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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 December 31, 1994
Commission file number 1-12082
HANOVER DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-0853260
(State of incorporation) (I.R.S. Employer Identification No.)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 863-7300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------------- ---------------------
Common Stock, $.66 2/3 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 15, 1995 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $106 million (based on the closing price of
the Common Stock on the American Stock Exchange on March 15, 1995).
As of March 15, 1995 the registrant had 92,816,843 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13.
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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 branded specialty catalogs offering home
fashion, general merchandise and apparel. The Company's home fashion catalogs
include Domestications(R), the nation's leading specialty home textile catalog,
and The Company Store(R), an upscale direct marketer of down comforters and
other down and related products for the home. The Company also publishes
Gump's(R), the well-known San Francisco retailer and a leading upscale catalog
marketer of exclusive gifts, which opened its new retail store in downtown San
Francisco in March 1995. The Company is a market leader in the kitchenware
segment with Colonial Garden Kitchens(R), a leading specialty catalog featuring
work saving and lifestyle enhancing items for the kitchen and home, and Kitchen
& Home(sm), introduced in 1994, a highly focused upscale kitchen and home
product catalog. In apparel, the Company's portfolio includes Tweeds(R), the
European inspired women's fashion catalog, and International Male(R), an
authority for unique men's fashions with an international flair.
In 1994, the Company further expanded its catalog offerings by entering
into a venture with Sears, Roebuck and Co. ("Sears") in which the Company mails
several versions of its catalogs to the more than 20 million mail order and
credit card customers of Sears. In 1994, the Company generated revenues of
$71 million and operating income of $2.9 million from this venture.
During 1994, the Company mailed approximately 377 million catalogs and
had total revenues of approximately $769 million and operating income of $16.0
million. The Company maintains a proprietary customer list currently containing
more than 19 million names of customers who have made purchases from at least
one of the Company's catalogs within the past 36 months. Over 7 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.
In early 1995, the Company acquired Improvements (R), a leading
do-it-yourself home improvement catalog featuring home aid accessories,
Leichtung Workshops (R), a woodworking and hobby catalog featuring tools, wood
products and accessories, and The Safety Zone (R), a direct marketer of safety,
prevention and protection products.
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. NAR Group Limited, a British Virgin Islands
corporation (together with its affiliates, "NAR"), owns approximately 51% of the
Company's common stock. NAR, a private investment holding company, 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
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luxury goods, tobacco and other businesses. The Company is a successor in
interest to The Horn & Hardart Company, a restaurant company founded in 1911,
and Hanover House Industries, Inc., founded in 1934.
THE COMPANY'S CATALOGS
Each of the Company's specialty catalogs targets distinct market
segments offering a focused assortment of merchandise designed to meet the needs
and preferences of its target customers. Through market research and ongoing
testing of new products and concepts, each catalog determines its own
merchandise strategy, including the appropriate price points, service levels,
mailing plans and presentation of its products. The Company is continuing its
development 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 32 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 season with variations in format and content. 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.
The Company's operations are divided into two main groups, Non-Apparel
and Apparel. Revenues and the percent of total revenues for 1993 and 1994 for
each group are set forth below:
<TABLE>
<CAPTION>
1993 1994
1993 PERCENT OF 1994 PERCENT OF
REVENUES (A) TOTAL REVENUES REVENUES (A) TOTAL REVENUES
-------------- -------------- ------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
NON-APPAREL $483,876 75% $599,408 78%
APPAREL $158,635 25% $169,476 22%
-------- ---- -------- ----
TOTAL COMPANY $642,511 100% $768,884 100%
======== ==== ======== ====
</TABLE>
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(a) Revenues are net of returns.
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NON-APPAREL GROUP.
The catalogs comprising the Non-Apparel Group are as follows:
Domestications is the nation's leading specialty home textile catalog
and the preferred fashion decorating source book for today's value-oriented and
style-conscious consumer. Domestications features sheets, towels, comforters,
tablecloths, draperies and other items for the home, and offers coordinated
decorating ideas for the home at value prices. Domestications is also mailed to
Sears customers under the name Show Place.
The Company Store is an upscale direct marketer of down comforters and
other down and related products for the home. The Company Store also features
designer brand name sheets, towels and other bedding accessories.
Colonial Garden Kitchens features work saving and lifestyle enhancing
items for the kitchen and home. Colonial Garden Kitchens is also mailed to Sears
customers under the name Great Kitchens.
Kitchen & Home features upscale kitchen and home products.
Gump's is the well-known San Francisco retailer and a leading upscale
catalog marketer of exclusive gifts. In March 1995, Gump's relocated its retail
store to a landmark building in downtown San Francisco, offering comprehensive
collections of antique and contemporary jewelry and gifts.
Tapestry is a value-oriented home accessories catalog featuring
flatware, dinnerware, furniture, rugs and other home decorating items. Tapestry
is also mailed to Sears customers under the name Right Touch.
Hanover House, the Company's oldest catalog, features gifts, seasonal,
household and novelty items.
Mature Wisdom caters to the needs of older customers and features
fashions, health care products and other items for easier living.
Improvements, acquired in January 1995, is a leading do-it-yourself
home improvement catalog featuring home improvement accessories.
Leichtung Workshops, acquired in January 1995, is a woodworking and
hobby catalog featuring tools, wood products and accessories.
The Safety Zone, acquired in February 1995, is a direct marketer of
safety, protection and prevention products.
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APPAREL GROUP.
The catalogs comprising the Apparel Group are as follows:
Tweeds is a European inspired women's fashion catalog featuring relaxed
fashions uniquely designed by its in-house staff.
Silhouettes is a women's fashion catalog featuring every day,
workout, special occasion and career fashions in sizes 14 to 26.
Simply Tops is a source for unique apparel, supplying moderate-priced
clothing to women interested in embellished clothing that makes a statement.
One 212, introduced in 1994, is a women's fashion catalog featuring
upscale clothing with a distinctly modern, cosmopolitan look designed by its
in-house staff.
Essence By Mail is the original catalog featuring women's fashions and
home decorating items reflecting African-American culture. It is a 50% joint
venture with Essence Communications Inc., publisher of Essence magazine. This
catalog will be discontinued after the Summer 1995 mailing.
International Male is an authority for unique men's fashion with an
international flair.
Undergear is a leader in activewear, workout wear and fashion underwear
for men.
RECENT ACQUISITIONS AND VENTURES
Sears. In January 1994, the Company entered into a licensing agreement
with the direct marketing subsidiary of Sears to produce specialty catalogs for
the more than 20 million mail order and credit card customers of Sears. The
catalogs currently being mailed under the program are based on existing Company
catalogs and contain a title page with the Sears name and logo. The specialty
catalogs include: Show Place, based on the Domestications catalog, Great
Kitchens, based on the Colonial Garden Kitchens catalog, and Right Touch, based
on the Tapestry catalog. The Sears agreement has an initial three-year term and
continues thereafter unless terminated by either party on various grounds,
including the Company's failure to meet various operational performance
standards. Profits and losses from this licensing agreement are shared between
the parties on an equal basis. The Company also issued to Sears a performance
warrant to purchase up to 7 million shares of the Company's Common Stock in
1999, at an exercise price of $10.57 per share, subject to certain revenue and
profit thresholds.
Improvements and Leichtung Workshops. In January 1995, the Company
acquired substantially all of the assets of Leichtung, Inc., the publisher of
Improvements, a leading do-it-yourself home improvement catalog, and Leichtung
Workshops, a woodworking and hobby catalog,
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for a total cash purchase price of approximately $12 million and the assumption
of certain liabilities.
The Safety Zone. In February 1995, the Company acquired the remaining
80% of the outstanding capital stock it did not already own of Aegis Safety
Holdings, Inc. ("Aegis"), a direct marketer of safety, prevention and protection
products through The Safety Zone catalog. The purchase price was $6.3 million,
stated value, of the Company's Series B Convertible Additional Preferred Stock
("Series B Stock"). The Series B Stock is convertible into the Company's Common
Stock at $6.66 per share, subject to anti-dilution, and will pay a 5% dividend
in each of the first three years if Aegis has earnings before interest and taxes
of at least $1 million in each year, and a 7% dividend in years four and five.
The Series B Stock is subject to mandatory redemption in cash or common stock at
the Company's option on the fifth anniversary of issuance. If the Company elects
to redeem the Series B Stock in Company Common Stock, additional shares may be
issued if the Company's Common Stock is below a certain value.
Tiger Direct. In February 1995, the Company entered into an agreement
by which, upon closing of the transaction, it agreed to make an $8 million
investment in Tiger Direct, Inc. ("Tiger") and to provide certain strategic
services to Tiger. Tiger is a direct marketer of computer software, peripherals
and CD-ROM hardware and software. Upon consummation of the transactions, the
Company will be issued either a convertible debenture or convertible preferred
stock (if authorized) and warrants for its investment. The debenture will pay
interest at a rate of 10% per year for three years, payable in shares of Tiger
common stock, and will be convertible into a new class of Tiger convertible
preferred stock (subject to Tiger shareholder approval), with dividends payable
at 10% per year for three years, also payable in shares of Tiger common stock.
Tiger will also issue warrants to the Company to purchase additional stock over
a three year period at prices ranging from $1.20 to $1.50 per share. If the
debenture or the preferred stock is converted, the warrants are exercised and
the dividend shares are fully issued, the Company will own approximately 42%
of Tiger's outstanding common stock. The Company will have the right to acquire
additional shares of common stock in the open market, up to a total of 50.1%,
during a five year standstill period. The Company will be permitted to
nominate four of Tiger's seven directors for five years. The Company is also
providing a short-term secured working capital line to Tiger, up to a maximum
of $3 million. All outstanding short-term indebtedness under this working
capital line will be repaid when the transaction closes or within one year from
termination if the transaction does not close.
MARKETING AND DATABASE MANAGEMENT
The Company maintains one of the largest proprietary customer lists in
the industry currently containing more than 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. This
database is selectively enhanced with demographic, socioeconomic, lifestyle and
purchase behavior overlays from other sources.
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The Company utilizes proprietary modeling and sophisticated
segmentation analysis, on a catalog by catalog basis, to devise catalog
marketing and circulation strategies that 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 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.
In addition to mailing to customers currently in 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 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 and promotional inserts in outbound
merchandise packages.
TELEMARKETING AND CUSTOMER SERVICE
The Company designs its service standards to exceed 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.
In 1994, the Company received approximately 70% of its orders through
its toll-free telephone service which offers customer access seven days per
week, 24 hours per day. The Company has created a telephone network to link its
three primary telemarketing facilities in Hanover, Pennsylvania, Roanoke,
Virginia and La Crosse, Wisconsin. The Company's telemarketing facilities
utilize state-of-the-art telephone switching equipment which enables the Company
to route calls between telemarketing centers and thus provide prompt customer
service. Satellite telemarketing centers are also located in San Diego,
California and Cleveland, Ohio.
The Company trains its telemarketing service representatives to be
courteous, efficient and knowledgeable about the Company's products.
Telemarketing service representatives generally receive 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 how well the
representative meets 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 that enables
them to take overflow calls from other catalogs. The Company utilizes customer
surveys as an important measure of 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. In some cases 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 a primary distribution center in Hanover,
Pennsylvania and two in Roanoke, Virginia. The Company's facilities processed
approximately 14 million packages in 1994. The Company's plan is to maximize
efficiencies in merchandise handling and distribution by consolidation of the
warehousing and distribution of like items in specific fulfillment centers. In
1994, the Company substantially completed the consolidation of its women's
apparel catalogs, all of which are now fulfilled from the Company's Roanoke
apparel facility. Also in 1994, the Company completed construction of a 530,000
square foot state-of-the-art home fashions warehouse and distribution facility
on a separate site in Roanoke. This facility is projected to cost approximately
$17 million, of which $12.4 million was incurred in 1994. This facility will
handle all of Domestications' fulfillment needs. Single item orders are
currently being shipped from this facility, which will be fully operational in
the second half of 1995. The Company will also complete the consolidation of
Gump's fulfillment operations from DeSoto, Texas to Hanover, Pennsylvania,
where all giftware, other hardgoods and men's apparel are fulfilled, by
April 1995.
The Company mails its catalogs through the United States Postal Service
("USPS") utilizing pre-sort, bulk mail and other discounts. Most of the
Company's packages are shipped through the USPS. Effective January 1, 1995, the
USPS increased postage rates by approximately 14% to 18%. Overall, catalog
mailing and package shipping costs approximated 16% of the Company's net
revenues in 1994. The Company obtains rate discounts from the USPS by
automatically weighing each parcel and sorting and trucking packages to a number
of USPS drop points throughout the country. Some packages are shipped using a
consolidator for less frequently used drop points. The Company also uses
United Parcel Service, Federal Express and other delivery services.
PURCHASING
The Company's large sales volume permits it to achieve a variety of
purchasing efficiencies, including the ability to obtain prices and terms that
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's telephone telemarketing costs (both inbound and outbound
calls) are typically contracted for on a three year basis. The Company generally
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. For 1994, paper costs approximated 7% of the
Company's
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net revenues. In 1995, paper costs are expected to rise approximately 20% to 30%
due to increasing demand, rising costs of pulp, increased manufacturing costs,
and a lack of new manufacturing plants to meet increasing demand.
The Company believes it has developed and maintains strong
relationships with suppliers for key goods and services.
MANAGEMENT INFORMATION SYSTEMS
The Company is continuing to upgrade 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 an important part of the Company's overall systems plan which
defines the mid- and long-term systems and computing strategy for the Company.
In 1994 the Company purchased, and in 1995 is continuing to modify and install,
on a catalog by catalog basis, integrated systems for use in managing all phases
of the Company's operations. These systems have been designed to meet the
Company's requirements as a high volume publisher of multiple catalogs. The
Company brought several catalogs on line in 1994, and expects to bring
additional catalogs on-line through early 1996, when the Company expects to
complete the project. As of December 31, 1994, the Company invested
approximately $9.1 million in such systems. 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 $15 million.
CREDIT MANAGEMENT
Several of the Company's catalogs, including Domestications,
International Male and Gump's, offer their own credit cards. The Company also
offers, for use with almost all catalogs, the Hanover Shop At Home credit card.
The Company has 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.
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 5% of the
Company's products in 1994. The Company's vendors are selected based on their
ability to reliably meet the Company's production
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and quality requirements, as well as their financial strength and willingness to
meet the Company's needs on an ongoing basis.
EMPLOYEES
The Company currently employs approximately 3,300 persons on a full
time basis and approximately 600 persons on a part time basis. Approximately 150
employees at one of the Company's subsidiaries are represented by a 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
believes that the principal bases upon which it competes are quality, value,
service, product offerings, catalog design, convenience, efficiency and safety.
The Company's catalogs compete with other mail order catalogs, both specialty
and general, and retail stores, including department stores, specialty stores
and discount stores. Competitors also exist in each of the Company's catalog
specialty areas of women's fashions, home furnishings, general merchandise, and
men's fashions. A number of the Company's competitors have substantially greater
financial, distribution and marketing resources than the Company. However, the
Company believes that the recent substantial growth in the costs of doing
business in the direct marketing industry, especially with respect to the
increased costs of paper and postal expenses, may cause a consolidation in the
industry as smaller catalogs face the difficult cost increases.
TRADEMARKS
Each of the Company's catalogs has its own federally registered
trademark. 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.
Essence is a trademark used by the Company under license by Essence
Communications, Inc. Show Place, Great Kitchens, and Right Touch are trademarks
of Sears.
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GOVERNMENT REGULATION
The Company is subject to Federal Trade Commission regulations
governing its advertising and trade practices, Consumer Product Safety
Commission and Food and Drug Administration 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 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 was the
subject of a case decided in 1994 by the United States Supreme Court. While the
Court reaffirmed an earlier decision that 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 operates warehouse and fulfillment facilities in two
principal locations: Roanoke, Virginia, for home fashions and women's apparel,
and Hanover, Pennsylvania, for giftware, other hardgoods and men's apparel.
In Roanoke, the Company owns a newly constructed 530,000 square-foot
state-of-the-art home fashions distribution center. The facility was
substantially completed in December 1994 and is expected to become fully
operational in the second half of 1995. This facility will handle all of
Domestications' fulfillment needs. Also in Roanoke, the Company leases its
175,000 square-foot apparel distribution and telemarketing center from a
partnership in which it owns a 50% interest.
In Hanover, the Company owns a distribution center of approximately
265,000 square feet and leases a telemarketing and administrative office
facility of 123,000 square feet, and a warehouse facility of 433,000 square
feet. Renewal terms through 2009 remain on the first lease; the second lease
expires November 30, 1995 and is expected to be extended for an additional
period.
In addition to these principal facilities, the Company leases
administrative facilities for men's apparel in San Diego, California and for
women's apparel in Edgewater, New Jersey. The San Diego facility also serves
as a telemarketing and customer service facility for men's apparel. The Company
also operates a telemarketing and fulfillment facility in Cleveland, Ohio for
the Improvements and Leichtung Workshops catalogs.
In La Crosse, Wisconsin, the Company also owns a 150,000 square-foot
home fashions manufacturing and assembly facility and a 58,000 square-foot
telemarketing and customer service facility, and leases a warehouse and
fulfillment center of 185,000 square feet under a short-term lease.
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The Company's principal retail operations consist of the newly
relocated Gump's retail store, which occupies approximately 30,000 square feet
in a building in downtown San Francisco, California. The Gump's facility, which
is leased pursuant to a 15-year lease, also includes administrative offices for
retail and mail order functions.
The Company also operates and leases 7 outlet stores at various
locations.
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The following chart lists each of the Company's principal properties:
<TABLE>
<CAPTION>
APPROXIMATE CATALOG
LOCATION STATUS SQUARE FOOTAGE USE
------------------------ ------------- -------------- -------
<S> <C> <C> <C>
Warehouse and
Fulfillment Centers:
Hanover, PA Leased 433,000 (a)
Hanover, PA Leased/Owned 265,000 (a) and (b)
Roanoke, VA Owned 530,000 Domestications
Roanoke, VA Leased 175,000 Women's Apparel(c)
La Crosse, WI Leased 185,000 The Company Store
Corporate and
Administrative Offices:
San Diego, CA Leased 30,000 Men's Apparel(d)
San Francisco, CA Leased 15,000 Gump's(e)
Edgewater, NJ Leased 65,000 Women's Apparel
Weehawken, NJ Leased 85,000 Corporate Headquarters
Cleveland, OH Leased/Owned 40,000 Leichtung Workshops
and Improvements(f)
Telemarketing and
Customer Service:
Hanover, PA Leased 123,000 (a)
La Crosse, WI Owned 58,000 The Company Store
Roanoke, VA Leased 175,000 Women's Apparel(c)
Beachwood, OH Leased 7,800 Leichtung Workshops
and Improvements
Retail Stores:
San Francisco, CA Leased 30,000 Gump's
Tysons Corner, VA Leased 1,700 The Safety Zone
San Diego, CA Leased 3,800 International Male
West Hollywood, CA Leased 3,600 International Male
Manufacturing
and Assembly:
La Crosse, WI Owned 150,000 The Company Store
</TABLE>
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-------------
(a) Used for Gump's, Colonial Garden Kitchens, Kitchen & Home, Tapestry,
Hanover House, Mature Wisdom and Men's Apparel.
(b) The building is owned by the Company and the property is subject to a
ground lease.
(c) Telemarketing and warehouse/fulfillment functions are all located and
performed at the one facility. Square footage stated represents the
entire facility.
(d) Also a telemarketing center for Men's Apparel.
(e) Retail and office space are all located at the one facility. Square
footage stated represents allocations to corporate/administrative,
and retail and retail storage space.
(f) Acquired in connection with the Leichtung, Inc. acquisition in January
1995. The building is owned by the Company and the property is subject
to a ground lease.
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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.
On or about September 2, 1994, a complaint was filed in the United
States District Court for the District of New Jersey by Veronica Zucker, an
individual who allegedly purchased shares of Common Stock of the Company in
the public offering completed on April 7, 1994, against the Company, all
of its directors, certain of its officers, Sun Life Insurance Company of
America, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Alex. Brown &
Sons, Incorporated. The complaint, which purports to be filed on behalf of a
class of all persons who purchased the Common Stock of the Company in the public
offering or thereafter through and including August 14, 1994, seeks to recover
monetary damages the class has allegedly suffered as a result of certain alleged
false and material misleading statements contained in the Company's public
offering prospectus dated March 30, 1994. In lieu of an answer, defendants have
filed a motion to dismiss the complaint in its entirety for failure to state a
claim upon which relief can be granted. The motion is scheduled to be heard by
the Court on April 10, 1995. The Company and its directors and executive
officers believe they have meritorious defenses to the Complaint and intend to
defend the matter vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
<PAGE> 16
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>
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
1994
First Quarter $ 7 7/8 $ 6
Second Quarter 7 1/8 3 15/16
Third Quarter 4 15/16 3 3/4
Fourth Quarter 4 3/8 3 3/8
</TABLE>
The Company is limited from paying dividends at any time on its Common
Stock beyond 25% of the consolidated net income of the then preceding four
quarter period or from acquiring in excess of one million shares of its Common
Stock by the most restrictive debt covenants contained in debt agreements to
which the Company is a party.
As of March 15, 1995, there were approximately 4,567 holders of record
of Common Stock.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the years
indicated:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
--------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES $555,770 $623,650 $586,562 $642,511 $768,884
Operating (loss) income 10,190 (26,078) 14,402 19,076 15,975
Interest expense, net . . . . . . . . 11,426 18,341 13,135 2,757 2,813
Other income (expense) . . . . . . . - (6,437) - 888 (1,833)
Income (loss) from continuing
operations . . . . . . . . . . . . . . (2,136) (51,081) 1,048 17,337 14,838
(Loss) from discontinued operations . . . (115,921) (21,119) - - -
-------- -------- -------- -------- --------
Income (loss) before extraordinary
items and cumulative effect of
accounting change for income taxes . . . (118,057) (72,200) 1,048 17,337 14,838
Extraordinary items . . . . . . . . . . . 2,146 6,915 9,201 - -
Cumulative effect of accounting
change for income taxes . . . . . . . . - - 10,000 - -
-------- -------- -------- -------- --------
NET INCOME (LOSS) . . . . . . . . . . . . (115,911) (65,285) 20,249 17,337 14,838
Preferred stock dividends . . . . . . . . - (466) (3,197) (4,093) (135)
-------- -------- -------- -------- --------
Net income (loss) applicable to
common shareholders . . . . . . . . . . ($115,911) ($65,751) $ 17,052 $ 13,244 $ 14,703
========= ======== ======== ======== ========
Per Share:
Income (loss) from continuing
operations . . . . . . . . . . . . . . ($ .15) ($ 3.16) ($ .06) $ .17 $ .16
(Loss) from discontinued operations . . (8.24) (1.30) - - -
-------- -------- -------- -------- --------
Income (loss) before extraordinary
items . . . . . . . . . . . . . . . . . (8.39) (4.46) (.06) .17 .16
Extraordinary items . . . . . . . . . . . .15 .43 .24 - -
Cumulative effect of accounting
change for income taxes . . . . . . . . - - .26 - -
-------- -------- -------- -------- --------
Net (loss) income . . . . . . . . . . . . ($ 8.24) ($ 4.03) $ .44 $ .17 $ .16
========= ======== ======== ======== ========
Weighted average number
of shares outstanding:
Primary . . . . . . . . . . . . . . . 14,068,460 16,287,723 38,467,015 75,625,330 93,285,190
========== ========== ========== ========== ==========
Fully diluted . . . . . . . . . . . . . . 14,068,460 16,287,723 38,467,015 77,064,131 93,285,190
========== ========== ========== ========== ==========
BALANCE SHEET DATA
(END OF PERIOD):
Working capital (deficit) . . . . . . . . $ 8,913 ($37,636) $ 31,566 $ 25,180 $ 58,501
Total assets . . . . . . . . . . . . . . 234,761 162,800 134,352 188,838 262,246
Total debt . . . . . . . . . . . . . . . 155,649 127,918 43,362 36,160 37,915
Preferred stock of subsidiary . . . . . . - 35,247 32,842 - -
Shareholders' (deficit) equity . . . . . (61,484) (113,632) (19,758) 45,868 109,725
</TABLE>
There were no cash dividends declared on Common Stock in any of the periods.
See Notes to Consolidated Financial Statements.
17
<PAGE> 18
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
Statements of Income:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales and operating expenses . . . . . . . . . . 65.1 63.6 63.3
Selling expenses . . . . . . . . . . . . . . . . . . . . 23.6 24.6 25.7
General and administrative expenses . . . . . . . . . . . 8.9 8.9 9.0
Income from operations . . . . . . . . . . . . . . . . . 2.5 3.0 2.1
Interest expense, net . . . . . . . . . . . . . . . . . 2.2 .4 .4
Other income/(expense) . . . . . . . . . . . . . . . . . - .1 (.2)
Net income . . . . . . . . . . . . . . . . . . . . . . . 3.5% 2.7% 1.9%
</TABLE>
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net Income. The Company reported net income of $14.8 million or $.16
per share for the year ended December 31, 1994, compared to net income of $17.3
million or $.17 per share in 1993. Per share amounts are expressed after
deducting preferred dividends of $.1 million in 1994 and $4.1 million in 1993.
The weighted average number of shares outstanding increased approximately 21%
to 93,285,190 shares for the year ended December 31, 1994, compared to
77,064,131 shares for the same period in 1993, primarily due to the public
offering and the conversion of certain preferred stocks.
Revenues. Revenues increased $126 million, or 20%, from $643 million
in 1993 to $769 million in 1994. This significant increase in revenues was
primarily a result of an increase of $48 million from the Company's venture
with Sears and increased revenues of $88 million from Gump's, The Company Store
and Tweeds which were acquired in the second half of 1993 ("the 1993
acquisitions"). Revenues from catalogs discontinued in 1993 were $20 million
in 1993 and $1 million in 1994.
Revenues were negatively impacted in 1994 by an increase in customer
returns from approximately 13.1% of shipped sales in 1993 to 14.9% of shipped
sales in 1994. The increased returns were generated by new product categories
and the Company implemented measures that reduced the rate of returns in the
second half of 1994.
Non-Apparel continuing catalog revenues increased $122 million, or
26%, from $477 million in 1993 to $599 million in 1994. The Company's venture
with Sears generated increased Non-Apparel revenues of $46 million from 1993 to
1994, while revenues generated by Gump's and The Company Store increased $57
million from 1993 to 1994. The remainder of the Non-Apparel revenue increase
was primarily due to increased revenues related to Domestications, and the
new Kitchen & Home catalog. Revenues from discontinued catalogs were $7
million and $.2 million in 1993 and 1994, respectively.
Apparel continuing catalog revenues increased $23 million, or
approximately 16%, from $146 million in 1993 to $169 million in 1994. This
increase was primarily due to a $31 million increase in the revenues of Tweeds
which was acquired in the fourth quarter of 1993. Women's Apparel continuing
catalog revenues increased 6% which is mainly attributable to Silhouettes and
One 212, while Men's Apparel revenues decreased 16% as the group discontinued
an
18
<PAGE> 19
underperforming catalog in 1993 and focused on its profitable segments.
Revenues from discontinued apparel catalogs were $13 million and $.5 million in
1993 and 1994, respectively.
Operating Costs and Expenses. Cost of sales and operating expenses as
a percentage of revenues decreased from 63.6% in 1993 to 63.3% in 1994. The
decrease is primarily attributable to higher overall profit margins and lower
fulfillment costs, as partially offset by higher delivery costs in 1994 based
on sales mix.
Selling expenses increased from 24.6% of revenues for the year ended
January 1, 1994 to 25.7% of revenues for the year ended December 31, 1994 as
the Company increased catalog circulation 17% in an effort to increase the
number of active customers on its mailing lists in anticipation of the 1995
postal rate increase. The response to this prospecting program was less than
anticipated which resulted in higher selling expense. Overall demand from the
new customer acquisition program was soft principally in the Non-Apparel
catalogs, particularly in Domestications, where prospecting was heaviest. The
Company mailed approximately 377 million catalogs in 1994.
General and administrative expenses increased from 8.9% of revenues in
1993 to 9.0% of revenues in 1994 due primarily to a $.7 million increase in the
amortization of mailing lists and goodwill related to the 1993 acquisitions.
General and administration expenses increased $11.8 million, or 21%, from 1993
to 1994 due primarily to the 1993 acquisitions.
Income from Operations. Income from operations decreased from $19.1
million in 1993, or 3.0% of revenues, to $16.0 million in 1994, or 2.1% of
revenues. Losses from discontinued catalogs were $3.9 million in 1993 compared
to $.1 million in 1994.
Non-Apparel income from operations decreased $5.7 million from $25.9
million in 1993 to $20.2 million in 1994. This decrease was mainly due to the
previously-mentioned lower response rates to the Company's customer acquisition
program. Non-Apparel income from operations was also impacted by a loss of
$2.1 million in 1994 compared to break even results in 1993 related to the
Gump's retail operations due to the temporary relocation of its retail store
prior to the move to its new location in March 1995.
Apparel income from operations increased $3.1 million from a $3.6
million loss in 1993 to a $.5 million loss in 1994. The Men's Apparel income
from operations increased $3.3 million from a loss of $1.4 million in 1993 to
income of $1.9 million in 1994 as a result of overhead reductions and
increased response rates. The Women's Apparel income from operations increased
$1.0 million excluding losses of $.5 million and $1.6 million in 1993 and 1994,
respectively, from the start-up of a new catalog. Apparel income from
operations for discontinued catalogs was a loss of $4.3 million in 1993 and
income of $.2 million in 1994.
The Company's venture with Sears generated $1.4 million of income from
operations in 1993 versus $2.9 million in 1994.
Interest Income (Expense). Interest expense decreased approximately
$1.4 million from $4.9 million in 1993 to $3.5 million in 1994. This decrease
was the result of the Company using the proceeds of the public offering to pay
down its revolving line of credit in April 1994, thus reducing borrowing
requirements throughout the remainder of 1994. In addition, the Company
experienced lower interest rates upon entering into a new credit agreement in
October 1994. The Company's long-term debt increased $2.5 million from 1993 to
1994. Interest income decreased $1.5 million from $2.2 million in 1993 to $.7
million in 1994, due to interest income related to a Federal income tax refund
received in 1993.
19
<PAGE> 20
Other Income (Expense). Other income decreased $2.7 million from
income of $.9 million in 1993 to a loss of $1.8 million in 1994. The income of
$.9 million in 1993 represents a settlement of a claim in bankruptcy. The loss
in 1994 is comprised of $2.5 million of charges due to losses on investments
and advances as partially offset by other income of $.7 million.
Income Taxes. The Company recorded a Federal income tax benefit of
$4.4 million in 1994 based on its estimate of the amount of net operating loss
carryfowards ("NOLs") that can be utilized in the future. Federal income tax
provisions of $5.9 million and $4.2 million, respectively, were offset by the
utilization of NOLs in 1993 and 1994. The Company's state tax provision was
$.5 million and $.9 million in 1993 and 1994, respectively.
Shareholders' Equity. The number of shares of Common Stock
outstanding increased by 9,804,663 in 1994 due to: i) 8,045,296 shares issued
in connection with the Public Offering, ii) 1,309,207 shares issued in
connection with a cashless exchange upon the exercise of certain warrants and
iii) 450,160 shares issued in connection with the Company's equity and
incentive plans, the exchange of the 6% Series A Convertible Preferred Stock
(the "6% Preferred Stock") and other activities. At December 31, 1994, there
were 92,737,840 shares of Common Stock outstanding compared to 82,933,177
shares of Common Stock outstanding at January 1, 1994.
The dividends of $.1 million in 1994 represent dividend requirements
on the 6% Preferred Stock issued in September 1993 while the dividends of $4.1
million in 1993 represent dividend requirements on the 7.5% Preferred Stock and
the Class B Preferred Stock, both of which were converted into Common Stock in
the fourth quarter of 1993.
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
$20 million in 1992 and 1993, respectively.
Non-Apparel revenues increased 23% from $395 million in 1992 to $484
million in 1993. This increase was 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% was attributable to the Sears venture. Revenues from
discontinued catalogs (assuming such catalogs were discontinued at the
beginning of 1992) were $10 million and $7 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
fourth quarter of 1993 contributed $9 million to revenues. As discussed below,
the Company restructured its Apparel catalogs.
20
<PAGE> 21
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 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 were 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.
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
21
<PAGE> 22
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. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $2.6 million and $24.1 million in cash and cash
equivalents at the end of January 1, 1994 and December 31, 1994, respectively.
Working capital and the current ratio were $25.2 million and 1.23 to 1 at
January 1, 1994 versus $58.5 million and 1.51 to 1 at December 31, 1994.
The primary sources of cash in 1994 were the $49.3 million of proceeds
from the issuance of Common Stock, $10.0 million of proceeds from the issuance
of debt, a $10.5 million increase in accounts payable, and operating profits.
Cash was used primarily to support increases of: i) $23.9 million in capital
expenditures, ii) $8.1 million in investments and advances, iii) $6.2 million
in accounts receivable, and iv) $8.2 million in prepaid catalog costs. The
Company also used $8.0 million to pay down various debt obligations during
1994.
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.
22
<PAGE> 23
Public Offering of Common Stock. In April 1994, the Company
consummated a public offering of 8,045,296 shares of its Common Stock resulting
in proceeds net of expenses of approximately $47.5 million. The Company has
used the net proceeds to reduce outstanding indebtedness, to fund certain
infrastructure investments and for general corporate purposes. In April 1994,
the Company repaid $6 million of the $20 million of 9.25% Notes and paid down
the then existing revolving credit facility using the proceeds of the public
offering.
Infrastructure Investments. In 1994, the Company substantially
completed the construction of a fulfillment center on a 53 acre site in
Roanoke, Virginia to primarily support the Domestications catalog. The center
is projected to cost $17 million. As of December 31, 1994, the Company had
incurred costs of approximately $12.4 million in the construction of this
facility. The Company began partial shipping and receiving activities in the
first quarter of 1995 and anticipates that the facility will be fully
operational in the second half of 1995. The Company expects that its
operating margins will be negatively impacted in the first half of 1995 as it
incurs costs in connection with the start-up and relocation of distribution
activities to the facility in Roanoke, Virginia and the consolidation of other
facilities.
The Company is upgrading its management information systems at a total
cost estimated to be approximately $15 million. The new system began
successful operation in two of the Company's catalogs during the second half of
1994 and the Company expects the roll out of the system to the rest of its
catalogs through early 1996. The Company expects to incur certain duplicate
system costs during a period in 1995 as they transition to the new computer
system. As of December 31, 1994, the Company had incurred costs of
approximately $9.1 million as part of this plan, including capitalized leases
aggregating $2.4 million and internal costs of $1.7 million related to
production of this new system that have been capitalized. The Company will
begin to amortize all system costs as the system becomes operational in 1995.
As of December 31, 1994, the Company was concluding the construction
of the new Gump's retail store and began operation of the new store in March
1995. As of December 31, 1994, the Company had incurred costs of approximately
$6.1 million for this store. The total estimated cost of the project is
approximately $8 million.
Financing. The Company entered into a new $80 million credit facility
(the "Credit Facility") during the fourth quarter of 1994. This agreement
replaces the $52.5 million secured revolving working capital facility
previously in place. The Company obtained funding of approximately $10 million
in November 1994 and intends to draw an additional $10 million in 1995 under
the Credit Facility. As part of the Credit Facility, $20 million of the $80
million is reserved for making future acquisitions (the "Acquisition Facility")
and an additional $20 million is reserved for funding capital expenditures. As
of December 31, 1994, the total amount outstanding under the Credit Facility
was $10 million. The Company expects to experience lower financing costs in
the future as a result of the Credit Facility.
The Credit Facility requires the Company to maintain certain financial
covenants on a quarterly basis. The Company and the Lenders under the Credit
Facility have amended the applicable agreements to, among other things, ease
the requirements in certain financial covenants, increase the interest rate
payable by the Company under certain circumstances and require the Lenders
initial consent for certain investments and acquisitions.
The indenture under which the $14 million of the 9.25% Notes were
issued also requires the Company to maintain certain financial covenants on a
quarterly basis. As of December 31, 1994, the Company was not in compliance
with one of the covenants under these 9.25% Notes, for which it has received a
waiver from the holder of the notes. The Company and the holder of the Notes
have amended the covenants in the Indenture to reduce certain financial
standards contained in the covenants. The covenants will revert in the first
quarter of 1996 to those in effect prior to the amendment.
23
<PAGE> 24
The Company's $75 million agreement related to the sale and servicing
of accounts receivable originating from the Company's revolving credit card is
expected to be renegotiated by December 1995. The Company has begun
negotiations with several parties and anticipates that any new agreement would
generate improved cash flows and cost savings.
The Company believes that is has sufficient capital to support the
growth of its business and infrastructure investments.
Investments and Acquisitions. In 1994, the Company invested in debt
and equity securities of two companies and also made cash advances to one of
the companies. As of December 31, 1994, these investments and advances include
$2.7 million of convertible debt securities of Regal Communications, Inc.
("Regal") and $2.3 million of advances to Boston Publishing Company, Inc.
("BPC") which are carried at net realizable values of $1.7 million and $1.2
million, respectively, at December 31, 1994. During 1994, both Regal and BPC
filed for protection under Chapter 11 of the United States bankruptcy laws.
While the Company believes that it has recorded a conservative estimate of the
realizable value of these assets, certain actions of the bankruptcy proceedings
are outside the control of the Company and future events could occur that would
require the Company to re-evaluate the assets.
In January 1995, the Company purchased substantially all of the assets
of Leichtung, Inc. for approximately $12 million in cash and the assumption of
certain liabilities.
In February 1995, the Company acquired Aegis Safety Holdings, Inc.
("Aegis") for 634,900 shares of Class B Convertible Preferred Stock that has a
stated value of $6.3 million. The Company had previously owned 20% of the
outstanding common stock of Aegis.
In March 1995, the Company entered into an agreement, by which, upon
closing of the transaction, it agreed to make an $8 million investment in Tiger
Direct, Inc. ("Tiger") and provide certain strategic services to Tiger. The
Company can increase its investment to $17.7 million upon the conversion of: i)
a debenture or preferred stock, ii) the interest or dividends on such
convertible instruments and iii) exercisable warrants. The Company would
increase its ownership percentage to 42% if all of the above are converted into
Tiger common stock. The Company anticipates using the Acquisition Facility to
fund this investment. The Company is also providing a temporary short-term
secured working capital line of credit to Tiger up to a maximum of $3 million.
All outstanding short-term indebtedness related to this facility will be repaid
when the transaction closes or one year from the date the purchase agreement
is terminated.
The Company continues to analyze other potential acquisitions of
catalog companies and currently intends to use substantially all of the $20
million Acquisition Facility.
Effects of Inflation and Cost Increases. The Company normally
experiences increased costs 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 mailorder merchandise which undergoes sufficiently
high turnover so that the costs 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.
The Company mails its catalogs and ships most of its merchandise
through the United States Postal Service ("USPS"), with catalog mailing and
product shipment expenses representing approximately 16% of revenues in 1994.
In January 1995, the USPS increased postage rates by approximately 14% to 18%.
The Company is also experiencing record price increases in 1995 for paper that
is used in the production of its catalogs as the paper industry has announced a
series of significant increases. Paper costs represented approximately 7% of
revenues in
24
<PAGE> 25
1994. These cost increases and the duplicate costs associated with the
consolidation of the distribution facilities and the transition to the new
system discussed earlier will adversely impact the Company's margins and
earnings particularly in the first half of 1995.
As a result, the Company has implemented a plan to reduce its expense
structure by $8 million through overhead reductions and consolidation of
warehouse facilities. The Company also expects to reduce catalog circulation
from 1994 levels and to increase the productivity of the mailings.
25
<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 January 1, 1994 and December 31, 1994, and the related consolidated
statements of income, shareholders' (deficit) equity and cash flows for each of
the three fiscal years in the period ended December 31, 1994. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 January 1, 1994 and December 31, 1994, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
to financial statement schedule is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states 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 LLP
New York, New York
February 21, 1995
26
<PAGE> 27
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of January 1, 1994 and December 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1994 1994
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,583 $ 24,053
Accounts receivable, net of allowance for doubtful
accounts of $2,509 in 1993 and $2,730 in 1994 19,043 25,247
Inventories 80,429 83,653
Prepaid catalog costs 25,571 33,725
Deferred tax asset, net 2,975 3,200
Other current assets 1,858 2,658
-------- --------
Total Current Assets 132,459 172,536
-------- --------
Property and Equipment, at cost
Land 1,171 1,917
Buildings and building improvements 7,862 7,994
Leasehold improvements 6,242 6,807
Furniture, fixtures and equipment 22,551 24,103
Construction in progress 3,042 21,358
-------- --------
40,868 62,179
Accumulated depreciation and amortization (18,341) (19,708)
-------- --------
Property and Equipment, net 22,527 42,471
-------- --------
Goodwill 18,463 19,026
Deferred tax asset, net 7,656 11,800
Investments and advances - 6,000
Other assets, net 7,733 10,413
-------- --------
Total Assets $188,838 $262,246
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 28
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of January 1, 1994 and December 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1994 1994
---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and capital
lease obligations $ 2,024 $ 812
Accounts payable 78,905 89,366
Accrued liabilities 21,319 20,215
Customer prepayments and credits 5,031 3,642
--------- ---------
Total Current Liabilities 107,279 114,035
--------- ---------
Noncurrent Liabilities:
Long-term debt 32,313 35,907
Capital lease obligations 1,823 1,196
Other 1,555 1,383
--------- ---------
Total Noncurrent Liabilities 35,691 38,486
--------- ---------
Total Liabilities 142,970 152,521
--------- ---------
Shareholders' Equity:
6% Preferred Stock, convertible, $10 stated value,
authorized 5,000,000 shares; issued 234,900 shares
in 1993 and 156,600 shares in 1994 2,378 1,589
Common Stock, $.66 2/3 par value, authorized
150,000,000 shares; issued 83,136,542 shares in
1993 and 92,978,234 shares in 1994 55,423 61,985
Capital in excess of par value 209,834 253,210
Accumulated deficit (215,805) (201,102)
--------- ---------
51,830 115,682
Less:
Treasury stock, at cost (1,120,032 shares in 1993
and 1,157,061 shares in 1994) (3,130) (3,345)
Notes receivable from sale of Common Stock (1,774) (1,912)
Deferred compensation (1,058) (700)
--------- ---------
Total Shareholders' Equity 45,868 109,725
--------- ---------
Total Liabilities and Shareholders' Equity $ 188,838 $262,246
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 29
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 26, 1992, January 1, 1994 and December 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994
--------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES $586,562 $642,511 $768,884
-------- -------- --------
Operating costs and expenses:
Cost of sales and operating expenses 381,716 408,387 486,477
Selling expenses 138,494 157,811 197,436
General and administrative expenses 51,950 57,237 68,996
-------- -------- --------
572,160 623,435 752,909
-------- -------- --------
INCOME FROM OPERATIONS 14,402 19,076 15,975
Interest expense (13,379) (4,925) (3,544)
Interest income 244 2,168 731
Other income (expense) - 888 (1,833)
-------- -------- --------
Income before income taxes 1,267 17,207 11,329
Income tax provision (benefit) 219 (130) (3,509)
-------- -------- --------
Income before extraordinary items and
cumulative effect of accounting change 1,048 17,337 14,838
Extraordinary items 9,201 - -
Cumulative effect of accounting change for
income taxes 10,000 - -
-------- -------- --------
NET INCOME 20,249 17,337 14,838
Preferred stock dividends (3,197) (4,093) (135)
-------- -------- --------
Net income applicable to Common
Shareholders $ 17,052 $ 13,244 $ 14,703
======== ========= ========
Net income (loss) per share:
Income (loss) before extraordinary items
and cumulative effect of accounting change $ (0.06) $ 0.17 $ 0.16
Extraordinary items 0.24 - -
Cumulative effect of accounting change for
income taxes 0.26 - -
-------- -------- --------
Net income per share $ 0.44 $ 0.17 $ 0.16
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
<TABLE>
<CAPTION>
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 26,1992, JANUARY 1, 1994, AND DECEMBER 31,1994
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Preferred Stock Preferred Stock Preferred Stock
Class B 8% Cumulative 7.5% Cumulative Series A, 6.0%
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1991 0 $0 0 $0 0 $0
Net income applicable to common shareholders
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
7.5% 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 0 $0
Net income applicable to common shareholders
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 234,900 2,342
Stock dividends 36
Amortization of deferred compensation
Issuance of Common Stock
-----------------------------------------------------------------
Balance at January 1, 1994 0 $0 0 $0 234,900 $2,378
Net income applicable to common shareholders
Exercise of warrants
Shares issued in Stock Offering
Preferred stock dividends (6)
Conversion of one-third of the 6% Preferred Stock (78,300) (783)
Conversion of note payable
Issuance of Common Stock for Employee Benefit Plans, net
-----------------------------------------------------------------
Balance at December 31, 1994 0 $0 0 $0 156,600 $1,589
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Capital
Class B Common Stock Common Stock in Excess
$.01 par value $.66 2/3 par value of Par
Shares Amount Shares Amount Value
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 28, 1991 13,333,334 $133 16,094,321 $10,728 $135,612
Net income applicable to common shareholders
Issuance of Common Stock to and redemption of
Class B Common Stock by NAR (13,333,334) (133) 20,000,000 13,334 24,146
Issuance of Class B Common Stock 12,270,503 123 410
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
7.5% Exchange Offer 3,448,840 2,299 5,773
Stock Dividend to NAR (3,764)
Issuance of Common Stock 115,000 77 (237)
Transfer of ESOP shares to treasury
-----------------------------------------------------
Balance at December 26, 1992 12,270,503 $123 58,154,584 $38,774 $178,149
Net income applicable to common shareholders
Mergers of H & H & THC into Hanover Direct, Inc.
Exchange of Class B 8 % Preferred and Common Stock (12,270,503) (123) 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)
Amortization of deferred compensation
Issuance of Common Stock 3,766,661 2,505 13,470
-----------------------------------------------------
Balance at January 1, 1994 0 $0 83,136,542 $55,423 $209,834
Net income applicable to common shareholders
Exercise of warrants 1,309,207 873 (873)
Shares issued in Stock Offering 8,045,296 5,364 42,136
Preferred stock dividends
Conversion of one-third of the 6% Preferred Stock 189,818 126 657
Conversion of note payable 13,945 9 162
Issuance of Common Stock for Employee Benefit Plans, net 283,426 190 1,294
-----------------------------------------------------
Balance at December 31, 1994 0 $0 92,978,234 $61,985 $253,210
=====================================================
Notes
Receivable
From Sale
Accum. Treasury Stock of Common Deferred
(Deficit) Shares Amount Stock Comp. Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1991 ($246,101) (2,169,899) ($11,601) $0 ($2,403) ($113,632)
Net income applicable to common shareholders 17,052 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
7.5% Exchange Offer 45,006 393 8,465
Stock Dividend to NAR 601,233 5,249 1,485
Issuance of Common Stock (160)
Transfer of ESOP shares to treasury (646,053) (1,211) 1,211 0
-------------------------------------------------------------------
Balance at December 26, 1992 ($229,049) (2,169,713) ($7,170) $0 ($585) ($19,758)
Net income applicable to common shareholders 13,244 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 684,890 2,946 2,544
Amortization of deferred compensation 599 599
Issuance of Common Stock 364,791 1,094 (1,774) (1,072) 14,223
-------------------------------------------------------------------
Balance at January 1, 1994 ($215,805) (1,120,032) ($3,130) ($1,774) ($1,058) $45,868
Net income applicable to common shareholders 14,703 14,703
Exercise of warrants 0
Shares issued in Stock Offering 47,500
Preferred stock dividends (6)
Conversion of one-third of the 6% Preferred Stock 0
Conversion of note payable 171
Issuance of Common Stock for Employee Benefit Plans, net (37,029) (215) (138) 358 1,489
-------------------------------------------------------------------
Balance at December 31, 1994 ($201,102) (1,157,061) ($3,345) ($1,912) ($700) $109,725
===================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 31
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 26, 1992, January 1, 1994 and December 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 20,249 $ 17,337 $ 14,838
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization . . . . . . . . . . . 5,188 4,122 6,499
Noncash portion of extraordinary gains. . . . . . . (9,201) - -
Noncash portion of cumulative effect of an
accounting change . . . . . . . . . . . . . . . . (10,000) - -
Provision for losses on notes receivable and
marketable securities . . . . . . . . . . . . . . - - 2,121
Deferred transaction costs . . . . . . . . . . . . - - (837)
Deferred taxes . . . . . . . . . . . . . . . . . . - (631) (4,369)
Other, net . . . . . . . . . . . . . . . . . . . . 368 (33) 43
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 . . . . . . . . . . . . . . 37,008 - -
Accounts receivable, net . . . . . . . . . . . . . 13,321 8,907 (6,204)
Inventories . . . . . . . . . . . . . . . . . . . . (9,854) (12,081) (3,424)
Prepaid catalog costs . . . . . . . . . . . . . . . 9,470 (5,305) (8,154)
Other current assets . . . . . . . . . . . . . . . (671) 282 (1,220)
Accounts payable . . . . . . . . . . . . . . . . . (17,292) 24,530 10,518
Accrued liabilities . . . . . . . . . . . . . . . . (12,821) (10,650) 185
Dividend payable . . . . . . . . . . . . . . . . . - 886 -
Customer prepayments and credits . . . . . . . . . (3,508) 684 (1,389)
-------- -------- ---------
Net cash provided (used) by operating activities . . . (13,044) 28,048 8,607
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash . . . . . . . . . . . . . 5,765 - -
Acquisitions of property and equipment . . . . . . . (1,431) (4,239) (23,856)
Purchase of businesses . . . . . . . . . . . . . . . - (100) -
Net proceeds from sales of property . . . . . . . . . 17,256 - -
Purchase of convertible debt securities . . . . . . . - - (2,693)
Investments in affiliates . . . . . . . . . . . . . . - - (3,183)
Advances . . . . . . . . . . . . . . . . . . . . . . - - (2,300)
Other, net . . . . . . . . . . . . . . . . . . . . . - (313) (3,293)
-------- --------- --------
Net cash provided (used) by investing activities . . . 21,590 (4,652) (35,325)
-------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 32
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 26, 1992, January 1, 1994 and December 31, 1994
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit facility . . . $ - $(20,965) $ (230)
Proceeds from issuance of debt . . . . . . . . . . 9,583 20,000 10,000
Net proceeds from issuance of Preferred
Stock and Class B Common Stock . . . . . . . . . 27,533 - -
Payments of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . (68,720) (19,856) (8,015)
Proceeds from Rights Offering . . . . . . . . . . . 19,748 - -
Cash dividends paid . . . . . . . . . . . . . . . . - (890) (1,027)
Payment of debt issuance costs . . . . . . . . . . (825) (1,560) (1,458)
Repurchase of Common Stock . . . . . . . . . . . . - - (215)
Proceeds from issuance of Common Stock . . . . . . - 912 49,305
Other, net . . . . . . . . . . . . . . . . . . . . - (1,007) (172)
-------- -------- --------
Net cash provided (used) by financing activities . . (12,681) (23,366) 48,188
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . (4,135) 30 21,470
Cash and cash equivalents at the beginning of
the year . . . . . . . . . . . . . . . . . . . . . 6,688 2,553 2,583
-------- -------- --------
Cash and cash equivalents at end of the year . . . . $ 2,553 $ 2,583 $ 24,053
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . $ 12,547 $ 4,883 $ 2,923
Income taxes paid . . . . . . . . . . . . . . . . . $ 226 $ 71 $ 701
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 26, 1992, JANUARY 1, 1994 AND DECEMBER 31, 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 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 26, 1992 and December 31, 1994 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, not
exceeding six months.
Depreciation and Amortization - Depreciation and amortization of
property and equipment are provided on the straight-line method over the
following lives: buildings and building improvements, 30 years; furniture,
fixtures and equipment, 3-10 years; and leasehold improvements, over the lower
of the estimated useful lives or the terms of the related leases. Expenditures
for maintenance and repairs are charged to operations as incurred; major
improvements are capitalized.
Purchased software costs of $3.6 million at December 31, 1994 included
in Construction in progress relate to the Company's new management information
systems. Capitalized development costs of $5.5 million are included in Other
assets as of December 31, 1994. All such costs will be amortized over a five
year period commencing in 1995 when the system is operational.
Goodwill - 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 $3.9 million and $4.5 million at January 1, 1994
and December 31, 1994, respectively. On an on-going basis, the Company
assesses the carrying value and the economic useful life of the goodwill based
on the acquired businesses' prior and future operating results and estimated
net cashflows.
33
<PAGE> 34
Mailing Lists - The costs of acquired mailing lists are amortized
over a five year period. Mailing lists, included in Other assets, amounted to
$2.5 million at January 1, 1994 and December 31, 1994 and are carried net of
accumulated amortization of $.2 million and $.7 million, respectively.
Accounting for Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 -
Accounting for Income Taxes ("SFAS 109").
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 Per Share - Net income 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 per share in 1992 and 1994 were 38,467,015 and 93,285,190 shares,
respectively. For 1993 the weighted average number of shares for primary and
fully diluted net income per share were 75,625,330 and 77,064,131 shares,
respectively. Common share equivalents for purposes of net income per share
consist of 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 $.09
per share and $.37 per share, respectively.
Assuming that the conversion of the 7.5% Preferred Stock and the
exchange of the Class B 8% Preferred Stock and the Class B Common Stock
discussed in Note 8 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 for 1993 would have been 84,408,807 and 85,847,608 and
earnings per share for 1993 would have been $.21 and $.20, respectively.
Supplemental Disclosure of Noncash Activities
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Exchange of THC 8% cumulative Preferred Stock
and issuance of 20,000,000 shares of THC Common Stock . . . . . . . . $ 35,847 $ - $ -
======== ======== ========
Exchange of 7.5% Convertible Subordinated and 14%
Senior Subordinated Debentures for THC Common
Stock and THC 7.5% Preferred Stock . . . . . . . . . . . . . . . . . . $ 30,475 $ - $ -
======== ======== ========
Dividend on Class B 8% Preferred Stock paid in THC Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 2,508 $ -
======== ======== ========
Exchange of 8% Class B Preferred Stock and 7.5%
Convertible Preferred Stock for HDI Common Stock . . . . . . . . . . . $ - $ 32,674 $ -
======== ======== ========
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . $ - $ 2,541 $ -
======== ======== ========
Other equity issuances and exchanges . . . . . . . . . . . . . . . . . $ - $ 4,990 $ 1,823
======== ======== ========
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>
34
<PAGE> 35
2. TRANSACTIONS WITH NAR GROUP LIMITED
In October 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 7.5% Convertible Subordinated Debentures due March 1,
2007 (valued under the Purchase Agreement at $7.5 million) plus $31.3 million
in cash. 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. A working capital line of
credit of approximately $30 million had previously been made available to the
Company in July 1991 by a subsidiary of NAR and was repaid in May, 1993.
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.
- 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 to for $1.50 per share for an aggregate amount 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 the 40,000 shares of Class B Preferred Stock and the 12,270,503
shares of Class B Common Stock for 18,937,169 shares of Common Stock.
3. ACQUISITIONS AND INVESTMENTS
ACQUISITIONS - The Company made the following acquisitions in 1993:
Gump's - In July 1993, the Company acquired substantially all of the
mail order and retail assets of Gump's, Inc. ("Gump's"), 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.
35
<PAGE> 36
The Company Store - In August 1993, the Company acquired certain
assets of Company Store Holdings, Inc. and subsidiaries ("The Company Store"),
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.
Tweeds - In September 1993, the Company acquired all of the
outstanding shares of Tweeds, Inc., 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.
Accounting for Acquisitions - The acquisitions of Gump's, The Company
Store and Tweeds have been accounted for using the purchase method of
accounting with goodwill of approximately $11.4 million recorded, based upon
the fair values of the net assets acquired and liabilities assumed. In
addition, the Company recorded $2.5 million representing the fair value of
acquired mailing lists. In accordance with the purchase method of accounting,
the Company updated its estimates of the fair value of the net assets acquired
and increased goodwill by $1.2 million in 1994. 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 year 1992.
<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
======== ========
Income applicable to
common shareholders $ 12,284 $ 6,067
======== ========
Per Share:
Income (loss) per share before extraordinary
item 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>
36
<PAGE> 37
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.
INVESTMENTS AND ADVANCES - Investments and advances in the
accompanying Consolidated Balance Sheet include the following:
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 agreed to extend a secured working capital line of up to $1.0
million to Aegis. In September 1994, the working capital line was
restructured due to the violation by Aegis of certain debt covenants. The
covenants were modified through December 31, 1994 and the Company increased the
amount of allowable unsecured advances. The investment in Aegis was accounted
for using the equity method of accounting and the Company recorded an equity
loss of $.1 million in 1994. The Company has outstanding advances of $.7
million to Aegis as of December 31, 1994. In February 1995, the Company
acquired all of the outstanding common stock of Aegis.
Blue Ridge Associates - In January 1994, the Company purchased for
$1.1 million a 50% interest in Blue Ridge Associates ("Blue Ridge"), a
partnership which owns the apparel distribution center in Roanoke, Virginia.
This investment is accounted for by the equity method of accounting. The
Company made annual rent payments to the partnership totaling $.7 million in
1994 as part of a 15 year lease through 2008. The Company has recorded $.1
million in income for its portion of the partnership income in 1994. At
December 31, 1994, the Company's investment in Blue Ridge was $1.1 million.
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 and agreed to provide certain catalog related
services to BPC. The Company also provided BPC with a secured three-year
revolving credit facility of up to $3 million, a $.75 million short-term
loan, and a $.5 million five-year convertible note.
On August 3, 1994, BPC filed for protection under Chapter 11 of the
United States bankruptcy laws. As of December 31, 1994, the Company had
advanced $2.3 million to BPC, all of which was loaned prior to the filing of
the bankruptcy petition. Of the $2.3 million, $1.2 million was loaned under
the revolving credit facility, $.6 million was loaned under the short-term loan
and $.5 million was loaned under the five-year convertible note. Subsequent to
the Chapter 11 filing, the Company loaned an additional $.8 million under a
$1.0 million court-approved debtor-in-possession financing (the "DIP
Financing").
As of December 31, 1994, BPC had repaid the outstanding DIP Financing
balance. The assets of BPC have been pledged to secure $1.2 million of the
pre-petition advances and the Company has written off the unsecured portion.
The Company believes that the assets of BPC are sufficient to secure repayment
of the Company's secured loans to BPC. The investment in BPC is accounted for
using the equity method of accounting. The Company has outstanding advances to
BPC of $1.2 million as of December 31, 1994.
Regal Communications, Inc. - During 1994, the Company invested
approximately $2.7 million in convertible debt securities of Regal
Communications, Inc. ("Regal"). It was the Company's intention to hold these
debt securities as a long-term investment and in the future obtain certain
operating subsidiaries of Regal in exchange for these debt securities. As a
result, the Company carried the investment as a long-term investment during
1994. On September 23, 1994, Regal filed for protection under Chapter 11 of the
United States bankruptcy laws. The Company, in accordance with SFAS 115,
established a valuation allowance in the shareholders' equity section of the
Consolidated
37
<PAGE> 38
Balance Sheet to record temporary fluctuations in the value of the securities
based on market prices. At September 30, 1994, the valuation allowance was
$1.8 million.
In the fourth quarter of 1994, the Company ceased considering the
exchange of the securities for an equity position and instead began negotiations
as part of the Creditors Committee for an overall settlement. The Company
recorded a non-operating expense of $1.0 million in 1994 reflecting its estimate
of the probable outcome of the settlement. The estimates include valuations of
several subsidiaries of Regal and certain contract rights and claims, as well as
Regal's operating status at the assumed time of dissolution. The Company's net
investment in Regal was $1.7 million as of December 31, 1994.
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, Beautiful Style, based on the Silhouettes catalog and Right
Touch, based on the Tapestry 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 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
("EBIT") 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 EBIT of at least $60
million in 1998. If neither of these goals are achieved, the performance
warrant will expire unexercised in 1999. The Sears specialty catalogs
generated revenues of $71 million and EBIT of $2.9 million in 1994. 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. Through 1994, no charges have been required to be recorded in
connection with the warrants. 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
also has the right 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
The Company currently maintains 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.
At January 1, 1994 and December 31, 1994, the uncollected balances
under this program were $47.0 million and $45.9 million, respectively, of which
$13.0 million and $11.5 million, respectively, represent deposits under the
agreement which are included in Accounts receivable. The total reserve balance
maintained for the repurchase of
38
<PAGE> 39
uncollectible accounts was $3.1 million and $2.3 million at January 1, 1994 and
December 31, 1994, respectively, of which $1.7 million and $1.2 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. 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>
JANUARY 1, DECEMBER 31,
1994 1994
---------- ------------
<S> <C> <C>
Reserve for future sales returns . . . . . . . . . . . . . . $ 4,911 $ 6,023
Compensation . . . . . . . . . . . . . . . . . . . . . . 3,642 3,923
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 888 1,330
Reserve for repurchase of accounts receivable
sold with recourse . . . . . . . . . . . . . . . . . . . . 1,735 1,180
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,143 7,759
------- -------
$21,319 $20,215
======= =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1994 1994
---------- ------------
<S> <C> <C>
Credit Facility:
Revolving . . . . . . . . . . . . . . . . . . . . . . . . . $ 230 $ -
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10,000
Industrial Revenue Bonds with variable interest rates
averaging 3.7% in 1993 and 4.5% in 1994 due 2003 . . . . . 8,000 8,000
6% Notes Payable due 1994 . . . . . . . . . . . . . . . . . . 1,100 -
6% Mortgage Notes Payable due 1998 . . . . . . . . . . . . . 3,452 3,300
9.25% Senior Subordinated Notes due 1998 . . . . . . . . . . 20,000 14,000
7 1/2% Convertible Subordinated Debentures due 2007 . . . . . 751 751
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 40
------- -------
33,589 36,091
Less current portion . . . . . . . . . . . . . . . . . . . . 1,276 184
------- -------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . $32,313 $35,907
======= =======
</TABLE>
Revolving Credit Facility - In May 1993, the Company consummated a
three-year, $40 million credit facility with a financial institution, replacing
the previous facility with a subsidiary of NAR that had been entered into in
1991. The facility provided for cash borrowings and letters of credit based on
eligible inventory. The interest rate on the funds borrowed under this
facility was the prime rate plus two percent per annum. Subsequent to May 5,
39
<PAGE> 40
1993, the Company amended this facility to include Gump's, The Company Store
and Tweeds as borrowers under the agreement and the limit was increased to
$52.5 million. The facility was guaranteed by the Company and was secured by
inventory and other assets of its principal operating subsidiaries.
In October 1994, the Company consummated a five-year $80 million
unsecured revolving credit facility with a syndicate of banks (the "Credit
Facility") led by NationsBank of North Carolina, N.A., replacing the Company's
$52.5 million credit facility. The Credit Facility provides for a $20 million
sub-facility to be utilized exclusively for acquisitions. The $20 million
sub-facility would be reduced by $5 million per year if it is not used for its
intended purpose. The Credit Facility also provides that $20 million of a $35
million sublimit for letters of credit is to be used as security for term
financing for certain capital expenditures (the "Term Financing Facility").
The rate of interest on the revolving portion of the Credit Facility is
calculated based on the Base Rate of NationsBank of North Carolina, N.A. or by
a LIBOR formula. The rate is also contingent on the length of the borrowing
which can range from 30 to 180 days. At December 31, 1994, the rate for a 90
day borrowing would have approximated 7%.
The Company is required to maintain certain ratios of earnings to fixed
charges and funded indebtedness to earnings as defined in the Credit Agreement
and has a limitation on the issuance of additional indebtedness. The Company
and the Lenders under the Credit Facility have amended the applicable
agreements to, among other things, ease the requirements in certain financial
covenants, increase the interest rate payable by the Company under certain
circumstances and require the Lenders initial consent for certain investments
and acquisitions.
In November 1994, the Company borrowed $10 million from the $20 million
Term Financing Facility. The rate of interest on the Term Financing Facility
will be based on the equivalent rate of A-1 commercial paper existing at the
time of each borrowing. This rate will fluctuate as the borrowing is remarked
as it matures throughout the term of 15 years. At December 31, 1994, the face
rate ranged from 5.85% to 6.30%.
The Term Financing Facility requires annual sinking fund payments of $.5
million beginning October 1996 through October 1999 and increasing to $.8
million for each of the ten years thereafter, for each $10 million borrowed
under this facility.
The face amount of unexpired documentary letters of credit at January 1,
1994 and December 31, 1994 were $5.7 million and $7.2 million, respectively.
In addition, the Company had issued $28.5 million of standby letters of credit
at December 31, 1994 which included $3.3 million related to the Gump's retail
store, $8.6 million related to the Industrial Revenue Bonds due 2003 and $10.1
million related to the Term Financing Facility.
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% Mortgage Notes Payable due 1998 - In connection with The Company Store
acquisition, subsidiaries of the Company executed and delivered 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 in August 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 - In August 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. The
Company redeemed $6 million of the 9.25% Notes without penalty in April 1994.
40
<PAGE> 41
The 9.25% Notes mature in August 1998, and require quarterly interest
payments. The 9.25% Notes require the Company to maintain certain financial
covenants on a quarterly basis. As of December 31, 1994, the Company was not
in compliance with one of the covenants under the 9.25% Notes for which it had
received a waiver. The Company and the holder of the Notes have amended the
covenants in the Indenture to reduce certain financial standards contained in
the covenants. The covenants will revert in the first quarter of 1996 to those
in effect prior to the amendment.
7 1/2% Convertible Subordinated Debentures due 2007 - In September 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 its 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.
In November 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, the 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 in 1992 based on
the fair market value of the shares issued.
General - At December 31, 1994, the aggregate annual principal and
sinking fund payments required on all long-term debt were as follows (in
thousands): 1995 - $184; 1996 - $688; 1997 - $681; 1998 - $17,287; 1999 - $500
and thereafter - $16,751.
8. CAPITAL STOCK
On September 8, 1993, HDI was formed through a series of mergers
involving H&H and THC (see Note 1).
Registration - In July 1993, the Company filed a Registration Statement on
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 or reserved transactions. As of December 31,
1994, 3,299,187 shares have been issued or reserved for this purpose.
Exchanges of Stock - In December 1993, the Company converted all of its
outstanding 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. 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 for 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.
Public Offering - In April 1994, the Company completed a public offering
(the "Public Offering") of 8,045,296 shares of Common Stock for proceeds of
approximately $47.5 million, net of expenses. Also, in connection with the
Public Offering, Sun Life Insurance Company of America ("Sun Life") exercised
1,960,245 warrants and purchased 1,309,207 shares in a net-issue cashless
exchange, of which 654,604 shares were sold in the Public Offering with the
Company not receiving any of proceeds related to these shares.
41
<PAGE> 42
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 Convertible
Preferred Stock (6% Preferred Stock) for an installment note, dated March 29,
1993, as amended, in the amount of approximately $2.4 million previously issued
by Tweeds. Dividends began accruing on September 30, 1993.
The 6% Preferred Stock is convertible into Common Stock of the Company
over a three-year period in equal amounts on September 30, 1994, 1995 and 1996.
The conversion price is an amount equal to the average of the per share closing
prices for the five trading days preceding the conversion dates. On September
30, 1994, the Company converted one-third of the 234,900 outstanding shares of
6% Preferred Stock into 189,818 shares of Common Stock and paid dividends of
$.1 million.
The 6% Preferred Stock has a stated value of $10 per share and has a
liquidation preference in an amount equal to the stated value of each share of
the 6% Preferred Stock plus accrued dividends or $1,589,000 at December 31,
1994. The Company has the right to redeem the 6% Preferred Stock at its stated
value plus accrued dividends, payable in cash.
Warrants - The warrants outstanding at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
WARRANTS EXERCISE EXPIRATION
ISSUED PRICE DATE
--------- -------- ----------
<S> <C> <C>
1,541,301 $ 2.42 5/08/96
3,157,884 2.91 7/08/96
334,550 2.19 7/10/96
---------
5,033,735
=========
</TABLE>
All of the above issued warrants are held by NAR and affiliates.
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.
General - At December 31, 1994, there were 92,737,840 shares of
Common Stock and 156,600 shares of 6% Series A Preferred Stock outstanding.
Additionally, an aggregate of 16,211,644 shares of Common Stock were reserved
for issuance pursuant to (i) the exercise of outstanding options (621,050), (ii)
the exercise of outstanding warrants (12,033,735), (iii) the Executive Equity
Incentive Plan (1,646,170), (iv) the Restricted Stock Award Plan (292,152), and
(v) the All Employee Equity Investment Plan (1,618,537).
Dividend Restrictions - The Company is limited from paying dividends
at any time on its Common Stock beyond 25% of the consolidated net income of
the then preceding four quarters or from acquiring in excess of one million
shares of its Common Stock under the most restrictive 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 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.
42
<PAGE> 43
Options expire five years from the date of grant and generally 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>
1992 1993 1994
-------- --------- ---------
<S> <C> <C> <C>
Options outstanding,
beginning of period 945,965 603,765 365,250
Granted - - 162,000
Exercised - - (1,000)
Expired (164,200) (214,165) (20,700)
Cancelled (178,000) (24,350) (9,500)
--------- --------- ---------
Options outstanding,
end of period 603,765 365,250 496,050
========= ========= =========
Options exercisable,
end of period 502,675 365,250 334,050
========= ========= =========
Available for grant of
options, end of period 1,345,318 1,583,833 1,452,033
========= ========= =========
</TABLE>
The option prices range from $2.75 per share to $5.00 per share, with
amounts as follows: $2.75 - 200,000 shares, $3.50 - 162,000 shares and $5.00 -
134,050 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 expired in 1994 and the remaining 5,000 shares expire in 1995 at
an option price of $5.00 per share. The table above does not include these
option grants.
In September 1992, six directors were granted options to purchase
20,000 shares each, at the market price, which at that time was $1.75 per
share. These option grants were approved at the 1993 annual meeting of
shareholders and the options expire in 1997. In June 1994, one director was
granted options to purchase 55,000 shares at an exercise price of $6.125 per
share. These options expire in 2000. The table above does not include these
option grants.
Hanover Direct, Inc. Savings Plan - The 401(K) Savings Plan (the
"401(k) Plan") allows eligible employees to contribute a percentage of their
annual compensation to the 401 (k) Plan. The Company makes matching
contributions of one-third of the employees' pre-tax 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 1992, 1993 and 1994
were $265,000, $431,000 and $608,000, respectively.
Supplemental Retirement Plan - The Supplemental Retirement Plan (the
"Retirement Plan") allows eligible employees to make contributions to a trust
where the contributions are invested by the trust for each participant in a tax
free money market fund. The Company makes matching contributions. Company
contributions charged to expense in 1992, 1993 and 1994 amounted to $179,000,
$130,000 and $192,000, respectively.
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<PAGE> 44
The Retirement Plan permits eligible employees to contribute up to 4%
of their salary. The Company matches all participant contributions, up to the 4%
threshold. The Retirement 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 an aggregate of $1.6 million, $.4 million
and $1.1 million in 1992, 1993 and 1994, respectively. Under the bonus plan, 25%
of the bonus is paid in restricted stock that vests over a three year period. In
fiscal 1994, 11,467 shares were issued, net of forfeitures, in connection with
the Incentive Compensation Plan.
Executive Equity Incentive Plan - In December 1992, the Board of
Directors adopted the 1993 Executive Equity Incentive Plan (the "Incentive
Plan"). The Incentive 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 Company granted 1,327,660 options in 1993 and 180,000 options in
1994, of which 226,666 and 207,164 were cancelled in 1993 and 1994,
respectively. The purchase prices per share of the Company's Common Stock upon
exercise of stock options range from $2.50 to $4.94 (Option Price), with amounts
as follows: $2.50 - 795,830 shares, $3.00 - 20,000 shares, $3.89 - 20,000
shares, $4.25 - 100,000 shares, $4.50 - 58,000 shares and $4.94 - 80,000 shares.
Options granted under the Incentive Plan become exercisable three years after
the dates of grant and expire six years from the dates 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 a combination
thereof. The difference between the Option Price and the fair market value of
the Common Stock on the Tandem Investment Dates aggregated $601,000 and is being
amortized over the three-year period that the options become exercisable.
Forfeitures have reduced this amount by approximately $103,000 through December
31, 1994. The amount of amortization charged to expense was $170,000 and
$137,000 for 1993 and 1994, respectively, net of forfeitures.
Employees purchased 663,830 and 90,000 shares in 1993 and 1994,
respectively, at prices ranging from $3.125 to $4.94. Total consideration given
for the shares purchased was $2,133,100 in 1993 and $410,000 in 1994. The
employees paid $710,000 in 1993 and $312,000 in 1994 and the Company accepted
notes which bear interest at rates ranging from 3.96% to 7.05% in the principal
amounts of $1,707,000 in 1993 and $328,000 in 1994. Employees repaid $283,000
and $230,000 during 1993 and 1994, respectively.
Restricted Stock Award Plan - In December 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
44
<PAGE> 45
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, 224,300 shares were awarded to participants
aggregating $785,000. Such amount is being amortized over a three-year vesting
period. The amount of amortization charged to expense was $188,000 in 1993 and
$292,000 in 1994, net of forfeitures.
All Employee Equity Investment Plan - In December 1992, the Board of
Directors adopted the 1993 All Employee Equity Investment Plan (the "Investment
Plan"). Such plan was approved by the 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. The employees
who choose to participate in the Investment Plan become vested in their shares
equally over a three-year period beginning with the first anniversary of the day
subsequent to the final day of the subscription period or when they reach the
age of 65, die or become permanently disabled. An aggregate of 2,000,000 shares
of the Company's Common Stock have been reserved for issuance under the
Investment Plan.
Employees purchased 211,883 shares at a price of $2.32 in 1993, 85,865
shares at $3.73 in February 1994 and 117,146 shares at $3.34 in August 1994. In
1994, 33,431 shares were forfeited and 64,706 shares became vested related to
the 1993 purchases. The difference between the market price and the discounted
price which aggregated $422,000 in 1993, $292,000 in February 1994 and $92,000
in August 1994, net of forfeitures is being amortized over the three year
period the participants become vested in their shares. The amount of
amortization charged to expense was $46,000 in 1993 and $226,000 in 1994.
10. INCOME TAXES
At December 31, 1994, the Company had net operating loss carryfowards
("NOLs") totalling $136 million, which expire as follows: In the year 2001 - $12
million, 2003 - $14 million, 2004 - $14 million, 2005 - $21 million, 2006 - $47
million and 2007 - $28 million. The Company also has $1.7 million of general
business tax credit carryforwards that expire in 1998 through 2003. The
Company's available NOLs for tax purposes consists of $86 million of NOLs
subject to a $4 million annual limitation under Section 382 of the Internal
Revenue Code of 1986 and $50 million of NOLs not subject to a limitation.
The unused portion of the $4 million annual 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 $86 million of NOLs
subject to the limitation may be used to offset future taxable income generated
by July 1996 from built-in gains (generally, taxable income from the sale of
appreciated assets held by the Company at the date of its change in ownership in
July 1991) without reference to the limitation.
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 operations,
the Company's history of prior operating earnings in the
45
<PAGE> 46
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.
The Company maintained a consistent adjusted income level in 1993. In 1994, the
Company continued the practice of estimating the NOLs that it could utilize over
the subsequent three years and estimated that it would be able to utilize up to
$43 million of NOLs over the next three years based on the pre-tax income of the
most recent two years.
As a result of the determination noted above, for the year ended
December 26, 1992, the Company recognized a deferred tax asset of $10 million
(net of a valuation allowance of $53 million), reflecting the cumulative effect
of the accounting change for the benefit expected to be realized from the
utilization of 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%). For the year ended December 31, 1994, the Company
reduced its valuation allowance by $4.4 million, reflecting the increase in
management's assessment of the future utilization of the Company's NOLs and
deductible temporary differences.
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 NOLs
and reversals of temporary differences.
The Company's Federal income tax provision was zero in 1992, $5.9
million in 1993 and $4.2 million in 1994. The 1993 and 1994 provisions were
offset by utilization of the NOLs. In addition, the Company recognized the $4.4
million benefit in 1994 discussed above. The Company's provision for state
income taxes consists of $.2 million in 1992, $.5 million in 1993 and $.9
million in 1994.
A reconciliation of the Company's net income for financial statement
purposes to taxable income (loss) for the years ended December 26, 1992, January
1, 1994 and December 31, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $ 20,249 $ 17,337 $ 14,838
Income tax provision (benefit) . . . . . . . 219 (130) (3,509)
-------- -------- --------
Income before income taxes . . . . . . . . . . 20,468 17,207 11,329
-------- -------- --------
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) (860)
Utilization of carryovers . . . . . . . . . . - (2,543) (12,652)
Permanent differences. . . . . . . . . . . . 3,687 28 717
Net change in temporary
differences . . . . . . . . . . . . . . . . (41,678) (14,191) 1,466
-------- -------- --------
(48,210) (17,207) 11,329
-------- -------- --------
Taxable income (loss) . . . . . . . . . . . . $(27,742) $ - $ -
======== ======== ========
</TABLE>
46
<PAGE> 47
The components of the net deferred tax asset at December 31, 1994 are
as follows (in millions):
<TABLE>
<CAPTION>
Non-
Current current Total
------- ------- ------
<S> <C> <C> <C>
Federal tax NOL and business tax credit
carryforwards . . . . . . . . . . . . . . . . . . . . $ - $ 49.4 $ 49.4
Allowance for doubtful accounts . . . . . . . . . . . . .9 - .9
Prepaid catalog costs . . . . . . . . . . . . . . . . . (0.9) - (0.9)
Excess of net assets of acquired business . . . . . . . - (2.1) (2.1)
Accrued liabilities . . . . . . . . . . . . . . . . . . 3.9 - 3.9
Tax basis in net assets of discontinued operations
in excess of financial statement amount . . . . . . . .9 - .9
Other . . . . . . . . . . . . . . . . . . . . . . . - 1.5 1.5
----- ------ ------
Deferred Tax Asset . . . . . . . . . . . . . . . . . . 4.8 48.8 53.6
Valuation allowance . . . . . . . . . . . . . . . . . (1.6) (37.0) (38.6)
----- ------ ------
Deferred Tax Asset, net . . . . . . . . . . . . . . . $ 3.2 $ 11.8 $ 15.0
===== ====== ======
</TABLE>
The Company has established a valuation allowance for a portion of the
deferred tax asset, due to the limitation on the utilization of the NOLs and its
estimate of the future utilization of the NOL's.
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. 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.
Total tax expense for each of the three fiscal years presented differ
from the amount computed by applying the Federal statutory tax rate due to the
following:
<TABLE>
<CAPTION>
1992 1993 1994
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
INCOME INCOME INCOME
---------- ---------- ----------
<S> <C> <C> <C>
Tax at Federal statutory rate . . . . . . . . . . . . . 34.0% 35.0% 35.0%
Cumulative effect of accounting change for
income taxes . . . . . . . . . . . . . . . . . . . . . (16.6) - -
State and local taxes . . . . . . . . . . . . . . . . . 1.1 1.9 4.9
Effect of Federal rate change on deferred tax asset . . . - (3.7) -
Stock issuance expenses . . . . . . . . . . . . . . . . . 5.5 - -
Reversal of valuation allowance . . . . . . . . . . . . - - (38.5)
Net reversal of temporary differences . . . . . . . . . . (69.2) (28.9) 4.5
Utilization of contribution and NOL carryover . . . . . . - (5.4) (39.1)
Tax NOLs for which no benefit could be recognized 46.1 - -
Other . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.3 2.2
---- ------ ------
1.1% (0.8%) (31.0%)
==== ====== ======
</TABLE>
47
<PAGE> 48
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>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Minimum rentals $ 8,910 $ 9,458 $ 13,572
======== ======== ========
</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 December 31, 1994, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING LEASES LEASES
----------- --------- -------
<S> <C> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . $10,227 $ 732
1996 . . . . . . . . . . . . . . . . . . . . . . . 7,283 698
1997 . . . . . . . . . . . . . . . . . . . . . . . 5,885 536
1998 . . . . . . . . . . . . . . . . . . . . . . . 5,179 24
1999 . . . . . . . . . . . . . . . . . . . . . . . 4,774 -
Thereafter . . . . . . . . . . . . . . . . . . . . 36,592 -
------- ------
Total minimum lease payments . . . . . . . . . . . $69,940 1,990
=======
Less amount representing interest (a) . . . . . . 166
------
Present value of minimum lease payments (b) . . . $1,824
======
</TABLE>
(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 $748,000 and $1,823,000 at January 1, 1994, and $628,000 and
$1,196,000 at December 31, 1994, respectively.
The future minimum lease payments under noncancellable leases that
remain from the discontinued restaurant operations as of December 31, 1994 are
as follows: 1995 - $1.7 million; 1996 - $1.5 million; 1997 - $1.5 million; 1998
- $1.4 million; 1999 - $1.4 million; and thereafter $13.4 million. The above
amounts exclude annual sublease income of $1.8 million from subleases which have
the same expiration as the underlying leases.
In connection with the Company's investment in Blue Ridge, a subsidiary
of the Company is contingently liable with respect to the lease obligation
related to the apparel distribution center in Roanoke, Virginia.
12. RELATED PARTY TRANSACTIONS
In each of 1992, 1993 and 1994, approximately $85,000 was paid each
year for the rental of property pursuant to an operating lease to a partnership
in which the wife of Jack E. Rosenfeld is a partner.
48
<PAGE> 49
At December 31, 1994, Company officers and executives owed the Company
approximately $1.7 million of which approximately $1.6 million relates to
receivables under the Executive Equity Incentive Plan. These amounts due to the
Company bear interest at rates ranging from 3.96% to 7.05% and are due in 1999
and 2000. The remaining $.1 million is due on demand from two officers of the
Company and bears interest at 6%.
Since January 1993, pursuant to a consulting arrangement, a subsidiary
of NAR renders management consulting, business advisory and investment banking
services to the Company for an annual fee of $750,000.
At December 31, 1994, NAR owned 51% of the Company's outstanding Common
Stock.
In connection with the transactions discussed in Note 2, and as a
condition thereto, the Company entered into an employment agreement (the
"Employment Agreement") with Jack E. Rosenfeld, President, Chief Executive
Officer and a director of the Company. The Employment Agreement provides for (1)
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 all of which are vested and (3) the
grant of registration rights under the Securities Act of 1933 for shares of
Common Stock owned by Mr. Rosenfeld. NAR has 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 $2.00 per share and an additional 1,213,605
shares of Common Stock at $1.50 per share plus 10% per year through the exercise
period.
13. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various employment contracts with key
executives extending through 1996. The aggregate payments due under such
contracts is $2.1 million.
On or about September 2, 1994, a complaint was filed in the United
States District Court for the District of New Jersey by Veronica Zucker, an
individual who allegedly purchased shares of Common Stock of the Company in the
public offering completed on April 7, 1994, against the Company, all of its
directors, certain of its officers, Sun Life Insurance Company of America,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Alex. Brown & Sons,
Incorporated. The complaint, which purports to be filed on behalf of a class of
all persons who purchased the Common Stock of the Company in the Public
Offering or thereafter through and including August 14, 1994, seeks to recover
monetary damages the class has allegedly suffered as a result of certain
alleged false and material misleading statements contained in the Company's
public offering prospectus dated March 30, 1994. In lieu of an answer,
defendants have filed a motion to dismiss the complaint in its entirety for
failure to state a claim upon which relief can be granted. The Company and its
directors and executive officers believe they have meritorious defenses to the
Complaint and intend to defend the matter vigorously. The motion is scheduled
to be heard by the Court on April 10, 1995.
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
49
<PAGE> 50
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.
In connection with certain discontinued restaurant 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 December 31, 1994 are as follows (in
thousands): 1995 - $445; 1996 - $366; 1997 - $278; 1998 - $192; 1999 - $192; and
thereafter $546.
14. SUBSEQUENT EVENTS
Leichtung, Inc. - In January 1995, the Company acquired
substantially all of the assets of Leichtung, Inc., a direct marketer of
wood-working and home improvement tools and related products, sold under the
Leichtung Workshops and Improvements names, for a purchase price of
approximately $12 million in cash and the assumption of certain liabilities. As
of December 31, 1994, the Company had made payments of $1.3 million in
connection with this acquisition which are included in Investments and advances.
The Safety Zone - In February 1995, the Company acquired the remaining
80% of the outstanding stock of Aegis through the issuance of 634,900 shares of
a newly-created Class B Convertible Preferred Stock ("Series B Stock") with a
stated value of $10 per share. Dividends on the Series B Stock will accrue at
the rate of 5% per annum during each of the first three years of this agreement
provided Aegis attains at least $1 million in earnings before interest and
taxes each year. Dividends are not cumulative during this period. After the end
of this three year period, dividends will accrue at a rate of 7% per annum in
years four and five. The Series B Stock is convertible at the Company's option
if the market value of the Company's Common Stock is greater than $6.66 for 20
trading days in any 30 consecutive day trading period. If after five years the
Series B Stock is not converted, it must then be converted into 952,359 shares
of the Company's Common Stock provided the market value of the stock is at
least $6.33 per share. If the market value of the Company's Common Stock does
not meet this minimum, then the conversion is subject to an antidilution
provision which would increase the number of shares to equal a market value of
$6,028,432.
The Company will account for these acquisitions using the purchase
method of accounting.
Tiger Direct - In February 1995, the Company entered into an
agreement, by which, upon closing of the transaction, it agreed to make an $8
million investment in Tiger Direct, Inc. ("Tiger") and to provide certain
strategic services to Tiger. The Company will be permitted to nominate four of
Tiger's seven directors. Tiger is a direct marketer of computer software,
peripherals and CD-ROM hardware and software. If the transaction is
consummated, the Company will issue either a convertible debenture or preferred
stock and warrants for its investment. The debenture will pay interest at a
rate of 10% per year for three years, payable in shares of Tiger common stock,
and is convertible into a new class of Tiger convertible preferred stock
(subject to Tiger shareholder approval) whose dividends are also payable at 10%
per year for three years, also payable in shares of Tiger common Stock. Tiger
will also issue warrants to the Company to purchase additional stock over a
three-year period at prices ranging from $1.20 to $1.50 per share. If the
debenture is converted, the Company will own approximately 21.6% of Tiger's
outstanding common stock. If the warrants are also exercised and the interest
and dividend shares are fully issued, the Company will increase its ownership
percentage to approximately 42% of Tigers's outstanding common stock. The
Company also has the right to acquire additional shares of common stock in the
open market, up to a total of 50.1%. The Company is subject to a five year
standstill. The Company is providing a temporary short-term secured
50
<PAGE> 51
working capital line of credit to Tiger, up to a maximum of $3 million. All
outstanding short-term indebtedness related to this facility will be repaid when
the transaction closes or one year from the date the purchase agreement is
terminated. The Company will account for this investment using the equity method
of accounting upon conversion of the debt to equity.
51
<PAGE> 52
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<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>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(in thousands, except per share amounts)
1994
<S> <C> <C> <C> <C>
Revenues $179,226 $185,113 $178,282 $226,263
Gross profit 64,942 70,243 62,407 84,815
Income from operations 4,258 4,145 1,159 6,413
NET INCOME 3,144 2,843 640 8,211
Preferred stock dividends (35) (35) (41) (23)
-------- -------- -------- --------
Net income applicable to
Common Shareholders $ 3,109 $ 2,808 $ 599 $ 8,188
======== ======== ======== ========
Net income per share $ 0.04 $ 0.03 $ 0.01 $ 0.09
======== ======== ======== ========
</TABLE>
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
53
<PAGE> 54
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.
<TABLE>
<CAPTION>
TITLE AND OTHER OFFICE HELD
NAME AGE INFORMATION(A) SINCE
----------------- --- ------------------------------------------ -----------
<S> <C> <C> <C>
Jack E. Rosenfeld 56 Chief Executive Officer, 1990
President and Director. Mr.
Rosenfeld served as Executive
Vice President of the Company
from May 1988 until October 1990.
He was elected to the Board of
Directors in 1974.
Michael P. Sherman 42 Executive Vice President, 1990
Corporate Affairs, General
Counsel and Secretary. Mr. Sherman
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 42 Executive Vice President and 1990
Chief Financial Officer. From
1989 to 1990, Mr. Garten
held the position of Senior
Vice President and Chief Financial
Officer. He joined the Company
in 1983, was elected Vice
President in 1984 and was
elected Vice President-Finance
in 1989.
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C> <C>
Edward J. O'Brien 51 Senior Vice President and 1991
Treasurer. Mr. O'Brien joined the
Company in 1986 and was elected
Vice President in 1988.
David E. Ullman 37 Vice President, Controller. 1992
Mr. Ullman joined the Company in
1991 and was elected Vice President
in 1992. 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
prior to September 1993 refer to the Company's predecessor, The Horn &
Hardart Company ("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.
55
<PAGE> 56
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.
56
<PAGE> 57
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>
1. Report of Independent Public Accountants 26
Hanover Direct, Inc. and Subsidiaries Financial
Statements
Consolidated Balance Sheets as of January 1, 1994 27
and December 31, 1994
Consolidated Statements of Income for the 29
three years ended December 31, 1994
Consolidated Statements of Shareholders' (Deficit) 30
Equity for the three years ended December 31, 1994
Consolidated Statements of Cash Flows for the three 31
years ended December 31, 1994
Notes to Consolidated Financial Statements 33
Supplementary Data:
Selected quarterly financial information (unaudited) 52
for the two fiscal years ended December 31, 1994
2. Index to Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 60
Schedules other than that listed above are omitted because
they are not applicable or the required information is
shown in the financial statements or notes thereto.
</TABLE>
57
<PAGE> 58
3. Exhibits
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.
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 26, 1994 reporting the
Company's third quarter financial results under Item 5 -
Other Events.
(c) Exhibits required by Item 601 of Regulation S-K.
See Exhibit Index.
(d) Financial Statement Schedules
See (a) 2. above.
58
<PAGE> 59
SCHEDULE II
HANOVER DIRECT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, JANUARY 1, 1994 AND DECEMBER 26, 1992
<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>
1994:
---------------------------------
Allowance for doubtful
accounts receivable, current $ 4,244,000 $3,931,000 (1) $4,263,000 $3,912,000
Reserves for
discontinued operations 2,558,000 (2) 890,000 1,668,000
Deferred tax asset
valuation allowance 49,700,000 (7) 11,100,000 38,600,000
Allowance for net unrealized
losses on convertible
debt securities 1,000,000 1,000,000
1993:
---------------------------------
Allowance for doubtful
accounts receivable, current $ 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, current 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
-----------------------------------------------------------------------------------------------------------------------
</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 doutful accounts receivable.
(6) Represents increase in available NOLs and the effect of the increase in
corporate tax rates from 34% to 35%.
(7) Represents decrease due to: utilization of valuation allowance and
recognition of NOLs estimated to be utilized by future operating results.
60
<PAGE> 60
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 28, 1995 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/Robert F. Wright
s/Elizabeth Valk Long Robert F. Wright, Director
Elizabeth Valk Long, Director
Date: March 28, 1995
59
<PAGE> 61
ITEM 10. EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCOR- PAGE
REGULATION S-K PORATION REFERENCE WHERE APPLICABLE NO.
-------------- ------------------------------------------------------------ ----
<S> <C> <C>
2.1 Asset Purchase Agreement dated as of December 1, 1994 among the
Company, LWI Holdings, Inc., Bankers Trust Company, Leichtung,
Inc. and DRI Industries, Inc. FILED HEREWITH.
2.2 Stock Purchase Agreement dated as of February 16, 1995 among the
Company, Hanover Holdings, Inc., Aegis Safety Holdings, Inc., F.L.
Holdings, Inc., Roland A. E. Franklin, Martin E. Franklin, Jonathan
Franklin, Floyd Hall, Frederick Field, Homer G. Williams, Frank
Martucci, Norm Thompson Outfitters, Inc. and Capital Consultants,
Inc., (as agent)(collectively, the "Aegis Sellers"). FILED HEREWITH.
3.1 Certificate of Incorporation. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended January
1, 1994.
3.2 Certificate of Amendment of the Company's Certificate of
Incorporation together with Certificate of Designation of
Series A Convertible Additional Preferred Stock. Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended January 1, 1994.
3.3 By-laws. Incorporated by reference to the Company's Registration
Statement on Form S-4 filed on April 16, 1993, Registration No.
33-6152.
3.4 Certificate of Designation of Series B Convertible Additional
Preferred Stock of the Company. FILED HEREWITH.
</TABLE>
E-1
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C>
4.1 Indenture between the Company and First Trust National
Association, as Trustee, dated as of August 17, 1993.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended January 1, 1994.
4.2 Registration Rights Agreement dated as of August 17, 1993 by
and between the Company's and Sun Life Insurance Company of
America. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended January 1, 1994.
4.3 Warrant Agreement dated as of October 25, 1991 between the
Company* and NAR Group Limited ("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 Warrant Agreement dated as of January 1, 1994 between the
Company and Sears Shop At Home Services, Inc. ("Sears"). FILED
HEREWITH.
4.6 Registration Rights Agreement dated as of February 16, 1995
among the Company and the Aegis Sellers. FILED HEREWITH.
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 between the
Company* and NAR. Incorporated by reference to the Company's*
Current Report on Form 8-K dated July 10, 1991.
</TABLE>
E-2
<PAGE> 63
<TABLE>
<CAPTION>
<S> <C>
10.3 Agreement dated as of December 21, 1992 among the Company*,
Hanover Direct Pennsylvania, Inc. ("HDPI"), Brawn of
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.
10.4 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.
10.5 Credit Facilities and Reimbursement Agreement dated as of
October 12, 1994 ("Credit Agreement") among the Company
NationsBank of North Carolina, N.A. ("NationsBank"), as agent
for the Lenders, and the Lenders from time to time a party to
the Credit Agreement. FILED HEREWITH.
10.6 Revolving Credit and Term Loan Agreement dated as of October
12, 1994 ("Loan Agreement") among the Company, NationsBank, as
agent for the Lenders, and the Lenders from time to time a
party to the Loan Agreement. FILED HEREWITH.
10.7 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.
10.8 Executive Employment Agreement dated as of October 25, 1991
among the Company* and Jack E. Rosenfeld. Incorporated by
reference to the Company's Current Report on Form 8-K dated
October 25, 1991.
10.9 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.
</TABLE>
E-3
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C>
10.10 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.
10.11 Employment 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.
10.12 Amendment No. 1 to the Employment Agreement dated as of June
18, 1993 between the Company and Michael P. Sherman.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended January 1, 1994.
10.13 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.
10.14 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.
10.15 Amendment No. 1 to the Employment Agreement dated as of June
18, 1993 between the Company and Wayne P. Garten. Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended January 1, 1994.
10.16 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.
</TABLE>
E-4
<PAGE> 65
<TABLE>
<CAPTION>
<S> <C>
10.17 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.
10.18 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.
10.19 Hanover Direct, Inc. Savings Plan as amended. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended January 1, 1994.
10.20 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.
10.21 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.
10.22 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.
10.23 Form of Supplemental Retirement Plan. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended January 1, 1994.
10.24 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.
</TABLE>
E-5
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C>
21.1 Subsidiaries of the Registrant. FILED HEREWITH.
23.1 Consent of Independent Public Accountants. FILED HEREWITH.
27.1 Financial Data Schedule. FILED HEREWITH.**
-------------
* Hanover Direct, Inc., a Delaware corporation, is the successor by
merger to The Horn & Hardart Company and The Hanover Companies.
** EDGAR filing only.
</TABLE>
E-6
<PAGE> 1
Exhibit 2.1
------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
dated
December 1, 1994
by and among
LWI HOLDINGS, INC.,
a Delaware corporation,
HANOVER DIRECT, INC.,
a Delaware corporation,
BANKERS TRUST COMPANY,
a New York banking corporation,
LEICHTUNG, INC.,
an Ohio corporation,
and
DRI INDUSTRIES, INC.,
an Ohio corporation
------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES................ 1
1. Purchase and Sale of Assets..................................... 1
1.1 Purchase of Assets..................................... 1
1.2 Assumption of Liabilities.............................. 3
ARTICLE II
PURCHASE PRICE AND CLOSING............................................... 6
2. Purchase Price and Payment...................................... 6
2.1 Purchase Price......................................... 6
2.2 The Closing............................................ 6
2.3 Instruments of Transfer................................ 6
2.4 Further Assurances..................................... 6
2.5 Certain Reserves and Uses of Cash...................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER................................. 8
3. Seller's Representations and Warranties......................... 8
3.1 Corporate Existence and Qualification.................. 8
3.2 Subsidiaries........................................... 8
3.3 Authority and Absence of Conflict...................... 8
3.4 Title to Purchased Assets.............................. 8
3.5 Financial Statements................................... 9
3.6 Absence of Undisclosed Liabilities..................... 9
3.7 Insurance.............................................. 9
3.8 Inventory.............................................. 10
3.9 Leases................................................. 10
3.10 Tax Matters............................................ 10
3.11 Accounts Receivable.................................... 10
3.12 Books and Records...................................... 10
3.13 Contracts and Commitments.............................. 11
3.14 Customer Lists......................................... 11
3.15 Intellectual Property.................................. 11
3.16 Litigation and Compliance with Laws.................... 12
3.17 Suppliers.............................................. 12
3.18 Employee Benefits...................................... 12
3.19 Employee Relations..................................... 13
3.20 Absence of Certain Changes or Events................... 13
3.21 Customs................................................ 14
3.22 Environmental and Safety Matters....................... 14
3.23 Certain Payments....................................... 15
3.24 Disclosure............................................. 15
3.25 DRI.................................................... 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.26 Survival of Representations............................ 15
3.27 Recalls................................................ 15
ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BANK................................... 16
3A. Bank's Representations and Warranties........................... 16
3A.1 Corporate Existence and Qualification.................. 16
3A.2 Authority and Absence of Conflict...................... 16
3A.3 Title to Purchased Assets.............................. 16
3A.4 Tax Matters............................................ 16
3A.5 Absence of Certain Changes or Events................... 16
3A.6 Disclosure............................................. 16
3A.7 Survival of Representations............................ 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HANOVER.................. 18
4. Purchaser's and Hanover's Representations and Warranties........ 18
4.1 Corporate Existence and Qualification.................. 18
4.2 Authority and Absence of Conflict...................... 18
4.3 Authority.............................................. 18
4.4 Disclosure............................................. 18
4.5 Survival of Representations............................ 18
4.6 Seller's Representations............................... 19
ARTICLE V
PRE-CLOSING COVENANTS OF SELLER AND BANK................................. 20
5. Pre-Closing Covenants of Seller and Bank........................ 20
5.1 Conduct of Business.................................... 20
5.2 Absence of Material Changes............................ 20
5.3 Taxes.................................................. 21
5.4 Communication with Customers and Suppliers............. 21
5.5 Compliance with Laws................................... 21
5.6 Continued Truth of Representations and Warranties...... 21
5.7 Continuing Obligation to Inform........................ 22
5.8 Exclusive Dealing...................................... 22
5.9 Employees.............................................. 22
5.10 Estoppel Certificates.................................. 22
5.11 Information to Purchaser............................... 22
5.12 Break-Up Fee........................................... 22
5.13 Notification of Sale to Individuals.................... 23
ARTICLE VI
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
CONDITIONS TO OBLIGATIONS OF PURCHASER................................... 24
6. Conditions to Obligations of Purchaser.......................... 24
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER...................................... 27
7. Conditions to Obligations of Seller............................. 27
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF EACH PARTY.................................. 29
8. Conditions to Obligations of Each Party......................... 29
8.1 Illegality or Legal Constraint......................... 29
8.2 Governmental Authorizations............................ 29
8.3 Cooperation............................................ 29
ARTICLE IX
INDEMNIFICATION.......................................................... 30
9. Indemnification................................................. 30
9.1 Survival of Representations and Warranties............. 30
9.2 Indemnification by Seller and Bank..................... 30
9.3 Indemnification by Purchaser and Hanover............... 31
9.4 Procedure for Indemnification with Respect
to Third-Party Claims................................. 31
9.5 Bulk Sales Waiver and Indemnification.................. 32
9.6 Break-Up Fee Indemnification........................... 32
ARTICLE X
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS................................. 33
10. Confidentiality and Public Announcements........................ 33
10.1 Confidentiality........................................ 33
10.2 Public Announcements................................... 33
ARTICLE XI
POST-CLOSING AGREEMENTS.................................................. 34
11. Post-Closing Agreements......................................... 34
11.1 Use of Name............................................ 34
11.2 Injunctive Relief...................................... 34
11.3 Transition............................................. 34
11.4 Other Provision........................................ 34
11.5 Tax Filings............................................ 34
ARTICLE XII
TERMINATION.............................................................. 35
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
12. Termination of Agreement........................................ 35
12.1 Termination by Lapse of Time........................... 35
12.2 Termination by Agreement of the Parties................ 35
ARTICLE XIII
MISCELLANEOUS............................................................ 36
13. Miscellaneous................................................... 36
13.1 Definitions............................................ 36
13.2 Expenses............................................... 37
13.3 Brokers................................................ 37
13.4 Amendment and Waiver................................... 37
13.5 Successors and Assigns................................. 37
13.6 Notices................................................ 38
13.7 Entire Understanding................................... 38
13.8 Counterparts........................................... 38
13.9 Headings............................................... 39
13.10 Applicable Law......................................... 39
13.11 Invalidity............................................. 39
13.12 No Waiver.............................................. 39
13.13 Construction of Agreement; Damages; Knowledge.......... 39
13.14 Absence of Third Party Beneficiary Rights.............. 39
13.15 Mutual Drafting........................................ 39
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Form of Instrument of Assumption of Liabilities
Exhibit B Irrevocable Instructions
Exhibit C Clement Release
Exhibit D Clement Certificate
Exhibit E Business Plan
Exhibit F Form of Bill of Sale
SCHEDULES
Schedule 1.1(a)(i) Purchased Inventory
Schedule 1.1(a)(ii) Other Purchased Inventory
Schedule 1.1(d) Material Contracts
Schedule 1.1(e) Purchased Records
Schedule 1.1(g) Motor Vehicles
Schedule 1.1(h) Fixed Assets
Schedule 1.1(i) Customer List Exchange Balance
Schedule 1.1(j) Governmental Licenses and Permits
Schedule 1.1(k) Intellectual Property
Schedule 1.1(l) Investments
Schedule 1.2(a)(i) Year End Balance Sheet
Schedule 1.2(a)(ii) Accounts Payable Not Assumed
Schedule 1.2(a)(vii) Real Property Leases
Schedule 1.2(a)(ix) Equipment Leases
Schedule 1.2(b)(ix) Retention Bonuses
Schedule 3.3 Breaches
Schedule 3.4(a) Encumbrances on Purchased Assets
Schedule 3.4(b) Permitted Encumbrances on Purchased Assets
Schedule 3.7 Insurance Policies
Schedule 3.10 Tax Deficiencies
Schedule 3.11 Accounts Receivable
Schedule 3.13(b) Exceptions to Purchased Contracts
Schedule 3.13(b)(v) Third Party Consents to Assignment of Contracts
Schedule 3.15(a) Trademarks, Patents and Copyrights Owned by Others
Schedule 3.15(b) Royalty and License Agreements
Schedule 3.16 Litigation
Schedule 3.17 Suppliers
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Labor Agreements/Grievances
Schedule 3.21 Customs Assists
Schedule 3.25 DRI's Business Conduct
Schedule 3.27 Recalls
Schedule 5.10 Estoppel Certificates
Schedule 6(n)(ii) Exceptions to Assignment of Intellectual Property
Schedule 7(g) Third Party Consents
</TABLE>
v
<PAGE> 7
ASSET PURCHASE AGREEMENT ("Agreement" ) entered into this 1st
day of December, 1994, by and among LWI HOLDINGS, INC., a Delaware corporation
("Purchaser"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), BANKERS
TRUST COMPANY, a New York banking corporation ("Bank"), LEICHTUNG, INC., an Ohio
corporation ("Leichtung") and DRI Industries, Inc., an Ohio corporation ("DRI",
and collectively with Leichtung, "Seller").
R E C I T A L S
A. Seller is engaged in the business of mail order sales
of merchandise including tools, hardware, certain furnishings such as interior
design items, and other specialty products through the "Improvements" and
"Leichtung Workshops" catalogs and Seller operates office, warehouse and
fulfillment centers located in Solon, Ohio and Warrensville Heights, Ohio to
receive and distribute inventory to be sold to its mail order customers, a
telephone call center in Beachwood, Ohio and retail stores in Ohio and Michigan
(all of the foregoing, collectively, the "Business").
B. Seller desires to sell all of the tangible assets of
the Business and all of its intangible assets and other rights relating thereto,
including all trademarks or trade names (including the marks or names
"Improvements", "Leichtung", "Leichtung Workshops" and "Pastimes"), patents and
copyrights, and the rights to the same worldwide.
C. Purchaser desires to purchase all assets and all
such other rights related to the Business, and to assume liabilities of
Seller relating thereto, on the terms and conditions as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES
1. Purchase and Sale of Assets.
1.1 Purchase of Assets. Subject to and upon
the terms and conditions of this Agreement, at the Closing (as defined in
Section 2.2 hereof), Seller shall sell, transfer, convey, assign and deliver to
the Purchaser, and Purchaser shall purchase from Seller, all of the Seller's
right, title and interest in and to the business, properties, assets and other
claims, rights and interests of the Business, including, without limiting the
generality of the foregoing:
(a) all inventories of finished goods, work
in process and raw materials, owned by Seller on the Closing Date (as defined
in Section 2.2 hereof), including, without limitation, those set forth on
Schedule 1.1(a)(i) hereto, and office supplies, maintenance supplies, packaging
materials and similar items owned by Seller on the Closing Date, including,
without limitation, those set forth on Schedule 1.1(a)(ii) hereto which
schedule shall list each category which has a value in excess of $10,000 and
stating the approximate value of such category, (collectively, all of the above
the "Purchased Inventory");
1
<PAGE> 8
(b) subject to Section 2.5, all cash and
cash equivalents (collectively, the "Cash") and accounts, accounts
receivable, notes and notes receivable (collectively, the "Accounts
Receivable") owned by Seller on the Closing Date (including any security held
by Seller for the payment thereof);
(c) all prepaid expenses and deferred items
owned by Seller on the Closing Date except for the $2,415,655 deferred tax item
and the $903,000 intercompany tax receivable as reflected on Seller's Year End
Balance Sheet (as defined in Section 1.2(a)(i)), as they may both be adjusted
in the ordinary course of business prior to the Closing Date (collectively, the
"Purchased Prepaid Items");
(d) all rights of Seller as of the Closing
Date under contracts, agreements, leases, subleases, franchises and licenses
(including, without limitation, all computer program licenses) as in effect on
the Closing Date (collectively, the "Purchased Contracts"), and to the extent
material to the Business, as set forth on Schedule 1.1(d) hereto (the "Material
Contracts") ;
(e) all operating data and records of Seller
as they exist on the Closing Date including, without limitation, customer and
mailing lists, mailing list derivative source data (including all customer
data, computer tapes and cartridges, hard copies and the like) (collectively,
the "Customer Lists"), credit information, vendor information, product
information, list rental historical information, sales data and such other
records and information, including, without limitation, those set forth on
Schedule 1.1(e) hereto (collectively, with the Customer Lists, the "Purchased
Records");
(f) all goodwill of Seller existing on the
Closing Date;
(g) all motor vehicles and other rolling stock
owned by the Seller on the Closing Date, including, without limitation, those
set forth on Schedule 1.1(g) hereto;
(h) all machinery, equipment, tools,
fixtures (including all fixtures in leased space where Purchaser is assuming
Seller's obligations under the lease, to the extent removable, and to the
extent Seller has the right to remove such fixtures), maintenance, molds and
furniture owned, licensed or used by Seller (whether in the United States or
abroad) on the Closing Date, whether or not located at the locations set forth
in Schedule 1.2(a)(vii) and whether or not reflected as capital assets in the
accounting records of the Seller, including, without limitation, those assets
with a value greater than $3,000 as set forth on Schedule 1.1(h) hereto
(collectively, the "Fixed Assets");
(i) the customer list exchange balance of
Seller with other companies and other related information, including, without
limitation, as set forth on Schedule 1.1(i) hereto and existing on the
Closing Date;
(j) all agreements, licenses, permits,
consents and certificates of any regulatory, administrative or other
governmental agency or body issued to or held by Seller necessary or incidental
to the Business after the Closing Date, but only to the extent the same are
transferable (collectively, the "Governmental Licenses and Permits"),
including, without limitation, those set forth and described on Schedule 1.1(j)
hereto, provided, however, that to the extent any Governmental Licenses and
Permits are not transferable, such permits and licenses shall be noted on
Schedule 1.1(j);
(k) all of Seller's right, title and interest,
in and to all intangible property rights, including, without limitation, trade
secrets, proprietary programs and information, proprietary rights, patents,
patent applications, patent registrations, trademarks, trademark applications,
trademark registrations, symbols, service marks, logos, copyrights and
registrations thereof, including, without limitation, those material rights set
forth and described on Schedule 1.1(k) hereto, all films, plates, digital
separations, digitized images, sketches, lay-outs, photography and similar
items used by Seller in the production, lay-out and design of the catalogs used
in the Business and
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designs and drawings owned or, where not owned, used by Seller in the Business
(collectively, the "Intellectual Property");
(l) all investments, joint-venture interests,
equity participations and securities (excluding the capital stock of DRI but
including the capital stock of Leichtung of Michigan, Inc.) including,
without limitation, those set forth on Schedule 1.1 (l) hereto; and
(m) all other assets and rights that are
material or necessary to the conduct or operations of the Business.
All of the properties, assets and other claims, rights and
interests to be sold, transferred, conveyed, assigned and delivered to
Purchaser pursuant to this Section 1.1 are hereinafter collectively referred
to as the "Purchased Assets."
1.2 Assumption of Liabilities.
(a) At the Closing, Purchaser shall
execute and deliver an Instrument of Assumption of Liabilities (the
"Instrument of Assumption") substantially in the form attached hereto as
Exhibit A, pursuant to which Purchaser shall assume and agree to perform, pay
and discharge all of the following liabilities, obligations and commitments of
Seller:
(i) all accounts payable and accrued
liabilities of Seller reflected on the balance sheet of Seller as of June 25,
1994 (the "Balance Sheet Date"), a true and correct copy of which is attached
hereto as Schedule 1.2(a)(i) (the "Year End Balance Sheet"), less any payments
made from the Balance Sheet Date to the Closing Date and less any accounts
payable of Seller to any affiliate;
(ii) all accounts payable and accrued
liabilities of Seller incurred in the ordinary course of business from the
Balance Sheet Date to the Closing Date, other than those specified on Schedule
1.2(a)(ii) hereto;
(iii) all liabilities for refunds to
customers for returned merchandise which are accepted by Seller in the
ordinary course of business pursuant to Seller's existing policies from the
Balance Sheet Date to the Closing Date;
(iv) all obligations and liabilities
existing with respect to any Accounts Receivable which represent property held
by Seller for customers;
(v) all obligations and liabilities
arising or accruing after the Closing Date under or with respect to the
Purchased Contracts, the Governmental Licenses and Permits being transferred
pursuant to Section 1.1(j) hereto, or the Intellectual Property;
(vi) all obligations and liabilities
of Seller for purchase orders or purchase commitments, which are issued with
Purchaser's consent or in compliance with the limitation set forth in Section
5.2(1) hereof, and unfilled special orders and back orders entered into in the
ordinary course of business;
(vii) the real property leases
(including the ground lease) set forth on Schedule 1.2(a)(vii) hereto;
(viii) any payments, by way of
compensation or otherwise, to be made to Coy L. Clement ("Clement") in
connection with this Agreement, and any obligations owed by Bank or Seller to
Clement with respect to (A) Clement's employment with Seller, (B) Clement's
ownership of Seller's capital stock, or (C) the proceeds from the sale of the
Business;
(ix) the equipment leases set forth on
Schedule 1.2(a)(ix) hereto;
(x) all other liabilities, obligations
and commitments of Seller to the extent incurred in the ordinary course
of business;
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(xi) any liabilities or obligations
of Seller not in the ordinary course or not set forth on the Current Balance
Sheet, to the extent such liabilities or obligations shall not exceed $50,000
in the aggregate, provided, however, that to the extent any such liability or
obligation is paid for by insurance, then such amount shall not be included in
the $50,000 cap;
(xii) any sales taxes payable with
respect to the sale of the Purchased Assets to Purchaser; and
(xiii) any litigation against the
Business or Seller, arising in the ordinary course of business, except
for any litigation relating to or arising from those agreements or
circumstances set forth in Section 1.2(b).
All of the liabilities, obligations and commitments to be performed,
paid or discharged pursuant to this Section 1.2(a) are hereinafter collectively
referred to as the "Assumed Liabilities".
(b) At the Closing, the Purchaser shall not
assume or agree to perform, pay or discharge, and Seller shall remain
unconditionally liable for, all obligations, liabilities, debts, claims, causes
of action, contracts or other commitments, fixed or contingent, of Seller other
than the Assumed Liabilities, and Purchaser shall not have any liability
whatsoever relating to any liabilities other than the Assumed Liabilities as
described in Section 1.2(a) hereof. Specifically, and without limiting the
generality of foregoing, Purchaser shall not have any liability or obligations
with respect to:
(i) any and all trade accounts
payable and accrued liabilities of Seller not reflected on the balance sheet
of Seller as of the Balance Sheet Date or incurred other than in the ordinary
course of business between the Balance Sheet Date and the Closing Date;
(ii) any and all bank or other
institutional debt of Seller including interest or fees thereon, including
without limitation any outstanding liability or debt to Bank or any of its
affiliates, including without limitation, any obligations due and owing to the
Bank under (A) that certain Credit Agreement dated as of June 10, 1987, by and
between Leichtung, DRI and Bank, as amended and modified (the "Credit
Agreement"), (B) the Agreement dated September 20, 1993 by and among Leichtung,
DRI, the Individuals (as defined therein), the Pledgors (as defined therein)
and Bank, as amended and modified (the "Restructuring Agreement"), and (C) that
certain Subordinated Loan and Warrant Purchase Agreement, dated as of June 10,
1987, by and among Leichtung, DRI and the Bank, as amended and modified;
(iii) any liabilities or claims for taxes,
penalties or interest arising or accruing with respect to the Business prior to
the Closing Date, or any tax liabilities arising from the transactions
contemplated by this Agreement, except as provided by Section 1.2(a)(xii)
hereof, including, without limitation, any potential liability relating to the
$2,415,655 deferred tax item and the $903,000 intercompany tax receivable as
reflected on Seller's Year End Balance Sheet;
(iv) any claims for liabilities of
Seller under any contracts (including consignment contracts), guarantees,
obligations, agreements (including employment and consulting agreements),
licenses or leases with any third parties to the extent not specifically
assumed by Purchaser including, but not limited to, any claims, obligations or
liabilities relating to (A) the Restructuring Agreement, (B) the Leichtung
Guaranty (as defined in the Restructuring Agreement), (C) the Subordinated
Loans, the Subordinated Notes, and/or the Subordination Agreement (all as
defined in the Restructuring Agreement), (D) the Transaction (as defined in the
Restructuring Agreement), (E) the Stockholders Pledge Agreement (as defined in
the Restructuring Agreement), and (F) the Pledge and Security Agreement (as
defined in the Restructuring Agreement);
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(v) all past wages, bonuses,
commissions or other compensation due to any current or former employee or
consultant of Seller, any accrued pension, sick leave, vacation, medical
benefits, severance pay or any other right to compensation or benefits claimed
by any person in connection with his or her employment by Seller, in each case,
unless reflected on the Year End Balance Sheet or incurred in the ordinary
course of business from the Balance Sheet Date to the Closing Date;
(vi) any claims, obligations,
fines, penalties or other liabilities relating to or incurred by DRI, in
each case, unless reflected on the Year End Balance Sheet or incurred in the
ordinary course of business from the Balance Sheet Date to the Closing Date;
(vii) any claims, obligations,
fines, penalties or other liabilities relating to unclaimed property
statutes or regulations;
(viii) except for the Leases (as defined
in Section 3.9 hereto) as set forth in Schedule 1.2(a)(vii), any leases for
real property between Seller and any third party, and nothing in this Agreement
is intended to be or shall be construed as an assumption by Purchaser of any
rights, obligations or liabilities of any kind under any such lease;
(ix) any retention bonuses (and the
payroll costs incurred thereby) to be paid to certain officers of the Seller
upon the consummation of the transactions contemplated by this Agreement (the
"Retention Bonuses") all as set forth on Schedule 1.2(b)(ix); and
(x) any liability of Bank for its
actions as a director, shareholder or creditor of Seller, including, without
limitation, as signatory to any agreements to which Bank is a party in any such
capacity or any rights or causes of action which may arise therefrom;
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ARTICLE II
PURCHASE PRICE AND CLOSING
2. Purchase Price and Payment.
2.1 Purchase Price. The aggregate purchase price for the
Purchased Assets, including, without limitation, all intangibles, the Customer
Lists, Intellectual Property and the goodwill of the Business, shall be Eleven
Million Dollars ($11,000,000) plus (i) the assumption of the Assumed
Liabilities, (ii) the delivery of the items referred to in Section 2.2(b)(iv),
and (iii) the payment of the outstanding balance of the Revolving Loan (as
defined by the Credit Agreement), if any, due and owing to the Bank under the
Credit Agreement as of the Closing Date (as defined below) (collectively, the
"Purchase Price"). Purchaser shall pay, and Hanover shall provide the funds for
the payment of, the cash portion of the Purchase Price and the outstanding
balance, if any, of the Revolving Loan at the Closing by wire transfer of
immediately available funds.
2.2 The Closing.
(a) The closing of the transactions
contemplated under this Agreement (the "Closing") shall take place at 5:01
p.m. on January 17, 1995 (the "Closing Date"), at the offices of Latham &
Watkins, 885 Third Avenue, New York, New York 10022, subject to extension upon
mutual agreement of Purchaser and Seller. The parties further agree that, if
the consent of the Individuals (as defined in Section 5.8 hereto) is obtained
prior to the Closing Date, Purchaser may accelerate the Closing Date.
(b) At the Closing, (i) Bank shall, by wire
transfer, remit to Purchaser all of the funds contained in the Bank's blocked
account, (ii) Bank shall issue irrevocable instructions (in the form set forth
on Exhibit B annexed hereto) to Society Bank to rescind the blocked account
agreement dated August 15, 1991 and, subject to Section 2.5, to forward all
funds to Purchaser's designated bank, (iii) Seller shall provide satisfactory
evidence of payment of the Retention Bonuses, and (iv) Purchaser shall deliver
the unconditional release and discharge of Bank and Seller by Clement in the
form annexed hereto as Exhibit C which release shall include provision for the
delivery by Clement to Bank of any and all stock certificates representing his
equity ownership in Seller ("Clement's Release").
2.3 Instruments of Transfer. Seller and Bank agree that
the sale and transfer of the Purchased Assets under this Agreement shall be made
by bills of sale, assignments or other instruments of transfer together with all
required consents, if any, as shall be appropriate to carry out the intent of
this Agreement and as shall be sufficient to convey valid and marketable title
to the Purchased Assets to Purchaser.
2.4 Further Assurances. Seller and Bank agree that, at
any time and from time to time after the Closing Date, either or both of them,
as the case may be, upon the request of Purchaser will do, execute, acknowledge
and deliver or shall cause to be done, executed, acknowledged or delivered all
such further acts, deeds, assignments, transfers, conveyances, powers of
attorney or assurances as may be required for the assigning, transferring,
granting, conveying, assuring and confirming to Purchaser or for aiding and
assisting in the collection of, or reducing to possession, any or all of the
Purchased Assets to Purchaser as provided herein. In addition, Purchaser shall,
by appropriate instruments to be executed and delivered at the Closing, agree to
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perform, pay or discharge, to the extent not theretofore performed, paid or
discharged, all of the Assumed Liabilities.
2.5 Certain Reserves and Uses of Cash. Notwithstanding
any other provision of this Agreement, at or prior to the Closing, Bank shall,
for the benefit of Seller, withdraw from the blocked accounts referred to in
Section 2.2(b) the following:
(i) funds sufficient for Seller to
pay all wages, compensation and related taxes, withholding and other
payroll related items accrued through the close of business on the Closing
Date, any other items for which Seller is responsible pursuant to Section 5.9
or 5.12, all sales taxes withheld from customers in the ordinary course of
business for which Seller is responsible pursuant to this Agreement, and
Seller's fees and expenses in connection with this transaction, all of which,
to the extent practicable, Seller shall pay (and Bank shall cause Seller to
pay) from such funds at or prior to the Closing; and
(ii) to the extent not paid at or prior
to the Closing, funds sufficient for Seller to create an adequate and
appropriate escrow reserve which Seller shall retain for the payment of all
wages, compensation and related taxes, withholding and other payroll related
items accrued through the close of business on the Closing Date, any other
items for which Seller is responsible pursuant to Section 5.9 or 5.12, all
sales taxes withheld from customers in the ordinary course of business for
which Seller is responsible pursuant to this Agreement, and Seller's fees and
expenses in connection with this transaction, all of which Seller shall pay
(and Bank shall cause Seller to pay) as soon as practicable after the Closing
Date.
