Company and the Guarantor shall not, and shall not permit
any Restricted Subsidiary to, consolidate with or merge with or into any other
entity or sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets (determined on a consolidated
basis for the Company, the Guarantor and their subsidiaries taken as a whole)
to any entity, unless:
(1) either (a) the Company shall be the continuing
corporation or (b) the entity (if other than the Company) formed by such
consolidation or into which the Company is merged or the entity that acquires,
by sale, conveyance, assignment, transfer, lease or disposition, all or
substantially all of the properties and assets of the Company or the Guarantor
shall be a corporation, partnership or trust organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia, and shall expressly assume by a supplemental indenture or in the case
of HDI by signing this Indenture the due and punctual payment of the principal
of and premium, if any, and interest on all the Securities and the performance
and observance of every covenant of the Indenture and the other Documents on
the part of the Company or the Guarantor, as the case may be, to be performed
or observed, provided,
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however, that such assumption by HDI is conditioned upon the consummation of
the Reorganization.
(2) immediately before and immediately thereafter, no
Event of Default (and no event that, after notice or lapse of time, or both,
would become an Event of Default) shall have occurred and be continuing;
(3) immediately after giving effect to any such
transaction involving the incurrence by the Company, the Guarantor or any of
their subsidiaries, directly or indirectly, of additional Indebtedness (and
treating any Indebtedness not previously an obligation of the Company or any of
its subsidiaries incurred in connection with or as a result of such transaction
as having been incurred at the time of such transaction), the Company (if it is
the continuing corporation), the Guarantor (if it is the continuing
corporation) or such other entity could incur at least $1.00 of additional
Indebtedness pursuant to Section 4.18; and
(4) immediately thereafter, the Company (if it is the
continuing corporation), the Guarantor (if it is the continuing corporation) or
such other entity shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such
transaction.
The Company and the Guarantor shall deliver to the Trustee
prior to the consummation of the proposed transaction an Officer's Certificate
to the foregoing effect and an Opinion of Counsel stating that the proposed
transaction and such supplemental indenture comply with this Indenture.
(b) Notwithstanding any of the provisions contained in
this Article 5, any Restricted Subsidiary of the Company may consolidate or
merge with or into, or sell, convey, assign, transfer or otherwise dispose of
all or substantially all of its assets to, the Company, or any other Restricted
Subsidiary of the Company so long as the Company or a Restricted Subsidiary of
the Company shall be the continuing corporation.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease,
conveyance or other disposition of assets in accordance with Section 5.1, the
successor corporation, including without limitations, HDI after the
Reorganization, formed by such consolidation or into or with which the Company,
the Guarantor or any Restricted Subsidiary is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, the
Guarantor or the Restricted Subsidiaries, as the case may be, under this
Indenture and the Documents with the same
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effect as if such successor Person, including without limitations, HDI after
the Reorganization, had been named as the Company, the Guarantor or the
Restricted Subsidiary, as the case may be, herein or therein; provided,
however, that the predecessor Company, Guarantor or the Restricted Subsidiary,
as the case may be, including without limitations, HDI after the
Reorganization, in the case of a sale, lease, conveyance or other disposition
shall not be released from the obligation to pay the principal of and interest
on the Securities or the obligations under the Purchase Agreement and the
Registration Rights Agreement, or any of the other Documents, as the case may
be.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) the Company, the Guarantor or the Guarantor
Subsidiaries default in the payment of interest or any other amounts
owing on any Security when the same becomes due and payable and the
Default continues for a period of ten (10) days; or the Distribution
Facility Subsidiary defaults in the payment of interest or any other
amounts owing on the Pledged Note when the same becomes due and
payable;
(2) the Company defaults in the payment of the
principal of any Security when the same becomes due and payable at
maturity, upon redemption or otherwise; or the Distribution Facility
Subsidiary defaults in the payment of the principal of the Pledged
Note when the same becomes due and payable upon demand, upon
acceleration, upon redemption or otherwise; or the Company fails to
pay to the Holders any interest, principal, proceeds, assets or other
amounts collected by the Company with respect to the Pledged Note
within one day after receipt thereof; or any payment default occurs
under the CFC Credit Agreement or any default under Section 6.18 or
6.19 of the CFC Credit Agreement occurs and continues for a period of
forty-five (45) days; or the Trustee receives a Payment Block Notice
pursuant to the Subordination Agreement; or any representation or
warranty made in the Purchase Agreement or any other Document was
false in any material respect on the date as of which made or deemed
made.
(3) either the Company, the Guarantor or the
Guarantor Subsidiaries fail to comply with any of its other agreements
or covenants in, or provisions of, the Securities, this Indenture, the
Guaranty or the other Documents to which it is a party and such
failure shall have
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continued for a period of thirty (30) days after the earlier of
written notice by the Trustee or when such failure shall first have
become known to the Company, the Guarantor or the Guarantor
Subsidiaries;
(4) an acceleration of payment prior to
scheduled maturity occurs under any mortgage, indenture, instrument or
agreement under which there may be issued or by which there may be
secured or evidenced any Indebtedness of the Company, the Guarantor or
any of their subsidiaries in an aggregate amount in excess of
$1,000,000 (other than the CFC Credit Agreement covered by subsection
(2) hereof), whether such Indebtedness now exists or shall be created
hereafter;
(5) a final judgment or final judgments for the
payment of money are entered by a court or courts of competent
jurisdiction against the Company, the Guarantor or any Restricted
Subsidiary and such remains undischarged for a period (during which
execution shall not be effectively stayed) of 60 days, provided that
the aggregate of all such judgments exceeds $1,000,000;
(6) the Company, the Guarantor or any Restricted
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order
for relief against it in an involuntary case,
(C) consents to the appointment of a
Custodian of it or for all or substantially all of its
property,
(D) makes a general assignment for the
benefit of its creditors, or
(E) admits in writing its inability
generally to pay its debts as the same become due;
(7) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against any of the
Company, the Guarantor or any Restricted Subsidiary in an
involuntary case,
(B) appoints a Custodian of any of the
Company, the Guarantor or any Restricted Subsidiary or
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for all or substantially all of the property of the Company, the
Guarantor or any Restricted Subsidiary, or
(C) orders the liquidation of any of
the Company, the Guarantor or any Restricted Subsidiary, and
the order or decree remains unstayed and in effect for 60
days;
(8) there has occurred a revocation, suspension
or involuntary loss of any material license, contract or franchise of
the Company, the Guarantor or any Guarantor Subsidiary which results
in the cessation of operation of the business of any of such entities
for a period of more than 30 consecutive days;
(9) a court of competent jurisdiction enters a
final judgment holding any of the Guaranty or any other Documents to
be invalid or unenforceable and such judgment remains unstayed and is
in effect for a period of 60 consecutive days; or if either the
Company, the Guarantor or any Guarantor Subsidiary shall assert, in
any pleading filed in such a court, that the Guaranty or any other
Documents are invalid or unenforceable;
(10) the Company, the Guarantor or any Guarantor
Subsidiary default in the payment of any amounts due pursuant to the
terms of the Purchase Agreement, the Registration Rights Agreement or
the other Documents (other than payments already covered by subsection
(1) and (2) hereof) when the same become due and payable; or
(11) the Company or the Guarantor admits in any
writing that it is unable to pay its debts as they become due.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
In the case of any Event of Default pursuant to the provisions
of this Section 6.1 occurring by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company, the Guarantor or the
Guarantor Subsidiaries with the intention of avoiding payment of the premium
which the Company would have had to pay if the Company then had elected to
redeem the Securities pursuant to Paragraph 5 of the Securities, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the Securities contained to
the contrary notwithstanding.
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Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default
specified in clause (6) or (7) of Section 6.1) occurs and is continuing, the
Trustee by notice to the Company (on behalf of itself and the Guarantor
Subsidiaries) and the Guarantor, or the Holders of at least 25% in principal
amount of the then outstanding Securities by notice to the Company (on behalf
of itself and the Guarantor Subsidiaries) and the Guarantor, and the Trustee,
may declare the unpaid principal of and any accrued interest on all the
Securities to be due and payable. Upon such declaration, the principal and
interest shall be due and payable immediately. If an Event of Default
specified in clause (6) or (7) of Section 6.1 occurs, such an amount shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. The Holders of a majority
in principal amount of the then outstanding Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal or interest
on the Securities or to enforce the performance of any provision of the
Securities, the Guaranty, this Indenture or the Documents.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then
outstanding Securities by notice to the Trustee may waive an existing Default
or Event of Default and its consequences except a continuing Default or Event
of Default in the payment of the principal of or interest on any Security.
Section 6.5. Control by Majority.
The Holders of a majority in principal amount of the then
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the
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Trustee or exercising any trust or power conferred on it. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture,
that is unduly prejudicial to the rights of other Securityholders, or would
involve the Trustee in personal liability.
Section 6.6. Limitation on Suits.
A Securityholder may pursue a remedy with respect to this
Indenture or the Securities only if:
(1) the Holder gives to the Trustee notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal
amount of the then outstanding Securities make a written request to
the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or
expense;
(4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of
indemnity; and
(5) during such 60-day period the Holders of a
majority in principal amount of the then outstanding securities do not
give the Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.7. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Security to receive payment of principal and interest
on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company, the Guarantor or any other
obligor on the Securities for the whole amount of principal and interest
remaining unpaid on
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the Securities and interest on overdue principal and interest and such further
amount as shall be sufficient to cover the costs and, to the extent lawful,
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.9. Trustee may File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Securityholders allowed in any judicial proceedings relative to
the Company, the Guarantor or any other obligor or their respective creditors
or property. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article or
by exercise of its remedies under the Documents, it shall pay out the money in
the following order:
First: to the Trustee for amounts due under Section 7.7
hereof;
Second: to holders of Senior Indebtedness to the extent
permitted under Article 10 hereof;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest and premium, if
any, ratably, first to interest, then principal and
then premium, according to the amounts due and
payable on the Securities for principal and interest
and premium, if any, respectively; and
Fourth: to Securityholders for other amounts due under the
Indenture, the Securities and the other Documents; and
Fifth: to the Company, the Guarantor or any other obligors
on the Securities, as their interests may appear, or
as a court of competent jurisdiction may direct.
The Trustee may fix a record date and payment date for any
payment to Securityholders.
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Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.7, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties
that are specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine
the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section.
(2) The Trustee shall not be liable for any
error of judgment made in good faith by a Trust Officer,
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unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts.
(3) The Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of this
Section.
(e) The Trustee may refuse to perform any duty or
exercise any right or power unless it receives indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with the
Company, the Guarantor and the Guarantor Subsidiaries. Money held in trust by
the Trustee need not be segregated from other funds except to the extent
required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may rely on any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officer's Certificate or an opinion of Counsel, or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officer's Certificate or opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with an attorney and shall
not be liable for any action it takes or omits to take in reliance on such
attorney's advice.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal
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with the Company, the Guarantor, the Guarantor Subsidiaries or an Affiliate of
any of them with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture, the Securities, the Guaranty or any other Document,
it shall not be accountable for the Company's use of the proceeds from the
Securities, and it shall not be responsible for any statement of the Company or
the Guarantor or the Guarantor Subsidiaries in the Indenture or any other
Document or any statement in any Security other than its authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Securityholders a
notice of the Default or Event of Default within 15 days after it occurs.
Except in the case of a Default or Event of Default in payment on any Security
(including any failure to make any mandatory redemption payment required
hereunder), the Trustee may withhold the notice if and so long as a committee
of its Trust officers in good faith determines that withholding the notice is
in the interests of Securityholders.
Section 7.6. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section
13.9, the Trustee shall mail to Securityholders a brief report dated as of such
reporting date that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b)(1) and TIA Section 313(b)(2). The Trustee
shall also transmit by mail all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the
TIA, a copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time
reasonable compensation for its services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses shall include the
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reasonable compensation and out-of-pocket expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee against any loss or
liability incurred by it except as set forth in the next paragraph. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel, and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not pay
for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through negligence or bad
faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(6) or (7) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Company in writing.
The Holders of a majority in principal amount of the then outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company
in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged as bankrupt or
insolvent or an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of
the Trustee or its property; or
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(4) the Trustee becomes incapable of acting or is
not performing to the satisfaction of Holders of a majority in
aggregate principal amount of the then outstanding Securities.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company, the Guarantor and any other
obligor shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount
of the then outstanding Securities may appoint a successor Trustee to replace
the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee (at the
expense of the Company), the Company or the Holders of at least 10% in
principal amount of the then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.7. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring trustee with respect to
expenses and liabilities incurred by it prior to such replacement.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a
combined capital and surplus as stated in Section
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13.9. The Trustee is subject to TIA Section 310(b), including the optional
provision permitted by the second sentence of TIA Section 310(b)(9).
Section 7.11. Preferential Collection of Claims Against
Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1. Termination of Company's, Guarantor's and the
Guarantor Subsidiaries' Obligations.
This Indenture shall cease to be of further effect (except
that the Company's obligations under Section 7.7 and the Company's and the
Trustee's obligations under Section 8.3 shall survive) when all outstanding
Securities theretofore authenticated and issued have been delivered to the
Trustee for cancellation, and the Company, the Guarantor or the Guarantor
Subsidiaries have paid all sums payable hereunder and under the other
Documents. In addition, the Company, the Guarantor and the Guarantor
Subsidiaries may terminate all of their respective obligations under this
Indenture (except the Company's obligations under Sections 7.7 and 8.3) if:
(1) the Company irrevocably deposits in trust
with the Trustee money or U.S. Government Obligations sufficient to
pay principal and interest and premium, if any, on the Securities to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder; and
(2) the Company shall have delivered to the
Trustee an opinion of Counsel satisfactory to the Trustee that the
Holders of the Securities should not recognize income, gain or loss
for federal income tax purposes as a result of the Company's exercise
of its option under this Section 8.1 and will be subject to federal
income tax on the same amount and in the same manner and at the same
times as would have been the case if such option had not been
exercised.
However, the Company's, the Guarantor's and the Guarantor Subsidiaries'
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 7.7, 8.3 and 8.4 shall
survive until the Securities are no
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longer outstanding. Thereafter, only the Company's obligations in Sections 7.7
and 8.3 shall survive.
After a deposit made pursuant to this Section 8.01, the
Trustee upon request shall acknowledge in writing the discharge of the
Company's, the Guarantor's and the Guarantor Subsidiaries' obligations under
this Indenture except for those surviving obligations specified above.
"U.S. Government Obligations" means direct obligations of the
United States of America, or obligations unconditionally guaranteed by the
United States of America, for the payment of which the full faith and credit of
the United States of America is pledged. In order to have money available on a
payment date to pay principal or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal or interest on or
before such payment date in such amounts as will provide the necessary money.
U.S. Government Obligations shall not be callable at the issuer's option.
Section 8.2. Application of Trust Money.
The Trustee shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 8.1. It shall
apply the deposited money and the money from U.S. Government Obligations
through the Paying Agent and in accordance with this Indenture to the payment
of principal and interest on the Securities.
Section 8.3. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the
Company upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, however, that the Company shall have first caused
notice of such payment to the Company to be mailed to each Securityholder
entitled thereto no less than 30 days prior to such payment. After payment to
the Company, Securityholders entitled to the money must look to the Company for
payment as general creditors unless an applicable abandoned property law
designates another Person.
Section 8.4. Reinstatement.
If (i) the Trustee or Paying Agent is unable to apply any
money in accordance with Section 8.2 by reason of any order or judgment of any
court or governmental authority enjoining,
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restraining or otherwise prohibiting such application and (ii) the Holders of
at least a majority in principal amount of the then outstanding Securities so
request by written notice to the Trustee, the Company's and the Guarantor's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.1 until such
time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.2.
ARTICLE 9
AMENDMENTS
Section 9.1. Without Consent of Holders.
The Company, the Guarantor, the Guarantor Subsidiaries and the
Trustee may amend this Indenture, the Securities or the other Documents without
the consent of any Securityholder:
(1) to comply with Section 5.1;
(2) to comply with any requirements of the SEC in
connection with the qualification or requalification of this Indenture
under the TIA; or
(4) to provide for uncertificated Securities in
addition to certificated Securities.
Within five (5) days after an amendment under this Section
becomes effective, the Company shall mail to Securityholders and the Trustee a
notice briefly describing the amendment.
Section 9.2. With Consent of Holders.
Subject to Section 6.7, the Company, the Guarantor, the
Guarantor Subsidiaries and the Trustee may amend this Indenture, the Securities
or any other Document with the written consent of the Holders of at least a
majority in principal amount of the then outstanding Securities. Subject to
Sections 6.4 and 6.7, the Holders of a majority in principal amount of the
Securities then outstanding may also waive compliance in a particular instance
by the Company or the Guarantor with any provision of this Indenture or the
Securities or any other Document.
However, without the consent of each Securityholder affected,
an amendment or waiver under this Section may not:
(1) reduce the amount of Securities whose
Holders must consent to an amendment or waiver;
(2) reduce the rate of or change the time for
payment of interest on any Security;
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(3) reduce the principal of or change the fixed
maturity of any Security or alter the redemption provisions with
respect thereto;
(4) make any Security payable in money other
than that stated in the Security;
(5) make any change in Section 6.4, 6.7 or 9.2
(this sentence); or
(6) waive a default in the payment of the
principal of, or interest or premium on, any Security.
To secure a consent of the Holders under this Section it shall
not be necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
Within five (5) days after an amendment or waiver under this
Section becomes effective, the Company shall mail to Securityholders and the
Trustee a notice briefly describing the amendment or waiver.
Section 9.3. Compliance with Trust Indenture Act.
From the date on which this Indenture is qualified under the
TIA, every amendment, waiver or supplement under this Indenture or the
Securities shall comply with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to
it by a Holder of a Security is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the
same Indebtedness as the consenting Holder's Security, even if notation of the
consent is not made on any Security. However, any such Holder or subsequent
Holder may revoke the consent as to his Security or portion of a Security if
the Trustee receives notice of revocation before the date on which the Trustee
receives an Officer's Certificate certifying that the Holders of the requisite
principal amount of Securities have consented to the amendment or waiver (or
before such later date as may be required by law or stock exchange rule).
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
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Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be
Holders after such record date. No consent shall be valid or effective for
more than 90 days after such record date unless consents from Holders of the
principal amount of Securities required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within such 90-day
period.
After an amendment or waiver becomes effective it shall bind
every Securityholder, unless it is of the type described in any of clauses (1)
through (6) of Section 9.2. In such case, the amendment or waiver shall bind
each Holder of a Security who has consented to it and every subsequent Holder
of a Security that evidences the same debt as the consenting Holder's Security.
Section 9.5. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an
amendment or waiver on any Security thereafter authenticated. The Company in
exchange for all Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment or waiver.
Section 9.6. Trustee Protected.
The Trustee shall sign all supplemental indentures, except
that the Trustee need not sign any supplemental indenture that adversely
affects its rights. The Trustee may request an opinion of Counsel and an
Officer's Certificate stating that such supplemental indenture is permitted
hereunder and all conditions precedent have been complied with in the form set
forth in Sections 12.04 and 12.05.
ARTICLE 10
SUBORDINATION
Section 10.1. Securities Subordinated to Senior
Indebtedness.
Each of the Company, the Guarantor and the Guarantor
Subsidiaries agrees, and each Holder by accepting a Security agrees, that the
Indebtedness evidenced by the Securities and the Guaranties, including for all
purposes of this Article 10, all repurchase and redemption obligations with
respect to the Securities, is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment in full of
all existing and future Senior Indebtedness and that the subordination is for
the benefit of and enforceable by the holders of Senior Indebtedness, and
authorizes and directs the Trustee to take such action as may be necessary or
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appropriate to acknowledge or effectuate the subordination as provided in this
Article 10 and the Subordination Agreement and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Only Indebtedness of the Company, the Guarantor and the
Guarantor Subsidiaries which is Senior Indebtedness shall rank senior to the
Securities in accordance with the provisions set forth herein. This Article 10
shall remain in full force and effect as long as any Senior Indebtedness is
outstanding or any commitment to advance Senior Indebtedness exists, assuming
that all conditions precedent to any such advance could be satisfied.
Section 10.2. Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution, whether of cash, securities
or other property, to creditors of the Company, the Guarantor or any Guarantor
Subsidiary in a liquidation (total or partial), reorganization or dissolution
of the Company, the Guarantor or any Guarantor Subsidiary, whether voluntary or
involuntary, or in a bankruptcy, reorganization, insolvency, receivership,
assignment for the benefit of creditors, marshalling of assets or similar
proceeding relating to each of the Company, the Guarantor, any Guarantor
Subsidiary or its respective properties:
(1) holders of Senior Indebtedness shall be
entitled to receive payment in full, in cash or cash equivalents, of
such Senior Indebtedness before Holders shall be entitled to receive
from the Company, the Guarantor or any Guarantor Subsidiary, any
payment of principal of, or interest on, or any other distribution
with respect to, the securities; and
(2) until the Senior Indebtedness is paid in full
as provided in clause (1) above, any distribution to which Holders
would be entitled from the Company, the Guarantor or the Guarantor
Subsidiaries but for this Article 10 shall be made to the holders of
Senior Indebtedness as their interests may appear;
in each case except that Holders may receive shares of stock and debt
securities that are subordinated to Senior Indebtedness to at least the same
extent and pursuant to the same or more stringent terms as are the Securities.
Upon any distribution of assets of the Company, the Guarantor
or any Guarantor Subsidiary referred to in this Section 10.2, the Trustee and
the Holders shall be entitled to rely upon any order or decree of a court of
competent jurisdiction in which such bankruptcy, reorganization, insolvency,
receivership, assignment for the benefit of creditors, marshalling of assets or
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similar proceedings are pending, or a certificate of the liquidating trustee or
agent or other such person making any distribution to the Trustee or to the
Holders, for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of Senior Indebtedness, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 10.2. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness or a Representative,
as the case may be, to establish that such notice has been given by a holder of
Senior Indebtedness or a Representative, as the case may be. In the event that
the Trustee determines, in good faith, that further evidence is required with
respect to the right of any person, as a holder of Senior Indebtedness, to
participate in any payment or distribution pursuant to this Section 10.2, the
Trustee may request such person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Indebtedness held
by such person, as to the extent to which such person is entitled to
participation in such payment or distribution and as to other facts pertinent
to the rights of such person under this Section 10.2, and, if such evidence is
not furnished, the Trustee may defer any payment to such person (or to the
Securityholder) pending judicial determination as to the right of such person
to receive such payment.
Section 10.3. Default on Senior Indebtedness.
During the continuance of any event of default with respect to
Senior Indebtedness pursuant to which the maturity of such Senior Indebtedness
may be accelerated immediately without further notice (except such notice as
may be required to effect such acceleration), upon the occurrence of receipt by
the Trustee of written notice from the Representative with respect to, or the
holders of at least a majority in aggregate principal amount of, such Senior
Indebtedness then outstanding, no direct or indirect payment may be made by the
Company, the Guarantor or the Guarantor Subsidiaries upon or in respect of the
Securities for a period (a "Payment Blockage Period") commencing on the earlier
of the date of receipt of such notice by the Trustee or the date of such
acceleration and ending 120 days thereafter (unless such Payment Blockage
Period shall be terminated by written notice to the Trustee from such
Representative or such holders). Not more than one Payment Blockage Period in
the aggregate may be commenced with respect to the Securities during any period
of 360 consecutive days, irrespective of the number of defaults with respect to
Senior Indebtedness during such period. In no event will a Payment Blockage
Period extend beyond 119 days from the date such payment upon or in respect of
the Securities was due; and there must be 180 days in any 360-day period in
which no Payment Blockage Period is in effect as to the Company, the
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Guarantor or the Guarantor Subsidiaries. For all purposes of this Section
10.3, no default or event of default which existed or was continuing on the
date of the commencement of the Payment Blockage Period with respect to the
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a subsequent Payment Blockage Period by
the Representative or requisite holders of such Senior Indebtedness whether or
not within a period of 360 consecutive days unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
Section 10.4. When Distribution Must Be Paid Over.
In the event that the Company, the Guarantor or any Guarantor
Subsidiary shall make any payment to the Trustee pursuant to the Securities at
a time when such payment is prohibited by Section 10.2 or 10.3, such payment
shall be held by the Trustee, in trust for the benefit of, and shall be paid
forthwith over and delivered to, the holders of Senior Indebtedness (pro rata
as to each of such holders on the basis of the respective amounts of Senior
Indebtedness held by them) or their Representatives, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
If a distribution is made to Holders that because of this
Article 10 should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of Senior indebtedness and pay
it over to them as their interests may appear.
Section 10.5. Notice by Company.
The Company shall promptly notify the Trustee and any Paying
Agent by an appropriate Officer's Certificate of the Company delivered to a
Trust Officer and the Paying Agent of any facts known to the Company that would
cause a payment under the Securities of principal of or interest on the
Securities to violate this Article 10, but failure to give such notice shall
not affect the subordination of the Securities to the Senior Indebtedness
provided in this Article 10.
Section 10.6. Subrogation.
After all Senior Indebtedness is paid in full and all
commitments to advance Senior Indebtedness have been terminated, and until the
Securities are paid in full pursuant to the Securities and this Indenture or
otherwise, Holders shall be
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subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to Holders have been applied to payment of
Senior Indebtedness. A distribution made under this Article 10 to holders of
Senior Indebtedness which otherwise would have been made to Holders is not, as
between the Company and the Holders, a payment by the Company on Senior
Indebtedness.
Section 10.7. Relative Rights.
This Article 10 defines the relative rights of Holders and
holders of Senior Indebtedness. Nothing in this Indenture (but subject to the
provisions of paragraph 5 of the Securities) shall:
(1) impair, as between the Company, the Guarantor or the
Guarantor Subsidiaries and the Holders, the obligation of the Company,
the Guarantor and the Guarantor Subsidiaries, which is absolute and
unconditional, to pay principal of and interest on the Securities,
including the Guaranty, in accordance with their terms;
(2) affect the relative rights of Holders and creditors
of the Company, the Guarantor and the Guarantor Subsidiaries other
than such creditors as are holders of Senior Indebtedness;
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive distributions
otherwise payable to Holders; or
(4) create or imply the existence of any commitment on
the part of the holders of Senior Indebtedness to extend credit to the
Company other than as set forth in the terms governing such Senior
Indebtedness.
Section 10.8. Subordination May Not Be Impaired by Company.
No right of any present or future holder of Senior
Indebtedness to enforce the subordination of the Indebtedness evidenced by the
Securities and this Article 10 shall be impaired by any act or failure to act
by the Company, the Guarantor or any Guarantor Subsidiary or anyone in custody
of its assets or property or by its failure to comply with this Indenture.
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Section 10.9. Distribution or Notice to Representatives.
Whenever a distribution is to be made or a notice given to
holders of Senior Indebtedness, the distribution may be made and the notice
given to their Representatives, if any.
Section 10.10. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.2 or 10.3, the Trustee or any
Paying Agent may continue to make payments of principal of or interest on the
Securities unless, in the case of the Trustee, a Trust Officer or, in the case
of a Paying Agent other than the Trustee, an officer of such Paying Agent,
shall have received, at least three Business Days prior to the date such
payments are due and payable, written notice of the occurrence of an event
under Section 10.2 or 10.3 and that any payment under the Securities would
violate this Article 10. Only the Company or a Representative with respect to
or holders of a least a majority in principal amount of an issue of Senior
Indebtedness may give such notice. Nothing contained in this Section 10.10
shall limit the right of any holder of Senior Indebtedness to recover payments
as contemplated by Section 10.4.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights. The Trustee shall be entitled to
all the rights set forth in this Article 10 with respect to Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any
of its rights as such holder, except as otherwise provided by the TIA.
Section 10.11. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice.
Notwithstanding any of the provisions of this Article 10 or
any other provision of this Indenture, unless a Trust Officer has received a
written notice pursuant to Section 10.10, the Trustee shall not at any time be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee, and in the absence of such written
notice the Trustee may make such payment without liability or obligation to the
Senior Indebtedness.
Section 10.12. Application by Trustee of Monies Deposited
With It.
Nothing contained in this Article 10 or elsewhere in this
Indenture, or in the Securities, shall (i) affect the obligation of the
Company, the Guarantor or the Guarantor
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Subsidiaries to make, or prevent the Company, the Guarantor or the Guarantor
Subsidiary from making, at any time except as specified in Section 10.2 or 10.3
to the extent provided therein, payments at any time pursuant to the
Securities, (ii) prevent the application by the Trustee or any Paying Agent of
any monies or the proceeds of any U.S. Government Obligations received from the
Company and held by the Trustee or such Paying Agent in trust for the benefit
of the Holders of Securities as to which notice of redemption shall have been
given, to the payment of or on account of the principal of or interest on the
Securities if, at the time such notice was given, a payment by the Company
under the Securities would not have been prohibited by the foregoing provisions
of this Article 10 or (iii) prevent the application by the Trustee or any
Paying Agent of any monies or the proceeds of any U.S. Government Obligations
deposited with it by the Company under Article 8 hereof to the payment of or on
account of the principal of or interest on the Securities if, at the time of
such deposit, a payment by the Company under the Securities would not have been
prohibited by the foregoing provisions of this Article 10.
Section 10.13. Trustee's Compensation Not Prejudiced.
Nothing in this Article 10 shall apply to claims of, or
payments to, the Trustee pursuant to Section 7.7.
Section 10.14. Officer's Certificate.
If there occurs any event referred to in Section 10.2, the
Company, the Guarantor or any Guarantor Subsidiary, as the case may be, shall
promptly give to the Trustee an Officer's Certificate (on which the Trustee may
conclusively rely) identifying all holders of Senior Indebtedness and the
principal amount of Senior Indebtedness then outstanding held by each such
holder and stating the reasons why such Officer's Certificate is being
delivered to the Trustee.
Section 10.15. Certain Payments.
Nothing in this Article 10 shall prevent or delay (i) the
Company from or in redeeming any Securities pursuant to Sections 4.13 or 4.28
of this Indenture or paragraph 5 of the Securities or (ii) the receipt by the
Holders of payments of principal of and interest on the Securities as provided
in Section 8.2.
Section 10.16. Names of Representatives.
The Company, the Guarantor and the Guarantor Subsidiaries
shall from time to time, upon request of the Trustee, provide to the Trustee an
Officer's Certificate setting
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forth the name and address of each Representative of all outstanding Senior
Indebtedness.
Section 10.17. Article 10 Not To Prevent Events of Default
or Limit Right To Accelerate.
The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect
on the right of the Holders or the Trustee to accelerate the maturity of the
Securities.
Section 10.18. Reliance by Holders of Senior Indebtedness on
Subordination Provisions.
Each Holder by accepting a Security acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness. No provision in any supplemental indenture which modifies this
Article 10 in any manner adverse to the holders of Senior Indebtedness shall be
effective against the holders of Senior Indebtedness who have not consented
thereto in accordance with the provisions of the documents governing such
Senior Indebtedness.
Section 10.19. Proof of Claim.
In the event that the Company, the Guarantor or any Guarantor
Subsidiary is subject to any proceeding under any Bankruptcy Law and the
Holders and the Trustee fail to file any proof of claim permitted to be filed
in such proceeding with respect to the Securities, then any Representative of
Senior Indebtedness may file such proof of claim no earlier than the later of
(i) the expiration of 15 days after such Representative notifies the Trustee of
its intention to do so and (ii) 30 days preceding the last day permitted to
file such claim.
Section 10.20. No Fiduciary Duty to Holders of Senior
Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article 10, and no implied
covenants or obligations with respect
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to the holders of Senior Indebtedness shall be read into this indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and, subject to the provisions of Article 7,
the Trustee shall not be liable to any holder of Senior Indebtedness if it
shall mistakenly pay over or deliver to Holders, the Company, the Guarantor,
the Guarantor Subsidiaries or any other person, monies or assets to which any
holder of Senior Indebtedness shall be entitled by virtue of this Article 10 or
otherwise.
Section 10.20. Limitations on Application of Article 10.
(a) This Article 10 shall not apply to any payments or
proceeds received by the Holders from the Company which are paid to the Holders
from amounts due on or proceeds of the Pledged Note.
(b) This Article 10 shall only apply to persons other
than those subject to the Subordination Agreement.
ARTICLE 11
GUARANTY
Section 11.1. Guaranty.
The Guarantor and the Guarantor Subsidiaries hereby
unconditionally, jointly and severally, guarantee (such guarantee being the
"Guaranty") to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Securities or the other
Documents or the obligations of the Company under this Indenture, the
Securities or the other Documents, that: (i) the principal of and interest on
and premium, if any, and any other amounts owing on the Securities will be paid
in full when due, whether at the maturity or interest payment date, by
acceleration, redemption or otherwise, and interest on the overdue principal
and interest, if any, of the Securities and all other obligations of the
Company to the Holders or the Trustee under this Indenture, the Securities or
the other Documents will be promptly paid in full or performed, all in
accordance with the terms of this Indenture, the Securities and the other
Documents; and (ii) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, they will be paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at maturity, by acceleration or otherwise. Failing timely payment when
due of any amount so guaranteed for whatever reason, the Guarantor and the
Guarantor Subsidiaries will be jointly and severally obligated to pay the same
whether
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or not such failure to pay has become an Event of Default which could cause
acceleration pursuant to Section 6.2 hereof.
The Guarantor and the Guarantor Subsidiaries hereby agree that
its obligations with regard to this Guaranty shall be absolute, unconditional,
joint and several, irrespective of the validity, regularity or enforceability
of the Securities, this Indenture or the other Documents, the absence of any
action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof or of any other
Document, the recovery of any judgment against the Company or any other obligor
on the Securities, any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. The Guarantor and the Guarantor Subsidiaries hereby waive
diligence, notice, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, the Guarantor,
any Guarantor Subsidiary or any other obligor on the Securities, any right to
require a proceeding first against the Company, the Guarantor, any Guarantor
Subsidiary or any other obligor on the Securities, protest, notice and all
demands whatsoever and covenant that this Guaranty will not be discharged
except by complete performance of the obligations contained in the Securities,
this Indenture and the other Documents.
If any Securityholder or the Trustee is required by any court,
proceedings in bankruptcy or reorganization or otherwise to return to the
Company, the Guarantor, any Guarantor Subsidiary or any custodian, trustee, or
similar official acting in relation to either the Company, the Guarantor or any
Guarantor Subsidiary any amount paid by the Company, the Guarantor or any
Guarantor Subsidiary to the Trustee or such Securityholder, this Guaranty, to
the extent theretofore discharged, shall be reinstated in full force and
effect.
The Guarantor and the Guarantor Subsidiaries further agree
that, as between the Guarantor and the Guarantor Subsidiaries, on the one hand,
and the Holders and the Trustee, on the other hand, (i) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Section 6.2 of
the Indenture for the purposes of this Guaranty, notwithstanding any stay,
injunction or other prohibition preventing such acceleration as to the Company,
the Guarantor, any Guarantor Subsidiary or any other obligor on the Securities
of the obligations guaranteed hereby, and (ii) in the event of any declaration
of acceleration of those obligations as provided in Section 6.2 of the
Indenture, those obligations (whether or not due and payable) will forthwith
become due and payable by the Guarantor and the Guarantor Subsidiaries for the
purpose of this Guaranty.
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The Guarantor and each Guarantor Subsidiary hereby acknowledge
that the guarantee in this Article 11 constitutes an instrument for the payment
of money, and consent and agree that any Holder or the Trustee, at its sole
option, in the event of a dispute by the Guarantor or any Guarantor Subsidiary
in the payment of any moneys due hereunder, shall have the right to bring
motion-action under New York CPLR Section 3324.
The Guarantor and each Guarantor Subsidiary and by its
acceptance hereof each Holder hereby confirms that it is the intention of all
such parties that the guarantee by the Guarantor and the Guarantor Subsidiaries
pursuant to this Guaranty not constitute a fraudulent transfer or conveyance
for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar Federal or state law. To
effectuate the foregoing intention, the Holders and the Guarantor and the
Guarantor Subsidiaries hereby irrevocably agree that the obligations of the
Guarantor and the Guarantor Subsidiaries under this Guaranty shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of the Guarantor and any Guarantor Subsidiary and after
giving effect to any collections from or payments made by or on behalf of the
Guarantor or any Guarantor Subsidiary in respect of the obligations of the
Guarantor or such other Guarantor Subsidiary under its Guaranty or pursuant to
the contribution rights hereunder, result in the obligations of the Guarantor
or such Guarantor Subsidiary under this Guaranty not constituting such
fraudulent transfer or conveyance.
In order to provide for just and equitable contribution among
the Guarantor and the Guarantor Subsidiaries, the Guarantor and the Guarantor
Subsidiaries agree, inter se, that in the event any payment or distribution is
made by the Guarantor or any Guarantor Subsidiary (a "Funding Guarantor") under
this Guaranty, such Funding Guarantor shall be entitled to a contribution from
all other Guarantors, including Guarantor Subsidiaries, in a pro rata amount
based on the Adjusted Net Assets of each Guarantor and each Guarantor
Subsidiary (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantors' obligations
with respect to the Guaranty. "Adjusted Net Assets" of the Guarantor or such
Guarantor Subsidiary, as the case may be, at any date shall mean the lesser of
the amount by which (x) the fair value of the property of the Guarantor or such
Guarantor Subsidiary, as the case may be, exceeds the total amount of
liabilities, including, without limitation, contingent liabilities, but
excluding liabilities under the Guaranty, of the Guarantor or such Guarantor
Subsidiary, as the case may be, at such date and (y) the present fair salable
value of the assets of the Guarantor or such Guarantor Subsidiary, as the case
may be, at such date exceeds the amount that will be required to pay the
probably
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liability of, the Guarantor or such Guarantor Subsidiary, as the case may be,
on its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), excluding debt in respect of this Guaranty,
as they become absolute and matured. If any subsidiary becomes a Guarantor
Subsidiary hereunder subsequent to the date hereof, then for purposes of this
paragraph such subsequent Guarantor Subsidiary shall be deemed to have been a
Guarantor Subsidiary as of the date hereof and the aggregate present fair
saleable value of all assets and the amount of all the debts and liabilities,
of such Guarantor Subsidiary as of the date hereof shall be deemed to be equal
to such value and amount on the date such Guarantor Subsidiary becomes a
Guarantor Subsidiary hereunder. The provisions of this paragraph shall
supersede all other rights of subrogation and contribution, whether arising by
contract or operation of law (including, without limitation, any such right
arising under the Bankruptcy Code) or otherwise by reason of any payment by any
Guarantor Subsidiary pursuant to the provisions of this Article 11 and, to the
extent that any Guarantor Subsidiary shall have any such other rights of
subrogation or contribution, such Guarantor Subsidiary hereby irrevocably
waives the same.
The Guarantor and the Guarantor Subsidiaries hereby
irrevocably waive any claim or other rights which it may now or hereafter
acquire against the Company that arise from the existence, payment, performance
or enforcement of the Guarantor's and the Guarantor Subsidiaries' obligations
under this Guaranty, this Indenture, and the other Documents, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Securities against the Company, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights until payment in
full of all obligations guaranteed hereby. If any amount shall be paid to the
Guarantor or any Guarantor Subsidiary in violation of the preceding sentence
and the Securities shall not have been paid in full, such amount shall have
been deemed to have been paid to the Guarantor or such Guarantor Subsidiary for
the benefit of, and held in trust for the benefit of, the Holders of the
Securities, and shall, forthwith be paid to the Trustee for the benefit of such
Holders to be credited and applied upon the Securities, whether matured or
unmatured, in accordance with the terms of this Indenture. The Guarantor and
the Guarantor Subsidiaries acknowledge that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and
that the waiver set forth herein is knowingly made in contemplation of such
benefits.
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In case any provision of this Guaranty shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 11.2. Execution and Delivery of Guaranty.
To evidence the Guaranty set forth in Section 11.1, the
Guarantor and the Guarantor Subsidiaries agree that a notation of the Guaranty
substantially in the form of Exhibit B shall be endorsed on each Security
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of each of the Guarantor by its Chairman of the Board, its
President, its Chief Financial Officer or one of its Vice Presidents, under a
facsimile of its seal reproduced on this Indenture and attested to by an
officer other than the officer executing the Indenture.
The Guarantor and the Guarantor Subsidiaries agree that the
Guaranty set forth in Section 11.1 will remain in full force and effect and
apply to all the Securities notwithstanding any failure to endorse on each
Security a notation of the Guaranty.
If an Officer whose facsimile signature is on a Security no
longer holds that office at the time the Trustee authenticates the Security on
which the Guaranty is endorsed, the Guaranty shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Guaranty
set forth in this Indenture on behalf of the Guarantor and the Guarantor
Subsidiaries.
ARTICLE 12
SECURITY
Section 12.1. Security.
The performance of the Company, the Guarantor and the
Guarantor Subsidiaries shall be secured by the Collateral.
Section 12.2. Recording, etc.
The Guarantor, the Guarantor Subsidiaries and the Company will
have caused or will cause this Indenture, the Collateral Documentation and the
other Documents and all amendments or supplements to each of the foregoing to
be registered, recorded and filed and/or rerecorded, re-filed and renewed in
such manner and in such place or places, if any, as may be required by law or
reasonably requested by the Trustee or the Holders of a majority of the then
outstanding Securities in
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order fully to preserve and protect the Lien of the Indenture, the Collateral
Documentation and the other Documents on all parts of the Collateral to
effectuate and preserve the security of the Holders and all rights of the
Trustee.
The Company, the Guarantor and the Guarantor Subsidiaries
shall furnish, and shall cause any other obligor to furnish, to the Trustee:
(i) promptly after the execution and delivery of
the Indenture, and promptly after the execution and delivery of any
Collateral Documentation or other instrument of further assurance or
amendment, an Opinion of Counsel either (a) stating that, in the
opinion of such counsel, this Indenture, the Collateral Documentation
and all other instruments of further assurance or amendment have been
properly recorded, registered and filed to the extent necessary to
make effective the Lien intended to be created by the Indenture and
the Collateral Documentation and reciting the details of such action
or referring to prior opinions of Counsel in which such details are
given, and stating that as to the Indenture and Collateral
Documentation and such other instruments such recording, registering
and filing are the only recordings, registerings and filings necessary
to give notice thereof and that no rerecordings, re-registerings or
re-filings are necessary to maintain such notice, and further stating
that all financing statements and continuation statements and
mortgages have been executed and filed that are necessary fully to
preserve and protect the rights of the Holders and the Trustee
hereunder and under the Collateral Documentation or (b) stating that,
in the opinion of such counsel, no such action is necessary to make
such Lien and pledge effective; and
(ii) on or before March 1 in each year beginning with
the year 1994, an Opinion of Counsel, dated as of such date, either
(a) stating that, in the opinion of such counsel, such action has been
taken with respect to the recording, registering, filing,
re-recording, re-registering and re-filing of the Indenture and all
supplemental indentures, financing statements, continuation statements
and mortgages or other instruments of further assurance as is
necessary to maintain the Lien of the Indenture and the Collateral
Documentation and reciting the details of such action or referring to
prior opinions of Counsel in which such details are given, and stating
that all financing statements and continuation statements and
mortgages have been executed and filed that are necessary fully to
preserve and protect the rights of the Holders and the Trustee
hereunder and under the Collateral Documentation or (b) stating that,
in the opinion of such counsel, no such action is necessary to
maintain such Lien.
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The Guarantor, the Guarantor Subsidiaries, the Company and any
other obligor shall cause TIA Section 314(d) relating to the release of
Collateral from the Liens under the Collateral Documentation to be complied
with. Any certificate or opinion required by TIA Section 314(d) may be made
by any Officer; provided, however, that to the extent required by TIA Section
314(d), any such certificate or opinion shall be made by an Independent Person.
Section 12.3. Suits to Protect the Collateral.
To the extent permitted thereunder, the Trustee shall have
power to institute and to maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Collateral by any acts that may be
unlawful or in violation of the Collateral Documentation or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders in the Collateral and
the Collateral Documentation or this Indenture, and in the profits, rents,
revenues and other income arising therefrom, including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the Collateral or be
prejudicial to the interests of the Holders or the Trustee.
ARTICLE 13
MISCELLANEOUS
Section 13.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
Section 13.2. Notices.
Any notice or communication by the Company, the Guarantor, the
Guarantor Subsidiaries or the Trustee to any of the others is duly given if in
writing and delivered in Person or mailed by first-class mail to the others'
addresses stated in Section 13.10. The Company, the Guarantor or the Trustee by
notice to the others may designate additional or different addresses for
subsequent notices or communications.
Any notice or communication to a Securityholder shall be
mailed by first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or
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communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company or the Guarantor mails a notice or
communication to Securityholders, it shall mail a copy to the Trustee and each
Agent at the same time.
All other notices or communications shall be in writing.
Section 13.3. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section
312(b) with other Securityholders with respect to their rights under this
Indenture or the Securities. The Company, the Guarantor, the Trustee, the
Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 13.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company, the Guarantor,
the Guarantor Subsidiaries or any other obligor to the Trustee to take any
action under this Indenture, the Company, the Guarantor, the Guarantor
Subsidiaries or any other obligor, as the case may be, shall furnish to the
Trustee:
(a) an Officers, Certificate stating that, in the
opinion of the signers, all conditions precedent, if any, provided for
in this Indenture relating to the proposed action have been complied
with; and
(b) an opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
Section 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such
certificate or opinion has read such covenant or condition;
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<PAGE> 87
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such
Person, he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the
opinion of such Person, such condition or covenant has been complied
with.
Section 13.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its. functions.
Section 13.7. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in the State of New Jersey or New York are not required to
be open. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
Section 13.8. Counterparts.
This Indenture may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
Section 13.9. Variable Provisions.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Chief Financial Officer, the Treasurer, the Secretary, the
Director of Finance, any Assistant Treasurer or any Assistant Secretary of the
Company, the Guarantor or a subsidiary thereof, as the context may indicate.
The Company initially appoints the Trustee as Paying Agent,
Registrar and authenticating agent.
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<PAGE> 88
The first certificate pursuant to Section 4.3 shall be for the
first fiscal year of each of the Company and the Guarantor ending on or after
the date of this Indenture.
The reporting date for Section 7.6 is May 15 of each year.
The first reporting date is May 15, 1994.
The Trustee shall always have a combined capital and surplus
(including subordinated capital notes) of at least $25,000,000 as set forth in
its most recent published annual report of condition.
The Company's address is:
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman
General Counsel
The Trustee's address is:
First Trust Center
180 East Fifth Street
P.O. Box 64111
St. Paul, Minnesota 55164
Attention: Frank P. Leslie III
Section 13.10. Governing Law.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE
AND THE SECURITIES AND THE GUARANTY, WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS THEREOF.
Section 13.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company, the Guarantor or any of their
subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 13.12. Successors.
All agreements of the Company and the Guarantor in this
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 13.13. Severability.
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<PAGE> 89
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 13.14. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in
accordance with the terms and conditions of the Registration Rights Agreement
and shall pay all costs and expenses (including attorneys' fees for the
Company, the Trustee and the Holders of the Securities) incurred in connection
therewith, including, but not limited to, costs and expenses of qualification
of the Indenture and the Securities and printing this Indenture and the
Securities. In connection with any such qualification of this Indenture under
the TIA, the Trustee shall be entitled to receive from the Company any such
officers' Certificates, opinions of Counsel or other documentation as it may
reasonably request.
Section 13.15. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 13.16. Consent to Jurisdiction and Service of
Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY OR THE
GUARANTOR OR WITH RESPECT TO THIS INDENTURE, THE GUARANTY, ANY SECURITY OR ANY
OTHER DOCUMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE BOROUGH OF MANHATTAN, THE STATE OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE GUARANTOR
ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS INDENTURE, THE GUARANTY, ANY SECURITY OR ANY OTHER
DOCUMENT FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE. EACH OF THE
COMPANY, THE GUARANTOR AND THE GUARANTOR SUBSIDIARIES IRREVOCABLY DESIGNATES
AND APPOINTS CT CORPORATION SYSTEM, OR ANY OTHER ADDRESS IN THE STATE OF NEW
YORK COMMUNICATED BY CT CORPORATION SYSTEM TO THE TRUSTEE, AS ITS AGENT TO
RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY
SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY SUCH PERSONS TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE COMPANY, THE
GUARANTOR AND THE GUARANTOR SUBSIDIARIES IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR
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<PAGE> 90
CERTIFIED MAIL, POSTAGE PREPAID, TO ITS NOTICE ADDRESS SPECIFIED IN SECTION
13.10 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH
MAILING. EACH OF THE COMPANY, THE GUARANTOR, THE GUARANTOR SUBSIDIARIES AND
THE TRUSTEE IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER TO BRING PROCEEDINGS AGAINST THE
COMPANY, THE GUARANTOR OR THE GUARANTOR SUBSIDIARIES IN THE COURTS OF ANY OTHER
JURISDICTION.
Section 13.17. Waiver of Jury Trial.
EACH OF THE COMPANY, THE GUARANTOR AND THE TRUSTEE AND EACH
SECURITYHOLDER BY ACCEPTANCE OF A SECURITY HEREBY WAIVES ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS INDENTURE, THE GUARANTY OR ANY SECURITY OR ANY OTHER DOCUMENTS OR ANY
DEALINGS BETWEEN THEM RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of the transactions contemplated by this Indenture and the other
Documents, including without limitation, contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. The Company,
the Guarantor, the Guarantor Subsidiaries and the Trustee and each
Securityholder by acceptance of a Security each acknowledge that this waiver is
a material inducement to enter into a business relationship, that each has
already relied on the waiver in entering into this Indenture, the Guaranty and
the other Documents and in issuing and purchasing the Securities and that each
will continue to rely on the waiver in their related future dealings. The
Company, the Guarantor, the Guarantor Subsidiaries and the Trustee and each
Securityholder by acceptance of a Security further warrant and represent that
each has reviewed this waiver with its legal counsel, and that each knowingly
and voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS INDENTURE OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE SECURITIES. IN THE EVENT OF
LITIGATION, THIS INDENTURE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
[signature page follows]
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<PAGE> 91
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
THE HANOVER COMPANIES
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
THE HORN & HARDART COMPANY
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
HANOVER DIRECT FULFILLMENT, INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
BRAWN OF CALIFORNIA, INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
<PAGE> 92
D.M. ADVERTISING, INC.
BY /S/
---------------------------
Attest:
/S/
- ----------------------------- (SEAL)
GUMP'S BY MAIL, INC.
By /S/
Attest: ---------------------------
/S/
- ----------------------------- (SEAL)
GUMP'S HOLDINGS, INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
HANOVER DIRECT MAIL MARKETING, INC.
By /S/
Attest: ----------------------------
/S/
- ----------------------------- (SEAL)
<PAGE> 93
HANOVER LIST MANAGEMENT INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
HANOVER SYNDICATION CORP.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
H.I.M. INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
LEAVITT ADVERTISING AGENCY, INC.
By /S/
Attest: ----------------------------
/S/
- ------------------------------ (SEAL)
<PAGE> 94
RING RESPONSE LTD.
By /S/
Attest: ------------------------------
/S/
- ------------------------------ (SEAL)
YORK FULFILLMENT COMPANY, INC.
By /S/
Attest: ------------------------------
/S/
- ------------------------------ (SEAL)
FIRST TRUST NATIONAL
ASSOCIATION, as Trustee
By /S/
Attest: -----------------------------
/S/
- ------------------------------
<PAGE> 95
The undersigned, pursuant to Article 5 of this Indenture, agrees that
it hereby assumes the due and punctual payment of the principal of and premium,
if any, and interest on all the Securities and the performance and observance
of every covenant of this Indenture and the other Documents on the part of the
Company and the Guarantor to be performed or observed, such assumption being
effective upon consummation of the Reorganization (as defined herein).
HANOVER DIRECT, INC.,
a Delaware corporation
By /S/
---------------------------------
Attest:
/S/
- --------------------------------- (SEAL)
<PAGE> 96
EXHIBIT A-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
PPN _____________
(Face of Series A Security)
No.
$
THE HANOVER COMPANIES
promises to pay to
or registered assigns,
the principal sum of Dollars on August 1, 1998
9.25% SENIOR SUBORDINATED NOTE
SERIES A
Interest Payment Dates: July 1, October 1,
January 1 and April 1
Record Dates: June 15, September 15,
December 15 and March 15
Dated:
THE HANOVER COMPANIES
By
-------------------------------
By
-------------------------------
Authenticated: (SEAL)
First Trust National OR (Authenticating Agent's name)
Association
By By
-------------------------- -------------------------------
Authorized Signature Authorized Signature
A1-1
<PAGE> 97
(Back of Series A Security)
THE HANOVER COMPANIES
9.25% Senior Subordinated Note due August 1 1998,
Series A
1. Interest and Maturity.
(a) The Hanover Companies, a Nevada corporation (the
"Company," which term includes any successor corporation under the Indenture
referred to herein), hereby promises to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the principal amount of this
Series A Security at a rate of 9.25% per annum from the date hereof. The
Company will pay interest quarterly on July 1, October 1, January 1 and April 1
of each year commencing on October 1, 1993, until said principal shall have
become due and payable, and to pay interest (so computed) at the rate of 12.25%
per annum on any overdue principal and prepayment charge and, to the extent
permitted by applicable law, on any interest overdue (without regard to any
applicable grace period), until the same shall be paid.
(b) Notwithstanding anything to the contrary in the
foregoing, the Company also promises to pay in cash any interest required by
Section 3(b) of the Registration Rights Agreement dated as of August 17,
1993, as required thereunder.
2. Method of Payment. The Company will pay interest on
the Series A Securities (except defaulted interest) to the persons who are
registered holders of Series A Securities (each, a "Holder") at the close of
business on the record date for the next Interest Payment Date even though
Series A Securities are cancelled after the record date and on or before the
Interest Payment Date. Holders must surrender Series A Securities to a Paying
Agent to collect principal payments. The Company will pay principal and
interest or premium, if any, and any other amounts owing under the Securities
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company, however, may pay principal
and interest or premium, if any, and any other moneys owing under the
Securities by wire transfer of immediately available funds in such money. It
may mail an interest check to a Holder's registered address. Upon written
request of a Holder of non-Restricted Series A Securities in aggregate
principal amount equal to at least $1,000,000, the Company shall make payment
of principal or interest or premium, if any, by wire transfer of immediately
available funds to the wire address specified in such notice.
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<PAGE> 98
3. Paying Agent and Registrar. The Trustee will initially
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. Subject
to the approval in writing of a majority of Holders in principal amount of
the then outstanding Securities (which approval shall be revocable at any
time), the Company may act in any such capacity.
4. Indenture. The Company issued the Series A Securities
under an Indenture dated as of August 17, 1993 (the "Indenture") among the
Company, The Horn & Hardart Company, a Nevada corporation (the "Guarantor"),
certain subsidiaries of the Company and the Trustee. The terms of the Series
A Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section
Section 77aaa-77bbbb) as in effect on the date of the Indenture. The Series A
Securities are subject to, and qualified by, all such terms, certain of which
are summarized herein, and Securityholders are referred to the Indenture and
such Act for a statement of such terms. The Series A Securities are general
obligations of the Company limited to $20,000,000 in aggregate principal amount
and are subordinated to Senior Indebtedness to the extent set forth in the
Indenture.
5. Optional Redemption. The Company, at its option, may
redeem the Securities in whole or from time to time in part in each case at the
greater of (a) 100% of the outstanding principal amount, plus accrued interest
and other amounts then due and owing on the Securities to the redemption date,
or (b) the present value of the scheduled principal and interest payments due
on such Security, computed using a discount rate equal to the Treasury Rate,
plus accrued interest and other amounts then due and owing on the Securities.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two business
days prior to the date fixed for prepayment (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the then remaining average life of the Securities;
provided, that if the average life of the Securities is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the average life of the Securities is less than one year,
the weekly average yield on actually traded United States Treasury
A1-3
<PAGE> 99
securities adjusted to a constant maturity of one year shall be used.
6. Mandatory Redemption. The Company shall redeem
$6,000,000 (or such lesser amount as provided below) principal amount of the
Securities on February 15, 1994 or the Extended Date (as defined below), unless
prior to such date the Company has (i) established or acquired the New
Distribution Facility and loaned $6,000,000 principal amount of the Securities
to the Distribution Facility Subsidiary for the establishment or acquisition
of, or to make improvements to, or capital expenditures, including but not
limited to computer systems (including, without limitation, hardware and
software) and distribution equipment, in connection with, assets for the New
Distribution Facility, (ii) acquired the Pledged Note in an aggregate principal
amount of $6,000,000 and (iii) entered into the Security and Pledge Agreement
and delivered to the Trustee the Pledged Note duly endorsed in blank. The
"Extended Date" shall mean April 15, 1994 if prior to or on February 15, 1994
the Company has entered into a written agreement to acquire the New
Distribution Facility. Notwithstanding the foregoing, as long as the Company
has otherwise satisfied clauses (i) through (iii) of this Paragraph 6 except
that with respect to clause (i) the Company used less than $6,000,000 (the
"Expended Amount") in connection with the New Distribution Facility and with
respect to clause (ii) the Company acquired the Pledged Note in an aggregate
principal amount equal to the Expended Amount, the Company shall be required to
redeem an amount equal to the difference between $6,000,000 and the Expended
Amount, unless such amount is less than $1,000,000 in which case no redemption
pursuant to this paragraph 6 shall be required. Any such redemption under this
Paragraph 6 shall be made at 100% of the principal amount thereof, plus accrued
interest on such principal amount to the date of redemption.
7. Notice of Redemption. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder of Securities to be redeemed at his registered address. Securities
in denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. In the event of a redemption of less than all of the
Securities, the Securities will be chosen for redemption by the Trustee,
generally pro rata or by lot. On and after the redemption date, interest
ceases to accrue on Securities or portions of them called for redemption.
If this Security is redeemed subsequent to a record date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this Security is registered at the close of business on such record
date.
A1-4
<PAGE> 100
8. Denominations, Transfer, Exchange. The Series A
Securities are in registered form without coupons in denominations of $1,000
and integral multiples of $1,000. The transfer of Series A Securities may be
registered, and Series A Securities may be exchanged, as provided in the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not exchange
or register the transfer of any Series A Security or portion of a Series A
Security selected for redemption. Also, it need not exchange or register the
transfer of any Series A Securities for a period of 15 days before a selection
of Series A Securities to be redeemed.
9. Persons Deemed Owners. The registered holder of a
Series A Security may be treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions,
the Indenture, the Securities and the other Documents may be amended with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Securities, and any existing default may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding
Securities. Without the consent of any Securityholder, the Indenture, the
Securities or the other Documents may be amended, among other things, to cure
any ambiguity, defect or inconsistency, to provide for assumption of the
Company's or the Guarantor's obligations to Securityholders or to make any
change that does not adversely affect the rights of any Securityholder.
11. Defaults and Remedies. If an Event of Default (as set
forth in the Indenture) occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Securities may
declare all the Securities to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Securities become due and payable immediately
without further action or notice. Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Securities may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish quarterly and annual compliance
certificates to the Trustee.
12. Trustee Dealings with Company. First Trust National
Association, the Trustee under the Indenture, in its
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<PAGE> 101
individual or any other capacity, may make loans to, accept deposits from and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee.
13. Change in Control. If there is a Change in Control
(as defined in the Indenture), then the Company shall commence an offer to
repurchase all of the outstanding Securities upon the terms set forth in the
Indenture.
14. Subordination. The indebtedness evidenced by the
Securities is, to the extent and in the manner provided in the Indenture,
expressly subordinate in right of prior payment in full of all existing and
future senior indebtedness as set forth in the Indenture and the Subordination
Agreement (as defined in the Indenture), and this Security is issued subject to
the provisions of the Indenture and the Subordination Agreement with respect to
such subordination. Each holder of this Security, by accepting the same,
covenants and agrees to and shall be bound by such provisions and authorizes
and directs the Trustee to take such action as may be necessary or appropriate
to acknowledge or effectuate the subordination so provided and appoints the
Trustee as attorney-in fact for any and all such purposes.
15. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company or the Guarantor shall not
have any liability for any obligations of the Company or the Guarantor under
the Series A Securities or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Securityholder by
accepting a Series A Security waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Series A
Securities.
16. Authentication. This Series A Security shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
17. Abbreviations. Customary abbreviations may be used in
the name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
THE HANOVER COMPANIES
A1-6
<PAGE> 102
1500 Harbor Boulevard
Weekhawken, New Jersey 07087
Attn: Chief Financial Officer
A1-7
<PAGE> 103
ASSIGNMENT FORM
To assign this Series A Security, fill in the form below:
(I) or (we) assign and transfer this Series A Security to
_______________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________
______________________________________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
_______________________________________________________________
Date: __________ Your Signature: ____________________________
(Sign exactly as your name appears on the other side of this Series A Security)
Signature Guarantee
A1-8
<PAGE> 104
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Series A Security purchased
by the Company pursuant to Section 4.13 or Section 4.28 of the Indenture, check
the appropriate box: [ ] Section 4.13 [ ] Section 4.28
If you want to elect to have only part of this Series A
Security purchased by the Company pursuant to Section 4.13 or Section 4.28 of
the Indenture, state the amount (which must be $1,000 or an integral multiple
of $1,000): $_________________
Date: ___________ Your Signature: ____________________________
___________________________________________
(Sign exactly as your name appears on the other side of this Series A Security)
Signature Guarantee
A1-9
<PAGE> 105
EXHIBIT A-2
(Face of Series B Security)
No.
$
THE HANOVER COMPANIES
promises to pay to
or registered assigns,
the principal sum of Dollars on August 1, 1998
9.25% SENIOR SUBORDINATED NOTE
SERIES B
Interest Payment Dates: July 1, October 1,
January 1 and April 1
Record Dates: June 15, September 15,
December 15 and March 15
Dated:
THE HANOVER COMPANIES
By _______________________________
By _______________________________
Authenticated: (SEAL)
First Trust National OR (Authenticating Agent's name)
Association
By ___________________________ By __________________________
Authorized Signature Authorized Signature
A2-1
<PAGE> 106
(Back of Series B Security)
THE HANOVER COMPANIES
9.25% Senior Subordinated Note due August 1, 1998,
Series B
1. Interest and Maturity.
(a) The Hanover Companies, a Nevada corporation
(the "Company," which term includes any successor corporation under the
Indenture referred to herein), hereby promises to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the principal amount of
this Series B Security at a rate of 9.25% per annum from the date hereof. The
Company will pay interest quarterly on July 1, October 1, January 1 and April 1
of each year commencing on October 1, 1993, until said principal shall have
become due and payable, and to pay interest (so computed) at the rate of 12.25%
per annum on any overdue principal and prepayment charge and, to the extent
permitted by applicable law, on any interest overdue (without regard to any
applicable grace period), until the same shall be paid.
(b) Notwithstanding anything to the contrary in the
foregoing, the Company also promises to pay in cash any interest required by
Section 3(b) of the Registration Rights Agreement dated as of August 17, 1993,
as required thereunder.
2. Method of Payment. The Company will pay interest on
the Series B Securities (except defaulted interest) to the persons who are
registered holders of Series B Securities (each, a "Holder") at the close of
business on the record date for the next Interest Payment Date even though
Series B Securities are cancelled after the record date and on or before the
Interest Payment Date. Holders must surrender Series B Securities to a Paying
Agent to collect principal payments. The Company will pay principal and
interest or premium, if any, and other amounts owing under the Securities in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company, however, may pay principal
and interest or premium, if any, and other amounts owing under the Securities
by wire transfer of immediately available funds in such money. It may mail an
interest check to a Holder's registered address. Upon written request of a
Holder of non-Restricted Series B Securities in aggregate principal amount
equal to at least $1,000,000, the Company shall make payment of principal or
interest or premium, if any, by wire transfer of immediately available funds to
the wire address specified in such notice.
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<PAGE> 107
3. Paying Agent and Registrar. The Trustee will initially
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without prior notice to any Securityholder. Subject
to the approval in writing of a majority of Holders in principal amount of the
then outstanding Securities (which approval shall be revocable at any time),
the Company may act in any such capacity.
4. Indenture. The Company issued the Series B
Securities under an Indenture dated as of August 17, 1993 (the "Indenture")
among the Company, The Horn & Hardart Company, a Nevada corporation (the
"Guarantor"), certain subsidiaries of the Company and the Trustee. The terms
of the Series B Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Section Section 77aaa-77bbbb) as in effect on the date of the Indenture.
The Series B Securities are subject to, and qualified by, all such terms,
certain of which are summarized herein, and Securityholders are referred to the
Indenture and such Act for a statement of such terms. The Series B Securities
are general obligations of the Company limited to $20,000,000 in aggregate
principal amount.
5. Optional Redemption. The Company, at its option, may
redeem the Securities in whole or from time to time in part in each case at the
greater of (a) 100% of the outstanding principal amount, plus accrued interest
and other amounts then due and owing on the Securities to the redemption date,
or (b) the present value of the scheduled principal and interest payments due
on such Security, computed using a discount rate equal to the Treasury Rate,
plus accrued interest and other amounts then due and owing on the Securities.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two business
days prior to the date fixed for prepayment (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the then remaining average life of the Securities;
provided, that if the average life of the Securities is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the average life of the Securities is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
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<PAGE> 108
6. Mandatory Redemption. The Company shall redeem
$6,000,000 (or such lesser amount as provided below) principal amount of the
Securities on February 15, 1994 or the Extended Date (as defined below), unless
prior to such date the Company has (i) established or acquired the New
Distribution Facility and loaned $6,000,000 principal amount of the Securities
to the Distribution Facility Subsidiary for the establishment or acquisition
of, or to make improvements to, or capital expenditures, including but not
limited to computer systems (including, without limitation, hardware and
software) and distribution equipment, in connection with, assets for the New
Distribution Facility, (ii) acquired the Pledged Note in an aggregate principal
amount of $6,000,000 and (iii) entered into the Security and Pledge Agreement
and delivered to the Trustee the Pledged Note duly endorsed in blank. The
"Extended Date" shall mean April 15, 1994 if prior to or on February 15, 1994
the Company has entered into a written agreement to acquire the New
Distribution Facility. Notwithstanding the foregoing, as long as the Company
has otherwise satisfied clauses (i) through (iii) of this Paragraph 6 except
that with respect to clause (i) the Company used less than $6,000,000 (the
"Expended Amount") in connection with the New Distribution Facility and with
respect to clause (ii) the Company acquired the Pledged Note in an aggregate
principal amount equal to the Expended Amount, the Company shall be required to
redeem an amount equal to the difference between $6,000,000 and the Expended
Amount, unless such amount is less than $1,000,000 in which case no redemption
pursuant to this paragraph 6 shall be required. Any such redemption under this
Paragraph 6 shall be made at 100% of the principal amount thereof, plus accrued
interest on such principal amount to the date of redemption.