Seller shall remit, and Bank shall cause Seller to remit to
Purchaser, any sums remaining in the reserve referred to in (ii) above within
ten (10) days after the payment in full of the last of the items for which such
reserve is established. In the event such reserve shall be inadequate for the
payment in full of all of the items for which such reserve is established,
Hanover shall cause Purchaser promptly to remit to Seller, upon Seller's written
request accompanied by reasonable documentation supporting such request, funds
sufficient to make up any shortfall, provided, however, that if such shortfall
shall be due to a breach of a representation or warranty of Seller, neither
Hanover nor Purchaser shall have any obligation to remit the requested amount.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3. Seller's Representations and Warranties. In order to induce
Purchaser and Hanover to enter into this Agreement and to consummate the
transactions contemplated hereunder, Seller makes the following representations
and warranties (with such exceptions to such representations and warranties as
set forth in any schedule hereto):
3.1 Corporate Existence and Qualification. Leichtung and
DRI are corporations, each of which is duly organized, validly existing and in
good standing under the laws of the State of Ohio and each is authorized and has
the power, corporate and otherwise, to own or lease and operate its properties
and assets and conduct its business as such business is presently conducted.
Leichtung is duly qualified to do business as a foreign corporation and is in
good standing in the States of Ohio and Michigan, and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of Leichtung. Leichtung has
furnished Purchaser with true and complete copies of its Certificate of
Incorporation and By-Laws, as amended to date and presently in effect.
3.2 Subsidiaries. Leichtung owns or controls, directly or
indirectly, the shares of capital stock of the corporations set forth in
Schedule 1.1(l), (collectively, with DRI, the "Subsidiaries", and each, a
"Subsidiary"). Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its respective state of incorporation and
has the power, corporate and otherwise, to own or lease and operate its
properties and assets and conduct its business as such business is presently
conducted. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in such states, and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of such Subsidiary. Neither
Leichtung nor any of its Subsidiaries owns or controls, directly or indirectly,
any interest in any partnership, joint venture or other business enterprise.
Leichtung has furnished Purchaser with true and complete copies of each
Subsidiary's Certificate of Incorporation and By-Laws, each as amended to date
and presently in effect.
3.3 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Leichtung and DRI have been duly authorized, and no additional
corporate action is required for the approval of this Agreement, which is valid
and binding upon Leichtung and DRI and enforceable in accordance with its terms,
subject to applicable laws regarding bankruptcy or insolvency and to principles
of equity generally. Except as set forth on Schedule 3.3, the fulfillment of,
and compliance by, Leichtung and DRI with the terms, conditions, and provisions
hereof will not conflict with or result in a breach of any relevant laws, the
terms, conditions or provisions of its respective Certificate of Incorporation
or By-Laws, each as amended to date and presently in effect, or other similar
instrument affecting Leichtung or DRI, or any agreement or document to which
either is a party or by which any of them or any of their property or assets may
be bound, or constitute (with or without the giving of notice or the passage of
time, or both) a default under any such instrument, agreement or document or
accelerate the maturity of or otherwise modify any obligation of Leichtung or
DRI being assumed by Purchaser hereunder.
3.4 Title to Purchased Assets. Schedule 3.4(a) attached
hereto sets forth a true, correct and complete list of all claims, liabilities,
liens, pledges, charges, security interests and encumbrances of any kind
affecting the Purchased Assets (collectively, the "Encumbrances"). Seller
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shall at the Closing Date have good, clear, record and marketable title to those
Purchased Assets capable of ownership (the "Owned Assets"), and the Owned Assets
and the remaining Purchased Assets (the "Other Assets") are free and clear of
all Encumbrances except as set forth on Schedule 3.4(b) hereto (the "Permitted
Encumbrances"). Seller shall at the time of delivery, have the full power and
right to sell, assign and deliver the Purchased Assets in accordance with the
terms of this Agreement. The delivery to Purchaser of the instruments of
transfer of ownership contemplated by this Agreement shall vest valid and
marketable title to the Owned Assets in the Purchaser and all of Seller's right,
title and interest in and to the Other Assets in the Purchaser, free and clear
of all Encumbrances, except for the Permitted Encumbrances; provided, however,
that the failure of one or more Purchased Assets to vest in the Purchaser shall
not result in a breach hereof if such Purchased Asset or Assets have an
aggregate value of less than $25,000.
3.5 Financial Statements.
(a) Seller has previously delivered to the
Purchaser its Year End Balance Sheet, and the related statements of income,
shareholders' equity, retained earnings and cash flows for the fiscal year then
ended (collectively, including the Year End Balance Sheet, the "Year End
Financial Statements"). Seller shall, within ten (10) calendar days after
November 30, 1994, deliver to Purchaser its balance sheet and the related
statement of income of Seller for the five-month fiscal period ended November
30, 1994 (collectively, the "Current Financial Statements"). Seller shall,
within ten (10) calendar days after December 31, 1994, deliver to Purchaser its
balance sheet for the six month fiscal period ended December 31, 1994 (the
"Closing Balance Sheet"). The Year End Financial Statements, the Current
Financial Statements and the Closing Balance Sheet (collectively, the
"Financial Statements") have been or will be prepared on a consistent basis and
in accordance with Seller's past practice and have been or will be prepared in
accordance with generally accepted accounting principles, ("GAAP"), and all
such statements have been or will be certified to that effect by Seller's chief
financial officer.
(b) The Financial Statements fairly present,
or will fairly present, as of their respective dates, the financial condition,
retained earnings, assets and liabilities of Seller, on a consolidated basis,
and the results of operations of the Business for the periods indicated. With
respect to the sale of goods by Seller, the Financial Statements contain and
reflect reserves which have been determined in a manner consistent with each
other, and with Seller's past practice.
3.6 Absence of Undisclosed Liabilities. Except as and to
the extent (i) reflected and reserved against in the Current Balance Sheet, (ii)
set forth herein or on any schedule hereto, or (iii) incurred in the ordinary
course of business, Seller does not have any liability or obligation, secured or
unsecured, whether accrued, absolute, contingent, to the best of Seller's
knowledge, unasserted, or otherwise affecting the Purchased Assets.
3.7 Insurance. Schedule 3.7 hereto sets forth a true,
correct and complete list of all fire, theft, casualty, general liability,
workers compensation, business interruption, environmental impairment, product
liability, automobile and other insurance policies insuring the Purchased Assets
or the Business and of all life, health, disability and other insurance policies
maintained for any of its employees, specifying the type of coverage, the amount
of coverage, the premium, the insurer and the expiration date of each such
policy (collectively, the "Insurance Policies") and all claims made under such
Insurance Policies since January 1, 1994. True, correct and complete copies of
all of the Insurance Policies have been previously made available by Seller to
Purchaser. The Insurance Policies are in full force and effect and are
consistent with the amounts and nature which have been
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maintained by Seller during the past five (5) fiscal years. All premiums due on
the Insurance Policies or renewals thereof have been paid and, except as set
forth on Schedule 3.7 hereto, there is no default under any of the Insurance
Policies. Except as set forth on Schedule 3.7 hereto, Seller has not received
any notice or other communication from any issuer of the Insurance Policies
since January 1, 1994 cancelling any of the Insurance Policies.
3.8 Inventory. The Purchased Inventory consists of items
of a quality and quantity typically offered for sale or used by Seller in the
ordinary course of the business conducted by Seller. The values at which such
items of Purchased Inventory are carried reflect the normal inventory valuation
policy of Seller of stating the Purchased Inventory in accordance with GAAP.
3.9 Leases.
(a) Schedule 1.2(a)(vii) attached hereto sets
forth a true, correct and complete list as of the date hereof of all leases and
subleases of real property, identifying separately each ground lease, to which
Seller is a party (the "Leases"). True, correct and complete copies of the
Leases, and all amendments, modifications and supplemental agreements thereto,
have previously been delivered by Seller to Purchaser. The Leases are in full
force and effect and binding and enforceable against Seller and, to the best of
Seller's knowledge, against each of the other parties thereto in accordance with
its terms.
(b) Schedule 1.2(a)(ix) attached hereto sets
forth a true, correct and complete list as of the date hereof of all equipment
leases ("Equipment Leases"). True, correct and complete copies of the Equipment
Leases, and all amendments, modifications and supplemental agreements thereto,
have previously been delivered by Seller to Purchaser. The Equipment Leases are
in full force and effect and binding and enforceable against the Seller and, to
the best of Seller's knowledge, against each of the other parties thereto in
accordance with its terms.
3.10 Tax Matters. Seller has filed all foreign, federal,
state and local tax returns which are required to be filed and has paid all
taxes, interests, penalties, assessments and deficiencies which have become
due or which have been claimed to be due. Seller is current in the payment of
all income, franchise, real estate, payroll, sales, use and withholding taxes
and other employee benefits, taxes or imposts. Except as provided for in the
Current Financial Statements or as set forth on Schedule 3.10 attached hereto,
no deficiencies have been asserted or assessed as a result of any audit by the
Internal Revenue Service or by any foreign, state or local taxing authority and
no such deficiency or audit has been proposed or, to the best of Seller's
knowledge, threatened.
3.11 Accounts Receivable. Schedule 3.11 attached hereto,
as updated within the time parameters set forth in Section 3.5(a) hereof, sets
forth or will set forth a true, correct and complete list of all Accounts
Receivable of Seller by category, including an aging thereof for trade accounts
receivable, as of the date of each Financial Statement. All Accounts Receivable
arose out of the sales of inventory or services in the ordinary course of
business. The reserve for doubtful accounts as set forth on any balance sheet
which is a part of the Financial Statements has been or will be determined on a
consistent basis and in accordance with GAAP and Seller's past practice.
3.12 Books and Records. The general ledgers and books of
account of Seller and with respect to the Purchased Assets, and all other books
and records of Seller are in all material respects complete and correct and have
been maintained in accordance with good business practice and in accordance with
all applicable laws and regulations.
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3.13 Contracts and Commitments.
(a) Schedule 1.1(d) attached hereto contains a
true, complete and correct list of all Material Contracts.
(b) Except as set forth on Schedule 3.13(b)
attached hereto:
(i) each Material Contract is a
valid and binding agreement of Seller enforceable against Seller in accordance
with its terms;
(ii) Seller has fulfilled all
material obligations required pursuant to the Material Contracts to have been
performed by Seller on its part prior to the date hereof, and Seller will
fulfill, when due, all of its obligations under the Material Contracts which
remain to be performed until Closing;
(iii) Seller is not in material breach
of or default under any Material Contract, and no event has occurred which
with the passage of time or giving of notice or both would constitute such a
default, result in a loss of rights or result in the creation of any lien,
charge encumbrance, thereunder or pursuant thereto;
(iv) to the best of Seller's
knowledge, there is no existing material breach or default by any other party to
any Material Contract, and no event has occurred which with the passage of time
or giving of notice or both would constitute a default by such other party,
result in a loss of rights or result in the creation of any lien, charge or
encumbrance thereunder or pursuant thereto;
(v) except as set forth on Schedule
3.13(b)(v) hereto, no consent, approval or authorization by any third party is
required to assign the Material Contract in connection with consummation of the
transactions contemplated hereunder; and
(vi) Seller does not have any material
financial interest, direct or indirect, in any other party to any Material
Contract which is material to the Business.
3.14 Customer Lists. The disks, cartridges and tapes to be
delivered to Purchaser at Closing contain a true, correct and complete list of
the customers who have actually purchased merchandise from each of the Seller's
catalogs by year of last purchase and the approximate number of catalogs mailed,
reported on an annual basis for each catalog separately for the periods of time
that such information is reported. The complete Customer Lists shall be in
readable tape format and such tapes will be delivered to Purchaser at such
designated location and time (at or after the Closing) as Purchaser shall
request. The Customer Lists are the only customer lists which exist and such
lists are deposited with FDC, Inc., a division of Donnelley Marketing, Inc.
("FDC"), Abacus Direct Corporation ("Abacus") and Safe Site, Inc. ("Safe-Site")
and with no other vendors. The Customer Lists delivered by FDC, Abacus and
Safe-Site to Purchaser on Seller's behalf pursuant hereto represent all
available information with respect to the subject matter hereof, and no copies
will be retained by Seller, or to the best of Seller's knowledge, any agent or
affiliate of Seller or any other party, as of the Closing Date.
3.15 Intellectual Property. Except as expressly set
forth in Schedule 3.15(a) attached hereto, Seller (i) does not own or use in the
operation of the Business any patents, trademarks, trade names or copyrights
owned by others, nor is Seller a party to any agreement, either as licensor or
licensee for the licensing of any patent, trademark, trade name, copyright or
applications for any thereof, (ii) has no notice that the use by the Business of
any Intellectual Property owned or used by it infringes or interferes with any
rights of any others, and (iii) owns the rights to, has valid registrations with
the United States Patent and Trademark Office for, and has the right to use and
assign, all of the Intellectual Property listed in Schedule 1.1(k), which,
together with the other Intellectual Property being transferred by Seller to
Purchaser pursuant hereto, are all the rights necessary to hold in order to
conduct the Business as presently conducted. Set forth on
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Schedule 3.15(b) hereto are all of the agreements to which Seller, either
directly or indirectly, is a party with respect to all license and royalty
agreements, whether in writing or by oral understanding.
3.16 Litigation and Compliance with Laws. Schedule 3.16 hereto
is a true, complete and accurate list and description of (i) all inquiries,
investigations, actions or proceedings to the best of Seller's knowledge
pending, threatened in writing, or otherwise known to Seller, against the
Business or any of its assets, and (ii) all orders, writs, injunctions or
decrees of any court, governmental agency or tribunal directed at the Seller or
any of the Purchased Assets or Assumed Liabilities. Except as set forth in
Schedule 3.16, (i) the Business is conducted in material compliance with all
applicable federal, state and local laws, regulations (including, without
limitation, applicable regulations of the Federal Trade Commission, the Consumer
Product Safety Commission, the U.S. Customs Service and the U.S. Food and Drug
Administration), ordinances and orders pertaining thereto, and (ii) to the best
of Seller's knowledge, the Business is not the subject of any inquiries or
investigations, nor in default with respect to any order, written injunction, or
decree, of any court, governmental agency or other tribunal.
3.17 Suppliers. Schedule 3.17 hereto sets forth a true,
correct and complete list of the names and addresses of all of the suppliers of
Seller which accounted for purchases by Seller of at least Ten Thousand Dollars
($10,000) per supplier for the fiscal year ended June 30, 1994. None of such
suppliers has notified Seller that it intends to discontinue its relationship
with Seller and Seller has no knowledge or reason to believe that any supplier
would discontinue its relationship with Seller or with Purchaser upon the
completion of the transactions contemplated by this Agreement. Seller does not
have any material financial interest, direct or indirect, in any material
supplier or customer.
3.18 Employee Benefits.
(a) Schedule 3.18 hereto sets forth a list
which identifies each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and each
written, and to the best of Seller's knowledge, other than written, employment
agreement, compensation agreement, bonus, commission or similar arrangement and
fringe benefit arrangement which is maintained, administered or contributed to
by Seller and covers any employee or former employee of Seller or under which
Seller has any liability. Copies (or, if not in writing, detailed summaries) of
such plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been delivered to Purchaser
together with (to the extent existing) (i) the most recent annual report (Form
5500 including, if applicable, Schedule B thereto) prepared in connection with
any such plan, and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein as
the "Employee Plans."
(b) Except as specified on Schedule 3.18
hereto, no Employee Plan constitutes a "multiemployer plan" as defined in
Section 3(37) of ERISA (a "Multiemployer Plan"), no Employee Plan is maintained
in connection with any trust described in Section 501(c)(9) of the Internal
Revenue Code of 1986, as amended (the "Code") and no Employee Plan is subject to
Title IV of ERISA or Section 412 of the Code. To the best of Seller's knowledge,
nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make Seller, or any
officer or director thereof, subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code.
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(c) Seller has no projected liability in
respect of post-retirement health life and medical benefits for retired
employees of Seller. Other than provisions of applicable law, to the best of
Seller's knowledge, no condition exists that would prevent Seller from
terminating any Employee Plan.
3.19 Employee Relations. Seller has complied in all
material respects with the National Labor Relations Act, as amended, Title VII
of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, and all
other applicable federal, state and municipal laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and is not engaged in any unfair labor practice, and there are no arrearages in
the payment of wages or social security taxes. Except as set forth on Schedule
3.19 hereto:
(a) Seller is not and was not a party to
any collective bargaining agreements applicable to its current or former
employees and none of the employees of Seller is represented by any labor union;
(b) There is no unfair labor practice
complaint against Seller, or, to the best of Seller's knowledge, pending
before the National Labor Relations Board or any state or local agency;
(c) There is no pending labor strike, dispute,
disturbance or other material labor activity affecting Seller (including,
without limitation, any organizational drive);
(d) To the best of Seller's knowledge, there
is no material labor grievance pending against Seller;
(e) There are no pending arbitration
proceedings arising out of or under any collective bargaining agreement to which
Seller is a party, or to the best knowledge of Seller, any basis for which a
claim may be made under any collective bargaining agreement to which Seller is a
party;
(f) Certain information relating to all of
Seller's employees including the salary, job description, benefits and number of
years employed, all of which is true, correct and complete has previously been
made available by Seller to Purchaser; and
(g) For purposes of this Section 3.19, the term
"employee" shall also be construed to include (i) sales agents (whether in the
United States or abroad), (ii) telemarketers, (iii) graphic designers,
photographers or other artists who spend a majority of their time working on
Seller's Business, if any, and (iv) seasonal employees.
3.20 Absence of Certain Changes or Events. Except as
contemplated by this Agreement, since the Balance Sheet Date, (i) Seller has not
permitted Bank to apply, and Bank has not applied, any funds from each of the
Bank's and Society Bank's blocked accounts (collectively, the "Blocked Account")
to any of Seller's obligations to Bank except for (A) the payment of interest in
the ordinary course of business under the Credit Agreement, (B) the payment of
the Revolving Loan balance, (C) the payment of Seller's fees and expenses in
connection with this transaction, or (D) the retention by Seller of the reserve
and payments described in Section 2.5, provided, however, that with respect to
(A), (B), (C) and (D) above, after the date hereof, Seller agrees to notify
Purchaser in writing within five (5) business days of each such occurrence, (ii)
Seller has not entered into any transaction
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which is not in the usual and ordinary course of business, and (iii) without
limiting the generality of the foregoing, Seller has not:
(a) incurred any material obligation or
liability for borrowed money;
(b) made any payments on any outstanding
indebtedness to Bank except as otherwise permitted hereby;
(c) discharged or satisfied any lien or
encumbrance or paid any obligation or liability other than in the ordinary
course of business or the Permitted Encumbrances;
(d) mortgaged, pledged or subjected to lien,
charge or other encumbrance any of the Purchased Assets except the Permitted
Encumbrances;
(e) sold or purchased, assigned or
transferred any of its tangible assets or cancelled any debts or claims, except
for transactions in the ordinary course of business;
(f) made any material amendment to or
termination of any Material Contract or done any act or omitted to do any act
which would cause the breach of any Material Contract;
(g) made any changes in compensation of its
officers or directors (other than agreeing to pay the Retention Bonuses) or,
other than in the ordinary course of business, any changes in compensation of
its employees;
(h) authorized or issued recall notices for
any of its products or initiated any safety investigations;
(i) entered into any purchase contract outside
of the ordinary course of business;
(j) received written notice of any
litigation, warranty claim, trademark infringement claim or products liability
claim;
(k) made any material change in its business
practices or its accounting practices relating thereto;
(l) suffered any material adverse
relationships or conditions with vendors or customers which would, or to the
best of Seller's knowledge, may have a material adverse effect on the financial
condition or operations of the Business or the Purchased Assets; or
(m) made any dispositions or abandonment of any
of Seller's Intellectual Property necessary to the conduct of the Business.
3.21 Customs. All goods imported into the United States
or any other country by Seller ("Imported Goods") have been properly valued and
classified in accordance with applicable tariff laws, rules and regulations and
all proper duties, tariffs or excise taxes have been paid with respect to the
Imported Goods, no penalties have been assessed, asserted or claimed with
respect to any Imported Goods, and no written inquiries relating thereto have
been received. All Imported Goods have been properly marked as to country of
origin, content and material. Seller has filed with the U.S. Customs Services
all required buying agency agreements, as applicable, with respect to Imported
Goods. Except as set forth on Schedule 3.21, Seller has not delivered to any
agents, suppliers or vendors any tools, equipment, molds, additional products or
other assistance (collectively, the "Assists") which would be considered a
dutiable assist. Schedule 3.21 sets forth a true, complete and correct list of
all Assists.
3.22 Environmental and Safety Matters. Seller's
operation of the Purchased Assets has been in material compliance with, and
Seller has complied in all material respects with all, and is not in material
violations of any, applicable United States federal, state and local laws,
ordinances, regulations and orders relating to environmental matters,
including, but not limited to, matters
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related to air pollution, water pollution, noise control, on-site or off-site
hazardous substance (as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and including any other dangerous
waste) handling, discharge, disposal or recovery, toxic or hazardous substances
or materials (whether products or waste), asbestos, PCBs, employee safety, and
transportation or shipping safety and no written notice of violation of any such
statutes, laws, ordinances, regulations and orders with respect thereto has been
received by Seller and no unwritten notice is known to officers of the Seller to
have been given, nor is any such notice threatened in writing. Seller has
obtained all material environmental permits, temporary and otherwise, required
for the lawful operation of the Business and all such permits are in full force
and effect and Seller has no reason to believe that any such permits will be
revoked, lapsed, or otherwise subject to modification.
3.23 Certain Payments. In connection with the Business,
Seller has not and no person, to the best of Seller's knowledge, directly or
indirectly on behalf of Seller has (i) made or received any payment that was
not legal to make or receive; (ii) engaged in any transaction or make or
receive any payment that was not properly recorded in Seller's books; or
(iii) created or used any "off-book" account or fund.
3.24 Disclosure. No representation or warranty by the
Seller in this Agreement or in any exhibit hereto, or in any list, statement,
document or information set forth in or attached to any schedule delivered or
to be delivered pursuant to this Agreement, except for schedules delivered
pursuant to Section 6(1) hereof, contains or will contain any untrue statement
of a material fact or omits or will omit any material fact necessary in order
to make the statements contained therein not misleading.
3.25 DRI. As of the date of hereof and from the date
hereof until the Closing, DRI has not and shall not conduct any business
except as set forth on Schedule 3.25 attached hereto.
3.26 Survival of Representations. Each representation and
warranty of the Seller set forth in this Agreement shall survive for a period of
sixteen months from the Closing Date except that the representations and
warranties contained in Sections 3.10, 3.18 and 3.19 hereof shall survive for a
period of sixteen months from the Closing Date or the applicable statue of
limitations, whichever shall be longer, and the representations and warranties
contained in Section 3.22 shall survive for a period of six (6) years from the
Closing Date or the applicable statute of limitations, whichever shall be
shorter . Each representation and warranty shall be true and correct on and as
of the Closing Date as though such representation and warranty was made again on
and as of such time.
3.27 Recalls. Except as set forth on Schedule 3.27
hereto, Seller has made no product recalls during the last three (3) years.
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ARTICLE III-A
REPRESENTATIONS AND WARRANTIES OF BANK
3A. Bank's Representations and Warranties. In order to induce
Purchaser and Hanover to enter into this Agreement and to consummate the
transactions contemplated hereunder, Bank makes the following representations
and warranties:
3A.1 Corporate Existence and Qualification. Bank is a
banking corporation duly organized, validly existing and in good standing
under the laws of the State of New York, and is authorized and has the power,
corporate and otherwise, to own or lease and operate its properties and assets
and conduct its business as such business is presently conducted.
3A.2 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Bank have been duly authorized, and no additional corporate action is
required for the approval of this Agreement, which is valid and binding upon
Bank and enforceable in accordance with its terms, subject to applicable laws
regarding bankruptcy or insolvency and to principles of equity generally. The
fulfillment of, and compliance by Bank with the terms, conditions, and
provisions hereof will not conflict with or result in a breach of any relevant
laws, the terms, conditions or provisions of its Certificate of Incorporation or
By-Laws, each as amended to date and presently in effect, or other similar
instrument affecting Bank, or cause a default under any agreement or document to
which the Bank is a party, or by which it or any of its property or assets may
be bound, which default would give any party to such agreement or document
rights against the Purchaser or Purchased Assets.
3A.3 Title to Purchased Assets. Except as may stem from
Bank's status as a shareholder and creditor of Seller, Bank has no ownership
or other right, title or interest in and to any of the Purchased Assets being
transferred to Purchaser pursuant hereto.
3A.4 Tax Matters. Bank has filed or will file when due,
and has paid or will pay when due, all consolidated tax returns required to be
filed and paid and will include Seller therein to the extent required by
applicable law.
3A.5 Absence of Certain Changes or Events. Except as
contemplated by this Agreement, since the Balance Sheet Date, Seller has not
permitted Bank to apply, and Bank has not applied, any funds from each of the
Blocked Accounts to any of Seller's obligations to Bank except for (A) the
payment of interest in the ordinary course of business under the Credit
Agreement, (B) the payment of the Revolving Loan balance, (C) the payment of
Seller's fees and expenses in connection with this transaction, or (D) the
retention by Seller of the reserve and payments described in Section 2.5,
provided, however, that, with respect to (A), (B), (C) and (D) above, after the
date hereof, Bank agrees to cause Seller to notify Purchaser in writing within
five (5) business days of each such occurrence.
3A.6 Disclosure. No representation or warranty by Bank
in this Agreement or in any exhibit hereto, or in any list, statement,
document or information set forth in or attached to any schedule delivered or
to be delivered pursuant to this Agreement, contains or will contain any untrue
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<PAGE> 23
statement of a material fact or omits or will omit any material fact necessary
in order to make the statements contained therein not misleading.
3A.7 Survival of Representations. Each representation and
warranty of the Bank set forth in this Agreement shall survive for a period of
sixteen months from the Closing Date except that the representations and
warranties contained in Sections 3A.4 hereof shall survive for a period of
sixteen months from the Closing Date or the applicable statue of limitations,
whichever shall be longer. Each representation and warranty shall be true and
correct on and as of the Closing as though such representation and warranty was
made again on and as of such time.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HANOVER
4. Purchaser's and Hanover's Representations and
Warranties. In order to induce Seller and Bank to enter into this Agreement
and consummate the transactions contemplated hereunder, Purchaser and Hanover,
severally and jointly, hereby make the following representations and warranties:
4.1 Corporate Existence and Qualification. Each of
Purchaser and Hanover is a corporation duly organized and validly existing and
in good standing under the laws of its state of incorporation, and each is
authorized and has the power, corporate and otherwise, to own or lease and
operate its respective properties and conduct its business as such are operated
or conducted. Purchaser is duly qualified to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
failure to qualify would have a material adverse affect on the operations or
financial condition of Purchaser. Purchaser has furnished to Seller true and
complete copies of its Certificate of Incorporation and By-Laws, as amended to
date and presently in effect.
4.2 Authority and Absence of Conflict. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Purchaser and Hanover have been duly authorized, and no additional
corporate action is required for the approval of this Agreement, which is valid
and binding upon Purchaser and Hanover and enforceable in accordance with its
terms, subject to applicable laws regarding bankruptcy or insolvency and to
principles of equity generally. The fulfillment of and compliance by Purchaser
and Hanover with the terms, conditions, and provisions hereof will not conflict
with or result in a breach of any relevant laws, the terms, conditions or
provisions of its Certificate of Incorporation or By-Laws, each as amended to
date and presently in effect, or other similar instrument affecting Purchaser or
Hanover or any agreement or document to which the Purchaser or Hanover is a
party or by which it or any of its property or assets may be bound, or
constitute (with or without the giving of notice or the passage of time, or
both) a default under any such instrument, agreement or document or accelerate
the maturity of or otherwise modify any obligation of Purchaser or Hanover.
4.3 Authority. Purchaser has the full power and right to
(i) execute and deliver this Agreement and any other agreement or document
contemplated hereby and consummate the transactions contemplated thereby, (ii)
purchase or otherwise acquire the Purchased Assets and (iii) assume the Assumed
Liabilities in accordance with the terms of this Agreement.
4.4 Disclosure. No representation or warranty by
Purchaser or Hanover in this Agreement or in any exhibit hereto, or in any
list, statement, document or information set forth in or attached to any
schedule delivered or to be delivered pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained therein not
misleading.
4.5 Survival of Representations. Each representation and
warranty of Purchaser and Hanover set forth in this Agreement shall survive for
a period of sixteen months from the Closing Date. Each representation and
warranty shall be true and correct on and as of the Closing as though such
representation and warranty was made again on and as of such time.
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4.6 Seller's Representations. To the best of Purchaser's
and Hanover's knowledge, based solely upon the certificate of Clement attached
hereto as Exhibit D, the representations and warranties of Seller in this
Agreement and in the exhibits and schedules hereto or delivered pursuant hereto
would not, if made on and as of June 25, 1994, contain any untrue statement of a
material fact or omit any material fact necessary in order to make the
statements contained therein not misleading.
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ARTICLE V
PRE-CLOSING COVENANTS OF SELLER AND BANK
5. Pre-Closing Covenants of Seller and Bank.
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. Seller shall carry on, and
Bank shall cause Seller to carry on, the Business substantially in the same
manner as is currently being conducted, including substantial compliance with
all material governmental rules and regulations and maintenance and renewal of
all governmental licenses and permits and shall not make or institute any
unusual or new business practices (which vary from Seller's ordinary course of
business) of purchase, sale, shipment or delivery, lease management,
accounting or operation, shall not ship or deliver any quantity of merchandise
in excess of normal shipment or delivery levels, except as agreed to in
writing by Purchaser. All of the property of Seller shall be used, operated,
repaired and maintained in a normal business manner consistent with past
practice. Seller shall conduct, and Bank shall cause Seller to conduct, the
Business in accordance with Seller's fiscal year 1995 business plan previously
delivered by Seller to Bank and dated July 14, 1994, as reforecast on November
30, 1994 (collectively, the "Business Plan"), a true and correct copy of which
is attached hereto as Exhibit C. Seller represents and warrants that the
Seller is executing all of the material operative steps as set forth in the
Business Plan. Purchaser and Hanover hereby agree that the Business Plan shall
not be deemed a guarantee of the results or performance set forth therein.
5.2 Absence of Material Changes. Without the prior
written consent of Purchaser, Seller shall not:
(a) take any action to amend its Certificate of
Incorporation or By-laws;
(b) issue any stock, bonds or other corporate
securities or grant any option or issue any warrant to purchase or subscribe to
any of such securities or issue any securities convertible into such securities;
(c) incur any obligation or liability
(absolute or contingent), except current liabilities incurred and obligations
under contracts entered into in the ordinary course of business;
(d) declare or make any payment or distribution
to its shareholders with respect to their stock or purchase or redeem any shares
of its capital stock;
(e) mortgage, pledge, or subject to any lien,
charge or any other encumbrance any of the Purchased Assets except for Permitted
Encumbrances;
(f) sell, assign or transfer any of the
Purchased Assets, except in the ordinary course of business;
(g) make any payments on any outstanding
indebtedness to Bank, except as contemplated by Section 3.20(b) hereof;
(h) cancel any material debts or claims, except
in the ordinary course of business;
(i) merge or consolidate with or into any
corporation or other entity;
(j) waive any rights of material value relating
to the Purchased Contracts;
(k) materially modify, amend, alter or
terminate any of the Material Contracts, or take or permit any act or omission
constituting a breach or default under any such Material Contract;
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(l) place any new purchase orders for Purchased
Inventory which exceed One Hundred Thousand Dollars ($100,000) or which are
other than in the ordinary course of business;
(m) fail to (i) preserve the possession and
control of the Purchased Assets and Business, (ii) use its best efforts to
preserve the goodwill of its customers, suppliers, agents and others having
business relations with it, or (iii) use its best efforts to keep and preserve
the Business until the Closing Date, in each case within the ordinary course of
business, recognizing that it is the intention of the parties that sufficient
quantities of Purchased Inventory shall continue to be ordered to maintain the
Business as an ongoing business following the Closing as contemplated by the
Business Plan;
(n) fail to materially maintain its books,
accounts and records in the customary manner and in the ordinary and regular
course of business and maintain in accordance with past practice its business
premises, fixtures, machinery, furniture and equipment;
(o) enter into any leases, contracts,
agreements or understandings other than those entered into in the ordinary
course of business; or
(p) reduce the coverage amounts with respect to
any Insurance Policies.
5.3 Taxes. Seller shall, on a timely basis, file all tax
returns and pay any and all taxes which shall become due or shall have accrued
(i) on account of the operation of the Business or the ownership of the
Purchased Assets on or prior to the Closing Date or (ii) on account of the sale
to Purchaser of the Purchased Assets by Seller, except with regard to sales
taxes related to such sale, which shall be the obligation of Purchaser. Bank
agrees to cause the timely filing of all such returns and payment of all such
taxes.
5.4 Communication with Customers and Suppliers. Seller
shall accept customer orders, and subject to Section 5.2(l) hereof,
place purchase orders for Purchased Inventory with suppliers in the ordinary
course of business consistent with past practice for all Purchased Inventory
offered by Seller but expected to be shipped or sold by Purchaser after the
Closing Date. Seller shall cooperate with Purchaser in communication with
suppliers and customers to accomplish the transfer of the Purchased Assets to
Purchaser on the Closing Date. At all times prior to the Closing, Seller shall
inform Purchaser if any supplier listed in Schedule 3.17 has notified Seller of
its intention to discontinue its relationship with Seller, provided, however,
Seller's failure to inform Purchaser shall not be a basis for termination of
this Agreement unless such failure to inform or loss has a material adverse
effect on the Business.
5.5 Compliance with Laws. Seller shall comply in all
material respects with all laws and regulations which are applicable to it,
its ownership of the Purchased Assets or to the conduct of the Business and
will perform and comply in all material respects with the Purchased Contracts.
5.6 Continued Truth of Representations and Warranties.
Seller and Bank will not take any actions which would result in any of the
representations, warranties, covenants and agreements set forth in this
Agreement to be untrue, incorrect or unsatisfied in any material respect at any
time.
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5.7 Continuing Obligation to Inform. From time to time
prior to Closing, Seller and Bank shall promptly deliver or cause to be
delivered to Purchaser supplemental information concerning events subsequent
to the date hereof which would render any statement, representation or warranty
in this Agreement or any information contained in any Schedule inaccurate or
incomplete in any material respect at any time after the date hereof until the
Closing Date.
5.8 Exclusive Dealing. Seller and Bank will not,
directly or indirectly, through any officer, director, agent or otherwise
(a) solicit, initiate or encourage submission of proposals or offers from any
person relating to any acquisition or purchase of all or a material portion of
the Purchased Assets, or any equity interest in Seller or any equity
investment, merger, consolidation or business combination with Seller, or
(b) participate or authorize, directly or indirectly, any other person to
participate in any negotiations with third parties regarding any of the
foregoing, provided, however, that the notice or any information given to or
negotiations or dealings with Andrew N. Heine, Spencer M. Partrich, and Mickey
Shapiro (collectively, the "Individuals") in connection with such Individuals'
right of first refusal as set forth in the Restructuring Agreement shall not
be considered to be a violation of this Agreement. In addition, Seller and Bank
shall be entitled to provide any of the Individuals with a copy of this
Agreement provided that any such Individual is subject to a confidentiality
agreement which requires such Individuals to maintain the confidentiality of
this transaction in accordance with Article X hereof prior to such Individuals'
receipt of this Agreement.
5.9 Employees. Subject to Section 2.5, Seller shall be
solely responsible for payment of all compensation, payroll and unemployment
taxes, and other costs payable to, or accrued in respect of, all of Seller's
employees up to and including the Closing Date and payment of the Retention
Bonuses (collectively, the "Employee Obligations"). Bank shall cause Seller to
comply with this Section 5.9.
5.10 Estoppel Certificates. Prior to Closing, Seller shall
obtain estoppel certificates from each contracting party to a Material Contract
set forth on Schedule 5.10, and from each lessor under a Lease, consenting to
the assumption of such contracts and leases by Purchaser and acknowledging that
there are no outstanding claims against Seller or Bank under such leases.
5.11 Information to Purchaser. Prior to Closing, Seller
shall inform Purchaser if it has suffered any losses after the date hereof,
whether insured or uninsured, and whether or not in control of Seller, in
excess of Ten Thousand Dollars ($10,000) in the aggregate, or waived any
rights of any value.
5.12 Break-Up Fee. In the event that Seller or Bank
accepts any Individual's exercise of the right of first refusal under the
Restructuring Agreement, Seller shall pay to Purchaser One Hundred Thousand
Dollars ($100,000)(the "Break-Up Fee") as hereinafter provided. Within five
(5) days of such acceptance, the Break-Up Fee shall be placed into escrow at
Bank by Seller and such Break-Up Fee will automatically be released to
Purchaser upon the earliest of (i) the consummation of the sale of the stock
or assets of Seller to any Individual, (ii) March 1, 1995, or (iii) forty-two
(42) days after receipt by the Bank of any Individual's exercise of the right
of first refusal under the Restructuring Agreement. The Bank and Seller agree
to accept or reject any proposed exercise of the right of first refusal from
any Individual within seven (7) days from the date of the receipt by Bank of
such notice of exercise of the right of first refusal by such Individual. It
is understood and agreed that the payment of the Break-Up Fee shall be the
sole and exclusive remedy of Purchaser and Hanover for
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<PAGE> 29
such sale to the Individual(s) pursuant to the terms of the
Restructuring Agreement. This Section 5.12 shall not expire upon any termination
of this Agreement. Notwithstanding anything herein to the contrary, in the event
that the sale of the Purchased Assets to Purchaser between the parties hereto is
consummated, the Break-Up Fee shall not be payable to Purchaser.
5.13 Notification of Sale to the Individuals. Seller and
Bank shall promptly notify Purchaser of any objection to the completion of the
transactions contemplated hereunder made to Seller, Bank or any of their
representatives by the Individuals, in writing or, if other than in writing,
shall use their reasonable business efforts to notify Purchaser promptly.
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ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
6. Conditions to Obligations of Purchaser.
The obligations of Purchaser under this Agreement are, at the option of
Purchaser, subject to the conditions that, at or before the Closing Date:
(a) All the terms, covenants and conditions
of this Agreement to be complied with and performed by Seller and Bank on or
before the Closing Date shall have been duly complied with and performed in all
material respects;
(b) The representations and warranties made
by Seller and Bank herein shall be correct in all material respects, as of the
Closing Date, with the same force and effect as though such representations and
warranties had been made as of the Closing Date;
(c) The Boards of Directors and shareholders
of Seller shall have voted to authorize this Agreement and the transactions
herein contemplated and the Secretary of Seller shall have delivered to
Purchaser a certified copy of the resolutions of its Boards of Directors and
shareholders to such effect;
(d) The property, business, operations or
prospects of the Seller shall not have been materially adversely affected in any
manner, the determination of such material adverse change to be in the
Purchaser's sole reasonable discretion exercised in good faith in a commercially
reasonable manner in accordance with Hanover's current business practices;
(e) Seller shall have delivered to Purchaser
a certificate executed by Seller's Chief Financial Officer, dated as of the
Closing Date, to the effect that the conditions set forth in Sections 6(a), 6(b)
and 6(c) have been satisfied (but only with respect to Seller's representations,
warranties and covenants);
(f) Bank shall have delivered to Purchaser a
certificate executed by a Managing Director of Bank, dated as of the Closing
Date, to the effect that the conditions set forth in Sections 6(a) and 6(b) have
been satisfied (but only with respect to Bank's representations, warranties and
covenants);
(g) Purchaser shall have received an
opinion of Latham & Watkins, counsel to Seller (or such other counsel as shall
be reasonably satisfactory to Purchaser), dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser;
(h) All corporate and other proceedings
required to be taken on the part of Seller and Bank to authorize or carry out
this Agreement shall have been taken;
(i) Seller and Bank shall have obtained all
consents or approvals of all third parties set forth in Schedule 5.10 hereto in
order for Seller and Bank to consummate the transactions contemplated by this
Agreement;
(j) No action by any third party (other than by
the Individuals) shall have been made which would materially interfere with the
Purchaser's conduct of the Business;
(k) Except for the Permitted Encumbrances, at
the Closing, Purchaser shall receive good, clear, record and marketable title to
the Purchased Assets, free and clear of all liens, liabilities, security
interests and encumbrances of any nature whatsoever;
(l) Seller will use its reasonable efforts to
provide Purchaser with a list and amount (which list shall be prepared to the
best of the Seller's knowledge), as of the close of business on January 13,
1995, of
(1) the Purchased Inventory (by
classification);
(2) a summary of the Accounts
Receivable, including an aging of trade receivables;
(3) open purchase orders;
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<PAGE> 31
(4) the Purchased Contracts;
(5) the Fixed Assets;
(6) accounts payable; and
(7) accrued expenses.
(m) Seller shall have delivered to Purchaser a
Phase I environmenal study which shall not reflect a material adverse
environmental condition as determined by Purchaser in its sole discretion
exercised in good faith in a commercially reasonable manner;
(n) Purchaser shall have received at or prior to
the Closing each of the following documents:
(i) a bill of sale substantially in the
form attached hereto as Exhibit F;
(ii) assignments of all Intellectual
Property, except as set forth on Schedule 6(n)(ii) attached hereto, in such
forms as are satisfactory to Purchaser, which shall include original
certificates of registration (whether United States or foreign);
(iii) such other instruments of
conveyance, assignment, sublease, sublicense and transfer, in form and
substance satisfactory to Purchaser, as shall be appropriate to convey,
transfer and assign to, and to vest in Purchaser, good, clear, record and
marketable title to the Purchased Assets;
(iv) copies of such contracts, files and
other data and documents pertaining to the Purchased Assets or the Business, in
addition to the Purchased Records, as the Purchaser may reasonably request;
(v) a certificate of the Secretary of
State of the States of Ohio and Minnesota as to the legal existence and good
standing (including tax) of Leichtung and DRI in Ohio and Minnesota,
respectively;
(vi) a certificate of good standing of
Leichtung as a foreign corporation in the State of Michigan;
(vii) a certificate of the Secretary of
Seller attesting to the incumbency of the Seller's officers, the authenticity
of the resolutions authorizing the transactions contemplated by the Agreement,
and the authenticity and continuing validity of the charter documents delivered
pursuant to Section 3.1;
(viii) a certificate of an authorized
officer of the Bank attesting to the incumbency and authority of the Bank's
signatory(ies) hereto;
(ix) any estoppel certificates obtained
by Seller pursuant to Section 5.10 hereof;
(x) a list of all employees of Seller
and certain information relating thereto;
(xi) a cross-receipt executed by
Purchaser and Seller;
(xii) UCC-3 termination statements
executed by Bank terminating all currently effective financing statements held
by Bank on the assets of Seller; and
(xiii) such other documents, instruments
or certificates as Purchaser may reasonably request; and
(o) Seller will use its reasonable efforts to
cooperate with Purchaser in its undertaking of a physical inspection of the
inventory during the 72 hours prior to the Closing;
(p) On or before December 15, 1994, Seller shall
have delivered to Purchaser a true and materially complete and correct list of
all Intellectual Property owned or used by Seller;
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<PAGE> 32
(q) Seller shall deliver to Purchaser executed
instruction letters to FDC, Abacus, R.R. Donnelley & Company and Safe-Site
(collectively, the "Managers") instructing the Managers that Purchaser is the
new owner of all Customer Lists, Records, Intellectual Property and other
assets as may be kept at the Managers' locations; and
(r) All proceedings taken by Seller and all
instruments executed and delivered by Seller on or prior to the Closing Date in
connection with the transactions herein contemplated shall be approved as to
both form and substance by counsel for Purchaser, which approval shall not be
unreasonably withheld.
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<PAGE> 33
ARTICLE VII
CONDITIONS TO OBLIGATION OF SELLER
7. Conditions to Obligations of Seller.
The obligations of Seller under this Agreement are, at the
option of Seller, subject to the conditions that, at or before the Closing
Date:
(a) All the terms, covenants and conditions of
this Agreement to be complied with and performed by Purchaser and Hanover on or
before the Closing Date shall have been duly complied with and performed in all
material respects;
(b) The representations and warranties made by
Purchaser and Hanover herein shall be correct in all material respects, as of
the Closing Date, with the same force and effect as though such representations
and warranties had been made as of the Closing Date;
(c) The Boards of Directors of Purchaser and
Hanover shall have voted to authorize this Agreement and the transactions
herein contemplated and the Secretary of Purchaser shall have delivered a
certified copy of the resolutions of the Board of Directors to such effect;
(d) Purchaser and Hanover shall have delivered
to Seller a certificate executed by Purchaser's and Hanover's Executive Vice
President, respectively, dated as of the Closing Date, to the effect that the
conditions set forth in Sections 7(a), 7(b) and 7(c) have been satisfied;
(e) Seller shall have received an opinion of the
Executive Vice President and General Counsel to Purchaser and Hanover, in form
and substance reasonably satisfactory to Seller;
(f) All corporate and other proceedings required
to be taken on the part of Purchaser and Hanover to authorize or carry out this
Agreement shall have been taken;
(g) Purchaser and Hanover shall have obtained
all consents or approvals of the third parties set forth in Schedule 7(g)
hereto in order for Purchaser to consummate the transactions contemplated by
this Agreement;
(h) Seller shall have received each of the
following:
(1) a certificate of each of the
Secretary of Purchaser and Hanover attesting to the incumbency of Purchaser's
and Hanover's officers and the authenticity of the resolutions authorizing the
transactions contemplated by this Agreement;
(2) the Instrument of Assumption of
Liabilities (as set forth on Exhibit A) executed by Purchaser and accepted by
Seller;
(3) payment of the cash portion of the
Purchase Price;
(4) cross-receipt executed by Purchaser
and Seller;
(5) payment of the outstanding balance
of the Revolving Loan, if any; and
(6) such other documents, instruments
or certificates as Seller may reasonably request.
(i) All proceedings taken by Purchaser and
Hanover and all instruments executed and delivered by Purchaser and Hanover on
or prior to the Closing Date in connection with the transactions herein
contemplated shall be approved as to form and substance by counsel for Seller,
which approval shall not be unreasonably withheld; and
(j) Bank shall have received from Clement, on or
prior to the Closing (i) his consent, acknowledgement and agreement to this
Agreement, (ii) his release and discharge of Bank and Seller from any claims
Clement may have, ever had or now has against Bank and Seller, directly or
indirectly arising out of or in any way relating to his employment by Seller,
his ownership
27
<PAGE> 34
of stock of Seller, this Agreement and the transactions contemplated hereby,
and (iii) his stock certificate(s) evidencing his ownership of stock of
Seller. Hanover agrees to cause Clement to deliver the documents referred to
herein.
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<PAGE> 35
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF EACH PARTY
8. Conditions to Obligations of Each Party.
The respective obligations of Seller, Bank, Purchaser and
Hanover hereunder are subject to the fulfillment, on and as of the Closing
Date, of each of the following conditions:
8.1 Illegality or Legal Constraint. No statute, rule,
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated, entered or enforced (and not repealed, superseded or
otherwise made inapplicable) by any court or governmental authority which
prohibits the consummation of the transactions contemplated hereby (each party
agreeing to use its reasonable best efforts to have any such order, decree or
injunction lifted). No action or proceeding by or before any court or other
governmental body shall have been instituted or threatened in writing by any
governmental body whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might
materially interfere with Purchaser's ability to own or use the Purchased
Assets or conduct the Business after the Closing.
8.2 Governmental Authorizations. There shall have been
obtained any and all governmental authorizations, permits, and approvals of any
governmental body or agency, that may reasonably be deemed necessary so that
the consummation of the transactions contemplated hereby will be in compliance
with applicable laws.
8.3 Cooperation. The parties hereto agree to cooperate
with each other and use their reasonable best efforts to satisfy all of the
conditions to Closing as promptly as practicable and, in any event, by no later
than January 17, 1995.
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<PAGE> 36
ARTICLE IX
INDEMNIFICATION
9. Indemnification.
9.1 Survival of Representations and Warranties.
Purchaser and Hanover and Seller and Bank agree that their respective
representations and warranties contained in this Agreement shall survive for a
period of sixteen months from the Closing Date, except that the representations
and warranties contained in Sections 3.10, 3.18, 3.19 and 3A.4 hereof shall
survive for a period of sixteen months from the Closing Date or the applicable
statute of limitations, whichever shall be longer, and the representations and
warranties contained in Section 3.22 shall survive for a period of six (6)
years from the Closing Date or the applicable statute of limitations, whichever
shall be shorter (the applicable period of survival of any representation or
warranty being referred to herein as the "Limitation Period"). No claim shall
be made by any party for breach of any representation or warranty unless (i)
pursuant to the indemnification provisions set forth in this Article IX and
(ii) notice thereof is given prior to the end of the applicable Limitation
Period. Bank and Seller shall be liable for the accuracy of any
representation or warranty made by either of them and contained in this
Agreement and/or any exhibit, schedule or certificate provided for herein.
Hanover and Purchaser shall be liable for the accuracy of any representation or
warranty made by either of them and contained in this Agreement and/or any
exhibit, schedule or certificate provided for herein.
9.2 Indemnification by Seller and Bank. Seller and Bank,
jointly and severally, agree to save, defend and indemnify Purchaser and
Hanover and their respective officers, directors, employees, affiliates,
agents, representatives, principals and associates (individually, a "Purchaser
Indemnitee" and collectively, the "Purchaser Indemnitees") against, and hold
each of them harmless from, any and all Damages (as defined in Section 13.13),
arising from or on account of (i) subject to Section 9.1, any breach of any
representation, warranty or covenant by Seller or Bank contained in this
Agreement, or any material misrepresentation by Seller or Bank in any exhibit,
schedule or certificate provided for herein, (ii) any employment action
asserted by any current or former employee of Seller (except with respect to
any employment action by Clement) against Purchaser or Hanover including,
without limitation, any claims for lost wages or benefits (including severance
pay), wrongful termination, breach of a covenant of good faith and fair
dealing, negligent or intentional infliction of emotional distress or
employment discrimination, resulting from or arising out of the employment or
the termination of employment of such employee by Seller, (iii) any litigation
against the Seller or the Business arising prior to the Closing and not in the
ordinary course of business unless set forth in Schedule 3.16 hereto, (iv) any
sales tax (other than sales taxes payable, if any, with respect to the sale of
the Purchased Assets to Purchaser, which shall be Purchaser's responsibility)
or other taxes, penalties or interest, fixed or contingent or, in each case,
now due or hereafter arising which are attributable to Seller's operation of
the Business prior to Closing, (v) any of Bank's actions as a director,
shareholder or creditor of Seller, including, without limitation, as signatory
to any agreements to which Bank is a party in any such capacity or any rights
or causes of action which may arise therefrom, (vi) the intercompany
receivable and deferred tax item retained by Seller as contemplated by Section
1.1(c), or (vii) any liability arising out of any provision of the consolidated
return regulations which is imposed upon Purchaser or Hanover for periods prior
to the Closing based upon taxes owed by any member of Bank's consolidated
return group (including, with regard to all of the foregoing, without
limitation, reasonable counsel fees and expenses in connection with any action,
claim or proceeding relating
30
<PAGE> 37
to such liabilities) except as such claims shall arise from the fraudulent acts
or fraudulent omissions of Purchaser. Any claim for indemnification pursuant
to this Section 9.2 shall be made in accordance with the procedures set forth
in Sections 9.4 hereof. Except as set forth in this Article IX, the
indemnification obligations of Bank and Seller set forth herein shall not be
effective until such time as Purchaser or Hanover in the aggregate has
incurred, or received a claim in the excess of, Damages in excess of $100,000
(the "Threshold"), at which time, Seller and Bank, jointly and severally,
shall be responsible for payment to Purchaser and Hanover of all such amounts
in excess of $50,000. In no event shall Seller's and Bank's indemnification
obligation exceed, in the aggregate, the amount of the cash portion of the
Purchase Price.
9.3 Indemnification by Purchaser and Hanover. Purchaser
and Hanover, jointly and severally, agree to save, defend and indemnify Seller
and Bank, and their respective officers, directors, employees, affiliates,
agents, representatives, principals and associates (individually, a "Seller
Indemnitee" and collectively, the "Seller Indemnitees") against, and hold each
of them harmless from, any and all Damages arising from or on account of (i)
the Assumed Liabilities , (ii) any liability stemming from the failure to make
any potentially required filing for this transaction under the Hart Scott
Rodino Act, as amended, (iii) sales taxes, if any, incurred in connection with
this transaction, or (iv) subject to Section 9.1, any breach of any
representation, warranty or covenant by Purchaser or Hanover contained in this
Agreement (including, with regard to all of the foregoing, without limitation,
reasonable counsel fees and expenses in connection with any action, claim or
proceeding relating to such liabilities) except as such claims shall arise from
the fraudulent acts or fraudulent omissions of Seller or Bank. Any claim for
indemnification pursuant to this Section 9.3 shall be made in accordance with
the procedures set forth in Section 9.4 hereof.
9.4 Procedure for Indemnification with Respect to
Third-Party Claims.
(a) If any Purchaser Indemnitee or Seller
Indemnitee seeks indemnification for any claim (each, an "Indemnifiable Claim")
under this Article IX (the party seeking such indemnification, whether a
Purchaser Indemnitee pursuant to Section 9.2 hereof or a Seller Indemnitee
pursuant to Section 9.3 hereof, shall be referred to herein as the "Indemnified
Party" and the party against whom such indemnification is sought shall be
referred to herein as the "Indemnifying Party") resulting from the assertion of
liability by third parties, the Indemnified Party shall give notice to the
Indemnifying Party within thirty (30) days of the Indemnified Party becoming
aware of any such Indemnifiable Claim or of facts upon which any such
Indemnifiable Claim will be based. Such notice shall set forth such material
information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party, and the Indemnified Party notifies the Indemnifying Party
thereof, the Indemnifying Party will be entitled, if it so elects by written
notice delivered to the Indemnified Party within twenty (20) days after
receiving the Indemnified Party's notice, to assume the defense thereof (with
counsel selected by the Indemnifying Party, which counsel may also be counsel
to the Indemnifying Party unless a material conflict of interest would thereby
arise). Notwithstanding the foregoing, the rights of the Indemnified Party to
be indemnified hereunder in respect of Indemnifiable Claims resulting from the
assertion of liability by third parties shall not be adversely affected by its
failure to give notice pursuant to the foregoing unless and, if so, only to the
extent that, the Indemnifying Party is prejudiced thereby. With respect to any
assertion of liability by a third party that results in an Indemnifiable Claim
the parties hereto shall make available to each other all relevant information
in their possession material to any such assertion.
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<PAGE> 38
(b) In the event that the Indemnifying Party,
within twenty (20) days after receipt of the aforesaid notice of an
Indemnifiable Claim, fails to assume the defense of the Indemnified Party
against such Indemnifiable Claim, the Indemnified Party shall have the right to
undertake the defense, compromise or settlement of such action on behalf of and
for the account and risk of the Indemnifying Party.
(c) Notwithstanding anything in this Section 9.4
to the contrary (i) if there is a reasonable probability that an Indemnifiable
Claim may materially and adversely affect the Indemnified Party, other than as
a result of money damages or other money payments, the Indemnified Party shall
have the right to participate at its own expense in such defense, compromise or
settlement and the Indemnifying Party shall not, without the Indemnified
Party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any Indemnifiable Claim or consent to entry of any
judgement in respect thereof unless such settlement, compromise or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
9.5 Bulk Sales Waiver and Indemnification. In addition
to any other rights that Purchaser and Hanover may have pursuant to this
Agreement or otherwise, Bank hereby agrees to indemnify, defend and hold
Purchaser and Hanover harmless for all Damages as a result of Bank's, Seller's
or DRI's failure to comply with any bulk sales transfer laws other than any
Damages arising from Purchaser's failure to pay the Assumed Liabilities. Bank
acknowledges that Purchaser and Hanover have waived Bank's and Seller's
compliance with bulk sales transfer laws in reliance upon Bank's obligation to
fully indemnify Purchaser and Hanover, within thirty (30) days of any claim, of
all liabilities relating to such non-compliance. Bank's indemnification
obligation pursuant to this Section 9.5 shall not be subject to reaching the
Threshold in order for Purchaser and Hanover to receive such indemnification
reimbursement.
9.6 Break-Up Fee Indemnification. Bank's and Seller's
indemnification obligation for any breach of Section 5.12 shall survive any
termination of this Agreement and shall not be subject to reaching the
Threshold in order for Purchaser and Hanover to receive such indemnification
reimbursement.
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<PAGE> 39
ARTICLE X
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
10. Confidentiality and Public Announcements
10.1 Confidentiality. All information not previously
disclosed to the public or generally known to persons engaged in the respective
businesses of Seller, Bank, Purchaser or Hanover which shall have been
furnished by Seller, Bank, Purchaser or Hanover to the other party in
connection with the transactions contemplated hereby shall not be disclosed to
any person other than their respective employees, directors, attorneys,
accountants or financial advisors or other than as contemplated herein. In the
event that the transactions contemplated by this Agreement shall not be
consummated, all such information which shall be in writing shall be returned
to the party furnishing the same, including, to the extent reasonably
practicable, all copies or reproductions thereof which may have been prepared,
and no party shall at any time thereafter disclose to third parties, or use,
directly or indirectly, for its own benefit, any such information, written or
oral, about the business of the other party hereto. Purchaser and Hanover
understand and agree that the provisions of this Section 10.1 shall not include
the disclosures to the Individuals as described in Section 5.8 hereto.
10.2 Public Announcements. The parties agree that, prior
to and upon the Closing Date, except as otherwise required by law, any and all
public announcements or other public communications concerning this Agreement
and the purchase of the Purchased Assets by Purchaser shall be subject to the
approval of all parties, which approval shall not be unreasonably withheld.
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<PAGE> 40
ARTICLE XI
POST-CLOSING AGREEMENTS
11. Post-Closing Agreements
11.1 Use of Name. Seller and Bank agree not to use the
name "Leichtung", "Leichtung Workshop", "Improvements", "Pastimes" or any
other Intellectual Property or any derivations thereof after the Closing Date
in connection with any business related to, competitive with, or an outgrowth
of, the Business. Seller also agrees to change its corporate name immediately
after the Closing to a name which does not include any names of the
Intellectual Property.
11.2 Injunctive Relief. Seller and Purchaser acknowledge
and agree that their respective remedies at law for any breach of their
respective obligations under this Article XI would be inadequate, and agree and
consent that temporary and permanent injunctive relief may be granted in a
proceeding which may be brought to enforce any provision of this Article XI
without the necessity of proof of actual damage.
11.3 Transition.
(a) Purchaser shall not assume any obligation of
Seller or Bank with respect to liabilities relating to the Employee
Obligations.
(b) Purchaser and Seller agree to use their best
efforts to support the transition of the Business from Seller to Purchaser,
including without limitation, cooperation between Seller's personnel and
Purchaser's personnel to help assure an orderly transition of the Business,
customer accounts and the use of existing data processing systems.
(c) Purchaser shall offer continued employment to
all of Seller's employees under terms and conditions established by Purchaser
which shall not be materially different from those previously provided by
Seller to such employees.
11.4 Other Provision. Seller shall transfer to Purchaser,
as of the Closing Date and to the extent allowable by regulation, all of
Seller's right, title and interest in and to the telephone numbers used by the
Business.
11.5 Tax Filings. Seller shall file such forms and make
such payments, and Bank shall cause Seller to do the same, as shall be required
by law, with any federal, state, local or regulatory agency with respect to
payroll taxes and sales taxes to bring Seller's filings and payments current to
the Closing Date.
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<PAGE> 41
ARTICLE XII
TERMINATION
12. Termination of Agreement.
12.1 Termination by Lapse of Time. Either party may
terminate this Agreement any time after the earlier of (i) 5:00 p.m., New York
Time, on January 30, 1995 if the transactions contemplated hereby have not been
consummated and the Seller or the Bank has not accepted the exercise of the
right of first refusal by any Individual under the Restructuring Agreement, or
(ii) in the event that Seller or Bank has accepted the exercise of the right of
first refusal by any Individual under the Restructuring Agreement, then the
earlier of (A) March 1, 1995, or (B) forty-two (42) days after the receipt of
the exercise of the right of first refusal by any Individual under the
Restructuring Agreement. This Agreement shall automatically terminate upon the
closing of any transactions stemming from (ii) above.
12.2 Termination by Agreement of the Parties. This
Agreement may be terminated by the mutual written agreement of the parties
hereto. In the event of such termination by agreement, Purchaser shall have no
further obligation or liability to Seller under this Agreement, and Seller
shall have no further obligations or liability to Purchaser under this
Agreement, except as to Article IX to the extent necessary to the continuing
enforcement of the other surviving provisions hereof. If this Agreement is
terminated as provided in this Article XII:
(a) each party shall redeliver all documents,
work papers and other material of the other party relating to the transaction
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same; and
(b) Seller and Purchaser shall not disclose, and
shall use their best efforts to prevent their respective directors, officers,
employees, affiliates, attorneys, agents or representatives from disclosing,
any information furnished by either party in connection with the business,
assets and operation of the other party to any third party.
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<PAGE> 42
ARTICLE XIII
MISCELLANEOUS
13. Miscellaneous.
13.1 Definitions. The following terms are defined in
the Section of this Agreement referenced below:
<TABLE>
<CAPTION>
Defined Term Reference
------------ ---------
<S> <C>
Accounts Receivable Section 1.1(b)
Agreement Introduction
Assists Section 3.21
Assumed Liabilities Section 1.2(a)
Balance Sheet Date Section 1.2(a)(i)
Bank Introduction
Blocked Account Section 3.20
Break-Up Fee Section 5.12
Business Recitals
Business Plan Section 5.1
Cash Section 1.1(b)
Clement Section 1.2(a)(viii)
Clement's Release Section 2.2
Closing Balance Sheet Section 3.5(a)
Closing Section 2.2
Closing Date Section 2.2
Code Section 3.18(b)
Credit Agreement Section 1.2(b)(ii)
Current Financial Statements Section 3.5(a)
Customer Lists Section 1.1(e)
Damages Section 13.13
DRI Introduction
Employee Obligations Section 5.9
Employee Plans Section 3.18(a)
Encumbrances Section 3.4
Equipment Leases Section 3.9(b)
ERISA Section 3.18(a)
Financial Statements Section 3.5(a)
Fixed Assets Section 1.1(h)
GAAP Section 3.5(a)
Governmental Licenses and Permits Section 1.1(j)
Hanover Introduction
Imported Goods Section 3.21
Indemnifiable Claims Section 9.4(a)
Indemnified Party Section 9.4(a)
Indemnifying Party Section 9.4(a)
Individuals Section 5.8
</TABLE>
36
<PAGE> 43
<TABLE>
<S> <C>
Insurance Policies Section 3.7
Instrument of Assumption Section 1.2(a)
Intellectual Property Section 1.1(k)
Leases Section 3.9
Leichtung Introduction
Limitation Period Section 9.1
Managers Section 6(q)
Material Contracts Section 1.1(d)
Multiemployer Plan Section 3.18(b)
Other Assets Section 3.4
Owned Assets Section 3.4
Permitted Encumbrances Section 3.4
Purchase Price Section 2.1
Purchased Assets Section 1.1
Purchased Contracts Section 1.1(d)
Purchased Inventory Section 1.1(a)
Purchased Prepaid Items Section 1.1(c)
Purchased Records Section 1.1(e)
Purchaser Introduction
Purchaser Indemnitees Section 9.2
Restructuring Agreement Section 1.2(b)(ii)
Retention Bonuses Section 1.2(b)(ix)
Revolving Loan Section 2.1
Seller Introduction
Seller Indemnitees Section 9.3
Subsidiaries Section 3.2
Threshold Section 9.2
Year End Balance Sheet Section 1.2(a)(i)
Year End Financial Statements Section 3.5(a)
</TABLE>
13.2 Expenses. Purchaser and Seller, respectively, shall
each pay all costs and expenses of their performance of and compliance with all
terms and conditions contained in this Agreement on their respective parts to
be complied with or performed.
13.3 Brokers. Seller and Purchaser each represents and
warrants to the other that it has not dealt, directly or indirectly, with any
broker of finder in connection with this Agreement or any of the transactions
contemplated by this Agreement.
13.4 Amendment and Waiver. This Agreement may not be
altered, amended, modified or terminated, except in writing and signed by the
parties hereto. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect its right at a
later time to enforce the same.
13.5 Successors and Assigns. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of Purchaser and Seller.
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<PAGE> 44
13.6 Notices. All notices, requests, demands, or other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, by facsimile and confirmed in writing, or
by United States first class mail, postage prepaid, registered or certified,
return receipt requested, addressed as follows:
a) If to Seller to:
Leichtung, Inc.
c/o Bankers Trust Company
280 Park Avenue
New York, New York 10017
Attention: Carl O. Roark
With a copy to:
Latham & Watkins
885 Third Avenue
New York, New York 10022
Attention: Robert J. Rosenberg, Esq.
Or at such other address as Seller may have furnished to Purchaser in writing.
b) If to Purchaser, to:
LWI Holdings, Inc.
c/o Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Telecopier: (201) 392-5005
With a copy to:
Hanover Direct, Inc.
1500 Harbor Boulevard
New York, New York 07087
Attention: Michael P. Sherman, Esq.
or at such other address as Purchaser may have furnished to Seller in writing.
13.7 Entire Understanding. This Agreement sets forth the
entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
13.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
38
<PAGE> 45
13.9 Headings. The headings preceding the text of
Sections of this Agreement are for convenience only and shall not be deemed
part of this Agreement.
13.10 Applicable Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York
for agreements executed and to be performed entirely within the State of New
York without regard to the conflicts of laws principles of such jurisdiction.
The parties hereto agree to submit to the exclusive jurisdiction of the federal
courts located in the State of New York and hereby waive any objection based on
venue or forum non-conveniences with respect to any action instituted thereby.
13.11 Invalidity. Should any of the obligations under this
Agreement be found illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect the other provisions of this Agreement, all
of which shall remain enforceable in accordance with their terms. Despite the
preceding sentence, should any of the obligations under this Agreement be found
illegal or unenforceable because it is too broad with respect to duration,
geographical scope or subject matter, such obligation shall be deemed and
construed to be reduced to the maximum duration, geographical scope and subject
matter allowed under applicable law.
13.12 No Waiver. The failure of any party to enforce any
of the provisions hereof shall not be construed to be a waiver of the right of
such party thereafter to enforce such provisions.
13.13 Construction of Agreement; Damages; Knowledge. A
reference to an Article, Section, Schedule or Exhibit shall mean an Article of,
a Section in, or Schedule or Exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference
purposes only and shall not in any manner limit the construction of this
Agreement which shall be considered as a whole. The words "include",
"includes," and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." For the purposes of this
Agreement, "Damages", means any loss, liability, damage, cost or expense,
including without limitation, reasonable costs of defense and prosecution of
litigation and counsel fees, net of any insurance proceeds which are recovered
by, or available to the respective party without restriction and arise out of
such loss, liability, damage, cost or expense. For purposes of this Agreement,
and except as provided in the following sentence, the terms "known" or
"knowledge," when used in reference to a corporation means the knowledge of the
executive officers of such corporation after such officers shall have made
diligent inquiry under the circumstances to which reference is made, and when
used in reference to an individual means the actual knowledge of such
individual after the individual shall have made inquiry that is customary and
appropriate under the circumstances.
13.14 Absence of Third Party Beneficiary Rights. Except as
specifically set forth in Article XIII hereof, no provision of this Agreement
is intended, nor will be interpreted, to provide any third party beneficiary
rights or any other rights of any kind in any client, customer, affiliate,
stockholder, employee, partner or any party hereto or any other person or
entity and all provisions hereof will be personal solely between the parties
to this Agreement.
13.15 Mutual Drafting. This Agreement is the joint product
of the parties hereto, and each provision thereof has been subject to the
mutual consultation, negotiation and agreement of such parties, and shall not
be construed for or against any party hereto.
39
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized, all as
of the date and year first above written.
HANOVER DIRECT, INC.
a Delaware corporation
By: ______________________________
Title: ______________________________
LWI HOLDINGS, INC.
a Delaware corporation
By: ______________________________
Title: ______________________________
BANKERS TRUST COMPANY
a New York banking corporation
By: ______________________________
Title: ______________________________
LEICHTUNG, INC.
an Ohio corporation
By: ______________________________
Title: ______________________________
DRI INDUSTRIES, INC.
an Ohio corporation
By: ______________________________
Title: ______________________________
40
<PAGE> 1
Exhibit 2.2
-------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
dated as of
February 16, 1995
by and among
AEGIS SAFETY HOLDINGS, INC.
the Company
F.L. HOLDINGS, INC.,
ROLAND A.E. FRANKLIN,
MARTIN E. FRANKLIN,
JONATHAN FRANKLIN
FLOYD HALL,
FREDERICK FIELD,
HOMER G. WILLIAMS
FRANK MARTUCCI,
NORM THOMPSON OUTFITTERS, INC.
and
CAPITAL CONSULTANTS, INC., (as agent)
the Sellers
HANOVER HOLDINGS, INC.
the Purchaser
HANOVER DIRECT, INC.
Hanover
-------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
PURCHASE PRICE AND CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Legends and Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . 3
2.4 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND COMPANY . . . . . . . . . . . . . . . . . . 5
3.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Corporate Authorization; Valid and Binding . . . . . . . . . . . . . . . . . 6
3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 Absence of Certain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 No Undisclosed Material Liabilities . . . . . . . . . . . . . . . . . . . . . 9
3.11 Major Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.15 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . 12
3.16 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.17 Vendors and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.18 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.19 Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.20 Officers, Directors and Key Employee . . . . . . . . . . . . . . . . . . . . 15
3.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.23 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.24 Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.25 Purchase Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.26 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.27 Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.28 Customer Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.29 Recalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.30 Environmental and Safety Matters . . . . . . . . . . . . . . . . . . . . . . 17
3.31 Preferred Shares Investment . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND
HANOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Corporate Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Merger, Liquidation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V
CONDITIONS TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Conditions to Obligations of Purchaser . . . . . . . . . . . . . . . . . . . 23
5.2 Conditions to obligations of the Company and Sellers . . . . . . . . . . . . 24
ARTICLE VI
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Indemnification by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Indemnification by Purchaser and Hanover . . . . . . . . . . . . . . . . . . 26
6.3 Procedure for Indemnification with Respect to Third-Party Claims . . . . . . 27
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . 30
7.5 Termination of Stockholders Agreement
and Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . 31
7.6 Directors Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Binding upon Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 33
7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Amendment and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.14 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.15 Construction of Agreement; Knowledge . . . . . . . . . . . . . . . . . . . . 33
7.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of February
16, 1995, and is entered into by and among AEGIS SAFETY HOLDINGS, INC., a
Delaware corporation ( the "Company"), F.L. Holdings, Inc., Roland A.E.
Franklin, Jonathan Franklin, Martin E. Franklin, Floyd Hall, Frederick Field,
Homer G. Williams, Frank Martucci, Norm Thompson Outfitters, Inc., and Capital
Consultants, Inc. (as agent) (collectively, the "Sellers" and individually, a
"Seller"), and HANOVER HOLDINGS, INC., a Delaware corporation ("Purchaser"), and
HANOVER DIRECT, INC., the sole stockholder of Purchaser and a Delaware
corporation ("Hanover").
RECITALS
A. Sellers desire to sell all of their respective shares
of common stock of the Company (the "Shares"), par value $0.001 per share
("Common Stock"), which, upon sale to Purchaser and together with Purchaser's
shares of common stock of the Company, will represent one hundred percent
(100%) of the total then issued and outstanding shares of Seller.
B. Purchaser is willing to purchase the Shares from
Sellers, pursuant to the terms and conditions set forth in this Agreement, in
consideration for shares of convertible preferred stock of Hanover, as
hereinafter set forth.
C. To the extent permissible by law, and without any
additional cost, expense or allocation by or to Purchaser and Hanover, the
purchase and sale of the Shares pursuant to the terms of this Agreement is
intended to be effected as a tax-free reorganization under the provisions of
the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
1
<PAGE> 5
ARTICLE I
PURCHASE AND SALE OF SHARES
SECTION 1.1 SALE OF SHARES. Subject to the terms of this
Agreement, at the Closing (as defined in Section 2.2 hereof) each Seller shall
sell, transfer and convey to the Purchaser all of the Shares owned by such
Seller, as reflected on Exhibit A, by delivering to Purchaser certificates for
such Shares in proper form for transfer by delivery or with duly executed stock
powers attached thereto, together with sufficient funds for the payment of all
transfer taxes, if any, in consideration of the Purchaser paying the Purchase
Price in accordance with Section 2.1 hereof.
2
<PAGE> 6
ARTICLE II
PURCHASE PRICE AND CLOSING
SECTION 2.1 PURCHASE PRICE. The aggregate purchase price for the
Shares, allocated among the Sellers as set forth on Exhibit B, shall be Six
Million Three Hundred and Forty-Nine Thousand Dollars ($6,349,000) (the
"Purchase Price"), payable by delivery to Sellers of an aggregate of 634,900
shares of Hanover's Series B Convertible Additional Preferred Stock with such
rights, designations and preference as shall be set forth on Exhibit C, (the
"Preferred Shares").
SECTION 2.2 THE CLOSING. The closing of the transactions
contemplated under this Agreement (the "Closing") shall take place at the
offices of Kane, Kessler, 1350 Avenue of the Americas, New York, New York at
9:00 a.m., on February 16, 1995 or at such other place, time or date as may be
mutually agreed upon in writing by the parties hereto (the "Closing Date"). At
the Closing, each Seller shall deliver to the Purchaser a certificate for such
number of Shares being purchased by Purchaser from each Seller, together with
an executed stock power, against payment to each Seller of the portion of the
Purchase Price therefor, by delivery from Purchaser of a stock certificate for
such number of Preferred Shares as are allocated to each Seller on Exhibit B.
SECTION 2.3 LEGENDS AND TRANSFER RESTRICTIONS. (a) The
Preferred Shares to be delivered by Purchaser to each Seller at the Closing
shall be subject to certain restrictions on transfer and each certificate
representing such shares shall contain the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
SUCH SHARES ARE REGISTERED UNDER SUCH ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION SATISFACTORY TO COUNSEL FOR THE
ISSUER THAT REGISTRATION OF SUCH SHARES IS
NOT NECESSARY HAS BEEN DELIVERED, OR SUCH
SHARES HAVE BEEN SOLD PURSUANT TO AND IN
COMPLIANCE WITH RULE 144 OF SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS."
3
<PAGE> 7
(b) The holder of any Preferred Shares by acceptance
thereof agrees, so long as the legend described in
this Section 2.3 shall remain on the certificate
evidencing such shares, prior to any transfer
(including any pledge, sale, assignment,
hypothecation, gift or other transfer or disposition)
of any of the same, all of which must be in
accordance with the terms of this Agreement, to
comply in all respects with this Section 2.3. If in
the opinion of counsel to such holder, which opinion
shall be reasonably satisfactory to counsel for
Purchaser, the proposed transfer may be effected
without registration under the Act and any applicable
state securities or "blue sky" laws or in compliance
with Rule 144, the holder of such Preferred Shares
shall thereupon be entitled to transfer the same.
Each certificate evidencing the Preferred Shares
issued upon any such transfer shall bear the same
legend as set forth in this Section 2.3 unless (i)
such Preferred Shares are (A) registered under the
Act or (B) transferred in accordance with Rule 144
and (ii) such Preferred Shares are transferred in
accordance with applicable state securities or "blue
sky" laws, in which case said legends shall be
removed. Upon the written request of a holder of the
Preferred Shares, Purchaser shall remove the
foregoing legend from the certificates evidencing
such shares and issue to such holder new certificates
therefor free of any transfer legend if, with such
request, Purchaser shall have received an opinion of
counsel selected by the holder, such opinion to be
reasonably satisfactory to counsel of Purchaser, to
the effect that any transfers by said holder of such
shares may be made to the public without compliance
with either Section 5 of the Act or Rule 144
thereunder and applicable state securities or "blue
sky" laws. In no event shall such legend be removed
if such opinion is based upon the "private offering"
exemption of Section 4(2) of the Act. Each of the
restrictions set forth in this Section 2.3 shall
apply to the underlying shares of the Hanover common
stock (until such time as such Common Stock are
registered pursuant to Section 2.4) as well as the
Preferred Shares.
SECTION 2.4 REGISTRATION RIGHTS. Within one hundred and eighty
(180) days from the date of this Agreement, Hanover covenants that it shall
register the underlying shares of Hanover common stock pursuant to the terms of
the Registration Rights Agreement in the form attached hereto as Exhibit D,
provided, however, that such one hundred and eighty (180) day period shall
include any delay as set forth in Section 2(a) the Registration Rights
Agreement. Each Seller shall cooperate with Hanover to provide all such
necessary information as shall be required by Hanover to file the registration
statement. In addition, Hanover shall list, within one hundred and eighty
(180) days of the date of this Agreement, the underlying shares of Hanover's
Common Stock on the American Stock Exchange. Hanover shall maintain the
prospectus relating to the underlying shares of Common Stock effective until
the later of (i) six (6) years from the date of this Agreement, or (ii) two
years from the date upon which the first of the Preferred Shares have been
converted to Common Stock.
4
<PAGE> 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS AND COMPANY
For purposes of this Article III, all references to the "Company"
shall be deemed to include its Subsidiaries (as defined in Section 3.1, below),
except in relation to Sections 3.2 and 3.3 where "Company" shall only mean
Aegis Safety Holdings, Inc. The representations and warranties set forth in
this Article III shall not be deemed to apply to the direct dispute by and
among Hanover and Purchaser and the Company and Sellers (but not with respect
to any dispute, including the issues set forth in (i) or (ii) below, with, as
against or by any third party) all of the above, hereinafter referred to as
with respect to (i) the sales tax dispute and payment dispute (the "Fulfillment
Issues") pursuant to the Fulfillment Agreement by and among Hanover Direct
Fulfillment, Inc. and the Company dated September 7, 1993 ("Fulfillment
Agreement"), and (ii) the default (the "Loan Default") pursuant to the Loan and
Security Agreement dated March 21, 1994 by and among the Company and Hanover
Finance Corporation ("Loan Agreement") (all of the above hereinafter referred
to as the "Direct Dispute Exclusion"), and the Company and the Sellers shall
not have any liability pursuant to Section 6.1 of the Agreement with respect
thereto for breach of any representation or warranty pursuant to this Article
III; provided, however that, notwithstanding anything in this agreement to the
contrary, to the extent the Fulfillment Issues or the Loan Default may, can,
shall or will affect any third party and/or the Company or its affiliates as
against or from such third party, in any manner, including, but not limited
to, taking or refrain from taking any action, causing an action to be taken,
incurring an expense, sum, fine, penalty or any monetary amount, then Direct
Dispute Exclusion shall not apply to such matter, such matter shall be
disclosed in accordance with this Article III, and the Sellers shall have
liability pursuant to Section 6.1 of this Agreement with respect thereto.
Purchaser and Hanover hereby agree that they will not notify any third party of
a right it may have against Sellers if, in its sole and absolute discretion,
Purchaser and Hanover believe in good faith that (i) they have no moral,
corporate, legal or other obligation to report such right of action, or (ii)
the lack of notification will not affect Purchaser, Hanover or any of their
respective affiliates in an adverse manner. Each Seller and the Company,
jointly and severally, hereby represent and warrant to Purchaser as follows:
SECTION 3.1 CORPORATE EXISTENCE AND POWER. The Company and each
Subsidiary (all as listed on Schedule 3.1) are corporations duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and each have all corporate powers and authority required to carry on its
respective business as now conducted. The Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
or such Subsidiary. For purposes of this Agreement, the term "Material Adverse
Effect" means, with respect to any person or entity, a material adverse effect
on the condition (financial or otherwise), business, properties, assets,
liabilities (including contingent liabilities), results of operations or
current prospects of such entity and its Subsidiaries (as defined below), taken
as a whole. Attached hereto as Schedule 3.1 are true and complete copies of
the Company's
5
<PAGE> 9
Amended Certificate of Incorporation and Amended Bylaws (the "Amended
Certificate and Bylaws") and each Subsidiary's Certificate of Incorporation and
By-laws. For purposes of this Agreement, the term "Subsidiary" means, with
respect to any entity, any corporation or other organization of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
directly or indirectly owned by such entity or of which such entity is a partner
or is, directly or indirectly, the beneficial owner of 50% or more of any class
of equity securities or equivalent profit participation interest.
SECTION 3.2 CORPORATE AUTHORIZATION; VALID AND BINDING. The
execution, delivery and performance by the Company of this Agreement, and the
consummation of the transactions contemplated hereby has been duly authorized
and no additional corporate action is required for the approval of this
Agreement. This Agreement constitutes a valid and binding agreement of the
Company and each Seller, enforceable against each of them in accordance with
its terms.
SECTION 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery
and performance by the Company and each Seller of this Agreement, and the
consummation of the transactions contemplated hereby by the Company and each
Seller require no action by or in respect of, or filing with, any governmental
body, agency, official or authority, which the failure to obtain individually
or in the aggregate, would have a Material Adverse Effect on the Company.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and
performance by the Company and each Seller of this Agreement, and the
consummation by the Company and each Seller of the transactions contemplated
hereby do not and will not (a) contravene or conflict with the Amended
Certificate and Bylaws; (b) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company or any Seller, which
contravention, conflict or violation would have a Material Adverse Effect on
the Company; (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration or loss of any material benefit under
any material agreement, contract or other instrument binding upon the Company
or any Seller or under any material license, franchise, permit or other similar
authorization held by the Company; or (d) result in the creation or imposition
of any Lien (as defined below) on any material asset of the Company. For
purposes of this Agreement, the term "Lien" means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset.
SECTION 3.5 FINANCIAL STATEMENTS. The Company has delivered to
Purchaser an unaudited balance sheet of the Company as of December 31, 1994,
and the related statements of income, shareholders' equity and cash flows and
related notes for the year then ended. Such financial statements of the
Company, subject to year end adjustments, present fairly, in all material
respects, the financial position of the Company as of the dates thereof and its
results of operations and cash flows for the periods then ended. For purposes
of this Agreement, "Company Balance Sheet" means the balance sheet of the
Company as of December 31, 1994 and "Company Balance Sheet Date" means December
31, 1994. For the purposes of this Section 3.5
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only, "material" shall be defined to mean any amount, in the aggregate, in
excess of $20,000. As of December 31, 1994, the Company had unresolved
disputes with the Purchaser and several of its affiliates with respect to the
Fulfillment Issues and the Loan Default. The Company believes that the Company
Balance Sheet presents fairly, in accordance with generally accepted
accounting principles, its liabilities to Purchaser and several of Purchaser's
affiliates. However, if it is determined that adjustments are required as a
result of the Fulfillment Issues and/or the Loan Default, such adjustments
could have a Material Adverse Effect on the Company.
SECTION 3.6 COMPLIANCE WITH LAW. The Company is in compliance in
all material respects and has conducted its business so as to comply in all
material respects with all laws, rules and regulations, judgments, decrees or
orders of any court, administrative agency, commission, regulatory authority or
other governmental authority or instrumentality, domestic or foreign,
applicable to its operations and with respect to which compliance is a
condition of engaging in the business thereof and where failure to comply
would, either individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on Schedule 3.6, there are no judgments or orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency or by arbitration), including any such actions relating
to affirmative action claims or claims of discrimination, against the Company
or against any of its properties or businesses. There are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration) against any Seller which
would affect such Seller's ability to sell and transfer the Shares. The
representation set forth in the foregoing sentence is qualified so that each
Seller shall only be deemed to make such statement with respect to himself or
itself, and not with respect to any other Seller, provided, however, that this
qualification shall not affect any Seller's joint and several liability and
obligation to Purchaser and Hanover pursuant to Article VI of this Agreement.
SECTION 3.7 NO DEFAULTS. The Company is not, or has not received
notice that it would be with the passage of time, in violation of any provision
of its Amended Certificate and Bylaws. Except as set forth on Schedule 3.7,
neither the Company nor any Seller is in default or violation of any term,
condition or provision of (A) any judgment, decree, order, injunction or
stipulation applicable to it or (B) any material agreement, note, mortgage,
indenture, contract, lease or instrument, permit, concession, franchise or
license to which it is a party or by which it or its properties or assets may
be bound. The representation set forth in the foregoing sentence is qualified
so that each Seller shall only be deemed to make such statement with respect to
himself or itself, any with respect to the Company to the best of his or its
knowledge, and not with respect to any other Seller, provided, however, that
this qualification shall not affect any Seller's joint and several liability
and obligation to Purchaser and Hanover pursuant to Article VI of this
Agreement.
SECTION 3.8 LITIGATION. Except as set forth in Schedule 3.8,
there is no action, suit, proceeding, claim or investigation pending or, to the
best knowledge of the Company or Sellers, threatened against the Company or any
Seller, which could, individually or in the aggregate, have a Material Adverse
Effect on the Company, or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby,
or which
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could lead to a claim, damages payment, settlement, loss, liability, cost or
expense to the Company in excess of $15,000 in the aggregate. The
representation set forth in the foregoing sentence is qualified so that each
Seller shall only be deemed to make such statement with respect to himself or
itself, any with respect to the Company to the best of his or its knowledge,
and not with respect to any other Seller, provided, however, that this
qualification shall not affect any Seller's joint and several liability and
obligation to Purchaser and Hanover pursuant to Article VI of this Agreement.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Except as expressly
allowed or contemplated by this Agreement, since the Company Balance Sheet
Date, the Company has conducted its business in the ordinary course and there
has not occurred:
(a) Any material adverse change with respect to the
Company;
(b) Any amendments or changes in the Amended Certificate
and Bylaws of the Company;
(c) Any damage, destruction or loss, whether covered by
insurance or not, Materially and Adversely Affecting
any of the properties or business of the Company,
whether material individually or in the aggregate;
(d) Except as otherwise disclosed in writing to the
Purchaser in Schedule 3.9, any (i) incurrence,
assumption or guarantee by the Company of any debt
for borrowed money; (ii) issuance or sale of any
securities convertible into or exchangeable for debt
securities of the Company; or (iii) issuance or sale
of options or other rights to acquire from the
Company or any Seller, directly or indirectly, debt
securities of the Company or any securities
convertible into or exchangeable for any such debt
securities;
(e) Except as otherwise disclosed in writing to the
Purchaser in Schedule 3.9, any creation or assumption
by the Company of any Lien on any asset or any making
of any loan, advance or capital contribution to or
investment in any person;
(f) Any entry into, amendment of, relinquishment,
termination or non-renewal by the Company of any
material contract, lease, transaction, commitment or
other right or obligation, in writing or otherwise,
other than in the ordinary course of business;
(g) Any transfer or grant of a right with respect to the
trademarks, tradenames, service marks, trade secrets,
copyrights or other intellectual property rights
owned or licensed by the Company;
(h) To the best knowledge of the Company and Sellers, any
agreement or arrangement, in writing or otherwise,
made by the Company or any Seller
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to take any action which, if taken prior to the date
hereof, would have made any representation or
warranty set forth in this Section 3.9 untrue or
incorrect, in any material respect, as of the date
when made;
(i) A sale or purchase, assignment or transfer of any of
its tangible assets or cancellation of any debts or
claims, except for transactions in the ordinary
course of business;
(j) Except with respect to any written agreement as the
Company, Purchaser and Melanie Franklin may agree,
any changes in compensation of its officers or
directors or, other than in the ordinary course of
business, any changes in compensation of its
employees;
(k) Any entry into any purchase contract, in writing or
otherwise, outside of the ordinary course of
business;
(l) Any material change in its business practices or its
accounting practices relating thereto;
(m) Any material adverse relationships or conditions with
vendors or customers which would, or to the best of
the Company's or a Seller's knowledge, may have a
Material Adverse Effect on the financial condition or
operations of the Company's business.
SECTION 3.10 NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities of the Company of any kind whatsoever, other than (a) liabilities
disclosed or provided for in the Company Balance Sheet; (b) liabilities
incurred in the ordinary course of business consistent with past practice prior
to the Company Balance Sheet Date which are not unusual in either type or
amount and which do not total in the aggregate more than $15,000; and (c)
liabilities incurred in the ordinary course of business consistent with past
practice since the Company Balance Sheet Date which are not unusual in either
type or amount; and (d) liabilities arising under this Agreement.
SECTION 3.11 MAJOR CONTRACTS. Schedule 3.11 sets forth a list,
which includes all of the following agreements and arrangements, in writing or
otherwise, to which the Company is a party or to which the Company is subject:
(a) Any employment contract or arrangement providing for
future compensation written or oral, with any
officer, consultant, director or employee;
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(b) Any plan, contract or arrangement exceeding in the
aggregate $15,000, written or oral, providing for
bonuses, pensions, deferred compensation, severance
pay or benefits, retirement payments, profit sharing,
or the like;
(c) Any agreement or arrangement which has involved or is
expected to involve a sharing of profits with other
persons;
(d) Any lease for real or personal property;
(e) Any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession,
arrangement, commitment or authorization which may,
by its terms, be terminated or breached by reason of
the execution of this Agreement or the transactions
contemplated hereby;
(f) Any license agreement, either as licensor or
licensee; or
(g) Any other agreement, contract or commitment which is
material to the Company.
Each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in Schedule 3.11 pursuant to this Section 3.11 is valid and binding on
the Company, and is in full force and effect, and neither the Company nor, to
the best knowledge of the Company and each Seller, any other party thereto, has
breached any material provision of, or is in default under the material terms
of, any such agreement, contract, mortgage, indenture, plan, lease, instrument,
permit, concession, franchise, arrangement, license or commitment.
SECTION 3.12 TAXES.
(a) All material tax returns, statements, reports and
forms (including estimated tax returns and reports
and information returns and reports) required to be
filed with any taxing authority with respect to any
taxable period ending on or before the Closing Date
by or on behalf of the Company have been or will be
filed when due (including any permitted extensions of
such due date) provided, however, that the Company
shall not be in breach of this Section 3.12 (a) in
respect of tax liabilities which the Company is
contesting in good faith with the relevant tax
authorities and has identified such dispute on
Schedule 3.12. For the purpose of this Section 3.12,
"material" shall be defined as any amount, in the
aggregate, in excess of $2,500.
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(b) Except as set forth in Schedule 3.12, the Company has
timely paid, withheld or made provision on its books
for all material taxes due and payable by the
Company.
(c) There are no material liens for taxes upon the assets
or properties of the Company and, to the best
knowledge of the Company, there are no Liens
threatened or anticipated to be placed upon the
assets or properties of the Company.
SECTION 3.13 RELATED PARTY TRANSACTIONS. (a) Except as set forth
on Schedule 3.13, neither Sellers nor any officer, director or employee of the
Company and, to the best knowledge of Sellers and the Company, no affiliate or
relative of any of them:
(i) owns, directly or indirectly, in whole or in
part, any tangible or intangible property, or
any of the assets that the Company uses in
its business or has an interest in any
contract or agreement pertaining to the
business of the Company;
(ii) owes any amount to the Company or, to the
knowledge of Sellers and the Company, has any
cause of action or other claim against the
Company other than for current wages accrued
in the ordinary course of business consistent
with past practices; or
(iii) holds any outstanding notes payable to or
accounts receivable from the Company or is
otherwise a creditor of the Company.
SECTION 3.14 INTELLECTUAL PROPERTY.
(a) To the best of the Company's and Sellers' knowledge,
the Company's business as conducted does not and will
not cause the Company to infringe or violate any
patents, trademarks, service marks, trade names,
copyrights, licenses, trade secrets or other
intellectual property rights of any other person or
entity. Except as set forth on Schedule 3.14, the
Company does not use in the operation of its business
any patents, trademarks, tradenames service marks,
trade secrets, licenses, or copyrights owned by
others, nor is it a party to any agreement either as
licensor or licensee, for the licensing of any
patent, trademark, tradename, copyright, or
applications for any thereof.
(b) Set forth on Schedule 3.14 are all the patents,
trademarks, trade names, service marks, trade
secrets, copyrights or other intellectual property
owned by the Company or in which the Company has any
interest (the "Intellectual Property"). The
Intellectual Property is owned free and clear of all
Liens and of any unresolved ownership disputes or
threats with respect to any third party, except as
disclosed on Schedule 3.14. Except as
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otherwise noted on Schedule 3.14 (b), the Company has
valid registrations with the U.S. Patent and
Trademark Office for, all of the copyrights, patents,
trademarks and service marks included within the
Intellectual Property, has the right to use and
assign, all of the Intellectual Property, and there
is no adverse decision against any of the
Intellectual Property.
(c) The Company has taken measures it deems reasonable to
maintain the Intellectual Property and the
confidentiality of the Company's customer lists.
(d) To the best of the Company's and Sellers' knowledge,
the Company has all necessary authority from all of
the corporations, partnerships and individuals whose
products are offered for sale in any of the Company's
catalogs, to use their trademarks, service marks and
other intellectual property for the purposes of
conducting the Company's business.
SECTION 3.15 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no
material agreement, judgment, injunction, order or decree binding upon the
Company or a Seller which has the effect of prohibiting or materially impairing
any business practice of the Company, any acquisition of property by the
Company or the conduct of business by the Company as currently conducted or as
currently proposed to be conducted by the Purchaser.
SECTION 3.16 TITLE TO PROPERTIES; ABSENCE OF LIENS AND
ENCUMBRANCES; CONDITION OF EQUIPMENT.
(a) The Company has, and at the Closing will have, good
and valid title to its personal property (tangible
and intangible), including without limitation, all
personal property reflected on, or included in, the
Company's Balance Sheet, and all personal property
acquired by the Company since the Company Balance
Sheet Date, in each case free and clear of all
material Liens except (i) as set forth on Schedule
3.16 (a) and (ii) for sales and other dispositions in
the usual and ordinary course of business since the
Company Balance Sheet Date for not less than the
carrying value thereof. Set forth on Schedule 3.16
(b) is a complete list of the Company's material
warehouse equipment, computer equipment (hardware and
software) and telecommunications equipment
(including, without limitation, telephones, switching
equipment, telecopy machines and telex machines) as
of the date of this Agreement including, without
limitation, leased equipment. Schedule 3.16 (b)
attached hereto sets forth a true, correct and
complete list (in all material respects) as of the
date hereof of all equipment leases ("Equipment
Leases"). True, correct and complete copies of the
Equipment Leases, and all amendments, modifications
and supplemental agreements thereto, have previously
been delivered by the Company to Purchaser. The
Equipment Leases are in full force and effect and
binding
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and enforceable against the Company and, to the best
of the Company's and Sellers' knowledge, against each
of the other parties thereto in accordance with its
terms. For the purposes of this Section 3.16,
"material" shall be defined as any amount, in the
aggregate, in excess of $2,500, or a term in excess
of three years.
(b) All personal property owned by the Company and all
personal property held by the Company pursuant to
personal property leases or licenses is in good
operating condition and repair, subject only to
ordinary wear and tear, has been operated, serviced
and maintained diligently and properly within the
recommendations and requirements of the manufacturers
thereof, is not in need of maintenance or repairs
which are material in nature or cost and is suitable
and appropriate for the use thereof made by the
Company in its business and operations.
(c) The Company does not own any real property or any
buildings or other structures. Schedule 3.16 (c)
attached hereto sets forth a true, correct and
complete list as of the date hereof of all leases and
subleases of real property, identifying separately
each ground lease, to which the Company is a party
(the "Leases"). True, correct and complete copies of
the Leases, and all amendments, modifications and
supplemental agreements thereto, have previously been
delivered by the Company to Purchaser. The Leases
are in full force and effect and are binding and
enforceable against the Company and, to the best of
the Company's and Sellers' knowledge, against each of
the other parties thereto in accordance with its
terms.
SECTION 3.17 VENDORS. The Company has, to the best of its and
Sellers' knowledge, satisfactory relations with the corporations, partnerships,
and individuals whose products are offered for sale in the Company's catalogs
and the Company engaged in no material actions on a company-wide basis, and
Sellers engaged in no material actions on an individual basis, to jeopardize
such satisfactory relations. To the best of the Company's and Seller's
knowledge, neither the Company, any of its officers, directors or employees, or
any of the Sellers, have any agreement or understanding with any vendor which
is not in writing or disclosed on Schedule 3.17.
SECTION 3.18 EMPLOYEE BENEFITS.
(a) Schedule 3.18 hereto sets forth a list which
identifies each "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and each
written, and to the best of the Company's and
Sellers' knowledge, other than written, employment
agreement, compensation agreement, bonus, commission
or similar arrangement and fringe benefit arrangement
which is maintained, administered or contributed to
by the Company and covers
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any employee or former employee of the Company or
under which the Company has any liability. Copies
(or, if not in writing, detailed summaries) of such
plans (and, if applicable, related trust agreements)
and all amendments thereto and written
interpretations thereof have been delivered to
Purchaser together with (to the extent existing) (i)
the most recent annual report (Form 5500, if
applicable) prepared in connection with any such
plan, and (ii) the most recent actuarial valuation
report prepared in connection with any such plan.
Such plans are referred to collectively herein as the
"Employee Plans."
(b) Except as specified on Schedule 3.18 hereto, no
Employee Plan constitutes a "multiemployer plan" as
defined in Section 3(37) of ERISA (a "Multiemployer
Plan"), no Employee Plan is maintained in connection
with any trust described in Section 501(c)(9) of the
Internal Revenue Code of 1986, as amended (the
"Code") and no Employee plan is subject to Title IV
of ERISA or Section 412 of the Code. To the best of
the Company's and Sellers' knowledge, nothing done or
omitted to be done and no transaction or holding of
any asset under or in connection with any Employee
Plan has or will make the Company, or any officer or
director thereof, subject to any liability under
Title I of ERISA or liable for any tax pursuant to
Section 4975 of the Code.
(c) The Company has no projected liability in respect of
post-retirement health life and medical benefits for
retired employee of the Company. Other than
provisions of applicable law, to the best of the
Company's and Sellers' knowledge, no condition exists
that would prevent the Company from terminating any
Employee Plan.
(d) No Employee Plan has been adopted by the Company and
that no option has been granted nor shares issued to
any employee pursuant to such an Employee Stock
Option Plan. All of the 76,786 shares of the
Company's uthorized Common Stock reserved for such an
Employee Stock Option Plan, remain reserved and
unissued. Seller confirms that is has no other
employee pension, profit sharing or retirement plan.
SECTION 3.19 EMPLOYEE RELATIONS. The Company has complied in all
material respects with the National Labor Relations Act, as amended, Title VII
of the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, and all
other applicable material federal, state and municipal laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and is not engaged in any unfair labor practice, and there are
no arrearage in the payment of wages or social security taxes. Except as set
forth on Schedule 3.19 hereto:
(a) The Company is not and was not a party to any
collective bargaining agreements applicable to its
current or former employees and none of the employees
of the Company is represented by any labor union;
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(b) There is no unfair labor practice complaint against
the Company, or, to the best of the Company's or
Sellers' knowledge, pending before the National Labor
Relations Board or any state or local agency;
(c) There is no pending labor strike, dispute,
disturbance or other material labor activity
affecting the Company (including, without limitation,
any organizational drive);
(d) To the best of the Company's or Sellers' knowledge,
there is no material labor grievance pending against
the Company;
(e) There are no pending arbitration proceedings arising
out of or under any collective bargaining agreement
to which the Company is a party, or to the best
knowledge of the Company or Sellers, any basis for
which a claim may be made under any collective
bargaining agreement to which the Company is a party;
and
(f) Certain information relating to all of the Company's
employees including the salary, job description,
benefits and number of years employed as set forth on
Schedule 3.19, all of which is true, correct and
complete (in all material respects).
SECTION 3.20 OFFICERS, DIRECTORS AND KEY EMPLOYEES. Schedule 3.20
sets forth the name and total annual compensation paid by the Company to (i)
each person who is now, or has been, during the last two fiscal years of the
Company, an officer or director of the Company and (ii) all employees, and with
respect to catalog operations, consultants, agents and other representatives
(who are individuals) of the Company (including salary, bonuses and
commissions), during the last two fiscal years of the Company, not including
any persons included in Schedule 3.20 pursuant to clause (i) above. Except as
set forth on Schedule 3.20, the Company is not a party to any commitment or
agreement to increase the compensation or to modify the conditions or terms of
employment of any employee and none of the persons listed on Schedule 3.20
pursuant to clause (ii) above has indicated to any Seller that he or she is
unwilling to continue working for the Company as an employee, consultant, agent
or other representative under terms and conditions substantially similar to
those under which such person is currently working for the Company, or has
indicated to any Seller that he or she will cancel or otherwise terminate such
person's relationship upon the sale of the Shares to Purchaser.
SECTION 3.21 INSURANCE. Set forth on Schedule 3.21 is a complete
and accurate list (in all material respects) of all primary, excess and
umbrella policies, including products liability policies, bonds and other forms
of insurance currently owned or held by or on behalf of and providing insurance
coverage to the Company or its businesses, properties and assets or any of its
directors, officers, salespersons, agents or employees. All policies set forth
on Schedule 3.21 are in full force and effect, and with respect to all
policies, all premiums currently payable or
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previously due have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. All such policies are
sufficient for compliance in all material respects with all requirements of law
and with all agreements to which the Company is a party or otherwise bound and
are valid, outstanding, collectible and enforceable policies. To the best of
the Company's and Seller's knowledge, none of such policies contain a provision
that would permit the termination, limitation, lapse, exclusion or change in
the terms of coverage (including, without limitation, a change in the limits of
liability) by reason of the consummation of the transactions contemplated by
this Agreement.
SECTION 3.22 DISCLOSURE. To the best knowledge of the Company and
Sellers, no representation or warranty made by the Company or Sellers in this
Agreement, nor in any document, written information, financial statement,
certificate, schedule or exhibit prepared and furnished or to be prepared and
furnished by the Company or Sellers or their representatives pursuant hereto
or in connection with the transactions contemplated hereby, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished. There is no event,
fact or condition (other than general business or economic conditions which
affect businesses generally) that materially and adversely affects the business
of the Company or that reasonably could be expected to do so, that has not been
set forth in this Agreement or in the Schedules attached hereto.
SECTION 3.23 CAPITALIZATION. The authorized capital stock of the
Company consists of 2,000,000 shares of common stock, $0.001 par value per
share, of which 1,919,643 shares, presently are issued and outstanding. All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued in compliance with all applicable federal and
state securities and corporate laws, rules and regulations, and are fully paid
and non-assessable with no personal liability attaching to the ownership
thereof and of which 1,535,714 are owned beneficially and of record by Sellers
in the amounts set forth on Schedule 3.24 hereto. There are no other classes
of capital stock of the Company. There are no other classes of capital stock
of the Company which are authorized or outstanding. The Company owns all of
the outstanding capital stock of each Subsidiary. There are no outstanding (i)
securities convertible into or exchangeable for any capital stock of the
Company; (ii) options, warrants, preemptive rights, calls or other rights to
purchase or subscribe for any capital stock of the Company or any Subsidiary or
securities convertible into or exchangeable for capital stock of the Company or
any Subsidiary; or (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company or any Subsidiary, any such convertible or exchangeable securities or
any such options, warrants, calls or rights. Sellers, beneficially and of
record, own 80% of the presently issued and outstanding capital stock of the
Company, on a fully diluted basis.
SECTION 3.24 STOCK OWNERSHIP. Each Seller has good and valid
title to the Shares to be sold and transferred by it to Purchaser hereunder, in
all such cases free and clear of any and all Liens. At the Closing, each
Seller will sell, assign, transfer and deliver such Seller's Shares to
Purchaser free and clear of any Liens. The representation set forth in this
Section 3.24 is qualified so that each Seller shall only be deemed to make such
statement with respect to himself or itself, and not with respect to any other
Seller, provided, however, that this qualification shall
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not affect any Seller's joint and several liability and obligation to Purchaser
and Hanover pursuant to Article VI of this Agreement.
SECTION 3.25 PURCHASE COMMITMENTS. As of the date of this
Agreement, the aggregate of all contracts or commitments for the purchase of
inventory and supplies by the Company ("Purchase Commitments") is approximately
$360,000, all of which orders, contracts and commitments were made in the
ordinary course of business, consistent with past practices, and to the best of
the Company's and Seller's knowledge in compliance with any and all federal,
state and local laws, rules and regulations pertaining thereto.
SECTION 3.26 BANK ACCOUNTS. Schedule 3.26 sets forth the names
and locations of all banks, trust companies, savings and loan associations and
other financial institutions at which the Company maintains safe deposit boxes,
accounts of any nature or credit lines ("Bank Accounts") and names of all
persons authorized to draw therefrom. The Company has delivered to Buyer
copies of all records, including all signature or authorization cards,
pertaining to such Bank Accounts.
SECTION 3.27 CERTAIN BUSINESS PRACTICES. No officer, director,
stockholder, or to the Company's or Sellers' knowledge, employee, agent or
other representative of the Company, or any other person acting on behalf of
the Company, has, directly or indirectly, within the past five years, given or
agreed to give any illegal, unethical or improper gift or similar benefit to
any customer, supplier, governmental employee or other person who is or may be
in a position to help or hinder the Company or assist the Company in connection
with any actual or proposed transaction.
SECTION 3.28 CUSTOMER LISTS. The disks, cartridges and tapes of
the Company contain a true, correct and complete list of the customers who have
actually purchased merchandise from the Company's catalogs by year of last
purchase and the approximate number of catalogs mailed, reported on an annual
basis for each catalog separately for the periods of time that such information
is reported. The Customer Lists are the only customer lists which exist and
such lists are deposited with Abacus Direct (the "List Vendors") and with no
other vendors. In connection with the Fulfillment Agreement, Hanover also has a
copy of the Customer Lists. The Customer Lists held by the List Vendors and
Hanover are identical, represent all available information with respect to the
subject matter hereof, and no copies will be retained by the Company or any
Seller, or to the best of the Company's and Sellers' knowledge, any agent or
affiliate of the Company, any Seller or any other party, as of the Closing
Date.
SECTION 3.29 RECALLS. Except as set forth on Schedule 3.29
hereto, the Company has made no product recalls during the last three (3) years.
SECTION 3.30 ENVIRONMENTAL AND SAFETY MATTERS. The operation
of the Company's business has been in material compliance with, and the Company
has complied in all material respects with all, and is not in material violation
of any, applicable United States federal, state and local laws, ordinances,
regulations and orders relating to environmental matters. No written
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notice of violation of any such statutes, laws, ordinances, regulations and
orders with respect thereto has been received by the Company and no unwritten
notice is known to any Seller, the Company or officers of the Company to have
been given, nor is any such notice threatened in writing. The Company has
obtained all material environmental permits, temporary and otherwise, required
for the lawful operation of its business and all such permits are in full force
and effect and the Company and Sellers have no reason to believe that any such
permits will be revoked, lapsed, or otherwise subject to modification.
SECTION 3.31 PREFERRED SHARES INVESTMENT.
(a) Each Seller represents and warrants that it is
acquiring the Preferred Shares for investment for its
own account and not with a view to, or for resale in
connection with, the distribution or other
disposition thereof. Each Seller agrees that it will
not, directly or indirectly, offer, transfer, sell,
pledge, hypothecate or otherwise dispose of any of
the Preferred Shares (or solicit any offers to buy,
purchase, or otherwise acquire or take a pledge of
any of the Shares) except in compliance with the
Securities Act of 1933, as amended (the "Act") and
the rules and regulations promulgated thereunder, and
the terms of this Agreement.
(b) Each Seller acknowledges that it has been advised
that (A) the Preferred Shares (and the underlying
common stock for a one hundred and eighty (180) day
period) will not be registered under the Act, (B) the
Preferred Shares must be held in accordance with the
terms of the certificate of designation set forth on
Exhibit C and Purchaser must continue to bear the
economic risk of the investment in the Preferred
Shares and the underlying common stock unless they
are subsequently registered under the Act pursuant to
the Registration Agreement or an exemption from such
registration is available, (C) Purchaser is under no
obligation to take any action with respect to the
registration of the Preferred Shares or to take any
action that would make available an exemption from
registration, and (D) a notation shall be made in the
appropriate records of Hanover indicating that the
Preferred Shares are subject to restrictions on
transfer and, appropriate stop-transfer restrictions
will be issued to its transfer agent with respect to
the Preferred Shares.
(c) Each Seller represents and warrants as to itself that
(A) its financial situation is such that it can
afford to bear the economic risk of holding the
Preferred Shares for an indefinite period, (B) it can
afford to suffer the complete loss of its investment
in the Preferred Shares, (C) it understands and has
taken cognizance of all the risk factors related to
the purchase of the Preferred Shares, and (D) it has
been granted the opportunity to ask questions of, and
receive answers from, representatives of Hanover with
respect to the receipt of the Preferred Shares and
the business of Hanover
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and to obtain any additional information which
it deems necessary to verify the accuracy of the
information reported to it. Each Seller, through its
representatives, has such knowledge, sophistication
and experience in financial and business matters
that it is capable of fully understanding the
business and financial condition of Hanover. Each
Seller is an accredited investor, as such term is
defined in Rule 501 of Regulation D, as promulgated
under the Securities Act of 1933, as amended. The
representation set forth in this Section 3.31(c) is
qualified so that each Seller shall only be deemed
to make such statement with respect to himself or
itself, and not with respect to any other Seller,
provided, however, that this qualification shall not
affect any Seller's joint and several liability and
obligation to Purchaser and Hanover pursuant to
Article VI of this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER AND HANOVER
Each of Purchaser and Hanover hereby represent and warrant, jointly and
severally, to the Company and Sellers as follows:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. Each of Purchaser and
Hanover is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of Purchaser and Hanover
has all corporate powers required to carry on its business as now conducted.
Each of Purchaser and Hanover is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on Purchaser or Hanover. Each of Purchaser and Hanover has
delivered to Seller true and complete copies of its Certificate of Incorporation
and Bylaws as currently in effect.
SECTION 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by each of Purchaser and Hanover of this Agreement, and the
consummation by each of them of the transactions contemplated hereby has been
duly authorized and no additional corporate action is required for the approval
of this Agreement. This Agreement constitutes a valid and binding agreement of
Purchaser and Hanover, enforceable against each of them in accordance with its
terms.
SECTION 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Purchaser and Hanover of this Agreement, and the consummation of
the transactions contemplated hereby by Purchaser and Hanover require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority, which individually or in the aggregate, would have a Material Adverse
Effect on Purchaser or Hanover.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and
performance by Purchaser and Hanover of this Agreement, and the consummation
by each of them of the transactions contemplated hereby do not and will not:
contravene or conflict with its Certificate of Incorporation or Bylaws;
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to it, which contravention, conflict or violation would have a
Material Adverse Effect on it; constitute a default under or give rise to a
right of termination, cancellation, acceleration or loss of any material
benefit under any material agreement, contract or other instrument binding
upon it or any material license, franchise, permit or other similar
authorization held by it; or result in the creation or imposition of any Lien
on any of its material assets.
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SECTION 4.5 DISCLOSURE. To the best knowledge of Purchaser and
Hanover, no representation or warranty made by Purchaser or Hanover in this
Agreement, nor in any document, written information, financial statement,
certificate, schedule or exhibit prepared and furnished or to be prepared and
furnished by Purchaser or Hanover pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
SECTION 4.6 PREFERRED SHARES. Upon the delivery of the certificates
for the Preferred Shares, as provided in Section 2.1, the Preferred Shares will
be duly authorized, validly issued, fully paid, non-assessable and free and
clear of all liens, charges, encumbrances, warrants, options, equities and
claims of others whatsoever, other than those, if any, created by or through
Sellers or this Agreement. On the Closing Date, all stock transfer taxes which
are required to be paid in connection with the issuance of the Preferred Shares
to Sellers pursuant to this Agreement will have been fully paid by Purchaser.
SECTION 4.7 AUTHORIZATION. The Preferred Shares and the shares of
Hanover common stock underlying the Preferred Shares have been duly authorized
and, when issued to the Sellers, will be validly issued and fully paid and
nonassessable, will not be issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities and will be
issued in compliance with all applicable federal and state securities laws. No
further corporate approval, including any shareholder or the Board of Directors
of Hanover, is required for the issuance and sale of the Preferred Stock (or the
underlying shares of common stock) to Sellers.
SECTION 4.8 RESERVATION OF SHARES. For the benefit of Sellers,
Hanover hereby covenants and agrees that at all times until the earlier of
conversion or redemption of the Preferred Shares, Hanover will reserve for
issuance and make available, out of the authorized but unissued shares of
common stock or the authorized and issued shares of common stock held in
Hanover's treasury, the full number of shares of such common stock as may be
sufficient, at such time, to provide for the conversion of the Preferred Shares
pursuant to the provisions thereof. Hanover covenants that upon issuance, all
shares of common stock issued pursuant thereto will be duly authorized, validly
issued, fully paid and non-assessable outstanding shares of the common stock
of Hanover.
SECTION 4.9 LITIGATION. There is no action, suit, proceeding,
claim or investigation pending or, to the best knowledge of Purchaser and
Hanover, threatened, which would prevent Hanover from entering into this
Agreement or the transactions contemplated hereby.
SECTION 4.10 MERGER, LIQUIDATION, ETC. The parties hereby agree that
Hanover may, in its sole and absolute discretion, merge, consolidate, sell,
liquidate or otherwise transfer the Company without any objection from Sellers,
provided, however (i) that if Hanover sells all of the stock or assets of the
Company to a non-affiliated third party, it will pay to Sellers, in accordance
with the Certificate of Designation, the dividend accruing with respect to the
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<PAGE> 25
Preferred Shares without regard to the EBIT requirement (as set forth in the
Certificate of Designation) for the period in which such sale occurs and any
subsequent period, or (ii) that if Hanover merges the Company into a subsidiary
and Safety Zone continues as a catalog, Hanover shall deliver to Martin
Franklin, as designee for the Sellers, a certificate from Hanover's Chief
Financial Officer, calculating Safety Zone's revenues in accordance with GAAP
and Hanover's accounting practices and allocations for other similarly situated
catalogs, and setting forth the EBIT calculation to be made to calculate the
dividend in accordance with the Certificate of Designation, provided, however
that to the extent Safety Zone's business can not be separately identified, such
dividend payment shall thereupon be made in accordance with the Certificate of
Designation without respect to EBIT calculation. Notwithstanding anything in the
Agreement to the contrary, Hanover shall not be prevented from liquidating the
Company, or the Safety Zone catalog if, in its sole and absolute discretion, it
determines to do so, and in such event, the Company shall be deemed to have no
EBIT for the purposes of calculating the dividends pursuant to the Certificate
of Designation, and such dividend shall not thereupon be payable.
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<PAGE> 26
ARTICLE V
CONDITIONS TO THE CLOSING
SECTION 5.1 CONDITIONS TO OBLIGATIONS OF PURCHASER AND HANOVER. The
obligations of Purchaser and Hanover hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing Date, of each of the following conditions
(any one or more of which may be waived by Purchaser in its sole discretion, but
only in a writing signed by Purchaser and Hanover):
(a) Opinion of Counsel to the Company and Sellers.
Purchaser and Hanover shall have received an opinion
dated the Closing Date of Kane Kessler, P.C., counsel
to Sellers and the Company, as to the matters set
forth in Exhibit E, in such form as is reasonably
satisfactory to Purchaser and Hanover.
(b) Secretary's Certificate. Purchaser shall have
received a certificate of the Secretary of the
Company (in form and substance satisfactory to
Purchaser) certifying (i) that attached thereto are
true and complete copies of the Amended Certificate
of Incorporation and Bylaws of the Company, (ii) that
attached thereto are true and complete copies of the
resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance
of this Agreement and any other documents,
instruments and certificates required to be executed
by it in connection herewith and approving the
consummation of the transactions in the manner
contemplated hereby, (iii) that attached thereto is a
true and complete copy of the written consent of the
shareholders of the Company authorizing this
Agreement and the consummation of the transactions
upon the terms set forth in this Agreement, (iv) the
names and true signatures of the officers of the
Company signing this Agreement and all other
documents to be delivered in connection with this
Agreement and (v) such other matters as Purchaser or
Hanover may reasonably request.
(c) Resignations. Purchaser shall have received evidence
of the resignations of the Sellers, and the officers,
directors, of the Company whose names are set forth
on Schedule 5.1 (c). Sellers shall have resigned and
shall have caused all other persons to resign as
signatories on the Company's bank accounts, and
Purchaser shall have received evidence of such
resignations.
(d) Severance Agreements. The Company shall have entered
into a severance agreement with each of Jim Hersh and
Jonathan Franklin, and a severance and non-
competition agreement with Antony Lee, all in the
forms attached hereto as Exhibit E.
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(e) Melanie Franklin. Melanie Franklin shall have
executed the Consulting and Non-Competition Agreement
in the form annexed hereto as Exhibit F.
(f) Repayment of Loan to F.L. Holdings. Purchaser shall
have received evidence from F.L. Holdings that the
Company has repaid in full its $250,000 loan
obligation to F.L. Holdings.
(g) Release. The Company, Purchaser and Hanover shall
have received a release executed by each Seller, in
the form annexed hereto as Exhibit H.
(h) Share Certificates/Stock Powers. Purchaser shall
have received the certificates representing all of
the Shares, and the outstanding shares of capital
stock of all Subsidiaries, together with fully
executed stock powers for such Shares.
(i) Registration Rights Agreement. Purchaser and
Hanover shall have received the Registration Rights
Agreement in the form attached hereto as Exhibit D,
executed by each Seller.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLERS.
The obligations of the Company and Sellers hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing Date, of each of the
following conditions (any one or more of which may be waived by the Company and
Sellers, in their sole discretion, but only in a writing signed by the Company
and Sellers):
(a) Secretary's Certificate. The Company and Sellers
shall have received a certificate of the Secretary of
Purchaser and Hanover (in form and substance
satisfactory to the Company and Sellers) certifying
(i) that attached thereto are true and complete
copies of the Certificate of Incorporation and
By-Laws of Purchaser and Hanover, (ii) that attached
thereto are true and complete copies of the
resolutions of the Board Directors of Purchaser and
the Executive Committee of the Board of Directors of
Hanover authorizing the execution, delivery and
performance of this Agreement (including the issuance
of the Preferred Shares, and the registration and
listing of the underlying Common Stock) and any other
documents, instruments and certificates required to
be executed by it in connection herewith and
approving the consummation of the transactions in the
manner contemplated hereby, (iii) the names and true
signatures of the officers of Purchaser and Hanover
signing this Agreement and all other documents to be
delivered in connection with this Agreement and (iv)
such other matters as the Company and Seller may
reasonably request.
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(b) Opinion of Counsel to Purchaser and Hanover. Sellers
shall have received an opinion dated the Closing Date
of Michael P. Sherman, general counsel to Purchaser
and Hanover, as to the matters set forth in Exhibit
I, in such form as is reasonably satisfactory to
Sellers.
(c) Severance Arrangements. The Company shall have
entered into a severance agreement with each of Jim
Hersh and Jonathan Franklin, and a severance and
non-competition agreement with Antony Lee, all in the
form attached hereto as Exhibit E.
(d) Preferred Share Certificates. Sellers shall have
received certificates evidencing the Preferred
Shares, in the amounts allocated to each Seller set
forth on Schedule 5.2.
(e) Registration Rights Agreement. Sellers shall have
received the Registration Rights Agreement in the
form attached hereto as Exhibit D executed by
Hanover.
(f) Repayment of Loan to F.L. Holdings. Company shall
have received evidence from F.L. Holdings that the
Company has repaid in full its $250,000 loan
obligation to F.L. Holdings.