7. Notice of Redemption. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder of Securities to be redeemed at his registered address. Securities
in denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. In the event of a redemption of less than all of the
Securities, the Securities will be chosen for redemption by the Trustee,
generally pro rata or by lot. On and after the redemption date, interest
ceases to accrue on Securities or portions of them called for redemption.
If this Security is redeemed subsequent to a record date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest will be paid to the person in
whose name this Security is registered at the close of business on such record
date.
8. Denominations, Transfer, Exchange. The Series B
Securities are in registered form without coupons in denominations of $1,000
and integral multiples of $1,000. The
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<PAGE> 109
transfer of Series B Securities may be registered, and Series B Securities may
be exchanged, as provided in the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not exchange or register the transfer of any
Series B Security or portion of a Series B Security selected for redemption.
Also, it need not exchange or register the transfer of any Series B Securities
for a period of 15 days before a selection of Series B Securities to be
redeemed.
9. Persons Deemed Owners. The registered holder of a
Series A Security may be treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain
exceptions, the Indenture, the Securities and the other Documents may be
amended with the consent of the Holders of at least a majority in principal
amount of the then outstanding Securities, and any existing default may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Securities. Without the consent of any Securityholder, the
Indenture, the Securities or the other Documents may be amended, among other
things, to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's or the Guarantor's obligations to Securityholders
or to make any change that does not adversely affect the rights of any
Securityholder.
11. Defaults and Remedies. If an Event of Default (as
set forth in the Indenture) occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Securities become due and payable immediately
without further action or notice. Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Securities may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish quarterly and annual compliance
certificates to the Trustee.
12. Trustee Dealings with Company. First Trust National
Association, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its
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<PAGE> 110
Affiliates, and may otherwise deal with the Company or its Affiliates, as if it
were not Trustee.
13. Change in Control. If there is a Change in Control
(as defined in the Indenture), then the Company shall commence an offer to
repurchase all of the outstanding Securities upon the terms set forth in the
Indenture.
14. Subordination. The indebtedness evidenced by the
Securities is, to the extent and in the manner provided in the Indenture,
expressly subordinate in right of prior payment in full of all existing and
future senior indebtedness as set forth in the Indenture and the Subordination
Agreement (as defined in the Indenture), and this Security is issued subject to
the provisions of the Indenture and the Subordination Agreement with respect to
such subordination. Each holder of this Security, by accepting the same,
covenants and agrees to and shall be bound by such provisions and authorizes
and directs the Trustee to take such action as may be necessary or appropriate
to acknowledge or effectuate the subordination so provided and appoints the
Trustee as attorney-in fact for any and all such purposes.
15. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company or the Guarantor shall not
have any liability for any obligations of the Company or the Guarantor under
the Series B Securities or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Securityholder by
accepting a Series B Security waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Series B
Securities.
16. Authentication. This Series B Security shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
17. Abbreviations. Customary abbreviations may be used
in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Request may be made to:
THE HANOVER COMPANIES
1500 Harbor Boulevard
Weekhawken, New Jersey 07087
A2-6
<PAGE> 111
Attn: Chief Financial Officer
A2-7
<PAGE> 112
ASSIGNMENT FORM
To assign this Series B Security, fill in the form below:
(I) or (we) assign and transfer this Series B Security to
_______________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________
______________________________________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
_______________________________________________________________
Date: __________ Your Signature: ____________________________
(Sign exactly as your name appears on the other side of this
Series B Security)
Signature Guarantee
A2-8
<PAGE> 113
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Series B Security purchased
by the Company pursuant to Section 4.13 or Section 4.28 of the Indenture, check
the appropriate box: [ ] Section 4.13 [ ] Section 4.13
If you want to elect to have only part of this Series B
Security purchased by the Company pursuant to Section 4.13 or Section 4.28 of
the Indenture, state the amount (which must be $1,000 or an integral multiple
of $1,000): $_________________
Date: ___________ Your Signature: ____________________________
___________________________________________
(Sign exactly as your name appears on the other side of this Series B Security)
Signature Guarantee
A2-9
<PAGE> 114
EXHIBIT B
FORM OF GUARANTY
[THE GUARANTY IS INCLUDED IN THIS
BINDER AS A SEPARATE DOCUMENT]
<PAGE> 115
EXHIBIT C
SUBORDINATION AGREEMENT
[THE SUBORDINATION AGREEMENT IS
INCLUDED IN THIS BINDER AS A
SEPERATE DOCUMENT]
<PAGE> 116
Exhibit D
SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE AGREEMENT, dated as of [_______] __,
199[_] (this "Agreement"), is between THE HANOVER COMPANIES, a Nevada
corporation (the "Pledgor"), and First Trust National Association, a national
association, as trustee for the holders of the Notes, as defined below (the
"Trustee").
RECITALS
a. The Pledgor, The Horn & Hardart Company, a Nevada
corporation (the "Guarantor"), and certain subsidiaries of the Pledgor
(collectively, the "Guarantor Subsidiaries" and together with the Guarantor,
the "Guarantors") have entered into that certain Purchase Agreement, dated as
of August 17, 1993 (the "Purchase Agreement"), with the Purchaser (as defined
in the Purchase Agreement), and that certain Indenture, dated as of August 17,
1993 (the "Indenture"), with the Trustee. The Guarantors have agreed to enter
into that certain Guaranty attached to the Indenture as Exhibit B (the
"Guaranty").
b. The Purchase Agreement and Indenture provided for the
issuance by the Company of its 9.25% Senior Subordinated Notes due 1998 in an
aggregate principal amount of $20,000,000 (the "Notes"). Any Person (as
defined below) that holds any of the Notes now or hereafter shall be referred
to herein as a "Noteholder".
c. Prior to or simultaneously with the execution hereof,
the Company shall have used $[__________] principal amount of the Notes to
establish or acquire a new distribution facility which is a wholly owned
subsidiary of the Pledgor (the "Distribution Facility Subsidiary") and the
Distribution Facility Subsidiary shall have issued a promissory note in favor
of the Pledgor (the "Subsidiary Note").
d. To induce the Noteholders to enter into the Purchase
Agreement, and the documents related thereto, and to induce the Trustee to
enter into the Indenture, and the documents related thereto, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor has agreed to pledge and grant a security interest in
the Collateral (as defined below) as security for the Secured Obligations (as
defined below).
<PAGE> 117
AGREEMENT
Now therefore, in consideration of the above recitals and
other consideration and the mutual covenants hereinafter set forth herein, the
parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used but not
defined herein have the respective meanings ascribed to such terms in the
Indenture. In addition, as used herein:
"Collateral" has the meaning ascribed to such term in Section 3 hereof.
"Documents" means the Purchase Agreement, the Indenture, the
Registration Rights Agreement, the Securities, the Guaranty, the
Collateral Documentation, and all other security agreements,
mortgages, deeds of trust, financing statements, lease assignments,
guaranties and other agreements and instruments, together with any
assignments, endorsements of, exhibits, schedules or other attachments
to all of the foregoing, delivered in connection with the transactions
contemplated hereby or thereby, all as amended, supplemented or
otherwise modified from time to time.
"Guarantor" and "Guarantors" have the meaning ascribed to each
such term in the first Recital hereof.
"Guaranty" has the meaning ascribed to such term in the first
Recital hereof.
"Indenture" has the meaning ascribed to such term in the first
Recital hereof.
"Noteholder" has the meaning ascribed to such term in the
second Recital hereof.
"Notes" has the meaning ascribed to such term in the second
Recital hereof.
"Pledged Note" has the meaning ascribed to such term in
Section 3(a) hereof.
"Proceeds" has the meaning ascribed to such term in Section
4.9 hereof.
"Purchase Agreement" has the meaning ascribed to such term in
the first Recital hereof.
"Secured Obligations" means all obligations of the Pledgor,
the Guarantor and the Guarantor Subsidiaries under
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<PAGE> 118
the Indenture, the Notes, the Purchase Agreement, the Guaranty and the
other Documents.
"Subsidiary Note" has the meaning ascribed to such term in the
third Recital hereof.
"Trustee" has the meaning ascribed to such term in the first
paragraph hereof.
"Uniform Commercial Code" means the Uniform Commercial Code as
in effect from time to time in the State of New York.
Section 2. Representations and Warranties. The Pledgor
represents and warrants to the Noteholders and the Trustee that:
(a) The Pledgor is the sole beneficial owner of the
Collateral and no Lien exists or will exist upon the Collateral at any time
(and no right or option to acquire the same exists in favor of any other
Person), except for the pledge and security interest in favor of the Trustee
for the benefit of the Noteholders created or provided for herein, which pledge
and security interest constitutes a first priority perfected pledge and
security interest in and to all of the Collateral.
(b) The issuance of the Subsidiary Note has been duly
authorized by all necessary corporate action on the part of the Distribution
Facility Subsidiary. The Subsidiary Note constitutes a legally valid and
binding obligation of the Distribution Facility Subsidiary in accordance with
its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether such enforcement is sought
in a proceeding in equity or at law), and the Subsidiary Note is not nor will
be subject to any contractual restriction, or any restriction under the charter
or by-laws of the Distribution Facility Subsidiary, upon the transfer of such
Subsidiary Note (except for any such restriction contained herein).
Section 3. The Pledge. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Pledgor hereby pledges and grants to
the Trustee, for the benefit of the Noteholders as hereinafter provided, a
security interest in and to all of the Pledgor's right, title and interest in
the following property, whether now owned by the Pledgor or hereafter acquired
and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "Collateral"):
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<PAGE> 119
(a) the Subsidiary Note in the aggregate principal amount
of $[_____________] issued by the Distribution Facility Subsidiary in
favor of the Pledgor (the "Pledged Note");
(b) all securities, moneys or property representing
interest or other payments on the Pledged Note; and
(c) all proceeds of and to any of the property of the
Pledgor described in clauses (a) and (b) above in this Section 3.
Section 4. Further Assurances; Remedies. In furtherance of
the grant of the pledge and security interest pursuant to Section 3 hereof, the
Pledgor hereby agrees with the Trustee as follows:
4.1 Delivery and Other Perfection. The Pledgor shall:
(a) if any of the above-described securities, monies or
property required to be pledged by the Pledgor under clauses (a), (b)
and (c) of Section 3 hereof are received by the Pledgor, forthwith
either (i) transfer and deliver to the Trustee such securities so
received by the Pledgor (together with the certificates for any such
securities duly endorsed in blank or accompanied by undated stock
powers duly executed in blank) all of which thereafter shall be held
by the Trustee, pursuant to the terms of this Agreement, as part of
the Collateral or (ii) take such other action as the Trustee shall
deem necessary or appropriate to duly perfect the Lien created
hereunder in such shares, securities, monies or property referred to
in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any
financing statements, notices, instruments, documents, agreements or
other papers that may be necessary or desirable (in the judgment of
the Trustee) to create, preserve, perfect or validate the security
interest granted pursuant hereto or to enable the Trustee to exercise
and enforce its rights hereunder with respect to such pledge and
security interest, including, without limitation, causing any or all
of the Collateral to be transferred of record into the name of the
Trustee or its nominee (and the Trustee agrees that if any Collateral
is transferred into its name or the name of its nominee, the Trustee
will thereafter promptly give to the Pledgor copies of any notices and
communications received by it with respect to the Collateral); and
(c) permit representatives of the Trustee, upon
reasonable notice, at any time during normal business hours
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<PAGE> 120
to inspect and make abstracts from its books and records pertaining to
the Collateral, and permit representatives of the Trustee to be
present at the Pledgor's place of business to receive copies of all
communications and remittances relating to the Collateral, and forward
copies of any notices or communications received by the Pledgor with
respect to the Collateral, all in such manner as the Trustee may
require.
4.2 Other Financing Statements and Liens. Except as
otherwise permitted hereunder, without the prior written consent of the
Trustee, the Pledgor shall not file or suffer to be on file, or authorize or
permit to be filed or to be on file, in any jurisdiction, any financing
statement or like instrument with respect to the Collateral in which the
Trustee is not named as the sole secured party.
4.3 Preservation of Rights. The Trustee shall not be
required to take steps necessary to preserve any rights against prior parties
to any of the Collateral.
4.4 Note Collateral.
(a) So long as no Event of Default shall have occurred
and be continuing, the Pledgor shall have the right to exercise all voting,
consensual and other powers in any bankruptcy proceeding pertaining to the
Collateral for all purposes not inconsistent with the terms of this Agreement,
the Purchase Agreement, the Indenture, the Notes or any other instrument or
agreement referred to herein or therein, provided that the Pledgor agrees that
it will not vote the Collateral in any manner that is inconsistent with the
terms of this Agreement, the Purchase Agreement, the Indenture, the Notes or
any such other instrument or agreement; and the Trustee shall execute and
deliver to the Pledgor or cause to be executed and delivered to the Pledgor all
such proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Pledgor may reasonably request for the
purpose of enabling the Pledgor to exercise the rights and powers which it is
entitled to exercise pursuant to this Section 4.4(a).
(b) The Pledgor shall pay over to the Trustee any
principal or interest payments paid on the Collateral.
(c) If any Event of Default shall have occurred, then so
long as such Event of Default shall continue, and whether or not the Trustee
or any Noteholder exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, the Purchase
Agreement, the Indenture, the Notes or any other agreement relating to such
Secured Obligations, all interest payments and other
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<PAGE> 121
distributions on the Collateral shall be paid directly to the Trustee and
retained by it as part of the Collateral, subject to the terms of this
Agreement, and, if the Trustee shall so request in writing, the Pledgor agrees
to execute and deliver to the Trustee appropriate additional interest payment,
distribution and other orders and documents to that end, provided that if such
Event of Default is cured, any such distribution theretofore paid to the
Trustee shall, upon request of the Pledgor (except to the extent theretofore
applied to the Secured Obligations) be returned by the Trustee to the Pledgor.
(d) No provision of the Pledged Note may be amended or waived
without the written consent of the Trustee.
4.5 Events of Default, etc. During the period during which
an Event of Default shall have occurred and be continuing:
(a) the Trustee shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the
right, to the maximum extent permitted by law, to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral
as if the Trustee were the sole and absolute owner thereof (and the
Pledgor agrees to take all such action as may be appropriate to give
effect to such right);
(b) the Trustee in its discretion may, in its name or in
the name of the Pledgor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on of
account or in exchange for any of the Collateral, but shall be under no
obligation to do so; and
(c) the Trustee may, upon 10 business days' prior written
notice to the Pledgor of the time and place, with respect to the
Collateral or any part thereof which shall then be or shall thereafter
come into the possession, custody or control of the Trustee, the
Noteholders or any of their respective agents, sell, lease, assign or
otherwise dispose of all or any part of such Collateral, at such place
or places as the Trustee deems best, and for cash or on credit or for
future delivery (without thereby assuming any credit risk), at public
or private sale, without demand of performance or notice of intention
to effect any such disposition or of time or place thereof (except
such notice as is required above or by applicable statute and cannot
be waived) and the Trustee or any Noteholder or anyone else may
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<PAGE> 122
be the purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale), and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of the
Pledgor, any such demand, notice or right and equity being hereby
expressly waived and released. The Trustee may, without notice or
publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
4.5 shall be applied in accordance with Section 4.9 hereof.
The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Trustee may be compelled, with respect to any sale of all
or any part of the Collateral, to limit purchasers to those who will agree,
among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sales may be at prices and on terms
less favorable to the Trustee than those obtainable through a public sale with
such restrictions, and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Trustee shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the issuer thereof to register it for public
sale.
4.6 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 4.5 hereof are
insufficient to cover the costs and expenses of such realization and the
payment in full of the Secured Obligations, the Pledgor shall remain liable for
any deficiency.
4.7 Removals, Etc. Without at least 30 days' prior written
notice to the Trustee, the Pledgor shall not maintain any of its books and
records with respect to the Collateral at any office or maintain its principal
place of business at any other place other than at the following address: 1500
Harbor Boulevard, Weehawken, New Jersey 07087.
4.8 Private Sale. The Trustee and the Noteholders shall
incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to
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Section 4.5 hereof conducted in a commercially reasonable manner. The Pledgor
hereby waives any claims against the Trustee or any Noteholder arising by
reason of the fact that the price at which the Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Secured Obligations.
4.9 Application of Proceeds. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization
of all or any part of the Collateral pursuant hereto, and any other cash at the
time held by the Trustee under this Section 4, shall be applied by the Trustee:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Trustee and the fees and
expenses of its agents and counsel, and all reasonable expenses, and
advances made or incurred by the Trustee in connection therewith;
Next, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective
amounts thereof then due and owing or as the Noteholders holding the
same may otherwise agree;
Finally, to the payment to the Pledgor, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 4, "proceeds" of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of, the
Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Pledgor or any issuer of or obligor on
any of the Collateral.
4.10 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Trustee while no Event of Default has occurred
and is continuing, upon the occurrence and during the continuance of any Event
of Default the Trustee is hereby appointed the attorney-in-fact of the Pledgor
for the purpose of carrying out the provisions of this Section 4 and taking any
action and executing any instruments which the Trustee may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Trustee shall be entitled under
this Section 4 to make collections in respect of the Collateral, the Trustee
shall have the right and power to receive, endorse and collect all checks made
payable to the order of the Pledgor representing any dividend, payment, or
other distribution in
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respect of the Collateral or any part thereof and to give full discharge for
the same.
4.11 Perfection. Prior to or concurrently with the execution
and delivery of this Agreement, the Pledgor shall deliver to the Trustee the
Subsidiary Note identified in Section 3(a) hereof.
4.12 Termination. When all Secured Obligations shall have
been paid in full, this Agreement shall terminate, and the Trustee shall
forthwith cause to be assigned, transferred and delivered, against receipt but
without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Pledgor and will execute and deliver such release as the Pledgor shall
reasonably request.
4.13 Expenses. The Pledgor agrees to pay to the Trustee all
reasonable out-of-pocket expenses (including reasonable expenses for legal
services of every kind) of, or incident to, the enforcement of any of the
provisions of this Section 4, or performance by the Trustee of any obligations
of the Pledgor in respect of the Collateral which the Pledgor has failed or
refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting
rights and claims of the Trustee in respect thereof, by litigation or otherwise
and all such expenses shall be Secured Obligations to the Trustee secured under
Section 3 hereof.
4.14 Further Assurances. The Pledgor agrees that, from time
to time upon the written request of the Trustee, the Pledgor will execute and
deliver such further documents and do such other acts and things as the Trustee
may reasonably request in order fully to effect the purposes of this Agreement.
4.15 Indemnification. The Pledgor shall indemnify the
Trustee against any loss, liability or expense incurred by it in connection
with the performance of this Agreement and its duties hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except that this Section 4.15 shall not apply to losses, liabilities
or expenses incurred as a result of the gross or wilful misconduct or
negligence of the Trustee. The Trustee shall notify the Pledgor promptly of
any claim for which it may seek indemnity. The Pledgor shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel, and the Pledgor shall pay the reasonable fees and expenses of such
counsel.
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Section 5. Miscellaneous.
5.1 No Waiver. No failure on the part of the Trustee or any
of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Trustee or any
of its agents of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
5.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
5.3 Notices. Any notice or communication hereunder shall be
in writing and delivered to the intended recipient at its address or telecopy
number specified pursuant to Section 11.2 of the Indenture.
5.4 Waivers, etc. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by the
Pledgor and the Trustee. Any such amendment or waiver shall be binding upon
the Trustee and each Noteholder, each holder of any of the Secured Obligations
and the Pledgor.
5.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Pledgor, the Trustee, the Noteholders and each holder of any of the Secured
Obligations (provided, however, that the Pledgor shall not assign or transfer
its rights hereunder without the prior written consent of the Trustee).
5.6 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
5.7 Severability. If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in favor of the Trustee and
the Noteholders in order to carry out the intentions of the parties hereto as
nearly as may be possible and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
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<PAGE> 126
5.8 No Limitation. Nothing contained in this Agreement shall
be deemed or interpreted to limit the rights of the Trustee or the Noteholders
under the terms of Article 10 of the Indenture.
[Signature page follows]
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<PAGE> 127
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
THE HANOVER COMPANIES, a Nevada
corporation
By:_______________________________
Name:
Title:
[Address]
Fax: (___) ___-_____
Attn: _______________
With a copy to:
[Name]
Fax: (___) ___-____
Attn: ________________
_________________________________
a _________ corporation, as Trustee
By:_______________________________
Name:
Title:
[Address]
Fax: (__) ___-____
Attn: ______________
With a copy to:
[Name]
[Address]
Attn: ________________
<PAGE> 128
Exhibit E
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
OFFERED AND SOLD ONLY IF SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE
[Distribution Facility Subsidiary]
DEMAND PROMISSORY NOTE
Dated as of __________, 199__
$[____________]
[Distribution Facility Subsidiary], a __________ corporation
(the "Company"), for value received, promises to pay to The Hanover Companies,
a Nevada corporation or its successors and assigns (the "Lender"), the sum of
[________________] Dollars ($___________.__) upon written demand of the Lender
(such date being herein called the "Demand Date"), and to pay interest
(computed on the basis of a 360-day year of twelve 30-day months) from the date
of this Note on the unpaid balance thereof, at the rate of 9.25% per annum.
The Company will pay interest on July 1, October 1, January 1 and April 1 of
each year commencing on [______________] 1, 1993, until the entire principal
amount shall be paid in full, payable at the Demand Date to the registered
holder thereof, and to pay interest (so computed) at the rate of 12.25% per
annum on any overdue principal and prepayment charge and, to the extent
permitted by applicable law, on any interest overdue (without regard to any
applicable grace period), until the same shall be paid.
Payments of principal and interest on this Note shall be made
by wire transfer in immediately available funds to the account specified by the
registered holder hereof to the Company for such purpose and in such manner and
at such other place as the holder hereof shall designate in writing to the
Company, in lawful money of the United States of America.
This note is subject to the following additional provisions,
terms and conditions:
1. Definitions.
"Bankruptcy Law" has the meaning specified in Section 2 hereof.
<PAGE> 129
"Business Day" shall mean a day of the year in which banks are
not required or authorized to close in New York.
"Custodian" has the meaning specified in Section 2 hereof.
"Debt" of any Person as of any date shall mean and include (i)
all indebtedness for money borrowed or evidenced by notes, bonds, debentures or
similar evidences of indebtedness, and (ii) indebtedness representing the
deferred and unpaid purchase price of any property or business (excluding in
any event trade payables incurred in the ordinary course of business and
constituting current liabilities), in the case of each of the foregoing clauses
(i) and (ii) in the principal amount that such indebtedness would be shown on a
balance sheet of such Person prepared as of such date in accordance with GAAP.
"Event of Default" has the meaning specified in Section 2
hereof.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"Indenture" shall mean the Indenture, dated as of August 17,
1993, among the Lender, The Horn & Hardart Company, a Nevada corporation,
certain subsidiaries of the Lender and First Trust National Association, as
Trustee, relating to $20,000,000 in aggregate principal amount of 9.25% Senior
Subordinated Notes due 1998 of the Lender.
"Loan" shall mean the loan being hereunder.
"Note" shall mean this note.
"Officers' Certificate" shall mean a certificate signed by two
Officers or by an Officer.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Security and Pledge Agreement" shall mean the Security and
Pledge Agreement, dated as of the date hereof, between the Lender and First
Trust National Association, as Trustee, pursuant to which the Lender pledged
and granted a security interest in this Note.
2. Events of Default.
An "Event of Default" occurs if any Event of Default under and
as set forth in the Indenture shall occur.
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<PAGE> 130
If an Event of Default shall occur and be continuing, the
holder hereof may declare, by notice in writing given to the Company, the
entire unpaid principal amount of this Note, together with interest accrued
thereon, to be immediately due and payable, in which case this Note shall
become immediately due and payable, both as to principal and interest, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, notwithstanding anything herein.
If any Event of Default shall have occurred and be continuing,
the holder of this Note may proceed to protect and enforce its rights either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or agreement contained in this Note or in aid of the exercise
of any power granted to the holder of this Note, or the holder of this Note may
proceed to enforce any other legal or equitable right as the holder of such
Note. No remedy is intended to be exclusive and each remedy shall be
cumulative.
If the Company shall default in the payment of principal of or
interest on this Note, it will pay to the holder hereof further amounts, to the
extent lawful, as shall be sufficient to pay the costs and expenses of
collection, including reasonable counsel fees and expenses.
3. Miscellaneous.
(a) Paragraph Headings. The paragraph headings contained
in this Note are for reference purposes only and shall not affect the meaning
or interpretation of this Note.
(b) Notices. Any communications, notices or demand to be
given hereunder, under the Note shall be deemed duly given if delivered or
mailed by certified or registered mail, postage prepaid, return receipt
requested, as follows:
(i) If to the Company, at:
[Name]
[Address]
-------------------------
(ii) If to the Lender, at:
The Hanover Companies
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman
General Counsel
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<PAGE> 131
or, in each case, at any other address which shall have been furnished to the
person giving such notice by a previous notice hereunder from the person
receiving such notice.
(c) Amendment and Waiver. This Note is pledged as
collateral pursuant to the Security and Pledge Agreement and no provision of
this Note may be amended or waived without the written consent of the Trustee
under the Indenture.
(d) Successors, Assigns and Transferors. The obligations
of the Company under this Note shall be binding upon, and inure to the benefit
of, and be enforceable by, the Company and the holder hereof, and their
respective successors and assigns, whether or not so expressed. Subject to the
holder's compliance with all applicable securities laws, the holder hereof may
transfer this Note at any time to any one or more persons, and at the request
of such holder, the Company shall issue a new Note or Notes registered in the
name or names of such transferees.
(e) Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has executed and delivered
this Note as of the date hereinabove first written.
[DISTRIBUTION FACILITY SUBSIDIARY]
By:
-----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Dated as of August 17, 1993
by and among
THE HANOVER COMPANIES,
THE HORN & HARDART COMPANY,
and
SUN LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
This Registration Rights Agreement (the "Agreement") is
made and entered into as of August 17, 1993, by and among THE HANOVER
COMPANIES, a Nevada corporation (the "Company"), THE HORN & HARDART
COMPANY, a Nevada corporation (the "Guarantor"), and SUN LIFE INSURANCE
COMPANY OF AMERICA (the "Purchaser").
This Agreement is made pursuant to the Purchase
Agreement, dated as of August 17, 1993, among the Company, the Guarantor,
certain subsidiaries of the Company and the Purchaser (the "Purchase
Agreement"). In order to induce the Purchaser to enter into the Purchase
Agreement, the Company and the Guarantor have agreed to provide the
registration rights set forth in this Agreement. The execution of this
Agreement is a condition to the Closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized
terms shall have the following meanings:
Agent: Any Person authorized to act and who acts on
behalf of the Purchaser or any holder of Registrable Securities with
respect to the transactions contemplated by this Agreement, the Indenture
(as hereinafter defined), the Purchase Agreement or the Collateral
Documentation.
Company: The Person named as such above, its successors
and assigns, including without limitation pursuant to the Reorganization.
Completion Date: See Section 3.
Consummate: The term "Consummate" a Registered Exchange
Offer hereunder shall mean (a) the filing of and causing to become
effective under the Securities Act of a Registration Statement covering
the Registered Exchanged Offer, (b) the maintenance of such Registration
Statement continuously effective for a period of not less than the period
required under applicable Federal and state securities laws (provided that
in no event shall such Registered Exchange Offer remain open and the
Registration Statement relating thereto remain continuously effective, in
each case, for less than 20 business days), and (c) the delivery by the
Company to the Registrar under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A
Notes tendered by holders pursuant to a Registered Exchange Offer.
Consummation Date: See Section 3.
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<PAGE> 3
Effectiveness Date: See Section 3.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.
Guarantor: The Person named as such above, its
successors and assigns, including without limitation pursuant to the
Reorganization.
Guaranty: The unconditional guaranty of the Guarantor
endorsed on each of the Notes.
Indemnified Holder: See Section 9(a).
Indenture: The Indenture dated as of August 17, 1993
among the Company, the Guarantor, certain subsidiaries of the Company and
First Trust National Association, as Trustee.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and any debt securities
issued in exchange or substitution for the Series A Notes.
Person: An individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
Piggyback Registration: See Section 5.
Prospectus: The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of (a) the Series B
Notes pursuant to a Registered Exchange Offer or (b) the Transfer
Restricted Securities, pursuant to any other registrations, as the case
may be, covered by the Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and
all material incorporated by reference in such prospectus.
Registered Exchange Offer: The registration by the
Company and the Guarantor under the Securities Act of all of the Series B
Notes pursuant to a Registration Statement under which the Company offers
each holder of Transfer Restricted Securities the opportunity to exchange
all outstanding Transfer Restricted Securities held by such holder for
Series B Notes in an aggregate principal amount equal to the aggregate
principal amount of Transfer Restricted Securities held by such holder.
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<PAGE> 4
Registrable Securities: The Notes and the Guaranties;
provided that a Note and the related Guaranty cease to be Registrable
Securities when each is no longer a Transfer Restricted Security.
Registration Expenses: See Section 8.
Registration Statement: Any registration statement of
the Company or the Guarantor which covers any of the Series B Notes and
related Guaranties or the Transfer Restricted Securities, as the case may
be, pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such Registration Statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
Reorganization: The Reorganization of the Company and
the Guarantor as described in the Registration Statement on Form S-4 (File
No. 33-61252) of Hanover Direct, Inc., a Delaware corporation.
Securities Act: The Securities Act of 1933, as amended
from time to time.
SEC: The Securities and Exchange Commission.
Series A Notes: The 9.25% Senior Subordinated Notes,
Series A, being sold and issued pursuant to the Purchase Agreement and the
Indenture in an aggregate principal amount of $20,000,000.
Series B Notes: The 9.25% Senior Subordinated Notes,
Series B, to be issued and offered in exchange for the Series A Notes
pursuant to a Registered Exchange Offer and the Indenture.
Shelf Registration: See Section 3.
TIA: The Trust Indenture Act of 1939.
Transfer Restricted Securities: The Series A Notes and
the related Guaranties upon original issuance thereof, and at all times
subsequent thereto, until, in the case of any such Series A Notes and
Guaranties, the earlier of the following: (i) such Series A Notes and
Guaranties have been effectively registered under Section 5 of the
Securities Act and disposed of in accordance with the Registration
Statement covering it or (ii) such Series A Notes and Guaranties have been
distributed to the public pursuant to Rule 144 (or any similar provisions
then in force) of the Securities Act.
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<PAGE> 5
Trustee: The Trustee under the Indenture.
underwritten registration or underwritten offering: A
registration in which securities of the Company or the Guarantor are sold
to an underwriter for reoffering to the public.
2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled
to the benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is
deemed to be a holder of Registrable Securities whenever such Person is
the beneficial owner of Registrable Securities. The Company is entitled
to treat the record holder of Registrable Securities as beneficial owner
of Registrable Securities unless otherwise notified by such holder.
3. Shelf Registration
(a) Timing of Filing, Effectiveness and Period of
Usability. Subject to the provisions of Section 4 hereof, the Company and
the Guarantor shall file on or before the date 180 days from the date of
this Agreement, and thereafter shall use their best efforts to cause to be
declared effective as soon as possible but in any event on or before the
date 300 days from the date of this Agreement, a "shelf" Registration
Statement (a "Shelf Registration") on any appropriate form pursuant to
Rule 415 (or similar rule that may be adopted by the SEC) under the
Securities Act for all the Registrable Securities, which form shall be
available for the sale of the Registrable Securities in accordance with
the intended method or methods of distribution thereof.
Except as provided in Section 7(k) of this Agreement and
the last paragraph of Section 7, each of the Company and the Guarantor
agrees to use its best efforts to keep the Registration Statement
continuously effective and usable for resale of Registrable Securities for
a period of 730 days from the date the Shelf Registration is declared
effective by the SEC or such shorter period which will terminate when all
the Registrable Securities covered by such Registration Statement have
been sold pursuant to such Registration Statement or when all Registrable
Securities otherwise have been sold pursuant to Rule 144 or are freely
tradable in essentially the same manner as contemplated in Section 4
below.
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<PAGE> 6
(b) Additional Interest for Illiquidity.
(1) In addition to the interest required to be paid
pursuant to paragraph 1(a) of the Notes, if a Shelf Registration
or a Registered Exchange Offer shall not have been declared
effective by the SEC on or before the date 300 days from the date
of this Agreement, then on that date and thereafter interest
shall accrue with respect to the Notes that are Transfer
Restricted Securities at the rate of one quarter of one percent
(.25%) per annum, which interest shall be payable by the Company
in cash directly to the holders thereof on each of the Interest
Payment Dates set forth on the Notes after which any additional
interest accrues pursuant to this subsection (1) of this Section
3(b), in the manner and subject to the same terms and conditions
set forth in the Indenture, as nearly as may be as though the
interest rate provided in paragraph 1(a) of the Notes had been
increased by one quarter of one percent (.25%) per annum. Such
additional interest shall cease to accrue on and after the date
on which a Shelf Registration or a Registered Exchange Offer is
declared effective by the SEC (the "Effectiveness Date"), and any
such additional interest accrued on a Note but unpaid on such
Effectiveness Date shall be due and payable on the Interest
Payment Date next succeeding such date to the holder of record of
such Note at the close of business on the date preceding such
date.
(2) In addition to the interest required to be paid
pursuant to subsection (1) of this Section 3(b) and pursuant to
paragraph 1(a) of the Notes, if neither (i) a Shelf Registration
shall have been declared effective pursuant to Section 3(a)
hereof on or before the date 300 days from the date of this
Agreement nor (ii) a Registered Exchange Offer shall have been
Consummated pursuant to Section 4 hereof on or before the date
330 days from the date of this Agreement, then on the date 331
days from the date of this Agreement and thereafter interest
shall accrue with respect to the Notes that are Transfer
Restricted Securities at the rate of one quarter of one percent
(.25%) per annum, which interest shall be payable by the Company
in cash directly to the holders thereof on each of the Interest
Payment Dates set forth on the Notes after which any additional
interest accrues pursuant to this subsection (2) of this Section
3(b), in the manner and subject to the same terms and conditions
set forth in the Indenture, as nearly as may be as though the
interest rate provided in paragraph 1(a) of the Notes had been
increased by one quarter of one percent (.25%) per annum. The
rate of additional interest shall continue to increase by an
additional one quarter of one
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<PAGE> 7
percent (.25%) per annum, on a cumulative basis, on each
subsequent Interest Payment Date until a Shelf Registration has
been declared effective or a Registered Exchange Offer has been
Consummated. Such additional interest shall cease to accrue on
and after the earlier of (i) the Effectiveness Date of a Shelf
Registration or (ii) the date a Registered Exchange Offer is
Consummated (the "Consummation Date"), and any such additional
interest accrued on a Note but unpaid on such Effectiveness Date
or Consummation Date, as the case may be, shall be due and
payable on the Interest Payment Date next succeeding such date to
the holder of record of such Note at the close of business on the
date preceding such date.
(3) The Guarantor hereby agrees to guarantee
unconditionally the payment by the Company of any additional
interest pursuant to this Section 3(b), upon the same terms and
conditions as set forth in the Guaranty as nearly as may be as
though the interest rate provided in paragraph 1(a) of the Notes
had been increased accordingly.
(c) Selection of Underwriters. If at any time or
from time to time any of the holders of the Registrable Securities covered
by the Registration Statement desire to sell Registrable Securities in an
underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by
the holders of a majority in aggregate principal amount of the Registrable
Securities included in such offering; provided that such investment
bankers and managers must be reasonably satisfactory to the Company.
4. Registered Exchange Offer
The Company and the Guarantor may, at their option,
Consummate a Registered Exchange Offer. If the Company or the Guarantor
elect to consummate a Registered Exchange Offer and file on or before the
date 180 days from the date of this Agreement a Registration Statement for
such purpose, the obligations of the Company and the Guarantor to file a
"shelf" Registration Statement pursuant to Section 3(a) shall be suspended
until the date 330 days from the date of this Agreement; provided,
however, that payment of additional interest for illiquidity pursuant to
Section 3 shall apply without regard to this sentence. Upon Consummation,
such Registered Exchange Offer shall satisfy and be in lieu of any and all
obligations of each of the Company and the Guarantor set forth in Section
3 above if (i) the securities received by such holders of Registrable
Securities in the Registered Exchange Offer are, upon receipt, tradable by
each such holder (other than a holder which is an affiliate of the Company
or the Guarantor at any time on or
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<PAGE> 8
prior to the Consummation Date) without restriction under the Securities
Act and the Exchange Act and without material restrictions under the blue
sky or securities laws of substantially all of the States and (ii) none of
the holders of Registrable Securities abstains from participation in a
Registered Exchange Offer based on a written opinion of counsel, the basis
and reasoning of which shall be set forth in the opinion and a copy of
which opinion shall be sent to the Company, that either (a) such
participation is not legally permitted or (b) a court decision or
administrative action may reasonably be expected to have a material
adverse effect on such holder in the event that such holder participates
in a Registered Exchange Offer. The Company shall give written notice
that a Registration Statement filed in connection with a Registered
Exchange Offer is effective to each holder of Registrable Securities
promptly after receiving notice of effectiveness from the SEC. The
Registered Exchange Offer shall be on the appropriate form permitting
registration of the Series B Notes to be offered in exchange for the
Transfer Restricted Securities. Upon the making of any such Registered
Exchange Offer in accordance with this Section 4, the Company and the
Guarantor may omit to comply with such of the procedures set forth in
Section 7 hereof as may be appropriate under the circumstances without
materially and adversely affecting the interest of the holders of
Registrable Securities under this Agreement, taken as a whole, but the
other provisions of this Agreement shall continue to apply as set forth in
such provisions. Notwithstanding the foregoing, the Company and the
Guarantor agree to use their best efforts to Consummate a Registered
Exchange Offer as soon as practicable after receipt of a written request
of Sun Life Insurance Company of America to proceed with the Registered
Exchange Offer on behalf of the holders of Registrable Securities eligible
to participate while concurrently maintaining a Shelf Registration
pursuant to Section 3 hereof for holders of Registrable Securities not
eligible to participate pursuant to the terms of this Section 4.
5. Piggyback Registration
(a) Right to Include Registrable Securities. If at
any time the Company or the Guarantor proposes to register any of its debt
or equity securities (other than a registration effected solely to
implement an employee benefit plan, a transaction to which Rule 145
promulgated under the Securities Act is applicable or a transaction
eligible to be registered on Form S-4 or any successor form) under the
Securities Act, whether or not for its own account, and there are Transfer
Restricted Securities outstanding which, at such time, cannot be sold
under the Shelf Registration or Rule 144(k) (or any similar provision then
in force), then the Company or the Guarantor, as the case may be, shall
give written notice of such proposed filings to the holders
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<PAGE> 9
of Transfer Restricted Securities at least 20 days before the anticipated
filing date. Such notice shall offer each such holder the opportunity to
register such amount of Transfer Restricted Securities as each such holder
may request (a "Piggyback Registration"). Subject to the provisions of
Section 5(b) below, the Company or the Guarantor, as may be the case,
shall include in each such Piggyback Registration all Transfer Restricted
Securities with respect to which the Company or the Guarantors, as may be
the case, have received written requests for inclusion therein within 15
business days after notice has been duly given to the applicable holder.
The holder of Transfer Restricted Securities shall be permitted to
withdraw all or any part of the Transfer Restricted Securities from a
Piggyback Registration at any time prior to the effective date of such
Piggyback Registration.
(b) Priority on Piggyback Registration. Each of the
Company and the Guarantor shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit
holders of Transfer Restricted Securities requested to be included in the
registration for such offering to include all such Transfer Restricted
Securities in such offering on the same terms and conditions as any other
securities included therein. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering deliver(s) a written
opinion to the holders of Transfer Restricted Securities to the effect
that in its reasonable judgment, the total amount or nature of securities
which such holders, the Company, the Guarantor, and any other persons or
entities having registration rights intend to include in such offering is
such as to materially and adversely affect the success of such offering,
then the amount of Transfer Restricted Securities to be offered for the
account of holders of Transfer Restricted Securities shall be reduced pro
rata among such holders on the basis of the dollar amount of Transfer
Restricted Securities requested to be included therein by each such
holder, to the extent necessary to reduce the total amount of securities
to be included in such offering to the amount recommended by such managing
underwriter or underwriters; provided, however, that if securities are
being offered for the account of other persons or entities as well as the
Company or the Guarantor by nature of their also having "piggyback"
registration rights, such reduction, to the extent permitted by the terms
of such registration rights, shall be made on a pro rata basis with such
other securities.
(c) Registration of Securities Other than Transfer
Restricted Securities. Except for registration rights that may be granted
with respect to equity securities that may be resold pursuant to the
Guarantor's registration statement on Form S-3 (No. 33-66394), which was
declared effective by the SEC on
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<PAGE> 10
August 3, 1993, without the written consent of the holders of a majority
in aggregate principal amount of the then outstanding Transfer Restricted
Securities, the Company and the Guarantor shall not, after the date
hereof, grant to any Person the right to request the Company or the
Guarantor to register any securities of any of them under the Securities
Act if the terms thereof would adversely affect the registration rights
granted to the holders of Transfer Restricted Securities pursuant to this
Agreement.
6. Hold-Back Agreements
(a) Restrictions on Public Sale by Holder of
Registrable Securities. Each holder of Registrable Securities whose
Registrable Securities are covered by a Registration Statement filed
pursuant to Section 3 or 5 hereof agrees, if requested by the managing
underwriters in an underwritten offering, not to effect any public sale or
distribution of securities of the same class as the securities included in
such Registration Statement, including a sale pursuant to Rule 144 under
the Securities Act (except as part of such underwritten registration),
during the 10-day period prior to, and during the 90-day period beginning
on, the closing date of each underwritten offering made pursuant to such
Registration Statement, to the extent timely notified in writing by the
Company or the managing underwriters.
The foregoing provisions shall not apply to any holder of
Registrable Securities if such holder is prevented by applicable statute
or regulation from entering into any such agreement; provided that any
such holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of
the applicable class of Registrable Securities commencing on the date of
sale of such applicable class of Registrable Securities pursuant to the
underwritten offering unless it has provided 45 days' prior written notice
of such sale or distribution to the underwriter or underwriters.
(b) Restrictions on Public Sale by the Company and
Others.
Each of the Company and the Guarantor agrees:
(1) not to effect any public or private sale or
distribution of its debt securities, including a sale pursuant to
Regulation D under the Securities Act, during the 10-day period
prior to, and during the 90-day period beginning on, the closing
date of each underwritten offering made pursuant to a
Registration Statement filed under
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<PAGE> 11
Section 3, to the extent timely requested in writing by the
managing underwriters (except as part of such underwritten
registration or pursuant to registrations on Form S-4 or any
successor form to such Form), and
(2) to cause each holder of privately placed debt
securities issued by the Company or the Guarantor at any time on
or after the date of this Agreement to agree on or before the
date such securities are issued not to effect any public sale or
distribution of any such securities, including a sale pursuant to
Rule 144 under the Securities Act, during such period to the
extent timely requested in writing by the managing underwriters
of an underwritten offering made pursuant to a Registration
Statement filed under Section 3 (except as part of such
underwritten registration, if permitted).
7. Registration Procedures
In connection with the Company's and the Guarantor's
obligations to file Registration Statements pursuant to Sections 3, 4, and
5 hereof, the Company and the Guarantor will use their respective best
efforts to effect such registration to permit the sale of such Registrable
Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company and the Guarantor
will as expeditiously as possible:
(a) before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, furnish to the
holders of the Registrable Securities covered by such Registration
Statement and the underwriters, if any, a copy of all such documents
proposed to be filed, which documents will be subject to the review of
such holders and underwriters, and neither the Company nor the Guarantor
will file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto to which the holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
Registration Statement or the underwriters, if any, shall promptly and
reasonably object;
(b) prepare and file with the SEC such amendments
and post-effective amendments to the Registration Statement, and such
supplements to the Prospectus, as may be requested by any holder of
Registrable Securities or any underwriter of Registrable Securities or as
may be required by the rules, regulations or instructions applicable to
the registration form utilized by the Company and the Guarantor or by the
Securities Act or rules and regulations thereunder for shelf registration
or otherwise necessary to keep the Registration Statement effective for
the
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<PAGE> 12
applicable period and cause the Prospectus as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(c) notify the selling holders of Registrable
Securities and the managing underwriters, if any, promptly, and (if
requested by any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to
the Registration Statement or any post-effective amendment, when
the same has become effective,
(2) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information,
(3) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose,
(4) if at any time, to the best knowledge of the
Company or the Guarantor, the representations and warranties of
the Company or the Guarantor contemplated by paragraph (o) below
cease to be true and correct in any material respect,
(5) of the receipt by the Company or the Guarantor
of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding
for such purpose, and
(6) of the existence of any fact known to the
Company or the Guarantor which results in the Registration
Statement, the Prospectus or any document incorporated therein by
reference containing an untrue statement of material fact or
omitting to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
(d) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment;
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<PAGE> 13
(e) if requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in
connection with an underwritten offering, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters and the holders of a majority in aggregate principal
amount of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such
Registrable Securities, including, without limitation, information with
respect to the principal amount of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after being
notified of the matters to be incorporated in such Prospectus supplement
or post-effective amendment;
(f) furnish, without charge, to (i) counsel to the
selling holders of Registrable Securities and each managing underwriter,
at least one signed copy of the Registration Statement and (ii) each
selling holder of Registrable Securities, at least one conformed copy of
the Registration Statement, and, with respect to copies furnished pursuant
to both clauses (i) and (ii) hereof, any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference);
(g) deliver to each selling holder of Registrable
Securities and the underwriters, if any, without charge, as many copies of
the Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons may reasonably request; the Company
and the Guarantor consent to the use of the Prospectus or any amendment or
supplement thereto by each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the offering
and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable
Securities, register or qualify or cooperate with the selling holders of
Registrable Securities, the underwriters, if any, and their respective
counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any seller or underwriter reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable
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<PAGE> 14
Securities covered by the Registration Statement; provided that neither
the Company nor the Guarantor will be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any
such jurisdiction where it is not then so subject;
(i) cooperate with the selling holders of
Registrable Securities and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters
may request at least two business days prior to any sale of Registrable
Securities to the underwriters;
(j) use their best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities;
(k) if any fact contemplated by paragraph (c)(6)
above shall exist, prepare a supplement or post- effective amendment to
the Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading; provided, however, that nothing in this
Agreement shall require the Company or the Guarantor to disclose
non-public information that, in the exercise of reasonable judgment, the
Company deems advisable not to disclose, in which case the time periods
referred to in Section 3(a) shall be extended as provided in the last
paragraph of this Section 7;
(l) use their best efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on each
securities exchange on which similar securities issued by the Company or
the Guarantor are then listed, if requested by the holders of a majority
in aggregate principal amount of such Registrable Securities or the
managing underwriters, if any;
(m) use their best efforts to cause the Registrable
Securities covered by the Registration Statement to be rated with the
appropriate rating agencies, if so requested by the holders of a majority
in aggregate principal amount of such Registrable Securities or the
managing underwriters;
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<PAGE> 15
(n) obtain a CUSIP number for all Registrable
Securities, not later than the Effectiveness Date;
(o) enter into agreements (including customary
underwriting agreements) and take all other appropriate actions in order
to expedite or facilitate the disposition of such Registrable Securities
and in such connection whether or not an underwriting agreement is entered
into and whether or not the registration is an underwritten registration:
(1) make such representations and warranties to the
holders of such Registrable Securities and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings of
similar securities;
(2) obtain opinions of counsel to the Company and
the Guarantor and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority
in principal amount of the Registrable Securities being sold)
addressed to each selling holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in
underwriting offerings and such other matters as may be
reasonably requested by such holders and underwriters;
(3) obtain "cold comfort" letters and updates
thereof from the Company's and the Guarantor's independent
certified public accountants addressed to the selling holders of
Registrable Securities and the underwriters, if any, such letters
to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with primary underwritten offerings;
(4) if an underwriting agreement is entered into,
cause the same to set forth in full the indemnification
provisions and procedures of Section 9 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(5) deliver such documents and certificates as may
be reasonably requested by the holders of a majority in principal
amount of the Registrable Securities being sold and the managing
underwriters, if any, to evidence compliance with clause (k)
above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company or the Guarantor.
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<PAGE> 16
The above shall be done at (i) the effectiveness of such Registration
Statement, (ii) each closing under any underwriting or similar agreement
as and to the extent required thereunder and (iii) from time to time as
may be requested by any selling holder in connection with the disposition
of Registrable Securities pursuant to such Registration Statement (except
that, if the offering is not an underwritten offering, the Company's
obligation to furnish the representations and warranties, opinions, "cold
comfort" letters and other documents and certificates required under
clauses (1), (2), (3) and (5) of this paragraph (o), other than at the
effectiveness of a Registration Statement or the closing of any such
transaction, shall be conditioned on the receipt by the Company of an
opinion of counsel to the selling holders of Registrable Securities
requesting the same to the effect that the same would assist such holders
in establishing a "due diligence" defense should such holders be deemed to
be statutory underwriters with respect to such offering);
(p) make available for inspection during normal
business hours by a representative of the holders of a majority in
principal amount of the Registrable Securities, any underwriter
participating in any disposition pursuant to such Registration Statement,
and any attorney or accountant retained by the sellers or underwriter, all
financial and other records, pertinent corporate documents and properties
of the Company and the Guarantor, and cause the Company's and the
Guarantor's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided that
all such records, information or documents shall be kept confidential by
such Persons unless disclosure of such records, information or documents
is required by court or administrative order or is generally available to
the public other than as a result of disclosure in violation of this
paragraph (p);
(q) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make generally
available to their security holders, earnings statements satisfying the
provisions of Section 11(a) of the Securities Act (in accordance with Rule
158 thereunder or otherwise), no later than 45 days after the end of any
12-month period (or 90 days, if such period is a fiscal year) (1)
commencing at the beginning of the fiscal quarter following that in which
Registrable Securities are sold to underwriters in an underwritten
offering, or, if not sold to underwriters in such an offering, (2)
beginning with the first month of the Company's or the Guarantor's, as the
case may be, first fiscal quarter commencing after the Effectiveness Date,
which statements shall cover said 12-month periods;
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<PAGE> 17
(r) use its best efforts to cause the Indenture to
be qualified under the TIA, provide an indenture trustee for the
Registrable Securities not later than the Effectiveness Date and, in
connection therewith, cooperate with the trustee under the Indenture and
the holders of the Notes to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the terms
of the TIA and execute, and use their best efforts to cause the trustee to
execute, all documents as may be required to effect such changes, and all
other forms and documents required to be filed with the SEC to enable the
Indenture to be so qualified in a timely manner;
(s) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the rules
and regulations of the NASD); and
(t) promptly prior to the filing of any document
which is to be incorporated by reference into the Registration Statement
or the Prospectus (after initial filing of the Registration Statement)
provide draft copies of such document to counsel to the selling holders of
Registrable Securities and to the managing underwriters, if any, make the
Company's and the Guarantor's representatives available for discussion of
such document.
Each selling holder of Registrable Securities as to which
any registration is being effected agrees, as a condition to the
registration obligations with respect to such holder provided herein, to
furnish to the Company and the Guarantor such information regarding the
distribution of such securities as the Company or the Guarantor may from
time to time reasonably request in writing.
Each holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 7(k) hereof, such holder will forthwith discontinue
disposition of Registrable Securities until such holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
7(k) hereof, or until it is advised in writing by the Company that the use
of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in
the Prospectus, and, if so directed by the Company, such holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of
such notice. In the
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<PAGE> 18
event the Company shall give any such notice, the time periods mentioned
in Section 3(a) hereof shall be extended by the number of days during the
period from and including the date of the giving of such notice to and
including the date when each seller of Registrable Securities covered by
such Registration Statement either receives the copies of the supplemented
or amended prospectus contemplated by Section 7(k) hereof or is advised in
writing by the Company that the use of the Prospectus may be resumed.
In connection with the Registered Exchange Offer (if to
be made pursuant to Section 4 hereof):
(a) As a condition to its participation in the
Registered Exchange Offer pursuant to the terms of this Agreement, each
holder of Transfer Restricted Securities shall be required to furnish,
upon the request of the Company or the Guarantor, as applicable, prior to
the Consummation thereof a written representation to the Company or the
Guarantor, as applicable, that it is not engaged in, and does not intend
to engage in, a distribution of the Series B Notes to be received in the
Registered Exchange Offer and that it is acquiring the Series B Notes in
its ordinary course of business.
(b) Prior to effectiveness of the Registration
Statement relating to the Registered Exchange Offer, the Company or the
Guarantor, as applicable, shall provide a supplemental letter to the SEC
(i) stating that the Company or the Guarantor, as applicable, is
registering the Registered Exchange Offer in reliance on the position of
the SEC enunciated in Exxon Capital Holdings Corporation (available April
13, 1988) and Morgan Stanley and Co. Inc. (available June 5, 1991) no-
action letters and (ii) including a representation that the Company or the
Guarantor, as applicable, has not entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Registered Exchange Offer and that, to the best of the
Company's or the Guarantor's, as applicable, information and belief, each
holder participating in the Registered Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no arrangement
or understanding with any Person to participate in the distribution of the
Series B Notes received in the Registered Exchange Offer.
(c) The Company and the Guarantor shall cause the
Indenture to be qualified under the TIA not later than the effective date
of the Registration Statement relating to the Registered Exchange Offer;
and, in connection therewith, will cooperate with the Trustee and the
holders of the Class A Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of
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<PAGE> 19
the TIA; and will execute, and make its reasonable best efforts to cause
such Trustee to execute, all documents as may be required to effect such
changes and all other forms and documents required to be filed with the
SEC to enable such Indenture to be so qualified in a timely manner.
8. Registration Expenses
(a) All expenses incident to the Company's and the
Guarantor's performance of or compliance with this Agreement, including
without limitation:
(1) all registration and filing fees (including with
respect to filings required to be made with the NASD);
(2) fees and expenses of compliance with securities
or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the
Registrable Securities and determination of their eligibility for
investment under the laws of such jurisdictions as the managing
underwriters or holders of a majority in principal amount of the
Registrable Securities being sold may reasonably designate);
(3) printing, messenger, telephone and delivery
expenses;
(4) fees and disbursements of counsel for the
Company, the Guarantor and for the sellers of the Registrable
Securities (subject to the provisions of Section 8(b) hereof);
(5) fees and disbursements of all independent
certified public accountants of the Company and the Guarantor
(including the expenses of any special audit necessary to satisfy
the requirements of the Securities Act and any "cold comfort"
letters required by or incident to such performance);
(6) fees and disbursements of underwriters
customarily required to be paid by the issuer or selling security
holders in underwritten public offerings of debt securities
managed by a major bracket underwriter (excluding discounts,
commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to
the distribution of the Registrable Securities or legal expenses
of such underwriter or any other Person other than the Company,
the Guarantor or the selling holders);
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<PAGE> 20
(7) securities act liability insurance if the
Company or the Guarantor so desire;
(8) fees and expenses of other Persons retained by
the Company or the Guarantor; and
(9) NASD filing fees and expenses associated with
any NASD filing required to be made in connection with the
Registration Statement, including, if applicable, the fees and
expenses of any "qualified independent underwriter" (and its
counsel) that is required to be retained in accordance with the
rules and regulations of the NASD
(all such expenses being herein called "Registration Expenses") will be
borne by the Company and the Guarantor regardless of whether the
Registration Statement becomes effective.
Each of the Company and the Guarantor will, in any event,
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred
in connection with the listing of the securities to be registered on each
securities exchange on which similar securities issued by the Company or
the Guarantor are then listed, rating agency fees and the fees and
expenses of any Person, including special experts, retained by the Company
or the Guarantor.
(b) In connection with each Registration Statement
required hereunder, the Company and the Guarantor will reimburse the
holders of Registrable Securities being registered pursuant to such
Registration Statement for the reasonable fees and disbursements of not
more than one counsel chosen by the holders of a majority in principal
amount of such Registrable Securities.
9. Indemnification
(a) Indemnification by the Company and the
Guarantor. The Company and the Guarantor agree, jointly and severally, to
indemnify and hold harmless each holder of Registrable Securities, its
officers, directors, employees and Agents and each Person who controls
such holder within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (each such person being sometimes
hereinafter referred to as an "Indemnified Holder") from and against all
losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation and legal expenses) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto or in any preliminary
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<PAGE> 21
prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or allegation thereof
based upon information furnished in writing to the Company or the
Guarantor by such holder expressly for use therein; provided, however,
that the Company and the Guarantor shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense arises
out of or is based upon an untrue statement of a material fact contained
in any Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expense arise out of or are based upon any such untrue
statement or omission or allegation thereof based upon information
furnished in writing to the Company or the Guarantor by such holder
expressly for use therein; provided, however, that the Company and the
Guarantor shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary prospectus if (i) such holder failed to
send or deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Securities and (ii) the
Prospectus would have completely corrected such untrue statement or
omission; and provided further, that the Company and the Guarantor shall
not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission in
the Prospectus, if such untrue statement or alleged untrue statement,
omission or alleged omission is completely corrected in an amendment or
supplement to the Prospectus and if, having previously been furnished by
or on behalf of the Company or the Guarantor with copies of the Prospectus
as so amended or supplemented, such holder thereafter fails to deliver
such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of a Registrable Security to the person asserting such loss,
claim, damage, liability or expense who purchased such Registrable
Security which is the subject thereof from such holder. This indemnity
will be in addition to any liability which the Company and the Guarantor
may otherwise have. The Company and the Guarantor will also indemnify
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers,
directors and employees and each
- 20 -
<PAGE> 22
Person who controls such Persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the holders of
Registrable Securities.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an
Indemnified Holder in respect of which indemnity may be sought from the
Company or the Guarantor, such Indemnified Holder shall promptly notify
the Company and the Guarantor in writing, and the Company and the
Guarantor shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Holder and the payment
of all expenses. Such Indemnified Holder shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be the expense of
such Indemnified Holder unless (a) the Company or the Guarantor have
agreed to pay such fees and expenses or (b) the Company and the Guarantor
shall have failed to assume the defense of such action or proceeding and
have failed to employ counsel reasonably satisfactory to such Indemnified
Holder in any such action or proceeding or (c) the named parties to any
such action or proceeding (including any impleaded parties) include such
Indemnified Holder and the Company or the Guarantor, and such Indemnified
Holder shall have been advised by counsel that there may be one or more
legal defenses available to such Indemnified Holder which are different
from or additional to those available to the Company or the Guarantor (in
which case, if such Indemnified Holder notifies the Company in writing
that it elects to employ separate counsel at the expense of the Company
and the Guarantor, neither the Company nor the Guarantor shall have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Holder, it being understood, however, that the Company and the
Guarantor shall not, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for such Indemnified Holder and
any other Indemnified Holders, which firm shall be designated in writing
by such Indemnified Holders). Neither the Company nor the Guarantor shall
be liable for any settlement of any such action or proceeding effected
without its written consent, but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or
proceeding, the Company and the Guarantor agree to indemnify and hold
harmless such Indemnified Holders from and against any loss or liability
by reason of such settlement or judgment.
- 21 -
<PAGE> 23
(b) Indemnification by Holder of Registrable
Securities. Each holder of Registrable Securities agrees to indemnify and
hold harmless the Company and the Guarantor, their respective directors
and officers and each Person, if any, who controls the Company or the
Guarantor within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company and the Guarantor to such holder, but only with
respect to information relating to such holder furnished in writing by
such holder expressly for use in any Registration Statement or Prospectus,
or any amendment or supplement thereto, or any preliminary prospectus. In
case any action or proceeding shall be brought against the Company or the
Guarantor or their respective directors or officers or any such
controlling person, in respect of which indemnity may be sought against a
holder of Registrable Securities, such holder shall have the rights and
duties given the Company and the Guarantor, and the Company or the
Guarantor or their respective directors or officers or such controlling
person shall have the rights and duties given to each holder by the
preceding paragraph. In no event shall the liability of any selling
holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
The Company and the Guarantor shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in
writing by such Persons specifically for inclusion in any Prospectus or
Resignation Statement.
(c) Contribution. If the indemnification provided
for in this Section 9 is unavailable to an indemnified party under Section
9(a) or Section 9(b) hereof (other than by reason of exceptions provided
in those Sections) in respect of any losses, claims, damages, liabilities
or expenses referred to therein, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the Company and the Guarantor
on the one hand and of the Indemnified Holder (including that of its
officers, directors, employees and Agents) on the other in connection with
the statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantor on
the one hand and of the Indemnified Holder (including that of its
officers, directors, employees and Agents) on the other shall be
- 22 -
<PAGE> 24
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omissions or alleged
omission to state a material fact relates to information supplied by the
Company or the Guarantor, on the one hand, or by or on behalf of the
Indemnified Holder, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred
to above shall be deemed to include, subject to the limitations set forth
in the second paragraph of Section 9(a), any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantor and each holder of Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 9(c) were determined by pro rata allocation or by
any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 9(c), an
Indemnified Holder shall not be required to contribute any amount in
excess of the amount by which the total price at which the Notes sold by
such Indemnified Holder or its affiliated Indemnified Holders and
distributed to the public were offered to the public exceeds the amount of
any damages which such Indemnified Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. Rule 144 and Rule 144A
The Company and the Guarantor covenant that they each
will file the reports required to be filed by them under the Securities
Act and the Exchange Act and the rules and regulations adopted by the SEC
thereunder (or, if the Company or the Guarantor are not required to file
such reports, either the Company or the Guarantor, as the case may be,
will, upon the request of any holder of Registrable Securities made after
the date hereof, (i) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the Securities Act
and (ii) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the Securities Act),
and the Company or the Guarantor, as the case may be, will take such
further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such
holder to sell
- 23 -
<PAGE> 25
Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 or Rule
144A under the Securities Act, as such Rules may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the SEC.
Upon the request of any holder of Registrable Securities or the Trustee,
the Company or the Guarantor, as the case may be, will deliver to such
holder or the Trustee, as the case may be, a written statement as to
whether it has complied with such information and requirements.
11. Participation in Underwritten Registrations
No Person may participate in any underwritten
registration hereunder unless such Person (a) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved
by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under
the terms of such underwriting arrangements.
12. Miscellaneous
(a) Remedies. Each holder of Registrable
Securities, in addition to being entitled to exercise all rights provided
herein, in the Indenture, in the Purchase Agreement and granted by law,
including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company and the Guarantor agree that
monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by any of them of the provisions of this Agreement
and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Company
or the Guarantor will on or after the date of this Agreement enter into
any agreement with respect to their securities which is inconsistent with
the rights granted to the holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. Except as
listed on Schedule 12 hereof, none of the Company or the Guarantor has
previously entered into any agreement with respect to its securities
granting any registration rights to any Person.
(c) Adjustments Affecting Registrable Securities.
None of the Company or the Guarantor will take any action, or permit any
change to occur, with respect to the Registrable Securities which would
adversely affect the ability of the holders of Registrable Securities to
include such Registrable
- 24 -
<PAGE> 26
Securities in a registration undertaken pursuant to this Agreement.
(d) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the
written consent of holders of at least 66-2/3% of the principal amount of
the outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to departure from the provisions hereof that relates
exclusively to the rights of holders of Registrable Securities whose
securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by the holders of 66-2/3% of the
principal amount of the Registrable Securities being sold.
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier or air
courier guaranteeing overnight delivery:
(1) if to a holder of Registrable Securities, at the
most current address given by such holder to the Company in
accordance with the provisions of this Section 12(e), which
address initially is, with respect to the Purchaser, the address
set forth on the first page of the Purchase Agreement, with a
copy to Milbank, Tweed, Hadley & McCloy, 601 S. Figueroa Street,
Suite 3000, Los Angeles, California 90017, Attention: Eric H.
Schunk, Esq.; and
(2) if to the Company or the Guarantor initially at
their respective addresses set forth in the Purchase Agreement
and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 12(e), with a copy
to Breed, Abbot & Morgan, Citicorp Center, 153 East 53rd Street,
New York, New York 10022, Attention: Monte E. Wetzler, Esq.
All such notices and communications shall be deemed to
have been duly given; at the time delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
Copies of such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to
- 25 -
<PAGE> 27
the trustee under the Indenture at the addresses specified in the
Indenture.
(f) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of
each of the parties, including without limitation and without the need for
an express assignment, subsequent holders of Registrable Securities;
provided, however, that after the Closing under the Purchase Agreement
this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a holder of Notes unless and to the extent such
successor or assign acquired Registrable Securities from such holder.
(g) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
(j) Severability. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be affected or
impaired thereby.
(k) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein with respect to the registration
rights granted by the Company and the Guarantor with respect to the
securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
[signature pages follow]
- 26 -
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
<TABLE>
<S> <C>
The Company: THE HANOVER COMPANIES
By: /s/
------------------------
Name: /s/
---------------------
Title: /s/
--------------------
The Guarantor: THE HORN & HARDART COMPANY
By: /s/
------------------------
Name: /s/
---------------------
Title: /s/
--------------------
Purchaser: SUN LIFE INSURANCE COMPANY OF
AMERICA
By:
--------------------------
Name:
------------------------
Title:
</TABLE> -----------------------
<PAGE> 1
Exhibit 10.8
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
CONGRESS FINANCIAL CORPORATION,
HANOVER DIRECT PENNSYLVANIA, INC.,
BRAWN OF CALIFORNIA, INC.,
GUMP'S BY MAIL, INC.
GUMP'S CORP.
TCSA, INC.
SDSA, INC.
AND
TWEEDS, INC.