(g) Melanie Franklin. Melanie Franklin shall have
executed the Consulting and Non-Competition Agreement
in the form annexed hereto as Exhibit F.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION BY SELLERS. Each Seller, jointly and
severally, agrees to save, defend and indemnify Purchaser and Hanover and their
respective officers, directors, employees, affiliates, agents, representatives,
principals and associates (individually, a "Purchaser Indemnitee" and
collectively, the "Purchaser Indemnitees") against, and hold each of them
harmless from, any and all Damages (as defined below), arising from or on
account of (i) the transfer of the Shares pursuant to this Agreement, (ii) any
breach of any representation, warranty or covenant by Sellers or the Company
contained in this Agreement, or any material misrepresentation by Sellers or the
Company in any exhibit, schedule or certificate provided for herein, except as
such claims shall arise from the fraudulent acts or omissions of Purchaser or
Hanover, (iii) any litigation against the Company or its business arising prior
to the Closing and not in the ordinary course of business, (iv) any sales tax or
other taxes, penalties or interest, fixed or contingent or, in each case, now
due or hereafter arising which are attributable to the operation of the
Company's business prior to Closing, (v) any actions taken by a Seller as a
director, shareholder or creditor of the Company, including, without limitation,
as signatory to any agreements to which a Seller is a party in any such capacity
or any rights or causes of action which may arise therefrom. Any claim for
indemnification pursuant to this Section 6.1 shall be made in accordance with
the procedures set forth in Sections 6.3 hereof. Notwithstanding anything in the
Agreement to the contrary, in no event shall each Seller's indemnification
obligation exceed, in the aggregate, such Seller's proportionate share of the
Purchase Price. For the purposes of this Agreement, "Damages", means any loss,
liability, damage, cost or expense, including without limitation, reasonable
costs of defense and prosecution of litigation and counsel fees, net of any
insurance proceeds which are recovered by, or available to the respective party
without restriction and arise out of such loss, liability, damage, cost or
expense. Except as set forth in this Article VI, the indemnification obligations
of Sellers set forth herein shall not be effective until such time as Purchaser
or Hanover in the aggregate has incurred, or received as claim in the excess of,
Damages in excess of $100,000 (the "Threshold"), at which time, Sellers, jointly
and severally, (but each Seller only subject to the individual limitations set
forth above) shall be responsible for payment to Purchaser and Hanover of all
such amounts in excess of $50,000, provided, however that with respect to any
claim (i) arising from items not disclosed on Schedules 3.18 and 3.19, or (ii)
relating to the failure to file Form 5500's, the Threshold shall not apply and
all amounts shall be covered from the first dollar. Each Seller further agrees
that, after the date of the execution of this Agreement, the Company shall not
be liable for any contribution to an Indemnifiable Claim by any party to this
Agreement.
SECTION 6.2 INDEMNIFICATION BY PURCHASER AND HANOVER. Purchaser and
Hanover, jointly and severally, agree to save, defend and indemnify each Seller
and their respective officers, directors, employees, affiliates, agents,
representatives, principals and associates (individually, a "Seller Indemnitee"
and collectively, the "Seller Indemnitees") against, and hold each of them
harmless from, any and all Damages arising from or on account of (i) the
issuance of the Preferred Shares pursuant to this Agreement, (ii) any breach of
any representation, warranty or covenant by Purchaser or Hanover contained in
this Agreement, except as such claims shall
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arise from the fraudulent acts or fraudulent omissions of a Seller or the
Company, and (iii) any actions taken by Purchaser as a shareholder of the
Company or by Purchaser's designee as a director of the Company, except as may
be excluded by the release given by each Seller being executed concurrently
herewith. Any claim for indemnification pursuant to this Section 6.2 shall be
made in accordance with the procedures set forth in Section 6.3 hereof.
SECTION 6.3 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO
THIRD-PARTY CLAIMS.
(a) If any Purchaser Indemnitee or Seller Indemnitee
seeks indemnification for any claim (each, an
"Indemnifiable Claim") under this Article VI (the
party seeking such indemnification, whether a
Purchaser Indemnitee pursuant to Section 6.1 hereof
or a Seller Indemnitee pursuant to Section 6.2
hereof, shall be referred to herein as the
"Indemnified Party" and the party against whom such
indemnification is sought shall be referred to herein
as the "Indemnifying Party") resulting from the
assertion of liability by third parties, the
Indemnified Party shall give notice to the
Indemnifying Party within thirty (30) days of the
Indemnified Party becoming aware of any such
Indemnifiable Claim or of facts upon which any such
Indemnifiable Claim will be based. Such notice shall
set forth such material information with respect
thereto as is then reasonably available to the
Indemnified Party. In case any such liability is
asserted against the Indemnified Party, and the
Indemnified Party notifies the Indemnifying Party
thereof, the Indemnifying Party will be entitled, if
it so elects by written notice delivered to the
Indemnified Party within twenty (20) days after
receiving the Indemnified Party's notice, to assume
the defense thereof (with counsel selected by the
Indemnifying Party, which counsel may also be counsel
to the Indemnifying Party unless a material conflict
of interest would thereby arise). Notwithstanding the
foregoing, the rights of the Indemnified Party to be
indemnified hereunder in respect of Indemnifiable
Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its
failure to give notice pursuant to the foregoing
unless and, if so, only to the extent that, the
Indemnifying Party is prejudiced thereby. With
respect to any assertion of liability by a third
party that results in an Indemnifiable Claim the
parties hereto shall make available to each other all
relevant information in their possession material to
any such assertion.
(b) In the event that the Indemnifying Party, within
twenty (20) days after receipt of the aforesaid
notice of an Indemnifiable Claim, fails to assume the
defense of the Indemnified Party against such
Indemnifiable Claim, the Indemnified Party shall have
the right to undertake the defense, and in good faith
to compromise or settlement of such action on behalf
of and for the account and risk of the Indemnifying
Party.
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(c) Notwithstanding anything in this Section 6.3 to the
contrary if there is a reasonable probability that an
Indemnifiable Claim may materially and adversely
affect the Indemnified Party, other than as a result
of money damages or other money payments, the
Indemnified Party shall have the right to participate
at its own expense in such defense, compromise or
settlement and the Indemnifying Party shall not,
without the Indemnified Party's written consent
(which consent shall not be unreasonably withheld),
settle or compromise any Indemnifiable Claim or
consent to entry of any judgement in respect thereof
unless such settlement, compromise or consent
includes as an unconditional term thereof the giving
by the claimant or the plaintiff to the Indemnified
Party a release from all liability in respect of such
Indemnifiable Claim.
(d) Notwithstanding anything to the contrary contained
herein, to the extent that an Indemnified Party
receives proceeds from insurance policies for Damages
incurred, the liability of the Indemnifying Party
shall be reduced by the amount of insurance proceeds
received. Furthermore, until such time as the Common
Stock underlying the Preferred Stock shall be
registered under the Act, the liability of the
Sellers pursuant to Section 6.1 shall be limited to
the return to the Purchaser of such number of shares
of the Preferred Stock and all rights accrued thereto
(or Common Stock if the Preferred Stock has been
converted) equal to the monetary liability of the
Sellers pursuant to Section 6.1.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
SECTION 7.2 CONFIDENTIALITY.
(a) Each of the parties agrees that all information,
reports, interpretations, forecasts, ideas, designs,
data, processes, agreements, notes, reports, studies,
analyses, compilations, customer lists, trade
secrets, as well as other business, marketing and
financial information it obtains from the other party
which is not generally known to the public and which
the other party treats as confidential (the
"Confidential Information") are the confidential
property of the disclosing party. Except as expressly
and unambiguously authorized hereunder, each party
shall hold in confidence and not divulge, communicate
or otherwise disclose any Confidential Information
received from the other party and shall similarly
require its employees, agents, affiliates and
third-party service providers to maintain
confidentiality in accordance with this Section 7.2.
The receiving party shall not be obligated under this
Section 7.2 with respect to information the receiving
party can document:
(i) is or has become published or
otherwise readily available to the
public without restriction through
no fault of the receiving party or
its employees or agents; or
(ii) is received without restriction from
a third party lawfully in possession
of such information and lawfully
empowered to disclose such
information; or
(iii) was rightfully in the possession of
the receiving party without
restriction prior to its disclosure
by the disclosing party.
(b) Each party shall notify the other party promptly upon
discovery of any unauthorized use of disclosure of
the other's Confidential Information. The obligations
of this Section 7.2 shall survive any termination or
expiration of this Agreement for a period of five (5)
years after the disclosure of any such Confidential
Information.
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(c) Upon any termination of this Agreement, each party
agrees promptly to return or destroy any Confidential
Information of the other and any copies, extracts and
derivatives thereof, except as otherwise set forth in
this Agreement.
(d) Each Seller understands and agrees that in the course
of its relationship with the Company, it has acquired
confidential information and trade secrets concerning
the Company's operations, future plans, methods of
doing business, projected and historical sales,
merchandising, marketing, product sources, costs,
production, growth and distribution, and that it
would be extremely damaging to the Company if such
information were disclosed to a competitor or made
available to any other person or corporation. In view
of the nature of Sellers' association with the
Company, each Seller agrees that during the term of
this Agreement and thereafter, any and all
confidential information and trade secrets,
including, without limitation, any customer lists,
list rental sources, customer information, mailing
list derivative source data, discoveries, practices,
processes, methods or products, whether patentable or
not, concerning the Company's business that such
Seller has acquired or may hereafter acquire shall be
maintained by him in confidence and shall not be
disclosed or divulged to any third party without the
prior written consent of the Company's Board of
Directors. Each Seller further agrees that it will
not utilize such information on its own behalf or on
the behalf of others at any time during the term of
this Agreement or thereafter.
(e) Each party acknowledges that its breach of this
Section 7.2 would cause irreparable injury to the
other for which monetary damages are not an adequate
remedy. Accordingly, a party will be entitled to seek
injunctions and other equitable remedies in the event
of such a breach by the other. Such remedy shall not
be deemed to be the exclusive remedy for any breach
of this Section 7.2 but shall be in addition to all
other remedies available at law or equity to the
non-breaching party.
SECTION 7.3 FEES AND EXPENSES. Sellers (on behalf of themselves
and the Company) and Purchaser (on behalf of itself and Hanover) shall each
bear its own fees and expenses, including counsel fees and fees of brokers and
investment bankers contracted by such party, in connection with the transactions
contemplated hereby.
SECTION 7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; Except as
otherwise expressly provided herein, the representations, warranties, covenants
and agreements of Sellers and the Company contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing Date, and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of Purchaser except to the extent of
the caveat set forth in the preamble of Article III; provided, however, that
such
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representations, warranties, covenants and agreements shall expire unless
claims are made on or before the second anniversary of the Closing Date;
provided, further, however, that the representations and warranties set forth in
Section 3.30 shall not expire, and the representations and warranties set forth
in Section 3.12 shall expire upon the termination of the appropriate statute of
limitations. The representations, warranties, covenants and agreements of
Purchaser and Hanover contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing Date and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of Seller; provided, however, that such representations,
warranties, covenants and agreements shall expire unless claims are made on or
before the second anniversary of the Closing Date, provided, however, that the
representations and warranties set forth in Sections 2.4, 4.6, 4.7, 4.8 and 4.10
shall not expire until the earlier of (i) the sixth anniversary of the Closing
Date, or (ii) the conversion of all of the outstanding Preferred Shares.
SECTION 7.5 TERMINATION OF STOCKHOLDERS AGREEMENT AND STOCK
PURCHASE AGREEMENT. Each of the Sellers, Company and Purchaser hereby agrees and
acknowledge that as of the date of the execution of this Agreement, (i) the
Stockholders Agreement dated as of September 30, 1993 by and among the Company,
Sellers and Purchaser, and (ii) the Stock Purchase Agreement dated as of
September 30, 1993 by and among the Company and Purchaser, are hereby terminated
and of no further force and effect.
SECTION 7.6 DIRECTORS RELEASE. Purchaser hereby specifically
releases and discharges each director of the Company ("Director") from all
liabilities, action, causes of action, suits, debts, damages, claims,
penalties, judgements, executions and demands whatsoever, whether known or
unknown, in law or equity which Purchaser ever had, now has or here after can,
shall or may have against a Director, for, upon, or by reason of any matter,
cause or thing whatsoever from specifically only the following: the Direct
Dispute Exclusion relating to the Fulfillment Issues pursuant to the
Fulfillment Agent and the Loan Default pursuant to the Loan Agreement.
SECTION 7.7 NOTICES. Whenever any party hereto desires or is
required to give any notice, demand, or request with respect to this Agreement,
each such communication shall be in writing and shall be effective only if it
is delivered by personal service or mailed, United States registered or
certified mail, postage prepaid (and shall be deemed to have been received
three (3) days after deposit into the United States mail), or sent by prepaid
overnight courier, facsimile or confirmed telecopier, addressed as follows:
If to Purchaser:
Hanover Holdings, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Fax No.: 201-392-5005
31
<PAGE> 35
If to Hanover:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman, Esq.
Fax No.: 201-392-5005
If to Sellers:
To each Seller
c/o Martin Franklin
Benson Eyecare Corporation
555 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
Fax No.: 914-967-9405
With a copy to:
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Fax No.: 212-245-3009
Unless otherwise stated above, such communications shall be effective when they
are received by the addressee thereof in conformity with this Section. Any party
may change its address for such communications by giving notice thereof to the
other parties in conformity with this Section.
SECTION 7.8 GOVERNING LAW AND JURISDICTION.
(a) This Agreement Shall Be Construed in All Respects
under the Laws of the State of Delaware, Without
Reference to its Conflicts of Law Provisions.
(b) The Company, Sellers, Purchaser and Hanover Hereby
Agree to Submit to the Exclusive Jurisdiction of the
Federal Courts Located in the State of New Jersey and
Hereby Waive Any Objection Based on Venue or Forum
non Conveniens with Respect to Any Action Instituted
Therein, and Agree That Any Dispute Concerning the
Conduct of Any Party in Connection with this
Agreement or Otherwise Shall Be Heard Only in the
Federal Courts Described above.
32
<PAGE> 36
(c) Each of the Company, Sellers, Purchaser and Hanover
Hereby Waive Personal Service of Any and All Process
upon it and Consent That All Such Service of Process
May Be Made by Hand Delivery or Mail to Seller and
Purchaser at its Address Set Forth in, and in
Accordance With, Section 7.5 of this Agreement. Each
of the Company, Sellers, Hanover and Purchaser Hereby
Consent to Service of Process as Aforesaid.
SECTION 7.9 BINDING UPON SUCCESSORS AND ASSIGNS. This Agreement is
personal to each of the parties and may not be assigned without the written
consent of the other parties; provided, however, that Purchaser shall be
permitted to assign its rights (but not its obligations) under this Agreement to
any affiliate of Purchaser.
SECTION 7.10 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 7.11 ENTIRE AGREEMENT. This Agreement and the other
agreements and instruments referenced herein constitute the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings.
SECTION 7.12 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party shall be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by
law, or in equity on such party, and the exercise of any one remedy shall not
preclude the exercise of any other.
SECTION 7.13 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by all parties hereto. The waiver by
a party of any breach hereof or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. This Agreement may not be amended or supplemented by any party hereto
except pursuant to a written amendment executed by all parties.
SECTION 7.14 NO WAIVER. The failure of any party to enforce any of
the provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 7.15 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. A reference to an
Article, Section, Schedule or Exhibit shall mean an Article of, a Section in, or
Schedule or Exhibit to, this Agreement unless otherwise explicitly set forth.
The titles and headings herein are for reference purposes only and shall not in
any manner limit the construction of this Agreement
33
<PAGE> 37
which shall be considered as a whole. The words "include," "includes," and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." For purposes of this Agreement, and except as
provided in the following sentence, the term "knowledge," when used in reference
to a corporation means the actual knowledge of the executive officers of such
corporation after such officers shall have made inquiry that is customary and
appropriate under the circumstances to which reference is made, and when used in
reference to an individual means the actual knowledge of such individual after
the individual shall have made inquiry that is customary and appropriate under
the circumstances to which reference is made. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural as the
context may require.
SECTION 7.16 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the paries reflected hereon as signatories.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HANOVER HOLDINGS, INC.
____________________________
MARTIN E. FRANKLIN
By _________________________________
Title:
____________________________
FLOYD HALL
HANOVER DIRECT, INC.
____________________________
By _________________________________ FREDERICK FIELD
Title:
____________________________
AEGIS SAFETY HOLDINGS, INC. HOMER G. WILLIAMS
____________________________
By _________________________________ FRANK MARTUCCI
Title:
34
<PAGE> 38
F.L. HOLDINGS, INC. NORM THOMPSON OUTFITTER, INC.
By _____________________________ By __________________________
Title: Name:
Title:
CAPITAL CONSULTANTS, INC.
________________________________
ROLAND A. E. FRANKLIN By __________________________
Name:
Title:
35
<PAGE> 1
Exhibit 3.4
CERTIFICATE OF DESIGNATION
OF
SERIES B 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 634,900 shares of additional preferred stock, par
value $.01 per share, of the Corporation designated as "Series B 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 B 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 B Convertible Additional Preferred Stock," and
the number of shares constituting such series shall be 634,900, each share
having a stated value upon issuance of $10.00. Such series is referred to
herein as the "Series B Preferred."
<PAGE> 2
(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 B 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, 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"), class B 8% cumulative preferred stock, par value $.01 per share
and stated value of $1,000 per share (the "Class B Preferred"), Series A
Convertible Additional Preferred Stock, par value $.01 and stated value $10 per
share (the "Series A Preferred"), and any series of Additional Preferred Stock
hereinafter issued.
(c) Dividends. The holders of record of shares of the Series
B Preferred shall be entitled to receive dividends, when and as declared by the
Board of Directors out of funds legally available therefor, at a rate of 5% of
the stated value per annum from February 15, 1995 through February 15, 1998
provided, however, that Aegis Safety Holdings, Inc. shall have achieved at
least One Million Dollars ($1,000,000) of earnings (as computed in accordance
with generally accepted accounting principles consistently applied) before
deduction for interest expense and taxes (as computed in accordance with
generally accepted accounting principles consistently applied) ("EBIT") during
the fiscal year (or portion thereof) in question for which the dividend
computation is being made, and 7% of the stated value per annum from February
16, 1998 through February 15, 2000 regardless of the EBIT of Aegis Safety
Holdings, Inc., each payable in cash in arrears.
Dividends on the Series B Preferred shall be payable each year
in one annual installment on the last day of March (the "Series B Dividend
Payment Date") when and as declared by the Board of Directors to holders of
record as they appear on the records of the Corporation on such date (not
exceeding 60 days preceding such Series B Dividend Payment Date) 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 Series B 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 Series B Preferred shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
(d) Liquidation Preference. In the event of any distribution
of assets upon any liquidation, dissolution or
-2-
<PAGE> 3
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 B 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 B 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, the Series A
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, the Class B Preferred, the Series A Preferred and then, pro rata, to
the holders of shares of any other series 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) Voting Rights. Each share of Series B Preferred shall be
entitled to a number of votes equal to the number of shares of Common Stock
that such share of Series B Preferred is convertible into based on the then
existing Conversion Price. The existing Conversion Price is subject to
adjustment as per the provisions of paragraph (i). Except as provided by law
or by the rules of the American Stock Exchange, the holders of the Series B
Preferred shall vote together with the holders of the Common Stock (any other
class or series which may be similarly entitled to vote with the shares of
Common Stock) as one class on all matters submitted to a vote of stockholders
of the Corporation.
(f) Conversion at the Option of the Holders. Subject to the
provisions of paragraph (h) hereof, each holder of the Series B Preferred shall
be entitled at any time and from time to time to convert any or all of his
outstanding shares of Series B Preferred into shares of Common Stock. Each
holder of the Series B Preferred wishing to convert such shares shall provide
the Corporation with written notice (given by first-class mail, postage
prepaid) of his desire to convert all or part of his shares of Series B
Preferred into shares of Common Stock pursuant to this paragraph (f) and shall
deliver certificates for his shares of Series B Preferred to be converted to
the Corporation against delivery of appropriate documentation for the shares of
Common Stock into which they are to be converted together
-3-
<PAGE> 4
with accrued but unpaid dividends through the conversion date.
(g) 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 $6.66 for 20 trading days in a 30 consecutive trading day
period, the Corporation shall have the right to require the conversion of all
of the outstanding shares of Series B Preferred at the Conversion Price and
subject to the provisions of paragraph (h) hereof. In case the Corporation
shall have taken any of the steps described in paragraph (i) hereof 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 paragraph. The
Corporation shall provide the holders of the Series B Preferred shares which
are to be converted (the "Series B Conversion Shares") with at least 30 days
written notice of the date upon which conversion of the Series B Preferred is
required by the Corporation pursuant to this paragraph (g) (the "Series B
Conversion Date"). Such notice shall be given by first-class mail, postage
prepaid, mailed to each holder of record of the Series B Conversion Shares 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 conversion
of any Series B Conversion Shares 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 Series B
Conversion Date, (ii) the number of Series B Conversion Shares, (iii) the
stated value and the Conversion Price, (iv) the number of shares of Common
Stock to be received upon conversion, (v) the place or places where
certificates for such shares are to be surrendered for conversion, and (vi)
that dividends on the shares to be converted will cease to accrue on the day
following the Series B Conversion Date whether or not the certificates therefor
are delivered to the Corporation. Upon the Series B Conversion Date, the
holders of the Series B Conversion Shares shall deliver certificates for their
shares to the Corporation against delivery of appropriate documentation for the
shares of Common Stock into which they are to be converted together with
accrued but unpaid dividends through the Series B Conversion Date. Dividends
shall cease to accrue on the Series B Conversion Shares on the day following
the Series B Conversion Date whether or not the certificates therefor are
delivered to the Corporation.
-4-
<PAGE> 5
(h) Conversion Terms and Procedures. Each share of Series B
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 $6.66 (subject to adjustment
from time to time as provided in paragraph (i) hereof).
Surrender of certificates for the shares of Series B
Preferred to be converted together with the notice referred to in paragraph
(g) hereof stating the number of shares of Series B Preferred such holder
wishes to convert shall obligate the Corporation to deliver, in accordance
with the holder's instructions, the certificate or certificates for the Common
Stock deliverable upon such conversion and, in the event that only a part of the
shares of the Series B Preferred evidenced by such certificate or certificates
are converted, the Corporation shall deliver a certificate evidencing the
number of shares of the Series B 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 Series B
Preferred for conversion and shall pay all accrued but unpaid dividends on the
Series B 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. All shares of Common Stock issued will be validly issued, fully paid
and nonassessable.
(i) Anti-dilution Provisions. The Conversion Price shall
be subject to adjustment from time to time in the following events and manners,
and as so adjusted or readjusted, shall remain in effect until a further
adjustment or readjustment thereof is required hereby.
In the event of
(A) a stock split or other subdivision or a combination of
outstanding shares of Common Stock, the Conversion Price shall be
increased or decreased in the same proportion as the increase or
decrease in the outstanding shares of Common Stock.
(B) the reclassification of the Company's capital stock or
any other similar event with respect to the Company's capital stock
(other than a change in par
-5-
<PAGE> 6
value or as a result of a stock split or other subdivision or
combination of the outstanding shares of Common Stock) or the
consummation by the Company of a business combination in which the
Company is not the surviving party (each an "Extraordinary Corporate
Transaction"), upon conversion of any shares of Series B Preferred,
the holder thereof shall be entitled to receive the same kind and
number of shares of stock and other securities, cash or other property
as would have been distributed to the holder in connection with such
Extraordinary Corporate Transaction had such holder converted such
shares of Series B Preferred prior to such Extraordinary Corporate
Transaction and prior to the record date for any distribution in
connection therewith to holders of Common Stock. As a condition
precedent to any Extraordinary Corporate Transaction, the Company
shall make adequate provision to assure the rights of the holders of
the Series B Preferred as provided for herein, including, without
limitation, the express written assumption by the surviving party, if
any, of the Company's obligations pursuant hereto.
The adjustments provided for in clauses (A) and (B) of this paragraph (i) shall
be effective upon the record date for determining the holders of Common Stock
for any dividend or other distribution referred to in such clauses or, if
earlier, upon the occurrence of the events specified in such clauses.
Upon the occurrence of any event referred to in this paragraph
(i) which requires an adjustment in the Conversion Price, the Corporation shall
give prompt written notice thereof to the holders of the Series B Preferred,
which notice shall state the Conversion Price both before and after any
adjustment thereto as a result of such event and set forth in reasonable detail
the calculation of such Exercise Price, as adjusted, and the facts upon which
such adjustment and calculation are based.
(j) Mandatory Redemption. The Corporation shall redeem all
of the outstanding shares of the Series B Preferred on February 15, 2000 (the
"Series B Redemption Date") in cash or in Common Stock at the option of the
Corporation in either case together with any accrued but unpaid dividends
through the Series B Redemption Date. If the shares of Series B Preferred to
be redeemed are to be paid in cash, the redemption price per share shall be
equal to the Conversion Price on the Series B Redemption Date. If the shares
of Series B Preferred to be redeemed are to be paid in Common Stock, the number
of shares of Common Stock to be paid upon redemption of each share of Series B
Preferred (the "Redemption Shares") shall be determined by dividing the stated
value of the shares by the Conversion
-6-
<PAGE> 7
Price on the Series B Redemption Date. In addition, if the shares of Series B
Preferred to be redeemed are to be paid in Common Stock and if the per-share
closing price (regular way) on the American Stock Exchange for a round lot of
the Common Stock on the Series B Redemption Date (the "Redemption Date Closing
Price") is less than 95% of the Conversion Price on the Series B Redemption
Date, each holder of Series B Preferred shall be entitled to receive on the
Series B Redemption Date such number of additional shares of Common Stock
determined by multiplying (x) the difference between 95% of the Conversion
Price on the Series B Redemption Date and the Redemption Date Closing Price and
(y) the aggregate number of Redemption Shares to which such holder is entitled,
and dividing the product thereof by the Redemption Date Closing Price. 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.
Notice of such redemption shall be given by first-class mail,
postage prepaid, mailed not less than five days nor more than 15 days prior to
the Series B Redemption Date, to each holder of record of the outstanding
shares of Series B Preferred 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 the outstanding shares of the Series B
Preferred. Such notice shall state: (i) the Series B Redemption Date, (ii)
the number of shares of the Series B Preferred to be redeemed, (iii) whether
the redemption price will be paid in cash or Common Stock, (iv) the stated
value and the estimated Conversion Price on the Series B Redemption Date, (v)
the place or places where certificates for such shares are to be surrendered
for payment of the redemption price, and (vi) that dividends on the shares to
be redeemed will cease to accrue on the day following the Series B Redemption
Date.
On or before the Series B Redemption Date, the holders of the
outstanding shares of Series B Preferred shall deliver certificates for such
shares to the Corporation against payment of the redemption price. Dividends
shall cease to accrue on the outstanding shares of Series B Preferred on the
day following the Series B Redemption Date whether or not the certificates
therefor are delivered to the Corporation.
(k) Status of Acquired Shares. Shares of Series B Preferred
received by the Corporation pursuant to paragraph (f), (g) or (j) hereof, or
otherwise acquired by the Corporation, will be restored to the status of
authorized and unissued shares of Additional Preferred
-7-
<PAGE> 8
Stock, without designation as to series, and may thereafter be issued, but not
as shares of Series B Preferred.
(l) Preemptive Rights. The Series B Preferred is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
-8-
<PAGE> 9
IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this
Certificate of Designation of Series B Convertible Additional Preferred Stock
to be signed on its behalf by Jack E. Rosenfeld, the President, and attested by
Michael P. Sherman, the Secretary, this ___ day of February, 1995.
HANOVER DIRECT, INC.
By:
----------------------
Jack E. Rosenfeld
President
Attest:
By:
------------------------
Michael P. Sherman
Secretary
-9-
<PAGE> 1
Exhibit 4.5
===============================================================================
WARRANT AGREEMENT
BETWEEN
HANOVER DIRECT, INC.
AND
SEARS SHOP AT HOME SERVICES, INC.
_______________________
Dated as of January 1, 1994
For Up To 7,000,000 Shares
of Common Stock
===============================================================================
<PAGE> 2
WARRANT AGREEMENT, dated as of January 1, 1994 (this
"Agreement"), between HANOVER DIRECT, INC., a Delaware corporation (the
"Company"), and SEARS SHOP AT HOME SERVICES, INC., a Delaware corporation
("Sears").
WHEREAS, the Company, through its wholly-owned subsidiary,
Hanover Ventures, Inc. ("Hanover Ventures"), is desirous of obtaining certain
rights to marketing lists owned by Sears in order to sell various products to
certain customers identified thereon, which rights, and the terms and
conditions of the exercise thereof, are set forth in a certain License
Agreement, dated as of the date hereof (the "License Agreement"), between
Hanover Ventures, as licensee, and Sears, as licensor; and
WHEREAS, as an inducement to Sears to enter into the License
Agreement and grant the rights thereunder, the Company proposes to issue to
Sears a warrant (the "Warrant") to purchase up to an aggregate of 7,000,000
shares (the "Warrant Shares") of the Company's Common Stock, par value $0.66
2/3 per share (the "Common Stock"), for an exercise price as set forth herein,
all upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Issuance of Warrant; Form of Warrant Certificate.
Concurrently with the execution of this Agreement, the Company will issue and
deliver the Warrant to Sears. The text of the Warrant Certificate (the
"Warrant Certificate") and the form of election to purchase Warrant Shares to
be printed on the reverse thereof shall be as set forth in Annex A attached
hereto. The Warrant Certificate shall be dated the date hereof and shall be
executed on behalf of the Company by the manual or facsimile signature of the
Chairman of the Board, President or Vice President of the Company, under its
corporate seal, affixed or in facsimile, attested to by the manual or facsimile
signature of the Secretary or an Assistant Secretary of the Company and shall
bind the Company notwithstanding that such individuals or any one of them shall
have ceased to hold such offices prior to the delivery of the Warrant Shares.
2. Issuance. The Warrant Certificate shall be issued in
the name of "Sears Shop At Home Services, Inc." and the Company shall be
entitled to treat Sears as the owner in fact thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in the
Warrant Certificate on the part of any other
<PAGE> 3
person, and shall not be liable for any transfer of the Warrant Certificate or
the Warrant, in whole or in part, except as provided in Section 3(a) hereof.
3. Transfer of Warrant and Warrant Shares.
(a) Transferability. The Warrant is not and shall not be
transferable except to an "affiliate" (as such term is defined for purposes of
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act")) of Sears. The Warrant shall be transferable only upon the
surrender thereof, duly endorsed by the holder thereof or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, in each case accompanied by
any necessary transfer tax or other governmental charge imposed upon transfer,
or evidence of the payment thereof. In all cases of transfer by an attorney,
the original power of attorney, duly approved, or an official copy thereof,
duly certified, shall be deposited with the Company. Upon any transfer, the
Company shall promptly deliver a new Warrant Certificate to the person entitled
thereto, which Warrant Certificate shall be identical in all respects to the
Warrant Certificate surrendered except for the name of the holder thereof.
Notwithstanding the foregoing, the Company shall have no obligation to cause
the Warrant to be transferred to any person, unless the holder of the Warrant
shall furnish to the Company evidence of compliance with the Securities Act, in
accordance with the provisions of this Section 3.
(b) Disposal. Sears covenants to the Company that Sears
will not dispose of the Warrant or any Warrant Shares except pursuant to (i) an
effective Registration Statement or (ii) an opinion of counsel, reasonably
satisfactory to counsel for the Company, that an exemption from such
registration is available.
(c) Warrant Legend. The Warrant shall be subject to a
stop-transfer order and the Warrant Certificate shall bear the following legend
by which each holder of the Warrant shall be bound:
"THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT FILED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN OPINION
OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE."
-2-
<PAGE> 4
(d) Warrant Shares Legend. The Warrant Shares shall be
subject to a stop-transfer order and any certificates evidencing any such
shares ("Share Certificates") shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
FILED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE."
4. Term of Warrant; Number of Warrant Shares; Exercise
of Warrant.
(a) Term of Warrant; Exercise Price. The Warrant
entitles the holder thereof to purchase, at any time during the period
commencing on January 1, 1999 and ending at or before 5:00 p.m., New York City
time, on April 1, 1999 (the "Expiration Date"), up to that certain number of
whole shares of Common Stock as is specified in subparagraph (b) or
subparagraph (c) of this Section 4, as the case may be, subject to the
fulfillment of the respective conditions specified therein, in each case, at an
exercise price per share equal to Ten Dollars and Fifty-Seven Cents ($10.57)
(such price, as it may from time to time be adjusted pursuant to Section 4(e),
being hereinafter referred to as, the "Exercise Price").
(b) Number of Warrant Shares. Subject to the provisions
of this Agreement, and provided that (i) Hanover Ventures shall have achieved
both (A) at least Two Hundred Fifty Million Dollars ($250,000,000) in Licensed
Sales Revenues (as hereinafter defined) and (B) at least Thirty Million Dollars
($30,000,000) of Licensed EBIT (as hereinafter defined), in each case, during
the one (1) year period commencing on January 1, 1998 and ending on December
31, 1998, and (ii) Sears shall not at the time be in default in its obligations
under the License Agreement, the holder of the Warrant shall have the right,
which may be exercised in whole or in part, to purchase from the Company (and
the Company shall issue and sell to such holder) up to Three Million Five
Hundred Thousand (3,500,000) fully paid and non-assessable whole shares of
Common Stock upon surrender to the Company, or its duly authorized agent, of
the Warrant Certificate, with the form of election to purchase on the reverse
thereof duly filled in to indicate the number of Warrant Shares to be purchased
and otherwise duly completed and signed, and upon payment to the Company of an
amount equal to the product of the Exercise Price multiplied by the number of
shares being purchased as indicated in such form
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<PAGE> 5
of election (the "Warrant Price"). Payment of the applicable Warrant Price
shall be made in cash or by certified or official bank check or wire transfer
payable to the order of the Company.
(c) Number of Warrant Shares. Subject to the provisions
of this Agreement, and provided that (i) Hanover Ventures shall have achieved
both (A) at least Five Hundred Million Dollars ($500,000,000) in Licensed Sales
Revenues and (B) at least Sixty Million Dollars ($60,000,000) of Licensed EBIT,
in each case, during the one (1) year period commencing on January 1, 1998 and
ending on December 31, 1998, and (ii) Sears shall not at the time be in default
in its obligations under the License Agreement, the holder of the Warrant shall
have the right, which may be exercised in whole or in part, to purchase from
the Company (and the Company shall issue and sell to such holder) up to Seven
Million (7,000,000) fully paid and non-assessable whole shares of Common Stock
upon surrender to the Company, or its duly authorized agent, of the Warrant
Certificate, with the form of election to purchase on the reverse thereof duly
filled in to indicate the number of Warrant Shares to be purchased and
otherwise duly completed and signed, and upon payment to the Company of the
applicable Warrant Price. Payment of the applicable Warrant Price shall be
made in cash or by certified or official bank check or wire transfer payable to
the order of the Company.
(d) Definitions. For purposes of this Section 4, the
following terms shall have the meanings set forth below:
(i) "Licensed EBIT" shall mean earnings (as computed in
accordance with generally accepted accounting principles), before
deduction for interest expense and taxes (as computed in accordance
with generally accepted accounting principles), of Hanover Ventures
that were generated under any Program (as defined in the License
Agreement); and
(ii) "Licensed Sales Revenues" shall mean gross revenues (as
computed in accordance with generally accepted accounting principles)
of Hanover Ventures generated by sales of Products (as defined in the
License Agreement) pursuant to any Program (as defined in the License
Agreement) reduced by the aggregate amount of such revenues
attributable to Products returned to Hanover Ventures following the
sale thereof.
(e) Adjustments. (i) The number and type of Warrant Shares
purchasable by the holder of the Warrant Certificate is subject to adjustment,
from time to time, in the following events and manners. In the event of
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<PAGE> 6
(A) a stock split or other subdivision or a combination of
outstanding shares of Common Stock, the number of Warrant Shares shall
be increased or decreased in the same proportion as the increase or
decrease in the outstanding shares of Common Stock.
(B) a dividend or other distribution to holders of Common
Stock payable in the form of Common Stock (or in the form of options,
warrants, rights to acquire or other securities convertible into or
exchangeable for Common Stock ("Convertible Securities") without
payment of further consideration other than relinquishment of all or a
portion of the rights under such Convertible Securities), the number
of Warrant Shares shall be increased in proportion to the increase in
the number of outstanding shares of Common Stock as a result of such
dividend. For purposes of this clause (B), in the case of a dividend
or distribution payable in the form of such Convertible Securities,
the maximum number of shares of Common Stock issuable upon exercise,
exchange or conversion thereof shall be deemed to be distributed by
the Company at the time of issuance of such Convertible Securities but
the additional number of Warrant Shares resulting therefrom shall not
in fact be distributed to the holders of the Warrant or the Warrant
Shares, as the case may be, until the later of (x) exercise of the
Warrant or (y) such time as the holders of the Convertible Securities
convert such securities to Common Stock. No adjustment of the number
of Warrant Shares shall be made under this clause (B) upon issuance of
any shares of Common Stock pursuant to the exercise, conversion or
exchange of such Convertible Securities if any adjustment shall
previously have been made upon the issuance of such Convertible
Securities.
(C) the reclassification of the Company's capital stock or
any other similar event with respect to the Company's capital stock
(other than a change in par value or as a result of a stock split or
other subdivision or combination of the outstanding shares of Common
Stock) or the consummation by the Company of a business combination in
which the Company is not the surviving party (each an "Extraordinary
Corporate Transaction"), upon exercise of any Warrant, the holder
thereof shall be entitled to receive the same kind and number of
shares of stock and other securities, cash or other property as would
have been distributed to the holder in connection with such
Extraordinary Corporate Transaction had such holder exercised such
Warrant prior to such Extraordinary Corporate Transaction and prior to
the record date for any distribution in connection therewith to
holders of Common Stock. As a
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<PAGE> 7
condition precedent to any Extraordinary Corporate Transaction, the
Company shall make adequate provision to assure the rights of the
holder of the Warrant as provided for herein, including, without
limitation, the express written assumption by the surviving party, if
any, of the Company's obligations pursuant to this Agreement.
(D) the sale or issuance by the Company of Common Stock at a
price per share less than the fair market value thereof (determined in
the sole discretion of the Company's Board of Directors), the number
of Warrant Shares shall be adjusted by multiplying the number of
Warrant Shares by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on the date of such sale
or issuance plus the number of shares of Common Stock so sold or
issued, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such sale or issuance
plus the number of shares of Common Stock which the aggregate sale
price of the shares sold or issued would have purchased at the fair
market value thereof. For purposes of this clause (D), (x) if the
Company sells or issues Convertible Securities (other than pursuant to
dividends or distributions for which an adjustment is made pursuant to
clause (B) above and other than rights to subscribe for and purchase
shares of Common Stock for a price which represents a discount from
the then market value of the Common Stock of 20% or less), then the
maximum number of shares of Common Stock issuable upon exercise,
exchange or conversion of such Convertible Securities will be deemed
to be issued and sold by the Company at the time of issuance or sale
of such Convertible Securities, and (y) the sale price of such shares
of Common Stock shall be deemed to be the total amount received by the
Company for such issuance or sale plus the minimum amount of
additional consideration, if any, payable to the Company upon
exercise, exchange or conversion of such Convertible Securities. No
adjustment of the number of Warrant Shares shall be made under this
clause (D) upon issuance of any shares of Common Stock pursuant to the
exercise, conversion or exchange of such Convertible Securities if any
adjustment shall previously have been made upon the issuance of such
Convertible Securities. Sears agrees that neither the Company nor any
person associated with the Company shall have any liability to Sears
which is based upon, related to or flows from the fair value
determination made by the Company's Board of Directors and referred to
above.
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<PAGE> 8
The adjustments provided for in clauses (A) through (D) of this Section 4(e)
shall be effective upon the record date for determining the holders of Common
Stock for any dividend or other distribution referred to in such clauses or, if
earlier, upon the occurrence of the events specified in such clauses.
(ii) Whenever the number of Warrant Shares is adjusted as
provided in subparagraph (e)(i) of this Section 4, the Exercise Price shall be
adjusted such that the aggregate Exercise Price in respect of the maximum
number of Warrant Shares that may be purchased hereunder (i.e., 7,000,000
shares as of the date hereof, as adjusted from time to time pursuant to
subparagraph (e)(i)) shall be equal to $73,990,000.
(iii) Upon the occurrence of any event referred to in
subparagraph (e)(i) of this Section 4 which requires an adjustment in the
number of Warrant Shares, the Company shall give prompt written notice thereof
to the holder of the Warrant, which notice shall state the maximum number of
Warrant Shares that may be purchased under the Warrant and the Exercise Price,
in each case, both before and after any adjustment thereto as a result of such
event, and set forth in reasonable detail the calculation of such number of
Warrant Shares, as adjusted, and such Exercise Price, as adjusted, and the
facts upon which such adjustment and calculation are based.
(f) Issuance of Share Certificates. Subject to Section 5
hereof, upon such surrender of the Warrant Certificate, and payment of the
applicable Warrant Price as aforesaid, the Company shall issue and cause to be
delivered to the holder of the Warrant or upon the written order of such holder
and (subject to receipt of evidence of compliance with the Securities Act in
accordance with the provisions of Section 3 of this Agreement) in such name or
names as the holder of the Warrant may designate, one or more Share
Certificates for the number of whole Warrant Shares so purchased.
(g) Exercise of Warrant. If permitted by applicable law,
such Share Certificate or Share Certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of the Warrant Shares evidenced thereby as of the
date of the surrender of the Warrant Certificate and payment of the applicable
Warrant Price. The Warrant shall be exercisable on or before the Expiration
Date during the period specified in Section 4(a), at the election of the holder
thereof, either as an entirety or for part of the Warrant Shares specified
therein. If the total number of Warrant Shares represented by the Warrant
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<PAGE> 9
Certificate shall not be purchased in full upon the exercise of the Warrant,
the holder of the Warrant (for itself and any prior holder of the Warrant,
including, without limitation, Sears) shall be deemed to have relinquished any
and all rights to purchase the balance of the Warrant Shares previously
represented by the Warrant Certificate and the Warrant Certificate shall be
deemed to be canceled.
5. Payment of Taxes. The Company will pay all
documentary stamp taxes, if any, attributable to the initial issuance of
Warrant Shares upon the exercise of the Warrant; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or delivery of the Warrant or the
Warrant Certificate (either upon the initial delivery of the Warrant pursuant
to this Agreement or in connection with any permitted transfer of the Warrant
Certificate) or of any Share Certificate for Warrant Shares in a name other
than that of the holder of the Warrant.
6. Mutilated or Missing Certificate. In case the
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
shall issue and deliver in exchange and in substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate identical in all respects to the Warrant Certificate so
mutilated, lost, stolen or destroyed; but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and of indemnity or bond, if requested, also satisfactory to the
Company. An applicant for such substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
7. Certain Representations, Warranties and
Covenants of the Company.
(a) Reservation of Warrant Shares. For the benefit of
Sears and any permitted transferee of the Warrant Certificate, the Company
hereby represents and warrants that the Company has made available, and
covenants and agrees that at all times until the earlier of exercise or
expiration of the Warrant that the Company will continue to make available, out
of the authorized and unissued shares of Common Stock or the authorized and
issued shares of Common Stock held in the Company's treasury, the full number
of shares of Common Stock as may be sufficient, at such time, to provide for
the exercise of the rights of purchase represented by the Warrant. The Company
will keep a copy of this Agreement on file with the transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent
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<PAGE> 10
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase represented by the Warrant.
Furthermore, the Company agrees timely to supply such Transfer Agent with duly
executed Share Certificates for the Warrant Shares.
(b) Due Organization, Etc. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority to enter into this
Agreement and to issue the Warrant Certificate, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
(c) Authorization, Enforceability, Etc. Each of this
Agreement and the Warrant has been duly and validly executed and delivered by
the Company and each constitutes a valid and binding agreement of the Company
enforceable in accordance with its respective terms (except in each such case
as enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and except as rights to indemnity and
contribution hereunder and thereunder may be limited by federal or state
securities laws). The execution, delivery and performance of this Agreement
and the Warrant by the Company and compliance by the Company with the terms and
provisions hereof and thereof do not and will not violate any provision of any
law, rule or regulation, order, writ, judgment, injunction, statute, decree,
determination or award having applicability to the Company, or any of its
properties or assets. The execution, delivery and performance of this
Agreement and the Warrant by the Company and compliance by the Company with the
terms and provisions hereof and thereof do not and will not (i) conflict with
or result in a breach of or constitute a default under any provision of the
charter or by-laws of the Company; or (ii) give rise to an event of default
which may result in the acceleration of any material amount of indebtedness for
borrowed money of the Company or an event of default under any other material
contractual obligation of the Company. The Company covenants that upon
issuance and delivery against payment of the applicable Warrant Price pursuant
to the terms of this Agreement, all Warrant Shares will be validly issued,
fully paid and non-assessable outstanding shares of Common Stock of the
Company. The Company represents and warrants that the number of outstanding
shares of Common Stock of the Company, as of December 31, 1993, is 63,724,756.
Except as set forth on Schedule 1
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<PAGE> 11
attached hereto, there are no outstanding options, subscriptions, convertible
securities, warrants or other rights, agreements or commitments to subscribe
for or purchase or acquire from the Company, or any contracts providing for the
issuance of, or the granting of rights to acquire, any capital stock of the
Company or any securities convertible or exchangeable for any such capital
stock. There are no preemptive rights with respect to and there are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of the Company.
(d) SEC Reports. The Common Stock is registered pursuant
to Section 12(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Company has been subject to the filing requirements of
Section 13 of the Exchange Act for at least the last 12 months and has filed
all reports required to be filed by it pursuant to such section and the rules
and regulations promulgated by the Securities and Exchange Commission (the
"Commission") thereunder (the "SEC Reports") during such period. Such SEC
Reports, when filed, complied with all applicable requirements under the
Exchange Act and the rules and regulations promulgated by the Commission
thereunder and did not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Prior
to exercise of the Warrant, the Company will file all SEC Reports required to
be filed by it during the twelve months prior to such exercise of the Warrant
and, within a reasonable period after the filing thereof with the Commission or
the delivery thereof to holders of Common Stock, as the case may be, will
furnish to the holders of the Warrant copies of such SEC Reports and of all
annual, quarterly or other reports, financial statements and other financial
information and any proxy or information statements made available by the
Company during such period to the holders of the Common Stock. The SEC Reports
referred to in the previous sentence, when filed with the Commission or
initially made available to the holders of the Common Stock, will comply with
all applicable requirements under the Exchange Act and the rules and
regulations promulgated by the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) Litigation. There is no pending or, to the best
knowledge of the Company, threatened action, suit or proceeding to which the
Company is or, to the best knowledge of the Company, may be a party that
purports to draw into question the legality, validity or enforceability of this
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<PAGE> 12
Agreement, the Warrant or any of the transactions contemplated hereby or
thereby.
(f) Opinion of Counsel. Within a reasonable period after
the execution and delivery hereof, counsel to the Company shall deliver to
Sears its written opinion, which opinion, in form and substance, and counsel
shall both be reasonably acceptable to Sears, to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of
Delaware;
(ii) The Company has all requisite corporate power
and authority to enter into this Agreement and to issue the Warrant
Certificate, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby;
(iii) This Agreement and the Warrant have been duly
and validly executed and delivered by the Company and constitute valid
and binding agreements of the Company enforceable in accordance with
their terms (except in each such case as enforceability may be limited
by bankruptcy, insolvency, moratorium, reorganization and other
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought and except
as rights to indemnity and contribution hereunder and thereunder may
be limited by federal or state securities laws); and
(iv) Upon issuance and delivery against payment of
the applicable Warrant Price pursuant to the terms of this Agreement,
all Warrant Shares will be validly issued, fully paid and
non-assessable.
(g) Counsel Opinion. Upon exercise of the Warrant by any
holder and payment of the applicable Warrant Price as provided in this
Agreement, counsel to the Company shall deliver to such holder its written
opinion, which opinion, in form and substance, and counsel shall both be
reasonably acceptable to such holder, to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of
Delaware; and
(ii) Such holder's Warrant Shares are validly
issued, fully paid and non-assessable.
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<PAGE> 13
(h) Officer's Certificate. Upon exercise of the Warrant
by any holder and payment of the applicable Warrant Price as provided in this
Agreement, the Company shall deliver to such holder a certificate executed by
an authorized officer of the Company to the effect that each of the
representations and warranties of the Company contained in subparagraphs (a)
through (e) of this Section 7 are true and correct in all material respects on
and as of such exercise date as though such representations and warranties were
made on and as of such date.
8. Registration Rights.
(a) Right to Request Registration. From and after the
date upon which the Warrant shall become exercisable in accordance with Section
4 of this Agreement (but not before), the holder of the Warrant Certificate or
the holder or holders of the Warrant Shares shall have the right to request,
from time to time, that the Company register the Warrant Shares as provided in
this Section 8.
(b) Incidental Registration. If the Company at any time
proposes to file on its behalf a Registration Statement under the Securities
Act on any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Exchange Act) of the Company, it will give written notice to the holder of the
Warrant Certificate or the holder or holders of the Warrant Shares at least
forty-five (45) days before the initial filing with the Commission of such
Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of Warrant
Shares as such holder or holders may request; provided, however, that the
Company shall not be required to effect more than two such registrations
pursuant to this Section 8(b) in which Warrant Shares are registered (subject
to the proviso of the penultimate sentence of this Section 8(b)). Nothing in
this Section 8 shall preclude the Company from discontinuing the registration
of its securities being effected on its behalf under this Section 8 at any time
prior to the effective date of the registration relating thereto for any
reason; provided that, in such case, such registration shall not be deemed to
be one of the two incidental registrations available to holders of Warrant
Shares pursuant to this Section 8(b).
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<PAGE> 14
The holder of the Warrant Certificate or the holder or holders of any
Warrant Shares desiring to have Warrant Shares registered under this Section
8(b) shall advise the Company in writing within thirty (30) days after the date
of receipt of such offer from the Company, setting forth the amount of such
Warrant Shares for which registration is requested. The Company shall
thereupon include in such filing the number of Warrant Shares for which
registration is so requested, subject to the next sentence, and shall use its
best efforts to effect registration under the Securities Act of such Warrant
Shares. If the managing underwriter of a proposed public offering shall advise
the Company that, in its opinion, the distribution of the Warrant Shares
requested to be included in the registration concurrently with the securities
being registered by the Company would adversely affect the distribution of such
securities by the Company, at the price and upon the terms approved by the
Company, then the number of shares of Common Stock which such underwriter
believes, in its sole discretion, may be sold at such price and upon such terms
shall be allocated first to the Company, then to any selling security holder
exercising a contractual demand registration right and finally, on a pro rata
basis, among all other selling security holders of shares then being registered
(including, without limitation, the holder of the Warrant or the holder or
holders of any Warrant Shares); provided that, in such case, such registration
shall not be deemed to be one of the two incidental registrations available to
holders of Warrant Shares pursuant to this Section 8(b). Except as otherwise
provided in Section 8(d), all expenses of such registration shall be borne by
the Company.
(c) Registration Procedures. If the Company is registering
any of its securities under the Securities Act pursuant to the provisions of
this Section 8, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to
cause such Registration Statement to become and remain effective for a
period of time required for the disposition of such securities by the
holders thereof, which period shall not exceed nine (9) months;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such Registration Statement until the earlier of
such time
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<PAGE> 15
as all of such securities have been disposed of in a public offering
or the expiration of nine (9) months;
(iii) furnish to such selling security holders such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such selling security
holders may reasonably request;
(iv) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United
States and Puerto Rico as each holder of such securities shall
reasonably request (provided, however, that (A) if such registration
and qualification is in a jurisdiction at the request of any holder of
the Warrant Certificate or Warrant Shares and the Company would not
have otherwise registered or qualified in such jurisdiction, the
expenses for such registration and qualification shall be borne by
such requesting holder, and (B) the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified or to file any general
consent to service of process as a result of such registration and
qualification in such jurisdiction), and do such other reasonable acts
and things as may be required of it to enable such holder to
consummate the disposition in such jurisdiction of the securities
covered by such Registration Statement; and
(v) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than 18 months after the effective date of the Registration
Statement, an earnings statement covering the period of at least 12
months beginning with the first full month after the effective date of
such Registration Statement, which earnings statements shall satisfy
the provisions of Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 8 in respect of the
securities which are to be registered at the request of any holder of the
Warrant Certificate or Warrant Shares that such holder shall furnish to the
Company such information regarding such holder and the securities held by such
holder and the intended method of disposition thereof as the Company shall
reasonably
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<PAGE> 16
request and as shall be required in connection with the action taken by the
Company.
(d) Expenses. All expenses incurred in complying with this
Section 8, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), printing expenses, and fees and disbursements of
counsel for the Company, shall be paid by the Company, except that any holder
requesting registration pursuant hereto shall pay all of its own expenses and
any incremental costs to the Company of including such holder's Warrant Shares
in such registration, including, without limitation: fees, discounts and
commissions to any underwriter for underwriting such holder's Warrant Shares;
the additional fees, if any, of counsel to any such underwriter attributable to
inclusion of such holder's Warrant Shares in such registration; and all
transfer taxes in respect of the securities sold by such holder.
(e) Indemnification and Contribution.
(i) In the event of any registration of any of the Warrant
Shares under the Securities Act pursuant to this Section 8, the
Company shall indemnify and hold harmless each holder of the Warrant
Shares, such holder's directors and officers and each other person
(including each underwriter) who participated in the offering of the
Warrant Shares and each other person, if any, who controls such holder
or such participating person within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several,
to which such holder or any such director or officer or any
participating person or controlling person may become subject under
the Securities Act or any other statute or at common law, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any actual or alleged
untrue statement of a material fact contained, on the effective date
thereof, in any Registration Statement under which Warrant Shares were
registered under the Securities Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any actual or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such holder or
such director, officer or participating person or controlling person
for any legal or any other expenses reasonably incurred by such holder
or such director, officer or participating person or controlling
person in connection with investigating or defending any such
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<PAGE> 17
loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon
any untrue statement or omission made in such Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to
the Company by such holder specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or such director,
officer or participating person or controlling person, and shall
survive the transfer of such securities by such holder. The
indemnification of each holder of the Warrant Shares with respect to a
preliminary prospectus shall not apply to the extent that such losses,
claims, damages or liabilities (or actions in respect thereof) result
from the fact that the holder claiming indemnification failed to
deliver a final prospectus, if the Company has complied with its
obligation under Section 8(c)(iii) to furnish copies of such final
prospectus to such holder claiming indemnification.
(ii) Each holder of any Warrant Shares, by acceptance
thereof, agrees to indemnify and hold harmless the Company, its
directors and officers and each other person, if any, who controls the
Company within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which the Company
or any such director or officer or controlling person may become
subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based solely upon (i)
any actual or alleged untrue statement of a material fact contained,
on the effective date thereof, in any Registration Statement under
which Warrant Shares were registered under the Securities Act at the
request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (ii) any
actual or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such statements or omissions
were made in reliance upon and in conformity with written information
furnished to the Company by such holder specifically for use therein.
(iii) If the indemnification provided for in this Section 8
from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any
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<PAGE> 18
losses, claims, damages, liabilities or expenses referred to therein,
then the 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 indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
by, or related to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party under this Section 8 as
a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this subparagraph (iii) of this Section
8(e) 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. 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.
(f) Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 8, the restrictions imposed by Section 3
of this Agreement upon the transferability of the Warrant, the Warrant
Certificate and the Warrant Shares and the legend requirements of Section 3(c)
and (d) shall terminate as to the Warrant or any particular Warrant Share (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto, or (ii) when the Company
shall have delivered to the holder or holders thereof the written opinion of
counsel to the Company, which opinion and counsel shall each be reasonably
satisfactory to such holder or holders, stating that the transferability
portion of such legend is not required in
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<PAGE> 19
order to ensure compliance with the Securities Act, or (iii) when the holder
thereof shall have delivered to the Company the written opinion of counsel to
the holder, which opinion and counsel shall each be reasonably satisfactory to
the Company, stating that the transferability portion of such legend is not
required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by Section 3 of this Agreement shall terminate as to the
Warrant, as hereinabove provided, the holder thereof shall be entitled to
receive from the Company, at the expense of the Company, upon the surrender of
the Warrant Certificate, a new Warrant Certificate not bearing the restrictive
legend required by Section 3(c) but otherwise identical in all respects to the
Warrant Certificate surrendered. Wherever the restrictions imposed by such
Section 3 shall terminate as to any Warrant Share, as hereinabove provided, the
holder thereof shall be entitled to receive from the Company, at the Company's
expense, upon the surrender of the Share Certificate representing such Warrant
Share, a new Share Certificate representing such Warrant Share not bearing the
restrictive legend set forth in Section 3(d) but otherwise identical in all
respects to the Share Certificate surrendered.
(g) Listing on Securities Exchange. From and after the date
upon which the Warrant shall become exercisable in accordance with Section 4 of
this Agreement (but not before), if the Company shall have any shares of Common
Stock listed on any securities exchange, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of the Warrant so long as any shares
of Common Stock shall be so listed.
(h) Certain Limitations on Registration Rights.
Notwithstanding the other provisions of this Section 8, the Company shall not
be obligated to register any Warrant Shares if (x) the Company delivers to the
holder thereof the written opinion of counsel to the Company, which opinion and
counsel shall each be reasonably satisfactory to such holder, stating that the
sale or other disposition of such holder's Warrant Shares, in the manner
proposed by such holder (or, if such holder has engaged an investment banking
firm at its expense, in the manner proposed by such investment banking firm),
may be effected without registering such Warrant Shares under the Securities
Act, and (y) the failure of the Company to register such Warrant Shares will
not result in a five percent (5%) reduction in the net proceeds to be received
by such holder in connection with such sale or other disposition.
-18-
<PAGE> 20
9. Rights as Stockholders; Notices to Holders.
Nothing contained in this Agreement or in the Warrant shall be construed as
conferring upon the holder of the Warrant or its permitted transferees the
right to vote or to receive dividends or to consent to or receive notice as
stockholders in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company.
10. Miscellaneous.
(a) Notices. Any notice, demand or other communication
authorized or required pursuant to this Agreement to be given or made shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
(i) if to the Company, to:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Executive Vice President,
General Counsel and Secretary
and (ii) if to the holder of the Warrant
Certificate, to:
Sears Shop At Home Services, Inc.
3333 Beverly Road
E,4 259B
Hoffman Estates, Illinois 60179
Attention: E. Vachel Pennebaker
President and Chief Executive Officer
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<PAGE> 21
with a copy to:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19901
or, in either case, to such other address as may be designated by notice as
provided in this Section 10(a).
(b) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflict of laws.
(c) Amendments and Waivers. This Agreement may be
amended, modified or superseded only by written instrument signed by each of
the parties hereto, and any of the terms, provisions and conditions hereof may
be waived, only by a written instrument signed by the party waiving such term,
provision or condition.
(d) Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or Sears, as the case may
be, shall bind and inure to the benefit of their respective successors, assigns
and permitted transferees hereunder.
(e) Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company and Sears, and their respective successors, assigns and permitted
transferees hereunder, any legal or equitable right, remedy or claim under this
Agreement, but this Agreement shall be for the sole and exclusive benefit of
the Company and Sears and their respective successors, assigns and permitted
transferees hereunder.
(f) Captions, Etc. The captions of the sections and
subsections of this Agreement have been inserted for convenience only and shall
have no substantive effect. Unless the context otherwise requires, terms used
herein shall be equally applicable to the singular and plural forms thereof.
(g) Counterparts. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts together shall constitute but one and the same
instrument.
(h) Termination. This Agreement shall terminate at the
close of business on the Expiration Date or
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<PAGE> 22
any earlier date when the Warrant shall have been exercised, whether in full or
in part, provided that the registration and other rights provided for in
Section 8 of this Agreement shall remain in full force and effect to the extent
provided for therein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day, month and year first above
written.
HANOVER DIRECT, INC.
By:
-----------------------------
Name:
Title:
SEARS SHOP AT HOME SERVICES, INC.
By:
-----------------------------
Name:
Title:
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<PAGE> 23
SCHEDULE 1
HANOVER DIRECT, INC.
SCHEDULE OF OUTSTANDING
OPTIONS, SUBSCRIPTIONS, CONVERTIBLE SECURITIES,
WARRANTS AND OTHER SIMILAR RIGHTS
RELATING TO THE CAPITAL STOCK OF THE COMPANY
<PAGE> 24
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT FILED PURSUANT TO
THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN OPINION OF COUNSEL,
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THIS
CORPORATION, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
No. 1 Up To 7,000,000 Warrant Shares
Dated: January 1, 1994
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON APRIL 1, 1999
HANOVER DIRECT, INC.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received Sears Shop At Home
Services, Inc., a Delaware corporation ("Sears"), or its successor, assign or
permitted transferee (the "Holder"), is the owner of this Warrant and entitled
to purchase, at any time during the period commencing on January 1, 1999 and
ending at or before 5:00 p.m., New York City time, on April 1, 1999 (the
"Expiration Date"), up to that certain number of fully paid and nonassessable
whole shares of Common Stock, $0.66 2/3 par value (the "Common Stock"), of
Hanover Direct, Inc., a Delaware corporation (the "Company"), as is set forth
below, subject to the fulfillment of the conditions specified hereinbelow, at
an exercise price per share equal to Ten Dollars and Fifty-Seven Cents ($10.57)
(such price, as it may from time to time be adjusted pursuant to the provisions
of the Warrant Agreement (as hereinafter defined), being hereinafter referred
to as, the "Exercise Price").
Subject to the provisions of the Warrant Agreement, and
provided that (i) Hanover Ventures, Inc. ("Hanover Ventures") shall have
achieved both (A) at least Two Hundred Fifty Million Dollars ($250,000,000) in
Licensed Sales Revenues (as hereinafter defined) and (B) at least
<PAGE> 25
Thirty Million Dollars ($30,000,000) of Licensed EBIT (as hereinafter defined),
in each case, during the one (1) year period commencing on January 1, 1998 and
ending on December 31, 1998, and (ii) Sears shall not at the time be in default
in its obligations under the License Agreement dated as of January 1, 1994,
between Hanover Ventures and Sears (the "License Agreement"), the Holder hereof
shall have the right, which may be exercised in whole or in part, to purchase
from the Company (and the Company shall issue and sell to such Holder) up to
Three Million Five Hundred Thousand (3,500,000) fully paid and non-assessable
whole shares of Common Stock upon surrender to the Company, or its duly
authorized agent, of this Warrant Certificate, with the form of election to
purchase on the reverse hereof duly filled in to indicate the number of Warrant
Shares to be purchased and otherwise duly completed and signed, and upon
payment to the Company of an amount equal to the product of the Exercise Price
multiplied by the number of shares being purchased as indicated in such form of
election (the "Warrant Price"). Payment of the applicable Warrant Price shall
be made in cash or by certified or official bank check or wire transfer payable
to the order of the Company.
Subject to the provisions of the Warrant Agreement, and
provided that (i) Hanover Ventures shall have achieved both (A) at least Five
Hundred Million Dollars ($500,000,000) in Licensed Sales Revenues and (B) at
least Sixty Million Dollars ($60,000,000) of Licensed EBIT, in each case,
during the one (1) year period commencing on January 1, 1998 and ending on
December 31, 1998, and (ii) Sears shall not at the time be in default in its
obligations under the License Agreement, the Holder hereof shall have the
right, which may be exercised in whole or in part, to purchase from the Company
(and the Company shall issue and sell to such Holder) up to Seven Million
(7,000,000) fully paid and non-assessable whole shares of Common Stock upon
surrender to the Company, or its duly authorized agent, of this Warrant
Certificate, with the form of election to purchase on the reverse hereof duly
filled in to indicate the number of Warrant Shares to be purchased and
otherwise duly completed and signed, and upon payment to the Company of the
applicable Warrant Price. Payment of the applicable Warrant Price shall be
made in cash or by certified or official bank check or wire transfer payable to
the order of the Company.
For purposes of this Warrant, the following terms shall have
the meanings set forth below:
(i) "Licensed EBIT" shall mean earnings (as computed in
accordance with generally accepted accounting principles), before
deduction for interest expense and taxes (as computed in accordance
with
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<PAGE> 26
generally accepted accounting principles), of Hanover Ventures that
were generated under any Program (as defined in the License
Agreement); and
(ii) "Licensed Sales Revenues" shall mean gross revenues (as
computed in accordance with generally accepted accounting principles)
of Hanover Ventures generated by sales of Products (as defined in the
License Agreement) pursuant to any Program (as defined in the License
Agreement) reduced by the aggregate amount of such revenues
attributable to Products returned to Hanover Ventures following the
sale thereof.
The number and type of Warrant Shares purchasable by the
Holder of this Warrant Certificate and the Exercise Price are subject to
appropriate adjustment, from time to time, in accordance with the provisions of
the Warrant Agreement. If the total number of Warrant Shares represented by
this Warrant Certificate shall not be purchased in full upon the exercise of
the Warrant, the Holder hereof (for itself and any prior Holder hereof,
including, without limitation, Sears) shall be deemed to have relinquished any
and all rights to purchase the balance of the Warrant Shares previously
represented by this Warrant Certificate and this Warrant Certificate shall be
deemed to be canceled.
This Warrant Certificate is subject to and entitled to the
benefits of all of the terms, provisions and conditions of that certain Warrant
Agreement, dated as of January 1, 1994 (the "Warrant Agreement"), between the
Company and Sears Shop At Home Services, Inc., which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities hereunder of
the Company and the Holder of this Warrant Certificate. Copies of the Warrant
Agreement are on file at the principal office of the Company.
Sears may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding, and until transfer hereof in
accordance with the terms of the Warrant Agreement, the Company may treat Sears
as the owner for all purposes.
The Holder hereof shall not be entitled to vote or to receive
dividends or be deemed the holder of Common Stock or any other securities of
the Company which may at any time
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<PAGE> 27
be issuable on the exercise hereof for any purpose, nor shall anything
contained in the Warrant Agreement or herein be construed to confer upon such
Holder, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until
the Warrant evidenced by this Warrant Certificate shall have been exercised and
the Common Stock purchasable upon the exercise hereof shall have become
deliverable as provided in the Warrant Agreement.
IN WITNESS WHEREOF, Hanover Direct, Inc. has caused the
signature (or facsimile signature) of its President to be printed hereon and
its corporate seal (or facsimile) to be printed hereon, attested by the
signature (or facsimile signature) of its Secretary.
HANOVER DIRECT, INC.
By:
--------------------------
Jack E. Rosenfeld
President
[corporate seal]
Attest:
-----------------------
Michael P. Sherman
Secretary
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<PAGE> 28
(Form of Reverse Side
of Warrant Certificate)
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(To be executed upon exercise of Warrant)
To Hanover Direct, Inc.:
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the Warrant Certificate on the reverse side
hereof for, and to purchase thereunder, ________ shares of Common Stock, as
provided for therein, and tenders herewith payment of the applicable Warrant
Price in full in the form of cash or a certified or official bank check or wire
transfer in the amount of $__________.
Please issue a certificate or certificates for such shares of
Common Stock in the name of(1):
PLEASE INSERT Name: _________________________
SOCIAL SECURITY OR (Please Print Name and Address)
OTHER IDENTIFYING
NUMBER: Address: _____________________
__________
Signature:
By
-------------------------------
Name:
Title:
NOTE: Please provide proof of authority to sign in
the form of an incumbency certificate or
other evidence satisfactory to the Company.
The above signature, name and title should
correspond exactly with such proof of
authority.
Dated: ________ __, 19__
____________________
(1) If more than one entity is to receive shares, please
indicate the required information for, and the desired
number of shares to be held by, each such entity.
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<PAGE> 1
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 16,
1995, between HANOVER DIRECT, INC., a Delaware corporation (the "Company"), and
F.L. Holdings, Inc., Roland A. E. Franklin, Jonathan Franklin, Martin E.
Franklin, Floyd Hall, Frederick Field, Homer G. Williams, Frank Martucci, Norm
Thompson Outfitters, Inc. and Capital Consultants Inc., as agent (collectively,
the "Sellers").
R E C I T A L S:
A. The parties hereto are parties to a Stock Purchase
Agreement, dated the date hereof, between the Company, Hanover Holdings, Inc.,
Aegis Safety Holdings, Inc. and the Sellers (the "Purchase Agreement").
B. Pursuant to the Purchase Agreement, the Company is issuing
to the Sellers an aggregate of 634,900 shares of the Company's Series B
Convertible Additional Preferred Stock, par value $.01 and stated value $10 per
share (the "Series B Preferred"), which are convertible into or redeemable for
shares of the Company's Common Stock, par value $.66-2/3 per share (the "Common
Stock").
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. Capitalized terms used herein
which are not otherwise defined herein and which are defined in, or by
reference in, the Purchase Agreement shall have the meanings given therein.
For the purposes of this Agreement, the following terms shall have the
following meanings:
"Agreement" shall mean this Registration Rights Agreement, as
the same may be amended, modified or supplemented from time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"Holder" shall mean each of the Sellers and each Person to
whom Registrable Securities are transferred so long as such Person holds such
Registrable Securities.
<PAGE> 2
"Registrable Securities" shall mean the shares of Common Stock
issued upon conversion or redemption of the Series B Preferred and any
securities issued in exchange for or substitution of any thereof, or as a
result of a stock split or as a dividend or other distribution in respect of
any thereof. As to any particular Registrable Securities, once issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) they shall have been
disposed of pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force (and the Holder thereof shall have received an
opinion of independent counsel for the Holder reasonably satisfactory to the
Company to the foregoing effects), or (iv) they shall have ceased to be
outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement, including without
limitation, (i) all SEC and National Association of Securities Dealers, Inc. or
stock exchange registration, listing and filing fees, (ii) all fees and
expenses of complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel for the Company, the underwriters or the
Holders in connection with blue sky qualifications of the Registrable
Securities), (iii) all printing, messenger, telephone and delivery expenses and
transfer taxes, (iv) the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such
performance and compliance, (v) the reasonable fees and disbursements of one
law firm retained in connection with each such registration by the Holders of
Registrable Securities being registered and selected by Martin E. Franklin
("Sellers' Designee"), (vi) any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, and (vii) the reasonable
fees and expenses of any special experts retained in connection with the
requested registration, but excluding underwriting discounts and commissions of
underwriters, agents or dealers relating to the distribution of the Registrable
Securities, if any.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to
<PAGE> 3
include a reference to the comparable section, if any, of any such similar
federal statute.
"SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
2. Registration.
(a) Timing. The Company will use its best efforts to
effect the registration under the Securities Act of all the Registrable
Securities on or before August 16, 1995, to the extent necessary to permit the
disposition (in accordance with the intended method or methods of distribution
thereof as specified at the time by Sellers' Designee) of such Registrable
Securities; provided, however, that the Company may delay the filing of such
registration statement relating to the Registrable Securities for not more than
90 days following such date if, in the reasonable judgment of the Board of
Directors of the Company, such filing is not in the best interests of the
Company at such time. Such registration shall be effected by the preparation
and filing by the Company with the SEC of a registration statement on Form S-3
or other similar form with respect to the offering and sale by the Holders of
the Registrable Securities on a continuous or delayed basis in the future
pursuant to Rule 415 under the Securities Act.
(b) Expenses. The Company will pay all Registration
Expenses in connection with a registration of Registrable Securities requested
pursuant to this Section 2.
(c) Effective Registration Statement. A registration
pursuant to this Section 2 will be deemed to have been effected if (i) the
registration statement filed in connection with such registration shall have
become effective under the Securities Act (provided that if, after such
registration statement has become effective, the offering of Registrable
Securities pursuant to such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental
agency or court, such registration will be deemed not to have been effected),
or (ii) the Company is unable to complete such registration statement because
one or more Holders of Registrable Securities thus being registered failed to
provide information for use in such registration statement requested reasonably
and in a timely manner by the Company or because such Holders otherwise failed
to do such reasonable acts and things as may be requested in writing in a
timely manner by the Company to comply with the requirements of law.
-3-
<PAGE> 4
3. Incidental Registration.
(a) Right to Include Registrable Securities. If at any
time prior to the effectiveness of the registration pursuant to Section 2 the
Company proposes to register any of its equity securities under the Securities
Act (other than a registration on Form S-4 or Form S-8), whether or not for
sale for its own account, it will each such time give 10 days prior written
notice to all Holders of Registrable Securities of its intention to do so and
of such Holders' rights under this Section 3. Upon the written request of any
such Holder made within 20 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method of disposition thereof), the Company will
use its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holders thereof, to the extent requisite to permit the disposition (in
accordance with such intended methods thereof) of the Registrable Securities so
to be registered; provided that if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company
may, at its election, give written notice of such determination to each Holder
of Registrable Securities and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration,
without prejudice, however, to the rights of Holders under Section 2 herein.
No registration effected under this Section 3 shall relieve the Company of its
obligations to effect registrations upon request under Section 2 herein. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Section 3.
(b) Priority in Incidental Registrations. If a
registration pursuant to this Section 3 involves an underwritten offering and
the managing underwriter advises the Company in writing that, in its opinion,
the number of securities requested to be included in such registration exceeds
the number which would have an adverse effect on such offering, including the
price at which such shares can be sold, the Company will include in such
registration the maximum number of securities which it is so advised can be
sold without such an adverse effect, allocated as follows:
(A) first, all securities proposed to be registered by
the Company for its own account, and
-4-
<PAGE> 5
(B) second, all securities requested to be included in
such registration under this Section 3 and any other securities
proposed to be registered by the Company other than for its own
account (if necessary, allocated pro rata among all such requesting
Holders on the basis of the relative number of shares of securities
each such Holder has requested to be included in such registration).
4. Registration Procedures. Whenever the Company
effects or causes the registration of the Registrable Securities under the
Securities Act as provided in this Agreement, the Company will use its best
efforts to permit the sale of such Registrable Securities in accordance with
the intended method or methods of distribution thereof, and will, as
expeditiously as possible:
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective,
provided, however, that the Company may discontinue any registration
of its securities which is being effected pursuant to Section 3 herein
at any time prior to the effective date of the registration statement
relating thereto;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of two years from the
effective date thereof and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holders set
forth in such registration statement;
(c) furnish to the Holders such number of
executed and conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits and all documents incorporated by reference therein), such
number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and supplemental
prospectus), and such other documents as the Holders may reasonably
request in order to facilitate the disposition of the Registrable
Securities by such Holders;
(d) use its best efforts to register or qualify
(and keep effective such registration or qualification) such
Registrable Securities covered by such registration
-5-
<PAGE> 6
statement under such other securities or blue sky laws of such
jurisdictions within the United States as may be reasonably required
to permit the Holders to sell the Registrable Securities or as the
Holders shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable the
Holders to consummate the disposition in such jurisdictions of the
Registrable Securities; provided that the Company shall not for any
such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this subsection (d), it would not be obligated to be
so qualified, to subject itself to taxation in any such jurisdiction,
or to consent to general service of process in any such jurisdiction;
and provided, further, that this subsection (d) shall not be construed
to require the Company to register as a broker-dealer in any
jurisdiction any third person to whom or through whom a Holder
proposes to sell Registrable Securities;
(e) immediately notify the Holders, at any time
when a prospectus relating thereto is required to be delivered under
the Securities Act within the appropriate period mentioned in
subsection (b) of this Section 4, of the Company becoming aware that
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing, and at the request of the Holders
promptly prepare and furnish to such Holders a reasonable number of
copies of an amended or supplemented prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(f) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, beginning
with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(g) use its best efforts to list such Registrable
Securities on the American Stock Exchange or any securities
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<PAGE> 7
exchange on which securities of such class are then listed, if such
Registrable Securities are not already so listed, and to provide a
transfer agent and registrar for such Registrable Securities covered
by such registration statement not later than the effective date of
such registration statement;
(h) enter into such agreements (including an
underwriting agreement in customary form) and take such other actions
as Sellers' Designee reasonably requests in order to expedite or
facilitate the disposition of such Registrable Securities;
(i) whether or not the registration relates to an
underwritten offering, make such representations and warranties to the
Holders and to the underwriters, if any, as are customarily made by
issuers to underwriters in underwritten offerings, obtain opinions of
counsel to the Company addressed to each Holder and to the
underwriters, if any, covering the matters customarily covered in
underwritten offerings, and obtain a "cold comfort" letter or letters
and updates thereof from the Company's independent public accountants
in customary form and covering matters of the type customarily covered
in underwritten offerings, in each case as the underwriters or the
Sellers' Designee shall request; and
(j) make available for inspection by the Holders,
by any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant, or other agent retained by the Holders or any such
underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all
information reasonably requested by the Holders, underwriter,
attorney, accountant or agent in connection with such registration
statement.
The Company may require the Holders to furnish the Company such information
regarding the Holders and the distribution of such securities for use in the
registration statement relating to such registration as the Company may from
time to time reasonably request in writing and to do such reasonable acts and
things as the Company may from time to time reasonably request in writing in
order to permit the Company to comply with the requirements of law.
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
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<PAGE> 8
kind described in subsection (e) of this Section 4, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by subsection
(e) of this Section 4, 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 event the Company shall give any such notice, the period
mentioned in subsection (b) of this Section 4 shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to subsection (e) of this Section 4 to and including the date
when each Holder of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by subsection (e) of this Section 4.
5. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Section 2 or 3 herein, the Company will, and it hereby does, indemnify and
hold harmless, to the fullest extent permitted by law, the sellers of any
Registrable Securities covered by such registration statement, its directors
and officers or general and limited partners (and directors and officers
thereof), each Person who participates as an underwriter in the offering or
sale of such securities and each other Person, if any, who controls such seller
or any such underwriter within the meaning of the Securities Act, against any
and all losses, claims, damages or liabilities, joint or several, and expenses
(including legal, accounting and other expenses incurred in connection with
investigation, preparation or defense of any of the foregoing, and including
any amounts paid in any settlement effected with the Company's consent) to
which such seller, any such director or officer or general or limited partner
or any such underwriter or controlling Person may become subject under the
Securities Act, the Exchange Act, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or supplemental prospectus contained therein, or any
amendment or supplement thereto, or (b) 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, and the Company will reimburse such
-8-
<PAGE> 9
seller and each such director, officer, general or limited partner, underwriter
and controlling Person for any legal or any other expenses reasonably incurred
by them in connection with investigating or preparing for and defending any
such loss, claim, liability, action or proceeding from time to time as such
expenses are incurred; provided that the Company shall not be liable in any
such case to any such person, to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement or amendment or
supplement thereto or in any such preliminary, final or supplemental prospectus
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller or underwriter
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer, general or
limited partner, underwriter or controlling Person and shall survive the
transfer of such securities by such seller.
(b) Indemnification by the Sellers. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed in accordance with Section 4 herein, that the
Company shall have received an undertaking reasonably satisfactory to it from
the prospective sellers of such Registrable Securities (except that no such
undertaking shall be required to the extent applicable law, charter documents
or by-laws forbid such prospective sellers from giving such undertaking) or any
underwriter, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subsection (a) of this Section 5) the Company, its
directors and officers signing the registration statement and its controlling
Persons and all other prospective sellers and their respective controlling
Persons with respect to any statement or alleged statement in or omission or
alleged omission from such registration statement, any preliminary, final or
supplemental prospectus contained therein, or any amendment or supplement, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such sellers or underwriter
specifically stating that it is for use in the final or supplemental prospectus
or amendment or supplement, or a document incorporated by reference into any of
the foregoing; provided in no event shall the liability of any selling Holder
or Registrable Securities be greater in amount than the amount of proceeds
received by such Holder upon such sale. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf
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<PAGE> 10
of the Company or any other prospective sellers or any of their respective
directors, officers or controlling Persons and shall survive the transfer of
such securities by such sellers.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment (which is based on the written opinion of its counsel) a conflict of
interest between such indemnified and indemnifying parties exists in respect of
such claim, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. If in an indemnified party's reasonable judgment (which is
based on the written opinion of its counsel) a conflict of interest between the
indemnified and indemnifying parties exists in respect of a claim or if the
indemnifying party refuses to participate in and to assume the defense of any
action brought against an indemnified party, the indemnified party may assume
the defense of such claim or action with counsel of its choosing which shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5. No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in
or pursuant to this Section 5 is due in accordance with the terms hereof but is
held by a court to be unavailable or unenforceable in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified
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<PAGE> 11
person, shall contribute to the amount paid or payable by such indemnified
person as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified person 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 indemnifying party on the
one hand and of the indemnified person on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified person by such persons' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
In no event shall the liability of any selling Holder of Registrable Securities
be greater in amount than the amount of proceeds received by such Holder upon
such sale.
6. Rule 144. The Company covenants that it will use its
best efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder (or, if the Company is not required to file such reports, it
will, upon the request of the Holders, make publicly available such information
as necessary to permit sales pursuant to Rule 144 under the Securities Act, as
amended), and it will do all such other acts and things from time to time as
requested by the Holders to the extent required from time to time to enable
each Holder to sell shares of Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
under the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereunder adopted by the SEC. Upon the request of
any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
7. Public Trading Market. Until the earlier of (a) two
years after the effective date of the registration statement filed pursuant to
Section 2 or (b) the date on which there are no Registrable Securities, the
Company shall use its best efforts to maintain a public trading market for its
Common Stock.
8. Restriction on Resale. Unless otherwise agreed by
the Company, until the earlier of (a) two years after the effective date of the
registration statement filed pursuant to Section 2 or (b) the date on which
there are no Registrable Securities, each Holder agrees that it will not resell
such
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<PAGE> 12
Registrable Securities without registration under the Securities Act,
compliance with Rule 144 under the Securities Act or an opinion of counsel for
such Holder, addressed to the Company, to the effect that no such registration
is required. All reasonable costs, fees and expenses of counsel in connection
with such opinion shall be borne by the Holder.
9. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company
shall have obtained the written consent to such amendment, action or omission
to act, of Sellers' Designee. Holders of Registrable Securities shall be bound
by any consent authorized by this Section 9(a), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(b) Successors, Assigns and Transferees. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their legal successors-in-interest, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
(c) Notices. All notices and other communications
provided for hereunder shall be given and shall be effective as provided in the
Purchase Agreement.
(d) Descriptive Headings. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise effect
the meaning of terms contained herein.
(e) Severability. In the event that any one or more of
the provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of such provision, paragraph, word, clause, phrase, or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired,
it being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument, and it shall not be
necessary in making proof of this
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<PAGE> 13
Agreement to produce or account for more than one such counterpart.
(g) Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Delaware.
(h) Remedies. The Company acknowledges that monetary
damages will not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions hereof and agrees, to the fullest extent
permitted by law, to waive the defense of adequacy of legal remedies in any
action for specific performance hereof.
(i) Merger, etc. If, directly or indirectly, (i) the
Company shall merge with and into, or consolidate with, any other Person, (ii)
any Person shall merge with and into, or consolidate with, the Company and the
Company shall be the surviving corporation of such merger or consolidation and,
in connection with such merger or consolidation, all or part of the Registrable
Securities shall be changed into or exchanged for stock or other securities of
any other Person, then, in each such case, proper provision shall be made so
that such Person shall be bound by the provisions of this Agreement and the
term "Company" shall thereafter be deemed to refer to such Person. For
purposes hereof, the term "Person" shall mean any individual, corporation,
partnership, trust or other nongovernmental entity.
(j) Legal Fees; Costs. If any party to this Agreement
institutes any action or proceeding, whether before a court or arbitrator, to
enforce any provision of this Agreement, the prevailing party therein shall be
entitled to receive from the losing party reasonable attorneys' fees and costs
incurred in such action or proceeding, whether or not such action or proceeding
is prosecuted to judgment.
10. Termination. Except as otherwise provided herein,
the Company's obligations under Sections 2 and 3 hereof shall terminate at the
close of business on the second anniversary of the date hereof, or such earlier
date on which there shall be no Registrable Securities.
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<PAGE> 14
IN WITNESS WHEREOF, each of the undersigned has caused this
Registration Rights Agreement to be executed on its behalf as of the date first
written above.
THE COMPANY:
HANOVER DIRECT, INC.
By
-------------------------------
Title
-----------------------------
SELLERS:
F.L. Holdings, Inc.
By
--------------------------------
Title
-----------------------------
-----------------------------------
Roland A. E. Franklin
-----------------------------------
Jonathan Franklin
-----------------------------------
Martin E. Franklin
-----------------------------------
Floyd Hall
-----------------------------------
Frederick Field
-----------------------------------
Homer G. Williams
-----------------------------------
Frank Martucci
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<PAGE> 15
Norm Thompson Outfitters, Inc.
By
--------------------------------
Title
-----------------------------
Capital Consultants Inc., as agent
By
--------------------------------
Title
-----------------------------
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<PAGE> 1
Exhibit 10.5
CONFORMED EXECUTION COPY
CREDIT FACILITIES
AND
REIMBURSEMENT AGREEMENT
by and among
HANOVER DIRECT, INC.,
as Borrower,
the Lenders from time to time party hereto
and
NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION,
as Agent
October 12, 1994
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND TERMS
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1.03 Terms Consistent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE II
THE LOANS
2.01 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.02 Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.03 Competitive Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.04 Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.05 Payment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.06 Non-Conforming Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.07 Borrower's Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.08 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.09 Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.10 Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.11 Increase and Decrease in Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.12 Conversions and Elections of Subsequent Interest Periods . . . . . . . . . . . . . . . 36
2.13 Facility Fee and Upfront Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.14 Deficiency Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.15 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.16 Additional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE III
LETTERS OF CREDIT
3.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.02 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.03 Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.04 Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE IV
THE DIRECT PAY LETTERS OF CREDIT;
PLEDGE OF FLEXIBLE TERM NOTES AND BONDS
4.01 The Direct Pay Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.02 Issuing the Direct Pay Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 42
4.03 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.04 Reimbursement; Amounts Paid in Advance of Date When Due . . . . . . . . . . . . . . . . 43
</TABLE>
i
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4.05 Tender Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.06 Interest on Tender Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.07 Prepayments; Reinstatement of Letter of Credit Amounts; Delivery of Bonds upon
Purchase or Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.08 Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.09 Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.10 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.11 Registration and Delivery of Flexible Term Notes Upon Purchase or Conversion . . . . . 47
4.12 Extension of the Stated Termination Date . . . . . . . . . . . . . . . . . . . . . . . 47
4.13 Pledge of Flexible Term Notes and the Bonds . . . . . . . . . . . . . . . . . . . . . . 48
4.14 Reduction in Available Amount of Hanover Direct LC . . . . . . . . . . . . . . . . . . 50
ARTICLE V
YIELD PROTECTION AND ILLEGALITY
5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.02 Suspension of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.04 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.05 Alternate Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE VI
CONDITIONS TO MAKING LOANS AND ISSUING
LETTERS OF CREDIT
6.01 Conditions of Initial Advance and Issuance of Letters of Credit . . . . . . . . . . . . 55
6.02 Conditions of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII
AFFIRMATIVE COVENANTS
8.01 Financial Reports, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.02 Maintain Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.03 Existence, Qualification, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.04 Regulations and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.05 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.06 True Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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8.07 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.08 Observe all Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.09 Covenants Extending to Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.10 Officer's Knowledge of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.11 Suits or Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.12 Notice of Discharge of Hazardous Material or Environmental Complaint . . . . . . . . . 70
8.13 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.14 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.16 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.17 Continued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.19 New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE IX
NEGATIVE COVENANTS
9.01 Consolidated Fixed Charge Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.02 Consolidated Funded Indebtedness to EBITDA . . . . . . . . . . . . . . . . . . . . . . 74
9.03 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.04 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.05 Investments; Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.06 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
9.07 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
9.08 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
9.09 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
9.10 Dissolution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
9.11 Rate Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
9.12 Dividends, Redemptions and Other Payments . . . . . . . . . . . . . . . . . . . . . . . 81
9.13 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE X
EVENTS OF DEFAULT AND ACCELERATION
10.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.02 Agent to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.03 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.04 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10.05 Allocation of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE XI
THE AGENT
11.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.02 Attorneys-in-fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.03 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.04 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.06 No Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.08 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.09 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.10 Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE XII
MISCELLANEOUS
12.01 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
12.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
12.03 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
12.04 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.06 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
12.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.08 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
12.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
12.11 Headings and References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
12.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
12.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
12.14 Agreement Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
12.15 Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
12.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
EXHIBIT A Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative . . . . . . . . . C-1
EXHIBIT D Form of Borrowing Notice--Revolving Credit Loans . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E Form of Competitive Bid Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F Form of Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBIT G Form of Swing Line Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
EXHIBIT H Interest Rate Selection Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1
EXHIBIT I Form of Competitive Bid Quote Request . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT J Form of Competitive Bid Quote . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1
EXHIBIT K Form of Opinion of Counsel to the Borrower and the Guarantors . . . . . . . . . . . K-1
EXHIBIT L Form of Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . L-1
EXHIBIT M Form of Guaranty Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M-1
EXHIBIT N Form of Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . N-1
EXHIBIT O Upfront Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . O-1
EXHIBIT P Form of Hanover Direct Letter of Credit . . . . . . . . . . . . . . . . . . . . . . P-1
EXHIBIT Q Form of Hanover House Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . Q-1
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
Schedule 7.01(c) Guarantors excluded from Solvency representation and warranty
Schedule 7.01(d) Subsidiaries
Schedule 7.01(e) Investments in Other Persons
Schedule 7.01(f) Contingent Liabilities
Schedule 7.01(g) Liens
Schedule 7.01(h) Tax Matters
Schedule 7.01(j) Litigation
Schedule 7.01(m) Patents, Etc.
Schedule 7.01(o) Consents
Schedule 7.01(r) Hazardous Materials
Schedule 8.05 Insurance
Schedule 9.03(i) Existing Indebtedness
Schedule 9.03(xi) Capital Leases
</TABLE>
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<PAGE> 7
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
THIS CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT, dated as of
October 12, 1994 (the "Agreement"), is made by and among:
HANOVER DIRECT, INC., a Delaware corporation having its principal
place of business in Weehawken, New Jersey (the "Borrower");
Each Lender executing and delivering a signature page hereto and each
other lender which may hereafter execute and deliver an instrument of
assignment and assumption with respect to this Agreement pursuant to Section
12.01 hereof (hereinafter such lenders may be referred to individually as a
"Lender" or collectively as the "Lenders"); and
NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION, a national
banking association organized and existing under the laws of the United States
of America ("NationsBank") in its capacity as agent for the Lenders (in such
capacity, and any successor appointed in accordance with the terms of Section
11.09 hereof, the "Agent");
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make available to
the Borrower a credit facility in the maximum aggregate principal amount at any
time outstanding of $60,000,000, which shall include (i) a letter of credit
facility of up to $35,000,000, (ii) a swing line facility of up to $5,000,000
and (iii) a competitive bid facility, the proceeds thereof to be used to
finance general corporate purposes of the Borrower and its Subsidiaries; and
WHEREAS, the Lenders are willing to make all such facilities available
to the Borrower upon the terms and conditions set forth herein;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree
as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.01 DEFINITIONS. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Absolute Rate" has the meaning assigned to such term in
Section 2.03(d)(iii) hereof;
<PAGE> 8
"Absolute Rate Auction" means any solicitation of Competitive
Bid Quotes setting forth Absolute Rates pursuant to Section 2.03(c)
hereof;
"Account Purchase Agreement" shall have the meaning assigned
thereto in Section 9.03(v) hereof;
"Acquisition" means the acquisition of (i) a controlling
equity interest in another Person (other than the purchase of an
option, warrant or convertible or other similar security to acquire
such a controlling interest), whether by purchase of such equity
interest or upon exercise of an option or warrant for, or conversion
of securities into, such equity interest, (ii) assets of another
Person for which the Cost of Acquisition equals or exceeds one percent
(1%) of Consolidated Total Assets determined as of the last day of the
fiscal quarter of the Borrower immediately preceding the date of the
agreement related to such Acquisition, or (iii) a line of business or
division of another Person;
"Advance" means any borrowing under (i) the Revolving Credit
Facility consisting of a Base Rate Loan or a LIBOR Loan, as the case
may be, (ii) the Swing Line consisting of a Swing Line Loan or (iii)
the Competitive Bid Facility consisting of a Competitive Bid Loan;
"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with, the Borrower; (ii) which beneficially
owns or holds 10% or more of any class of the outstanding voting stock
of the Borrower; or (iii) 10% or more of any class of the outstanding
voting stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of which is beneficially owned or
held by the Borrower. The term "control" 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
ownership of voting stock, by contract or otherwise;
"Applicable Commitment Percentage" means, at any time for each
Lender with respect to the Revolving Credit Facility (including its
Participations and its obligations hereunder to NationsBank to acquire
Participations), a fraction (expressed as a percentage), (A) the
numerator of which shall be the amount of such Lender's Revolving
Credit Commitment at such date of determination (which Revolving Credit
Commitment for each Lender as of the Closing Date is set forth on
Exhibit A attached hereto and incorporated herein by reference), and
(B) the denominator of which shall be the Total Revolving Credit
Commitment at such date of determination; provided that the Applicable
Commitment Percentage of each Lender shall be
2
<PAGE> 9
increased or decreased to reflect any assignments to or by such Lender
effected in accordance with Section 12.01 hereof;
"Applicable Margin" means for purposes of calculating (i) the
applicable interest rate for the Interest Period for any LIBOR Loan or
the applicable rate of NationsBank's fee for the issuance of Standby
Letters of Credit and Direct Pay Letters of Credit and (ii) the
applicable rate of the Facility Fee for any date for purposes of
Section 2.13 hereof, that percent per annum set forth below, which
shall be (A) determined as of each Determination Date based upon the
computations set forth in the compliance certificates delivered to the
Agent pursuant to Sections 6.01(m), 8.01(a)(ii) and 8.01(b)(ii)
hereof, subject to review and approval of such computations by the
Agent, and delivered to the Agent not later than the time set forth in
Sections 6.01, 8.01(a) and 8.01(b) hereof (the "Compliance Date") and
(B) applicable to all LIBOR Loans made, renewed or converted, Standby
Letters of Credit and Direct Pay Letters of Credit outstanding and any
Facility Fee due and payable, on or after the most recent Compliance
Date to occur based upon the ratio of Consolidated Funded Indebtedness
as at the Determination Date to Consolidated EBITDA for the
Four-Quarter Period then ended, as specified below:
<TABLE>
<CAPTION>
Applicable
Margin
Ratio of for LIBOR Loans,
Consolidated Funded Standby Letters
Indebtedness to of Credit and Applicable
Consolidated Direct Pay Margin for
EBITDA Letters of Credit Facility Fee
------------------- ------------------ ------------
<S> <C> <C>
Greater than 2.00
to 1.00 .45% .30%
Greater than 1.00
to 1.00 but
less than or equal
to 2.00 to 1.00 .375% .25%
Less than 1.00 to 1.00 .30% .20%
</TABLE>
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit
executed by the Borrower from time to time and delivered to
NationsBank to support the issuance of Letters of Credit;
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B attached hereto and incorporated
herein by reference (with blanks appropriately filled in) delivered to
the Agent in connection with an
3
<PAGE> 10
assignment of a Lender's interest under this Agreement pursuant to
Section 12.01;
"Authorized Representative" means any of the Chairman, Vice
Chairman, President, Executive Vice Presidents, Senior Vice Presidents
or Vice Presidents of the Borrower and, with respect to financial
matters, the Treasurer or Chief Financial Officer of the Borrower or
any other person expressly designated by the Board of Directors of the
Borrower (or the appropriate committee thereof) as an Authorized
Representative of the Borrower, as set forth from time to time in a
certificate in the form attached hereto as Exhibit C and incorporated
herein by reference;
"Base Rate" means, for any Base Rate Loan, the greater of (i)
the Prime Rate or (ii) the Federal Funds Effective Rate plus one-half
of one percent (.5%), each change in such Base Rate to be effective as
of the effective date of any change in the Prime Rate or the Federal
Funds Effective Rate giving rise thereto;
"Base Rate Loan" means any Loan for which the rate of interest
is determined by reference to the Base Rate;
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body);
"Bond Trustee" means Shawmut Bank Connecticut, National
Association, as successor to National Westminster Bank USA, and any
other successor Trustee permitted under the Indenture;
"Bonds" means the $8,000,000 aggregate principal amount of
Littlestown Industrial Development Authority Variable Rate Demand
Industrial Development Revenue Refunding Bonds 1987 Series (Hanover
House Industries, Inc. Project);
"Borrower's Account" means demand deposit account number
02309028 with the Agent, or any successor account with the Agent,
which may be maintained at one or more offices of the Agent or an
agent of the Agent;
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving
Credit Facility, in the form attached hereto as Exhibit D and
incorporated herein by reference;
"Business Day" means any day which is not a Saturday, Sunday
or a day on which banks in the State of New York or State of North
Carolina are authorized or obligated by law, executive order or
governmental decree to be closed; provided, however, that with respect
to the Hanover House LC, the definition of "business day" shall be the
definition set forth therein;
4
<PAGE> 11
"Capital Expenditures" means, with respect to the Borrower and
its Subsidiaries, for any period the sum of (without duplication) (i)
all expenditures (whether paid in cash or accrued as liabilities) by
the Borrower or any Subsidiary during such period for items that would
be classified as "property, plant or equipment" or comparable items on
the consolidated balance sheet of the Borrower and its Subsidiaries,
including without limitation all transactional costs incurred in
connection with such expenditures, excluding, however, the amount of
any Capital Expenditures paid for with proceeds of casualty insurance
as evidenced in writing and submitted to the Agent together with any
compliance certificate delivered pursuant to Section 8.01(a) or (b)
hereof, and (ii) with respect to any Capital Lease entered into by the
Borrower or its Subsidiaries during such period, the present value of
the lease payments due under such Capital Lease over the term of such
Capital Lease applying a discount rate equal to the interest rate
provided in such lease (or in the absence of a stated interest rate,
that rate used in the preparation of the financial statements
described in Section 8.01(a) hereof);
"Capital Leases" means all leases which have been or should be
capitalized in accordance with Generally Accepted Accounting
Principles, including Statement No. 13 of the Financial Accounting
Standards Board and any successor thereof, applied on a Consistent
Basis;
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 6.01 hereof have been satisfied;
"Code" means the Internal Revenue Code of 1986, as amended, any
successor provision or provisions and any regulations promulgated
thereunder;
"Commercial Letter of Credit" means an irrevocable documentary
letter of credit issued hereunder for the account of the Borrower;
provided that the expiry date of a Commercial Letter of Credit shall
not be later than six (6) months subsequent to the date of issuance
thereof;
"Common Stock" means the common stock, par value $.662/3 per
share, of the Borrower;
"Competitive Bid Borrowing" has the meaning assigned to such
term in Section 2.03 hereof;
"Competitive Bid Facility" means the facility described in
Section 2.03 hereof providing for Competitive Bid Loans to the
Borrower;
5
<PAGE> 12
"Competitive Bid Loan Commitment" means the aggregate amount
which a Lender has offered to loan to the Borrower pursuant to a
Competitive Bid Quote not to exceed in the aggregate the amount of the
Competitive Bid Borrowing for such Interest Period and which together
with all other Outstandings shall not exceed in the aggregate the
amount of the Total Revolving Credit Commitment;
"Competitive Bid Loans" means the Loans bearing interest at an
Absolute Rate provided for in Section 2.03 hereof;
"Competitive Bid Notes" means, collectively, the promissory
notes of the Borrower with respect to Competitive Bid Loans provided
for by Section 2.03 hereof executed and delivered in the form attached
hereto as Exhibit E and incorporated herein by reference, with
appropriate insertions as to amounts, dates and names of Lenders, and
all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be amended, modified or supplemented
and in effect from time to time;
"Competitive Bid Outstandings" means, as of any date of
determination, the aggregate principal Indebtedness of Borrower on all
Competitive Bid Loans then outstanding;
"Competitive Bid Quote" means an offer in accordance with
Section 2.03 hereof by a Lender to make a Competitive Bid Loan with an
Absolute Rate, in the form of Exhibit J attached hereto and
incorporated herein by reference;
"Competitive Bid Quote Request" means a request in accordance
with Section 2.03 hereof by the Borrower for Competitive Bid
Borrowings, in the form of Exhibit I attached hereto and incorporated
herein by reference;
"Compliance Date" has the meaning assigned to such term in the
definition of "Applicable Margin" in Section 1.01 hereof;
"Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles means the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the preparation of the audited
financial statements of the Borrower referred to in Section 7.01(f)(i)
hereof;
"Consolidated EBITDA" means, with respect to the Borrower and
its Subsidiaries for any period of computation thereof, the sum of,
without duplication, (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) taxes paid on income, (iv) amortization, and
(v) depreciation, all determined on a consolidated basis in accordance
with
6
<PAGE> 13
Generally Accepted Accounting Principles applied on a Consistent
Basis;
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and its Subsidiaries for the Four-Quarter Period ending on
the date of computation thereof, the ratio of (i) the difference of
(A) Consolidated EBITDA for such period plus, to the extent deducted
in arriving at Consolidated EBITDA for such period, lease, rental and
all other payments made in respect of or in connection with operating
leases, minus (B) Capital Expenditures for such period, excluding, for
any Four-Quarter Period of computation thereof ending on or prior to
April 1, 1995, Capital Expenditures paid during such Four-Quarter
Period with respect to the construction of the Borrower's Roanoke,
Virginia fulfillment facility or with respect to refurbishment of the
Gump's retail facility, to (ii) Consolidated Fixed Charges for such
period;
"Consolidated Fixed Charges" means, with respect to Borrower
and its Subsidiaries for any period of computation thereof, the sum
of, without duplication, (i) Consolidated Interest Expense, (ii) to
the extent deducted in arriving at Consolidated EBITDA, lease, rental
and all other payments made in respect of or in connection with
operating leases, (iii) current maturities of Consolidated Funded
Indebtedness, (iv) all dividends and other distributions (other than
distributions in the form of any stock (including without limitation
capital stock of the Borrower), security, note or other instrument)
paid during such period (regardless of when declared) on any shares of
capital stock of the Borrower then outstanding, including without
limitation its Common Stock and its Preferred Stock, and (v) all
payments made during such period in respect of or in connection with
repurchases or redemptions of any shares of capital stock of the
Borrower then outstanding, including without limitation its Common
Stock and Preferred Stock, all determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
"Consolidated Funded Indebtedness" means, with respect to the
Borrower and its Subsidiaries, at any time as of which the amount
thereof is to be determined, the sum of (i) Indebtedness for Money
Borrowed of the Borrower and its Subsidiaries and (ii) the face amount
of all outstanding letters of credit (other than documentary letters
of credit) issued for the account of the Borrower or any of its
Subsidiaries and all obligations (to the extent not duplicative)
arising under such letters of credit, all determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis;
7
<PAGE> 14
"Consolidated Interest Expense" means, with respect to any
period of computation thereof, the gross interest expense of the
Borrower and its Subsidiaries, including without limitation (i) the
amortization of debt discounts, (ii) the amortization of all fees
(including, without limitation, fees payable in respect of a Swap
Agreement) payable in connection with the incurrence of Indebtedness
to the extent included in interest expense and (iii) the portion of
any payments made in connection with Capital Leases allocable to
interest expense, all determined on a consolidated basis in accordance
with Generally Accepted Accounting Principles applied on a Consistent
Basis;
"Consolidated Net Income" means, for any period of computation
thereof, the gross revenues from operations of the Borrower and its
Subsidiaries (including interest income from investments), less all
operating and non-operating expenses of the Borrower and its
Subsidiaries including taxes on income, all determined on a
consolidated basis in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis, but excluding as income (i)
net gains on the sale, conversion or other disposition of capital
assets, net gains on the acquisition, retirement, sale or other
disposition of capital stock and other securities of the Borrower or
its Subsidiaries, and net gains on the collection of proceeds of life
insurance policies, (ii) any write-up of any asset, and (iii) any
other net gain or credit of an extraordinary nature, all determined in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
"Consolidated Total Assets" means, as at any time of
calculation thereof, the net book value of all assets of the Borrower
and its Subsidiaries as determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
"Contingent Obligation" of any Person means all contingent
liabilities (other than obligations of the Borrower and its
Subsidiaries with respect to the fulfillment of purchase orders issued
in the ordinary course of business) required (or which, upon the
creation or incurring thereof, would be required) to be included in
the consolidated financial statements (including footnotes) of such
Person in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis, including Statement No. 5 of the
Financial Accounting Standards Board, and any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including
obligations of such Person however incurred:
8
<PAGE> 15
(i) to purchase such Indebtedness or other
obligation or any property or assets constituting security
therefor;
(ii) to advance or supply funds in any manner (A)
for the purchase or payment of such Indebtedness or other
obligation, or (B) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(iii) to grant or convey any Lien, security
interest, pledge, charge or other encumbrance on any property
or assets of such Person to secure payment of such
Indebtedness or other obligation;
(iv) to lease property or to purchase securities
or other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
(v) otherwise to assure the owner of the
Indebtedness or such obligation of the primary obligor against
loss in respect thereof.
With respect to Contingent Obligations (such as litigation, guarantees
and pension plan liabilities), such liabilities shall be computed at
the amount which, in light of all the facts and circumstances existing
at the time, represent the present value of the amount which can
reasonably be expected to become an actual or matured liability;
"Cost of Acquisition" means, with respect to any Acquisition,
as at the date of entering into any agreement therefor, the sum of the
following: (i) the value of the capital stock, warrants or options to
acquire capital stock of Borrower or any Subsidiary to be transferred
in connection therewith, (ii) any cash or other property (excluding
property described in clause (i)) and the unpaid principal amount of
any debt instrument given as consideration, and (iii) any Indebtedness
or liabilities assumed by the Borrower or its Subsidiaries in
connection with such Acquisition; provided that "Cost of Acquisition"
shall not include out of pocket transaction costs for the services and
expenses of attorneys, accountants and other consultants incurred in
effecting such a transaction, and other similar transaction costs so
incurred, in an aggregate amount not to exceed ten percent (10%) of
the Costs of Acquisition for such transaction (all such costs in
excess of such amount being included as a "Cost of Acquisition" for
such transaction). For purposes of determining the Cost of
Acquisition for any transaction, (A) the capital stock of the Borrower
shall be valued at its market value as reported on the American Stock
Exchange,
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<PAGE> 16
(B) the capital stock of any Subsidiary shall be valued as
determined by the Board of Directors of such Subsidiary and determined
to be a reasonable valuation by the independent public accountants
referred to in Section 8.01(a) hereof, and (C) with respect to any
Acquisition accomplished pursuant to the exercise of options or
warrants or the conversion of securities, the Cost of Acquisition
shall include both the cost of acquiring such option, warrant or
convertible security as well as the cost of exercise or conversion;
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder;
"Default Rate" means the Base Rate plus two percent (2%) or
the maximum rate permitted by law, whichever is lower;
"Determination Date" means the last day of each fiscal quarter
of the Borrower;
"Direct Pay Letters of Credit" means the Hanover Direct LC and
the Hanover House LC;
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United
States;
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Agent:
(i) Government Securities;
(ii) the following debt securities of the
following agencies or instrumentalities of the United States
if at all times the full faith and credit of the United States
is pledged to the full and timely payment of all interest and
principal thereof:
(A) all direct or fully guaranteed
obligations of the United States Treasury; and
(B) mortgage-backed securities and
participation certificates guaranteed by the
Government National Mortgage Association;
(iii) the following obligations of the following
agencies or instrumentalities of or corporations established
by the United States:
(A) participation certificates and debt
obligations of the Federal Home Loan Mortgage
Corporation;
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<PAGE> 17
(B) consolidated debt obligations, and
obligations secured by a letter of credit, of the
Federal Home Loan Banks; and
(C) debt obligations and mortgage-backed
securities of the Federal National Mortgage
Association which have not had the interest portion
thereof severed therefrom;
(iv) obligations of any corporation organized
under the laws of any state of the United States or under the
laws of any other nation, payable in the United States,
expressed to mature not later than 90 days following the date
of issuance thereof and rated in an investment grade rating
category by S&P and Moody's;
(v) interest bearing demand or time deposits
issued by any Lender or certificates of deposit maturing
within one year from the date of acquisition issued by a bank
or trust company organized under the laws of the United States
or of any state thereof having capital surplus and undivided
profits aggregating at least $250,000,000 and being rated
"A-2" or better by S&P or "A" or better by Moody's;
(vi) Repurchase Agreements;
(vii) Pre-Refunded Municipal Obligations;
(viii) shares of mutual funds which invest in
obligations described in paragraphs (i) through (vii) above,
the shares of which mutual funds are at all times rated "AAA"
by S&P; and
(ix) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P-1" by Moody's;
"Environmental Laws" means any statute, law, ordinance, code,
rule, regulation, order or decree, of the United States or any foreign
nation or any province, territory, state, protectorate or other
political subdivision thereof, regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous or toxic
waste, substance or material, as now or at any time hereafter in
effect, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, as
amended, the Clean Air Act, as amended, the Clean Water Act, as
amended, and any other "Superfund" or "Superlien" law;
11
<PAGE> 18
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, all
as the same shall be in effect at such date;
"ERISA Affiliate" means any entity which would be aggregated
at any relevant time with the Borrower pursuant to Section 4001(b)(1)
of ERISA;
"Event of Default" means any of the occurrences set forth as
such in Section 10.01 hereof;
"Facility Fee" has the meaning assigned to such term in
Section 2.13(a) hereof;
"Federal Funds Effective Rate" for any day, as used herein,
means the rate per annum (rounded upward to the nearest 1/100 of 1%)
announced by the Federal Reserve Bank of New York (or any successor)
on such day as being the weighted average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal
Reserve Bank (or any successor) in substantially the same manner as
such Federal Reserve Bank computes and announces the weighted average
it refers to as the "Federal Funds Effective Rate" as of the date of
this Agreement; provided, if such Federal Reserve Bank (or its
successor) does not announce such rate on any day, the "Federal Funds
Effective Rate" for such day shall be the Federal Funds Effective Rate
for the last day on which such rate was announced;
"Fiscal Year" means the 52-week or 53-week period of the
Borrower ending on the Saturday closest to December 31;
"Flexible Term Notes" means collectively the Initial Flexible
Term Notes and the Second Issue Flexible Term Notes;
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower taken together as one accounting
period;
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report, as
such principles are from time to time supplemented and amended,
subject to compliance at all times with Section 1.02 hereof;
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of America;
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<PAGE> 19
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, agency or instrumentality or political subdivision
thereof or any entity or officer exercising executive, legislative or
judicial, regulatory or administrative functions of or pertaining to
any government or any court, in each case whether a state of the
United States, the United States or foreign nation, state, province or
other governmental instrumentality;
"Guarantor" means any Material Subsidiary now or hereafter
party to a Guaranty;
"Guaranty" means collectively each Guaranty Agreement executed
by a Material Subsidiary of the Borrower (whether of even date
herewith or delivered after the Closing Date pursuant to Section 8.19
hereof and whether executed individually or jointly and severally with
other Subsidiaries) in favor of the Agent guaranteeing in whole or in
part the payment of the Obligations, substantially in the form of
Exhibit M attached hereto and incorporated herein by reference;
"Hanover Direct LC" means collectively the Initial Hanover
Direct LC and the Second Hanover Direct LC;
"Hanover House LC" means the irrevocable letter of credit,
substantially in the form of Exhibit Q, to be issued by NationsBank to
the Bond Trustee pursuant to this Agreement in order to provide
security for the payment when due of the principal of and interest on
the Bonds in the amount of $8,560,000 (the "Stated Amount") of which
(a) an amount not exceeding $8,000,000 (the "Principal Portion") may
be stated to be drawn upon with respect to payment of the unpaid
principal amount of the Bonds, and (b) an amount not exceeding
$560,000 (the "Interest Portion") may be stated to be drawn upon with
respect to payment of up to 210 days of accrued interest or that
portion of the purchase price corresponding to interest on the Bonds,
at an assumed interest rate of 12% per annum;
"Hazardous Material" means a material that is defined or
regulated under an Environmental Law as a hazardous or toxic waste,
substance or material, the generation, handling, storage, disposal,
treatment or emission of which is subject to any Environmental Law;
"Indebtedness" of a Person shall mean, without duplication,
(i) all Indebtedness for Money Borrowed, (ii) obligations of such
Person arising under acceptance facilities, (iii) the undrawn face
amount of, and unpaid reimbursement obligations in respect of, all
letters of credit issued for the account of such Person, (iv) all
obligations of
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<PAGE> 20
such Person upon which interest charges are customarily
paid, (v) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by
such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all executory obligations
of such Person in respect of Rate Hedging Obligations and (vii) all
Contingent Obligations in respect of Indebtedness of other Persons;
"Indebtedness for Money Borrowed" means for any Person all
indebtedness in respect of money borrowed, including without
limitation all Capital Leases and the deferred purchase price of any
property or asset, evidenced by a promissory note, bond, debenture or
similar written obligation for the payment of money (including, but
not limited to, conditional sales or similar title retention
agreements);
"Indenture" means that Indenture of Trust dated as of
September 1, 1987 between Littlestown Industrial Development Authority
and the Bond Trustee;
"Initial Flexible Term Notes" means the $10,000,000 initial
aggregate principal amount of Flexible Term Notes (Hanover Direct,
Inc.) of the Borrower that will mature in 2009 to be issued under a
Note Agreement between the Borrower and the Note Trustee;
"Initial Hanover Direct LC" means the irrevocable letter of
credit, substantially in the form of Exhibit P, to be issued to the
Note Trustee, as beneficiary, by NationsBank pursuant hereto (and any
successor letter of credit provided for herein) in order to provide
security for the payment when due of the principal of and interest on
the Initial Flexible Term Notes in the amount of $10,145,833 (as
reduced and reinstated from time to time as described herein) of which
(a) $10,000,000 shall support the payment of principal or portion of
the purchase price corresponding to the principal of the Initial
Flexible Term Notes and (b) $145,833 shall support the payment of up
to 35 days' interest on the Initial Flexible Term Notes, at an assumed
interest rate of 15% per annum;
"Interest Drawing" has the meaning assigned to that term in
the Direct Pay Letters of Credit;
"Interest Payment Date" means each date on which interest is
payable on (i) the Flexible Term Notes pursuant to the Flexible Term
Notes and the Note Agreement or (ii) the Bonds pursuant to the Bonds
and the Indenture;
"Interest Period" (i) for each LIBOR Loan means a period
commencing on the date such LIBOR Loan is made or converted and each
subsequent period commencing on the last day of the
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<PAGE> 21
immediately preceding Interest Period for such LIBOR Loan, and ending,
at the Borrower's option, on the date one, two, three or six months
thereafter as notified to the Agent by the Authorized Representative
three (3) LIBOR Business Days prior to the beginning of such Interest
Period; provided, that,
(A) if the Authorized Representative fails to
notify the Agent of the length of an Interest Period three (3)
LIBOR Business Days prior to the first day of such Interest
Period, the Loan for which such Interest Period was to be
determined shall be deemed to be a Base Rate Loan;
(B) if an Interest Period for a LIBOR Loan would
end on a day which is not a LIBOR Business Day such Interest
Period shall be extended to the next LIBOR Business Day
(unless such extension would cause the applicable Interest
Period to end in the succeeding calendar month, in which case
such Interest Period shall end on the next preceding LIBOR
Business Day);
(C) any Interest Period which begins on the last
LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last LIBOR Business Day of a calendar month;
(D) no Interest Period shall extend past the
Revolving Credit Termination Date;
(E) on any day, with respect to all Revolving
Credit Loans, there shall be not more than ten (10) Interest
Periods in effect; and
(ii) for each Competitive Bid Loan means the period
commencing on the date of such borrowing and ending on such date as
may be mutually agreed upon by the Borrower and the Lender making such
Competitive Bid Loan; provided that no Interest Period for a
Competitive Bid Loan shall be for a period of less than 7 or greater
than 180 days;
"Interest Rate Selection Notice" means the notice delivered by
an Authorized Representative in connection with the election of a
subsequent interest period for any LIBOR Loan or the conversion of any
LIBOR Loan into a Base Rate Loan or the conversion of any Base Rate
Loan into a LIBOR Loan, in the form of Exhibit H attached hereto and
incorporated herein by reference;
"Lending Office" means, as to each Lender, the Lending Office
of such Lender designated on the signature pages hereof or in an
Assignment and Acceptance or such other office of such Lender (or of
an affiliate of such Lender) as such Lender
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<PAGE> 22
may from time to time specify to the Authorized Representative and the
Agent as the office by which its Loans are to be made and maintained;
"Letter of Credit" means any Standby Letter of Credit,
Commercial Letter of Credit or Direct Pay Letter of Credit issued by
NationsBank for the account of the Borrower as described in Article
III or IV hereof;
"Letter of Credit Commitment" means with respect to each
Lender, the obligation of such Lender to acquire Participations up to
an aggregate stated amount at any one time outstanding equal to such
Lender's Applicable Commitment Percentage of the Total Letter of
Credit Commitment as the same may be increased or decreased from time
to time pursuant to this Agreement;
"Letter of Credit Facility" means the facilities described in
Articles III and IV hereof providing for the issuance by NationsBank
for the account of the Borrower of Letters of Credit in an aggregate
stated amount at any time outstanding not exceeding the Total Letter
of Credit Commitment;
"Letter of Credit Outstandings" means all undrawn amounts of
Letters of Credit plus Reimbursement Obligations;
"LIBOR Base Rate" means for any LIBOR Loan, in respect of the
Interest Period specified (or deemed specified) by the Authorized
Representative in the Borrowing Notice or Interest Rate Selection
Notice for such LIBOR Loan, the rate (expressed as a percentage and
rounded upward if necessary to the nearest 1/100 of 1%) (which shall
be the same for each day of such Interest Period) determined by the
Agent in good faith in accordance with its usual procedures for its
customers generally to be the average of the rates per annum for
deposits in Dollars offered to major banks in the London interbank
market at approximately 11:00 A.M. Charlotte, North Carolina time two
(2) LIBOR Business Days prior to the commencement of the applicable
Interest Period in an amount approximately equal to the principal
amount of, and for a period comparable to the Interest Period for,
such LIBOR Loan;
"LIBOR Business Day" means a Business Day on which the
relevant international financial markets are open for the transaction
of the business contemplated by this Agreement in London, England, New
York, New York and Charlotte, North Carolina;
"LIBOR Loan" means a Revolving Credit Loan for which the rate
of interest is determined by reference to the LIBOR Rate;
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<PAGE> 23
"LIBOR Rate" means, for the Interest Period for any LIBOR
Loan, the rate of interest per annum determined pursuant to the
following formula:
LIBOR LIBOR Base Rate Applicable
Rate = ----------------------- + Margin
1 - Reserve Requirement
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and its
Subsidiaries shall be deemed to be the owners of any property which
either of them have acquired or hold subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which
title to the property has been retained by or vested in some other
Person for security purposes;
"Loan" or "Loans" means any of the Revolving Credit Loans,
Swing Line Loans or Competitive Bid Loans;
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Subordination Agreement and all other instruments and
documents heretofore or hereafter executed or delivered to and in
favor of any Lender or the Agent in connection with the Loans or the
Letters of Credit made, issued or created under this Agreement as the
same may be amended, modified or supplemented from time to time;
"Material Adverse Effect" means a material adverse effect on
the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole, on
a consolidated basis;
"Material Subsidiary" means any direct or indirect Subsidiary
of the Borrower which (i) has total assets equal to or greater than
5% of Consolidated Total Assets (calculated as of the most recent
fiscal period with respect to which the Agent shall have received
financial statements required to be delivered pursuant to Sections
8.01(a) or (b) (or if prior to delivery of any financial statements
pursuant to such Sections, then calculated with respect to the Fiscal
Year end financial statements referenced in Section 7.01(f) hereof)
(the "Required Financial Information")) or (ii) has net income
equal to or greater than 5% of Consolidated Net Income (each
calculated for the most recent period for which the Agent has
received the Required Financial Information); provided, however, that
notwithstanding the foregoing, the term "Material Subsidiaries" shall
mean Subsidiaries of the
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<PAGE> 24
Borrower that together have assets equal to not less than 85% of
Consolidated Total Assets (calculated as described above) and net
income of not less than 85% of Consolidated Net Income (calculated as
described above); provided further that if more than one combination
of Subsidiaries satisfies such threshold, then those Subsidiaries so
determined to be "Material Subsidiaries" shall be specified by the
Borrower;
"Moody's" means Moody's Investors Services, Inc.;
"Multi-employer Plan" means an employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is also a multi-employer plan as defined in Section
4001(a)(3) of ERISA;
"Net Proceeds" from a disposition of assets (other than assets
sold in the ordinary course of business) or issuance of equity or
Indebtedness means cash payments received therefrom as and when
received, net of all reasonable legal, accounting, banking,
underwriting, title and recording expenses, commissions, discounts and
other fees and expenses incurred in connection therewith and all taxes
required to be paid or accrued as a consequence of such disposition or
issuance;
"Note Agreement" means the Note Agreement to be entered into
between the Borrower and the Note Trustee with respect to the Flexible
Term Notes;
"Note Trustee" means Norwest Bank Minnesota, N.A. as custodian
under the Note Agreement to be entered into by the Borrower and any
successor entity permitted under the Note Agreement;
"Notes" means, collectively, the Revolving Credit Notes, the
Swing Line Note and the Competitive Bid Notes;
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the
Reimbursement Obligations, (iii) all liabilities of Borrower to any
Lender which arise under a Swap Agreement, and (iv) the payment and
performance of all other obligations, liabilities and Indebtedness of
the Borrower to the Lenders or the Agent hereunder, under any one or
more of the other Loan Documents or with respect to the Loans;
"Outstandings" means, at any time of determination, the sum of
the (i) Revolving Credit Outstandings, (ii) Letter of Credit
Outstandings, (iii) Swing Line Outstandings and (iv) Competitive Bid
Outstandings;
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<PAGE> 25
"Participation" means, with respect to any Lender (other than
NationsBank), the extension of credit represented by the participation
of such Lender hereunder in the liability of NationsBank in respect of
a Swing Line Loan made or Letter of Credit issued by NationsBank in
accordance with the terms hereof;
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a
government or agency or political subdivision thereof;
"Placement Agent" means NationsBank of North Carolina,
National Association and any Person acting as successor Placement
Agent under the Note Agreement;
"Placement Agreement" has the meaning assigned to that term in
the Note Agreement;
"Preferred Stock" means the 6% Series A Convertible Preferred
Stock, $10 stated value, of the Borrower;
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably
called for redemption and advance refunded through the deposit in
escrow of Government Securities or other debt securities which are (i)
not callable at the option of the issuer thereof prior to maturity,
(ii) irrevocably pledged solely to the payment of all principal and
interest on such obligations as the same becomes due and (iii) in a
principal amount and bear such rate or rates of interest as shall be
sufficient to pay in full all principal of, interest, and premium, if
any, on such obligations as the same becomes due as verified by a
nationally recognized firm of certified public accountants;
"Prime Rate" means the rate of interest per annum announced
publicly by NationsBank as its prime rate from time to time. The
Prime Rate is not necessarily the best or the lowest rate of interest
offered by NationsBank;
"Principal Drawing" has the meaning assigned to that term in
the Direct Pay Letters of Credit;
"Principal Office" means the office of the Agent at
NationsBank of North Carolina, National Association, NationsBank
Plaza, 6th Floor, NC1002-06-19, Charlotte, North Carolina 28255,
Attention: Agency Services, or such other office and address as the
Agent may from time to time designate;
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<PAGE> 26
"Purchase Drawing" has the meaning assigned to that term in
Direct Pay Letters of Credit;
"Quotation Date" shall mean the date by which Competitive Bid
Quotes must be submitted to the Agent and shall be the Business Day
immediately preceding the date of the proposed Competitive Bid
Borrowing;
"Rate Hedging Obligations" means any and all obligations of
the Borrower, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all
renewals, extensions and modifications thereof and substitutions
therefor), under (i) any and all agreements, devices or arrangements
designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates
applicable to such party's commodities, assets, liabilities or
exchange transactions, including, but not limited to,
Dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or
collar protection agreements, forward rate currency or interest rate
options, puts, warrants and those commonly known as interest rate
"swap" agreements, and forward commodity price options, puts, warrants
and those commonly known as commodity "swap" agreements; and (ii) any
and all cancellations, buybacks, reversals, terminations or
assignments of any of the foregoing;
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time;
"Regulatory Change" means any change in, or the adoption or
making of new, United States Federal or state laws or regulations
(including Regulation D and capital adequacy regulations) or foreign
laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks,
which includes any of the Lenders, under any United States Federal or
state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy,
whether or not having the force of law, whether or not failure to
comply therewith would be unlawful;
"Reimbursement Obligation" shall mean at any time, the
obligation of the Borrower with respect to any Letter of Credit to
reimburse NationsBank and the Lenders to the extent of their
respective Participations (including by the receipt by NationsBank of
proceeds of Loans pursuant to Section 3.02 hereof) for amounts
theretofore paid by NationsBank pursuant to a drawing under such
Letter of Credit;
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<PAGE> 27
"Remarketing Agent" means NationsBank of North Carolina,
National Association, and any other Person acting as successor
Remarketing Agent under the Note Agreement;
"Remarketing Agreement" has the meaning assigned to that term
in the Note Agreement;
"Repurchase Agreement" means a repurchase agreement entered
into with (i) any financial institution whose debt obligations are
rated "A" by either of S&P or Moody's or whose commercial paper is
rated "A-1" by S&P or "P-1" by Moody's, or (ii) any Lender;
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 662/3%
of the aggregate Credit Exposures of all the Lenders on such date.