DATED AS OF OCTOBER 27, 1993
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. AMOUNTS AND TERMS OF LOANS AND OTHER FINANCIAL
ACCOMMODATIONS
2.1 Revolving Inventory Loans; Additional Advances . . . . . . . . . . . . . . . . . . . . . . . 33
2.2 Lending Sublimits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.4 Maximum Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.5 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.6 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.7 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.8 Conduct of Accounts; Cross-Collateralization . . . . . . . . . . . . . . . . . . . . . . . . 43
2.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 3. CONDITIONS PRECEDENT TO LOANS
AND OTHER FINANCIAL ACCOMMODATIONS
3.1 Conditions to Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.2 Additional and Continuing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 4. COLLATERAL
4.1 Security Interests in Borrowers' Property . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.2 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.3 Security Interests in Property of
Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.4 Reduction and Release of IMR Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.5 Reduction and Release of First Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.6 Reduction and Release of Second Portion; Additional
Reduction and Release of First Portion . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 5. REPRESENTATIONS AND WARRANTIES
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.3 Capitalization; Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.4 Compliance with Other Agreements and
Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.5 Governmental Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
5.6 Chief Executive Offices;
Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.7 Priority of Liens; Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . 62
5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.10 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.11 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.12 Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.13 Regulation G; Securities Exchange
Act of 1934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.14 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.15 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.17 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.18 Corporate Name; Prior Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.19 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.20 Schedule of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.21 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.22 Common Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
5.23 Subordination of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6. ADDITIONAL COVENANTS
6.1 Tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.3 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.4 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.5 Loans; Investments; Guarantees; Etc . . . . . . . . . . . . . . . . . . . . . . . . . 76
6.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.7 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
6.8 Sale and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
6.9 Sale of Assets; Consolidation;
Merger; Dissolution; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
6.10 Compliance with Laws;
Regulations; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
6.11 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.12 Properties in Good Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
6.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
6.14 Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
6.15 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
6.16 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
6.17 Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . 87
6.18 Consolidated Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.19 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.20 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.21 Sales of Outdated and Surplus Inventory . . . . . . . . . . . . . . . . . . . . . . . 93
6.22 Maintenance and Delivery of Customer Lists . . . . . . . . . . . . . . . . . . . . . . 94
6.23 Rental or Licenses of Customer Lists . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.24 No Termination or Amendment of
Credit Card Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.25 Obligations to be Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 95
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
6.26 Mail Order Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.27 9.25% Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 7. EVENTS OF DEFAULT/REMEDIES
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 8. COLLECTION AND ADMINISTRATION
8.1 Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
8.2 Depository Accounts; Blocked Accounts;
Customer Prepayment Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
8.3 Right of Inspection; Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
8.4 Specific Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
SECTION 9. EFFECTIVE DATE; TERMINATION; COSTS;
MISCELLANEOUS
9.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
9.2 Expenses and Additional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
9.3 Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.4 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
9.7 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
9.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
9.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
9.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
9.12 Security Interests of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
9.13 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
9.14 Waiver of Counterclaims; Jurisdiction
Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
9.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
</TABLE>
(iii)
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT A JURISDICTIONS OF
QUALIFICATION Section 5.1
EXHIBIT B-1 EXISTING SUBSIDIARIES Section 5.1
EXHIBIT B-2 EXISTING MAIL ORDER Section 5.1
JOINT VENTURES
EXHIBIT B-3 EXISTING RESTAURANT Section 5.1
BUSINESS SUBSIDIARIES
EXHIBIT B-4 ADDITIONAL EXISTING NON- SECTION 5.1
GUARANTOR SUBSIDIARIES
EXHIBIT C PRINCIPAL PLACES OF BUSINESS, Sections 1.29, 5.6,
CHIEF EXECUTIVE OFFICES 6.3(h)
AND LOCATIONS OF COLLATERAL
EXHIBIT D EXISTING LIENS Section 5.7
EXHIBIT E LIST OF H&H AND THC DEBT Section 3.1(d)
INSTRUMENTS
EXHIBIT F PENDING LITIGATION Section 5.9
EXHIBIT G TRADENAMES Sections 5.18, 6.1
EXHIBIT H-1 EXISTING INDEBTEDNESS Section 5.20(a)
EXHIBIT H-2 EXISTING LETTERS OF CREDIT Section 5.20(b)
UNDER QCC CREDIT AGREEMENT
EXHIBIT H-3 [INTENTIONALLY OMITTED]
EXHIBIT H-4 EXISTING INTERCOMPANY Sections 5.20(c),
INDEBTEDNESS 6.5(b)
EXHIBIT I FORM OF MORTGAGEE/LANDLORD Section 6.8
WAIVER, ACCESS AND USE
AGREEMENT
EXHIBIT J LIST OF LABOR DISPUTES Section 5.17
EXHIBIT K [INTENTIONALLY OMITTED]
EXHIBIT L LIST OF ELIGIBLE LETTER OF Section 2.3
CREDIT ACCOMMODATION BANKS
</TABLE>
(iv)
<PAGE> 6
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
AGREEMENT, dated as of October __, 1993, by and among CONGRESS
FINANCIAL CORPORATION, a California corporation ("Lender", as hereinafter
further defined), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation
("HDPI", as hereinafter further defined), BRAWN OF CALIFORNIA, INC., a
California corporation ("Brawn", as hereinafter further defined), GUMP'S BY
MAIL, INC., a Delaware Corporation ("GBM", as hereinafter further defined)
GUMP'S CORP., a California corporation ("Gump's", as hereinafter further
defined), TCSA, INC., a Wisconsin corporation ("TCSA", as hereinafter further
defined), SDSA, INC., a California corporation (as hereinafter further defined)
and TWEEDS, INC., a Delaware corporation ("Tweeds", as hereinafter further
defined; HDPI, Brawn, GBM, GUMP'S, TCSA, SDSA and Tweed's are each individually
a "Borrower" and collectively, "Borrowers", as hereinafter further defined).
W I T N E S S E T H :
WHEREAS, Borrowers, together with certain other members of the
Affiliated Borrower Group (as hereinafter defined), operate a direct mail order
and retail merchandise business; and
WHEREAS, HDPI, Brawn, GBM, Gump's and Lender and certain of their
Affiliates (as hereinafter defined) are parties to that certain Amended and
Restated Loan and Security Agreement dated as of July 9, 1993, as amended by
the First Amendment thereto, dated August 17, 1993 (the "Existing Loan
Agreement", as hereinafter further defined) pursuant to which Lender has made
loans and advances and provided other financial accommodations to HDPI, Brawn,
GBM and Gump's; and
WHEREAS, TCSA and SDSA are each wholly-owned subsidiaries of TCSA,
Inc., a Delaware corporation ("TCSA-Delaware, as hereinafter further defined)
which is a wholly-owned subsidiary of Hanover Direct, Inc., a Delaware
corporation ("Hanover", as hereinafter further defined); and
WHEREAS, TCSA and SDSA and the other Subsidiaries of TCSA-Delaware
were formed for the purposes of acquiring, and have acquired, the direct mail
order and retail merchandise assets of The Company Store, Inc., a Wisconsin
corporation, and certain affiliates of The Company Store, Inc.,
debtors-in-possession, pursuant to the TCS Purchase Agreements (as hereinafter
defined), and thereafter operated and continue to operate such assets; and
WHEREAS, Tweeds is a party to secured financing arrangements with
Lender, pursuant to the terms of the Financing Agreement [Security Agreement]
dated May 27, 1992 between Lender and Tweeds
<PAGE> 7
(the "Tweeds Loan Agreement", and together with all supplements and amendments
thereto, the "Tweeds Financing Agreements"); and
WHEREAS, TW Acquisitions, Inc., a Delaware corporation and a
wholly-owned subsidiary of HDPI, was formed for the purpose of acquiring, and
has acquired, all of the outstanding capital stock of Tweeds pursuant to the
Tweeds Purchase Agreements (as hereinafter defined); and
WHEREAS, Borrowers have requested that Lender continue to make loans
and advances and provide other financial accommodations to HDPI, Brawn, GBM and
Gump's and that Lender increase the Maximum Credit under the Existing Loan
Agreement and make loans and advances and provide other financial
accommodations thereunder to TCSA, SDSA and Tweeds; and
WHEREAS, Lender is willing to increase the Maximum Credit and make
such loans and advances and provide such financial accommodations, subject to
the terms and conditions set forth herein and in the other Financing Agreements
(as hereinafter defined); and
WHEREAS, the parties wish to amend and restate the Existing Loan
Agreement and the Tweeds Financing Agreements in their entirety and amend
certain of the Financing Agreements in order to evidence the foregoing and
other provisions mutually agreed upon;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements herein contained and other good and valuable
consideration, the adequacy and receipt of which is hereby acknowledged, Lender
and Borrowers hereby mutually covenant, warrant and agree as follows (the
covenants, warranties and agreements of Borrowers, except as otherwise
expressly set forth herein, being joint and several):
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Account Debtor" shall mean account debtor, as such term is
defined in the UCC, including, without limitation, each debtor or obligor in
any way obligated on or in connection with any Account.
1.2 "Accounts" shall mean, as to any Person, all present and
future accounts, contract rights, chattel paper, documents and instruments of
such Person, as such terms are defined in the UCC, including, without
limitation, all obligations for the
- 2 -
<PAGE> 8
payment of money arising out of such Person's sale, lease or other disposition
of goods or other property or rendition of services. Such term also includes,
without limitation, credit card receivables and all credit card charge records
and other evidences of credit card transactions.
1.3 "Additional Advances" shall mean the outstanding Obligations
owed to Lender by HDPI consisting of the secured loans and advances,
heretofore, now or hereafter made by Lender to HDPI pursuant to the Additional
Advances Lending Formula, as provided in Section 2.1(b) hereof, on a revolving
basis (including advances, repayments and readvances), subject to the terms and
conditions of this Agreement and the other Financing Agreements.
1.4 "Additional Advances Lending Formula" shall have the meaning
set forth in Section 2.1(b) hereof.
1.5 "Adjusted Cumulative Cash Flow" shall have the meaning set
forth in Section 4.4(d) hereof.
1.6 "Aegis Mail Order Joint Venture" shall mean that certain joint
venture established pursuant to that certain Agreement, dated as of September
7, 1993 by and between HDPI and Aegis Safety Holdings, Inc., and instruments
and agreements to which HDPI or other members of the Affiliated Borrower Group
are parties delivered thereunder or related thereto, as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.7 "Affiliate" shall mean with respect to a specified Person, a
partnership, corporation or any other Person which, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with such Person, and without limiting the generality of the
foregoing, includes, with respect to a Person (a) any other Person which
beneficially owns or holds twenty percent (20%) or more of any class of voting
securities or other securities convertible into voting securities of such
Person or beneficially owns or holds twenty percent (20%) or more of any other
equity interests in such Person, (b) any other Person with respect to which
such Person beneficially owns or holds twenty percent (20%) or more of any
class of voting securities or other securities convertible into voting
securities of such Person, or owns or holds twenty percent (20%) or more of the
equity interests of the other Person, and (c) any director, officer or employee
of such Person. Notwithstanding the foregoing, for so long as any one or more
members of the NAR Group shall have the ability, through ownership of voting
securities, by contract or otherwise, directly or indirectly, to elect a
majority of the Board of Directors of any member of the Affiliated Borrower
Group, each member of the NAR Group shall in any event be deemed an Affiliate
- 3 -
<PAGE> 9
of each Person which is a member of, or an Affiliate of any member of, the
Affiliated Borrower Group pursuant to the preceding definition. For purposes
of this definition, the term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
1.8 "Affiliated Borrower Group" shall mean each of Borrowers,
Hanover and any other entity that is now or hereafter a direct or indirect
Subsidiary of Hanover, other than a Non-Guarantor Subsidiary.
1.9 "Appraiser" shall mean Daley-Hodkin Appraisal Corporation, or
such other appraisal firm acceptable to Lender.
1.10 "Assignment of Partnership Interest" shall mean that certain
Collateral Assignment and Security Agreement re: General Partnership Interest,
dated on or about May 5, 1993, made by HDMM to Lender, as the same now exists
or may hereafter be amended, supplemented, modified, renewed, restated or
replaced.
1.11 "Avon Mail Order Joint Venture" shall mean that certain joint
venture established pursuant to that certain Test Agreement, dated August 21,
1991, by and between HSC and Avon Products, Inc., as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.12 "Banking Day" shall mean any day, other than Saturday or
Sunday, when Lender and commercial banks are open in New York, New York and the
place(s) where the bank account(s) designated by Borrowers and approved by
Lender for the disbursement of loans hereunder are located.
1.13 "Bankruptcy Code" shall mean the United States Bankruptcy
Code, being Title 11 of the United States Code as enacted in 1978, as the same
may have heretofore been or may hereafter be amended, recodified, modified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.14 "Board" shall mean the Board of Governors of the Federal
Reserve System.
1.15 "Borrowers" shall mean each of HDPI, Brawn, GBM, Gump's, TCSA,
SDSA and Tweeds, and each of their respective successors and assigns.
- 4 -
<PAGE> 10
1.16 "Brawn" shall mean Brawn of California, Inc., a California
corporation, its successors and assigns.
1.17 "Brawn Lending Sublimit" shall have the meaning set forth in
Section 2.2(a) hereof.
1.18 "Collateral" shall have the meaning set forth in Section 4
hereof.
1.19 "Congress" shall mean Congress Financial Corporation, a
California corporation, and its successors and assigns.
1.20 "Consolidated Net Worth" shall mean, as to any Person, at any
time, in accordance with generally accepted accounting principles, as in effect
from time to time consistently applied, on a consolidated basis for such Person
and its Subsidiaries, the amount equal to the result obtained by taking total
assets and subtracting therefrom total liabilities of such Person and its
Subsidiaries.
1.21 "Consolidated Working Capital" shall mean, as to any Person,
at any time, in accordance with generally accepted accounting principles as in
effect from time to time, consistently applied, on a consolidated basis for
such Person and its Subsidiaries, the amount equal to the difference between
(a) the aggregate net book value of all assets of such Person and its
Subsidiaries, on a consolidated basis, which would, in accordance with
generally accepted accounting principles as in effect from time to time,
consistently applied, be classified as current assets, calculating the book
value of Inventory for this purpose on a first-in-first-out basis and (b) all
Indebtedness (including, for this purpose, notwithstanding Section 1.74(c),
trade accounts payable incurred in the ordinary course of business whether
current or any number of days past due) of such Person and its Subsidiaries, on
a consolidated basis, which would in accordance with generally accepted
accounting principles as in effect from time to time, consistently applied, be
classified as current liabilities; provided, however, that solely for purposes
of calculating Consolidating Working Capital hereunder, the outstanding balance
of the Revolving Inventory Loans and Additional Advances shall not be
considered current liabilities.
1.22 "Credit Card Agreements" shall mean, individually and
collectively, the Private Credit Card Agreement, the Third Party Credit Card
Agreements, together with all agreements now or hereafter entered into between
or among Lender and the parties to the Private Credit Card Agreement or Third
Party Credit Card Agreements.
1.23 "Credit Facility" shall mean, individually and collectively,
the Revolving Inventory Loans, the Letter of Credit Accommodations and the
Additional Advances.
- 5 -
<PAGE> 11
1.24 "Cumulative Cash Flow" shall have the meaning set forth in
Section 4.4(c) hereof.
1.25 "Customer Lists" shall mean the existing and future mailing
and customer lists used in the direct mail marketing business of Borrowers,
together with all software (including, without limitation, all manuals,
upgrades, modifications, enhancements and additions thereto), computer tapes,
disks, other electronic data storage media, documentation of file and record
formats and source code and all other property useful or necessary to gain
access to, transfer and fully utilize for all purposes, including, without
limitation, analysis, cross-checking and compilation of, and the sale, rental
or license of such mailing and customer lists, together with all updates and
additions thereto, including, without limitation, all such mailing and customer
lists which may be purchased, created or compiled in the future, but not
including any customer lists owned by third parties who are not Affiliates of
Borrower, which are leased to, or otherwise licensed for use by Borrowers, with
permission of such third party owners.
1.26 "Customer List Escrow Agreement" shall mean the Escrow
Agreement, dated May 5, 1993, as amended on July 9, 1993 and further amended on
or about the date hereof, by and among Borrowers, Lender and a storage and
escrow agent acceptable to Lender, providing for, among other things, the
deposit in escrow of the Customer Lists with, and the storage of such Customer
Lists by, such agent, the obligation of Borrowers to update and deposit in
escrow updated Customer Lists periodically and for the storage and escrow agent
to hold and store the updated Customer Lists, and the right of Lender to obtain
from such agent possession of the Customer Lists, as such Escrow Agreement now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.27 "DM Advertising" shall mean D.M. Advertising, Inc., a New
Jersey corporation, its successors and assigns.
1.28 "Early Termination Fee" shall have the meaning set forth in
Section 9.1(f) hereof.
1.29 "Eligible Inventory" shall be determined by Lender from time
to time, and generally shall consist of General Merchandise Inventory, Gump's
Eligible Inventory, Home Furnishings Inventory, Men's Fashion Inventory, TCS
Eligible Inventory, Tweeds Eligible Inventory and Women's Fashion Inventory of
Borrowers which are first quality, finished goods recorded and carried in a
computerized perpetual inventory accounting system, are located at Eligible
Inventory Locations and held for resale in the ordinary course of the business
of Borrowers. Inventory acquired by Borrowers under documentary letters of
credit issued as a Letter of Credit Accommodation
- 6 -
<PAGE> 12
pursuant to Section 2.3 hereof and the Trade Financing Supplements of
Borrowers, which would otherwise be determined by Lender to be Eligible
Inventory in all respects, except that such Inventory is in transit to Eligible
Inventory Locations, shall be considered Eligible Inventory, if documents of
title covering such goods in form and substance satisfactory to Lender are in
the possession of Lender or its agent which shall, for these purposes, include
the bank issuing such Letter of Credit Accommodation if such issuer has been
reimbursed or paid by Lender with respect to drawings paid by the issuer under
such Letter of Credit Accommodation and the loan account of Borrower(s)
requesting such Letter of Credit Accommodation has been charged for the amounts
so reimbursed or paid by Lender to such issuer. Standards of eligibility may
be fixed and revised from time to time solely by Lender in its exclusive
judgment. In determining eligibility, Lender may, but need not, rely on
reports and schedules of Inventory furnished to Lender by Borrowers, but
reliance thereon by Lender from time to time shall not be deemed to limit
Lender's right to revise standards of eligibility and amounts of Inventory
deemed Eligible Inventory at any time. In general, except in Lender's
discretion, Eligible Inventory shall exclude (a) packaging and shipping
materials, (b) Inventory located at retail stores of Borrowers, other than
Eligible Inventory of Gump's located at the Gump's Main Store, or Inventory
located at the premises of third parties, except for Inventory which is
otherwise Eligible Inventory and is located on the premises of any third
parties which are Eligible Inventory Locations hereunder, (c) Inventory subject
to any Mail Order Joint Venture or other joint venture or licensing agreement
with a third party, (d) Inventory subject to a security interest or lien in
favor of any third party, including, without limitation, any Inventory at any
time, contrary to the provisions hereof, subject to a lien or security interest
in favor of the Private Credit Card Purchaser or any of the parties to the
Third Party Credit Card Agreements (the exclusion of any such Inventory from
Eligible Inventory shall not limit or impair any other rights of Lender
provided in this Agreement or the other Financing Agreements if any such liens
or security interests exist), (e) bill and hold goods, (f) Inventory of
Borrowers which is not subject to the first priority perfected security
interest of Lender (subject to the provisions of Section 6.4), (g) damaged or
defective goods, (h) Inventory purchased on consignment, and (i) merchandise
that may otherwise be General Merchandise Inventory, Gump's Eligible Inventory,
Home Furnishings Inventory, Men's Fashion Inventory, TCS Eligible Inventory,
Tweeds Eligible Inventory or Women's Fashion Inventory but which is not among
the product categories included in the calculation of Orderly Liquidation Value
as set forth in the most current appraisal report delivered by the Appraiser to
Lender as required under this Agreement. Any Inventory of Borrowers which
Lender determines to be ineligible or unacceptable for lending purposes
- 7 -
<PAGE> 13
at any time shall nevertheless be and remain at all times part of the
Collateral.
1.30 "Eligible Inventory Locations" shall mean (a) the fulfillment
centers or warehouses owned or leased by Borrowers listed on Exhibit C attached
hereto and the Gump's Main Store, and (b) additional fulfillment centers or
warehouses first leased or owned by Borrowers after the date hereof, not
located in the State of California, with respect to the acquisition of which
Borrowers provide thirty (30) days prior written notice to Lender; provided,
however, as to both (a) and (b), Eligible Inventory Locations shall not include
the Gump's Main Store or any fulfillment center or warehouse owned or leased by
Borrowers, unless Borrowers shall have delivered to Lender all instruments and
documents required by Lender to perfect or maintain perfection of Lender's
first priority security interest in and liens upon such Inventory, subject to
no other liens or claims, except those, if any, expressly permitted hereunder,
together with, and without limiting the foregoing, a written agreement in form
and substance satisfactory to Lender, from each owner, operator and mortgagee
of such location, as the case may be, pursuant to which such owner, operator or
mortgagee, if required by Lender: (i) acknowledges the first priority security
interest of Lender in such Inventory, (ii) agrees to waive any and all liens,
claims and rights of distraint such owner, operator or mortgagee may, at any
time, have against such Inventory, whether for unpaid rent, storage or
otherwise, and (iii) agrees to permit Lender access to the Inventory, and the
premises upon which such Inventory is located, for such time and upon such
terms as Lender shall require to exercise its rights and remedies under this
Agreement.
1.31 "Equipment" shall mean, as to any Person, all of such Person's
now owned and hereafter acquired equipment and fixtures, of every kind and
description, wherever located, including, without limitation, any and all
equipment, telephones, telex and facsimile machines, machinery, computers,
computer hardware, vehicles, tools, dies, jigs, furniture, trade fixtures and
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and all substitutions and replacements
thereof that are owned by such Person.
1.32 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.33 "Essence Mail Order Joint Venture" shall mean that certain
joint venture established pursuant to that certain Partnership Agreement, dated
as of July 1, 1984, by and between
- 8 -
<PAGE> 14
HDMM and Essence Direct Mail Marketing, Inc. establishing Essence By Mail, a
Pennsylvania general partnership, as amended by that letter agreement, dated
July 10, 1992, by and between HDMM and Essence Direct Mail Marketing, Inc., as
the same now exists or may hereafter be amended, supplemented, modified,
renewed, restated or replaced.
1.34 "Event of Default" shall have the meaning set forth in Section
7.1 hereof.
1.35 "Excess Availability" shall mean, at any time, the amount, if
any, as determined by Lender, by which:
(i) the amount of the loans determined by Lender to
be available to Borrowers pursuant to the Inventory Lending Formula and the
Value of Eligible Inventory, and pursuant to the Additional Advances Lending
Formula and the Market Value of the IMR Collateral then pledged to Lender (but
not to exceed (A) in the case of loans determined by Lender to be available to
HDPI and Brawn, the HDPI/Brawn Lending Sublimit and the Brawn Lending Sublimit,
and (B) in the case of loans determined by Lender to be available to GBM and
Gump's, the Gump's Lending Sublimits, and (C) in the case of loans determined
to be available to TCSA and SDSA, the TCS Lending Sublimit, and (D) in the case
of loans determined to be available to Tweeds, the Tweeds Lending Sublimit, and
(E) in the case of loans determined by Lender to be available to Borrowers
considered together, the Maximum Credit) exceeds
(ii) the sum of:
(A) the amount of all outstanding and
unpaid Obligations of Borrowers, plus
(B) the aggregate amount of all reserves
established by Lender hereunder, plus
(C) the aggregate amount of accounts
payable of Borrowers more than sixty
(60) days past due, plus
(D) the aggregate amount of principal
payments due on or prior to, or
within thirty (30) days after, the
date of calculation, (x) on
Indebtedness for Borrowed Money of
Borrowers, (y) on Indebtedness for
Borrowed Money of any other member
of the Affiliated Borrower Group,
and (z) for dividends declared or
otherwise mandatorily payable by any
member of the Affiliated Borrower
Group, whether or not Borrowers are
obligated
- 9 -
<PAGE> 15
on such Indebtedness of, and
dividends declared or payable by,
such other member of the Affiliated
Borrower Group (other than dividends
declared and payable solely in
capital stock of the Person
declaring such dividend), but
excluding (I) any such principal
payments and dividends which are not
and will not be permitted hereunder
to be paid or funded directly or
indirectly by or through Borrowers
and (II) daily revolving loan
repayments due to Lender and to be
made through application of customer
remittances and other sales proceeds
in the ordinary course, plus
(E) the amount of reductions in
outstanding and unpaid Obligations
of Borrowers required to be
disregarded in the calculation of
Excess Availability pursuant to the
second sentence of Section 4.6(h)
hereof.
1.36 "Existing Loan Agreement" shall mean the Amended and Restated
Loan and Security Agreement dated as of July 9, 1993 among Lender, HDPI (then
known as Hanover Direct Fulfillment, Inc.), Brawn, GBM and Gump's (then known
as GSF Acquisition Corp.), acknowledged by the Guarantors which were, as of May
5, 1993, members of the Affiliated Borrower Group.
1.37 "Financing Agreements" shall mean this Agreement, the Trade
Financing Supplements, the Supplemental Security Agreements, the Guarantees,
including the IMR Limited Guarantee, the IMR Pledge Agreement, the QCC-IMR
Subordination Agreement, the Customer List Escrow Agreement, the Third Party
Credit Card Acknowledgments, the GECC Lien Clarification Agreement, the
Intercompany Subordination Agreement (referred to in Section 3.1(d), the
General Security Agreements and the Assignment of Partnership Interest,
together with all supplements, agreements, documents and instruments,
heretofore, now or at any time hereafter executed and/or delivered to Lender in
connection therewith or otherwise relating to this Agreement, the Obligations
of Borrowers or Guarantors or the Collateral or Guarantor Collateral, as this
Agreement and the foregoing and such supplements, agreements, documents and
instruments now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.38 "First Portion" with respect to the IMR Collateral shall have
the meaning set forth in Section 4.4(a) hereof.
- 10 -
<PAGE> 16
1.39 "GBM" shall mean Gump's By Mail, Inc., a Delaware corporation,
its successors and assigns.
1.40 "GECC" shall mean General Electric Capital Corporation, a New
York corporation, its successors and assigns.
1.41 "GECC Collateral" shall mean the following, wherever located,
unless excluded in the proviso below: (a) all GECC Accounts, including GECC
Accounts purchased by Borrowers from GECC pursuant to the GECC Account Purchase
Agreement, (b) the Written- off Accounts, (c) Account Documentation to the
extent pertaining to the GECC Accounts and the Written-off Accounts, (d)
guaranties, security interests, or other security held by or granted to
Borrowers, any Lessee or GECC by the Retail Sale account debtor or a guarantor
of the Retail Sale account debtor (other than Borrowers or any of their
affiliates), as security for or guaranteeing payment or performance of, any of
the GECC Accounts and the Written-off Accounts, (e) the GECC Reserve Balance,
(f) all Borrowers' right, title and interest in and to any and all contracts,
whether now or hereafter existing or acquired, with Lessees, but only the
provisions of such contracts, if any, which allow Borrowers to charge such
Lessees for the unpaid amount of GECC Accounts and the Written-off Accounts,
(g) all Merchandise, the Retail Sale of which has given rise to a GECC Account
or a Written-off Account, but only to the extent that such Merchandise is
subject to a lien or security interest in favor of Borrowers and then only to
the extent such Merchandise is not, and does not become, returned, repossessed
or reclaimed goods in the possession or under the control of Borrowers or
Lender or other Inventory of Borrowers, and (h) the proceeds of the foregoing
in any form whatsoever not excluded in the proviso below; provided, however,
that the following property of Borrowers, now owned or hereafter arising or
acquired, shall not, in any event, be included in the term GECC Collateral and
shall be part of the Collateral of Lender covered by this Agreement:
(i) all returned, repossessed or reclaimed goods in the
possession or under the control of Borrowers or Lender or other Inventory of
Borrowers;
(ii) all Customer Lists, mailing lists, catalogs,
promotional materials, trademarks, trade names, copyrights or other
intellectual property or the goodwill symbolized thereby;
(iii) all accounts, contract rights, instruments or chattel
paper which do not arise from the Retail Sale of Merchandise pursuant to a
Credit Agreement or a Lender Credit Card Agreement and all general intangibles
which do not consist of an obligation for the payment of money arising from the
Retail Sale of Merchandise pursuant to a Credit Agreement or Lender
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Credit Card Agreement, except this clause (iii) shall not exclude the GECC
Reserve Balance and the Written-off Accounts;
(iv) all accounts, contract rights, instruments, chattel
paper or general intangibles arising from the Retail Sale of Merchandise
pursuant to a Credit Agreement or a Lender Credit Card Agreement which neither
(A) are purchased by GECC from Borrowers for New Value, nor (B) are established
or added by GECC for New Value under a Lender Credit Agreement, nor (C)
constitute security upon which New Value has otherwise been given by GECC to
Borrowers, in each case, pursuant to the GECC Account Purchase Agreement,
except this clause (iv) shall not exclude the Written-off Accounts or accounts
charged back to Borrowers by GECC or purchased by Borrowers pursuant to the
GECC Account Purchase Agreement;
(v) all accounts, contract rights, instruments, chattel
paper or general intangibles arising from the Retail Sale of Merchandise under
a Credit Agreement or a Lender Credit Card Agreement after non-renewal or any
termination of the GECC Account Purchase Agreement, whether at maturity or by
reason of default by Borrowers or otherwise, except for accounts, contract
rights, instruments and chattel paper arising from the Retail Sale of
Merchandise pursuant to a Credit Agreement or a Lender Credit Card Agreement,
or general intangibles which consist of an obligation for the payment of money
arising from the Retail Sale of Merchandise pursuant to a Credit Agreement or a
Lender Credit Card Agreement, which accounts, contract rights, instruments,
chattel paper or general intangibles are purchased by GECC from Borrowers for
New Value, or established or added by GECC for New Value under a Lender Credit
Card Agreement, or upon the security of which GECC has otherwise given New
Value to Borrowers, in any case during the ten (10) day period following the
effective date of non-renewal or any termination of the GECC Account Purchase
Agreement, provided that, in respect of the underlying Retail Sales, GECC has,
prior to such effective date of non-renewal or termination, given Borrowers its
credit authorization;
(vi) all accounts, contract rights, general intangibles,
chattel paper or instruments generated pursuant to layaway plans;
(vii) all Non-Tendered Accounts; and
(viii) all products and proceeds, in whatever form, of the
foregoing types or items of property described in subparagraphs (i) through
(vii) above, other than the items or types of property expressly excepted
therefrom.
For purposes of the definition of GECC Collateral contained in this
Section 1.41, the following terms shall have the following meanings:
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(a) "Account Documentation" shall mean any and all
documentation of Borrowers relating to accounts, contract rights, instruments,
chattel paper and, to the extent consisting of an obligation for the payment of
money, general intangibles, in each case arising from the Retail Sale of
Merchandise, including, without limitation, customer applications, Credit
Agreements, Lender Credit Card Agreements, sales slips, delivery receipts,
billing statements, checks and stubs, and all correspondence, memoranda,
computer printouts, magnetic tapes, disks, or hardcopy formats, or any other
computer-readable data transmissions or software related thereto, all other
written material relating thereto, and any microfilm or microfiche copy of any
of the foregoing.
(b) "Borrowers" as used in the definition of GECC
Collateral and in the other definitions set forth in this Section 1.41 and in
the definition of GECC Lien Clarification Agreement, shall mean HDPI, Brawn,
GBM and Gump's (but such definition shall not limit the definition of Borrowers
set forth in Section 1.15 hereof for purposes of all other provisions of this
Agreement and the other Financing Agreements).
(c) "Credit Agreement" shall mean a credit agreement
initially between Borrowers and an account debtor pursuant to which an account
debtor may be permitted to purchase, from time to time, Merchandise from
Borrowers or any Lessee on credit, whether or not there is a finance charge
computed from time to time, and includes, without limitation, revolving charge
plans, extended payment plans and interest free plans.
(d) "GECC Account Purchase Agreement" shall mean that
certain Account Purchase Agreement, dated as of December 21, 1992, as amended
on or about the date hereof, by and among Borrowers, THC, Gump's Holdings and
GECC, as the same may be further amended and/or restated from time to time.
(e) "GECC Accounts" shall mean all Borrowers' accounts,
contract rights, instruments and chattel paper arising from the Retail Sale of
Merchandise pursuant to a Credit Agreement or a Lender Credit Card Agreement,
and general intangibles which consist of an obligation for the payment of money
arising from the Retail Sale of Merchandise pursuant to a Credit Agreement or a
Lender Credit Card Agreement, whether now existing or hereafter coming into
existence, which accounts, contract rights, instruments, chattel paper and
general intangibles are purchased by GECC from Borrowers for New Value, or
established or added by GECC for New Value under a Lender Credit Card
Agreement, or upon the security of which GECC has otherwise given New Value to
Borrowers, in any case so purchased, established, added or given pursuant to
and during the term of the GECC Account Purchase Agreement or during the ten
(10) day period following the effective date of non-renewal or any
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termination of the GECC Account Purchase Agreement, provided that, in respect
of the underlying Retail Sales, GECC has, prior to such effective date of
non-renewal or any termination of the GECC Account Purchase Agreement, given
Borrowers its credit authorization. Anything contained herein to the contrary
notwithstanding, in no event shall the "GECC Accounts" include any accounts,
contract rights, instruments, chattel paper or general intangibles for the
payment of money, which are not, following their creation, actually submitted
by Borrowers to GECC, and accepted by GECC, for purchase by GECC under the
terms of the GECC Account Purchase Agreement, whether or not the failure by
Borrowers to actually so submit the same shall be a breach or default under the
GECC Account Purchase Agreement (the "Non-Tendered Accounts").
(f) "GECC Reserve Balance" shall mean all credit balances
and reserve balances now or hereafter due Borrowers from GECC, and other monies
now or hereafter due Borrowers from GECC or held by GECC, to the extent of the
terms of the GECC Account Purchase Agreement.
(g) "Lender Credit Card Agreement" shall mean an
agreement between GECC and an account debtor who is issued a card or device by
GECC in connection with Borrowers' private label credit card programs giving
such account debtor the privilege of purchasing Merchandise from Borrowers or
any Lessee on credit to be paid in accordance with such agreement.
(h) "Lessee" shall mean any person or entity who, now or
hereafter, leases or licenses space in any of Borrowers' Stores and who has an
agreement with Borrowers authorizing such person to sell Merchandise.
(i) "Merchandise" shall mean those goods and services,
including accessories and delivery services sold in conjunction therewith, sold
at retail by Borrowers or any Lessee through its mail-order catalog business
and in Stores to the general public for personal, family, or household use,
and, without limitation, also includes returned, repossessed and reclaimed
goods which are resold by Borrowers in a Retail Sale.
(j) "New Value" shall have the meaning set forth in
Section 547(a)(2) of the Bankruptcy Code. For purposes hereof, Reserve
Adjustments shall be considered New Value, but any other amounts credited to
the GECC Reserve Balance shall not be considered New Value.
(k) "Reserve Adjustments" shall mean amounts credited to
the GECC Reserve Balance under the terms of the GECC Account Purchase
Agreement.
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(l) "Retail Sale" shall mean any sale by Borrowers or a
Lessee in the ordinary course of Borrowers' business through Borrowers' direct
mail catalogs or Stores (including "closeout" or outlet stores), but shall not
include a sale to a liquidator or other bulk purchaser.
(m) "Stores" shall mean Borrowers retail stores operated
as of the date hereof or thereafter by Borrowers directly or through another
Borrower or operating under the trade name "Hanover Direct" or "International
Male" or "Gump's" or any other trade name hereafter used by Borrowers.
(n) "Written-off Accounts" shall mean those accounts,
chattel paper, instruments, and general intangibles consisting of an obligation
for the payment of money, written-off by (1) HDPI or Brawn prior to December
21, 1992, which are subject to recovery efforts by GECC pursuant to Section 3.6
of the GECC Account Purchase Agreement as in effect on December 21, 1992, or
(2) written-off by Gump's or GBM or their predecessors in interest prior to the
date of the initial purchase by GECC of accounts from GBM and Gump's, which are
subject to recovery efforts by GECC pursuant to Section 3.6 of the GECC Account
Purchase Agreement as in effect on such date of the initial purchase by GECC of
accounts from GBM and Gump's.
1.42 "GECC Lien Clarification Agreement" shall mean that certain
Agreement by and between GECC and Lender, dated as of May 5, 1993 and amended
on July 9, 1993, setting forth, among other things, the respective rights of
each party to certain collateral of Borrowers, as the same now exists or may
hereafter be amended, supplemented, renewed, restated or replaced.
1.43 "General Merchandise Inventory" shall mean all Inventory of
Borrowers offered for sale in the Hanover House, Colonial Kitchen and Mature
Wisdom Catalogs of HDPI, or such other catalogs created by any Borrower
covering substantially similar merchandise which such Borrower has requested
Lender to include in this Inventory category, which Inventory shall include,
among other items, novelties and housewares, kitchen, cookware and storage
items, and merchandise for senior citizens.
1.44 "General Security Agreement" shall have the meaning set forth
in Section 4.3 hereof.
1.45 "Guarantee" or "Guarantees" shall have the meaning set forth
in Section 4.2 hereof.
1.46 "Guarantor Collateral" shall have the meaning set forth in
Section 4.3 hereof.
1.47 "Guarantors" shall mean, jointly and severally, individually
and collectively (i) Hanover and each existing and
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future direct or indirect Subsidiary of Hanover which owns any assets in excess
of Ten Thousand Dollars ($10,000), other than Non-Guarantor Subsidiaries, (ii)
IMR as limited guarantor under the IMR Limited Guarantee, and (iii) each of
their respective successors and assigns.
1.48 "Gump's" shall mean Gump's Corp., formerly known as GSF
Acquisition Corp., a California corporation, its successors and assigns.
1.49 "Gump's Acquisition" shall mean the acquisition by GBM and
Gump's, respectively, of the direct mail catalog and retail business and assets
of each of Gump's, Inc., a California corporation, and Gump's, Inc., a Texas
corporation, respectively, as provided under the Gump's Purchase Agreements, as
in effect on July 9, 1993.
1.50 "Gump's Eligible Inventory" shall mean (a) in the case of GBM,
all Inventory of GBM in the merchandise categories of gifts, tabletop, interior
design, jewelry and fashion, offered for sale by GBM in its "Gump's" catalog,
or such other catalogs created by GBM covering substantially similar
merchandise which GBM has requested Lender to include in this Inventory
category, and (b) in the case of Gump's, all Inventory of Gump's in the
merchandise categories of gifts, tabletop, interior design and jewelry, offered
for sale by Gump's at the Gump's Main Store.
1.51 "Gump's Holdings" shall mean Gump's Holdings, Inc., a Delaware
corporation, its successors and assigns.
1.52 "Gump's Lending Sublimits" shall have the meaning set forth in
Section 2.2(d) hereof.
1.53 "Gump's Main Store" shall mean the retail store operated by
Gump's, known as Gump's San Francisco, located at 250 Post Street, San
Francisco, California.
1.54 "Gump's Purchase Agreements" shall mean, individually and
collectively, that certain Asset Purchase Agreement dated as of May 21, 1993 by
and among Gump's (then known as GSF Acquisition Corp.), H&H and Gump's, Inc., a
Texas corporation, and that certain Asset Purchase Agreement dated as of May
21, 1993 by and among GBM, H&H and Gump's, Inc., a California corporation,
together with all bills of sale, assignments and other instruments,
certificates, documents and agreements delivered thereunder or in connection
therewith, as the same no exist or may be hereafter amended, supplemented,
restated, or replaced.
1.55 "H&H" shall mean The Horn & Hardart Company, a Nevada
corporation, its successors and assigns, including, without limitation, Hanover
as its successor pursuant to the
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reorganization of the Affiliated Borrower Group described in Exhibit K attached
to the Existing Loan Agreement. By reason of the consummation of such
reorganization, references herein and in the other Financing Agreements to H&H
shall, unless the context otherwise requires, mean and refer to Hanover Direct,
Inc., a Delaware corporation, its successors and assigns.
1.56 "Hanover" shall mean Hanover Direct, Inc., a Delaware
corporation, as successor by merger to the Horn & Hardart Company, a Nevada
corporation, and The Hanover Companies, a Nevada corporation, previously
referred to in the Existing Loan Agreement as "New HDI", its successors and
assigns.
1.57 "Hanover Holdings" shall mean Hanover Holdings, Inc., a
Delaware corporation, its successors and assigns.
1.58 "Hanover List" shall mean Hanover List Management, Inc., a New
Jersey corporation, its successors and assigns.
1.59 "HDPI" shall mean Hanover Direct Pennsylvania, Inc., a
Pennsylvania corporation, f/k/a Hanover Direct Fulfillment, Inc. and prior
thereto known as Hanover Direct, Inc. and, prior thereto known as Hanover House
Industries, Inc., having been referred to as HDI and a Borrower in the Loan and
Security Agreement dated as of May 5, 1993, and the other Financing Agreements
as in effect prior to July 9, 1993, and HDFI and a Borrower in the Amended and
Restated Loan and Security Agreement, dated as of July 9, 1993, and the other
financing Agreements as in effect prior to the date hereof, together with its
successors and assigns.
1.60 "HDPI/Brawn Lending Sublimit" shall have the meaning set forth
in Section 2.2(b) hereof.
1.61 "HDPI Pennsylvania IRB Financing" shall mean the Eight Million
Dollar ($8,000,000) Industrial Revenue Bond financing arrangements of HDPI
involving secured financing of the construction and development of a
fulfillment center located in Conewago Township, Adams County, Pennsylvania,
and the lease of such fulfillment center to HDPI, as such arrangements now
exist or may hereafter be amended, supplemented, extended, renewed, restated or
replaced.
1.62 "HDPI Securitization Program" shall mean the previous
arrangements of the sale and securitization of certain Private Credit Card
Receivables effected by HDPI (then known as Hanover Direct, Inc.) through
certain of its and certain Guarantors' wholly-owned special purpose
Subsidiaries and the Hanover Credit Card Trust 1989 A and the Hanover Credit
Card Trust 1991 A.
1.63 "HDMM" shall mean Hanover Direct Mail Marketing, Inc., a
Pennsylvania corporation, its successors and assigns.
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1.64 "HIM" shall mean H.I.M. Inc., a California corporation, its
successors and assigns.
1.65 "Home Furnishings Inventory" shall mean all Inventory of
Borrowers offered for sale in the Domestications and Tapestry catalogs of HDPI,
or such other catalogs created by any Borrower covering substantially similar
merchandise which such Borrower has requested Lender to include in this
Inventory category, which Inventory shall include, among other items, sheets,
towels and other such items for the house and decorative home products.
1.66 "HSC" shall mean Hanover Syndication Corp., a Pennsylvania
corporation, its successors and assigns.
1.67 "IBJ Schroder" shall mean IBJ Schroder Bank & Trust Company, a
New York banking corporation, its successors and assigns.
1.68 "IMR" shall mean Intercontinental Mining & Resources
Incorporated, a British Virgin Islands corporation, its successors and assigns.
1.69 "IMR Collateral" shall mean the "Pledged Property", as defined
in and from time to time pledged to Lender by IMR pursuant to the IMR Pledge
Agreement and the instruments referred to or contemplated thereunder by and
between one or more of IMR, IBJ Schroder and Lender, as collateral security for
the IMR Limited Guarantee having a Market Value, as of May 5, 1993, of Ten
Million Dollars ($10,000,000) and all rollovers, renewals, reinvestments and
replacements thereof, except for interest and other income earned thereon to
the extent released from the Pledged Property pursuant to the IMR Pledge
Agreement.
1.70 "IMR Limited Guarantee" shall mean that certain Limited
Guarantee and Waiver dated as of May 5, 1993 delivered by IMR with respect to
the Obligations of HDPI and Brawn, by IMR in favor of Lender, as the same now
exists or may hereafter be amended, supplemented, extended, renewed, restated
or replaced.
1.71 "IMR Pledge Agreement" shall mean that certain Pledge and
Security Agreement dated as of May 5, 1993 made by IMR in favor of Lender,
granting Lender a first priority perfected security interest in the IMR
Collateral, together with the rights and interests of Lender in and to the
"Custodial Account" (as defined in such Pledge and Security Agreement), and
including all agreements and acknowledgments in favor of Lender by IBJ Schroder
or other agent or bailee for Lender in respect of the IMR Collateral, as the
same now exist or may hereafter be amended, supplemented, renewed, restated or
replaced.
1.72 "IMR Waiting Period" shall have the meaning set forth in
Section 4.6(g) hereof.
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1.73 "Incipient Default" shall mean the occurrence of an event or
existence of a condition which, upon the lapse of time or giving of notice or
both, would constitute an Event of Default.
1.74 "Indebtedness" shall mean, as to any Person, any obligation or
liability which is required by generally accepted accounting principles to be
shown as part of liabilities on a balance sheet of such Person (other than
trade accounts payable, incurred in the ordinary course of business that are
sixty (60) days or less past due) and, in any event, shall also include: (a)
obligations for borrowed money or capital leases; (b) obligations evidenced by
bonds, debentures, notes or other similar instruments; (c) obligations to pay
the deferred purchase price of property or for services (other than trade
accounts payable incurred in the ordinary course of business that are sixty
(60) days or less past due); (d) obligations or liabilities secured by a lien
on any asset of the obligor thereunder, whether or not such obligation or
liability is assumed; (e) contingent obligations (other than those incurred in
the ordinary course of business); (f) obligations under or in connection with
letters of credit; (g) obligations under acceptance facilities; and (h) any
guarantees of any of the foregoing obligations.
1.75 "Indebtedness for Borrowed Money" shall mean, as to any
Person, Indebtedness of the kind described in clauses (a), (b), (c), (f) or (g)
described in the definition of Indebtedness, and guarantees thereof.
1.76 "Interest Rate" shall mean a rate of two percent (2%) per
annum in excess of the Prime Rate or, after the occurrence and during the
continuance of any Event of Default, and after termination or non-renewal
hereof, a rate of four percent (4%) per annum in excess of the Prime Rate. In
the event that the aggregate Revolving Inventory Loans, Additional Advances and
Letter of Credit Accommodations to one or more Borrowers exceeds the amounts
determined by Lender to be available pursuant to the Inventory Lending Formula
or the Additional Advances Lending Formula, net of reserves and subject to the
Brawn Lending Sublimit, the HDPI/Brawn Lending Sublimit, the Gump's Lending
Sublimits, the TCS Lending Sublimit, the Tweeds Lending Sublimit and the
Maximum Credit, in each case as applicable, the Interest Rate hereunder shall
be four percent (4%) per annum in excess of the Prime Rate as to the amount of
any such excess(es) (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default); provided, however, that if such excess(es) arise solely by virtue
of the exercise of Lender's discretion under this Agreement to reduce the
Inventory Lending Formula in the absence of an Event of Default which is
continuing, the Interest Rate hereunder shall be two percent (2%) per annum
greater than the Prime Rate as to the amount of any such excess(es) for a
period
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of five (5) days after Lender notifies the affected Borrowers of such
discretionary reduction in the Inventory Lending Formula and, at and after the
expiration of such period of five (5) days, the Interest Rate hereunder shall
be four percent (4%) per annum in excess of the Prime Rate as to the amount of
any such excess(es) then remaining. The Interest Rate shall increase or
decrease by an amount equal to each increase or decrease, respectively, in the
Prime Rate, effective on the first day of the month after any change in the
Prime Rate, based on the Prime Rate in effect on the last day of the month in
which any such change occurs.
1.77 "Inventory" shall mean, as to any Person, all of such Person's
raw materials, work-in-process, finished goods and all other inventory of any
kind, nature or description, wherever located, whether now owned or hereafter
existing or acquired by such Person, including, without limitation, any parts
or accessories, all wrapping, packaging, advertising and shipping materials,
and all other goods used or consumed in the business of such Person, all labels
and other devices, names or marks affixed to or to be affixed thereto for
purposes of identifying the same or the seller or manufacturer thereof and all
of such Person's right, title and interest therein and thereto.
1.78 "Inventory Lending Formula" shall have the meaning set forth
in Section 2.1(a) hereof.
1.79 "IRC" shall mean the Internal Revenue Code of 1986, as the
same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.80 "June 30 Excess" shall have the meaning set forth in Section
4.5 hereof.
1.81 "Leavitt" shall mean Leavitt Advertising Agency, Inc., a New
York corporation, its successors and assigns.
1.82 "Lender" shall mean Congress Financial Corporation, a
California corporation, its successors and assigns.
1.83 "Letter of Credit Accommodations" shall have the meaning set
forth in Section 2.3(a) hereof.
1.84 "Mail Order Joint Venture" shall mean one or more Persons, not
Affiliate(s) of Borrowers, engaged in a joint undertaking with Borrowers or
their Subsidiaries, including, without limitation, a joint venture, a
partnership, business trust or other jointly owned and controlled entity for
the purpose of jointly engaging in research, marketing and development of the
mail order business of Borrowers, with respect
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to products or markets not previously sold or engaged in by Borrowers at the
time of formation, including, without limitation, the Aegis Mail Order Joint
Venture, Avon Mail Order Joint Venture and the Essence Mail Order Joint
Venture.
1.85 "Market Value" when used with reference to the IMR Collateral,
or any portion thereof, shall mean the aggregate market price at which a buyer
would buy the IMR Collateral, or such portion thereof, as such aggregate market
price is quoted at a given time to Lender by IBJ Schroder, any other bank or
broker-dealer.
1.86 "Maximum Credit" shall mean the aggregate principal amount of
Fifty-Two Million Five Hundred Thousand Dollars ($52,500,000).
1.87 "Men's Fashion Inventory" shall mean all Inventory of
Borrowers offered for sale in the International Male, Undergear, Outtakes,
H.I.M. and American View catalogs of Brawn, or such other catalogs created by
any Borrower covering substantially similar merchandise which such Borrower has
requested Lender to include in this Inventory category, including, without
limitation, men's activewear and fashion underwear, discount men's fashions,
contemporary men's fashions and women's fashion wear offered in such catalogs.
1.88 "NAR" shall mean North American Resources Limited, a British
Virgin Islands corporation, its successors and assigns.
1.89 "NAR Group" shall mean NAR and each Person who is now or
hereafter controlled by NAR, including, but not limited to, Westmark, Quadrant
Group, IMR, QCC and their successors and assigns.
1.90 "9.25% Guarantors" shall mean those Subsidiaries of Hanover
and any other entity which now or hereafter has guaranteed payment or
performance of the obligations of THC or Hanover (as successor to THC) under
the 9.25% Notes.
1.91 "9.25% Note Purchaser" shall mean Sun Life Insurance Company
of America, its successors and assigns.
1.92 "9.25% Notes" shall mean the aggregate of $20,000,000 in
principal amount of 9.25% Senior Subordinated Notes of THC due August 1, 1998,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, exchanged, restated or replaced.
1.93 "9.25% Subordination Agreement" shall mean the Subordination
Agreement dated on or about August 17, 1993 between Lender and the 9.25% Note
Purchaser and acknowledged by the Indenture Trustee (as defined therein), THC
and the 9.25%
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Guarantors, as the same may now exist or may hereafter be amended, modified,
supplemented, restated or replaced.
1.94 "Non-Guarantor Subsidiary" shall mean (a) the Restaurant
Business Subsidiaries and (b) any direct Subsidiary of THC or H&H existing as
of May 5, 1993 that, as of that date, had assets less than Ten Thousand Dollars
($10,000). In addition, Non-Guarantor Subsidiaries shall mean any Subsidiary
of Hanover that:
(i) is formed or acquired after the date hereof on
not less than thirty (30) days prior written notice to Lender that is received
by Lender prior to the occurrence of an Event of Default or Incipient Default
which is continuing at the time of receipt of such notice;
(ii) is not a direct or indirect Subsidiary of or in
the same business as any Borrower or any Guarantor, other than Hanover, and is
not a Mail Order Joint Venture or a party thereto;
(iii) has been formed or acquired without any direct
or indirect investment, whether in cash or in property, other than capital
stock of any member of the Affiliated Borrower Group upon which no dividends
are paid or payable (except dividends paid or payable in additional capital
stock similarly restricted as to dividends), by Borrowers or any other member
of the Affiliated Borrower Group and without the incurrence of any Indebtedness
in connection with such acquisition, or the business to be engaged in by such
Subsidiary, directly or indirectly, by any of Borrowers or any other member of
the Affiliated Borrower Group;
(iv) engages in no transaction, direct or indirect,
with Borrowers or any other member of the Affiliated Borrower Group, other than
such Subsidiary's declaration and payment to members of the Affiliated Borrower
Group of dividends in its own capital stock, or the payment by such Subsidiary
to Borrowers or any other member of the Affiliated Borrower Group, of overhead
and other administrative charges in the ordinary course of business; and
(v) obtains financing, if any, on a completely stand
alone basis, i.e., not requiring any direct or indirect guarantee or other form
of financial support or credit enhancement from Borrowers or any other member
of the Affiliated Borrower Group, other than the non-recourse pledge of the
capital stock of another Non-Guarantor Subsidiary and cross-corporate
guaranties between or among Non-Guarantor Subsidiaries formed or acquired at
the same time as part of a single transaction upon the consummation of which
such cross-guaranties are executed in favor of the provider of such stand alone
financing; and provides
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Lender with a thirty (30) day right of first refusal to elect to provide
financing to such Subsidiary on the same terms as set forth in any bona fide
commitment proposal or offer solicited or received by such Subsidiary or an
Affiliate thereof. If Lender elects to exercise its right of first refusal, by
written notice, within such thirty (30) day period, of Lender's willingness to
provide such financing on such terms, the Five Hundred Dollar ($500) per person
per diem field examination charges of Lender plus all out-of- pocket expenses
of Lender incurred in respect of its initial field work or other preliminary
review and due diligence shall be payable by such Subsidiary or charged to
Borrowers' loan accounts hereunder whether or not the transaction closes. If
Lender does not exercise its right of first refusal, such charges and expenses
of Lender shall not be charged to such Subsidiary or Borrowers' loan accounts
hereunder.
Any Subsidiary of Hanover formed or acquired after the date hereof which at any
time does not meet or no longer meets any of the foregoing requirements shall
not be considered, for purposes hereof, or if initially so considered, shall
lose its status as, a Non- Guarantor Subsidiary and shall be subject to all of
the requirements set forth herein with respect to Subsidiaries which are
members of the Affiliated Borrower Group.
1.95 "Obligations" shall mean, as to any Person, any and all now
existing and hereafter arising obligations, liabilities and Indebtedness of
such Person to Lender of every kind and description, however evidenced, whether
direct or indirect, absolute or contingent, joint or several, secured or
unsecured, due or not due, primary or secondary, liquidated or unliquidated,
whether arising before, during or after the initial or any renewal term hereof
or any other Financing Agreement, or after the commencement of any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person under the Bankruptcy Code or any similar statute, whether arising
directly or acquired by Lender from any other Person, conditionally or as
collateral security, by assignment, merger with any other Person, assumption,
subrogation or otherwise (excluding participations or interests of Lender in
the obligations of such Person to others), whether arising under this
Agreement, the other Financing Agreements, by operation of law or otherwise and
whether incurred by such Person as principal, surety, endorser, guarantor or
otherwise. Without limiting the generality of the foregoing, "Obligations"
shall include: (a) such Person's liability to Lender for all balances owing to
Lender in any account maintained on Lender's books under this Agreement, the
other Financing Agreements or under any other agreement or arrangement now or
hereafter entered into between such Person and Lender, (b) such Person's
liability to Lender as maker or endorser of any promissory note or other
instrument for the payment of money, (c) such Person's liability to Lender
under any instrument of guaranty or indemnity, or arising under or with
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respect to any letter of credit, acceptance, instrument, guarantee, endorsement
or undertaking which Lender may make, endorse or issue to others for the
account of such Person, (d) Indebtedness owing by such Person to Lender or to
present or future parents, subsidiaries, affiliates or Participants of or with
Lender arising under or in connection with any of the foregoing types of
agreements, instruments or transactions, and (e) all principal, interest,
financing charges, facility fees, unused line fees, servicing fees, early
termination and other fees, commissions and expenses payable or reimbursable to
Lender, including, but not limited to, reasonable attorneys', paralegals' and
accountants' fees and disbursements, chargeable to such Person and due from
such Person under this Agreement, the other Financing Agreements, or under any
other agreement or arrangement which was heretofore or may be now or hereafter
entered into between such Person and Lender. Unless the context otherwise
requires, the term "Obligations" refers to Obligations of Borrowers.
1.96 "Orderly Liquidation Value" shall mean, as to Eligible
Inventory, the amount of money that could be realized in cash if such Inventory
were sold within a six (6) month period in an orderly liquidation sale, as set
forth in an appraisal report addressed to Lender from the Appraiser or upon
which Lender is entitled to rely pursuant to written authorization from the
Appraiser.
1.97 "Other Borrower Financing Agreements" shall mean all secured
financing arrangements of Borrowers with existing lenders or other financing
entities, other than Lender, including, without limitation, the QCC Credit
Agreement and the HDPI Pennsylvania IRB Financing.
1.98 "Participant" shall mean any Person which at any time
participates with Lender in respect of the Revolving Inventory Loans, the
Additional Advances, the Letter of Credit Accommodations or other Obligations
of Borrowers or any portion thereof.
1.99 "Person" or "person" shall mean an individual, a partnership,
a corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture, or other entity or a government or
any agency, instrumentality or political subdivision thereof.
1.100 "Pledged Intercompany Note" shall mean the intercompany note
issued to Hanover by any wholly-owned Subsidiary of Hanover formed after the
date hereof to evidence such new Subsidiary's Indebtedness for intercompany
loans, not to exceed $6,000,000 in the aggregate, funded by Hanover to such
Subsidiary with a portion of the proceeds of the issuance of the 9.25% Notes,
to be used for the purposes referred to in the first
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sentence of Section 6.27(b) hereof. The Pledged Intercompany Note and the
proceeds thereof shall not be part of the "Collateral" under the General
Security Agreements previously executed and delivered by THC and H&H.
1.101 "Prime Rate" shall mean the prime commercial interest rate
from time to time publicly announced by Philadelphia National Bank,
incorporated as CoreStates Bank, N.A., Philadelphia, Pennsylvania, whether or
not such announced rate is the best rate available at such bank.
1.102 "Private Credit Card Purchaser" shall mean GECC, its
successors and assigns, or such other successor or replacement purchaser under
the Private Credit Card Agreement.
1.103 "Private Credit Card Agreement" shall mean (a) that certain
Account Purchase Agreement, dated as of December 21, 1992, as amended on July
12, 1993, by and among HDPI, Brawn, GBM, Gump's, THC, Gump's Holdings and GECC,
as in effect on the date hereof, and (b) any extended, renewal or replacement
Private Credit Card Receivables purchase arrangement with GECC or a Private
Credit Card Purchaser who replaces or succeeds GECC on terms acceptable to
Lender as set forth in agreements in form and substance satisfactory to Lender.
1.104 "Private Credit Card Programs" shall mean the Hanover Shop at
Home Card of HDPI and the International Male Card of Brawn, or such other
private credit card issued by Borrowers and approved for inclusion in this
definition by Lender, in writing, in Lender's sole discretion.
1.105 "Private Credit Card Receivables" shall mean all Accounts
representing Borrowers' rights to payment for Inventory sold and delivered to
customers who have purchased such goods under the Private Credit Card Programs,
together with all finance charges and late fees payable therewith, and the
proceeds thereof, but excluding returned, repossessed or reclaimed goods
relating to such Accounts and excluding all other Inventory of Borrowers.
1.106 "Purchase Money Lien" shall mean the liens meeting the
requirements in Section 6.4(d) hereof.
1.107 "QCC" shall mean Quadrant Capital Corporation, a Delaware
corporation, f/k/a, Intercontinental Mining & Resources Limited, and its
successors and assigns.
1.108 "QCC Credit Agreement" shall mean that certain Credit
Agreement in the original principal amount of Thirty Million Dollars
($30,000,000), dated July 8, 1991, by and among HDPI, Ring, Brawn, THC, Leavitt
and QCC, and instruments issued and agreements made in connection therewith, as
modified by the
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Reimbursement Agreement and the Release and Reassignment Agreement, both dated
as of May 5, 1993, as the same now exists or may hereafter be amended,
supplemented, extended, renewed, restated or replaced.
1.109 "QCC-IMR Subordination Agreement" shall mean that certain
Subordination Agreement dated as of May 5, 1993 delivered by QCC and IMR in
favor of Lender in respect of the QCC-IMR Subordinated Obligations and other
matters, as the same now exists or may hereafter be amended, supplemented,
extended, restated or replaced.
1.110 "QCC-IMR Subordinated Obligations" shall mean (a) the unpaid
balance of outstanding letter of credit obligations and reimbursement
obligations with respect thereto, and all other obligations, liabilities or
indebtedness of Borrowers or Guarantors to QCC (or its Affiliates) pursuant to
or in connection with the QCC Credit Agreement and transactions thereunder,
which remain outstanding on the date hereof, or which arise hereafter and (b)
all obligations, liabilities or indebtedness of Borrowers or Guarantors to IMR
in connection with the IMR Limited Guarantee and the IMR Pledge Agreement.
1.111 "Quadrant Group" shall mean Quadrant Group Limited, a Bahamian
corporation, its successors and assigns.
1.112 "Restaurant Business Subsidiaries" shall mean, the
Subsidiaries of Hanover listed on Exhibit B-3 attached hereto.
1.113 "Renewal Date" shall have the meaning set forth in Section
9.1(a) hereof.
1.114 "Responsible Officer" shall mean any one or more of the
following: the President, Chief Financial Officer, Treasurer, Controller,
Secretary or General Counsel of Hanover or any Borrower.
1.115 "Revolving Inventory Loans" shall mean the outstanding
Obligations owed to Lender by Borrowers consisting of the secured loans and
advances, heretofore, now or hereafter made by Lender to Borrowers as provided
for in Section 2.1(a) hereof, on a revolving basis (involving advances,
repayments and readvances), subject to the terms and conditions of this
Agreement and the other Financing Agreements.
1.116 "Ring" shall mean Ring Response Ltd., an Illinois corporation,
its successors and assigns.
1.117 "SEC" shall mean the United States Securities and Exchange
Commission.
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1.118 "Second Portion" with respect to the IMR Collateral shall have
the meaning set forth in Section 4.4(b) hereof.
1.119 "Skandia" shall mean Skandia Down, Inc., a Delaware
corporation, its successors and assigns.
1.120 "Skandia Downsales" shall mean Skandia Downsales, Inc., a
Wisconsin corporation, its successors and assigns.
1.121 "SDSA" shall mean SDSA, Inc., a California corporation, its
successors and assigns.
1.122 "Specified Action" shall mean the meaning set forth in Section
9.1(g) hereof.
1.123 "Subsidiary" or "subsidiary" shall mean, as to any Person, any
corporation, association or organization, active or inactive, as to which fifty
percent (50%) or more of the outstanding voting stock or shares or interests
shall now or hereafter be owned or controlled, directly or indirectly, by such
Person or any direct or indirect Subsidiary of such Person, but excluding any
such corporation, association, or organization which is itself a Mail Order
Joint Venture, unless more than fifty percent (50%) of the outstanding voting
stock or shares, or interests are now or hereafter owned or controlled,
directly or indirectly, by such Person or any direct or indirect Subsidiary of
such Person.
1.124 "Supplemental Security Agreements" shall mean (a) those
certain Trademark Collateral Assignment and Security Agreements, (i) dated May
5, 1993, made by Brawn and THC, (ii) dated July 9, 1993 made by Gump's, and
(iii) dated on or about the date hereof made by TCSA and Skandia, and (b) the
Collateral Assignment of Trademarks (Security Agreement) dated as of May 27,
1992 between Tweeds and Lender, confirmed pursuant to a letter by Tweeds in
favor of Lender dated on or about the date hereof, as the case may be, in favor
of Lender, and instruments thereunder, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.125 "Tax Sharing Agreement" shall mean that certain Tax Sharing
Agreement, dated as of February 1, 1987, by and among H&H, THC and HDPI, as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.126 "TCSA" shall mean TCSA, Inc., a Wisconsin corporation, its
successors and assigns.
1.127 "TCSA-Delaware" shall mean TCSA, Inc., a Delaware corporation,
formerly known as TWD Acquisition Corp., its successors and assigns.
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1.128 "TCS Acquisition" shall mean the acquisition by H&H and
TCSA-Delaware and its Subsidiaries of the direct mail catalog and retail
business and assets of the sellers under and pursuant to the TCS Purchase
Agreements, as in effect on August 26, 1993.
1.129 "TCS Factory" shall mean The Company Factory, Inc., a
Wisconsin corporation, its successors and assigns.
1.130 "TCS Eligible Inventory" shall mean: (a) in the case of TCSA,
all Inventory of TCSA in the merchandise categories of comforters, blankets,
sheets, towels and outer garments offered for sale by TCSA in its "The Company
Store" catalog, or such other catalog created by TCSA covering substantially
similar merchandise which TCSA has requested Lender to include in this
Inventory category, and (b) in the case of SDSA, all finished goods Inventory
of SDSA and Skandia in the merchandise category of down comforters, offered for
sale by SDSA through retail stores operated by Skandia or by franchisees of
Skandia or through catalogs created by SDSA and/or TCSA covering substantially
similar merchandise which SDSA has requested Lender to include in this
Inventory category, and (c) in the case of TCSA, raw materials for such
finished goods of TCSA and SDSA which are and continue to be acceptable to
Lender for lending purposes and, in any event, excluding work-in-process,
components which are not part of finished goods, packaging, labelling, shipping
materials and supplies.
1.131 "TCS Lending Sublimit" shall have the meaning set forth in
Section 2.1(e) hereof.
1.132 "TCS Office" shall mean The Company Office, Inc., a Wisconsin
corporation, its successors and assigns.
1.133 "TCS Manufacturing" shall mean The Company Manufacturing,
Inc., a Wisconsin corporation, its successors and assigns.
1.134 "TCS Purchase Agreements" shall mean that certain Order
Confirming Sale entered on August 20, 1993 by the U.S. Bankruptcy Court for
the Western District of Wisconsin in the jointly administered Chapter 11 cases
involving The Company Store, Inc. and certain affiliates as
debtors-in-possession (No. 92-21810-11), together with all documents,
agreements and instruments delivered thereunder or in connection therewith
relating to the acquisition of assets provided pursuant to said Order,
including the intercompany transfers of such assets prior to the date hereof to
the Subsidiaries of TCSA-Delaware, as the same now exist or may hereafter be
amended, supplemented, restated or replaced.
1.135 "Term" shall have the meaning set forth in Section 9.1(a)
hereof.
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1.136 "THC" shall mean The Hanover Companies, a Nevada corporation,
its successors and assigns, including without limitation, Hanover pursuant to
the reorganization of the Affiliated Borrower Group described in Exhibit K to
the Existing Loan Agreement. By reason of the consummation of such
reorganization, references herein and in the other Financing Agreements to THC
shall, unless the context otherwise requires, mean and refer to Hanover Direct,
Inc., a Delaware corporation, its successors and assigns.