For purposes of the preceding sentence, the amount of the "Credit
Exposure" of each Lender shall be equal at all times (i) other than
following the occurrence and during the continuance of an Event of
Default, to its Revolving Credit Commitment, and (ii) following the
occurrence and during the continuance of an Event of Default, to the
aggregate principal amount of Revolving Credit Loans and Competitive
Bid Loans owing to such Lender plus the aggregate unutilized amounts
of such Lender's Revolving Credit Commitment plus the amount of such
Lender's Applicable Commitment Percentage of Swing Line Loans and
Letter of Credit Outstandings; provided that, if any Lender shall have
failed to pay to NationsBank upon demand its Applicable Commitment
Percentage of any Swing Line Loan or drawing under any Letter of
Credit resulting in an outstanding Reimbursement Obligation, such
Lender's Credit Exposure attributable to such Swing Line Loans or
Letter of Credit Outstandings or both shall be deemed to be held by
NationsBank for purposes of this definition;
"Reserve Requirement" means, for any LIBOR Loan, the maximum
aggregate rate at which reserves (including, without limitation, any
marginal, supplemental or emergency reserves) are required to be
maintained with respect thereto under Regulation D by the member banks
of the Federal Reserve System with respect to Dollar funding in the
London interbank market. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the LIBOR Base Rate is to be
determined or (ii) any category of extensions of credit or other
assets which include LIBOR Loans;
"Revolving Credit Commitment" means with respect to each
Lender, the obligation of such Lender to make Revolving Credit Loans
to the Borrower and to purchase Participations up to an
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<PAGE> 28
aggregate principal amount at any one time outstanding equal to the
amount set forth opposite such Lender's name on Exhibit A hereto as
the same may be increased or decreased from time to time pursuant
to this Agreement;
"Revolving Credit Facility" means the facility described in
Section 2.01 hereof providing for Loans to the Borrower by the Lenders
in an aggregate principal amount equal to (i) the Total Revolving
Credit Commitment, less (ii) the aggregate principal amount of Swing
Line Outstandings, Letter of Credit Outstandings and Competitive Bid
Outstandings;
"Revolving Credit Loan" means a Loan made under the Revolving
Credit Facility (excluding all Swing Line Loans) pursuant to Section
2.01 hereof;
"Revolving Credit Notes" means, collectively, the promissory
notes of the Borrower evidencing Revolving Credit Loans executed and
delivered to the Lenders as provided in Section 2.08(a) hereof
substantially in the form attached hereto as Exhibit F and
incorporated herein by reference, with appropriate insertions as to
amounts, dates and names of Lenders, as the same shall be amended,
modified or supplemented and in effect from time to time;
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal Indebtedness of Borrower on all
Revolving Credit Loans then outstanding;
"Revolving Credit Termination Date" means the earliest to
occur of (i) the fifth anniversary of the Closing Date hereof, or (ii)
such earlier date of termination of the Lenders' obligations pursuant
to Section 10.01 upon the occurrence of an Event of Default, or (iii)
such date as the Borrower may voluntarily and permanently terminate
the Revolving Credit Facility and the Competitive Bid Facility by
payment in full of all Obligations (including the discharge of all
Obligations of NationsBank and the Lenders with respect to Letters of
Credit and Participations) pursuant to Section 2.10 hereof;
"S&P" means Standard & Poor's Corporation, a New York
corporation;
"Second Hanover Direct LC" means the irrevocable letter of
credit, substantially in the form of Exhibit P attached hereto and
incorporated herein in reference, to be issued to the Note Trustee, as
beneficiary, by NationsBank pursuant hereto (and any successor letter
of credit provided for herein) in order to provide security for the
payment when due of the principal of and interest on the Second Issue
Flexible Term Notes in the amount of $10,145,833 (as reduced and
reinstated from time to time as described herein) of which (a)
$10,000,000 shall support the payment of principal or a
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portion of the purchase price corresponding to the principal of the
Second Issue Flexible Term Notes and (b) $145,833 shall support the
payment of up to 35 days' interest on the Second Issue Flexible Term
Notes, at an assumed rate of interest of 15% per annum;
"Second Issue Flexible Term Notes" means the $10,000,000
initial aggregate principal amount of Flexible Term Notes (Hanover
Direct, Inc.) of the Borrower that will mature in 2010 to be issued
under a Note Agreement between the Borrower and the Note Trustee;
"Securities Depository" has the meaning assigned to that term
in the Note Agreement;
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multi-employer Plan;
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including, without limitation, Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted;
"Standby Letter of Credit" means an irrevocable standby letter
of credit issued hereunder for the account of the Borrower or any of
its Subsidiaries, provided that the expiry date of a Standby Letter of
Credit shall not be later than twelve (12) months subsequent to the
date of issuance thereof;
"Stated Termination Date" means, (i) with respect to the
Initial Hanover Direct LC and the Second Hanover Direct LC, three
years from the date of issuance thereof, respectively, or (ii) with
respect to the Hanover House LC, October 16, 1997, or (iii) any later
date to which the Stated Termination Date is extended pursuant to
Section 4.12 hereof;
"Subordinated Debt" means the 9.25% Senior Subordinated Notes
due August 1, 1998 issued in the original principal amount of
$20,000,000 to Sun Life Insurance Company of America pursuant to an
Indenture dated as of August 17, 1993 among the
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Borrower (successor to The Hanover Companies and The Horn and Hardart
Company), certain Subsidiaries of the Borrower and First Trust
National Association, as Trustee;
"Subordination Agreement" means that Subordination Agreement
of even date herewith among First Trust National Association, Sun Life
Insurance Company of America, the Borrower, certain Subsidiaries of
the Borrower and the Agent, substantially in the form of Exhibit N
attached hereto and incorporated herein by reference, whereby the
holders of the Subordinated Debt have subordinated their rights to
receive payment thereunder to the rights of the Agent and the Lenders
to receive payment under the Loan Documents and the $20,000,000 Credit
Facility Documents;
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding stock having ordinary voting power or
more than 50% of all equity interests is owned directly or indirectly
by the Borrower and/or by one or more of the Borrower's Subsidiaries
at or after the Closing Date;
"Swap Agreement" means one or more agreements with respect to
Indebtedness evidenced by the Notes between the Borrower and a Lender,
on terms mutually acceptable to such Borrower and such Lender, which
agreements create Rate Hedging Obligations;
"Swing Line" means the revolving line of credit established by
NationsBank in favor of the Borrower pursuant to Section 2.02 ;
"Swing Line Loans" means Loans made by NationsBank to Borrower
pursuant to Section 2.02;
"Swing Line Note" means the promissory note of the Borrower
evidencing Swing Line Loans executed and delivered to NationsBank
substantially in the form attached hereto as Exhibit G and
incorporated herein by reference, as the same shall be amended,
modified or supplemented and in effect from time to time;
"Swing Line Outstandings" means, as of any date of
determination, the aggregate principal Indebtedness of Borrower on all
Swing Line Loans then outstanding;
"Swing Line Rate" means for any Swing Line Loan the rate of
interest per annum mutually agreed upon by the Borrower and
NationsBank;
"Tender Advance" has the meaning assigned to that term in
Section 4.05 hereof;
"Tender Agent" means the Note Trustee or the Bond Trustee, as
the case may be;
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"$20,000,000 Credit Facility" means the credit facilities
provided to the Borrower by the Lenders pursuant to that Revolving
Credit and Term Loan Agreement of even date herewith;
"$20,000,000 Credit Facility Documents" means that Revolving
Credit and Term Loan Agreement of even date herewith by and among the
Borrower, the Agent and Lenders and each of the documents executed in
connection therewith;
"Total Letter of Credit Commitment" means an amount equal to
$35,000,000;
"Total Revolving Credit Commitment" means an amount equal to
$60,000,000, as reduced from time to time in accordance with Section
2.10 hereof.
1.02 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings assigned to such terms by, and shall be
interpreted in accordance with, Generally Accepted Accounting Principles as in
effect on the date of the audited financial statements of the Borrower referred
to in Section 7.01(f)(i) hereof and applied on a Consistent Basis.
1.03 TERMS CONSISTENT. All of the terms defined in this Agreement
shall have such defined meanings when used in any of the Loan Documents unless
the context shall require otherwise. All references to the Borrower, the Agent
and any Lender shall be deemed to include any successor or permitted assign of
any thereof. All plural references and definitions shall have a corresponding
meaning in the singular, and all singular references and definitions shall have
a corresponding meaning in the plural.
ARTICLE II
THE LOANS
2.01 REVOLVING CREDIT LOANS.
(a) COMMITMENT.
(i) Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances under the
Revolving Credit Facility to the Borrower from time to time on a pro
rata basis as to the total borrowing requested by the Borrower on any
day determined by its Applicable Commitment Percentage of the Total
Revolving Credit Commitment up to but not exceeding the Revolving
Credit Commitment of such Lender; provided, however, that the Lenders
will not be required and shall have no obligation to make any Advance
under the Revolving Credit Facility (A) so long as a Default or an
Event of Default has occurred and is continuing or (B) if the Agent
has accelerated the maturity of the Revolving Credit Notes as a result
of an Event of Default; provided further, that immediately after
giving effect to each such Advance, the sum of all Outstandings shall
not exceed the Total Revolving
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Credit Notes as a result of an Event of Default; provided further, that
immediately after giving effect to each such Advance, the sum of all
Outstandings shall not exceed the Total Revolving Credit Commitment.
(ii) Within such limits, the Borrower may borrow, repay
and reborrow hereunder, on a Business Day in the case of a Base Rate
Loan and on a LIBOR Business Day in the case of a LIBOR Loan, from the
Closing Date until, but (as to borrowings and reborrowings) not
including, the Revolving Credit Termination Date; provided, however,
that (A) no LIBOR Loan shall be made which has an Interest Period that
extends beyond the Revolving Credit Termination Date and (B) each
LIBOR Loan may, subject to the provisions of Section 2.12, be repaid
only on the last day of the Interest Period with respect thereto.
(b) AMOUNTS. Except as otherwise permitted by the Lenders from
time to time, the sum of all Outstandings shall not exceed at any time an
amount equal to the Total Revolving Credit Commitment. Each Revolving Credit
Loan made, converted or continued, unless made in accordance with Sections
2.01(c)(iv) or 3.02(c) hereof, shall be in a principal amount of at least
$5,000,000, and, if greater than $5,000,000, an integral multiple of
$1,000,000.
(c) ADVANCES AND RATE SELECTION.
(i) An Authorized Representative shall give the Agent (A)
irrevocable telephonic notice of each LIBOR Loan, whether representing
an additional Advance hereunder or the conversion of borrowings
hereunder from Base Rate Loans to LIBOR Loans or the election of a
subsequent Interest Period for any LIBOR Loan, prior to 11:30 A.M.
Charlotte, North Carolina time at least three (3) LIBOR Business Days
prior to the day such Advance is to be made or such Loan is to be
converted or continued; and (B) irrevocable telephonic notice of each
Base Rate Loan representing an additional Advance hereunder or the
conversion of borrowings hereunder from LIBOR Loans to Base Rate Loans
prior to 10:30 A.M. Charlotte, North Carolina time on the day such
Advance is to be made or such Loan is to be converted. Each such
notice, which shall be effective upon receipt by the Agent, shall
specify the amount of the Advance, the type of Loan (Base Rate or
LIBOR), the date of the Advance and, if a LIBOR Loan, the Interest
Period to be used in the computation of interest. The Authorized
Representative shall provide the Agent written confirmation of each
such telephonic notice on the same day by telefacsimile transmission
in the form of a Borrowing Notice for additional Advances, or in the
form of an Interest Rate Selection Notice for the selection or
conversion of interest rates for outstanding Revolving Credit Loans,
in each case with appropriate insertions, but failure to provide such
confirmation shall not affect the validity of such telephonic notice.
The Borrower shall have the option to elect the duration of subsequent
Interest Periods and to
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convert the Revolving Credit Loans in accordance with Section 2.12
hereof. If the Agent does not receive a notice of election of duration
of an Interest Period or to convert by the time prescribed hereby and
by Section 2.12 hereof, the Borrower shall be deemed to have elected to
convert to or continue such Revolving Credit Loan as a Base Rate Loan
until the Borrower otherwise notifies the Agent in accordance herewith
and with Section 2.12.
(ii) Notice of receipt of each Borrowing Notice and Interest
Selection Notice shall be provided by the Agent to each Lender with
reasonable promptness, but not later than 1:00 P.M., Charlotte, North
Carolina time on the same day as Agent's receipt of such notice. The
Agent shall provide each Lender written confirmation of such
telephonic notice by telefacsimile transmission, but failure to
provide such notice shall not affect the validity of such telephonic
notice.
(iii) Not later than 2:30 P.M., Charlotte, North Carolina time on
the date specified for each Advance of a Revolving Credit Loan, each
Lender shall, pursuant to the terms and subject to the conditions of
this Agreement, make the amount of the Revolving Credit Loan or Loans
to be made by it on such day available to the Agent by depositing or
transferring the proceeds thereof in immediately available funds at
the Principal Office. The amount so received by the Agent shall,
subject to the terms and conditions of this Agreement, be made
available to the Borrower by delivery of the proceeds thereof to the
Borrower's Account or otherwise as shall be directed in the applicable
Borrowing Notice by the Authorized Representative.
(iv) Notwithstanding the foregoing, if a drawing is made under
any Letter of Credit prior to the Revolving Credit Termination Date,
notice of such drawing and resulting Reimbursement Obligation shall be
provided promptly by NationsBank to the Agent and the Agent shall
provide notice to each Lender by telephone. If such notice to the
Lenders of a drawing under any Letter of Credit is given by the Agent
at or before 12:00 noon Charlotte, North Carolina time on any Business
Day, the Borrower shall be deemed to have requested, and each Lender
shall, pursuant to the conditions of this Agreement, make an Advance
as a Base Rate Loan under the Revolving Credit Facility in the amount
of such Lender's Applicable Commitment Percentage of such
Reimbursement Obligation and shall pay such amount to the Agent for
the account of NationsBank at the Principal Office in Dollars and in
immediately available funds before 2:30 P.M. Charlotte, North Carolina
time on the same Business Day. If notice to the Lenders is given by
the Agent after 12:00 noon Charlotte, North Carolina time on any
Business Day, the Borrower shall be deemed to have requested, and each
Lender shall, pursuant to the terms and subject to the conditions of
this Agreement,
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make an Advance as a Base Rate Loan under the Revolving Credit
Facility in the amount of such Lender's Applicable Commitment
Percentage of such Reimbursement Obligation and shall pay such amount
to the Agent for the account of NationsBank at the Principal Office in
Dollars and in immediately available funds before 12:00 noon Charlotte,
North Carolina time on the next following Business Day. Such Base Rate
Loan shall continue unless and until the Borrower converts such Base
Rate Loan in accordance with the terms of Section 2.12 hereof.
2.02 SWING LINE LOANS. (a) Notwithstanding any other provision of
this Agreement to the contrary, NationsBank shall make available Swing Line
Loans to the Borrower prior to the Revolving Credit Termination Date.
NationsBank shall not make any Swing Line Loan pursuant hereto (i) if the
Borrower is not in compliance with all the conditions to the making of Revolving
Credit Loans set forth in this Agreement, (ii) if after giving effect to such
Swing Line Loan, the Swing Line Outstandings would exceed $5,000,000, or (iii)
if after giving effect to such Swing Line Loan, the sum of all Outstandings
would exceed the Total Revolving Credit Commitment.
(b) Each provision of Section 2.01(c) hereof applicable to Base
Rate Loans shall be applicable in all respects to each Swing Line Loan. Each
Borrowing Notice submitted to the Agent with respect to Swing Line Loans shall
specify, in addition to the items required by Section 2.01(c)(i), that such
Advance is a Swing Line Loan and the applicable Swing Line Rate. All Advances
made pursuant to this Section 2.02 shall bear interest at the applicable Swing
Line Rate.
(c) All Advances made by NationsBank under the Swing Line pursuant
to this Section 2.02 shall be in the minimum principal amount of $500,000 and
any increment of $50,000 in excess thereof.
(d) The Borrower and each Lender acknowledge that all Swing Line
Loans are to be made solely by NationsBank to the Borrower. Each Lender (other
than NationsBank) shall automatically on the date of each Swing Line Loan
acquire a Participation in such Swing Line Loan in an amount equal to such
Lender's Applicable Commitment Percentage thereof. Upon demand made by
NationsBank, each Lender shall, according to such Lender's Applicable
Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank
its purchase price therefor in an amount equal to its Participation therein.
Any Advance made by a Lender pursuant to demand of NationsBank of the purchase
price of its Participation shall be deemed a Base Rate Loan under the Revolving
Credit Facility ending on the next following Business Day, which shall be
extended automatically unless the Borrower converts such Base Rate Loan in
accordance with the terms of Section 2.12 hereof. The obligation of each
Lender to so provide its purchase price to NationsBank shall be absolute and
unconditional and shall not be affected by
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the occurrence of an Event of Default or any other occurrence or event.
(e) Each Swing Line Loan shall mature and be due and payable in
full by the Borrower on the seventh day following the date on which such Loan
was made. The Borrower at its option may request an Advance as a Revolving
Credit Loan pursuant to Section 2.01 in an amount sufficient to repay any or
all Swing Line Loans on any date and the Agent shall, upon the receipt of such
Advance, provide to NationsBank the amount necessary to repay such Swing Line
Loan or Loans (which NationsBank shall then apply to such repayment) and credit
any balance of such Revolving Credit Loan in immediately available funds to the
Borrower's Account. The proceeds of such Advances shall be paid to NationsBank
for application to the Swing Line Outstandings and the Participations therein
purchased by the Lenders pursuant to Section 2.02(d) above, and the Lenders
shall then be deemed to have made Revolving Credit Loans in the amount of such
Advances. The Swing Line shall continue in effect until the earlier of (i) the
occurrence and continuation of a Default, or (ii) the Revolving Credit
Termination Date.
2.03 COMPETITIVE BID LOANS. (a) In addition to Revolving Credit
Loans, at any time prior to the Revolving Credit Termination Date during which
the conditions set forth in Section 2.03(b) below are satisfied, the Borrower
may, as set forth in this Section 2.03, request the Lenders to make offers to
make Competitive Bid Loans to the Borrower in Dollars. The Lenders may, but
shall have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept any such offers in the manner set forth in this
Section 2.03. There may be no more than ten (10) different Interest Periods
for both Revolving Credit Loans and Competitive Bid Loans outstanding at the
same time (for which purpose Interest Periods for each LIBOR Loan and each
Competitive Bid Loan shall be deemed to be different Interest Periods even if
they are coterminous). Each Competitive Bid Loan shall reduce availability
under the Revolving Credit Facility. The making of a Competitive Bid Loan by
any Lender shall not reduce such Lender's Revolving Credit Commitment except as
calculated based upon the Total Revolving Credit Commitment as reduced by such
Competitive Bid Loan. Competitive Bid Outstandings, together with all other
Outstandings, shall not exceed the Total Revolving Credit Commitment at any
time.
(b) When the Borrower wishes to request offers to make Competitive
Bid Loans, it shall give the Agent (which shall promptly notify the Lenders) a
Competitive Bid Quote Request to be received no later than 11:00 a.m.
Charlotte, North Carolina time two (2) Business Days prior to the date of
borrowing proposed therein (or such other time and date as the Borrower and the
Agent, with the consent of the Required Lenders, may agree). The Borrower may
request offers to make Competitive Bid Loans for up to two (2) different
Interest Periods in a single notice; provided that the request for each
separate Interest Period shall be deemed to be a
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separate Competitive Bid Quote Request for a separate borrowing (a "Competitive
Bid Borrowing") and there shall not be outstanding at any one time more than
four (4) Competitive Bid Borrowings. Each such Competitive Bid Quote Request
shall be substantially in the form of Exhibit I attached hereto and incorporated
herein by reference and shall specify as to each Competitive Bid Borrowing:
(i) the proposed date of such borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $5,000,000 (or in increments of
$1,000,000 in excess thereof) but shall not cause the limits specified
in Section 2.03(a) hereof to be violated;
(iii) the duration of the Interest Period applicable
thereto (which may be not less than 7 nor more than 180 days); and
(iv) the Quotation Date.
Except as otherwise provided in this Section 2.03(b), no Competitive Bid Quote
Request shall be given within five (5) Business Days (or such other number of
days as the Borrower and the Agent, with the consent of the Required Lenders,
may agree) of any other Competitive Bid Quote Request.
(c) Each Lender may submit one or more Competitive Bid Quotes,
each containing an offer to make a Competitive Bid Loan in response to any
Competitive Bid Quote Request; provided that, if the Borrower's request under
Section 2.03(b) hereof specified more than one Interest Period, such Lender may
make a single submission containing one or more Competitive Bid Quotes for each
such Interest Period. Each Competitive Bid Quote must be submitted to the
Agent not later than 10:00 a.m. Charlotte, North Carolina time on the Quotation
Date (or such other time and date as the Borrower and the Agent, with the
consent of the Required Lenders, may agree), provided that any Competitive Bid
Quote may be submitted by NationsBank only if NationsBank notifies the Borrower
of the terms of the offer contained therein not later than 9:45 a.m. Charlotte,
North Carolina time on the Quotation Date. Subject to Articles V, VI and X
hereof, any Competitive Bid Quote so made shall be irrevocable except with the
consent of the Agent given on the instructions of the Borrower.
(d) Each Competitive Bid Quote shall be substantially in the form of
Exhibit J attached hereto and incorporated herein by reference and shall
specify:
(i) the proposed date of borrowing and the Interest
Period therefor;
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(ii) the principal amount of the Competitive Bid Loan for
which each such offer is being made, which principal amount shall be
at least $1,000,000 (or in increments of $100,000 in excess thereof);
provided that the aggregate principal amount of all Competitive Bid
Loans for which a Lender submits Competitive Bid Quotes may not exceed
the principal amount of the Competitive Bid Borrowing for a particular
Interest Period for which offers were requested;
(iii) the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) offered for each such
Competitive Bid Loan (the "Absolute Rate"); and
(iv) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the Borrower, no Competitive Bid Quote
shall contain qualifying, conditional or similar language or propose terms
other than or in addition to those set forth in the applicable Competitive Bid
Quote Request. Any subsequent Competitive Bid Quote submitted by a Lender that
amends, modifies or is otherwise inconsistent with a previous Competitive Bid
Quote submitted by such Lender with respect to the same Competitive Bid Quote
Request shall be disregarded by the Agent unless such subsequent Competitive
Bid Quote is submitted solely to correct a manifest error in such former
Competitive Bid Quote.
(e) The Agent shall as promptly as practicable after a Competitive
Bid Quote is submitted (but in any event not later than 10:30 a.m. Charlotte,
North Carolina time on the Quotation Date), notify the Borrower of the terms of
any Competitive Bid Quote submitted by a Lender that is in accordance with
Sections 2.03(c) and (d) hereof. The Agent's notice to the Borrower shall
specify (i) the aggregate principal amount of the Competitive Bid Borrowing for
which Competitive Bid Quotes have been received and (ii) the respective
principal amount and Absolute Rate so offered by each Lender (identifying the
Lender that made each Competitive Bid Quote).
(f) Not later than 11:00 a.m. Charlotte, North Carolina time on
the Quotation Date (or such other time and date as the Borrower and the Agent,
with the consent of the Required Lenders, may agree), the Borrower shall notify
the Agent of its acceptance or nonacceptance of the Competitive Bid Quotes so
notified to it pursuant to Section 2.03(e) hereof (the failure of the Borrower
to give such notice by such time shall constitute nonacceptance), and the Agent
shall promptly notify each affected Lender. In the case of acceptance, such
notice shall specify the aggregate principal amount of offers for each Interest
Period that are accepted. The Borrower may only accept a Competitive Bid Quote
for the entire principal amount of the Competitive Bid Loan so offered as
opposed to any portion thereof, except as provided in Section 2.03(g)
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hereof. The Borrower's acceptance of Competitive Bid Quotes is further subject
to the following conditions:
(i) the aggregate principal amount of each Competitive Bid
Borrowing may not exceed the applicable amount set forth in the
related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each Competitive Bid
Borrowing shall be at least $5,000,000 (or an increment of $1,000,000
in excess thereof) but shall not cause the limits specified in Section
2.03(a) hereof to be violated;
(iii) acceptance of Competitive Bid Quotes may be made only in
ascending order of Absolute Rates beginning with the lowest rate so
offered; and
(iv) the Borrower may not accept any Competitive Bid Quote if the
Agent has correctly advised the Borrower that such Competitive Bid
Quote fails to comply with Section 2.03(d) hereof or otherwise fails
to comply with the requirements of this Agreement (including, without
limitation, Section 2.03(a) hereof).
(g) If Competitive Bid Quotes are made by two or more Lenders with
the same Absolute Rates for a greater aggregate principal amount than the
amount in respect of which Competitive Bid Quotes are accepted for the related
Interest Period, the principal amount of Competitive Bid Loans in respect of
which such Competitive Bid Quotes are accepted shall be allocated by the
Borrower among such Lenders as nearly as possible (in amounts of at least
$500,000 or in increments of $100,000 in excess thereof) in proportion to the
aggregate principal amount of such Competitive Bid Quotes. Determinations by
the Borrower of the amounts of Competitive Bid Loans and the lowest bid as
provided in Section 2.03(f)(iii) shall be conclusive absent manifest error.
(h) Any Lender whose offer to make any Competitive Bid Loan has
been accepted shall, not later than 1:00 p.m. Charlotte, North Carolina time
on the date specified for the making of such Loan, make the amount of such Loan
available to the Agent at the Principal Office in Dollars and in immediately
available funds, for the account of the Borrower. The amount so received by
the Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower on such date by depositing the same, in Dollars and
in immediately available funds, in an account of the Borrower maintained at the
Principal Office.
(i) Together with each Competitive Bid Quote Request, the Borrower
shall pay to the Agent for the account of the Agent a bid administration fee of
$1,500.
2.04 PAYMENT OF INTEREST. (a) The Borrower shall pay interest to the
Agent at the Principal Office for the account of
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each Lender on the outstanding and unpaid principal amount of each Loan made by
such Lender for the period commencing on the date of such Loan until such Loan
shall be due (i) in the case of each Revolving Credit Loan, at the LIBOR Rate
or the Base Rate, as elected or deemed elected by the Borrower or otherwise
applicable to such Loan as herein provided; (ii) in the case of each Swing Line
Loan, at the Swing Line Rate; and (iii) in the case of each Competitive Bid
Loan, at the applicable Absolute Rate; provided, however, that if any amount
shall not be paid when due (at maturity, by acceleration or otherwise), all
amounts outstanding hereunder shall bear interest thereafter (A) in the case of
a LIBOR Loan, at a rate of interest per annum which shall be two percent (2%)
above the LIBOR Rate for such LIBOR Loan until the end of the Interest Period
during which such payment was due, and thereafter at a rate of interest per
annum which shall be two percent (2%) above the Base Rate, (B) in the case of a
Base Rate Loan or Swing Line Loan, at a rate of interest per annum which shall
be two percent (2%) above the Base Rate, and (C) in the case of a Competitive
Bid Loan, at a rate of interest per annum which shall be two percent (2%) above
the Absolute Rate for such Competitive Bid Loan until the end of the Interest
Period during which such payment was due, and thereafter at a rate of interest
per annum which shall be two percent (2%) above the Base Rate, or (in each
case) the maximum rate permitted by applicable law, whichever is lower, from
the date such amount was due and payable until the date such amount is paid in
full.
(b) Interest on the outstanding principal balance of each Loan shall
be computed on the basis of a year of 360 days and calculated for the actual
number of days elapsed. Interest on each Loan shall be paid (i) quarterly in
arrears on the last Business Day of each December, March, June and September
commencing December 1994, on each Base Rate Loan and Swing Line Loan, (ii) on
the last day of the applicable Interest Period for each LIBOR Loan and
Competitive Bid Loan and, for any LIBOR Loan or Competitive Bid Loan having an
Interest Period extending beyond three (3) months or ninety (90) days, as
applicable, also on the date occurring three (3) months or ninety (90) days
after the commencement of such Interest Period, and (iii) upon payment in full
of the principal amount of such Loan.
2.05 PAYMENT OF PRINCIPAL. The principal amount of all Revolving
Credit Outstandings and all Swing Line Outstandings shall be due and payable to
the Agent for the benefit of each Lender in full on the Revolving Credit
Termination Date or earlier as herein expressly provided. The principal amount
of Base Rate Loans and Swing Line Loans may be prepaid in whole or in part at
any time without premium or penalty. The principal amount of LIBOR Loans and
Competitive Bid Loans may only be prepaid at the end of the applicable Interest
Period, unless the Borrower shall pay to the Agent for the account of the
Lenders the amount, if any, required under Section 5.04 hereof. In the event
that at any time the sum of all Outstandings exceeds the Total Revolving Credit
Commitment,
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a principal amount of the Revolving Credit Outstandings equal to or greater
than such excess shall be due and payable immediately. All prepayments made by
the Borrower shall be in the amount of $1,000,000 or an integral multiple of
$1,000,000 in excess thereof, or such other amount as necessary to comply with
this Section 2.05 or with Section 2.10 or with the covenants set forth in
Article IX hereof or with respect to prepayments of Tender Advances pursuant to
Section 4.07 hereof.
2.06 NON-CONFORMING PAYMENTS. (a) Each payment of principal
(including any prepayment) and payment of interest shall be made to the Agent
at the Principal Office, for the account of each Lender's applicable Lending
Office, in Dollars and in immediately available funds before 2:30 P.M.
Charlotte, North Carolina time on the date such payment is due. The Agent may,
but shall not be obligated to, debit the amount of any such payment which is
not made by such time to any ordinary deposit account, if any, of the Borrower
with the Agent. The Borrower shall give the Agent prior telephonic notice of
any payment of principal, such notice to be given by not later than 11:00 a.m.
Charlotte, North Carolina time, on the date of such payment.
(b) The Agent shall deem any payment by or on behalf of the
Borrower hereunder that is not made both (i) in Dollars and in immediately
available funds and (ii) prior to 2:30 P.M. Charlotte, North Carolina time on
the date payment is due to be a non- conforming payment. Any such payment
shall not be deemed to be received by the Agent until the time such funds
become available funds. Any non-conforming payment (other than a
non-conforming prepayment) may constitute or become a Default or Event of
Default. The Agent shall give prompt notice to the Authorized Representative
and each of the Lenders (confirmed in writing) if any payment (other than a
prepayment) is non-conforming. Interest shall continue to accrue on any
principal as to which a non-conforming payment is made until such funds become
available funds (but in no event less than the period from the date of such
payment to the next succeeding Business Day) at the respective rates of
interest per annum specified in Section 2.04(a) with respect to late payments
of interest (other than with respect to non- conforming prepayments, with
respect to which interest shall continue to accrue on any principal as to which
such non-conforming payment is made until such funds become available funds at
the Base Rate or the LIBOR Rate, as applicable) from the date such amount was
due and payable until the date such amount is paid in full.
(c) In the event that any payment hereunder or under the Notes
becomes due and payable on a day other than a Business Day, then such due date
shall be extended to the next succeeding Business Day unless provided otherwise
under clause (i)(B) of the definition of "Interest Period;" provided that
interest shall continue to accrue during the period of any such extension.
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2.07 BORROWER'S ACCOUNT. The Borrower shall until the Revolving
Credit Termination Date continuously maintain the Borrower's Account for the
purposes herein contemplated.
2.08 NOTES. (a) Revolving Credit Loans made by each Lender shall be
evidenced by, and be repayable with interest in accordance with the terms of,
the Revolving Credit Note payable to the order of such Lender in the amount of
its Applicable Commitment Percentage of the Total Revolving Credit Commitment,
which Revolving Credit Notes shall be dated the Closing Date or such later date
pursuant to an Assignment and Acceptance and shall be duly completed,
executed and delivered by the Borrower.
(b) Swing Line Loans made by NationsBank shall be evidenced by,
and be repayable with interest in accordance with the terms of, the Swing Line
Note dated the Closing Date and duly executed and delivered by the Borrower.
(c) Competitive Bid Loans made by any Lender shall be evidenced by,
and be repayable with interest in accordance with the terms of, the Competitive
Bid Note payable to the order of such Lender, which Competitive Bid Note shall
be dated the Closing Date and otherwise duly completed, executed and delivered
by the Borrower.
2.09 PRO RATA PAYMENTS. Except as otherwise provided herein, (a) each
payment and prepayment on account of the principal of and interest on the
Revolving Credit Loans and the fees described in Section 2.13 hereof shall be
made to the Agent for the account of the Lenders in the aggregate amount
payable to the Lenders pro rata based on their Applicable Commitment
Percentages, (b) each payment of principal of and interest on the Swing Line
Loans shall be made to the Agent for the account of NationsBank, and (c) each
payment of principal of and interest on the Competitive Bid Loans shall be made
to the Agent for the account of the respective Lenders making such Competitive
Bid Loans. All payments to be made by the Borrower for the account of each of
the Lenders on account of principal, interest and fees shall be made without
set-off or counterclaim. The Agent will promptly distribute such payments
received to the Lenders as provided for herein.
2.10 REDUCTIONS. The Borrower shall have the right from time to time
(but not more frequently than once during any fiscal quarter of the Borrower),
upon not less than five (5) Business Days written notice from an Authorized
Representative to the Agent, to reduce the Total Revolving Credit Commitment.
The Agent shall give each Lender, within one (1) Business Day, telephonic
notice (confirmed in writing) of such reduction. Each such reduction shall be
in the amount of $5,000,000 or an integral multiple of $5,000,000 in excess
thereof, and shall permanently reduce the Total Revolving Credit Commitment and
the Revolving Credit Commitment of each Lender pro rata. No such reduction
shall be permitted that results in the payment of any LIBOR Loan other than
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on the last day of the Interest Period of such Loan unless such prepayment
is accompanied by amounts due, if any, under Section 5.04. Each reduction of
the Total Revolving Credit Commitment shall be accompanied by payment of the
principal amount of the Revolving Credit Outstandings to the extent that the
sum of all Outstandings exceeds the Total Revolving Credit Commitment after
giving effect to such reduction, together with accrued and unpaid interest on
the amounts prepaid. A reduction of the Total Revolving Credit Commitment to
zero and payment by the Borrower of all Obligations (including the discharge of
all obligations of NationsBank and the Lenders with respect to Letters of
Credit, Participations and Competitive Bid Loans) shall, subject to the terms
and conditions of Section 12.08 hereof, be deemed a cancellation and
termination of this Agreement (other than with respect to Sections 3.02(g),
8.14, 11.07, 12.05 and 12.10 hereof, which shall survive any such termination).
2.11 INCREASE AND DECREASE IN AMOUNTS. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrower shall be
reduced by the aggregate amount of all Outstandings and shall be reinstated
(subject to Section 2.10 hereof) as such Outstandings are reduced.
2.12 CONVERSIONS AND ELECTIONS OF SUBSEQUENT INTEREST PERIODS.
Provided that no Default or Event of Default shall have occurred and be
continuing and subject to the limitations set forth below and in Sections 5.01
(b), 5.02 and 5.03 hereof, the Borrower may:
(a) upon notice to the Agent on or before 10:30 A.M. Charlotte,
North Carolina time on any Business Day convert all or a part of LIBOR Loans to
Base Rate Loans on the last day of the Interest Period for such LIBOR Loans;
and
(b) upon three (3) LIBOR Business Days' notice to the Agent on or
before 11:30 A.M. Charlotte, North Carolina time:
(i) elect a subsequent Interest Period for all or a
portion of LIBOR Loans to begin on the last day of the current
Interest Period for such LIBOR Loans; or
(ii) convert Base Rate Loans to LIBOR Loans on any LIBOR
Business Day.
Notice of any such elections or conversions shall specify the
effective date of such election or conversion and, with respect to LIBOR
Loans, the Interest Period to be applicable to the Loan as continued or
converted. Each election and conversion pursuant to this Section 2.12 shall be
subject to the limitations on LIBOR Loans set forth in the definition of
"Interest Period" herein and in Sections 2.01(a), (b) and (c) and Article V
hereof. All such continuations or conversions of Loans shall be effected pro
rata based on the Applicable Commitment Percentages of the Lenders.
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2.13 FACILITY FEE AND UPFRONT FEE. (a) For the period beginning on
the Closing Date and ending on the Revolving Credit Termination Date, the
Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders
based on their Applicable Commitment Percentages of the Total Revolving Credit
Commitment, a quarterly facility fee (the "Facility Fee") equal in amount to
the product of the Applicable Margin for calculating the Facility Fee
multiplied by the average daily Total Revolving Credit Commitment for such
period. Payments of the Facility Fee shall be due in arrears on the last
Business Day of each December, March, June and September beginning December
1994 to and on the Revolving Credit Termination Date. Notwithstanding the
foregoing, so long as any Lender fails to make available any portion of its
Revolving Credit Commitment when requested, such Lender shall not be entitled
to receive payment of its pro rata share of the Facility Fee until such Lender
shall make available such portion. The Facility Fee shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed.
(b) The Borrower agrees to pay to the Agent, for the benefit of
each Lender, a fee on the Closing Date (the "Upfront Fee") in the amounts set
forth on Exhibit O attached hereto and incorporated herein by reference.
2.14 DEFICIENCY ADVANCES. No Lender shall be responsible for any
default of any other Lender in respect to such other Lender's obligation to
make any Loan hereunder nor shall the Revolving Credit Commitment of any Lender
hereunder be increased as a result of such default of any other Lender.
Without limiting the generality of the foregoing, in the event any Lender shall
fail to advance funds to the Borrower as herein provided, the Agent may in its
discretion, but shall not be obligated to, advance under the applicable
Revolving Credit Note in its favor as a Lender all or any portion of such
amount or amounts (each, a "deficiency advance") and shall thereafter be
entitled to payments of principal of and interest on such deficiency advance in
the same manner and at the same interest rate or rates to which such other
Lender would have been entitled had it made such advance under its applicable
Note; provided that, upon payment to the Agent from such other Lender of the
entire outstanding amount of each such deficiency advance, together with
accrued and unpaid interest thereon, from the most recent date or dates
interest was paid to the Agent by the Borrower on each Loan comprising the
deficiency advance at the interest rate per annum for overnight borrowing by
the Agent from the Federal Reserve Bank, then such payment shall be credited
against the applicable Note of the Agent in full payment of such deficiency
advance and the Borrower shall be deemed to have borrowed the amount of such
deficiency advance from such other Lender as of the most recent date or dates,
as the case may be, upon which any payments of interest were made by the
Borrower thereon.
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2.15 USE OF PROCEEDS. The proceeds of the Loans made pursuant to the
Revolving Credit Facility and the Swing Line shall be used by the Borrower for
working capital and general corporate needs of the Borrower and its
Subsidiaries and shall in no event be used to (a) prepay any portion of the
Subordinated Debt or (b) finance any Acquisition that is approved by less than
a majority of the Board of Directors or other governing body of the Person to
be so acquired as of the date of such Acquisition.
2.16 ADDITIONAL FEES. In addition to any fees described above, the
Borrower agrees to pay to the Agent and NationsBank such other fees as may be
agreed to in a separate writing or writings.
ARTICLE III
LETTERS OF CREDIT
3.01 LETTERS OF CREDIT. NationsBank agrees, subject to the terms and
conditions of this Agreement, upon request and for the account of Borrower, to
issue from time to time Letters of Credit upon delivery to NationsBank of an
Application and Agreement for Letter of Credit in form and content acceptable
to NationsBank; provided, that the Letter of Credit Outstandings shall not
exceed the Total Letter of Credit Commitment. No Letter of Credit shall be
issued by NationsBank with an expiry date or payment date occurring subsequent
to the fifth Business Day preceding the Revolving Credit Termination Date.
NationsBank shall not be required to issue any Letter of Credit if, immediately
after giving effect thereto, the sum of all Outstandings would exceed the Total
Revolving Credit Commitment; provided that the Letters of Credit previously
issued may remain outstanding until their respective expiry dates.
3.02 REIMBURSEMENT. (a) The Borrower hereby unconditionally agrees
immediately to pay to NationsBank on demand at the Principal Office all amounts
required to pay all drafts drawn and honored under Letters of Credit and all
reasonable expenses incurred by NationsBank in connection with Letters of
Credit and in any event and without demand to place in possession of
NationsBank sufficient funds to pay all debts and liabilities arising under any
Letter of Credit; provided that to the extent permitted by Section 2.01(c)(iv)
hereof, such amounts shall be paid pursuant to Advances. The Borrower's
obligation to pay NationsBank under this Section 3.02, and NationsBank's right
to receive such payment, shall be absolute and unconditional and shall not be
affected by any circumstance whatsoever, including without limitation the
unavailability of any Advance. NationsBank agrees to give the Borrower prompt
written notice of any request for a draw under a Letter of Credit. In the
event an Advance is not available, NationsBank may charge any account the
Borrower may have with it for any and all amounts NationsBank pays under a
Letter of Credit, plus charges and reasonable expenses as from time to time
agreed to by NationsBank and the Borrower. The Borrower agrees to pay
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NationsBank interest on any amounts not paid when due hereunder at the Default
Rate from the date such amount was due and payable to the date such amount is
paid in full.
(b) In accordance with the provisions of Section 2.01(c) hereof,
NationsBank shall notify the Agent (and shall also notify the Borrower) of any
drawing under any Letter of Credit as promptly as practicable following the
receipt by NationsBank of such drawing.
(c) Each Lender (other than NationsBank) shall automatically
acquire on the date of issuance thereof a Participation in the liability of
NationsBank in respect of each Letter of Credit in an amount equal to such
Lender's Applicable Commitment Percentage of such liability, and to the extent
that the Borrower is obligated to pay NationsBank under Section 3.02(a), each
Lender (other than NationsBank) thereby shall, as hereinafter described,
absolutely, unconditionally and irrevocably assume, and shall be
unconditionally obligated to pay to NationsBank, its Applicable Commitment
Percentage of the liability of NationsBank under such Letter of Credit.
(i) Prior to the Revolving Credit Termination Date, each
Lender (other than NationsBank) shall, subject to the terms and
conditions of Article II, make a Revolving Credit Loan bearing
interest at the Base Rate to the Borrower by paying to the Agent for
the account of NationsBank at the Principal Office in Dollars and in
immediately available funds an amount equal to its Applicable
Commitment Percentage of any Reimbursement Obligation, all as
described in and pursuant to Section 2.01(c).
(ii) With respect to drawings under any Letter of Credit
for which a Revolving Credit Loan is not made as set forth in clause
(i) above, each Lender (other than NationsBank), upon receipt from the
Agent of notice of a drawing in the manner described in Section
2.01(c), shall promptly pay to the Agent for the account of
NationsBank, prior to the applicable time set forth in Section
2.01(c), its Applicable Commitment Percentage of such drawing.
Simultaneously with the making of each such payment by a Lender to the
Agent for the account of NationsBank, such Lender shall, automatically
and without any further action on the part of NationsBank or such
Lender, acquire a Participation in an amount equal to such payment
(excluding the portion thereof constituting interest) in the related
Reimbursement Obligation of the Borrower.
(iii) Each Lender's obligation to make payment to the Agent
for the account of NationsBank pursuant to this Section 3.02(c), and
the right of NationsBank to receive the same, shall be made without
any offset, abatement, withholding or reduction whatsoever. If any
Lender is obligated to pay but does not pay amounts to the Agent for
the account of NationsBank in full upon such request as required by
this Section 3.02(c), such Lender shall, on demand, pay to the Agent
for the account of
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NationsBank interest on the unpaid amount for each day during the
period commencing on the date of notice given to such Lender pursuant
to Section 2.01(c) until such Lender pays such amount to the Agent for
the account of NationsBank in full at the interest rate per annum for
overnight borrowing by NationsBank from the Federal Reserve Bank.
(iv) In the event the Lenders have purchased
Participations in any Reimbursement Obligation as set forth in clause
(ii) above, then at any time payment of such Reimbursement Obligation,
in whole or in part, is received by NationsBank as issuer of the
Letter of Credit from the Borrower, NationsBank shall pay to each
Lender an amount equal to its Applicable Commitment Percentage of such
payment from the Borrower.
(d) Promptly following the end of each calendar quarter,
NationsBank shall deliver to the Agent, and the Agent shall deliver to each
Lender, a notice describing the aggregate undrawn amount of all Letters of
Credit at the end of such quarter. Upon the request of any Lender from time to
time, NationsBank shall deliver to the Agent, and the Agent shall deliver to
such Lender, any other information reasonably requested by such Lender with
respect to Letter of Credit Outstandings.
(e) The issuance by NationsBank of each Letter of Credit shall, in
addition to the conditions precedent set forth in Section 6.01 hereof, be
subject to the conditions that such Letter of Credit be in such form and
contain such terms as shall be reasonably satisfactory to NationsBank
consistent with the then current practices and procedures of NationsBank with
respect to similar letters of credit, and the Borrower shall have executed and
delivered such other instruments and agreements relating to such Letters of
Credit as NationsBank shall have reasonably requested consistent with such
practices and procedures. All Letters of Credit shall be issued pursuant to
and subject to the Uniform Customs and Practice for Documentary Credits, 1993
revision, International Chamber of Commerce Publication No. 500 and all
subsequent amendments and revisions thereto.
(f) The Borrower agrees that NationsBank may, in its sole
discretion, accept or pay, as complying with the terms of any Letter of Credit,
any drafts or other documents otherwise in order which may be signed or issued
by an administrator, executor, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver, attorney in fact
or other legal representative of a party who is authorized under such Letter of
Credit to draw or issue any drafts or other documents.
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(g) Without duplication of Section 12.10 hereof, the Borrower
hereby agrees to defend, indemnify and hold harmless NationsBank, each other
Lender and the Agent from and against any and all claims and damages, losses,
liabilities, reasonable costs and expenses which NationsBank, such other Lender
or the Agent may incur (or which may be claimed against NationsBank, such other
Lender or the Agent) by any Person by reason of or in connection with the
issuance or transfer of or payment or failure to pay under any Letter of
Credit; provided that the Borrower shall not be required to indemnify
NationsBank, any other Lender or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, caused by
the willful misconduct or gross negligence of the party to be indemnified. The
provisions of this Section 3.02(g) shall survive repayment of the Obligations,
the occurrence of the Revolving Credit Termination Date, and expiration or
termination of this Agreement.
(h) Without limiting Borrower's rights as set forth in Section
3.02(g) above, the obligation of the Borrower to immediately reimburse the
Agent for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit and the related
Applications and Agreements for Letters of Credit, notwithstanding the
following circumstances:
(i) any lack of validity or enforceability of the Letter
of Credit, the obligation supported by the Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "Related
Documents");
(ii) any amendment or waiver of or any consent to or
departure from all or any of the Related Documents;
(iii) the existence of any claim, setoff, defense or other
rights which the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such beneficiary
or any such transferee may be acting), Agent, Lenders or any other Person,
whether in connection with the Loan Documents, the Related Documents or any
unrelated transaction;
(iv) any breach of contract or other dispute between the
Borrower and any beneficiary or any transferee of a Letter of Credit (or any
persons or entities for whom such beneficiary or any such transferee may be
acting), Agent, Lenders or any other Person;
(v) any draft, statement or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever;
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(vi) any delay, extension of time, renewal, compromise or
other indulgence or modification granted or agreed to by Agent, with or without
notice to or approval by the Borrower in respect of any of Borrower's
Obligations under this Agreement; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
3.03 LETTER OF CREDIT FEE. The Borrower agrees to pay to the Agent,
for the pro rata benefit of the Lenders based on their Applicable Commitment
Percentages, quarterly in arrears on the last Business Day of each December,
March, June and September, beginning December 1994, a fee per annum equal to
(i) for each Standby Letter of Credit and Direct Pay Letter of Credit, the
product of the average daily amount available to be drawn on such Standby
Letter of Credit or Direct Pay Letter of Credit during such fiscal quarter
multiplied by the Applicable Margin with respect thereto and (ii) for each
Commercial Letter of Credit, the product of the stated amount of such
Commercial Letter of Credit outstanding during any portion of such fiscal
quarter multiplied by one-eighth of one percent (.125%). Such fees shall be
calculated on the basis of a year of 360 days for the actual number of days
during which such Letters of Credit are outstanding.
3.04 ADMINISTRATIVE FEES. The Borrower shall pay to NationsBank such
administrative fee and other fees, if any, in connection with the Letters of
Credit in such amounts and at such times as NationsBank and the Borrower shall
agree from time to time.
ARTICLE IV
THE DIRECT PAY LETTERS OF CREDIT;
PLEDGE OF FLEXIBLE TERM NOTES AND BONDS
4.01 THE DIRECT PAY LETTERS OF CREDIT. NationsBank agrees, on the
terms and conditions hereinafter set forth, to issue and deliver (i) the
Hanover Direct LC in favor of the Note Trustee and (ii) the Hanover House LC in
favor of the Bond Trustee in the amounts and with the expiration dates as set
forth in Exhibits P and Q, respectively, unless extended pursuant to the terms
of this Agreement. Unless otherwise provided in this Article IV, all of the
provisions of Article III hereof shall apply to the Direct Pay Letters of
Credit.
4.02 ISSUING THE DIRECT PAY LETTERS OF CREDIT. The Direct Pay Letters
of Credit shall be issued on at least five Business Days' notice from the
Borrower to NationsBank specifying the proposed date of issuance. On the date
specified by the Borrower in such notice and upon fulfillment of the applicable
conditions set forth in Article III hereof and this Article IV, NationsBank
will issue and deliver (i) the Hanover Direct LC to the Note Trustee and (ii)
the Hanover House LC to the Bond Trustee
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(respectively, the "L/C Issuance Date"). The Direct Pay Letters of Credit
shall be issued in substantially the forms of Exhibits P and Q hereto.
NationsBank agrees that any and all payments made under the Direct Pay Letters
of Credit will be made with NationsBank's own funds.
4.03 FEES AND EXPENSES. The Borrower agrees to pay, in connection
with the Direct Pay Letters of Credit, fees and expenses in accordance with
Sections 3.03 and 3.04 of this Agreement. Without limiting any other right or
remedy available to NationsBank in consequence thereof, any amount of such fees
or expenses payable by the Borrower to NationsBank which is not paid when due
shall bear interest, from the date such amount of fees was due until the date
of payment in full, at the Default Rate, payable on the first to occur of the
date of payment in full of such amount or demand by NationsBank.
4.04 REIMBURSEMENT; AMOUNTS PAID IN ADVANCE OF DATE WHEN DUE. The
Borrower agrees to pay NationsBank in accordance with the terms of Section 3.02
hereof. Notwithstanding any language in Article III to the contrary, in the
case of the Hanover House LC, the Borrower may not reimburse NationsBank prior
to the honoring of a drawing under the Hanover House LC.
4.05 TENDER ADVANCES. If NationsBank shall make any payment of that
portion of the purchase price corresponding to principal of the Flexible Term
Notes or the Bonds from amounts drawn under the Direct Pay Letter of Credit
pursuant to a Purchase Drawing, such payment shall constitute a tender advance
made by NationsBank to the Borrower on the date and in the amount of such
payment, each such tender advance being a "Tender Advance". Notwithstanding
any other provision hereof, the Borrower shall repay the unpaid amount of each
Tender Advance, together with all unpaid interest thereon, on the earliest to
occur of (i) such date as payment is made as provided in Section 4.07(b)
hereof, (ii) the date upon which there shall occur an Event of Default which
shall not have been waived, or (iii) the Revolving Credit Termination Date.
The Borrower may prepay any such amounts on an earlier date as provided in
Section 4.07(a) hereof.
4.06 INTEREST ON TENDER ADVANCES. The Borrower shall pay interest on
the unpaid amount of each Tender Advance from the date of such Tender Advance
until such amount is paid in full, at the same interest rate and upon the same
terms as applied to Advances under Article II hereof, provided that the unpaid
amount of any Tender Advance which is not paid when due pursuant to Section
4.05 hereof shall bear interest at the Default Rate, payable on demand and on
the date such amount is paid in full.
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4.07 PREPAYMENTS; REINSTATEMENT OF LETTER OF CREDIT AMOUNTS; DELIVERY
OF BONDS UPON PURCHASE OR CONVERSION.
(a) The Borrower may prepay the outstanding amount of any Tender
Advance, in whole or in part, together with accrued interest to the date of
such prepayment on the amount prepaid. The Borrower shall notify NationsBank
on the date of such prepayment of the amount to be prepaid, which notice shall
be given prior to such payment.
(b) Prior to or simultaneously with the resale of the Flexible
Term Notes or the Bonds acquired by the Tender Agent with the proceeds of one
or more draws under the Hanover Direct LC or the Hanover House LC by one or
more Purchase Drawings, the Borrower shall repay the then outstanding Tender
Advances (in the order in which they were made) by paying to NationsBank an
amount equal to the sum of (i) the portion of the purchase price corresponding
to the aggregate principal amount of the Flexible Term Notes or Bonds being
resold or to be resold, plus (ii) the aggregate amount of accrued and unpaid
interest on such Tender Advances. In making any such repayment, the Borrower
shall designate whether the repayment is to be applied to the Hanover Direct LC
or the Hanover House LC; provided, however, that to the extent such a repayment
is being made simultaneously with respect to both the Hanover Direct LC and the
Hanover House LC, repayments of Tender Advances shall be applied first to draws
under the Hanover House LC. Such payment shall be applied by NationsBank in
reimbursement of such drawings (and as prepayment of Advances resulting from
such drawings in the manner described above), and the Borrower irrevocably
authorizes NationsBank to reinstate the Hanover Direct LC or the Hanover House
LC, as the case may be, in accordance therewith. As provided in Section
3.08(a)(4) of the Indenture, Bonds purchased with funds obtained by a drawing
on the Hanover House LC shall not be remarketed until NationsBank notifies the
Bond Trustee by telephone or telex, promptly confirmed in writing, that the
amount available to be drawn on the Hanover House LC will be reinstated by the
amount of such funds simultaneously with the release of the Bonds held under
pledge.
(c) The Borrower agrees that, pursuant to the provisions of the
Note Agreement, Flexible Term Notes purchased with proceeds of a Purchase
Drawing under the Hanover Direct LC shall be (i) registered by the Note Trustee
and the Securities Depositary in the name of the Note Trustee, as agent and
bailee of NationsBank, expressly subject to the pledge in favor of NationsBank,
and deemed held by the Note Trustee as agent and bailee for the account of
NationsBank and (ii) at NationsBank's election in the event Flexible Term Notes
shall be certificated, delivered by the Tender Agent to NationsBank or its
designee, in either case, to be held by NationsBank or its agent, bailee or
designee in pledge as collateral securing the Borrower's payment obligations to
NationsBank hereunder. Flexible Term Notes so delivered to or deemed held by
NationsBank or its designee shall be registered in
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the name of the Note Trustee, as agent and bailee of NationsBank, expressly
subject to the pledge in favor of NationsBank, as pledgee of the Borrower, as
provided for in Section 4.11 hereof.
(d) The Borrower agrees that, pursuant to the provisions of the
Indenture, Bonds purchased with proceeds of a Purchase Drawing under the Hanover
House LC shall be (i) registered by the Bond Trustee in the name of NationsBank,
expressly subject to the pledge in favor of NationsBank, and (ii) at
NationsBank's election in the event Bonds shall be certificated, delivered by
the Tender Agent to NationsBank or its designee, in either case, to be held by
NationsBank or its agent, bailee or designee in pledge as collateral securing
the Borrower's payment obligations to NationsBank hereunder. Bonds so delivered
to or deemed held by NationsBank or its designee shall be registered in the name
of NationsBank, as pledgee of the Borrower.
(e) Outstanding Tender Advances may be prepaid at any time by or on
behalf of the Borrower on notice from the Borrower or its designee directing
NationsBank to deliver Flexible Term Notes or Bonds held by NationsBank or its
designee to the Tender Agent for sale pursuant to the Note Agreement or
Indenture, and specifying the principal amount of Flexible Term Notes or Bonds
to be sold, which notice may be given by telephone (promptly confirmed in
writing) but which shall not be effective unless received by NationsBank prior
to 11:00 A.M. (Charlotte, North Carolina time) on the day of the proposed
prepayment referred to above. In addition, the Borrower shall, forthwith,
prepay or cause to be prepaid pursuant to subsection (a) of this Section
4.07 any amount owing to NationsBank as a result of any Tender Advance for
the purpose of paying the purchase price of any Flexible Term Note or Bond
delivered to the Tender Agent, if (i) the Tender Agent failed, for any reason,
to pay or tender payment of the purchase price of such Flexible Term Note or
Bond when due to or for the account of the Person entitled thereto and such
failure is continuing, and so long as NationsBank is acting as the Remarketing
Agent is due to the failure of the Remarketing Agent to resell the Flexible Term
Notes as provided in the Remarketing Agreement, or (ii) any Person (other than
NationsBank) shall assert that such Person has a Lien on or security interest
against such Flexible Term Note or Bond. Upon payment to NationsBank of the
amount of such Tender Advance to be prepaid pursuant to the next preceding
sentence of this subsection (c), together with accrued interest on such Advance
to the date of such prepayment on the amount to be prepaid, the principal amount
outstanding of Tender Advances shall be reduced by the amount of such
prepayment, interest shall cease to accrue on the amount prepaid and NationsBank
shall release or cause to be released to the Tender Agent, in accordance with
the terms of the Note Agreement or the Indenture, a principal amount of Flexible
Term Notes or Bonds, as the case may be, then held under pledge equal to the
principal amount of such prepayment.
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4.08 PAYMENTS AND COMPUTATIONS. Except as otherwise stated in this
Article IV , payments and computation of amounts to be paid by the Borrower in
connection with drawings under the Direct Pay Letters of Credit shall be made
in accordance with Articles II and III hereof.
4.09 EVIDENCE OF DEBT. NationsBank shall maintain in accordance with
its usual practice an account or accounts evidencing the indebtedness of the
Borrower resulting from each drawing under the Direct Pay Letters of Credit and
each Tender Advance made from time to time hereunder and the amounts of
principal, interest and fees payable and paid from time to time hereunder. In
any legal action or proceeding in respect of this Agreement, the entries made in
such account or accounts shall be conclusive evidence of the existence and
amounts of the obligations of the Borrower therein recorded, absent manifest
error.
4.10 OBLIGATIONS ABSOLUTE. The payment obligations of the Borrower
under this Agreement shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of the Hanover
Direct LC, the Hanover House LC, the Flexible Term Notes, the Bonds,
the Note Agreement, the Indenture, the Remarketing Agreement, the
Placement Agreement or any other agreement or instrument relating to
any of the foregoing (collectively, the "Related Documents") unless the
invalidity or unenforceability of any of the Related Documents is
directly caused by the gross negligence or willful misconduct of
NationsBank;
(ii) any amendment or waiver of or any consent to departure
from all or any of the Related Documents (unless consented to in
writing by NationsBank);
(iii) the existence of any claim, set-off, defense (other than
the defense of payment) or other right which the Borrower may have at
any time against the Note Trustee, the Bond Trustee or any other
beneficiary, or any transferee, of the Direct Pay Letters of Credit
(or any persons or entities for whom the Note Trustee or the Bond
Trustee, any such beneficiary or any such transferee may be acting),
NationsBank, or any other person or entity, whether in connection with
this Agreement, the transactions contemplated herein or in the Related
Documents, or any unrelated transaction;
(iv) any statement, certification or other document presented
under the Direct Pay Letters of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or
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any statement therein being untrue or inaccurate in any respect; and
(v) payment by NationsBank under either of the Direct Pay Letters of
Credit against presentation of a draft or certificate which does not
comply with the terms of the respective Direct Pay Letter of Credit;
provided that such payment shall not have constituted gross
negligence or willful misconduct of NationsBank.
4.11 REGISTRATION AND DELIVERY OF FLEXIBLE TERM NOTES UPON PURCHASE
OR CONVERSION. The Borrower hereby agrees to cause the Tender Agent, in
accordance with the terms of the Note Agreement, to cause Flexible Term Notes
purchased with the proceeds of any drawing under the Hanover Direct LC to be
registered by the Note Trustee and the Securities Depositary in the name of the
Note Trustee, as agent and bailee of NationsBank, expressly subject to the
pledge thereof in favor of NationsBank as pledgee of the Borrower, and if such
Flexible Term Notes are evidenced by certificated instruments, to be delivered
to NationsBank or its designee (including the Note Trustee as agent and bailee
for NationsBank) to be held by NationsBank in pledge as collateral securing the
Borrower's payment obligations hereunder. Upon payment to NationsBank of the
amount of such drawings, together with accrued interest, if any, on such amount,
calculated at the Default Rate, to the date of payment, or upon written notice
to the Note Trustee that NationsBank has reinstated the Hanover Direct LC with
respect to Flexible Term Notes purchased with proceeds of such drawings,
NationsBank shall release to the Tender Agent, in accordance with the terms of
the Note Agreement, a principal amount of Flexible Term Notes, if any, then held
under the pledge equal to the amount of such payment corresponding to the
principal portion of such Flexible Term Notes.
4.12 EXTENSION OF THE STATED TERMINATION DATE. Not earlier than the
second anniversary of the L/C Issuance Date of either of the Direct Pay Letters
of Credit and at least two hundred ten days before the respective Stated
Termination Dates, the Borrower may request NationsBank in writing to extend the
respective Stated Termination Date for one year for purposes of this Agreement
and the Letter of Credit, provided , that the Stated Termination Dates as
extended pursuant to this Section 4.12 shall in no event extend beyond the
Revolving Credit Termination Date. If the Borrower shall make such a request,
NationsBank shall, on or before the date one hundred fifty days preceding the
Stated Termination Date, notify the Borrower in writing whether or not
NationsBank will extend the Stated Termination Date and, if NationsBank does so
elect, the conditions of such extension (including conditions relating to legal
documentation and pricing, such as fees for renewal and drawings). If
NationsBank shall not so notify the Borrower, NationsBank shall be deemed to
have not consented to such request. All requests and notices made pursuant to
this Section
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4.12 shall also be delivered to the Note Trustee or the Bond Trustee, as
the case may be.
4.13 PLEDGE OF FLEXIBLE TERM NOTES AND THE BONDS. The Borrower
hereby pledges, assigns, hypothecates, transfers and delivers to NationsBank all
its right, title and interest to, and hereby grants to NationsBank a first lien
on, and security interest in, all right, title and interest of the Borrower in
and to the following (the "Pledged Collateral"):
(a) all Flexible Term Notes which may from time to time have been
purchased with proceeds of Purchase Drawings under the Hanover Direct LC (the
"Pledged Notes");
(b) all Bonds which may from time to time have been purchased with
proceeds of Purchase Drawings under the Hanover House LC (the "Pledged Bonds")
(provided, however, that the Pledged Bonds are subject to a Lien in favor of
the Bond Trustee as provided in the Indenture);
(c) all income, earnings, profits, interest, premium or other
payments in whatever form in respect of the Pledged Notes and the Pledged Bonds;
and
(d) all proceeds (cash and non-cash) arising out of the sale,
exchange, collection, enforcement or other disposition of all or any portion of
the Pledged Notes or the Pledged Bonds;
as collateral security for the prompt and complete payment when due of all
amounts due in respect of the Reimbursement Obligations of the Borrower set
forth herein with respect to such Pledged Notes or Pledged Bonds (the "Secured
Obligations"). Notwithstanding any language herein to the contrary, neither the
Pledged Notes nor the Pledged Bonds nor the Pledged Collateral related to each
respectively shall serve as collateral security for the other.
Pledged Notes shall be registered, held and released from this pledge
pursuant to the provisions of this Article IV , Section 3.08(d) of the
Note Agreement, Section 3.08 of the Indenture or as otherwise directed by
NationsBank.
In the event that the Borrower shall fail to pay any amount when due
hereunder with respect to the Pledged Notes or the Pledged Bonds, NationsBank,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon the Borrower or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived), may
forthwith collect, receive, appropriate and realize upon the Pledged Collateral,
or any part thereof. Upon such event, NationsBank may forthwith sell, assign,
give option or options to purchase, contract to sell or otherwise dispose of and
deliver said Pledged Collateral, or any part thereof, in one or more parcels at
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public or private sale or sales, at any exchange, broker's board or at any of
NationsBank's offices or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. NationsBank shall
have the right upon any such sale or sales, public or private, to purchase the
whole or any part of said Pledged Collateral so sold, free of any right or
equity of redemption in the Borrower, which right or equity is hereby expressly
waived or released. NationsBank shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all of the Pledged
Collateral or in any way relating to the rights of NationsBank hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in
whole or in part of the Secured Obligations in such order as NationsBank may
elect, the Borrower remaining liable for any deficiency remaining unpaid after
such application. Only after so applying such net proceeds and after the
payment by NationsBank of any other amount required by any provision of law,
including, without limitation, Section 9-504(1) of the Uniform Commercial Code
of the State of New York, will NationsBank need to account for the surplus, if
any, to the Borrower. The Borrower agrees that NationsBank need not give more
than ten days' notice of the time and place of any public sale or of the time
after which a private sale or other intended disposition is to take place and
that such notice is reasonable notification of such matters. No notification
need be given to the Borrower if it has signed after default a statement
renouncing or modifying any right to notification of sale or other intended
disposition. In addition to the rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to any of the Secured Obligations, NationsBank shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of New York, except to the extent the remedial provisions of some other
state laws are applicable.
The Borrower covenants that the pledge, assignment and delivery of the
Pledged Collateral hereunder will create a valid, perfected, first priority
security interest in all right, title or interest of the Borrower in or to such
Pledged Collateral, and the proceeds thereof, subject to no prior pledge, lien,
mortgage, hypothecation, security interest, charge, option or encumbrance or to
any agreement purporting to grant to any third party a security interest in the
property or assets of the Borrower which would include the Pledged Collateral.
The Borrower covenants and agrees that it will defend NationsBank's right, title
and security interest in and to the Pledged Collateral and the proceeds thereof
against the claims and demands of all persons whomsoever unless the alleged
invalidity or other title defect is caused by the gross negligence or willful
misconduct of NationsBank.
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Pledged Notes or Pledged Bonds shall be released from the security
interest created hereunder upon satisfaction of the Secured Obligations with
respect to such Pledged Notes or Pledged Bonds, and restoration of the
respective Direct Pay Letter of Credit in the amount of any drawing thereunder
to satisfy the Secured Obligations.
Notwithstanding anything to the contrary herein contained, no exercise
of rights or remedies in respect of the Pledged Collateral shall constitute a
novation, election or waiver of remedies, or satisfaction of the obligations of
the Borrower hereunder or under the Related Documents.
4.14 REDUCTION IN AVAILABLE AMOUNT OF HANOVER DIRECT LC. As
provided in the Initial Hanover Direct LC and the Second Hanover Direct LC, the
maximum amount available for drawing under such Letter of Credit in respect of
(i) Principal Drawings and Purchase Drawings and (ii) Interest Drawings, shall
without further action or notice, on each of the dates set forth below,
permanently reduce (without right of reinstatement) to the respective amounts
set forth opposite each of such dates, if not earlier reduced to amounts at or
below the respective amounts pursuant to the terms of such Letter of Credit:
<TABLE>
<CAPTION>
Remaining Remaining
Principal Interest
Effective Date Drawing Drawing Remaining
of Reduction Amount Amount Commitment
-------------- --------- --------- ----------
<S> <C> <C> <C>
October 1, 1996 $9,500,000 $138,541 $9,638,541
October 1, 1997 $9,000,000 $131,249 $9,131,249
</TABLE>
In the event the Stated Termination Date of either the Initial Hanover Direct LC
or the Second Hanover Direct LC, or both, is extended pursuant to Section 4.12
hereof, any permanent reduction in amounts available shall occur as set forth in
the respective amendments to such Letters of Credit providing for such
extension.
ARTICLE V
YIELD PROTECTION AND ILLEGALITY
5.01 ADDITIONAL COSTS. (a) The Borrower shall promptly pay to the
Agent for the account of a Lender from time to time, without duplication, such
amounts as such Lender may reasonably determine to be necessary to compensate it
for any costs incurred by such Lender attributable to its making or maintaining
any Loan or its obligation to make any Loans, or the issuance or maintenance by
NationsBank of or any other Lender's Participation in any Letter of Credit
issued hereunder, or any reduction in any amount receivable by such Lender under
this Agreement, the Notes or the Letters of Credit in respect of any of such
Loans or such obligation or the
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Letters of Credit, including reductions in the rate of return on a Lender's
capital (such increases in costs and reductions in amounts receivable and
returns being herein called "Additional Costs"), resulting from any Regulatory
Change which (i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement or the Notes in respect of any of such Loans or
Letters of Credit (other than taxes imposed on or measured by the income,
revenues or assets of any Lender); or (ii) imposes or modifies any reserve,
special deposit, or similar requirements relating to any extensions of credit
or other assets of, or any deposits with or other liabilities of, such Lender
(other than any such reserve, deposit or requirement reflected in the LIBOR
Base Rate computed in accordance with the definition of such term set forth in
Section 1.01 hereof); or (iii) has or would have the effect of reducing the
rate of return on capital of any such Lender to a level below that which the
Lender could have achieved but for such Regulatory Change (taking into
consideration such Lender's policies, or policies of the parent corporation of
such Lender, with respect to capital adequacy); or (iv) imposes any other
condition not set forth in clauses (i), (ii) or (iii) above which adversely
affects the amounts which would have been received by the Agent or the Lenders
but for such Regulatory Change under this Agreement or the Notes or in
connection with or as a result of the issuance or maintenance of, or any
Lender's Participation in, the Letters of Credit. Each Lender will notify the
Authorized Representative and the Agent of any event occurring after the
Closing Date which would entitle it to compensation pursuant to this Section
5.01(a) as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation.
(b) Without limiting the effect of the foregoing provisions of this
Section 5.01, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
the Lender which includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of any Lender which includes LIBOR Loans or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Lender so elects by notice
to the Agent (which shall promptly deliver such notice to the other Lenders),
the obligation hereunder of such Lender to make and continue, and to convert
Base Rate Loans into, LIBOR Loans that are the subject of such restrictions
shall be suspended until the date such Regulatory Change ceases to be in effect
and the Borrower shall, on the last day(s) of the then current Interest
Period(s) for outstanding LIBOR Loans convert such LIBOR Loans into Base Rate
Loans; provided, however, that the suspension of such obligation and the
conversion of any LIBOR Loans into Base Rate Loans shall apply only to any
Lender who is affected by such restrictions and who has provided such notice to
the other Lenders, and the obligation of the other Lenders to make, and to
convert Base Rate
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Loans into, LIBOR Loans shall not be affected by such restrictions. In the
event that the obligation of some, but not all of the Lenders to make, or to
convert Base Rate Loans into, LIBOR Loans is suspended, then any request by the
Borrower during the pendency of such suspension for a LIBOR Loan shall be
deemed a request for such LIBOR Loan from the Lender(s) not subject to such
suspension and for a Base Rate Loan from the Lender(s) who are subject to such
suspension, in each case in the respective amounts based on the Lenders'
respective Applicable Commitment Percentages.
(c) Reasonable determinations by any Lender for purposes of this
Section 5.01 of the effect of any Regulatory Change on its costs of making or
maintaining, or being committed to make, Loans or by NationsBank as issuer of
any Letter of Credit of the effect of any Regulatory Change on its costs in
connection with the issuance or maintenance of, or any other Lender's
Participation in, any Letter of Credit issued hereunder, or on amounts
receivable by any Lender in respect of Loans or Letters of Credit, and of the
additional amounts required to compensate the Lender in respect of any
Additional Costs, shall be made taking into account such Lender's policies, or
the policies of the parent corporation of such Lender, as to the allocation of
capital, costs and other items and shall be conclusive absent manifest error.
The Lender requesting such compensation shall furnish to the Authorized
Representative and the Agent an explanation of the Regulatory Change and
calculations, in reasonable detail, setting forth such Lender's determination of
any such Additional Costs.
5.02 SUSPENSION OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any interest rate for
any LIBOR Loan for any Interest Period, the Agent determines (which
determination shall be conclusive absent manifest error) that:
(a) quotations of interest rates for the relevant
deposits referred to in the definition of LIBOR Rate in Section 1.01
hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest
for such LIBOR Loan as provided in this Agreement; or
(b) the relevant rates of interest referred to in the
definition of "LIBOR Base Rate" in Section 1.01 hereof upon the basis
of which the LIBOR Rate for such Interest Period is to be determined do
not adequately reflect the cost to the Lenders of making or maintaining
such LIBOR Loan for such Interest Period;
then the Agent shall give the Authorized Representative prompt notice thereof,
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make LIBOR Loans that are subject to such condition, or to convert
Loans into LIBOR Loans, and the Borrower shall on the last day(s) of the then
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current Interest Period(s) for outstanding LIBOR Loans convert such LIBOR Loans
into Base Rate Loans. The Agent shall give the Authorized Representative
notice describing any event or condition described in this Section 5.02
promptly following the determination by the Agent that the availability of
LIBOR Loans is, or is to be, suspended as a result thereof.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender to honor its
obligation to make or maintain LIBOR Loans hereunder, then such Lender shall
promptly notify the Borrower thereof (with a copy to the Agent) and such
Lender's obligation to make or continue LIBOR Loans, or convert Base Rate Loans
into LIBOR Loans, shall be suspended until such time as such Lender may again
make and maintain LIBOR Loans, and such Lender's outstanding LIBOR Loans shall
be converted into Base Rate Loans in accordance with Section 2.12 hereof. In
the event that the obligation of some, but not all of the Lenders to make, or to
convert Base Rate Loans into LIBOR Loans is suspended, then any request by the
Borrower during the pendency of such suspension for a LIBOR Loan shall be deemed
a request for such LIBOR Loan from the Lender(s) not subject to such suspension
and for a Base Rate Loan from the Lender(s) who are subject to such suspension,
in each case in the respective amounts based on the Lenders' respective
Applicable Commitment Percentages.
5.04 COMPENSATION. The Borrower shall promptly pay to each Lender,
upon the request of such Lender, such amount or amounts as shall be sufficient
(in the reasonable determination of such Lender) to compensate it for any loss,
cost or expense incurred by it as a result of:
(a) any payment, prepayment or conversion of a LIBOR Loan
on a date other than the last day of the Interest Period for such LIBOR
Loan, including without limitation any conversion required pursuant to
this Article V ; or
(b) any failure by the Borrower to borrow a LIBOR Loan or
convert a Base Rate Loan into a LIBOR Loan on the date for such
borrowing or conversion specified in the relevant Borrowing Notice or
Interest Rate Selection Notice under Article II hereof;
such compensation to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on the principal
amount so paid, prepaid or converted or not borrowed for the period from the
date of such payment, prepayment or conversion or failure to borrow or convert
to the last day of the then current Interest Period for such Loan (or, in the
case of a failure to borrow or convert, the Interest Period for such Loan which
would have commenced on the date scheduled for such borrowing or conversion) at
the applicable rate of interest for such LIBOR Loan provided for herein over
(ii) the LIBOR Base Rate (as reasonably determined by the Agent) for Dollar
deposits of
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amounts comparable to such principal amount and maturities comparable to such
period. A good faith determination of a Lender as to the amounts payable
pursuant to this Section 5.04 shall be conclusive absent manifest error. The
Lender requesting compensation under this Section 5.04 shall furnish to the
Authorized Representative and the Agent calculations in reasonable detail
setting forth such Lender's determination of the amount of such compensation.
5.05 ALTERNATE INTEREST RATE. In the event any Lender suspends the
making of any LIBOR Loan pursuant to this Article V (a "Restricted Lender"),
the Restricted Lender's Applicable Commitment Percentage of any LIBOR Loan shall
bear interest at the Base Rate until the Restricted Lender once again makes
available the applicable LIBOR Loan. Notwithstanding the provisions of Section
2.04(b) , interest shall be payable to the Restricted Lender at the time and in
the manner paid to those Lenders making available LIBOR Loans.
5.06 TAXES. (a) All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future excise, stamp
or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding (i) franchise taxes, (ii) any taxes other than withholding taxes,
(iii) taxes that would be imposed as a result of a connection between a Lender
or the Agent and the jurisdiction imposing such taxes (other than a connection
arising solely by virtue of the activities of such Lender or the Agent pursuant
to or in respect of this Agreement or any other Loan Document), (iv) any taxes
which become payable as a result of a failure by any Person to comply with its
obligations set forth in Section 5.06(b) or which would not have been imposed
but for (A) a sale, assignment, grant of a participation, or any other transfer
or disposition of any interest in this Agreement or any other Loan Document or
(B) a change by a Lender of the Lending Office of such Lender designated on the
signature pages herein or in an Assignment and Acceptance, and (v) any taxes
imposed on or measured by any Lender's assets, net income, receipts or branch
profits (such non-excluded items being collectively called "Taxes"). In the
event that any withholding or deduction from any payment to be made by the
Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrower shall:
(A) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(B) if requested by the Agent, promptly forward to the
Agent an official receipt or other documentation reasonably
satisfactory to the Agent evidencing such payment to such authority;
and
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(C) pay to the Agent for the account of the Lenders such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount
such Lender would have received had no such withholding or deduction
been required.
(b) Prior to the date that any Lender or participant organized
under the laws of a jurisdiction outside the United States becomes a party
hereto, such Person shall deliver to the Borrower and the Agent such
certificates, documents or other evidence, as required by the Code, properly
completed, currently effective and duly executed by such Lender or participant
establishing that such payment is (i) not subject to United States Federal
backup withholding tax and (ii) not subject to United States Federal withholding
tax under the Code because such payment is either effectively connected with the
conduct by such Lender or participant of a trade or business in the United
States or totally exempt from United States Federal withholding tax by reason of
the application of the provisions of a treaty to which the United States is a
party or such Lender is otherwise exempt.
(c) If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Agent, for the account of
the respective Lender, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 5.06, a distribution hereunder by
the Agent or any Lender to or for the account of any Lender shall be deemed a
payment by the Borrower.
ARTICLE VI
CONDITIONS TO MAKING LOANS AND ISSUING
LETTERS OF CREDIT
6.01 CONDITIONS OF INITIAL ADVANCE AND ISSUANCE OF LETTERS OF
CREDIT. The obligation of the Lenders to make the initial Advance and of
NationsBank to issue the Letters of Credit is subject to the conditions
precedent that the Agent shall have received on or before the Closing Date, in
form and substance satisfactory to the Agent and Lenders, the following:
(a) executed originals of each of this Agreement, the
Notes, the Guaranty and the other Loan Documents, together with all
schedules and exhibits thereto;
(b) executed originals of the $20,000,000 Credit Facility
Documents;
(c) favorable written opinion of counsel to the Borrower
and the Guarantors dated the Closing Date, addressed to the Agent and
the Lenders and reasonably satisfactory to Smith
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Helms Mulliss & Moore, L.L.P., special counsel to the Agent,
substantially in the form of Exhibit K attached hereto and
incorporated herein by reference;
(d) resolutions of the board of directors or other
appropriate governing body (or of the appropriate committee thereof) of
the Borrower, certified by its secretary or assistant secretary or
other appropriate officer as of the Closing Date, appointing the
initial Authorized Representative and approving and adopting the Loan
Documents to be executed by such Person, and authorizing the execution,
delivery and performance thereof;
(e) resolutions of the board of directors or other
appropriate governing body (or of the appropriate committee thereof) of
each Guarantor, certified by its secretary or assistant secretary or
other appropriate officer as of the Closing Date approving and adopting
the Loan Documents to be executed on behalf of such Guarantor and
authorizing the execution, delivery and performance thereof;
(f) specimen signatures of officers of the Borrower
executing the Loan Documents on behalf of the Borrower, certified by
the secretary or assistant secretary or other appropriate officer of
the Borrower;
(g) specimen signatures of officers of each Guarantor
executing the Loan Documents on behalf of such Guarantor, certified by
the secretary or assistant secretary or other appropriate officer of
such Guarantor;
(h) the charter documents of each of the Borrower and the
Guarantors certified as of a recent date by the Secretary of State or
other appropriate Governmental Authority of its jurisdiction of
incorporation;
(i) the by-laws of each of the Borrower and the Guarantors
certified as of the Closing Date as true and correct by its secretary
or assistant secretary;
(j) with respect to the Borrower and each Guarantor,
certificates issued as of a recent date by the Secretary of State or
other appropriate Governmental Authority of its jurisdiction of
incorporation as to its due existence and good standing therein;
(k) with respect to the Borrower and each Guarantor,
appropriate certificates of qualification to do business, good standing
and, where appropriate, authority to conduct business under assumed
name, issued as of a recent date by the Secretary of State or other
appropriate Governmental Authority of each jurisdiction in which the
failure to be qualified to
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do business or authorized so to conduct business could result in a
Material Adverse Effect;
(l) notice of appointment of the initial Authorized
Representative of the Borrower in the form of Exhibit C hereto;
(m) certificate of an Authorized Representative dated the
Closing Date demonstrating compliance with the financial covenants
contained in Sections 9.01 and 9.02 , all as of the immediately
preceding Determination Date, substantially in the form of Exhibit L
attached hereto;
(n) evidence of insurance required by the Loan Documents
other than policies for director and officer indemnification insurance
and immaterial policies issued to Subsidiaries;
(o) copies of all documents evidencing the Subordinated
Debt;
(p) evidence reasonably satisfactory to the Agent of
repayment of all Indebtedness of the Borrower outstanding under, and
evidence of termination of, that certain Second Amended and Restated
Loan and Security Agreement dated as of October 27, 1993 by and among
the Borrower (successor to Hanover Direct Pennsylvania, Inc.), Congress
Financial Corporation and certain Subsidiaries, as amended to date;
(q) UCC-3 Termination Statements executed on behalf of
Congress Financial Corporation, in form and number satisfactory to the
Agent, sufficient upon filing by the Agent in the appropriate offices
to terminate all security interests granted by the Borrower or any of
its Subsidiaries to Congress Financial Corporation;
(r) an initial Borrowing Notice;
(s) all fees payable by the Borrower on the Closing Date
to the Agent, NationsBank and the Lenders; and
(t) such other documents, instruments, certificates and
opinions as the Agent or any Lender may reasonably request on or prior
to the Closing Date in connection with the consummation of the
transactions contemplated hereby.
6.02 CONDITIONS OF LOANS. The obligations of the Lenders to make
any Loans or to convert or continue the interest rates thereof pursuant to
Section 2.12 (other than any conversion required by Article V hereof), and
NationsBank to make Swing Line Loans and to issue Letters of Credit hereunder,
on or subsequent to the Closing Date are subject to the satisfaction of the
following conditions:
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(a) the Agent shall have received a notice of such
borrowing or request as required by Article II hereof;
(b) the representations and warranties of the Borrower
set forth in Article VII hereof and in each of the other Loan
Documents shall be true and correct in all material respects on and as
of the date of such Advance, conversion, continuation or issuance of
such Letters of Credit, as the case may be, with the same effect as
though such representations and warranties had been made on and as of
such date, except (i) to the extent that such representations and
warranties expressly relate to an earlier date, (ii) that the
representations and warranties set forth in Section 7.01(d) and (e)
shall be deemed to include and take into account any merger or
consolidation permitted under Section 9.06 hereof, and (iii) that the
financial statements referred to in Section 7.01(f)(i) shall be
deemed to be those financial statements most recently delivered to the
Agent and the Lenders pursuant to Section 8.01 hereof;
(c) in the case of the issuance of a Letter of Credit,
Borrower shall have executed and delivered to NationsBank an
Application and Agreement for Letter of Credit in form and content
acceptable to NationsBank together with such other instruments and
documents as it shall reasonably request;
(d) at the time of each such Advance, Swing Line Loan,
conversion, continuation or issuance of each Letter of Credit, as the
case may be, no Default or Event of Default shall have occurred and be
continuing;
(e) immediately after giving effect to a Swing Line Loan,
the aggregate Swing Line Outstandings shall not exceed $5,000,000;
(f) immediately after issuing any Letter of Credit, the
aggregate Letter of Credit Outstandings shall not exceed the Total
Letter of Credit Commitment;
(g) immediately after giving effect to any Loan or Letter
of Credit, (i) Outstandings shall not exceed the Total Revolving Credit
Commitment, and (ii) each Lender's Applicable Commitment Percentage of
Loans and Participations shall not exceed its Revolving Credit
Commitment; and
(h) notwithstanding Section 9.05 hereof, in the event the
proceeds of such Advance are to be used to finance an Acquisition, the
Agent and each Lender shall have received not less than fifteen (15)
Business Days prior to the date such Advance is to be made:
(i) historical audited financial statements of the
Person to be acquired for its two (2) most recently
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completed fiscal years, including a balance sheet as of the
end of each such year and related statements of operations,
cash flows and shareholders' equity for each such year (other
than with respect to the Borrower's proposed Acquisitions of
Regal Shop Ltd. and Joan Rivers Production Company, for which
the Borrower shall deliver to the Agent and Lenders such
financial statements as are available and in form and
substance reasonably acceptable to the Agent);
(ii) a consolidated pro forma balance sheet of the
Borrower and its Subsidiaries and related pro forma
consolidated statement of operations, in each case giving
effect to such Acquisition, as of the end of the most recently
completed Fiscal Year and in form and substance reasonably
acceptable to the Agent;
(iii) consolidated financial projections on a pro
forma basis for the Borrower and its Subsidiaries giving effect
to such Acquisition for the three-year period immediately
following the consummation of such Acquisition, in form and
substance reasonably acceptable to the Agent; and
(iv) a certificate of an Authorized Representative
as to the absence of any Default or Event of Default and
demonstrating compliance with Sections 9.01 and 9.02 of this
Agreement, in each case for the most recently ended fiscal
quarter after giving effect to such Acquisition on a pro forma
basis;
and in the event the Required Lenders shall fail to give written notice
to the Borrower of any objection to the form or substance of such
financial statements and certificate within ten (10) Business Days
following receipt thereof, the same shall be deemed acceptable to the
Agent and the Lenders. In addition, the Agent and the Lenders shall
receive copies of the principal documents relating to such Acquisition,
to the extent the same are available, together with the financial
information described in clauses (i) through (iv) above or as soon
thereafter as practicable.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.01 REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants with respect to itself and to its Subsidiaries (which representations
and warranties shall survive the delivery of the documents mentioned herein and
the making of Loans and issuance of Letters of Credit), that:
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(a) ORGANIZATION AND AUTHORITY.
(i) the Borrower and each Subsidiary is a corporation duly
organized and validly existing under the laws of the jurisdiction of
its incorporation or creation;
(ii) the Borrower and each Subsidiary (A) has the
requisite power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in
the Loan Documents, and (B) is qualified to do business in every
jurisdiction in which failure so to qualify would have a Material
Adverse Effect;
(iii) the Borrower has the power and authority to execute,
deliver and perform this Agreement and the Notes, and to borrow
hereunder, and to execute, deliver and perform each of the other Loan
Documents to which it is a party; and
(iv) when executed and delivered, each of the Loan
Documents to which the Borrower is a party will be the legal, valid
and binding obligation or agreement, as the case may be, of the
Borrower, enforceable against it in accordance with its respective
terms, subject to the effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the
enforceability of creditors' rights generally and to the effect of
general principles of equity which may limit the availability of
equitable remedies (whether in a proceeding at law or in equity);
(b) LOAN DOCUMENTS. The execution, delivery and performance by the
Borrower and each Guarantor of each of the Loan Documents to which it is a
party:
(i) have been duly authorized by all requisite corporate
action (including any required shareholder approval) of the Borrower
or such Guarantor, as applicable, required for the lawful execution,
delivery and performance thereof;
(ii) do not violate any provisions of (A) law, rule or
regulation applicable to the Borrower or such Guarantor, (B) any order
of any court or other agency of government binding on the Borrower or
such Guarantor, or their respective properties, or (C) the charter
documents, documents of organization or governance or by-laws of
Borrower or such Guarantor, in each case, which violation could
reasonably be expected to have a Material Adverse Effect;
(iii) will not be in conflict with, result in a breach of or
constitute an event of default, or an event which, with notice or lapse
of time, or both, would constitute an event of default, under any
indenture, agreement or other instrument to which Borrower or such
Guarantor is a party or by which its properties or assets are bound
which conflict, breach or event
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of default could reasonably be expected to have a Material Adverse
Effect; and
(iv) will not result in the creation or imposition of any
Lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of Borrower or such Guarantor except any Liens in
favor of the Agent and the Lenders created by the Loan Documents;
(c) SOLVENCY. Borrower and each Guarantor (other than the
Guarantors listed on Schedule 7.01(c) hereto) are Solvent after giving effect
to the transactions contemplated by this Agreement and the other Loan Documents;
(d) SUBSIDIARIES AND STOCKHOLDERS. Borrower has no Subsidiaries
other than those Persons listed as Subsidiaries in Schedule 7.01(d) hereto, as
the same may be hereafter amended; Schedule 7.01(d), as the same may be
hereafter amended, states the authorized and issued capitalization of each
Subsidiary listed thereon, the number of shares or other equity interests of
each class of capital stock or interest issued and outstanding of each such
Subsidiary and the number and/or percentage of outstanding shares or other
equity interest (including options, warrants and other rights to acquire any
interest) of each such class of capital stock or equity interest owned by the
Borrower or by any such Subsidiary; the outstanding shares or other equity
interests of each such Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable; and the Borrower and each such Subsidiary
owns beneficially and of record all the shares and other interests it is listed
as owning in Schedule 7.01(d), free and clear of any Lien other than Permitted
Liens described in Section 9.04(ii) hereof;
(e) OWNERSHIP INTERESTS. Borrower owns no interest in any
Affiliate (excluding Subsidiaries) other than the Persons listed in Schedule
7.01(e) hereto, as the same may be hereafter amended;
(f) FINANCIAL CONDITION.
(i) The Borrower has heretofore furnished to the Agent
audited consolidated balance sheets of the Borrower and its
Subsidiaries as at January 1, 1994 and the notes thereto and the
related consolidated statements of operations, cash flows, and
shareholders' equity for the Fiscal Year then ended as examined and
certified by Arthur Andersen & Co., and unaudited interim consolidated
financial statements of Borrower and its Subsidiaries consisting of a
consolidated balance sheet and related consolidated statements of
earnings and cash flows, without notes, for and as of the six-month
period ended July 2, 1994. Except as set forth therein, such financial
statements (including the notes thereto) present fairly the financial
condition of the Borrower and its Subsidiaries as of the end of such
Fiscal Year and such six-month period and
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results of their operations and the changes in their shareholders'
equity for such Fiscal Year and such six-month period, all in
conformity with Generally Accepted Accounting Principles applied on a
Consistent Basis (subject, in the case of the interim statements, to
year-end adjustments and the absence or reduced scope of footnote
disclosures);
(ii) since January 1, 1994, there has not occurred any
Material Adverse Effect, and the businesses, properties and
operations of the Borrower and its Subsidiaries, considered as a whole,
have not been materially adversely affected as a result of any fire,
explosion, earthquake, accident, strike, lockout, combination of
workers, flood, embargo or act of God;
(iii) since January 1, 1994, except as set forth in the
financial statements referred to in Section 7.01(f)(i) or in Schedule
7.01(f) or Schedule 7.01(j) attached hereto, or as permitted under
Section 9.03 hereof, neither the Borrower nor any Subsidiary has
incurred, other than in the ordinary course of business, any material
Indebtedness or Contingent Obligations that remain outstanding or
unsatisfied;
(g) TITLE TO PROPERTIES. The Borrower and its Subsidiaries have
title to all their respective owned real and personal properties, subject to no
transfer restrictions or Liens of any kind, except for (i) the transfer
restrictions and Liens described in Schedule 7.01(g) attached hereto, (ii)
Liens permitted under Section 9.04 hereof, (iii) with respect to any personal
property that constitutes a security, transfer restrictions imposed under
Federal and state securities laws and regulations, and (iv) when the lack of
title or the presence of such transfer restrictions could not reasonably be
expected to have a Material Adverse Effect;
(h) TAXES. Except as set forth in Schedule 7.01(h) attached
hereto, the Borrower and its Subsidiaries have filed or caused to be filed all
Federal, state, local and foreign tax returns which are required to be filed by
them and which the failure to file could reasonably be expected to have a
Material Adverse Effect and, except for taxes and assessments being contested in
good faith by appropriate proceedings diligently conducted and against which
reserves satisfactory to the Borrower's independent certified public accountants
have been established, have paid or caused to be paid all taxes as shown on said
returns or on any assessment received by them, to the extent that such taxes
have become due unless the failure to pay the same could not reasonably be
expected to have a Material Adverse Effect;
(i) OTHER AGREEMENTS. Neither the Borrower nor any Subsidiary is:
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to restrictions which could
reasonably be expected to have a Material Adverse Effect; or
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(ii) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which the Borrower or any
Subsidiary is a party, which default has, or if not remedied within any
applicable grace period could reasonably be expected to have, a
Material Adverse Effect;
(j) LITIGATION. Except as set forth in Schedule 7.01(j) attached
hereto, there is no action, suit or proceeding at law or in equity or by or
before any governmental instrumentality or agency or arbitral body pending, or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary or affecting the Borrower or any Subsidiary or any properties or
rights of the Borrower or any Subsidiary, which could reasonably be expected to
have a Material Adverse Effect;
(k) MARGIN STOCK. Neither the Borrower nor any Subsidiary owns
any "margin stock" as such term is defined in Regulation U, as amended (12
C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant to
Article II hereof will be used by the Borrower and its Subsidiaries only for
the purposes set forth in Section 2.15 hereof. None of such proceeds 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 margin stock or for any other
purpose which might constitute any of the Loans under this Agreement a "purpose
credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part
224) of the Board. Neither the Borrower nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or any of the
documents or instruments delivered pursuant hereto to violate any regulation of
the Board or to violate the Securities Exchange Act of 1934, as amended, or the
Securities Act of 1933, as amended, or any state securities laws, in each case
as in effect on the date hereof;
(l) INVESTMENT COMPANY. Neither the Borrower nor any Subsidiary
is an "investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended (15 U.S.C. Section 80a-1, et
seq.). The application of the proceeds of the Loans and repayment thereof by
the Borrower and the performance by the Borrower of the transactions
contemplated by this Agreement will not violate any provision of said Act, or
any rule, regulation or order issued by the Securities and Exchange Commission
thereunder, in each case as in effect on the date hereof;
(m) PATENTS, ETC. Except as set forth in Schedule 7.01(m)
attached hereto, the Borrower and its Subsidiaries own or have the right to use,
under valid license agreements or otherwise, all material patents, licenses,
franchises, trademarks, trademark rights, trade names, trade name rights, trade
secrets and
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copyrights necessary to the conduct of their businesses as now conducted,
without known conflict with any patent, license, franchise, trademark, trade
secrets and confidential commercial or proprietary information, trade name,
copyright, rights to trade secrets or other proprietary rights of any other
Person;
(n) NO UNTRUE STATEMENT. Neither this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower in accordance with or pursuant to any Loan Document contains any
misrepresentation or untrue statement of material fact or omits to state a
material fact necessary, in light of the circumstances under which such
representation or statement was made, in order to make any such representation
or statement contained herein or therein not misleading in any material respect;
(o) NO CONSENTS, ETC. Except as set forth in Schedule 7.01(o)
attached hereto, neither the respective businesses or properties of the Borrower
or any Subsidiary, nor any relationship between the Borrower or any Subsidiary
and any other Person, nor any circumstance in connection with the execution,
delivery and performance of the Loan Documents and the transactions contemplated
hereby is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority or other
authority or any other Person on the part of the Borrower or any Subsidiary as a
condition to the execution, delivery and performance of, or consummation of the
transactions contemplated by, this Agreement or the other Loan Documents or if
so, such consent, approval, authorization, filing, registration or qualification
has been obtained or effected, as the case may be;
(p) BENEFIT PLANS.
(i) None of the employee benefit plans sponsored and
maintained at any time by the Borrower or any ERISA Affiliate or the
trusts created thereunder has engaged in a prohibited transaction which
could reasonably be expected to subject any such employee benefit plan
or trust to a tax or penalty on prohibited transactions imposed under
Code Section 4975 or ERISA, which tax or penalty could reasonably be
expected to have a Material Adverse Effect;
(ii) None of the Single-employer Plans maintained at any
time by the Borrower or any ERISA Affiliate or the trusts created
thereunder has been terminated so as to result in any liability of the
Borrower under ERISA that could reasonably be expected to have a
Material Adverse Effect nor has any such Single-employer Plan of the
Borrower or any ERISA Affiliate incurred any liability to the Pension
Benefit Guaranty Corporation established pursuant to ERISA, other than
for required insurance premiums which have been paid or are not yet due
and payable, which could reasonably be expected to have a Material
Adverse Effect; the Borrower and each ERISA
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Affiliate have made or provided for all contributions to all such
Single-employer Plans and Multi-employer Plans which they maintain and
which are required as of the end of the most recent fiscal year under
each such plan; neither the Borrower nor any ERISA Affiliate has
incurred any accumulated funding deficiency with respect to any such
plan, whether or not waived, which termination could reasonably be
expected to have a Material Adverse Effect; nor has there been any
reportable event, or other event or condition, which presents a risk
of termination of any such Single-employer Plan by such Pension
Benefit Guaranty Corporation, which could reasonably be expected to
have a Material Adverse Effect;
(iii) The present value of all vested accrued benefits under
the Single-employer Plans which are subject to Title IV of ERISA,
maintained by the Borrower or any ERISA Affiliate, did not, as of the
most recent valuation date for each such plan, exceed the then current
value of the assets of such employee benefit plans allocable to such
benefits;
(iv) The consummation of the Loans provided for in Article
II and the issuance of the Letters of Credit provided for in Article
III and Article IV will not involve any prohibited transaction under
ERISA which is not subject to a statutory or administrative
exemption;
(v) To the best of the Borrower's knowledge, each employee
pension benefit plan subject to Title IV of ERISA, maintained by the
Borrower or any ERISA Affiliate, has been administered in accordance
with its terms in all material respects and is in compliance in all
material respects with all applicable requirements of ERISA and other
applicable laws, regulations and rules;
(vi) There has been no withdrawal liability incurred and
unpaid with respect to any Multi-employer Plan to which the Borrower or
any ERISA Affiliate is a contributor that could reasonably be expected
to have a Material Adverse Effect;
(vii) As used in this Agreement, the terms "employee benefit
plan," "employee pension benefit plan," "accumulated funding
deficiency," "reportable event," and "accrued benefits" shall have the
respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in Code
Section 4975 and ERISA;
(viii) Neither the Borrower nor any ERISA Affiliate has any
liability not disclosed on any of the financial statements furnished to
the Lenders pursuant to
Section 7.01(f)(i) or Section 8.01 hereof, contingent or otherwise,
under any plan or program or the equivalent for unfunded
post-retirement benefits, including pension, medical and death
benefits, which
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liability could reasonably be expected to have a Material Adverse
Effect;
(q) NO DEFAULT. As of the date hereof, there does not exist any
Default or Event of Default hereunder;
(r) HAZARDOUS MATERIALS. Other than as set forth on Schedule
7.01(r) hereof, (i) the Borrower and each Subsidiary is in compliance in all
material respects with all applicable Environmental Laws; and (ii) neither the
Borrower nor any Subsidiary has been notified of any action, suit, proceeding
or investigation which alleges lack of compliance by the Borrower or any
Subsidiary with any Environmental Laws or which seeks to suspend, revoke or
terminate any license, permit or approval necessary for the generation,
handling, storage, treatment or disposal of any Hazardous Material, which
non-compliance, suspension, revocation or termination could reasonably be
expected to have a Material Adverse Effect;
(s) EMPLOYMENT MATTERS. Except as disclosed on Schedule 7.01(j)
hereto, the Borrower and all Subsidiaries are in compliance in all material
respects with all applicable laws, rules and regulations pertaining to labor or
employment matters, including without limitation those pertaining to wages,
hours, occupational safety and taxation, the noncompliance with which could
reasonably be expected to have a Material Adverse Effect, and there is neither
pending nor, to the knowledge of the Borrower, any threatened litigation,
administrative proceeding or investigation in respect of such matters an adverse
ruling or determination in which could reasonably be expected to have a Material
Adverse Effect.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will:
8.01 FINANCIAL REPORTS, ETC. (a) as soon as practical and in any
event within 90 days after the end of each Fiscal Year, deliver or cause to be
delivered to the Agent and each Lender (i) the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries, in each case with the notes
thereto, and the related consolidated statements of operations, cash flow, and
shareholders' equity and the respective notes thereto, for such Fiscal Year,
setting forth in the case of the consolidated statements comparative financial
statements for the preceding Fiscal Year, all prepared in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis and
containing, with respect to the consolidated financial reports, opinions of
Arthur Andersen & Co., or other such independent certified public
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accountants selected by the Borrower and approved by the Agent, which approval
shall not be unreasonably withheld, which are unqualified and without exception;
and (ii) a certificate of an Authorized Representative as to the absence of any
Default or Event of Default and demonstrating compliance with Sections 9.01 and
9.02 of this Agreement, which certificate shall be in the form attached hereto
as Exhibit L and incorporated herein by reference;
(b) as soon as practical and in any event within 45 days after the
end of each fiscal quarter beginning with the fiscal quarter ended October 1,
1994, deliver to the Agent and each Lender (i) the consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as of the end
of such fiscal quarter, and the related consolidated statements of operations,
cash flow, and shareholders' equity for such fiscal quarter and for the period
from the beginning of the Fiscal Year through the end of such fiscal quarter,
accompanied by a certificate of an Authorized Representative to the effect that
such financial statements present fairly the financial position of the Borrower
and its Subsidiaries as of the end of such fiscal quarter and the results of
their operations and the changes in their financial position for such fiscal
quarter, in conformity with the standards set forth in Section 7.01(f)(i) with
respect to interim financials, and (ii) a certificate of an Authorized
Representative as to the absence of any Default or Event of Default and
containing computations for such quarter comparable to that required pursuant to
Section 8.01(a)(ii);
(c) together with each delivery of the financial statements
required by Section 8.01(a)(i) hereof, deliver to the Agent and each Lender a
letter from the Borrower's accountants specified in Section 8.01(a)(i) hereof
stating that, in performing the audit necessary to render an opinion on the
financial statements delivered under Section 8.01(a)(i), they obtained no
knowledge of any Default or Event of Default by the Borrower in the fulfillment
of the terms and provisions of this Agreement insofar as they relate to
financial matters (which at the date of such statement remains uncured); and if
the accountants have obtained knowledge of such Default or Event of Default, a
statement specifying the nature and period of existence thereof;
(d) (i) not later than the last Business Day of January 1995,
deliver to the Agent and each Lender three-year consolidated financial
projections for the Borrower and its Subsidiaries prepared on an annual basis
and in accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis; provided , however , that projections for the Fiscal Year
ending December 30, 1995 shall be prepared on a quarterly basis and (ii) not
later than the last Business Day of each January thereafter, deliver to the
Agent and each Lender consolidated financial projections for such Fiscal Year
for the Borrower and its Subsidiaries prepared on a quarterly basis and in
accordance with
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Generally Accepted Accounting Principles applied on a Consistent Basis;
(e) promptly upon their becoming available to the Borrower, the
Borrower shall deliver to the Agent and each Lender a copy of (i) all regular or
special reports or effective registration statements which the Borrower or any
Subsidiary shall file from and after the date hereof with the Securities and
Exchange Commission (or any successor thereto) or any securities exchange, (ii)
any proxy statement distributed by the Borrower to its shareholders, bondholders
or the financial community in general, and (iii) any management letter or other
report submitted to the Borrower or any of its Subsidiaries by independent
accountants in connection with any annual, interim or special audit of the
Borrower or any of its Subsidiaries; and
(f) promptly, from time to time, deliver or cause to be delivered
to the Agent and each Lender such other information regarding Borrower's and
each Subsidiary's operations, business affairs and financial condition as the
Agent or such Lender may reasonably request. Subject to the terms of that
certain Confidentiality Agreement by and among the Agent and each of the Lenders
and of which the Borrower is an intended third-party beneficiary, the Agent and
the Lenders are hereby authorized to deliver a copy of any such financial
information delivered hereunder to the Lenders (or any affiliate of any Lender)
or to the Agent, to any regulatory authority having jurisdiction over any of the
Lenders pursuant to any written request therefor, or, subject to Section 12.01
hereof, to any other Person who shall acquire or consider the acquisition of a
participation interest in or assignment of any Loan or Letter of Credit
permitted by this Agreement, provided that such assignee is not engaged in any
line of business conducted by the Borrower or any of its Subsidiaries.
8.02 MAINTAIN PROPERTIES. Maintain all properties necessary to its
operations in good working order and condition (ordinary wear and tear excepted)
and make all needed repairs, replacements and renewals as are necessary to
conduct its business in accordance with customary business practices.
8.03 EXISTENCE, QUALIFICATION, ETC. Do or cause to be done all
things necessary to preserve and keep in full force and effect its existence and
all material rights and franchises, trade names, trademarks and permits, except
to the extent conveyed in connection with a transaction permitted under Section
9.05 hereof, and maintain its license or qualification to do business as a
foreign corporation and good standing in each jurisdiction in which its
ownership or lease of property or the nature of its business makes such license
or qualification necessary and in which failure to maintain such license,
qualification and good standing could reasonably be expected to result in a
Material Adverse Effect.
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8.04 REGULATIONS AND TAXES. Comply with all statutes and
governmental regulations if noncompliance therewith could reasonably be
expected to have a Material Adverse Effect and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent and any other obligation
which, if unpaid, might become a Lien against any of its properties that could
reasonably be expected to have a Material Adverse Effect except any of the
foregoing being contested in good faith by appropriate proceedings diligently
conducted and against which adequate reserves have been established.
8.05 INSURANCE. (a) Keep all of its insurable properties
adequately insured at all times with responsible insurance carriers against loss
or damage by fire and other hazards as are customarily insured against by
similar businesses owning such properties similarly situated, (b) maintain
general public liability insurance at all times with responsible insurance
carriers against liability on account of damage to persons and property having
such limits, deductibles, exclusions and co-insurance and other provisions
providing no less coverage than that specified in Schedule 8.05 attached hereto,
such insurance policies to be in form reasonably satisfactory to the Agent, and
(c) maintain insurance under all applicable workers' compensation laws (or in
the alternative, maintain required reserves if self-insured for workers'
compensation purposes). Insurance otherwise acceptable to the Agent which
provides for a deductible per incident of not more than $250,000 (or not more
than $500,000 with respect to policies for director and officer indemnification
insurance) shall satisfy clauses (a), (b) and (c) hereof. Each of the policies
of insurance described in this Section 8.05 shall provide that the insurer
shall give the Agent not less than thirty (30) days' prior written notice before
any such policy shall be terminated (other than with respect to termination for
nonpayment of premiums, in which case such policies shall provide not less than
ten (10) days' prior written notice to the Agent), lapse, cancelled or
materially amended.
8.06 TRUE BOOKS. Keep true books of record and account in which
full, true and correct entries shall be made of all of its dealings and
transactions in accordance with customary business practices, and set up on its
books such reserves as may be required by Generally Accepted Accounting
Principles with respect to doubtful accounts and all taxes, assessments,
charges, levies and claims and with respect to its business in general, and
include such reserves in interim as well as year-end financial statements.
8.07 RIGHT OF INSPECTION. Permit any Person (other than a Person
engaged in a line of business that competes with the Borrower or any Subsidiary)
designated by any Lender or the Agent, at the Borrower's expense, to visit and
inspect any of the properties, corporate books and financial reports of the
Borrower and its Subsidiaries, and to discuss their respective affairs, finances
and accounts with their principal officers and independent
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certified public accountants, all at reasonable times, at reasonable intervals
and with reasonable prior notice.
8.08 OBSERVE ALL LAWS. Conform to and duly observe in all material
respects all laws, rules and regulations and all other valid requirements of
any Governmental Authority with respect to the conduct of its business and
applicable to the Borrower or any Subsidiary and with which the failure to
comply could reasonably be expected to have a Material Adverse Effect.
8.09 COVENANTS EXTENDING TO SUBSIDIARIES. Without duplication,
cause each of its Subsidiaries to do with respect to itself, its business and
its assets, each of the things required of the Borrower in Sections 8.02 through
8.08, inclusive.
8.10 OFFICER'S KNOWLEDGE OF DEFAULT. Upon any Authorized
Representative or officer of the Borrower obtaining knowledge of any Default or
Event of Default hereunder or under any other obligation of the Borrower or any
Subsidiary, promptly deliver to the Agent written notice thereof, the period of
existence thereof, and what action the Borrower proposes to take with respect
thereto.
8.11 SUITS OR OTHER PROCEEDINGS. Upon any Authorized
Representative or officer of the Borrower obtaining knowledge of any litigation
or other proceedings being instituted against the Borrower or any Subsidiary, or
any attachment, levy, execution or other process being instituted against any
assets of the Borrower or any Subsidiary, in an aggregate amount greater than
$500,000 not otherwise covered by insurance, promptly deliver to the Agent
written notice thereof stating the nature and status of such litigation,
dispute, proceeding, levy, execution or other process.
8.12 NOTICE OF DISCHARGE OF HAZARDOUS MATERIAL OR ENVIRONMENTAL
COMPLAINT. Promptly provide to the Agent true, accurate and complete copies of
any and all notices, complaints, orders, directives, claims, or citations
received by the Borrower or any Subsidiary relating to any material (a)
violation or alleged violation by the Borrower or any Subsidiary of any
applicable Environmental Laws; (b) release or threatened release by the Borrower
or any Subsidiary of any Hazardous Material, except where occurring legally; or
(c) liability or alleged liability of the Borrower or any Subsidiary for the
costs of cleaning up, removing, remediating or responding to a release of
Hazardous Materials.
8.13 ENVIRONMENTAL COMPLIANCE. If the Borrower or any Subsidiary
shall receive notice from any Governmental Authority that the Borrower or any
Subsidiary has violated any applicable Environmental Laws, related to any
Hazardous Material or is liable for the costs of cleaning up, removing,
remediating or responding to a release of Hazardous Materials, the Borrower
shall, within the time period permitted by the applicable Governmental
Authority, remove or remedy, or cause the applicable Subsidiary to remove or
remedy, such violation or release or satisfy such liability unless
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the applicability of the Environmental Law, the fact of such violation or
liability or what is required to remove or remedy such violation is being
contested by the Borrower or the applicable Subsidiary by appropriate
proceedings diligently conducted and all reserves with respect thereto as may
be required under Generally Accepted Accounting Principles, if any, have been
made.
8.14 INDEMNIFICATION. The Borrower hereby agrees to defend,
indemnify and hold the Agent and the Lenders, and their respective officers,
directors, employees and agents, harmless from and against any and all claims,
losses, liabilities, damages and expenses (including, without limitation,
cleanup costs and reasonable attorneys' fees) arising directly or indirectly
from, out of or by reason of the handling, storage, treatment, emission or
disposal of any Hazardous Material by or in respect of the Borrower or any
Subsidiary or property owned or leased or operated by the Borrower or any
Subsidiary. The provisions of this Section 8.14 shall survive repayment of the
Obligations, occurrence of the Revolving Credit Termination Date and expiration
or termination of this Agreement.
8.15 FURTHER ASSURANCES. At the Borrower's cost and expense, upon
request of the Agent, duly execute and deliver or cause to be duly executed and
delivered, to the Agent such further instruments, documents, certificates,
agreements, financing and continuation statements, and do and cause to be done
such further acts that may be reasonably necessary or advisable in the
reasonable opinion of the Agent to carry out more effectively the provisions and
purposes of this Agreement and the other Loan Documents.
8.16 BENEFIT PLANS. Comply in all material respects with all
requirements of ERISA applicable to it and furnish to the Agent as soon as
possible and in any event (a) within thirty (30) days after the Borrower knows
or has reason to know that any reportable event with respect to any employee
benefit plan maintained by the Borrower or any ERISA Affiliate which could give
rise to termination or the imposition of any material tax or material penalty
has occurred, written statement of an Authorized Representative describing in
reasonable detail such reportable event or such other event and any action which
the Borrower or ERISA Affiliate proposes to take with respect thereto, together
with a copy of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation or a statement that said notice will be filed with the
annual report of the United States Department of Labor with respect to such plan
if such filing has been authorized, (b) promptly after receipt thereof, a copy
of any notice that the Borrower or any ERISA Affiliate may receive from the
Pension Benefit Guaranty Corporation relating to the intention of the Pension
Benefit Guaranty Corporation to terminate any Single-employer Plans of the
Borrower or any ERISA Affiliate or to appoint a trustee to administer any such
plan, and (c) within 10 days after a filing with the Pension Benefit Guaranty
Corporation pursuant to Section 412(n) of the Code of a notice of failure to
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make a required installment or other payment with respect to a plan, a
certificate of an Authorized Representative setting forth details as to such
failure and the action that the Borrower or ERISA Affiliate proposes to take
with respect thereto, together with a copy of such notice given to the Pension
Benefit Guaranty Corporation.
8.17 CONTINUED OPERATIONS. Continue at all times (a) to conduct
its business and engage principally in the same or complementary line or lines
of business substantially as heretofore conducted and (b) preserve, protect and
maintain free from Liens (other than Liens permitted under Section 9.04 hereof)
its material patents, copyrights, licenses, trademarks, trademark rights, trade
names, trade name rights, trade secrets and know-how necessary or useful in the
conduct of its operations except to the extent failure to preserve, protect and
maintain the same free from Liens could not reasonably be expected to have a
Material Adverse Effect.
8.18 USE OF PROCEEDS. Use the proceeds of the Loans solely for
the purposes specified in Section 2.15 hereof.
8.19 NEW SUBSIDIARIES. In the event of the acquisition or creation
of any Material Subsidiary, or upon any previously existing Person becoming a
Material Subsidiary, cause to be delivered to the Agent for the benefit of the
Lenders each of the following within ten (10) Business Days of the acquisition
or creation of a Material Subsidiary or, with respect to an existing Person
becoming a Material Subsidiary, within ten (10) Business Days of delivery of
financial statements pursuant to Section 8.01(a) or (b) hereof with respect to
the fiscal quarter of the Borrower during which such Person acquired such assets
or achieved such net income as to become a Material Subsidiary:
(i) a Guaranty executed by such Material Subsidiary,
substantially in the form of Exhibit M attached hereto;
(ii) an opinion of counsel to such Material Subsidiary dated
as of the date of delivery of such Guaranty and addressed to the Agent
and the Lenders, in form and substance reasonably acceptable to the
Agent (which opinion may include assumptions and qualifications of
similar effect to those contained in the opinions of counsel delivered
pursuant to Section 6.01 hereof), to the effect that:
(A) such Material Subsidiary is duly organized, validly
existing and in good standing in the jurisdiction of its
organization, has the requisite power and authority to own its
properties and conduct its business as then owned and proposed
to be conducted and is duly qualified to transact business and
is in good standing as a foreign corporation in each other
jurisdiction in which the character of the properties owned or
leased, or the business carried on by it, requires such
qualification
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and in which the failure to so qualify could reasonably be
expected to have a Material Adverse Effect; and
(B) the execution, delivery and performance of such
Guaranty have been duly authorized by all requisite corporate
action (including any required shareholder approval), such
Guaranty has been duly executed and delivered and constitutes a
valid and binding obligation of such Material Subsidiary,
enforceable against such Subsidiary in accordance with its
terms, subject to applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the
enforceability of creditors' rights generally and to the effect
of general principles of equity which may limit the
availability of equitable remedies (whether in a proceeding at
law or in equity).
(iii) current copies of the charter or other organizational
documents, any bylaws of such Material Subsidiary, minutes of duly
called and conducted meetings (or duly effected consent actions) of the
Board of Directors, or appropriate committees thereof (and, if required
by such charter or other organizational documents, bylaws or by
applicable laws, of the shareholders) of such Material Subsidiary
authorizing the actions and the execution and delivery and performance
of such Guaranty and evidence satisfactory to the Agent (confirmation
of the receipt of which will be provided by the Agent to the Lenders)
that such Material Subsidiary is Solvent as of such date after giving
effect to such Guaranty.
ARTICLE IX
NEGATIVE COVENANTS
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will not, nor
will it permit any Subsidiary to:
9.01 CONSOLIDATED FIXED CHARGE RATIO. Permit, at any time during
any Four-Quarter Period of the Borrower ending during the periods set forth
below, the Consolidated Fixed Charge Ratio for such Four Quarter Period to be
equal to or less than the ratios set forth opposite the respective periods
below:
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<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Four-Quarter Period ending 1.25 to 1.00
July 1, 1995
Four-Quarter Period ending 1.50 to 1.00
June 29, 1996
Four-Quarter Period ending 2.00 to 1.00
June 28, 1997 and thereafter
</TABLE>
9.02 CONSOLIDATED FUNDED INDEBTEDNESS TO EBITDA . Permit at any
time during any Four-Quarter Period of the Borrower ending during the periods
set forth below, the ratio of Consolidated Funded Indebtedness to Consolidated
EBITDA for such Four-Quarter Period to be equal to or greater than the ratio set
forth opposite the respective periods set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Four-Quarter Period ending 3.50 to 1.00
April 1, 1995
Four-Quarter Period ending 3.00 to 1.00
July 1, 1995
Four-Quarter Period ending 2.75 to 1.00
June 29, 1996 and thereafter
Four-Quarter Period ending 2.25 to 1.00
June 28, 1997 and thereafter
</TABLE>
9.03 INDEBTEDNESS. Incur, create, assume or permit to exist any
Indebtedness of the Borrower and its Subsidiaries determined on a consolidated
basis, howsoever evidenced, except:
(i) Indebtedness existing as of the date hereof and as set
forth in Schedule 9.03(i) attached hereto and incorporated herein by
reference and any extension, renewal or refinancing thereof that does
not increase the principal amount thereof or interest rate payable
thereon from that existing immediately prior to such extension, renewal
or refinancing; provided , none of the instruments and agreements
evidencing or governing such Indebtedness shall be amended, modified or
supplemented after the Closing Date to change any terms of repayment or
rights of conversion, put, exchange or other rights from such terms and
rights as in effect on the Closing Date unless such amendments,
modifications or supplements do not have a Material Adverse Effect on
the Borrower, or its creditworthiness with respect to its Obligations
as reasonably determined by the Agent;
(ii) Indebtedness owing to the Agent or any Lenders in
connection with this Agreement, any Note or other Loan Document;
(iii) Indebtedness consisting of Rate Hedging Obligations
permitted under Section 9.11 hereof;
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(iv) the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of
business;
(v) Indebtedness incurred pursuant to the Account Purchase
Agreement dated December 21, 1992 by and among the Borrower, Brawn of
California, Inc. and General Electric Capital Corporation ("GECC"), as
the same may be amended, modified or supplemented from time to time
(the "Account Purchase Agreement"), or any extension, renewal,
refinancing, refunding or replacement thereof, whether direct or
indirect, and whether or not among the same parties, provided, however,
that with respect to any refinancing or replacement with any financier
other than GECC, such financier shall provide substantially similar
services at substantially similar quality and levels as those provided
to the Borrower under the Account Purchase Agreement;
(vi) Indebtedness evidenced by the Flexible Term Notes and
the Variable Rate Demand Bonds;
(vii) documentary letters of credit (other than Commercial
Letters of Credit) in an aggregate stated amount not to exceed
$15,000,000 at any time and issued upon terms and fees more favorable
than available for the issuance of Commercial Letters of Credit
hereunder;
(viii) Indebtedness under the $20,000,000 Credit Facility
Documents;
(ix) (A) purchase money Indebtedness and (B) Indebtedness
incurred with respect to financing of capital expenditures, not to
exceed an aggregate outstanding amount at any time of $10,000,000;
(x) Indebtedness of any Subsidiary owing to the Borrower
or another Subsidiary and Indebtedness of the Borrower owing to any
Subsidiary;
(xi) Indebtedness consisting of Capital Leases relating to
the acquisition of computer and telecommunications equipment more
specifically described on Schedule 9.03(xi) attached hereto and
incorporated herein by reference, provided that such Indebtedness shall
not exceed an aggregate amount outstanding at any time of $7,600,000;
(xii) Indebtedness of Subsidiaries acquired after the
Closing Date hereof, provided that (A) such Indebtedness (1) is
recorded in the financial books and records of such Subsidiary prior to
such Acquisition, (2) was not incurred by such Subsidiary in
anticipation of such Acquisition, and (3) is non-recourse to the
Borrower and each Guarantor and not subsequently assumed by the
Borrower or any Guarantor, and
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(B) immediately after such Acquisition, no Default or Event of Default
has occurred or is continuing;
(xiii) Indebtedness of Subsidiaries evidenced by guaranties
of such Subsidiaries of documentary letters of credit permitted under
Section 9.03(vii); and
(xiv) additional Indebtedness not to exceed an aggregate
outstanding amount at any time of $1,000,000.
9.04 LIENS. Incur, create or permit to exist any pledge, Lien, charge
or other encumbrance of any nature whatsoever with respect to any property or
assets now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, including without limitation any capital stock of the Borrower or
any of its Subsidiaries, other than:
(i) Liens existing as of the date hereof and as set forth in
Schedule 7.01(g) attached hereto;
(ii) Liens imposed by law 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 diligently conducted
and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with Generally Accepted
Accounting Principles;
(iii) Liens in respect of purchase money Indebtedness permitted to
be incurred pursuant to Section 9.03 hereof in connection with the
acquisition of certain tangible property; provided that (A) the
original principal balance of the Indebtedness secured by such Lien
constitutes not less than 80% of the purchase price of the property
acquired and (B) such Lien extends only to the property acquired with
the proceeds of the Indebtedness so secured;
(iv) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law or
created in the ordinary course of business and in existence less than
120 days from the date of creation thereof for amounts not yet due or
which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
Generally Accepted Accounting Principles;
(v) Liens in favor of contractors and vendors incurred in
connection with (A) the construction, refurbishment and upgrading of
Borrower's distribution facility located in Roanoke, Virginia, or (B)
the construction, refurbishment and remodeling of the new retail store
of Gump's Inc. located in San Francisco, provided , that, in each case,
such Liens attach
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only to property located at the respective construction locations and
are released and terminated not later than six (6) months following
completion of the construction, refurbishment, upgrading or remodeling
at such location;
(vi) Liens incurred or deposits made in the ordinary
course of business (including, without limitation, surety bonds and
appeal bonds) 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;
(vii) Liens created under the Account Purchase Agreement;
(viii) Liens in favor of Congress Financial Corporation,
provided that the Borrower delivers as of the Closing Date hereof
UCC-3 Termination Statements executed by Congress Financial Corporation
sufficient to terminate such Liens upon filing thereof by the Agent in
the appropriate offices;
(ix) easements (including, without limitation,
reciprocal easement agreements and utility agreements), rights-
of-way, covenants, consents, reservations, encroachments, variations
and zoning and other restrictions, charges or encumbrances (whether or
not recorded), which do not interfere with the ordinary conduct of the
business of the Borrower or any Subsidiary and do not impair the use
of the property to which they attach to the extent that such
interference or impairment could reasonably be expected to have a
Material Adverse Effect; and
(x) Liens on real property securing Indebtedness
permitted under Section 9.03 hereof.
9.05 INVESTMENTS; ACQUISITIONS. Make any Acquisition or otherwise
purchase, own, invest in or otherwise acquire, directly or indirectly, any stock
or other securities, or make or permit to exist any interest whatsoever in any
other Person or permit to exist any loans or advances to any Person, except that
Borrower and its Subsidiaries may maintain investments or invest in:
(i) Eligible Securities;
(ii) investments existing as of the date hereof and as
set forth in Schedule 7.01(d) attached hereto;
(iii) accounts receivable arising and trade credit
granted in the ordinary course of business and any securities received
in satisfaction or partial satisfaction thereof in connection
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with accounts of financially troubled Persons to the extent reasonably
necessary in order to prevent or limit loss;
(iv) loans and advances to and investments in Subsidiaries;
(v) (A) investments in the capital stock or other equity
interest in another Person, which when added to equity interests held
prior to such investment constitute less than 50% of the capital stock
or other equity interests having ordinary voting power therein (a
"Minority Investment"), (B) investments in debt securities that do not
constitute Eligible Securities issued by any Person in which the
Borrower or any Subsidiary has a Minority Investment and (C)
contributions to joint ventures, the aggregate of such investments and
contributions described in clauses (A), (B) and (C) made during the
term of this Agreement not to exceed $20,000,000;
(vi) loans and advances to non-consolidated Persons not to
exceed in the aggregate $7,500,000;
(vii) investments consisting of the exercise of options to
acquire (A) 406,714 shares of common stock of Aegis Safety Holdings,
Inc. at a price of $7.00 per share, subject to adjustment for
antidilution, and (B) 1,536,345 shares of the common stock of Boston
Publishing Company at a price of $2.08 per share, subject to adjustment
for antidilution;
(viii) investments consisting of the mandatory acquisition of
(A) all then outstanding shares of Aegis Safety Holdings, Inc. after
December 31, 1998 in accordance with the terms of the stock option
agreement dated as of September 30, 1993 between Aegis Safety Holdings,
Inc., Hanover Holdings, Inc., certain stockholders of Aegis Safety
Holdings, Inc. and FL Holdings, Inc.; and (B) all outstanding shares of
common stock of Boston Publishing Company in 1997 in accordance with
the terms of the stock option and put agreement dated as of February
25, 1994 between Boston Publishing Company, Inc., Hanover Holdings,
Inc., Boston Publishing Limited Partnership, certain partners of Boston
Publishing Limited Partnership and the Borrower; and
(ix) loans and advances to its officers, directors and
employees for the purpose of purchasing capital stock of the Borrower,
provided that (A) such officer, director or employee shall pay to the
Borrower at least 20% of the purchase price for such securities out of
his or her own funds, and (B) the securities purchased with the
proceeds of such loans shall be pledged as collateral security
therefor, and (C) the aggregate principal amount of such loans at any
time outstanding shall not exceed $3,700,000;
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(x) loans and advances to its officers, directors and
employees for any business purpose other than purchasing the capital
stock of the Borrower in the aggregate principal amount at any time
outstanding not to exceed $1,000,000; and
(xi) other investments in an aggregate principal amount at
any time outstanding not to exceed $1,000,000.
Notwithstanding the foregoing, the Borrower and its Subsidiaries may make
Acquisitions so long as: (a) immediately prior to, and immediately after, the
consummation of such Acquisition, no Default or Event of Default has occurred
and is continuing, (b) not less than 67% of the sales and operating profits
generated by such Person (or assets) so acquired or invested are derived from
the same or complementary line or lines of business engaged in by the Borrower
immediately prior to such Acquisition, which, for purposes of this Agreement,
shall be defined as catalog and mail-order sales fulfillment (the Borrower's
proposed Acquisitions of Regal Shop Ltd. and Joan Rivers Production Company
shall be specifically excluded from the restriction of this clause (b) provided
that the aggregate Cost of Acquisition with respect to such Acquisitions shall
not exceed $5,000,000), (c) pro forma historical financial statements as of the
end of the most recently completed Fiscal Year giving effect to such
Acquisition are delivered to the Agent not less than five (5) Business Days
prior to the consummation of such Acquisition, together with a certificate of
an Authorized Representative demonstrating compliance with Sections 9.01 and
9.02 of this Agreement giving effect to such Acquisition, (d) the Cost of
Acquisition with respect to any Acquisition entered into during the term of
this Agreement, other than any Acquisition financed or funded in whole by the
Net Proceeds of the issuance of capital stock by the Borrower ("Equity Financed
Acquisitions"), shall not exceed $30,000,000, (e) the aggregate amount of those
portions of all Costs of Acquisitions that are paid or financed other than with
the Net Proceeds of the issuance of capital stock of the Borrower shall not
exceed $40,000,000 during the term of this Agreement, and (f) the Cost of
Acquisition with respect to any single Equity Financed Acquisition shall not
exceed $60,000,000.
9.06 MERGER OR CONSOLIDATION. (a) Consolidate with or merge into any
other Person, or (b) permit any other Person to merge into it, or (c) liquidate,
wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a
substantial part of its assets (other than sales in the ordinary course of
business); provided, however, any Subsidiary of the Borrower may merge or
transfer all or substantially all of its assets into or consolidate with the
Borrower or any wholly owned Subsidiary of the Borrower, and any Person may
merge with the Borrower if the Borrower shall be the survivor thereof and such
merger shall not cause, create or result in the occurrence of any Default or
Event of Default hereunder.
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9.07 TRANSACTIONS WITH AFFILIATES. Other than transactions permitted
under Sections 9.05 and 9.06 hereof, enter into any transaction after the
Closing Date, including, without limitation, the purchase, sale, lease or
exchange of property, real or personal, or the rendering of any service, with
any Affiliate of the Borrower, except (a) that such Persons may render services
to the Borrower or its Subsidiaries for compensation at the same rates
generally paid by Persons engaged in the same or similar businesses for the
same or similar services and (b) in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's (or any Subsidiary's) business
consistent with past practice of the Borrower and its Subsidiaries and upon
fair and reasonable terms no less favorable to the Borrower (or any Subsidiary)
than would be obtained in a comparable arm's-length transaction with a Person
not an Affiliate, provided that the Borrower and its Subsidiaries, in
connection with the acquisition of an equity interest in an Affiliate and
thereafter, may provide services to Affiliates upon terms less favorable to the
Borrower and its Subsidiaries than would be obtained in comparable arm's-length
transactions with Persons that are not Affiliates to the extent such terms are
consistent with reasonable business practices in relation to such Affiliate.
9.08 BENEFIT PLANS. With respect to all employee pension benefit
plans maintained by the Borrower or any ERISA Affiliate:
(i) allow or suffer the termination of any of such
employee pension benefit plans so as to incur any liability to the
Pension Benefit Guaranty Corporation that could reasonably be expected
to have a Material Adverse Effect;
(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 the Borrower or any ERISA
Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Code Section 4975 or ERISA, which tax,
penalty or liability could reasonably be expected to have a Material
Adverse Effect;
(iii) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such
Single-employer Plan that could reasonably be expected to have a
Material Adverse Effect;
(iv) allow or suffer to exist any occurrence of a
reportable event or any other event or condition, which presents a 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 and which liability could reasonably be expected
to have a Material Adverse Effect; or
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(v) incur any withdrawal liability with respect to any
Multi-employer Plan that could reasonably be expected to have a
Material Adverse Effect.
9.09 FISCAL YEAR. Change its Fiscal Year.
9.10 DISSOLUTION, ETC. Wind up, liquidate or dissolve (voluntarily
or involuntarily) or commence or suffer any proceedings seeking any such
winding up, liquidation or dissolution, except in connection with the merger or
consolidation of Subsidiaries into each other or into a Borrower permitted
pursuant to Section 9.06.
9.11 RATE HEDGING OBLIGATIONS. Incur any Rate Hedging Obligations or
enter into any agreements, arrangements, devices or instruments relating to Rate
Hedging Obligations, except (i) pursuant to Swap Agreements in an aggregate
notional amount not to exceed at any time the Total Revolving Credit Commitment,
and (ii) Rate Hedging Obligations with respect to materials used in the ordinary
course of business of the Borrower and its Subsidiaries and not for speculative
purposes.
9.12 DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. Declare or pay any
cash dividends or make any other payment or distribution on account of its
capital stock (other than dividends payable in the ordinary course of business
solely in Common Stock or Preferred Stock) on any shares of stock of any class
of the Borrower, now or hereafter outstanding, or purchase, redeem or otherwise
retire any such shares in consideration of cash or capital stock of any
Subsidiary of the Borrower ("Restricted Stock"), or apply or set apart any of
their assets therefor or make any other distribution (by redemption of capital
or otherwise) in respect of any such shares in consideration of cash or
Restricted Stock, or agree to do any of the foregoing, other than (i) conversion
of any of the Borrower's securities into Common Stock which are so convertible
in accordance with their terms; (ii) cash dividends payable by any Subsidiary to
another Subsidiary or to the Borrower, (iii) cash dividends payable by the
Borrower on its Preferred Stock provided the aggregate amount of such dividends
declared and paid during any Fiscal Year shall not exceed $100,000; (iv) other
cash dividends payable by the Borrower or any Subsidiary on outstanding shares
of any class of its preferred stock or its common stock, provided that (A) the
aggregate amount of such dividends declared or paid during any Four-Quarter
Period shall not exceed 25% of Consolidated Net Income for the immediately
preceding Four-Quarter Period, (B) with respect to dividends payable on
preferred stock of any Subsidiary, such Subsidiary becomes a Guarantor and
executes and delivers the documents required under Section 8.19 hereof, and (C)
with respect to dividends payable on preferred stock of the Borrower or any
Subsidiary, such preferred stock shall in no event have any right of redemption
or conversion, put or call rights, voting rights (other than voting rights
contingent upon nonpayment of dividends) or other rights in addition to the
rights of holders of common
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stock of the Borrower or such Subsidiary other than preferential liquidation or
dividend rights; and (v) stock purchases for purposes of contributing such
shares to the Borrower's existing or hereafter created stock purchase plans,
stock option plans or other employee benefit plans provided that (A) the
purchase price for such shares shall be paid by the Borrower from operating
revenues of the Borrower and its Subsidiaries and (B) in no event shall the
number of shares so purchased during the term of this Agreement exceed
1,000,000.
9.13 SUBORDINATED DEBT. (a) Pay any amounts owing with respect to
the Subordinated Debt except in accordance with the terms thereof; provided that
the Subordinated Debt may be prepaid, in whole or in part, subject to the
following conditions:
(i) any such prepayment shall be made out of the operating
revenues of the Borrower and its Subsidiaries as opposed to proceeds of
any borrowings hereunder or under the $20,000,000 Credit Facility;
(ii) no Default or Event of Default shall occur as a result
of any such prepayment; and
(iii) the Borrower shall provide to the Agent, on the same
Business Day that such prepayment is made, (A) a statement of the
sources and uses of funds therefor evidencing that such funds were not
proceeds of borrowings hereunder or under the $20,000,000 Credit
Facility and (B) a certificate of an Authorized Representative as to
the absence of any Default or Event of Default and demonstrating
compliance with Sections 9.01 and 9.02 of this Agreement, in each
case giving effect to such prepayment.
(b) Materially amend the subordination provisions of or terminate
(other than in connection with the full and final payment of the Subordinated
Debt) any document related to the Subordinated Debt without the prior written
consent of the Required Lenders.
ARTICLE X
EVENTS OF DEFAULT AND ACCELERATION
10.01 EVENTS OF DEFAULT. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) if default shall be made in the due and punctual
payment of the principal of any Loan or Reimbursement Obligation, when
and as the same shall be due and payable
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whether pursuant to any provision of Article II or Article III hereof,
at maturity, by acceleration or otherwise; or
(b) if default shall be made in the due and punctual
payment of any amount of interest on any Loan or of any fees or other
amounts payable to the Lenders, the Agent or NationsBank under the
Loan Documents on the date on which the same shall be due and payable;
or
(c) if default shall be made in the performance or
observance of any covenant set forth in Sections 8.11 , 8.12 , 8.18
or Article IX hereof (other than Sections 9.04 and 9.07 ); or
(d) if default shall be made in the performance or
observance of the covenants set forth in Sections 8.07, 8.17, 9.04 or
9.07 hereof and the Borrower shall fail to cure such default within
five (5) Business Days of receipt of notice of such default by the
Authorized Representative from the Agent;
(e) if a default shall be made in the performance or
observance of, or shall occur under, any covenant, agreement or
provision contained in this Agreement or the Notes (other than as
described in clauses (a), (b) or (c) above) and such default shall
continue for thirty (30) or more days after the earlier of receipt of
notice of such default by the Authorized Representative from the Agent
or the Borrower becomes aware of such default, or if a default shall be
made in the performance or observance of, or shall occur under, any
covenant, agreement or provision contained in any of the other Loan
Documents (beyond the applicable grace period, if any, contained
therein) or in any instrument or document evidencing or creating any
obligation, guaranty, or Lien in favor of the Agent or the Lenders or
delivered to the Agent or the Lenders in connection with or pursuant to
this Agreement or any of the Obligations, or if any Loan Document
ceases to be in full force and effect (other than by reason of any
action by the Agent), or if without the written consent of the Agent,
this Agreement or any other Loan Document shall be disaffirmed or shall
terminate, be terminable or be terminated or become void or
unenforceable for any reason whatsoever (other than in accordance with
its terms in the absence of default or by reason of any action by the
Agent or any Lender); or
(f) if a default shall occur, which is not waived, (i) in
the payment of any principal, interest, premium or other amounts with
respect to any Indebtedness (other than the Obligations) of the
Borrower or of any Subsidiary, including without limitation
Indebtedness under the Flexible Term Notes, the Bonds, the $20,000,000
Credit Facility and the Subordinated Debt, in an amount not less than
$1,000,000 in the aggregate outstanding, or (ii) in the performance,
observance or fulfillment of any term or covenant contained in
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any agreement or instrument under or pursuant to which any such
Indebtedness may have been issued, created, assumed, guaranteed or
secured by the Borrower or any Subsidiary, including without limitation
Indebtedness under the Flexible Term Notes, the Bonds, the $20,000,000
Credit Facility and the Subordinated Debt, and such default shall
continue for more than the period of grace, if any, therein specified,
or if such default shall permit the holder of any such Indebtedness to
accelerate the maturity thereof, provided that such default under
clause (ii) with respect to such Indebtedness (other than Indebtedness
under the Notes, the Bonds or the $20,000,000 Credit Facility) shall
not constitute an Event of Default hereunder for a period of thirty
(30) Business Days after the occurrence thereof if during such period
the Borrower or such Subsidiary is diligently and in good faith
pursuing a waiver or cure of such default and so notifies the Agent of
such efforts; or
(g) if any representation, warranty or other statement of fact
contained herein or any other Loan Document or in any writing,
certificate, report or statement at any time furnished to the Agent or
any Lender by or on behalf of the Borrower or any Guarantor pursuant to
or in connection with this Agreement or the other Loan Documents, or
otherwise, shall be false or misleading when given or made or deemed
given or made and, as a result thereof, could reasonably be expected to
have a Material Adverse Effect; or
(h) if the Borrower or any Guarantor shall be unable to pay
its debts generally as they become due; file a petition to take
advantage of any insolvency, reorganization, bankruptcy, receivership
or similar law, domestic or foreign; make an assignment for the benefit
of its creditors; commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of the whole
or any substantial part of its property; file a petition or answer
seeking reorganization or arrangement or similar relief under the
Federal bankruptcy laws or any other applicable law or statute,
Federal, state or foreign; or
(i) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of the Borrower or any Guarantor or of the
whole or any substantial part of its properties and such order,
judgment or decree continues unstayed and in effect for a period of
sixty (60) days, or approve a petition filed against the Borrower or
any Guarantor seeking reorganization or arrangement or similar relief
under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state or foreign
country, province or other political subdivision, which petition is not
dismissed within sixty (60) days; or if, under the provisions of any
other law for the relief or aid of
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debtors, a court of competent jurisdiction shall assume custody or
control of the Borrower or any Guarantor or of the whole or any
substantial part of its properties, which control is not relinquished
within sixty (60) days; or if there is commenced against the Borrower
or any Guarantor any proceeding or petition seeking reorganization,
arrangement or similar relief under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state or foreign country, province or other political subdivision which
proceeding or petition remains undismissed for a period of sixty (60)
days; or if the Borrower or any Guarantor takes any action to indicate
its consent to or approval of any such proceeding or petition; or
(j) if (i) any judgment where the amount not covered by
insurance (or the amount as to which the insurer denies liability) is
in excess of $500,000 is rendered against the Borrower or any
Guarantor, or (ii) there is any attachment, injunction or execution
against any of the Borrower's or any Guarantor's properties for any
amount in excess of $500,000; and such judgment, attachment, injunction
or execution remains unpaid, unstayed, undischarged, unbonded or
undismissed for a period of sixty (60) days; or
(k) if the Borrower or any Guarantor shall suspend (other than
for a period not to exceed sixty (60) days by reason of force majeure)
all or any part of its operations and such suspension could reasonably
be expected to have a Material Adverse Effect, provided that,
notwithstanding the occurrence of any event of force majeure, neither
the Borrower nor any Guarantor shall be deemed to have suspended all or
any part of its operations if the Borrower or the Guarantor, as
appropriate, has replaced the function or operation of the business
effected by the force majeure during such 60 day period, irrespective
of the method, manner or physical location of such replacement. By way
of illustration and not of limitation, the shutdown of any
telemarketing center of the Borrower or any Guarantor as a result of
the occurrence of an event of force majeure shall not be deemed a
suspension of all or any part of the operations of the Borrower or such
Guarantor if the telemarketing functions previously conducted at the
center that was shut down otherwise are being conducted by or on behalf
of the Borrower or any Guarantor at another location owned by the
Borrower or any Guarantor or owned by a third party; or
(l) if the Borrower or any Subsidiary shall default in the
payment of principal, interest, premium or other amounts under any Swap
Agreement and such breach shall continue beyond any grace period, if
any, relating thereto pursuant to its terms, or the Borrower or any
Subsidiary shall disaffirm or seek to disaffirm any Swap Agreement or
any of its Rate Hedging Obligations thereunder; or
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(m) if the Borrower shall become a party to or the subject
of any agreement, transaction or related series of transactions
pursuant to or as a result of which (i) any Person or group of Persons
acting in concert (other than the NAR Group Limited or any other
shareholder of the Borrower that as of the Closing Date owns five
percent (5%) or more of the shares of the issued and outstanding
capital stock of any class of the Borrower having voting rights in the
election of directors or is required to file a Schedule 13D or 13G
pursuant to the Securities Exchange Act of 1934, as amended, with
respect to its ownership of capital stock of the Borrower having such
rights), acquires voting control, directly or indirectly, whether by
tender offer or in one or more negotiated block or market transactions,
of more than thirty percent (30%) of the shares of the issued and
outstanding capital stock of any class of the Borrower having voting
rights in the election of directors or (ii) the NAR Group Limited shall
control, directly or indirectly, less than forty-five percent (45%) of
the shares of the issued and outstanding capital stock of any class of
the Borrower having such rights, unless such decrease in control shall
occur as a result of an increase in the total number of shares
outstanding of such class and not by reason of disposition of shares of
such class by NAR Group Limited;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall have not been waived,
(A) either or both of the following actions may be
taken: (i) the Agent may, and at the direction of the Required
Lenders shall, declare any obligation of the Lenders to make
further Loans or issue Letters of Credit terminated, whereupon
the obligation of each Lender to make further Loans and of
NationsBank to issue Letters of Credit hereunder shall
terminate immediately, and (ii) the Agent shall at the
direction of the Required Lenders, at their option, declare by
notice to the Borrower any or all of the Obligations to be
immediately due and payable, and the same, including all
interest accrued thereon and all other Obligations of the
Borrower to the Agent and the Lenders, shall forthwith become
immediately due and payable without presentment, demand,
protest, notice or other formality of any kind, all of which
are hereby expressly waived, anything contained herein or in
any instrument evidencing the Obligations to the contrary
notwithstanding; provided , however , that notwithstanding the
above, if there shall occur an Event of Default under clause
(h) or (i) above, then the obligation of the Lenders to make
Advances and issue Letters of Credit hereunder shall
automatically terminate and any and all of the Obligations
shall be immediately due and payable without the necessity of
any action by
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the Agent or the Required Lenders or notice to the Agent or the
Lenders;
(B) The Borrower shall, upon demand of the Agent
or the Required Lenders, deposit cash with the Agent in an
amount equal to the amount of any Letter of Credit
Outstandings, as collateral security for the repayment of any
future drawings or payments under such Letters of Credit and
the Borrower shall forthwith deposit and pay such amounts and
such amounts shall be held by the Agent pursuant to the terms
of the applicable Application and Agreement for Letter of
Credit (provided , however , with respect to the Hanover House
LC, that (i) such amounts will not be used prior to the
honoring of a drawing under the Hanover House LC and (ii) as
provided in Section 4.02 hereof, NationsBank will pay all
drawings under the Hanover House LC with its own funds); and
(C) the Agent and the Lenders shall have all of the
rights and remedies available under the Loan Documents or under
any applicable law.
10.02 AGENT TO ACT. In case any one or more Events of Default shall
occur and not have been waived, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or in
any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
10.03 CUMULATIVE RIGHTS. No right or remedy herein conferred upon
the Lenders or the Agent is intended to be exclusive of any other rights or
remedies contained herein or in any other Loan Document, and every such right or
remedy shall be cumulative and shall be in addition to every other such right or
remedy contained herein and therein or now or hereafter existing at law or in
equity or by statute, or otherwise.
10.04 NO WAIVER. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
10.05 ALLOCATION OF PROCEEDS. If an Event of Default has occurred
and not been waived, and the maturity of the Notes has been accelerated pursuant
to Article X hereof, all payments received by the Agent hereunder, in respect
of any principal of or interest on the Obligations or any other amounts payable
by the
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Borrower hereunder shall be applied by the Agent in the following order:
(a) amounts due to NationsBank and the Lenders pursuant to
Sections 2.13, 3.02(f), 3.03, 8.15, 12.05 and 12.10 hereof;
(b) amounts due to (A) NationsBank pursuant to Section
3.04 hereof, and (B) to NationsBank and/or the Agent pursuant to
Section 2.03(i) and 2.16 hereof;
(c) payments of interest on Loans and Reimbursement
Obligations;
(d) payments of principal on Loans and Reimbursement
Obligations;
(e) payment of cash amounts to the Agent in respect of
Letters of Credit Outstandings pursuant to Section 10.01(B) hereof;
(f) payment of Obligations owed a Lender or Lenders
pursuant to Swap Agreements and payment of all outstanding
reimbursement obligations of the Borrower and its Subsidiaries with
respect to letters of credit (other than Letters of Credit issued
hereunder) issued by the Lenders for the account of the Borrower or any
Subsidiary and permitted under Section 9.03 hereof;
(g) payments of all other amounts due under this
Agreement, if any, to be applied for the ratable benefit of the
Lenders; and
(h) any surplus remaining after application as provided
for herein, to the Borrowers or otherwise as may be required by
applicable law.
ARTICLE XI
THE AGENT
11.01 APPOINTMENT. Each Lender (including NationsBank in its
capacity as maker of Swing Line Loans and as issuer of the Letters of Credit)
hereby irrevocably designates and appoints NationsBank as the Agent of the
Lenders under this Agreement, and, subject to Section 12.06 hereof, each of the
Lenders hereby irrevocably authorizes NationsBank as the Agent for such Lender,
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers as are expressly delegated to
the Agent by the terms of this Agreement, together with such other powers as are
reasonably incidental thereto. The Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any of the Lenders, and no implied covenants, functions,
respon-
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sibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Agent. All rights, duties and
obligations of NationsBank as the Agent of the Lenders set forth in this
Article XI shall be applicable, without limitation, in all respects to the
making of any Swing Line Loan and each Lender's acquisition of a Participation
therein.
11.02 ATTORNEYS-IN-FACT. The Agent may execute any of its duties
under this Agreement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible to the Lenders for the negligence, gross
negligence or willful misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
11.03 LIMITATION ON LIABILITY. Neither the Agent nor any of its
officers, directors, employees, agents or attorneys-in-fact shall be liable to
the Lenders for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement except for its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its affiliates
shall be responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any of its
Subsidiaries, or any officer or representative thereof contained in this
Agreement or in any of the other Loan Documents, or in any certificate, report,
statement or other document referred to or provided for in or received by the
Agent under or in connection with this Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any of the other Loan Documents, or for any failure of the Borrower to perform
its obligations thereunder, or for any recitals, statements, representations or
warranties made, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any collateral. The Agent shall not be under
any obligation to any of the Lenders to ascertain or to inquire as to the
observance or performance of any of the terms, covenants or conditions of this
Agreement or any of the other Loan Documents on the part of the Borrower or to
inspect the properties, books or records of the Borrower or its Subsidiaries.
11.04 RELIANCE. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy or telex message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons or upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as
the owner thereof for all purposes unless an Assignment and Acceptance shall
have been filed with and accepted by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under
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this Agreement unless it shall first receive advice or concurrence of the
Lenders or the Required Lenders as provided
in this Agreement and it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement in accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all present and future holders of the Notes.
11.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender, the Authorized
Representative or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default." In the event that the Agent receives such a notice, the Agent shall
promptly give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders; provided that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Event of
Default as it shall deem advisable in the best interests of the Lenders.
11.06 NO REPRESENTATIONS. Each Lender expressly acknowledges that
neither the Agent nor any of its affiliates has made any representations or
warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrower or any of its Subsidiaries, shall be
deemed to constitute any representation or warranty by the Agent to any Lender.
Each Lender represents to the Agent that it has, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the financial condition, creditworthiness, affairs, status
and nature of the Borrower and its Subsidiaries and made its own decision to
enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and to make such investigation as it
deems necessary to inform itself as to the status and affairs, financial or
otherwise, of the Borrower and its Subsidiaries. Except for notices, reports
and other documents expressly required to be furnished to the Lenders by the
Agent hereunder, the Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower or any of its Subsidiaries
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which may come into the possession of the Agent or any of its affiliates.
11.07 INDEMNIFICATION. The Lenders agree to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting any obligations of the Borrower or any Subsidiary so to do), including
its employees, directors, officers and agents, ratably according to the
respective principal amount of the Notes and Participations held by them (or, if
no Notes or Participations are outstanding, ratably in accordance with their
respective Applicable Commitment Percentages as then in effect) from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time (including, without limitation at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent, including its employees, directors, officers and agents, in
any way relating to or arising out of this Agreement or any other document
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. The agreements in this Section 11.07
shall survive the final payment in full of the Obligations and the termination
of this Agreement.
11.08 LENDER. NationsBank and its affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Borrower and its Subsidiaries as though it were not the Agent hereunder. With
respect to its Loans made or renewed by it and any Note issued to it,
NationsBank shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall, unless the context otherwise indicates, include
NationsBank in its individual capacity.
11.09 RESIGNATION. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders may appoint, with the consent, so long as
there shall not have occurred and be continuing a Default or Event of Default,
of the Borrower, which consent shall not be unreasonably withheld, a successor
Agent for the Lenders, which successor Agent shall be a commercial bank
organized under the laws of the United States or any state thereof, having a
combined surplus and capital of not less than $250,000,000, whereupon such
successor Agent shall succeed to the rights, powers and duties of the former
Agent and the obligations of the former Agent shall be terminated and cancelled,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement; provided , however , that the former Agent's
resignation shall not become effective until such successor
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Agent has been appointed and has succeeded of record to all right, title and
interest in any collateral held by the Agent; provided, further, that if the
Required Lenders and, if applicable, the Borrower cannot agree as to a
successor Agent within ninety (90) days after such resignation, the Agent shall
appoint a successor Agent which satisfies the criteria set forth above in this
Section 11.09 for a successor Agent and the parties hereto agree to execute
whatever documents are necessary to effect such action under this Agreement or
any other document executed pursuant to this Agreement; provided, however,
that in such event all provisions of this Agreement and the Loan Documents
shall remain in full force and effect. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article XI shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
11.10 SHARING OF PAYMENTS, ETC. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, set-off, counterclaim or
otherwise, obtain payment with respect to its Obligations (other than pursuant
to Article V) which results in its receiving more than its pro rata share of
the aggregate payments with respect to all of the Obligations (other than any
payment pursuant to Article V), then (A) such Lender shall be deemed to have
simultaneously purchased from the other Lenders a share in their Obligations so
that the amount of the Obligations held by each of the Lenders shall be pro rata
and (B) such other adjustments shall be made from time to time as shall be
equitable to insure that the Lenders share such payments ratably; provided,
however, that for purposes of this Section 11.10 the term "pro rata" shall be
determined with respect to the Revolving Credit Commitment of each Lender and to
the Total Revolving Credit Commitment after subtraction in each case of amounts,
if any, by which any such Lender has not funded its share of the outstanding
Revolving Credit Loans and Participations, as the case may be. If all or any
portion of any such excess payment is thereafter recovered from the Lender which
received the same, the purchase provided in this Section 11.10 shall be
rescinded to the extent of such recovery, without interest. The Borrower
expressly consents to the foregoing arrangements and agrees that each Lender so
purchasing a portion of the other Lenders' Obligations may exercise all rights
of payment (including, without limitation, all rights of set-off, banker's lien
or counterclaim) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
ARTICLE XII
MISCELLANEOUS
12.01 ASSIGNMENTS AND PARTICIPATIONS .
(a) At any time after the Closing Date each Lender may, with the prior
consent of the Agent and the Borrower, which consents
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shall not be unreasonably withheld, assign to one or more banks or financial
institutions all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of any Note payable
to its order); provided , that (i) each such assignment shall be of a constant,
and not a varying, percentage of all of the assigning Lender's rights and
obligations (including Revolving Credit Loans, Competitive Bid Loans and
Participations) under this Agreement, (ii) for each assignment involving the
issuance and transfer of a Note, the assigning Lender shall execute an
Assignment and Acceptance and the Borrower hereby consents to execute a
replacement Note or Notes to give effect to the assignment, (iii) the minimum
Revolving Credit Commitment which shall be assigned is $5,000,000 (together
with which the assigning Lender's applicable portion of Participations and the
Letter of Credit Commitment shall also be assigned); provided , however , any
assignment of a percentage of any Lender's Revolving Credit Commitment shall be
accompanied by an assignment to such assignee of an equal percentage of such
Lender's Revolving Credit Commitment (as defined in the $20,000,000 Credit
Facility Documents) with respect to the $20,000,000 Credit Facility; (iv) such
assignee shall have an office located in the United States, (v) an assignment
(other than an assignment of 100% of its interest) by NationsBank shall not
include any portion of the Swing Line or obligation to issue Letters of Credit,
and (vi) no consent of the Borrower or Agent shall be required in connection
with any assignment by a Lender to an affiliate thereof or to another Lender.
Upon such execution, delivery, approval and acceptance, from and after the
effective date specified in each Assignment and Acceptance, (A) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder or under such Note have been assigned or negotiated to it
pursuant to such Assignment and Acceptance, have the rights and obligations of
a Lender hereunder and a holder of such Notes and (B) the assignor thereunder
shall, to the extent that rights and obligations hereunder or under such Notes
have been assigned or negotiated by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from that portion of its
obligations under this Agreement applicable to the rights so assigned. No
assignee shall have the right to assign further its rights and obligations
pursuant to this Section 12.01 . Any Lender who makes an assignment shall pay
to the Agent a one-time administrative fee of $2,500.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) the assignment made
under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Subsidiary or the performance or observance by
the Borrower or any Subsidiary of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant hereto; (iii) such
assignee confirms
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that it has received a copy of this Agreement, together with copies of the
financial statements most recently delivered pursuant to Section 7.01(f) or
Section 8.01, as the case may be, and such other Loan Documents and other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee appoints and
authorizes the Agent to take such action as Agent on its behalf and to exercise
such powers under this Agreement, the Notes and the other Loan Documents as are
delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Lender and a
holder of such Notes.
(c) The Agent shall maintain at its address referred to herein a copy of
each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Nothing herein shall prohibit any Lender from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
(f) If, pursuant to this Section 12.01, any interest in this Agreement
or any Note is transferred to any assignee Lender which is organized under the
laws of any jurisdiction other than the United States or any state thereof, the
assigning Lender shall cause such assignee Lender, concurrently with the
effectiveness of such transfer, (i) to represent to the assigning Lender (for
the benefit of the assigning Lender, the Agent and the Borrower) that under
applicable law and treaties no taxes will be required to be withheld by the
Agent, the Borrower or the assigning Lender with respect to any payments to be
made to such assignee Lender in respect of the Loans and (ii) to furnish to the
assigning Lender, the Agent and the Borrower such certificates, documents and
other evidence as required to comply with the penultimate paragraph of Section
5.06 hereof, and the assignee Lender shall comply from time to time with all
applicable United States laws and regulations with regard to such withholding
tax exemption.
(g) Each Lender may sell participations at its expense to one or more
banks or other entities as to all or a portion of its rights and obligations
under this Agreement; provided, that (i) such Lender's obligations under this
Agreement shall remain
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unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of any Notes issued to it for the purpose of this Agreement, (iv)
such participations shall be in a minimum amount of $1,000,000 and shall include
an allocable portion of such Lender's Participations, provided, however, any
such participation shall be conditioned upon such Lender's sale to such Person
of a pro rata participation in the $20,000,000 Credit Facility, and (v)
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and with regard to any and all payments to be
made under this Agreement; provided, that the participation agreement between a
Lender and its participants may provide that such Lender will obtain the
approval of such participant prior to such Lender's agreeing to any amendment or
waiver of any provisions of this Agreement which would (A) extend the
maturity of any Note, (B) reduce the interest rate hereunder, or (C) increase
the Revolving Credit Commitment of the Lender granting the participation therein
other than as permitted by Section 2.11, and (vi) the sale of any such
participations which require Borrower to file a registration statement with the
United States Securities and Exchange Commission or under the securities
regulations or laws of any state shall not be permitted.
12.02 NOTICES. All notices shall be in writing, except as to telephonic
notices expressly permitted or required herein, and written notices shall be
delivered by hand delivery, telefacsimile, overnight courier or certified or
registered mail. Any notice shall be conclusively deemed to have been received
by any party hereto and be effective on the day on which delivered to such party
(against (except as to telephonic or telefacsimile notice) receipt therefor or,
in the case of telex, verification by return) at the address set forth below or
such other address as such party shall specify to the other parties in writing,
or if sent prepaid by certified or registered mail return receipt requested on
the third Business Day after the day on which mailed, addressed to such party at
said address:
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<PAGE> 102
(a) if to the Borrower:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman,
Executive Vice President
and General Counsel
Telephone: (201) 319-3403
Telefacsimile: (201) 319-3404
with copies to:
Whitman, Breed, Abbott & Morgan
200 Park Avenue
New York, New York 10166
Attention: Monte E. Wetzler, Esq.
Telephone: (212) 351-3204
Telefacsimile: (212) 351-3131
(b) if to the Agent:
NationsBank of North Carolina, National Association
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe, Agency Services
Telephone: (704) 386-2006
Telefacsimile: (704) 386-9923
with a copy to:
NationsBank of North Carolina, National Association
Corporate Banking
767 Fifth Avenue, 5th Floor
New York, New York 10153-0083
Attention: Mr. Christopher C. Browder, Vice President
Telephone: (212) 407-5332
Telefacsimile: (212) 751-6909
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance.
12.03 SETOFF. The Borrower agrees that the Agent and each Lender shall
have a lien for all the Obligations of the Borrower upon all deposits or deposit
accounts, of any kind, or any interest in any deposits or deposit accounts
thereof, now or hereafter pledged, mortgaged, transferred or assigned to the
Agent or such Lender or otherwise in the possession or control of the Agent or
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<PAGE> 103
such Lender (other than for safekeeping) for any purpose for the account or
benefit of the Borrower and including any balance of any deposit account or of
any credit of the Borrower with the Agent or such Lender, whether now existing
or hereafter established, hereby authorizing the Agent and each Lender at any
time or times with or without prior notice to apply such balances or any part
thereof to such of the Obligations of the Borrower to the Lenders then past due
and in such amounts as they may elect, and whether or not the collateral or the
responsibility of other Persons primarily, secondarily or otherwise liable may
be deemed adequate. For the purposes of this paragraph, all remittances and
property shall be deemed to be in the possession of the Agent or such Lender as
soon as the same may be put in transit to it by mail or carrier or by other
bailee.
12.04 SURVIVAL. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the expiration of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of the Obligations remain outstanding or any Lender has
any commitment hereunder. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
permitted assigns of such party and all covenants, provisions and agreements by
or on behalf of the Borrower which are contained in this Agreement, the Notes
and the other Loan Documents shall inure to the benefit of the successors and
permitted assigns of the Lenders or any of them.
12.05 EXPENSES. The Borrower agrees (a) to pay or reimburse the Agent
for all its out-of-pocket costs and expenses incurred in connection with the
preparation, negotiation and execution of, and any amendment, supplement or
modification to, this Agreement or any of the other Loan Documents, and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent, (b) to pay or reimburse the Agent and the Lenders for all their
reasonable costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement and the other Loan Documents,
including without limitation, the reasonable fees and disbursements of their
counsel and any payments in indemnification or otherwise payable by the Lenders
to the Agent pursuant to the Loan Documents and (c) to pay, indemnify and hold
the Agent and the Lenders harmless from any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any failure to
pay or delay in paying, documentary, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of this Agreement or any other Loan Documents, or
consummation of any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement or any other Loan Documents.
12.06 AMENDMENTS. No amendment, modification or waiver of any provision
of this Agreement or any of the Loan Documents and no consent by the Lenders to
any departure therefrom by the Borrower
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<PAGE> 104
shall be effective unless such amendment, modification, waiver or consent shall
be in writing and signed by the Borrower and the Agent, but only upon having
received the prior written consent of the Required Lenders, and the same shall
then be effective only for the period and on the conditions and for the specific
instances and purposes specified in such writing; provided, however, that, no
such amendment, modification, waiver or consent that:
(i) changes, extends or waives any provision of Section 11.10
or this Section 12.06, the amount of or the due date of any scheduled
installment of or the rate of interest or determination of any fee
payable on or in connection with any Obligation, changes the definition
of Required Lenders, which permits an assignment by Borrower of its
Obligations hereunder, which reduces the required consent of Lenders
provided hereunder, which increases, decreases or extends the Revolving
Credit Termination Date or the Revolving Credit Commitment or the
Letter of Credit Commitment of any Lender or which waives any condition
to the making of any Loan shall be effective unless in writing and
signed by each of the Lenders; provided, however, the Required Lenders
may in their sole discretion waive any Default or Event of Default
(other than any Event of Default under Section 10.01(g) or (h)); or
(ii) affects the rights, privileges, immunities or indemnities of
the Agent shall be effective unless in writing and signed by the Agent.
No notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances, except
as otherwise expressly provided herein. No delay or omission on any Lender's or
the Agent's part in exercising any right, remedy or option shall operate as a
waiver of such or any other right, remedy or option or of any Default or Event
of Default.
12.07 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
12.08 TERMINATION. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably and finally paid in full. The rights granted to the Agent for the
benefit of the Lenders hereunder and under the other Loan Documents shall
continue in full
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<PAGE> 105
force and effect, notwithstanding the termination of this Agreement, until all
of the Obligations have been paid in full after the termination hereof or the
Borrower has furnished the Lenders and the Agent with an indemnification
satisfactory to the Agent and each Lender with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until payment in full of the Obligations unless
otherwise provided herein. Notwithstanding the foregoing, if after receipt of
any payment pursuant to the Loan Documents of all or any part of the
Obligations, any Lender is for any reason compelled to surrender such payment to
any Person because such payment is determined to be void or voidable as a
preference, impermissible setoff, a diversion of trust funds or for any other
reason, this Agreement shall continue in full force and the Borrower shall be
liable to, and shall indemnify and hold such Lender harmless for, the amount of
such payment surrendered until such Lender shall have been finally and
irrevocably paid in full. The provisions of the foregoing sentence shall be and
remain effective notwithstanding any contrary action which may have been taken
by the Lenders in reliance upon such payment, and any such contrary action so
taken shall be without prejudice to the Lenders' rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.
12.09 GOVERNING LAW. ALL DOCUMENTS EXECUTED PURSUANT TO THE
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT
AND EACH OF THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND
FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND
JUDICIAL DECISIONS OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF NEW YORK FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR FOR THE PURPOSES OF COLLECTION.
12.10 INDEMNIFICATION. In consideration of the execution and delivery
of this Agreement by the Agent and each Lender and the extension of the Letter
of Credit Commitments and the Revolving Credit Commitments, the Borrower hereby
indemnifies, exonerates and holds the Agent and each Lender and each of their
respective officers, directors, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
any Loan or supported by any Letter of Credit, except for any such Indemnified
Liabilities arising for the account of a particular Indemnified Party by reason
of the gross negligence or willful
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<PAGE> 106
misconduct of such Indemnified Party, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
12.11 HEADINGS AND REFERENCES. The headings of the Articles and
Sections of this Agreement are inserted for convenience of reference only and
are not intended to be a part of, or to affect the meaning or interpretation of
this Agreement. Words such as "hereof", "hereunder", "herein" and words of
similar import shall refer to this Agreement in its entirety and not to any
particular Section or provisions hereof, unless so expressly specified. As used
herein, the singular shall include the plural, and the masculine shall include
the feminine or a neutral gender, and vice versa, whenever the context requires.
12.12 SEVERABILITY. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.
12.13 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all previous proposals, negotiations,
representations, commitments and other communications between or among the
parties, both oral and written, with respect thereto.
12.14 AGREEMENT CONTROLS. In the event that any term of any of the Loan
Documents other than this Agreement conflicts with any term of this Agreement,
the terms and provisions of this Agreement shall control.
12.15 USURY SAVINGS CLAUSE. Notwithstanding any other provision herein,
the aggregate interest rate charged under any of the Notes, including all
charges or fees in connection therewith deemed in the nature of interest under
New York law, shall not exceed the Highest Lawful Rate (as such term is defined
below). If the rate of interest (determined without regard to the preceding
sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as
defined below), the outstanding amount of the Loans made hereunder shall bear
interest at the Highest Lawful Rate until the total amount of interest due
hereunder equals the amount of interest which would have been due hereunder if
the
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<PAGE> 107
stated rates of interest set forth in this Agreement had at all times been in
effect. In addition, if and when the Loans made hereunder are repaid in full the
total interest due hereunder (taking into account the limitation provided for
above) is less than the total amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect, then to the extent permitted by law, the Borrower shall
pay to the Agent an amount equal to the difference between the amount of
interest paid and the amount of interest which would have been paid if the
Highest Lawful Rate had at all times been in effect. Notwithstanding the
foregoing, it is the intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration which constitutes interest in excess of
the Highest Lawful Rate, then any such excess shall be canceled automatically
and, if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the Borrower.
As used in this paragraph, the term "Highest Lawful Rate" means the maximum
lawful interest rate, if any, that at any time or from time to time may be
contracted for, charged, or received under the laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow.
12.16 WAIVER OF JURY TRIAL. EXCEPT AS PROHIBITED BY LAW, EACH PARTY
HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS.
[Signatures on following pages.]
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<PAGE> 108
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HANOVER DIRECT, INC.
By: /s/ WAYNE GARTEN
-------------------------------
Name: Wayne Garten
Title: Executive Vice President
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, as Agent for
the Lenders
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
Signature Page 1 of 6
<PAGE> 109
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HANOVER DIRECT, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, as Agent for
the Lenders
By: /s/ CHRISTOPHER C. BROWDER
-----------------------------
Name: Christopher C. Browder
------------------------
Title: Vice President
-----------------------
Signature Page 1 of 6
<PAGE> 110
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By: /s/ CHRISTOPHER C. BROWDER
-----------------------------
Name: Christopher C. Browder
------------------------
Title: Vice President
-----------------------
Lending Office:
NationsBank of North Carolina,
National Association
NationsBank Plaza
101 South Tryon Street
NC1002-17-12
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
Telephone: (704) 386-2006
Telefacsimile: (704) 386-9923
Wire Transfer Instructions:
NationsBank of North Carolina,
National Association
Charlotte, North Carolina 28255
ABA No.: 053000196
Reference: Hanover Direct, Inc.
Account No.: 03662122506
Attention: Commercial Loan
Operations
Signature Page 2 of 6
<PAGE> 111
CHEMICAL BANK NEW JERSEY, NATIONAL
ASSOCIATION
By: /s/ JAMES H. RAMAGE
----------------------
Name: James H. Ramage
-----------------
Title: Vice President
----------------
Lending Office:
Chemical Bank New Jersey
East 36 Midland Avenue
Paramus, New Jersey 07652
Attention: Craig W. Trautwein
Telephone: (201) 599-6813
Telefacsimile: (201) 599-6755
Wire Transfer Instructions:
Chemical Bank New Jersey
East Brunswick, New Jersey 08816
ABA No.: 021202337
Reference: Hanover Direct, Inc.
Account No.: 0110632650
Attention: Tammie Putnam
Signature Page 3 of 6
<PAGE> 112
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ GARTH C. HARDING
-----------------------
Name: Garth C. Harding
------------------
Title: Vice President
-----------------
Lending Office:
First National Bank of Maryland
96 South George Street
York, Pennsylvania 17401
Attention: Garth C. Harding
Telephone: (717) 771-4900
Telefacsimile: (717) 845-3026
Wire Transfer Instructions:
First National Bank of Maryland
York, Pennsylvania 17401
ABA No.: 0520-00113
Reference: Hanover Direct, Inc.
Account No.: 000-0541-4
Attention: Marty Wolfe
Signature Page 4 of 6
<PAGE> 113
FLEET BANK
By: /s/ PETER C. HALL
---------------------
Name: Peter C. Hall
----------------
Title: Vice President
---------------
Lending Office:
Fleet Bank
56 East 42nd Street
New York, New York 10017-5496
Attention: Peter C. Hall
Telephone: (212) 907-5118
Telefacsimile: (212) 907-5614
Wire Transfer Instructions:
Fleet Bank
New York, New York 10017-5496
ABA No.: 021-300-019
Reference: Hanover Direct, Inc.
Account No.: _____________________
Attention: Brian Brady
Signature Page 5 of 6
<PAGE> 114
THE BANK OF TOKYO TRUST COMPANY
By: /s/ DAVID J. VIGGIANO
------------------------
Name: David J. Viggiano
------------------
Title: Vice President
------------------
Lending Office:
The Bank of Tokyo Trust Company
1251 Avenue of the Americas
New York, New York 10166
Attention: David J. Viggiano
Telephone: (212) 782-4274
Telefacsimile: (212) 782-6402
Wire Transfer Instructions:
Bank of Tokyo
New York, New York 10166
ABA No.: 0260-8968-7
Reference: Hanover Direct, Inc.
Account No.: CIF 97770477
Attention: Loan Administration
Department
<PAGE> 115
EXHIBIT A
REVOLVING CREDIT COMMITMENTS
<TABLE>
<CAPTION>
Revolving
Credit
Lender Commitment
------ ----------
<S> <C>
NationsBank of North Carolina,
National Association $ 18,750,000
Chemical Bank New Jersey, National Association $ 11,250,000
The First National Bank of Maryland $ 7,500,000
Fleet Bank $ 11,250,000
The Bank of Tokyo Trust Company $ 11,250,000
============
Total Revolving Credit Commitment $ 60,000,000
</TABLE>
<PAGE> 116
EXHIBIT B
FORM OF ASSIGNMENT AND ACCEPTANCE
DATED _______________, 19____
Reference is made to the Credit Facilities and Reimbursement Agreement
dated as of October 12, 1994 (the "Agreement") among Hanover Direct, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and NationsBank of
North Carolina, National Association, as Agent for the Lenders ("Agent").
Unless otherwise defined herein, terms defined in the Agreement are used herein
with the same meanings.
________________________ (the "Assignor") and ________________________
_______ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a
_______%(1) interest in and to all of the Assignor's rights and obligations
under the Agreement as of the Effective Date (as defined below), including,
without limitation, such percentage interest in the Loans owing to, and
Participations held by, the Assignor on the Effective Date, and the Notes held
by the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, the aggregate outstanding principal amounts of the Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) are as follows: $_____________ of Revolving Credit Loans and
$_________ of Competitive Bid Loans; the aggregate principal amount of Letters
of Credit in which it is deemed to have a Participation under the Agreement is
$________; and the aggregate principal amount of Swing Line Loans in which it
is deemed to have a Participation under the Agreement is $_________; (ii)
represents and warrants that it is the legal and beneficial owner of the
interests being assigned by it hereunder and that such interests are free and
clear of any adverse claim; (iii) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Agreement or any of the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Agreement or any of the Loan Documents or any other
instrument or document furnished pursuant thereto; (iv) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under the Agreement or any of the Loan
-------------------
(1) Specify percentage in not less than 9 decimal points.
<PAGE> 117
Documents or any other instrument or document furnished pursuant thereto and
(v) attaches the Notes referred to in paragraph 1 above and requests that the
Agent exchange such Notes for (A) new Revolving Credit Notes dated
_____________, 19__ as follows: a Revolving Credit Note in the principal
amount of $________________ payable to the order of the Assignor, and a
Revolving Credit Note in the principal amount of $________________ payable to
the order of the Assignee; and (B) new Competitive Bid Notes dated ________,
19__ as follows: a Competitive Bid Note in the principal amount of $__________
payable to the order of the Assignor, and a Competitive Bid Note in the
principal amount of $__________ payable to the order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Sections 7.01(f) and 8.01 thereof, and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (ii) agrees that it will, independently
and without reliance upon the Agent, the Assignor, or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Agreement; (iii) appoints and authorizes the Agent to take such
actions on its behalf and to exercise such powers under the Loan Documents as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Agreement are required to be performed by the Lender; and (v) specifies as its
address for notices the office set forth beneath its name on the signature
pages hereof.
4. The effective date for this Assignment and Acceptance shall be
_____________________________ (the "Effective Date"). Following the execution
of this Assignment and Acceptance, it will be delivered to the Agent for
acceptance and recording by the Agent.
5. Upon such acceptance and recording, as of the Effective Date,
(i) the Assignee shall be a party to the Agreement and, to the extent provided
in this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording, from and after the
Effective Date, the Agent shall make all payments under the Agreement and Notes
in respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest, commitment fees and letter of credit fees with
respect
<PAGE> 118
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with, the laws of the State of New York.
[NAME OF ASSIGNOR]
By:
Name:
Title:
Notice Address:
After the Effective Date:
Outstanding Revolving Credit Loans: $
Outstanding Competitive Bid Loans: $
Outstanding Participations in
Letter of Credit Outstandings: $
Outstanding Participations in
Swing Line Loans: $
[NAME OF ASSIGNEE]
By:
Name:
Title:
Notice Address/Lending Office:
Wire transfer Instructions:
After the Effective Date:
Outstanding Revolving Credit Loans: $
Outstanding Competitive Bid Loans: $
Outstanding Participations in
Letter of Credit Outstandings: $__________
Outstanding Participations in
Swing Line Loans: $
<PAGE> 119
Accepted this ____ day of _______, 19___
NATIONSBANK OF NORTH CAROLINA, NATIONAL
ASSOCIATION, as Agent
By:_____________________________________
Name:
Title:
Consented to:
HANOVER DIRECT, INC.
By:___________________________
Name:
Title:
<PAGE> 120
EXHIBIT C
NOTICE OF APPOINTMENT (OR REVOCATION) OF AUTHORIZED
REPRESENTATIVE
Reference is hereby made to the Credit Facilities and Reimbursement
Agreement dated as of October 12, 1994 (the "Agreement") among Hanover Direct,
Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and
NationsBank of North Carolina, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
Appointment . The Borrower hereby nominates, constitutes and appoints
each individual named below as an Authorized Representative under the Loan
Documents, and hereby represents and warrants that (i) set forth opposite each
such individual's name is a true and correct statement of such individual's
office (to which such individual has been duly elected or appointed), a genuine
specimen signature of such individual and an address for the giving of notice,
and (ii) each such individual has been duly authorized by each Borrower to act
as Authorized Representative under the Loan Documents:
<TABLE>
<CAPTION>
Name and Address Office Specimen Signature
<S> <C> <C>
----------------- ------------------- --------------------
-----------------
-----------------
----------------- ------------------- --------------------
-----------------
-----------------
----------------- ------------------- --------------------
-----------------
-----------------
</TABLE>
Revocation. Borrower hereby revokes (effective upon receipt hereof by
the Agent) the prior appointment of ________________ as an Authorized
Representative.
This the ___ day of __________________, 19__.
HANOVER DIRECT, INC.
By:
-------------------------
Name:
-------------------
Title:
------------------
<PAGE> 121
EXHIBIT D
FORM OF BORROWING NOTICE--REVOLVING CREDIT LOANS
AND SWING LINE LOANS
To: NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Joyce Ruppe, Agency Services
Reference is hereby made to the Credit Facilities and Reimbursement
Agreement dated as of October 12, 1994 (the "Agreement") among Hanover Direct,
Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and
NationsBank of North Carolina, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby confirms its
prior notice of borrowing given to the Agent by telephone at __________ __.m.
on ____________, 19__ to the effect that Revolving Credit Loans or Swing Line
Loans of the type and amount set forth below be made on the date indicated:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate Date of Interest
(check one) Period(1) Amount(2) Loan(3) Rate(4)
------------ --------- --------- ------- -------
<S> <C>
Base Rate N/A
Loan _____
LIBOR Loan _____ N/A
Swing Line __________
Loan _____
</TABLE>
----------------------------
(1) For any LIBOR Loan, one, two, three or six months.
(2) Must be $5,000,000 or a multiple of $1,000,000 in excess thereof for
Revolving Credit Loans; must be $1,000,000 or a multiple of $100,000
in excess thereof for Swing Line Loans.
(3) At least three (3) LIBOR Business Days later if a LIBOR Loan; may be
same Business Day in case of a Base Rate Loan or Swing Line Loans.
(4) For Swing Line Loans only.
The Borrower hereby requests that the proceeds of Revolving Credit
Loans or Swing Line Loans described in this Borrowing Notice be made available
to the Borrowers as follows: [INSERT TRANSMITTAL INSTRUCTIONS].
<PAGE> 122
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article
VII of the Agreement and in the Loan Documents (other than those expressly
stated to refer to a particular date) are true and correct as of the date
hereof except that (a) the representations and warranties set forth in Section
7.01(d) and (e) of the Agreement shall be deemed to include and take into
account any merger or consolidation permitted under Section 9.06 of the
Agreement and references therein to Schedules 7.01(d) and 7.01(e) shall be
deemed to refer to such Schedules as amended by Supplemental Schedules 7.01(d)
and 7.01(e) attached hereto, and (b) the reference to the financial statements
in Section 7.01(f)(i) of the Agreement are to those financial statements most
recently delivered to you pursuant to Section 8.01 of the Agreement; and
3. After giving effect to Loans requested hereby, (i) the sum of
all Outstandings will not exceed the Total Revolving Credit Commitment and (ii)
Swing Line Outstandings will not exceed $5,000,000.
HANOVER DIRECT, INC.
BY:_____________________________________
Authorized Representative
<PAGE> 123
Supplemental Schedule 7.01(d)
Subsidiaries
Schedule 7.01(d) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 7.01(d) is necessary, indicate "Not Applicable"):
<PAGE> 124
Supplemental Schedule 7.01(e)
Investments in Other Persons
Schedule 7.01(e) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 7.01(e) is necessary, indicate "Not Applicable"):
<PAGE> 125
EXHIBIT E
FORM OF COMPETITIVE BID NOTE
PROMISSORY NOTE
(Competition Bid)
__________, __________
October __, 1994
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation having
its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of__________________________(1)
(the "Lender"), in its individual capacity, at the office of NationsBank of
North Carolina, National Association, as agent for the Lender (the "Agent"),
located at NationsBank Plaza, 101 South Tryon Street, Charlotte, North Carolina
28255 (or at such other place or places as the Agent may designate) at the times
set forth in the Credit Facilities and Reimbursement Agreement dated of even
date herewith among the Borrower, the financial institutions party thereto
(collectively, the "Lenders") and the Agent (as amended and supplemented and in
effect from time to time, the "Credit Agreement"; all capitalized terms not
otherwise defined herein shall have the respective meanings set forth in the
Credit Agreement), in lawful money of the United States of America and in
immediately available funds, the aggregate unpaid principal amount of all
Competitive Bid Loans made by the Lender to the Borrower, if any, on the dates
and in the principal amounts set forth in the Lender's Competitive Bid Quote and
accepted by the Borrower, and to pay interest on the unpaid principal amount of
each such Competitive Bid Loan, at such office, in like money and funds, for the
period commencing on the date of such Competitive Bid Loan until such
Competitive Bid Loan shall be paid in full, at the rates per annum and on the
dates set forth in the Lender's Competitive Bid Quote and accepted by the
Borrower.
The date, amount, interest rate and maturity date of each Competitive
Bid Loan made by the Lender to the Borrower, and each payment made on account
of the principal thereof, shall be recorded by the Lender on its books and,
prior to any transfer of this Note, endorsed by the Lender on the schedule
attached hereto or any continuation thereof, provided that the failure of the
Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Competitive Bid Loans made
by the Lender.
----------------------------------
(1) Insert name of Lender
<PAGE> 126
This Note is one of the Competitive Bid Notes referred to in the Credit
Agreement and is issued pursuant to and entitled to the benefits and security of
the Credit Agreement to which reference is hereby made for a more complete
statement of the terms and conditions upon which the Competitive Bid Loans
evidenced hereby were made or are made and are to be repaid. This Note is
subject to certain restrictions on transfer or assignment as provided in the
Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Competitive Bid Loans upon the terms and conditions specified therein.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on
demand at the rates per annum set forth in Article II of the Credit Agreement,
or the maximum rate permitted under applicable law, if lower, until such
principal and interest have been paid in full. Further, in the event of such
acceleration, this Note, and all other indebtedness of the Borrower to the
Lender shall become immediately due and payable, without presentation, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees,
and interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year
for the actual number of days in the interest period.
Except as permitted by Section 12.01 of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any other party hereto had no
property available for the satisfaction
<PAGE> 127
of the debt evidenced by this instrument, or until any other proceedings can be
had against any of them, and also their right, if any, to require the holder
hereof to hold as security for this Note any collateral deposited by any of
said Persons as security. Protest, notice of protest, notice of dishonor,
dishonor, demand or any other formality are hereby waived by all parties bound
hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST:
By:___________________________________
Name:______________________________
By:_______________ Title:______________________________
_____ Secretary
[SEAL]
<PAGE> 128
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Competitive Bid Loans made under the
within-described Credit Agreement to the Borrower, on the dates, in the
principal amounts, of the types, bearing interest at the rates and maturing on
the dates set forth below, subject to the payments and prepayments of principal
set forth below:
<TABLE>
<CAPTION>
Principal Maturity Amount Unpaid
Date Amount Interest Date Paid or Principal
Notation
of Loan of Loan Type of Loan Rate of Loan Prepaid Amount Made By
------- --------- ------------ -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 129
EXHIBIT F
FORM OF REVOLVING CREDIT NOTE
PROMISSORY NOTE
(Revolving Credit Note)
_______________(1) __________, __________
October __, 1994
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation having
its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of
___________________________________________________(2) (the "Lender"), in its
individual capacity, at the office of NationsBank of North Carolina, National
Association, as agent for the Lenders (the "Agent"), located at NationsBank
Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255 (or at such other
place or places as the Agent may designate) at the times set forth in the Credit
Facilities and Reimbursement Agreement dated of even date herewith among the
Borrower, the financial institutions party thereto (collectively, the "Lenders")
and the Agent (as amended and supplemented and in effect from time to time, the
"Credit Agreement"; all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Credit Agreement), in lawful
money of the United States of America, in immediately available funds, the
principal amount of [______________________________________________](3) DOLLARS
($__________)(1) or, if less than such principal amount, the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Lender to the
Borrower pursuant to the Credit Agreement on the Revolving Credit Termination
Date or such earlier date as may be required pursuant to the terms of the Credit
Agreement, and to pay interest from the date hereof on the unpaid principal
amount hereof, in like money, at said office, on the dates and at the rates
provided in Article II of the Credit Agreement. All or any portion of the
principal amount of such Loans may be prepaid as provided in the Credit
Agreement.
_______________________________
(1) Insert Lender's Revolving Credit Commitment in Arabic numerals.
(2) Insert name of Lender in capital letters.
(3) Insert Lender's Revolving Credit Commitment in words.
<PAGE> 130
This Note is one of the Revolving Credit Notes in the aggregate
principal amount of $60,000,000 referred to in the Credit Agreement and is
issued pursuant to and entitled to the benefits and security of the Credit
Agreement to which reference is hereby made for a more complete statement of
the terms and conditions upon which the Loans evidenced hereby were or are made
and are to be repaid. This Note is subject to certain restrictions on transfer
or assignment as provided in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Revolving Credit Loans upon the terms and conditions specified therein.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on
demand at the rates per annum set forth in Article II of the Credit Agreement,
or the maximum rate permitted under applicable law, if lower, until such
principal and interest have been paid in full. Further, in the event of such
acceleration, this Note, and all other indebtedness of the Borrower to the
Lender shall become immediately due and payable, without presentation, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees,
and interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year
for the actual number of days in the interest period.
Except as permitted by Section 12.01 of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any
<PAGE> 131
other party hereto had no property available for the satisfaction of the debt
evidenced by this instrument, or until any other proceedings can be had against
any of them, and also their right, if any, to require the holder hereof to hold
as security for this Note any collateral deposited by any of said Persons as
security. Protest, notice of protest, notice of dishonor, dishonor, demand or
any other formality are hereby waived by all parties bound hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST: By:________________________________________
Name:___________________________________
By:_______________ Title:__________________________________
_____ Secretary
[SEAL]
<PAGE> 132
EXHIBIT G
FORM OF SWING LINE NOTE
PROMISSORY NOTE
(Swing Line Note)
$5,000,000 __________, __________
October __, 1994
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation
having its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of NATIONSBANK OF NORTH
CAROLINA, NATIONAL ASSOCIATION, (the "Lender"), in its individual capacity, at
the office of NationsBank of North Carolina, National Association, as agent for
the Lenders (the "Agent"), located at NationsBank Plaza, 101 South Tryon
Street, Charlotte, North Carolina 28255 (or at such other place or places as
the Agent may designate) at the times set forth in the Credit Facilities and
Reimbursement Agreement dated of even date herewith among the Borrower, the
financial institutions party thereto (collectively, the "Lenders") and the
Agent (as amended and supplemented and in effect from time to time, the "Credit
Agreement"; all capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Credit Agreement), in lawful money of the
United States of America, in immediately available funds, the principal amount
of __________ MILLION AND NO/100 DOLLARS ($__________) or, if less than such
principal amount, the aggregate unpaid principal amount of all Swing Line Loans
made by the Lender to the Borrower pursuant to the Credit Agreement on the
Revolving Credit Termination Date or such earlier date as may be required
pursuant to the terms of the Credit Agreement, and to pay interest from the
date hereof on the unpaid principal amount hereof, in like money, at said
office, on the dates and at the rates provided in Article II of the Credit
Agreement. All or any portion of the principal amount of such Loans may be
prepaid as provided in the Credit Agreement.
This Note is the Swing Line Note referred to in the Credit Agreement
and is issued pursuant to and entitled to the benefits and security of the
Credit Agreement to which reference is hereby made for a more complete
statement of the terms and conditions upon which the Loans evidenced hereby
were or are made and are to be repaid. This Note is subject to certain
restrictions on transfer or assignment as provided in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and
G-1
<PAGE> 133
for prepayments of Swing Line Loans upon the terms and conditions specified
therein.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on
demand at the rates per annum set forth in Article II of the Credit Agreement,
or the maximum rate permitted under applicable law, if lower, until such
principal and interest have been paid in full. Further, in the event of such
acceleration, this Note, and all other indebtedness of the Borrower to the
Lender shall become immediately due and payable, without presentation, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees,
and interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year
for the actual number of days in the interest period.
Except as permitted by Section 12.01 of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any other party hereto had no
property available for the satisfaction of the debt evidenced by this
instrument, or until any other proceedings can be had against any of them, and
also their right, if any, to require the holder hereof to hold as security for
this Note any collateral deposited by any of said Persons as security.
Protest, notice of protest, notice of dishonor, dishonor, demand or any other
formality are hereby waived by all parties bound hereon.
G-2
<PAGE> 134
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST: By:________________________________________
Name:___________________________________
By:_______________ Title:__________________________________
_____ Secretary
[SEAL]
G-3
<PAGE> 135
EXHIBIT H
INTEREST RATE SELECTION NOTICE
To: NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Joyce Ruppe, Agency Services
Reference is hereby made to the Credit Facilities and Reimbursement
Agreement dated as of October __, 1994 (the "Credit Agreement") among Hanover
Direct, Inc. (the "Borrower"), the Lenders (as defined in the Credit
Agreement), and NationsBank of North Carolina, National Association, as Agent
for the Lenders ("Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Credit Agreement.
The Borrower through its Authorized Representative hereby confirms its
prior notice of a selection of a type of Loan and Interest Period given to the
Agent by telephone at __________ __.m. on _________________, 199__ to the
following effect in respect of Revolving Credit Loans:
<TABLE>
<CAPTION>
Type of Loan Interest Effective
(Check One) Period(1) Amount(2) Date(3)
----------- ------ --------- ---------
<S> <C> <C> <C>
LIBOR Loan _____
Base Rate Loan _____
</TABLE>
----------------
(1) For any LIBOR Loan, one, two, three or six months.
(2) Must be $5,000,000 or a multiple of $1,000,000 in excess
thereof.
(3) At least three (3) LIBOR Business Days after date of
telephonic notice if a LIBOR Loan; may be same Business Day in
case of a Base Rate Loan.
H-1
<PAGE> 136
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article
VII of the Agreement and in the Loan Documents (other than those expressly
stated to refer to a particular date) are true and correct as of the date
hereof except that (a) the representations and warranties set forth in Section
7.01(d) and (e) of the Agreement shall be deemed to include and take into
account any merger or consolidation permitted under Section 9.06 of the
Agreement and references therein to Schedules 7.01(d) and 7.01(e) shall be
deemed to refer to such Schedules as amended by Supplemental Schedules 7.01(d)
and 7.01(e) attached hereto and (b) the reference to the financial statements
in Section 7.01(f)(i) of the Agreement are to those financial statements most
recently delivered to you pursuant to Section 8.01 of the Agreement; and
3. After giving effect to Loans requested hereby, (i) the sum of
all Outstandings will not exceed the Total Revolving Credit Commitment and (ii)
Swing Line Outstandings will not exceed $5,000,000.
HANOVER DIRECT, INC.
BY:_____________________________________
Authorized Representative
H-2
<PAGE> 137
Supplemental Schedule 7.01(d)
Subsidiaries
Schedule 7.01(d) of the Agreement shall be amended hereby as follows
(if no amendment to Schedule 7.01(d) is necessary, indicate "Not Applicable"):
H-3
<PAGE> 138
Supplemental Schedule 7.01(e)
Investments in Other Persons
Schedule 7.01(e) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 7.01(e) is necessary, indicate "Not Applicable"):
H-4
<PAGE> 139
EXHIBIT I
FORM OF COMPETITIVE BID QUOTE REQUEST
[Date]
To: NationsBank of North Carolina, National
Association,as Agent
Attention: Joyce Ruppe, Agency Services
Re: Competitive Bid Quote Request
Pursuant to Section 2.03 of the Credit Facilities and Reimbursement
Agreement dated as of October __, 1994 (as modified and supplemented and in
effect from time to time, the "Credit Agreement") among Hanover Direct, Inc.,
the Lenders named therein and NationsBank of North Carolina, National
Association, as agent, we hereby give notice that we request Competitive Bid
Quotes for the following proposed Competitive Bid Borrowing(s):
<TABLE>
Borrowing Quotation Interest
Date Date (1) Amount (2) Period (3)
--------- ---------- ---------- ----------
<S> <C> <C> <C>
</TABLE>
-----------------------------------------
(1) Business Day immediately preceding Borrowing Date.
(2) Each amount must be $5,000,000 or a multiple of $1,000,000 in
excess thereof.
(3) A period of no less than 7 nor more than 180 days after the making
of such Competitive Bid Loan and ending on a Business Day.
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Hanover Direct, Inc.
By:_____________________________________
Name:________________________________
Title:_______________________________
I-1
<PAGE> 140
EXHIBIT J
FORM OF COMPETITIVE BID QUOTE
To: NationsBank of North Carolina, National Association, as Agent
Attention: Joyce Ruppe, Agency Services
Re: Competitive Bid Quote to Hanover Direct, Inc. (the "Borrower")
The Competitive Bid Quote is given in accordance with Section 2.03 of
the Credit Facilities and Reimbursement Agreement dated as of October __, 1994
(as modified and supplemented and in effect from time to time, the "Credit
Agreement") among Hanover Direct, Inc., the Lenders named therein and
NationsBank of North Carolina, National Association, as agent. Terms defined in
the Credit Agreement are used herein as defined therein.
In response to the Borrower's Competitive Bid Quote Request dated
______________, 199__, we hereby make the following Competitive Bid Quote(s) on
the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount(s), for the following interest
Period(s) and at the following rate(s):
<TABLE>
Borrowing Quotation Interest
Date (1) Date (1) Amount (2) Period (3)
---------- -------- ---------- -----------
Rate (4)
<S> <C> <C> <C>
</TABLE>
-----------------------------------------
(1) As specified in the related Competitive Bid Quote Request
(2) The principal amount bid for each Interest Period may not exceed
the principal amount requested. Bids must be made for at least $1,000,000 or a
multiple of $100,000 in excess thereof.
(3) A period of not less than 7 nor more than 180 days after the
making of such Competitive Bid Loan and ending on a Business Day, as specified
in the related Competitive Bid Quote Request.
(4) Specify rate of interest per annum (rounded to the nearest 1/100
of 1%).
J-1
<PAGE> 141
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit
Agreement, irrevocably obligate(s) us to make the Competitive Bid Loan(s) for
which any offer(s) (is/are) accepted, in whole or in part.
Dated: ______________, 199_
Very truly yours,
[NAME OF LENDER]
By:_____________________________________
Authorized Officer
J-2
<PAGE> 142
EXHIBIT K
FORM OF OPINION OF COUNSEL TO THE BORROWER
AND THE GUARANTORS
[Copy of Opinion delivered at Closing is attached]
K-1
<PAGE> 143
[WHITMAN BREED ABBOTT & MORGAN LETTERHEAD]
(212) 351-3000
October 12, 1994
Each of the Lenders party to the
Credit Agreements referenced below and
NationsBank of North Carolina,
National Association, as Agent
NationsBank Plaza
101 South Tryon Street
Charlotte, North Carolina 28255
RE: $60,000,000 REVOLVING CREDIT FACILITY PROVIDED TO HANOVER DIRECT, INC.
$20,000,000 REVOLVING CREDIT FACILITY PROVIDED TO HANOVER DIRECT, INC.
Gentlemen:
We have acted as counsel to Hanover Direct, Inc. (the
"Company") in connection with each of the revolving credit facilities,
competitive bid facilities, swing line facility and letter of credit facility
(collectively, the "Credit Facilities") being made available by you to the
Company on this date in the maximum aggregate principal amount at any time
outstanding of $80,000,000 pursuant to (i) the $60,000,000 Credit Facilities
and Reimbursement Agreement of even date herewith between you and the Company
(the "Credit Facilities and Reimbursement Agreement") and (ii) the $20,000,000
Revolving Credit and Term Loan Agreement of even date herewith between you and
the Company (the "Revolving Credit and Term Loan Agreement" and collectively,
with the Credit Facilities and Reimbursement Agreement, the "Credit
Agreements").
We have been requested by the Company to deliver this opinion
to each of the Lenders party to the Credit Agreements and NationsBank of North
Carolina, National Association, as Agent, in accordance with the condition set
forth in Section 6.01 of the
<PAGE> 144
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -2- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
Credit Facilities and Reimbursement Agreement and Section 4.01 of the Revolving
Credit and Term Loan Agreement. All capitalized terms not otherwise defined
herein shall have the meanings assigned thereto in the Credit Agreements.
We have also acted as counsel to each Guarantor in connection
with the Guaranty Agreement of even date herewith between the Agent and each
Guarantor (the "Guaranty Agreement").
As such counsel, we have reviewed the following documents:
1. the Credit Agreements;
2. the Revolving Credit Notes executed under each Credit
Agreement;
3. the Competitive Bid Notes executed under each Credit
Agreement;
4. the Swing Line Note;
5. the Guaranty Agreement; and
6. the Subordination Agreement.
All of the foregoing documents are collectively referred to hereinafter as the
"Loan Documents"; and the Credit Agreements and the Notes executed under each
Credit Agreement are collectively referred to hereinafter as the "Company Loan
Documents."
We have examined the Loan Documents and the originals or
certified, photostatic or facsimile copies of such records and other documents
as we have deemed relevant and necessary as the basis for the opinions set
forth below.
In such examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures other than those of the
Company and each Guarantor, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted
to us as certified,
<PAGE> 145
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -3- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
photostatic or facsimile copies and the authenticity of the originals of such
copies.
As to various questions of fact material to the opinions
rendered herein, we have relied upon the statements and representations in the
documents examined by us. We have assumed the due execution and delivery,
pursuant to due authorization, of the documents that we have examined by each
party thereto other than the Company and the Guarantors, that each such other
party has the full power, authority and legal right to enter into and perform
its obligations under each such document to which it is a party, that each such
document constitutes the valid and legally binding obligation of each such
other party, enforceable against such party in accordance with its terms, and
that all necessary consents, approvals, authorizations, registrations,
declarations and filings (governmental or otherwise) and all other conditions
precedent with respect to the legal and valid execution and delivery of, and
performance under, the documents that we have examined by each party thereto
other than the Company and the Guarantors have been made or satisfied or have
occurred and are in full force and effect.
Based upon our examination, as described above, and subject to
the assumptions and qualifications stated herein, we are of the opinion that:
1. The Company is a corporation duly incorporated, and in
good standing and has a legal corporate existence under the laws of the State
of Delaware and is qualified to transact business as a foreign corporation and
is in good standing in the State of New Jersey. The Company has the corporate
power and authority to enter into and perform its obligations under each of the
Company Loan Documents and to consummate the transactions contemplated thereby.
2. Each Guarantor that is incorporated in the State of
Delaware is a corporation duly incorporated and in good standing and has a
legal corporate existence under the laws of the State of Delaware; each
Guarantor that is incorporated in the State of New York (other than H.H.B.K.,
Inc. and H&H 1600 Broadway Corp. as to which we express no opinion) is a duly
incorporated and subsisting corporation under the laws of the State of New
York;
<PAGE> 146
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -4- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
each Guarantor that is incorporated in the State of California is authorized to
exercise all its rights and privileges and is in good standing in the State of
California; each Guarantor that is incorporated in the State of New Jersey is
an existing corporation in the State of New Jersey; each Guarantor that is
incorporated in the Commonwealth of Pennsylvania is presently a subsisting
corporation in the Commonwealth of Pennsylvania and no certificate of
dissolution has been filed with respect to such Guarantor; each Guarantor that
is incorporated in the Commonwealth of Virginia is an organized and existing
corporation under the laws of the Commonwealth of Virginia and is in good
standing in the Commonwealth of Virginia; and each Guarantor that is
incorporated in the State of Wisconsin has filed its most recent annual report
and has not filed any articles of dissolution. Each Guarantor that is listed
on Schedule 7.01(d) to the Credit Facilities and Reimbursement Agreement as
qualified to transact business as a foreign corporation in the State of
California is authorized to transact business in the State of California and is
in good legal standing in such state; each Guarantor that is listed on Schedule
7.01(d) to the Credit Facilities and Reimbursement Agreement as qualified to
transact business as a foreign corporation in the State of New Jersey (other
than H.H.B.K., Inc. as to which we express no opinion) has an authorization to
do business in the State of New Jersey that is still in full force and effect
and all annual reports required to be filed with such state are current; each
Guarantor that is listed on Schedule 7.01(d) to the Credit Facilities and
Reimbursement Agreement as qualified to transact business as a foreign
corporation in the Commonwealth of Pennsylvania is presently a subsisting
corporation in the Commonwealth of Pennsylvania; each Guarantor that is listed
on Schedule 7.01(d) to the Credit Facilities and Reimbursement Agreement as
qualified to transact business as a foreign corporation in the State of Texas
has filed an application for certificate of authority to transact business in
the State of Texas and no certificate of withdrawal has been issued; and each
Guarantor that is listed on Schedule 7.01(d) to the Credit Facilities and
Reimbursement Agreement as qualified to transact business as a foreign
corporation in the Commonwealth of Virginia has a certificate of authority to
do business in the Commonwealth of Virginia that is still is full force. Each
Guarantor has corporate power and
<PAGE> 147
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -5- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
authority to enter into the Guaranty Agreement and to perform its obligations
thereunder.
3. The execution and delivery by the Company of the Loan
Documents to which it is a party and the performance by the Company of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company. Each of the Loan Documents to
which the Company is a party has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4. The execution and delivery by each Guarantor of the
Guaranty Agreement and the Subordination Agreement and the performance by such
Guarantor of the transactions contemplated thereby have been duly authorized by
all necessary corporate action on the part of such Guarantor. Each of the
Guaranty Agreement and the Subordination Agreement has been duly executed and
delivered by each Guarantor and constitutes the valid and legally binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms.
5. (a) Neither the execution or delivery of, nor performance
by the Company or any Guarantor of its respective obligations under, the Loan
Documents to which it is a party, does or will (i) violate the charter or
by-laws of the Company or of any Guarantor or (ii) violate, result in a breach
of or a default under, or result in the creation of any Lien under, any
agreement identified in the list of the Company and Guarantor contracts
attached hereto.
(b) Neither the execution or delivery by the Company or any
Guarantor of the Loan Documents to which it is a party nor the consummation by
the Company or any Guarantor of the transactions contemplated thereby will (i)
require any consent, approval or authorization of, or any registration,
declaration or filing with, the State of New York or the United States of
America, or any of their respective agencies or (ii) violate (A) the General
Corporation Law of the State of Delaware or any statute or regulation of the
State of New York, the State of New Jersey or the United States of America
applicable to the Company
<PAGE> 148
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -6- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
or (B) any court or administrative order, writ, judgment or decree which names
the Company or any Guarantor and is specifically directed to it or its property
and of which we have knowledge (which is based solely on a review of our
litigation docket and a certificate of the Company, dated today and delivered
to you).
6. To our knowledge, which is based solely on a review of our
litigation docket and a certificate of the Company, dated today and delivered
to you, except as disclosed in Schedule 7.01(j) to the Credit Facilities and
Reimbursement Agreement and/or Schedule 5.01(j) to the Revolving Credit and
Term Loan Agreement, there is no suit, proceeding or investigation pending or
overtly threatened in any court or by or before any regulatory commission,
board or other administrative or governmental agency or arbitration body
against the Company or any Guarantor which questions the validity of the Loan
Documents or which, if adversely determined, would materially adversely affect
the ability of the Company and the Guarantors to perform their obligations
thereunder or would have a Material Adverse Effect.
7. None of the provisions of the Loan Documents violate any
laws of the State of New York relating to usury.
8. The authorization, issuance and sale of the Notes, in the
manner contemplated by the Credit Agreements, will not involve any violation of
Regulation G, T, U or X or any other rule or regulation of the Board of
Governors of the Federal Reserve System promulgated pursuant to Section 7 of
the Securities Exchange Act of 1934, as amended.
In giving the opinions expressed above, we express no opinion
as to:
(a) the enforceability of any provision releasing,
exculpating or exempting a party from, or requiring indemnification of
a party for, liability for its own action or inaction, to the extent
the action or inaction involves gross negligence, recklessness,
willful misconduct or unlawful conduct;
<PAGE> 149
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -7- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
(b) the existence of, or the right, title or interest of the
Company in, to or under, any property;
(c) the creation, perfection or priority of any security
interest in (or other lien on) any property or the enforceability of
any provision contained in the Loan Documents which purports to create
any such security interest;
(d) the enforceability of any purported waiver by any person
of any right granted pursuant to statute, which, by the terms of such
statute, may not be waived;
(e) the effectiveness of any power of attorney given under
the Loan Documents to the extent it is intended to be binding on
transferees;
(f) the waiver of a claim based on the inconvenience of a
forum set forth in any of the Loan Documents;
(g) any sections of the Loan Documents, relating to the
submission to jurisdiction, insofar as it purports to confer subject
matter jurisdiction on a United States District Court to adjudicate
any controversy relating to the Loan Documents in any circumstance in
which such court would not have subject matter jurisdiction;
(h) any sections of the Loan Documents which purport to
entitle the Agent or any Lender to apply payments to liabilities as
such Agent or any Lender may determine, regardless of any designation
made by the Borrower or any Guarantor as to which liability any such
payment relates; and
(i) any sections of the Loan Documents which state that
the Agent or any Lender shall be deemed to have exercised its rights
of set-off at the time of the occurrence of an Event of Default even
though any notation therefor is entered on the records of such Agent
or Lender subsequent thereto or which require the Borrower to deposit
cash with the Agent in an amount equal to any Letter of Credit
Outstandings, as collateral security, upon any demand
<PAGE> 150
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -8- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
by the Agent or any Lender upon or after the occurrence of any Event
of Default.
Our opinions in paragraphs 3, 4 and 5 are subject to (a)
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar laws which relate to or affect creditors' rights
generally and (b) general principles of equity, including (1) the possible
unavailability of specific performance, injunctive relief or any other
equitable remedy and (2) concepts of materiality, reasonableness,
conscionability, good faith and fair dealing.
Our opinion as to the validity, binding effect and
enforceability of the Guaranty Agreement is also subject to the limitation that
we express no opinion as to the applicability to, or effect upon, the
obligations of any Guarantor under the Guaranty Agreement of (a) the provisions
of the law of the state of incorporation of any Guarantor restricting
dividends, loans or other distributions by a corporation for the benefit of its
shareholders or (b) the adequacy of the benefits or consideration received by
any Guarantor in exchange for undertaking such obligations.
Our opinions expressed herein as to the enforceability of any
of the Loan Documents may be further limited by:
(a) limitations on the right of a lender to exercise remedies
or impose charges or penalties for late payments or other defaults by
a borrower if it is determined that (i) the defaults are not material,
such penalties bear no reasonable relationship to the damage suffered
by the lender as a result of such delinquencies or defaults, or it
cannot be demonstrated that the enforcement of such restrictions or
burdens are reasonably necessary for the protection of the creditor,
(ii) the creditor's enforcement of the covenants or provisions under
these circumstances would violate the creditor's implied covenant of
good faith and fair dealing, or (iii) the lender has not complied with
applicable procedural requirements;
(b) limitations imposed by court decisions on granting strict
enforcement of certain covenants and provisions in
<PAGE> 151
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -9- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
debt instruments (including default clauses) absent a showing of
damage to a lender or impairment of the borrower's ability to pay; and
(c) compliance with, and limitations imposed by, procedural
requirements of state or federal law relating to the exercise of
remedies by a lender.
Our opinion as to the enforceability of the Loan Documents is
also subject to the qualification that certain provisions contained therein may
not be enforceable, but, in our opinion (which is based upon the assumptions
and subject to the qualifications set forth above), such unenforceability will
not render the Loan Documents invalid as a whole or substantially interfere
with the practical realization of the principal benefits intended to be
provided thereby.
Our opinions in paragraphs 1 and 2 as to good standing, legal
existence and/or foreign qualification, as appropriate, of the Company and the
Guarantors in their respective jurisdictions of incorporation and foreign
qualification are based solely on certificates of the Secretary of State of
each of the respective jurisdictions.
In connection with the above, we wish to point out that (a) a
holder of the Notes may, under certain circumstances, be called upon to prove
the outstanding amount of the obligations evidenced thereby, (b) provisions of
the Loan Documents which permit the independent exercise by each Lender of
rights, powers and remedies provided for therein may be limited to require the
exercise thereof by the Lenders acting jointly and in a manner that would not
give rise to or result in inconsistent obligations or duties on the part of the
parties thereto, and (c) the enforceability of provisions in the Loan Documents
to the effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
The foregoing opinions are limited to the Federal laws of the
United States of America and the laws of the State of New York and the General
Corporation Law of the State of Delaware and, solely with respect to the
opinion set forth in numbered paragraph 5(b)(ii)(A), the laws of the State of
New Jersey.
<PAGE> 152
WHITMAN BREED ABBOTT & MORGAN
Each of the Lenders -10- October 12, 1994
party to the Credit
Agreements referenced
below and NationsBank
of North Carolina,
National Association,
as Agent
Our opinions contained herein are based solely upon facts,
documents, undertakings, representations, laws, rules, regulations, ordinances
and interpretations as they exist as of the date hereof and, as to facts, as
they have been represented to us or assumed by us as of the date hereof, as set
forth herein. All of the above are subject to change and, in some cases, such
changes may take effect either prospectively or retroactively. We express no
opinion as to the matters set forth herein in respect of any such change; our
opinions contained herein are rendered only as of the date hereof and we
undertake no obligation to update our opinions after the date hereof.
Our opinions contained herein are rendered solely for your
information in connection with the Loan Documents and the Credit Facilities and
may not be relied upon in any manner by any other person, entity or agency, or
by you for any other purpose. Without our prior written consent our opinions
herein shall not be quoted or otherwise included, summarized or referred to in
any publication or document, in whole or in part, for any purposes whatsoever,
or furnished to any other person, entity or agency, except as may be required
by you by applicable law or regulation or request of regulatory agencies to
which you are subject, provided that, with respect to any such furnishment of a
copy of this opinion to any person other than the Office of the Comptroller of
the Currency ("OCC") in connection with any OCC audit, you shall have received
an opinion of counsel reasonably satisfactory to us to the effect that such
quotation, inclusion, summary, reference or furnishment is legally required by
applicable law.
Very truly yours,
/s/ Whitman Breed Abbott & Morgan
<PAGE> 153
HANOVER DIRECT, INC. AND GUARANTORS
MATERIAL CONTRACTS LIST
Plan of Agreement and Merger dated as of April 15, 1993 between The Horn &
Hardart Company* and Hanover Direct, Inc.
Plan of Agreement and Merger dated as of April 15, 1993 between The Hanover
Companies* and Hanover Direct, Inc.
Indenture between the Company and First Trust National Association, as Trustee,
dated as of August 17, 1993.
Registration Rights Agreement dated as of August 17, 1993 by and between the
Company* and Sun Life Insurance Company of America ("Sun Life").
Warrant Agreement dated as of May 9, 1991 between the Company* and Sun Life, as
amended by a First Amendment thereto, dated as of July 8, 1991, and a letter
agreement, dated as of February 16, 1994.
Warrant Agreement dated as of July 8, 1991 between the Company* and Sun Life,
as amended by a letter agreement, dated as of February 16, 1994.
Warrant Agreement dated as of October 25, 1991 between the Company* and North
American Resources ("NAR").
Registration Rights Agreement dated as of July 8, 1991 among the Company*, NAR
and Intercontinental Mining & Resources Limited ("IMR").
Shareholders' Agreement dated October 25, 1991 between the Company* and NAR.
Definitive Agreement dated July 20, 1992 between the Company* and NAR.
Form of Warrant Agreement dated as of January 1, 1994 between the Company and
Sears Shop At Home Services, Inc. ("Sears").
Stock Purchase Agreement dated as of July 8, 1991 among the Company* and NAR.
Amendment to the Stock Purchase Agreement dated as of October 14, 1991 between
the Company* and NAR.
__________________________________
* Hanover Direct, Inc. is the successor by merger to The Horn & Hardart
Company and The Hanover Companies.
<PAGE> 154
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").
Amendment to the Account Purchase Agreement dated as of July 12, 1993 among the
Company*, HDPI, Brawn and GECC.
Second Amended and Restated Loan and Security Agreement dated as of October 27,
1993 among Congress Financial Corporation, HDPI, Brawn, GBM, Gump's Corp.,
TCSA, Inc., SDSA, Inc. and Tweeds, as amended to date.
Executive Employment Agreement dated as of October 25, 1991 among the Company*,
HDPI and Jack E. Rosenfeld.
Stock Option Agreement dated as of January 1, 1992 between the Company* and
Jack E. Rosenfeld, as amended.
Registration Rights Agreement dated as of October 25, 1991 between the Company*
and Jack E. Rosenfeld.
Employment Agreement dated as of October 14, 1991 between the Company* and
Michael P. Sherman.
Amendment No. 1 to the Employment Agreement dated as of June 18, 1993 between
the Company and Michael P. Sherman.
Registration Rights Agreement dated as of October 14, 1991 between the Company*
and Michael P. Sherman.
Employment Agreement dated as of October 14, 1991 between the Company* and
Wayne P. Garten.
Amendment No. 1 to the Employment Agreement dated as of June 18, 1993 between
the Company and Wayne P. Garten.
Registration Rights Agreement dated as of October 14, 1991 between the Company*
and Wayne P. Garten.
Form of Indemnification Agreement among the Company* and each of the Company's
directors and executive officers.
License Agreement dated as of January 1, 1994 between Hanover Ventures, Inc.
and Sears.
__________________________________
* Hanover Direct, Inc. is the successor by merger to The Horn & Hardart
Company and The Hanover Companies.
-2-
<PAGE> 155
U.S. Purchase Agreement dated March 30, 1994 among the Company*, Sun Life, and
each of the underwriters named in Schedule A thereto, for whom Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Alex. Brown & Sons
Incorporated are acting as representatives.
-3-
<PAGE> 156
EXHIBIT L
FORM OF COMPLIANCE CERTIFICATE
As of __________, 19__
NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC1002-06-19
101 South Tryon Street, 6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Ms. Joyce Ruppe, Agency Services
Reference is hereby made to the Credit Facilities and Reimbursement
Agreement dated as of October __, 1994 and the Revolving Credit and Term Loan
Agreement dated as of October __, 1994 (collectively the "Credit Agreements")
among Hanover Direct, Inc. (the "Borrower"), the Lenders (as defined in the
Credit Agreements) and NationsBank of North Carolina, National Association, as
Agent for the Lenders ("Agent") under each Credit Agreement. Capitalized terms
used but not defined herein shall have the respective meanings therefor set
forth in the Credit Agreements. The undersigned, a duly authorized and acting
Authorized Representative, hereby certifies to you as of the date set forth
above as follows:
1. Calculations:
A. Compliance with Section 9.01 of the Credit Facilities and
Reimbursement Agreement and Section 7.01 of the Revolving
Credit and Term Loan Agreement: Consolidated Fixed Charge
Ratio
1. Consolidated EBITDA (sum of a, b,
c, d and e): $__________
a. Consolidated Net Income $__________
b. Consolidated Interest Expense $__________
c. Tax Expense $__________
d. Depreciation and amortization $__________
e. To the extent deducted in
a, b, or c above, lease,
rental and all other payments
made in respect of or in
connection with operating
leases $__________
L-1
<PAGE> 157
2. Capital Expenditures $__________
3. Difference of Item 1 less Item 2 $__________
4. Consolidated Fixed Charges
(sum of a, b, c and d) $__________
a. Consolidated Interest Expense $__________
b. Principal amount of Consoli-
dated Funded Indebtedness
due and payable during
period $__________
c. Dividends and distributions
paid during such period $__________
d. Repurchases and redemptions
of stock during such period $__________
5. Ratio of Item 3 to Item 4 ____ to 1.00
REQUIRED: AT ANY TIME DURING ANY FOUR-QUARTER PERIOD ENDING DURING
THE PERIODS FORTH BELOW, THE CONSOLIDATED FIXED CHARGE RATIO SHALL NOT
BE EQUAL TO OR LESS THAN THE RATIO SET FORTH OPPOSITE SUCH PERIOD:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
FOUR-QUARTER PERIOD ENDING
JULY 1, 1995 1.25 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 29], 1996 1.50 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 28], 1997 AND THEREAFTER 2.00 TO 1.00
</TABLE>
L-2
<PAGE> 158
B. Compliance with Section 9.02 of the Credit Facilities and
Reimbursement Agreement and Section 7.02 of the Revolving
Credit and Term Loan Agreement: Consolidated Funded
Indebtedness to Consolidated EBITDA
1. Consolidated Funded Indebtedness $__________
2. Consolidated EBITDA (sum of a, b,
c and d): $__________
a. Consolidated Net Income $__________
b. Consolidated Interest Expense $__________
c. Tax Expense $__________
d. Depreciation and amortization $__________
3. Ratio of Item 1 to Item 2 ____ to 1.00
REQUIRED: AT ANY TIME DURING ANY FOUR-QUARTER PERIOD ENDING DURING
THE PERIODS SET FORTH BELOW, THE RATIO OF CONSOLIDATED FUNDED
INDEBTEDNESS TO CONSOLIDATED EBITDA FOR SUCH FOUR-QUARTER PERIOD SHALL
NOT BE EQUAL TO OR GREATER THAN THE RATIO SET FORTH OPPOSITE SUCH
PERIOD:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
FOUR-QUARTER PERIOD ENDING
APRIL 1, 1995 3.50 TO 1.00
FOUR-QUARTER PERIOD ENDING
JULY 1, 1995 3.00 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 29], 1996 AND THEREAFTER 2.75 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 28], 1997 AND THEREAFTER 2.25 TO 1.00
</TABLE>
C. Determination of Applicable Margin:
1. Consolidated Funded Indebtedness $__________
2. Consolidated EBITDA (sum of a, b,
c and d): $__________
a. Consolidated Net Income $__________
b. Consolidated Interest Expense $__________
c. Tax Expense $__________
d. Depreciation and amortization $__________
3. Ratio of Item 1 to Item 2 ____ to 1.00
L-3
<PAGE> 159
2. No Default
A. To the best knowledge of the undersigned, during the fiscal
quarter ended as of the date set forth above, (a) no Default
or Event of Default specified in Article X of the Credit
Facilities and Reimbursement Agreement or Article VIII of the
Revolving Credit and Term Loan Agreement has occurred or (b)
the following Default or Event of Default has occurred:________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
B. The Borrower proposes to take the following action with
respect to any such Default or Event of Default described
above:_________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Note, if no Default or Event of Default
has occurred, insert "Not Applicable").
The undersigned Authorized Officer hereby certifies that the
information set forth above is true, correct and complete as of the date
hereof.
IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, 19___.
HANOVER DIRECT, INC.
____________________________
Authorized Officer
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EXHIBIT M
FORM OF GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty Agreement" or the "Guaranty"),
dated as of October 12, 1994, is made by each of the undersigned (each a
"Guarantor" and collectively the "Guarantors") to NATIONSBANK OF NORTH
CAROLINA, NATIONAL ASSOCIATION, a national banking association, as Agent (the
"Agent") for each of the lenders now or hereafter party to the Credit
Agreements (as defined below) (each a "Lender" and collectively the "Lenders").
All capitalized terms not otherwise defined herein shall have the meanings
assigned thereto in the Credit Agreements.
W I T N E S S E T H:
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Credit Facilities and Reimbursement Agreement (the "Credit Facilities and
Reimbursement Agreement") of even date herewith among the Agent, the Lenders
and Hanover Direct, Inc. (the "Borrower"), to make available to the Borrower a
revolving credit facility in the maximum aggregate principal amount at any time
outstanding of $60,000,000, which will include (i) a standby letter of credit
facility of up to $35,000,000, (ii) a swing line facility of up to $5,000,000,
and (iii) a competitive bid facility, as such revolving credit facility is
evidenced by the promissory notes of the Borrower of even date herewith payable
to the respective Lenders, as the same may be amended, supplemented or replaced
(collectively the "Credit Facilities and Reimbursement Notes");
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Revolving Credit and Term Loan Agreement (the "Revolving Credit and Term
Loan Agreement" and collectively with the Credit Facilities and Reimbursement
Agreement, the "Credit Agreements") of even date herewith among the Agent, the
Lenders and the Borrower, to make available to the Borrower a revolving credit
facility in the maximum aggregate principal amount at any time outstanding of
$20,000,000, which will include a competitive bid facility, as such revolving
credit facility is evidenced by the promissory notes of the Borrower of even
date herewith payable to the respective Lenders, as the same may be amended,
supplemented or replaced (collectively the "Revolving Credit and Term Loan
Notes" and collectively with the Credit Facilities and Reimbursement Notes, the
"Notes");
WHEREAS, each Guarantor is a direct or indirect wholly-owned
Subsidiary of the Borrower;
WHEREAS, the Agent and the Lenders are unwilling to enter into the
Credit Agreements and to make any loans or advances or to issue letters of
credit thereunder unless each Guarantor guarantees to the Lenders payment of
the Borrower's Liabilities (as hereinafter defined);
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WHEREAS, each Guarantor will materially benefit from the loans and
advances to be made, and the letters of credit to be issued, under the Credit
Agreements, and each Guarantor is willing to enter into this Guaranty to
provide an inducement for the Lenders and the Agent to enter into the Credit
Agreements and for the Lenders to make loans and advances, and to issue letters
of credit, thereunder.
NOW, THEREFORE, in order to induce the Lenders and the Agent to enter
into the Credit Agreements and to make loans and advances to the Borrower, and
to issue letters of credit for the account of the Borrower, thereunder, each
Guarantor agrees as follows:
1. GUARANTY. For all purposes of this Guaranty Agreement,
"Borrower's Liabilities" means: (a) the Borrower's prompt payment in full,
when due or declared due and at all such times, of all amounts pursuant to the
terms of the Credit Agreements, the Notes, and all other Loan Documents
executed in connection with the Credit Agreements heretofore, now or at any
time or times hereafter owing, arising, due or payable from the Borrower to the
Lenders, including without limitation principal, interest, premium or fee
(including, but not limited to, loan fees and attorneys' fees and expenses);
and (b) the Borrower's prompt, full and faithful performance, observance and
discharge of each and every agreement, undertaking, covenant and provision to
be performed, observed or discharged by the Borrower under the Credit
Agreements and all other Loan Documents executed in connection therewith. Each
Guarantor hereby jointly and severally, unconditionally, absolutely,
continually and irrevocably guarantees to the Agent and the Lenders the
Borrower's Liabilities. Each Guarantor's obligations to the Agent and the
Lenders under this Guaranty Agreement are hereinafter collectively referred to
as the "Guarantor's Obligations"; provided, however, that the liability of
each Guarantor with respect to the Guarantor's Obligations shall not exceed at
any time the Maximum Amount (as hereinafter defined). The "Maximum Amount"
means 95% of (i) the fair salable value of the assets of a Guarantor as of the
date hereof minus (ii) the total liabilities of such Guarantor (including
contingent liabilities, but excluding liabilities of such Guarantor under this
Guaranty and any other Loan Documents executed by such Guarantor) as of the
date hereof; provided further, however, that if the calculation of the Maximum
Amount in the manner provided above as of the date payment is required of such
Guarantor pursuant to this Guaranty would result in a greater positive number,
then the Maximum Amount shall be deemed to be such greater positive number.
Each Guarantor agrees that it is jointly and severally, directly and
primarily liable for the Borrower's Liabilities.
2. PAYMENT. If the Borrower shall default in payment or
performance of any Borrower's Liabilities, whether principal, interest,
premium, fee (including, but not limited to, loan fees and attorneys' fees and
expenses), or otherwise, when and as the same shall become due, whether
according to the terms of the Credit
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Agreements, by acceleration, or otherwise, or upon the occurrence of any other
Event of Default under either Credit Agreement that has not been cured or
waived, then each Guarantor, upon demand thereof by the Agent or its successors
or assigns, will AS OF THE DATE OF THE AGENT'S DEMAND fully pay to the Agent,
for the benefit of the Agent and the Lenders, subject to any restriction set
forth in Section 1 hereof, an amount equal to all Guarantor's Obligations then
due and owing.
3. UNCONDITIONAL OBLIGATIONS. This is a guaranty of payment and
not of collection. The Guarantor's Obligations under this Guaranty Agreement
shall be joint and several, absolute and unconditional irrespective of the
validity, legality or enforceability of the Credit Agreements, the Notes or any
other Loan Document or any other guaranty of the Borrower's Liabilities, and
shall not be affected by any action taken under the Credit Agreements, the
Notes or any other Loan Document, any other guaranty of the Borrower's
Liabilities, or any other agreement between the Agent or the Lenders and the
Borrower or any other person, in the exercise of any right or power therein
conferred, or by any failure or omission to enforce any right conferred
thereby, or by any waiver of any covenant or condition therein provided, or by
any acceleration of the maturity of any of the Borrower's Liabilities, or by
the release or other disposal of any security for any of the Borrower's
Liabilities, or by the dissolution of the Borrower or the combination or
consolidation of the Borrower into or with another entity or any transfer or
disposition of any assets of the Borrower or by any extension or renewal of
either Credit Agreement, any of the Notes or any other Loan Document, in whole
or in part, or by any modification, alteration, amendment or addition of or to
either Credit Agreement, any of the Notes or any other Loan Document, any other
guaranty of the Borrower's Liabilities, or any other agreement between the
Agent or the Lenders and the Borrower or any other Person, or by any other
circumstance whatsoever (with or without notice to or knowledge of any
Guarantor) which may or might in any manner or to any extent vary the risks of
any Guarantor, or might otherwise constitute a legal or equitable discharge of
a surety or guarantor; it being the purpose and intent of the parties hereto
that this Guaranty Agreement and the Guarantor's Obligations hereunder shall be
absolute and unconditional under any and all circumstances and shall not be
discharged except by payment as herein provided.
4. CURRENCY AND FUNDS OF PAYMENT. Each Guarantor hereby
guarantees that the Guarantor's Obligations will be paid in lawful currency of
the United States of America and in immediately available funds, regardless of
any law, regulation or decree now or hereafter in effect that might in any
manner affect the Borrower's Liabilities, or the rights of the Agent or any
Lender with respect thereto as against the Borrower, or cause or permit to be
invoked any alteration in the time, amount or manner of payment by the Borrower
of any or all of the Borrower's Liabilities.
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5. EVENTS OF DEFAULT. In the event that (i) any Guarantor shall
file a petition to take advantage of any insolvency statute; (ii) any Guarantor
shall commence a proceeding for the appointment of a receiver, trustee,
liquidator or conservator of itself or of the whole or substantially all of its
property; (iii) any Guarantor shall file a petition or answer seeking
reorganization or arrangement or similar relief under the Federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state or similar law of any other country; (iv) a court of competent
jurisdiction shall enter an order, judgment or decree appointing a custodian,
receiver, trustee, liquidator or conservator of any Guarantor or of the whole
or substantially all of its properties, or approve a petition filed against any
Guarantor seeking reorganization or arrangement or similar relief under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state or similar law of any other country, or if,
under the provisions of any other law for the relief or aid of debtors, a court
of competent jurisdiction shall assume custody or control of any Guarantor or
of the whole or substantially all of its properties and such order, judgment,
decree, approval or assumption remains unstayed or undismissed for a period of
sixty (60) consecutive days; (v) there is commenced against any Guarantor any
proceeding or petition seeking reorganization, arrangement or similar relief
under the Federal bankruptcy laws or any other applicable law or statute of the
United States of America or any state, which proceeding or petition remains
unstayed or undismissed for a period of sixty (60) consecutive days; or (vi)
there shall occur an Event of Default under either Credit Agreement (each of
the foregoing an "Event of Default"), then notwithstanding any collateral that
the Lenders may possess from Borrower or any other guarantor of the Borrower's
Liabilities, or any other party, at the Agent's election and without notice
thereof or demand therefor, so long as such Event of Default shall be
continuing, the Guarantor's Obligations shall immediately become due and
payable.
6. SUITS. Each Guarantor from time to time shall pay to the
Agent for the benefit of the Lenders, on demand, at the Agent's place of
business set forth in the Credit Agreements, the Guarantor's Obligations as
they become or are declared due, and in the event such payment is not made
forthwith, the Agent or the Lenders or any of them may proceed to suit against
any one or more or all of the Guarantors. At the Agent's election, one or more
and successive or concurrent suits may be brought hereon by the Agent against
any one or more or all of the Guarantors, whether or not suit has been
commenced against the Borrower, any other guarantor of the Borrower's
Liabilities, or any other Person and whether or not the Agent or any Lender has
taken or failed to take any other action to collect all or any portion of the
Borrower's Liabilities.
7. SET-OFF AND WAIVER. Each Guarantor waives any right to assert
against the Agent and the Lenders as a defense, counterclaim, set-off, or cross
claim, any defense (legal or equitable), or other claim which such Guarantor
may now or at any time or times hereafter
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have against the Borrower, without waiving any additional defenses, set-offs,
counterclaims or other claims otherwise available to such Guarantor. If at any
time or times hereafter the Agent or any Lender employs counsel for advice or
other representation to enforce the Guarantor's Obligations that arise out of a
default hereunder or an Event of Default, then, in any of the foregoing events,
all of the reasonable attorneys' fees arising from such services and all
expenses, costs and charges in any way or respect arising in connection
therewith or relating thereto shall be jointly and severally paid by the
Guarantors to the Agent, on demand.
8. WAIVER; SUBROGATION.
(a) Each Guarantor hereby waives notice of the following events or
occurrences: (i) the Agent's acceptance of this Guaranty Agreement; (ii) the
Lenders' heretofore, now or from time to time hereafter loaning monies or
giving or extending credit to or for the benefit of the Borrower, whether
pursuant to the Credit Agreements or the Notes or any amendments,
modifications, or additions thereto, or alterations, substitutions,
refinancings or extensions thereof; (iii) the Agent, the Lenders or the
Borrower heretofore, now or at any time or times hereafter, obtaining,
amending, substituting for, releasing, waiving or modifying the Credit
Agreements, the Notes or any other Loan Documents; (iv) presentment, demand,
notices of default, non-payment, partial payment and protest; (v) the Agent or
the Lenders heretofore, now or at any time or times hereafter granting to the
Borrower (or any other party liable to the Lenders on account of the Borrower's
Liabilities) any indulgence or extensions of time of payment of the Borrower's
Liabilities; and (vi) the Agent or the Lenders heretofore, now or at any time
or times hereafter accepting from the Borrower or any other person, any partial
payment or payments on account of the Borrower's Liabilities or any collateral
securing the payment thereof or the Agent settling, subordinating,
compromising, discharging or releasing the same. Each Guarantor agrees that
the Agent and each Lender may heretofore, now or at any time or times hereafter
do any or all of the foregoing events or occurrences in such manner, upon such
terms and at such times as the Agent and each Lender, in its sole and absolute
discretion, deems advisable, without in any way or respect impairing,
affecting, reducing or releasing such Guarantor from the Guarantor's
Obligations, and each Guarantor hereby consents to each and all of the
foregoing events or occurrences.
(b) Each Guarantor hereby agrees that payment or performance by
such Guarantor of the Guarantor's Obligations under this Guaranty Agreement may
be enforced by the Agent on behalf of the Lenders upon demand by the Agent to
such Guarantor without the Agent being required, each Guarantor expressly
waiving any right it may have to require the Agent, to (i) prosecute collection
or seek to enforce or resort to any remedies against the Borrower or any other
guarantor of the Borrower's Liabilities, IT BEING EXPRESSLY UNDERSTOOD,
ACKNOWLEDGED AND AGREED TO BY EACH GUARANTOR THAT DEMAND UNDER THIS GUARANTY
AGREEMENT MAY BE MADE BY THE AGENT, AND THE PROVISIONS
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HEREOF ENFORCED BY THE AGENT, EFFECTIVE AS OF THE FIRST DATE ANY EVENT OF
DEFAULT OCCURS AND IS CONTINUING UNDER EITHER CREDIT AGREEMENT, or (ii) seek to
enforce or resort to any remedies with respect to any security interests, Liens
or encumbrances granted to the Agent by the Borrower or any other Person on
account of the Borrower's Liabilities or any guaranty thereof. Neither the
Agent nor any Lender shall have any obligation to protect, secure or insure any
of the foregoing security interests, Liens or encumbrances on the properties or
interests in properties subject thereto. The Guarantor's Obligations shall in
no way be impaired, affected, reduced, or released by reason of the Agent's or
any Lender's failure or delay to do or take any of the acts, actions or things
described in this Guaranty Agreement including, without limiting the generality
of the foregoing, those acts, actions and things described in this Section 8.
(c) Each Guarantor further agrees with respect to this Guaranty
Agreement that such Guarantor shall have no right of subrogation, reimbursement
or indemnity whatsoever, nor any right of recourse to security for the
Borrower's Liabilities. In addition, each Guarantor hereby waives and
renounces any and all rights it has or may have for subrogation, indemnity,
reimbursement or contribution against the Borrower for amounts paid under this
Guaranty Agreement. This waiver is expressly intended to prevent the existence
of any claim in respect to such reimbursement by any Guarantor against the
estate of the Borrower within the meaning of Section 101 of the United States
Bankruptcy Code, and to prevent each Guarantor from constituting a creditor of
the Borrower in respect of such reimbursement within the meaning of Section
547(b) of the United States Bankruptcy Code in the event of a subsequent case
involving the Borrower.
9. EFFECTIVENESS; ENFORCEABILITY. This Guaranty Agreement shall
be effective as of the date of the initial Advance under either Credit
Agreement, whichever shall be the earlier to occur, and shall continue in full
force and effect until the Borrower's Liabilities are finally and fully paid,
performed and discharged, the Lenders are no longer committed to make
additional loans and advances to the Borrower or to issue letters of credit on
behalf of the Borrower under the Credit Agreements, and the Agent gives each
Guarantor written notice of that fact at each Guarantor's address on the
signature pages hereto. This Guaranty Agreement shall be binding upon and
inure to the benefit of each Guarantor, the Agent and the Lenders and their
respective successors and assigns and heirs. Notwithstanding the foregoing, no
Guarantor may, without the prior written consent of the Agent, assign any
rights, powers, duties or obligations hereunder. Any claim or claims that the
Agent and the Lenders may at any time or times hereafter have against any
Guarantor under this Guaranty Agreement may be asserted by the Agent or any
Lender by written notice directed to any one or more or all of the Guarantors
at the address specified below. Each Guarantor warrants and represents to the
Agent for the benefit of the Agent and the Lenders that it is duly authorized
to execute, deliver and perform
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this Guaranty Agreement, that this Guaranty Agreement is legal, valid, binding
and enforceable against such Guarantor in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles; and that such Guarantor's
execution, delivery and performance of this Guaranty Agreement do not violate
or constitute a breach of any documents of corporate governance or agreement to
which such Guarantor is a party, or any applicable laws in each case, which
violation or breach could reasonably be expected to have a Material Adverse
Effect.
10. EXPENSES. Each Guarantor agrees to be liable for the payment
of all reasonable fees and expenses, including attorney's fees, incurred by the
Agent in connection with the negotiation, preparation or enforcement of this
Guaranty Agreement.
11. REINSTATEMENT. Each Guarantor agrees that this Guaranty
Agreement shall continue to be effective or be reinstated, as the case may be,
at any time payment received by the Agent under either Credit Agreement or this
Guaranty Agreement is rescinded or must be restored for any reason.
12. GOVERNING LAW.. THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
13. COUNTERPARTS. This Guaranty Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
constitute one and the same instrument.
14. RELIANCE. Each Guarantor represents and warrants to the
Agent, for the benefit of the Agent and the Lenders, that: (a) such Guarantor
has adequate means to obtain from Borrower, on a continuing basis, information
concerning Borrower and Borrower's financial condition and affairs and has full
and complete access to Borrower's books and records; (b) such Guarantor is not
relying on the Agent or any Lender, its or their employees, agents or other
representatives, to provide such information, now or in the future; (c) such
Guarantor is executing this Guaranty Agreement freely and deliberately, and
understands the obligations and financial risk undertaken by providing this
Guaranty; (d) such Guarantor has relied solely on the Guarantor's own
independent investigation, appraisal and analysis of Borrower and Borrower's
financial condition and affairs in deciding to provide this Guaranty and is
fully aware of the same; and (e) such Guarantor has not depended or relied on
the Agent or any Lender, its or their employees, agents or representatives, for
any information whatsoever concerning Borrower or Borrower's financial
condition and affairs or other matters material to such Guarantor's decision to
provide this Guaranty or for any counselling, guidance, or special
consideration or any promise therefor with respect to such decision. Each
Guarantor agrees that neither the Agent nor any Lender has any
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duty or responsibility whatsoever, now or in the future, to provide to any
Guarantor any information concerning Borrower or Borrower's financial condition
and affairs and that, if such Guarantor receives any such information from the
Agent or any Lender, its or their employees, agents or other representatives,
such Guarantor will independently verify the information and will not rely on
the Agent or any Lender, its or their employees, agents or other
representatives, with respect to such information.
15. CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY TRIAL AND
CERTAIN DAMAGES.
(a) IN THE EVENT THAT ANY ACTION, SUIT OR OTHER PROCEEDING IS
BROUGHT AGAINST ANY GUARANTOR BY OR ON BEHALF OF THE LENDERS TO ENFORCE THE
OBSERVANCE OR PERFORMANCE OF ANY OF THE PROVISIONS OF THIS GUARANTY AGREEMENT,
INCLUDING WITHOUT LIMITATION THE COLLECTION OF ANY AMOUNTS OWING HEREUNDER,
EACH SUCH GUARANTOR HEREBY IRREVOCABLY (i) CONSENTS TO THE EXERCISE OF
JURISDICTION OVER SUCH GUARANTOR AND ITS PROPERTY BY THE UNITED STATES DISTRICT
COURT AND THE COURTS OF THE STATE OF NEW YORK, AND (ii) WAIVES ANY OBJECTION
SUCH GUARANTOR MIGHT NOW OR HEREAFTER HAVE OR ASSERT TO THE VENUE OF ANY SUCH
PROCEEDING IN ANY COURT DESCRIBED IN CLAUSE (i) ABOVE.
(b) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY
OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
(c) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN
PARAGRAPH (A) OF THIS SECTION 15 ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY OTHER DAMAGES THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
[SIGNATURES ON FOLLOWING PAGE.]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first written above.
GUARANTORS:
BRAWN OF CALIFORNIA, INC.
COMPANY STORE HOLDINGS, INC.
D. M. ADVERTISING, INC.
GUMP'S HOLDINGS, INC.
HANOVER CATALOG HOLDINGS, INC.
HANOVER DIRECT PENNSYLVANIA, INC.
HANOVER DIRECT VIRGINIA, INC.
HANOVER FULFILLMENT OF VIRGINIA,
INC.
HANOVER HOLDINGS INC.
HANOVER REALTY INC.
HANOVER VENTURES, INC.
HENRE, INC.
TW ACQUISITIONS INC.
AMERICAN DOWN & TEXTILE COMPANY
THE COMPANY FACTORY, INC.
THE COMPANY OFFICE, INC.
THE COMPANY STORE, INC.
SCANDIA DOWN CORPORATION
SKANDIA DOWN SALES, INC.