1.137 "Third Party Credit Card Acknowledgments" shall mean those
certain letter agreements addressed to the parties to the Third Party Credit
Card Agreements setting forth such parties' acknowledgment of the security
interest of Lender in the monies due and to become due, including, credits and
reserves, under the Third Party Credit Card Agreements, and such parties'
agreement to transfer to the blocked accounts established pursuant to Section
8.2 hereof, all monies due and other funds payable to or for the account of
Borrowers under the Third Party Credit Card Agreements, as the same now exist
or may hereafter be amended, supplemented, modified, renewed, restated or
replaced.
1.138 "Third Party Credit Card Agreements" shall mean all agreements
now or hereafter entered into by Borrowers with any Third Party Credit Card
Issuer or any servicing or processing agent or any factor or financial
intermediary in order to facilitate, service and manage the credit
authorization, billing transfer and/or payment procedures with respect to
Borrowers' sales transactions involving credit card purchases by customers
using credit cards issued by any Third Party Credit Card Issuer. Such term
includes, but is not limited to the following, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced:
(a) the Member Agreement, dated April 13, 1993, presently by
and among Litle & Company, Inc., First U.S.A. Merchant Services, Inc. (as
assignee of National Processing Company, Inc. and First National Bank
Louisville) and HDPI, as the same may be supplemented and amended with respect
to the addition of GBM, Gump's, TCSA, SDSA and/or Tweeds;
(b) the Independent and Chain Direct Marketing Establishment
Agreement, dated January 29, 1991, between American Express Travel Related
Services Company, Inc. and HDPI, as amended by the Direct Marketing Addendum,
dated January 29, 1991, as the same may be supplemented and amended with
respect to the addition of GBM, Gump's, TCSA, SDSA and/or Tweeds;
(c) the Diners Club Establishment Application and Agreement,
dated effective April 27, 1990, by and between HDPI and Citicorp Diners Club
Inc., supplementing and replacing all prior agreements between HDPI (or its
trade names) and Citicorp
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Diners Club Inc. covering individual catalogs of HDPI, as the same may be
supplemented and amended with respect to the addition of GBM, Gump's, TCSA,
SDSA and/or Tweeds; and
(d) the Merchant Services Agreement, made as of October 14,
1986, by and between Discover Card Services, Inc. and HDPI, as the same may be
supplemented and amended with respect to the addition of GBM, Gump's, TCSA,
SDSA and/or Tweeds.
1.139 "Third Party Credit Card Issuer" shall mean an entity or
organization which issues or whose members issue credit cards, including,
without limitation, MasterCard and VISA bank credit cards, and American
Express, Discover, Diners Club and Carte Blanche non-bank credit cards.
1.140 "Third Party Credit Card Receivables" shall mean all Accounts
representing the Borrowers' rights to payment for Inventory sold and delivered
to customers who have purchased such goods using a credit card issued by a
Third Party Credit Card Issuer, together with the proceeds thereof, but
excluding returned, repossessed or reclaimed goods relating to such Accounts
and excluding other Inventory of Borrowers.
1.141 "Trade Financing Supplements" shall mean the Trade Financing
Agreement Supplements to this Agreement, (i) dated as of May 5, 1993 executed
and delivered by HDPI and Brawn in favor of Lender, (ii) dated July 9, 1993
executed and delivered by GBM and Gump's in favor of Lender and (iii) dated on
or about the date hereof executed and delivered by each of Tweeds, TCSA and
SDSA in favor of Lender, and all applications and agreements in connection
therewith, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.142 "Tradename" shall have the meaning set forth in Section 6.1
hereof.
1.143 "TW Acquisitions" shall mean TW Acquisitions, Inc., a Delaware
corporation, its successors and assigns.
1.144 "Tweeds Acquisition" shall mean the acquisition by TW
Acquisitions of all of the issued and outstanding capital stock of Tweeds as
provided under the Tweeds Purchase Agreements, as in effect on September 30,
1993.
1.145 "Tweeds Eligible Inventory" shall mean all Inventory of Tweeds
in the merchandise categories of men's and women's apparel offered for sale by
Tweeds in its "Tweeds" catalog or such other catalogs created by Tweeds
covering substantially similar merchandise which Tweeds has requested Lender to
include in this Inventory category.
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1.146 "Tweeds Lending Sublimit" shall have the meaning set forth in
Section 2.2(f) hereof.
1.147 "Tweeds Loan Agreement" shall have the meaning set forth in
the Recitals hereto.
1.148 "Tweeds Purchase Agreements" shall mean that certain Stock
Purchase Agreement, dated as of September 7, 1993, as amended by Amendment No.
1 thereto dated as of September 30, 1993, among the existing stockholders of
Tweeds, Tweeds, H&H and TW Acquisitions, together with the agreements and
instruments to be delivered thereunder or in connection therewith, as the same
now exist or may hereafter be amended, supplemented, restated or replaced.
1.149 "UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the State of New York.
1.150 "Union Trade Financing Arrangements" shall mean the prior
financing arrangements pursuant to that certain Trade Financing Agreement in
the original principal amount of Three Million Two Hundred Fifty Thousand
Dollars ($3,250,000), dated as of June 11, 1990, by and between Brawn and Union
Bank, and all instruments issued and agreements made in connection therewith.
1.151 "Value" shall mean, as determined by Lender, with respect to
Eligible Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with generally accepted accounting principles consistently
applied (excluding, in any event, indirect costs such as purchasing,
warehousing, distribution, but including incoming freight costs) or (b) market
value, as determined by Lender.
1.152 "Voluntary Termination Notice" shall have the meaning given in
Section 9.1(g).
1.153 "Westmark" shall mean Westmark Holdings Limited, a British
Virgin Islands corporation, its successors and assigns.
1.154 "Women's Fashion Inventory" shall mean all Inventory of
Borrowers offered for sale in the Premiere Editions, The Chelsea Collection,
Night'N Day Intimates, Fashion Galaxy, Essence, Silhouettes, Simply Tops and
Concepts catalogs of HDPI, or such other catalogs created by any Borrower
covering substantially similar merchandise which such Borrower has requested
Lender to include in this Inventory category, including, without limitation,
moderately priced women's fashions, discount women's fashions, contemporary
women's fashions, contemporary apparel for larger sized women and unique
women's apparel.
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1.155 "York Fulfillment" shall mean York Fulfillment Company, Inc.,
a Pennsylvania corporation, its successors and assigns.
1.156 Accounting Terms
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles from time
to time in effect, consistently applied, except as otherwise stated herein. To
the extent generally accepted accounting principles require a change in
accounting practices, references herein to "generally accepted accounting
principles from time to time in effect, consistently applied", shall include
such required changes.
1.157 Other Defined Terms
The words "hereof", "herein", "hereunder", "this Agreement" and words
of similar import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced. References to "this Agreement" shall mean, unless the
context otherwise requires, the Existing Loan Agreement as amended and restated
hereby, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, whether or not expressly
so stated. Whether or not expressly so provided herein on a separate
amendment, all references to the "Loan Agreement" or the "Loan and Security
Agreement" or words of similar import contained in the Supplemental Security
Agreements or other Financing Agreements shall mean this Agreement and
references therein to the respective parties to and borrowers under the "Loan
Agreement" or the "Loan and Security Agreement" or words of similar import are
each hereby amended to refer to the respective parties and Borrowers under this
Agreement.
1.158 Uniform Commercial Code Definitions
All terms not specifically defined herein which are defined in the UCC
shall have the meanings as defined in the UCC.
1.159 Interpretation
For purposes of this Agreement, unless the context otherwise requires,
all other terms hereinbefore or hereinafter defined, including but not limited
to those terms defined in the recitals hereto, shall have the meanings herein
assigned to such terms. All references to Borrowers, Guarantors and other
Persons pursuant to the definitions set forth in the recitals hereto shall
include their respective successors and assigns. All references to Borrowers
and Guarantors shall mean each of them,
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and all of them, jointly and severally, individually and collectively. All
references to any term in the plural shall include the singular and all
references to any term in the singular shall include the plural.
SECTION 2. CREDIT FACILITY
2.1 Revolving Inventory Loans; Additional Advances
(a) 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 to each
Borrower, at such Borrower's request, of up to fifty percent (50%) of the Value
of such Borrower's Eligible Inventory, or such greater or lesser percentages
thereof as Lender shall, in its sole discretion, determine from time to time
(the "Inventory Lending Formula"). Without limiting the foregoing, the
Inventory Lending Formula may be adjusted downward based upon any adverse
change, individually or in the aggregate, in the Orderly Liquidation Values or
mix of Eligible Inventory in the respective categories of Eligible Inventory,
and any such downward adjustment made for such reason(s) shall not be
considered solely discretionary for purposes of Sections 1.76 and 2.6(b).
(b) Additional Advances. Subject to, and upon the terms
and conditions contained herein, Lender shall, from time to time, make
Additional Advances to HDPI, at HDPI's request, of up to one hundred percent
(100%) of the Market Value, not greater than Ten Million Dollars ($10,000,000),
of the IMR Collateral then pledged to Lender pursuant to the IMR Pledge
Agreement (the "Additional Advances Lending Formula"). Without limiting the
foregoing, the Additional Advances outstanding at any time shall not exceed the
balance of the IMR Collateral pledged to Lender less the aggregate amounts
reduced or released pursuant to Section 4.4, 4.5 or 4.6 hereof or otherwise
(other than interest or other income released pursuant to the IMR Pledge
Agreement).
(c) Borrowing Procedures. For each Revolving Inventory
Loan requested by Borrowers and each Additional Advance requested by HDPI
hereunder, a Responsible Officer or other authorized Person of such respective
Borrower(s) shall give Lender telephonic notice of its request not later than
11:00 a.m., New York, New York time, on the Banking Day on which the
disbursement is requested to be made. Lender shall not be responsible for
determining whether the Person making the telephonic request purportedly on
behalf of a Borrower is a Responsible Officer or other authorized Person of
such Borrower. Lender may, but shall have no duty to, require borrowing
requests to be made or confirmed in writing. Lender shall acknowledge it
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has received a borrowing request by issuing a request verification number which
Borrowers shall retain in order to verify and track Borrowers' requests for
Revolving Inventory Loans and Additional Advances.
(d) Approval and Disbursement of Loans. Upon Lender's
receipt of a borrowing request pursuant to Section 2.1(c) hereof, Lender shall
determine whether the Borrower(s) making the request for a Revolving Inventory
Loan or an Additional Advance is entitled to such loan, based upon and subject
to all of the other terms and conditions hereof. If Lender determines that the
Borrower(s) making the request is not so entitled hereunder to a requested
loan, Lender shall so advise such Borrower(s) by telephonic or other notice by
no later than 2:00 p.m. New York, New York time on the same Banking Day that
Lender receives such borrowing request, if received by Lender on the same
Banking Day prior to 11:00 a.m. New York, New York time. If such borrowing
request shall have been received by Lender on a Banking Day prior to 11:00
a.m., New York, New York time, and if Lender approves a requested loan, or if
Lender fails to notify such Borrower(s) by 2:00 p.m. New York, New York time
that Lender declines to make the requested loan(s), as provided above, Lender
shall take steps through Lender's disbursing banks to arrange, by not later
than 4:00 p.m. New York, New York time, a wire or other transfer of funds (in
the amount of such approved borrowing request or request for which Lender fails
to timely notify Borrowers that it declines to make such loan) from Lender's
disbursing bank or banks to the respective Borrower's bank account from time to
time designated and approved by Lender and Borrowers for receipt of loan
proceeds disbursed under this Agreement; provided, that no Event of Default or
Incipient Default shall have occurred and be continuing. As to any borrowing
requests received by Lender after 11:00 a.m. New York, New York time on a
Banking Day, Lender shall use reasonable efforts to review, and if approved,
effectuate, a disbursement by 4:00 p.m. New York, New York time on the Banking
Day so received.
(e) Liability of Lender. Lender shall not have any
liability to Borrowers for any delay or failure on the part of any bank or
banks to transfer the funds to Borrowers in accordance with the instructions of
Lender, or for any delay or failure by Lender or any such bank or banks in the
approval of borrowing requests, or the initiation or transfer of such funds.
Notwithstanding the foregoing, if Lender shall have advised Borrower(s) that it
has approved, or is deemed under Section 2.1(d) hereof to have approved, a
request to make a Revolving Inventory Loan or an Additional Advance which
request was timely made by such Borrower(s) as provided in Section 2.1(c)
hereof, then, unless an Event of Default or Incipient Default has occurred and
is continuing, if, by reason of Lender's own negligence, such Borrower(s) shall
fail to receive the wire or other transfer of funds to its bank account
previously designated
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and approved by Lender for such purposes by no later than 4:00 p.m. local time
of the recipient bank, on the same Banking Day requested and approved, Lender
shall reimburse such Borrower(s) for any customary and reasonable
administrative service charges and overdraft interest charges, if any,
actually imposed on such Borrower(s) by its bank in connection with any
permitted overdrafts or dishonored instruments which would not have arisen had
such wire or other transfer been received by 4:00 p.m. such local time on such
Banking Day; provided, however, in no event shall Lender incur any liability
to such Borrower(s) or any other Person for direct or consequential losses or
damages by reason of any such failure or delay, whether or not foreseeable and
whether or not the possibility of incurring such damages or losses is
communicated to or otherwise known by Lender.
2.2 Lending Sublimits
(a) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans
and Letter of Credit Accommodations made available to Brawn shall not exceed
Seven Million Dollars ($7,000,000) at any one time outstanding (the "Brawn
Lending Sublimit").
(b) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans,
Additional Advances and Letter of Credit Accommodations made available to HDPI
and/or Brawn shall not exceed, in the aggregate, Forty Million Dollars
($40,000,000) at any one time outstanding ("HDPI/Brawn Lending Sublimit").
(c) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans
and Letter of Credit Accommodations made available to GBM shall not exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) at any one time outstanding
("Gump's Mail Order Sublimit").
(d) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans
and Letter of Credit Accommodations made available to Gump's shall not exceed
Two Million Five Hundred Thousand Dollars ($2,500,000) at any one time
outstanding ("Gump's Retail Sublimit"; together with the Gump's Mail Order
Sublimit, the "Gump's Lending Sublimits").
(e) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans
and Letter of Credit Accommodations made available to TCSA and/or SDSA shall
not exceed Five Million Dollars ($5,000,000) at any one time outstanding ("TCS
Lending Sublimit").
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(f) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving Inventory Loans
and Letter of Credit Accommodations made available to Tweeds shall not exceed
Two Million Five Hundred Thousand Dollars ($2,500,000) at any one time
outstanding ("Tweeds Lending Sublimit").
2.3 Letter of Credit Accommodations
(a) Lender shall , from time to time, on terms and
conditions acceptable to Lender, at the request of a Borrower, provide one or
more of the following financial accommodations to such Borrower: (i) issue,
open or cause the issuance or opening of letters of credit or purchase or other
guarantees for the purchase of goods and services in the ordinary course of
such Borrower's business or for any other purpose approved by Lender or provide
for the amendment or extension of any of the foregoing or (ii) assist such
Borrower in establishing or opening letters of credit for such purposes by
indemnifying the issuer thereof or guaranteeing the payment or performance of
such Borrower to such issuer in connection therewith (individually and
collectively, the "Letter of Credit Accommodations"). Borrowers may select a
commercial bank to issue such letters of credit from those commercial banks
listed on Exhibit L attached hereto (which list is subject to change by Lender
from time to time upon notice to Borrowers), with whom Lender, or an Affiliate
of Lender, has from time to time made arrangements for the issuance of Letter
of Credit Accommodations on terms acceptable to Lender, but Lender shall have
no obligation to provide Letter of Credit Accommodations to Borrowers if any
such commercial banks (or all of them) are not acceptable to Borrowers at any
time.
(b) Without limiting Lender's continuing discretion under
Section 2.3(a) hereof, the extension of such Letter of Credit Accommodations by
Lender shall be subject to the satisfaction of each of the following additional
conditions precedent: (i) additional Revolving Inventory Loans pursuant to the
Inventory Lending Formula and/or Additional Advances pursuant to the Additional
Advances Lending Formula, subject in any case to reserves against availability
established by Lender hereunder and within the Maximum Credit and within the
Brawn Lending Sublimit, HDPI/Brawn Lending Sublimit and Gump's Lending
Sublimits, the TCS Lending Sublimit and the Tweeds Lending Sublimit, as
applicable, shall be available to the respective Borrower immediately before
giving effect to the proposed issuance of the Letter of Credit Accommodation as
follows: (A) if the proposed Letter of Credit Accommodation is for the purpose
of purchasing Eligible Inventory, such additional availability to such Borrower
must be in an amount equal to or greater than the sum of (1) fifty percent
(50%) of the landed cost of such Eligible Inventory, plus (2) the freight, duty
and other amounts
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which Lender estimates must be paid for or in connection with such Inventory
upon arrival or for delivery to or within the United States; and (B) if the
proposed Letter of Credit Accommodation is for any other purpose, such
additional availability to such Borrower must be in an amount not less than one
hundred percent (100%) of the face amount thereof; (ii) if such Letter of
Credit Accommodation is for the purpose of purchasing goods, Lender shall have,
upon passage of title to Borrower purchasing same, a valid and perfected first
security interest in and lien upon goods being acquired in connection therewith
subject to the provisions of Section 6.4 hereof; (iii) the form and content of
all such Letter of Credit Accommodations shall be satisfactory to Lender and
all documents, instruments, notices and statements relating thereto, if any,
which Lender or the issuer may request, shall be promptly delivered to Lender;
and (iv) Borrowers shall have fully complied to Lender's satisfaction with all
terms and provisions hereof and of the terms and provisions of any agreements
relating to the Letter of Credit Accommodations heretofore, now or hereafter
entered into between Borrowers and Lender, or between Lender and/or Borrowers
and any issuer, including the payment of all fees, commissions and charges set
forth herein and therein.
(c) Borrowers hereby agree to and do indemnify and hold
harmless, Lender, and its officers, directors, employees, attorneys and agents,
with respect to all loss, cost, liability or expense which Lender may suffer or
incur in connection with the Letter of Credit Accommodations. Borrowers
further agree that payments made or other obligations incurred by Lender in
connection with Letter of Credit Accommodations are part of the Obligations of
Borrowers, and shall be payable in accordance with the terms hereof and of the
other Financing Agreements. Any such payments made by Lender, including,
without limitation, any of the same made after termination or non-renewal of
this Agreement or the other Financing Agreements with respect to Letter of
Credit Accommodations provided to Borrowers prior to such termination or
non-renewal, shall automatically be treated for purposes hereof as Revolving
Inventory Loans and shall accrue interest at the Interest Rate then payable by
Borrowers commencing on the date such payment is made by Lender.
(d) The aggregate amount of Revolving Inventory Loans
which may otherwise be made available to the respective Borrowers by Lender
pursuant to the Inventory Lending Formulas and within the Maximum Credit and
subject to the Brawn Lending Sublimit, HDPI/Brawn Lending Sublimit, the Gump's
Lending Sublimits, the TCS Lending Sublimit and the Tweeds Lending Sublimit, as
applicable, and/or in the case of HDPI, subject to the HDPI/Brawn Lending
Sublimit, the amount of Additional Advances which may otherwise be made
available to HDPI pursuant to the Additional Advances Lending Formula, shall be
reduced from time to time as follows: (i) as to Letter of Credit
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Accommodations for the purpose of purchasing Eligible Inventory, by an amount
equal to the sum of fifty percent (50%) of the value of Eligible Inventory
purchased with such Letter of Credit Accommodations, plus the freight, duty and
other amounts which Lender estimates must be paid for or in connection with
such Inventory upon arrival or for delivery to or within the United States, and
(ii) as to Letter of Credit Accommodations for any other purpose, one hundred
percent (100%) of the then outstanding aggregate amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
(e) In the case of any Letter of Credit Accommodation for
the purchase of Inventory, one hundred percent (100%) of the amount thereof,
plus the freight, duty and other amounts which Lender estimates must be paid
for or in connection with such Inventory upon arrival or for delivery to or
within the United States, shall be considered as outstanding Obligations
hereunder for purposes of applying the Brawn Lending Sublimit, the HDPI/Brawn
Lending Sublimit, the Gump's Lending Sublimits, the TCS Lending Sublimit and
the Tweeds Lending Sublimit, respectively.
(f) In addition to any charges, fees or expenses charged
by any bank or issuer in connection with the Letter of Credit Accommodations,
Borrowers agree to pay to Lender the commissions, fees and charges set forth in
the Trade Financing Supplements.
(g)(1) Section 1.8 of the respective Trade Financing
Supplements of HDPI and Brawn are hereby deleted and replaced, in their
entirety with the following:
"1.8 In addition to all other fees, charges and
expenses payable under the Agreement, this Supplement
and to any bank or other issuer or correspondent in
connection with any Credit, we agree to pay you
monthly, on the first day of each month, with respect
to Credits outstanding for all or any part of the
immediately preceding month, a charge at a rate equal
to three (3%) percent per annum calculated upon the
daily outstanding balances of the Credits outstanding
during such immediately preceding month (or any part
thereof). Such charge shall be calculated on the
basis of a 360 day year and actual days elapsed.
This charge, together with the charges, fees and
expenses charged by any bank or other issuer or
correspondent in connection with the Credits, may, at
your option, be charged to any of our account(s)
maintained by you."
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<PAGE> 44
(2) Section 1.5 of the respective Trade Financing
Supplements of HDPI and Brawn are each amended so as to replace the proviso
contained therein with the following phrase:
", subject to Section 2.3(h) of the Agreement."
(h) Notwithstanding anything to the contrary contained
herein or in any of the other Financing Agreements, the aggregate amount of all
Letter of Credit Accommodations pursuant hereto and all other commitments and
obligations made or incurred by Lender pursuant hereto for the account or
benefit of Borrowers in connection therewith shall not, at any one time
outstanding, exceed Ten Million Dollars ($10,000,000).
(i) In connection with, in addition to, and without
limiting that which is otherwise set forth in this Section 2.3, each of HDPI,
Brawn, GBM and Gump's has executed and delivered to Lender a Trade Financing
Supplement which shall continue in effect as amended hereby, and each of TCS,
SDSA and Tweeds shall, concurrently herewith, execute and deliver to Lender a
Trade Financing Supplement to this Agreement, and from time to time each
Borrower shall execute and deliver such applications and other agreements
relating to the Letter of Credit Accommodations, in form and substance
satisfactory to Lender, and, as applicable, the issuer of any Letter of Credit
Accommodation.
2.4 Maximum Credit
(a) The aggregate principal amount of the Revolving
Inventory Loans, Additional Advances and Letter of Credit Accommodations, at
any one time outstanding, shall not exceed the Maximum Credit.
(b) Lender may, from time to time, in its discretion,
permit the outstanding amount of any component of the Revolving Inventory
Loans, Additional Advances or Letter of Credit Accommodations, or the aggregate
amount of the outstanding Revolving Inventory Loans, the Additional Advances
and/or Letter of Credit Accommodations to exceed the amounts available under
the Inventory Lending Formulas, the Additional Advances Lending Formula or the
Brawn Lending Sublimit or the HDPI/Brawn Lending Sublimit or the Gump's Lending
Sublimits or the TCS Lending Sublimit or the Tweeds Lending Sublimit; provided,
that, should Lender so permit any such excess(es) in any one instance such
event shall not operate to limit, waive or otherwise affect any rights of
Lender on any future occasions. In the event Lender so permits any such
excess(es), and without limiting the right of Lender to demand payment of the
Obligations of Borrowers, or any portion thereof, in accordance with any other
term of this Agreement or the other Financing Agreements, Borrowers shall
remain liable therefor and Borrowers shall, upon demand by
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<PAGE> 45
Lender, which may be made at any time and from time to time, immediately repay
to Lender the entire amount of any such excess(es).
2.5 Reserves
(a) Without limiting any other rights or remedies of
Lender hereunder or under the other Financing Agreements, all Revolving
Inventory Loans, Additional Advances and Letter of Credit Accommodations made
or otherwise available to Borrowers hereunder shall be subject to Lender's
continuing right, in its discretion, to establish a reserve against the
availability of such Revolving Inventory Loans, Additional Advances and Letter
of Credit Accommodations, and to increase and decrease such reserve from time
to time, if and to the extent that, in Lender's good faith belief, such reserve
is necessary to protect Lender against any material liability to third parties
or impairment of the Collateral or its value, or an Event of Default or
Incipient Default has occurred and is continuing.
(b) With respect to sales and/or use taxes, the right of
Lender to establish reserves shall be limited to sales and use taxes owed or
claimed plus interest and penalties, if any, thereon (i) for which a judgment,
warrant or levy in favor of any taxing authority of the United States or
territory or possession thereof, or of any State or political subdivision
thereof, has been obtained and any enforcement proceeding, action or suit has
been taken or commenced against any Borrower; or (ii) for which a lien exists
by statute or at common law or which has arisen by any filing, assessment,
recording or other action by any such taxing authority against any property of
any Borrower and in respect of which lien any enforcement proceeding, action or
suit has been taken or commenced; or (iii) for which, under generally accepted
accounting principles, Borrowers should take a charge or record an accrual or
reserve; or (iv) that are required to be collected (or have been collected and
are required to be remitted) under the laws of any State in which any Borrower
owns any Inventory or owns or leases any property, including, without
limitation, the States of Pennsylvania, New Jersey, California, Texas, Virginia
and Wisconsin. Nothing contained in this Section 2.5(b) shall be construed to
limit the continuing right of Lender to establish reserves against availability
in respect of any other matters or to limit any other rights and remedies of
Lender hereunder or under the other Financing Agreements.
2.6 Fees
(a) Facility Fees. HDPI and Brawn have paid to Lender a
facility closing fee of Five Hundred Thousand Dollars ($500,000) in
consideration of Lender's entering into the Loan and Security Agreement, dated
May 5, 1993, which fee was fully earned as of May 5, 1993. HDPI, Brawn, GBM
and Gump's have paid
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Lender a facility increase fee of $62,500 in consideration of Lender's entering
into the Existing Loan Agreement, which fee was fully earned on July 9, 1993.
Borrowers shall pay to Lender a facility increase fee of $93,750 in
consideration of Lender's entering into this Agreement, which fee is fully
earned as of the date hereof. Borrowers shall pay to Lender additional
facility fees, each in the amount of $131,250, payable on May 5 in each year
during the Term. Each such additional facility fee shall be fully earned and
payable in advance on each such date.
(b) Unused Line Fee. In addition to the unused line fees
paid and payable under the Existing Loan Agreement with respect to May through
September, 1993, with respect to each calendar month (or part thereof) during
the Term, commencing with October, 1993, Borrowers shall pay to Lender monthly
an unused line fee, fully earned and payable on the first day of each month,
commencing November 1, 1993, at a rate equal to one half of one percent (.5%)
per annum, calculated upon the excess, if any, of (i) Forty-Seven Million Five
Hundred Thousand Dollars ($47,500,000) over (ii) the average of the daily
aggregate principal balances of the outstanding Revolving Inventory Loans,
Additional Advances and Letter of Credit Accommodations during the preceding
month (or part thereof); provided, however, that if Lender, solely on the basis
of the exercise of its discretion, reduces the Inventory Lending Formula for
any calendar month (or part thereof) in the absence of an Event of Default or
Incipient Default which is continuing, the amount of the unused line fee shall
be calculated for such month by decreasing the base amount of Forty-Seven
Million Five Hundred Thousand Dollars ($47,500,000) set forth in clause (b)(i)
by a percentage thereof equal to the difference between fifty percent (50%) and
the Inventory Advance Formula as so reduced solely by virtue of Lender's
discretion; provided, further that the base amount set forth in clause (b)(i)
above shall remain at $40,000,000 with respect to the period from October 1,
1993 through the day prior to the date hereof, and the unused line fee
calculated for October 1993 and payable on November 1, 1993 shall be adjusted
accordingly. If GBM and Gump's shall complete a Standalone Refinancing to the
extent permitted and in compliance with all terms and conditions applicable
thereto as provided under Section 9.1, each of the references to the base
amount of Forty- Seven Million Five Hundred Thousand Dollars ($47,500,000)
contained in this Section 2.6(b) shall, effective as of the date of
consummation of the Standalone Refinancing, be deemed amended to refer to
Forty-Two Million Five Hundred Thousand Dollars ($42,500,000), and the unused
line fees shall be pro rated hereunder for the month in which such Standalone
Refinancing is consummated based on the number of days during which the
respective base amounts are in effect during the month.
(c) Servicing Fee. In addition to the servicing fees
paid and payable with respect to the months of May through
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<PAGE> 47
September, 1993 under the Existing Loan Agreement, with respect to each
calendar month (or part thereof) during the Term, commencing with October,
1993, Borrowers shall pay to Lender a servicing fee in the amount of Seventeen
Thousand Dollars ($17,000) per calendar month, fully earned and payable in
advance on November 1, 1993 and on the first day of each month (or part
thereof) thereafter.
(d) Fees as Obligations. The fees provided for in this
Section 2.6 shall be in addition to all other amounts payable by Borrowers
under this Agreement and the other Financing Agreements and shall constitute
part of the Obligations of Borrowers. Such fees may, at Lender's option, be
charged directly to the loan accounts of any of the Borrowers maintained by
Lender.
2.7 Interest
(a) Interest on all of the Revolving Inventory Loans, the
Additional Advances and other non-contingent Obligations of Borrowers shall be
payable by Borrowers to Lender at the Interest Rate, calculated on the basis of
a year consisting of three hundred and sixty (360) days and actual days
elapsed.
(b) In no event shall the Interest Rate and other charges
hereunder exceed the highest rate or amount permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines that Lender has
received interest or other charges hereunder in excess of the highest rate or
amount applicable hereto, such excess shall be deemed received on account of,
and shall automatically be applied to reduce, the Obligations of Borrowers
other than interest in the inverse order of maturity, and the provisions hereof
shall be deemed amended to provide for the highest permissible rate or amount.
If there are no Obligations of Borrowers outstanding, Lender shall refund to
Borrowers such excess.
(c) Subject to the foregoing, all interest charges
hereunder or in connection herewith shall be (i) computed as provided herein
and in the other Financing Agreements and (ii) paid monthly to Lender on the
first day of each calendar month, or, at Lender's option, charged to Borrowers'
loan accounts maintained by Lender as of the first day of each calendar month
and deemed paid by the first amounts subsequently credited thereto.
(d) With respect to each day during a given calendar
month during the Term that the closing daily balance in each of the revolving
loan accounts maintained by Lender for Borrowers hereunder is a credit balance,
Lender shall monthly, on
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the first day of the next succeeding calendar month, credit the respective
revolving loan accounts with an amount equal to interest on the respective
credit balances therein, at a per annum rate equal to the Prime Rate minus
three percent (3%) per annum.
(e) Without limiting Lender's continuing right to demand
payment of the Revolving Inventory Loans, the Additional Advances, the Letter
of Credit Accommodations and other Obligations of Borrowers, or any portion
thereof, in accordance with the terms of this Agreement, or any of the other
Financing Agreements, all interest accruing hereunder during the continuance of
any Event of Default, and on and after termination or non-renewal hereof, shall
be payable on demand.
2.8 Conduct of Accounts; Cross-Collateralization
(a) Lender may maintain one or more accounts reflecting
the Revolving Inventory Loans, the Additional Advances, the Letter of Credit
Accommodations, repayments of the Revolving Inventory Loans, the Additional
Advances, Obligations relating to Letter of Credit Accommodations and the other
Obligations of Borrowers and/or Guarantors and any of the Collateral or
Guarantor Collateral contemplated under this Agreement or the other Financing
Agreements as Lender shall, in its discretion, determine. All Revolving
Inventory Loans and, in the case of HDPI, Additional Advances, shall be charged
to a loan account in the name of the respective Borrower on Lender's books.
The outstanding amount of Obligations relating to Letter of Credit
Accommodations may be reflected on Lender's books as a cash loan the proceeds
of which are held as cash Collateral or in such other manner as Lender shall
determine. All Collateral, Guarantor Collateral or other collateral security
held by or granted to Lender by Borrowers, Guarantors or any third persons
shall be security for the payment and performance of any and all Obligations of
Borrowers, Guarantors or such third persons to Lender, as the case may be,
notwithstanding the maintenance of separate accounts for Borrowers, Guarantors
or third persons or -the existence of any notes.
(b) All Revolving Inventory Loans, Additional Advances,
Obligations relating to Letter of Credit Accommodations, and other Obligations
of Borrowers and Guarantors shall be payable to Lender at its address specified
herein or at such other place in the United States as Lender may hereafter
designate in writing from time to time. Lender may apply payments received or
collected from Borrowers or Guarantors or for the account of Borrowers or
Guarantors (including, without limitation, the proceeds of sale, collection or
other realization upon any Collateral or Guarantor Collateral) to such of the
Obligations of Borrowers and/or Guarantors then due, in whatever order and
manner Lender, in its discretion, determines. Lender
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shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Obligations of
Borrowers and/or Guarantors then or thereafter due. Upon the request of
Lender, Borrowers shall execute and deliver to Lender one or more promissory
notes, in form and substance satisfactory to Lender, to further evidence the
Revolving Inventory Loans, the Additional Advances, the Obligations of
Borrowers with respect to the Letter of Credit Accommodations or any portion(s)
thereof.
(c) Subject in the case of IMR to the proviso below, if
Lender is for any reason required to surrender any payment of, or proceeds of
Collateral or Guarantor Collateral applied to the payment of, all or any part
of the Obligations of Borrowers and/or Guarantors to any Person (including any
creditor or creditors' representative of any Borrower or any Guarantor), or if
any interest of Lender in any Collateral or Guarantor Collateral is set aside
or avoided, whether because such payment or proceeds is invalidated, declared
fraudulent as to any Person (including any creditor or creditors'
representative of any Borrower or any Guarantor), set aside, determined to be
void or voidable as a preference, or a diversion of trust funds, or for any
other reason, or are determined to be subject to a claim for restitution, or
otherwise are required to be surrendered, set aside or avoided, then the
Obligations of Borrowers and/or Guarantors or any part thereof intended to be
reduced, paid or satisfied, including, without limitation, any reductions in or
release of the liability of IMR under the IMR Limited Guarantee which may
otherwise have occurred in whole or in part, directly or indirectly, as a
result of such payment or application of proceeds or the apparent interests of
Lender in such Collateral and Guarantor Collateral shall be revived and
reinstated, and the Guarantees, including the IMR Limited Guarantee shall be
revived and reinstated and this Agreement and the Guarantees shall continue in
full force and effect as if such payment or proceeds had not been received by
Lender, and such reductions in or release of liability under any Guarantees,
including the IMR Limited Guarantee had not occurred, and Borrowers and
Guarantors shall be jointly and severally liable to pay to Lender, and shall
jointly and severally indemnify Lender and hold Lender harmless for, the amount
of such payment or proceeds surrendered and the value of any such Collateral or
Guarantor Collateral set aside or avoided, plus any interest and other amounts
paid and all costs and expenses (including reasonable attorneys' fees and
disbursements incurred by Lender in connection therewith); provided, however,
that in no event will any reductions in or releases of the First Portion of the
IMR Collateral or the corresponding reductions in or releases of the liability
of IMR under the IMR Limited Guarantee once effectuated pursuant to the terms
hereof and of the IMR Limited Guarantee and IMR Pledge Agreement, be subject to
revival or reinstatement as provided in this Section 2.8(c). The provisions of
this Section 2.8(c) shall
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be and remain effective notwithstanding any contrary action which may have been
taken by Lender in reliance upon such payment or proceeds, and any such
contrary action so taken shall be without prejudice to Lender's rights under
this Agreement and shall be deemed to have been conditioned upon such payment
or proceeds having become final and indefeasible. The provisions of this
Section 2.8(c) shall survive the termination of this Agreement and the other
Financing Agreements.
(d) At Lender's option, all principal, interest, fees,
commissions, costs, expenses or other charges hereunder, under the other
Financing Agreements or in connection herewith or therewith, may be charged
directly to any loan account or other account of Borrowers and/or Guarantors
maintained by Lender.
(e) Lender shall deliver to Borrowers at the address of
each Borrower set forth in Section 9.5 hereof, each calendar month, one or more
statements with respect to any loan account maintained by Lender with respect
to Borrowers pursuant to the provisions hereof, as of the end of each calendar
month while this Agreement is in effect. Such statements of account shall be
considered correct, and deemed accepted by and conclusively binding upon
Borrowers and Guarantors, except to the extent Lender shall have received from
Borrowers or any Guarantor written notice of all exceptions to such statement
of account with specificity, within forty-five (45) days after the date of such
statement.
2.9 Use of Proceeds
All Revolving Inventory Loans or Additional Advances made or Letter of
Credit Accommodations provided on or after the date hereof to Borrowers
pursuant to the provisions hereof shall be used to purchase Inventory and for
general operating, working capital and capital expenditures of Borrowers, and
other proper corporate purposes of Borrowers, not otherwise prohibited by the
terms hereof.
SECTION 3. CONDITIONS PRECEDENT TO LOANS
AND OTHER FINANCIAL ACCOMMODATIONS
3.1 Conditions to Loans
The making and providing of Revolving Inventory Loans, Additional
Advances and Letter of Credit Accommodations heretofore, on the date hereof or
hereafter were, are and shall be subject to the satisfaction of each of the
following conditions precedent (any of which may be waived, in whole or in
part, only by Lender in writing):
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(a) IMR Collateral and Related Agreements. Lender shall
have received the IMR Limited Guarantee, the IMR Pledge Agreement, the QCC-IMR
Subordination Agreement and such other documentation in form and substance
acceptable to Lender, as Lender may request, to effectuate the terms of the IMR
Limited Guarantee and the pledge of the IMR Collateral to Lender, and IMR shall
have pledged to Lender the IMR Collateral pursuant to the IMR Pledge Agreement,
which shall be and remain in full force and effect in accordance with its
terms.
(b) Termination of Other Borrower Financing Agreements.
Borrowers shall have provided evidence to Lender of the termination of all
Other Borrower Financing Agreements on terms and conditions satisfactory to
Lender, except for the HDPI Pennsylvania IRB Financing, the QCC Credit
Agreement, the Third Party Credit Card Agreements and the Private Credit Card
Agreement. In the case of the QCC Credit Agreement, all security interests in
and liens upon property of Borrowers and any Guarantor held by QCC (or any
Affiliate of QCC) shall have been terminated, discharged and released and to
the extent that any obligations held by QCC remain outstanding or arise
hereafter, they shall continue to be subordinated in right of payment to the
Obligations of Borrowers and Guarantors to Lender. In addition, QCC (and each
such Affiliate) and IMR shall continue to be subject to restrictions or
limitations on the exercise of rights and remedies against Borrowers and
Guarantors, pursuant to the QCC-IMR Subordination Agreement.
(c) Satisfaction of Certain Obligations. Borrowers shall
have delivered, or caused to have delivered, a certificate of the Chief
Financial Officer of H&H in form and substance satisfactory to Lender
certifying that (i) all obligations under the Senior Secured Increasing Rate
Notes of H&H have been fully satisfied, (ii) not less than Twenty-Three Million
Four Hundred Twenty-Five Thousand Dollars ($23,425,000) of the 14% Senior
Subordinated Debentures of H&H have been exchanged for cash, common stock of
H&H, and preferred stock of THC, and (iii) except for the aggregate net sum of
not more than Four Million Eight Hundred Thousand Dollars ($4,800,000), after
netting out the amounts of temporary advances and loans made by THC to
Borrowers and repayments thereof, no portion of the cash payments made to
satisfy, in whole or in part, the obligations referred to in clauses (i) and/or
(ii) was provided by Borrowers, directly or indirectly.
(d) Subordination of Certain Obligations. The
Indebtedness owed by any member of the Affiliated Borrower Group to holders of
the H&H or THC debt instruments described on Exhibit E attached hereto shall be
subordinate in right of payment to the Obligations of such members of the
Affiliated Borrower Group to Lender. In addition, H&H and THC shall have
executed and delivered in favor of Lender an Intercompany
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Subordination Agreement subordinating, to the extent provided therein, their
rights to payment of all obligations of Borrowers and Guarantors to them, to
the prior indefeasible payment and satisfaction of all Obligations of Borrowers
and Guarantors to Lender.
(e) Delivery of Financing Agreements. Borrowers and
Guarantors shall have delivered the Financing Agreements required by Lender and
all instruments and documents hereunder and thereunder shall have been executed
and delivered to Lender, in form and substance satisfactory to Lender, and all
UCC financing statements relating and other necessary filings, if any, to the
Collateral and Guarantor Collateral shall have been duly filed and recorded.
(f) Replacement of HDPI Securitization Program with
Private Credit Card Agreement. Borrowers shall have delivered, in form and
substance satisfactory to Lender, evidence that the HDPI Securitization Program
shall have been terminated and replaced with the Private Credit Card Agreement
and the Private Credit Card Purchaser shall have accepted and agreed to (i) an
irrevocable payment instruction issued by Borrowers party to the Private Credit
Card Agreement directing the Private Credit Card Purchaser to remit to (and
only to) an account designated from time to time by Lender, all monies from
time to time to be remitted to Borrowers under the Private Credit Card
Agreement, and (ii) the GECC Lien Clarification Agreement excluding and
releasing from any liens or security interests of the Private Credit Card
Purchaser, the Collateral (or such parts thereof as to which Lender shall
require clarification or express exclusion and release, each in form and
substance satisfactory to Lender).
(g) Closing Excess Availability. HDPI and Brawn shall
have an Excess Availability as of May 5, 1993 in the aggregate amount of not
less than Five Million Dollars ($5,000,000).
(h) Consents; Waivers; Acknowledgements. Lender shall
have received, in form and substance satisfactory to Lender, all consents,
waivers, acknowledgements and other agreements from third Persons which Lender
may deem necessary or desirable to permit, protect and perfect its security
interest in liens upon the Collateral and the Guarantor Collateral and which
Lender shall have requested from Borrowers, including, but not limited to: (i)
waivers by lessors, operators and mortgagees of any security interests or other
claims against personal property located at their premises and agreements to
grant access to Lender and the right to remain thereon to exercise all remedies
with respect to any Collateral and Guarantor Collateral located on each
premise, including, without limitation, the Eligible Inventory Locations and
(ii) agreements from lessors and
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licensors of distribution equipment and computer software, granting Lender the
right to use such equipment and software.
(i) Opinion of Counsel. Lender shall have received, in
form and substance satisfactory to Lender, one or more opinion letters of
independent counsel to Borrowers, Guarantors, QCC and IMR in respect of the
Financing Agreements, the Collateral and Guarantor Collateral, IMR Collateral
and such other matters as Lender may reasonably request.
(j) Perfection. Lender's lien on and security interests
in each item of Collateral and Guarantor Collateral shall have been granted and
perfected by the filing, recording or registration of documents, instruments,
or financing statements in the appropriate governmental offices or by
possession or such other action as is necessary to perfect each such lien or
security interest, and Lender shall have received evidence satisfactory to it
that all such liens and security interests are of first priority, subject only
to permitted liens set forth in Section 6.4 hereof.
(k) Insurance. Lender shall have received evidence of
insurance required hereunder and under the other Financing Agreements, and
lender's loss payable endorsements in favor of Lender with respect thereto, all
in form and substance satisfactory to Lender.
(l) Delivery of Pro Forma Balance Sheet. Borrowers shall
have delivered to Lender a pro forma consolidated balance sheet of H&H and its
Subsidiaries as of December 26, 1992 and a consolidating balance sheet of THC
and its Subsidiaries as of December 26, 1992 and giving effect to the initial
transactions contemplated or required under the Existing Loan Agreement.
(m) Gump's Acquisition. Prior to or contemporaneously
with any Revolving Inventory Loans or Letter of Credit Accommodations being
requested by GBM or Gump's or by HDPI or Brawn for use in connection with the
Gump's Acquisition or operations of GBM and Gump's, the Gump's Acquisition
shall have been consummated in accordance with the Gump's Purchase Agreements
as in effect on July 9, 1993, including without limitation, the fulfillment of
(and not merely the waiver of) all of the conditions precedent to the purchases
by GBM and Gump's set forth in the Gump's Purchase Agreements, and evidence
thereof satisfactory to Lender shall have been delivered to Lender.
(n) TCS Acquisition. Prior to or contemporaneously with
any Revolving Inventory Loans or Letter of Credit Accommodations being
requested by TCSA or SDSA, the TCS Acquisition shall have been consummated in
accordance with the TCS Purchase Agreements as in effect on August 26, 1993 and
the
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letter agreement dated August 26, 1993 among Lender and certain members of the
Affiliated Borrower Group related to the TCS Acquisition, and evidence thereof
satisfactory to Lender, shall have been delivered to Lender.
(o) Tweeds Acquisition. Prior to or contemporaneously
with any Revolving Inventory Loans or Letter of Credit Accommodations being
requested by Tweeds, the Tweeds Acquisition shall have been consummated in
accordance with the Tweeds Purchase Agreements as in effect on September 30,
1993 and the letter agreement dated September 30, 1993 among Lender and certain
members of the Affiliated Borrower Group related to the Tweeds Acquisition, and
evidence thereof satisfactory to Lender, shall have been delivered to Lender.
3.2 Additional and Continuing Condition
Each Revolving Inventory Loan, each Additional Advance, and each
Letter of Credit Accommodation to be made on the date hereof and hereafter is
subject to the prior or contemporaneous satisfaction of the additional
condition precedent (which may be waived, in whole or in part, only by Lender
in writing) that no Event of Default or Incipient Default shall have occurred
and be continuing.
SECTION 4. COLLATERAL
4.1 Security Interests in Borrowers' Property
As collateral security for the prompt performance, observance and
payment in full of all of the Obligations of Borrowers, and, in the case of
Borrowers other than TCSA and SDSA, confirming and supplementing their prior
grants, Borrowers hereby grant to Lender, a continuing security interest in,
and liens upon, and rights of setoff against, and Borrowers hereby pledge and
assign to Lender, all now owned and hereafter acquired and arising assets and
properties of Borrowers (which assets and properties, together with all other
collateral security for the Obligations of Borrowers heretofore, now or
hereafter granted to or otherwise held or acquired by Lender are referred to
herein as the "Collateral"), including, but not limited to, the following:
(i) all of the following, whether now owned or
hereafter acquired or arising: (A) all Accounts, including, without
limitation, all Third Party Credit Card Receivables, and all monies, credit
balances and other amounts due from or through or held by Third Party Credit
Card Issuers, or other parties to the Third Party Credit Card Agreements, all
monies paid by or through the Private Credit Card Purchaser, all rentals or
license fees receivable in respect of sale, lease, or license of Customer
Lists, all monies, securities and other property and the proceeds
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thereof, now or hereafter held or received by, or in transit to, Lender from or
for Borrowers, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all of Borrowers' deposits (general or special),
balances, sums and credits with Lender at any time existing; (B) all right,
title and interest, and all rights, remedies, security and liens, in, to and in
respect of the Accounts and other Collateral, including, without limitation,
rights of stoppage in transit, replevin, repossession and reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, guarantees or
other contracts of suretyship with respect to the Accounts, deposits or other
security for the obligations of any Account Debtor, all credit and other
insurance; (C) all right, title and interest in, to and in respect of all goods
relating to, or which by sale have resulted in, Accounts, including, without
limitation, all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, any
Account or other Collateral, including, without limitation, all returned,
reclaimed or repossessed goods; (D) all deposit accounts; and (E) all other
general intangibles of every kind and description, including, without
limitation, (1) tradenames and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) Federal,
State and local tax and duty refund claims of all kinds, (6) catalogs and
promotional materials, (7) all Customer Lists, and (8) all right, title and
interest of Borrowers in and to Mail Order Joint Ventures, and other joint
ventures, partnerships and other Persons;
(ii) Inventory;
(iii) Equipment;
(iv) all present and future books, records,
ledger cards, computer software (including all manuals, upgrades,
modifications, enhancements and additions thereto), computer tapes, disks,
other electronic data storage media, documentation of file and record formats
and source code, documents, other property and general intangibles evidencing
or relating to any of the above, any other Collateral or any Account Debtor,
together with the file cabinets or containers in which the foregoing are
stored;
(v) all present and future real property owned
by Borrowers; and
(vi) all present and future products and proceeds
of the foregoing, in any form whatsoever, including, without limitation, any
insurance proceeds and any claims against third persons for loss or damage to
or destruction of any or all of the foregoing.
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Notwithstanding the foregoing, the Collateral does not include the GECC
Collateral.
4.2 Guarantees
Concurrently herewith, in order to induce Lender to enter into this
Agreement and the other Financing Agreements to be entered into on the date
hereof, and, in addition to the IMR Limited Guarantee delivered by IMR, the
Guarantees by the other Guarantors and the Guarantees by Borrowers delivered or
amended pursuant to the Existing Loan Agreement, each Borrower shall execute
and deliver to Lender, and Borrowers shall cause Guarantors, other than IMR, to
execute and deliver to Lender, amendments to their Guarantees previously
delivered and/or amended pursuant to the Existing Loan Agreement, so as to
include among the guaranteed "Obligations" under such Guarantees all
Obligations of all of the Borrowers, in form and substance satisfactory to
Lender, as provided therein (as all of such Guarantees, including the IMR
Limited Guarantee, now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, individually a
"Guarantee" and collectively the "Guarantees").
4.3 Security Interests in Property of Guarantors
(a) As collateral security for the prompt performance,
observance and payment in full of all of the Obligations of Guarantors, other
than IMR, under their respective Guarantees and otherwise, Borrowers shall
cause to be delivered to Lender a general security agreement by each Guarantor,
other than IMR, providing for a grant of a security interest in and pledge of
all assets of such Guarantor, except (i) for any capital stock of any
Non-Guarantor Subsidiary owned by Hanover, and (ii) for all now owned and
hereafter acquired machinery, equipment, fixtures and real property owned by
TCS Factory, TCS Office and TCSA- Delaware, in form and substance satisfactory
to Lender (each, a "General Security Agreement"). As collateral security for
the Obligations of IMR under the IMR Limited Guarantee, IMR shall have executed
and delivered the IMR Pledge Agreement and pledged and delivered the IMR
Collateral thereunder. (All of the collateral security now or hereafter
granted to or held by Lender by the Guarantors pursuant to the General Security
Agreements and the IMR Pledge Agreement, or otherwise, and the products and
proceeds thereof, herein the "Guarantor Collateral".)
(b) The General Security Agreements of Hanover, as
successor to H&H and THC, are each hereby amended to permit the pledge by
Hanover, in favor of the holders of the 9.25% Notes, of the intercompany note
(the "Pledged Intercompany Note") issued to Hanover by any wholly-owned
Subsidiary of Hanover formed after August 17, 1993 to evidence such new
Subsidiary's
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Indebtedness for intercompany loans, not to exceed $6,000,000 in the aggregate,
funded by Hanover to such Subsidiary with a portion of the proceeds of the
issuance of the 9.25% Notes, to be used for the purposes referred to in the
first sentence of Section 6.27(b) hereof. The Pledged Intercompany Note and
the proceeds thereof shall not be part of the "Collateral" under the General
Security Agreements of Hanover.
4.4 Reduction and Release of IMR Collateral
Lender agrees to reduce and release the IMR Collateral in accordance
with the terms of the provisions of Sections 4.4, 4.5 and 4.6 hereof, provided
that at each time all or any part of the IMR Collateral would otherwise be
permitted or required to be released hereunder, no Event of Default or
Incipient Default has occurred and is continuing.
(a) For purposes hereof, the term "First Portion" shall
mean an amount of the IMR Collateral having a Market Value equal to Five
Million Dollars ($5,000,000), pledged to Lender.
(b) For purposes hereof, the "Second Portion" shall mean
an amount of the IMR Collateral having a Market Value equal to Five Million
Dollars ($5,000,000), pledged to Lender.
(c) For purposes hereof, "Cumulative Cash Flow" of a
Person and its Subsidiaries, shall mean, for and through the end of a given
calculation period, the positive or negative amount calculated for such period
as follows on a consolidated basis, as to such Person and its Subsidiaries, in
accordance with generally accepted accounting principles, consistently applied,
and without duplication:
(i) net income after taxes actually
paid; plus
(ii) depreciation and amortization; minus
(iii) principal payments on Indebtedness
for Borrowed Money, other than
daily revolving loan repayments to
Lender made through application of
customer remittances or other sales
proceeds in the ordinary course;
minus
(iv) payments on capital leases; minus
(v) intercompany loans made,
tax-sharing payments (not already
included in subsection 4.4(c)(i)
hereof), dividend payments and
other distributions of cash or
other property (other than
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dividends or other distributions
consisting solely of capital stock
of Borrowers or Hanover, provided,
that, in the case of Hanover
capital stock distributed by
Borrowers, such capital stock has
previously been contributed to the
capital of Borrowers and not
acquired by purchase or other
means) and equity redemption
payments; minus
(vi) capital expenditures actually paid.
(d) For purposes hereof, "Adjusted Cumulative Cash Flow"
shall mean, as of and through the end of a specified fiscal quarter (including
the fourth quarter of a fiscal year) of Borrowers, the positive or negative
amount of Cumulative Cash Flow of THC or Hanover and its Subsidiaries,
including Borrowers, but excluding GBM, Gump's, Gump's Holdings, TCSA-Delaware
and its Subsidiaries, TW Acquisitions and its Subsidiaries and Non-Guarantor
Subsidiaries, except to the extent provided below, calculated for the period
April 1, 1993 through the end of such specified fiscal quarter, minus two
hundred percent (200%) of the aggregate amounts, if any, released from the
Second Portion of the IMR Collateral pursuant to Sections 4.6(a) and 4.6(b)
hereof with respect to the entire period commencing April 1, 1993 and ending on
the day prior to the commencement of such fiscal quarter.
4.5 Reduction and Release of First Portion
If, as of June 30, 1993, the Excess Availability, as determined by
Lender as of such date, exceeds Five Million Dollars ($5,000,000) on such date
(such excess above Five Million Dollars ($5,000,000), the "June 30 Excess"),
Lender shall, within ten (10) days following receipt of written notice signed
by Borrowers requesting a release or reduction of the IMR Collateral in
accordance with this provision, which notice must be received by Lender on or
before July 15, 1993, release and remit to IMR such amount of the First Portion
of the IMR Collateral (up to the full amount thereof) or its proceeds as shall
have a Market Value equal the amount of the June 30 Excess.
4.6 Reduction and Release of Second Portion;
Additional Reduction and Release of First Portion
(a) With respect to each of the first three (3) fiscal
quarters in each fiscal year of Borrowers commencing with the fiscal quarter
ending on or about June 30, 1993, within ten (10) days following Lender's
receipt of the Form 10-Q filed with the SEC by THC or Hanover including the
unaudited consolidated financial statements for or Hanover and its
Subsidiaries, including Borrowers, for such quarter and the year-to-date period
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then ended, together with (i) a written notice signed by Borrowers requesting a
release or reduction of the IMR Collateral pursuant to this provision, (ii) a
certificate signed by Borrowers' chief financial officer(s) setting forth the
calculations of Cumulative Cash Flow of THC or Hanover and its Subsidiaries,
including Borrowers, but excluding GBM, Gump's, Gump's Holdings, TCSA-Delaware
and its Subsidiaries, TW Acquisitions and its Subsidiaries and any
Non-Guarantor Subsidiaries of THC or Hanover, except to the extent, if any, of
any net income after taxes of any such excluded Subsidiaries that has been
actually distributed as a cash dividend to THC or Hanover, by any such
Subsidiaries, for such quarter and the year-to-date period then ended, and the
Adjusted Cumulative Cash Flow as of and through the end of such quarter, and
certifying to Lender the accuracy thereof, (iii) a certificate signed by the
chief executive officer(s) or chief financial officer(s) of Borrowers
certifying that no Event of Default or Incipient Default has occurred and is
continuing, (iv) a certificate of the chief financial officer(s) of Borrowers
comporting with the requirements of Section 6.17(a)(v) hereof, and (v) such
supporting information and detail with respect to such calculations as Lender
shall from time to time require, Lender shall release and remit to IMR from the
Second Portion of the IMR Collateral then pledged to Lender, an amount thereof
(up to the entire Second Portion then remaining), or its proceeds, as shall
have a Market Value equal to the lesser of:
(A) fifty percent (50%) of Adjusted Cumulative Cash
Flow calculated as of and through the end of
such quarter; or
(B) the amount, if any, by which the Excess
Availability on the last day of such quarter
exceeds Two Million Five Hundred Thousand
($2,500,000).
In order for a request for a release or reduction of the Second Portion of the
IMR Collateral to be made hereunder, the Form 10-Q of THC or Hanover must be
timely filed with the SEC (including any filing date extension, not more than
five (5) days, properly availed of pursuant to Rule 12b-25 issued by the SEC,
as amended from time to time), and the Form 10-Q of THC or Hanover, together
with the other items referred to in clauses (i) through (iv) in this Section
4.6(a), must be received by Lender within ten (10) business days following the
filing of such Form 10-Q with the SEC.
(b) With respect to each fourth or other final quarter of
each fiscal year of Borrowers commencing with the fourth quarter ending January
1, 1994, within ten (10) days following Lender's receipt of the Form 10-K filed
with the SEC by Hanover, including the audited consolidated financial
statements
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for Hanover and its Subsidiaries, including Borrowers, for such quarter and the
fiscal year then ended, together with (i) a written notice signed by Borrowers
requesting a release or reduction of the IMR Collateral pursuant to this
provision, (ii) a certificate signed by Borrowers' chief financial officer(s)
setting forth the calculations of Cumulative Cash Flow of THC and Hanover and
their Subsidiaries, including Borrowers, but excluding GBM, Gump's, Gump's
Holdings, TCSA-Delaware and its Subsidiaries, TW Acquisitions and its
Subsidiaries and any Non-Guarantor Subsidiaries of THC or Hanover, except to
the extent, if any, of any net income after taxes of any such excluded
Subsidiaries that has been actually distributed as a cash dividend to THC or
Hanover by any such Subsidiaries, for such quarter and the fiscal year then
ended, and the Adjusted Cumulative Cash Flow as of and through the end of such
quarter and the fiscal year then ended, and certifying to Lender the accuracy
thereof, (iii) a certificate signed by the chief executive officer(s) of
Borrowers certifying that no Event of Default or Incipient Default has occurred
and is continuing, (iv) certificates from the independent certified public
accountants of Borrowers and from the chief financial officer(s) of Borrowers
comporting with the requirements of Sections 6.17(a)(iv) and 6.17(a)(v) hereof,
and (v) such supporting information and detail with respect to such
calculations as Lender shall from time to time require, Lender shall release
and remit to IMR from the Second Portion of the IMR Collateral then pledged to
Lender, an amount thereof (up to the entire Second Portion then remaining), or
its proceeds, as shall have a Market Value equal to the lesser of:
(A) fifty percent (50%) of Adjusted Cumulative Cash
Flow calculated as of and through the end of
such quarter and fiscal year; or
(B) the amount, if any, by which the Excess
Availability on the last day of such quarter and
fiscal year exceeds Two Million Five Hundred
Thousand Dollars ($2,500,000).
In order for a request for a release or reduction of the Second Portion of the
IMR Collateral to be made hereunder, the Form 10-K of Hanover must be timely
filed with the SEC, (including any filing date extension, not more than fifteen
(15) days, properly availed of pursuant to Rule 12b-25 issued by the SEC, as
amended from time to time), and the Form 10-K of Hanover, together with the
other items referred to in clauses (i) through (iv) of this Section 4.6(b),
must be received by Lender within ten (10) business days following the filing
of such Form 10-K with the SEC.
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<PAGE> 61
(c) With respect to the end of each fiscal quarter of
Borrowers ending on September 30, 1993 or thereafter, including the fourth
quarter of a fiscal year, Lender shall, if requested in a written notice to
Lender signed by Borrowers and received by Lender within ten (10) business days
following the timely filing of THC's or Hanover's Form 10-Q or Form 10-K with
the SEC (including any filing date extension, not more than five (5) and
fifteen (15) days, respectively, properly availed of and granted by the SEC
pursuant to Rule 12b-25 issued by the SEC, as amended from time to time), for
such fiscal quarter or the fiscal year ended with the end of such quarter,
release and remit to IMR from the remaining First Portion of the IMR Collateral
then pledged to Lender, within ten (10) days after Lender's receipt of such
written notice and any notice and other items delivered under Sections 4.6(a)
or 4.6(b) hereof, an amount thereof (up to the entire First Portion then
remaining), or its proceeds, having a Market Value equal to the amount, if any,
by which (i) the Excess Availability determined as of the end of such fiscal
quarter, minus (ii) the amount of the Second Portion to be released with
respect to such quarter under Sections 4.6(a) or 4.6(b) hereof, exceeds (iii)
Five Million Dollars ($5,000,000).
(d) At Lender's option, and without limiting the
requirements set forth above, if no audited consolidated and consolidating
financial statements for Hanover and its Subsidiaries, including Borrowers, are
available for a particular fiscal year of Borrowers, or if the independent
certified public accountant's opinion and report on Hanover's audited
consolidated financial statements delivered to Lender for any fiscal year are
qualified in any respect, then no requests for reductions or releases of any
portion of the IMR Collateral with respect to the quarter ending with the end
of such fiscal year or with respect to subsequent quarters may be made by
Borrowers, unless and until an unqualified opinion and report of independent
certified public accountants acceptable to Lender with respect to the audited
consolidated financial statements of Hanover and its Subsidiaries, including
Borrowers, for each fiscal year of Borrowers has been received, together with
the Form 10-K of Hanover, including all financial statements as filed with the
SEC.
(e) In addition, at Lender's option and without limiting
the requirements set forth above, Lender may require, as a condition of any
request for reductions or releases of any portion of the IMR Collateral, that
the certificates and information required under Sections 4.6(a) and 4.6(b)
hereof, as applicable, be delivered to Lender covering all periods ending on or
prior to the end of the period with respect to which a reduction or release is
otherwise requested and for which Lender has not previously or concurrently
with the request received such certificates and information.
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(f) Notwithstanding anything to the contrary set forth in
Sections 4.5 and 4.6 hereof, with respect to each amount of the IMR Collateral
otherwise to be released by Lender under Sections 4.5 or 4.6 hereof, such
amount may, at Lender's option, be reduced to that amount, if any, which would
have been released had the Excess Availability component(s) of the calculations
made in order to determine the amount to be released, been determined as of the
time immediately preceding the remittance to IMR of the amount to be released.
(g) Notwithstanding anything to the contrary contained
herein or in the IMR Limited Guarantee, if an Event of Default has occurred and
is continuing, Lender shall not enforce its remedies against the IMR Collateral
for a period of sixty (60) calendar days (the "IMR Waiting Period") commencing
from the date of the first occurrence or existence of such Event of Default;
provided, however, that such IMR Waiting Period shall not be applicable or, if
already commenced, shall immediately terminate upon the commencement by or
against any Borrower or IMR of a case under the Bankruptcy Code or any other
bankruptcy law or similar statute or statute providing for reorganization,
adjustment of debts, liquidation or dissolution or the occurrence of any other
Event of Default described in Section 7.1(g) hereof, in which case Lender may
enforce any of its rights or exercise any of its remedies in respect of the IMR
Collateral; provided, further, that nothing contained in this Section 4.6(g)
shall limit, condition or impair any of Lender's other rights and remedies
hereunder after the occurrence and during the continuance of an Event of
Default.
(h) In calculating Excess Availability for purposes of
this Section 4.6, such calculations shall be made on a basis excluding Gump's,
GBM, TCSA, SDSA and Tweeds. In addition, all reductions in the amount of
outstanding and unpaid Obligations of Borrowers, directly or indirectly
attributable to the application of the proceeds of issuance of the 9.25% Notes
on an interim basis pending their disbursement or use for the purposes
contemplated by the Purchase Agreement, dated on or about August 17, 1993,
among THC, H&H, the other 9.25% Guarantors and the Note Purchaser (together
with the instruments and agreements thereunder or related thereto, the "Note
Purchase Agreement"), shall be disregarded and Excess Availability shall be
computed for all purposes under this Section 4.6 and under all other provisions
of this Agreement as though such reductions had not occurred, unless Lender has
received (i) a written certificate signed by the Chief Financial Officers of
Hanover and HDPI and/or Brawn that such proceeds shall permanently be applied
and utilized for working capital of HDPI and/or Brawn (as applicable),
notwithstanding any contrary provisions of the Note Purchase Agreement, and
(ii) if there are any contrary provisions in the Note Purchase Agreement, the
written consent of the holders of the 9.25% Notes with respect to the use of
proceeds
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set forth in the certificate(s) referred to in clause (i) of this Section
4.6(h).
(i) Until the Principal Amount of IMR's liability under
and as defined in the IMR Limited Guaranty has been reduced to zero in
accordance with the provisions of the IMR Limited Guaranty and this Agreement,
the amount of any intercompany loans or advances of money or property directly
or indirectly provided to HDPI and/or Brawn or for their benefit by GBM,
Gump's, TCSA, SDSA, Tweeds or any member of the Affiliated Borrower Group,
other than HDPI and Brawn, shall be deducted from Excess Availability for
purposes of this Section 4.6.
SECTION 5. REPRESENTATIONS AND WARRANTIES
Borrowers, jointly and severally, represent and warrant to Lender, as
follows, other than with respect to IMR notwithstanding that IMR is a
Guarantor, (a) which representations and warranties shall survive the execution
and delivery hereof, and, except those, if any, expressly limited to the date
hereof, or other specified dates, are continuing representations and warranties
deemed repeated on each day this Agreement is in effect, and (b) the truth and
accuracy of each of which, together with the representations and warranties in
the other Financing Agreements shall be a continuing condition precedent of
loans and other financial accommodations hereunder and under the other
Financing Agreements:
5.1 Organization
(a) Each Borrower and Guarantor is a duly organized and
validly existing corporation in good standing under the laws of its State or
jurisdiction of incorporation, with perpetual corporate existence, and has the
corporate power and authority to own its properties and to transact the
business in which it is engaged or presently proposes to engage. Each Borrower
and Guarantor has qualified to do business as a foreign corporation in the
States and other jurisdictions listed on Exhibit A attached hereto, which
constitute all States or other jurisdictions where the nature of its business
or the ownership or use of property requires such qualification and failure to
so qualify would have a material adverse affect on either Borrower or on the
rights and interests of Lender in the Collateral or Guarantor Collateral.
(b) All of the direct and indirect Subsidiaries of
Westmark and Borrowers that are Guarantors are set forth on Exhibit B-1.
(c) None of the Borrowers, or any of their Subsidiaries
or Hanover has any direct or indirect interest in or
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is a party to any Mail Order Joint Venture as of the date hereof, except as set
forth on Exhibit B-2 attached hereto.
(d) All of the direct or indirect Restaurant Business
Subsidiaries are set forth on Exhibit B-3 attached hereto.
(e) As of the date hereof, there are no Non-Guarantor
Subsidiaries, except for the Restaurant Business Subsidiaries and those
Subsidiaries, if any, set forth on Exhibit B-4 attached hereof.
(f) None of the Borrowers or Hanover has any direct or
indirect Subsidiaries as of the date hereof, except as set forth on Exhibits
B-1 through B-4 attached hereto. Each of HDPI, Brawn, Gump's Holdings, Hanover
Holdings and TCSA-Delaware is a wholly-owned direct Subsidiary of Hanover.
Each of GBM and Gump's is a wholly-owned direct Subsidiary of Gump's Holdings.
TW Acquisitions is a wholly-owned direct Subsidiary of HDPI. Tweeds is a
wholly-owned direct Subsidiary of TW Acquisitions. Each of TCSA, TCS Office,
TCS Manufacturing, TCS Factory, SDSA, Skandia and Skandia Downsales are
wholly-owned direct Subsidiaries of TCSA-Delaware.
(g) As of the date hereof, Ring has less than $50,000 of
assets, excluding intercompany Indebtedness owed by HDPI to Ring; and Leavitt
has less than $10,000 of assets, excluding Leavitt's investment in Ring and
intercompany Indebtedness owed by HDPI to Leavitt.
5.2 Corporate Power and Authority
Each Borrower and Guarantor has the corporate power and authority to
execute, deliver and carry out the terms of the Financing Agreements to which
it is a party and all other agreements, instruments and documents delivered by
Borrowers and Guarantors pursuant hereto and thereto applicable to each, and
each Borrower and Guarantor has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and performance of the
Financing Agreements and the other agreements relating hereto to which it is a
party, the present and future borrowings and other financial accommodations
which may be obtained by Borrowers hereunder and thereunder, and the execution,
delivery and performance of the instruments and documents delivered and to be
delivered by it pursuant hereto and thereto. This Agreement and the other
Financing Agreements constitute the legal, valid and binding obligations of
each Borrower and Guarantor signatory thereto, enforceable in accordance with
their respective terms, except (i) to the extent the availability of equitable
remedies may be subject to judicial discretion and (ii) to the extent that
enforcement of certain rights and remedies of Lender may be limited by
provisions of the
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Bankruptcy Code or other laws affecting the rights of creditors generally.
5.3 Capitalization; Solvency
(a) All of the outstanding shares of common stock of each
Borrower have been duly authorized, validly issued and are fully paid and
non-assessable, free and clear of all claims, liens, pledges and encumbrances
of any kind.
(b) Hanover and its Subsidiaries, including Borrowers, on
a consolidated basis, have sufficient capital to carry on all businesses and
transactions in which they now engage or propose to engage, are solvent and
will continue to be solvent after the creation or incurrence of the Obligations
and the security interests in favor of Lender, and are able to pay their debts
as they mature.
5.4 Compliance with Other
Agreements and Applicable Law
(a) Each Borrower and Guarantor is not in default in any
respect under any indenture, mortgage, deed of trust, deed to secure debt,
material lease, material license agreement or other material agreement or
instrument to which it is a party or by which it or any of its assets or
properties may be or are bound.
(b) Neither the execution nor delivery of this Agreement,
the other Financing Agreements, or any of the instruments and documents to be
delivered pursuant hereto or thereto, nor the consummation of the transactions
herein or therein contemplated, nor compliance with the provisions hereof or
thereof, violates any law or regulation or any order or decree of any court or
governmental instrumentality in any respect or does or will conflict with or
result in the breach of, or constitute a default in any respect under, any
indenture, mortgage, deed of trust, deed to secure debt, lease or agreement or
instrument to which any Borrower or any Guarantor is a party or may be bound,
which violation, breach or default could have or result in a material adverse
effect on or change in the assets or business of Hanover and its Subsidiaries
taken as a whole, or result in the creation or imposition of any lien, charge
or encumbrance upon any of the property of any Borrower or any Guarantor
(except as specifically contemplated hereunder or under the other Financing
Agreements) or violate any provision of the Certificates of Incorporation or
By-Laws of any Borrower or any Guarantor.
(c) Subject to Section 5.8 hereof as to the matters
described therein, each Borrower and Guarantor has obtained all material
permits, licenses, approvals, consents,
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orders or authorizations of any governmental regulatory authority or other
governmental body or authority required for the lawful conduct of its business
and is in compliance in all material respects with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority
relating to its business (including, without limitation, those set forth in or
promulgated pursuant to ERISA, the IRC, the Occupational Safety and Health Act
of 1970, as amended, all Federal, State and local statutes, regulations, rules
and orders relating to consumer credit (including, without limitation, as each
has been amended, the Truth-in-Lending Act, the Fair Credit Billing Act, the
Equal Credit Opportunity Act and the Fair Credit Reporting Act and regulations,
rules and orders promulgated thereunder), the Fair Labor Standards Act of 1938,
as amended, all Federal, State and local statues, regulations, rules and orders
pertaining to sales of consumer goods and mail order sales (including, without
limitation, the Consumer Products Safety Act of 1972, as amended, and the
Federal Trade Commission Act of 1914, as amended, and all regulations, rules
and orders promulgated thereunder), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the Resource
Conservation and Recovery Act of 1976, as amended, and any similar State or
local statutes and all regulations, rules and orders promulgated thereunder.
5.5 Governmental Approval
No action of, or filing with, any governmental or public body or
authority is required in connection with the execution, delivery and
performance by Borrowers and Guarantors of this Agreement, the other Financing
Agreements or any of the instruments or documents to be delivered pursuant
hereto or thereto, except for filing of UCC financing statements and the
recording of other instruments required to perfect security interests or liens
in certain property constituting Collateral or Guarantor Collateral.
5.6 Chief Executive Offices; Collateral Locations
(a) The addresses of the principal places of business and
chief executive offices of each Borrower and each member of the Affiliated
Borrower Group are set forth on Exhibit C attached hereto, which addresses are
the mailing addresses for said principal places of business and chief executive
offices. The books and records of each Borrower and each member of the
Affiliated Borrower Group are located at said addresses. Subject to Section
5.6(b) hereof, as of the date hereof, the Collateral and Guarantor Collateral
is located only at the addresses set forth on Exhibit C attached hereto.
(b) A Borrower or Guarantor may open any new location
within the continental United States, provided it (i)
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gives Lender thirty (30) days prior written notice of the intended opening of
any such new location and (ii) executes and delivers, or causes to be executed
and delivered, to Lender such mortgages, security agreements, and other
agreements, documents and instruments as Lender may deem necessary or desirable
to protect its interests in the Collateral or Guarantor Collateral to be
located in or with respect to such location, including, without limitation,
leasehold mortgages, UCC financing statements and agreements from appropriate
Persons acknowledging the liens of Lender on the Collateral or Guarantor
Collateral to be located in such location, waiving any lien or claim by such
Person to the Collateral or Guarantor Collateral and permitting Lender access
to the premises to exercise its rights and remedies and otherwise deal with the
Collateral or Guarantor Collateral, as the case may be.
5.7 Priority of Liens; Title to Properties
(a) The security interests and liens granted to Lender
under this Agreement and the other Financing Agreements constitute valid and
perfected first priority liens and security interests in and upon the
Collateral and Guarantor Collateral, subject only to the liens indicated on
Exhibit D attached hereto and the liens permitted under Section 6.4 hereof or
permitted under the other Financing Agreements.
(b) Each Borrower and Guarantor has good and marketable
title to all of its properties and assets subject to no liens, mortgages,
pledges, security interests, encumbrances or charges of any kind, except those
in favor of Lender and those specifically permitted under the provisions of
this Agreement or the other Financing Agreements. Each Borrower and Guarantor
has peaceful and undisturbed possession of all of its Inventory, Equipment and
such other assets as may be necessary for its business as presently conducted
or proposed to be conducted and has all leases, licenses and easements
necessary for the operation of its properties and business. All such leases,
licenses and easements are valid and subsisting and in full force and effect.
5.8 Taxes
(a) Each Borrower and Guarantor has filed, or has caused
to be filed all Federal, State, county, local, foreign and other tax returns,
reports and declarations which are required to be filed by it and as to which
an extension has not been granted, and has paid or caused to be paid all such
taxes due and payable, and has collected, deposited and remitted all taxes
applicable to the conduct of its business, except, in each case, taxes the
validity or applicability of which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside on its books, in the
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determination of Lender, or if requested by Lender, to protect Lender's
security interests or liens in any Collateral or Guarantor Collateral, adequate
amounts have been escrowed with or reserved against availability by Lender or
other arrangements satisfactory to Lender have been made to cover all amounts
which are claimed due plus interest and possible penalties thereon (subject in
the case of sales and/or use taxes, to the provisions of Section 2.5(b)
hereof).
(b) Each Borrower, and to the extent applicable each
member of the Affiliated Borrower Group, has collected, deposited and remitted
all sales and/or use taxes applicable to its business required to be collected
under the valid laws of the United States and each possession or territory
thereof, and each State or political subdivision thereof, including any State
in which any Borrower owns any Inventory or owns or leases property, including,
without limitation, the States of Pennsylvania, New Jersey, California, Texas,
Virginia and Wisconsin; provided, however, the representations and warranties
as to sales and use taxes contained in this Section 5.8(b) shall be considered
materially untrue if, but only if, the aggregate amount of such applicable
sales and use taxes not collected, deposited or remitted shall in the aggregate
be equal to or greater than Two Hundred Fifty Thousand Dollars ($250,000).
5.9 Litigation
Except as set forth in Exhibit F attached hereto, there is no
investigation by any governmental agency pending or threatened against or
affecting any Borrower or any other member of the Affiliated Borrower Group or
their properties or business, and there is no action, suit, proceeding or claim
by any Person pending or threatened against any Borrower or any other member of
the Affiliated Borrower Group or their properties or business (other than
future pending or threatened litigation involving the enforcement of lease
obligations by or against Hanover as successor to H&H as to leased properties
not used in or related to the business of Borrowers), or against or affecting
any transactions contemplated by this Agreement, the other Financing
Agreements, or other instruments, agreements or documents delivered in
connection herewith or therewith, which could reasonably be expected to result
in a determination adverse to any Borrower or any other member of the
Affiliated Borrower Group, and which, if so adversely determined with respect
to any of them, would result in either (i) a fine, judgment, penalty, loss or
liability, including costs and attorneys' fees, not covered by insurance,
which, individually, exceeds Two Hundred Thousand Dollars ($200,000) or (ii)
any material adverse change in the business, assets, liabilities or financial
condition of any Borrower or of the Affiliated Borrower Group taken as a whole.
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5.10 Intellectual Property
Each Borrower individually and the other members of the Affiliated
Borrower Group taken as a whole, own or license all patents, trademarks and
copyrights and holds all licenses, which are necessary for the operation of
their business as presently conducted or proposed to be conducted. No product,
process, method, substance, part or other material presently contemplated to be
sold by or employed by Borrowers or the other members of the Affiliated
Borrower Group, infringes any patent, trademark, service-mark, trade name,
copyright, license or other right owned by any other Person, except as set
forth on Exhibit F attached hereto and no claim or litigation is pending or
threatened against or affecting any Borrower or the other members of the
Affiliated Borrower Group, contesting its right to sell or use any such
product, process, method, substance, part or other material. No patent,
invention, device or application is pending, or, to the best of Borrowers'
knowledge, proposed which would substantially reduce the projected revenues of,
or otherwise materially adversely affect the business, assets, liabilities, or
financial condition of any Borrower individually, or the other members of the
Affiliated Borrower Group taken as a whole.
5.11 Employee Benefits
(a) None of the Borrowers or any other member of the
Affiliated Borrower Group, has engaged in any transaction in connection with
which any Borrower or any other member of the Affiliated Borrower Group could
be subject to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the IRC, which, individually or in
the aggregate, is greater than Two Hundred Fifty Thousand Dollars ($250,000).
(b) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Borrowers or any other member of the
Affiliated Borrower Group to be incurred with respect to any employee pension
benefit plan of any Borrower or any other member of the Affiliated Borrower
Group, except for insurance premiums that are required to be paid to the
Pension Benefit Guaranty Corporation that are not past due. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit plan which
presents a risk of (i) termination of any such plan by the Pension Benefit
Guaranty Corporation and (ii) potential liability of any Borrower or any other
member of the Affiliated Borrower Group to the Pension Benefit Guaranty
Corporation in connection with such termination which in the aggregate
potential liability may be greater than Two Hundred Fifty Thousand ($250,000).
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(c) Full payment has been made of all amounts which any
Borrower or any other member of the Affiliated Borrower Group is required to
have paid under the terms of each employee pension benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan, and no accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the IRC), whether or not waived, exists with respect
to any employee pension benefit plan.
(d) The current value of all vested accrued benefits
under all employee pension benefit plans of Borrowers or any other member of
the Affiliated Borrower Group does not exceed the current value of the assets
of such plans allocable to such vested accrued benefits. The terms "current
value" and "accrued benefit" have the meanings specified in Section 3(26) and
Section 3(23) of ERISA, respectively.
(e) None of the Borrowers or any other member of the
Affiliated Borrower Group is or has ever been obligated to contribute to any
"multiemployer plan" (as such term is defined in Section 3(37) or 4001(a)(3) of
ERISA or Section 414 of the IRC) that is subject to Title IV of ERISA.
5.12 Investment Company
None of the Borrowers or any Guarantor is an "investment company", or
an "affiliated person" or "promoter" or "principal underwriter", as such terms
are defined in the Investment Company Act of 1940, as amended (15 U.S.C.
Section 80a-1, et seq.). The making of the loans and provisions of the other
financial accommodations hereunder by Lender, the application of the proceeds
and the repayment thereof by Borrowers and/or Guarantors and the performance of
the transactions contemplated herein and in the other Financing Agreements will
not violate any provision of said Act, or any rule, regulation or order issued
pursuant thereto.
5.13 Regulation G; Securities
Exchange Act of 1934
None of the Borrowers or any Guarantor owns any "margin stock" as such
term is defined in Regulation G, as amended (12 C.F.R. Part 207) of the Board.
The proceeds of the borrowings and other financial accommodations made pursuant
to the Existing Loan Agreement, this Agreement and the other Financing
Agreements have been and will be used by Borrowers only for the purposes
contemplated thereunder and hereunder. None of the proceeds have been or will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin stock or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry any margin stock or for any other
purpose which might cause any portion of the loans and other financial
accommodations under the Existing Loan Agreement or
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hereunder to be considered a "purpose credit" within the meaning of Regulation
G of the Board, as amended. None of the Borrowers or any Guarantor will take,
nor will they permit any agent acting in any of their behalves to take, any
action which might cause this Agreement or the other Financing Agreements, or
instruments delivered pursuant hereto or thereto, to violate any regulation of
the Board or to violate the Securities Exchange Act of 1934 or any state or
other securities laws, in each case as in effect on May 5, 1993 or as amended
thereafter.
5.14 No Material Adverse Change
There has been no material adverse change in the business, assets,
liabilities or financial condition of the Affiliated Borrower Group taken as a
whole from December 26, 1992; provided, that the corporate actions taken to
effect the corporate reorganization consisting of changes in ownership of
certain members of the Affiliated Borrower Group, other than Borrowers, as set
forth on Exhibit K to the Existing Loan Agreement, shall not in and of
themselves be considered a material adverse change.
5.15 Financial Statements
(a) None of the financial statements, reports and other
information furnished or to be furnished by Borrowers to Lender with respect to
Borrowers, Guarantors or other members of the Affiliated Borrower Group
contains, as of their respective dates, any untrue statement of material fact
or omits to state any material fact necessary to make the information therein
not misleading. Such financial statements and reports were and shall be
prepared in accordance with generally accepted accounting principles, in effect
on the date thereof, consistently applied, and shall fairly, completely and
accurately present the financial condition and results of operations of the
applicable Persons, as of the dates and for the periods indicated thereon.
(b) The cash flow projections for Borrowers (together
with any summaries of assumptions and projected assumptions, based on
historical performance with respect thereto) furnished by Borrowers to Lender
have been prepared in a manner consistent with the generally accepted
accounting principles used to prepare their financial statements, and represent
the reasonable, good faith opinion of Borrowers and their management as to the
subject matter thereof and based on assumptions as set forth therein which
Borrowers have determined to be fair and reasonable in view of current and
reasonably foreseeable business conditions.
5.16 Disclosure
(a) The information contained in, and the representations
and warranties set forth in this Agreement, the
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other Financing Agreements, or in any other instrument, document, list,
certificate, written statement, oral statement by a Responsible Officer,
schedule or exhibit delivered or to be delivered to Lender, as contemplated in
this Agreement or in the other Financing Agreements, does not contain any
untrue statement of a material fact and does not omit and will not omit to
state a material fact necessary in order to make the information contained
herein or therein not misleading.
(b) After giving effect to the transactions contemplated
by this Agreement, the other Financing Agreements, and the other instruments or
documents delivered in connection herewith and therewith, there does not exist
and there has not occurred any condition or event which constitutes an Event of
Default or Incipient Default.
5.17 Labor Disputes
As of the date hereof, there is no collective bargaining agreement or
other labor contract covering employees of Borrowers or any other member of the
Affiliated Borrower Group. Except as set forth on Exhibit J attached hereto,
as of the date hereof, no Borrower has any knowledge that any union or other
labor organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of Borrowers or any other member of the Affiliated
Borrower Group. As of the date hereof, there is no pending or, to the best
knowledge of each Borrower, threatened strike, work stoppage, material unfair
labor practice claims, or other material labor dispute against or affecting any
Borrower or any other member of the Affiliated Borrower Group or any of their
respective employees.
5.18 Corporate Name; Prior Transactions
Borrowers and Guarantors have not, during the one (1) year period
ending on the date hereof, been known by or used any other corporate or
fictitious name or been a party to any merger or consolidation, or acquired all
or substantially all of the assets of any Person, or acquired any material
amount of their property or assets out of the ordinary course of business,
except as set forth on Exhibit G attached hereto.
5.19 Accounts
(a) Each Account represents a valid and legally
enforceable indebtedness based upon an actual bona fide sale and delivery of
goods or lease or license of customer or mailing lists or rendition of
services, in each case in the ordinary course of the business of Borrowers
which has been finally accepted by the Account Debtor and for which the Account
Debtor is unconditionally liable to make payment of the amount stated in each
invoice, customer or mailing list rental or license
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agreement, credit card transaction record, instrument or other document
evidencing the Account in accordance with the terms thereof, without any
offset, defense or counterclaim known to Borrowers, except those offsets,
defenses or counterclaims, related to Accounts not in excess of the amount set
forth in Section 5.19(c) hereof, disclosed in writing to Lender upon Borrowers'
acquiring knowledge thereof (which disclosure need only be made by disclosing
the gross amount of non-conforming Accounts).
(b) To the best of Borrowers' knowledge, all statements
made and all unpaid balances appearing in the invoices, customer or mailing
list rental or license agreements, credit card transaction records, instruments
or other documentation evidencing each Account are true and correct and are in
all respects what they purport to be and all signatures and endorsements that
appear thereon are genuine and all signatories and endorsers have full capacity
to contract and each Account Debtor is solvent and financially able to pay in
full the Account when it matures, except as disclosed in writing to Lender upon
Borrowers' acquiring information to the contrary involving Accounts not in
excess of the amount set forth in Section 5.19(c) hereof (which disclosure need
only be made by disclosing the gross amount of non-conforming Accounts).
(c) The representations and warranties as to the Accounts
contained in Sections 5.19(a) and (b) hereof shall be considered materially
untrue if, but only if, there are non-conforming Accounts of Borrowers, whether
or not known to Borrower or disclosed to Lender, which, on an aggregate basis
at any one time outstanding, shall be equal to or greater than Two Hundred
Fifty Thousand Dollars ($250,000).
(d) None of the transactions underlying or giving rise to
any Account violates on the part of any Borrower any State, Federal or foreign
laws or regulations, and all documents relating to the Accounts are legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms, subject to the bankruptcy of the Account Debtor
and judicial discretion affecting equitable remedies, and all recording, filing
and other requirements of giving public notice under any applicable law have
been duly satisfied, including, without limitation, the filing of any report in
the States of New Jersey, Minnesota and Indiana with the New Jersey Division of
Taxation, the Minnesota Department of Revenue and the Indiana Department of
State Revenue, respectively.
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5.20 Schedule of Indebtedness
(a) Exhibit H-1 attached hereto is a complete and correct
list of (i) all credit agreements, notes, indentures, debt purchase agreements,
purchase agreements, agreements involving aggregate deferred payment
obligations for the purchase of assets in excess of Two Hundred Fifty Thousand
Dollars ($250,000), capitalized leases and other investments, arrangements and
agreements in effect as of the date hereof providing for or relating to
extensions of credit in which Hanover or any Subsidiaries of Hanover (including
Borrowers and any of their Subsidiaries) are in any manner directly or
contingently liable; (ii) the maximum principal amounts of the credit and the
current amount outstanding under all such agreements; and (iii) an accurate
description of any security interest, lien, mortgage or other charge or
encumbrance whatsoever given as security therefor.
(b) Exhibit H-2 attached hereto is a complete and correct
list of all (i) letters of credit made available under the QCC Credit Agreement
in effect as of the date hereof pursuant to which Hanover or any Subsidiary of
Hanover (including HDPI, Brawn and any of their Subsidiaries) are directly or
contingently liable; (ii) the expiration date of each such letter of credit;
and (iii) an accurate description of any security interest, lien, mortgage or
other charge or encumbrance whatsoever given as security therefor and not
released on or prior to the date hereof.
(c) Exhibit H-4 attached hereto is a complete and correct
list of all intercompany balances each of HDPI and Brawn owed to THC or H&H and
to each other Subsidiary of THC or H&H as of May 22, 1993, all of which
constitute the unpaid balances as of such date of legal, valid and binding
Indebtedness incurred for fair consideration consisting of money or property or
rendition of services, in each case in the amounts and owed by the Persons as
indicated on such Exhibit H-4 attached hereto.
5.21 Ownership
As of the date hereof:
(a) Based upon a certificate of the Secretary of NAR, NAR
is the direct and beneficial owner of all of the issued and outstanding voting
shares of (i) Quadrant Group, which is the direct and beneficial owner of all
of the issued and outstanding voting shares of QCC and (ii) IMR;
(b) Based upon a certificate of the Secretary of NAR, NAR
is the direct beneficial owner of all of the issued and outstanding voting
shares of Westmark, which is the direct and beneficial owner of approximately
fifty-four and four-tenths
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percent (54 4/10%) of all of the issued and outstanding voting shares of
Hanover and NAR is entitled, through Westmark, to elect a majority of the
members of the Board of Directors of Hanover;
(c) Hanover is the direct and beneficial owner of all of
the issued and outstanding shares of HDPI, Brawn, Gump's Holdings, Hanover
Holdings, TCSA-Delaware, HSC, DM Advertising and Leavitt and is entitled to
elect all the members of the Board of Directors of each of HDPI, Brawn, Gump's
Holdings, TCSA-Delaware, HSC Leavitt and DM Advertising; and
(d) HDPI is the direct and beneficial owner of all of the
issued and outstanding shares of each of HDMM, Hanover List, York Fulfillment
and TW Acquisitions. Brawn is the direct and beneficial owner of all of the
issued and outstanding shares of HIM. TW Acquisitions is the direct and
beneficial owner of all of the issued and outstanding shares of Tweeds. TCSA-
Delaware is the direct and beneficial owner of all al of the issued and
outstanding shares of each of TCSA, SDSA, Skandia, Skandia Downsales, TCS
Factory, TCS Office and TCS Manufacturing. Leavitt is the direct and
beneficial owner of all of the issued and outstanding shares of Ring.
5.22 Common Enterprise
Borrowers and the other members of the Affiliated Borrower Group
collectively operate as interdependent businesses and constitute a unitary
business enterprise for the retail sale through direct mail marketing and
stores of, among other things, men's fashions, women's fashions, home
furnishings, general merchandise and giftware, down comforters, blankets,
sheets, towels and outer garments, in which, among other things: (i) Borrowers
effect the processing of orders and the collection and disbursement of funds by
virtue of the same Private Credit Card Agreement and certain Borrowers are
joint parties to Third Party Credit Card Agreements in order to facilitate
administrative efficiency and cost savings; (ii) the collections of customer
payments of HDPI and Brawn are remitted to and otherwise deposited into a
common account, the collections of customer payments of GBM and Gump's are
remitted to and otherwise deposited into a common account and, the collections
of customer payments of operating subsidiaries or TCSA-Delaware are remitted to
and otherwise deposited into a common account; (iii) the Borrowers and other
members of the Affiliated Borrower Group share office and warehouse space,
computer and accounting systems, distribution and other equipment; (iv)
Borrowers operate a common telephonic answering, order taking and transmission
service for the mail order business of Borrowers; (v) DM Advertising assists in
the development and production of the mail order catalogs of each of Borrowers
and of other promotional and advertising materials; (vi) Hanover furnishes
managerial and other services on behalf of Borrowers and the
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other Subsidiaries of Hanover; (vii) Hanover and the Subsidiaries of Hanover
file consolidated tax returns; (viii) certain Borrowers have made, and
Borrowers may in the future make, intercompany loans to and borrow money from
each other, and HDPI has made, and may in the future make loans to and borrows
money from Hanover and the other Subsidiaries of Hanover; and (ix) Hanover and
its Subsidiaries have many common officers and directors.
5.23 Subordination of Certain Obligations
The payment terms and subordination provisions contained in the H&H
and THC debt instruments described in Exhibit E attached hereto have not been
amended, modified or revised and shall not be amended, modified or revised
without the prior written consent of Lender, except for extensions of the
maturity date beyond the then current Term which do not involve any increase in
the principal amount outstanding greater than the amount outstanding as of May
5, 1993 as set forth on Exhibit H-1 attached hereto.
SECTION 6. ADDITIONAL COVENANTS
In addition to the covenants set forth in the other Financing
Agreements, Borrowers hereby, jointly and severally, covenant to and agree with
Lender that Borrowers shall comply with the following covenants, or cause the
same to be complied with, other than with respect to IMR notwithstanding that
IMR is a Guarantor, unless Lender shall otherwise consent in writing:
6.1 Tradenames
Borrowers may from time to time use the tradenames listed on Exhibit G
attached hereto (which, together with any new tradenames used after the date
hereof are referred to collectively as the "Tradenames" and individually, as a
"Tradename"). As to the respective Tradenames used by each of them, each
Borrower hereby agrees that:
(a) Each Tradename is a tradestyle (and not an
independent corporation or other legal entity) by which such Borrower may
identify and sell or lease certain of its goods or services and conduct a
portion of its respective business.
(b) All proceeds (including any returned merchandise)
which arise from the sale or lease of goods sold under a Tradename, except to
the extent indicated on Exhibit G attached hereto in respect of the Tradenames
owned by the Avon Mail Order Joint Venture and the Essence Mail Order Joint
Venture, shall be owned solely by the respective Borrower and shall be subject
to the security interests of Lender and the other terms of this Agreement and
the other Financing Agreements.
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(c) New Tradenames may be used by Borrowers, but only if
(i) Lender is given at least thirty (30) days prior written notice of the
intended use of any new Tradename and (ii) such supplemental financing
statements or similar instruments Lender may request shall be executed and
delivered to Lender by the respective Borrower intending to use same for filing
or recording by Lender prior to the use of such new Tradename.
6.2 Subsidiaries
Borrowers shall not form or acquire, and Hanover shall not form or
acquire, any direct or indirect Subsidiaries without the prior written consent
of Lender, other than Non-Guarantor Subsidiaries acquired or formed by Hanover
and other than Mail Order Joint Ventures which are Subsidiaries of Borrowers.
In the sole discretion of Lender, in the event Lender's consent is required and
Lender so consents, and in the case of Mail Order Joint Ventures which are
Subsidiaries of Borrowers, upon such formation or acquisition, each Borrower or
Hanover, as the case may be, shall cause each such Subsidiary, so formed or
acquired by it, that owns, or is contemplated to own, assets having a fair
market value greater than Ten Thousand Dollars ($10,000) to execute and deliver
to Lender, in form and substance satisfactory to Lender: (a) an absolute and
unconditional guarantee of payment of any and all present and future
Obligations of Borrowers to Lender, (b) an agreement to be bound by the terms
of this Agreement as though it were an original party hereto or a General
Security Agreement, as Lender may require, (c) related UCC financing
statements, and (d) such other mortgages, security and other agreements,
documents and instruments as Lender may require, including, but not limited to,
supplements and amendments hereto and other loan agreements or instruments
evidencing Indebtedness of such new Subsidiary to Lender. With respect to each
direct or indirect Subsidiary of Hanover listed on Exhibit B-1 attached hereto
that owns assets with a fair market value greater than Ten Thousand Dollars
($10,000), Borrowers shall cause each such Subsidiary to execute and deliver to
Lender each of the items referred to in subsections (a) through (d) of this
Section 6.2, unless such Subsidiary is dissolved by December 31, 1993.
6.3 Indebtedness
Borrowers shall not, and shall not permit any of their respective
Subsidiaries, and Hanover shall not permit any of its Subsidiaries, other than
Non-Guarantor Subsidiaries, to incur, create, assume or permit to exist any
Indebtedness for Borrowed Money, except:
(a) the Obligations of Borrowers and any Subsidiary to
Lender;
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(b) Indebtedness of Borrowers or such Subsidiary where
payment is secured solely by liens permitted under Section 6.4 hereof;
(c) Indebtedness of Borrowers to the Private Credit Card
Purchaser under the Private Credit Card Agreement and Indebtedness of Borrowers
to the parties to the Third Party Credit Card Agreements pursuant to the terms
thereof;
(d) Indebtedness of Borrowers to IMR and QCC all of which
is subordinated in right of payment and as to enforcement of remedies, as
provided in the QCC-IMR Subordination Agreement;
(e) Indebtedness described on Exhibits H-1 through H-4
attached hereto and any successor or replacement financing with terms and
evidenced by documents, instruments or agreements in form and substance
acceptable to Lender in its discretion;
(f) Intercompany loans or advances permitted under
Section 6.5 hereof;
(g) Indebtedness consisting of capital lease obligations
in the aggregate amount outstanding at any one time of not greater than Five
Million Dollars ($5,000,000) incurred in carrying out the Borrowers' computer
systems replacement and upgrade plan;
(h) Indebtedness of Borrowers or other Subsidiaries of
Hanover, and guaranties thereof by Hanover, incurred for the establishment or
acquisition of, and improvements to, new Eligible Inventory Locations, first
leased or acquired by Borrowers after May 5, 1993, provided (i) the aggregate
amount of all such Indebtedness at any one time outstanding does not exceed
Fifteen Million Dollars ($15,000,000) and (ii) the principal amounts or
components of debt service and/or lease payments in respect of such
Indebtedness and related expenditures for improvements do not exceed One
Million Dollars ($1,000,000) in the aggregate in any one fiscal year of
Borrowers; and
(i) Indebtedness of the 9.25% Guarantors to the holders
of the 9.25% Notes as guarantors thereof, provided the 9.25% Notes and all
Indebtedness evidenced thereby or related thereto, including the guarantees
thereof by the 9.25% Guarantors, shall be unsecured (except for the Pledged
Intercompany Note) and subordinated in right of payment to the Obligations of
Hanover (as successor to THC) and of the 9.25% Guarantors upon the terms set
forth in the Subordination Agreement dated on or about August 17, 1993 between
Lender and the Note Purchaser and acknowledged by the Indenture Trustee (as
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defined therein), THC and the 9.25% Guarantors (as the same now exists or may
hereafter be amended, modified, supplemented, restated or replaced, the "9.25%
Subordination Agreement"); provided, that, (A) the aggregate principal amount
of such Indebtedness at any time outstanding shall not exceed $20,000,000, (B)
HDPI, Brawn and Hanover shall promptly furnish to the Lender such information
and documents with respect thereto and as Lender may, from time to time,
reasonably request, (C) the 9.25% Guarantors and Hanover shall not, directly or
indirectly, (1) make any payments or prepayments in respect of principal or
interest in respect of such Indebtedness, or any expenses related thereto,
except as expressly permitted under the 9.25% Subordination Agreement, or (2)
amend, modify, alter or change the terms of the arrangements or any agreements
with respect to such Indebtedness, or (3) redeem, retire, defease, purchase or
otherwise acquire any such Indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, except that the 9.25% Notes may be refinanced
on the same subordinated basis with Hanover as the borrower and no additional
obligors within the Affiliated Borrower Group, in an amount not to exceed
$20,000,000 in the aggregate for such refinancing(s) provided (x) the proceeds
are used to repay the 9.25% Notes and (y) there is no increase in the rate of
interest above twelve (12%) percent per annum or in the frequency of interest
payments or any change in the scope or terms of subordination (which terms of
subordination shall be set forth in a subordination agreement having the same
terms as the 9.25% Subordination Agreement, modified as appropriate, to refer
to the debt and the holders and other parties thereto, the proceeds of which
are used for such refinancing) other than any changes which are not adverse to
Lender, and (D) Hanover and the 9.25% Guarantors shall furnish to Lender all
notices, demands or other materials in connection with such Indebtedness
promptly after the receipt thereof by them or concurrently with the sending
thereof by them or on their behalf, as the case may be.
6.4 Limitation on Liens
Each Borrower shall not, and shall not permit any of its respective
Subsidiaries, and Hanover shall not permit any of its Subsidiaries, other than
Non-Guarantor Subsidiaries, to, create, incur, assume, or permit to exist any
mortgage, pledge, security interest, lien, encumbrance, defect in title or
restriction upon the use of its respective real or personal properties, whether
now owned or hereafter acquired, except:
(a) the liens, encumbrances, or security interests in
favor of Lender;
(b) tax, mechanics and other non-consensual statutory
liens arising in the ordinary course of Borrowers' or such Subsidiary's
business to the extent: (i) such liens secure
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Indebtedness which is not overdue or (ii) until foreclosure or similar
proceedings shall have been commenced, such liens secure Indebtedness relating
to claims or liabilities which are (A) fully insured and being defended at the
sole cost and expense and at the sole risk of the insurer or (B) being
contested in good faith by appropriate proceedings available to each Borrower
and are adequately escrowed for or reserved against loan availability by Lender
(subject in the case of reserves established for sales and/or use taxes to the
provisions of Section 2.5(b) hereof), or as otherwise provided for under
arrangements satisfactory to Lender;
(c) liens arising in connection with worker's
compensation, unemployment insurance, surety, insurance or financial
responsibility, appeal and release bonds, in each case limited to securities
pledged as collateral for any of the foregoing;
(d) liens or security interests constituting purchase
money liens or security interests upon specific fixed assets acquired, or liens
or security interests existing on any such fixed assets at the time of
acquisition thereof and including capital leases; provided, that:
(i) no such purchase money lien or security
interest (or capital lease, as the case may be) with respect to specific fixed
assets shall extend to or cover any other property other than the specific
fixed assets so acquired, or acquired subject to such lien or security interest
(or lease), or accessions thereto and the proceeds thereof;
(ii) such lien or security interest only secures the
obligation to pay the purchase price of such specific fixed assets (or the
obligations under the capital lease);
(iii) the principal amount secured thereby shall
not exceed one hundred (100%) percent of the cost of the fixed assets so
acquired; and
(iv) no Event of Default or Incipient Default shall
have occurred and be continuing;
(e) liens of the Private Credit Card Purchaser on the
GECC Collateral;
(f) liens or rights of set off against credit balances,
but not liens on or rights of set off against other property of Borrowers,
arising under the Third Party Credit Card Agreements;
(g) liens on equipment or leasehold improvements securing
the Indebtedness under the capital lease obligations and
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incurred for leasehold establishment and improvements as permitted by Section
6.3(g) and (h) hereof; and
(h) the liens or security interests granted by Tweeds in
favor of R.R. Donnelley & Sons Company ("Donnelley & Sons") and R.R. Donnelley
Receivables, Inc. ("DRI") in all of the personal property of Tweeds to secure
the Indebtedness of Tweeds to Donnelley & Sons and DRI evidenced by the
Installment Note dated as of March 29, 1993, by Tweeds in favor of DRI in the
original principal amount of $2,850,801.85 (as in effect on the date thereof)
and subject to the Subordination and Intercreditor Agreement, dated as of March
29, 1993, among Lender, Donnelley & Sons and DRI; provided, that, by no later
than December 31, 1993, all such liens and security interests granted by Tweeds
in favor of Donnelley & Sons and DRI shall be, and all such Indebtedness
satisfied, in each case by the issuance of HDI common stock to Donnelley & Sons
and/or DRI in accordance with the agreement among HDI, Donnelley & Sons and/or
DRI entered into in connection with the Tweeds Acquisition.
6.5 Loans; Investments; Guarantees; Etc.
Borrowers shall not, and shall not permit any of their respective Subsidiaries,
and Hanover shall not permit any of its Subsidiaries, other than Non-Guarantor
Subsidiaries, to, directly or indirectly, make any loans or advance money or
property to any Person, or invest in (by capital contribution, dividend or
otherwise) or purchase or repurchase the stock or Indebtedness or all or a
substantial part of the assets or properties of any Person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly)
or pay the Indebtedness, performance, obligations, stock or dividends of any
person or agree to do any of the foregoing, except:
(a) the Guarantees of the Obligations of Borrowers in
favor of Lender;
(b) Provided no Event of Default or Incipient Default has
occurred and is continuing:
(i) short-term loans or advances of money by one
Borrower to another Borrower in the ordinary course of business, or by a
Borrower to any other Subsidiary of Hanover, other than to a Non-Guarantor
Subsidiary, in the ordinary course of business;
(ii) repayment by Borrowers to Hanover of valid
intercompany Indebtedness described on Exhibit H-4 attached hereto:
(A) in the aggregate amount during
Borrowers' fiscal year ending on or about
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December 31, 1993 not to exceed Five Million Two
Hundred Thousand Dollars ($5,200,000) solely to be
used by THC or Hanover to pay (x) dividends, sinking
fund payments or redemption payments required under
the terms and conditions existing as of May 5, 1993
of the THC 7.5% Cumulative Convertible Preferred
Stock, and the THC Class B 8% Cumulative Preferred
Stock or the preferred stock of Hanover issued in
conversion thereof having the same terms issued
pursuant to the reorganization described on Exhibit K
to the Existing Loan Agreement; and (y) interest on
the H&H 7 1/2% Convertible Subordinated Debentures
according to their terms existing as of May 5, 1993;
(B) [Intentionally Deleted]
(C) in the aggregate amount during
Borrowers' fiscal year ending on or about December
31, 1994 not to exceed Six Million Fifty Thousand
Dollars ($6,050,000), solely to be used by Hanover to
pay (x) dividends, sinking fund payments or
redemption payments required under the terms and
conditions existing as of May 5, 1993 of the THC 7.5%
Cumulative Convertible Preferred Stock and the THC
Class B 8% Cumulative Preferred Stock or the
preferred stock of Hanover issued in conversion
thereof having the same terms issued pursuant to the
reorganization described on Exhibit K to the Existing
Loan Agreement, and (y) interest on the H&H 7 1/2%
Convertible Subordinated Debentures according to
their terms existing as of May 5, 1993;
(D) in the aggregate amount during
Borrowers' fiscal year ending on or about December
31, 1995 not to exceed Four Million Three Hundred
Thousand Dollars ($4,300,000), solely to be used by
Hanover to pay (x) dividends, sinking fund payments
or redemption payments required under the terms and
conditions existing as of May 5, 1993 of the THC 7.5%
Cumulative Convertible Preferred Stock and the THC
Class B 8% Cumulative Preferred Stock or the
preferred stock of Hanover issued in conversion
thereof having the same terms issued pursuant to the
reorganization described on Exhibit K to the Existing
Loan Agreement, and (y) interest on
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the H&H 7 1/2% Convertible Subordinated Debentures
according to their terms existing as of May 5, 1993;
and
(E) in the aggregate amount necessary to
pay, and so used by Hanover to pay, a portion of the
regularly scheduled payments of interest under the
9.25% Notes, but not to exceed such interest upon
$14,000,000 in principal amount of the 9.25% Notes,
or up to $14,000,000 in principal at scheduled
maturity when due under the 9.25% Notes, or in the
amount necessary to pay the out-of-pocket expenses of
the Note Purchaser and the Indenture Trustee in
respect of the 9.25% Notes, in each case according to
the terms of the 9.25% Notes as in effect as of
August 17, 1993 and provided that such payments are
permitted to be made and received under the terms of
the 9.25% Subordination Agreement.
(iii) repayment by Borrowers to Hanover of intercompany
loans, not to exceed $6,000,000 in principal amount, plus interest thereon,
made by THC to Borrowers with such amount of the proceeds of issuance of the
9.25% Notes remaining after the prepayment, discharge or defeasance of all
Indebtedness under the then outstanding Amended 8% Senior Subordinated Notes of
THC and the 14% Senior Subordinated Debentures of H&H, which intercompany loans
were initially used by Borrowers for working capital; provided that such
repayments are used by Hanover as provided in Section 6.27 hereof, or, if so
required by paragraph 6 of the 9.25% Notes, to effect any required prepayment,
not to exceed $6,000,000 in principal amount, plus interest thereon, of the
9.25% Notes.
(c) the endorsement of instruments for collection or
deposit in the ordinary course of business;
(d) investments in any new Mail Order Joint Venture that
is formed in accordance with Section 6.2 hereof or, if not a Subsidiary of a
Borrower, is permitted under Section 6.26 hereof;
(e) the guarantee by any of the Borrowers in favor of
American Express Travel Related Services Company,. Inc., a Third Party Credit
Card Issuer, of any Indebtedness of any of the other Borrowers arising under
the Independent and Chain Establishment Agreement dated January 29, 1991, among
Borrowers and American Express Travel Related Services Company, Inc. with
respect to rights of chargeback or setoff or otherwise, subject nevertheless to
the rights of Lender under the Third Party Credit
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Card Acknowledgments to which such Third Party Credit Card Issuer (or its
Affiliates) is a party; and
(f) investments in the following instruments, which shall
be pledged and delivered to Lender upon Lender's request, (i) marketable
obligations issued or guaranteed by the United States of America or an
instrumentality or agency thereof, maturing not more than one (1) year after
the date of acquisition thereof, (ii) certificates of deposit or other
obligations maturing not more than one (1) year after the date of acquisition
thereof issued by any bank or trust company organized under the laws of and
located in the United States of America or any State thereof and having
capital, surplus and undivided profits of at least One Hundred Million Dollars
($100,000,000), and (iii) open market commercial paper with a maturity not in
excess of two hundred seventy (270) days from the date of acquisition thereof
which have the highest credit rating by either Standard & Poor's Corporation or
Moody's Investors Service, Inc.
6.6 Transactions with Affiliates
Borrowers shall not, and shall not permit any of their respective
Subsidiaries, and Hanover shall not permit any of its Subsidiaries, other than
Non-Guarantor Subsidiaries, to, directly or indirectly:
(a) purchase, acquire or lease any property from, or
sell, transfer or lease any property to, any shareholder, officer, director,
agent, employee or Affiliate, except on prices or terms no less favorable than
would have been obtained in an arm's length transaction with a non-Affiliated
Person, unless such transaction is permitted by another provision of this
Section 6.6 or Section 6.5 hereof, but in no event shall any such transaction
be engaged in by Borrowers or other members of the Affiliated Borrower Group
with a Non-Guarantor Subsidiary without Lender's prior written consent in each
instance; or
(b) make any payment of management fees, tax sharing
payments, dividends, distributions (other than its own capital stock), or the
principal amount of or interest on any Indebtedness owing to any Affiliate,
except
(i) with respect to any entire fiscal year of
Borrowers for which a consolidated Federal income tax return is filed by H&H or
Hanover that includes Borrowers and a positive consolidated tax liability is
due, as calculated and shown in the consolidated federal income tax return as
filed by H&H or Hanover, as the case may be, each Borrower may pay to H&H or
Hanover, as the case may be, an amount, not to exceed the lesser of (x) such
Borrower's allocable share of the consolidated Federal income tax liability for
each such year and (y) the accrued and unpaid liability of such Borrower to H&H
or Hanover
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arising under the Tax Sharing Agreement in respect of the prior use by such
Borrower of H&H's or Hanover's net operating losses to reduce the amount of
Federal income tax liability otherwise payable for any prior fiscal year of
such Borrower had its Federal income tax liability for such year been computed
on a separate Federal income tax return instead of a consolidated Federal
income tax return with H&H or Hanover, as the case may be; provided, that, such
Borrower is required to make each such payment to H&H or Hanover pursuant to
the Tax Sharing Agreement;
(ii) repayment of intercompany loans and advances
permitted under Section 6.5 hereof and repayment by GBM, Gump's and/or Gump's
Holdings to H&H or Hanover of up to $400,000 advanced by H&H to GBM, Gump's
and/or Gump's Holdings for expenses incurred in connection with the Gump's
Acquisition.
(iii) management fees to NAR or an Affiliate of
NAR in the aggregate amount of not greater than Seven Hundred Fifty Thousand
Dollars ($750,000) in each of calendar years 1993, 1994 and 1995;
(iv) customary and reasonable directors' fees to
directors of Borrowers or Hanover, in the same amounts as are paid to its
non-Affiliate directors;
(v) payments of legal expenses incurred by H&H, THC
or Hanover on behalf of Borrowers, not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) in any one fiscal year of Borrowers, plus additional amounts
for, respectively, the settlement of the litigation described as Shapiro v. H&H
on Exhibit F hereto of not more than Sixty-Five Thousand Dollars ($65,000) and
of the litigation described as Clay v. BOA on Exhibit F hereto of not more than
One Hundred Seventy-Five Thousand Dollars ($175,000); and
(vi) payments made by one Borrower to another
Borrower to reconcile the payments posted in due course to the respective
Accounts of such Borrower and other receipts with the application of daily
collections and receipts to the respective loan accounts of Borrowers
hereunder;
provided, however, in each case under clauses (i) through (v) of Section 6.6(b)
hereof that no Event of Default or Incipient Default has occurred and is
continuing; or
(c) declare or pay any dividend on account of any share
of any class of capital stock of Borrowers or any Subsidiary of Hanover, or any
other Person, now or hereafter outstanding, or set aside or otherwise deposit
or invest any sum for such purpose, or redeem, retire, defease, purchase,
repurchase or otherwise acquire for value any share of any class of capital
stock of Borrowers or any Subsidiary of Hanover (or
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set aside, pay into a sinking fund or otherwise deposit or invest any sum for
such purpose) for any consideration other than its own capital stock or apply
or set apart any sum, or make any other distribution (by reduction of capital
or otherwise) in respect of any such shares or agree to do any of the
foregoing, except that dividends may be declared and paid by Hanover on any
preferred stock of THC issued or outstanding on May 5, 1993 in accordance with
its terms as of May 5, 1993 or under the preferred stock of Hanover having the
same terms issued in conversion thereof pursuant to the reorganization
described in Exhibit K to the Existing Loan Agreement, in each case out of
legally available funds therefor, and provided no Event of Default or Incipient
Default has occurred and is continuing.
6.7 Maintenance of Existence
Each Borrower and each Guarantor shall at all times preserve, renew
and keep in full force and effect its corporate existence and rights and
franchises with respect thereto and each Borrower and each Guarantor shall
maintain in full force and effect all permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on the business as presently or proposed to be conducted, provided that (i) any
Guarantor, other than Hanover, may be dissolved at such time as it ceases to
conduct business and owns less than Ten Thousand Dollars ($10,000) of assets,
(ii) the assets of Leavitt and Ring shall be liquidated into THC within one
hundred twenty (120) days after May 5, 1993, and (iii) in connection with the
reorganization of certain members of the Affiliated Borrower Group effected as
described on Exhibit K attached to the Existing Loan Agreement, Borrowers shall
deliver and cause to be delivered to Lender such additional documents and
instruments pursuant to Section 6.20 hereof as Lender shall request in
connection with such reorganization. None of the Borrowers or any Guarantor
shall engage, directly or indirectly, in any line of business other than the
business in which it is engaged on the date hereof.
6.8 Sale and Leasebacks
None of the Borrowers shall enter into, and Hanover shall not permit
any of its Subsidiaries to enter into, any arrangement, directly or indirectly,
with any Person whereby such Borrower or Subsidiary shall sell or transfer any
property, real or personal, whether now owned or hereafter acquired, and
thereafter rent or lease such property which it intends to use for
substantially the same purpose or purposes as the property being sold or
transferred, unless such sale and leaseback relates to real property first
acquired and occupied after May 5, 1993 and such Borrower delivers to Lender
all applicable mortgagee and landlord waivers, access and use agreements, in
the form of Exhibit I attached hereof.
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6.9 Sale of Assets, Consolidation,
Merger, Dissolution, Etc.
None of the Borrowers, or any of their respective Subsidiaries or Mail
Order Joint Ventures or any Subsidiary of Hanover shall, directly or
indirectly, merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with Borrowers, any of
their respective Subsidiaries or Mail Order Joint Ventures or any Subsidiary of
Hanover, or sell, assign, lease, transfer, abandon or otherwise dispose of any
stock or Indebtedness of Borrowers, any of their respective Subsidiaries or
Mail Order Joint Ventures or of any Subsidiary of Hanover to any other Person,
or any of their property or assets to any other Person (other than sales of
Inventory in the ordinary course of business and sales of Equipment as
permitted under Section 6.12 hereof and except as permitted under Sections 6.21
and 6.23 hereof) or wind up, liquidate or dissolve or agree to do any of the
foregoing; provided, however, that (i) the foregoing shall not restrict
transactions otherwise permitted by the terms of Section 6.5(b) or 6.6(b)
hereof, as applicable, and (ii) any Subsidiary of Borrowers which is a
Guarantor, shall be dissolved at such time as it ceases to actively conduct
business and owns less than Ten Thousand Dollars ($10,000) of assets.
6.10 Compliance with Laws, Regulations, Etc.
Each Borrower and each member of the Affiliated Borrower Group shall
at all times comply in all material respects with all applicable provisions of
laws, rules, regulations, licenses, permits, approvals and orders and duly
observe all requirements, of any foreign, Federal, State or local governmental
authority, including, without limitation, ERISA, the IRC, the Occupational
Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of
1938, as amended, all Federal, State and local statutes, regulations, rules and
orders relating to consumer credit (including, without limitation, as each has
been or may be amended the Truth-in-Lending Act, the Fair Credit Billing Act,
the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the
regulations, rules and orders promulgated thereunder), all Federal, State and
local statutes, rules and orders relating to sale of consumer goods and mail
order sales (including, without limitation, the Consumer Product Safety Act of
1972, as amended, and the Federal Trade Commission Act of 1914, as amended, and
the rules, regulations and orders promulgated thereunder) and all other
statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and the Resource Conservation and Recovery
Act of 1976, as amended, and any similar State or local statutes with respect
thereto, and the
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regulations, rules and orders promulgated thereunder, subject, in the case of
any such law relating to the payment or collection and remittance of sales
and/or use taxes, to the provisions of Sections 5.8(b) and 2.5(b) hereof, which
shall control with respect to such matters in lieu of this Section 6.10.
6.11 Payment of Taxes and Claims
Borrowers shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against them or their properties
or assets, except for taxes which are being contested in good faith by
appropriate proceedings and with respect to which reserves have been set aside
in accordance with generally accepted accounting principles consistently
applied, in the determination of Lender, or if requested by Lender to protect
Lender's security interests or liens in any Collateral or Guarantor Collateral,
adequate amounts have been escrowed with or reserved against by Lender or other
arrangements satisfactory to Lender are made to cover all amounts which are
claimed due plus interest and possible penalties thereon; provided, however,
that with respect to sales and/or use taxes the provisions of Sections 5.8(b)
and 2.5(b) hereof shall control with respect to such matters in lieu of this
Section 6.11 hereof. Borrowers shall be liable for any tax or penalty imposed
upon any transaction under this Agreement or any of the other Financing
Agreements or giving rise to any Collateral or Guarantor Collateral or which
Lender may be required to withhold or pay for any reason and Borrowers shall
indemnify and hold Lender harmless with respect thereto, and shall repay to
Lender on demand the amount thereof, and, until paid by Borrowers, such amount
shall be added and deemed part of the Obligations, provided, that, nothing
contained herein shall be construed to require Borrowers to pay any income tax
attributable to the income of Lender in respect of any compensation charged or
paid hereunder to Lender.
6.12 Properties in Good Condition
(a) Each Borrower and Guarantor shall keep its properties
in good repair, working order and condition (reasonable wear and tear excepted)
and, from time to time, make all needful and proper repairs, renewals,
replacements, additions and improvements thereto, so that the business carried
on may be properly and advantageously conducted at all times in accordance with
prudent business management. The Inventory and the Equipment of each Borrower
and Guarantor shall be used in its business and not for personal, family,
household or farming use.
(b) All of the Inventory of each Borrower is and shall be
held for sale in the ordinary course of such Borrower's mail order and retail
business and is and shall be fit for such purposes. Borrowers shall not sell
or otherwise dispose of any
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Inventory except for mail order and retail sales in the ordinary course of
business and except for sales of outdated and surplus Inventory in the absence
of an Event of Default or Incipient Default which is continuing that comply
with the provisions of Section 6.21 hereof. Borrowers shall maintain all
Inventory according to a computerized perpetual inventory accounting system.
Borrowers shall keep the Inventory in good and marketable condition, at their
own expense. Borrowers shall not, without the prior written notice to Lender,
acquire or accept any Inventory on consignment or approval. Borrowers shall
conduct a physical count of the Inventory of Borrowers, at their expense, at
least annually prior to an Event of Default and at least twice a year during
the continuance of an Event of Default, and shall promptly supply Lender with a
copy of each such count. Borrowers shall not, without the prior written
consent of Lender, sell any Inventory on a bill-and-hold, guaranteed sale, sale
and return, sale on approval, or other repurchase or return basis, except for
Borrowers' existing return policies for their mail order sales and retail store
sales, in each case in the ordinary course of business and prior to an Event of
Default.
(c) The Equipment of each Borrower, other than any
Equipment constituting fixtures as of the date hereof, is now and shall remain
personal property and Borrowers shall not permit any material part of such
Equipment to be or become a part of or affixed to real property without (i)
prior written notice to Lender and the written consent of Lender and (ii) first
making all arrangements, and delivering or causing to be delivered to Lender,
such agreements and other documentation requested by Lender for the protection
and preservation of its security interests and liens, in form and substance
satisfactory to Lender.
(d) Borrowers shall not, without Lender's prior written
consent, sell, lease as a lessor, or otherwise dispose of any part of their
Equipment that has a fair market value greater than Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate for all such transactions in any fiscal
year of Borrowers. In the event any such Equipment is sold, transferred or
otherwise disposed of with Lender's prior written consent or as permitted
hereunder without such consent and: (i) such sale, transfer or disposition is
effected without replacement of such Equipment, or such Equipment is replaced
by Equipment leased by Borrowers, or by Equipment purchased by Borrowers
subject to a Purchase Money Lien, then Borrowers shall deliver all of the cash
proceeds of any such sale, transfer or disposition to Lender, which proceeds
shall be (A) applied to the repayment of the Obligations of Borrowers as
applicable, in such order and manner as Lender shall determine or (B) retained
by Lender as cash Collateral; or (ii) such sale, transfer or disposition is
made in connection with the purchase by Borrowers of replacement Equipment,
then Borrowers shall use the proceeds of such sale,
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transfer or disposition to finance the purchase by Borrowers of replacement
Equipment and shall deliver to Lender written evidence of the use of the
proceeds for such purchase. All replacement Equipment purchased by Borrowers
shall be free and clear of all liens, claims and encumbrances, except as
otherwise permitted hereunder.
(e) Borrowers assume and shall indemnify Lender from and
against all responsibility and liability arising from or relating to the use,
sale or other disposition of their respective Inventory and Equipment.
6.13 Insurance
Borrowers and Guarantors shall at all times maintain, with financially
sound and reputable insurers, insurance with respect to the Collateral and
Guarantor Collateral, insuring the same and their business against loss or
damage of the kind and in the amounts customarily insured against by
corporations of established reputation engaged in the same or similar business
and similarly situated, and Borrowers and Guarantors shall maintain public
liability insurance against claims for personal injury, death or property
damage occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by them and occurring in connection
with the use (or otherwise) of any products manufactured or sold by them,
worker's compensation insurance, and business interruption insurance. Said
policies of insurance shall be satisfactory to Lender as to form, amount and
insurer. Borrowers and Guarantors shall furnish certificates, policies or
endorsements to Lender as proof of such insurance, and, if they fail to do so,
Lender is authorized, but not required, to obtain such insurance at the expense
of Borrowers and Guarantors. All policies shall provide for at least thirty
(30) days prior written notice to Lender of any cancellation or reduction of
coverage. Lender, and its designees, are hereby irrevocably appointed to act
as attorney-in-fact for Borrowers and Guarantors in obtaining, and at any time
during the continuance of an Event of Default, adjusting, settling, amending
and canceling such insurance. Borrowers and each Guarantor shall obtain
non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender specifying that the proceeds of
such insurance shall be payable to Lender and further specifying that Lender
shall be paid regardless of any act or omission by Borrowers and/or any
Guarantor. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or
to payment of the Obligations of Borrowers and/or any Guarantor, whether or not
then due, in any order and in such manner as Lender, in its discretion, may
determine. Lender may retain such proceeds as cash Collateral for the
Obligations.
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6.14 Appraisals
Borrowers shall, at Borrowers' expense and after Lender's request,
deliver to Lender at least one (1) time during each calendar year during the
Term, and upon the request of Lender, one (1) more time during each such
calendar year, or permit Lender, with the same frequency, to obtain, written
reports or appraisals by the Appraiser of any or all of the Collateral, in
form, scope and methodology acceptable to Lender, and including, but not
limited to, a report as to the Orderly Liquidation Value of the Inventory of
Borrowers; provided, however, that if an Event of Default or Incipient Default
shall have occurred and be continuing, Borrowers shall, at Borrowers' expense,
deliver to Lender, at Lender's request, additional and more frequent written
reports or appraisals by the Appraiser of any or all of the Collateral,
including, but not limited to, reports as to the Orderly Liquidation Value of
the Inventory of Borrowers or such other reports in such form, scope and
methodology acceptable to Lender.
6.15 Compliance with ERISA
None of the Borrowers or any other member of the Affiliated Borrower
Group shall, with respect to all "employee pension benefit plans" maintained by
Borrowers or any other member of the Affiliated Borrower Group:
(a) (i) terminate any of such employee pension benefit
plans so as to incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA, (ii) allow or suffer to exist any prohibited
transaction involving any of such employee pension benefit plans or any trust
created thereunder which would subject Borrowers or any member of the
Affiliated Borrower Group to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the IRC or under ERISA, (iii) fail
to pay to any such employee pension benefit plan any contribution which it is
obligated to pay under the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency, whether or not waived, with respect to any
such employee pension benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation, or
(vi) incur any withdrawal liability with respect to any multiemployer plan
which is not fully bonded; except only, in the case of any of the foregoing, if
the resulting liability or potential liability of Borrowers or other member(s)
of the Affiliated Borrower Group, would not, individually or in the aggregate,
exceed Two Hundred Fifty Thousand Dollars ($250,000).
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(b) As used in this Section 6.15, the terms "employee
pension benefit plan," "employee benefit plan", "single employer plan",
"multiemployer plan", "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in Section 4975
of the IRC or under ERISA.
6.16 Notice of Default
Promptly upon any Responsible Officer becoming aware of the existence
of any condition or event which constitutes an Event of Default or Incipient
Default, Borrowers shall give Lender written notice thereof specifying the
nature of such condition or event.
6.17 Financial Statements and Other Information
(a) Borrowers shall promptly furnish to Lender all such
financial information regarding each Borrower and each member of the Affiliated
Borrower Group as Lender shall reasonably request, and notify the auditors and
accountants of Borrowers and each member of the Affiliated Borrower Group that
Lender is authorized to obtain such information directly from them. Without
limiting the foregoing, Borrowers shall furnish to Lender, in such detail as
Lender shall request, the following:
(i) As soon as available, but in any event not
later than ninety (90) days after the close of each fiscal year, consolidated
audited balance sheets, and statements of income and expense, cash flows and
stockholders' equity for Hanover and its Subsidiaries for such fiscal year, and
the accompanying notes thereto, setting forth in each case, in comparative
form, figures for the previous fiscal year, all in reasonable detail, fairly
presenting the financial position and the results of operations of Hanover and
its Subsidiaries, as at the date thereof and for the fiscal year then ended,
and prepared in accordance with generally accepted accounting principles,
consistently applied. Such statements shall be examined in accordance with
generally accepted auditing standards by and accompanied by an unqualified
report and opinion thereon by one of the following independent certified public
accountants selected by Hanover: Arthur Andersen & Co.; Coopers and Lybrand;
Ernst & Young; Deloitte & Touche; KPMG Peat Marwick; or Price Waterhouse & Co.
(ii) As soon as available, but in any event not
later than forty-five (45) days after the close of each fiscal quarter, the
consolidated unaudited balance sheet of H&H and its Subsidiaries and the
consolidated and consolidating unaudited balance sheets of THC and its
Subsidiaries as at the end of such quarter, consolidated unaudited statements
of income and expense and changes in financial position of H&H and its
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Subsidiaries and consolidated and consolidating unaudited statements of income
and expense and changes in financial position for THC and its Subsidiaries for
such quarter and for the period from the beginning of the fiscal year to the
end of such quarter, together with the accompanying notes thereto, if any, all
in reasonable detail, fairly presenting the financial position and results of
operation of H&H and its Subsidiaries and THC and its Subsidiaries as at the
date thereof and for such periods, prepared in accordance with generally
accepted accounting principles, consistently applied. Commencing with the
fiscal quarter ending on or about September 25, 1993, the foregoing financial
statements shall be prepared for Hanover and its Subsidiaries in lieu of H&H
and THC and their Subsidiaries. The foregoing financial statements shall be
certified to comply with this Section by the chief financial officer(s) of H&H,
THC and Borrowers, or of Hanover and Borrowers, as the case may be, subject to
normal year-end adjustments.
(iii) (A) As soon as available, but in any event
not later than (x) thirty (30) days after the end of each fiscal month (other
than the January fiscal month, in which case not later than forty-five (45)
days after the end of such fiscal month), the consolidated unaudited balance
sheet of H&H and its Subsidiaries as at the end of such month, (y) forty-five
(45) days after the end of each fiscal month, the consolidated unaudited
balance sheet of THC and its Subsidiaries as at the end of such month, and (z)
sixty (60) days after the end of each fiscal month, the consolidating unaudited
balance sheets of THC and its Subsidiaries as at the end of such month.
Commencing with the fiscal month ending on or about September 25, 1993, the
foregoing financial statements shall be prepared for Hanover and its
Subsidiaries in lieu of H&H and THC and their Subsidiaries.
(B) As soon as available, but in any event
not later than thirty (30) days after the end of each fiscal month (other than
the January fiscal month, in which case not later than ninety (90) days after
the end of such fiscal month, and other than the March, June and September
fiscal months, in which case not later than forty-five (45) days after the end
of such fiscal months), the consolidated unaudited statements of income and
expense of H&H and its Subsidiaries and the consolidated unaudited statements
of income and expense for THC and its Subsidiaries for such month and for the
period from the beginning of the fiscal year to the end of such month.
Commencing with the fiscal month ending on or about September 25, 1993, the
foregoing financial statements shall be prepared for Hanover and its
Subsidiaries in lieu of H&H and THC and their Subsidiaries.
All such statements in Sections 6.17(a)(iii)(A) and (B) hereof shall be in
reasonable detail, fairly presenting the financial position and results of
operation of H&H and its Subsidiaries or
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THC and its Subsidiaries or Hanover and its Subsidiaries, as the case may be,
as at the dates thereof and for such periods, and prepared in accordance with
generally accepted accounting principles consistently applied. All such
statements in Sections 6.17(a)(iii)(A) and (B) shall be certified to comply
with this Section by the chief financial officer(s) of H&H, THC and Borrowers,
or of Hanover and Borrowers, as the case may be, subject to normal year-end
adjustments.
(iv) With each of the audited financial statements
delivered pursuant to Section 6.17(a)(i) above, a certificate of the
independent certified public accountants who examined such statements to the
effect that they have reviewed and are familiar with the Financing Agreements
and that, in examining such financial statements, they did not become aware of
any fact or condition which then constituted an Event of Default or Incipient
Default, except for those, if any, described in reasonable detail in such
certificate.
(v) Simultaneously with the delivery of each of
the annual audited and quarterly and monthly unaudited financial statements as
set forth herein, Lender shall receive a certificate of the chief financial
officer of Borrowers:
(A) setting forth in reasonable detail the
calculations required to establish that Borrowers were in compliance with the
covenants set forth in Sections 6.18 and 6.19 hereof during the period covered
in such financial statements; and
(B) stating that, except as explained in
reasonable detail in such certificate, (1) all of the representations,
warranties and covenants of Borrowers contained in this Agreement and the other
Financing Agreements are correct and complete as at the date of such
certificate and (2) no Event of Default then exists or existed during the
period covered by such financial statements.
If such certificate discloses that a representation or warranty is not correct
or complete, or that a covenant has not been complied with, or that an Event of
Default existed or exists, such certificate shall set forth what action
Borrowers have taken or propose to take with respect thereto (but without
prejudice to Lender's rights to declare an Event of Default immediately with
respect thereto and/or exercise any of its rights and remedies hereunder or
otherwise with respect thereto). At such time, Borrowers shall also provide a
narrative describing and analyzing in reasonable detail all material trends,
changes and developments in each and all financial statements.
(vi) Promptly after delivery thereof, any
management letters and reports by such independent certified
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public accountants to H&H, THC, Hanover and their Subsidiaries and Mail Order
Joint Ventures.
(vii) Reports on sales, including:
(A) Weekly reports of sales, indicating
for each Borrower gross sales, returns, allowances and net sales;
(B) Monthly reports of sales for each
category of Inventory of each Borrower, i.e., General Merchandise Inventory,
Home Furnishings Inventory, Men's Fashion Inventory and Women's Fashion
Inventory, Gump's Eligible Inventory, TSC Eligible Inventory and Tweeds
Eligible Inventory, indicating for such Inventory category, the sales for each
catalog of each Borrower and of each retail store of Borrowers; and
(C) Quarterly reports of sales and
operating profits for that quarter with a comparison to the immediately
preceding quarter for each category of Inventory of each Borrower, i.e.,
General Merchandise Inventory, Home Furnishings Inventory, Men's Fashion,
Inventory, Women's Fashion Inventory, Gump's Eligible Inventory, TSC Eligible
Inventory and Tweeds Eligible Inventory, indicating for such Inventory
category, the sales for each catalog of each Borrower and each retail store of
Borrowers.