SOUTHERN CALIFORNIA COMFORT
CORPORATION
GUMP'S BY MAIL, INC.
GUMP'S CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER FINANCE CORPORATION
HANOVER LIST MANAGEMENT, INC.
YORK FULFILLMENT COMPANY, INC.
TWEEDS, INC.
TWEEDS OF VERMONT, INC.
H.H.B.K., INC.
BC CORPORATION OF TENNESSEE, INC.
H & H 1600 BROADWAY CORP.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
Address:
_____________________________________
_____________________________________
_____________________________________
SIGNATURE PAGE 1 OF 2
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AGENT:
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION,as Agent for
the Lenders
By:______________________________
Name:_________________________
Title:________________________
Address:
NationsBank of North Carolina, National
Association
NationsBank Plaza, NC 1002-06-19 6th
Floor Charlotte, North
Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
With a copy to:
NationsBank of North Carolina, National
Association
Corporate Banking
767 Fifth Avenue, 5th Floor New York,
New York 10153-0083
Attention: Mr.Christopher
C. Browder, Vice
President
SIGNATURE PAGE 2 OF 2
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EXHIBIT N
FORM OF SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is made as of October 12, 1994 by and
among NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION, a national banking
association, as Agent (the "Agent") for each of the lenders (the "Lenders") now
or hereafter party to the Credit Agreements (as defined below) (the Agent and
the Lenders, together with their transferees, successors and assigns,
collectively referred to herein as the "Senior Creditors"), SUN LIFE INSURANCE
COMPANY OF AMERICA, a Maryland insurance corporation (together with its
transferees, successors and assigns, "Sun Life", and together with the
Indenture Trustee (as defined below), individually and collectively, the
"Junior Creditor"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"),
and each of the direct and indirect subsidiaries of Hanover executing a
signature page hereto. The Senior Creditors and Junior Creditor are sometimes
collectively referred to herein as "Creditors" and individually a "Creditor."
W I T N E S S E T H:
WHEREAS, Hanover (as successor to The Hanover Companies) has entered
into certain debt financing arrangements, pursuant to which Hanover has issued
and Junior Creditor has purchased from Hanover an aggregate of $20,000,000 in
principal amount of 9.25% Senior Subordinated Notes due August 1, 1998 (as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, exchanged, restated or replaced, the "Notes"); and
WHEREAS, payment of the obligations of Hanover to Junior Creditor
under the Notes has been guaranteed by the direct and indirect subsidiaries of
Hanover listed on Exhibit A annexed hereto (the "Subsidiary Guarantors") (such
guarantees of the Notes, collectively, the "Guarantees"); and
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Credit Facilities and Reimbursement Agreement of even date herewith among
the Agent, the Lenders and Hanover, to make available to Hanover a revolving
credit facility in the maximum principal amount at any time outstanding of
$60,000,000 (together with all schedules and exhibits thereto and as the same
may be amended, supplemented or restated from time to time, the "Credit
Facilities and Reimbursement Agreement," and collectively with all documents
now or hereafter delivered to the Agent by or on behalf of Hanover in
connection therewith, as the same may be amended, supplemented or restated from
time to time, the "Credit Facilities and Reimbursement Documents"); and
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Revolving Credit and Term Loan Agreement of even date herewith among the
Agent, the Lenders and Hanover, to make available to Hanover a revolving credit
facility in the maximum principal
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amount at any time outstanding of $20,000,000 (together with all schedules and
exhibits thereto and as the same may be amended, supplemented or restated from
time to time, the "Revolving Credit and Term Loan Agreement," and collectively
with all documents now or hereafter delivered to the Agent by or on behalf of
Hanover in connection therewith, as the same may be amended, supplemented or
restated from time to time, the "Revolving Credit and Term Loan Documents")
(the Credit Facilities and Reimbursement Documents and the Revolving Credit and
Term Loan Documents collectively referred to herein as the "Loan Documents");
and
WHEREAS, the Senior Creditors are unwilling to enter into the Loan
Documents and to make loans or advances or to issue letters of credit
thereunder unless the Junior Creditor enters into this Agreement to provide for
the terms and conditions of the subordination in favor of the Senior Creditors
of the obligations of Hanover to Junior Creditor in respect of the Junior Debt
(as defined below), and of any other persons now or hereafter obligated, as
borrower, guarantor or otherwise, in respect of all or any part of the Junior
Debt (Hanover and the Subsidiary Guarantors, together with any other persons so
obligated to Junior Creditor in respect of all or any part of the Junior Debt
and also obligated to Senior Creditor, as borrower, guarantor or otherwise, in
respect of all or any part of the obligations under the Loan Documents,
individually, an "Obligor" and, collectively, "Obligors") and related matters;
NOW THEREFORE, in consideration of the mutual benefits accruing to the
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used in this Subordination Agreement, the following terms shall
have the meanings ascribed to them below:
1.1 "Affiliate" shall have the meaning ascribed to such term in
the Credit Agreements.
1.2 "Agent" has the meaning specified in the preamble to this
Agreement and shall include any successor thereto or substitute therefor from
time to time acting in such capacity under the Credit Agreements or if there is
no agent for the Lenders thereunder, the holder or holders of a majority in
aggregate principal amount of indebtedness outstanding under the Credit
Agreements.
1.3 "Borrowers" shall have the meaning ascribed to such term in
the Credit Agreements.
1.4 "Credit Agreements" means collectively the Credit Facilities
and Reimbursement Agreement and the Revolving Credit and Term Loan Agreement.
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1.5 "Indenture" shall mean that certain Indenture dated as of
August 17, 1993, among The Horn & Hardart Company ("H&H"), Hanover, the
Subsidiary Guarantors and the Indenture Trustee, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.6 "Indenture Trustee" shall mean First Trust National
Association, as Trustee under the Indenture, any successor Trustee, and their
respective successors and assigns.
1.7 "Junior Creditor Agreements" shall mean, collectively, the
Notes (including any notes exchanged therefor), the Purchase Agreement dated on
or about the date hereof among H&H, Hanover, the Subsidiary Guarantors and Sun
Life, the Indenture, and all other agreements, documents and instruments now or
at any time hereafter executed and/or delivered by H&H, Hanover, the Subsidiary
Guarantors or any other person to, with or in favor of Junior Creditor in
connection therewith or related thereto, as all of the foregoing now exist or
may hereafter be amended, modified, supplemented, extended, renewed, exchanged,
restated or replaced.
1.8 "Junior Creditor Representative" shall mean the Indenture
Trustee.
1.9 "Junior Debt" shall mean all of the following evidenced by or
arising under or in connection with the Notes or the other Junior Creditor
Agreements to the extent relating to the Notes or the debt evidenced thereby:
all loans, obligations, liabilities, letters of credit, credit facilities and
other indebtedness of any kind, nature and description owing by any Obligor to
Junior Creditor, including principal, interest, charges, fees, premiums,
indemnities and expenses, whether as principal, surety, endorser, guarantor or
otherwise, whether now existing or hereafter arising, whether arising after the
commencement of any case with respect to any Obligor under the U.S. Bankruptcy
Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended, and
whether arising directly or howsoever acquired by Junior Creditor including
from any other person outright, conditionally or as collateral security, by
assignment, merger with any other person, participations or interests of Junior
Creditor in the obligations of any Obligor to others, or by assumption or
operation of law, or by way of a claim or right of contribution, exoneration,
reimbursement, indemnification, subrogation or otherwise, however evidenced,
and shall also include all amounts chargeable to any Obligor under the Junior
Creditor Agreements or in connection with any of the foregoing.
Notwithstanding the foregoing, the obligations, liabilities and indebtedness to
Junior Creditor in respect of the Notes owed by any person not an Obligor as
defined herein, shall not be part of the Junior Debt for purposes hereof.
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1.10 "Lien" shall mean any pledge, hypothecation, assignment,
deposit arrangement, right of setoff, security interest, encumbrance, mortgage,
deed of trust (including, but not limited to, easements, rights of way and the
like), lien (statutory or other), security agreement or transfer intended as
security, including, without limitation, any conditional sale or other title
retention agreement, the interest of a lessor under a capital lease or any
financing lease having substantially the same economic effect as any of the
foregoing.
1.11 "Payment Block Notice" shall have the meaning set forth in
Section 3.2 hereof.
1.12 "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.
1.13 "Required Lenders" shall have the meaning assigned thereto in
each of the Credit Agreements.
1.14 "Senior Debt" shall mean any and all loans, obligations,
liabilities, letters of credit, credit facilities and indebtedness of every
kind, nature and description owing by any Obligor to Senior Creditors or their
participants, including principal, interest, charges, fees, premiums,
indemnities and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, in each case arising under the Loan
Documents, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Loan Documents, whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever
acquired by Senior Creditors under the Loan Documents or by assumption or
operation of law, or by way of any claim or right of contribution,
indemnification, exoneration, reimbursement, subrogation or otherwise and shall
also include all amounts chargeable to any Obligor under the Loan Documents or
in connection with any of the foregoing.
1.15 "Standstill Period" shall mean the period beginning on the
earlier of the date that Junior Creditor has received a Payment Block Notice or
the date that Junior Creditor has given written notice to Senior Creditor that
an event of default under the Junior Creditor Agreements has occurred and
specifying such event of default and ending 180 days after such date; provided,
however, that the aggregate number of days that any one or more Standstill
Periods shall be in effect may not exceed 180 days in any consecutive 365 day
period; and provided, further, that no event of default under the Loan
Documents which (i) is specified in the written notice under this Section
commencing a Standstill Period and (ii) is subsequently waived by the Required
Lenders shall be or be made the basis for the
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commencement of a subsequent Standstill Period unless such event of default
shall be waived by the Required Lenders as to the specific circumstances giving
rise to such event of default for a period of not less than 365 days following
the occurrence of such event of default.
1.16 "Triggering Default" shall mean the occurrence or existence
of any event of default in respect of the Junior Debt under the Junior Creditor
Agreements, which remains uncured or unwaived and continues beyond the
expiration of the Standstill Period hereunder with respect to such event of
default.
1.17 References. All terms defined in the Uniform Commercial
Code as in effect in the State of New York, unless otherwise defined herein,
shall have the meanings set forth therein. All references to any term in the
plural shall include the singular and all references to any term in the
singular shall include the plural. Use of the term "or" shall mean "and/or"
unless the context otherwise clearly requires. Unless the context otherwise
clearly requires, references to "herein" or "hereunder" shall mean this entire
Subordination Agreement, not only the particular provision in which such
reference appears.
2. RESTRICTIONS OF JUNIOR CREDITOR RIGHTS. Notwithstanding any right or
remedy available to Junior Creditor under any of the Junior Creditor
Agreements, applicable law or otherwise, Junior Creditor may accelerate the
Junior Debt, but shall not, subject to Section 3.5, directly or indirectly take
any of the following actions until all of the Senior Debt has been indefeasibly
paid and satisfied:
(a) unless and until a Triggering Default has occurred,
exercise any of its rights or remedies (other than acceleration of the Junior
Debt as aforesaid) as against any Obligor or its property upon an event of
default by any Obligor under the Junior Creditor Agreements or otherwise,
including, without limitation, the termination of the Junior Creditor
Agreements or the commencement of suit for the enforcement of any provisions of
the Junior Creditor Agreements or for collection of the Junior Debt as against
or from any Obligor or its property;
(b) hold, seek to obtain or enforce any Lien in or upon
any collateral or any other property of any Obligor, except after a Triggering
Default has occurred; or
(c) unless and until a Triggering Default has occurred,
commence, any administrative, legal or equitable action or proceeding against
any Obligor or its properties seeking any reorganization, arrangement,
composition, readjustment, liquidation, bankruptcy or any other action
involving the readjustment of all or any part of any Obligor's obligations, or
other similar relief under the U.S. Bankruptcy Code or any present or future
statute, law or regulation relative to any Obligor or its properties or any
proceedings for voluntary liquidation, dissolution or other winding
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up of any Obligor's businesses or the appointment of any trustee, receiver or
liquidator for any Obligor or any part of its properties or any assignment for
the benefit of creditors or any marshalling of assets of any Obligor.
3. SUBORDINATION OF JUNIOR DEBT
3.1 Subordination. Except as specifically set forth below, Junior
Creditor hereby subordinates its right to payment and satisfaction of the
Junior Debt, and the payment thereof, directly or indirectly, by any means
whatsoever, is deferred and subordinated, to the prior indefeasible payment and
satisfaction in full of all Senior Debt.
3.2 Permitted Payments.
(a) Subject to all the other terms and conditions of this
Subordination Agreement, Senior Creditors hereby agree that, unless and until
the Agent has notified the Junior Creditor Representative of the occurrence of
a default or an event of default or the occurrence of an event or existence of
a condition which does, or would, with notice or lapse of time or both
constitute an event of default under the Loan Documents, and in each case
specifying such event (such notice a "Payment Block Notice"), Hanover may make
and Junior Creditor may receive and retain from Hanover (i) payments of
interest when due as regularly scheduled, (ii) payment of principal when due at
scheduled maturity on August 1, 1998 (or later), in each case under clauses (i)
and (ii) in accordance with the terms of the Notes and the Indenture as in
effect on the date hereof (but not any other prepayment of principal or
interest or other payment of principal or any payment pursuant to acceleration
or claims of breach or any payment to acquire any Junior Debt or otherwise),
and (iii) reimbursement to Junior Creditor, prior to an event of default under
any Junior Debt, for out-of-pocket expenses payable by Hanover pursuant to the
Junior Creditor Agreements. After a Payment Block Notice is given, no payment
otherwise permitted to be made to or received in respect of the Junior Debt may
be made to or received by Junior Creditor until the expiration of the
Standstill Period hereunder.
(b) No event of default which existed or was continuing
under the Loan Documents on the date any Payment Block Notice is given, and
which is subsequently waived by the Agent, shall be or be made the basis for
the giving of a subsequent Payment Block Notice, unless such event of default
shall be waived by the Agent as to the specific circumstances giving rise to
such event of default for a period of not less than 365 days following the
occurrence of such event of default.
(c) The Agent may give any number of Payment Block
Notices hereunder, provided that the aggregate number of days that any one or
more Standstill Period(s) hereunder shall be in effect shall not exceed 180
days during any 365 consecutive days, irrespective of the
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number of defaults with respect to the Loan Documents; and provided further
that, upon expiration or rescission of such Standstill Period, Junior Creditor
must receive payment of all regularly scheduled payments of interest and, if
applicable, principal payments described in clause (ii) of Section 3.2(a) which
have become due (on an unaccelerated basis, whether or not there has been an
acceleration of any Junior Debt), plus interest on such overdue payments as
provided in the Indenture, before a subsequent Payment Block Notice may be
given.
3.3 Distributions. In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of any Obligor or the proceeds
thereof to the creditors of any Obligor or readjustment of the obligations and
indebtedness of any Obligor, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors, marshalling
of assets of any Obligor or any other action or proceeding involving the
readjustment of all or any part of the obligations of any Obligor or the
application of the assets of any Obligor to the payment or liquidation thereof,
or upon the dissolution or other winding up of any Obligor's business, or upon
the sale of all or substantially all of the assets of any Obligor then, and in
any such event, Junior Creditor agrees that:
(a) Senior Creditors shall first receive indefeasible
payment in full in cash of all of the Senior Debt prior to the payment of all
or any part of the Junior Debt, and
(b) Until the Senior Debt is paid in full as provided in
clause (a) above, Senior Creditors shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, securities or other
property which may be payable or deliverable in respect of any or all of the
Junior Debt; provided, however, that notwithstanding clauses (a) and (b) of
this Section 3.3, Junior Creditor may receive shares of stock and/or debt
securities issued by an Obligor in connection with any liquidation, dissolution
or bankruptcy case or proceeding that are subordinated to the remaining Senior
Debt and any stock or debt securities issued to Senior Creditors at least to
the same extent and pursuant to the same or more stringent terms as is the
Junior Debt, as evidenced by a supplement hereto, executed by the Senior
Creditors and the Junior Creditor representative.
3.4 Payments Received by Junior Creditor. Except for permitted
payments received by Junior Creditor as provided in Section 3.2 or through
permitted enforcement of the Junior Debt as provided in Sections 2 and 3.5
hereof, or distributions permitted under Section 3.3 hereof, if any payment or
distribution or security or instrument or proceeds thereof is received by the
Junior Creditor in respect of the Junior Debt, or if any sums are recovered in
respect of the Junior Debt upon enforcement not permitted pursuant to Sections
2 and 3.5 hereof, Junior Creditor shall receive and hold the
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same in trust, as trustee, for the benefit of Senior Creditors. Junior
Creditor shall segregate each such payment, distribution or recovery from all
other funds and property of Junior Creditor and shall forthwith deliver such
payment, distribution or recovery to the Agent for the benefit of Senior
Creditors (together with any endorsement or assignment of Junior Creditor where
necessary), for application to any of the Senior Debt. In the event of the
failure of the Junior Creditor to make any such endorsement or assignment to
the Agent, the Agent, or any of its officers or employees, is hereby
irrevocably authorized on behalf of Junior Creditor to make the same.
3.5 Permitted Enforcement. If any event of default under the
Junior Creditor Agreements has occurred and is continuing, Junior Creditor may
(i) accelerate such portion of the Junior Debt as is in default or any other
amounts as may otherwise be accelerated pursuant to the terms of the Junior
Creditor Agreements, and/or (ii) upon the expiration of any Standstill Period
arising with respect to such event of default, commence and prosecute judicial
enforcement of the Junior Creditor Agreements and collection of the Junior Debt
as against any Obligor or take other actions otherwise prohibited under Section
2(a), (b) or (c). Upon the expiration of such Standstill Period, Junior
Creditor may receive and retain any payments owing (by acceleration or
otherwise) to Junior Creditor.
3.6 Instrument Legend and Notation.
(a) Each of the Notes and any other instruments at any
time evidencing any Junior Debt, or any portion thereof, shall be permanently
marked on its face with a legend conspicuously indicating that payment thereof
is subordinated in right of payment to the Senior Debt and is subject to the
terms and conditions of this Subordination Agreement; and after being so marked
certified copies thereof shall be delivered to the Agent.
(b) In the event any legend or endorsement is omitted,
the Agent or any of its officers or employees, are hereby irrevocably
authorized on behalf of Junior Creditor to make the same. No specific legend,
further assignment or endorsement or delivery of notes, guarantees or
instruments shall be necessary to subject any Junior Debt to the subordination
thereof contained in this Subordination Agreement.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 Additional Covenants. Junior Creditor agrees in favor of
Senior Creditors that until all Senior Debt has been indefeasibly paid and
satisfied in full:
(a) except as specifically set forth in Sections 3.2, 3.3
and 3.5 above, Junior Creditor shall not, directly or indirectly, accept or
receive any payment of principal or interest or expenses or any prepayment or
other payment of principal or any payment
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pursuant to acceleration or claims of breach or any payment to acquire Junior
Debt or otherwise in respect of any Junior Debt; and
(b) Junior Creditor shall not, directly or indirectly,
accept or receive from any Obligor any loan, gift or, except as permitted
herein, distribution of assets to Junior Creditor, and Junior Creditor shall
not accept or hold any guaranties for the Junior Debt except the Guarantees of
the Subsidiary Guarantors whether now existing or as contemplated by the Junior
Creditor Agreements as in effect on the date hereof, and shall not hold or
acquire any Lien upon the assets of any Obligor, except any Lien held and
obtained to the extent permitted under the exception contained in Section 2(b)
and subject to the enforcement restrictions of Section 2(b).
4.2 Additional Representations and Warranties. Junior Creditor
represents and warrants to Senior Creditors that:
(a) as of the date hereof, the total indebtedness owing
by Hanover to Junior Creditor in respect of the debt evidenced by the Notes and
by the Subsidiary Guarantors as guarantors thereof, is in the aggregate
principal amount of TWENTY MILLION ($20,000,000) DOLLARS, all of which is
presently unsecured.
(b) as of the date hereof, no default or event of
default, or event or condition which with notice or passage of time or both
would constitute a default or an event of default, exists or has occurred under
the Junior Creditor Agreements;
(c) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(d) none of the rights of Junior Creditor in and to the
Junior Debt are subject to any lien, security interest, financing statements,
subordination, assignment or other claim, except in favor of Senior Creditors;
(e) true, correct and complete copies of all Junior
Creditor Agreements in effect as of the date hereof have been furnished to the
Agent;
(f) the execution, delivery and performance of this
Agreement is within the corporate powers of Junior Creditor, has been duly
authorized by all necessary corporate action of Junior Creditor, and does not
contravene any law, any provision of the certificate of incorporation or other
charter document or the by-laws of Junior Creditor or any agreement to which
Junior Creditor is a party or by which it or its properties are bound; and
(g) this Agreement constitutes the legal, valid and
binding obligations of Junior Creditor, enforceable in accordance with its
terms.
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4.3 Waivers. Notice of acceptance hereof, the making of
loans, advances and extensions of credit or other financial accommodations to,
and the incurring of any expenses by or in respect of, any Obligor or any other
subordinate creditor, by Senior Creditors, and presentment, demand, protest,
notice of protest, notice of nonpayment or default and all other notices to
which Junior Creditor and any Obligor are or may be entitled are hereby waived
(except to the extent, if any, expressly provided for herein). Junior Creditor
also waives notice of (a) any amendment, modification, supplement, renewal,
restatement or extensions of the Loan Documents or any collateral, or of the
time of payment of, or increase or decrease in the amount of, any of the Senior
Debt, (b) the taking, exchange, surrender and releasing of collateral or
guarantees now or at any time held by or available to Senior Creditors for the
Senior Debt or any other person at any time liable for or in respect of the
Senior Debt, (c) the exercise of, or refraining from the exercise of any right
against any Obligor or any collateral, (d) the settlement, compromise or
release of, or the waiver of any default with respect to, any of the Senior
Debt, and/or (e) Senior Creditors' election, in any proceeding instituted under
the U.S. Bankruptcy Code of the application of Section 1111(b)(2) of the U.S.
Bankruptcy Code. None of the foregoing shall, in any manner, affect the terms
hereof or impair the obligations of Junior Creditor hereunder or give rise to
any claim by Junior Creditor against Senior Creditors, whether or not any of
the foregoing are or purport to be restricted in any manner under the terms of
the Junior Creditor Agreements. All of the Senior Debt shall be deemed to have
been made or incurred in reliance upon this Subordination Agreement. Junior
Creditor hereby agrees that all payments received by Senior Creditors may be
applied, reversed, and reapplied, in whole or in part, to any of the Senior
Debt, as Senior Creditors, in their discretion, deem appropriate.
4.4 Subrogation. After the full and indefeasible payment and
satisfaction of all Senior Debt, and after all of the Loan Documents have been
terminated, Junior Creditor shall be subrogated to the rights of the holders of
Senior Debt to receive distributions applicable to the Senior Debt to the
extent that distributions otherwise payable to Junior Creditor have been
applied to payment of Senior Debt, and any such distributions otherwise payable
to Junior Creditor and applied to Senior Debt shall not, as between Hanover and
Junior Creditor, constitute a payment by Hanover of Senior Debt.
4.5 Information Concerning Obligors.
(a) Junior Creditor hereby assumes sole responsibility
for keeping itself informed of the financial condition of Hanover, any and all
endorsers and any and all guarantors of the Junior Debt and any other Obligor,
and of all other circumstances bearing upon the risk of nonpayment of the
Senior Debt and/or the Junior Debt that diligent inquiry would reveal, and
Junior Creditor hereby agrees that Senior Creditors shall have no duty to
advise Junior Creditor of
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information known to Senior Creditors regarding such condition or any such
circumstances.
(b) In the event Senior Creditors, in their discretion,
undertake, at any time or from time to time, to provide any such information to
Junior Creditor, Senior Creditors shall be under no obligation (i) to provide
any such information to the Junior Creditor on any subsequent occasion or (ii)
to undertake any investigation and shall be under no obligation to disclose any
information obtained in any investigation, routine or otherwise.
5. MISCELLANEOUS
5.1 Amendments. Any waiver, permit, consent or approval by a
Creditor of or under any provision, condition or covenant to this Subordination
Agreement must be in writing executed by such Creditor, or its successors and
assigns, and shall be effective only to the extent it is set forth in such
signed writing and as to the specific facts or circumstances covered thereby.
Any amendment of this Subordination Agreement must be in writing and signed by
each of the parties to be bound thereby. Execution of any amendment by the
Junior Creditor Representative shall bind the Junior Creditor and its
successors and assigns, and shall be effective for any Junior Creditor.
5.2 Successors and Assigns.
(a) This Subordination Agreement shall be binding upon
the parties hereto and their respective successors and assigns and shall inure
to the benefit of each of the Creditors and its respective successors,
participants and assigns.
(b) Senior Creditors reserve the right to grant
participations in, or otherwise sell, assign, transfer or negotiate all or any
part of, or any interest in, the Senior Debt and any collateral from time to
time securing same.
5.3 Insolvency. This Subordination Agreement shall be applicable
both before and after the filing of any petition by or against any Obligor
under the U.S. Bankruptcy Code and all converted or succeeding cases in respect
thereof, and all references herein to any Obligor shall be deemed to apply to a
trustee for any Obligor as debtor and debtor-in-possession. The relative
rights of Senior Creditors and Junior Creditor to payment of the Senior Debt
and the Junior Debt, respectively, and in or to any distributions from or in
respect of any Obligor or any collateral or proceeds of collateral, shall
continue after the filing thereof on the same basis as prior to the date of the
petition.
5.4 Notices.
(a) All notices, requests and demands to or upon the
respective parties hereto shall be deemed duly given, made or
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received if in writing and: if by hand, immediately upon sending; if by Federal
Express, Express Mail or any other overnight delivery service, one (1) day
after dispatch; and if mailed by certified mail, return receipt requested, five
(5) days after mailing to the parties at their addresses set forth below (or to
such other addresses as the parties may designate in accordance with the
provisions of this Section 5.4:
To the Senior
Creditors: NationsBank of North Carolina, National
Association, as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
with a copy to: NationsBank of North Carolina, National
Association, as Agent
Corporate Banking
767 Fifth Avenue, 5th Floor
New York, New York 10153-0083
Attention: Mr. Christopher C. Browder,
Vice President
To any Junior
Creditor or to
the Junior
Creditor
Representative: First Trust National Association
180 East Fifth Street
P.O. Box 64111
St. Paul, Minnesota 55164
Attention: Mr. Frank P. Leslie, III
(b) A Creditor may change the address(es) to which all
notices, requests and other communications are to be sent by giving ten (10)
days written notice of such address change to the other Creditor in conformity
with this Section 5.4, but such change shall not be effective until notice of
such change has been received by the other Creditor.
5.5 Counterparts. This Subordination Agreement may be executed in
any number of counterparts, each of which shall be an original with the same
force and effect as if the signatures thereto and hereto were upon the same
instrument.
5.6 Governing Law. The validity, construction and effect of this
Subordination Agreement shall be governed by the laws of the State of New York.
5.7 Consent to Jurisdiction; Waiver of Jury Trial. Each of Junior
Creditor and Senior Creditors hereby irrevocably consents to
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the non-exclusive jurisdiction of the Supreme Court of the State of New York
and the United States District Court for the Southern District of New York and
waives trial by jury in any action or proceeding with respect to this
Subordination Agreement or any matter directly or indirectly arising out of or
relating to their financing arrangements with any Obligor.
5.8 Complete Agreement. This written Subordination Agreement is
intended by the parties as a final expression of their agreement and is
intended as a complete statement of the terms and conditions of their
agreement.
5.9 No Third Parties Benefitted. This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person, including any other creditor or
creditor's representative of any Obligor shall have any right, benefit,
priority or interest under, or because of the existence of, this Subordination
Agreement.
5.10 Disclosures, Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of each Obligor, and neither Creditor shall have any obligation or
duty to disclose any such information to the other Creditor. Except as
expressly set forth in this Subordination Agreement, the parties hereto have not
otherwise made to each other nor do they hereby make to each other any
warranties, express or implied, nor do they assume any liability to each other
with respect to: (a) the enforceability, validity, value or collectibility of
any of the Junior Debt or Senior Debt or any guarantee or security which may
have been granted to any of them in connection therewith, or (b) any other
matter except as expressly set forth in this Subordination Agreement.
5.11 Term. This Subordination Agreement is a continuing agreement
and shall remain in full force and effect until the indefeasible satisfaction in
full of all Senior Debt and the termination of the Loan Documents.
5.12 Severability. If any provision of this Subordination Agreement
is held to be invalid or unenforceable, such invalidity or unenforceability
shall not invalidate this Subordination Agreement as a whole but this
Subordination Agreement 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.
5.13 Senior Creditors' Rights under Indenture. The rights and
benefits afforded the Senior Creditors under this Subordination Agreement shall
be in addition to any and all rights and benefits which the Senior Creditors may
have under the terms of the Indenture. The terms and provisions of the
Indenture shall in no way limit or impair the rights and benefits of the Senior
Creditors hereunder or
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limit or otherwise modify the obligations of, or restrictions upon, Junior
Creditor hereunder.
5.14 Indenture Trustee's Compensation Not Prejudiced. Nothing in
this Subordination Agreement shall restrict the rights of the Indenture Trustee
to sue upon its claims for compensation under the Indenture.
5.15 No Fiduciary Duty to Senior Creditors. Indenture Trustee, by
its execution of the Acknowledgment and Agreement hereto, undertakes to perform
or observe and be bound by only the terms and provisions hereof applicable to it
or applicable to the holders of Junior Debt on whose behalf the Indenture
Trustee is acting in that capacity under the Indenture. The Indenture Trustee
shall not be deemed to owe any fiduciary duty to Senior Creditors.
5.16 Application of Monies Deposited with Trustee. Nothing in this
Subordination Agreement shall (i) prevent the application by the Indenture
Trustee or any paying agent of any monies or the proceeds of U.S. government
obligations received from Hanover at a time when such payment and receipt
thereof by Junior Creditor would not have been prohibited hereunder, or (ii)
prevent the application by the Indenture Trustee or any paying agent of any
monies or the proceeds of any U.S. government obligations deposited by Hanover
under the Indenture to the payment of or on account of the principal of or
interest on the Notes if, at the time of such deposit, payment of such amounts
by Hanover under the Notes, and the receipt thereof by Junior Creditor, would
not have been prohibited by this Subordination Agreement.
5.17 Headings. The headings used herein are for convenience only and
do not constitute matters to be considered in interpreting this Subordination
Agreement.
5.18 Execution by Subsidiaries. By its execution hereby, each of the
undersigned Subsidiaries acknowledges and agrees to be bound by the terms and
provisions hereof.
[Signatures on following pages]
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IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed as of the day and year first above written.
Junior Creditor:
SUN LIFE INSURANCE COMPANY OF AMERICA
By:______________________________
Name:_________________________
Title:________________________
Senior Creditors:
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, as Agent for
the Lenders
By:______________________________
Name:_________________________
Title: _______________________
Signature page 1 of 2
N-15
<PAGE> 185
HANOVER DIRECT,INC.
By:______________________________
Name:_________________________
Title:________________________
Subsidiary Guarantors:
BRAWN OF CALIFORNIA, INC.
COMPANY STORE HOLDINGS, INC.
D. M. ADVERTISING, INC.
GUMP'S HOLDINGS, INC.
HANOVER CATALOG HOLDINGS, INC.
HANOVER DIRECT NEW JERSEY, INC.
HANOVER DIRECT PENNSYLVANIA, INC.
HANOVER DIRECT VIRGINIA, INC.
HANOVER FULFILLMENT OF VIRGINIA,
INC.
HANOVER HOLDINGS INC.
HANOVER REALTY INC.
HANOVER VENTURES, INC.
HENRE, INC.
TW ACQUISITIONS INC.
AMERICAN DOWN & TEXTILE COMPANY
THE COMPANY FACTORY, INC.
THE COMPANY OFFICE, INC.
THE COMPANY STORE, INC.
SCANDIA DOWN CORPORATION
SKANDIA DOWN SALES, INC.
SOUTHERN CALIFORNIA COMFORT
CORPORATION
GUMP'S BY MAIL, INC.
GUMP'S CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER FINANCE CORPORATION
HANOVER FINANCING COMPANY, INC.
HANOVER LIST MANAGEMENT, INC.
YORK FULFILLMENT COMPANY, INC.
TWEEDS, INC.
TWEEDS OF VERMONT, INC.
H.H.B.K., INC.
BC CORPORATION OF TENNESSEE, INC.
H&H 1600 BROADWAY CORP.
HANOVER SYNDICATION CORP.
By:______________________________
Name:_________________________
Title: _______________________
Signature page 2 of 2
N-16
<PAGE> 186
ACKNOWLEDGMENT AND AGREEMENT BY INDENTURE TRUSTEE
The undersigned Trustee under the Indenture referred to in the
foregoing Subordination Agreement hereby acknowledges and consents to the
foregoing Subordination Agreement to the extent its consent is or may be
required. The undersigned agrees that it will be bound by the provisions of
the Subordination Agreement as applicable to the undersigned as a Junior
Creditor (as defined in the Subordination Agreement) in its capacity as Trustee
under the Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Indenture Trustee
By:___________________________
Name:______________________
Title:_____________________
N-17
<PAGE> 187
EXHIBIT A
TO
SUBORDINATION AGREEMENT
Subsidiary Guarantors
Hanover Direct Fulfillment, Inc.
Brawn of California, Inc.
Gump's By Mail, Inc.
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.
N-18
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EXHIBIT O
UPFRONT FEES
The Upfront Fee payable by the Borrower on the Closing Date to the
Agent for the benefit of each Lender shall be equal to the sum of a percentage
of each Lender's Revolving Credit Commitment as in effect on the Closing Date
as follows:
<TABLE>
<CAPTION>
Upfront Fee
Revolving Credit Commitment Percentage
--------------------------- -----------
<S> <C>
less than $11,250,000 .100%
equal to or greater than .150%
$11,250,000 but less than
$15,000,000
equal to or greater than .200%
$15,000,000
</TABLE>
O-1
<PAGE> 189
EXHIBIT P
FORM OF HANOVER DIRECT LETTER OF CREDIT
IRREVOCABLE TRANSFERABLE LETTER OF CREDIT NO. ______________
_____________, 199_
Norwest Bank Minnesota, N.A., as Trustee
Norwest Center
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Ladies and Gentlemen:
At the request and on the instructions of our customer, Hanover
Direct, Inc., a Delaware corporation (the "Company"), NationsBank of North
Carolina, National Association, a national banking association (the "Bank"),
hereby establishes, for the account of the Company, in your favor, as Trustee
under that certain Note Agreement dated as of __________, 199_ (as amended,
restated, supplemented or otherwise modified from time to time in accordance
with its terms, the "Note Agreement") between the Company and you, as Trustee,
pursuant to which $10,000,000 in aggregate principal amount of the Company's
Flexible Term Notes (the "Notes") are being issued, this Irrevocable
Transferable Letter of Credit No. ______________ (the "Letter of Credit") in
the initial amount of $10,145,833 (such amount, as it may from time to time be
reduced and reinstated as hereinafter provided, the "Available Amount"),
consisting of (a) an aggregate amount not exceeding $10,000,000 (as reduced and
reinstated from time to time as hereinafter provided, the "Principal
Component"), which may be drawn upon with respect to payment of the unpaid
principal amount of, or portion of the purchase price corresponding to the
principal of, the Notes and (b) an aggregate amount not exceeding $145,833 (as
reduced and thereafter reinstated from time to time as hereinafter provided,
the "Interest Component"), which may be drawn upon with respect to (i) the
payment of up to 35 days of interest on the Notes computed at a maximum
interest rate of 15% per annum on the basis of actual number of days elapsed in
a year of 360 days (the "Maximum Rate") and (ii) accrued and unpaid interest on
the Notes. This Letter of Credit is effective immediately and expires at 3:30
p.m., Charlotte, North Carolina time, on _____________, 199__, unless earlier
terminated or extended as provided herein. This Letter of Credit is issued
pursuant to that certain Credit Facilities and
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Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement
Agreement") between the Company and us.
DRAWINGS AND METHOD OF PAYMENT
Funds under this Letter of Credit are available to you against receipt
by us of a sight draft drawn on us, referring to this Letter of Credit by
number and signed by an Authorized Officer (as hereinafter defined), and your
certificate or certificates presented for payment on a Business Day (as
hereinafter defined) in the form of either Annex A, Annex B or Annex C attached
hereto appropriately completed and signed by an Authorized Officer (hereinafter
any such sight draft and certificate may be referred to as collectively a
"Drawing Certificate").
Presentation of any such Drawing Certificate shall be made at our
office located at NationsBank of North Carolina, NationsBank Plaza, 100 North
Tryon Street, 9th Floor, Charlotte, North Carolina 28255, Attention: Letter of
Credit Department, or at any other office in the State of North Carolina which
may be designated by us on at least five Business Days' prior written notice to
you. In addition to any means of delivery otherwise approved by us,
presentation may be made by postal service, by courier service or by telecopy
at the following telecopy number: (704) 386-1677; but only after first giving
telephone notice to us at the following telephone numbers: (704) 386-5859 or
(704) 386-8225, and receiving verbal approval, which approval shall not be
unreasonably withheld, to telecopy such Drawing Certificate to us at the
telecopy number shown above. You must confirm our receipt of each telecopied
Drawing Certificate by telephoning the above numbers. Only upon such
confirmation shall the demand under such Drawing Certificate be deemed made.
Demands for payments hereunder shall not (a) in the aggregate exceed
the Available Amount as it may be reduced and reinstated from time to time, (b)
with respect to drawings for the payment of principal of the Notes or the
portion of purchase price for the Notes representing principal, exceed the
Principal Component, as it may be reduced and reinstated from time to time, and
(c) with respect to drawings for the payment in respect of interest on the
Notes, exceed the Interest Component, as it may be reduced and reinstated from
time to time.
Drawings in respect of the payment of principal of the Notes at
maturity or upon redemption or acceleration of the Notes ("Principal Drawings")
must be accompanied by a certificate in the form of Annex A. Drawings in
respect of the payment of interest on the Notes ("Interest Drawings") must be
accompanied by a certificate in the form of Annex B. Drawings in respect of
the payment of the principal portion of the purchase price of the Notes which
have not been extended, renewed or resold by the Purchase Date (as defined in
the Note Agreement) ("Purchase Drawings") must be accompanied by a certificate
in the form of Annex C.
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In the case of presentation of a Drawing Certificate hereunder, if
such Drawing Certificate is presented hereunder by sight or by facsimile
transmission as permitted hereunder, by 11:00 a.m., Charlotte, North Carolina
time, on a Business Day, and provided that such Drawing Certificate and the
documents and other items presented in connection therewith, if any, strictly
conform to the terms and conditions hereof, payment shall be made to you, or to
your designee, of the amount specified, in immediately available funds, not
later than 3:30 p.m., Charlotte, North Carolina time, on the same day or on
such later Business Day as you may specify. If a Drawing Certificate is
presented by you hereunder after the time specified hereinabove, on a Business
Day, and provided that such Drawing Certificate and the documents and other
items presented in connection therewith, if any, strictly conform to the terms
and conditions hereof, payment shall be made to you, or to your designee, of
the amount specified, in immediately available funds, not later than 3:30 p.m.,
Charlotte, North Carolina time, on the next Business Day thereafter or on such
later Business Day as you may specify. If requested by you, payment under this
Letter of Credit will be made by deposit of immediately available funds into an
account that you or your designee maintains with us and designate in the
applicable Drawing Certificate. If a demand for payment made by you hereunder
does not, in any instance, conform to the terms and conditions of this Letter
of Credit, we shall give prompt notice that the demand for payment was not
effected in accordance with the terms and conditions of this Letter of Credit,
stating the reasons therefor and that we will upon your instructions hold any
documents at your disposal or return the same to you. Upon being notified that
the demand for payment was not effected in conformity with this Letter of
Credit, you may attempt to correct any such nonconforming demand for payment to
the extent that you are entitled to do so and prior to the expiry of this
Letter of Credit.
Any drawing under this Letter of Credit will be paid solely from our
general funds and not from any other source.
No drawing may be made hereunder to pay principal of, or interest on,
or the purchase price of, any Notes known by you to be Bank Notes or Borrower
Notes (each as defined in the Note Agreement). Multiple drawings may be made
hereunder, provided that drawings with respect to payments hereunder honored by
us shall not, in the aggregate, exceed the Available Amount, as the Available
Amount may have been reinstated by us.
REDUCTION OF AVAILABLE AMOUNT
In the case of a Principal Drawing, (a) the Principal Component shall
automatically be reduced by an amount equal to the entire amount of such
Principal Drawing, and (b) the Interest Component shall automatically be
reduced by an amount equal to 35 days' interest on the amount of such Principal
Drawing calculated at the Maximum Rate. Upon any reduction in the Available
Amount resulting from a Principal Drawing, we may require you to surrender this
Letter of Credit to us within ten (10) Business Days following the effective
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date of such reduction, whereupon we shall issue to you a substitute Letter of
Credit, dated the date of such reduction, for an amount equal to the amount to
which the Available Amount shall have been so reduced, but otherwise having
terms identical to this Letter of Credit.
On each of the dates set forth below, each of the Principal Component
and the Interest Component shall be permanently reduced (without right of
reinstatement) (each such reduction, a "Scheduled Reduction") to the respective
amounts set forth opposite each of such dates, unless as of such date the
Principal Component and Interest Component have been theretofore permanently
reduced pursuant to one or more Principal Drawings to amounts at or below the
respective amounts set forth opposite each such date:
<TABLE>
<CAPTION>
Remaining Remaining Remaining
Effective Date Principal Interest Available
of Reduction Component Component Amount
------------ --------- --------- ---------
<S> <C> <C> <C>
October 1, 1996 $9,500,000 $138,541 $9,638,541
October 1, 1997 $9,000,000 $131,249 $9,131,249
</TABLE>
In the case of an Interest Drawing, the Interest Component shall
automatically be reduced by an amount equal to the entire amount of such
Interest Drawing.
In the case of a Purchase Drawing (a) the Principal Component shall
automatically be reduced by an amount equal to the entire amount of such
Purchase Drawing and (b) the Interest Component shall automatically be reduced
by an amount equal to 35 days' interest on the amount of such Purchase Drawing
calculated at the Maximum Rate.
REINSTATEMENT
Principal Drawings and the resulting reductions in the Principal and
Interest Components shall not be reinstated. Reductions in the Principal
Component and the Interest Component resulting from Scheduled Reductions shall
not be reinstated. Reductions described in this paragraph are referred to
herein as "Permanent Reductions."
The Interest Component shall be automatically reinstated, at 12:01
a.m. on the sixth Business Day following the date of our payment in respect of
such Interest Drawing unless prior to such time we shall have given to you the
notice described in Section 7.01(d) of the Note Agreement, in an amount equal
to the amount of such Interest Drawing, but in no event to exceed the Interest
Component after giving effect to all applicable Permanent Reductions.
In the event of a subsequent remarketing of Notes purchased with the
proceeds paid by us pursuant to a Purchase Drawing and a release of the Notes
from their pledge to the Bank in accordance with the
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<PAGE> 193
provisions of Section 3.08(d)(ii) of the Note Agreement, then the Principal
Component shall be reinstated automatically upon such remarketing of the Notes
by an amount equal to the principal amount of the Notes so remarketed and the
Interest Component shall be reinstated automatically by an amount equal to 35
days' interest on the Principal Component so reinstated computed at the Maximum
Rate. Upon such reinstatement, we shall confirm the same to you orally or by
facsimile transmission promptly confirmed in writing.
DISCHARGE OF OBLIGATIONS
Only you or your successor, as Trustee under the Note Agreement, may
make a drawing under this Letter of Credit. Upon any payment to you, to your
designee or to your or your designee's account, of the amount demanded
hereunder, we shall be fully discharged on our obligation under this Letter of
Credit with respect to such demand for payment and we shall not thereafter be
obligated to make any further payments under this Letter of Credit in respect
of such demand to you or to any other person who may have made or makes to you
or the Company a demand for payment of principal or purchase price of, or
interest on, the Notes. By paying to you an amount demanded in accordance
herewith, we make no representation as to the correctness of the amount
demanded or your calculations or representations in any certificate required
under this Letter of Credit.
EXPIRATION AND DEFAULT DRAWING
This Letter of Credit shall expire at 3:30 p.m., Charlotte, North
Carolina time on ______________, 199__ (such date, or any later date to which
this Letter of Credit may from time to time be extended pursuant to the next
sentence hereof, is herein referred to as the "Scheduled Termination Date").
Upon your receipt of a written notice from us in the form of Annex D attached
hereto, the Scheduled Termination Date of this Letter of Credit in effect at
the time of receipt of such notice shall be extended to the date specified in
such notice for the Scheduled Termination Date as extended. Notwithstanding
the foregoing, this Letter of Credit shall expire earlier than such date upon
the first to occur of (a) the making by you and the honoring by us of the final
drawing available to be made hereunder, (b) our receipt of a certificate signed
by your Authorized Officer stating that the Trustee has accepted a Substitute
Letter of Credit, as defined in the Note Agreement, (c) our receipt of a
certificate signed by your Authorized Officer in the form of Annex E attached
hereto stating that the Note Agreement is discharged and no Notes remain
outstanding thereunder, or (d) 15 days after delivery by the Bank to you of
written notice in the form of Annex F attached hereto that an Event of Default
under the Reimbursement Agreement has occurred and is continuing after the
expiration of any applicable cure period, with instructions to accelerate the
maturity of the Notes and draw on the Letter of Credit (a "Default Drawing") to
pay them in full. In the case of a Default Drawing, in the event we wish for
you to purchase the Notes with the proceeds of the Default
P-5
<PAGE> 194
Drawing, rather than to pay the Notes as would otherwise be the case, we will
give written notice to you of such election in the form of Annex G attached
hereto prior to or simultaneously with the payment of such Default Drawing.
In the event the Scheduled Termination Date of this Letter of Credit,
as specified in the preceding paragraph, is not a Business Day, this Letter of
Credit shall expire at 3:30 p.m., Charlotte, North Carolina time, on the next
following Business Day.
Upon the expiration of this Letter of Credit, the executed original
Letter of Credit shall be promptly surrendered to us by you.
TRANSFER
We agree to endorse this Letter of Credit or issue a substitute letter
of credit to any successor Trustee under the Note Agreement (and to
successively replace any such substitute letter of credit) upon the return to
us of the original of the Letter of Credit to be endorsed or replaced,
accompanied by a request relating to such letter of credit, which (a) shall be
in the form of Annex H attached hereto with the blanks appropriately completed,
(b) shall be signed by an Authorized Officer, (c) shall specify where indicated
therein the same letter of credit number as the number of the letter of credit
to be endorsed or replaced, and (d) shall state the name and address of the
successor Trustee under the Note Agreement. Each substitute letter of credit
will be in the form of this Letter of Credit except for the date and letter of
credit number.
MISCELLANEOUS
As used herein (a) "Authorized Officer" means any of your Senior Vice
Presidents, Vice Presidents, Assistant Vice Presidents or Trust Officers and
(b) "Business Day" means any day, other than a Saturday or Sunday or other day
on which we in Charlotte, North Carolina are authorized or required by law or
executive order to close.
Our obligations hereunder are primary obligations and shall not be
affected by the performance or nonperformance by the Company under the Note
Agreement or the Reimbursement Agreement or by the performance or
nonperformance of any party under any agreement between the Company and you.
Except as set forth in the next paragraph and the certificates
referred to herein, this Letter of Credit sets forth in full our undertaking,
and such undertaking shall not in any way be modified, amended, amplified or
limited by reference to any document, instrument or agreement referred to
herein or in which this Letter of Credit is referred to or to which this Letter
of Credit relates, except for the certificates and Note Agreement definitions
and Reimbursement Agreement definitions referred to herein; and any such
reference shall not be deemed to incorporate herein by reference any document,
instrument or agreement except as set forth in the next
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<PAGE> 195
paragraph and for the Note Agreement definitions and Reimbursement Agreement
definitions and the certificates referred to herein.
This Letter of Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits (1993 revision), International Chamber of
Commerce Publication No. 500 (the "Uniform Customs"); except (a) if this Letter
of Credit would have otherwise expired by its terms during a period when our
business has been interrupted by acts of God or other events not within our
control, our obligations hereunder shall continue for a maximum of 30 days
after resumption of our business, notwithstanding Article 17 of the Uniform
Customs, (b) to the extent this Letter of Credit requires draws within
particular periods of time, failure to make such draws during such periods
shall not cause this Letter of Credit to expire or funds hereunder to be
unavailable, notwithstanding Article 41 of the Uniform Customs, and (c)
successive transfers are permitted as provided above notwithstanding Article 48
of the Uniform Customs. Except as to matters governed by the express
provisions of this Letter of Credit or by the Uniform Customs, this Letter of
Credit shall be governed by the laws of the State of North Carolina, including,
without limitation, the Uniform Commercial Code as in effect in the State of
North Carolina.
Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to us at the address set forth above
specifically referring to the number of this Letter of Credit.
Very truly yours,
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:_____________________________
Authorized Officer
Annex A - Draw Certificate for Principal Drawing
Annex B - Draw Certificate for Interest Drawing
Annex C - Draw Certificate for Purchase Drawing
Annex D - Extension of Scheduled Termination Date
Annex E - Discharge of Note Agreement and Letter of Credit
Cancellation
Annex F - Notice of Demand for Acceleration and Default Drawing
Annex G - Notice of Direction to Purchase rather than Pay the Notes
Annex H - Instruction to Issue Letter of Credit to Successor Holder
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<PAGE> 196
ANNEX A
DRAWING CERTIFICATE
FOR
PRINCIPAL DRAWING
[Date]
NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit Ref. No. _____________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, a duly Authorized Officer of the undersigned Trustee
(the "Trustee"), hereby certifies that:
1. The undersigned is the Trustee under the Note Agreement.
2. The undersigned hereby makes demand for payment of $____________
of the Principal Component to be used solely for the payment of principal on
the Notes due because of maturity, redemption or acceleration in accordance
with the terms of the Note Agreement.
3. With respect to the drawing referred to in this Certificate, the
amount demanded hereby in the aggregate does not exceed the now applicable
Available Amount (as defined in the above-referenced Letter of Credit) or the
now applicable Principal Component (as defined in the above-referenced Letter
of Credit).
4. Upon receipt by the undersigned or its designee of the amount
demanded hereby, (a) the undersigned or its designee will apply (or cause to be
applied) the same directly to the payment when due of the principal amount
owing on Notes (other than Bank Notes and/or Borrower Notes), (b) no portion of
said amount shall be applied for any other purpose, and (c) no portion of said
amount will be commingled with other funds (except other funds drawn under the
above-referenced Letter of Credit).
5. The amount demanded in this Certificate was computed in accordance
with the terms and conditions of the Note Agreement.
6. Upon payment by you of this Principal Drawing and the accompanying
Interest Drawing, the Available Amount of the Letter of Credit shall
automatically be reduced by $___________ [insert amount
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<PAGE> 197
of this Principal Drawing plus 35 days' interest on the amount of such
Principal Drawing calculated at the Maximum Rate of 15% per annum] and
thereafter shall be equal to $__________, consisting of a $__________ Principal
Component and a $__________ Interest Component.
Please remit payment of the amount demanded herein by
____________________.
Terms used but not otherwise defined herein shall have the meanings
provided in the above-referenced Letter of Credit or in the Note Agreement (as
defined in the Letter of Credit).
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of __________, ____.
[NAME OF NOTE AGREEMENT TRUSTEE], as
Trustee
By:_____________________________
[Name and Title]
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ANNEX B
DRAWING CERTIFICATE
FOR
INTEREST DRAWING
[Date]
NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit Ref. No. ______________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, a duly Authorized Officer of the undersigned Trustee
(the "Trustee"), hereby certifies that:
1. The undersigned is the Trustee under the Note Agreement.
2. The undersigned hereby makes demand for payment of $___________ of
the Interest Component to be used solely for the payment of accrued interest on
the Notes in accordance with the terms of the Note Agreement.
3. With respect to the drawing referred to in this Certificate, the
amount demanded hereby in the aggregate does not exceed the now applicable
Available Amount (as defined in the above-referenced Letter of Credit) or the
now applicable Interest Component (as defined in the above-referenced Letter of
Credit).
4. Upon receipt by the undersigned or its designee of the amount
demanded hereby, (a) such amount shall be deposited into the Interest Reserve
Account to be used as provided in the Note Agreement, (b) no portion of said
amount shall be applied for any other purpose, and (c) no portion of said
amount will be commingled with other funds (except other funds drawn under the
Letter of Credit).
5. The amount demanded in this Certificate was computed in accordance
with the terms and conditions of the Note Agreement.
Please remit payment of the amount demanded herein by
______________________. Terms used but not otherwise defined herein shall have
the meanings provided in the above-referenced Letter of Credit or in the Note
Agreement (as defined in the Letter of Credit).
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IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of __________, ____.
[NAME OF NOTE AGREEMENT TRUSTEE], as
Trustee
By:________________________________
[Name and Title]
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ANNEX C
DRAWING CERTIFICATE
FOR
PURCHASE DRAWING
[Date]
NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit Ref. No. _____________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, a duly Authorized Officer of the undersigned Trustee
(the "Trustee"), hereby certifies that:
1. The undersigned is the Trustee under the Note Agreement.
2. In accordance with the terms of the Note Agreement, the
undersigned hereby makes demand for payment of $__________ of the Principal
Component to be used solely for the payment of the Purchase Price (as defined
in the Note Agreement) of an equal principal amount of Notes.
3. With respect to the drawing referred to in this Certificate, the
amount demanded hereby in the aggregate does not exceed the now applicable
Available Amount (as defined in the above-referenced Letter of Credit) or the
now applicable Principal Component (as defined in the above-referenced Letter
of Credit).
4. Upon receipt by the undersigned or its designee of the amount
demanded hereby, (a) the undersigned or its designee will apply (or cause to be
applied) the same directly to the payment of such Purchase Price owing in
respect of such Notes, (b) no portion of said amount shall be applied for any
other purpose, and (c) no portion of said amount will be commingled with other
funds (except other funds drawn under the above-referenced Letter of Credit).
5. The amount demanded in this Certificate was computed in accordance
with the terms and conditions of the Note Agreement.
6. The Notes purchased with the amount demanded herein are subject to
a security interest in your favor until such Notes have
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<PAGE> 201
been remarketed in accordance with the provisions of Section 3.08 of the Note
Agreement.
Please remit payment of the amount demanded herein by ________________.
Terms used but not otherwise defined herein shall have the meanings
provided in the above-referenced Letter of Credit or in the Note Agreement (as
defined in the Letter of Credit).
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of __________, ____.
[NAME OF NOTE AGREEMENT TRUSTEE], as
Trustee
By:__________________________________
[Name and Title]
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ANNEX D
EXTENSION OF SCHEDULED TERMINATION DATE
______________________________, as Trustee
______________________________
______________________________
Attention: __________________
Re: Irrevocable Letter of Credit Ref. No. ________________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, a duly authorized officer of NationsBank of North
Carolina, National Association (the "Bank"), hereby notifies the Trustee with
respect to the above-referenced Letter of Credit issued by the Bank in favor of
the Trustee (the "Letter of Credit"), that the Scheduled Termination Date of
the Letter of Credit heretofore in effect has been extended and that the
Scheduled Termination Date as so extended is ____________________. The terms
used in this Certificate and not defined herein shall have the meanings given
in the Letter of Credit.
IN WITNESS WHEREOF, the Bank has executed and delivered this
Certificate this _____ day of __________, ____.
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:____________________________
[Name and Title]
cc: NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
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<PAGE> 203
ANNEX E
DISCHARGE OF NOTE AGREEMENT AND
LETTER OF CREDIT CANCELLATION
[Date]
NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit Ref. No. _____________ For the
Account of Hanover Direct, Inc.
The undersigned, a duly authorized officer of the undersigned Trustee
(the "Trustee"), hereby certifies to NationsBank of North Carolina, National
Association (the "Bank"), with respect to the above-referenced Letter of Credit
(the "Letter of Credit") issued by the Bank in favor of the Trustee, that no
Notes remain outstanding under the Note Agreement dated as of
_________________, 1994, between Hanover Direct, Inc. and the Trustee (the
"Note Agreement"), and the Note Agreement is discharged.
Pursuant to the Note Agreement, we are delivering herewith the Letter
of Credit for cancellation.
[NAME OF NOTE AGREEMENT TRUSTEE], as
Trustee
By:____________________________
[Name and Title]
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<PAGE> 204
ANNEX F
NOTICE OF DEMAND FOR ACCELERATION AND DEFAULT DRAWING
______________________________, as Trustee
under a Note Agreement dated as of
______________, 1994 with
Hanover Direct, Inc. (the "Note Agreement")
______________________________
______________________________
Attention: __________________
Re: Irrevocable Letter of Credit Ref. No. _________________ For
the Account of Hanover Direct, Inc.
Ladies and Gentlemen:
Please be advised that with regard to the above-referenced Letter of
Credit (the "Letter of Credit"; terms not otherwise defined herein shall have
the same meaning as provided in the Letter of Credit or the Note Agreement),
there has occurred an Event of Default under the Reimbursement Agreement, and
in accordance with the provisions of Sections 7.01 and 7.02 of the Note
Agreement, demand is hereby made of you, as Trustee under the Note Agreement,
to declare the entire unpaid principal of and interest on the Notes immediately
due and payable and to take such other action as provided in the Note
Agreement.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
notice as of the _____ day of __________, ____.
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:______________________________
[Name and Title]
cc: NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
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ANNEX G
NOTICE OF DIRECTION TO PURCHASE
RATHER THAN PAY THE NOTES
______________________________, as Trustee
under a Note Agreement dated as of
_________________, 1994 with
Hanover Direct, Inc. (the "Note Agreement")
______________________________
______________________________
Attention: __________________
Re: Irrevocable Letter of Credit Ref. No. ______________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
We either have received, or will shortly hereafter receive, from you a
Default Drawing for payment under the above- referenced Letter of Credit (the
"Letter of Credit"; terms not otherwise defined herein shall have the same
meaning as provided in the Letter of Credit or the Note Agreement). We hereby
give you notice and direction that, in accordance with the provisions of
Section 7.03 of the Note Agreement, the proceeds from such Default Drawing
should be used and applied to purchase the Notes (other than Bank Notes or
Borrower Notes) as provided therein rather than to pay them.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
notice as of the _____ day of __________, ____.
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:_______________________________
[Name and Title]
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ANNEX H
INSTRUCTION TO ISSUE LETTER OF CREDIT TO SUCCESSOR HOLDER
[Date]
NationsBank of North Carolina, National Association
NationsBank Plaza
100 North Tryon Street, 9th Floor
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
Re: Irrevocable Letter of Credit Ref. No. ______________ For the
Account of Hanover Direct, Inc.
Ladies and Gentlemen:
Reference is made to (a) the above-referenced Letter of Credit (the
"Old Letter of Credit") and (b) the Note Agreement dated as of
________________, 1994 (the "Note Agreement") between Hanover Direct, Inc. and
[Name of Trustee], as Trustee.
[Name and address of successor Trustee] (the "Successor Trustee") has
replaced and succeeded to our rights and obligations as Trustee under the Note
Agreement. You are hereby requested to endorse the Old Letter of Credit to the
Successor Trustee or to issue in accordance with the terms of the Old Letter of
Credit, a new letter of credit to the Successor Trustee having the same terms
and providing for the same Available Amount as the Old Letter of Credit.
We submit herewith for endorsement or cancellation the original of the
Old Letter of Credit.
The individual signing below on our behalf hereby represents that he
or she is duly authorized to so sign on our behalf.
Very truly yours,
[NAME OF NOTE AGREEMENT TRUSTEE], as
Trustee
By:_____________________________
[Name and Title]
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EXHIBIT Q
FORM OF HANOVER HOUSE LETTER OF CREDIT
November 2, 1994
Letter of Credit No. 41055
Shawmut Bank Connecticut, National Association
777 Main Street
Hartford, Connecticut 06115
Attention: Corporate Trust Department
RE: Littlestown Industrial Development Authority Variable Rate
Demand Industrial Development Revenue Refunding Bonds, 1987
Series (Hanover House Industries, Inc. Project) (individually
a "Bond" and collectively the "Bonds")
Gentlemen:
At the request and on the instructions of our customer, Hanover Direct
Pennsylvania, Inc. (formerly known as Hanover House Industries, Inc.)
("Industries"), we, the undersigned bank (the "Bank"), hereby establish in your
favor this direct pay Letter of Credit in the amount of $8,560,000 (the "Stated
Amount"). This Letter of Credit is issued to you as successor trustee
("Trustee") under the Indenture of Trust dated as of September 1, 1987
("Indenture"), and is for the benefit of the holders of the Bonds issued by the
Littlestown Industrial Development Authority (the "Issuer") to refinance a
project for Industries. This Letter of Credit No. 41055 is irrevocable during
its term. The Stated Amount may be adjusted from time to time during the term
hereof as more fully set forth below.
You, as Trustee, are hereby irrevocably authorized to draw hereunder
for account of Industries, upon the terms and conditions hereinafter set forth,
an aggregate amount not exceeding the Stated Amount of which Stated Amount (a)
an amount not exceeding $8,000,000 (the "Principal Portion") may be stated to
be drawn upon with respect to payment of the unpaid principal amount of the
Bonds, and (b) an amount not exceeding $560,000 (the "Interest Portion") may be
stated to be drawn upon with respect to payment of up to 210 days of accrued
interest on the Bonds on or prior to their stated maturity date (the amount of
such drawing with respect to accrued interest to be
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expressly further limited to an amount computed by you at the actual rate of
interest from time to time applicable to the Bonds during the period for which
such drawing is to be made but not in any event to exceed a rate of twelve
percent (12%) per annum). All of the foregoing shall be effective immediately
and shall expire on October 16, 1997 unless sooner terminated as provided
herein or until renewed or extended as provided herein. All drawings under
this Letter of Credit will be paid with our own funds.
Funds under this Letter of Credit are available to you upon
presentation by you of (a) if the drawing is under the Principal Portion, your
written certificate signed by your authorized officer, appropriately completed,
in the form of Schedules A, C or E hereto (the "Principal Drawing"; drawings
under Schedule C or E may also be referred to as a "Purchase Drawing"); or (b)
if the drawing is under the Interest Portion your written certificate signed by
your authorized officer, appropriately completed, in the form of Schedules B, D
or F hereto (each an "Interest Drawing"). Presentation of such certificate(s)
shall be made at our offices at NationsBank Plaza, 100 North Tryon Street, 9th
Floor, Charlotte, North Carolina 28255, Attention: Letter of Credit Department
or at any other office which may be designated by us by written notice
delivered to you. We hereby agree that each certificate presented in
compliance with the terms of this Letter of Credit will be duly honored by us
if presented as specified on or before the expiration date hereof. If a
presentation in respect of payment is made by you hereunder at or prior to
11:30 a.m., Charlotte, North Carolina time, on a business day, and provided
that the documents so presented conform to the terms and conditions hereof,
payment shall be made to you, or to your designee, of the amount specified, by
wire transfer in immediately available funds of the Bank, not later than 3:00
p.m., Charlotte, North Carolina time, on the same business day. If a
presentation in respect of payment is made by you hereunder after 11:30 a.m.,
Charlotte, North Carolina time, on a business day, and provided that the
documents so presented conform to the terms and conditions hereof, payment
shall be made to you, or your designee, of the amount specified, by wire
transfer in immediately available funds, not later than 3:00 p.m., Charlotte,
North Carolina time, on the succeeding business day. If requested by you,
payment under this Letter of Credit will be made by deposit of immediately
available funds into a designated account that you maintain with us. As used
herein "business day" shall mean any day other than (i) a Saturday or Sunday,
(ii) a day on which commercial banks located in New York, New York, or the city
or cities in which the corporate trust office of the Trustee is located or
Charlotte, North Carolina are required or authorized by law to close or (iii) a
day on which the New York Stock Exchange is closed.
Drawings in respect of payments hereunder honored by us shall not, in
the aggregate, exceed the Stated Amount, as the Stated Amount may have been
reinstated by us. Each drawing honored by the Bank hereunder shall pro tanto
reduce the amount available under this Letter of Credit, subject to
reinstatement as provided herein.
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Effective on the seventh business day following the honoring of an Interest
Drawing, the Letter of Credit will be reinstated to the full amount of the
Interest Portion (or such lesser amount as shall have been specified by you in
the certificate most recently presented by you hereunder in the form of
Schedule H hereto). The foregoing notwithstanding, the Interest Portion of
this Letter of Credit shall not be reinstated if you have received notice from
us in writing prior to the seventh business day following the day on which such
drawing was honored that the Interest Portion will not be so reinstated because
(a) we have not been reimbursed by Industries, Hanover Direct, Inc. (the
"Company") or an Affiliate (as that term is defined in the Indenture) of either
of them for such drawing, or a previous or subsequent Interest Drawing, or (b)
an event of default under the Credit Facilities and Reimbursement Agreement
between the Company and us dated as of October 12, 1994 (the "Reimbursement
Agreement") shall have occurred and be continuing. With respect to a Principal
Drawing made by presentation of a certificate in the form of Schedule C or
Schedule E hereto, the Letter of Credit will be reinstated to the full amount
of the Principal Portion (or such lesser amount as shall have been specified by
you in the certificate most recently presented by you hereunder in the form of
Schedule H hereto) effective upon the reimbursement to us in full of all
amounts paid by us pursuant to Principal Drawings and provided no event of
default has occurred and is continuing under the Reimbursement Agreement.
Only you as Trustee may make a drawing under this Letter of Credit.
Upon the payment to you or to your designee of the amount specified in the
certificate(s) presented hereunder, we shall be fully discharged of our
obligation under this Letter of Credit with respect to such certificate(s) and
we shall not thereafter be obligated to make any further payments under this
Letter of Credit in respect of such certificate(s) to you or any other person
who may have made to you or makes to you a demand for payment of principal of,
the purchase price of, or interest on, any Bond.
Upon our receipt of the original of this Letter of Credit together
with a certificate signed by your duly authorized officer, appropriately
completed, in the form of Schedule H hereto and approved by Industries, the
Stated Amount, Principal Portion and Interest Portion shall be immediately and
automatically reduced to the amounts set forth in such certificate and we
shall, at our election, either appropriately amend this Letter of Credit or
issue a replacement letter of credit to evidence such reduction.
Upon the earliest of (i) October 16, 1997, (ii) when all available
amounts hereunder have been drawn, (iii) 15 days after the effective date of a
Term Interest Rate Period (as defined in the Indenture) having a duration
extending beyond October 16, 1997, (iv) 15 days after the effective date of a
Term Interest Rate Period during which the Bonds may be redeemed at a premium
redemption price, (v) when no Bonds are outstanding, or (vi) 15 days after our
receipt of a certificate signed by your duly authorized officer,
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appropriately completed, in the form of Schedule G hereto, this Letter of
Credit shall automatically terminate and be delivered to us for cancellation.
This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall be
deemed to be made under the laws of the State of North Carolina including
Article 5 of the Uniform Commercial Code as enacted in North Carolina, and
shall, as to matters not governed by the Uniform Customs, be governed by and
construed in accordance with the laws of the State of North Carolina.
Notwithstanding anything in the Uniform Customs to the contrary, this
Letter of Credit is transferable in its entirety (but not in part) and may be
successively transferred upon presentation to us of this Letter of Credit
accompanied by the transfer form attached hereto as Schedule I, to the
transferee specified therein.
All documents presented to us in connection with any demand for
payment hereunder, as well as all notices and other communications to us in
respect of this Letter of Credit, shall be in writing and addressed and
presented to us at our above address, and shall make specific reference to this
Letter of Credit by number. Such documents, notices and other communications
shall be personally delivered to us or may be sent to us by tested telex or
over a telecopier to the following numbers, as applicable:
Telex No. 669959 (Answerback:
Telecopier No. 704-386-1677 NATIONSBK CHA)
Telephone No. 704-386-5859 OR 704-386-8225
You must confirm our receipt of each tested telex or telecopied
Drawing Certificate by telephoning the number shown above before a drawing
under this Letter of Credit will be made. This Letter of Credit sets forth in
full our undertaking, and such undertaking shall not in any way be modified,
amended, amplified or limited by reference to any document, instrument or
agreement referred to herein (including, without limitation, the Bonds or the
Indenture), except only Schedules A through I hereto; and any such reference
shall not
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be deemed to incorporate herein by reference any document, instrument or
agreement except as set forth above.
Very truly yours,
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:_____________________________
Authorized Officer
By:_____________________________
Authorized Officer
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SCHEDULE A TO
LETTER OF CREDIT*
CERTIFICATE FOR "A DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, National Association, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
The Trustee is the Trustee under the Indenture for the owners
of the Bonds.
The Trustee is hereby making a Principal Drawing under the
Letter of Credit with respect to $______________ to be used for the
payment of principal of the Bonds in accordance with the terms and
provisions of the Bonds.
The amount of principal of the Bonds which is due and payable
and with respect to the payment of which the Trustee does not have
available amounts that pursuant to Section 4.02 of the Indenture are
to be applied to such payment prior to moneys drawn under the Letter
of Credit is $_____________, and the aggregate amount of all drawings
referred to in paragraph 2 does not exceed such amount of principal.
The amount set forth in paragraph 2, together with the
aggregate of all prior payments made pursuant to A Drawings under this
Letter of Credit for the payment of principal of the Bonds, does not
exceed $8,000,000.
The amount set forth in paragraph 2 does not include any
amount to be used for the payment of the principal of Bonds owned by
the Issuer, Industries or any Affiliate (as defined in the Indenture)
of any of them.
The amount set forth in paragraph 2 should be:
/ / deposited into our account number _______________ maintained
with you; or
/ / wire transferred as follows: (name of bank)
(address of bank)
for credit to the account of ____________________
account number ______________
__________________________________
* For payment of principal of Bonds due to redemption, at maturity or
acceleration of maturity.
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Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of _____________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:________________________________
Title:__________________________
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<PAGE> 214
SCHEDULE B TO
LETTER OF CREDIT*
CERTIFICATE FOR "B DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The Trustee is hereby making an Interest Drawing
under the Letter of Credit with respect to $_________ to be used for a
payment of interest on the Bonds in accordance with the terms and
provisions of the Bonds.
(3) The amount of interest on the Bonds that is due and
payable and with respect to which the Trustee does not have available
amounts that, pursuant to Section 4.02 of the Indenture, are to be
applied to such payment prior to monies drawn under the Letter of
Credit is $____________, and the aggregate amount of all drawings
referred to in paragraph 2 does not exceed the amount of interest on
the Bonds that is due and payable and does not exceed an amount equal
to 210 days' accrued interest on the Bonds computed at the actual rate
of interest thereon during the period for which this drawing is being
made (which rate does not exceed twelve percent (12%) per annum).
(4) The amount set forth in paragraph 2 of this
Certificate does not exceed the amount available on the date hereof to
be drawn under the Interest Portion of the Letter of Credit in respect
of payment of interest accrued on the Bonds on or prior to their
stated maturity date.
(5) The amount set forth in paragraph 2 of this
Certificate was computed in accordance with the terms and conditions
of the Bonds and the Indenture and does not include any amount to be
used to pay interest on Bonds owned by Industries or any Affiliate (as
defined in the Indenture) of either of them.
(6) The amount set forth in paragraph 2 should be:
/ / deposited into our account number ______________ maintained
with you; or
__________________________________
*For payment of interest due and payable on the Bonds.
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<PAGE> 215
/ / wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ______________
account number _____________
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of ____________________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:_____________________________________
Title:_______________________________
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<PAGE> 216
SCHEDULE C TO
LETTER OF CREDIT*
CERTIFICATE FOR "C DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The Trustee is hereby making a Principal Drawing
under the Letter of Credit with respect to $_______________ to be used
for payment of the portion of purchase price of Bonds delivered to the
Trustee or Remarketing Agent (as defined in the Indenture) in
accordance with Section 7 of the Bonds equal to the principal amount
of such Bonds.
(3) The Trustee has delivered or caused to be delivered
to the Bank, as provided in the Indenture, or to its designated agent
or account, a principal amount of Bonds equal to the aggregate amount
stated in paragraph 2 above.
(4) The amount set forth in paragraph 2 should be:
/ / deposited into our account number ______________ maintained
with you; or
/ / wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ______________
account number _____________
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
__________________________________
* For payment of a portion of purchase price of Bonds corresponding to the
principal amount thereof delivered to the Trustee or Remarketing Agent upon
notice at least two Business Days prior to the first day of an Interest Rate
Period.
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<PAGE> 217
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ___ day of _________________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:________________________________
Title:__________________________
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<PAGE> 218
SCHEDULE D TO
LETTER OF CREDIT*
CERTIFICATE FOR "D DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The Trustee is hereby making an Interest Drawing
under the Letter of Credit with respect to $_____________ to be used
for payment of the portion of purchase price of Bonds delivered to the
Trustee or Remarketing Agent (as defined in the Indenture) pursuant to
Section 7 of the Bonds equal to the amount of accrued and unpaid
interest on such Bonds to the date of purchase thereof.
(3) The aggregate amount of all drawings referred to in
paragraph 2 does not exceed that amount of such portion of purchase
price that is due and payable and does not exceed an amount equal to
210 days' accrued interest on the Bonds computed at the actual rate of
interest thereon during the period for which this drawing is being
made (which rate does not exceed twelve percent (12%) per annum).
(4) The amount set forth in paragraph 2 of this
Certificate does not exceed the amount available on the date hereof to
be drawn under the Interest Portion of the Letter of Credit in respect
of payment of interest accrued on the Bonds on or prior to their
stated maturity date.
(5) The amount set forth in paragraph 2 of this
Certificate was computed in accordance with the terms and conditions
of the Bonds and the Indenture.
(6) The amount set forth in paragraph 2 should be:
/ / deposited into our account number ______________ maintained
with you; or
__________________________________
* For payment of the portion of the purchase price of Bonds delivered to
the Trustee or Remarketing Agent upon notice at least two Business Days prior
to the first day of an Interest Rate Period corresponding to accrued interest
thereon.
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<PAGE> 219
/ / wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ______________
account number _____________
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ___ day of _________________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:_______________________________
Title:_________________________
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SCHEDULE E TO
LETTER OF CREDIT*
CERTIFICATE FOR "E DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The Trustee is hereby making a Principal Drawing
under the Letter of Credit with respect to $________________ to be
used for payment of the portion of purchase price of Bonds delivered
to the Trustee or Remarketing Agent (as defined in the Indenture) in
accordance with Section 7 of the Bonds.
(3) The Trustee has delivered or caused to be delivered
to the Bank as provided in the Indenture, or to its designated agent
or account, a principal amount of Bonds equal to the aggregate amount
stated in paragraph 2 above.
(4) The amount set forth in paragraph 2 should be:
/ / deposited into our account number ______________ maintained
with you; or
/ / wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ______________
account number _____________
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
----------------------------------
*For payment of the purchase price of Bonds corresponding to the principal
amount thereof delivered to the Trustee or Remarketing Agent upon seven-days'
notice.
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<PAGE> 221
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ___ day of _________________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:_______________________________
Title:_________________________
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<PAGE> 222
SCHEDULE F TO
LETTER OF CREDIT*
CERTIFICATE FOR "F DRAWING"
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The Trustee is hereby making an Interest Drawing
under the Letter of Credit with respect to $_____________ to be used
for payment of the portion of purchase price of Bonds delivered to the
Trustee or Remarketing Agent pursuant to Section 7 of the Bonds equal
to the amount of accrued and unpaid interest on such Bonds to the date
of purchase thereof.
(3) The aggregate amount of all drawings referred to in
paragraph 2 does not exceed the amount of such portion of purchase
price that is due and payable and does not exceed an amount equal to
210 days' accrued interest on the Bonds computed at the actual rate of
interest thereon during the period for which this drawing is being
made (which rate does not exceed twelve percent (12%) per annum).
(4) The amount set forth in paragraph 2 of this
Certificate does not exceed the amount available on the date hereof to
be drawn under the Interest Portion of the Letter of Credit in respect
of payment of interest accrued on the Bonds on or prior to their
stated maturity date.
(5) The amount set forth in paragraph 2 of this
Certificate was computed in accordance with the terms and conditions
of the Bonds and the Indenture.
(6) The amount set forth in paragraph 2 should be:
/ / deposited into our account number ______________ maintained
with you; or
----------------------------------
* For payment of the portion of purchase price of Bond delivered to the
Trustee or Remarketing Agent upon seven-days' notice corresponding to accrued
interest thereon.
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<PAGE> 223
/ / wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ______________
account number _____________
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ___ day of _________________, 19__.
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as Trustee
By:______________________________
Title:________________________
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<PAGE> 224
SCHEDULE G
TO LETTER OF CREDIT
NationsBank of North Carolina,
National Association
100 Tryon Street, 9th Floor
NationsBank Plaza
Charlotte, North Carolina 28255
Attn: Letter of Credit Department
Re: Irrevocable Letter of Credit
No. 41055
Gentlemen:
The undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
respect to the above-referenced Letter of Credit (the "Letter of Credit")
issued by the Bank in favor of the Trustee as follows:
(1) The conditions precedent to the acceptance of an
"Alternate Security Arrangement" set forth in Section 5.01 of the
Indenture of Trust dated as of September 1, 1987, between the
Littlestown Industrial Development Authority and National Westminster
Bank, USA (to which the undersigned is a successor Trustee) (the
"Indenture") have been satisfied, and
(2) As Trustee under the Indenture, the Trustee has
accepted such Alternate Security Arrangement.
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<PAGE> 225
Pursuant to the Indenture, we are delivering herewith the Letter of Credit for
cancellation on the 15th day from the date hereof.
Very truly yours,
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION
By:____________________________________
Title:______________________________
Approved:
HANOVER DIRECT PENNSYLVANIA, INC. (formerly
HANOVER HOUSE INDUSTRIES, INC.)
By:_________________________________
Title:___________________________
Date:____________________________
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<PAGE> 226
SCHEDULE H TO
LETTER OF CREDIT
NationsBank of North Carolina,
National Association
100 Tryon Street, 9th Floor
NationsBank Plaza
Charlotte, North Carolina 28255
Attn: Letter of Credit Department
Re: Irrevocable Letter of Credit
No. 41055
Gentlemen:
The Undersigned, a duly authorized officer of SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION, as Trustee (the "Trustee"), hereby certifies
to NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION (the "Bank"), with
reference to Irrevocable Letter of Credit No. 41055 issued by the Bank in favor
of the Trustee (the "Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for
the owners of the Bonds.
(2) The aggregate principal amount of the Bonds
outstanding on __________________________ is _____________________.
The amount equal to 210 days' accrued interest (at an assumed rate of
12% per annum) computed on the basis of a year of 360 days on the
outstanding Bonds is $______________.
(3) You are entitled to adjust the Principal Portion and
Interest Portion of the Letter of Credit in accordance with paragraph
2 above.
Any capitalized term used herein and not defined herein shall have the
same meaning herein as ascribed to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ___ day of _________________, 19__.
Approved: SHAWMUT BANK CONNECTICUT,
HANOVER DIRECT PENNSYLVANIA, INC. NATIONAL ASSOCIATION,
(formerly
HANOVER HOUSE INDUSTRIES, INC.) as Trustee
By:__________________________ By:__________________________
Title:____________________ Title:____________________
Q-20
<PAGE> 227
SCHEDULE I TO
LETTER OF CREDIT
NationsBank of North Carolina,
National Association
100 North Tryon Street, 9th Floor
NationsBank Plaza
Charlotte, North Carolina 28255
Attn: Letter of Credit Department
Re: Irrevocable Letter of Credit
No. 41055
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably transfers to
(Name of Transferee)
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety. It is hereby certified that the transferee is
successor Trustee under the Indenture of Trust dated as of September 1, 1987,
between National Westminster Bank USA (to which the undersigned is a successor)
and the Littlestown Industrial Development Corporation.
By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the transferee and the transferee shall
have the sole rights as beneficiary thereof, including sole rights relating to
any amendments, whether increases or extensions or other amendments and whether
now existing or hereafter made. All amendments are to be advised direct to the
transferee without necessity of any consent of or notice to the undersigned
beneficiary.
The advice of such Letter of Credit is returned herewith and we ask
you to endorse the transfer on the reverse thereof, and forward it directly to
the transferee with your customary notice of transfer.
Yours very truly,
Accepted and Approved:
NAME OF TRANSFEREE
By:______________________ __________________________________
(Authorized Officer) Title:____________________________
Q-21
<PAGE> 228
SCHEDULE 7.01(c)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
GUARANTORS EXCLUDED FROM SOLVENCY REPRESENTATION
AND WARRANTY
Gump's Holdings, Inc.
Hanover Direct New Jersey, Inc.
Hanover Holdings Inc.
Henre, Inc.
TW Acquisitions Inc.
American Down & Textile Company (f/k/a The Company
Manufacturing, Inc.)
Southern California Comfort Corporation (f/k/a SDSA, Inc.)
Gump's By Mail, Inc.
Gump's Corp.
Hanover Financing Company, Inc.
Tweeds, Inc.
Tweeds of Vermont, Inc.
H.H.B.K., Inc.
BC Corporation of Tennessee, Inc.
H&H 1600 Broadway Corp.
<PAGE> 229
SCHEDULE 7.01(d)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
SUBSIDIARIES OF BORROWER(1)
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of and Percentage
Authorized Each Class Issued and Owned by
Name of Subsidiary Capitalization Outstanding Shareholder
------------------ -------------- --------------------- ---------------
<S> <C> <C> <C>
A. DIRECT SUBSIDIARIES OF
HANOVER DIRECT, INC.
BOA Corporation 10,000 shares, par 100 HDI (100%)
(f/k/a Bojangles' of value $.01 per share
America, Inc.)*
Brawn of California, Inc. 25,000 shares, par value $1.00 25,000 HDI (100%)
per share
Company Store Holdings, Inc. 1,000 shares, par value $0.01 per 1,000 HDI (100%)
(f/k/a TCSA, Inc. (Del.) and
TWD Acquisition share Corp.)
D.M. Advertising, Inc. 1,000 shares, par value $0.10 per 100 HDI (100%)
share
Gump's Holdings, Inc. 1,000 shares, par value $0.01 per 100 HDI (100%)
share
Hanover Catalog Holdings, Inc. 100 shares, par value $1.00 per 100 HDI (100%)
share
Hanover Direct New Jersey, Inc. 1,000 shares, par value $0.01 per 1,000 HDI (100%)
share
Hanover Direct Pennsylvania, Inc. (f/k/a 1,000 shares, par value $1.00 per 1,000 HDI (100%)
Hanover Direct Fulfillment, Inc., share
Hanover Direct, Inc. and Hanover House
Industries, Inc.)
Hanover Direct Virginia, Inc. 1,000 shares, par value $0.01 per 1,000 HDI (100%)
share
Hanover Fulfillment of Virginia, Inc. 1,000 shares of Common Stock, par 1,000 HDI (100%)
value $0.01 per share
Hanover Holdings Inc. 1,000 shares, par value $0.01 per 1,000 HDI (100%)
share
Hanover Realty Inc. 1,000 shares of Common Stock, par 1,000 HDI (100%)
value $0.01 per share
Hanover Syndication Corp.* 100 shares of Common Stock, par 50 HDI (100%)
value $1.00 per share
Hanover Ventures, Inc. (New Jersey d/b/a 1,000 shares, par value $0.01 per 1,000 HDI (100%)
Hanover Direct Ventures, Inc.) share
</TABLE>
__________________________________
(1) All of the Subsidiaries of the Borrower are Guarantors except those
designated with an asterisk (*).
<PAGE> 230
SCHEDULE 7.01(d)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
SUBSIDIARIES OF BORROWER(1)
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of and Percentage
Authorized Each Class Issued and Owned by
Name of Subsidiary Capitalization Outstanding Shareholder
------------------ -------------- --------------------- ----------------
<S> <C> <C> <C>
Henre, Inc. 1,000 shares of Common Stock, par 1,000 HDI (100%)
value $0.01 per share
H.H.B.K., Inc. 20,000 shares, par value $1.00 100 HDI (100%)
per share
The Horn & Hardart Company, Inc.* 10,000 shares, par value $1.00 10,000 HDI (100%)
per share
The Horn & Hardart Consulting Corp.* 200 shares, no par value 10 HDI (100%)
The Horn & Hardart Realty Company, Inc.* 200 shares, no par value 200 HDI (100%)
Leavitt Advertising Agency, Inc. 20,000 shares, par value $1.00 20,000 HDI (100%)
[In liquidation/ dissolution]* per share
Maxwell's of San Francisco, Inc. 100 shares, no par value 100 HDI (100%)
[In liquidation/ dissolution after
10/15/94]*
TW Acquisitions Inc. 1,000 shares, par value $0.01 per 1,000 HDI (100%)
share
Hanover Financing Company, Inc.* 1,000 shares of Common Stock, par 100 HDI (100%)
value $0.01 per share
Hanover Inspirations, Inc.* 1,000 shares of Common Stock, par 1,000 GHI (100%)
value $0.01 per share
B. INDIRECT SUBSIDIARIES
American Down & Textile Company (f/k/a 1,000 shares, par value $0.01 per 1,000 CSH (100%)
The Company Manufacturing, Inc.) share
The Company Factory, Inc. 1,000 shares, par value $0.01 per 1,000 CSH (100%)
share
The Company Office, Inc. 1,000 shares, par value $0.01 per 1,000 CSH (100%)
share
The Company Store, Inc. 1,000 shares, par value $0.01 per 1,000 CSH (100%)
(f/k/a TCSA, Inc.) share
</TABLE>
____________________________
(1) All of the Subsidiaries of the Borrower are Guarantors except those
designated with an asterisk (*).
-2-
<PAGE> 231
SCHEDULE 7.01(d)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
SUBSIDIARIES OF BORROWER(1)
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of and Percentage
Authorized Each Class Issued and Owned by
Name of Subsidiary Capitalization Outstanding Shareholder
------------------ -------------- --------------------- -----------------
<S> <C> <C> <C>
Scandia Down Corporation (f/k/a Skandia 1,000 shares of Common Stock, par 1,000 CSH (100%)
Down, Inc.) value $0.01 per share
Skandia Down Sales, Inc. 1,000 shares, par value $0.01 per 1,000 CSH (100%)
share
Southern California Comfort Corporation 1,000 shares, par value $0.01 per 1,000 CSH (100%)
(f/k/a SDSA, Inc.) share
BC Corporation of Tennessee, Inc. 30,000 shares, par value $0.10 100 BOAC (100%)
per share
Gump's By Mail, Inc. 1,000 shares of Common Stock, par 1,000 GHI (100%)
value $0.01 per share
Gump's Corp. 1,000 shares (no par value 1,000 GHI (100%)
stated)
Hanover Direct Mail Marketing, Inc. 200 shares of Common Stock, no 200 HDPI (100%)
par value
Hanover Finance Corporation (California 1,000 shares, par value $0.01 per 1,000 HDPI (100%)
d/b/a Horn & Hardart Finance share
Corporation)
Hanover List Management Inc. 500 shares, par value $0.01 per 500 HDPI (100%)
share
National Catalog Liquidators, 100 shares, par value $1.00 per 100 HDPI (100%)
Inc. [In liquidation/ dissolution]* share
York Fulfillment Company, Inc. 1,000 shares of Common Stock, par 1,000 HDPI (100%)
value $1.00 per share
H.H.B.K. 45th Street Corp.* 200 shares, no par value 10 HDPI (100%)
H & H 1600 Broadway Corp. 200 shares, no par value 100 HDPI (100%)
395 West Broadway H.H.B.K., Inc. 200 shares, no par value 50 HDPI (100%)
</TABLE>
____________________________
(1) All of the Subsidiaries of the Borrower are Guarantors except those
designated with an asterisk (*).
-3-
<PAGE> 232
SCHEDULE 7.01(d)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
SUBSIDIARIES OF BORROWER(1)
<TABLE>
<CAPTION>
Number of Shares
Number of Shares of and Percentage
Authorized Each Class Issued and Owned by
Name of Subsidiary Capitalization Outstanding Shareholder
------------------ -------------- --------------------- ----------------
<S> <C> <C> <C>
H.I.M. Inc. [In liquidation/ 100 shares, par value $1.00 per 100 HDPI (100%)
dissolution]* share
Tweeds, Inc. 8,004,479 shares, consisting of 4,986,368 TWAI (100%)
6,000,000 shares of Common Stock, (Common Stock)
par value $0.01 per share and
2,004,479 shares of Preferred (No Preferred Stock
Stock, par value $0.01 per share issued and outstanding)
Tweeds of Vermont, Inc. 1,000 shares, par value $0.01 per 1,000 TWAI (100%)
share
</TABLE>
________________________________
Shareholder Code:
1) Hanover Direct, Inc. = HDI
2) Company Store Holdings, Inc. = CSH
3) BOA Corporation = BOAC
4) Gump's Holdings, Inc. = GHI
5) Hanover Direct Pennsylvania, Inc. = HDPI
6) TW Acquisitions Inc. = TWAI
__________________________
(1) All of the Subsidiaries of the Borrower are Guarantors except those
designated with an asterisk (*).
-4-
<PAGE> 233
SCHEDULE 7.01(e)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
INVESTMENTS IN OTHER PERSONS
<TABLE>
<CAPTION>
Name of Non-Subsidiary Person
Person of Which Borrower Owns
Direct or Indirect Interest Record Owner of Interest
------------------------------ ------------------------
<S> <C>
Aegis Safety Holdings, Inc. Hanover Holdings, Inc.
Boston Publishing Company, Inc. Hanover Holdings, Inc.
</TABLE>
<PAGE> 234
SCHEDULE 7.01(f)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity Guarantor Collateral
---- ----------- ------------------ ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. 9.25% Senior Subordinated Notes due $20,000,000 Hanover (as 1998 subsidiaries none
1998 successor to THC) of Hanover(1)
2. 7 1/2% Convertible Subordinated $ 751,000 Hanover (as 2007 none none
Debentures due 2007 successor to H&H)
3. Reimbursement Agreement dated $ 8,000,000 HDPI(2) 2003 Hanover (as Leasehold
September 1, 1987 in respect of Letter successor to Mortgage and
of Credit securing Littlestown H&H andTHC), Assignment of
Industrial Development Authority Brawn Sublease on
Variable Rate Demand Industrial Principal
Development Revenue Refunding Bonds, Fulfillment
1987 Series (Hanover House Industries, Center, Hanover,
Inc. Project) PA
4. Purchase Money Mortgage Note issued to $ 690,000 H.H.B.K., Inc. 1995 Hanover (as mortgage on
Florescue & Andrews Investments Inc. successor to certain Florida
(Prime plus 2%) H&H and THC) properties of
H.H.B.K., Inc.
5. mortgage obligations (restaurant $ 378,000 H.H.B.K., Inc. demand none none
related)
</TABLE>
---------------------------
(1) Guarantor subsidiaries of Hanover are the following: Brawn of
California, Inc., D.M. Advertising, Inc., Gump's by Mail, Inc. Gump's
Holdings, Inc., Hanover Direct Pennsylvania, Inc., Hanover Direct Mail
Marketing, Inc., Hanover List Management Inc., Hanover Syndication
Corp., H.I.M. Inc., Leavitt Advertising Agency, Inc., Ring Response
Ltd. and York Fulfillment Company, Inc.
(2) "HDPI" means Hanover Direct Pennsylvania, Inc.
<PAGE> 235
SCHEDULE 7.01(f)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (con't)
INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity Guarantor Collateral
---- ----------- ------------------ ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
6. Account Purchase Agreement with GECC(3) $75,000,000 Hanover (as 1995 none receivables
maximum commitment successor to THC), created by
HDPI, Brawn purchases made
with HDPI and
Brawn house
credit cards,
and reserve
7. Member Agreement with Litle & Company(4) (8,000,000 bank HDPI April, 1994 none receivables
card and 2,600,000 created by
non-bank card purchases made
sales records and with certain
refunds; see credit cards,
Schedule A of subject to
Member Agreement) reserve creation
8. Capital lease dated June 28, 1991 for $ 2,215 per month HDPI N/A none none
computer equipment from Platinum for 36 months
Technology, Inc.
9. Capital lease dated April 1, 1991 for $ 2,094 per month Hanover (as N/A none none
computer equipment from Nelco, Ltd. for 60 months successor to THC)
10. Capital lease dated September 1, 1991 $ 1,321 per month Hanover (as N/A none none
for balers from Nelco, Ltd. for 60 months successor to THC)
</TABLE>
----------------------------------
(3) Items 6 and 7 are listed here as a precaution only, as they constitute
sales of receivables.
(4) Items 6 and 7 are listed here as a precaution only, as they constitute
sales of receivables.
-2-
<PAGE> 236
SCHEDULE 7.01(f)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (con't)
INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity Guarantor Collateral
---- ----------- ------------------ ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
11. Note payable dated December 1, 1991 $ 1,912 per month Brawn N/A none none
for Brawn store leasehold improvements for 60 months
from Safe Partnership
12. 6% mortgage note in favor of The State $ 2,800,000 TCS Factory August, 1998 none factory facility
of Wisconsin Investment Board in La Crosse,
Wisconsin
13. 6% mortgage note in favor of $ 700,000 TCS Office August, 1998 none office facility
Prudential Interfunding Corp. in La Crosse,
Wisconsin
14. 6% secured promissory note in favor of $ 733,333.33 TCSA-Delaware October,1994 none equipment of
Prudential Interfunding Corp. TCSA-Delaware
15. 6% secured promissory note in favor of $ 366,666.67 TCSA-Delaware October,1994 none equipment of
The State of Wisconsin Investment TCSA-Delaware
Board
16. Capital lease dated December 1989 for $11,500 per month Tweeds N/A none none
computer equipment from G.E. Capital for 60 months
17. Capital lease dated September 2, 1993 $66,524 per month Hanover N/A none none
for computer equipment from Hewlitt for 48 months
Packard
</TABLE>
-3-
<PAGE> 237
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
HANOVER DIRECT, CALIFORNIA NELCO, LTD. 92225837 10-19-92 CERTAIN LEASED
INC.(1) EQUIPMENT
GENERAL ELECTRIC CAPITAL 92264629 12-17-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 92264629 EXCLUDED
NELCO, LTD. 93023742 02-02-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 93023745 02-02-93 CERTAIN LEASED
EQUIPMENT
NEVADA GENERAL ELECTRIC CAPITAL 9211673 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 9211673 EXCLUDED
NEW JERSEY NELCO, LTD. 1389164 03-13-91 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 1462552 06-30-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 1479558 10-22-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 1479559 10-22-92 CERTAIN LEASED
EQUIPMENT
GENERAL ELECTRIC CAPITAL 1487738 12-17-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 1487738 EXCLUDED
NELCO, LTD. 1495142 02-04-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 1500294 03-10-93 CERTAIN LEASED
EQUIPMENT
PENNSYLVANIA NELCO, LTD. 19430963 02-25-91 CERTAIN LEASED
EQUIPMENT
</TABLE>
--------------------------------------------------------------------------------
(1) AS SUCCESSOR TO THE HANOVER COMPANIES.
<PAGE> 238
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (con't)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NELCO, LTD. 19460190 03-04-91 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 20020021 08-29-91 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 20200559 10-28-91 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 20220628 11-04-91 CERTAIN LEASED
EQUIPMENT
CRESTAR BANK 20510932 02-10-92 CERTAIN LEASED
ASSIGNMENT OF EQUIPMENT
19430963
NELCO, LTD. 20541248 02-21-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 20700109 04-13-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 20990035 07-10-92 CERTAIN LEASED
EQUIPMENT
SIGNET BANK/VIRGINIA 21190144 09-14-92 CERTAIN LEASED
ASSIGNMENT OF EQUIPMENT
19460190
NELCO, LTD. 21321313 10-30-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 21391455 11-23-92 CERTAIN LEASED
EQUIPMENT
GENERAL ELECTRIC CAPITAL 21470327 12-17-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 21470327 EXCLUDED
NELCO, LTD. 21470084 12-18-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 21611196 02-03-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 21611200 02-03-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 21710351 03-03-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 21740129 03-12-93 CERTAIN LEASED
EQUIPMENT
SUSQUEBANC LEASE CO. 21111380 08-20-92 CERTAIN LEASED
EQUIPMENT
</TABLE>
-2-
<PAGE> 239
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SUSQUEBANC LEASE CO. 21190597 09-15-92 CERTAIN LEASED
EQUIPMENT
SIEMENS CREDIT 21300055 10-29-92 CERTAIN LEASED
CORPORATION EQUIPMENT
GENERAL ELECTRIC CAPITAL 21470333 12-17-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF
CORP. 21470333
AT&T CREDIT CORP. 21741132 <COPY CERTAIN LEASED
ILLEGIBLE> EQUIPMENT
AT&T CREDIT CORP. 22250092 07-30-93 CERTAIN LEASED
EQUIPMENT
AT&T CREDIT CORP. 22631031 12-02-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 2921513 03-15-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 22921516 03-15-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. ASSIGNMENT OF 08-25-94 CERTAIN LEASED
22921516 EQUIPMENT
NELCO, LTD. 23110089 05-10-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 23241292 06-20-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 23241303 06-20-94 CERTAIN LEASED
EQUIPMENT
ADAMS COUNTY, NELCO, LTD. 37-481 03-04-91 CERTAIN LEASED
PENNSYLVANIA, EQUIPMENT
PROTHONOTARY
SIGNET BANK/VIRGINIA ASSIGNMENT OF 09-14-92 CERTAIN LEASED
37-481 EQUIPMENT
NELCO, LTD. 37-497 03-11-91 CERTAIN LEASED
EQUIPMENT
CRESTAR BANK ASSIGNMENT OF 11-14-91 CERTAIN LEASED
37-497 EQUIPMENT
NELCO, LTD. 37-968 10-31-91 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 37-980 11-06-91 CERTAIN LEASED
EQUIPMENT
</TABLE>
-3-
<PAGE> 240
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NELCO, LTD. 38-162 02-24-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-246 04-13-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-451 07-10-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-648 10-19-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-714 11-23-92 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-767 12-21-92 CERTAIN LEASED
EQUIPMENT
GENERAL ELECTRIC CAPITAL 38-770 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 38-770 EXCLUDED
NELCO, LTD. 38-833 02-01-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-834 02-01-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-901 03-16-93 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 38-902 03-16-93 CERTAIN LEASED
EQUIPMENT
YORK COUNTY, NELCO, LTD. 91-ST-02477-01 08-29-92 CERTAIN LEASED
PENNSYLVANIA, EQUIPMENT
PROTHONOTARY
GENERAL ELECTRIC CAPITAL 92-ST-03589-01 12-21-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL 92-ST-03589-01 CERTAIN COLLATERAL
CORP. EXCLUDED
HANOVER DIRECT CALIFORNIA GENERAL ELECTRIC CAPITAL 92266645 12-21-92 GENERAL
PENNSYLVANIA, CORP.
INC. (2)
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 92266645 EXCLUDED
</TABLE>
--------------------------------------------------------------------------------
(2) DEBTOR UNDER PRIOR NAME OF HANOVER DIRECT, INC.
-4-
<PAGE> 241
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NELCO, LTD. 94050790 03-15-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 94950799 03-15-94 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 94126025 06-21-94 CERTAIN LEASED
EQUIPMENT
NEVADA GENERAL ELECTRIC CAPITAL 9211671 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 9211671 EXCLUDED
NEW JERSEY UNIBANK A/S 1434007 01-07-92 CERTAIN LAND,
FIXTURES AND
EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
1434007
PITNEY BOWES CREDIT 1484021 11-20-90 CERTAIN LEASED
CORP. EQUIPMENT
GENERAL ELECTRIC CAPITAL 1487739 12-17-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 1487739 EXCLUDED
EATON FINANCIAL CORP. 1497094 02-22-93 CERTAIN LEASED
EQUIPMENT
HUDSON COUNTY, NEW UNIBANK A/S 1992-0028 01-07-92 CERTAIN LAND,
JERSEY FIXTURES AND
EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
1992-0028
PENNSYLVANIA PRIVATBANKEN A/S 15600001 09-21-87 CERTAIN LAND,
FIXTURES AND
EQUIPMENT
UNIBANK A/S 19371632 02-05-91 CERTAIN LAND,
ASSIGNMENT OF FIXTURES AND
15600001 EQUIPMENT
UNIBANK A/S 20441393 01-21-92 (DEBTOR NAME CHANGE)
AMENDMENT OF
15600001
</TABLE>
-5-
<PAGE> 242
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
UNIBANK A/S 20660725 03-30-92 CERTAIN LAND,
CONTINUATION OF FIXTURES AND
15600001 EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
15600001
UNIBANK A/S AMENDMENT OF 07-18-94 AMENDMENT TO DEBTOR
15600001 NAME AND ADDRESS
UNIBANK A/S, NEW YORK 23331754 <DATE CERTAIN LAND,
BRANCH ILLEGIBLE> FIXTURES AND
EQUIPMENT
ADAMS COUNTY, PRIVATBANKEN A/S 34420 09-02-87 CERTAIN LAND,
PENNSYLVANIA, FIXTURES AND
PROTHONOTARY EQUIPMENT
UNIBANK A/S ASSIGNMENT OF 02-05-91 CERTAIN LAND,
34420 FIXTURES AND
EQUIPMENT
UNIBANK A/S AMENDMENT OF 01-21-92 (DEBTOR NAME CHANGE)
34420
UNIBANK A/S 38216 03-30-92 CERTAIN LAND,
CONTINUATION OF FIXTURES AND
34420 EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
34420
GENERAL ELECTRIC CAPITAL 38769 12-21-92 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 38769 EXCLUDED
ADAMS COUNTY, PRIVATBANKEN A/S 1556 09-02-87 CERTAIN LAND,
PENNSYLVANIA, FIXTURES AND
RECORDER EQUIPMENT
UNIBANK A/S ASSIGNMENT OF 02-05-91 CERTAIN LAND,
1556 FIXTURES AND
EQUIPMENT
UNIBANK A/S AMENDMENT OF 01-21-92 (DEBTOR NAME CHANGE)
1556
UNIBANK A/S 2069 04-10-92 CERTAIN LAND,
CONTINUATION OF FIXTURES AND
1556 EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
1556
</TABLE>
-6-
<PAGE> 243
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YORK COUNTY, PRIVATBANKEN A/S 87-ST-03393-01 09-31-87 CERTAIN LAND,
PENNSYLVANIA, FIXTURES AND
PROTHONOTARY EQUIPMENT
UNIBANK A/S ASSIGNMENT OF 02-05-91 CERTAIN LAND,
87-ST-03393-01 FIXTURES AND
EQUIPMENT
UNIBANK A/S AMENDMENT OF 01-21-92 (DEBTOR NAME CHANGE)
87-ST-03393-01
UNIBANK A/S 92-ST-00834-02 03-30-92 CERTAIN LAND,
CONTINUATION OF FIXTURES AND
87-ST-03393-01 EQUIPMENT
UNIBANK A/S AMENDMENT OF INVENTORY EXCLUDED
87-ST-03393-01
SUSQUEBANC LEASE CO. 92-ST-02314-01 08-14-92 CERTAIN LEASED
EQUIPMENT
SUSQUEBANC LEASE CO. 92-ST-02592-01 09-15-92 CERTAIN LEASED
EQUIPMENT
SIEMENS CREDIT CORP. 92-ST-03050-01 10-26-92 CERTAIN LEASED
EQUIPMENT
GENERAL ELECTRIC CAPITAL 92-ST-03591-01 12-21-92 GENERAL
CORPORATION
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 92-ST-03591-01 EXCLUDED
BRAWN OF CALIFORNIA NELCO, LTD. 90130703 05-21-90 CERTAIN LEASED
CALIFORNIA, INC. EQUIPMENT
CRESTAR BANK ASSIGNMENT OF 06-15-92 CERTAIN LEASED
90130703 EQUIPMENT
NELCO, LTD. 90163334 06-26-90 CERTAIN LEASED
EQUIPMENT
CRESTAR BANK ASSIGNMENT OF 07-12-91 CERTAIN LEASED
90163334 EQUIPMENT
NELCO, LTD. 90290316 11-30-90 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 91061055 03-21-90 CERTAIN LEASED
EQUIPMENT
NELCO, LTD. 91200887 09-16-91 CERTAIN LEASED
EQUIPMENT
GENERAL ELECTRIC CAPITAL 92264626 12-17-92 GENERAL
CORPORATION
</TABLE>
-7-
<PAGE> 244
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 92264626 EXCLUDED
XEROX CORPORATION 94021406 02-02-94 CERTAIN LEASED
EQUIPMENT
NEVADA GENERAL ELECTRIC CAPITAL 9211672 GENERAL
CORP.
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 9211672 EXCLUDED
NEW JERSEY GENERAL ELECTRIC CAPITAL 1487737 12-17-92 GENERAL
CORPORATION
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 1487737 EXCLUDED
PENNSYLVANIA GENERAL ELECTRIC CAPITAL 21470321 12-17-92 GENERAL
CORPORATION
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 21470321 EXCLUDED
ADAMS COUNTY, GENERAL ELECTRIC CAPITAL 38-771 12-21-92 GENERAL
PENNSYLVANIA, CORPORATION
PROTHONOTARY
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 38-771 EXCLUDED
YORK COUNTY, GENERAL ELECTRIC CAPITAL 92-ST-03590-01 12-21-92 GENERAL
PENNSYLVANIA, CORPORATION
PROTHONOTARY
GENERAL ELECTRIC CAPITAL AMENDMENT OF CERTAIN COLLATERAL
CORP. 92-ST-03590-01 EXCLUDED
NEW JERSEY CITICORP N.A., INC. 1347285 07-05-90 CERTAIN EQUIPMENT
NEW YORK CITICORP N.A., INC. 117634 06-04-90 CERTAIN EQUIPMENT
NEW YORK COUNTY CITICORP N.A., INC. 90PN27522 06-05-90 CERTAIN EQUIPMENT
</TABLE>
-8-
<PAGE> 245
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS
<TABLE>
<CAPTION>
DEBTOR JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------ ------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ILLINOIS FIRST UNITED LEASING 2548886 03-17-89 CERTAIN LEASED
EQUIPMENT
</TABLE>
-9-
<PAGE> 246
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS ON ASSETS OF GUMP'S BY MAIL, INC. AND GUMP'S CORP.
<TABLE>
<CAPTION>
JURISDICTION DEBTOR NAME CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------------ ----------- -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Texas Gump's Inc. Dataserv Equipment, Inc. 88-00140374 06-16-88 certain leased
equipment
Gump's Inc. Dataserv Financial 91-50156196 09-30-91 certain leased
Services, Inc. assignment of equipment
88-00140374
Gump's Inc. Dataserv Equipment, Inc. 88-00149298 06-24-88 certain leased
equipment
Gump's Inc. Dataserv Equipment, Inc. 88-00195427 08-22-88 certain leased
equipment
Gump's Inc. Dataserv Equipment, Inc. 88-00195428 08-22-88 certain leased
equipment
Gump's Inc. Dataserv Equipment, Inc. 88-00258211 11-09-88 certain leased
equipment
Gump's Inc. Dataserv Financial 91-50156197 09-30-91 certain leased
Services, Inc. assignment of equipment
88-00258211
Gump's Inc. JLA Credit Corp. 91-00115314 06-13-91 certain leased
equipment
Gumps Pitney Bowes Credit 88-00260326 11-09-88 certain leased
Corporation equipment
Gumps Pitney Bowes Credit 88-00288038 12-19-88 certain leased
Corporation equipment
California Gump's Inc. Dataserv Equipment, Inc. 88137342 06-16-88 certain leased
equipment
Gump's, Inc. Dataserv Financial assignment of 10-01-91 certain leased
Services, Inc. 88137342 equipment
Gump's Inc. Dataserv Equipment, Inc. 88138313 06-17-88 certain leased
equipment
Gump's Inc. Dataserv Financial assignment of 10-01-91 certain leased
Services, Inc. 88138313 equipment
Gump's Inc. Dataserv Equipment, Inc. 88206978 08-29-88 certain leased
equipment
Gump's Inc. Smith-Gardner & 93192895 09-21-93 certain leased
Associates equipment
Gump's Inc. General Electric Capital 93140261 07-12-93 general
Corp.
Gump's Inc. Dataserv Equipment, Inc. 88206979 08-29-88 certain leased
equipment
Gumps SENSORMATIC ELECTRONICS 91241814 11-12-91 certain equipment
CORP.
</TABLE>
-10-
<PAGE> 247
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS ON ASSETS OF TWEEDS, INC.
<TABLE>
<CAPTION>
JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NEW JERSEY COPELCO CREDIT CORP. 1291999 09-15-89 CERTAIN LEASED
EQUIPMENT
PRIME COMPUTER, INC. 1292590 09-19-89 CERTAIN LEASED
EQUIPMENT
CHASE MANHATTAN SERVICE ASSIGNMENT OF 11-21-89 CERTAIN LEASED
CORPORATION 1292590 EQUIPMENT
ELLCO LEASING CORPORATION 1313034 01-04-90 CERTAIN LEASED
EQUIPMENT
ELLCO LEASING CORPORATION 1315531 01-17-90 CERTAIN LEASED
EQUIPMENT
BELLSOUTH COMMUNICATION 1328582 03-27-90 CERTAIN EQUIPMENT
SYSTEMS, INC.
BELLSOUTH FINANCIAL ASSIGNMENT OF 05-11-93 CERTAIN EQUIPMENT
SERVICES CORPORATION 1328582
AMERICAN COMPUTER GROUP, 1360535 09-12-90 CERTAIN LEASED
INC. EQUIPMENT
EATON FINANCIAL 1425359 11-07-91 CERTAIN LEASED
CORPORATION EQUIPMENT
GENERAL ELECTRIC CAPITAL 1463710 07-08-92 CERTAIN LEASED
CORPORATION EQUIPMENT
BERGEN COUNTY, NEW BELLSOUTH COMMUNICATIONS 001399 03-21-90 CERTAIN EQUIPMENT
JERSEY SYSTEMS, INC.
BELLSOUTH FINANCIAL 084703 06-18-93 CERTAIN EQUIPMENT
SERVICES CORPORATION ASSIGNMENT OF
001399
AMERICAN COMPUTER GROUP, 004300 09-11-90 CERTAIN LEASED
INC. EQUIPMENT
VIRGINIA SOVRAN LEASING 890110404 01-04-89 CERTAIN LEASED
CORPORATION EQUIPMENT
SOVRAN LEASING AMENDMENT OF 02-14-89 CERTAIN LEASED
CORPORATION 890110404 EQUIPMENT
ADVANTA LEASING CORP. 04-25-89 CERTAIN LEASED
EQUIPMENT
PRIME COMPUTER, INC. 891110822 11-03-89 CERTAIN LEASED
EQUIPMENT
ELLCO LEASING CORPORATION 900110068 01-02-90 CERTAIN LEASED
EQUIPMENT
</TABLE>
-11-
<PAGE> 248
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS ON ASSETS OF TWEEDS, INC.
<TABLE>
<CAPTION>
JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ELLCO LEASING CORPORATION 900120655 01-17-90 CERTAIN LEASED
EQUIPMENT
FIRST FIDELITY BANK, N.A. 900132264 01-31-90 CERTAIN LAND, FIXTURES
AND EQUIPMENT
AMERICAN COMPUTER GROUP, 900911468 09-07-90 CERTAIN LEASED
INC. EQUIPMENT
BELLSOUTH COMMUNICATION 901031597 10-29-90 CERTAIN EQUIPMENT
SYSTEMS, INC.
BELLSOUTH COMMUNICATIONS 901210601 12-04-90 CERTAIN EQUIPMENT
SYSTEMS, INC.
CHASE MANHATTAN LEASING 910131125 CERTAIN EQUIPMENT
CO. INC.
ADVANTA LEASING CORP. 910210953 02-05-91 CERTAIN EQUIPMENT
AMERICAN COMPUTER GROUP, 910310456 03-04-91 CERTAIN LEASED
INC. EQUIPMENT
RAYMOND LEASING CORP. 910511475 CERTAIN EQUIPMENT
RAYMOND LEASING CORP. 910511476 CERTAIN EQUIPMENT
ADVANTA LEASING CORP. 910511645 CERTAIN LEASED
EQUIPMENT
W & H SYSTEMS, INC. 910630265 06-21-91 CERTAIN EQUIPMENT
PITNEY BOWES CREDIT CORP. 910811555 CERTAIN LEASED
EQUIPMENT
ADVANTA LEASING CORP. 911121463 11-18-91 CERTAIN LEASED
EQUIPMENT
BOTETOURT COUNTY, FIRST FIDELITY BANK, N.A. 90-26 01-31-90 CERTAIN LAND, FIXTURES
VIRGINIA AND EQUIPMENT
SOVRAN BANK, N.A. 91-185 05-29-91 GENERAL
CITY OF ROANOKE, AMERICAN COMPUTER GROUP, 076338 09-07-90 CERTAIN LEASED
VIRGINIA INC. EQUIPMENT
BELLSOUTH COMMUNICATION 076555 10-25-90 CERTAIN EQUIPMENT
SYSTEMS, INC
BELLSOUTH FINANCIAL 081551 07-09-93 CERTAIN EQUIPMENT
SERVICES CORPORATION ASSIGNMENT OF
076555
AMERICAN COMPUTER GROUP, 077211 03-04-91 CERTAIN LEASED
INC. EQUIPMENT
</TABLE>
-12-
<PAGE> 249
SCHEDULE 7.01(g)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT (cont'd)
LIENS ON ASSETS OF TWEEDS, INC.
<TABLE>
<CAPTION>
JURISDICTION CREDITOR OR ASSIGNEE FILE NUMBER FILING DATE COLLATERAL
------------ -------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ADVANTA LEASING CORP. 077603 05-13-91 CERTAIN LEASED
EQUIPMENT
ADVANTA LEASING CORP. 078599 11-22-91 CERTAIN LEASED
EQUIPMENT
MIDLANTIC NATIONAL BANK 078734 12-18-91 PROPERTY OBTAINED WITH
LETTERS OF CREDIT
VESCO MHE INC 083748 09-26-94 CERTAIN LEASED
EQUIPMENT
BELLSOUTH FINANCIAL 082544 01-26-94 CERTAIN LEASED
SERVICES CORPORATION EQUIPMENT
</TABLE>
-13-
<PAGE> 250
SCHEDULE 7.01(h)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
TAX MATTERS
None
<PAGE> 251
SCHEDULE 7.01(j)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
MATERIAL PENDING OR THREATENDED LITIGATION AGAINST BORROWER OR ANY SUBSIDIARY
<TABLE>
<CAPTION>
DATE AMOUNT
DESCRIPTION INITIATED COURT OF CLAIM NATURE OF CLAIM STATUS
----------- --------- ----- -------- --------------- ------
<S> <C> <C> <C> <C> <C>
Veronica Zucker and others September, 1994 U.S.D. Ct. -- Claims under Complaint Filed
similarly situated v. Hanover D.N.J. Securities Act for
Direct, Inc. materials
misrepresentation/
omission in
Registration
Statement and sale
of securities
</TABLE>
<PAGE> 252
SCHEDULE 7.01(m)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
PATENTS, ETC.
None
<PAGE> 253
SCHEDULE 7.01(o)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
CONSENTS
None
<PAGE> 254
SCHEDULE 7.01(r)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
HAZARDOUS MATERIALS
None
<PAGE> 255
<TABLE>
<CAPTION>
PROPERTY & CASUALTY
INSURANCE PROGRAMS INSURANCE SCHEDULE 10/07/94
GUMP'S BY MAIL
-------------------------
COVERAGE DEDUCTIBLE POLICY LIMIT POLICY PERIOD POLICY # CARRIER COMMENTS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GEN'L LIAB-PRIMARY NIL $1,000,000 6/5/94-95 TJGLSA-23012999TR 94 TRAVELERS DISCOUNTED GUARANTEED
INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLNG.
AUTO LIABILITY NIL $1,000,000 6/5/94-95 TUCAP-230T2975TIL94 TRAVELERS DISCOUNTED GUARANTEED
TEECAP-230T29871RI94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
$5,000 COMP./COLL.
DEDUCT.
WORKER'S COMPENSATION NIL $1,000,000 6/5/94-95 TJUB-230T296-3-94 TRAVELERS DISCOUNTED GUARANTEED
TRLJUB-230T301-9-94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
FOREIGN LIABILITY NIL $1,000,000 7/12/93-94 PHF 016461 CIGNA FOREIGN LIAB. PKG.
UMBRELLA LIABILITY N/A $100,000,000 6/5/94-95 VARIOUS VARIOUS $10,000 PER OCC.
XS DEDUCTIBLE IF PRIMARY
$1,000,000 POLICY EXHAUSTED PRIOR
YEAR LIMITS $50MM
PROPERTY $25,000 $229,000,000 1/1/94-95 730101 94 PROTECTION $50,000 DED. FLOOD/EARTH
BLANKET MUTUAL MOVEMENT
BOILER & MACHINERY $5,000 see prop. 1/1/94-95 N/A PROTECTION
MUTUAL
DIRECTORS & OFFICERS $350,000 $10,000,000 6/1/94-95 443-10-09 NAT'L UNION 7/12/93 RETRO DATE
FIRE INS. CO CLAIMS MADE & REPORTED,
HDI CNSL. PRGRM.
FIDUCIARY LIABILITY $15,000 $5,000,000 11/11/93-94 4420905 NAT'L UNION CLAIMS MADE & REPORTED
FIRE INS. CO DURING POLICY PERIOD
KIDNAP/RANSOM/EXTORTION NIL $5,000,000 11/11/92-95 80172003 NAT'L UNION (KRE), HDI CNSL. PRGM.
FIRE INS. CO
TRAVEL ACCIDENT NIL $3,000,000 4/4/93-94 ABL660750 LIFE INS. CO CLASS I & II - 500,000
OF N. AMERICA CLASS III & IV - 250,000
HDI CNSL. PRGM.
OCEAN MARINE CARGO $10,000 $20,000,000 11/15/93-94 388???? ST. PAUL T&M ANNUAL DEPOSIT PREMIUM
OCC710537 CONTINENTAL INC. EXHIBITIONS &
SPECIAL TRANSIT
CRIME $25,000 $5,000,000 7/12/94-95 CBB73010294 PROTECTION EMPLOYEE DISHONESTY,
MUTUAL THEFT, DESTRUCTION,
COMPUTER & FUNDS
TRANSFER FRAUD
AVIATION LIABILITY NIL $25,000,000 12/9/93-1/1/95 SO 0269088 CIGNA NON OWNED, CHARTERED
AIRCRAFT USE LIABILITY
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is the policy of Hanover Direct to utilize insurers rated A - IX or better by
A.M. Best with equivalent ratings from similar services such as Moodys or
Standard & Poors.
<PAGE> 256
<TABLE>
<CAPTION>
PROPERTY & CASUALTY
INSURANCE PROGRAMS INSURANCE SCHEDULE 10/07/94
GUMP'S CORP.
-------------------------
COVERAGE DEDUCTIBLE POLICY LIMIT POLICY PERIOD POLICY # CARRIER COMMENTS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GEN'L LIAB-PRIMARY NIL $1,000,000 6/5/94-95 TJGLSA-230T2999IL94 TRAVELERS DISCOUNTED GUARANTEED
INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLNG.
AUTO LIABILITY NIL $1,000,000 6/5/94-95 TJCAP-230T2975TIL94 TRAVELERS DISCOUNTED GUARANTEED
TEECAP-230T29871RI94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
$5,000 COMP./COLL.
DEDUCT.
WORKER'S COMPENSATION NIL $1,000,000 6/5/94-95 TJUB-230T296-3-94 TRAVELERS DISCOUNTED GUARANTEED
TRLJUB-230T301-9-94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
FOREIGN LIABILITY NIL $1,000,000 7/12/93-94 PHF 016461 CIGNA FOREIGN LIAB. PKG.
UMBRELLA LIABILITY N/A $100,000,000 6/5/94-95 VARIOUS VARIOUS $10,000 PER OCC.
XS DEDUCTIBLE IF PRIMARY
$1,000,000 POLICY EXHAUSTED PRIOR
YEAR LIMITS $50MM
PROPERTY $25,000 $229,000,000 1/1/94-95 730101-94 PROTECTION $50,000 DED. FLOOD/EARTH
BLANKET MUTUAL MOVEMENT
BOILER & MACHINERY $5,000 see prop. 1/1/94-95 N.A. PROTECTION
MUTUAL
DIRECTORS & OFFICERS $350,000 $10,000,000 6/1/94-95 443-10-09 NAT'L UNION 7/12/93 RETRO DATE
FIRE INS. CO CLAIMS MADE & REPORTED,
HDI CNSL. PRGRM.
FIDUCIARY LIABILITY $15,000 $5,000,000 11/11/93-94 4420905 NAT'L UNION CLAIMS MADE & REPORTED
FIRE INS. CO DURING POLICY PERIOD
KIDNAP/RANSOM/EXTORTION NIL $5,000,000 11/11/92-93 80-172003 NAT'L UNION (KRE), HDI CNSL. PRGM.
FIRE INS. CO
TRAVEL ACCIDENT NIL $3,000,000 4/4/93-94 ABL660750 LIFE INS. CO CLASS I & II - 500,000
OF N. AMERICA CLASS III & IV - 250,000
HDI CNSL. PRGM.
OCEAN MARINE CARGO $10,000 $20,000,000 11/15/93-94 388 JM0945 ST. PAUL T&M ANNUAL DEPOSIT PREMIUM
OCC 710537 CONTINENTAL INC. EXHIBITIONS &
SPECIAL TRANSIT
CRIME $25,000 $5,000,000 7/12/94-95 CBB73010294 PROTECTION EMPLOYEE DISHONESTY,
MUTUAL THEFT, DESTRUCTION,
COMPUTER & FUNDS
TRANSFER FRAUD
AVIATION LIABILITY NIL $25,000,000 12/9/93-1/1/95 SO 0269088 CIGNA NON OWNED, CHARTERED
AIRCRAFT USE LIABILITY
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is the policy of Hanover Direct to utilize insurers rated A - IX or better by
A.M. Best with equivalent ratings from similar services such as Moodys or
Standard & Poors.
<PAGE> 257
<TABLE>
<CAPTION>
PROPERTY & CASUALTY
INSURANCE PROGRAMS INSURANCE SCHEDULE 10/07/94
THE COMPANY STORE
-------------------------
COVERAGE DEDUCTIBLE POLICY LIMIT POLICY PERIOD POLICY # CARRIER COMMENTS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GEN'L LIAB-PRIMARY NIL $1,000,000 6/5/94-95 TJGLSA-230T2999TIL94 TRAVELERS DISCOUNTED GUARANTEED
INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLNG.
AUTO LIABILITY NIL $1,000,000 6/5/94-95 TJCAP-230T2975TIL94 TRAVELERS DISCOUNTED GUARANTEED
TEECAP-230T29871RI94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
$5,000 COMP./COLL.
DEDUCT.
WORKER'S COMPENSATION NIL $1,000,000 6/5/94-95 TJUB-230T296-3-94 TRAVELERS DISCOUNTED GUARANTEED
TRLJUB-230T301-9-94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
UMBRELLA LIABILITY N/A $100,000,000 6/5/94-95 VARIOUS VARIOUS $10,000 PER OCC.
XS DEDUCTIBLE IF PRIMARY
$1,000,000 POLICY EXHAUSTED PRIOR
YEAR LIMITS $50MM
PROPERTY $25,000 $229,000,000 1/1/94-95 730101-94 PROTECTION $250,000 FLOOD DED. @
BLANKET MUTUAL 500 PARK PLAZA, HDI
CNSL. PRGM.
BOILER & MACHINERY $5,000 see prop. 1/1/94-95 N.A. PROTECTION 3 LOCATIONS, HDI. CNSL.
PRGM.
DIRECTORS & OFFICERS $350,000 $10,000,000 6/1/94-95 443-10-09 NAT'L UNION 6/23/93 RETRO DATE
FIRE INS. CO CLAIMS MADE & REP.
DURING POLICY PERIOD,
HDI CNSL. PRGRM.
FIDUCIARY LIABILITY $15,000 $5,000,000 11/11/93-94 4420905 NAT'L UNION CLAIMS MADE & REPORTED
FIRE INS. CO DURING POLICY PERIOD
KIDNAP/RANSOM/EXTORTION NIL $5,000,000 11/11/92-95 80-172003 NAT'L UNION (KRE), HDI CNSL. PRGM.
FIRE INS. CO
TRAVEL ACCIDENT NIL $3,000,000 4/4/93-94 ABL660750 LIFE INS. CO CLASS I & II - 500,000
OF N. AMERICA CLASS III & IV - 250,000
HDI CNSL. PRGM.
OCEAN MARINE CARGO NIL $1,000,000 11/30/93-94 146018449 ATLANTIC EST. ANNUAL PREM. $850
MUTUAL MIN. DEPOSIT RECON.
EVERY 6 MONTHS, HDI
CNSL. PRGM.
CRIME $25,000 $5,000,000 7/12/94-95 CBB73010294 PROTECTION EMPLOYEE DISHONESTY,
MUTUAL THEFT, DESTRUCTION,
COMPUTER & FUNDS
TRANSFER FRAUD
AVIATION LIABILITY NIL $25,000,000 12/9/93-1/1/95 SO 0269088 CIGNA NON OWNED, CHARTERED
AIRCRAFT USE LIABILITY
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is the policy of Hanover Direct to utilize insurers rated A - IX or better by
A.M. Best with equivalent ratings from similar services such as Moodys or
Standard & Poors.
<PAGE> 258
<TABLE>
<CAPTION>
TWEEDS, INC.
-------------------------
COVERAGE DEDUCTIBLE POLICY LIMIT POLICY PERIOD POLICY # CARRIER COMMENTS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GEN'L LIAB-PRIMARY NIL $1,000,000 6/5/94-95 TJGLSA-230T2999TIL94 TRAVELERS DISCOUNTED GUARANTEED
INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLNG.
AUTO LIABILITY NIL $1,000,000 6/5/94-95 TJCAP-230T2975TIL94 TRAVELERS DISCOUNTED GUARANTEED
TEECAP-230T29871RI94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
$5,000 COMP./COLL.
DEDUCT.
WORKER'S COMPENSATION NIL $1,000,000 6/5/94-95 TJUB-230T296-3-94 TRAVELERS DISCOUNTED GUARANTEED
TRLJUB-230T301-9-94 INS. CO. COST PRGM. INCLUDES LOSS
CNTRL. & CLMS. HNDLG.
FOREIGN LIABILITY NIL $1,000,000 10/18/93-94 3182836 CHUBB/GREAT
NORTHERN INS.
UMBRELLA LIABILITY N/A $100,000,000 6/5/94-95 VARIOUS VARIOUS $10,000 PER OCC.
XS DEDUCTIBLE IF PRIMARY
$1,000,000 POLICY EXHAUSTED PRIOR
YEAR LIMITS $50MM
PROPERTY $5,000 $26,900,000 10/18/93-94 82411280 NORTHBROOK STOCK VALUED @ RETAIL
BLANKET INS. CO. OTHER VALUES @
REPLACEMENT
BOILER & MACHINERY $1,000 $5,000,000 10/18/93-94 3XM049622 KEMPER COMP. INCLUDING
PRODUCTION & PUBLIC
UTILITY EQUIP.
DIRECTORS & OFFICERS $350,000 $10,000,000 6/1/94-95 443-10-09 NAT'L UNION HDIMP. 10/1/93 RETRO.
FIRE INS. CO DATE CLAIMS MADE &
REPORTED
FIDUCIARY LIABILITY $15,000 $5,000,000 11/11/93-94 4420905 NAT'L UNION CLAIMS MADE & REPORTED
FIRE INS. CO DURING POLICY PERIOD
KIDNAP/RANSOM/EXTORTION NIL $5,000,000 11/11/92-95 80-172003 NAT'L UNION (KRE), HDI CNSL. PRGM.
FIRE INS. CO
TRAVEL ACCIDENT NIL $3,000,000 4/4/93-94 ABL660750 LIFE INS. CO CLASS I & II - 500,000
OF N. AMERICA CLASS III & IV - 250,000
HDI CNSL. PRGM.
OCEAN MARINE CARGO NIL $1,000,000 11/30/93-94 146018449 ATLANTIC EST. ANNUAL PREM. $1050
MUTUAL MIN DEPOSIT RECON. EVERY
6 MONTHS, HDI CNSL.
PRGM.
CRIME $25,000 $5,000,000 7/12/94-95 CBB73010294 PROTECTION EMPLOYEE DISHONESTY,
MUTUAL THEFT, DESTRUCTION,
COMPUTER & FUNDS
TRANSFER FRAUD
AVIATION LIABILITY NIL $25,000,000 12/9/93-1/1/95 SO 0269088 CIGNA NON OWNED, CHARTERED
AIRCRAFT USE LIABILITY
SPECIAL TRANSIT $1,000 $300,000 8/23/93-8/1/94 647-63-64 CHUBB/FEDERAL SPECIAL ALL RISK COV.
INS. CO. FOR GOODS IN TRANSIT.
CUSTOMS IMPORT BOND NIL $100,000 9/3/93-94 46013010840931 U.S. FIDELITY CUSTOMS IMPORTER BOND
& GUARANTY
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is the policy of Hanover Direct to utilize insurers rated A - IX or better by
A.M. Best with equivalent ratings from similar services such as Moodys or
Standard & Poors.
<PAGE> 259
SCHEDULE 9.03(i)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
EXISTING INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity
---- ----------- ------------------ ------- --------
<S> <C> <C> <C> <C>
1. 9.25% Senior Subordinated Notes due 1998 $ 14,000,000 Hanover (as successor to 1998
THC)
2. 7 1/2% Convertible Subordinated Debentures $ 751,000 Hanover (as successor to 2007
due 2007 H&H)
3. Reimbursement Agreement dated September $ 8,000,000 HDPI(2) 2003
1, 1987 in respect of Letter of Credit
securing Littlestown Industrial
Development Authority Variable Rate
Demand Industrial Development Revenue
Refunding Bonds, 1987 Series (Hanover
House Industries, Inc. Project)
4. mortgage obligations (restaurant $ 229,000 H.H.B.K., Inc. demand
related)
5. Account Purchase Agreement with $ 75,000,000 Hanover (as successor to 1995
GECC(3) maximum commitment THC), HDPI, Brawn
<CAPTION>
Item
No. Description Guarantor Collateral
---- ----------- --------- ----------
<S> <C> <C> <C>
1. 9.25% Senior Subordinated Notes due 1998 subsidiaries of none
of Hanover(1)
2. 7 1/2% Convertible Subordinated Debentures none none
due 2007
3. Reimbursement Agreement dated September Hanover (as Leasehold Mort-
1, 1987 in respect of Letter of Credit successor to gage and
securing Littlestown Industrial H&H and THC), Assignment of
Development Authority Variable Rate Brawn Sublease on
Demand Industrial Development Revenue Principal
Refunding Bonds, 1987 Series (Hanover Fulfillment
House Industries, Inc. Project) Center,
Hanover, PA
4. mortgage obligations (restaurant none none
related)
5. Account Purchase Agreement with none receivables
GECC(3) created by
purchases made
with HDPI and
Brawn house
credit cards,
and reserve
</TABLE>
--------------------------------------------------------------------------------
(1) Guarantor subsidiaries of Hanover are the following: Brawn of
California, Inc., D.M. Advertising, Inc., Gump's by Mail, Inc., Gump's
Holdings, Inc., Hanover Direct Pennsylvania, Inc., Hanover Direct Mail
Marketing, Inc., Hanover List Management Inc., Hanover Syndication
Corp., H.I.M. Inc., Leavitt Advertising Agency, Inc., Ring Response Ltd.
and York Fulfillment Company, Inc.
(2) "HDPI" means Hanover Direct Pennsylvania, Inc.
(3) Items 6 and 7 are listed here as a precaution only, as they constitute
sales of receivables.
<PAGE> 260
SCHEDULE 9.03(i)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
EXISTING INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity
---- ----------- ------------------ ------- --------
<S> <C> <C> <C> <C>
6. Member Agreement with Litle & (8,000,000 bank HDPI April, 1994
Company(4) card and 2,600,000
non-bank card
sales records and
refunds; see
Schedule A of
Member Agreement)
7. Capital lease dated April 1, 1991 for $ 2,094 per month Hanover (as N/A
computer equipment from Nelco, Ltd. for 60 months successor to THC)
8. Capital lease dated September 1, 1991 $ 1,321 per month Hanover (as N/A
for balers from Nelco, Ltd. for 60 months successor to THC)
9. Note payable dated December 1, 1991 for $ 1,912 per month Brawn N/A
Brawn store leasehold improvements from for 60 months
Safe Partnership
10. 6% mortgage note in favor of The State $ 2,800,000 TCS Factory August, 1998
of Wisconsin Investment Board
11. 6% mortgage note in favor of Prudential $ 700,000 TCS Office August, 1998
Interfunding Corp.
12. 6% secured promissory note in favor of $ 733,333.33 TCSA-Delaware October, 1994
Prudential Interfunding Corp.
<CAPTION>
Item
No. Description Guarantor Collateral
---- ----------- --------- ----------
<S> <C> <C> <C>
6. Member Agreement with Litle & none receivables
Company(4) created by
purchases made
with certain
credit cards,
subject to
reserve
creation
7. Capital lease dated April 1, 1991 for none none
computer equipment from Nelco, Ltd.
8. Capital lease dated September 1, 1991 none none
for balers from Nelco, Ltd.
9. Note payable dated December 1, 1991 for none none
Brawn store leasehold improvements from
Safe Partnership
10. 6% mortgage note in favor of The State none factory
of Wisconsin Investment Board facility in La
Crosse,
Wisconsin
11. 6% mortgage note in favor of Prudential none office facility
Interfunding Corp. in La Crosse,
Wisconsin
12. 6% secured promissory note in favor of none equipment of
Prudential Interfunding Corp. TCSA-Delaware
</TABLE>
--------------------------------------------------------------------------------
(4) Items 6 and 7 are listed here as a precaution only, as they constitute
sales of receivables.
-2-
<PAGE> 261
SCHEDULE 9.03(i)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
EXISTING INDEBTEDNESS OF HANOVER DIRECT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Maximum Commitment
Item or Outstanding Final
No. Description Principal Amount Obligor Maturity
---- ----------- ------------------ ------- --------
<S> <C> <C> <C> <C>
13. 6% secured promissory note in $166,666.67 TCSA-Delaware October, 1994
favor of The State of Wisconsin
Investment Board
14. Capital lease dated December 1989 for $11,500 per month Tweeds N/A
computer equipment from G.E. Capital for 60 months
15. Capital lease dated September 2, 1993 $66,524 per month Hanover N/A
for computer equipment from Hewlitt for 48 months
Packard
<CAPTION>
Item
No. Description Guarantor Collateral
----- ----------- --------- ----------
<S> <C> <C> <C>
13. 6% secured promissory note in none equipment of
favor of The State of Wisconsin TCSA-Delaware
Investment Board
14. Capital lease dated December 1989 for none none
computer equipment from G.E. Capital
15. Capital lease dated September 2, 1993 none none
for computer equipment from Hewlitt
Packard
</TABLE>
-3-
<PAGE> 262
SCHEDULE 9.03(xi)
TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
CAPITAL LEASES
<TABLE>
<CAPTION>
New Computer & Communication Hardware
-------------------------------------
<S> <C>
Macs 3.6MM
Other Computer 2.3
-----
Total Computer 5.9
Communication
Equipment 1.7
-----
Total 7.6MM
</TABLE>
<PAGE> 1
Exhibit 10.6
CONFORMED EXECUTION COPY
REVOLVING CREDIT
AND
TERM LOAN AGREEMENT
by and among
HANOVER DIRECT, INC.,
as Borrower,
the Lenders from time to time party hereto
and
NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION,
as Agent
October 12, 1994
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND TERMS
<TABLE>
<S> <C>
1.01 Definitions
1.02 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.03 Terms Consistent . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE II
THE LOANS
2.01 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . 22
2.02 Competitive Bid Loans . . . . . . . . . . . . . . . . . . . . . . . 24
2.03 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.04 Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . 29
2.05 Payment of Principal . . . . . . . . . . . . . . . . . . . . . . . 30
2.06 Non-Conforming Payments . . . . . . . . . . . . . . . . . . . . . . 30
2.07 Borrower's Account . . . . . . . . . . . . . . . . . . . . . . . . 31
2.08 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.09 Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.10 Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.11 Increase and Decrease in Amounts . . . . . . . . . . . . . . . . . 33
2.12 Conversions and Elections of Subsequent Interest Periods . . . . . 33
2.13 Facility Fee and Upfront Fee . . . . . . . . . . . . . . . . . . . 33
2.14 Deficiency Advances . . . . . . . . . . . . . . . . . . . . . . . . 34
2.15 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.16 Extension of Revolving Credit Termination Date . . . . . . . . . . 34
2.17 Additional Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE III
YIELD PROTECTION AND ILLEGALITY
3.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.02 Suspension of Loans . . . . . . . . . . . . . . . . . . . . . . . . 37
3.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.04 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.05 Alternate Interest Rate. . . . . . . . . . . . . . . . . . . . . 38
3.06 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV
CONDITIONS TO MAKING LOANS
4.01 Conditions of Initial Advance . . . . . . . . . . . . . . . . . . . 40
4.02 Conditions of Loans . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
i
<PAGE> 3
Page
ARTICLE V
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C>
5.01 Representations and Warranties . . . . . . . . . . . . . . . . . . 44
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01 Financial Reports, Etc . . . . . . . . . . . . . . . . . . . . . . 51
6.02 Maintain Properties . . . . . . . . . . . . . . . . . . . . . . . . 52
6.03 Existence, Qualification, Etc . . . . . . . . . . . . . . . . . . . 52
6.04 Regulations and Taxes . . . . . . . . . . . . . . . . . . . . . . . 53
6.05 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.06 True Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.07 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . 54
6.08 Observe all Laws . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.09 Covenants Extending to Subsidiaries . . . . . . . . . . . . . . . . 54
6.10 Officer's Knowledge of Default . . . . . . . . . . . . . . . . . . 54
6.11 Suits or Other Proceedings . . . . . . . . . . . . . . . . . . . . 54
6.12 Notice of Discharge of Hazardous Material or
Environmental Complaint . . . . . . . . . . . . . . . . . . . . . 54
6.13 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . 54
6.14 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 55
6.16 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.17 Continued Operations . . . . . . . . . . . . . . . . . . . . . . . 56
6.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.19 New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VII
NEGATIVE COVENANTS
7.01 Consolidated Fixed Charge Ratio . . . . . . . . . . . . . . . . . . 57
7.02 Consolidated Funded Indebtedness to EBITDA . . . . . . . . . . . . 58
7.03 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.04 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.05 Investments; Acquisitions . . . . . . . . . . . . . . . . . . . . . 61
7.06 Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . 63
7.07 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 64
7.08 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.09 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.10 Dissolution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.11 Rate Hedging Obligations . . . . . . . . . . . . . . . . . . . . . 65
7.12 Dividends, Redemptions and Other Payments . . . . . . . . . . . . . 65
7.13 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
ii
<PAGE> 4
Page
ARTICLE VIII
EVENTS OF DEFAULT AND ACCELERATION
<TABLE>
<S> <C>
8.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.02 Agent to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.03 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.04 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.05 Allocation of Proceeds . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE IX
THE AGENT
9.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.02 Attorneys-in-fact . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.03 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . 72
9.04 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.06 No Representations . . . . . . . . . . . . . . . . . . . . . . . . 73
9.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.08 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.09 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
9.10 Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE X
MISCELLANEOUS
10.01 Assignments and Participations . . . . . . . . . . . . . . . . . . 76
10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.03 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.04 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.06 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.08 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.11 Headings and References . . . . . . . . . . . . . . . . . . . . . 83
10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.14 Agreement Controls . . . . . . . . . . . . . . . . . . . . . . . . 83
10.15 Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . 83
10.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . 84
EXHIBIT A Revolving Credit Commitments . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Assignment and Acceptance . . . . . . . . . . . . . B-1
EXHIBIT C Notice of Appointment (or Revocation) of
Authorized Representative . . . . . . . . . . . . . . . . . C-1
</TABLE>
iii
<PAGE> 5
Page
<TABLE>
<S> <C> <C>
EXHIBIT D Form of Borrowing Notice . . . . . . . . . . . . . . . . . D-1
EXHIBIT E Form of Competitive Bid Note . . . . . . . . . . . . . . . E-1
EXHIBIT F Form of Revolving Credit Note . . . . . . . . . . . . . . F-1
EXHIBIT G Form of Term Note . . . . . . . . . . . . . . . . . . . . . G-1
EXHIBIT H Interest Rate Selection Notice . . . . . . . . . . . . . . H-1
EXHIBIT I Form of Competitive Bid Quote Request . . . . . . . . . . . I-1
EXHIBIT J Form of Competitive Bid Quote . . . . . . . . . . . . . . . J-1
EXHIBIT K Form of Opinion of Counsel to the Borrower and
the Guarantors . . . . . . . . . . . . . . . . . . . . . . K-1
EXHIBIT L Form of Compliance Certificate . . . . . . . . . . . . . . L-1
EXHIBIT M Form of Guaranty Agreement . . . . . . . . . . . . . . . . M-1
EXHIBIT N Form of Subordination Agreement . . . . . . . . . . . . . . N-1
EXHIBIT O Upfront Fees . . . . . . . . . . . . . . . . . . . . . . . O-1
</TABLE>
Schedule 5.01(c) Guarantors excluded from Solvency
Representation and Warranty
Schedule 5.01(d) Subsidiaries
Schedule 5.01(e) Investments in Other Persons
Schedule 5.01(f) Contingent Liabilities
Schedule 5.01(g) Liens
Schedule 5.01(h) Tax Matters
Schedule 5.01(j) Litigation
Schedule 5.01(m) Patents, Etc.
Schedule 5.01(o) Consents
Schedule 5.01(r) Hazardous Materials
Schedule 6.05 Insurance
Schedule 7.03(i) Existing Indebtedness
Schedule 7.03(xi) Capital Leases
iv
<PAGE> 6
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS REVOLVING CREDIT AND TERM LOAN AGREEMENT, dated as of October 12,
1994 (the "Agreement"), is made by and among:
HANOVER DIRECT, INC., a Delaware corporation having its principal
place of business in Weehawken, New Jersey (the "Borrower");
Each Lender executing and delivering a signature page hereto and each
other lender which may hereafter execute and deliver an instrument of
assignment and assumption with respect to this Agreement pursuant to Section
10.01 hereof (hereinafter such lenders may be referred to individually as a
"Lender" or collectively as the "Lenders"); and
NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION, a national
banking association organized and existing under the laws of the United States
of America ("NationsBank") in its capacity as agent for the Lenders (in such
capacity, and any successor appointed in accordance with the terms of Section
9.09 hereof, the "Agent");
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make available to
the Borrower a credit facility in the maximum aggregate principal amount at any
time outstanding of $20,000,000, which shall include a competitive bid
facility, the proceeds thereof to be used to finance certain acquisitions; and
WHEREAS, the Lenders are willing to make such credit facility
available to the Borrower upon the terms and conditions set forth herein;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree
as follows:
ARTICLE I
DEFINITIONS AND TERMS
1.01 DEFINITIONS. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Absolute Rate" has the meaning assigned to such term in
Section 2.02(d)(iii) hereof;
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"Absolute Rate Auction" means any solicitation of Competitive
Bid Quotes setting forth Absolute Rates pursuant to Section 2.02(c)
hereof;
"Account Purchase Agreement" shall have the meaning assigned
thereto in Section 7.03(v) hereof;
"Acquisition" means the acquisition of (i) a controlling
equity interest in another Person (other than the purchase of an
option, warrant or convertible or other similar security to acquire
such a controlling interest), whether by purchase of such equity
interest or upon exercise of an option or warrant for, or conversion
of securities into, such equity interest, (ii) assets of another
Person for which the Cost of Acquisition equals or exceeds one percent
(1%) of Consolidated Total Assets determined as of the last day of the
fiscal quarter of the Borrower immediately preceding the date of the
agreement related to such Acquisition, or (iii) a line of business or
division of another Person;
"Advance" means any borrowing (other than a Term Loan Segment)
under (i) the Revolving Credit Facility consisting of a Base Rate Loan
or a LIBOR Loan, as the case may be, or (ii) the Competitive Bid
Facility consisting of a Competitive Bid Loan;
"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with, the Borrower; (ii) which beneficially
owns or holds 10% or more of any class of the outstanding voting stock
of the Borrower; or (iii) 10% or more of any class of the outstanding
voting stock (or in the case of a Person which is not a corporation,
10% or more of the equity interest) of which is beneficially owned or
held by the Borrower. The term "control" 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
ownership of voting stock, by contract or otherwise;
"Applicable Commitment Percentage" means, at any time for each
Lender with respect to the Revolving Credit Facility, a fraction
(expressed as a percentage), (A) the numerator of which shall be the
amount of such Lender's Revolving Credit Commitment at such date of
determination (which Revolving Credit Commitment for each Lender as of
the Closing Date is set forth on Exhibit A attached hereto and
incorporated herein by reference), and (B) the denominator of which
shall be the Total Revolving Credit Commitment at such date of
determination; provided that the Applicable Commitment Percentage of
each Lender shall be increased or decreased to reflect any assignments
to or by such Lender effected in accordance with Section 10.01 hereof;
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"Applicable Margin" means for purposes of calculating (i) the
applicable interest rate for the Interest Period for any LIBOR Loan
and (ii) the applicable rate of the Facility Fee for any date for
purposes of Section 2.13 hereof, that percent per annum set forth
below, which shall be (A) determined as of each Determination Date
based upon the computations set forth in the compliance certificates
delivered to the Agent pursuant to Sections 4.01(m), 6.01(a)(ii) and
6.01(b)(ii) hereof, subject to review and approval of such
computations by the Agent, and delivered to the Agent not later than
the time set forth in Sections 4.01, 6.01(a) and 6.01(b) hereof (the
"Compliance Date") and (B) applicable to all LIBOR Loans made, renewed
or converted, and any Facility Fee due and payable, on or after the
most recent Compliance Date to occur based upon the ratio of
Consolidated Funded Indebtedness as at the Determination Date to
Consolidated EBITDA for the Four- Quarter Period then ended, as
specified below:
<TABLE>
<CAPTION>
Ratio of
Consolidated Funded
Indebtedness to Applicable Applicable
Consolidated Margin Margin for
EBITDA for LIBOR Loans Facility Fee
-------------------------- --------------------- ---------------
<S> <C> <C>
Greater than 2.00
to 1.00 .50% .25%
Greater than 1.00
to 1.00 but
less than or equal
to 2.00 to 1.00 .425% .20%
Less than 1.00 to 1.00 .35% .15%
</TABLE>
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B attached hereto and incorporated
herein by reference (with blanks appropriately filled in) delivered to
the Agent in connection with an assignment of a Lender's interest
under this Agreement pursuant to Section 10.01;
"Authorized Representative" means any of the Chairman, Vice
Chairman, President, Executive Vice Presidents, Senior Vice Presidents
or Vice Presidents of the Borrower and, with respect to financial
matters, the Treasurer or Chief Financial Officer of the Borrower or
any other person expressly designated by the Board of Directors of the
Borrower (or the appropriate committee thereof) as an Authorized
Representative of the Borrower, as set forth from time to time in a
certificate in the form attached hereto as Exhibit C and incorporated
herein by reference;
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"Base Rate" means, for any Base Rate Loan, the greater of (i)
the Prime Rate or (ii) the Federal Funds Effective Rate plus one-half
of one percent (.5%), each change in such Base Rate to be effective as
of the effective date of any change in the Prime Rate or the Federal
Funds Effective Rate giving rise thereto;
"Base Rate Loan" means any Revolving Credit Loan or Term Loan
Segment for which the rate of interest is determined by reference to
the Base Rate;
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body);
"Borrower's Account" means demand deposit account number
02309028 with the Agent, or any successor account with the Agent,
which may be maintained at one or more offices of the Agent or an
agent of the Agent;
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving
Credit Facility, in the form attached hereto as Exhibit D and
incorporated herein by reference;
"Business Day" means any day which is not a Saturday, Sunday
or a day on which banks in the State of New York or State of North
Carolina are authorized or obligated by law, executive order or
governmental decree to be closed;
"Capital Expenditures" means, with respect to the Borrower and
its Subsidiaries, for any period the sum of (without duplication) (i)
all expenditures (whether paid in cash or accrued as liabilities) by
the Borrower or any Subsidiary during such period for items that would
be classified as "property, plant or equipment" or comparable items on
the consolidated balance sheet of the Borrower and its Subsidiaries,
including without limitation all transactional costs incurred in
connection with such expenditures, excluding, however, the amount of
any Capital Expenditures paid for with proceeds of casualty insurance
as evidenced in writing and submitted to the Agent together with any
compliance certificate delivered pursuant to Section 6.01(a) or (b)
hereof, and (ii) with respect to any Capital Lease entered into by the
Borrower or its Subsidiaries during such period, the present value of
the lease payments due under such Capital Lease over the term of such
Capital Lease applying a discount rate equal to the interest rate
provided in such lease (or in the absence of a stated interest rate,
that rate used in the preparation of the financial statements
described in Section 6.01(a) hereof);
"Capital Leases" means all leases which have been or should be
capitalized in accordance with Generally Accepted
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Accounting Principles, including Statement No. 13 of the Financial
Accounting Standards Board and any successor thereof, applied on a
Consistent Basis;
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 4.01 hereof have been satisfied;
"Code" means the Internal Revenue Code of 1986, as amended,
any successor provision or provisions and any regulations promulgated
thereunder;
"Common Stock" means the common stock, par value $.662/3 per
share, of the Borrower;
"Competitive Bid Borrowing" has the meaning assigned to such
term in Section 2.02 hereof;
"Competitive Bid Facility" means the facility described in
Section 2.02 hereof providing for Competitive Bid Loans to the
Borrower;
"Competitive Bid Loan Commitment" means the aggregate amount
which a Lender has offered to loan to the Borrower pursuant to a
Competitive Bid Quote, not to exceed in the aggregate the amount of
the Competitive Bid Borrowing for such Interest Period and which
together with all other Outstandings shall not exceed in the aggregate
the amount of the Total Revolving Credit Commitment;
"Competitive Bid Loans" means the Loans bearing interest at an
Absolute Rate provided for in Section 2.02 hereof;
"Competitive Bid Notes" means, collectively, the promissory
notes of the Borrower with respect to Competitive Bid Loans provided
for by Section 2.02 hereof executed and delivered in the form attached
hereto as Exhibit E and incorporated herein by reference, with
appropriate insertions as to amounts, dates and names of Lenders, and
all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be amended, modified or supplemented
and in effect from time to time;
"Competitive Bid Outstandings" means, as of any date of
determination, the aggregate principal Indebtedness of the Borrower on
all Competitive Bid Loans then outstanding;
"Competitive Bid Quote" means an offer in accordance with
Section 2.02 hereof by a Lender to make a Competitive Bid Loan with an
Absolute Rate, in the form of Exhibit J attached hereto and
incorporated herein by reference;
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"Competitive Bid Quote Request" means a request in accordance
with Section 2.02 hereof by the Borrower for Competitive Bid
Borrowings, in the form of Exhibit I attached hereto and incorporated
herein by reference;
"Compliance Date" has the meaning assigned to such term in the
definition of "Applicable Margin" in Section 1.01 hereof;
"Consistent Basis" in reference to the application of
Generally Accepted Accounting Principles means the accounting
principles observed in the period referred to are comparable in all
material respects to those applied in the preparation of the audited
financial statements of the Borrower referred to in Section 5.01(f)(i)
hereof;
"Consolidated EBITDA" means, with respect to the Borrower and
its Subsidiaries for any period of computation thereof, the sum of,
without duplication, (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) taxes paid on income, (iv) amortization, and
(v) depreciation, all determined on a consolidated basis in accordance
with Generally Accepted Accounting Principles applied on a Consistent
Basis;
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and its Subsidiaries for the Four-Quarter Period ending on
the date of computation thereof, the ratio of (i) the difference of
(A) Consolidated EBITDA for such period plus, to the extent deducted
in arriving at Consolidated EBITDA for such period, lease, rental and
all other payments made in respect of or in connection with operating
leases, minus (B) Capital Expenditures for such period, excluding, for
any Four-Quarter Period of computation thereof ending on or prior to
April 1, 1995, Capital Expenditures paid during such Four-Quarter
Period with respect to the construction of the Borrower's Roanoke,
Virginia fulfillment facility or with respect to refurbishment of the
Gump's retail facility, to (ii) Consolidated Fixed Charges for such
period;
"Consolidated Fixed Charges" means, with respect to Borrower
and its Subsidiaries for any period of computation thereof, the sum
of, without duplication, (i) Consolidated Interest Expense, (ii) to
the extent deducted in arriving at Consolidated EBITDA, lease, rental
and all other payments made in respect of or in connection with
operating leases, (iii) current maturities of Consolidated Funded
Indebtedness, (iv) all dividends and other distributions (other than
distributions in the form of any stock (including without limitation
capital stock of the Borrower), security, note or other instrument)
paid during such period (regardless of when declared) on any shares of
capital stock of the Borrower then outstanding, including without
limitation its Common Stock and
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<PAGE> 12
its Preferred Stock, and (v) all payments made during such period in
respect of or in connection with repurchases or redemptions of any
shares of capital stock of the Borrower then outstanding, including
without limitation its Common Stock and Preferred Stock, all
determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis;
"Consolidated Funded Indebtedness" means, with respect to the
Borrower and its Subsidiaries, at any time as of which the amount
thereof is to be determined, the sum of (i) Indebtedness for Money
Borrowed of the Borrower and its Subsidiaries and (ii) the face amount
of all outstanding letters of credit (other than documentary letters
of credit) issued for the account of the Borrower or any of its
Subsidiaries and all obligations (to the extent not duplicative)
arising under such letters of credit, all determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis;
"Consolidated Interest Expense" means, with respect to any
period of computation thereof, the gross interest expense of the
Borrower and its Subsidiaries, including without limitation (i) the
amortization of debt discounts, (ii) the amortization of all fees
(including, without limitation, fees payable in respect of a Swap
Agreement) payable in connection with the incurrence of Indebtedness
to the extent included in interest expense and (iii) the portion of
any payments made in connection with Capital Leases allocable to
interest expense, all determined on a consolidated basis in accordance
with Generally Accepted Accounting Principles applied on a Consistent
Basis;
"Consolidated Net Income" means, for any period of computation
thereof, the gross revenues from operations of the Borrower and its
Subsidiaries (including interest income from investments), less all
operating and non-operating expenses of the Borrower and its
Subsidiaries including taxes on income, all determined on a
consolidated basis in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis, but excluding as income (i)
net gains on the sale, conversion or other disposition of capital
assets, net gains on the acquisition, retirement, sale or other
disposition of capital stock and other securities of the Borrower or
its Subsidiaries, and net gains on the collection of proceeds of life
insurance policies, (ii) any write-up of any asset, and (iii) any
other net gain or credit of an extraordinary nature, all determined in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
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<PAGE> 13
"Consolidated Total Assets" means, as at any time of
calculation thereof, the net book value of all assets of the Borrower
and its Subsidiaries as determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis;
"Contingent Obligation" of any Person means all contingent
liabilities (other than obligations of the Borrower and its
Subsidiaries with respect to the fulfillment of purchase orders issued
in the ordinary course of business) required (or which, upon the
creation or incurring thereof, would be required) to be included in
the consolidated financial statements (including footnotes) of such
Person in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis, including Statement No. 5 of the
Financial Accounting Standards Board, and any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness,
dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including
obligations of such Person however incurred:
(i) to purchase such Indebtedness or other
obligation or any property or assets constituting security
therefor;
(ii) to advance or supply funds in any manner (A)
for the purchase or payment of such Indebtedness or other
obligation, or (B) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(iii) to grant or convey any Lien, security
interest, pledge, charge or other encumbrance on any property
or assets of such Person to secure payment of such
Indebtedness or other obligation;
(iv) to lease property or to purchase securities
or other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
(v) otherwise to assure the owner of the
Indebtedness or such obligation of the primary obligor against
loss in respect thereof.
With respect to Contingent Obligations (such as litigation, guarantees
and pension plan liabilities), such liabilities shall be computed at
the amount which, in light of all the facts and circumstances existing
at the time, represent the present value of the amount which can
reasonably be expected to become an actual or matured liability;
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<PAGE> 14
"Cost of Acquisition" means, with respect to any Acquisition,
as at the date of entering into any agreement therefor, the sum of the
following: (i) the value of the capital stock, warrants or options to
acquire capital stock of Borrower or any Subsidiary to be transferred
in connection therewith, (ii) any cash or other property (excluding
property described in clause (i)) and the unpaid principal amount of
any debt instrument given as consideration, and (iii) any Indebtedness
or liabilities assumed by the Borrower or its Subsidiaries in
connection with such Acquisition; provided that "Cost of Acquisition"
shall not include out of pocket transaction costs for the services and
expenses of attorneys, accountants and other consultants incurred in
effecting such a transaction, and other similar transaction costs so
incurred, in an aggregate amount not to exceed ten percent (10%) of
the Costs of Acquisition for such transaction (all such costs in
excess of such amount being included as a "Cost of Acquisition" for
such transaction). For purposes of determining the Cost of
Acquisition for any transaction, (A) the capital stock of the Borrower
shall be valued at its market value as reported on the American Stock
Exchange, (B) the capital stock of any Subsidiary shall be valued as
determined by the Board of Directors of such Subsidiary and determined
to be a reasonable valuation by the independent public accountants
referred to in Section 6.01(a) hereof, and (C) with respect to any
Acquisition accomplished pursuant to the exercise of options or
warrants or the conversion of securities, the Cost of Acquisition
shall include both the cost of acquiring such option, warrant or
convertible security as well as the cost of exercise or conversion;
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder;
"Determination Date" means the last day of each fiscal quarter
of the Borrower;
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United
States;
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Agent:
(i) Government Securities;
(ii) the following debt securities of the
following agencies or instrumentalities of the United States
if at all times the full faith and credit of the United States
is pledged to the full and timely payment of all interest and
principal thereof:
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(A) all direct or fully guaranteed obligations of
the United States Treasury; and
(B) mortgage-backed securities and participation
certificates guaranteed by the Government National Mortgage
Association;
(iii) the following obligations of the following
agencies or instrumentalities of or corporations established
by the United States:
(A) participation certificates and debt obligations
of the Federal Home Loan Mortgage Corporation;
(B) consolidated debt obligations, and obligations
secured by a letter of credit, of the Federal Home Loan
Banks; and
(C) debt obligations and mortgage-backed securities
of the Federal National Mortgage Association which have not
had the interest portion thereof severed therefrom;
(iv) obligations of any corporation organized
under the laws of any state of the United States or under the
laws of any other nation, payable in the United States,
expressed to mature not later than 90 days following the date
of issuance thereof and rated in an investment grade rating
category by S&P and Moody's;
(v) interest bearing demand or time deposits
issued by any Lender or certificates of deposit maturing
within one year from the date of acquisition issued by a bank
or trust company organized under the laws of the United States
or of any state thereof having capital surplus and undivided
profits aggregating at least $250,000,000 and being rated
"A-2" or better by S&P or "A" or better by Moody's;
(vi) Repurchase Agreements;
(vii) Pre-Refunded Municipal Obligations;
(viii) shares of mutual funds which invest in
obligations described in paragraphs (i) through (vii) above,
the shares of which mutual funds are at all times rated "AAA"
by S&P; and
(ix) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P-1" by Moody's;
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"Environmental Laws" means any statute, law, ordinance, code,
rule, regulation, order or decree, of the United States or any foreign
nation or any province, territory, state, protectorate or other
political subdivision thereof, regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous or toxic
waste, substance or material, as now or at any time hereafter in
effect, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, as
amended, the Clean Air Act, as amended, the Clean Water Act, as
amended, any other "Superfund" or "Superlien" law;
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, all
as the same shall be in effect at such date;
"ERISA Affiliate" means any entity which would be aggregated
at any relevant time with the Borrower pursuant to Section 4001(b)(1)
of ERISA;
"Event of Default" means any of the occurrences set forth as
such in Section 8.01 hereof;
"Facility Fee" has the meaning assigned to such term in
Section 2.13(a) hereof;
"Federal Funds Effective Rate" for any day, as used herein,
means the rate per annum (rounded upward to the nearest 1/100 of 1%)
announced by the Federal Reserve Bank of New York (or any successor)
on such day as being the weighted average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal
Reserve Bank (or any successor) in substantially the same manner as
such Federal Reserve Bank computes and announces the weighted average
it refers to as the "Federal Funds Effective Rate" as of the date of
this Agreement; provided, if such Federal Reserve Bank (or its
successor) does not announce such rate on any day, the "Federal Funds
Effective Rate" for such day shall be the Federal Funds Effective Rate
for the last day on which such rate was announced;
"Fiscal Year" means 52-week or 53-week period of the Borrower
ending on the Saturday closest to December 31;
"Flexible Term Notes" means the $20,000,000 Flexible Term
Notes (Hanover Direct, Inc.) of the Borrower to be issued to finance
the construction of a fulfillment center in Roanoke, Virginia;
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"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower, taken together as one accounting
period;
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report, as
such principles are from time to time supplemented and amended,
subject to compliance at all times with Section 1.02 hereof;
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States;
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, agency or instrumentality or political subdivision
thereof or any entity or officer exercising executive, legislative or
judicial, regulatory or administrative functions of or pertaining to
any government or any court, in each case whether a state of the
United States, the United States or foreign nation, state, province or
other governmental instrumentality;
"Guarantor" means any Material Subsidiary now or hereafter
party to a Guaranty;
"Guaranty" means collectively each Guaranty Agreement executed
by a Material Subsidiary of the Borrower (whether of even date
herewith or delivered after the Closing Date pursuant to Section 6.19
hereof and whether executed individually or jointly and severally with
other Subsidiaries) in favor of the Agent guaranteeing in whole or in
part the payment of the Obligations, substantially in the form of
Exhibit M attached hereto and incorporated herein by reference;
"Hazardous Material" means a material that is defined or
regulated under an Environmental Law as a hazardous or toxic waste,
substance or material, the generation, handling, storage, disposal,
treatment or emission of which is subject to any Environmental Law;
"Indebtedness" of a Person shall mean, without duplication,
(i) all Indebtedness for Money Borrowed, (ii) obligations of such
Person arising under acceptance facilities, (iii) the undrawn face
amount of, and unpaid reimbursement obligations in respect of, all
letters of credit issued for the account of such Person, (iv) all
obligations of
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such Person upon which interest charges are customarily paid, (v) all
obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person
(even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or
sale of such property), (vi) all executory obligations of such Person
in respect of Rate Hedging Obligations and (vii) all Contingent
Obligations in respect of Indebtedness of other Persons;
"Indebtedness for Money Borrowed" means for any Person all
indebtedness in respect of money borrowed, including without
limitation all Capital Leases and the deferred purchase price of any
property or asset, evidenced by a promissory note, bond, debenture or
similar written obligation for the payment of money (including, but
not limited to, conditional sales or similar title retention
agreements);
"Interest Period" (i) for each LIBOR Loan means a period
commencing on the date such LIBOR Loan is made or converted and each
subsequent period commencing on the last day of the immediately
preceding Interest Period for such LIBOR Loan, and ending, at the
Borrower's option, on the date one, two, three or six months
thereafter as notified to the Agent by the Authorized Representative
three (3) LIBOR Business Days prior to the beginning of such Interest
Period; provided, that,
(A) if the Authorized Representative fails to
notify the Agent of the length of an Interest Period three (3)
LIBOR Business Days prior to the first day of such Interest
Period, the Loan for which such Interest Period was to be
determined shall be deemed to be a Base Rate Loan;
(B) if an Interest Period for a LIBOR Loan would
end on a day which is not a LIBOR Business Day such Interest
Period shall be extended to the next LIBOR Business Day
(unless such extension would cause the applicable Interest
Period to end in the succeeding calendar month, in which case
such Interest Period shall end on the next preceding LIBOR
Business Day);
(C) any Interest Period which begins on the last
LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last LIBOR Business Day of a calendar month;
(D) no Interest Period with respect to Revolving
Credit Loans shall extend past the Revolving Credit
Termination Date;
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(E) on any day, with respect to all Revolving
Credit Loans, there shall be not more than ten (10) Interest
Periods in effect; and
(ii) for each Competitive Bid Loan means the period
commencing on the date of such borrowing and ending on such date as
may be mutually agreed upon by the Borrower and the Lender making such
Competitive Bid Loan; provided that no Interest Period for a
Competitive Bid Loan shall be for a period of less than 7 or greater
than 180 days;
"Interest Rate Selection Notice" means the notice delivered by
an Authorized Representative in connection with the election of a
subsequent interest period for any LIBOR Loan or the conversion of any
LIBOR Loan into a Base Rate Loan or the conversion of any Base Rate
Loan into a LIBOR Loan, in the form of Exhibit H attached hereto and
incorporated herein by reference;
"Lending Office" means, as to each Lender, the Lending Office
of such Lender designated on the signature pages hereof or in an
Assignment and Acceptance or such other office of such Lender (or of
an affiliate of such Lender) as such Lender may from time to time
specify to the Authorized Representative and the Agent as the office
by which its Loans are to be made and maintained;
"LIBOR Base Rate" means for any LIBOR Loan, in respect of the
Interest Period specified (or deemed specified) by the Authorized
Representative in the Borrowing Notice or Interest Rate Selection
Notice for such LIBOR Loan, the rate (expressed as a percentage and
rounded upward if necessary to the nearest 1/100 of 1%) (which shall
be the same for each day of such Interest Period) determined by the
Agent in good faith in accordance with its usual procedures for its
customers generally to be the average of the rates per annum for
deposits in Dollars offered to major banks in the London interbank
market at approximately 11:00 A.M. Charlotte, North Carolina time two
(2) LIBOR Business Days prior to the commencement of the applicable
Interest Period in an amount approximately equal to the principal
amount of, and for a period comparable to the Interest Period for,
such LIBOR Loan;
"LIBOR Business Day" means a Business Day on which the
relevant international financial markets are open for the transaction
of the business contemplated by this Agreement in London, England, New
York, New York and Charlotte, North Carolina;
"LIBOR Loan" means a Revolving Credit Loan or Term Loan
Segment for which the rate of interest is determined by reference to
the LIBOR Rate;
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"LIBOR Rate" means, for the Interest Period for any LIBOR
Loan, the rate of interest per annum determined pursuant to the
following formula:
LIBOR LIBOR Base Rate Applicable
= ----------------------- +
Rate 1 - Reserve Requirement Margin
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and its
Subsidiaries shall be deemed to be the owners of any property which
either of them have acquired or hold subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which
title to the property has been retained by or vested in some other
Person for security purposes;
"Loan" or "Loans" means any of the Revolving Credit Loans,
Competitive Bid Loans or the Term Loan;
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Subordination Agreement and all other instruments and
documents heretofore or hereafter executed or delivered to and in
favor of any Lender or the Agent in connection with the Loans made
under this Agreement as the same may be amended, modified or
supplemented from time to time;
"Material Adverse Effect" means a material adverse effect on
the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole, on
a consolidated basis;
"Material Subsidiary" means any direct or indirect Subsidiary
of the Borrower which (i) has total assets equal to or greater than 5%
of Consolidated Total Assets (calculated as of the most recent fiscal
period with respect to which the Agent shall have received financial
statements required to be delivered pursuant to Sections 6.01(a) or
(b) (or if prior to delivery of any financial statements pursuant to
such Sections, then calculated with respect to the Fiscal Year end
financial statements referenced in Section 5.01(f) hereof) (the
"Required Financial Information")) or (ii) has net income equal to or
greater than 5% of Consolidated Net Income (each calculated for the
most recent period for which the Agent has received the Required
Financial Information); provided, however, that notwithstanding the
foregoing, the term "Material Subsidiaries" shall mean Subsidiaries of
the
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Borrower that together have assets equal to not less than 85% of
Consolidated Total Assets (calculated as described above) and net
income of not less than 85% of Consolidated Net Income (calculated as
described above); provided further that if more than one combination
of Subsidiaries satisfies such threshold, then those Subsidiaries so
determined to be "Material Subsidiaries" shall be specified by the
Borrower;
"Moody's" means Moody's Investors Services, Inc.;
"Multi-employer Plan" means an employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is also a multi-employer plan as defined in Section
4001(a)(3) of ERISA;
"Net Proceeds" from a disposition of assets (other than assets
sold in the ordinary course of business) or issuance of equity or
Indebtedness means cash payments received therefrom as and when
received, net of all reasonable legal, accounting, banking,
underwriting, title and recording expenses, commissions, discounts and
other fees and expenses incurred in connection therewith and all taxes
required to be paid or accrued as a consequence of such disposition or
issuance;
"Notes" means, collectively, the Revolving Credit Notes, the
Competitive Bid Notes and the Term Notes;
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) all liabilities
of Borrower to any Lender which arise under a Swap Agreement, and
(iii) the payment and performance of all other obligations,
liabilities and Indebtedness of the Borrower to the Lenders or the
Agent hereunder, under any one or more of the other Loan Documents or
with respect to the Loans;
"Outstandings" means, at any time of determination, (a) the
sum of the (i) Revolving Credit Outstandings and (ii) Competitive Bid
Outstandings or (b) Term Loan Outstandings, as applicable;
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a
government or agency or political subdivision thereof;
"Preferred Stock" means the 6% Series A Convertible Preferred
Stock, $10 stated value, of the Borrower;
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the
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highest investment rating category by both S&P and Moody's and which
have been irrevocably called for redemption and advance refunded
through the deposit in escrow of Government Securities or other debt
securities which are (i) not callable at the option of the issuer
thereof prior to maturity, (ii) irrevocably pledged solely to the
payment of all principal and interest on such obligations as the same
becomes due and (iii) in a principal amount and bear such rate or
rates of interest as shall be sufficient to pay in full all principal
of, interest, and premium, if any, on such obligations as the same
becomes due as verified by a nationally recognized firm of certified
public accountants;
"Prime Rate" means the rate of interest per annum announced
publicly by NationsBank as its prime rate from time to time. The
Prime Rate is not necessarily the best or the lowest rate of interest
offered by NationsBank;
"Principal Office" means the office of the Agent at
NationsBank of North Carolina, National Association, NationsBank
Plaza, 6th Floor, NC1002-06-19, Charlotte, North Carolina 28255,
Attention: Agency Services, or such other office and address as the
Agent may from time to time designate;
"Quotation Date" means the date by which Competitive Bid
Quotes must be submitted to the Agent and shall be the Business Day
immediately preceding the date of the proposed Competitive Bid
Borrowing;
"Rate Hedging Obligations" means any and all obligations of
the Borrower, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all
renewals, extensions and modifications thereof and substitutions
therefor), under (i) any and all agreements, devices or arrangements
designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates
applicable to such party's commodities, assets, liabilities or
exchange transactions, including, but not limited to,
Dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or
collar protection agreements, forward rate currency or interest rate
options, puts, warrants and those commonly known as interest rate
"swap" agreements, and forward commodity price options, puts, warrants
and those commonly known as commodity "swap" agreements; and (ii) any
and all cancellations, buybacks, reversals, terminations or
assignments of any of the foregoing;
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time;
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"Regulatory Change" means any change in, or the adoption or
making of new, United States Federal or state laws or regulations
(including Regulation D and capital adequacy regulations) or foreign
laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks,
which includes any of the Lenders, under any United States Federal or
state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof or compliance by any
Lender with any request or directive regarding capital adequacy,
whether or not having the force of law, whether or not failure to
comply therewith would be unlawful;
"Repurchase Agreement" means a repurchase agreement entered
into with (i) any financial institution whose debt obligations are
rated "A" by either of S&P or Moody's or whose commercial paper is
rated "A-1" by S&P or "P-1" by Moody's, or (ii) any Lender;
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 662/3%
of the aggregate Credit Exposures of all the Lenders on such date.
For purposes of the preceding sentence, the amount of the "Credit
Exposure" of each Lender shall be equal at all times (i) other than
following the occurrence and during the continuance of an Event of
Default, to its Revolving Credit Commitment or the Term Loan
Outstandings evidenced by the Term Loan Note payable to such Lender,
as applicable, and (ii) following the occurrence and during the
continuance of an Event of Default, to the aggregate principal amount
of Revolving Credit Loans and Competitive Bid Loans owing to such
Lender plus the aggregate unutilized amount of such Lender's Revolving
Credit Commitment or to the aggregate principal amount of the Term
Loan owing to such Lender, as applicable;
"Reserve Requirement" means, for any LIBOR Loan, the maximum
aggregate rate at which reserves (including, without limitation, any
marginal, supplemental or emergency reserves) are required to be
maintained with respect thereto under Regulation D by the member banks
of the Federal Reserve System with respect to Dollar funding in the
London interbank market. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the LIBOR Base Rate is to be
determined or (ii) any category of extensions of credit or other
assets which include LIBOR Loans;
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"Revolving Credit Commitment" means with respect to each
Lender, the obligation of such Lender to make Revolving Credit Loans
to the Borrower up to an aggregate principal amount at any one time
outstanding equal to the amount set forth opposite such Lender's name
on Exhibit A hereto as the same may be increased or decreased from
time to time pursuant to this Agreement;
"Revolving Credit Facility" means the facility described in
Section 2.01 hereof providing for Loans to the Borrower by the Lenders
in an aggregate principal amount equal to (i) the Total Revolving
Credit Commitment less (ii) Competitive Bid Outstandings;
"Revolving Credit Loan" means any Loan made under the
Revolving Credit Facility and evidenced by a Revolving Credit Note;
"Revolving Credit Notes" means, collectively, the promissory
notes of the Borrower evidencing Revolving Credit Loans executed and
delivered to the Lenders as provided in Section 2.08(a) hereof
substantially in the form attached hereto as Exhibit F and
incorporated herein by reference, with appropriate insertions as to
amounts, dates and names of Lenders, as the same shall be amended,
modified or supplemented and in effect from time to time;
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal Indebtedness of the Borrower on
all Revolving Credit Loans then outstanding;
"Revolving Credit Termination Date" means the earliest to
occur of (i) October 11, 1995 or such later date as the Borrower and
the Lenders shall agree in writing pursuant to Section 2.16 hereof, or
(ii) the date of termination of Lenders' obligations pursuant to
Section 8.01 upon the occurrence of an Event of Default, or (iii) such
date as the Borrower may voluntarily and permanently terminate the
Revolving Credit Facility by payment in full of all Outstandings
pursuant to Section 2.10 hereof;
"S&P" means Standard & Poor's Corporation, a New York
corporation;
"Scheduled Term Loan Termination Date" shall have the meaning
assigned thereto in Section 2.03 hereof;
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multi-employer Plan;
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"$60,000,000 Credit Facility" means the credit facilities
provided to the Borrower by the Lenders pursuant to the Credit
Facilities and Reimbursement Agreement of even date herewith;
"$60,000,000 Credit Facility Documents" means the Credit
Facilities and Reimbursement Agreement of even date herewith by and
among the Borrower, the Agent and the Lenders and each of the
documents executed in connection therewith;
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including, without limitation, Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Subordinated Debt" means the 9.25% Senior Subordinated Notes
due August 1, 1998 issued in the original principal amount of
$20,000,000 to Sun Life Insurance Company of America pursuant to an
Indenture dated as of August 17, 1993 among the Borrower (successor to
the Hanover Companies and the Horn and Hardart Company), certain
Subsidiaries of the Borrower and First Trust National Association, as
Trustee;
"Subordination Agreement" means that Subordination Agreement
of even date herewith among First Trust National Association, Sun Life
Insurance Company of America, the Borrower, certain Subsidiaries of
the Borrower and the Agent, substantially in the form of Exhibit N
attached hereto and incorporated herein by reference, whereby the
holders of the Subordinated Debt have subordinated their rights to
receive payment thereunder to the rights of the Agent and the Lenders
to receive payment under the Loan Documents and the $60,000,000 Credit
Facility Documents;
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding stock having ordinary voting power or
more than 50% of all equity interests is owned directly or indirectly
by the Borrower and/or by one or more of the Borrower's Subsidiaries
at or after the Closing Date;
"Swap Agreement" means one or more agreements with respect to
Indebtedness evidenced by the Notes between the Borrower and a Lender,
on terms mutually acceptable to such
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Borrower and such Lender, which agreements create Rate Hedging
Obligations;
"Term Loan" means the term loan described in Section 2.03
hereof;
"Term Loan Option" shall have the meaning assigned thereto in
Section 2.03(a) hereof;
"Term Loan Outstandings" means, at any date of determination,
the principal Indebtedness of the Borrower on any Term Loan then
outstanding;
"Term Loan Segment" means any portion of a Term Loan which has
been designated by an Authorized Representative as a Base Rate Loan
(or otherwise deemed to be a Base Rate Loan pursuant to the terms
hereof) or as a LIBOR Loan for an applicable Interest Period;
"Term Loan Termination Date" means the earliest to occur of
(i) the Scheduled Term Loan Termination Date, or (ii) such date of
termination of Lenders' obligations pursuant to Section 8.01 upon the
occurrence of an Event of Default, or (iii) such date as the Borrower
may voluntarily and permanently terminate the Term Loan by payment in
full of all principal and interest on the Term Loan as evidenced by
the Term Notes;
"Term Notes" means, collectively, the promissory notes of the
Borrower evidencing the Term Loan executed and delivered to the
Lenders as provided in Sections 2.03 and 2.08 hereof substantially in
the form attached hereto as Exhibit G and incorporated herein by
reference, with appropriate insertions as to amounts, dates and names
of Lenders, as the same shall be amended, modified or supplemented and
in effect from time to time;
"Total Revolving Credit Commitment" means an amount equal to
$20,000,000, as reduced from time to time in accordance with Sections
2.10 and 2.16 hereof;
"Upfront Fee" shall have the meaning assigned thereto in
Section 2.13(b) hereof; and
"Variable Rate Demand Bonds" means the $8,000,000 Variable
Rate Demand Industrial Revenue Bonds (Hanover House Industries, Inc.
Project) Series 1987 to be issued in connection with the refunding of
industrial revenue bonds due 2003, the proceeds of which were used to
acquire the Borrower's Hanover, Pennsylvania facility.
1.02 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings assigned to such terms by,
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and shall be interpreted in accordance with, Generally Accepted Accounting
Principles as in effect on the date of the audited financial statements of the
Borrower referred to in Section 5.01(f)(i) hereof and applied on a Consistent
Basis.
1.03 TERMS CONSISTENT. All of the terms defined in this Agreement
shall have such defined meanings when used in any of the Loan Documents unless
the context shall require otherwise. All references to the Borrower, the Agent
and any Lender shall be deemed to include any successor or permitted assign of
any thereof. All plural references and definitions shall have a corresponding
meaning in the singular, and all singular references and definitions shall have
a corresponding meaning in the plural.
ARTICLE II
THE LOANS
2.01 REVOLVING CREDIT LOANS.
(a) COMMITMENT.
(i) Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances under the
Revolving Credit Facility to the Borrower from time to time on a pro
rata basis as to the total borrowing requested by the Borrower on any
day determined by its Applicable Commitment Percentage of the Total
Revolving Credit Commitment up to but not exceeding the Revolving
Credit Commitment of such Lender; provided, however, that the Lenders
will not be required and shall have no obligation to make any Advance
under the Revolving Credit Facility (A) so long as a Default or an
Event of Default has occurred and is continuing or (B) if the Agent
has accelerated the maturity of the Revolving Credit Notes as a result
of an Event of Default; provided further, that immediately after
giving effect to each such Advance, the sum of all Outstandings shall
not exceed the Total Revolving Credit Commitment.
(ii) Within such limits, the Borrower may borrow, repay
and reborrow hereunder, on a Business Day in the case of a Base Rate
Loan and on a LIBOR Business Day in the case of a LIBOR Loan, from the
Closing Date until, but (as to borrowings and reborrowings) not
including, the Revolving Credit Termination Date; provided, however,
that (A) no LIBOR Loan shall be made which has an Interest Period that
extends beyond the Revolving Credit Termination Date and (B) each
LIBOR Loan may, subject to the provisions of Section 2.12, be repaid
only on the last day of the Interest Period with respect thereto.
(b) AMOUNTS. Except as otherwise permitted by the Lenders from
time to time, the sum of all Outstandings shall not exceed at any time an
amount equal to the Total Revolving Credit Commitment.
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Each Revolving Credit Loan made, converted or continued, shall be in a
principal amount of at least $5,000,000, and, if greater than $5,000,000, an
integral multiple of $1,000,000.
(c) ADVANCES AND RATE SELECTION.
(i) An Authorized Representative shall give the Agent (A)
irrevocable telephonic notice of each LIBOR Loan, whether representing
an additional Advance hereunder or the conversion of borrowings
hereunder from Base Rate Loans to LIBOR Loans or the election of a
subsequent Interest Period for any LIBOR Loan, prior to 11:30 A.M.
Charlotte, North Carolina time at least three (3) LIBOR Business Days
prior to the day such Advance is to be made or such Loan is to be
converted or continued; and (B) irrevocable telephonic notice of each
Base Rate Loan representing an additional Advance hereunder or the
conversion of borrowings hereunder from LIBOR Loans to Base Rate Loans
prior to 10:30 A.M. Charlotte, North Carolina time on the day such
Advance is to be made or such Loan is to be converted. Each such
notice, which shall be effective upon receipt by the Agent, shall
specify the amount of the Advance, the type of Loan (Base Rate or
LIBOR), the date of the Advance and, if a LIBOR Loan, the Interest
Period to be used in the computation of interest. The Authorized
Representative shall provide the Agent written confirmation of each
such telephonic notice on the same day by telefacsimile transmission
in the form of a Borrowing Notice for additional Advances, or in the
form of an Interest Rate Selection Notice for the selection or
conversion of interest rates for outstanding Revolving Credit Loans,
in each case with appropriate insertions, but failure to provide such
confirmation shall not affect the validity of such telephonic notice.
The Borrower shall have the option to elect the duration of subsequent
Interest Periods and to convert the Revolving Credit Loans in
accordance with Section 2.12 hereof. If the Agent does not receive a
notice of election of duration of an Interest Period or to convert by
the time prescribed hereby and by Section 2.12 hereof, the Borrower
shall be deemed to have elected to convert to or continue such
Revolving Credit Loan as a Base Rate Loan until the Borrower otherwise
notifies the Agent in accordance herewith and with Section 2.12.
(ii) Notice of receipt of each Borrowing Notice and Interest
Selection Notice shall be provided by the Agent to each Lender with
reasonable promptness, but not later than 1:00 P.M., Charlotte, North
Carolina time on the same day as Agent's receipt of such notice. The
Agent shall provide each Lender written confirmation of such
telephonic notice by telefacsimile transmission, but failure to
provide such notice shall not affect the validity of such telephonic
notice.
(iii) Not later than 2:30 P.M., Charlotte, North Carolina
time on the date specified for each Advance of a Revolving
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Credit Loan, each Lender shall, pursuant to the terms and subject to
the conditions of this Agreement, make the amount of the Revolving
Credit Loan or Loans to be made by it on such day available to the
Agent by depositing or transferring the proceeds thereof in
immediately available funds at the Principal Office. The amount so
received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Borrower by delivery of the
proceeds thereof to the Borrower's Account or otherwise as shall be
directed in the applicable Borrowing Notice by the Authorized
Representative.
2.02 COMPETITIVE BID LOANS. (a) In addition to Revolving Credit Loans,
at any time prior to the Revolving Credit Termination Date during which the
conditions set forth in Section 2.02(b) below re satisfied, the Borrower may,
as set forth in this Section 2.02, request the Lenders to make offers to make
Competitive Bid Loans to the Borrower in Dollars. The Lenders may, but shall
have no obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section
2.02. There may be no more than ten (10) different Interest Periods for both
Revolving Credit Loans and Competitive Bid Loans outstanding at the same time
(for which purpose Interest Periods for each LIBOR Loan and each Competitive
Bid Loan shall be deemed to be different Interest Periods even if they are
coterminous). Each Competitive Bid Loan shall reduce availability under the
Revolving Credit Facility. The making of a Competitive Bid Loan by any Lender
shall not reduce such Lender's Revolving Credit Commitment except as calculated
based upon the Total Revolving Credit Commitment as reduced by such Competitive
Bid Loan. Competitive Bid Outstandings, together with all other Outstandings,
shall not exceed the Total Revolving Credit Commitment at any time.
(b) When the Borrower wishes to request offers to make Competitive
Bid Loans, it shall give the Agent (which shall promptly notify the Lenders) a
Competitive Bid Quote Request to be received no later than 11:00 a.m.
Charlotte, North Carolina time two (2) the Business Days prior to the date of
borrowing proposed therein (or such other time and date as the Borrower and the
Agent, with the consent of the Required Lenders, may agree). The Borrower may
request offers to make Competitive Bid Loans for up to two (2) different
Interest Periods in a single notice; provided that the request for each
separate Interest Period shall be deemed to be a separate Competitive Bid Quote
Request for a separate borrowing (a "Competitive Bid Borrowing") and there
shall not be outstanding at any one time more than four (4) Competitive Bid
Borrowings. Each such Competitive Bid Quote Request shall be substantially in
the form of Exhibit I attached hereto and incorporated herein by reference and
shall specify as to each Competitive Bid Borrowing:
(i) the proposed date of such borrowing, which shall be a
Business Day;
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(ii) the aggregate amount of such Competitive Bid Borrowing,
which shall be at least $5,000,000 (or in increments of $1,000,000 in
excess thereof) but shall not cause the limits specified in Section
2.02(a) hereof to be violated;
(iii) the duration of the Interest Period applicable thereto
(which may be not less than 7 nor more than 180 days); and
(iv) the Quotation Date.
Except as otherwise provided in this Section 2.02(b), no Competitive Bid Quote
Request shall be given within five (5) Business Days (or such other number of
days as the Borrower and the Agent, with the consent of the Required Lenders,
may agree) of any other Competitive Bid Quote Request.
(c) Each Lender may submit one or more Competitive Bid Quotes,
each containing an offer to make a Competitive Bid Loan in response to any
Competitive Bid Quote Request; provided that, if the Borrower's request under
Section 2.02(b) hereof specified more than one Interest Period, such Lender may
make a single submission containing one or more Competitive Bid Quotes for each
such Interest Period. Each Competitive Bid Quote must be submitted to the
Agent not later than 10:00 a.m. Charlotte, North Carolina time on the Quotation
Date (or such other time and date as the Borrower and the Agent, with the
consent of the Required Lenders, may agree), provided that any Competitive Bid
Quote may be submitted by NationsBank only if NationsBank notifies the Borrower
of the terms of the offer contained therein not later than 9:45 a.m. Charlotte,
North Carolina time on the Quotation Date. Subject to Articles III, IV and
VIII hereof, any Competitive Bid Quote so made shall be irrevocable except with
the consent of the Agent given on the instructions of the Borrower.
(d) Each Competitive Bid Quote shall be substantially in the form
of Exhibit J attached hereto and incorporated herein by reference and shall
specify:
(i) the proposed date of borrowing and the Interest
Period therefor;
(ii) the principal amount of the Competitive Bid Loan for
which each such offer is being made, which principal amount shall be
at least $1,000,000 (or in increments of $100,000 in excess thereof);
provided that the aggregate principal amount of all Competitive Bid
Loans for which a Lender submits Competitive Bid Quotes may not exceed
the principal amount of the Competitive Bid Borrowing for a particular
Interest Period for which offers were requested;
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(iii) the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100th of 1%) offered for each such
Competitive Bid Loan (the "Absolute Rate"); and
(iv) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the Borrower, no Competitive Bid Quote
shall contain qualifying, conditional or similar language or propose terms
other than or in addition to those set forth in the applicable Competitive Bid
Quote Request. Any subsequent Competitive Bid Quote submitted by a Lender that
amends, modifies or is otherwise inconsistent with a previous Competitive Bid
Quote submitted by such Lender with respect to the same Competitive Bid Quote
Request shall be disregarded by the Agent unless such subsequent Competitive
Bid Quote is submitted solely to correct a manifest error in such former
Competitive Bid Quote.
(e) The Agent shall as promptly as practicable after a Competitive
Bid Quote is submitted (but in any event not later than 10:30 a.m. Charlotte,
North Carolina time on the Quotation Date), notify the Borrower of the terms of
any Competitive Bid Quote submitted by a Lender that is in accordance with
Sections 2.02(c) and (d) hereof. The Agent's notice to the Borrower shall
specify (i) the aggregate principal amount of the Competitive Bid Borrowing for
which Competitive Bid Quotes have been received and (ii) the respective
principal amount and Absolute Rate so offered by each Lender (identifying the
Lender that made each Competitive Bid Quote).
(f) Not later than 11:00 a.m. Charlotte, North Carolina time on
the Quotation Date (or such other time and date as the Borrower and the Agent,
with the consent of the Required Lenders, may agree), the Borrower shall notify
the Agent of its acceptance or nonacceptance of the Competitive Bid Quotes so
notified to it pursuant to Section 2.02(e) hereof (the failure of the Borrower
to give such notice by such time shall constitute nonacceptance), and the Agent
shall promptly notify each affected Lender. In the case of acceptance, such
notice shall specify the aggregate principal amount of offers for each Interest
Period that are accepted. The Borrower may only accept a Competitive Bid Quote
for the entire amount of the Competitive Bid Loan so offered as opposed to any
portion thereof, except as provided in Section 2.02(g) hereof. The Borrower's
acceptance of Competitive Bid Quotes is further subject to the following
conditions:
(i) the aggregate principal amount of each Competitive
Bid Borrowing may not exceed the applicable amount set forth in the
related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each Competitive
Bid Borrowing shall be at least $5,000,000 (or an increment of
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$1,000,000 in excess thereof) but shall not cause the limits specified
in Section 2.02(a) hereof to be violated;
(iii) acceptance of Competitive Bid Quotes may be made only
in ascending order of Absolute Rates beginning with the lowest rate so
offered; and
(iv) the Borrower may not accept any Competitive Bid Quote
if the Agent has correctly advised the Borrower that such Competitive
Bid Quote fails to comply with Section 2.02(d) hereof or otherwise
fails to comply with the requirements of this Agreement (including,
without limitation, Section 2.02(a) hereof).
(g) If Competitive Bid Quotes are made by two or more Lenders with
the same Absolute Rates for a greater aggregate principal amount than the
amount in respect of which Competitive Bid Quotes are accepted for the related
Interest Period, the principal amount of Competitive Bid Loans in respect of
which such Competitive Bid Quotes are accepted shall be allocated by the
Borrower among such Lenders as nearly as possible (in amounts of at least
$500,000 or in increments of $100,000 in excess thereof) in proportion to the
aggregate principal amount of such Competitive Bid Quotes. Determinations by
the Borrower of the amounts of Competitive Bid Loans and the lowest bid as
provided in Section 2.02(f)(iii) shall be conclusive absent manifest error.
(h) Any Lender whose offer to make any Competitive Bid Loan has
been accepted shall, not later than 1:00 p.m. Charlotte, North Carolina time
on the date specified for the making of such Loan, make the amount of such Loan
available to the Agent at the Principal Office in Dollars and in immediately
available funds, for account of the Borrower. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower on such date by depositing the same, in Dollars and
in immediately available funds, in an account of the Borrower maintained at the
Principal Office.
(i) Together with each Competitive Bid Quote Request, the Borrower
shall pay to the Agent for the account of the Agent a bid administration fee of
$1,500.
2.03 TERM LOAN.
(a) TERM LOAN OPTION. In the event the Borrower fails to exercise
its option to extend the Revolving Credit Termination Date or the Lenders fail
to consent to such extension, the Borrower shall have the option to convert the
Revolving Credit Outstandings as of the Revolving Credit Termination Date into
a term loan in the original principal amount equal thereto (the "Term Loan
Option"). Such Term Loan shall mature four years from the date of the Term
Loan Notes in the event the Term Loan Option is exercised in 1995; three years
from the date of the Term Loan Notes in the event the
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Term Loan Option is exercised in 1996; two years from the date of the Term Loan
Notes in the event the Term Loan Option is exercised in 1997 and one year from
the date of the Term Loan Notes in the event the Term Loan Option is exercised
in 1998 (in each case, the "Scheduled Term Loan Termination Date"). In the
event the Borrower shall exercise such Term Loan Option, the outstanding
Revolving Credit Notes shall be cancelled and replaced by Term Notes dated as
of the Revolving Credit Termination Date, as the same may have been extended
pursuant to Section 2.16 hereof, as set forth in Section 2.08 hereof and the
Revolving Credit Facility and the Revolving Credit Commitment of each Lender
shall terminate. The principal amount of such Term Loan shall be due and
payable in equal quarterly installments due on the last Business Day of each
September, December, March and June, beginning with the last Business Day of
the September immediately following the Borrower's execution and delivery of
the Term Loan Notes and quarterly thereafter until the Term Loan Termination
Date, when the entire unpaid principal balance, including any accrued and
unpaid interest, shall be due and payable.
(b) EXERCISE OF TERM LOAN OPTION. The Borrower may exercise the
Term Loan Option only if the following conditions are met: (i) the Borrower
shall have given written notice to the Agent of its intention to exercise the
Term Loan Option no less than thirty (30) days prior to the Revolving Credit
Termination Date, which notice shall promptly be delivered by the Agent to each
Lender; (ii) no Default or Event of Default shall have occurred or be
continuing as of the date of such notice; (iii) the Revolving Credit
Termination Date shall not have occurred in accordance with clause (ii) or
(iii) of the definition thereof; and (iv) the Borrower shall have paid on or
before the Revolving Credit Termination Date all accrued and unpaid interest
with respect to Revolving Credit Outstandings as of the Revolving Credit
Termination Date.
(c) INTEREST SELECTION.
(i) An Authorized Representative shall give the Agent (A)
irrevocable telephonic notice of each Term Loan Segment which shall be
a LIBOR Loan, whether representing the conversion of a Term Loan
Segment from a Base Rate Loan to a LIBOR Loan or the election of a
subsequent Interest Period for a Term Loan Segment which is a LIBOR
Loan, prior to 11:30 A.M. Charlotte, North Carolina time at least
three (3) LIBOR Business Days prior to the day such Term Loan Segment
is to be converted or continued; and (B) irrevocable telephonic notice
of each Term Loan Segment which shall be a Base Rate Loan,
representing the conversion of any Term Loan Segment from a LIBOR Loan
to a Base Rate Loan, prior to 10:30 A.M. Charlotte, North Carolina
time of the day such Term Loan Segment is to be converted. Each such
notice, which shall be effective upon receipt by the Agent, shall
specify the amount of such Term Loan Segment, the interest rate (Base
or LIBOR) and, if a LIBOR Loan, the Interest Period to be used in the
computation
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of Interest. The Authorized Representative shall provide the Agent
written confirmation of each such telephonic notice on the same day by
telefacsimile transmission in the form of an Interest Rate Selection
Notice, with appropriate insertions, but failure to provide such
confirmation shall not affect the validity of such telephonic notice.
The Borrower shall have the option to elect the duration of subsequent
Interest Periods and to convert Term Loan Segments in accordance with
Section 2.12 hereof. If the Agent does not receive a notice of
election of duration of an Interest Period or to convert by the time
prescribed hereby and by Section 2.12 hereof, the Borrower shall be
deemed to have elected to convert such Term Loan Segment to (or to
continue such Term Loan Segment as) a Base Rate Loan until the
Borrower otherwise notifies the Agent in accordance herewith and with
Section 2.12.
(ii) Notice of receipt of each Interest Selection Notice
shall be provided by the Agent to each Lender with reasonable
promptness, but not later than 1:00 P.M. Charlotte, North Carolina
time of the same day as the Agent's receipt of such notice. The Agent
shall provide each Lender written confirmation of such telephonic
confirmation by telefacsimile transmission, but failure to provide
such confirmation shall not affect the validity of such telephonic
notice.
(iii) No Interest Period with respect to a Term Loan
Segment shall extend beyond the Scheduled Term Loan Termination Date.
2.04 PAYMENT OF INTEREST. (a) The Borrower shall pay interest to the
Agent at the Principal Office for the account of each Lender on the outstanding
and unpaid principal amount of each Loan made by such Lender for the period
commencing on the date of such Loan until such Loan shall be due (i) in the case
of each Revolving Credit Loan or Term Loan Segment, at the LIBOR Rate or the
Base Rate, as elected or deemed elected by the Borrower or otherwise applicable
to such Loan as herein provided; and (ii) in the case of each Competitive Bid
Loan, at the applicable Absolute Rate; provided, however, that if any amount
shall not be paid when due (at maturity, by acceleration or otherwise), all
amounts outstanding hereunder shall bear interest thereafter (A) in the case of
a LIBOR Loan, at a rate of interest per annum which shall be two percent (2%)
above the LIBOR Rate for such LIBOR Loan until the end of the Interest Period
during which such payment was due, and thereafter at a rate of interest per
annum which shall be two percent (2%) above the Base Rate, (B) in the case of
a Base Rate Loan, at a rate of interest per annum which shall be two percent
(2%) above the Base Rate, and (C) in the case of a Competitive Bid Loan, at a
rate of interest per annum which shall be two percent (2%) above the Absolute
Rate for such Competitive Bid Loan until the end of the Interest Period during
which such payment was due, and thereafter at a rate of interest per annum
which shall be two percent (2%) above the Base Rate, or (in each case) the
maximum
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rate permitted by applicable law, whichever is lower, from the date such amount
was due and payable until the date such amount is paid in full.
(b) Interest on the outstanding principal balance of each Loan shall
be computed on the basis of a year of 360 days and calculated for the actual
number of days elapsed. Interest on each Loan shall be paid (i) quarterly in
arrears on the last Business Day of each December, March, June and September
commencing December 1994, on each Base Rate Loan, (ii) on the last day of the
applicable Interest Period for each LIBOR Loan and Competitive Bid Loan and,
for any LIBOR Loan or Competitive Bid Loan having an Interest Period extending
beyond three (3) months or ninety (90) days, as applicable, also on the date
occurring three (3) months or ninety (90) days after the commencement of such
Interest Period, and (iii) upon payment in full of the principal amount of such
Loan.
2.05 PAYMENT OF PRINCIPAL. The principal amount of all Revolving
Credit Outstandings shall be due and payable to the Agent for the benefit of
each Lender in full on the Revolving Credit Termination Date, subject to
Section 2.03 hereof, or earlier as herein expressly provided. The principal
amount of the Term Loan shall be due and payable to the Agent for the benefit
of each Lender in full on the Term Loan Termination Date or earlier as herein
expressly provided. The principal amount of all Competitive Bid Loans shall
be due and payable to the Lender making such Competitive Bid Loan in full on the
last day of the Interest Period therefor or earlier as herein expressly
provided. The principal amount of Base Rate Loans may be prepaid in whole or in
part at any time without premium or penalty. The principal amount of LIBOR
Loans and Competitive Bid Loans may only be prepaid at the end of the applicable
Interest Period, unless the Borrower shall pay to the Agent for the account of
the Lenders the amount, if any, required under Section 3.04 hereof. In the
event that at any time the sum of all Outstandings exceeds the Total Revolving
Credit Commitment, a principal amount of the Revolving Credit Outstandings equal
to or greater than such excess shall be due and payable immediately. All
prepayments made by the Borrower shall be in the amount of $1,000,000 or an
integral multiple of $1,000,000 in excess thereof, or such other amount as
necessary to comply with this Section 2.05 or with Section 2.10 or with the
covenants set forth in Article IX hereof.
2.06 NON-CONFORMING PAYMENTS. (a) Each payment of principal
(including any prepayment) and payment of interest shall be made to the Agent
at the Principal Office, for the account of each Lender's applicable Lending
Office, in Dollars and in immediately available funds before 2:30 P.M.
Charlotte, North Carolina time on the date such payment is due. The Agent may,
but shall not be obligated to, debit the amount of any such payment which is not
made by such time to any ordinary deposit account, if any, of the Borrower with
the Agent. The Borrower shall give the Agent prior telephonic notice
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of any payment of principal, such notice to be given by not later than 11:00
a.m. Charlotte, North Carolina time, on the date of such payment.
(b) The Agent shall deem any payment by or on behalf of the
Borrower hereunder that is not made both (i) in Dollars and in immediately
available funds and (ii) prior to 2:30 P.M. Charlotte, North Carolina time on
the date payment is due to be a non- conforming payment. Any such payment
shall not be deemed to be received by the Agent until the time such funds
become available funds. Any non-conforming payment (other than a
non-conforming prepayment) may constitute or become a Default or Event of
Default. The Agent shall give prompt notice to the Authorized Representative
and each of the Lenders (confirmed in writing) if any payment (other than a
prepayment) is non-conforming. Interest shall continue to accrue on any
principal as to which a non-conforming payment is made until such funds become
available funds (but in no event less than the period from the date of such
payment to the next succeeding Business Day) at the respective rates of
interest per annum specified in Section 2.04(a) with respect to late payments
of interest (other than with respect to non-conforming prepayments, with
respect to which interest shall continue to accrue on any principal as to which
such non-conforming payment is made until such funds become available funds at
the Base Rate or LIBOR Rate, as applicable) from the date such amount was due
and payable until the date such amount is paid in full.
(c) In the event that any payment hereunder or under the Notes
becomes due and payable on a day other than a Business Day, then such due date
shall be extended to the next succeeding Business Day unless provided otherwise
under clause (i)(B) of the definition of "Interest Period;" provided that
interest shall continue to accrue during the period of any such extension.
2.07 BORROWER'S ACCOUNT. Until the Revolving Credit Termination Date
or the Term Loan Termination, whichever shall last occur, the Borrower shall
continuously maintain the Borrower's Account for the purposes herein
contemplated.
2.08 NOTES. (a) Revolving Credit Loans made by each Lender shall be
evidenced by, and be repayable with interest in accordance with the terms of,
the Revolving Credit Note payable to the order of such Lender in the amount of
its Applicable Commitment Percentage of the Total Revolving Credit Commitment,
which Revolving Credit Notes shall be dated the Closing Date or such later date
pursuant to an Assignment and Acceptance and shall be duly completed, executed
and delivered by the Borrower.
(b) Competitive Bid Loans made by any Lender shall be evidenced by,
and be repayable with interest in accordance with the terms of, the Competitive
Bid Note payable to the order of such Lender, which Competitive Bid Note shall
be dated the Closing Date
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and otherwise duly completed, executed and delivered by the Borrower.
(c) The Term Loan, if any, shall be evidenced by, and be repayable
with interest in accordance with the terms of, the Term Notes payable to the
order of each Lender in the amount of its Applicable Commitment Percentage of
the original principal amount of the Term Loan, which Term Notes shall be duly
completed, executed and delivered by the Borrower.
2.09 PRO RATA PAYMENTS. Except as otherwise provided herein, (a) each
payment and prepayment on account of the principal of and interest on the
Revolving Credit Loans and the Term Loan and the fees described in Section 2.13
hereof shall be made to the Agent for the account of the Lenders in the
aggregate amount payable to the Lenders pro rata based on their Applicable
Commitment Percentages, and (b) each payment of principal of and interest on
the Competitive Bid Loans shall be made to the Agent for the account of the
respective Lender making such Competitive Bid Loan. All payments to be made by
the Borrower for the account of each of the Lenders on account of principal,
interest and fees, shall be made without set-off or counterclaim. The Agent
will promptly distribute such payments received to the Lenders as provided for
herein.
2.10 REDUCTIONS. The Borrower shall have the right from time to time
(but not more frequently than once during any fiscal quarter of the Borrower)
prior to the Revolving Credit Termination Date, upon not less than five (5)
Business Days written notice from an Authorized Representative to the Agent, to
reduce the Total Revolving Credit Commitment. The Agent shall give each Lender,
within one (1) Business Day, telephonic notice (confirmed in writing) of such
reduction. Each such reduction shall be in the amount of $5,000,000 or an
integral multiple of $5,000,000 in excess thereof, and shall permanently reduce
the Total Revolving Credit Commitment and the Revolving Credit Commitment of
each Lender pro rata. No such reduction shall be permitted that results in the
payment of any LIBOR Loan other than on the last day of the Interest Period of
such Loan unless such prepayment is accompanied by amounts due, if any, under
Section 3.04. Each reduction of the Total Revolving Credit Commitment shall be
accompanied by payment of the principal amount of the Revolving Credit
Outstandings to the extent that the sum of all Outstandings exceeds the Total
Revolving Credit Commitment after giving effect to such reduction, together with
accrued and unpaid interest on the amounts prepaid. A reduction of the Total
Revolving Credit Commitment to zero and payment by the Borrower of all
Obligations (including the discharge of all obligations of the Lenders with
respect to Competitive Bid Loans) shall, subject to the terms and conditions of
Section 10.08 hereof, be deemed a cancellation and termination of this Agreement
(other than with respect to Sections 6.14, 9.07, 10.05 and 10.10 hereof, which
shall survive any such termination).
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2.11 INCREASE AND DECREASE IN AMOUNTS. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrower shall be
reduced by the aggregate amount of all Outstandings and shall be reinstated
(subject to Section 2.10 hereof) as such Outstandings are reduced.
2.12 CONVERSIONS AND ELECTIONS OF SUBSEQUENT INTEREST PERIODS.
Provided that no Default or Event of Default shall have occurred
and be continuing and subject to the limitations set forth below
and in Sections 3.01(b), 3.02 and 3.03 hereof, the Borrower may:
(a) upon notice to the Agent on or before 10:30 A.M. Charlotte,
North Carolina time on any Business Day convert all or a part of LIBOR Loans to
Base Rate Loans on the last day of the Interest Period for such LIBOR Loans;
and
(b) upon three (3) LIBOR Business Days' notice to the Agent on or
before 11:30 A.M. Charlotte, North Carolina time:
(i) elect a subsequent Interest Period for all or a portion
of LIBOR Loans to begin on the last day of the current Interest Period
for such LIBOR Loans; or
(ii) convert Base Rate Loans to LIBOR Loans on any LIBOR
Business Day.
Notice of any such elections or conversions shall specify the
effective date of such election or conversion and, with respect to LIBOR
Loans, the Interest Period to be applicable to the Loan as continued or
converted. Each election and conversion pursuant to this Section 2.12 shall be
subject to the limitations on LIBOR Loans set forth in the definition of
"Interest Period" herein and in Sections 2.01(a), (b) and (c) and Article III
hereof. All such continuations or conversions of Loans shall be effected pro
rata based on the Applicable Commitment Percentages of the Lenders.
2.13 FACILITY FEE AND UPFRONT FEE. (a) For the period beginning on the
Closing Date and ending on the Revolving Credit Termination Date, as the same
may be extended pursuant to Section 2.16 hereof, the Borrower agrees to pay to
the Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages of the Total Revolving Credit Commitment, a quarterly
facility fee (the "Facility Fee") equal in amount to the product of Applicable
Margin for calculating the Facility Fee multiplied by the average daily Total
Revolving Credit Commitment for such period. Payments of the Facility Fee shall
be due in arrears on the last Business Day of each December, March, June and
September beginning December 1994 to and on the Revolving Credit Termination
Date. Notwithstanding the foregoing, so long as any Lender fails to make
available any portion of its Revolving Credit Commitment when requested, such
Lender shall not be entitled to receive payment of its pro rata share of the
Facility Fee until such Lender
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shall make available such portion. The Facility Fee shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed.
(b) The Borrower agrees to pay to the Agent, for the benefit of
each Lender, a fee on the Closing Date (the "Upfront fee") in the amounts set
forth on Exhibit O attached hereto and incorporated herein by reference.
2.14 DEFICIENCY ADVANCES. No Lender shall be responsible for any
default of any other Lender in respect to such other Lender's obligation to make
any Loan hereunder nor shall the Revolving Credit Commitment of any Lender
hereunder be increased as a result of such default of any other Lender. Without
limiting the generality of the foregoing, in the event any Lender shall fail to
advance funds to the Borrower as herein provided, the Agent may in its
discretion, but shall not be obligated to, advance under the applicable
Revolving Credit Note in its favor as a Lender all or any portion of such amount
or amounts (each, a "deficiency advance") and shall thereafter be entitled to
payments of principal of and interest on such deficiency advance in the same
manner and at the same interest rate or rates to which such other Lender would
have been entitled had it made such advance under its applicable Note; provided
that, upon payment to the Agent from such other Lender of the entire outstanding
amount of each such deficiency advance, together with accrued and unpaid
interest thereon, from the most recent date or dates interest was paid to the
Agent by the Borrower on each Loan comprising the deficiency advance at the
interest rate per annum for overnight borrowing by the Agent from the Federal
Reserve Bank, then such payment shall be credited against the applicable Note of
the Agent in full payment of such deficiency advance and the Borrower shall be
deemed to have borrowed the amount of such deficiency advance from such other
Lender as of the most recent date or dates, as the case may be, upon which any
payments of interest were made by the Borrower thereon.
2.15 USE OF PROCEEDS. The proceeds of the Loans made pursuant to the
Revolving Credit Facility shall be used by the Borrower to finance acquisitions
in similar lines of business of the Borrower and its Subsidiaries but shall in
no event be used to (a) prepay any portion of the Subordinated Debt or (b)
finance any Acquisition that is approved by less than a majority of the Board of
Directors or other governing body of the Person to be so acquired as of the date
of such Acquisition.
2.16 EXTENSION OF REVOLVING CREDIT TERMINATION DATE.
(a) The Borrower shall have the option to extend the Revolving
Credit Termination Date for an additional 364-day period beginning on the
scheduled Revolving Credit Termination Date and ending October 10, 1996. The
Total Revolving Credit Commitment during such additional period shall be equal
to the Total Revolving
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Credit Commitment as of the scheduled Revolving Credit Termination Date less
$5,000,000.
(b) The Revolving Credit Termination Date may be so extended only
if the following conditions are met: (i) the Borrower shall have given written
notice to the Agent of its intention to so extend no less than sixty (60) days
prior to the immediately preceding scheduled Revolving Credit Termination Date,
which notice shall promptly be delivered by the Agent to each Lender; (ii) no
Default or Event of Default shall have occurred or be continuing as of the date
of such notice; (iii) the Revolving Credit Termination Date shall not have
occurred in accordance with clause (ii) or (iii) of the definition thereof; and
(iv) all of the Lenders shall have agreed in writing to so extend the Revolving
Credit Termination Date not less than thirty (30) days prior to the scheduled
Revolving Credit Termination Date.
(c) In the event the Revolving Credit Termination Date is extended
pursuant to Section 2.16(a), the Borrower shall have the option to again extend
the Revolving Credit Termination Date for an additional 364-day period in each
of 1996 and 1997 (assuming the Revolving Credit Termination Date is extended in
each preceding year) upon compliance with Section 2.16(b). The Total Revolving
Credit Commitment during each such additional period shall be equal to the
Total Revolving Credit Commitment as of the immediately preceding scheduled
Revolving Credit Termination Date less $5,000,000.
2.17 ADDITIONAL FEES. In addition to any fees described above, the
Borrower agrees to pay to the Agent and NationsBank such other fees as may be
agreed to in a separate writing or writings.
ARTICLE III
YIELD PROTECTION AND ILLEGALITY
3.01 ADDITIONAL COSTS. (a) The Borrower shall promptly pay to the Agent
for the account of a Lender from time to time, without duplication, such amounts
as such Lender may reasonably determine to be necessary to compensate it for any
costs incurred by such Lender attributable to its making or maintaining any Loan
or its obligation to make any Loans, or any reduction in any amount receivable
by such Lender under this Agreement or the Notes in respect of any of such
Loans, including reductions in the rate of return on a Lender's capital (such
increases in costs and reductions in amounts receivable and returns being herein
called "Additional Costs"), resulting from any Regulatory Change which (i)
changes the basis of taxation of any amounts payable to such Lender under this
Agreement or the Notes in respect of any of such Loans (other than taxes imposed
on or measured by the income, revenues or assets of any Lender); or (ii) imposes
or modifies any reserve, special deposit, or similar requirements relating to
any extensions of credit or other assets of, or any deposits with or
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other liabilities of, such Lender (other than any such reserve, deposit or
requirement reflected in the LIBOR Base Rate computed in accordance with the
definition of such term set forth in Section 1.01 hereof); or (iii) has or
would have the effect of reducing the rate of return on capital of any such
Lender to a level below that which the Lender could have achieved but for such
Regulatory Change (taking into consideration such Lender's policies, or
policies of the parent corporation of such Lender, with respect to capital
adequacy); or (iv) imposes any other condition not set forth in clauses (i),
(ii) or (iii) above which adversely affects the amounts which would have been
received by the Agent or the Lenders under this Agreement or the Notes but for
such Regulatory Change. Each Lender will notify the Authorized Representative
and the Agent of any event occurring after the Closing Date which would entitle
it to compensation pursuant to this Section 3.01(a) as promptly as practicable
after it obtains knowledge thereof and determines to request such compensation.
(b) Without limiting the effect of the foregoing provisions of
this Section 3.01, in the event that, by reason of any Regulatory Change, any
Lender either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of the Lender which includes deposits by reference to which the
interest rate on LIBOR Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of any Lender which includes
LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if the Lender so
elects by notice to the Agent (which shall promptly deliver such notice to the
other Lenders), the obligation hereunder of such Lender to make and continue,
and to convert Base Rate Loans into, LIBOR Loans that are the subject of such
restrictions shall be suspended until the date such Regulatory Change ceases to
be in effect and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for outstanding LIBOR Loans convert such LIBOR Loans into
Base Rate Loans; provided, however, that the suspension of such obligation and
the conversion of any LIBOR Loans into Base Rate Loans shall apply only to any
Lender who is affected by such restrictions and who has provided such notice to
the other Lenders, and the obligation of the other Lenders to make, and to
convert Base Rate Loans into, LIBOR Loans shall not be affected by such
restrictions. In the event that the obligation of some, but not all of the
Lenders to make, or to convert Base Rate Loans into, LIBOR Loans is suspended,
then any request by the Borrower during the pendency of such suspension for a
LIBOR Loan shall be deemed a request for such LIBOR Loan from the Lender(s) not
subject to such suspension and for a Base Rate Loan from the Lender(s) who are
subject to such suspension, in each case in the respective amounts based on the
Lenders' respective Applicable Commitment Percentages.
(c) Reasonable determinations by any Lender for purposes of this
Section 3.01 of the effect of any Regulatory Change on its
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costs of making or maintaining, or being committed to make, Loans or on amounts
receivable by any Lender in respect of Loans, and of the additional amounts
required to compensate the Lender in respect of any Additional Costs shall be
made taking into account such Lender's policies, or the policies of the parent
corporation of such Lender, as to the allocation of capital, costs and other
items and shall be conclusive absent manifest error. The Lender requesting
such compensation shall furnish to the Authorized Representative and the Agent
an explanation of the Regulatory Change and calculations, in reasonable detail,
setting forth such Lender's determination of any such Additional Costs.
3.02 SUSPENSION OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any interest rate for
any LIBOR Loan for any Interest Period, the Agent determines (which
determination shall be conclusive absent manifest error) that:
(a) quotations of interest rates for the relevant
deposits referred to in the definition of LIBOR Rate in Section 1.01
hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest
for such LIBOR Loan as provided in this Agreement; or
(b) the relevant rates of interest referred to in the
definition of "LIBOR Base Rate" in Section 1.01 hereof upon the basis
of which the LIBOR Rate for such Interest Period is to be determined
do not adequately reflect the cost to the Lenders of making or
maintaining such LIBOR Loan for such Interest Period;
then the Agent shall give the Authorized Representative prompt notice thereof,
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make LIBOR Loans that are subject to such condition, or to
convert Loans into LIBOR Loans, and the Borrower shall on the last day(s) of
the then current Interest Period(s) for outstanding LIBOR Loans convert such
LIBOR Loans into Base Rate Loans. The Agent shall give the Authorized
Representative notice describing any event or condition described in this
Section 3.02 promptly following the determination by the Agent that the
availability of LIBOR Loans is, or is to be, suspended as a result thereof.
3.03 ILLEGALITY. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender to honor its obligation to
make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify
the Borrower thereof (with a copy to the Agent) and such Lender's obligation to
make or continue LIBOR Loans, or convert Base Rate Loans into LIBOR Loans, shall
be suspended until such time as such Lender may again make and maintain LIBOR
Loans, and such Lender's outstanding LIBOR Loans shall be converted into Base
Rate Loans in accordance with
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Section 2.12 hereof. In the event that the obligation of some, but not all of
the Lenders to make, or to convert Base Rate Loans into LIBOR Loans is
suspended, then any request by the Borrower during the pendency of such
suspension for a LIBOR Loan shall be deemed a request for such LIBOR Loan from
the Lender(s) not subject to such suspension and for a Base Rate Loan from the
Lender(s) who are subject to such suspension, in each case in the respective
amounts based on the Lenders' respective Applicable Commitment Percentages.
3.04 COMPENSATION. The Borrower shall promptly pay to each Lender, upon
the request of such Lender, such amount or amounts as shall be sufficient (in
the reasonable determination of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) any payment, prepayment or conversion of a LIBOR Loan
on a date other than the last day of the Interest Period for such
LIBOR Loan, including without limitation any conversion required
pursuant to this Article III; or
(b) any failure by the Borrower to borrow a LIBOR Loan or
to convert a Base Rate Loan into a LIBOR Loan on the date for such
borrowing or conversion specified in the relevant Borrowing Notice or
Interest Rate Selection Notice under Article II hereof;
such compensation to include, without limitation, an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not borrowed for the period
from the date of such payment, prepayment or conversion or failure to borrow or
convert to the last day of the then current Interest Period for such Loan (or,
in the case of a failure to borrow or convert, the Interest Period for such
Loan which would have commenced on the date scheduled for such borrowing or
conversion) at the applicable rate of interest for such LIBOR Loan provided for
herein over (ii) the LIBOR Base Rate (as reasonably determined by the Agent)
for Dollar deposits of amounts comparable to such principal amount and
maturities comparable to such period. A good faith determination of a Lender
as to the amounts payable pursuant to this Section 3.04 shall be conclusive
absent manifest error. The Lender requesting compensation under this Section
3.04 shall furnish to the Authorized Representative and the Agent calculations
in reasonable detail setting forth such Lender's determination of the amount of
such compensation.
3.05 ALTERNATE INTEREST RATE. In the event any Lender suspends the
making of any LIBOR Loan pursuant to this Article III (a "Restricted Lender"),
the Restricted Lender's Applicable Commitment Percentage of any LIBOR Loan shall
bear interest at the Base Rate until the Restricted Lender once again makes
available the applicable LIBOR Loan. Notwithstanding the provisions of Section
2.04(b), interest shall be payable to the Restricted Lender
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at the time and in the manner paid to those Lenders making available LIBOR
Loans.
3.06 TAXES. (a) All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future excise, stamp
or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding (i) franchise taxes, (ii) any taxes other than withholding taxes,
(iii) taxes that would be imposed as a result of a connection between a Lender
or the Agent and the jurisdiction imposing such taxes (other than a connection
arising solely by virtue of the activities of such Lender or the Agent pursuant
to or in respect of this Agreement or any other Loan Document), (iv) any taxes
which become payable as a result of a failure by any Person to comply with its
obligations set forth in Section 3.06(b) or which would not have been imposed
but for (A) a sale, assignment, grant of a participation, or any other transfer
or disposition of any interest in this Agreement or any other Loan Document or
(B) a change by a Lender of the Lending Office of such Lender designated on the
signature pages herein or in an Assignment and Acceptance, and (v) any taxes
imposed on or measured by any Lender's assets, net income, receipts or branch
profits (such non-excluded items being collectively called "Taxes"). In the
event that any withholding or deduction from any payment to be made by the
Borrower hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then the Borrower shall:
(A) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(B) if requested by the Agent, promptly forward to the
Agent an official receipt or other documentation reasonably
satisfactory to the Agent evidencing such payment to such authority;
and
(C) pay to the Agent for the account of the Lenders such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount
such Lender would have received had no such withholding or deduction
been required.
(b) Prior to the date that any Lender or participant organized
under the laws of a jurisdiction outside the United States becomes a party
hereto, such Person shall deliver to the Borrower and the Agent such
certificates, documents or other evidence, as required by the Code, properly
completed, currently effective and duly executed by such Lender or participant
establishing that such payment is (i) not subject to United States Federal
backup withholding tax and (ii) not subject to United States Federal
withholding tax under the Code because such payment is either effectively
connected with the conduct by such Lender or
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participant of a trade or business in the United States or totally exempt from
United States Federal withholding tax by reason of the application of the
provisions of a treaty to which the United States is a party or such Lender is
otherwise exempt.
(c) If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Agent, for the account of
the respective Lender, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 3.06, a distribution hereunder by
the Agent or any Lender to or for the account of any Lender shall be deemed a
payment by the Borrower.
ARTICLE IV
CONDITIONS TO MAKING LOANS
4.01 CONDITIONS OF INITIAL ADVANCE. The obligation of the Lenders to
make the initial Advance is subject to the conditions precedent that the Agent
shall have received on or before the Closing Date, in form and substance
satisfactory to the Agent and Lenders, the following:
(a) executed originals of each of this Agreement, the
Notes, the Guaranty and the other Loan Documents, together with all
schedules and exhibits thereto;
(b) executed originals of the $60,000,000 Credit Facility
Documents;
(c) favorable written opinion of counsel to the Borrower
and the Guarantors dated the Closing Date, addressed to the Agent and
the Lenders and reasonably satisfactory to Smith Helms Mulliss &
Moore, L.L.P., special counsel to the Agent, substantially in the form
of Exhibit K attached hereto and incorporated herein by reference;
(d) resolutions of the board of directors or other
appropriate governing body (or of the appropriate committee thereof)
of the Borrower, certified by its secretary or assistant secretary or
other appropriate officer as of the Closing Date, appointing the
initial Authorized Representative and approving and adopting the Loan
Documents to be executed by such Person, and authorizing the
execution, delivery and performance thereof;
(e) resolutions of the board of directors or other
appropriate governing body (or of the appropriate committee thereof)
of each Guarantor, certified by its secretary or assistant secretary
or other appropriate officer as of the Closing Date approving and
adopting the Loan Documents to be
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executed on behalf of such Guarantor and authorizing the execution,
delivery and performance thereof;
(f) specimen signatures of officers of the Borrower
executing the Loan Documents on behalf of the Borrower, certified by
the secretary or assistant secretary or other appropriate officer of
the Borrower;
(g) specimen signatures of officers of each Guarantor
executing the Loan Documents on behalf of such Guarantor certified by
the secretary or assistant secretary or other appropriate officer of
such Guarantor;
(h) the charter documents of each of the Borrower and the
Guarantors certified as of a recent date by the Secretary of State or
other appropriate Governmental Authority of its jurisdiction of
incorporation;
(i) the by-laws of each of the Borrower and the
Guarantors certified as of the Closing Date as true and correct by its
secretary or assistant secretary;
(j) with respect to the Borrower and each Guarantor,
certificates issued as of a recent date by the Secretary of State or
other appropriate Governmental Authority of its jurisdiction of
incorporation as to its due existence and good standing therein;
(k) with respect to the Borrower and each Guarantor,
appropriate certificates of qualification to do business, good
standing and, where appropriate, authority to conduct business under
assumed name, issued as of a recent date by the Secretary of State or
other appropriate Governmental Authority of each jurisdiction in which
the failure to be qualified to do business or authorized so to conduct
business could result in a Material Adverse Effect;
(l) notice of appointment of the initial Authorized
Representative of the Borrower in the form of Exhibit C hereto;
(m) certificate of an Authorized Representative dated the
Closing Date demonstrating compliance with the financial covenants
contained in Sections 7.01 and 7.02, all as of the immediately
preceding Determination Date, substantially in the form of Exhibit L
attached hereto;
(n) evidence of insurance required by the Loan Documents
other than policies for director and officer indemnification insurance
and immaterial policies issued to Subsidiaries;
(o) copies of all documents evidencing the Subordinated
Debt;
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(p) evidence reasonably satisfactory to the Agent of
repayment of all Indebtedness of the Borrower outstanding under, and
evidence of termination of, that certain Second Amended and Restated
Loan and Security Agreement dated as of October 27, 1993 by and among
the Borrower (successor to Hanover Direct Pennsylvania, Inc.),
Congress Financial Corporation and certain Subsidiaries, as amended to
date;
(q) UCC-3 Termination Statements executed on behalf of
Congress Financial Corporation, in form and number satisfactory to the
Agent, sufficient upon filing by the Agent in the appropriate offices
to terminate all security interests granted by the Borrower or any of
its Subsidiaries to Congress Financial Corporation;
(r) an initial Borrowing Notice;
(s) all fees payable by the Borrower on the Closing Date
to the Agent, NationsBank and the Lenders; and
(t) such other documents, instruments, certificates and
opinions as the Agent or any Lender may reasonably request on or prior
to the Closing Date in connection with the consummation of the
transactions contemplated hereby.
4.02 CONDITIONS OF LOANS. The obligations of the Lenders to make any
Loans or to convert or continue the interest rates thereof pursuant to Section
2.12 (other than any conversion required by Article III hereof) hereunder on or
subsequent to the Closing Date are subject to the satisfaction of the following
conditions:
(a) the Agent shall have received a notice of such
borrowing or request as required by Article II hereof;
(b) the representations and warranties of the Borrower
set forth in Article V hereof and in each of the other Loan Documents
shall be true and correct in all material respects on and as of the
date of such Advance, conversion or continuation as the case may be,
with the same effect as though such representations and warranties had
been made on and as of such date, except (i) to the extent that such
representations and warranties expressly relate to an earlier date,
(ii) that the representations and warranties set forth in Section
5.01(d) and (e) shall be deemed to include and take into account any
merger or consolidation permitted under Section 7.06 hereof, and (iii)
that the financial statements referred to in Section 5.01(f)(i) shall
be deemed to be those financial statements most recently delivered to
the Agent and the Lenders pursuant to Section 6.01 hereof;
(c) at the time of each such Advance, conversion or
continuation, no Default or Event of Default shall have occurred and
be continuing;
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(d) immediately after giving effect to any Loan (i)
Outstandings shall not exceed the Total Revolving Credit Commitment,
and (ii) each Lender's Applicable Commitment Percentage of Loans shall
not exceed its Revolving Credit Commitment;
(e) notwithstanding Section 7.05 hereof, in the event the
proceeds of such Advance are to be used to finance an Acquisition, the
Agent and each Lender shall have received not less than fifteen (15)
Business Days prior to the date such Advance is to be made:
(i) historical audited financial statements of
the Person to be acquired for its two (2) most recently
completed fiscal years, including a balance sheet as of the
end of each such year and related statements of operations,
cash flows and shareholders' equity for each such year (other
than with respect to the Borrower's proposed Acquisitions of
Regal Shop Ltd. and Joan Rivers Production Company, for which
the Borrower shall deliver to the Agent and Lenders such
financial statements as are available and in form and
substance reasonably acceptable to the Agent);
(ii) a consolidated pro forma balance sheet of the
Borrower and its Subsidiaries and related pro forma
consolidated statement of operations, in each case giving
effect to such Acquisition, as of the end of the most recently
completed Fiscal Year and in form and substance reasonably
acceptable to the Agent;
(iii) consolidated financial projections on a pro
forma basis for the Borrower and its Subsidiaries giving
effect to such Acquisition for the three-year period
immediately following the consummation of such Acquisition, in
form and substance reasonably acceptable to the Agent; and
(iv) a certificate of an Authorized Representative
as to the absence of any Default or Event of Default and
demonstrating compliance with Sections 7.01 and 7.02 of this
Agreement, in each case for the most recently ended fiscal
quarter after giving effect to such Acquisition on a pro forma
basis;
and in the event the Required Lenders shall fail to give written
notice to the Borrower of any objection to the form or substance of
such financial statements and certificate within ten (10) Business
Days following receipt thereof, the same shall be deemed acceptable to
the Agent and the Lenders. In addition, the Agent and the Lenders
shall receive copies of the principal documents relating to such
Acquisition, to the extent the same are available, together with the
financial
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information described in clauses (i) through (iv) above or as soon
thereafter as practicable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants with respect to itself and to its Subsidiaries (which representations
and warranties shall survive the delivery of the documents mentioned herein and
the making of Loans), that:
(a) ORGANIZATION AND AUTHORITY.
(i) the Borrower and each Subsidiary is a corporation
duly organized and validly existing under the laws of the jurisdiction
of its incorporation or creation;
(ii) the Borrower and each Subsidiary (A) has the
requisite power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in
the Loan Documents, and (B) is qualified to do business in every
jurisdiction in which failure so to qualify would have a Material
Adverse Effect;
(iii) the Borrower has the power and authority to execute,
deliver and perform this Agreement and the Notes, and to borrow
hereunder, and to execute, deliver and perform each of the other Loan
Documents to which it is a party; and
(iv) when executed and delivered, each of the Loan
Documents to which the Borrower is a party will be the legal, valid
and binding obligation or agreement, as the case may be, of the
Borrower, enforceable against it in accordance with its respective
terms, subject to the effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting the
enforceability of creditors' rights generally and to the effect of
general principles of equity which may limit the availability of
equitable remedies (whether in a proceeding at law or in equity);
(b) LOAN DOCUMENTS. The execution, delivery and performance by the
Borrower and each Guarantor of each of the Loan Documents to which it is a
party:
(i) have been duly authorized by all requisite corporate
action (including any required shareholder approval) of the Borrower
or such Guarantor, as applicable, required for the lawful execution,
delivery and performance thereof;
(ii) do not violate any provisions of (A) law, rule or
regulation applicable to the Borrower or such Guarantor, (B) any order
of any court or other agency of government binding
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on the Borrower or such Guarantor, or their respective properties, or
(C) the charter documents, documents of organization or governance or
by-laws of Borrower or such Guarantor, in each case, which violation
could reasonably be expected to have a Material Adverse Effect;
(iii) will not be in conflict with, result in a breach of
or constitute an event of default, or an event which, with notice or
lapse of time, or both, would constitute an event of default, under
any indenture, agreement or other instrument to which Borrower or such
Guarantor is a party or by which its properties or assets are bound
which conflict, breach or event of default could reasonably be
expected to have a Material Adverse Effect; and
(iv) will not result in the creation or imposition of any
Lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of Borrower or such Guarantor except any Liens in
favor of the Agent and the Lenders created by the Loan Documents;
(c) SOLVENCY. Borrower and each Guarantor (other than the
Guarantors listed on Schedule 5.01(c) hereto) are Solvent after giving effect
to the transactions contemplated by this Agreement and the other Loan
Documents;
(d) SUBSIDIARIES AND STOCKHOLDERS. Borrower has no Subsidiaries
other than those Persons listed as Subsidiaries in Schedule 5.01(d) hereto, as
the same may be hereafter amended; Schedule 5.01(d), as the same may be
hereafter amended, states the authorized and issued capitalization of each
Subsidiary listed thereon, the number of shares or other equity interests of
each class of capital stock or interest issued and outstanding of each such
Subsidiary and the number and/or percentage of outstanding shares or other
equity interest (including options, warrants and other rights to acquire any
interest) of each such class of capital stock or equity interest owned by the
Borrower or by any such Subsidiary; the outstanding shares or other equity
interests of each such Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable; and the Borrower and each such Subsidiary
owns beneficially and of record all the shares and other interests it is listed
as owning in Schedule 5.01(d), free and clear of any Lien other than Permitted
Liens described in Section 7.04(ii) hereof;
(e) OWNERSHIP INTERESTS. Borrower owns no interest in any
Affiliate (excluding Subsidiaries) other than the Persons listed in Schedule
5.01(e) hereto, as the same may be hereafter amended;
(f) FINANCIAL CONDITION.
(i) The Borrower has heretofore furnished to the Agent
audited consolidated balance sheets of the Borrower and its
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Subsidiaries as at January 1, 1994 and the notes thereto and the
related consolidated statements of operations, cash flows, and
shareholders' equity for the Fiscal Year then ended as examined and
certified by Arthur Andersen & Co., and unaudited interim consolidated
financial statements of Borrower and its Subsidiaries consisting of a
consolidated balance sheet and related consolidated statements of
earnings and cash flows, without notes, for and as of the six-month
period ended July 2, 1994. Except as set forth therein, such
financial statements (including the notes thereto) present fairly the
financial condition of the Borrower and its Subsidiaries as of the end
of such Fiscal Year and such six-month period and results of their
operations and the changes in their shareholders' equity for such
Fiscal Year and such six-month period, all in conformity with
Generally Accepted Accounting Principles applied on a Consistent Basis
(subject, in the case of the interim statements, to year-end
adjustments and the absence or reduced scope of footnote disclosures);
(ii) since January 1, 1994, there has not occurred any
Material Adverse Effect, and the businesses, properties and operations
of the Borrower and its Subsidiaries, considered as a whole, have not
been materially adversely affected as a result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers, flood,
embargo or act of God;
(iii) since January 1, 1994, except as set forth in the
financial statements referred to in Section 5.01(f)(i) or in Schedule
5.01(f) or Schedule 5.01(j) attached hereto, or as permitted under
Section 7.03 hereof, neither the Borrower nor any Subsidiary has
incurred, other than in the ordinary course of business, any material
Indebtedness or Contingent Obligations that remain outstanding or
unsatisfied;
(g) TITLE TO PROPERTIES. The Borrower and its Subsidiaries have
title to all their respective owned real and personal properties, subject to no
transfer restrictions or Liens of any kind, except for (i) the transfer
restrictions and Liens described in Schedule 5.01(g) attached hereto, (ii)
Liens permitted under Section 7.04 hereof, (iii) with respect to any personal
property that constitutes a security, transfer restrictions imposed under
Federal and state securities laws and regulations, and (iv) when the lack of
title or the presence of such transfer restrictions could not reasonably be
expected to have a Material Adverse Effect;
(h) TAXES. Except as set forth in Schedule 5.01(h) attached
hereto, the Borrower and its Subsidiaries have filed or caused to be filed all
Federal, state, local and foreign tax returns which are required to be filed by
them and which the failure to file could reasonably be expected to have a
Material Adverse Effect and, except for taxes and assessments being contested
in good faith by appropriate proceedings diligently conducted and against which
reserves satisfactory to the Borrower's independent certified
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public accountants have been established, have paid or caused to be paid all
taxes as shown on said returns or on any assessment received by them, to the
extent that such taxes have become due unless the failure to pay the same could
not reasonably be expected to have a Material Adverse Effect;
(i) OTHER AGREEMENTS. Neither the Borrower nor any Subsidiary is:
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to restrictions which could
reasonably be expected to have a Material Adverse Effect; or
(ii) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which the Borrower or any
Subsidiary is a party, which default has, or if not remedied within
any applicable grace period could reasonably be expected to have, a
Material Adverse Effect;
(j) LITIGATION. Except as set forth in Schedule 5.01(j) attached
hereto, there is no action, suit or proceeding at law or in equity or by or
before any governmental instrumentality or agency or arbitral body pending, or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary or affecting the Borrower or any Subsidiary or any properties or
rights of the Borrower or any Subsidiary, which could reasonably be expected to
have a Material Adverse Effect;
(k) MARGIN STOCK. Neither the Borrower nor any Subsidiary owns
any "margin stock" as such term is defined in Regulation U, as amended (12
C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant
to Article II hereof will be used by the Borrower and its Subsidiaries only for
the purposes set forth in Section 2.15 hereof. None of such proceeds 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 margin stock or for any other
purpose which might constitute any of the Loans under this Agreement a "purpose
credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part
224) of the Board. Neither the Borrower nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or any of the
documents or instruments delivered pursuant hereto to violate any regulation of
the Board or to violate the Securities Exchange Act of 1934, as amended, or the
Securities Act of 1933, as amended, or any state securities laws, in each case
as in effect on the date hereof;
(l) INVESTMENT COMPANY. Neither the Borrower nor any Subsidiary
is an "investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act
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of 1940, as amended (15 U.S.C. Section 80a-1, et seq.). The application of
the proceeds of the Loans and repayment thereof by the Borrower and the
performance by the Borrower of the transactions contemplated by this Agreement
will not violate any provision of said Act, or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder, in each case as in
effect on the date hereof;
(m) PATENTS, ETC. Except as set forth in Schedule 5.01(m)
attached hereto, the Borrower and its Subsidiaries own or have the right to
use, under valid license agreements or otherwise, all material patents,
licenses, franchises, trademarks, trademark rights, trade names, trade name
rights, trade secrets and copyrights necessary to the conduct of their
businesses as now conducted, without known conflict with any patent, license,
franchise, trademark, trade secrets and confidential commercial or proprietary
information, trade name, copyright, rights to trade secrets or other
proprietary rights of any other Person;
(n) NO UNTRUE STATEMENT. Neither this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower in accordance with or pursuant to any Loan Document contains
any misrepresentation or untrue statement of material fact or omits to state a
material fact necessary, in light of the circumstances under which such
representation or statement was made, in order to make any such representation
or statement contained herein or therein not misleading in any material
respect;
(o) NO CONSENTS, ETC. Except as set forth in Schedule 5.01(o)
attached hereto, neither the respective businesses or properties of the
Borrower or any Subsidiary, nor any relationship between the Borrower or any
Subsidiary and any other Person, nor any circumstance in connection with the
execution, delivery and performance of the Loan Documents and the transactions
contemplated hereby is such as to require a consent, approval or authorization
of, or filing, registration or qualification with, any Governmental Authority
or other authority or any other Person on the part of the Borrower or any
Subsidiary as a condition to the execution, delivery and performance of, or
consummation of the transactions contemplated by, this Agreement or the other
Loan Documents or if so, such consent, approval, authorization, filing,
registration or qualification has been obtained or effected, as the case may
be;
(p) BENEFIT PLANS.