(viii) Reports on Inventory, including:
(A) Weekly reports as to Inventory,
indicating the aggregate Value of each category of Inventory of each Borrower,
i.e., General Merchandise Inventory, Home Furnishing Inventory, Men's Fashion
Inventory, Women's Fashion Inventory and Gump's Eligible Inventory (showing
catalog and retail store Inventory of GBM and Gump's separately), TSC Eligible
Inventory (showing catalog and retail store Inventory of TCSA and SDSA
separately) and Tweeds Eligible Inventory;
(B) Monthly reports as to Inventory,
including each category of Inventory of each Borrower, i.e., General
Merchandise Inventory, Home Furnishing Inventory, Men's Fashion Inventory,
Women's Fashion Inventory, Gump's Eligible Inventory, TCS Eligible Inventory,
Tweeds Eligible Inventory and each catalog of each Borrower and each retail
store of Borrowers on a perpetual basis by Value;
(C) Monthly reports in respect of each
catalog of each Borrower in respect of unfilled orders in the aggregate,
indicating the number of days that orders have not been filled for each catalog
of each Borrower; and
(D) Weekly reports as to Inventory by
Borrowers indicating items of Inventory in transit to Borrowers
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grouped according to the documentary letter of credit and/or bill of lading
number.
(ix) Monthly reports on sales and use tax
collections, deposits and payments, including a written analysis prepared by
Borrowers in respect of monthly sales and use tax accruals and, if requested by
Lender, copies of sales and use tax return, filed by Borrowers.
(x) Monthly reports on Accounts, including
aggregate outstanding amounts, prepayments, accruals and returns and other
credits.
(xi) Any other financial and other information
regarding the Collateral or Guarantor Collateral as Lender may reasonably
request from time to time.
(xii) As soon as available, but in any event not
later than five (5) days after receipt by Borrowers, any statements, reports,
notices or documents furnished to Borrowers by the Private Credit Card
Purchaser or the parties to any of the Third Party Credit Card Agreements,
including any Third Party Credit Card Issuer or servicing agent or purchaser or
financial intermediary, together with such additional information as shall be
sufficient to enable Lender to monitor the transactions pursuant to the Private
Credit Card Agreement and the Third Party Credit Card Agreements.
(b) Borrowers shall promptly notify Lender in writing
when any Responsible Officer becomes aware that any investigation, action,
suit, proceeding or claim involving a potential loss or liability to any
Borrower or any other member of the Affiliated Borrower Group in excess of Two
Hundred Fifty Thousand Dollars ($250,000), which exposure is not covered by
insurance.
(c) Borrowers and each Guarantor shall promptly provide
Lender with any material information, notices, requests or reports filed with,
or furnished to, or received from any governmental or regulatory authority,
including all Forms 10- K, 10-Q and 8-K, and proxy materials and other
disclosure materials filed with the SEC, or furnished to the shareholders of
Borrowers and/or Guarantors.
(d) In addition to and not by way of limiting the other
provisions of this Section 6.17, Borrowers and each Guarantor will promptly
provide Lender with such budgets, forecasts, projections, business plans, cash
flows and other information respecting the business operations and financial or
other condition of Borrowers and Guarantors, including information about
Borrowers' arrangements with trade creditors and such
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trade creditors' support for the coming seasons, as Lender may, from time to
time, request.
(e) Lender is authorized to deliver a copy of any
financial statement or any other information relating to the business,
operations or financial condition of Borrowers and any member of the Affiliated
Borrower Group, which may be furnished to it hereunder or otherwise, to any
court, regulatory body or agency having jurisdiction over Lender or to any
other person which shall, or shall have any right or obligation to, succeed to
all or any part of Lender's interests in any of the Obligations, this
Agreement, the other Financing Agreements, or the Collateral or Guarantor
Collateral, including, without limitation, any Participant.
(f) Each Borrower and each Guarantor hereby irrevocably
authorizes and directs all accountants, auditors and other third parties (but
excluding Borrower's and Guarantor's attorneys) to deliver to Lender at
Borrowers' expense, copies of the financial statements, papers related thereto
or other accounting records of any nature in their possession and to disclose
to Lender any information they may have regarding the business affairs and
financial condition of Borrowers and each other member of the Affiliated
Borrower Group. Lender shall obtain the applicable Borrower's or Guarantor's
prior written consent before making any request pursuant to this Section
6.17(f), which consent such Borrower or Guarantor shall not unreasonably
withhold or delay.
6.18 Consolidated Working Capital
(a) Hanover and HDPI, respectively, shall, as at the end of
each fiscal month, maintain Consolidated Working Capital (i) calculated on a
consolidated basis for Hanover and its Subsidiaries, including Borrowers (but
excluding Non-Guarantor Subsidiaries), of not less than Thirty-One Million Five
Hundred Thousand Dollars ($31,500,000) and (ii) calculated on a consolidated
basis for HDPI and its Subsidiaries of not less than Thirty One Million Eight
Hundred Dollars ($31,800,000).
(b) Notwithstanding Section 6.18(a), with respect to each
fiscal month of Hanover ending before April 1, 1994, the current assets and
current liabilities of Gump's Holdings, GBM and Gump's shall be excluded from
the calculation of any Consolidated Working Capital under such Section.
6.19 Consolidated Net Worth
(a) Hanover and HDPI, respectively, shall, as at the end of
each fiscal month, maintain Consolidated Net Worth (i) calculated on a
consolidated basis for Hanover and its Subsidiaries, including Borrowers (but
excluding Non-Guarantor
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Subsidiaries), of at least Thirteen Million Dollars ($13,000,000) and (ii)
calculated on a consolidated basis for HDPI and its Subsidiaries of not less
than negative Forty-Three Million Nine Hundred Thousand Dollars (-$43,900,000).
(b) Notwithstanding Section 6.19(a), with respect to each
fiscal month of Hanover ending before April 1, 1994, the assets and liabilities
of Gump's Holdings, GBM and Gump's shall be excluded from the calculation of
Consolidated Net Worth under such Section.
6.20 Further Assurances
Each Borrower and Guarantor has executed or shall execute and deliver
to Lender such of the other Financing Agreements to which it is a party and
financing statements pursuant to the UCC, in form and substance satisfactory to
Lender. Borrowers and each Guarantor shall, at their expense, at any time or
times duly execute and deliver, or shall cause to be duly executed and
delivered, such further agreements, instruments and documents, including,
without limitation, additional security agreements, mortgages, deeds of trust,
deeds to secure debt, collateral assignments, pledge agreements, Uniform
Commercial Code financing statements or amendments or continuations thereof,
landlord's or mortgagee's waivers of liens and consents to the exercise by
Lender of all the rights and remedies hereunder, under any of the other
Financing Agreements or applicable law with respect to the Collateral and/or
Guarantor Collateral, and do or cause to be done such further acts as may be
necessary or proper in Lender's opinion to evidence, perfect, maintain and
enforce the security interest and the priority thereof in the Collateral and
Guarantor Collateral and to otherwise effectuate the provisions or purposes of
this Agreement or any of the other Financing Agreements. Where permitted by
law, Borrowers and each Guarantor hereby authorize Lender to execute and file
one or more Uniform Commercial Code financing statements signed only by Lender.
Upon the request of Lender, at any time and from time to time, Borrowers and
each Guarantor shall, at their cost and expense, do, make, execute, deliver and
record, register or file financing statements, mortgages, deeds of trust, deeds
to secure debt, and other instruments, acts, pledges, assignments and transfers
(or cause the same to be done) and will deliver to Lender such instruments
evidencing items of Collateral or Guarantor Collateral as may be requested by
any of them.
6.21 Sales of Outdated and Surplus Inventory
(a) Borrowers may sell, transfer or dispose of outdated
and surplus Inventory to jobbers or other third parties only to the extent that
any one transaction or series of related transactions does not involve
Inventory having an aggregate original cost to Borrowers of greater than Four
Million Dollars
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($4,000,000); provided, that (i) Borrowers remit, or cause to be remitted, to
Lender all the proceeds of such sales; (ii) Borrowers account for all such
sales separately in the weekly Inventory reports provided to Lender; (iii)
Borrowers provide to Lender written notice within five (5) calendar days after
each such sale; and (iv) no Event of Default or Incipient Default has occurred
and is continuing.
(b) In the event that any sale by Borrowers referred to
in Section 6.21(a) hereof could result in the Excess Availability falling below
One Dollar ($1.00), Borrowers shall notify Lender in writing at least five (5)
business days prior to the consummation of such sale.
6.22 Maintenance and Delivery of Customer Lists
Borrowers shall create and maintain all Customer Lists in industry
standard formats stored on industry standard electronic data storage media and
accessible using industry standard hardware and software. Customer Lists shall
be updated and delivered to the storage and escrow agent under the Customer
List Escrow Agreement, not less frequently than monthly, on or before the tenth
(10th) day of each month. Receipt of the delivery of such updated Customer
Lists shall be acknowledged in writing by the storage and escrow agent and a
copy of each receipt delivered to Lender on or before such tenth (10th) day of
each month. Lender shall have the access to and the right to inspect the
Customer Lists in Borrowers' possession or in the possession of the storage and
escrow agent, at any time during normal business hours. Upon and at any time
after the occurrence and during the continuance of an Event of Default or
Incipient Default, Lender shall have the right to direct the storage and escrow
agent to deliver the Customer Lists in its possession to Lender and Lender
shall have the right to require Borrowers to deliver all Customer Lists and
periodic updates thereof directly to Lender, without, in any case, limiting
Lender's other rights and remedies hereunder or under the other Financing
Agreements.
6.23 Rental or License of Customer Lists
Borrowers are and shall be the sole owners of all Customer Lists used
in Borrowers' business. No portion of the Customer Lists shall be sold,
leased, licensed or otherwise disposed of by Borrowers, except, that so long as
no Event of Default or Incipient Default has occurred and is continuing,
Borrowers may, in the ordinary course of business in accordance with past
practices, enter into non-exclusive rental agreements or license agreements
permitting the use of Borrowers' mailing and customer lists; provided, that (a)
such agreements do not impair the value, salability or disposability of the
Customer Lists as a whole; and (b) all proceeds of such rentals or licensing by
Borrowers are remitted to Lender hereunder. In addition, prior
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to an Event of Default or Incipient Default that has occurred and is
continuing, Borrowers may sell outright to non-Affiliates such portions of the
Customer Lists having a fair market value aggregating not more than Two Hundred
Fifty Thousand Dollars ($250,000) in any one fiscal year for all such sales to
non-Affiliates; provided, that all proceeds of such sale are remitted to Lender
hereunder.
6.24 No Termination or Amendment of Credit Card Agreements
Borrowers shall not, without Lender's prior written consent, terminate
or not renew any of the Credit Card Agreements, unless replacement agreements
satisfactory to Lender are entered into by Borrowers. Borrowers shall not,
without Lender's prior written consent, enter into any amendment or supplement
to the Credit Card Agreements which could in any manner adversely affect the
Collateral, the Obligations or the rights and interests of Lender hereunder or
under the other Financing Agreements.
6.25 Obligations to be Senior Indebtedness
Notwithstanding anything to the contrary in this Agreement, the
Indebtedness, if any, of Borrowers, Guarantors or any other direct or indirect
Subsidiary of Hanover in respect of any debt instruments of H&H or THC
described on Exhibit E attached hereto shall be subordinated in right of
payment to the Obligations of Borrowers and Guarantors to Lender, and the
Obligations of Borrowers and Guarantors to Lender shall at all times be deemed
senior in right of payment to all such Indebtedness.
6.26 Mail Order Joint Ventures
Borrowers may directly or through a Subsidiary of Borrowers establish
or continue to own an interest in a Mail Order Joint Venture that is not a
Subsidiary of Borrowers, only to the extent that:
(a) the aggregate amount of capital, investments, equity,
loans, payments or assets of any kind contributed, directly or indirectly, by
Borrowers and its Subsidiaries to all Mail Order Joint Ventures shall not
exceed Five Million Dollars ($5,000,000) for the period from May 5, 1993
through the end of calendar year 1993, and shall not exceed Ten Million Dollars
($10,000,000) for the period from May 5, 1993 through the end of the Term,
except that the foregoing limitations shall not apply to sales of Inventory in
the ordinary course of business by Borrowers directly or through a Subsidiary
of Borrowers to any Mail Order Joint Venture under arrangements satisfactory to
Lender such that timely payment to Borrowers is made on normal trade terms, in
cash, of the cost of such Inventory; provided, that in the case of Eligible
Inventory so sold (but not in the case of such sales of Inventory which are not
Eligible
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Inventory), Borrowers shall receive and deposit each such payment to the
blocked accounts provided for in Section 8.2 hereof.
(b) Borrowers shall and shall cause each Subsidiary of
Borrowers owning an interest in such Mail Order Joint Venture to (i) grant a
security interest in and to, and pledge and assign to Lender, its interest in
or to such Mail Order Joint Venture; (ii) obtain and deliver to Lender any
necessary consents by the Mail Order Joint Venture or other Persons to the
security interest, pledge and assignment under clause (i); (iii) obtain an
acknowledgment from the Mail Order Joint Venture and each Person having an
interest therein waiving and releasing Lender from any liability for any
proceeds of Inventory or other assets owned by the Mail Order Joint Venture
commingled with or deposited to any of the blocked accounts maintained by
Lender hereunder or otherwise received by Lender; (iv) provide Lender written
notice thirty (30) days prior to the formation of each Mail Order Joint
Venture; and (v) agree in favor of Lender not to cause or permit such Mail
Order Joint Venture or any Person having an interest therein to encumber any
assets of the Mail Order Joint Venture, (all of the foregoing in clauses (i)
through (v) shall be evidenced by documents, instruments and/or agreements in
form and substance satisfactory to Lender). Borrowers shall at all times
maintain all Inventory or other assets of each Mail Order Joint Venture
segregated and not commingled with any of Borrowers' Inventory or other assets.
Notwithstanding the foregoing, the requirements of clauses (iii), (iv) and (v)
shall not apply to the Avon Joint Venture and the requirements of clauses (iii)
and (iv) shall not apply to the Essence Joint Venture.
(c) In the event a Mail Order Joint Venture is able to
obtain financing for its operations from a non- Affiliated lender on a
completely stand alone basis, i.e., not involving any investment (other than as
permitted herein), guarantee or other direct or indirect financial or credit
support or enhancement by Borrowers or any other member of the Affiliated
Borrower Group or any Non-Guarantor Subsidiary, then, provided Lender has been
given and has not exercised a thirty (30) day right of first refusal to elect
to provide such financing itself to such Mail Order Joint Venture on the same
economic terms as set forth in any bona fide financing commitment, proposal or
offer solicited or received by such Mail Order Joint Venture and upon such
other terms satisfactory to Lender, and provided no Event of Default or
Incipient Default has occurred and is continuing, Lender shall release the Mail
Order Joint Venture from the restriction on liens set forth in subsection
6.26(b)(v) hereof to the extent required by the non-Affiliated lender providing
such stand alone financing.
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6.27 9.25% Notes
(a) The proceeds of issuance of the 9.25% Notes shall be
used first to prepay, discharge or defease all Indebtedness under the
outstanding Amended 8% Senior Subordinated Notes due 1994 of THC and the 14%
Senior Subordinated Debentures due 1997 of H&H. Any other use of such proceeds
of issuance of the 9.25% Notes, other than as set forth in this Section 6.27(a)
hereof, shall be subject to the prior written consent of Lender. Once cash in
the amounts sufficient to prepay, discharge or defease the Amended 8% Senior
Subordinated Notes of THC and the 14% Senior Subordinated Debentures of H&H is
deposited with the appropriate indenture trustee in respect of such debt
securities, the cash so deposited and the liabilities under the Amended 8%
Senior Subordinated Notes of THC and the 14% Senior Subordinated Debentures of
H&H in the amount of the cash so deposited, will be excluded from the
calculations required by the financial covenants under Sections 6.18 and 6.19
of this Agreement.
(b) Hanover has advised Lender that it intends, directly
or through a newly-formed Subsidiary of Hanover, to use up to $6,000,000 of the
proceeds of the issuance of the 9.25% Notes for the establishment or
acquisition of, and improvements to, new Eligible Inventory Locations, first
leased or acquired by Borrowers after May 5, 1993, and that, with respect to
Indebtedness of Hanover or any such Subsidiary of Hanover in connection with
the 9.25% Notes and such use, including intercompany Indebtedness, Hanover will
and will cause such Subsidiary to comply with the provisions of clauses (i) and
(ii) of the proviso contained in Section 6.3(h) of this Agreement. Any other
use of the proceeds of issuance of the 9.25% Notes, other than as set forth in
Section 6.27(a) and (b) hereof, shall be subject to the prior written consent
of Lender.
(c) Anything contained in this Agreement to the contrary
notwithstanding, if any existing or future member of the Affiliated Borrower
Group shall at any time guarantee, assume or otherwise become liable for all or
any part of the obligations under the 9.25% Notes, such member shall execute
and deliver to Lender all of the instruments and documents required under
Section 6.2 hereunder and shall be treated as a Guarantor hereunder.
(d) Anything set forth in the 9.25% Subordination
Agreement to the contrary notwithstanding, Lender shall not cure any default or
event of default claimed to exist by the "Junior Creditor" under the 9.25%
Notes or the other "Junior Creditor Agreements" (as such quoted terms are
defined in the 9.25% Subordination Agreement), without the prior written
consent of Hanover if and so long as the claimed default or event of default is
being contested in good faith by appropriate proceedings by Hanover or any
other obligor against whom a claim is made by
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reason of such claimed default or event of default, Lender has been notified in
writing of such contest, adequate reserves have been set aside on the books of
Hanover or such other obligor, as appropriate, in accordance with generally
accepted accounting principles consistently applied and no judgment or other
enforcement action against any property of any member of the Affiliated
Borrower Group has been or is about to be obtained, enforced or taken.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default
The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
(a) Any Borrower shall fail to pay to Lender when due any
amounts owing to Lender under any Obligation; or
(b) Any Borrower shall breach any of the terms,
covenants, conditions or provisions of this Agreement, any supplement hereto or
any other agreement between Lender and Borrowers, including any of the other
Financing Agreements or any other default or Event of Default occurs or exists
under any of the foregoing; or
(c) Any of the Guarantors or other endorser or other
Person liable on the Obligations of Borrowers shall terminate or breach any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such Person with, or in favor of, Lender; or
(d) Any representation, warranty or statement of fact
made to Lender at any time by any Borrower or any Guarantor or on behalf of any
Borrower or any Guarantor is false or misleading in any material respect; or
(e) Any Borrower, any Guarantor (other than IMR) or any
other Person at any time liable on or in respect of the Obligations shall
default in the payment of an amount greater than Two Hundred Fifty Thousand
Dollars ($250,000), individually or in the aggregate, at any time due or any
Indebtedness at any time owing to any Person other than Lender or in the
performance of any other terms or covenants or any evidence of same or other
agreement relating thereto or securing same, or with respect to any material
contract, lease (other than leases under which H&H is the sole obligor relating
to property not used in the business of Borrowers), license or other obligation
owed to any Person other than Lender, which default continues for more than the
applicable cure period, if any, with respect thereto, but in no
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event more than thirty (30) days after the occurrence of any such default; or
(f) The aggregate amount outstanding at any one time
under the Third Party Credit Card Agreements collectively owed to Borrowers and
not paid after the date such payment is due shall exceed Five Million Dollars
($5,000,000); or reserves or any other mechanism effecting a reduction of the
amount actually paid to Borrowers pursuant to any such Third Party Credit Card
Agreement have been implemented or imposed after the date hereof in an amount
exceeding One Hundred Thousand Dollars ($100,000) in the aggregate; or
Borrowers shall default in the performance of their obligations under any of
the Credit Card Agreements; or any of the Credit Card Agreements shall be
terminated or not renewed; or the Private Credit Card Purchaser shall suspend
or cease purchasing Private Credit Card Receivables; or any party to the Third
Party Credit Card Agreements shall cease purchasing and/or processing
transactions involving Third Party Credit Card Receivables; or
(g) Any Borrower or any of Hanover, IMR or any other
Guarantor having assets in excess of Two Hundred Fifty Thousand Dollars
($250,000), shall become insolvent, fail to meet its debts as they mature, call
a meeting of creditors or have a creditors' committee appointed, make an
assignment for the benefit of creditors, commence or have commenced against it
any action or proceeding for relief under the Bankruptcy Code or any other
bankruptcy law or similar statute or statutes providing for reorganization,
adjustment of debts, liquidation or dissolution (except in the case of any such
action or proceeding commenced against any Borrower, Hanover, IMR or any other
Guarantor having assets in excess of Two Hundred Fifty Thousand Dollars
($250,000), such action or proceeding is dismissed within thirty (30) days from
the date such action or proceeding was commenced, unless such Borrower, Hanover
or IMR against whom such action was brought shall acquiesce to the relief
sought or such relief sought is sooner granted; provided, however, that during
such thirty (30) day period Lender shall have no obligation to make or provide
any Revolving Inventory Loans, Additional Advances or Letter of Credit
Accommodations), or if any Borrower or Hanover, IMR or any other Guarantor
having assets in excess of Two Hundred Fifty Thousand Dollars ($250,000)
suspends or discontinues doing business for any reason, (other than as
permitted in Section 6.7 hereof), or if a receiver, custodian or trustee of any
kind is appointed for any Borrower or Hanover, IMR or any other Guarantor
having assets in excess of Two Hundred Fifty Thousand Dollars ($250,000) or any
of their respective properties; or
(h) One (1) or more judgments, decrees or orders for the
payment of damages in an amount greater than Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate at any time shall be issued by one or more courts,
governmental agencies,
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administrative tribunals or other bodies having jurisdiction against any
Borrower, Hanover, IMR or any other Guarantor with assets greater than Two
Hundred Fifty Thousand Dollars ($250,000) and a stay of execution thereof shall
not be procured within thirty (30) days after the date of entry thereof, or
such judgment(s), decree(s) or order(s) shall not be fully bonded within such
period of thirty (30) days, unless sooner enforced; or
(i) If there shall be a material adverse change in the
business, assets, liabilities or condition of the Affiliated Borrower Group,
taken as a whole, after December 26, 1992; or
(j) NAR shall cease, 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;
provided, however, that the existence or occurrence of any one or more of the
foregoing conditions or events with respect to one or both of GBM or Gump's
other than an intentional default, shall not be deemed an Event of Default
hereunder with respect to any Borrower or Guarantor other than GBM, Gump's and
Gump's Holdings (whether or not only one of GBM or Gump's is the subject of
such condition or event) (A) in the case of any such event or condition capable
of being cured by the payment of money, if the same shall be cured within five
(5) business days after the first occurrence of such event or first existence
of any such condition, without any notice from Lender being required, or, if
not so capable of being cured, (B) if within five (5) days after the first
occurrence of such event or first existence of such condition, without any
notice from Lender being required, all non-contingent Obligations determined by
Lender to be outstanding in respect of Revolving Inventory Loans and Letter of
Credit Accommodations to GBM and Gump's (whether or not only one of GBM or
Gump's is the subject of the occurrence or condition giving rise to the
application of this clause (B)) are fully and indefeasibly paid to Lender, and
cash Collateral is delivered to Lender, or a clean irrevocable letter of credit
is issued in Lender's favor by a bank acceptable to Lender in its discretion
and having documentary and other terms acceptable to Lender in its discretion,
in order to secure and provide for payment in full of all contingent
Obligations of GBM and Gump's to Lender, all such payments and the cash
Collateral or letter of credit required under this Clause (B), to be funded
either from loan availability of HDPI and/or Brawn hereunder or, if there is
insufficient availability, then from sources outside of, and without liability
to the funding source on the part of, any
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member of the Affiliated Borrower Group; provided further, that while any such
event or condition is continuing and, thereafter, if clause (B) shall have been
availed of, no further Revolving Inventory Loans or Letter of Credit
Accommodations shall be made available to GBM or Gump's, except in Lender's
sole and absolute discretion. In addition to the foregoing provisos, the
existence or occurrence of any one or more of the foregoing conditions or
events with respect to TCS Factory, by reason of or related to its failure to
pay Indebtedness owed to the mortgagees of its premises, as to which
Indebtedness no other member of the Affiliated Borrower Group is liable, shall
not be deemed an Event of Default hereunder with respect to any Borrower or
Guarantor other than to the extent necessary to permit Lender to exercise its
rights of access to and use of the premises and equipment of TCS Factory and
its Affiliates to protect Lender's interests in Collateral.
7.2 Remedies
Subject in the case of IMR to the provisions of Section 7.2(j):
(a) Without limiting Lender's rights to demand payment
sooner as provided in this Agreement, upon or at any time after the occurrence
or existence of any one or more of such Events of Default, upon termination of
this Agreement or any of the other Financing Agreements, or if this Agreement
and the other Financing Agreements are not renewed, in addition to any other
rights Lender may have under the Financing Agreements or otherwise:
(i) Lender may, at any time thereafter, at its
option, without presentment for payment, demand, notice of dishonor or notice
of protest or any other or further notice, all of which are hereby expressly
waived by Borrowers and Guarantors, declare any or all of the Obligations of
Borrowers and/or Guarantors to be immediately due and payable, together with
interest at the highest rate of interest hereunder until fully and indefeasibly
paid;
(ii) each Participant, to the fullest extent
permitted by applicable law, shall have the right to (A) set off against the
Obligations of Borrowers and Guarantors any and all deposits (whether general
or special, time or demand, provisional or final), credits, balances, accounts,
monies or other assets which are the property of Borrowers or any Guarantor and
held by such Participant or owed by such Participant to Borrowers or any
Guarantor and (B) remit the same to Lender for application to the Obligations
of Borrowers and/or Guarantors;
(iii) without further notice to Borrowers or
Guarantors, Lender may appropriate, set off and apply to the payment of any or
all of the Obligations of Borrowers and/or
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Guarantors, any or all Collateral, in such manner as Lender shall determine,
enforce payment of any Collateral and/or Guarantor Collateral, settle,
compromise or release in whole or in part, any amounts owing on the Collateral
and/or Guarantor Collateral, make allowances and adjustments with respect
thereto, issue credits in Lender's or Borrowers' name, sell, assign and deliver
the Collateral and/or Guarantor Collateral (or any part thereof), at public or
private sale, at broker's board, for cash, upon credit or otherwise, at
Lender's option and discretion, and Lender may bid or become purchaser at any
such sale, if public, free from any right of redemption which is hereby
expressly waived;
(iv) without limiting the generality of the
foregoing, Lender is hereby authorized at any time and from time to time, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other Indebtedness at any time owing
by any Lender or any Affiliate of Lender to or for the credit or the account of
Borrowers or any Guarantor against any and all of the Obligations of Borrowers
and/or Guarantors, whether or not then due and payable; and
(v) Lender shall have the right, without notice
to Borrowers or any Guarantor (except as otherwise expressly provided herein),
at any time and from time to time in its discretion, with or without judicial
process or the aid or assistance of others and without cost to Lender (A) to
enter upon any premises on or in which any of the Inventory or Equipment of
Borrowers and/or Guarantors may be located and, without resistance or
interference by Borrowers or any Guarantor, take possession of such Inventory
or Equipment; (B) to sell, foreclose or otherwise dispose of any part or all of
such Inventory or Equipment on or in any premises of Borrowers, any Guarantor
or premises of any other party; (C) to require Borrowers and/or Guarantors, at
their expense, to assemble and make available to Lender any part or all of such
Inventory or Equipment at any place and time designated by Lender; and (D) to
remove any or all of such Inventory or Equipment from any premises on or in
which the same may be located, for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose.
(b) Lender shall have all of the rights and remedies of a
secured party under the UCC or applicable law of any other State in which any
Collateral or Guarantor Collateral may be situated, in addition to all of the
rights and remedies set forth in this Agreement and the other Financing
Agreements, and in any instrument or document referred to herein or therein,
and/or under any other applicable law relating to this Agreement, the other
Financing Agreements, the Obligations of Borrowers and/or Guarantors, the
Collateral or the Guarantor Collateral.
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(c) Each Borrower and Guarantor agrees that in any case
where the giving of notice of sale or other disposition of Collateral and/or
Guarantor Collateral is required by law, the giving of ten (10) days notice to
such Borrower or Guarantor by Lender at their addresses set forth below,
designating the place and time of any public sale or of the time after which
any private sale or other intended disposition of the Collateral and/or
Guarantor Collateral, as the case may be, is to be made, shall be deemed to be
reasonable notice thereof and each Borrower and Guarantor waives any other
notice with respect thereto.
(d) The net cash proceeds resulting from the exercise of
any of the foregoing rights or remedies shall be applied by Lender to the
payment of the Obligations of Borrowers and/or Guarantors in such order as
Lender may elect, and Borrowers and Guarantors shall remain liable to Lender
for any deficiency. Without limiting the generality of the foregoing, if
Lender enters into any credit transaction, directly or indirectly, in
connection with the disposition of any Collateral and/or Guarantor Collateral,
Lender shall have the option, at any time, in its discretion, to reduce the
Obligations of Borrowers and/or Guarantors by the principal amount of such
credit transaction or to defer the reduction thereof until actual receipt by
Lender of cash or other immediately available funds in connection therewith.
(e) In the event Lender institutes an action to recover
any Collateral and/or Guarantor Collateral or seeks recovery of any Collateral
and/or Guarantor Collateral by way of prejudgment remedy or otherwise,
Borrowers and Guarantors hereby irrevocably waive (i) the posting of any bond,
surety or security with respect thereto which might otherwise be required, (ii)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral and/or Guarantor Collateral, and (iii) any requirement
that Lender retain possession and not dispose of any Collateral or Guarantor
Collateral until after trial or final judgment.
(f) Lender may, at its option, cure any default by
Borrowers under any agreement, law, regulation, permit, license or approval
with, or issued or promulgated by, any Person, which constitutes an Event of
Default or Incipient Default hereunder or under any of the other Financing
Agreements, or pay or bond on appeal any judgment entered against Borrowers
(irrespective of the amount of said judgment or the time elapsed since entry
thereof), and charge each Borrower's loan account therefor, such amounts to be
repayable by Borrowers on demand, together with interest thereon at the highest
rate of interest hereunder; provided, however, Lender shall be under no
obligation to effect such cure, payment or bonding and shall not, by making any
payment for Borrowers' account, be deemed to have assumed any obligation or
liability of Borrowers.
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(g) The enumeration of the foregoing rights and remedies
is not intended to be exclusive, and such rights and remedies are in addition
to and not by way of limitation of any other rights or remedies Lender may have
under the other Financing Agreements, the UCC or other applicable law. Lender
shall have the right to determine which rights and remedies, and in which order
any of the same, are to be exercised, and to determine which Collateral or
Guarantor Collateral is to be proceeded against and in which order, and the
exercise of any right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative.
(h) No act, failure or delay by Lender shall constitute a
waiver of any of the rights and remedies of Lender. No single or partial
waiver by Lender of any provision of this Agreement or any of the other
Financing Agreements, or breach or default thereunder, or of any right or
remedy which Lender may have, shall operate as a waiver of any other provision,
breach, default, right or remedy or of the same provision, breach, default,
right or remedy on a future occasion.
(i) Each Borrower and Guarantor waives presentment,
notice of dishonor, protest and notice of protest of all instruments included
in or evidencing any of the Obligations of Borrowers and/or Guarantors or the
Collateral or Guarantor Collateral and any and all notices or demands
whatsoever (except as expressly provided herein). Lender may, at all times,
proceed directly against any of the Borrowers or any of the Guarantors to
enforce payment of the Obligations of Borrowers and/or Guarantors and shall not
be required to take any action of any kind to preserve, collect or protect any
rights in the Collateral or Guarantor Collateral.
(j) Notwithstanding anything to the contrary contained in
this Section 7.2, references in this Section 7.2 to "Guarantor" shall not, for
purposes of this Agreement, include IMR and references in this Section 7.2 to
Guarantor Collateral shall not include the IMR Collateral. All rights and
remedies of Lender and the Participants against IMR and the IMR Collateral in
respect of an Event of Default shall be as set forth in and subject to the
terms of Section 4.6(g) hereof, the IMR Limited Guarantee, the IMR Pledge
Agreement and as otherwise provided by law.
SECTION 8. COLLECTION AND ADMINISTRATION
8.1 Receipts
(a) Borrowers shall, at their expense and on behalf of
Lender, receive, as the property of Lender and in trust for Lender, all
proceeds from the sale of Borrowers' Inventory, in whatever form, including,
without limitation, all cash,
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checks, credit or debit card transaction records, and all forms of retail store
receipts (other than daily receipts of Brawn retail stores located in
California used to fund the ordinary course of business operations of such
retail stores of Brawn), as well as all other proceeds of Collateral, and
Borrowers shall not commingle such proceeds with Borrowers' own funds.
Borrowers shall on the day received deposit all such proceeds into blocked or
other deposit accounts according to the provisions set forth below for the
collection and transfer of proceeds to Lender. All proceeds of Collateral when
received by Lender at such place as Lender may designate from time to time
shall be credited to the loan accounts of Borrowers immediately upon Lender's
receipt at its designated bank account for such purposes of federal funds wire
transfers and one (1) business day for all other remittances, in each instance
conditional upon final payment to Lender.
(b) Unless Borrowers shall, in fact, identify, at the
time of receipt by Lender, the amounts of proceeds of Inventory or Accounts
received by Lender which arise from sales of Inventory and collection of
Accounts of each Borrower, in view of the impracticality and difficulty of
identifying at the time of receipt the respective Borrower's Accounts or other
Collateral to which proceeds relate, including, but not limited to, combined
payments received under the Credit Card Agreements, Lender shall be entitled to
apply such proceeds to the respective loan accounts of Borrowers based on the
relative percentages of sales of Inventory made by the Borrowers during the
week ending immediately preceding the week of receipt, as reported by Borrowers
to Lender. Borrowers shall on a monthly basis reconcile such application of
proceeds with the posting of payment to the proper Accounts and receipts, and
adjust between themselves by intercompany transfers for any excess application
of proceeds to the loan account of one or another Borrower as permitted in
Section 6.6(b) hereof; provided, however, that Lender shall not be required to
adjust its loan accounts nor shall Lender be required to provide funds for such
intercompany transfers, other than on the terms and subject to the conditions
set forth herein.
8.2 Depository Accounts; Blocked Accounts;
Customer Prepayment Accounts
(a) Borrowers shall, in a manner satisfactory to Lender
from time to time, enter into deposit account arrangements and merchant payment
arrangements with respect to all sales of Inventory, including sales at
Borrowers' retail stores, such that all proceeds of the sale of Borrowers'
Inventory in every form, subject to the sale and transfer of credit card
transaction records pursuant to the Credit Card Agreements to the extent
permitted hereunder, and all amounts payable upon Accounts, letters of credit,
banker's acceptances and all other proceeds of Collateral, shall be deposited
into a blocked account under the
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control of Lender or deposited into deposit accounts approved by Lender with
respect to which irrevocable instructions from Borrowers have been accepted by
the depository bank to transfer all collected funds to a blocked account under
the control of Lender. In connection therewith Borrowers shall execute and
shall cause the depository bank(s) to execute or accept such irrevocable
instructions, blocked account and other agreements as Lender in its discretion
shall specify.
(b) Without limiting any of the rights of Lender or
obligations of Borrowers under this Section 8, Borrowers shall also establish
separate deposit accounts subject to the lien and security interest of Lender,
according to such agreements with the depository bank as Lender shall require,
into which Borrowers shall deposit checks, gift certificate receipts, deposits
and other customer prepayments in any other form representing customer
prepayments, including prepayments for merchandise ordered but not yet
delivered or received. Nothing set forth herein shall impair any right which
Borrowers would otherwise have under applicable law to utilize amounts
deposited in such accounts for expenditures, investments or other purposes in
the ordinary course of business of Borrowers. Any balances remaining in such
accounts on the last business day of each week, representing amounts of prior
prepayments earned by performance or otherwise, shall be transferred to
Borrowers' blocked account for transfer thereafter to Lender for credit to the
respective loan accounts of each Borrower in accordance with Section 8.1
hereof.
8.3 Right of Inspection; Access
Lender and its representatives shall at any time have free access to
and right of inspection of the Collateral and Guarantor Collateral and have
full access to and the right to examine and make copies of Borrowers' and each
Guarantor's (other than IMR's) books and records, to confirm and verify all
purchases and sales of Borrowers' Inventory and proceeds thereof including
Accounts, to perform general audits and to do whatever else Lender deems
necessary to protect the interests of Lender. Without limiting any of Lender's
rights under this Section 8.3 or elsewhere herein or in the other Financing
Agreements, upon and after the occurrence of an Event of Default that is
continuing, Lender may, if Lender reasonably believes such action is necessary
to preserve the books and records or to protect or effect Lender's rights and
remedies with respect thereto, remove from the premises of Borrowers or
Guarantors (other than IMR) any books and records and Lender may, without cost
or expense to it, use such of Borrowers' or any of the Guarantors' (other than
IMR's) personnel, supplies, computer equipment (to the extent permitted by the
lessor thereof, as to leased computer equipment or software) and space at their
places of business as may be reasonably necessary for the handling of proceeds
from the sale
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of Borrowers' Inventory or other proceeds of any Collateral or Guarantor
Collateral.
8.4 Specific Powers
(a) Each Borrower and Guarantor hereby constitutes
Lender, and its designees, as its attorney-in-fact, at Borrowers' and
Guarantors' own cost and expense, to exercise at any time all or any of the
following powers which, being coupled with an interest, shall be irrevocable
until all Obligations of Borrowers and Guarantors have been paid in full: (i)
to receive, take, endorse, assign, deliver, accept and deposit, in the name of
Lender, or such Borrower or Guarantor, as the case may be, any and all checks,
notes, drafts, remittances and other instruments and documents relating to any
Collateral and Guarantor Collateral as the case may be; (ii) after the
occurrence and upon and during the continuance of an Event of Default or
Incipient Default, to receive, open and dispose of all mail addressed to such
Borrower or Guarantor, as the case may be, and to notify postal authorities to
change the address for delivery thereof to such address as Lender may
designate; (iii) to transmit to Account Debtors obligated in respect of any
Collateral notice of Lender's interest therein and to request from such Account
Debtors at any time, in the name of Lender, or such Borrower or Guarantor, as
the case may be, or that of Lender's or designee, information concerning the
Accounts that are part of any Collateral and the amounts owing thereon; (iv)
after the occurrence and upon and during the continuance of an Event of Default
or Incipient Default, to notify Account Debtors obligated in respect of the
Collateral to make payment directly to Lender; (v) after the occurrence and
upon and during the continuance of an Event of Default or Incipient Default, to
take or bring, in the name of Lender, or such Borrower or Guarantor, as the
case may be, all steps, actions, suits or proceedings deemed by Lender
necessary or desirable to effect collection of the Collateral and Guarantor
Collateral; and (vi) to execute in such Borrower's or such Guarantor's name and
on its behalf any UCC financing statements or amendments thereto. Each
Borrower and Guarantor hereby releases Lender, and its officers, employees,
attorneys, agents and designees, from any liability arising from any act or
acts under this Agreement or in furtherance thereof, whether of omission or
commission, and whether based upon any error of judgment or mistake of law or
fact, other than for Lender's own gross negligence or wilful misconduct.
(b) Notwithstanding anything to the contrary contained in
this Section 8.4, references in this Section 8.4 to Guarantor shall not, for
purposes of this Agreement, include IMR and references in this Section 8.4 to
Guarantor Collateral shall not, for purposes of this Agreement, include the IMR
Collateral. All rights and remedies of Lender and the Participants against IMR
and the IMR Collateral in respect of an Event of Default
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shall be as set forth in the IMR Limited Guarantee, the IMR Pledge Agreement
and as otherwise provided by law, subject to the terms of Section 4.6(g)
hereof.
SECTION 9. EFFECTIVE DATE; TERMINATION; COSTS; MISCELLANEOUS
9.1 Term
(a) The Existing Loan Agreement and the other Financing
Agreements became effective as of May 5, 1993 and this Agreement shall continue
in full force and effect for a term ending on May 5, 1996 (the "Renewal Date"),
and from year-to-year thereafter, unless sooner terminated pursuant to the
terms hereof. (Such initial term together with all extensions and renewals
thereof, the "Term".)
(b) Lender may, or all Borrowers (but not less than all
Borrowers) may, terminate this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of the Renewal Date in any
year by giving to the other parties at least sixty (60) days prior written
notice; provided, that, this Agreement and all other Financing Agreements must
be terminated simultaneously.
(c) In addition, Lender shall have the right to terminate
this Agreement and the other Financing Agreements immediately at any time after
the occurrence and during the continuance of an Event of Default. Lender shall
have no obligation to make additional loans or provide additional credit
accommodations hereunder at any time after and during the continuance of an
Event of Default or Incipient Default.
(d) Upon the effective date of termination of the
Financing Agreements, Borrowers shall pay to Lender in full, by wire transfer
in federal funds to such bank account of Lender as Lender may, in its
discretion, designate in writing to Borrowers for such purpose, all outstanding
and unpaid non-contingent Obligations of Borrowers (including, but not limited
to the Revolving Inventory Loans and Additional Advances and all interest, fees
(including the Early Termination Fees, if any, provided herein), charges,
expenses and other amounts provided for hereunder, under the other Financing
Agreements or otherwise) and shall furnish cash Collateral to Lender, or a
clean irrevocable letter of credit issued in Lender's favor by a bank
acceptable to Lender in its discretion and having documentary requirements and
other terms acceptable to Lender in its discretion, in order to secure and
provide for payment in full of all contingent Obligations, including all
undrawn amounts available pursuant to previously issued and outstanding Letter
of Credit Accommodations, and all other contingent Obligations. Interest at
the Interest Rate shall be due until and including the next business day, if
the amounts so paid by Borrowers to the
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bank account designated by Lender are received in such bank account later than
12:00 noon, New York, New York time.
(e) No termination of the Financing Agreements shall
relieve or discharge Borrowers or any Guarantor of their respective duties,
obligations and covenants under the Financing Agreements until all Obligations
of Borrowers and Guarantors have been fully indefeasibly paid and discharged,
and following such termination, Lender's continuing security interests in the
Collateral and Guarantor Collateral shall remain in effect until all such
Obligations have been fully indefeasibly paid and discharged. At Borrowers'
written request, following termination of this Agreement as provided herein,
and after all Obligations have been fully and indefeasibly paid and discharged,
Lender shall execute and deliver to Borrowers and Guarantors any and all
documents and instruments reasonably required to terminate all liens and
security interests granted to Lender pursuant hereto and pursuant to the other
Financing Agreements, all at Borrowers' and Guarantors' expense; provided,
however, that, following termination of this Agreement as provided herein, upon
Lender's receipt of full and final payment in immediately available funds of
all unpaid non-contingent Obligations and Borrower's compliance with Section
9.1(d) as to all contingent Obligations, Lender shall notify the depository
bank(s) with which blocked accounts have been established under Section 8
hereof, that Lender has relinquished its control over such blocked accounts and
that such banks may follow the instructions of Borrowers with respect to the
disposition of funds thereafter received in or deposited to such previously
blocked accounts.
(f) If Lender terminates this Agreement or the other
Financing Agreements after the occurrence and during the continuance of an
Event of Default or at the request of Borrowers prior to the Termination Date,
in view of the impracticality and extreme difficulty of ascertaining actual
damages, and by mutual agreement of the parties as to a reasonable calculation
of Lender's lost profits as a result thereof, Borrowers hereby agree to pay to
Lender, upon the effective date of such termination, a fee (the "Early
Termination Fee") in an amount equal to:
(i) five percent (5%) of the Maximum Credit, if
such termination is effective on or prior to May 5, 1994;
(ii) one percent (1%) of the Maximum Credit, if
such termination is effective after May 5, 1994, but on or prior to May 5,
1995; or
(iii) one-half of one percent (.5%) of the Maximum
Credit, if such termination is effective after May 5, 1995 but prior to May 5,
1996.
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The Early Termination Fee shall be presumed to be the amount of damages
sustained by said early termination and each Borrower and Guarantor agrees that
it is reasonable under the circumstances currently existing. The Early
Termination Fee provided for in this Section 9.1 shall be deemed included in
the Obligations of Borrowers.
(g) Notwithstanding the foregoing provisions of this
Section 9.1, the Early Termination Fee otherwise payable by Borrowers to Lender
in connection with the termination of this Agreement upon Borrowers' written
request shall not be payable if such termination is effected and all of the
Obligations of Borrowers are fully and indefeasibly paid and satisfied within
ninety (90) days following Lender's receipt of written notice from Borrowers
("Voluntary Termination Notice") requesting voluntary termination of this
Agreement by reason of the occurrence, not more than sixty (60) days prior to
Lender's receipt of the Voluntary Termination Notice, of a Specified Action (as
defined below); provided, however, that at the time of any such Specified
Action (i) no Event of Default or Incipient Default had occurred and was
continuing, and (ii) the Excess Availability, after adding back, for these
purposes only, the aggregate amount of principal payments on direct
Indebtedness for Borrowed Money of H&H (determined as if the reorganization
described in Exhibit K to the Existing Loan Agreement had not occurred)
subtracted under Section 1.35(ii)(D) hereof, was at least One Dollar ($1.00);
provided, further, that Borrowers have obtained replacement financing upon
termination under this Section 9.1(g) from an asset-based lender on terms
affording Borrowers an aggregate amount of loans, advances and other financial
accommodations greater by at least One Million Dollars ($1,000,000) than the
aggregate amount of loans, advances and other financial accommodations
available under the Credit Facility, based on the same items of Collateral and
Guarantor Collateral as under the Credit Facility, after giving effect to the
reduced Inventory Lending Formula. For purposes hereof, the term "Specified
Action" shall mean the reduction by Lender of the Inventory Advance Formula to
a percentage less than fifty percent (50%) based on the exercise of its
discretionary rights to do so at any time and from time to time.
(h) Notwithstanding the foregoing provisions of this
Section 9.1, if Borrowers shall propose to Lender, in writing, the terms of a
Standalone Refinancing for GBM and Gump's acceptable to Borrowers, and Lender
and Borrowers shall fail to agree within sixty (60) days following Lender's
receipt of such proposal on such terms or any other terms under which Lender
would, if at all, agree to provide such Standalone Refinancing (it being
understood that Lender shall be under no obligation to accept any proposed
Standalone Refinancing or terms thereof not fully acceptable to Lender in its
sole discretion), then GBM and Gump's shall be free, within the sixty (60) day
period following the expiration of the initial sixty (60) day period, to
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consummate a Standalone Refinancing with another lender, upon payment to Lender
of all of the amounts referred to in Section 9.1(i) below in the definition of
Standalone Refinancing, and, in addition thereto, payment of an Early
Termination Fee to Lender in an amount equal to:
(A) $250,000 if such Standalone Refinancing is
consummated on or prior to July 9, 1994;
(B) $50,000 if such Standalone Refinancing is
consummated after July 9, 1994, but on or prior to July 9,
1995; or
(C) $25,000 if such Standalone Refinancing is
consummated after July 9, 1995, but prior to May 5, 1996, or,
if the Term is extended or renewed beyond May 5, 1996, prior
to July 9, 1996.
(i) As used in this Agreement, "Standalone Refinancing"
shall mean, as to GBM and Gump's, a refinancing of the Obligations of both GBM
and Gump's to Lender and/or other Indebtedness of GBM, Gump's and/or other
members of the Affiliated Borrower Group as provided below (whether such
refinancing is provided by Lender or another lender) such that:
(A) all non-contingent Obligations of GBM and
Gump's to Lender determined by Lender to be outstanding in
respect of Revolving Inventory Loans and Letter of Credit
Accommodations to GBM and Gump's are fully and indefeasibly
paid to Lender;
(B) cash collateral is delivered to Lender or a
clean irrevocable letter of credit is issued in Lender's favor
by a bank acceptable to Lender in its discretion and having
documentary and other terms acceptable to Lender in its
discretion, in order to secure and provide for payment in full
of all contingent Obligations of GBM and Gump's to Lender;
(C) all Indebtedness for cash or property lent or
advanced or Inventory sold to GBM or Gump's by HDPI, Brawn,
TCSA, SDSA or Tweeds or, to the extent funded directly or
indirectly with the loans hereunder to HDPI, Brawn, TCSA, SDSA
or Tweeds by other members of the Affiliated Borrower Group,
shall be fully and indefeasibly repaid and paid by GBM and
Gump's;
(D) the Credit Card Agreements shall not include,
or shall be amended to eliminate, all cross-
collateralization, guarantees, joint obligations or other
credit support provided to the Private Credit Card Purchaser
or any Third Party Credit Card Issuer
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or any servicer or processing agent or any factor or financial
intermediary by any other Borrower or other member of the
Affiliated Borrower Group with respect to obligations of GBM
and Gump's to such Persons, or provided to any such Persons by
GBM or Gump's with respect to obligations of any other
Borrower or other member of the Affiliated Borrower Group to
such Persons; and
(E) after giving effect to the terms of such
refinancing and the transactions required under clauses (A),
(B), (C) and (D) above, and any related transactions, GBM and
Gump's would and do, in fact, qualify as Non- Guarantor
Subsidiaries hereunder as of the consummation of such
refinancing and thereafter.
9.2 Expenses and Additional Fees
(a) Borrowers and Guarantors shall pay to Lender on
demand all costs and expenses that Lender pays or incurs in connection with the
negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Financing Agreements, including,
without limitation: (i) reasonable attorneys' and paralegals' fees and
disbursements of counsel to Lender and any Participant; (ii) costs and expenses
(including reasonable attorneys' and paralegals' fees and disbursements) for
any amendment, supplement, waiver, consent, or subsequent closing in connection
with the Financing Agreements and the transactions contemplated thereby; (iii)
costs and expenses of lien and title searches and title insurance including,
without limitation title insurance premiums; (iv) taxes, fees and other charges
for recording any agreements or documents with the United States Office of
Patents and Trademarks, The United States Office of Copyrights or any other
governmental authority, and the filing of UCC financing statements and
continuations, and other actions to perfect, protect, and continue the security
interests and liens of Lender in the Collateral and/or Guarantor Collateral;
(v) sums paid or incurred to take any action required of Borrowers and/or any
Guarantors under the Financing Agreements that Borrowers and/or any Guarantors
fail to pay or take; (vi) costs of appraisals, environmental audits,
inspections, and verifications of the Collateral and/or Guarantor Collateral,
including, without limitation, travel and lodging, plus a per diem charge at a
rate of Five Hundred Dollars ($500) per person for periodic field examinations
of the Collateral and/or Guarantor Collateral and Borrowers' and/or any
Guarantor's operations by Lender, or its agents; (vii) costs and expenses of
forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining blocked accounts including, without limitation,
wire transfer fees and check dishonor fees; (viii) costs and expenses of
preserving and protecting the Collateral and/or Guarantor Collateral; and (ix)
costs and expenses (including
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reasonable attorneys' and paralegals' fees and disbursements) paid or incurred
to obtain payment of the Obligations of Borrowers and/or Guarantors, enforce
the security interests and liens of Lender, sell or otherwise realize upon the
Collateral and/or Guarantor Collateral, and otherwise enforce the provisions of
this Agreement and the other Financing Agreements (including, without
limitation, premiums on bonds and undertakings, fees of marshals, sheriffs,
custodians, auctioneers and others, travel expenses and all court costs and
collection charges), or to defend any claims made or threatened against Lender
arising out of the transactions contemplated hereby (including, without
limitation, preparations for and consultations concerning any such matters);
provided, however, IMR shall be responsible only for those such costs and
expenses under and in connection with the IMR Guarantee, the IMR Collateral and
the IMR Pledge Agreement. The foregoing shall not be construed to limit any
other provisions of the Financing Agreements regarding costs and expenses to be
paid by Borrowers and/or Guarantors.
(b) All sums provided for in this Section 9.2 shall be
part of the Obligations of Borrowers and Guarantors, shall be payable on
demand, and shall accrue interest after demand for payment thereof at the
highest rate of interest then payable hereunder. Lender is hereby irrevocably
authorized to charge any amounts payable hereunder directly to any of the
account(s) maintained by Lender with respect to Borrowers and/or any
Guarantors; provided, however, only such amounts as are payable under or in
connection with the IMR Limited Guarantee, the IMR Collateral and the IMR
Pledge Agreement may be charged to the custodial account established by Lender
pursuant to the IMR Pledge Agreement.
9.3 Survival of Agreement
All agreements, representations and warranties contained herein or
made in writing by the parties hereto in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement,
the other Financing Agreements and the consummation of the transactions
contemplated herein or therein regardless of any investigation made by or on
behalf of Lender.
9.4 No Waiver; Remedies Cumulative
No failure to exercise, and no delay in exercising on the part of
Lender of, any right, power or privilege under this Agreement or under any of
the other Financing Agreements or other documents referred to herein or therein
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power and
privilege. No notice to or demand on Borrowers or any Guarantor not required
hereunder or any of the other Financing
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Agreements shall entitle Borrowers or Guarantors to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the
rights of Lender to any other or further action in any circumstances without
notice or demand. The rights and remedies of Lender under this Agreement, the
other Financing Agreements and any other present and future agreements between
or among Lender, Borrowers and Guarantors, as the case may be, are cumulative
and not exclusive of any rights or remedies provided by law or under any of the
Financing Agreements or such other agreements and all such rights and remedies
may be exercised successively or concurrently in whatever order and manner
Lender shall elect.
9.5 Notices
All notices, requests and demands to or upon the respective parties
hereto shall be in writing and shall be deemed to have been duly given or made:
if by hand, immediately upon delivery; if by telex, telecopier or telegram,
immediately upon sending; if by express mail or any other overnight delivery
service, one (1) day after dispatch; and if by registered or certified mail,
return receipt requested, five (5) days after mailing. All notices, requests
and demands upon the parties are to be given to the following addresses and
telecopier numbers (or to such other address or telecopier number as any party
may designate by notice in accordance with this Section):
If to HDPI: Hanover Direct Pennsylvania, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Telecopier: 201-319-3468
If to any other
Borrower: c/o Hanover Direct Pennsylvania, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Telecopier: 201-319-3468
If to any Guarantor: c/o Hanover Direct, Inc.
(other than IMR) 1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Telecopier: 201-319-3468
If to Lender: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Mark Fagnani
Telecopier: 212-545-4555
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9.6 Entire Agreement
This Agreement, the other Financing Agreements, any supplements and
any other instruments or documents delivered or to be delivered in connection
herewith or therewith represent the entire agreement and understanding
concerning the subject matter hereof among the parties hereto, and supersede
all prior proposals, agreements, understandings, negotiations and discussions,
representations, warranties, commitments, offers and contracts concerning the
subject matter hereof, whether oral or written. Without limiting the
foregoing, the letter agreement dated May 5, 1993 among Lender, Brawn, HDPI and
H&H concerning the Gump's Acquisition is superseded by the terms hereof.
9.7 Amendments and Waivers
Neither this Agreement, nor any of the other Financing Agreements or
any other instrument or document referred to herein or therein may be changed,
waived, discharged or terminated orally, except by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge
or termination is sought.
9.8 Applicable Law
This Agreement and the other Financing Agreements and all other
documents referred to herein or therein are being executed and delivered in New
York, New York and together with all transactions and the obligations and
rights thereunder, shall be governed by, construed and interpreted in
accordance with the laws of the State of New York.
9.9 Successors and Assigns
This Agreement, the other Financing Agreements and any other document
referred to herein or therein shall be binding upon Borrowers and Guarantors
and their respective successors or assigns and inure to the benefit of and be
enforceable by Lender and its successors and assigns. None of the Borrowers or
any Guarantor may assign its respective rights under this Agreement, the other
Financing Agreements and any other document referred to herein or therein
without the prior written consent of Lender. Lender may assign its rights and
delegate its obligations under this Agreement and the other Financing
Agreements and further may assign, or sell participations in, all or any part
of the Revolving Inventory Loans, Additional Advances and Letter of Credit
Accommodations or any other interest herein, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would have if it were the Lender hereunder,
except as otherwise provided by the terms of such assignment or participation.
Lender may furnish any information concerning Borrowers or Guarantors in the
possession of Lender from time to time to
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assignees and Participants (including prospective assignees and Participants).
9.10 Severability
If any provision of this Agreement or the other Financing Agreements
is held to be invalid or unenforceable, such invalidity or unenforceability
shall not invalidate this Agreement or the other Financing Agreements as a
whole but this Agreement or the particular Financing Agreement, as the case may
be, shall be construed as though it did not contain the particular provision or
provisions held to be invalid or unenforceable and the rights and obligations
of the parties shall be construed and enforced only to such extent as shall be
permitted by law.
9.11 Headings
The headings used herein are for convenience only and do not
constitute matters to be considered in interpreting this Agreement.
9.12 Security Interests of Participants
If a Participant shall at any time participate with Lender in the
Credit Facility or any portion thereof, Borrowers and Guarantors hereby grant
to such Participant and Lender and such Participant shall have and is hereby
given, a continuing lien on and security interest in any money, securities and
other property of Borrowers and Guarantors in the custody or possession of the
Participant, including the right of setoff, to the extent of the Participant's
participation in the Obligations of Borrowers and Guarantors and such
Participant shall be deemed to have the same right of setoff to the extent of
its participation in the Obligations, as it would have if it were a direct
lender; provided, however, that in the case of IMR, IMR shall only be required
to grant to such Participant a security interest in, a continuing lien on, and
right of setoff against the IMR Collateral to the same extent granted to Lender
in the IMR Pledge Agreement and in and against no other assets or properties of
IMR.
9.13 WAIVER OF JURY TRIAL
THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT, THE OTHER FINANCING AGREEMENTS, THE OBLIGATIONS OF BORROWERS
AND GUARANTORS, THE COLLATERAL, THE GUARANTOR COLLATERAL, OR ANY INSTRUMENT,
DOCUMENT OR GUARANTY DELIVERED PURSUANT HERETO OR TO ANY OF THE FOREGOING, OR
THE VALIDITY, PROTECTION, INTERPRETATION, ADMINISTRATION, COLLECTION OR
ENFORCEMENT HEREOF OR THEREOF, OR ANY OTHER CLAIM OR DISPUTE HEREUNDER OR
THEREUNDER.
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<PAGE> 122
9.14 Waiver of Counterclaims;
Jurisdiction; Service of Process
Each Borrower and Guarantor hereby waives all rights of setoff and
rights to impose counterclaims (other than compulsory counterclaims) in the
event of any litigation with respect to any matter connected with this
Agreement, the other Financing Agreements, the Obligations of Borrowers and
Guarantors, the Collateral, the Guarantor Collateral or any transaction between
the parties hereto, and irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County,
and of the United States District Court for the Southern District of New York
and the courts of any State in which any of the Collateral and/or Guarantor
Collateral is located and of any Federal Court located in such States in
connection with any action, proceeding or claim arising out of or relating to
this Agreement, the other Financing Agreements, the Obligations of Borrowers
and Guarantors, the Collateral, the Guarantor Collateral or any document,
instrument or guaranty delivered pursuant hereto or to any of the foregoing.
In any such litigation, each Borrower and Guarantor waives personal service of
any summons, complaint or other process and agrees that the service thereof may
be made by certified or registered mail, return receipt requested, directed to
it at its chief executive office set forth herein, or designated in writing
pursuant to this Agreement, or in any other manner permitted by the rules of
said Courts. Within thirty (30) days after such mailing, Borrowers and any
Guarantor named in any such summons, complaint or other process shall appear to
answer such summons, complaint or other process, failing which Borrowers and
such Guarantors shall be deemed in default and judgment may be entered by
Lender against Borrowers and/or such Guarantors for the amount of the claim and
other relief requested therein.
9.15 Counterparts
This Agreement may be executed in any number of counterparts, and by
Lender and Borrowers and any of the Guarantors in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.
CONGRESS FINANCIAL CORPORATION
By:_________________________
Title:______________________
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE> 123
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT PENNSYLVANIA, INC.
By:_________________________
Title:______________________
BRAWN OF CALIFORNIA, INC.
By:_________________________
Title:______________________
GUMP'S BY MAIL, INC.
By:_________________________
Title:______________________
GUMP'S CORP.
By:_________________________
Title:______________________
TCSA, INC.,
a Wisconsin corporation
By:_________________________
Title:______________________
SDSA, INC.
By:_________________________
Title:______________________
TWEEDS, INC.
By:_________________________
Title:______________________
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<PAGE> 124
By their signatures below, the
undersigned Guarantors acknowledge
and agree to be bound by the
applicable provisions of this
Agreement:
HANOVER DIRECT, INC.,
a Delaware corporation
By:____________________________
Title:_________________________
RING RESPONSE LTD.
By:____________________________
Title:_________________________
LEAVITT ADVERTISING AGENCY, INC.
By:____________________________
Title:_________________________
D.M. ADVERTISING, INC.
By:____________________________
Title:_________________________
HANOVER SYNDICATION CORP.
By:____________________________
Title:_________________________
HANOVER DIRECT MAIL MARKETING, INC.
By:____________________________
Title:_________________________
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE> 125
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER LIST MANAGEMENT, INC.
By:____________________________
Title:_________________________
YORK FULFILLMENT COMPANY, INC.
By:____________________________
Title:_________________________
H.I.M. INC.
By:____________________________
Title:_________________________
GUMP'S HOLDINGS, INC.
By:____________________________
Title:_________________________
TCSA, INC.,
a Delaware corporation
By:____________________________
Title:_________________________
THE COMPANY OFFICE, INC.
By:____________________________
Title:_________________________
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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<PAGE> 126
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
THE COMPANY MANUFACTURING, INC.
By:____________________________
Title:_________________________
THE COMPANY FACTORY, INC.
By:____________________________
Title:_________________________
SKANDIA DOWN, INC.
By:____________________________
Title:_________________________
SKANDIA DOWNSALES, INC.
By:____________________________
Title:_________________________
TW ACQUISITIONS, INC.
By:____________________________
Title:_________________________
HANOVER HOLDINGS, INC.
By:____________________________
Title:_________________________
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<PAGE> 127
EXHIBIT A
JURISDICTIONS OF QUALIFICATION
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<PAGE> 128
EXHIBIT B-1
EXISTING SUBSIDIARIES
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<PAGE> 129
EXHIBIT B-2
EXISTING MAIL ORDER JOINT VENTURES
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<PAGE> 130
EXHIBIT B-3
EXISTING RESTAURANT BUSINESS SUBSIDIARIES
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<PAGE> 131
EXHIBIT C
PRINCIPAL PLACES OF BUSINESS, CHIEF
EXECUTIVE OFFICES AND LOCATIONS
OF COLLATERAL
- 126 -
<PAGE> 132
EXHIBIT D
EXISTING LIENS
- 127 -
<PAGE> 133
EXHIBIT E
LIST OF H&H AND THC DEBT INSTRUMENTS
- 128 -
<PAGE> 134
EXHIBIT F
PENDING LITIGATION
- 129 -
<PAGE> 135
EXHIBIT G
TRADENAMES
- 130 -
<PAGE> 136
EXHIBIT H-1
EXISTING INDEBTEDNESS OTHER THAN LETTERS OF CREDIT
- 131 -
<PAGE> 137
EXHIBIT H-2
EXISTING LETTERS OF CREDIT
UNDER QCC CREDIT AGREEMENT
- 132 -
<PAGE> 138
EXHIBIT H-3
[Intentionally Deleted]
- 133 -
<PAGE> 139
EXHIBIT H-4
EXISTING INTERCOMPANY INDEBTEDNESS
- 134 -
<PAGE> 140
EXHIBIT I
FORM OF MORTGAGEE/LANDLORD
WAIVER, ACCESS AND USE AGREEMENT
- 135 -
<PAGE> 141
EXHIBIT J
LIST OF LABOR DISPUTES
- 136 -
<PAGE> 142
EXHIBIT K
[INTENTIONALLY OMITTED]
- 137 -
<PAGE> 143
EXHIBIT L
LETTER OF CREDIT ACCOMMODATION ISSUER BANKS
BANK
Philadelphia National Bank (and Affiliated Banks)
Israel Discount Bank of New York
PNC International Bank
Credit Suisse Bank
Union Bank
Citibank N.A.
Atlantic Bank
La Salle Bank
Chemical Bank
Banco Popular de Puerto Rico
Bank of America International
Bank Leumi Trust Company of New York
Fidelity Bank
Provident Bank
American National Bank
- 138 -
<PAGE> 144
as of December 31, 1993
TO: The Borrowers and Guarantors signing below:
Re: First Amendment to Second Amended and
Restated Loan and Security Agreement
dated as of October 27, 1993
Gentlemen:
Reference is made to the Second Amended and Restated Loan and Security
Agreement dated as of October 27, 1993 among Congress Financial Corporation,
Hanover Direct Pennsylvania, Inc., Brawn of California, Inc., Gump's By Mail,
Inc., Gump's Corp., TCSA, Inc., a Wisconsin corporation, SDSA, Inc. and Tweeds,
Inc. (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings ascribed to such terms in the Loan Agreement.
The parties hereto hereby agree to amend the Loan Agreement, effective
as of the date hereof, by deleting Section 6.4(h) of the Loan Agreement in its
entirety and the following substituted therefor:
"(h) the liens or security interests granted by
Tweeds in favor of R.R. Donnelley & sons Company ("Donnelley &
Sons") and R.R. Donnelley Receivables, Inc. ("DRI") in all of
the personal property of Tweeds to secure the Indebtedness of
Tweeds to Donnelley & Sons and DRI evidenced by the
Installment Note dated as of March 29, 1993, by Tweeds in
favor of DRI in the original principal amount of $2,850,801.85
(as in effect on the date thereof) and subject to the
Subordination and Intercreditor Agreement, dated as of March
29, 1993, among Lender, Donnelley & Sons and DRI; provided,
that, by no later than January 31, 1994, all such liens and
security interests granted by Tweeds in favor of Donnelley &
Sons and DRI shall be released, and all such Indebtedness
satisfied, in each case by the issuance of HDI common stock to
Donnelley & Sons and/or DRI in accordance with the agreement
among HDI, Donnelley & Sons and/or DRI entered into in
connection with the Tweeds Acquisition."
Except as set forth herein, the Loan Agreement and the other
<PAGE> 145
Financing Agreements shall remain in full force and effect.
If the foregoing correctly states our agreement, kindly execute this
letter or a counterpart hereof in the spaces provided below.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:___________________________
Title:________________________
AGREED AND ACCEPTED:
HANOVER DIRECT PENNSYLVANIA, INC.
BRAWN OF CALIFORNIA, INC.
GUMP'S BY MAIL, INC.
GUMP'S CORP.
TCSA, INC. (a Wisconsin corporation)
SDSA, INC.
TWEEDS, INC.
By:___________________________
Title:________________________
HANOVER DIRECT, INC.
By:___________________________
Title:________________________
RING RESPONSE LTD.
LEAVITT ADVERTISING AGENCY, INC.
D.M. ADVERTISING, INC.
HANOVER SYNDICATION CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER LIST MANAGEMENT INC.
YORK FULFILLMENT COMPANY
H.I.M. INC.
GUMP'S HOLDINGS, INC.
TCSA, INC. (a Delaware corporation)
THE COMPANY OFFICE, INC.
THE COMPANY MANUFACTURING, INC.
THE COMPANY FACTORY, INC.
SKANDIA DOWN, INC.
SKANDIA DOWNSALES, INC.
TW ACQUISITIONS INC.
HANOVER HOLDINGS, INC.
By:___________________________
Title:________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 146
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
INTERCONTINENTAL MINING & RESOURCES,
INCORPORATED
By:___________________________
Title:________________________
- 3 -
<PAGE> 147
February 25, 1994
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: Second Amendment to Second Amended and Restated Loan
and Security Agreement, dated as of October 27, 1993
Gentlemen:
Reference is made to the Second Amended and Restated Loan and Security
Agreement, dated as of October 27, 1993, among Congress Financial Corporation,
Hanover Direct Pennsylvania, Inc., Brawn of California, Inc., Gump's By Mail,
Inc., Gump's Corp., TCSA, a Wisconsin corporation, SDSA, Inc. and Tweeds, Inc.,
as amended by the First Amendment to Second Amended and Restated Loan and
Security Agreement, dated as of December 31, 1993 (as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, the "Loan Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings set forth in
the Loan Agreement.
Hanover Holdings, Inc., a wholly-owned subsidiary of Hanover ("Hanover
Holdings"), is about to make an equity investment in and/or loans to Boston
Publishing Company, Inc., a Massachusetts corporation ("Boston Publishing").
In addition, Hanover Finance Corporation, a newly formed wholly-owned Delaware
Subsidiary of HDPI ("Hanover Finance") intends to enter into financing
arrangements with Boston Publishing pursuant to which Hanover Finance may make
secured loans and advances to Boston Publishing.
In connection with the purchase by Hanover Holdings of an equity
investment in and/or the making of loans to Boston Publishing, the formation of
Hanover Finance as a wholly-owned Subsidiary of HDPI and the financing
arrangements which Hanover Finance intends to enter into with Boston
Publishing, Borrowers and Guarantors have requested Lender's agreement to
certain amendments to the Loan Agreement, all as set forth herein. Borrowers
and Guarantors have further requested an increase to $15,000,000 of the
sublimit applicable to Letter of Credit Accommodations.
<PAGE> 148
Lender is willing to so amend the Loan Agreement, on the terms and
conditions and to the extent set forth below.
1. Definitions.
(a) Amendments to Definitions.
(i) All references to the term "Additional Advances" in
the Loan Agreement shall be deemed, and each such reference is hereby amended,
to mean, individually and collectively, the IMR Collateral Advances and the
Boston Publishing Collateral Advances.
(ii) All references to the term "Additional Advances
Lending Formula" in the Loan Agreement shall be deemed, and each such reference
is hereby amended to mean, individually and collectively, the IMR Collateral
Lending Formula and the Boston Publishing Lending Formula.
(b) Additional Definitions. As used herein, the following terms
shall have the respective meanings given to them below and the Financing
Agreements shall be deemed, and are hereby amended, to include, in addition and
not in limitation of the existing definitions, each of the following
definitions:
(i) "Boston Publishing" shall mean Boston Publishing
Company, Inc., a Massachusetts corporation, and its successors and assigns.
(ii) "Boston Publishing Collateral Advances" shall mean
the Additional Advances to HDPI from time to time made available by Lender to
HDPI pursuant to the Boston Publishing Lending Formula.
(iii) "Boston Publishing Financing Agreements" shall mean
the Loan and Security Agreement dated as of February 25, 1994 between Hanover
Finance and Boston Publishing, the Promissory Note made by Boston Publishing in
favor of Hanover Finance and the other "Financing Agreements" referred to
therein or delivered thereunder or in connection therewith, as the same may now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, in each case, in form and substance satisfactory to
Lender.
(iv) "Boston Publishing Lending Formula" shall have the
meaning set forth in Section 2.1(b) of the Loan Agreement as amended by this
Second Amendment.
(v) "Eligible Boston Publishing Collateral" shall mean,
at any time, all non-retail store inventory of finished goods owned by Boston
Publishing, whether now owned or hereafter acquired, which (i) would be
considered by Lender to be Eligible Inventory under the Loan Agreement if such
inventory
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<PAGE> 149
were owned by HDPI, as determined by Lender according to the standards of
eligibility from time to time fixed and revised by Lender for purposes of the
Loan Agreement; (ii) is located at an "Eligible Inventory Location" as
determined under the Boston Publishing Financing Agreements, except that all
landlord's and mortgagee's waiver and access agreements and warehouse
notification and acknowledgments shall be executed by such third parties
expressly in favor of Lender in addition to Hanover Finance; and (iii) is
subject to a first priority security interest in favor of Hanover Finance
subject only to such liens and encumbrances as would be permitted under the
terms of the Loan Agreement if such inventory were owned by HDPI, which
security interest, together with all present and future "Obligations" (as
defined in the Boston Publishing Financing Agreements) secured thereby, and all
other rights and remedies of Hanover Finance under the Boston Publishing
Financing Agreements (but not any obligations or liabilities of Hanover
Finance), have been pledged and assigned to Lender by Hanover Finance to secure
all present and future obligations, liabilities and indebtedness of Hanover
Finance to Lender.
(vi) "Hanover Finance" shall mean Hanover Finance
Corporation, a Delaware corporation and a wholly-owned subsidiary of HDPI, and
its successors and assigns.
(vii) "Hanover Holdings" shall mean Hanover Holdings,
Inc., a Delaware corporation and a wholly-owned subsidiary of Hanover, and its
successors and assigns.
(viii) "IMR Collateral Advances" shall mean the Additional
Advances from time to time made available by Lender to HDPI pursuant to the IMR
Collateral Lending Formula.
(ix) "IMR Collateral Lending Formula" shall have the
meaning set forth in Section 2.1(b) of the Loan Agreement as amended by this
Second Amendment.
(x) "Loan Value" shall mean, for purposes of Lender's
determination of Boston Publishing Collateral Advances available at any time
under the Boston Publishing Lending Formula, the lesser of (i) forty-five (45%)
percent of the Value of Eligible Boston Publishing Inventory as determined by
Lender, or (ii) the outstanding principal balance of loans made by Hanover
Finance to Boston Publishing pursuant to the Boston Publishing Financing
Agreements and secured by Eligible Boston Publishing Inventory, as evidenced to
Lender's satisfaction. The percentage advance rate set forth in clause (i) is
subject to Lender's satisfactory review of an Orderly Liquidation Value
appraisal report from the Appraiser and Lender's right to make downward
adjustments of such percentage based on any adverse change, individually or in
the aggregate, in the Orderly Liquidation Values or mix of Eligible Boston
Publishing Collateral in any categories thereof, and any such downward
-3-
<PAGE> 150
adjustment made for such reason(s) shall not be considered solely discretionary
for purposes of Sections 1.76 and 2.6(b) of the Loan Agreement. If a material
Event of Default has occurred and is continuing under the Boston Publishing
Financing Agreements (determined without regard to any waiver, amendment or
consent given or entered into thereunder by Hanover Finance without Lender's
prior written consent) or Hanover Finance has ceased making loans thereunder by
reason of any event of default, incipient default, termination, non-renewal or
otherwise, the Loan Value may, at Lender's option, be reduced to zero or such
other amount as Lender shall determine.
2. Additional Advances. Section 2.1(b) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"(b) Subject to, and upon the terms and conditions contained
herein, Lender shall, from time to time, make Additional Advances to HDPI, at
HDPI's request (i) of up to one hundred percent (100%) of the Market Value, not
greater than Ten Million Dollars ($10,000,000), of the IMR Collateral then
pledged to Lender pursuant to the IMR Pledge Agreement (the "IMR Collateral
Lending Formula"), plus (ii) up to the lesser of (A) Five Hundred Thousand
Dollars ($500,000), or (B) the Loan Value of the Eligible Boston Publishing
Collateral (the "Boston Publishing Lending Formula"). Without limiting the
foregoing, the IMR Collateral Additional Advances outstanding at any time shall
not exceed the balance of the IMR Collateral pledged to Lender, less the
aggregate amounts reduced or released pursuant to Sections 4.4, 4.5 or 4.6
hereof or otherwise (other than interest or any income released pursuant to the
IMR Pledge Agreement)."
3. Letter of Credit Accommodations. Section 2.3(h) of the Loan
Agreement is hereby amended by replacing the reference to "Ten Million Dollars
($10,000,000)" with "Fifteen Million Dollars ($15,000,000)".
4. Amended Exhibits to the Loan Agreement.
(a) Exhibit C attached to the Loan Agreement is hereby replaced
in its entirety with Amended Exhibit C in the form annexed hereto.
(b) Exhibit B-1 to the Loan Agreement is hereby replaced in its
entirety with Amended Exhibit B-1 in the form annexed hereto.
(c) Exhibit B-2 to Loan Agreement is hereby replaced in its
entirety with Amended Exhibit B-2 in the form annexed hereto.
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<PAGE> 151
5. Treatment as Mail Order Joint Venture. Boston Publishing will be
considered a Mail Order Joint Venture for purposes of the Loan Agreement,
including Section 6.26 thereof. Without limiting the foregoing, all loans by
Hanover Finance to Boston Publishing shall be aggregated and subject to the
limitations for loans, investments and other specified transactions with all
Mail Order Joint Ventures, as provided in Section 6.26(a) of the Loan
Agreement.
6. Permitted Loans and Investments. Section 6.5 of the Loan Agreement
is hereby amended by deleting the word "and" appearing at the end of subsection
(e) thereof, replacing the period at the end of subsection (f) thereof with a
semicolon, and by adding at the end of Section 6.5 the following:
"(g) Provided no Event of Default or Incipient Default has
occurred and is continuing, and subject to the limitations set forth in
Section 6.26(a), loans or advances of money by HDPI to Hanover Finance in
an amount not to exceed $3,000,000 in the aggregate at any one time
outstanding, provided, that (A) Hanover Finance simultaneously lends such
funds directly to Boston Publishing pursuant to the Boston Publishing
Financing Agreements, and (B) the Boston Publishing Financing Agreements,
together with the "Obligations" of Boston Publishing to Hanover Finance
thereunder and all security interests, liens and other rights and remedies
of Hanover Finance thereunder (but not any obligations or liabilities of
Hanover Finance) have been pledged and assigned to Lender to secure all
present and future obligations, liabilities and indebtedness of Hanover
Finance to Lender; and
(h) Provided no Event of Default or Incipient Default has occurred
and is continuing, loans or advances of money by HDPI to Hanover Holdings
in an amount not to exceed $1,250,000 in the aggregate at any one time
outstanding, provided, that (A) Hanover Holdings simultaneously lends such
funds directly to or uses such funds to make equity investments directly
in Boston Publishing, (B) all indebtedness of Boston Publishing to Hanover
Holdings and all notes and other instruments evidencing the same, all
security interests, liens and other rights and remedies of Hanover
Holdings thereunder (but not any obligations or liabilities of Hanover
Holdings) and all equity interests of Hanover Holdings in Boston
Publishing and rights to acquire any such equity interests, have, if so
requested by Lender, been pledged and assigned to Lender to secure all
present and future obligations, liabilities and indebtedness of Hanover
Holdings to Lender, and (C) the aggregate amount of such loans by HDPS to
Hanover Holdings shall be considered a loan or investment in Boston
Publishing for purposes of the limitations on loans, investments and other
specified
-5-
<PAGE> 152
transactions with Boston Publishing, notwithstanding that Hanover Holdings
is not a Subsidiary of Borrower."
7. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrowers and Guarantors to Lender, pursuant to the Financing
Agreements, Borrowers and Guarantors hereby 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 and shall be
deemed incorporated into and made a part of the Financing Agreements):
(a) No Event of Default exists on the date of this Amendment
(after giving effect to the amendments to the Loan Agreement made by this
Amendment).
(b) This Amendment has been duly executed and delivered by
Borrowers and Guarantors and is in full force and effect as of the date hereof
and the agreements and obligations of Borrowers and Guarantors contained herein
constitute the legal, valid and binding obligations of Borrowers and Guarantors
enforceable against Borrowers and Guarantors in accordance with its terms.
8. Conditions Precedent to Effectiveness of this Amendment. As
conditions precedent to the effectiveness of this Second Amendment, Borrowers
and Guarantors, as applicable, shall cause the following documents and
instruments to be executed and delivered to Lender:
(a) Hanover Finance shall execute and deliver to Lender the
documents and instruments required by Lender pursuant to Section 6.2 of the
Loan Agreement;
(b) Hanover Holdings shall deliver to Lender true and complete
copies of all of the agreements, documents and instruments evidencing the
equity investment and/or loans by Hanover Holdings in and to Boston Publishing,
and all other arrangements between any member of the Affiliated Borrower Group
and Boston Publishing, which shall be in form and substance satisfactory to
Lender;
(c) Hanover Finance shall deliver to Lender, true and complete
copies of all of the Boston Publishing Financing Agreements, which shall be in
form and substance satisfactory to Lender;
(d) Hanover Finance shall deliver to Lender the original executed
Promissory Note, as executed and delivered by Boston Publishing to the order of
Hanover Finance pursuant to the Boston Publishing Financing Agreements, duly
endorsed to the
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<PAGE> 153
order of Lender, as part of the Guarantor Collateral under the Loan Agreement;
and
(e) an original of this Amendment, duly authorized, executed and
delivered by Borrowers and Guarantors.
9. Conditions Precedent to Boston Publishing Collateral Advances.
Each of the following is an additional condition precedent to Lender making the
initial and any subsequent Boston Publishing Collateral Advances:
(a) Hanover Finance shall have delivered evidence of the filing
of UCC-1 financing statements in all applicable jurisdictions and proper filing
offices thereof naming Boston Publishing, as debtor, Hanover Finance, as
secured party, and Lender, as assignee, describing the collateral granted under
the Boston Publishing Financing Agreements and, in any event, including as part
of the collateral described therein, all present and future inventory of Boston
Publishing and the products and proceeds thereof, and otherwise in form and
substance satisfactory to Lender;
(b) Hanover Finance shall have delivered to Lender a Guarantee
and Waiver, a General Security Agreement, a Confirmatory Assignment Agreement
with respect to the Boston Publishing Financing Agreements and related matters
and UCC-1 financing statements with respect to the foregoing, in form and
substance satisfactory to Lender, each duly authorized, executed and delivered
by Hanover Finance;
(c) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgements and other
agreements from third Persons which Lender may deem necessary or desirable to
permit, protect and perfect its security interest in liens upon the Guarantor
Collateral granted by Hanover Finance, including, but not limited to, a
Landlord/Mortgagee Waiver with respect to each Eligible Boston Publishing
Collateral location;
(d) Lender shall have received from Boston Publishing a duly
executed Acknowledgement of Assignment and Waiver, in form and substance
satisfactory to Lender; and
(e) if Lender shall so require, Lender shall have conducted an
initial field examination of Boston Publishing, its assets and operations
and/or Lender shall have received an initial appraisal report by the Appraiser
with respect to the Orderly Liquidation Value of each category of inventory of
Boston Publishing.
10. Further Assurances. Borrowers and Guarantors shall execute and
deliver such additional documents and take such
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<PAGE> 154
additional action as may be requested by Lender to effectuate the provisions
and purposes of this Amendment.
11. Effect of this Agreement. This Amendment contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all correspondence, memoranda, communications, discussions or
negotiations with respect thereto. No Incipient Defaults or Events of Defaults
and no rights or remedies of Congress have been or are being waived hereby
(except for the waiver expressly set forth in paragraph 7 above) and no changes
or modifications to the Financing Agreements have been or are being made or are
intended hereby, except as expressly set forth herein, and in all other
respects the Financing Agreements are hereby specifically ratified, restated
and confirmed by all parties hereto as of the date hereof. In the event that
any term or provision of this Amendment conflicts with any term or provision of
the Financing Agreements, the term or provision of this Amendment shall
control.
12. Counterparts. This Amendment may be executed and delivered in any
number of counterparts, and by Lender and Borrowers and any of the Guarantors
in separate counterparts, each of which shall be an original, but all of which
shall together constitute one and the same agreement.
If the foregoing correctly states our agreement, kindly execute this
letter or a counterpart hereof in the spaces provided below.
Very truly yours,
HANOVER DIRECT PENNSYLVANIA, INC.
BRAWN OF CALIFORNIA, INC.
GUMP'S BY MAIL, INC.
GUMP'S CORP.
TCSA, INC.,
a Wisconsin corporation
SDSA, INC.
TWEEDS, INC.
By:_________________________
Title:______________________
AGREED AND ACCEPTED:
CONGRESS FINANCIAL CORPORATION
By:___________________________
Title:________________________
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE> 155
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT, INC.
By:____________________________
Title:_________________________
RING RESPONSE LTD.
LEAVITT ADVERTISING AGENCY, INC.
D.M. ADVERTISING, INC.
HANOVER SYNDICATION CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER LIST MANAGEMENT, INC.
YORK FULFILLMENT COMPANY, INC.
H.I.M. INC.
GUMP'S HOLDINGS, INC.
TCSA, INC.,
a Delaware corporation
THE COMPANY OFFICE, INC.
THE COMPANY MANUFACTURING, INC.
THE COMPANY FACTORY, INC.
SKANDIA DOWN, INC.
SKANDIA DOWNSALES, INC.
TW ACQUISITIONS, INC.
HANOVER HOLDINGS, INC.
By:____________________________
Title:_________________________
HANOVER FINANCE CORPORATION
By:____________________________
Title:_________________________
-9-
<PAGE> 1
Exhibit 10.15
AMENDMENT NO. 1 TO
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT, dated
June 18, 1993 (this "Agreement"), by and between THE HORN & HARDART
COMPANY, a Nevada corporation, with offices at 1500 Harbor Boulevard,
Weehawken, New Jersey 07087 (the "Company"), and MICHAEL P. SHERMAN,
residing at 15 Tamarack Road, Edison, New Jersey 08820 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have entered into
an Executive Employment Agreement, dated October 14, 1991 (the "Employment
Agreement"); and
WHEREAS, the Company and the Executive desire to amend
the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Term. The Employment Agreement shall be renewed,
effective as of the date hereof, for the period from the date hereof and
ending September 30, 1994 as follows:
Paragraph 2 of the Employment Agreement is hereby amended
to change the date therein to September 30, 1994.
2. Termination of Executive's Employment. The
Employment Agreement shall be amended, effective as of the date hereof, as
follows:
Paragraph 8(g) of the Employment Agreement is hereby
deleted and there shall be substituted in lieu thereof the following:
(g) Notwithstanding anything to the contrary in this
Paragraph 8:
(i) The Company shall notify the Executive, not
less than ninety (90) days prior to the expiration of the
Agreement, as to whether or not the Company intends to
enter into good faith negotiations with the Executive for
the extension of the Agreement. The Agreement shall be
automatically extended for additional one (1)-year
periods if the Company shall fail to notify the Executive
within such time-period of its intent to enter into or
refrain from entering into
<PAGE> 2
negotiations with the Executive for the extension of the
Agreement; provided, however, that the General Counsel of
the Company shall have advised the Chief Executive
Officer of the Company in writing at least one hundred
four (104) days prior to the expiration of the Agreement
of the provisions of this Paragraph 8(g)(i).
(ii) If the Agreement is not extended by mutual
agreement on or before the last day of the Term, then the
Executive shall be paid on such date a lump sum severance
payment in an amount equal to the product of one month's
salary as then in effect multiplied by the number of
years and portions thereof (in the case of any partial
year, a pro rata portion of one month's salary) of
service by the Executive at the Company; provided,
however, that the number of years and portions thereof
shall be limited to include no more than two (2) more
years from October 3, 1993 (the "Severance Payment"). In
addition, if the Executive's employment is terminated
during the Term by the Company without Cause or by the
Executive with Good Reason, the Executive shall be paid
the Severance Payment on the effective date of such
termination. Any such Severance Payment shall be in
addition to any other rights the Executive may have under
the Agreement.
3. Right to Put Shares. The Employment Agreement shall
be amended, effective as of the date hereof, as follows:
Paragraph 11 of the Employment Agreement is hereby
deleted in its entirety.
4. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York
applicable to contracts executed in and to be performed solely within such
state.
5. Guaranty. By its execution of this Agreement,
Hanover unconditionally guaranties performance by the Company of its
obligations under this Agreement.
6. Miscellaneous. (a) Successors and Assigns. This
Agreement shall inure to the benefit of, and be binding upon, the Company
and any corporation with which the Company merges or consolidates or to
which the Company sells all or substantially all of its assets, and upon
the Executive and his executors, administrators, heirs and legal
representatives.
-2-
<PAGE> 3
(b) Headings. All headings in this Agreement are for
convenience only and are not intended to affect the meaning of any
provision hereof.
(c) Counterparts. This Agreement may be executed in two
counterparts with the same effect as if the signatures to all such
counterparts were upon the same instrument, and all such counterparts
shall constitute but one instrument.
IN WITNESS WHEREOF, the Executive has executed this
Agreement and the Company has caused this Agreement to be executed by a
duly authorized officer and to become effective as of the day and year
first above written.
THE HORN & HARDART COMPANY
By:/s/ Jack E. Rosenfeld
------------------------------
Name: Jack E. Rosenfeld
Title: President
/s/ Michael P. Sherman
---------------------------------
Michael P. Sherman
THE HANOVER COMPANIES
By:/s/ Jack E. Rosenfeld
------------------------------
Name: Jack E. Rosenfeld
Title: President
-3-
<PAGE> 1
Exhibit 10.18
AMENDMENT NO. 1 TO
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT, dated
June 18, 1993 (this "Agreement"), by and between THE HORN & HARDART
COMPANY, a Nevada corporation, with offices at 1500 Harbor Boulevard,
Weehawken, New Jersey 07087 (the "Company"), and WAYNE GARTEN, residing at
747 Iris Court, Yorktown Heights, New York 10598 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have entered into
an Executive Employment Agreement, dated October 14, 1991 (the "Employment
Agreement"); and
WHEREAS, the Company and the Executive desire to amend
the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Term. The Employment Agreement shall be renewed,
effective as of the date hereof, for the period from the date hereof and
ending September 30, 1994 as follows:
Paragraph 2 of the Employment Agreement is hereby amended
to change the date therein to September 30, 1994.
2. Termination of Executive's Employment. The
Employment Agreement shall be amended, effective as of the date hereof, as
follows:
Paragraph 8(g) of the Employment Agreement is hereby
deleted and there shall be substituted in lieu thereof the following:
(g) Notwithstanding anything to the contrary in this
Paragraph 8:
(i) The Company shall notify the Executive, not
less than ninety (90) days prior to the expiration of the
Agreement, as to whether or not the Company intends to
enter into good faith negotiations with the Executive for
the extension of the Agreement. The Agreement shall be
automatically extended for additional one (1)-year
periods if the Company shall fail to notify the Executive
within such time-period of its intent to enter into or
refrain from entering into
<PAGE> 2
negotiations with the Executive for the extension of the
Agreement; provided, however, that the General Counsel of
the Company shall have advised the Chief Executive
Officer of the Company in writing at least one hundred
four (104) days prior to the expiration of the Agreement
of the provisions of this Paragraph 8(g)(i).
(ii) If the Agreement is not extended by mutual
agreement on or before the last day of the Term, then the
Executive shall be paid on such date a lump sum severance
payment in an amount equal to the product of one month's
salary as then in effect multiplied by the number of
years and portions thereof (in the case of any partial
year, a pro rata portion of one month's salary) of
service by the Executive at the Company; provided,
however, that the number of years and portions thereof
shall be limited to include no more than two (2) more
years from October 3, 1993 (the "Severance Payment"). In
addition, if the Executive's employment is terminated
during the Term by the Company without Cause or by the
Executive with Good Reason, the Executive shall be paid
the Severance Payment on the effective date of such
termination. Any such Severance Payment shall be in
addition to any other rights the Executive may have under
the Agreement.
3. Right to Put Shares. The Employment Agreement shall
be amended, effective as of the date hereof, as follows:
Paragraph 11 of the Employment Agreement is hereby
deleted in its entirety.
4. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York
applicable to contracts executed in and to be performed solely within such
state.
5. Guaranty. By its execution of this Agreement,
Hanover unconditionally guaranties performance by the Company of its
obligations under this Agreement.
6. Miscellaneous. (a) Successors and Assigns. This
Agreement shall inure to the benefit of, and be binding upon, the Company
and any corporation with which the Company merges or consolidates or to
which the Company sells all or substantially all of its assets, and upon
the Executive and his executors, administrators, heirs and legal
representatives.
-2-
<PAGE> 3
(b) Headings. All headings in this Agreement are for
convenience only and are not intended to affect the meaning of any
provision hereof.
(c) Counterparts. This Agreement may be executed in two
counterparts with the same effect as if the signatures to all such
counterparts were upon the same instrument, and all such counterparts
shall constitute but one instrument.
IN WITNESS WHEREOF, the Executive has executed this
Agreement and the Company has caused this Agreement to be executed by a
duly authorized officer and to become effective as of the day and year
first above written.
THE HORN & HARDART COMPANY
By:/s/ Jack E. Rosenfeld
------------------------------
Name: Jack E. Rosenfeld
Title: President
/s/ Wayne Garten
---------------------------------
Wayne Garten
THE HANOVER COMPANIES
By:/s/ Jack E. Rosenfeld
------------------------------
Name: Jack E. Rosenfeld
Title: President
-3-
<PAGE> 1
Exhibit 10.22
HANOVER DIRECT
SAVINGS AND RETIREMENT PLAN
AMENDED AND RESTATED
AS OF JANUARY 1, 1989
<PAGE> 2
HANOVER DIRECT SAVINGS AND RETIREMENT PLAN
AMENDED AND RESTATED
AS OF JANUARY 1, 1989
WHEREAS, The Horn & Hardart Company, a predecessor employer to Hanover
Direct, Inc. (hereinafter sometimes referred to as the "Company"), has
previously adopted the Horn & Hardart Company Savings Plan (hereinafter
referred to as the "Plan"), effective as of April 1, 1983, which is to continue
to be funded through the medium of a Trust Fund; and
WHEREAS, the Company desires to rename and amend and restate the Plan
in order to comply with the Tax Reform Act of 1986, the Omnibus Reconciliation
Acts of 1986 and 1987, the Revenue Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988 and the Omnibus Reconciliation Act of 1989;
NOW, THEREFORE, the Company hereby renames, amends and restates the
Plan, effective January 1, 1989, unless otherwise indicated, with such Plan to
be known as the Hanover Direct Savings and Retirement Plan as follows:
<PAGE> 3
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
I DEFINITIONS 1
II PARTICIPATION AND ENTRY DATE 17
III CONTRIBUTIONS 19
IV ADMINISTRATION OF FUNDS 39
V RETIREMENT BENEFITS 46
VI DEATH BENEFITS 49
VII VESTING AND SEPARATION FROM SERVICE 52
VIII WITHDRAWALS AND LOANS 55
IX ADMINISTRATION 60
X AMENDMENT, TERMINATION AND MERGERS 64
XI MISCELLANEOUS PROVISIONS 69
XII TOP-HEAVY PROVISIONS 73
<PAGE> 4
ARTICLE I
DEFINITIONS
1.01 "Account" shall mean with respect to a Participant all of the various
accounts maintained to define such Participant's proportionate interest in the
Trust Fund as follows:
(a) A "Salary Deferral Contribution Account" shall be maintained
for each Participant which includes the Salary Deferral Contributions made on
behalf of the Participant, and the appreciation or depreciation of the
investments allocated to that Account and the income earned on such
investments.
(b) An "After-Tax Contribution Account" shall be maintained for
each Participant which includes the Participant's After-Tax Contributions, and
the appreciation or depreciation of the investments allocated to that Account
and the income earned on such investments.
(c) A "Matching Employer Contribution Account" shall be maintained
for each Participant which reflects the Matching Employer Contributions
allocated to the Participant and the appreciation or depreciation of the
investments allocated to that Account and the income earned on such
investments.
(d) A "Discretionary Employer Contribution Account" shall be
maintained for each Participant which reflects the Discretionary Employer
Contributions allocated to the Participant and the appreciation or depreciation
of the investments allocated to that Account and the income earned on such
investments.
(e) A "Rollover Contribution Account" shall be maintained for each
Participant which reflects any rollover contribution made in accordance with
Section 3.12 and the
1
<PAGE> 5
appreciation or depreciation of the investments allocated to that Account and
the income earned on such investments.
1.02 "Affiliated Organization" shall mean (i) any corporation on or after
the date it becomes a member of a controlled group of corporations which
includes the Company, as determined under the provisions of Section 414(b) of
the Code, (ii) any trade or business, whether or not incorporated, on or after
it comes under common control with the Company, as determined under Section
414(c) of the Code, (iii) any organization which is an affiliated service
organization within the meaning of Section 414(m) of the Code, and (iv) any
other entity required to be aggregated pursuant to regulations under Section
414(o) of the Code.
1.03 "Age" or "age" shall mean the chronological age attained by the
Participant at his most recent birthday or as of such other date of reference
as set forth in this Plan.
1.04 "Board of Directors" shall mean the board of directors of the
Company.
1.05 "Break-in-Service" shall mean a Plan Year during which an Employee
has not completed more than five hundred (500) Hours of Service.
1.06 "Code" means the Internal Revenue Code of 1986 as the same presently
exists, and as it may hereafter be amended or clarified by regulations,
rulings, notices or other publications of the Internal Revenue Service having
legal effect.
2
<PAGE> 6
1.07 "Compensation" shall mean, for any applicable period, the W-2
earnings of a Participant including bonuses, overtime, commissions and any
Salary Deferral Contribution made on behalf of the Participant under this Plan,
and any contributions made by salary reduction to a plan established in
accordance with Section 125 or 129 of the Code. Compensation shall exclude
premiums paid to a life insurance plan of the Company for additional coverage
above $50,000, the value of Company car or commutation allowances,
reimbursements for expenses and any other fringe benefits. For any Plan Year
commencing after December 31, 1988, Compensation shall not exceed $200,000, or
such other maximum amount as set forth under Section 401(a)(17) of the Code,
adjusted at the same time and in the same manner as under Section 415(d) of the
Code, except that the dollar increase in effect on January 1 of any calendar
year is effective for Plan Years beginning in such calendar year and the first
adjustment to the $200,000 limitation is effected on January 1, 1990. If
Compensation is determined over a Plan Year that contains fewer than 12
calendar months, the annual compensation limit is an amount equal to the annual
compensation limit for the calendar year in which the compensation period
begins multiplied by the ratio obtained by dividing the number of full months
in the period by 12.
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
Compensation limit. The OBRA '93 annual Compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined (determination period)
beginning in such calendar year. If a determination period
3
<PAGE> 7
consists of fewer than 12 months, the OBRA '93 annual compensation limit will
be multiplied by a fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year.
1.08 "Contribution" shall mean any or all of the various types of
contributions made under the Plan by Participants or the Employer, as described
below:
(a) "Salary Deferral Contribution" shall mean that portion of the
Contribution made to the Plan on behalf of a Participant by his Employer
through a salary reduction agreement, as described under Section 3.01.
4
<PAGE> 8
(b) "After-Tax Contribution" shall mean that portion of a
Participant's Contribution to the Plan which he elects to make independent of a
salary reduction agreement, as described under Section 3.02.
(c) "Matching Employer Contribution" shall mean a Contribution
made by an Employer as described under Section 3.04, based on a Participant's
Salary Deferral Contribution (including any Salary Deferral Contributions
recharacterized as After-Tax Contributions pursuant to Section 3.06).
(d) "Discretionary Employer Contribution" shall mean a
Contribution made by an Employer which is unrelated to any Participant
Contributions, as described under Section 3.05.
(e) "Qualified Non-elective Contribution" shall mean a
Contribution made by an Employer (other than those listed above) in order that
the Plan will satisfy the requirements of Section 3.06 for a Plan Year. The
allocation may be made to all Active Participants who are not Highly-Paid
Employees or, with respect to satisfaction of the ADP test, only to those
Active Participants who have made Salary Deferral Contributions for a Plan Year
and who are not Highly-Paid Employees. Such Contributions shall be treated as
Salary Deferral Contributions for all purposes under the Plan.
1.09 "Contribution Percentage" shall mean the percentage determined by
dividing (i) the sum of the Salary Deferral Contribution, After-Tax
Contribution, Matching Employer Contribution and any Qualified Non-elective
Contribution used to satisfy the non-discrimination requirements of Section
3.06 or any combination of such Contributions, whichever is applicable, made by
or on behalf of a Participant for the applicable period by (ii) his
compensation as
5
<PAGE> 9
defined under Code Section 414(s). 'ADP' shall sometimes be used herein to
refer to the average Contribution Percentage with respect to Salary Deferral
Contributions or amounts treated as Salary Deferral Contributions. 'ACP' shall
sometimes be used herein to refer to the average Contribution Percentage with
respect to Matching Employer Contributions and After-Tax Contributions, if
applicable.
1.10 "Date of Employment" shall mean the first date on which an Employee
is credited with an Hour of Service for the Employer.
1.11 "Disability" shall mean a physical or mental condition of such
severity and probable prolonged duration as to cause the Participant to be
unable to continue his duties as an Employee. The existence of any Disability
shall be determined by a physician chosen by the Plan Administrator, based on
medical evidence of a physical or mental impairment that can be expected to
last more than 12 months or result in death, or on other uniform and
non-discriminatory criteria as established by the Plan Administrator.
Notwithstanding the foregoing, eligibility for Social Security Disability
benefits or for long term disability benefits under an insured plan sponsored
by the Employer shall be deemed conclusive proof of disability.
1.12 "Effective Date" of this Plan shall mean April 1, 1983. The
effective date of this amended and restated Plan is January 1, 1989.
6
<PAGE> 10
1.13 "Eligible Employee" shall mean an Employee who has completed one (1)
Year of Service and attained age twenty-one (21). Notwithstanding the
foregoing, the term "Eligible Employee" shall not include any person whose
terms and conditions of employment are determined by collective bargaining with
a third party and with respect to whom inclusion in this Plan has not been
provided for in the collective bargaining agreement setting forth those terms
and conditions of employment, nor shall the term "Eligible Employee" include
any independent contractor or a leased employee.
1.14 "Employee" shall mean any employee of the Employer or an Affiliated
Organization, including a leased employee as defined under Section 414(n) of
the Code.
The term "leased employee" means any person (other than an employee
of the recipient organization) who pursuant to an agreement between the
recipient organization and any other person ("leasing organization") has
performed services for the recipient organization (including related persons
determined in accordance with Section 414(n)(6) of the Code) on a substantially
full-time basis for at least one (1) year, and such services are of a type
historically performed by employees in the business field of the recipient
organization. Contributions or benefits provided a leased employee by the
leasing organization which are attributable to services performed for the
recipient employer shall be treated as provided by the recipient employer.
A leased employee shall not be considered an employee of the
recipient organization if: (i) such employee is covered by a money purchase
pension plan providing immediate participation, full and immediate vesting and
a nonintegrated employer contribution rate of at least ten (10%) percent of
compensation (as defined in Section 415(c)(3) of the Code, but
7
<PAGE> 11
including amounts contributed by the employer pursuant to a salary reduction
agreement which are excludable from the employee's gross income under Section
125, Section 402(a)(8), Section 401(h) or Section 403(b) of the Code). Also,
the leased employees must not constitute more than twenty percent (20%) of the
recipient organization's non-highly compensated workforce.
1.15 "Employer" shall mean Hanover Direct, Inc. (hereinafter sometimes
referred to as the "Company"), its predecessor, The Horn & Hardart Company, and
the Company's subsidiaries and affiliates and any successor entities thereto
which adopt this Plan. Such adopting Employers shall be set forth in Appendix
A attached at the end of this document.
1.16 "Entry Date" shall mean every January 1st, April 1st, July 1st and
October 1st during which the Plan remains in effect.
1.17 "ERISA" means the Employee Retirement Income Security Act of 1974
(P.L. 93-406), including all amendments thereto.
1.18 "Fund" or "Trust Fund" shall mean all of the assets of the Plan held
by the Trustees (or any nominees thereof) at any time under the Trust
Agreement.
1.19 "Highly-Paid Employee" shall mean any Employee who during the current
or preceding Plan Year (`determination year' and `look back year',
respectively):
8
<PAGE> 12
(a) was at any time a 5% owner of the Employer or an Affiliated
Organization; or
(b) received compensation for such Plan Year in excess of $75,000
or such higher amount as provided under Section 414(q) of the Code, as adjusted
at the same time and in the same manner as under Section 415(d) of the Code; or
(c) received compensation for such Plan Year in excess of $50,000
or such higher amount as provided under Section 414(q) of the Code, as adjusted
at the same time and in the same manner as under Section 415(d) of the Code,
provided such compensation exceeded that of 80% of all Employees for the
applicable Plan Year; or
(d) was at any time an officer of the Employer or an Affiliated
Organization, and received compensation for such Plan Year in excess of
$45,000, as adjusted at the same time and in the same manner as under Section
415(d) of the Code (or, if higher, 50% of the amount in effect under Section
415(b)(1)(A) of the Code for such Plan Year).
For each Plan Year for which a determination in accordance with the
above paragraph is being made, any individual not described in sub-paragraph
(b), (c) or (d) for the preceding Plan Year (without regard to this paragraph)
shall not be treated as described in sub-paragraph (b), (c) or (d) for the
current Plan Year unless such individual is among the one-hundred (100) highest
paid Employees for the current Plan Year.
In no event shall the number of officers taken into account under
sub-paragraph (d) exceed the lesser of (i) fifty (50), and (ii) the greater of
(A) three or (B) 10% of the total Employees. Furthermore, if no officer of the
Employer or an Affiliated Organization is
9
<PAGE> 13
described in sub-paragraph (d) for a Plan Year, then the highest paid officer
shall be treated as described in sub-paragraph (d) for such Plan Year.
The term "Highly-Paid Employee" shall include any highly paid former
employee who separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during the
determination year, and was a Highly-Paid Employee for either the separation
year or any determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a five percent (5%) owner who is an active or former
Employee or a Highly-Paid Employee who is one of the ten (10) most highly
compensated Employees ranked on the basis of Compensation paid by the Employer
during such year, then the family member and the five percent (5%) owner or
top-ten Highly-Paid Employee shall be aggregated. In such case, the family
member and five percent (5%) owner or top-ten Highly-Paid Employee shall be
treated as a single Employee receiving compensation and plan contributions or
benefits equal to the sum of such compensation and contributions or benefits of
the family member and five percent owner or top-ten Highly-Paid Employee. For
purposes of this Section, family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly-Paid Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top one hundred (100) Employees, the number of Employees treated as
officers and the compensation that is considered, will be made in accordance
with Section 414(q) of the Code. In determining the
10
<PAGE> 14
identity of Highly-Paid Employees for a determination year, the Company may
make the calendar year election provided for in Answer 14(b) of Treasury Reg.
section 1.414(q)-IT.
1.20 "Hour of Service" shall mean the following:
(a) An Hour of Service is each hour for which an Employee is paid,
or entitled to payment, for the performance of duties for the Employer or an
Affiliated Organization during the Plan Year.
(b) An Hour of Service is each hour for which an Employee is paid,
or entitled to payment, (either directly or indirectly), by the Employer or an
Affiliated Organization on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or leave of absence.
Notwithstanding the preceding sentence:
(i) No more than 501 Hours of Service shall be credited under
this paragraph (b) to an Employee on account of any
single continuous period during which the Employee
performs no duties (whether or not such period occurs in
a single Plan Year) except as the following provisions
may result in a credit of more than 501 Hours of Service:
(1) If an Employee receives full pay during any
authorized leave of absence, and he returns to work
after such absence, he shall be credited with an
Hour of Service for each hour for which he was paid.
11
<PAGE> 15
(2) If an Employee is on a paid sick leave, he shall
receive an Hour of Service for each hour that he
would have normally worked during such leave.
(3) If an Employee is absent in military service, and he
retained re-employment rights under the law, and he
completed requirements under the law as to
re-employment and was re-employed, he shall be
credited with an Hour of Service for each hour that
he would have normally worked had he not entered
military service solely for purposes of determining
his vested rights; and
(4) If an Employee transfers to an employment status
which is ineligible to participate in this Plan, he
will continue to be credited with Hours of Service
as described above, for purposes of determining his
vested rights. However, he will receive no Hours of
Service for purposes of determining his right to
receive a Contribution to his Account after the date
of his change in employment status.
( ii) An hour for which an Employee is directly or indirectly paid,
or entitled to payment, on account of a period during which no
duties are performed, is not required to be credited to the
Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable
workers compensation, unemployment compensation or disability
insurance laws; and
12
<PAGE> 16
(iii) Hours of Service are not required to be credited for a payment
which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee.
(c) An hour worked at overtime or premium pay will count as only
one Hour of Service under the Plan.
(d) An Hour of Service is each hour for which back pay,
irrespective of mitigation of damages, is either awarded to or agreed to by
the Employer. The same Hours of Service shall not be credited both under
Paragraph (a) or paragraph (b), as the case may be, and under this paragraph
(d). Crediting of Hours of Service for each pay awarded shall be subject to
the limitations set forth in paragraphs (a), (b) and (c).
(e) An Hour of Service shall also be credited for reasons other
than the performance of duties in accordance with Department of Labor
Regulations, Section 2530.200b-2(b). Further, the computation periods used for
purposes of crediting Hours of Service shall be in accordance with Department
of Labor Regulations, Section 2530.200b-2(c). If an Employer does not maintain
hourly records with respect to any Employee, such Employee shall be credited
with forty-five (45) Hours of Service for each week in which he is entitled to
be credited with an Hour of Service.
1.21 "Named Fiduciary" shall mean the Employer, the Trustees and the Plan
Administrator. Each named Fiduciary shall have only those particular powers,
duties, responsibilities and obligations as are specifically given him under
the Plan and/or the Trust Agreement.
13
<PAGE> 17
1.22 "Normal Retirement Date" shall mean the date on which the Participant
has attained Age 65.
1.23 "Participant" shall mean any person who is eligible to receive
benefits under the Plan. The term "Participant" shall include an Active
Participant (each Eligible Employee who has satisfied the participation
requirements of Section 2.01 as of an applicable Entry Date or who has made a
Rollover Contribution), Terminated Vested Participants (former Employees who
are entitled at some future date to the distribution of benefits from this
Plan), and Inactive Participants (former Participants who are not Terminated
Vested Participants and who continue to be employed in a non-covered class by
an Employer or by an Affiliated Organization).
1.24 "Plan" shall mean the Hanover Direct Savings and Retirement Plan as
set forth herein, and as the same may from time to time hereafter be amended.
1.25 "Plan Administrator" or "Administrator" shall mean the Employer, or
the persons or committee named as such pursuant to the provisions of Article IX
hereof.
1.26 "Plan Year" shall mean a twelve (12) month period beginning on
January 1st and ending on each December 31st.
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<PAGE> 18
1.27 "Reduced Compensation" shall mean Compensation reduced by any Salary
Deferral Contributions made by the Participant and also reduced by any
contributions made by salary reduction to a plan established in accordance with
Sections 125 or 129 of the Code.
1.28 "Trust Agreement" shall mean the Hanover Direct Savings and
Retirement Trust Agreement as the same presently exists and as it may from time
to time hereafter be amended.
1.29 "Trustees" shall mean the party or parties so designated pursuant to
the Trust Agreement.
1.30 "Valuation Date" shall mean the last day of each quarter during the
Plan Year and any other date as of which the Plan Administrator elects to make
a valuation of Plan Accounts.
1.31 "Wage Base" shall mean the amount of compensation with respect to
which old age and survivors insurance benefits would be provided for a
Participant under the Social Security Act, as in effect for the calendar year
in which the Plan Year commences.
1.32 "Year of Service" shall mean a Plan Year in which an Employee has at
least one thousand (1,000) Hours of Service. In addition, solely for purposes
of determining whether an Employee is eligible to become a Participant after
his initial year of employment under Section 2.01, a Year of Service shall be
credited to an Employee who has at least one thousand (1,000)
15
<PAGE> 19
Hours of Service during the initial twelve (12) month period commencing with
such Employee's Date of Employment.
All Years of Service shall be counted regardless of whether or not
such years are continuous, subject to Appendix A attached at the end of this
document.
16
<PAGE> 20
ARTICLE II
PARTICIPATION AND ENTRY DATE
2.01 Initial Eligibility.
Each Eligible Employee who is a Participant immediately prior to the
effective date of this amended and restated Plan shall continue to participate
as of such effective date. Each other Employee shall be eligible to become a
Participant on the Entry Date coincident with or next following the date he
first becomes an Eligible Employee.
2.02 Plan Participation.
Each Employee who is eligible to participate in accordance with
Section 2.01 shall complete such forms and provide such data as are reasonably
required by the Plan Administrator as a precondition to Plan participation. In
order to receive a Salary Deferral Contribution, a Participant must enter into
a salary reduction agreement to be effective as of an Entry Date, electing to
reduce his salary by an amount equal to his Salary Deferral Contribution. A
Participant's Salary Deferral Contribution for any Plan Year shall not exceed
the lesser of (i) 10% of his Compensation for the Plan Year or portion of such
Plan Year during which he was an Active Participant, subject to the limitations
set forth in Article III, and (ii) $7,627, or such higher maximum contribution
for a taxable year as may be permitted under Section 402(g) of the Code. The
Plan Administrator shall determine the minimum and/or maximum permitted salary
reduction. Any maximum permitted salary reduction may apply to all
Participants or solely to those Participants who are Highly-Paid Employees.
Participants shall make separate
17
<PAGE> 21
elections with respect to Salary Deferral and After-Tax Contributions, and the
election of either type of contribution shall not, in any way, be contingent
upon any other election made under the Plan. By becoming a Participant, an
Employee shall for all purposes be deemed conclusively to have assented to the
provisions of the Plan, the corresponding Trust Agreement and to all amendments
to such instruments.
2.03 Re-employment.
In the event an Employee terminates employment, and is reemployed, he
shall be eligible to be admitted or readmitted as an Active Participant on the
date of his reemployment or, if later, the Entry Date coincident with or next
following the date he becomes an Eligible Employee.
2.04 Change in Status.
In the event that a person who has been an Employee in an employment
status not eligible for participation in this Plan subsequently becomes
eligible by reason of a change in status, he shall be eligible to become a
Participant on the Entry Date coincident with or next following the date on
which he becomes an Eligible Employee.
18
<PAGE> 22
ARTICLE III
CONTRIBUTIONS
3.01 Salary Deferral Contributions.
The Employer will make a Salary Deferral Contribution to the Plan for
each Active Participant who has entered into a salary reduction agreement, in
accordance with Section 2.02, as determined by such salary reduction agreement.
In addition, for any Plan Year, an Employer may elect to make a Qualified
Non-elective Contribution (including a qualified matching Contribution)
allocable only to those Participants who are not Highly-Paid Employees, in
order that the Plan will satisfy requirements of Section 3.06 for such Plan
Year. Any Contribution made in accordance with the preceding sentence shall be
allocated among applicable Participants in proportion to the ratios of each
such Participant's Compensation or, with respect to satisfaction of the ADP
test, only to those Participants who have made Salary Deferral Contributions
(under the same allocation procedure used for Matching Employer Contributions
or pro-rata). Matching Employer Contributions used to satisfy the test
described under Section 3.06 must comply with the Regulations under Code
Section 1.401(k)-1(b)(3).
"Excess Elective Deferrals" shall mean any Salary Deferral
Contributions which exceed the dollar limitation under Code Section 402(g).
Such Excess Elective Deferrals shall be treated as annual additions under the
Plan unless they are distributed in accordance with this Article.
A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by providing fifteen (15) days
written notification to the
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<PAGE> 23
Administrator of the amount of the Excess Elective Deferrals to be assigned to
this Plan. Such notice shall be provided no later than the first March 1st
following the close of the individual's tax year. Excess Elective Deferrals
with respect to the combination of Excess Elective Deferrals and deferrals
under another plan of deferred compensation of an Employer or an Affiliated
Organization may automatically be returned to the Participant.
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15th to any Participant to whose Account Excess
Elective Deferrals were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
Excess Elective Deferrals shall be adjusted for any income or loss.
The income or loss allocable to Excess Elective Deferrals is the income or loss
allocable to the Participant's Account for the taxable year multiplied by a
fraction, the numerator of which is such Participant's Excess Elective
Deferrals for the year and the denominator of which is the Participant's Salary
Deferral Contribution Account without regard to any income or loss occurring
during such taxable year.
3.02 After-Tax Contributions.
Participants may elect to make After-Tax Contributions to the Trust
for each Plan Year in amounts not less than one percent (1%) of Compensation,
nor more than ten percent (10%) of Compensation for such Plan Year.
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3.03 Method of Contribution.
Salary Deferral and After-Tax Contributions may be made by periodic
payroll deductions or on such other basis as shall be determined from time to
time by the Plan Administrator. Nothing contained herein shall preclude the
Plan Administrator from not allowing Salary Deferral or After-Tax Contributions
to be made by any Participant in accordance with Section 3.06 or from limiting
the number of payroll periods in a Plan Year during which such Contributions
are permitted. A Participant may elect an increase or decrease in his Salary
Deferral Contribution or After-Tax Contributions, provided that written notice
of such change (including amendment of a salary reduction agreement, if
applicable) is submitted to the Plan Administrator at least fifteen (15) days
in advance of the effective date, which date shall be the first day of a
calendar quarter. A Participant may cease Contributions as of any payroll
period upon fifteen (15) days written notice in advance of the last day of such
payroll period.
No contributions may be made by or on behalf of any Participant
during any period that he is receiving long term disability benefits, worker's
compensation benefits or while the Participant is on a leave of absence for
which no Compensation is being paid from the Employer.
3.04 Matching Employer Contributions.
An Employer may elect, in its sole discretion, to make Matching
Employer Contributions for a Plan Year for each Active Participant on whose
behalf Salary Deferral Contributions have been made during the Plan Year.
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<PAGE> 25
For any Plan Year, the Matching Employer Contributions (including any
forfeitures reallocated in accordance with Section 3.07) shall be allocated to
the Accounts of such Active Participants for the Plan Year in the same
proportion as the amount of Salary Deferral Contributions (not in excess of six
percent (6.0%) of the Participant's Compensation) for each such Active
Participant for such Plan Year bears to the total Salary Deferral Contribution
(as so limited) for all such Active Participants for such Plan Year.
3.05 Discretionary Employer Contributions.
For any Plan Year, an Employer may elect, in its sole discretion, to
make an additional Discretionary Employer Contribution to the Plan. If a
Discretionary Employer Contribution is made, then it shall be allocated as of
the last day of the Plan Year to the Account of each Active Participant who (i)
retired at or after age 65, retired due to a Disability or died during such
Plan Year or (ii) (a) had at least 1,000 Hours of Service during such Plan Year
and (b) is actively employed as of the last day of such Plan Year, including
any such Participant who did not make Salary Deferral Contributions for such
Plan Year. An individual who is terminated prior to the last day of a Plan
Year, but who is receiving severance pay as of such date, shall not be deemed
to be actively employed as of the last day of a Plan Year.
The amount allocated to each such Participant shall be an amount
chosen by the Company to be allocated under (a) below. If any Discretionary
Employer Contribution remains, such amount shall be allocated in accordance
with (b) below.
(a) An amount shall be allocated equal to a percentage of each
such Participant's Compensation earned while a Participant for
such Plan Year, plus the same
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<PAGE> 26
percentage of the excess of (i) such Participant's
Compensation earned while a Participant for the Plan Year
above (ii) the Wage Base for such Plan Year. However, the
percentage of Compensation used for allocations above the Wage
Base shall not exceed 5.7% (or such other percentage which
equals the maximum percentage permitted under Code Section
401(1)).
(b) Any remaining Discretionary Employer Contribution shall be
allocated to each such Participant in proportion to the ratio
that each such Participant's Compensation earned while a
Participant bears to such eligible Compensation of all
eligible Participants for the Plan Year.
3.06 Non-Discrimination Test.
For any Plan Year, the average Contribution Percentage for
Highly-Paid Employees determined based on Salary Deferral Contributions (ADP)
and separately based on the sum of After-Tax Contributions and any Matching
Employer Contributions (ACP) shall not exceed the greater of:
(a) 1.25 multiplied by the average Contribution Percentage for all
Eligible Employees who are not Highly-Paid Employees; or
(b) the lesser of
( i) twice the average Contribution Percentage for all
Eligible Employees who are not Highly-Paid Employees; and
(ii) the average Contribution Percentage for all Eligible
Employees who are not Highly-Paid Employees, plus two percent
(2%).
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If the limitation described under subsection (b) above is applied
with respect to Salary Deferral Contributions, it shall not be applied with
respect to the sum of After-Tax Contributions and Matching Employer
Contributions, and vice-versa, except as otherwise permitted under the
following Definitions and Special Rules Section describing the multiple use
test.
For purposes of this Section, an Excess Contribution shall mean the
excess of a Highly-Paid Employee's Salary Deferral Contribution (or amounts
treated as Salary Deferral Contributions) over the maximum amount of such
Contributions as provided under the above test.
For purposes of this Section, Excess Aggregate Contributions shall
mean the excess of the aggregate amount of After-Tax Contributions and Matching
Employer Contributions which were made on behalf of Highly-Paid Employees for
any Plan Year, over the maximum amount of such Contributions as provided under
the above test.
The Excess Contributions or Excess Aggregate Contributions, whichever
is applicable, shall be allocated by reducing the actual Contribution
Percentage of the Highly-Paid Employee with the highest actual Contribution
Percentage. Such Contribution Percentage shall be reduced until the
Highly-Paid Employee with the highest actual Contribution Percentage is equal
to that of the Highly-Paid Employee with the next highest actual Contribution
Percentage or until the above test is passed. This process shall be repeated
until the test is passed and such leveling method shall determine the amount of
Excess Contributions attributable to each Highly-Paid Employee. The Excess
Aggregate Contribution amount shall be determined after any Salary Deferral
Contributions are recharacterized as After-Tax Contributions.
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<PAGE> 28
DEFINITIONS AND SPECIAL RULES:
"Aggregate Limit" shall mean the sum of (i) 125 percent of the
greater of the ADP of the Non-Highly-Paid Employees for the Plan Year or the
ACP of Non-Highly-Paid Employees under the Plan subject to Code Section 401(m)
for the Plan Year beginning with or within the Plan Year of the cash or
deferred arrangement (`CODA') and (ii) the lesser of 200% or two plus the
lesser of such ADP or ACP. `Lesser' is substituted for `greater' in (i) above
and `greater' is substituted for `lesser' after `two plus the' in (ii) if it
would result in a larger Aggregate Limit.
A multiple use method may be used in order to satisfy the
non-discrimination test if one or more Highly-Paid Employees participate in
both a CODA and a plan maintained by the Employer subject to the ACP test. If
the sum of the ADP and ACP of those Highly-Paid Employees subject to either or
both tests exceeds the Aggregate Limit, then the ACP of those Highly-Paid
Employees who also participate in a CODA will be reduced (beginning with such
Highly-Paid Employee whose ACP is the highest) so that the limit is not
exceeded. The amount by which each Highly-Paid Employee's Contribution
Percentage amount is reduced shall be treated as an Excess Aggregate
Contribution. The ADP and ACP of the Highly-Paid Employees are determined
after any corrections required to meet the ADP and ACP tests. Multiple use
does not occur if both the ADP and ACP of the Highly-Paid Employees does not
exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Paid Employees.
Effective prior to the first Plan Year beginning after December 31,
1991, the Plan Administrator shall also have discretionary authority to
restructure the Plan and satisfy the above test based on specific common
attributes among Employees.
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<PAGE> 29
For purposes of determining the Contribution Percentage test,
After-Tax Contributions are considered to have been made in the Plan Year in
which contributed to the trust. Salary Deferral Contributions, Matching
Employer Contributions and Qualified Non- elective Contributions will be
considered made for a Plan Year only if made no later than the end of the
twelve-month period beginning on the day after the close of the Plan Year.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the above tests and the amount of Qualified Non-elective
Contributions, including qualified matching Contributions, if applicable, used
in the test.
The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
A Participant may treat his Excess Contributions under Section 3.01
as an amount distributed to the Participant and then contributed by such
Participant to the Plan. Such recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements as Salary
Deferral Contributions. Amounts may not be recharacterized by a Highly-Paid
Employee to the extent that such amount, in combination with other After-Tax
Contributions made by that Employee, would exceed any stated limit under the
Plan on After-Tax Contributions.
Recharacterization must occur no later than two and one-half months
after the last day of the Plan Year in which such Excess Contributions arose
and is deemed to occur no earlier than the date the last Highly-Paid Employee
is informed in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received them in
cash.
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<PAGE> 30
If a Highly-Paid Employee is subject to the family aggregation rules
of the Code, the combined actual Contribution Percentage (based on Salary
Deferral Contributions and separately based on After-Tax Contributions and
Matching Employer Contributions) for the family group shall be treated as one
Highly-Paid Employee. The combined actual Contribution Percentage shall be
determined as the combined actual Contribution Percentage of all eligible
family members.
The Excess Contributions or Excess Aggregate Contributions for the
family members shall be allocated in proportion to the ratio of such
Contributions for each family member.
Any distribution or forfeiture of Excess Contributions or Excess
Aggregate Contributions for any Plan Year shall be made based on the respective
portions of such amounts attributable to each Highly-Paid Employee.
Excess Contributions or Excess Aggregate Contributions shall be
adjusted for any income or loss. The income or loss allocable to such
Contributions is the income or loss allocable to the Participant's Account for
the Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions or Excess Aggregate Contributions for the
year and the denominator is the Participant's Account attributable to
satisfaction of ADP and ACP test (as applicable) without regard to any income
or loss occurring during such Plan Year.
Notwithstanding the preceding paragraph, any other reasonable method
for computing the income allocable to Excess Contributions or Excess Aggregate
Contributions may be used, provided that the method is non-discriminatory, is
used consistently for all Participants and for all corrective distributions
under the Plan for the Plan Year, and is used by the Plan for allocating income
to Participants' Accounts.
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<PAGE> 31
Excess Contributions and Excess Aggregate Contributions shall be
forfeited, or if not forfeitable, distributed from the Participant's various
Accounts in proportion to the ratio of such Participant's applicable Accounts.
Excess Contributions shall be distributed from the Participant's Qualified
Non-elective Contribution Account only to the extent that such Excess
Contributions exceed the balance in the Participant's Salary Deferral Account
and Matching Contribution Account.
Forfeitures of Excess Aggregate Contributions shall be applied to
reduce Employer Contributions in accordance with Section 3.07.
Excess Contributions or Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be forfeited, or if not
forfeitable, distributed no later than the last day of each Plan Year to
Participants to whose Accounts such Contributions were allocated for the
preceding Plan Year. If such excess amounts are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts arose,
a ten percent (10%) excise tax will be imposed on the Employer maintaining the
Plan with respect to such amounts to the extent required by law.
In the event that this Plan satisfies the requirements of Sections
401(k), 401(m), 401(a)(4), or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements of
such Sections of the Code only if aggregated with this Plan, then this Section
3.06 shall be applied by determining the Contribution Percentage of Employees
as if all such plans were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to satisfy section 401(k)
or 401(m) of the Code only if they have the same Plan Year.
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<PAGE> 32
The ADP for any Participant who is a Highly-Paid Employee for the
Plan Year and who is eligible to have Salary Deferral Contributions (or amounts
treated as Salary Deferral Contributions for purposes of the ADP test)
allocated to his or her accounts under two or more arrangements described in
Section 401(k) of the Code that are maintained by the Employer, shall be
determined as if such Contributions were made under a single arrangement. If a
Highly-Paid Employee participates in two or more cash or deferred arrangements
that have different Plan Years, all cash or deferred arrangements ending with
or within the same calendar year shall be treated as a single arrangement.
In the event that any provisions of this Section 3.06 are no longer
required or applicable for qualification of the Plan under the Code, then any
applicable provisions of this Section 3.06 shall thereupon be void.
3.07 Forfeitures.
As of the end of each Plan Year, any forfeitures occurring during
such Plan Year resulting from an Employee's termination of employment and
election to receive a distribution prior to being one hundred percent (100%)
vested in accordance with Section 7.01 shall first be applied to restore the
previously forfeited accounts, if applicable, of former Terminated Vested
Participants who have been re-employed. If a Participant elects to defer his
distribution the resulting forfeiture (subject to Section 7.03) shall occur
after a one year Break-in-Service.
Any remaining portion of the total forfeiture not applied in
accordance with the preceding paragraph shall be used to reduce a Matching
Employer Contribution and shall be allocated to remaining Active Participants
in the same manner as provided under Section 3.04.
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<PAGE> 33
Should a Participant who is 0% vested in his Matching Employer
Contribution and Discretionary Employer Contribution Accounts under Section
7.01 terminate employment, he shall cease to be a Participant (unless
reemployed) and the resulting forfeiture of his Matching and Discretionary
Employer Contribution Accounts shall be deemed a full distribution of such
Accounts.
If a terminated Participant who was 0% vested in his Matching
Employer Contribution and Discretionary Employer Contribution Accounts and was
deemed to have received a distribution is subsequently reemployed by the
Employer prior to the occurrence of five consecutive one year Breaks-in-Service
after the date of his termination of employment, any amount forfeited shall be
reinstated to his Account.
3.08 Maximum Contributions.
Notwithstanding the above, the total amount of Salary Deferral
Contributions, Matching Employer Contributions and Discretionary Employer
Contributions for any Plan Year shall not exceed an amount equal to fifteen
percent (15%) of the total Reduced Compensation of all Participants for such
Plan Year. The excess, if any, of fifteen (15%) percent of the total
Compensation of all Participants earned in any year commencing before January
1, 1987 above the actual aggregate Employer Contributions for such years may be
added to the total contribution provided the Plan was then in effect.
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<PAGE> 34
3.09 Time of Payment.
Matching Employer Contributions and Discretionary Employer
Contributions may be made at any time on or before the date required for
deduction of such Contributions on the Employer's Federal income tax return.
3.10 Annual Additions Limitation.
Notwithstanding the above provisions of this Article, in no event
shall the annual additions to a Participant's Account exceed the maximum amount
permitted under Section 415 of the Code, and all provisions of such Section are
hereby incorporated in the Plan by reference. The term "limitation year", as
defined under the Code, shall mean the Plan Year.
The term Defined Contribution Fraction shall mean a fraction, the
numerator of which is the sum of the annual additions to the Participant's
Account under all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior limitation years
(including the annual additions attributable to the Participant's nondeductible
employee contributions to all defined benefit plans maintained by the Employer,
whether or not terminated, and the annual additions attributable to all welfare
benefits funds, as defined in Section 419(e) of the Code, and individual
medical accounts, as defined in Section 415(1)(2) of the Code, maintained by
the Employer), and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service with the
Employer (regardless of whether a defined contribution plan was maintained by
the Employer). The maximum aggregate amount in any limitation year is the
lesser of 125 percent
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<PAGE> 35
of the dollar limitation determined under Sections 415(b) and (d) of the Code
in effect under Section 415(c)(1)(A) of the Code or 35 percent of the
Participant's compensation for such year.
If the Employee was a participant as of the end of the first day of
the first limitation year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence
on May 5, 1986, the numerator of this fraction will be adjusted if the sum of
this fraction and the defined benefit fraction would otherwise exceed 1.0 under
the terms of this Plan. Under the adjustment, an amount equal to the product
of (1) the excess of the sum of the fractions over 1.0 times (2) the
denominator of this fraction, will be permanently subtracted from the numerator
of this fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last limitation year beginning before
January 1, 1987, and disregarding any changes in the terms and conditions of
the plan made after May 5, 1986, but using the Code Section 415 limitation
applicable to the first limitation year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before January
1, 1987, shall not be recomputed to treat all employee contributions as annual
additions.
The term "Defined Benefit Fraction" shall mean a fraction, the
numerator of which is the sum of the Participant's projected annual benefits
under all the defined benefit plans (whether or not terminated) maintained by
the Employer, and the denominator of which is the lesser of 125 percent of the
dollar limitation determined for the limitation year under Sections 415(b) and
(d) of the Code or 140 percent of the highest average compensation, including
any adjustments under Section 415(b) of the Code.
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<PAGE> 36
Notwithstanding the above, if the Participant was a participant as of
the first day of the first limitation year beginning after December 31, 1986,
in one or more defined benefit plans maintained by the Employer which were in
existence on May 5, 1986, the denominator of this fraction will not be less
than 125 percent of the sum of the annual benefits under such plans which the
participant had accrued as of the close of the last limitation year beginning
before January 1, 1987, disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
section 415 for all limitation years beginning before January 1, 1987.
As soon as administratively feasible after the end of the limitation
year, the maximum permissible amount for the limitation year will be determined
on the basis of the Participant's actual compensation for the limitation year.
If due to the maximum permitted above or as a result of the
allocation of forfeitures there is an excess amount, the excess will be
disposed of in the following order:
(1) Any After-Tax Contributions, to the extent they would reduce
the excess amount, will be returned to the Participant;
(2a) If an excess amount still exists, and the Participant is
covered by the Plan at the end of the limitation year, the excess amount in the
Participant's Account will be used to reduce Employer Contributions (including
any allocation of forfeitures) for such Participant in the next limitation
year, and each succeeding limitation year if necessary; or
(2b) If an excess amount still exists, and the Participant is not
covered by the Plan at the end of a limitation year, the excess amount will be
held unallocated in a suspense account.
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<PAGE> 37
The suspense account will be applied to reduce future Employer Contributions
for all remaining Participants in the next limitation year, and each succeeding
limitation year if necessary.
If a suspense account is in existence at any time during a limitation
year pursuant to this Section, such account will not receive an allocation of
the trust's investment gains and losses. If a suspense account is in existence
at any time during a particular limitation year, all amounts in the suspense
account must be allocated and reallocated to Participant's Accounts before any
Employer or any employee contributions may be made to the Plan for that
limitation year. Excess amounts may not be distributed to Participants or
former Participants, except as provided below.
Notwithstanding the method for disposing of excess amounts as
indicated above, in the case where a reasonable error is made so that the
limitations of Section 415 are violated, the Plan may distribute Salary
Deferral Contributions (within the meaning of Section 402(g)(3) of the Code) to
the extent that the distribution would reduce the excess amounts in the
Participant's Account. These amounts are disregarded for purposes of the ADP
and ACP tests.
3.11 Return of Contribution.
Except as provided in Section 3.10 and paragraphs (a), (b), (c), (d),
(e) and (f) of this Section, and notwithstanding any other provision of this
Plan or of the Trust Agreement, the Employer irrevocably divests itself of any
interest or reversion whatsoever in any sums contributed by it to the Trust
Fund, and it shall be impossible for any portion of the Trust Fund to be used
for, or diverted to, any purpose other than for the exclusive benefit of
Participants or their Beneficiaries.
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<PAGE> 38
(a) If a contribution by the Employer is conditioned upon initial
qualification of the Plan or any amendment thereto under Section 401 of the
Code, and the Plan or any amendment thereto under Section 401 of the Code, and
the Plan or amendment does not so qualify, the contribution shall be returned
to the Employer within one year of the date of denial of such qualification or
of the failure to qualify.
(b) If a contribution made by the Employer is based upon a good
faith mistake of fact, the contribution shall be returned to the Employer
within one year after the payment of the contribution.
(c) If a contribution which is intended to be deductible for
Federal income tax purposes is determined to not be deductible and part or all
of the deduction is disallowed, the contribution, to the extent disallowed,
shall be returned to the Employer within one year after the disallowance of the
deduction.
(d) Earnings attributable to any mistaken or non-deductible
contribution may not be returned to the Employer, but losses attributable
thereto must reduce the amount to be so returned.
(e) If the withdrawal of the amount attributable to the mistaken
or nondeductible contribution would cause the balance of the individual Account
of any Participant to be reduced to less than the balance which would have been
in the Account had the mistaken or nondeductible amount not been contributed,
then the amount to be returned to the Employer must be limited so as to avoid
such reduction. In the case of a reversion due to initial disqualification of
the Plan, the entire assets of the Plan attributable to Employer contributions
may be returned to the Employer.
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<PAGE> 39
(f) A contribution may be returned to the Employer or an Employee,
whichever is applicable, in order to satisfy the requirements of Section 3.06.
3.12 Rollover Contributions.
(a) Direct Inter-Plan Transfers. Any Employee (including
Employees who are not yet Eligible Employees) may, no less than 15 days
following written notification to the Plan Administrator of such action, direct
the appropriate funding agency of any qualified retirement plan of the
Employer, a former employer, or of an Individual Retirement Account (IRA) which
was established solely as a repository for a distribution from a qualified plan
of a former employer (provided the Employee certifies that he made no
contributions to such IRA) to distribute directly to the Trustee such
Participant's entire interest in the distributing plan or IRA, exclusive of any
after-tax contributions made by the Participant as an employee or participant
thereunder, provided that the transferor plan or IRA is not subject to the
requirements of Section 401(a)(11) of the Code. Any amount presented by a
Participant to the Trustees within sixty (60) days of the receipt shall be
treated, upon receipt by the Trustee, as having been received directly from the
appropriate officer or fiduciary of the distributing plan or IRA.
(b) Cash Transfers. Only cash may be transferred in accordance
with paragraph (a) of this Section. Property other than cash cannot be
transferred.
(c) Investment of Rollover Contribution Accounts. Rollover
Contribution Accounts shall be invested as provided under Section 4.01 of the
Plan.
(d) Direct Rollovers. This paragraph applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise
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<PAGE> 40
limit a distributee's election under this paragraph, a distributee may elect,
at the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. Such
distribution may commence less than 30 days after the notice required under
section 1.411(a)-1(k) of the Income Tax Regulations is given, provided that (i)
the Plan Administrator clearly informs the Participant that the Participant has
a right to a period of at least 30 days after receiving the notice to consider
the decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (ii) the Participant, after receiving the
notice, affirmatively elects a distribution.
For purposes of this Section, the following definitions shall apply:
Eligible rollover distribution: An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion
of any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the code, an
annuity plan described in section 403(a) of the Code, or a
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<PAGE> 41
qualified trust described in section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
Distributee: A distributee includes an employee or former employee.
In addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
Direct rollover: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
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ARTICLE IV
ADMINISTRATION OF FUNDS
4.01 Investment of Funds.
Participant Accounts will be invested by the Plan Trustee, in
accordance with Participant directions as described below and in Section 4.02
and 4.03, in such investment funds as may be offered under the Plan from time
to time. The available investment alternatives may include any or all of the
alternatives described below:
(a) Common or capital stocks, bonds, convertible debentures or
preferred stocks, money market investments and other short
term corporate and government investments and fixed debt
obligations of corporations and of the Federal, state and
local government, or any pooled or mutual fund invested in
such instruments.
(b) One or more guaranteed interest funds which shall be invested
under a contract (or contracts) with a bank, or an insurance
company licensed in the state in which an office of the
Employer is domiciled and whereby terms of such contract
guarantee both the repayment of principal and the payment of
interest at a pre-determined minimum rate for a fixed period
of time. Any such contract is subject to approval of the Plan
Administrator and may be renewed or discontinued in its
discretion. Should such contract be discontinued and should
the Plan Administrator not enter into or instruct the Trustee
to enter into a successor contract providing similar
guarantees as to principal and
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<PAGE> 43
interest, then any Participant whose Account was invested
under the contract shall be given the opportunity to make a
new investment election.
(c) Any other managed fund which the Plan Administrator deems
appropriate for investment of plan assets.
(d) A fund invested in shares of common stock of the Company.
Any dividends received on such shares shall be reinvested
in this fund. Contributions designated for the fund, or
dividends paid on shares held in the fund, shall be temporarily
invested in a short-term investment fund while the Trustee
awaits the opportunity to purchase additional shares. The
shares of common stock of the Company from time to time
required to be acquired for the purposes of this Plan shall be
acquired by the Trustees by purchase in the open market at
prevailing prices, or, if directed by the Company, by
contribution in kind or by purchase privately from the Company
or any other person at a price per share equal to the closing
market price per share at which the shares of common stock of
the Company were sold on the last business day preceding the
day of the purchase; it being understood that shares purchased
from the Company may be either treasury shares or authorized
but unissued shares, if the Company shall make such shares
available for that purpose.
The Plan Administrator may, in its discretion, discontinue the use of
any investment alternatives maintained under the Plan, without obligation to
substitute new alternatives, provided that Participants with Accounts invested
in a discontinued investment alternative are given an
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opportunity to make an election to transfer the affected portion of their
Accounts to another investment alternative permitted under the Plan.
4.02 Investment Elections.
Each Participant shall, by written instructions to the Plan
Administrator, designate in which investment alternative or combination of
alternatives his Contributions shall be invested; provided, however, that the
portion invested in any alternative which he elects shall be 5% or any multiple
thereof, or such other percentage as designated by the Plan Administrator,
subject to the maximum of 100%. Each Participant shall, upon request, be
furnished with written confirmation of such instructions.
4.03 Change of Elections.
Changes in investment elections shall (subject to Section 4.04) be
permitted effective as of the first day of any quarter in each calendar year or
such other period as specified by the Plan Administrator, in the manner
described below:
(a) Any Participant may, by written request filed with the Plan
Administrator by a specified number of days prior to the effective date of the
change, or under any other method as prescribed by the Plan Administrator,
alter his election with respect to the investment of his future contributions.
(b) Any Participant may, by written request filed with the Plan
Administrator by a specified number of days prior to the effective date of the
change, or under any other method as prescribed by the Plan Administrator,
alter his election with respect to the investment
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alternatives in which his prior contributions have been invested and may direct
the Trustee to transfer all or any portion of the balance in his Account to any
investment alternative or combination of alternatives.
4.04 Restrictions on Changes.
The Plan Administrator may, in its sole discretion, establish
restrictions, limitations or prohibitions with respect to changes in investment
elections, or transfers, permitted under the Plan. Any such restrictions,
limitations or prohibitions which may apply to elections related to, or
transfers among, any or all investment funds maintained under the Plan, shall
be communicated in advance of their applicability to Plan Participants, and
shall apply in a non-discriminatory manner to all Participants in similar
circumstances.
4.05 Allocation of Contributions.
As of each Valuation Date, the Plan Administrator shall allocate the
Salary Deferral Contributions, Matching Employer Contributions, Discretionary
Employer Contributions and After-Tax Contributions to the Account of each
Participant.
4.06 Valuation of Assets.
As of each Valuation Date, the assets of the Trust shall be valued at
fair market value and any gains or losses shall be allocated to the same
investment alternatives in which they arose.
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4.07 Voting of Shares.
Before each annual or special meeting of shareholders of the Company,
the Company shall cause the Trustee to send to each Participant whose Account
is invested in common stock of the Company, a copy of the proxy solicitation
material therefor, together with a form providing confidential instructions to
the Trustee on how to vote the shares of Company stock held within the
Participant's Account. Upon receipt of such instructions in conformance with
said proxy solicitation material, the Trustee shall vote the shares of Company
stock as instructed. Instructions received from individual Participants by the
Trustee shall be held in strictest confidence and shall not be divulged or
released to any person, including officers or Employees of an Employer. The
Trustees shall vote the shares of the Company stock for which no instructions
have been received in the same proportion as the shares for which instructions
have been received.
4.08 Tender Offer Procedure.
In the event an offer is received by the Trustee (including, but not
limited to, a tender offer or exchange offer) to purchase any shares of Company
stock held by the Trustee in the Trust, the Company shall cause the Trustee to
send to each Participant whose Account is invested in Company stock such
information as will be distributed to shareholders of the Company in connection
with such offer, and to notify each Participant in writing of the number of
shares of Company stock which are then credited to such Participant's Account.
The Trustee shall provide to each Participant a form requesting confidential
directions as to the manner in which the Trustee is to respond to the offer
with respect to shares of Company stock allocated
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<PAGE> 47
to such Participant's Account. Upon timely receipt of such directions, the
Trustee shall respond as directed with respect to the tender or exchange of
such shares. Instructions received from individual Participants by the Trustee
shall be held in the strictest confidence and shall not be divulged or released
to any person, including officers or Employees of an Employer. The Trustee
shall not tender or exchange shares of Company stock allocated to a
Participant's Account for which the Trustee has not received directions from
the Participant.
A Participant who has directed the Trustee to tender or exchange
shares of Company stock allocated to such Participant's Account may, at any
time prior to the offer withdrawal date, direct the Trustee to withdraw such
shares from the offer prior to the withdrawal deadline, in which case the
Trustee shall carry out such directive.
In the event that shares of Company stock held in a Participant's
Account are tendered or exchanged pursuant to this Section 4.08, the proceeds
received upon the acceptance of such tender or exchange shall be credited to
such Participant's Account, and shall be invested in the manner determined by
the Company or as otherwise provided in the Plan.
4.09 ERISA Section 404(c) Plan.
The Plan is intended to constitute a plan described in Section 404(c)
of ERISA and shall be administered in accordance with such intent. Beginning
with the Plan Year commencing January 1, 1994, the Plan shall be administered
in compliance with Department of Labor Regulations Section 2550.440c-1.
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<PAGE> 48
4.10 Confidentiality.
Information relating to the purchase, holding, and sale of Company
stock in a Participant's Account and the exercise of voting, tender, and
similar rights with respect to such stock by Participants and their
beneficiaries shall be maintained in accordance with such procedures as the
Administrator shall establish designed to safeguard the confidentiality of such
information, except to the extent necessary to comply with Federal laws or
state laws not preempted by ERISA.
4.11 Fiduciary Designation.
Effective for Plan Years commencing on or after January 1, 1994, the
Administrator is designated as the Plan fiduciary responsible for ensuring that
the procedures implemented pursuant to Section 4.10 are sufficient to safeguard
the confidentiality of information described in that Section, that such
procedures are being followed, and that an independent fiduciary is appointed
to carry out activities which the Administrator determines involve a potential
for undue influence by any Employer upon Participants and beneficiaries with
regard to the direct or indirect exercise of shareholder rights with respect to
Company stock.
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ARTICLE V
RETIREMENT BENEFITS
5.01 Normal Retirement Benefit.
A Normal Retirement Benefit shall be payable with respect to any
Participant retiring at his Normal Retirement Date, and shall be equal to the
Participant's Account as of the Valuation Date coincident with or next
following the Participant's Normal Retirement Date. Payment shall commence no
later than sixty (60) days following the last day of the Plan Year in which the
Participant's Normal Retirement Date occurs.
5.02 Deferred Retirement Benefit.
A Deferred Retirement Benefit shall be payable with respect to any
Participant retiring after his Normal Retirement Date and shall be equal to the
Participant's Account as of the Valuation Date coincident with or immediately
following the Participant's actual retirement. Any Contribution to such
Participant's Account after he has attained age 70 1/2 shall be taken into
consideration in determining the minimum distribution requirements of Section
5.04.
5.03 Disability Retirement Benefit.
A Disability Retirement Benefit shall be payable with respect to any
Participant who has suffered a Disability and who retires from service of the
Employer by reason of such Disability, and shall be equal to the Participant's
Account as of the Valuation Date coincident
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<PAGE> 50
with or next following the date of the Participant's termination due to
Disability. Such a Participant may also elect to be paid in accordance with
the provisions of Section 7.02.
5.04 Payment of Benefits.
Any benefit under this Article shall be made in a lump sum payment no
later than sixty days following the close of the Plan Year in which the
Participant's retirement occurs.
If, after a Participant terminates employment, the total value of his
vested Account is less than $3,500, the Administrator may direct the Trustee to
cash-out the Participant's benefit in a single lump sum after any Valuation
Date coincident with or following the date of his or her termination of
employment, without any requirement for such Participant's consent.
For Active Participants, benefit payments as mandated by Code Section
401(a)(9) shall not commence later than the April 1st following the calendar
year in which the Participant attains age 70 1/2 or such later date as
permitted under the Code, unless the Participant was (i) over age 70 1/2 before
January 1, 1988 and was not a 5% owner of the Employer during the Plan Year
ending within the calendar year in which the Participant attained age 66 1/2,
or any subsequent year, or (ii) the Participant made a designation under
Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982, in
which event benefit payments may commence after the April 1st following the
calendar year in which the Participant reaches age 70 1/2, but as soon after
the Participant terminates employment as is practical.
All distributions required under this Section shall be determined and
made in accordance with the Proposed or, if applicable, Final Regulations under
Code Section 401(a)(9),
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<PAGE> 51
including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the Proposed or Final Regulations.
5.05 Additional Allocations on Retirement.
Any allocation for a Participant, made as of a Valuation Date
subsequent to the date of his retirement shall be paid to such Participant, or
his beneficiary, as soon after such Valuation Date as is practical.
5.06 Crediting of Investment Earnings.
Investment earnings shall be credited to a Participant's Account
through the Valuation Date coincident with or preceding the date that
distribution of the Account is made. No earnings shall be credited after such
Valuation Date.
5.07 Company Stock.
A Participant may elect to have the portion, if any, of his vested
Account attributable to a fund invested in common stock of the Company
distributed all in cash or all in kind. In the case of an in-kind
distribution, the value of fractional shares shall be paid in cash.
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ARTICLE VI
DEATH BENEFITS
6.01 Death Benefits.
In the event of the death of an Active Participant or of a Terminated
Vested Participant who has not yet received payment of his Account, the Account
shall be paid to his Beneficiary in a single lump sum. Any payment under this
Section shall be paid as soon as practicable at the Beneficiary's election and
no later than five (5) years after the Participant's death. The distribution
shall be equal to the Participant's Account as of the Valuation Date coincident
with or immediately preceding the date of payment.
6.02 Additional Allocations on Death.
Any allocation for a Participant, made as of a Valuation Date
subsequent to the date of his death, shall be paid to such Participant's
Beneficiary as soon after such Valuation Date as is practical.
6.03 Beneficiary Designation.
"Beneficiary" shall mean the person or persons named to receive any
death benefits which may become payable under the Plan, and shall include any
contingent beneficiary.
If a Participant has a qualified spouse, then such spouse shall
automatically be the Beneficiary eligible to receive the Account of the
Participant pursuant to the Participant's death, unless the Participant names
an alternate Beneficiary, and the qualified spouse consents in
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<PAGE> 53
writing to the Participant's naming of an alternate Beneficiary, which consent
must acknowledge the effect of such designation and be witnessed by a
representative of the Plan Administrator, or attested to by a notary public.
For purposes of this paragraph, a qualified spouse is a spouse to whom the
Participant is married at the date of death and to whom the Participant has
been married for at least one year. Each Participant shall have the right by
written notice to the Plan Administrator, in the form prescribed by the Plan
Administrator, to designate, and from time to time to change the designation
of, one or more Beneficiaries and contingent beneficiaries to receive any
benefit which may become payable under the Plan pursuant to his death, provided
his qualified spouse, if any, consents to the designation of an alternate
Beneficiary as set forth in the preceding sentence. A qualified spouse may
also expressly permit a Participant to subsequently change an alternative
beneficiary designation without any further spousal consent.
If it is established to the satisfaction of a Plan representative
that there is no qualified spouse or that such spouse cannot be located, an
alternative beneficiary designation will be deemed a proper election without
any spousal consent.
Any consent by a qualified spouse obtained under this provision (or
establishment that the consent of a qualified spouse may not be obtained) shall
be effective only with respect to such spouse. A consent that permits
designations by the Participant without any requirement of further consent by
the qualified spouse must acknowledge that such spouse has the right to limit
consent to a specific beneficiary, and a specific form of benefit where
applicable, and that the spouse voluntarily elects to relinquish either or both
of such rights. A revocation of a prior beneficiary designation may be made by
a Participant without the consent of the qualified spouse
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<PAGE> 54
at any time before the commencement of benefits. The number of revocations
shall not be limited.
In the event that a Participant who does not have a qualified spouse
as described above fails to designate a Beneficiary to receive a benefit under
the Plan that becomes payable pursuant to his death, or in the event that the
Participant is pre-deceased by all automatic or designated primary and
contingent beneficiaries, the death benefit shall be payable to the
Participant's estate.
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ARTICLE VII
VESTING AND SEPARATION FROM SERVICE
7.01 Vesting of Accounts.
A Participant shall at all times be fully (100%) vested in his Salary
Deferral Contribution Account, After-Tax Contribution Account, Rollover
Contribution Account and in any restoration contributions made pursuant to
Section 7.03.
A Participant shall be vested in his Matching Employer Contribution
Account and his Discretionary Employer Contribution Account based on his Years
of Service in accordance with the following table:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
Notwithstanding the foregoing, an Active Participant shall be 100%
vested in his Account at his Normal Retirement Date, the date of his retirement
due to Disability or the date of his death.
7.02 Payment of Benefits.
An Active Participant who is vested in his Account and terminates
employment prior to his Normal Retirement Date shall be deemed a Terminated
Vested Participant. Payment
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<PAGE> 56
of his vested Account shall be made in a single lump sum no later than sixty
(60) days following the Valuation Date coincident with or next following the
Participant's Normal Retirement Date. However, any such Participant may elect
that payment of his vested Account be made as of the Valuation Date coincident
with or following the date of his termination of employment, provided that he
makes such election on or before the applicable Valuation Date. A Terminated
Vested Participant's Account shall continue to be credited with investment
earnings through the last Valuation Date coincident with or immediately
preceding the date that payment of the Account is made. No earnings shall be
credited after such Valuation Date.
The failure of a Participant to make such an election shall be deemed
to be an election to defer commencement of benefits.
If, after a Participant terminates employment, the total value of his
vested Account is less than $3,500, the Administrator may direct the Trustee
to cash-out the Participant's benefit in a single lump sum after the Valuation
Date coincident with or following the date of his or her termination of
employment, without any requirement for such Participant's consent.
7.03 Re-employment After Distribution and Restoration Contributions.
Any former Participant who once again qualifies as an Active
Participant and who has received a distribution of any portion of his vested
Account attributable to his prior participation in this Plan may restore to the
Trustee the full amount of the distribution he previously received which was
derived from Employer Contributions. In order to reinstate his full Matching
or Discretionary Employer Contribution Account, a reemployed Participant must
repay the full amount of the distribution from such Accounts prior to the
earlier of (i) the fifth
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<PAGE> 57
anniversary of the date such participant is reemployed or (ii) five consecutive
one year Breaks-in-Service after the date of distribution. Any Participant who
fails to make his restoration contribution within such time period shall waive
his right to the portion of his Account which was not vested when he received
his distribution.
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ARTICLE VIII
WITHDRAWALS AND LOANS
8.01 Withdrawals While Employed.
In-service withdrawals shall be made upon 15 days written notice in
the following order:
(a) A Participant may withdraw all or any portion of his After-Tax
Contribution Account. Such withdrawal shall come first from After-Tax
Contributions made prior to January 1, 1987. Next, such withdrawal shall be
allocated proportionately between the Participant's After-Tax Contributions
made after December 31, 1986 and the investment earnings on such contributions.
A Participant may then withdraw the investment earnings on his After-Tax
Contributions made prior to January 1, 1987.
(b) A Participant may withdraw any portion of his Rollover
Contribution Account upon attainment of age 59 1/2 or in the event of a
financial hardship as described below.
(c) A Participant may withdraw his Salary Deferral Contribution
Account for any reason after he has attained Age 59 1/2 and prior to Age 59
1/2 solely in the event of a financial hardship, and solely to the extent
required to satisfy the hardship. The amount that may be distributed due to a
hardship may include the amount necessary to pay income taxes or penalties
resulting from the distribution. Such hardship must be an immediate and heavy
financial need of the Participant where such Participant lacks other available
resources. Expenses in connection with a death in a Participant's immediate
family would constitute such an immediate and heavy financial need and the
following conditions would automatically be
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<PAGE> 59
deemed an immediate and heavy financial need:
( i) expenses for medical care as described under Code Section
213(d) incurred by the Participant, his spouse or his
dependents or expenses necessary to obtain such medical care;
( ii) costs directly related to the purchase of a primary residence
(excluding mortgage payments);
(iii) payment of tuition or related educational fees for the next
twelve months of post-secondary education for the
Employee, his spouse or his dependents;
( iv) payment to prevent eviction of the Participant from a primary
residence or foreclosure of mortgage on his primary residence;
and
( v) any other occurrence as authorized by the IRS through
Regulations, Rulings, Notices and other documents of general
applicability.
A Participant must submit a written certification on the form
prescribed by the Plan Administrator that the hardship distribution is
necessary to satisfy an immediate and heavy financial need. The written
certification must indicate that the need cannot reasonably be relieved through
reimbursement or compensation by insurance or otherwise, by liquidation of the
employee's assets, by cessation of Salary Deferral Contributions or After Tax
Contributions (if applicable) under the Plan or by other distributions or
nontaxable loans from plans maintained by the Employer or any other employer,
or by borrowing from commercial sources on reasonable commercial terms in an
amount sufficient to satisfy the need. The Employer must
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<PAGE> 60
not have actual knowledge to the contrary that the need cannot reasonably be
relieved as described above.
A Participant may not withdraw any investment earnings included in
his Salary Deferral Contribution Account which wereaccumulated after
December 31, 1988, or any Qualified Non-elective Contributions (including
investment earnings), unless he has attained Age 59 1/2.
A Participant may not withdraw any portion of his Matching Employer
Contribution Account or Discretionary Employer Contribution Account for any
reason prior to his retirement or other termination of employment.
In no event will any hardship withdrawal of Salary Deferral
Contributions be granted until any applicable distributions and loans have been
taken from this Plan and from all other qualified retirement plans of the
Employer.
8.02 Loans.
(a) Loans to Active Participants from their Accounts in amounts of
not less than $500 shall be allowed upon 15 days written notice. No more than
one Plan loan may be outstanding to each Participant at any time.
(b) No Participant shall, under any circumstances, be entitled to
loans in excess of the lesser of (i) 50% of his vested Account as of the
Valuation Date coincident with or immediately preceding the date on which the
loan is made, and (ii) $50,000 less the highest outstanding loan balance over
the 12-month period immediately preceding the issuance of the
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<PAGE> 61
loan. For purposes of this paragraph, all outstanding loans to a Participant
under this Plan or any other qualified retirement plan of the Employer shall be
aggregated.
(c) Any loan to a Participant shall be evidenced by the
Participant's promissory note and secured by the pledge of the Participant's
Account in the Trust Fund and by the pledge of such further collateral as the
Trustee deems necessary or desirable to assure repayment of the borrowed amount
and all interest payable thereon in accordance with the terms of the loan.
(d) Interest shall be charged at an annual rate equal to the prime
interest rate in effect as of the date the loan is processed, plus one percent
(1%). The rate may be revised from time to time, but no more frequently than
quarterly. The Administrator shall have sole discretion in determining the
interest rate, and its decision shall be final and binding. Principal
repayments and interest payments shall be credited to the Account of the
Participant to whom the loan was made.
(e) Loans shall be for such term as the Participant elects, except
that loans shall not be for a period in excess of five (5) years unless they
are made for the purposes of purchasing the primary residence of the
Participant. In no event shall a loan be for a period in excess of thirty (30)
years or such longer period of time as established by the Administrator to be
used on a uniform and non-discriminatory basis.
(f) Loans shall be repaid in approximately level installments made
no less frequently than quarterly. The Plan Administrator may require that
loans be repaid by payroll deduction or any other convenient manner. The
manner and frequency of payment shall be determined by the Plan Administrator.
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<PAGE> 62
(g) If not repaid in full, the unpaid portion of any outstanding
loans (including interest thereon) shall be deducted at retirement, death,
disability or other termination of employment from any benefit to which a
Participant (or his beneficiary) is entitled under this Plan, and any other
security pledge shall be sold as soon as is practicable after such default by
the Trustee at private or public sale. The proceeds of such sale shall be
applied first to pay the expenses of conducting the sale, including reasonable
attorney's fees, and then to pay any sums due from the borrower to the Trust
Fund, with such payment to be applied first to accrued interest and then to
principal. The Participant shall remain liable for any deficiency, and any
surplus remaining shall be paid to the Participant.
(h) If a required periodic payment is not made within 90 days of
the date it was due, this shall be deemed a default and foreclosure on the note
and attachment of security will not occur until a distributable event occurs in
the Plan.
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ARTICLE IX
ADMINISTRATION
9.01 Plan Administrator.
The Plan shall be administered by the Employer in accordance with its
provisions and for purposes of such Plan administration the Employer is hereby
deemed to be Plan Administrator within the meaning of ERISA. All aspects of
Plan administration shall be the responsibility of the Plan Administrator
except those specifically delegated to the Trustees or other parties in
accordance with provisions of the Plan or Trust Agreement.
9.02 Administrative Procedures.
The Administrator shall have discretionary authority based on a
reasonable interpretation of the Plan to determine the eligibility for benefits
and the benefits payable under the Plan, and shall have discretionary authority
to construe all terms of the Plan, including uncertain terms, to determine
questions of fact and law arising under the Plan and make such rules as may be
necessary for the administration of the Plan. Any determination by the Plan
Administrator shall be given deference in the event it is subject to judicial
review, and shall be overturned only if it is arbitrary and capricious or an
abuse of discretion. The Administrator may require Participants to apply in
writing for benefits hereunder and to furnish satisfactory evidence of their
date of birth and such other information as may from time to time be deemed
necessary.
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<PAGE> 64
The Plan Administrator shall appoint the Trustees, Investment
Managers, or any other professional advisors as the Administrator, in is sole
discretion, deems necessary or appropriate.
9.03 Other Plan Administrator.
Anything to the contrary notwithstanding, the Employer may appoint a
committee or an individual or individuals, whether or not employed by the
Employer, to carry out any of the duties of the Plan Administrator. Such
duties may include, but are not limited to, determining the eligibility of any
Employee for any benefits and the amount of such benefits under the Plan,
maintaining custody of all documents and elections made by an Employee,
directing the investment of any payment made by an Employer within any limits
which may be imposed by the Employer, and retaining suitable agents and
advisors. Any committee or individual shall be considered an agent of the
Employer with respect to the Plan and shall be indemnified by the Employer
against any and all claims, losses, damages, expenses and liabilities arising
from any action or failure to act, except when the same is determined to be due
to the gross negligence or willful misconduct of such individual or a member of
a committee.
9.04 Claims Procedures.
(a) If any claim of a Participant or Beneficiary (hereinafter
referred to as "Claimant") is partially or totally denied, the Plan
Administrator shall advise the Claimant in writing of the method of computation
of his benefit, if any, and the specific reason for the denial. This written
notice will be provided to the Claimant within a reasonable period of time
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<PAGE> 65
(generally within 90 days) after the Administrator's receipt of the claim. The
Administrator shall also furnish the Claimant at that time with:
( i) a specific reference to pertinent Plan provisions,
( ii) a description of any additional material or
information necessary for the Claimant to perfect
his claim, if possible, and an explanation of why
such material or information is needed, and
(iii) an explanation of the Plan's claim review procedure.
If a notice of denial of the claim, or a request for additional time
to process the claim due to special circumstances, is not furnished to the
Claimant within the 90-day period, the claim shall be deemed denied. The
Claimant may then proceed to the review stage described in the following
paragraphs.
(b) The Claimant shall, if he desires further review, file a
written request for reconsideration with the Administrator. This written
request must be filed no later than 60 days after receipt of the information
stated in (a) above.
(c) So long as the Claimant's request for review is pending
(including the 60 day period in (b) above), the Claimant or his duly authorized
representative may review pertinent Plan documents and may submit issues and
comments in writing to the Administrator.
(d) A final and binding decision shall be made by the
Administrator within 60 days of the filing by the Claimant of his request for
reconsideration, provided, however, that if the Administrator, in its
discretion, determines that a hearing with the Claimant or his
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<PAGE> 66
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
(e) The Administrator's decision shall be conveyed to the Claimant
in writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the Claimant, with specific references to
the pertinent Plan provisions on which the decision is based.
9.05 Expenses.
Expenses of the Plan shall be paid from the Trust Fund unless the
Employer elects to pay such expenses.
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ARTICLE X
AMENDMENT, TERMINATION AND MERGERS
10.01 Amendment.
The provisions of this Plan may be amended at any time and from time
to time by the Employer, provided, however, that:
(a) no amendment shall increase the duties or liabilities of the
Plan Administrator or of the Trustee without the consent of such party;
(b) no amendment shall deprive any Participant or beneficiary of a
deceased Participant of any of the benefits to which he is entitled under this
Plan with respect to contributions previously made, nor shall any amendment
decrease the balance in any Participant's Account. For purposes of this
paragraph, a plan amendment which has the effect of decreasing the balance of a
Participant's Account or eliminating an optional form of benefit with respect
to benefits attributable to service before the amendment shall be treated as
reducing an accrued benefit;
(c) no amendment shall provide for the use of funds or assets held
to provide benefits under this Plan other than for the benefit of Employees and
their beneficiaries or provide that funds may revert to the Employer except as
permitted by law; and
(d) no amendment may change the vesting schedule with respect to
any Participant, unless each Participant with three or more Years of Service is
permitted to elect to have the vesting schedule which was in effect before the
amendment used to determine his vested
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benefit. The period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end on the
latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective;
or
(3) 60 days after the Participant is issued written notice
of the amendment by the Employer or Plan Administrator.
In the case of an Employee who is a Participant as of the later of
the date such amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such Employee's right
to his Employer-derived accrued benefit will not be less than his percentage
computed under the Plan without regard to such amendment.
Each amendment shall be approved by the Board of Directors by
resolution and shall be filed with the Trustee.
10.02 Plan Termination.
(a) Right Reserved. While it is the Employer's intention to
continue the Plan indefinitely the right is, nevertheless, reserved to
terminate the Plan in whole or in part. Termination or partial termination of
the Plan shall result in full and immediate vesting of each affected
Participant in his entire Account, and there shall not thereafter be any
forfeitures with respect to any Participant for any reason. Notwithstanding
any other provision of this Plan, complete or partial termination of the Plan
shall not be conditioned solely upon any resolution or other action of the
Company, the Board of Directors or any other party.
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(b) Effect on Retired Persons, etc. Termination of the Plan shall
have no effect upon payment of benefits due to former Participants, their
beneficiaries and their estates. The Trustee shall retain sufficient assets to
complete any such payments due and shall have the right, upon direction by the
Employer, to make such payments as of the effective date of the Plan
termination.
(c) Effect on Remaining Participants, etc. The Employer shall
instruct the Trustees either (i) to continue to manage and administer the
assets of the Trust for the benefit of the Participants and their beneficiaries
pursuant to the terms and provisions of the Trust Agreement, or (ii) to pay
over to each Participant (and vested former Participant) the value of his
vested account, and to thereupon dissolve the Trust.
Upon termination of this Plan, if the Employer or any Affiliated
Organization does not maintain a successor plan, the Participant's Account may,
without the Participant's consent, be distributed to the Participant. However,
if any entity within the same controlled group as the Employer maintains a
successor plan then the Participant's Account will be transferred, without the
Participant's consent, to the other plan. For purposes of this Section
10.02(c), a successor plan is any other defined contribution plan (other than
an employee stock ownership plan as defined in Section 4975(e)(7) of the Code
or a simplified employee pension as defined in Section 408(k) of the Code)
maintained by the Employer or any Affiliated Organization unless fewer than two
percent of the Active Participants as of the time of the Plan's termination are
or were eligible under such defined contribution plan at any time during the
24-month period beginning 12 months before the time of the termination.
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10.03 Permanent Discontinuance of Employer Contributions.
While it is the Employer's intention to make substantial and
recurrent contributions to the Trust Fund pursuant to the provisions of this
Plan, the right is, nevertheless, reserved to at any time permanently
discontinue Employer contributions. Such permanent discontinuance shall be
established by resolution of the Board of Directors and shall have the effect
of a termination of the Plan, except that the Trustee shall not have authority
to dissolve the Trust Fund except upon adoption of a further resolution by the
Board of Directors to the effect that the Plan is terminated and upon receipt
from the Employer of instructions to dissolve the Trust Fund pursuant to
Section 10.02(c) hereof.
10.04 Suspension of Employer Contributions.
The Employer shall have the right at any time, and from time to time,
to suspend Employer contributions to the Trust Fund pursuant to this Plan.
Such suspension shall have no effect on the operation of the Plan unless the
Board of Directors determines by resolution that such suspension shall be
permanent. A permanent discontinuance of contributions will be deemed to have
occurred as of the date of such resolution or such earlier date as is therein
specified.
10.05 Mergers and Consolidations of Plans.
In the event of any merger or consolidation with, or transfer of
assets or liabilities to, any other plan, each Participant shall have a benefit
in the surviving or transferee plan (determined as if such plan were then
terminated immediately after such merger, etc.) that is
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equal to or greater than the benefit he would have been entitled to receive
immediately before such merger, etc., in the Plan in which he was then a
Participant (had such Plan been terminated at that time). For the purposes
hereof, former Participants and beneficiaries shall be considered Participants.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 Non-Alienation of Benefits.
None of the payments, benefits or rights of any Participant or
beneficiary shall be subject to any claim of any creditor, and in particular,
to the fullest extent permitted by law, all such payments, benefits and rights
shall be free from attachment, garnishment, trustee's process, or any other
legal or equitable process available to any creditor of such Participant or
beneficiary. Notwithstanding the foregoing, the Plan Administrator shall
assign or recognize an alternate payee with respect to all or a portion of a
Participant's benefit, as may be required in accordance with a Qualified
Domestic Relations Order, as such term is defined and as such action by the
Plan Administrator may be required under Section 414 of the Code and
regulations issued pursuant thereto. The Administrator shall develop such
guidelines and procedures as it deems appropriate to determine, in accordance
with Section 414 of the Code, and regulations issued pursuant thereto, whether,
and in what manner, to comply with any document it receives which is intended
to be a Qualified Domestic Relations Order. No Participant or beneficiary
shall have the right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments which he may expect to receive,
contingently or otherwise, under this Plan, except the right to designate a
beneficiary or beneficiaries as hereinbefore provided.
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11.02 No Contract of Employment.
Neither the establishment of the Plan, nor any modification thereof,
nor the creation of any fund, trust or account, nor the payment of any benefits
shall be construed as giving any Participant or Employee, or any person
whomsoever, the right to be retained in the service of the Employer, and all
Participants and other Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
11.03 Severability of Provisions.
If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions had
not been included.
11.04 Heirs, Assigns and Personal Representatives.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each Participant and
beneficiary, present and future.
11.05 Headings and Captions.
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
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11.06 Gender and Number.
Except where otherwise clearly indicated by context, the masculine
and the neuter shall include the feminine and the neuter, the singular shall
include the plural, and vice-versa.
11.07 Funding Policy.
The Plan Administrator, in consultation with the Employer, shall
establish and communicate to the Trustees a funding policy consistent with the
objectives of this Plan and of the corresponding Trust. Such policy shall
reflect due regard for the emerging liquidity needs of the Trust. Such funding
policy shall also state the general investment objectives of the Trust and the
philosophy upon which maintenance of the Plan is based.
11.08 Title to Assets.
No Participant or beneficiary shall have any right to, or interest
in, any assets of the Trust Fund upon termination of his employment or
otherwise, except as provided from time to time under this Plan, and then only
to the extent of the benefits payable under the Plan to such Participant out of
the assets of the Trust Fund. All payments of benefits as provided for in this
Plan shall be made from the assets of the Trust Fund, and neither the Employer
nor any other person shall be liable therefor in any manner.
11.09 Payment to Minors, etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's
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guardian or to the party providing or reasonably appearing to provide for the
care of such person, and such payment shall fully discharge the Trustees, the
Plan Administrator, the Employer and all other parties with respect thereto.
11.10 Situs.
This Plan shall, to the extent not pre-empted by ERISA or other
Federal law, be construed according to the laws of the state where the
principal office of the Company is domiciled, where such state statutes may be
applicable to an employee benefit plan.
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ARTICLE XII
TOP-HEAVY PROVISIONS
12.01 Top-Heavy Plan.
For any Plan Year commencing in 1984 or thereafter, the Plan shall
be a Top-Heavy Plan, as such term is defined under Section 416 of the Internal
Revenue Code, if the Value of Accumulated Benefits for Key Employees under all
Aggregated Plans exceeds 60% of the Value of Accumulated Benefits for all Group
Participants under all Aggregated Plans, determined as of the Determination
Date immediately preceding such Plan Year. If the Plan is a Top-Heavy Plan for
a Plan Year and, as of the Determination Date immediately preceding such Plan
Year, the Value of Accumulated Benefits for Key Employees under all Aggregated
Plans exceeds 90% of the Value of Accumulated Benefits for all Group
Participants under all Aggregated Plans, then the Plan shall be a Super
Top-Heavy Plan for such Plan Year. For such purposes, the terms "Key
Employees" and "Group Participants" shall include all persons who are or were
Key Employees or Group Participants during the Plan Year ending on such
Determination Date or during any of the four (4) immediately preceding Plan
Years.
The value of Accounts and the present value of accrued benefits will
be determined as of the most recent Valuation Date that falls within or ends
with the 12-month period ending on the Determination Date, except as provided
in Section 416 of the Code for the first and second plan years of a defined
benefit plan. The Accounts and accrued benefits of a Participant (1) who is
not a Key Employee but who was a Key Employee in a prior year, or (2) who has
not been credited with at least one Hour of Service with any Employer
maintaining the
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Plan at any time during the 5-year period ending on the Determination Date will
be disregarded. The calculation of the top-heavy ratio, and the extent to
which distributions, rollovers, and transfers are taken into account will be
made in accordance with Section 416 of the Code. Deductible employee
contributions will not be taken into account for purposes of computing the
top-heavy ratio. When aggregating plans the value of Accounts and accrued
benefits will be calculated with reference to the determination dates that fall
within the same calendar year.
The accrued benefit of a participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Section
411(b)(1)(c) of the Code.
For purposes of this Article, the following definitions shall apply
in addition to those set forth in Article I:
"Affiliated Employer Group" shall mean the Employer and each other
employer which must be aggregated with the Employer for purposes of Sections
414(b), 414(c) or 414(m) of the Code.
"Aggregated Plans" shall mean (i) all plans of the Employer or an
Affiliated Employer Group which are required to be aggregated with the Plan,
and (ii) all plans of the Employer or an Affiliated Employer Group which are
permitted to be aggregated with the Plan and which the Plan Administrator
elects to aggregate with the Plan, for purposes of determining whether the Plan
is a Top-Heavy Plan. A plan shall be required to be aggregated with the Plan
if such plan includes as a participant a Key Employee (and the beneficiary of
such employee)
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or if such plan enables any plan of the Employer or of a member of the
Affiliated Employer Group in which a Key Employee participates to qualify under
Section 401(a)(4) or Section 410 of the Code. A plan of the Employer or the
Affiliated Employer Group shall be permitted to be aggregated with the Plan if
such plan satisfies the requirements of Sections 401(a)(4) and 410 of the Code,
when considered together with the Plan and all plans which are required to be
aggregated with the Plan. No plan shall be aggregated with the Plan unless it
is a qualified plan under Section 401 of the Code. The required aggregation
group shall include plans terminated within the five year period ending on the
Determination Date.
"Annual compensation" shall mean compensation as defined in Section
415(c)(3) of the Code but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Section 125, Section 402(a)(8), Section 402(h) or
Section 403(b) of the Code.
"Determination Date" shall mean the date as of which it is determined
whether a plan is a Top-Heavy Plan or Super Top-Heavy Plan for the Plan Year
immediately following such Determination Date. The Determination Date for the
Plan shall be:
(a) in the case of a defined benefit plan, the date as of which
the actuarial valuation of the Plan, as used for determination
of minimum funding standards under Section 412 of the Code, is
performed; and
(b) in the case of a defined contribution plan, the last day of
the Plan Year.
"Group Participant" shall mean anyone who is or was a participant in
any plan included in the Aggregated Plans during the Plan Year which includes
the Determination Date or any of the four (4) immediately preceding Plan Years,
and who received compensation from
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an Employer during the five (5) year period ending on the Determination Date.
Any beneficiary of a Group Participant who has received, or is expected to
receive, a benefit from a plan included in the Aggregated Plans shall be
considered a Group Participant solely for purposes of determining whether the
Plan is a Top-Heavy Plan or Super Top-Heavy Plan.
"Key Employee" shall mean any employee or former employee of the
Employer or of an Affiliated Employer Group who during the Plan Year which
includes the Determination Date, or during any of the four (4) Plan Years
immediately preceding such Plan Year, was:
(a) an officer of the Employer whose compensation is at least
$45,000 (or such higher amount as is permitted in accordance
with the Code); or
(b) a five percent (5%) owner of the Employer; or
(c) a one percent (1%) owner of the Employer whose total annual
compensation from the Affiliated Employer Group exceeds
$150,000; or
(d) an employee whose compensation equals or exceeds $30,000 (or
such higher amount as may be defined under Section
415(c)(1)(A) of the Code), and whose ownership interest in the
Affiliated Employer Group is among the ten largest.
In no event shall a partner of an unincorporated employer be
considered an officer under paragraph(a) above. Further, the number of
officers counted under (a) above as of any Determination Date shall not exceed
the lesser of:
(1) the greater of (i) ten percent (10%) of the total number of
employees of the Affiliated Employer Group, and (ii) three
(3); and
(2) fifty (50).
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If the application of the preceding paragraph results in a reduction
in the number of officers to be included as Key Employees, then individuals who
are officers shall be eliminated from the group of Key Employees beginning with
the individual who had the lowest one-year compensation in the five (5) year
period including the Plan Year which includes the Determination Date, and the
four (4) immediately preceding Plan Years, and eliminating each individual with
the next higher one-year compensation in such period, until the maximum number
of officers remain in the Key Employee group.
In addition, the beneficiary of a Key Employee shall be deemed to be
a Key Employee.
"Non-Key Employee" shall mean an Employee who is not a Key Employee.
An Employee who was a Key Employee in a previous Plan Year but who is no
longer a Key Employee in the current Plan Year, shall not be considered a
Non-Key Employee for the current Plan Year.
"Value of Accumulated Benefits" shall mean
(a) in the case of a Group Participant or beneficiary covered
under a defined benefit plan, the sum of
(i) the present value of the accrued pension benefit (as such term
is defined under the applicable plan) of the Group Participant
or beneficiary determined as of the Determination Date using
reasonable actuarial assumptions as to interest and mortality,
and taking into account any non-proportional subsidies in
accordance with regulations issued by the Secretary of the
Treasury; plus
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(ii) the sum of any amounts distributed to the Group Participant
and his beneficiary during the plan year ending on the
Determination Date and during the four (4) immediately
preceding plan years.
(b) in the case of a Group Participant or beneficiary covered
under a defined contribution plan, the sum of the accounts of
the Group Participant or beneficiary under the plan as of the
plan's Determination Date derived from:
(1) employee contributions credited to such accounts and
investment earnings thereon; and
(2) employer contributions credited to such accounts and
investment earnings thereon; and
(3) rollover contributions made prior to January 1, 1984, and
investment earnings thereon; and
(4) any contributions which would have been credited to such
accounts on or before the Determination Date, but which
were waived as provided under the Code and resulted in a
funding deficiency; and
(5) any amount distributed from the accounts described in (1)
through (4) above during the Plan Year ending on the
Determination Date, and the four (4) immediately
preceding Plan Years.
If the Plan is determined to be a Top-Heavy Plan or Super Top-Heavy
Plan as of any Determination Date, then it shall be subject to the rules set
forth in the remainder of this
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Article for the Plan Year next following such Determination Date. If, as of a
subsequent Determination Date, the Plan is determined to no longer be a
Top-Heavy Plan or Super Top-Heavy Plan, then the rules set forth in the
remainder of this Article shall no longer apply, except where expressly
indicated otherwise. Notwithstanding the foregoing, if the Plan changes from
being a Super Top-Heavy Plan to a Top-Heavy Plan, the rules applicable to a
Top-Heavy Plan shall apply.
"Year of Super Top-Heavy Service" shall mean a Year of Service of a
Participant which commenced in a Plan Year during which the Plan was a Super
Top-Heavy Plan.
"Year of Top-Heavy Service" shall mean a Year of Service of a
Participant which commenced in a Plan Year during which the Plan was a
Top-Heavy Plan.
12.02 Minimum Contributions or Benefits.
For any Plan Year in which the Plan is a Top-Heavy Plan the minimum
rate of contributions and forfeitures allocated to the account of any
Participant shall be the lesser of:
( i) The highest rate of employer contributions and forfeitures
(determined as a percentage of compensation as defined under
Section 415 of the Code) allocated to the account of any Key
Employee; and
(ii) 3% of such compensation.
Notwithstanding the above paragraph, if a Participant is also a
participant in another defined contribution plan of the Affiliated Employer
Group, all or a portion of the minimum allocation described above may be
provided under such other plan and the minimum
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allocation provided under this Plan shall be eliminated or reduced accordingly.
If the Employee is a Participant in one or more defined benefit plans of the
Affiliated Employer Group, all or a portion of the minimum required benefits or
allocations under Section 416 of the Code may be provided under such plans as
set forth in regulations issued by the Secretary of the Treasury, and the
minimum allocation provided in the preceding paragraph shall be eliminated or
reduced accordingly. Employer contributions resulting from a salary reduction
election by an Employee shall not be counted toward meeting the minimum
required allocations under this Section. Matching Employer Contributions may
be used to satisfy the minimum required allocations under this Section, if such
contributions are not counted under the ACP test described in Section 3.06.
Participants who are Non-Key Employees and who are not separated from
service as of the last day of the Plan Year, and who have (1) failed to
complete 1000 Hours of Service (or the equivalent), (2) declined to make
mandatory contributions to the Plan, or (3) been excluded from the Plan because
such individual's compensation is less than a stated amount, are considered
Participants solely for purposes of this Section.
The minimum allocation required [to the extent required to be
nonforfeitable under Section 416(b)] may not be forfeited under Section
411(a)(3)(B) or 411 (a)(3)(D).
12.03 Adjustment to Maximum Benefits.
If the Plan is a Top-Heavy Plan for any Plan Year, then the maximum
benefit which can be provided under Section 3.10 shall be determined by
substituting "1.00" for "1.25" in the applicable fractions. However, if the
Plan is not a Super Top-Heavy Plan for such Plan
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Year, than the preceding sentence shall not apply provided that "4%" (or such
higher rate as is required by Internal Revenue Service Regulations) is
substituted for "3%" in the first paragraph of Section 12.02.
12.04 Minimum Vesting
If the Plan is determined to be a Top-Heavy Plan for any Plan Year,
then an Active Participant's vested interest in his Account determined as of
the first day of such Plan Year, and determined as of any future date while the
Plan continues to be a Top- Heavy Plan, shall be no less than as determined
under the following Table:
Years of Service Vesting Percentage
---------------- ------------------
Less than 2 years None
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
If the Plan subsequently is determined to no longer be a Top-Heavy
Plan, then the above minimum vesting schedule shall not apply to any portion of
a Participant's Account which is accrued after the first day of the first Plan
Year in which the Plan is no longer a Top-Heavy Plan, provided that the Account
for any Participant with three (3) or more Years of Service as the first date
as of which the Plan is no longer a Top-Heavy Plan shall continue to be vested
in accordance with a schedule not less than the minimum vesting schedule
applicable during the period that the Plan was a Top-Heavy Plan.
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The minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code except those attributable to employee
contributions, including benefits accrued before the effective date of section
416 and benefits accrued before the Plan became top-heavy.
12.05 Discontinuance of Article.
In the event that the provisions of this Article are no longer
required to qualify the Plan under the Code, then this Article XII shall
thereupon be void without the necessity of further amendment of the Plan.
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IN WITNESS WHEREOF, and as evidence of the adoption of the foregoing,
the Company has caused this instrument to be executed by a duly authorized
officer as of this day of , 199 .
HANOVER DIRECT, INC.
By: ____________________________________
____________________________________
Title
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<PAGE> 1
Exhibit 10.26
HANOVER DIRECT, INC.
SUPPLEMENTAL RETIREMENT PLAN
<PAGE> 2
HANOVER DIRECT, INC.
SUPPLEMENTAL RETIREMENT PLAN
INTRODUCTION
The Hanover Direct, Inc. Supplemental Retirement Plan,
previously adopted as The Horn & Hardart Company Supplemental Retirement Plan,
which was effective January 1, 1989, is hereby amended and restated in its
entirety, effective as of October 1, 1993, to read as follows:
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms shall have the
meanings set forth below, unless the context clearly requires otherwise:
1.01 ACCOUNT shall mean the accumulated Annual Earned Accruals and
Matching Earned Accruals determined for the Designated Executive, including any
investment earnings. Any active employee who participated in the Horn &
Hardart Company Supplemental Retirement Plan in effect prior to October 1, 1993
shall have his Account under this Plan credited with the value of his
Contribution
<PAGE> 3
Account (as defined under such prior plan) as of September 30, 1993.
1.02 AFFILIATE shall mean any entity (whether or not incorporated)
which controls, is controlled by, or under common control with the Company.
1.03 BOARD shall mean the Board of Directors of the Company.
1.04 BREAK-IN-SERVICE shall mean any Plan Year during which a
Participant has not completed more than five hundred (500) Hours of Service.
1.05 CODE shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a specific provision of the Code shall include
such provision, any valid regulation or ruling promulgated thereunder and any
comparable provision of future law that amends, supplements or supersedes such
provision.
1.06 COMPANY shall mean Hanover Direct, Inc. and any successor
thereto by merger, consolidation or otherwise.
1.07 COMPENSATION shall mean the fixed salary or base pay which is
paid or made available to a Designated Executive during a Plan year for his
personal services actually rendered to the Company or any Affiliate, but shall
not include any amounts paid as cost-of-living supplements, bonuses, overtime
payments, expense reimbursements, golden parachutes, stock options, other
contractual stock payments, severance payments, or any incentive or other
compensation predicated or computed as a percentage of, or as a commission on,
sales. Any contributions made by a salary reduction election (in accordance
with Code Sections 401(k), 125 or 129) and
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which would have otherwise reduced a fixed salary or base pay shall be counted
as Compensation under the Plan.
1.08 DESIGNATED EXECUTIVE shall mean any employee whose Compensation
exceeds $70,000 and becomes eligible to become a Participant in the Plan as
prescribed in Article II. In addition, any active employee, who participated
in the Plan in effect prior to this Plan and who is not otherwise eligible for
this Plan, shall become a Designated Executive and continue to have any
existing Account held under the Plan credited with interest under Section 3.03,
but shall have no earned accruals credited under Sections 3.01 and 3.02. In no
event, however, shall an employee be eligible to become a Designated Executive
unless he is employed at one of the following Affiliates or such other
Affiliate who adopts this Plan from time to time, with the approval of the
board:
------------------------------
------------------------------
------------------------------
------------------------------
1.09 DISABILITY shall mean a physical or mental condition of such
severity and probable prolonged duration as to cause the Participant to be
unable to continue his duties as an Employee. The existence of any Disability
shall be determined by a physician chosen by the Benefits Committee, based on
medical evidence of a physical or mental impairment that can be expected to
last more than 12 months or result in death, or on other uniform and non-
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<PAGE> 5
discriminatory criteria as established by the Benefits Committee.
Notwithstanding the foregoing, eligibility for Social Security Disability
benefits or for long term disability benefits under an insured plan sponsored
by the Company shall be deemed conclusive proof of disability.
1.10 NORMAL RETIREMENT DATE shall mean the first day of the month
following the date a Designated Executive attains his sixty-fifth (65th)
birthday.
1.11 BENEFITS COMMITTEE shall mean the Committee appointed to
administer the Plan, as provided in Section 4.0l.
1.12 PARTICIPANT shall mean a Designated Executive who has met the
requirements of Section 2.01.
1.13 PLAN shall mean the Hanover Direct, Inc. Supplemental
Retirement Plan, as amended from time to time.
1.14 PLAN YEAR shall mean the calendar year.
1.15 SALARY DEFERRAL ELECTION shall mean the percentage reduction
in Compensation (not to exceed 4%) elected by a Designated Executive which will
be credited in accordance with Section 3.01.
1.16 SCHEDULED PAYMENT DATES shall mean the date(s) 45 days
following a Valuation Date.
1.17 VALUATION DATE shall mean the last day of the Plan Year and
any other date(s) as of which the Benefits Committee, in its sole discretion,
elects to value the Account of a Designated Executive.
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<PAGE> 6
1.18 YEAR OF SERVICE shall mean a Plan Year in which an Employee
has at least one thousand (1,000) hours of service. Solely for purposes of
determining whether a Designated Executive is eligible to become a participant
after his initial year of employment under Section 2.01, a Year of Service
shall be credited to a Designated Executive who has at least one thousand
(1,000) hours of service during the initial twelve (12) month period commencing
with such Designated Executive's date of employment. In addition, solely for
purposes of determining vesting under Section 3.04, Years of Service shall be
counted from a Designated Executive's date of participation as determined under
Section 2.01.
5
<PAGE> 7
ARTICLE II
PARTICIPATION
2.01 DESIGNATION OF PARTICIPANTS A Designated Executive shall
commence participation under this Plan as of the January 1st coincident with or
next following attainment of age 21 and the completion of one Year of Service.
2.02 MODIFICATION OF REQUIREMENTS The Benefits Committee, in its
sole discretion, reserves the right to change the requirements to become a
participant under Section 2.01 at any time.
6
<PAGE> 8
ARTICLE III
BENEFIT DETERMINATIONS AND DISTRIBUTIONS
3.01 ANNUAL EARNED ACCRUALS A Designated Executive shall have
earned accruals credited to his Account for each Plan Year on the same
frequency as payroll deductions have been taken, provided the Designated
Executive is employed at a rate such that he will work at least 1,000 hours
during the Plan Year. A Designated Executive shall have an Annual Earned
Accrual credited to his Account in accordance with the terms set forth below:
(a) The Annual Earned Accrual credited to the Designated
Executive's Account for each Plan Year shall be equal to his Salary Deferral
Election multiplied by his Compensation for such Plan Year.
(b) Termination of Employment - Notwithstanding the foregoing, if
a Designated Executive terminates employment for any reason during a Plan Year,
he shall receive an Annual Earned Accrual for that Plan Year, based on his
Compensation while employed for the Plan Year.
3.02 MATCHING EARNED ACCRUALS The Company shall make a
contribution called a Matching Earned Accrual contribution on behalf of each
Designated Executive in the same amount and on the same frequency as Annual
Earned Accruals are credited to his account. In no event, however, shall the
Matching Earned Accrual credited to a Designated Executive exceed 4% of
Compensation earned during the Plan Year.
7
<PAGE> 9
3.03 INTEREST On any Valuation Date during each Plan Year, an
interest amount will be credited to each Designated Executive's Account equal
to that Account's proportionate share of the investment return of all Accounts
held under the Plan.
3.04 VESTING IN ACCOUNTS A Designated Executive shall be 100%
vested in his Annual Earned Accruals at all times. In addition, a Designated
Executive shall be 100% vested in the value of his Matching Earned Accruals
when he attains his Normal Retirement Date, or if his employment terminates due
to death or Disability (as defined in Section 1.08). Otherwise, he shall be
vested in his Matching Earned Accruals (even if his participation in the Plan
has been discontinued) in accordance with the following table:
Percentage
Years of Service Vested
---------------- ----------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
Any Designated Executive who was a participant in the Plan in effect
prior to this Plan shall also be entitled to credit for Years of Service for
such period and will be entitled to the greater of the vesting percentage
determined under the prior plan for each participant as of September 30, 1993
or the vesting percentage determined under this Plan at retirement or other
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<PAGE> 10
termination of employment. The vested percentage of a Designated Executive's
Account will not increase after the date as of which he terminates employment.
Solely for purposes of determining vesting under the Plan, Years of Service
shall be determined from the date a Designated Executive first became a
Participant under the Plan.
3.05 DISTRIBUTIONS The vested Account of a Designated Executive
will be distributed on the first Scheduled Payment Date following the Valuation
Date coincident with or next following his retirement or other termination of
employment. The distribution will be made in a full lump sum payment of the
vested Account balance of the Designated Executive.
3.06 DEATH BENEFITS If a Designated Executive dies, his named
beneficiary shall receive his vested Account as of the Valuation Date
coincident with or next following his death distributed in accordance with
Section 3.05.
If, at the time of the Designated Executive's death, there is no named
beneficiary, then the Designated Executive's estate shall be paid the benefits
otherwise due to the named beneficiary.
3.07 VALUATION OF ACCOUNT As of each Valuation Date, each
Designated Executive's Account shall be updated with all earned accruals and
interest for such Plan Year based on Sections 3.01, 3.02, and 3.03. Each
Designated Executive shall receive a statement of his Account within ninety
(90) days of such Valuation Date.
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ARTICLE 4
ADMINISTRATION
4.01 APPOINTMENT OF COMMITTEE The Plan shall be administered by
the Benefits Committee appointed by the Board.
4.02 POWERS AND AUTHORITY OF COMMITTEE Whenever the Plan provides
authority to the Board or its designated representative, the Benefits Committee
may be, but is not required to be, the designated representative. Otherwise,
the Benefits Committee shall have the power and full discretionary authority to
interpret and construe this Plan, to determine all questions arising under this
Plan, to correct any defect or supply any omission or reconcile any
inconsistency in this Plan in such manner and to such extent as it shall deem
necessary or appropriate to effectuate the purpose and intent of this Plan, to
adopt and amend from time to time such by-laws and rules and regulations as are
necessary of the administration of this Plan which are not inconsistent with
the terms and provisions of this Plan, and to determine all questions of
eligibility, status and rights of Designated Executives and their beneficiaries
hereunder.
4.03 QUORUM AND VOTING; PROCEDURES A majority of the members of
the Benefits Committee at the time in office shall constitute a quorum for the
transaction of business. The Benefits Committee may act by vote or consent of
the majority of its members then in office and may establish its own
procedures. The Benefits Committee may authorize any one or more of its
members to sign and
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deliver any instrument, certificate or other paper or document on its behalf.
The Benefits Committee may appoint from its members such subcommittees (of one
or more such members), with such powers, as it shall determine.
4.04 CLAIMS PROCEDURE The Benefits Committee shall establish a
claims procedure and shall afford a reasonable opportunity to any Designated
Executive or named beneficiary whose claim for benefits has been denied for a
full and fair review of the decision denying such claims.
4.05 LIABILITY LIMITED AND INDEMNIFICATION Except as otherwise
provided by law, no person who is a member of the Benefits Committee or who is
a stockholder, employee, officer, or director of the Company or any affiliate
shall incur any liability whatsoever on account of any matter connected with or
related to the Plan or the administration of the Plan, unless such person shall
have acted in bad faith or have willfully neglected his duties in respect to
the Plan; and as a condition precedent to his participation in the Plan or the
receipt of benefits thereunder, or both, such liability, if any, is expressly
waived and released by each Designated Executive and named beneficiary, such
waiver and release to be conclusively evidenced by any act or participation in
or the acceptance of benefits under this Plan. The Company shall indemnify and
hold each such person harmless against any and all loss, liability, claim,
damage, cost and expense which may arise by reason of, or be based upon, any
matter connected with or related to the Plan or the administration of the Plan
(including, but not
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limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or in settlement of any such claim whatsoever) to the fullest
extent permitted under the Certificate of Incorporation and By-Laws of the
Company.
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ARTICLE 5
AMENDMENT AND TERMINATION
The Company may amend, terminate or suspend this Plan at any time or
from time to time by a resolution of the Board; provided, however, that no
amendment or termination of the Plan shall deprive any Designated Executive or
named beneficiary of any of the benefits to which any is entitled under this
Plan by reason of the Designated Executive's prior Years of Service, death,
disability or other termination of employment. If the Plan is terminated or
contribution accruals are permanently suspended, the vesting schedule set forth
in Section 3.04 shall continue to apply to each Designated Executive, unless
the Board, in its sole discretion, elects to fully vest a particular Designated
Executive. If the Plan terminates within two years of a change in ownership of
the Company, all Designated Executives will become fully vested.
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ARTICLE 6
MISCELLANEOUS
6.01 SOURCE OF PAYMENTS The Company shall establish and maintain
records which incorporate the crediting of earned accruals and interest under
this Plan; provided, that the Company is advised by tax counsel that the
maintenance of such records will not result in taxation of income to a
Designated Executive or a named beneficiary prior to payment of benefits to any
such person.
6.02 NO EMPLOYMENT CONTRACT This Plan shall not be construed as
creating any contract of employment between the Company or any Affiliate and
the Designated Executive. The Company and all affiliates shall have the same
control over their employees as though this Plan had never been executed.
6.03 FORFEITURE Notwithstanding any other provision of this Plan,
neither a Designated Executive nor his named beneficiary shall be entitled to
receive any benefits under the Plan if the Designated Executive's employment is
terminated because of (a) his willful misconduct in connection with the
performance of his duties to the Company or any Affiliate, including, but
without limiting the generality of the foregoing, misappropriation of funds or
property of the Company or any Affiliate, securing or attempting to secure
personally any profit in connection with any transaction entered into on behalf
of the Company or any Affiliate, or committing the Company or any Affiliate to
any transaction adverse
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to their respective interests except as a result of an honest error in
judgment, or (b) his conviction for a felony.
6.04 NO ASSIGNMENT The interest in this Plan of a Designated
Executive or named beneficiary shall not be subject to assignment or transfer
or otherwise be alienable either by voluntary or involuntary acts of such
person, or by operation of law, nor shall it be subject to attachment,
execution, garnishment, sequestration or other seizure under any legal,
equitable or other process. If any Designated Executive or named beneficiary
shall attempt to or shall alienate, sell, transfer, pledge or otherwise
encumber any amount to which he is or might become entitled, or if by reason of
the insolvency of any such person or the issuance of any garnishment, writ of
execution or other court process, or other event happening at any time any
amount otherwise payable hereunder to such person should devolve upon anyone
other than him or would not be enjoyed by him, the Benefits Committee shall
terminate such interest, but may, in its absolute discretion, hold or apply it
to or for the benefit of such Participant, the spouse, children or other
dependents of such person, in such manner as the Benefits Committee may deem
proper.
6.05 INCAPACITY In the event that the Benefits Committee
determines that a Designated Executive or named beneficiary is unable to care
for his affairs due to illness or accident, any payment due to such individual
under this Plan may be made to his duly appointed legal representative. The
Benefits Committee may, in its discretion, make such payments to a child,
parent or spouse
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of such individual, or to any other person with whom he resides or who is
charged with his care. The Benefits Committee shall make such payment
according to such instructions, which shall be in writing and witnessed by a
notary public, as the Designed Executive or named beneficiary had delivered to
it prior to becoming unable to care for his affairs due to illness or accident.
Any payment made according to the provisions of this Section shall be a
complete discharge of the liability of the Company under this Plan.
6.06 TAX WITHHOLDING Benefit payments hereunder shall be subject
to withholding, to the extent required (as advised by tax counsel) by
applicable tax or other laws.
6.07 SEPARABILITY If any provision of this Plan is held invalid or
unenforceable, to the extent necessary to effectuate the purposes of this Plan,
its invalidity or unenforceability shall not affect any other provisions of the
Plan and the Plan shall be construed and enforced as if such provisions had not
been included therein.
6.08 BINDING EFFECT This Plan shall be binding upon and shall
inure to the benefit of the successors and assigns of the Company and shall be
binding upon the Designated Executive and shall inure to his benefit and that
of his named beneficiary.
6.09 GENDER AND NUMBER The masculine pronoun whenever used herein
shall include the feminine pronoun and the singular number shall include the
plural number and vice versa unless the context clearly requires otherwise.
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6.10 GOVERNING LAW The Plan shall be construed in accordance with
the laws of the State of Delaware, where it is made and where it shall be
enforced, except to the extent such laws have been superseded by Federal law.
IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this instrument to
be executed by its duly appointed officers this day of
, 1993. -----------------
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HANOVER DIRECT, INC.
BY
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ATTEST
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Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
COMPANY INCORPORATION
Brawn of California, Inc. California
The Company Manufacturing, Inc. Wisconsin
Company Store Holdings, Inc. Delaware
Gump's By Mail, Inc. Delaware
Gump's Corporation California
Hanover Direct Pennsylvania, Inc. Pennsylvania
Hanover Direct Virginia Inc. Delaware
Hanover Holdings Inc. Delaware
Hanover Ventures, Inc. Pennsylvania
Henre, Inc. Delaware
Scandia Down Corporation Delaware
Tweeds, Inc. Delaware
<PAGE> 1
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into The Horn & Hardart Company's
(predecessor to Hanover Direct, Inc.) previously filed Registration Statement
File Nos. 33-66394, 33-58760, 33-58756, and 33-58758.
ARTHUR ANDERSEN & CO.
New York, New York
March 9, 1994