(i) None of the employee benefit plans sponsored and
maintained at any time by the Borrower or any ERISA Affiliate or the
trusts created thereunder has engaged in a prohibited transaction
which could reasonably be expected to subject any such employee
benefit plan or trust to a tax or penalty on prohibited transactions
imposed under Code Section 4975 or
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ERISA, which tax or penalty could reasonably be expected to have a Material
Adverse Effect;
(ii) None of the Single-employer Plans maintained at any time by the
Borrower or any ERISA Affiliate or the trusts created thereunder has been
terminated so as to result in any liability of the Borrower under ERISA that
could reasonably be expected to have a Material Adverse Effect nor has any such
Single-employer Plan of the Borrower or any ERISA Affiliate incurred any
liability to the Pension Benefit Guaranty Corporation established pursuant to
ERISA, other than for required insurance premiums which have been paid or are
not yet due and payable, which could reasonably be expected to have a Material
Adverse Effect; the Borrower and each ERISA Affiliate have made or provided for
all contributions to all such Single-employer Plans and Multi-employer Plans
which they maintain and which are required as of the end of the most recent
fiscal year under each such plan; neither the Borrower nor any ERISA Affiliate
has incurred any accumulated funding deficiency with respect to any such plan,
whether or not waived, which termination could reasonably be expected to have a
Material Adverse Effect; nor has there been any reportable event, or other event
or condition, which presents a risk of termination of any such Single-employer
Plan by such Pension Benefit Guaranty Corporation, which could reasonably be
expected to have a Material Adverse Effect;
(iii) The present value of all vested accrued benefits under the
Single-employer Plans which are subject to Title IV of ERISA, maintained by the
Borrower or any ERISA Affiliate, did not, as of the most recent valuation date
for each such plan, exceed the then current value of the assets of such employee
benefit plans allocable to such benefits;
(iv) The consummation of the Loans provided for in Article II will not
involve any prohibited transaction under ERISA which is not subject to a
statutory or administrative exemption;
(v) To the best of the Borrower's knowledge, each employee pension
benefit plan subject to Title IV of ERISA, maintained by the Borrower or any
ERISA Affiliate, has been administered in accordance with its terms in all
material respects and is in compliance in all material respects with all
applicable requirements of ERISA and other applicable laws, regulations and
rules;
(vi) There has been no withdrawal liability incurred and unpaid with
respect to any Multi-employer Plan to which the Borrower or any ERISA Affiliate
is a contributor that could reasonably be expected to have a Material Adverse
Effect;
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(vii) As used in this Agreement, the terms "employee benefit plan,"
"employee pension benefit plan," "accumulated funding deficiency,"
"reportable event," and "accrued benefits" shall have the respective
meanings assigned to them in ERISA, and the term "prohibited transaction"
shall have the meaning assigned to it in Code Section 4975 and ERISA;
(viii) Neither the Borrower nor any ERISA Affiliate has any liability
not disclosed on any of the financial statements furnished to the Lenders
pursuant to Section 5.01(f)(i) or Section 6.01 hereof, contingent or
otherwise, under any plan or program or the equivalent for unfunded
post-retirement benefits, including pension, medical and death benefits,
which liability could reasonably be expected to have a Material Adverse
Effect;
(q) NO DEFAULT. As of the date hereof, there does not exist any
Default or Event of Default hereunder;
(r) HAZARDOUS MATERIALS. Other than as set forth on Schedule 5.01(r)
hereof, (i) the Borrower and each Subsidiary is in compliance in all material
respects with all applicable Environmental Laws; and (ii) neither the Borrower
nor any Subsidiary has been notified of any action, suit, proceeding or
investigation which alleges lack of compliance by the Borrower or any
Subsidiary with any Environmental Laws or which seeks to suspend, revoke or
terminate any license, permit or approval necessary for the generation,
handling, storage, treatment or disposal of any Hazardous Material, which
non-compliance, suspension, revocation or termination could reasonably be
expected to have a Material Adverse Effect;
(s) EMPLOYMENT MATTERS. Except as disclosed on Schedule 5.01(j)
hereto, the Borrower and all Subsidiaries are in compliance in all material
respects with all applicable laws, rules and regulations pertaining to labor or
employment matters, including without limitation those pertaining to wages,
hours, occupational safety and taxation, the noncompliance with which could
reasonably be expected to have a Material Adverse Effect, and there is neither
pending nor, to the knowledge of the Borrower, any threatened litigation,
administrative proceeding or investigation in respect of such matters an
adverse ruling or determination in which could reasonably be expected to have a
Material Adverse Effect.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will:
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6.01 FINANCIAL REPORTS, ETC. (a) as soon as practical and in any event
within 90 days after the end of each Fiscal Year, deliver or cause to be
delivered to the Agent and each Lender (i) the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries, in each case with the notes
thereto, and the related consolidated statements of operations, cash flow, and
shareholders' equity and the respective notes thereto, for such Fiscal Year,
setting forth in the case of the consolidated statements comparative financial
statements for the preceding Fiscal Year, all prepared in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis and
containing, with respect to the consolidated financial reports, opinions of
Arthur Andersen & Co., or other such independent certified public accountants
selected by the Borrower and approved by the Agent, which approval shall not be
unreasonably withheld, which are unqualified and without exception; and (ii) a
certificate of an Authorized Representative as to the absence of any Default or
Event of Default and demonstrating compliance with Sections 7.01 and 7.02 of
this Agreement, which certificate shall be in the form attached hereto as
Exhibit L and incorporated herein by reference;
(b) as soon as practical and in any event within 45 days after the
end of each fiscal quarter beginning with the fiscal quarter ended October 1,
1994, deliver to the Agent and each Lender (i) the consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as of the end
of such fiscal quarter, and the related consolidated statements of operations,
cash flow, and shareholders' equity for such fiscal quarter and for the period
from the beginning of the Fiscal Year through the end of such fiscal quarter,
accompanied by a certificate of an Authorized Representative to the effect that
such financial statements present fairly the financial position of the Borrower
and its Subsidiaries as of the end of such fiscal quarter and the results of
their operations and the changes in their financial position for such fiscal
quarter, in conformity with the standards set forth in Section 5.01(f)(i) with
respect to interim financials, and (ii) a certificate of an Authorized
Representative as to the absence of any Default or Event of Default and
containing computations for such quarter comparable to that required pursuant
to Section 6.01(a)(ii);
(c) together with each delivery of the financial statements
required by Section 6.01(a)(i) hereof, deliver to the Agent and each Lender a
letter from the Borrower's accountants specified in Section 6.01(a)(i) hereof
stating that, in performing the audit necessary to render an opinion on the
financial statements delivered under Section 6.01(a)(i), they obtained no
knowledge of any Default or Event of Default by the Borrower in the fulfillment
of the terms and provisions of this Agreement insofar as they relate to
financial matters (which at the date of such statement remains uncured); and if
the accountants have obtained knowledge of such Default or Event of Default, a
statement specifying the nature and period of existence thereof;
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<PAGE> 57
(d) (i) not later than the last Business Day of January 1995, deliver
to the Agent and each Lender three-year consolidated financial projections for
the Borrower and its Subsidiaries prepared on an annual basis in accordance
with Generally Accepted Accounting Principles applied on a Consistent Basis;
provided, however, that projections for the Fiscal Year ending December 30,
1995 shall be prepared on a quarterly basis, and (ii) not later than the last
Business Day of each January thereafter, deliver to the Agent and each Lender
consolidated financial projections for such Fiscal Year for the Borrower and
its Subsidiaries prepared on a quarterly basis and in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis;
(e) promptly upon their becoming available to the Borrower, the
Borrower shall deliver to the Agent and each Lender a copy of (i) all regular
or special reports or effective registration statements which the Borrower or
any Subsidiary shall file from and after the date hereof with the Securities
and Exchange Commission (or any successor thereto) or any securities exchange,
(ii) any proxy statement distributed by the Borrower to its shareholders,
bondholders or the financial community in general, and (iii) any management
letter or other report submitted to the Borrower or any of its Subsidiaries by
independent accountants in connection with any annual, interim or special audit
of the Borrower or any of its Subsidiaries; and
(f) promptly, from time to time, deliver or cause to be delivered to
the Agent and each Lender such other information regarding Borrower's and each
Subsidiary's operations, business affairs and financial condition as the Agent
or such Lender may reasonably request. Subject to the terms of that
Confidentiality Agreement by and among the Agent and each of the Lenders and of
which the Borrower is an intended third-party beneficiary, the Agent and the
Lenders are hereby authorized to deliver a copy of any such financial
information delivered hereunder to the Lenders (or any affiliate of any Lender)
or to the Agent, to any regulatory authority having jurisdiction over any of
the Lenders pursuant to any written request therefor, or, subject to Section
10.01 hereof, to any other Person who shall acquire or consider the acquisition
of a participation interest in or assignment of any Loan permitted by this
Agreement, provided that such assignee is not engaged in any line of business
conducted by the Borrower or any of its Subsidiaries.
6.02 MAINTAIN PROPERTIES. Maintain all properties necessary to its
operations in good working order and condition (ordinary wear and tear excepted)
and make all needed repairs, replacements and renewals as are necessary to
conduct its business in accordance with customary business practices.
6.03 EXISTENCE, QUALIFICATION, ETC. Do or cause to be done all things
necessary to preserve and keep in full force and effect its existence and all
material rights and franchises, trade names,
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trademarks and permits, except to the extent conveyed in connection with a
transaction permitted under Section 7.05 hereof, and maintain its license or
qualification to do business as a foreign corporation and good standing in each
jurisdiction in which its ownership or lease of property or the nature of its
business makes such license or qualification necessary and in which failure to
maintain such license, qualification and good standing could reasonably be
expected to result in a Material Adverse Effect.
6.04 REGULATIONS AND TAXES. Comply with all statutes and governmental
regulations if noncompliance therewith could reasonably be expected to have a
Material Adverse Effect and pay all taxes, assessments, governmental charges,
claims for labor, supplies, rent and any other obligation which, if unpaid,
might become a Lien against any of its properties that could reasonably be
expected to have a Material Adverse Effect except any of the foregoing being
contested in good faith by appropriate proceedings diligently conducted and
against which adequate reserves have been established.
6.05 INSURANCE. (a) Keep all of its insurable properties adequately
insured at all times with responsible insurance carriers against loss or damage
by fire and other hazards as are customarily insured against by similar
businesses owning such properties similarly situated, (b) maintain general
public liability insurance at all times with responsible insurance carriers
against liability on account of damage to persons and property having such
limits, deductibles, exclusions and co-insurance and other provisions providing
no less coverage than that specified in Schedule 6.05 attached hereto, such
insurance policies to be in form reasonably satisfactory to the Agent, and (c)
maintain insurance under all applicable workers' compensation laws (or in the
alternative, maintain required reserves if self-insured for workers'
compensation purposes). Insurance otherwise acceptable to the Agent which
provides for a deductible per incident of not more than $250,000 (or not more
than $500,000 with respect to policies for director and officer indemnification
insurance) shall satisfy clauses (a), (b) and (c) hereof. Each of the policies
of insurance described in this Section 6.05 shall provide that the insurer shall
give the Agent not less than thirty (30) days' prior written notice before any
such policy shall be terminated (other than with respect to termination for
non-payment of premiums, in which case such policies shall provide not less than
ten (10) days' prior written notice to the Agent), lapse, cancelled or
materially amended.
6.06 TRUE BOOKS. Keep true books of record and account in which full,
true and correct entries shall be made of all of its dealings and transactions
in accordance with customary business practices, and set up on its books such
reserves as may be required by Generally Accepted Accounting Principles with
respect to doubtful accounts and all taxes, assessments, charges, levies and
claims and with respect to its business in general, and include such reserves in
interim as well as year-end financial statements.
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6.07 RIGHT OF INSPECTION. Permit any Person (other than a Person
engaged in a line of business that competes with the Borrower or any Subsidiary)
designated by any Lender or the Agent, at the Borrower's expense, to visit and
inspect any of the properties, corporate books and financial reports of the
Borrower and its Subsidiaries, and to discuss their respective affairs, finances
and accounts with their principal officers and independent certified public
accountants, all at reasonable times, at reasonable intervals and with
reasonable prior notice.
6.08 OBSERVE ALL LAWS. Conform to and duly observe in all material
respects all laws, rules and regulations and all other valid requirements of any
Governmental Authority with respect to the conduct of its business and
applicable to the Borrower or any Subsidiary and with which the failure to
comply could reasonably be expected to have a Material Adverse Effect.
6.09 COVENANTS EXTENDING TO SUBSIDIARIES. Without duplication, cause
each of its Subsidiaries to do with respect to itself, its business and its
assets, each of the things required of the Borrower in Sections 6.02 through
6.08, inclusive.
6.10 OFFICER'S KNOWLEDGE OF DEFAULT. Upon any Authorized Representative
or officer of the Borrower obtaining knowledge of any Default or Event of
Default hereunder or under any other obligation of the Borrower or any
Subsidiary, promptly deliver to the Agent written notice thereof, the period of
existence thereof, and what action the Borrower proposes to take with respect
thereto.
6.11 SUITS OR OTHER PROCEEDINGS. Upon any Authorized Representative or
officer of the Borrower obtaining knowledge of any litigation or other
proceedings being instituted against the Borrower or any Subsidiary, or any
attachment, levy, execution or other process being instituted against any assets
of the Borrower or any Subsidiary, in an aggregate amount greater than $500,000
not otherwise covered by insurance, promptly deliver to the Agent written notice
thereof stating the nature and status of such litigation, dispute, proceeding,
levy, execution or other process.
6.12 NOTICE OF DISCHARGE OF HAZARDOUS MATERIAL OR ENVIRONMENTAL
COMPLAINT. Promptly provide to the Agent true, accurate and complete copies of
any and all notices, complaints, orders, directives, claims, or citations
received by the Borrower or any Subsidiary relating to any material (a)
violation or alleged violation by the Borrower or any Subsidiary of any
applicable Environmental Laws; (b) release or threatened release by the Borrower
or any Subsidiary of any Hazardous Material, except where occurring legally; or
(c) liability or alleged liability of the Borrower or any Subsidiary for the
costs of cleaning up, removing, remediating or responding to a release of
Hazardous Materials.
6.13 ENVIRONMENTAL COMPLIANCE. If the Borrower or any Subsidiary shall
receive notice from any Governmental Authority
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that the Borrower or any Subsidiary has violated any applicable Environmental
Laws, related to any Hazardous Material or is liable for the costs of cleaning
up, removing, remediating or responding to a release of Hazardous Materials,
the Borrower shall, within the time period permitted by the applicable
Governmental Authority, remove or remedy, or cause the applicable Subsidiary to
remove or remedy, such violation or release or satisfy such liability unless
the applicability of the Environmental Law, the fact of such violation or
liability or what is required to remove or remedy such violation is being
contested by the Borrower or the applicable Subsidiary by appropriate
proceedings diligently conducted and all reserves with respect thereto as may
be required under Generally Accepted Accounting Principles, if any, have been
made.
6.14 INDEMNIFICATION. The Borrower hereby agrees to defend, indemnify
and hold the Agent and the Lenders, and their respective officers, directors,
employees and agents, harmless from and against any and all claims, losses,
liabilities, damages and expenses (including, without limitation, cleanup costs
and reasonable attorneys' fees) arising directly or indirectly from, out of or
by reason of the handling, storage, treatment, emission or disposal of any
Hazardous Material by or in respect of the Borrower or any Subsidiary or
property owned or leased or operated by the Borrower or any Subsidiary. The
provisions of this Section 6.14 shall survive repayment of the Obligations,
occurrence of the Revolving Credit Termination Date and expiration or
termination of this Agreement.
6.15 FURTHER ASSURANCES. At the Borrower's cost and expense, upon
request of the Agent, duly execute and deliver or cause to be duly executed and
delivered, to the Agent such further instruments, documents, certificates,
agreements, financing and continuation statements, and do and cause to be done
such further acts that may be reasonably necessary or advisable in the
reasonable opinion of the Agent to carry out more effectively the provisions and
purposes of this Agreement and the other Loan Documents.
6.16 BENEFIT PLANS. Comply in all material respects with all
requirements of ERISA applicable to it and furnish to the Agent as soon as
possible and in any event (a) within thirty (30) days after the Borrower knows
or has reason to know that any reportable event with respect to any employee
benefit plan maintained by the Borrower or any ERISA Affiliate which could give
rise to termination or the imposition of any material tax or material penalty
has occurred, written statement of an Authorized Representative describing in
reasonable detail such reportable event or such other event and any action which
the Borrower or ERISA Affiliate proposes to take with respect thereto, together
with a copy of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation or a statement that said notice will be filed with the
annual report of the United States Department of Labor with respect to such plan
if such filing has been authorized, (b) promptly after receipt thereof, a copy
of any
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notice that the Borrower or any ERISA Affiliate may receive from the Pension
Benefit Guaranty Corporation relating to the intention of the Pension Benefit
Guaranty Corporation to terminate any Single-employer Plans of the Borrower or
any ERISA Affiliate or to appoint a trustee to administer any such plan, and
(c) within 10 days after a filing with the Pension Benefit Guaranty Corporation
pursuant to Section 412(n) of the Code of a notice of failure to make a
required installment or other payment with respect to a plan, a certificate of
an Authorized Representative setting forth details as to such failure and the
action that the Borrower or ERISA Affiliate proposes to take with respect
thereto, together with a copy of such notice given to the Pension Benefit
Guaranty Corporation.
6.17 CONTINUED OPERATIONS. Continue at all times (a) to conduct its
business and engage principally in the same or complementary line or lines of
business substantially as heretofore conducted and (b) preserve, protect and
maintain free from Liens (other than Liens permitted under Section 7.04 hereof)
its material patents, copyrights, licenses, trademarks, trademark rights, trade
names, trade name rights, trade secrets and know-how necessary or useful in the
conduct of its operations except to the extent failure to preserve, protect and
maintain the same free from Liens could not reasonably be expected to have a
Material Adverse Effect.
6.18 USE OF PROCEEDS. Use the proceeds of the Loans solely for the
purposes specified in Section 2.15 hereof.
6.19 NEW SUBSIDIARIES. In the event of the acquisition or creation of
any Material Subsidiary, or upon any previously existing Person becoming a
Material Subsidiary, cause to be delivered to the Agent for the benefit of the
Lenders each of the following within ten (10) Business Days of the acquisition
or creation of a Material Subsidiary or, with respect to an existing Person
becoming a Material Subsidiary, within ten (10) Business Days of delivery of
financial statements pursuant to Section 8.01(a) or (b) hereof with respect to
the fiscal quarter of the Borrower during which such Person acquired such assets
or achieved such net income as to become a Material Subsidiary:
(i) a Guaranty executed by such Material Subsidiary,
substantially in the form of Exhibit M attached hereto;
(ii) an opinion of counsel to such Material Subsidiary dated
as of the date of delivery of such Guaranty and addressed to the Agent
and the Lenders, in form and substance reasonably acceptable to the
Agent (which opinion may include assumptions and qualifications of
similar effect to those contained in the opinions of counsel delivered
pursuant to Section 4.01 hereof), to the effect that:
(A) such Material Subsidiary is duly organized,
validly existing and in good standing in the jurisdiction
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of its organization, has the requisite power and authority to
own its properties and conduct its business as then owned and
proposed to be conducted and is duly qualified to transact
business and is in good standing as a foreign corporation in
each other jurisdiction in which the character of the
properties owned or leased, or the business carried on by it,
requires such qualification and in which the failure to so
qualify could reasonably be expected to have a Material
Adverse Effect; and
(B) the execution, delivery and performance of
such Guaranty have been duly authorized by all requisite
corporate action (including any required shareholder
approval), such Guaranty has been duly executed and delivered
and constitutes a valid and binding obligation of such
Material Subsidiary, enforceable against such Subsidiary in
accordance with its terms, subject to applicable bankruptcy,
moratorium, insolvency, reorganization or other similar law
affecting the enforceability of creditors' rights generally
and to the effect of general principles of equity which may
limit the availability of equitable remedies (whether in a
proceeding at law or in equity).
(iii) current copies of the charter or other organizational
documents, any bylaws of such Material Subsidiary, minutes of duly
called and conducted meetings (or duly effected consent actions) of
the Board of Directors, or appropriate committees thereof (and, if
required by such charter or other organizational documents, bylaws or
by applicable laws, of the shareholders) of such Material Subsidiary
authorizing the actions and the execution and delivery and performance
of such Guaranty and evidence satisfactory to the Agent (confirmation
of the receipt of which will be provided by the Agent to the Lenders)
that such Material Subsidiary is Solvent as of such date after giving
effect to such Guaranty.
ARTICLE VII
NEGATIVE COVENANTS
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will not, nor
will it permit any Subsidiary to:
7.01 CONSOLIDATED FIXED CHARGE RATIO. Permit, at any time during any
Four-Quarter Period of the Borrower ending during the periods set forth below,
the Consolidated Fixed Charge Ratio for such Four Quarter Period to be equal to
or less than the ratios set forth opposite the respective periods below:
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<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Four-Quarter Period ending 1.25 to 1.00
July 1, 1995
Four-Quarter Period ending 1.50 to 1.00
June 29, 1996
Four-Quarter Period ending 2.00 to 1.00
June 28, 1997 and thereafter
</TABLE>
7.02 CONSOLIDATED FUNDED INDEBTEDNESS TO EBITDA. Permit at any time
during any Four-Quarter Period of the Borrower ending during the periods set
forth below, the ratio of Consolidated Funded Indebtedness to Consolidated
EBITDA for such Four-Quarter Period to be equal to or greater than the ratio set
forth opposite the respective periods set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Four-Quarter Period ending 3.50 to 1.00
April 1, 1995
Four-Quarter Period ending 3.00 to 1.00
July 1, 1995
Four-Quarter Period ending 2.75 to 1.00
June 29, 1996 and thereafter
Four-Quarter Period ending 2.25 to 1.00
June 28, 1997 and thereafter
</TABLE>
7.03 INDEBTEDNESS. Incur, create, assume or permit to exist any
Indebtedness of the Borrower and its Subsidiaries determined on a consolidated
basis, howsoever evidenced, except:
(i) Indebtedness existing as of the date hereof and as
set forth in Schedule 7.03(i) attached hereto and incorporated herein
by reference and any extension, renewal or refinancing thereof that
does not increase the principal amount thereof or interest rate
payable thereon from that existing immediately prior to such
extension, renewal or refinancing; provided, none of the instruments
and agreements evidencing or governing such Indebtedness shall be
amended, modified or supplemented after the Closing Date to change any
terms of repayment or rights of conversion, put, exchange or other
rights from such terms and rights as in effect on the Closing Date
unless such amendments, modifications or supplements do not have a
Material Adverse Effect on the Borrower, or its creditworthiness with
respect to its Obligations as reasonably determined by the Agent;
(ii) Indebtedness owing to the Agent or any Lenders in
connection with this Agreement, any Note or other Loan Document;
(iii) Indebtedness consisting of Rate Hedging Obligations
permitted under Section 7.11 hereof;
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(iv) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(v) Indebtedness incurred pursuant to the Account Purchase Agreement
dated December 21, 1992 by and among the Borrower, Brawn of California, Inc. and
General Electric Capital Corporation ("GECC"), as the same may be amended,
modified or supplemented from time to time (the "Account Purchase Agreement"),
or any extension, renewal, refinancing, refunding or replacement thereof,
whether direct or indirect, and whether or not among the same parties, provided,
however, that with respect to any refinancing or replacement with any financier
other than GECC, such financier shall provide substantially similar services at
substantially similar quality and levels as those provided to the Borrower under
the Account Purchase Agreement;
(vi) Indebtedness evidenced by the Flexible Term Notes and the Variable
Rate Demand Bonds;
(vii) documentary letters of credit (other than Commercial Letters of
Credit as defined in the $60,000,000 Credit Facility Documents) in an aggregate
stated amount not to exceed $15,000,000 at any time and issued upon terms and
fees more favorable than available for the issuance of Commercial Letters of
Credit under the $60,000,000 Credit Facility Documents;
(viii) Indebtedness under the $60,000,000 Credit Facility Documents;
(ix) (A) purchase money Indebtedness and (B) Indebtedness
incurred with respect to financing of capital expenditures, not to
exceed an aggregate outstanding amount at any time of $10,000,000;
(x) Indebtedness of any Subsidiary owing to the Borrower
or another Subsidiary and Indebtedness of the Borrower owing to any
Subsidiary;
(xi) Indebtedness consisting of Capital Leases relating to
the acquisition of computer and telecommunications equipment more
specifically described on Schedule 7.03(xi) attached hereto and
incorporated herein by reference, provided that such Indebtedness
shall not exceed an aggregate amount outstanding at any time of
$7,600,000;
(xii) Indebtedness of Subsidiaries acquired after the
Closing Date hereof, provided that (A) such Indebtedness (1) is
recorded in the financial books and records of such Subsidiary prior
to such Acquisition, (2) was not incurred by such Subsidiary in
anticipation of such Acquisition, and
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(3) is non-recourse to the Borrower and each Guarantor and not
subsequently assumed by the Borrower or any Guarantor, and (B)
immediately after such Acquisition, no Default or Event of Default has
occurred or is continuing;
(xiii) Indebtedness of Subsidiaries evidenced by guaranties
of such Subsidiaries of documentary letters of credit permitted under
Section 7.03(vii); and
(xiv) additional Indebtedness not to exceed an aggregate
outstanding amount at any time of $1,000,000.
7.04 LIENS. Incur, create or permit to exist any pledge, Lien, charge
or other encumbrance of any nature whatsoever with respect to any property or
assets now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, including without limitation any capital stock of the Borrower or
any of its Subsidiaries, other than:
(i) Liens existing as of the date hereof and as set forth
in Schedule 5.01(g) attached hereto;
(ii) Liens imposed by law 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 diligently conducted
and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with Generally Accepted
Accounting Principles;
(iii) Liens in respect of purchase money Indebtedness permitted
to be incurred pursuant to Section 7.03 hereof in connection with the
acquisition of certain tangible property; provided that (A) the
original principal balance of the Indebtedness secured by such Lien
constitutes not less than 80% of the purchase price of the property
acquired and (B) such Lien extends only to the property acquired with
the proceeds of the Indebtedness so secured;
(iv) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law or
created in the ordinary course of business and in existence less than
120 days from the date of creation thereof for amounts not yet due or
which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
Generally Accepted Accounting Principles;
(v) Liens in favor of contractors and vendors incurred in
connection with (A) the construction, refurbishment and upgrading of
Borrower's distribution facility located in Roanoke, Virginia, or (B)
the construction, refurbishment and
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remodeling of the new retail store of Gump's Inc. located in San
Francisco, provided, that, in each case, such Liens attach only to
property located at the respective construction locations and are
released and terminated not later than six (6) months following
completion of the construction, refurbishment, upgrading or remodeling
at such location;
(vi) Liens incurred or deposits made in the ordinary
course of business (including, without limitation, surety bonds and
appeal bonds) 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;
(vii) Liens created under the Account Purchase Agreement;
(viii) Liens in favor of Congress Financial Corporation,
provided that the Borrower delivers as of the Closing Date hereof
UCC-3 Termination Statements executed by Congress Financial
Corporation sufficient to terminate such Liens upon filing thereof by
the Agent in the appropriate offices;
(ix) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights- of-way, covenants,
consents, reservations, encroachments, variations and zoning and other
restrictions, charges or encumbrances (whether or not recorded), which
do not interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary and do not impair the use of the property to
which they attach to the extent that such interference or impairment
could reasonably be expected to have a Material Adverse Effect; and
(x) Liens on real property securing Indebtedness
permitted under Section 7.03 hereof.
7.05 INVESTMENTS; ACQUISITIONS. Make any Acquisition or otherwise
purchase, own, invest in or otherwise acquire, directly or indirectly, any stock
or other securities, or make or permit to exist any interest whatsoever in any
other Person or permit to exist any loans or advances to any Person, except that
Borrower and its Subsidiaries may maintain investments or invest in:
(i) Eligible Securities;
(ii) investments existing as of the date hereof and as set
forth in Schedule 5.01(d) attached hereto;
(iii) accounts receivable arising and trade credit granted
in the ordinary course of business and any securities received
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in satisfaction or partial satisfaction thereof in connection with accounts of
financially troubled Persons to the extent reasonably necessary in order to
prevent or limit loss;
(iv) loans and advances to and investments in Subsidiaries;
(v) (A) investments in the capital stock or other equity interest in
another Person, which when added to equity interests held prior to such
investment constitute less than 50% of the capital stock or other equity
interests having ordinary voting power therein (a "Minority Investment"), (B)
investments in debt securities that do not constitute Eligible Securities issued
by any Person in which the Borrower or any Subsidiary has a Minority Investment
and (C) contributions to joint ventures, the aggregate of such investments and
contributions described in clauses (A), (B) and (C) made during the term of this
Agreement not to exceed $20,000,000;
(vi) loans and advances to non-consolidated Persons not to exceed in
the aggregate $7,500,000;
(vii) investments consisting of the exercise of options to acquire (A)
406,714 shares of common stock of Aegis Safety Holdings, Inc. at a price of
$7.00 per share, subject to adjustment for antidilution, and (B) 1,536,345
shares of the common stock of Boston Publishing Company at a price of $2.08 per
share, subject to adjustment for antidilution;
(viii) investments consisting of the mandatory acquisition of (A) all
then outstanding shares of Aegis Safety Holdings, Inc. after December 31, 1998
in accordance with the terms of the stock option agreement dated as of September
30, 1993 between Aegis Safety Holdings, Inc., Hanover Holdings, Inc., certain
stockholders of Aegis Safety Holdings, Inc. and FL Holdings, Inc.; and (B) all
outstanding shares of common stock of Boston Publishing Company in 1997 in
accordance with the terms of the stock option and put agreement dated as of
February 25, 1994 between Boston Publishing Company, Inc., Hanover Holdings,
Inc., Boston Publishing Limited Partnership, certain partners of Boston
Publishing Limited Partnership and the Borrower; and
(ix) loans and advances to its officers, directors and employees for
the purpose of purchasing capital stock of the Borrower, provided that (A) such
officer, director or employee shall pay to the Borrower at least 20% of the
purchase price for such securities out of his or her own funds, and (B) the
securities purchased with the proceeds of such loans shall be pledged as
collateral security therefor, and (C) the aggregate principal amount of such
loans at any time outstanding shall not exceed $3,700,000;
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(x) loans and advances to its officers, directors and employees for any
business purpose other than purchasing the capital stock of the Borrower in
the aggregate principal amount at any time outstanding not to exceed
$1,000,000; and
(xi) other investments in an aggregate principal amount at any time
outstanding not to exceed $1,000,000.
Notwithstanding the foregoing, the Borrower and its Subsidiaries may make
Acquisitions so long as: (a) immediately prior to, and immediately after, the
consummation of such Acquisition, no Default or Event of Default has occurred
and is continuing, (b) not less than 67% of the sales and operating profits
generated by such Person (or assets) so acquired or invested are derived from
the same or complementary line or lines of business engaged in by the Borrower
immediately prior to such Acquisition, which, for purposes of this Agreement,
shall be defined as catalog and mail-order sales fulfillment (the Borrower's
proposed Acquisitions of Regal Shop Ltd. and Joan Rivers Production Company
shall be specifically excluded from the restriction of this clause (b) provided
that the aggregate Cost of Acquisition with respect to such Acquisitions shall
not exceed $5,000,000), (c) pro forma historical financial statements as of the
end of the most recently completed Fiscal Year giving effect to such Acquisition
are delivered to the Agent not less than five (5) Business Days prior to the
consummation of such Acquisition, together with a certificate of an Authorized
Representative demonstrating compliance with Sections 7.01 and 7.02 of this
Agreement giving effect to such Acquisition, (d) the Cost of Acquisition with
respect to any Acquisition entered into during the term of this Agreement, other
than any Acquisition financed or funded in whole by the Net Proceeds of the
issuance of capital stock by the Borrower ("Equity Financed Acquisitions"),
shall not exceed $30,000,000, (e) the aggregate amount of those portions of all
Costs of Acquisitions that are paid or financed other than with the Net Proceeds
of the issuance of capital stock of the Borrower shall not exceed $40,000,000
during the term of the Agreement and (f) the Cost of Acquisition with respect to
any single Equity Financed Acquisition shall not exceed $60,000,000.
7.06 MERGER OR CONSOLIDATION. (a) Consolidate with or merge into any
other Person, or (b) permit any other Person to merge into it, or (c) liquidate,
wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a
substantial part of its assets (other than sales in the ordinary course of
business); provided, however, any Subsidiary of the Borrower may merge or
transfer all or substantially all of its assets into or consolidate with the
Borrower or any wholly owned Subsidiary of the Borrower, and any Person may
merge with the Borrower if the Borrower shall be the survivor thereof and such
merger shall not cause, create or result in the occurrence of any Default or
Event of Default hereunder.
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7.07 TRANSACTIONS WITH AFFILIATES. Other than transactions permitted
under Sections 7.05 and 7.06 hereof, enter into any transaction after the
Closing Date, including, without limitation, the purchase, sale, lease or
exchange of property, real or personal, or the rendering of any service, with
any Affiliate of the Borrower, except (a) that such Persons may render services
to the Borrower or its Subsidiaries for compensation at the same rates generally
paid by Persons engaged in the same or similar businesses for the same or
similar services and (b) in the ordinary course of and pursuant to the
reasonable requirements of the Borrower's (or any Subsidiary's) business
consistent with past practice of the Borrower and its Subsidiaries and upon fair
and reasonable terms no less favorable to the Borrower (or any Subsidiary) than
would be obtained in a comparable arm's-length transaction with a Person not an
Affiliate, provided that the Borrower and its Subsidiaries, in connection with
the acquisition of an equity interest in an Affiliate and thereafter, may
provide services to Affiliates upon terms less favorable to the Borrower and its
Subsidiaries than would be obtained in comparable arm's-length transactions with
Persons that are not Affiliates to the extent such terms are consistent with
reasonable business practices in relation to such Affiliate.
7.08 BENEFIT PLANS. With respect to all employee pension benefit
plans maintained by the Borrower or any ERISA Affiliate:
(i) allow or suffer the termination of any of such employee
pension benefit plans so as to incur any liability to the Pension
Benefit Guaranty Corporation that could reasonably be expected to have
a Material Adverse Effect;
(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 the Borrower or any ERISA
Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Code Section 4975 or ERISA, which tax,
penalty or liability could reasonably be expected to have a Material
Adverse Effect;
(iii) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such
Single-employer Plan that could reasonably be expected to have a
Material Adverse Effect;
(iv) allow or suffer to exist any occurrence of a reportable
event or any other event or condition, which presents a 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 and which liability could reasonably be expected
to have a Material Adverse Effect; or
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(v) incur any withdrawal liability with respect to any
Multi-employer Plan that could reasonably be expected to have a
Material Adverse Effect.
7.09 FISCAL YEAR. Change its Fiscal Year.
7.10 DISSOLUTION, ETC. Wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking any such winding
up, liquidation or dissolution, except in connection with the merger or
consolidation of Subsidiaries into each other or into a Borrower permitted
pursuant to Section 7.06.
7.11 RATE HEDGING OBLIGATIONS. Incur any Rate Hedging Obligations or
enter into any agreements, arrangements, devices or instruments relating to Rate
Hedging Obligations, except (i) pursuant to Swap Agreements in an aggregate
notional amount not to exceed at any time the Total Revolving Credit Commitment
and (ii) Rate Hedging Obligations with respect to materials used in the ordinary
course of business of the Borrower and its Subsidiaries and not for speculative
purposes.
7.12 DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. Declare or pay any cash
dividends or make any other payment or distribution on account of its capital
stock (other than dividends payable in the ordinary course of business solely in
Common Stock or Preferred Stock) on any shares of stock of any class of the
Borrower, now or hereafter outstanding, or purchase, redeem or otherwise retire
any such shares in consideration of cash or capital stock of any Subsidiary of
the Borrower ("Restricted Stock"), or apply or set apart any of their assets
therefor or make any other distribution (by redemption of capital or otherwise)
in respect of any such shares in consideration of cash or Restricted Stock, or
agree to do any of the foregoing, other than (i) conversion of any of the
Borrower's securities into Common Stock which are so convertible in accordance
with their terms; (ii) cash dividends payable by any Subsidiary to another
Subsidiary or to the Borrower; (iii) cash dividends payable by the Borrower on
its Preferred Stock provided the aggregate amount of such dividends declared and
paid during any Fiscal Year shall not exceed $100,000; (iv) other cash dividends
payable by the Borrower or any Subsidiary on outstanding shares of any class of
its preferred stock or its common stock, provided that (A) the aggregate amount
of such dividends declared or paid during any Four-Quarter Period shall not
exceed 25% of Consolidated Net Income for the immediately preceding Four-Quarter
Period, (B) with respect to dividends payable on preferred stock of any
Subsidiary, such Subsidiary becomes a Guarantor and executes and delivers the
documents required under Section 8.19 hereof, and (C) with respect to dividends
payable on preferred stock of the Borrower or any Subsidiary, such preferred
stock shall in no event have any right of redemption or conversion, put or call
rights, voting rights (other than voting rights contingent upon nonpayment of
dividends) or other rights in addition to the rights holders of common stock
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of the Borrower or such Subsidiary other than preferential liquidation or
dividend rights; and (v) stock purchases for purposes of contributing such
shares to the Borrower's existing or hereafter created stock purchase plans,
stock option plans or other employee benefit plans provided that (A) the
purchase price for such shares shall be paid by the Borrower from operating
revenues of the Borrower and its Subsidiaries and (B) in no event shall the
number of shares so purchased during the term of this Agreement exceed
1,000,000.
7.13 SUBORDINATED DEBT. (a) Pay any amounts owing with respect to the
Subordinated Debt except in accordance with the terms thereof; provided that the
Subordinated Debt may be prepaid, in whole or in part, subject to the following
conditions:
(i) any such prepayment shall be made out of the operating
revenues of the Borrower and its Subsidiaries as opposed to proceeds
of any borrowings hereunder or under the $60,000,000 Credit Facility;
(ii) no Default or Event of Default shall occur as a result of any
such prepayment; and
(iii) the Borrower shall provide to the Agent, on the same
Business Day that such prepayment is made, (A) a statement of the
sources and uses of funds therefor evidencing that such funds were not
proceeds of borrowings hereunder or under the $60,000,000 Credit
Facility and (B) a certificate of an Authorized Representative as to
the absence of any Default or Event of Default and demonstrating
compliance with Sections 9.01 and 9.02 of this Agreement, in each case
giving effect to such prepayment.
(b) Materially amend the subordination provisions of or terminate
(other than in connection with the full and final payment of the Subordinated
Debt) any document related to the Subordinated Debt without the prior written
consent of the Required Lenders.
ARTICLE VIII
EVENTS OF DEFAULT AND ACCELERATION
8.01 EVENTS OF DEFAULT. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) if default shall be made in the due and punctual payment of
the principal of any Loan, when and as the same shall be due and
payable whether pursuant to any provision of
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Article II hereof, at maturity, by acceleration or otherwise; or
(b) if default shall be made in the due and punctual payment of any
amount of interest on any Loan or of any fees or other amounts payable to the
Lenders, the Agent or NationsBank under the Loan Documents on the date on which
the same shall be due and payable; or
(c) if default shall be made in the performance or observance of any
covenant set forth in Sections 6.11, 6.12, 6.18 , or Article VII hereof (other
than Section 7.04 or 7.07 hereof); or
(d) if default shall be made in the performance or observance of the
covenants set forth in Sections 6.07, 6.17 , 7.04 or 7.07 hereof and the
Borrower shall fail to cure such default within five (5) Business Days of
receipt of notice of such default by the Authorized Representative from the
Agent;
(e) if a default shall be made in the performance or observance of, or
shall occur under, any covenant, agreement or provision contained in this
Agreement or the Notes (other than as described in clauses (a), (b) or (c)
above) and such default shall continue for thirty (30) or more days after the
earlier of receipt of notice of such default by the Authorized Representative
from the Agent or the Borrower becomes aware of such default, or if a default
shall be made in the performance or observance of, or shall occur under, any
covenant, agreement or provision contained in any of the other Loan Documents
(beyond the applicable grace period, if any, contained therein) or in any
instrument or document evidencing or creating any obligation, guaranty, or Lien
in favor of the Agent or the Lenders or delivered to the Agent or the Lenders in
connection with or pursuant to this Agreement or any of the Obligations, or if
any Loan Document ceases to be in full force and effect (other than by reason of
any action by the Agent), or if without the written consent of the Agent, this
Agreement or any other Loan Document shall be disaffirmed or shall terminate, be
terminable or be terminated or become void or unenforceable for any reason
whatsoever (other than in accordance with its terms in the absence of default or
by reason of any action by the Agent or any Lender); or
(f) if a default shall occur, which is not waived, (i) in the payment
of any principal, interest, premium or other amounts with respect to any
Indebtedness (other than the Obligations) of the Borrower or of any Subsidiary,
including without limitation Indebtedness under the Flexible Term Notes, the
Variable Rate Demand Bonds, the $60,000,000 Credit Facility Documents and the
Subordinated Debt, in an amount not less than $250,000 in the aggregate
outstanding, or (ii) in the performance, observance or fulfillment of any term
or
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covenant contained in any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed, guaranteed or secured
by the Borrower or any Subsidiary, including without limitation Indebtedness
under the Flexible Term Notes, the Variable Rate Demand Bonds, the $60,000,000
Credit Facility Documents and the Subordinated Debt, and such default shall
continue for more than the period of grace, if any, therein specified, or if
such default shall permit the holder of any such Indebtedness to accelerate the
maturity thereof, provided that such default under clause (ii) with respect to
such Indebtedness (other than Indebtedness under the Notes, the Bonds or the
$60,000,000 Credit Facility Documents) shall not constitute an Event of Default
hereunder for a period of thirty (30) Business Days after the occurrence thereof
if during such period the Borrower or such Subsidiary is diligently and in good
faith pursuing a waiver or cure of such default and notifies the Agent of such
efforts; or
(g) if any representation, warranty or other statement of fact
contained herein or any other Loan Document or in any writing, certificate,
report or statement at any time furnished to the Agent or any Lender by or on
behalf of the Borrower or any Guarantor pursuant to or in connection with this
Agreement or the other Loan Documents, or otherwise, shall be false or
misleading when given or made or deemed given or made and, as a result thereof,
could reasonably be expected to have a Material Adverse Effect; or
(h) if the Borrower or any Guarantor shall be unable to pay its debts
generally as they become due; file a petition to take advantage of any
insolvency, reorganization, bankruptcy, receivership or similar law, domestic or
foreign; make an assignment for the benefit of its creditors; commence a
proceeding for the appointment of a receiver, trustee, liquidator or conservator
of itself or of the whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief under
the Federal bankruptcy laws or any other applicable law or statute, Federal,
state or foreign; or
(i) if a court of competent jurisdiction shall enter an order, judgment
or decree appointing a custodian, receiver, trustee, liquidator or conservator
of the Borrower or any Guarantor or of the whole or any substantial part of its
properties and such order, judgment or decree continues unstayed and in effect
for a period of sixty (60) days, or approve a petition filed against the
Borrower or any Guarantor seeking reorganization or arrangement or similar
relief under the Federal bankruptcy laws or any other applicable law or statute
of the United States of America or any state or foreign country, province or
other political subdivision, which petition is not dismissed within sixty (60)
days; or if, under the provisions of any other law for the relief or aid of
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debtors, a court of competent jurisdiction shall assume custody or control of
the Borrower or any Guarantor or of the whole or any substantial part of its
properties, which control is not relinquished within sixty (60) days; or if
there is commenced against the Borrower or any Guarantor any proceeding or
petition seeking reorganization, arrangement or similar relief under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state or foreign country, province or other political subdivision
which proceeding or petition remains undismissed for a period of sixty (60)
days; or if the Borrower or any Guarantor takes any action to indicate its
consent to or approval of any such proceeding or petition; or
(j) if (i) any judgment where the amount not covered by insurance (or
the amount as to which the insurer denies liability) is in excess of $500,000 is
rendered against the Borrower or any Guarantor, or (ii) there is any attachment,
injunction or execution against any of the Borrower's or any Guarantor's
properties for any amount in excess of $500,000; and such judgment, attachment,
injunction or execution remains unpaid, unstayed, undischarged, unbonded or
undismissed for a period of sixty (60) days; or
(k) if the Borrower or any Guarantor shall suspend (other than for a
period not to exceed sixty (60) days by reason of force majeure) all or any part
of its operations and such suspension could reasonably be expected to have a
Material Adverse Effect, provided that, notwithstanding the occurrence of any
event of force majeure, neither the Borrower nor any Guarantor shall be deemed
to have suspended all or any part of its operations if the Borrower or the
Guarantor, as appropriate, has replaced the function or operation of the
business effected by the force majeure during such 60 day period, irrespective
of the method, manner or physical location of such replacement. By way of
illustration and not of limitation, the shutdown of any telemarketing center of
the Borrower or any Guarantor as a result of the occurrence of an event of force
majeure shall not be deemed a suspension of all or any part of the operations of
the Borrower or such Guarantor if the telemarketing functions previously
conducted at the center that was shut down otherwise are being conducted by or
on behalf of the Borrower or any Guarantor at another location owned by the
Borrower or any Guarantor or owned by a third party; or
(l) if the Borrower or any Subsidiary shall default in the payment of
principal, interest, premium or other amounts under any Swap Agreement and such
breach shall continue beyond any grace period, if any, relating thereto pursuant
to its terms, or the Borrower or any Subsidiary shall disaffirm or seek to
disaffirm any Swap Agreement or any of its Rate Hedging Obligations thereunder;
or
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(m) if the Borrower shall become a party to or the subject of any
agreement, transaction or related series of transactions pursuant to or as
a result of which (i) any Person or group of Persons acting in concert
(other than the NAR Group Limited or any other shareholder of the Borrower
that as of the Closing Date owns five percent (5%) or more of the shares of
the issued and outstanding capital stock of any class of the Borrower
having voting rights in the election of directors or is required to file a
Schedule 13D or 13G pursuant to the Securities Exchange Act of 1934, as
amended, with respect to its ownership of capital stock of the Borrower
having such rights), acquires voting control, directly or indirectly,
whether by tender offer or in one or more negotiated block or market
transactions, of more than thirty percent (30%) of the shares of the issued
and outstanding capital stock of any class of the Borrower having voting
rights in the election of directors or (ii) the NAR Group Limited shall
control, directly or indirectly, less than forty-five percent (45%) of the
shares of the issued and outstanding capital stock of any class of the
Borrower having such rights, unless such decrease in control shall occur as
a result of an increase in the total number of shares outstanding of such
class and not by reason of disposition of shares of such class by NAR Group
Limited;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall have not been waived,
(A) either or both of the following actions may be taken: (i)
the Agent may, and at the direction of the Required Lenders shall,
declare any obligation of the Lenders to make further Loans terminated,
whereupon the obligation of each Lender to make further Loans hereunder
shall terminate immediately, and (ii) the Agent shall at the direction
of the Required Lenders, at their option, declare by notice to the
Borrower any or all of the Obligations to be immediately due and
payable, and the same, including all interest accrued thereon and all
other Obligations of the Borrower to the Agent and the Lenders, shall
forthwith become immediately due and payable without presentment,
demand, protest, notice or other formality of any kind, all of which
are hereby expressly waived, anything contained herein or in any
instrument evidencing the Obligations to the contrary notwithstanding;
provided, however, that notwithstanding the above, if there shall occur
an Event of Default under clause (h) or (i) above, then the obligation
of the Lenders to make Advances hereunder shall automatically terminate
and any and all of the Obligations shall be immediately due and payable
without the necessity of any action by the Agent or the Required
Lenders or notice to the Agent or the Lenders; and
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(B) the Agent and the Lenders shall have all of the rights and
remedies available under the Loan Documents or under any applicable
law.
8.02 AGENT TO ACT. In case any one or more Events of Default shall
occur and not have been waived, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or in
any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
8.03 CUMULATIVE RIGHTS. No right or remedy herein conferred upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained herein or in any other Loan Document, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
8.04 NO WAIVER. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
8.05 ALLOCATION OF PROCEEDS. If an Event of Default has occurred and
not been waived, and the maturity of the Notes has been accelerated pursuant to
Article VIII hereof, all payments received by the Agent hereunder, in respect of
any principal of or interest on the Obligations or any other amounts payable by
the Borrower hereunder shall be applied by the Agent in the following order:
(a) amounts due to NationsBank and the Lenders pursuant
to Sections 2.13, 6.15, 10.05 and 10.10 hereof;
(b) amounts due to NationsBank and/or the Agent pursuant
to Sections 2.02(i) and 2.17 hereof;
(c) payments of interest on Loans;
(d) payments of principal on Loans;
(e) payment of Obligations owed a Lender or Lenders
pursuant to Swap Agreements and payment of all outstanding
reimbursement obligations of the Borrower and its Subsidiaries with
respect to letters of credit issued by the Lenders for
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the account of the Borrower or any Subsidiary permitted under Section
7.03 hereof;
(f) payments of all other amounts due under this
Agreement, if any, to be applied for the ratable benefit of the
Lenders; and
(g) any surplus remaining after application as provided
for herein, to the Borrowers or otherwise as may be required by
applicable law.
ARTICLE IX
THE AGENT
9.01 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints NationsBank as the Agent of the Lenders under this Agreement, and,
subject to Section 12.06 hereof, each of the Lenders hereby irrevocably
authorizes NationsBank as the Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers as are expressly delegated to the Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. The Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any of the
Lenders, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Agent.
9.02 ATTORNEYS-IN-FACT. The Agent may execute any of its duties under
this Agreement by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible to the Lenders for the negligence, gross negligence or
willful misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
9.03 LIMITATION ON LIABILITY. Neither the Agent nor any of its
officers, directors, employees, agents or attorneys-in- fact shall be liable to
the Lenders for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement except for its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its affiliates
shall be responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any of its
Subsidiaries, or any officer or representative thereof contained in this
Agreement or in any of the other Loan Documents, or in any certificate, report,
statement or other document referred to or provided for in or received by the
Agent under or in connection with this Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any of the other Loan Documents, or for any failure of
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the Borrower to perform its obligations thereunder, or for any recitals,
statements, representations or warranties made, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of any collateral. The
Agent shall not be under any obligation to any of the Lenders to ascertain or to
inquire as to the observance or performance of any of the terms, covenants or
conditions of this Agreement or any of the other Loan Documents on the part of
the Borrower or to inspect the properties, books or records of the Borrower or
its Subsidiaries.
9.04 RELIANCE. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy or telex message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons or upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless an Assignment and Acceptance shall have
been filed with and accepted by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first receive advice or concurrence of the Lenders or the Required Lenders as
provided in this Agreement and it shall first be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action. The Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement in accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all present and future holders of the Notes.
9.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received notice from a Lender, the Authorized Representative or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
the Agent receives such a notice, the Agent shall promptly give notice thereof
to the Lenders. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Event of Default as it shall deem
advisable in the best interests of the Lenders.
9.06 NO REPRESENTATIONS. Each Lender expressly acknowledges that
neither the Agent nor any of its affiliates has made any representations or
warranties to it and that no act by the Agent
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hereafter taken, including any review of the affairs of the Borrower or any of
its Subsidiaries, shall be deemed to constitute any representation or warranty
by the Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the financial condition, creditworthiness,
affairs, status and nature of the Borrower and its Subsidiaries and made its own
decision to enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and to make such investigation as it
deems necessary to inform itself as to the status and affairs, financial or
otherwise, of the Borrower and its Subsidiaries. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Borrower or any of its Subsidiaries which may come
into the possession of the Agent or any of its affiliates.
9.07 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting any obligations of the Borrower or any Subsidiary so to do), including
its employees, directors, officers and agents, ratably according to the
respective principal amount of the Notes and Participations held by them (or, if
no Notes or Participations are outstanding, ratably in accordance with their
respective Applicable Commitment Percentages as then in effect) from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time (including, without limitation at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent, including its employees, directors, officers and agents, in
any way relating to or arising out of this Agreement or any other document
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. The agreements in this Section 9.07
shall survive the final payment in full of the Obligations and the termination
of this Agreement.
9.08 LENDER. NationsBank and its affiliates may make loans to, accept
deposits from and generally engage in any kind of
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business with the Borrower and its Subsidiaries as though it were not the Agent
hereunder. With respect to its Loans made or renewed by it and any Note issued
to it, NationsBank shall have the same rights and powers under this Agreement as
any Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" shall, unless the context otherwise indicates,
include NationsBank in its individual capacity.
9.09 RESIGNATION. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders may appoint, with the consent, so long as
there shall not have occurred and be continuing a Default or Event of Default,
of the Borrower, which consent shall not be unreasonably withheld, a successor
Agent for the Lenders, which successor Agent shall be a commercial bank
organized under the laws of the United States or any state thereof, having a
combined surplus and capital of not less than $250,000,000, whereupon such
successor Agent shall succeed to the rights, powers and duties of the former
Agent and the obligations of the former Agent shall be terminated and cancelled,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement; provided, however, that the former Agent's
resignation shall not become effective until such successor Agent has been
appointed and has succeeded of record to all right, title and interest in any
collateral held by the Agent; provided, further, that if the Required Lenders
and, if applicable, the Borrower cannot agree as to a successor Agent within
ninety (90) days after such resignation, the Agent shall appoint a successor
Agent which satisfies the criteria set forth above in this Section 9.09 for a
successor Agent and the parties hereto agree to execute whatever documents are
necessary to effect such action under this Agreement or any other document
executed pursuant to this Agreement; provided, however, that in such event all
provisions of this Agreement and the Loan Documents shall remain in full force
and effect. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article IX shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
9.10 SHARING OF PAYMENTS, ETC. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, set-off, counterclaim or
otherwise, obtain payment with respect to its Obligations (other than pursuant
to Article III) which results in its receiving more than its pro rata share of
the aggregate payments with respect to all of the Obligations (other than any
payment pursuant to Article III), then (A) such Lender shall be deemed to have
simultaneously purchased from the other Lenders a share in their Obligations so
that the amount of the Obligations held by each of the Lenders shall be pro rata
and (B) such other adjustments shall be made from time to time as shall be
equitable to insure that the Lenders share such payments ratably; provided,
however, that for purposes of this Section 9.10 the term "pro rata" shall be
determined with respect to the Revolving Credit Commitment of each Lender and to
the Total Revolving Credit Commitment after
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<PAGE> 81
subtraction in each case of amounts, if any, by which any such Lender has not
funded its share of the outstanding Revolving Credit Loans or the Term Loan. If
all or any portion of any such excess payment is thereafter recovered from the
Lender which received the same, the purchase provided in this Section 9.10 shall
be rescinded to the extent of such recovery, without interest. The Borrower
expressly consents to the foregoing arrangements and agrees that each Lender so
purchasing a portion of the other Lenders' Obligations may exercise all rights
of payment (including, without limitation, all rights of set-off, banker's lien
or counterclaim) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
ARTICLE X
MISCELLANEOUS
10.01 ASSIGNMENTS AND PARTICIPATIONS.
(a) At any time after the Closing Date each Lender may, with the prior
consent of the Agent and the Borrower, which consents shall not be unreasonably
withheld, assign to one or more banks or financial institutions all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of any Note payable to its order); provided, that
(i) each such assignment shall be of a constant, and not a varying, percentage
of all of the assigning Lender's rights and obligations (including Revolving
Credit Loans, the Term Loan and Competitive Bid Loans) under this Agreement,
(ii) for each assignment involving the issuance and transfer of a Note, the
assigning Lender shall execute an Assignment and Acceptance and the Borrower
hereby consents to execute a replacement Note or Notes to give effect to the
assignment, (iii) the minimum Revolving Credit Commitment which shall be
assigned is $5,000,000; provided, however, any assignment of a percentage of a
Lender's Revolving Credit Commitment shall be accompanied by an assignment to
such assignee of an equal percentage of such Lender's Revolving Credit
Commitment (as defined in the $60,000,000 Credit Facility Documents) with
respect to the $60,000,000 Credit Facility; (iv) such assignee shall have an
office located in the United States and (v) no consent of the Borrower or Agent
shall be required in connection with any assignment by a Lender to an affiliate
thereof or to another Lender. Upon such execution, delivery, approval and
acceptance, from and after the effective date specified in each Assignment and
Acceptance, (A) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder or under such Note have been
assigned or negotiated to it pursuant to such Assignment and Acceptance, have
the rights and obligations of a Lender hereunder and a holder of such Notes and
(B) the assignor thereunder shall, to the extent that rights and obligations
hereunder or under such Notes have been assigned or negotiated by it pursuant to
such Assignment and Acceptance, relinquish its rights and be released from that
portion of its obligations under
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this Agreement applicable to the rights so assigned. No assignee shall have the
right to assign further its rights and obligations pursuant to this Section
10.01. Any Lender who makes an assignment shall pay to the Agent a one-time
administrative fee of $2,500.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) the assignment made
under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Subsidiary or the performance or observance by
the Borrower or any Subsidiary of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant hereto; (iii) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the financial statements most recently delivered pursuant to Section
5.01(f) or Section 6.01, as the case may be, and such other Loan Documents and
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (v) such assignee
appoints and authorizes the Agent to take such action as Agent on its behalf and
to exercise such powers under this Agreement, the Notes and the other Loan
Documents as are delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender and a holder of such Notes.
(c) The Agent shall maintain at its address referred to herein a copy
of each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Nothing herein shall prohibit any Lender from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
(f) If, pursuant to this Section 10.01, any interest in this Agreement
or any Note is transferred to any assignee Lender which is organized under the
laws of any jurisdiction other than the United States or any state thereof, the
assigning Lender shall cause such assignee Lender, concurrently with the
effectiveness of
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<PAGE> 83
such transfer, (i) to represent to the assigning Lender (for the benefit of the
assigning Lender, the Agent and the Borrower) that under applicable law and
treaties no taxes will be required to be withheld by the Agent, the Borrower or
the assigning Lender with respect to any payments to be made to such assignee
Lender in respect of the Loans and (ii) to furnish to the assigning Lender, the
Agent and the Borrower such certificates, documents and other evidence as
required to comply with the penultimate paragraph of Section 3.06 hereof, and
the assignee Lender shall comply from time to time with all applicable United
States laws and regulations with regard to such withholding tax exemption.
(g) Each Lender may sell participations at its expense to one or more
banks or other entities as to all or a portion of its rights and obligations
under this Agreement; provided, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any Notes issued to it for the
purpose of this Agreement, (iv) such participations shall be in a minimum amount
of $1,000,000; provided, however, any such participation shall be conditioned
upon such Lender's sale to such Person of a pro rata participation in the
$60,000,000 Credit Facility, and (v) Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and with regard to any
and all payments to be made under this Agreement; provided, that the
participation agreement between a Lender and its participants may provide that
such Lender will obtain the approval of such participant prior to such Lender's
agreeing to any amendment or waiver of any provisions of this Agreement which
would (A) extend the maturity of any Note, (B) reduce the interest rate
hereunder, or (C) increase the Revolving Credit Commitment of the Lender
granting the participation therein other than as permitted by Section 2.11, and
(vi) the sale of any such participations which require Borrower to file a
registration statement with the United States Securities and Exchange Commission
or under the securities regulations or laws of any state shall not be permitted.
10.02 NOTICES. All notices shall be in writing, except as to telephonic
notices expressly permitted or required herein, and written notices shall be
delivered by hand delivery, telefacsimile, overnight courier or certified or
registered mail. Any notice shall be conclusively deemed to have been received
by any party hereto and be effective on the day on which delivered to such party
(against (except as to telephonic or telefacsimile notice) receipt therefor or,
in the case of telex, verification by return) at the address set forth below or
such other address as such party shall specify to the other parties in writing,
or if sent prepaid by certified or registered mail return receipt requested on
the third Business Day after the day on which mailed, addressed to such party at
said address:
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(a) if to the Borrower:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman,
Executive Vice President
and General Counsel
Telephone: (201) 319-3403
Telefacsimile: (201) 319-3404
with copies to:
Whitman, Breed, Abbott & Morgan
200 Park Avenue
New York, New York 10166
Attention: Monte E. Wetzler, Esq.
Telephone: (212) 351-3204
Telefacsimile: (212) 351-3131
(b) if to the Agent:
NationsBank of North Carolina, National Association
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe, Agency Services
Telephone: (704) 386-2006
Telefacsimile: (704) 386-9923
with a copy to:
NationsBank of North Carolina, National Association
Corporate Banking
767 Fifth Avenue, 5th Floor
New York, New York 10153-0083
Attention: Mr. Christopher C. Browder, Vice President
Telephone: (212) 407-5332
Telefacsimile: (212) 751-6909
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance.
10.03 SETOFF. The Borrower agrees that the Agent and each Lender shall
have a lien for all the Obligations of the Borrower upon all deposits or deposit
accounts, of any kind, or any interest in any deposits or deposit accounts
thereof, now or hereafter pledged, mortgaged, transferred or assigned to the
Agent or such Lender or otherwise in the possession or control of the Agent or
such Lender (other than for safekeeping) for any purpose for the account or
benefit of the Borrower and including any balance of any deposit account or of
any credit of the Borrower with the Agent or
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such Lender, whether now existing or hereafter established, hereby authorizing
the Agent and each Lender at any time or times with or without prior notice to
apply such balances or any part thereof to such of the Obligations of the
Borrower to the Lenders then past due and in such amounts as they may elect, and
whether or not the collateral or the responsibility of other Persons primarily,
secondarily or otherwise liable may be deemed adequate. For the purposes of this
paragraph, all remittances and property shall be deemed to be in the possession
of the Agent or such Lender as soon as the same may be put in transit to it by
mail or carrier or by other bailee.
10.04 SURVIVAL. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the execution and delivery to the Lenders of this Agreement and the Notes and
shall continue in full force and effect so long as any of the Obligations remain
outstanding or any Lender has any commitment hereunder. Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party and all
covenants, provisions and agreements by or on behalf of the Borrower which are
contained in this Agreement, the Notes and the other Loan Documents shall inure
to the benefit of the successors and permitted assigns of the Lenders or any of
them.
10.05 EXPENSES. The Borrower agrees (a) to pay or reimburse the Agent
for all its out-of-pocket costs and expenses incurred in connection with the
preparation, negotiation and execution of, and any amendment, supplement or
modification to, this Agreement or any of the other Loan Documents, and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent, (b) to pay or reimburse the Agent and the Lenders for all their
reasonable costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement and the other Loan Documents,
including without limitation, the reasonable fees and disbursements of their
counsel and any payments in indemnification or otherwise payable by the Lenders
to the Agent pursuant to the Loan Documents and (c) to pay, indemnify and hold
the Agent and the Lenders harmless from any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any failure to
pay or delay in paying, documentary, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of this Agreement or any other Loan Documents, or
consummation of any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Agreement or any other Loan Documents.
10.06 AMENDMENTS. No amendment, modification or waiver of any provision
of this Agreement or any of the Loan Documents and no consent by the Lenders to
any departure therefrom by the Borrower shall be effective unless such
amendment, modification, waiver or
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consent shall be in writing and signed by the Borrower and the Agent, but only
upon having received the prior written consent of the Required Lenders, and the
same shall then be effective only for the period and on the conditions and for
the specific instances and purposes specified in such writing; provided,
however, that, no such amendment, modification, waiver or consent that:
(i) changes, extends or waives any provision of Section 9.10 or
this Section 10.06, the amount of or the due date of any scheduled
installment of or the rate of interest or determination of any fee
payable on or in connection with any Obligation, changes the definition
of Required Lenders, which permits an assignment by Borrower of its
Obligations hereunder, which reduces the required consent of Lenders
provided hereunder, which increases, decreases or extends the Revolving
Credit Termination Date, the Term Loan Termination Date or the
Revolving Credit Commitment of any Lender or which waives any condition
to the making of any Loan shall be effective unless in writing and
signed by each of the Lenders; provided, however, the Required Lenders
may in their sole discretion waive any Default or Event of Default
(other than any Event of Default under Section 8.01(g) or (h)); or
(ii) affects the rights, privileges, immunities or indemnities
of the Agent shall be effective unless in writing and signed by the
Agent.
No notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances, except
as otherwise expressly provided herein. No delay or omission on any Lender's or
the Agent's part in exercising any right, remedy or option shall operate as a
waiver of such or any other right, remedy or option or of any Default or Event
of Default.
10.07 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
10.08 TERMINATION. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably and finally paid in full. The rights granted to the Agent for the
benefit of the Lenders hereunder and under the other Loan Documents shall
continue in full force and effect, notwithstanding the termination of this
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Agreement, until all of the Obligations have been paid in full after the
termination hereof or the Borrower has furnished the Lenders and the Agent with
an indemnification satisfactory to the Agent and each Lender with respect
thereto. All representations, warranties, covenants, waivers and agreements
contained herein shall survive termination hereof until payment in full of the
Obligations unless otherwise provided herein. Notwithstanding the foregoing, if
after receipt of any payment pursuant to the Loan Documents of all or any part
of the Obligations, any Lender is for any reason compelled to surrender such
payment to any Person because such payment is determined to be void or voidable
as a preference, impermissible setoff, a diversion of trust funds or for any
other reason, this Agreement shall continue in full force and the Borrower shall
be liable to, and shall indemnify and hold such Lender harmless for, the amount
of such payment surrendered until such Lender shall have been finally and
irrevocably paid in full. The provisions of the foregoing sentence shall be and
remain effective notwithstanding any contrary action which may have been taken
by the Lenders in reliance upon such payment, and any such contrary action so
taken shall be without prejudice to the Lenders' rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.
10.09 GOVERNING LAW. ALL DOCUMENTS EXECUTED PURSUANT TO THE
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT
AND EACH OF THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND
FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND
JUDICIAL DECISIONS OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF NEW YORK FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR FOR THE PURPOSES OF COLLECTION.
10.10 INDEMNIFICATION. In consideration of the execution and delivery
of this Agreement by the Agent and each Lender and the extension of the
Revolving Credit Commitments, the Borrower hereby indemnifies, exonerates and
holds the Agent and each Lender and each of their respective officers,
directors, employees and agents (collectively, the "Indemnified Parties") free
and harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan, except for any such
Indemnified Liabilities arising for the account of a particular Indemnified
Party by reason of the gross negligence or willful misconduct of such
Indemnified Party, and if and to the extent that the foregoing undertaking may
be unenforceable for any reason, the Borrower hereby agrees to make
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the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
10.11 HEADINGS AND REFERENCES. The headings of the Articles and
Sections of this Agreement are inserted for convenience of reference only and
are not intended to be a part of, or to affect the meaning or interpretation of
this Agreement. Words such as "hereof", "hereunder", "herein" and words of
similar import shall refer to this Agreement in its entirety and not to any
particular Section or provisions hereof, unless so expressly specified. As used
herein, the singular shall include the plural, and the masculine shall include
the feminine or a neutral gender, and vice versa, whenever the context requires.
10.12 SEVERABILITY. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.
10.13 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all previous proposals, negotiations,
representations, commitments and other communications between or among the
parties, both oral and written, with respect thereto.
10.14 AGREEMENT CONTROLS. In the event that any term of any of the Loan
Documents other than this Agreement conflicts with any term of this Agreement,
the terms and provisions of this Agreement shall control.
10.15 USURY SAVINGS CLAUSE. Notwithstanding any other provision herein,
the aggregate interest rate charged under any of the Notes, including all
charges or fees in connection therewith deemed in the nature of interest under
New York law, shall not exceed the Highest Lawful Rate (as such term is defined
below). If the rate of interest (determined without regard to the preceding
sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as
defined below), the outstanding amount of the Loans made hereunder shall bear
interest at the Highest Lawful Rate until the total amount of interest due
hereunder equals the amount of interest which would have been due hereunder if
the stated rates of interest set forth in this Agreement had at all times been
in effect. In addition, if and when the Loans made hereunder are repaid in full
the total interest due hereunder (taking into account the limitation provided
for above) is less than the total amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect, then to the extent permitted by law, the
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Borrower shall pay to the Agent an amount equal to the difference between the
amount of interest paid and the amount of interest which would have been paid if
the Highest Lawful Rate had at all times been in effect. Notwithstanding the
foregoing, it is the intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration which constitutes interest in excess of
the Highest Lawful Rate, then any such excess shall be canceled automatically
and, if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the Borrower.
As used in this paragraph, the term "Highest Lawful Rate" means the maximum
lawful interest rate, if any, that at any time or from time to time may be
contracted for, charged, or received under the laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow.
10.16 WAIVER OF JURY TRIAL. EXCEPT AS PROHIBITED BY LAW, EACH PARTY
HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS.
[Signatures on following pages.]
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<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HANOVER DIRECT, INC.
By:/s/ WAYNE GARTEN
------------------------------
Name: Wayne Garten
Title: Executive Vice President
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, as Agent for
the Lenders
By:/s/ CHRISTOPHER C. BROWDER
------------------------------
Name: Christopher C. Browder
Title: Vice President
Signature Page 1 of 6
<PAGE> 91
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION
By:/s/ CHRISTOPHER C. BROWDER
-----------------------------------------
Name: Christopher C. Browder
Title: Vice President
Lending Office:
NationsBank of North Carolina,
National Association
NationsBank Plaza
101 South Tryon Street
NC1002-17-12
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
Telephone: (704) 386-2006
Telefacsimile: (704) 386-9923
Wire Transfer Instructions:
NationsBank of North Carolina,
National Association
Charlotte, North Carolina 28255
ABA No.: 053000196
Reference: Hanover Direct, Inc.
Account No.: 03662122506
Attention: Commercial Loan
Operations
Signature Page 2 of 6
<PAGE> 92
CHEMICAL BANK NEW JERSEY, NATIONAL
ASSOCIATION
By: /s/ JAMES H. RAMAGE
------------------------------------
Name: James H. Ramage
Title: Vice President
Lending Office:
Chemical Bank New Jersey
East 36 Midland Avenue
Paramus, New Jersey 07652
Attention: Craig W. Trautwein
Telephone: (201) 599-6813
Telefacsimile: (201) 599-6755
Wire Transfer Instructions:
Chemical Bank New Jersey
East Brunswick, New Jersey 08816
ABA No.: 021202337
Reference: Hanover Direct, Inc.
Account No.: 0110632650
Attention: Tammie Putnam
Signature Page 3 of 6
<PAGE> 93
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ GARTH C. HARDING
------------------------------------
Name: Garth C. Harding
Title: Vice President
Lending Office:
First National Bank of Maryland
96 South George Street
York, Pennsylvania 17401
Attention: Garth C. Harding
Telephone: (717) 771-4900
Telefacsimile: (717) 845-3026
Wire Transfer Instructions:
First National Bank of Maryland
York, Pennsylvania 17401
ABA No.: 0520-00113
Reference: Hanover Direct, Inc.
Account No.: 000-0541-4
Attention: Marty Wolfe
Signature Page 4 of 6
<PAGE> 94
FLEET BANK
By: /s/ PETER C. HALL
--------------------------------
Name: Peter C. Hall
Title: Vice President
Lending Office:
Fleet Bank
56 East 42nd Street
New York, New York 10017-5496
Attention: Peter C. Hall
Telephone: (212) 907-5118
Telefacsimile: (212) 907-5614
Wire Transfer Instructions:
Fleet Bank
New York, New York 10017-5496
ABA No.: 021-300-019
Reference: Hanover Direct, Inc.
Account No.: _____________________
Attention: Brian Brady
Signature Page 5 of 6
<PAGE> 95
THE BANK OF TOKYO TRUST COMPANY
By: /s/ DAVID J. VIGGIANO
--------------------------------
Name: David J. Viggiano
Title: Vice President
Lending Office:
The Bank of Tokyo Trust Company
1251 Avenue of the Americas
New York, New York 10166
Attention: David J. Viggiano
Telephone: (212) 782-4274
Telefacsimile: (212) 782-6402
Wire Transfer Instructions:
Bank of Tokyo
New York, New York 10166
ABA No.: 0260-8968-7
Reference: Hanover Direct, Inc.
Account No.: CIF 97770477
Attention: Loan Administration
Department
Signature Page 6 of 6
<PAGE> 96
EXHIBIT A
REVOLVING CREDIT COMMITMENTS
<TABLE>
<CAPTION>
Revolving
Credit
Lender Commitment
------ ------------
<S> <C>
NationsBank of North Carolina,
National Association $ 6,250,000
Chemical Bank New Jersey, National Association $ 3,750,000
The First National Bank of Maryland $ 2,500,000
Fleet Bank $ 3,750,000
The Bank of Tokyo Trust Company $ 3,750,000
===========
Total Revolving Credit Commitment $20,000,000
</TABLE>
A-1
<PAGE> 97
EXHIBIT B
FORM OF ASSIGNMENT AND ACCEPTANCE
DATED _________________, 19___
Reference is made to the Revolving Credit and Term Loan Agreement dated
as of October 12, 1994 (the "Agreement") among Hanover Direct, Inc. (the
"Borrower"), the Lenders (as defined in the Agreement), and NationsBank of North
Carolina, National Association, as Agent for the Lenders ("Agent"). Unless
otherwise defined herein, terms defined in the Agreement are used herein with
the same meanings.
_____________________________ (the "Assignor") and _________________________
________________(the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a
_______% (1) interest in and to all of the Assignor's rights and obligations
under the Agreement as of the Effective Date (as defined below), including,
without limitation, such percentage interest in the Loans owing to, and
Participations held by, the Assignor on the Effective Date, and the Notes held
by the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, the aggregate outstanding principal amounts of the Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) are as follows: $_____________ of Revolving Credit Loans, $__________
of the Term Loan and $_________ of Competitive Bid Loans; (ii) represents and
warrants that it is the legal and beneficial owner of the interests being
assigned by it hereunder and that such interests are free and clear of any
adverse claim; (iii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Agreement or any of the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto; (iv) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under the Agreement or any of the Loan Documents or any other
instrument or document furnished pursuant thereto and (v) attaches the Notes
referred to in paragraph 1 above and requests that the Agent exchange such Notes
for (A) new Revolving Credit Notes dated _____________, 19__ as follows: a
Revolving Credit Note in the
___________________________
(1) Specify percentage in not less than 9 decimal points.
B-1
<PAGE> 98
principal amount of $________________ payable to the order of the Assignor, and
a Revolving Credit Note in the principal amount of $________________ payable to
the order of the Assignee; (B) new Term Notes dated __________, 19__ as follows:
a Term Note in the principal amount of $__________ payable to the order of
Assignor, and a Term Note in the principal amount of $__________ payable to the
order of the Assignee; and (C) new Competitive Bid Notes dated ________, 19__ as
follows: a Competitive Bid Note in the principal amount of $__________ payable
to the order of the Assignor, and a Competitive Bid Note in the principal amount
of $__________ payable to the order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Sections 5.01(f) and 6.01 thereof, and such other ---------------- ----
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Agent, the Assignor,
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Agreement; (iii) appoints and authorizes the Agent
to take such actions on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (iv) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Agreement are required to be performed by the Lender; and (v) specifies as its
address for notices the office set forth beneath its name on the signature pages
hereof.
4. The effective date for this Assignment and Acceptance shall be
_____________________________ (the "Effective Date"). Following the execution of
this Assignment and Acceptance, it will be delivered to the Agent for acceptance
and recording by the Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Agreement and Notes in respect
of the interest assigned hereby (including, without limitation, all payments of
principal, interest, commitment fees and letter of credit fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement and the
B-2
<PAGE> 99
Notes for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with, the laws of the State of New York.
[NAME OF ASSIGNOR]
By:__________________________________
Name:
Title:
Notice Address:______________________
______________________
______________________
After the Effective Date:
Outstanding Revolving Credit Loans: $_______
Outstanding Competitive Bid Loans: $_______
Outstanding Principal Amount of
Term Note: $_______
[NAME OF ASSIGNEE]
By:__________________________________
Name:
Title:
Notice Address/Lending Office
________________________________
________________________________
________________________________
Wire transfer Instructions:
________________________________
________________________________
________________________________
After the Effective Date:
Outstanding Revolving Credit Loans: $_______
Outstanding Competitive Bid Loans: $_______
Outstanding Principal Amount of
Term Note: $_______
B-3
<PAGE> 100
Accepted this ____ day of _______, 19___
NATIONSBANK OF NORTH CAROLINA, NATIONAL
ASSOCIATION, as Agent
By:_____________________________________
Name:_______________________________
Title:______________________________
Consented to:
HANOVER DIRECT, INC.
By:_____________________________________
Name:_______________________________
Title:______________________________
B-4
<PAGE> 101
EXHIBIT C
NOTICE OF APPOINTMENT (OR REVOCATION) OF AUTHORIZED
REPRESENTATIVE
Reference is hereby made to the Revolving Credit and Term Loan
Agreement dated as of October 12, 1994 (the "Agreement") among Hanover Direct,
Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and
NationsBank of North Carolina, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
Appointment. The Borrower hereby nominates, constitutes and appoints
each individual named below as an Authorized Representative under the Loan
Documents, and hereby represents and warrants that (i) set forth opposite each
such individual's name is a true and correct statement of such individual's
office (to which such individual has been duly elected or appointed), a genuine
specimen signature of such individual and an address for the giving of notice,
and (ii) each such individual has been duly authorized by each Borrower to act
as Authorized Representative under the Loan Documents:
Name and Address Office Specimen Signature
________________ __________________________ __________________________
________________
________________
________________ __________________________ __________________________
________________
________________
________________ __________________________ __________________________
________________
________________
Revocation. Borrower hereby revokes (effective upon receipt hereof by
the Agent) the prior appointment of ________________ as an Authorized
Representative.
This the ___ day of __________________, 19__.
HANOVER DIRECT, INC.
By:__________________________
Name:________________________
Title:_______________________
C-1
<PAGE> 102
EXHIBIT D
FORM OF BORROWING NOTICE--REVOLVING CREDIT LOANS
To: NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Ms. Joyce Ruppe, Agency Services
Reference is hereby made to the Revolving Credit and Term Loan
Agreement dated as of October 12, 1994 (the "Agreement") among Hanover Direct,
Inc. (the "Borrower"), the Lenders (as defined in the Agreement), and
NationsBank of North Carolina, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby confirms its
prior notice of borrowing given to the Agent by telephone at __________ __.m. on
____________, 19__ to the effect that Revolving Credit Loans of the type and
amount set forth below be made on the date indicated:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate Date of
(check one) Period(1) Amount(2) Loan(3)
------------ --------- --------- -------
<S> <C> <C> <C>
Base Rate
Loan _____
LIBOR Loan _____
</TABLE>
(1) For any LIBOR Loan, one, two, three or six months.
(2) Must be $5,000,000 or a multiple of $1,000,000 in excess thereof for
Revolving Credit Loans.
(3) At least three (3) LIBOR Business Days later if a LIBOR Loan; may be
same Business Day in case of a Base Rate Loan.
The Borrower hereby requests that the proceeds of Revolving Credit
Loans or Swing Line Loans described in this Borrowing Notice be made available
to the Borrowers as follows: [INSERT TRANSMITTAL INSTRUCTIONS].
D-1
<PAGE> 103
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article VI
of the Agreement and in the Loan Documents (other than those expressly stated
to refer to a particular date) are true and correct as of the date hereof
except that (a) the representations and warranties set forth in Section 5.01(d)
and (e) of the Agreement shall be deemed to include and take into account any
merger or consolidation permitted under Section 7.06 of the Agreement and
references therein to Schedules 5.01(d) and 5.01(e) shall be deemed to refer to
such Schedules as amended by Supplemental Schedules 5.01(d) and 5.01(e),
respectively, attached hereto, and (b) the reference to the financial
statements in Section 5.01(f)(i) of the Agreement are to those financial
statements most recently delivered to you pursuant to Section 6.01 of the
Agreement;
3. The proceeds of such Advance shall be used as set forth
in Section 2.15 of the Agreement; and
4. After giving effect to Loans requested hereby, the sum of
all Outstandings will not exceed the Total Revolving Credit
Commitment.
HANOVER DIRECT, INC.
BY: ___________________________________
Authorized Representative
D-2
<PAGE> 104
Supplemental Schedule 5.01(d)
Subsidiaries
Schedule 5.01(d) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 5.01(d) is necessary, indicate "Not Applicable"):
D-3
<PAGE> 105
Supplemental Schedule 5.01(e)
Investments in Other Persons
Schedule 5.01(e) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 5.01(e) is necessary, indicate "Not Applicable"):
D-4
<PAGE> 106
EXHIBIT E
FORM OF COMPETITIVE BID NOTE
PROMISSORY NOTE
(Competitive Bid)
__________, __________
October 12, 1994
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation having
its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of
____________________________________________________(1) (the "Lender"), in its
individual capacity, at the office of NationsBank of North Carolina, National
Association, as agent for the Lender (the "Agent"), located at NationsBank
Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255 (or at such other
place or places as the Agent may designate) at the times set forth in the
Revolving Credit and Term Loan Agreement dated of even date herewith among the
Borrower, the financial institutions party thereto (collectively, the "Lenders")
and the Agent (as amended and supplemented and in effect from time to time, the
"Credit Agreement"; all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Credit Agreement), in lawful money
of the United States of America and in immediately available funds, the
aggregate unpaid principal amount of all Competitive Bid Loans made by the
Lender to the Borrower, if any, on the dates and in the principal amounts set
forth in the Lender's Competitive Bid Quote and accepted by the Borrower, and to
pay interest on the unpaid principal amount of each such Competitive Bid Loan,
at such office, in like money and funds, for the period commencing on the date
of such Competitive Bid Loan until such Competitive Bid Loan shall be paid in
full, at the rates per annum and on the dates set forth in the Lender's
Competitive Bid Quote and accepted by the Borrower.
The date, amount, interest rate and maturity date of each Competitive
Bid Loan made by the Lender to the Borrower, and each payment made on account of
the principal thereof, shall be recorded by the Lender on its books and, prior
to any transfer of this Note, endorsed by the Lender on the schedule attached
hereto or any continuation thereof, provided that the failure of the Lender to
make any such recordation or endorsement shall not affect the obligations of the
Borrower to make payment when due of any amount owing under the Credit Agreement
or hereunder in respect of the Competitive Bid Loans made by the Lender.
________
(1) Insert name of Lender
E-1
<PAGE> 107
This Note is one of the Competitive Bid Notes referred to in the Credit
Agreement and is issued pursuant to and entitled to the benefits and security of
the Credit Agreement to which reference is hereby made for a more complete
statement of the terms and conditions upon which the Competitive Bid Loans
evidenced hereby were made or are made and are to be repaid. This Note is
subject to certain restrictions on transfer or assignment as provided in the
Credit Agreement.
Except as permitted by Section 10.01 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on demand
at the rates per annum set forth in Article II of the Credit Agreement, or the
maximum rate permitted under applicable law, if lower, until such principal and
interest have been paid in full. Further, in the event of such acceleration,
this Note, and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year for
the actual number of days in the interest period.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Competitive Bid Loans upon the terms and conditions specified therein.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, and also their
right, if any, to require
E-2
<PAGE> 108
the holder hereof to hold as security for this Note any collateral deposited by
any of said Persons as security. Protest, notice of protest, notice of dishonor,
dishonor, demand or any other formality are hereby waived by all parties bound
hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST: By:____________________________
Name:__________________________
By:____________________________ Title:_________________________
____________ Secretary
[SEAL]
E-3
<PAGE> 109
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Competitive Bid Loans made under the
within-described Credit Agreement to the Borrower, on the dates, in the
principal amounts, of the types, bearing interest at the rates and maturing on
the dates set forth below, subject to the payments and prepayments of principal
set forth below:
<TABLE>
<CAPTION>
Principal Maturity Amount Unpaid
Date Amount Interest Date Paid or Principal Notation
of Loan of Loan Type of Loan Rate of Loan Prepaid Amount Made By
------- ---------- ------------ -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
E-4
<PAGE> 110
EXHIBIT F
FORM OF REVOLVING CREDIT NOTE
PROMISSORY NOTE
(Revolving Credit Note)
_______________(1) __________, __________
October 12, 1994
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation having
its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of
___________________________________________________(2) (the "Lender"), in its
individual capacity, at the office of NationsBank of North Carolina, National
Association, as agent for the Lenders (the "Agent"), located at NationsBank
Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255 (or at such other
place or places as the Agent may designate) at the times set forth in the
Revolving Credit and Term Loan Agreement dated of even date herewith among the
Borrower, the financial institutions party thereto (collectively, the "Lenders")
and the Agent (as amended and supplemented and in effect from time to time, the
"Credit Agreement"; all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Credit Agreement), in lawful money
of the United States of America, in immediately available funds, the principal
amount of [______________________________________________](3) DOLLARS
($__________)(1) or, if less than such principal amount, the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Lender to the
Borrower pursuant to the Credit Agreement on the Revolving Credit Termination
Date or such earlier date as may be required pursuant to the terms of the Credit
Agreement, and to pay interest from the date hereof on the unpaid principal
amount hereof, in like money, at said office, on the dates and at the rates
provided in Article II of the Credit Agreement. All or any portion of the
principal amount of such Loans may be prepaid as provided in the Credit
Agreement.
-------------------------------
(1) Insert Lender's Revolving Credit Commitment in Arabic numerals.
(2) Insert name of Lender in capital letters.
(3) Insert Lender's Revolving Credit Commitment in words.
F-1
<PAGE> 111
This Note is one of the Revolving Credit Notes in the aggregate
principal amount of $20,000,000 referred to in the Credit Agreement and is
issued pursuant to and entitled to the benefits and security of the Credit
Agreement to which reference is hereby made for a more complete statement of the
terms and conditions upon which the Loans evidenced hereby were or are made and
are to be repaid. This Note is subject to certain restrictions on transfer or
assignment as provided in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Revolving
Credit Loans upon the terms and conditions specified therein.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on demand
at the rates per annum set forth in Article II of the Credit Agreement, or the
maximum rate permitted under applicable law, if lower, until such principal and
interest have been paid in full. Further, in the event of such acceleration,
this Note, and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year for
the actual number of days in the interest period.
Except as permitted by Section 10.01 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, and also their
right, if any, to require
F-2
<PAGE> 112
the holder hereof to hold as security for this Note any collateral deposited by
any of said Persons as security. Protest, notice of protest, notice of dishonor,
dishonor, demand or any other formality are hereby waived by all parties bound
hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST:
______________________ By: _________________________________
___________ Secretary Name: _______________________________
Title: ______________________________
[SEAL]
F-3
<PAGE> 113
EXHIBIT G
FORM OF TERM NOTE
PROMISSORY NOTE
(Term Note)
_______________(1) __________, __________
September __, 19__
FOR VALUE RECEIVED, HANOVER DIRECT, INC., a Delaware corporation having
its principal place of business located in Weehawken, New Jersey (the
"Borrower"), hereby promises to pay to the order of
___________________________________________________(2) (the "Lender"), in its
individual capacity, at the office of NationsBank of North Carolina, National
Association, as agent for the Lenders (the "Agent"), located at NationsBank
Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255 (or at such other
place or places as the Agent may designate) at the times set forth in the
Revolving Credit and Term Loan Agreement dated of even date herewith among the
Borrower, the financial institutions party thereto (collectively, the "Lenders")
and the Agent (as amended and supplemented and in effect from time to time, the
"Credit Agreement"; all capitalized terms not otherwise defined herein shall
have the respective meanings set forth in the Credit Agreement), in lawful money
of the United States of America, in immediately available funds, the principal
amount of [______________________________________________](3) DOLLARS
($__________)1 payable in equal quarterly installments of principal on the last
Business Day of each December, March and June, beginning September ___(4) and
quarterly thereafter until the Term Loan Termination Date, when the entire
unpaid principal balance, including any accrued and unpaid interest, shall be
due and payable; and to pay interest from the date hereof on the unpaid
principal amount hereof, in like money, at said office, on the dates and at the
rates provided in Article II of the Credit Agreement. All or any portion of the
principal amount of the Term Loan evidenced hereby may be prepaid as provided in
the Credit Agreement.
-------------------------------
(1) Insert, in Arabic numerals, Lender's Applicable Commitment Percentage
of all applicable Revolving Credit Outstandings, plus all accrued and
unpaid interest with respect thereto, as of the Revolving Credit
Termination Date.
(2) Insert name of Lender in capital letters.
(3) Insert amount in item 1 above in words.
(4) Insert year in which this Note is executed.
G-1
<PAGE> 114
This Note is one of the Term Notes in the aggregate principal amount of
______________________________ referred to in the Credit Agreement and is issued
pursuant to and entitled to the benefits and security of the Credit Agreement to
which reference is hereby made for a more complete statement of the terms and
conditions upon which the Loans evidenced hereby were made and are to be repaid.
This Note is subject to certain restrictions on transfer or assignment as
provided in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
If payment of all sums due hereunder is accelerated under the terms of
the Credit Agreement or under the terms of the other Loan Documents executed in
connection with the Credit Agreement, the then remaining principal amount and
accrued but unpaid interest shall bear interest which shall be payable on demand
at the rates per annum set forth in Article II of the Credit Agreement, or the
maximum rate permitted under applicable law, if lower, until such principal and
interest have been paid in full. Further, in the event of such acceleration,
this Note, and all other indebtedness of the Borrower to the Lender shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest thereon at the rates set forth above.
Interest hereunder shall be computed on the basis of a 360-day year for
the actual number of days in the interest period.
Except as permitted by Section 10.01 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, and also their
right, if any, to require
G-2
<PAGE> 115
the holder hereof to hold as security for this Note any collateral deposited by
any of said Persons as security. Protest, notice of protest, notice of dishonor,
dishonor, demand or any other formality are hereby waived by all parties bound
hereon.
IN WITNESS WHEREOF, the Borrower has caused this Note to be made,
executed and delivered by its duly authorized representative as of the date and
year first above written, all pursuant to authority duly granted.
HANOVER DIRECT, INC.
ATTEST:
______________________ By: _________________________________
___________ Secretary Name: _______________________________
Title: ______________________________
[SEAL]
G-3
<PAGE> 116
EXHIBIT H
INTEREST RATE SELECTION NOTICE
To: NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Ms. Joyce Ruppe, Agency Services
Reference is hereby made to the Revolving Credit and Term Loan
Agreement dated as of October 12, 1994 (the "Credit Agreement") among Hanover
Direct, Inc. (the "Borrower"), the Lenders (as defined in the Credit Agreement),
and NationsBank of North Carolina, National Association, as Agent for the
Lenders ("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Credit Agreement.
The Borrower through its Authorized Representative hereby confirms its
prior notice of a selection of a type of Loan and Interest Period given to the
Agent by telephone at __________ __.m. on _________________, 199__ to the
following effect in respect of Revolving Credit Loans or Term Loan Segments:
<TABLE>
<CAPTION>
Type of Loan Interest Effective
(Check One) Period(1) Amount(2) Date(3)
------------ --------- --------- ---------
<S> <C> <C> <C>
LIBOR Loan _____
Base Rate _____
</TABLE>
(1) For any LIBOR Loan, one, two, three or six months
(2) Must be $5,000,000 or a multiple of $1,000,000 in excess thereof.
(3) At least three (3) LIBOR Business Days after date of telephone notice
of a LIBOR Loan; may be same Business Day in case of Base Rate Loan.
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The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article
VI of the Agreement and in the Loan Documents (other than those expressly
stated to refer to a particular date) are true and correct as of the date
hereof except that (a) the representations and warranties set forth in Section
5.01(d) and (e) of the Agreement shall be deemed to include and take into
account any merger or consolidation permitted under Section 7.06 of the
Agreement and references therein to Schedules 5.01(d) and 5.01(e) shall be
deemed to refer to such Schedules as amended by Supplemental Schedules 5.01(d)
and 5.01(e) attached hereto, and (b) the reference to the financial statements
in Section 5.01(f)(i) of the Agreement are to those financial statements most
recently delivered to you pursuant to Section 6.01 of the Agreement;
3. The proceeds of such Advance shall be used as set forth in
Section 2.15 of the Agreement; and
4. After giving effect to Loans requested hereby, the sum of
all Outstandings will not exceed the Total Revolving Credit
Commitment.
HANOVER DIRECT, INC.
BY: ___________________________________
Authorized Representative
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Supplemental Schedule 5.01(d)
Subsidiaries
Schedule 5.01(d) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 5.01(d) is necessary, indicate Not Applicable):
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Supplemental Schedule 5.01(e)
Investments in Other Persons
Schedule 5.01(e) of the Agreement shall be amended hereby as follows
(if no amendment of Schedule 5.01(e) is necessary, indicate "Not Applicable"):
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EXHIBIT I
FORM OF COMPETITIVE BID QUOTE REQUEST
[Date]
To: NationsBank of North Carolina, National Association,
as Agent
Attention: Ms. Joyce Ruppe, Agency Services
Re: Competitive Bid Quote Request
Pursuant to Section 2.02 of the Revolving Credit and Term Loan
Agreement dated as of October 12, 1994 (as modified and supplemented and in
effect from time to time, the "Credit Agreement") among Hanover Direct, Inc.,
the Lenders named therein and NationsBank of North Carolina, National
Association, as agent, we hereby give notice that we request Competitive Bid
Quotes for the following proposed Competitive Bid Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date (1) Amount (2) Period (3)
--------- --------- ---------- ----------
<S> <C> <C> <C>
</TABLE>
-----------------------------------------
(1) Business Day immediately preceding Borrowing Date.
(2) Each amount must be $5,000,000 or a multiple of $1,000,000 in
excess thereof.
(3) A period of no less than 7 nor more than 180 days after the making
of such Competitive Bid Loan and ending on a Business Day.
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Hanover Direct, Inc.
By:___________________________
Name: ________________________
Title: _______________________
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EXHIBIT J
FORM OF COMPETITIVE BID QUOTE
To: NationsBank of North Carolina, National Association,
as Agent
Attention: Ms. Joyce Ruppe, Agency Services
Re: Competitive Bid Quote to Hanover Direct, Inc. (the
"Borrower")
The Competitive Bid Quote is given in accordance with Section 2.02 of
the Revolving Credit and Term Loan Agreement dated as of October 12, 1994 (as
modified and supplemented and in effect from time to time, the "Credit
Agreement") among Hanover Direct, Inc., the lenders named therein and
NationsBank of North Carolina, National Association, as agent. Terms defined in
the Credit Agreement are used herein as defined therein.
In response to the Borrower's Competitive Bid Quote Request dated
______________, 199__, we hereby make the following Competitive Bid Quote(s) on
the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount(s), for the following interest Period(s)
and at the following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date (1) Date (1) Amount (2) Period (3) Rate (4)
---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
</TABLE>
(1) As specified in the related Competitive Bid Quote Request
(2) The principal amount bid for each Interest Period may not exceed
the principal amount requested. Bids must be made for at least $1,000,000 or a
multiple of $100,000 in excess thereof.
(3) A period of not less than 7 nor more than 180 days after the
making of such Competitive Bid Loan and ending on a Business Day, as specified
in the related Competitive Bid Quote Request.
(4) Specify rate of interest per annum (rounded to the nearest 1/100
of 1%).
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We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate(s) us to make the Competitive Bid Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part.
Dated: ______________, 199_
Very truly yours,
[NAME OF LENDER]
By:_______________________________
Authorized Representative
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<PAGE> 123
EXHIBIT K
FORM OF OPINION OF COUNSEL TO THE BORROWER
AND THE GUARANTORS
[Copy of Opinion delivered at Closing is attached]
K-1
<PAGE> 124
EXHIBIT L
FORM OF COMPLIANCE CERTIFICATE
As of __________, 19__
NationsBank of North Carolina, National Association,
as Agent
NationsBank Plaza, NC1002-06-19
101 South Tryon Street, 6th Floor
Charlotte, North Carolina 28255
Telefacsimile: (704) 386-9923
Attention: Ms. Joyce Ruppe, Agency Services
Reference is hereby made to the Credit Facilities and Reimbursement
Agreement dated as of October 12, 1994 and the Revolving Credit and Term Loan
Agreement dated as of October 12, 1994 (collectively the "Credit Agreements")
among Hanover Direct, Inc. (the "Borrower"), the Lenders (as defined in the
Credit Agreements) and NationsBank of North Carolina, National Association, as
Agent for the Lenders ("Agent") under each Credit Agreement. Capitalized terms
used but not defined herein shall have the respective meanings therefor set
forth in the Credit Agreements. The undersigned, a duly authorized and acting
Authorized Representative, hereby certifies to you as of the date set forth
above as follows:
1. Calculations:
A. Compliance with Section 9.01 of the Credit
Facilities and Reimbursement Agreement and
Section 7.01 of the Revolving Credit and Term
Loan Agreement: Consolidated Fixed Charge
Ratio
1. Consolidated EBITDA (sum of a, b, c, d
and e): $_________
a. Consolidated Net Income $_________
b. Consolidated Interest Expense $_________
c. Tax Expense $_________
d. Depreciation and amortization $_________
e. To the extent deducted in
a, b, or c above, lease,
rental and all other payments
made in respect of or in
connection with operating
leases $_________
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2. Capital Expenditures $__________
3. Difference of Item 1 less Item 2 $__________
4. Consolidated Fixed Charges
(sum of a, b, c and d) $__________
a. Consolidated Interest Expense $_________
b. Principal amount of Consoli-
dated Funded Indebtedness
due and payable during
period $_________
c. Dividends and distributions
paid during such period $_________
d. Repurchases and redemptions
of stock during such period $_________
5. Ratio of Item 3 to Item 4 ____ to 1.00
REQUIRED: AT ANY TIME DURING ANY FOUR-QUARTER PERIOD ENDING DURING THE
PERIODS FORTH BELOW, THE CONSOLIDATED FIXED CHARGE RATIO SHALL NOT BE
EQUAL TO OR LESS THAN THE RATIO SET FORTH OPPOSITE SUCH PERIOD:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
FOUR-QUARTER PERIOD ENDING
JULY 1, 1995 1.25 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 29], 1996 1.50 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 28], 1997 AND THEREAFTER 2.00 TO 1.00
</TABLE>
B. Compliance with Section 9.02 of the Credit
Facilities and Reimbursement Agreement and
Section 7.02 of the Revolving Credit and Term
Loan Agreement: Consolidated Funded
Indebtedness to Consolidated EBITDA
1. Consolidated Funded Indebtedness $__________
2. Consolidated EBITDA (sum of a, b, c
and d): $__________
a. Consolidated Net Income $________
b. Consolidated Interest Expense $________
c. Tax Expense $________
d. Depreciation and amortization $________
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<PAGE> 126
3. Ratio of Item 1 to Item 2 ____ to 1.00
REQUIRED: AT ANY TIME DURING ANY FOUR-QUARTER PERIOD ENDING DURING THE
PERIODS SET FORTH BELOW, THE RATIO OF CONSOLIDATED FUNDED INDEBTEDNESS
TO CONSOLIDATED EBITDA FOR SUCH FOUR-QUARTER PERIOD SHALL NOT BE EQUAL
TO OR GREATER THAN THE RATIO SET FORTH OPPOSITE SUCH PERIOD:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
FOUR-QUARTER PERIOD ENDING
APRIL 1, 1995 3.50 TO 1.00
FOUR-QUARTER PERIOD ENDING
JULY 1, 1995 3.00 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 29], 1996 AND THEREAFTER 2.75 TO 1.00
FOUR-QUARTER PERIOD ENDING
[JUNE 28], 1997 AND THEREAFTER 2.25 TO 1.00
</TABLE>
C. Determination of Applicable Margin:
1. Consolidated Funded Indebtedness $__________
2. Consolidated EBITDA (sum of a, b, c
and d): $__________
a. Consolidated Net Income $__________
b. Consolidated Interest Expense $__________
c. Tax Expense $__________
d. Depreciation and amortization $__________
3. Ratio of Item 1 to Item 2 ____ to 1.00
2. No Default
A. To the best knowledge of the undersigned, during the fiscal
quarter ended as of the date set forth above, (a) no Default
or Event of Default specified in Article X of the Credit
Facilities and Reimbursement Agreement or Article VIII of the
Revolving Credit and Term Loan Agreement has occurred or (b)
the following Default or Event of Default has occurred:_______
______________________________________________________________
______________________________________________________________
______________________________________________________________
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<PAGE> 127
B. The Borrower proposes to take the following action with
respect to any such Default or Event of Default described
above:________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(Note, if no Default or Event of Default has
occurred, insert "Not Applicable").
The undersigned Authorized Officer hereby certifies that the
information set forth above is true, correct and complete as of the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, 19___.
HANOVER DIRECT, INC.
------------------------------
Authorized Officer
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<PAGE> 128
EXHIBIT M
FORM OF GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty Agreement" or the "Guaranty"),
dated as of October 12, 1994, is made by each of the undersigned (each a
"Guarantor" and collectively the "Guarantors") to NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, a national banking association, as Agent (the "Agent") for
each of the lenders now or hereafter party to the Credit Agreements (as defined
below) (each a "Lender" and collectively the "Lenders"). All capitalized terms
not otherwise defined herein shall have the meanings assigned thereto in the
Credit Agreements.
W I T N E S S E T H:
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Credit Facilities and Reimbursement Agreement (the "Credit Facilities and
Reimbursement Agreement") of even date herewith among the Agent, the Lenders and
Hanover Direct, Inc. (the "Borrower"), to make available to the Borrower a
revolving credit facility in the maximum aggregate principal amount at any time
outstanding of $60,000,000, which will include (i) a standby letter of credit
facility of up to $35,000,000, (ii) a swing line facility of up to $5,000,000,
and (iii) a competitive bid facility, as such revolving credit facility is
evidenced by the promissory notes of the Borrower of even date herewith payable
to the respective Lenders, as the same may be amended, supplemented or replaced
(collectively the "Credit Facilities and Reimbursement Notes");
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Revolving Credit and Term Loan Agreement (the "Revolving Credit and Term
Loan Agreement" and collectively with the Credit Facilities and Reimbursement
Agreement, the "Credit Agreements") of even date herewith among the Agent, the
Lenders and the Borrower, to make available to the Borrower a revolving credit
facility in the maximum aggregate principal amount at any time outstanding of
$20,000,000, which will include a competitive bid facility, as such revolving
credit facility is evidenced by the promissory notes of the Borrower of even
date herewith payable to the respective Lenders, as the same may be amended,
supplemented or replaced (collectively the "Revolving Credit and Term Loan
Notes" and collectively with the Credit Facilities and Reimbursement Notes, the
"Notes");
WHEREAS, each Guarantor is a direct or indirect wholly-owned
Subsidiary of the Borrower;
WHEREAS, the Agent and the Lenders are unwilling to enter into the
Credit Agreements and to make any loans or advances or to issue letters of
credit thereunder unless each Guarantor guarantees to the Lenders payment of the
Borrower's Liabilities (as hereinafter defined);
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<PAGE> 129
WHEREAS, each Guarantor will materially benefit from the loans and
advances to be made, and the letters of credit to be issued, under the Credit
Agreements, and each Guarantor is willing to enter into this Guaranty to provide
an inducement for the Lenders and the Agent to enter into the Credit Agreements
and for the Lenders to make loans and advances, and to issue letters of credit,
thereunder.
NOW, THEREFORE, in order to induce the Lenders and the Agent to enter
into the Credit Agreements and to make loans and advances to the Borrower, and
to issue letters of credit for the account of the Borrower, thereunder, each
Guarantor agrees as follows:
1. GUARANTY. For all purposes of this Guaranty Agreement, "Borrower's
Liabilities" means: (a) the Borrower's prompt payment in full, when due or
declared due and at all such times, of all amounts pursuant to the terms of the
Credit Agreements, the Notes, and all other Loan Documents executed in
connection with the Credit Agreements heretofore, now or at any time or times
hereafter owing, arising, due or payable from the Borrower to the Lenders,
including without limitation principal, interest, premium or fee (including, but
not limited to, loan fees and attorneys' fees and expenses); and (b) the
Borrower's prompt, full and faithful performance, observance and discharge of
each and every agreement, undertaking, covenant and provision to be performed,
observed or discharged by the Borrower under the Credit Agreements and all other
Loan Documents executed in connection therewith. Each Guarantor hereby jointly
and severally, unconditionally, absolutely, continually and irrevocably
guarantees to the Agent and the Lenders the Borrower's Liabilities. Each
Guarantor's obligations to the Agent and the Lenders under this Guaranty
Agreement are hereinafter collectively referred to as the "Guarantor's
Obligations"; provided, however, that the liability of each Guarantor with
respect to the Guarantor's Obligations shall not exceed at any time the Maximum
Amount (as hereinafter defined). The "Maximum Amount" means 95% of (i) the fair
salable value of the assets of a Guarantor as of the date hereof minus (ii) the
total liabilities of such Guarantor (including contingent liabilities, but
excluding liabilities of such Guarantor under this Guaranty and any other Loan
Documents executed by such Guarantor) as of the date hereof; provided further,
however, that if the calculation of the Maximum Amount in the manner provided
above as of the date payment is required of such Guarantor pursuant to this
Guaranty would result in a greater positive number, then the Maximum Amount
shall be deemed to be such greater positive number.
Each Guarantor agrees that it is jointly and severally, directly and
primarily liable for the Borrower's Liabilities.
2. PAYMENT. If the Borrower shall default in payment or performance of
any Borrower's Liabilities, whether principal, interest, premium, fee
(including, but not limited to, loan fees and attorneys' fees and expenses), or
otherwise, when and as the same shall become due, whether according to the terms
of the Credit
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<PAGE> 130
Agreements, by acceleration, or otherwise, or upon the occurrence of any other
Event of Default under either Credit Agreement that has not been cured or
waived, then each Guarantor, upon demand thereof by the Agent or its successors
or assigns, will AS OF THE DATE OF THE AGENT'S DEMAND fully pay to the Agent,
for the benefit of the Agent and the Lenders, subject to any restriction set
forth in Section 1 hereof, an amount equal to all Guarantor's Obligations then
due and owing.
3. UNCONDITIONAL OBLIGATIONS. This is a guaranty of payment and not of
collection. The Guarantor's Obligations under this Guaranty Agreement shall be
joint and several, absolute and unconditional irrespective of the validity,
legality or enforceability of the Credit Agreements, the Notes or any other Loan
Document or any other guaranty of the Borrower's Liabilities, and shall not be
affected by any action taken under the Credit Agreements, the Notes or any other
Loan Document, any other guaranty of the Borrower's Liabilities, or any other
agreement between the Agent or the Lenders and the Borrower or any other person,
in the exercise of any right or power therein conferred, or by any failure or
omission to enforce any right conferred thereby, or by any waiver of any
covenant or condition therein provided, or by any acceleration of the maturity
of any of the Borrower's Liabilities, or by the release or other disposal of any
security for any of the Borrower's Liabilities, or by the dissolution of the
Borrower or the combination or consolidation of the Borrower into or with
another entity or any transfer or disposition of any assets of the Borrower or
by any extension or renewal of either Credit Agreement, any of the Notes or any
other Loan Document, in whole or in part, or by any modification, alteration,
amendment or addition of or to either Credit Agreement, any of the Notes or any
other Loan Document, any other guaranty of the Borrower's Liabilities, or any
other agreement between the Agent or the Lenders and the Borrower or any other
Person, or by any other circumstance whatsoever (with or without notice to or
knowledge of any Guarantor) which may or might in any manner or to any extent
vary the risks of any Guarantor, or might otherwise constitute a legal or
equitable discharge of a surety or guarantor; it being the purpose and intent of
the parties hereto that this Guaranty Agreement and the Guarantor's Obligations
hereunder shall be absolute and unconditional under any and all circumstances
and shall not be discharged except by payment as herein provided.
4. CURRENCY AND FUNDS OF PAYMENT. Each Guarantor hereby guarantees that
the Guarantor's Obligations will be paid in lawful currency of the United States
of America and in immediately available funds, regardless of any law, regulation
or decree now or hereafter in effect that might in any manner affect the
Borrower's Liabilities, or the rights of the Agent or any Lender with respect
thereto as against the Borrower, or cause or permit to be invoked any alteration
in the time, amount or manner of payment by the Borrower of any or all of the
Borrower's Liabilities.
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<PAGE> 131
5. EVENTS OF DEFAULT. In the event that (i) any Guarantor shall file a
petition to take advantage of any insolvency statute; (ii) any Guarantor shall
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself or of the whole or substantially all of its property;
(iii) any Guarantor shall file a petition or answer seeking reorganization or
arrangement or similar relief under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state or
similar law of any other country; (iv) a court of competent jurisdiction shall
enter an order, judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of any Guarantor or of the whole or substantially all
of its properties, or approve a petition filed against any Guarantor seeking
reorganization or arrangement or similar relief under the Federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state or similar law of any other country, or if, under the provisions of
any other law for the relief or aid of debtors, a court of competent
jurisdiction shall assume custody or control of any Guarantor or of the whole or
substantially all of its properties and such order, judgment, decree, approval
or assumption remains unstayed or undismissed for a period of sixty (60)
consecutive days; (v) there is commenced against any Guarantor any proceeding or
petition seeking reorganization, arrangement or similar relief under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state, which proceeding or petition remains unstayed or
undismissed for a period of sixty (60) consecutive days; or (vi) there shall
occur an Event of Default under either Credit Agreement (each of the foregoing
an "Event of Default"), then notwithstanding any collateral that the Lenders may
possess from Borrower or any other guarantor of the Borrower's Liabilities, or
any other party, at the Agent's election and without notice thereof or demand
therefor, so long as such Event of Default shall be continuing, the Guarantor's
Obligations shall immediately become due and payable.
6. SUITS. Each Guarantor from time to time shall pay to the Agent for
the benefit of the Lenders, on demand, at the Agent's place of business set
forth in the Credit Agreements, the Guarantor's Obligations as they become or
are declared due, and in the event such payment is not made forthwith, the Agent
or the Lenders or any of them may proceed to suit against any one or more or all
of the Guarantors. At the Agent's election, one or more and successive or
concurrent suits may be brought hereon by the Agent against any one or more or
all of the Guarantors, whether or not suit has been commenced against the
Borrower, any other guarantor of the Borrower's Liabilities, or any other Person
and whether or not the Agent or any Lender has taken or failed to take any other
action to collect all or any portion of the Borrower's Liabilities.
7. SET-OFF AND WAIVER. Each Guarantor waives any right to assert
against the Agent and the Lenders as a defense, counterclaim, set-off, or cross
claim, any defense (legal or equitable), or other claim which such Guarantor may
now or at any time or times hereafter
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<PAGE> 132
have against the Borrower, without waiving any additional defenses, set-offs,
counterclaims or other claims otherwise available to such Guarantor. If at any
time or times hereafter the Agent or any Lender employs counsel for advice or
other representation to enforce the Guarantor's Obligations that arise out of a
default hereunder or an Event of Default, then, in any of the foregoing events,
all of the reasonable attorneys' fees arising from such services and all
expenses, costs and charges in any way or respect arising in connection
therewith or relating thereto shall be jointly and severally paid by the
Guarantors to the Agent, on demand.
8. WAIVER; SUBROGATION.
(a) Each Guarantor hereby waives notice of the following events or
occurrences: (i) the Agent's acceptance of this Guaranty Agreement; (ii) the
Lenders' heretofore, now or from time to time hereafter loaning monies or giving
or extending credit to or for the benefit of the Borrower, whether pursuant to
the Credit Agreements or the Notes or any amendments, modifications, or
additions thereto, or alterations, substitutions, refinancings or extensions
thereof; (iii) the Agent, the Lenders or the Borrower heretofore, now or at any
time or times hereafter, obtaining, amending, substituting for, releasing,
waiving or modifying the Credit Agreements, the Notes or any other Loan
Documents; (iv) presentment, demand, notices of default, non-payment, partial
payment and protest; (v) the Agent or the Lenders heretofore, now or at any time
or times hereafter granting to the Borrower (or any other party liable to the
Lenders on account of the Borrower's Liabilities) any indulgence or extensions
of time of payment of the Borrower's Liabilities; and (vi) the Agent or the
Lenders heretofore, now or at any time or times hereafter accepting from the
Borrower or any other person, any partial payment or payments on account of the
Borrower's Liabilities or any collateral securing the payment thereof or the
Agent settling, subordinating, compromising, discharging or releasing the same.
Each Guarantor agrees that the Agent and each Lender may heretofore, now or at
any time or times hereafter do any or all of the foregoing events or occurrences
in such manner, upon such terms and at such times as the Agent and each Lender,
in its sole and absolute discretion, deems advisable, without in any way or
respect impairing, affecting, reducing or releasing such Guarantor from the
Guarantor's Obligations, and each Guarantor hereby consents to each and all of
the foregoing events or occurrences.
(b) Each Guarantor hereby agrees that payment or performance by such
Guarantor of the Guarantor's Obligations under this Guaranty Agreement may be
enforced by the Agent on behalf of the Lenders upon demand by the Agent to such
Guarantor without the Agent being required, each Guarantor expressly waiving any
right it may have to require the Agent, to (i) prosecute collection or seek to
enforce or resort to any remedies against the Borrower or any other guarantor of
the Borrower's Liabilities, IT BEING EXPRESSLY UNDERSTOOD, ACKNOWLEDGED AND
AGREED TO BY EACH GUARANTOR THAT DEMAND UNDER THIS GUARANTY AGREEMENT MAY BE
MADE BY THE AGENT, AND THE PROVISIONS
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<PAGE> 133
HEREOF ENFORCED BY THE AGENT, EFFECTIVE AS OF THE FIRST DATE ANY EVENT OF
DEFAULT OCCURS AND IS CONTINUING UNDER EITHER CREDIT AGREEMENT, or (ii) seek to
enforce or resort to any remedies with respect to any security interests, Liens
or encumbrances granted to the Agent by the Borrower or any other Person on
account of the Borrower's Liabilities or any guaranty thereof. Neither the Agent
nor any Lender shall have any obligation to protect, secure or insure any of the
foregoing security interests, Liens or encumbrances on the properties or
interests in properties subject thereto. The Guaran- tor's Obligations shall in
no way be impaired, affected, reduced, or released by reason of the Agent's or
any Lender's failure or delay to do or take any of the acts, actions or things
described in this Guaranty Agreement including, without limiting the generality
of the foregoing, those acts, actions and things described in this Section 8.
(c) Each Guarantor further agrees with respect to this Guaranty
Agreement that such Guarantor shall have no right of subrogation, reimbursement
or indemnity whatsoever, nor any right of recourse to security for the
Borrower's Liabilities. In addition, each Guarantor hereby waives and renounces
any and all rights it has or may have for subrogation, indemnity, reimbursement
or contribution against the Borrower for amounts paid under this Guaranty
Agreement. This waiver is expressly intended to prevent the existence of any
claim in respect to such reimbursement by any Guarantor against the estate of
the Borrower within the meaning of Section 101 of the United States Bankruptcy
Code, and to prevent each Guarantor from constituting a creditor of the Borrower
in respect of such reimbursement within the meaning of Section 547(b) of the
United States Bankruptcy Code in the event of a subsequent case involving the
Borrower.
9. EFFECTIVENESS; ENFORCEABILITY. This Guaranty Agreement shall be
effective as of the date of the initial Advance under either Credit Agreement,
whichever shall be the earlier to occur, and shall continue in full force and
effect until the Borrower's Liabilities are finally and fully paid, performed
and discharged, the Lenders are no longer committed to make additional loans and
advances to the Borrower or to issue letters of credit on behalf of the Borrower
under the Credit Agreements, and the Agent gives each Guarantor written notice
of that fact at each Guarantor's address on the signature pages hereto. This
Guaranty Agreement shall be binding upon and inure to the benefit of each
Guarantor, the Agent and the Lenders and their respective successors and assigns
and heirs. Notwithstanding the foregoing, no Guarantor may, without the prior
written consent of the Agent, assign any rights, powers, duties or obligations
hereunder. Any claim or claims that the Agent and the Lenders may at any time or
times hereafter have against any Guarantor under this Guaranty Agreement may be
asserted by the Agent or any Lender by written notice directed to any one or
more or all of the Guarantors at the address specified below. Each Guarantor
warrants and represents to the Agent for the benefit of the Agent and the
Lenders that it is duly authorized to execute, deliver and perform
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this Guaranty Agreement, that this Guaranty Agreement is legal, valid, binding
and enforceable against such Guarantor in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles; and that such Guarantor's
execution, delivery and performance of this Guaranty Agreement do not violate or
constitute a breach of any documents of corporate governance or agreement to
which such Guarantor is a party, or any applicable laws in each case, which
violation or breach could reasonably be expected to have a Material Adverse
Effect.
10. EXPENSES. Each Guarantor agrees to be liable for the payment of all
reasonable fees and expenses, including attorney's fees, incurred by the Agent
in connection with the negotiation, preparation or enforcement of this Guaranty
Agreement.
11. REINSTATEMENT. Each Guarantor agrees that this Guaranty Agreement
shall continue to be effective or be reinstated, as the case may be, at any time
payment received by the Agent under either Credit Agreement or this Guaranty
Agreement is rescinded or must be restored for any reason.
12. GOVERNING LAW.. THIS GUARANTY AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
13. COUNTERPARTS. This Guaranty Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall constitute one and
the same instrument.
14. RELIANCE. Each Guarantor represents and warrants to the Agent, for
the benefit of the Agent and the Lenders, that: (a) such Guarantor has adequate
means to obtain from Borrower, on a continuing basis, information concerning
Borrower and Borrower's financial condition and affairs and has full and
complete access to Borrower's books and records; (b) such Guarantor is not
relying on the Agent or any Lender, its or their employees, agents or other
representatives, to provide such information, now or in the future; (c) such
Guarantor is executing this Guaranty Agreement freely and deliberately, and
understands the obligations and financial risk undertaken by providing this
Guaranty; (d) such Guarantor has relied solely on the Guarantor's own
independent investigation, appraisal and analysis of Borrower and Borrower's
financial condition and affairs in deciding to provide this Guaranty and is
fully aware of the same; and (e) such Guarantor has not depended or relied on
the Agent or any Lender, its or their employees, agents or representatives, for
any information whatsoever concerning Borrower or Borrower's financial condition
and affairs or other matters material to such Guarantor's decision to provide
this Guaranty or for any counselling, guidance, or special consideration or any
promise therefor with respect to such decision. Each Guarantor agrees that
neither the Agent nor any Lender has any
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duty or responsibility whatsoever, now or in the future, to provide to any
Guarantor any information concerning Borrower or Borrower's financial condition
and affairs and that, if such Guarantor receives any such information from the
Agent or any Lender, its or their employees, agents or other representatives,
such Guarantor will independently verify the information and will not rely on
the Agent or any Lender, its or their employees, agents or other
representatives, with respect to such information.
15. CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY TRIAL AND CERTAIN
DAMAGES.
(a) IN THE EVENT THAT ANY ACTION, SUIT OR OTHER PROCEEDING IS BROUGHT
AGAINST ANY GUARANTOR BY OR ON BEHALF OF THE LENDERS TO ENFORCE THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE PROVISIONS OF THIS GUARANTY AGREEMENT, INCLUDING
WITHOUT LIMITATION THE COLLECTION OF ANY AMOUNTS OWING HEREUNDER, EACH SUCH
GUARANTOR HEREBY IRREVOCABLY (I) CONSENTS TO THE EXERCISE OF JURISDICTION OVER
SUCH GUARANTOR AND ITS PROPERTY BY THE UNITED STATES DISTRICT COURT AND THE
COURTS OF THE STATE OF NEW YORK, AND (II) WAIVES ANY OBJECTION SUCH GUARANTOR
MIGHT NOW OR HEREAFTER HAVE OR ASSERT TO THE VENUE OF ANY SUCH PROCEEDING IN ANY
COURT DESCRIBED IN CLAUSE (I) ABOVE.
(b) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS.
(c) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN PARAGRAPH
(A) OF THIS SECTION 15 ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY OTHER DAMAGES THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
[SIGNATURES ON FOLLOWING PAGE.]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first written above.
GUARANTORS:
BRAWN OF CALIFORNIA, INC.
COMPANY STORE HOLDINGS, INC.
D. M. ADVERTISING, INC.
GUMP'S HOLDINGS, INC.
HANOVER CATALOG HOLDINGS, INC.
HANOVER DIRECT PENNSYLVANIA, INC.
HANOVER DIRECT VIRGINIA, INC.
HANOVER FULFILLMENT OF VIRGINIA,
INC.
HANOVER HOLDINGS INC.
HANOVER REALTY INC.
HANOVER VENTURES, INC.
HENRE, INC.
TW ACQUISITIONS INC.
AMERICAN DOWN & TEXTILE COMPANY
THE COMPANY FACTORY, INC.
THE COMPANY OFFICE, INC.
THE COMPANY STORE, INC.
SCANDIA DOWN CORPORATION
SKANDIA DOWN SALES, INC.
SOUTHERN CALIFORNIA COMFORT
CORPORATION
GUMP'S BY MAIL, INC.
GUMP'S CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER FINANCE CORPORATION
HANOVER LIST MANAGEMENT, INC.
YORK FULFILLMENT COMPANY, INC.
TWEEDS, INC.
TWEEDS OF VERMONT, INC.
H.H.B.K., INC.
BC CORPORATION OF TENNESSEE, INC.
H & H 1600 BROADWAY CORP.
By: _____________________________
Name:_____________________
Title:____________________
Address:__________________
__________________________
__________________________
__________________________
SIGNATURE PAGE 1 OF 2
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AGENT:
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION,as Agent for
the Lenders
By: _________________________________
Name:____________________________
Title:___________________________
Address:
NationsBank of North Carolina,
National Association
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
With a copy to:
NationsBank of North Carolina,
National Association
Corporate Banking
767 Fifth Avenue, 5th Floor
New York, New York 10153-0083
Attention: Mr. Christopher
C. Browder, Vice
President
SIGNATURE PAGE 2 OF 2
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EXHIBIT N
FORM OF SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is made as of October 12, 1994 by and
among NATIONSBANK OF NORTH CAROLINA, NATIONAL ASSOCIATION, a national banking
association, as Agent (the "Agent") for each of the lenders (the "Lenders") now
or hereafter party to the Credit Agreements (as defined below) (the Agent and
the Lenders, together with their transferees, successors and assigns,
collectively referred to herein as the "Senior Creditors"), SUN LIFE INSURANCE
COMPANY OF AMERICA, a Maryland insurance corporation (together with its
transferees, successors and assigns, "Sun Life", and together with the Indenture
Trustee (as defined below), individually and collectively, the "Junior
Creditor"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), and each
of the direct and indirect subsidiaries of Hanover executing a signature page
hereto. The Senior Creditors and Junior Creditor are sometimes collectively
referred to herein as "Creditors" and individually a "Creditor."
W I T N E S S E T H:
WHEREAS, Hanover (as successor to The Hanover Companies) has entered
into certain debt financing arrangements, pursuant to which Hanover has issued
and Junior Creditor has purchased from Hanover an aggregate of $20,000,000 in
principal amount of 9.25% Senior Subordinated Notes due August 1, 1998 (as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, exchanged, restated or replaced, the "Notes"); and
WHEREAS, payment of the obligations of Hanover to Junior Creditor under
the Notes has been guaranteed by the direct and indirect subsidiaries of Hanover
listed on Exhibit A annexed hereto (the "Subsidiary Guarantors") (such
guarantees of the Notes, collectively, the "Guarantees"); and
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Credit Facilities and Reimbursement Agreement of even date herewith among
the Agent, the Lenders and Hanover, to make available to Hanover a revolving
credit facility in the maximum principal amount at any time outstanding of
$60,000,000 (together with all schedules and exhibits thereto and as the same
may be amended, supplemented or restated from time to time, the "Credit
Facilities and Reimbursement Agreement," and collectively with all documents now
or hereafter delivered to the Agent by or on behalf of Hanover in connection
therewith, as the same may be amended, supplemented or restated from time to
time, the "Credit Facilities and Reimbursement Documents"); and
WHEREAS, the Agent and the Lenders have agreed, pursuant to the terms
of a Revolving Credit and Term Loan Agreement of even date herewith among the
Agent, the Lenders and Hanover, to make available to Hanover a revolving credit
facility in the maximum principal
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amount at any time outstanding of $20,000,000 (together with all schedules and
exhibits thereto and as the same may be amended, supplemented or restated from
time to time, the "Revolving Credit and Term Loan Agreement," and collectively
with all documents now or hereafter delivered to the Agent by or on behalf of
Hanover in connection therewith, as the same may be amended, supplemented or
restated from time to time, the "Revolving Credit and Term Loan Documents") (the
Credit Facilities and Reimbursement Documents and the Revolving Credit and Term
Loan Documents collectively referred to herein as the "Loan Documents"); and
WHEREAS, the Senior Creditors are unwilling to enter into the Loan
Documents and to make loans or advances or to issue letters of credit thereunder
unless the Junior Creditor enters into this Agreement to provide for the terms
and conditions of the subordination in favor of the Senior Creditors of the
obligations of Hanover to Junior Creditor in respect of the Junior Debt (as
defined below), and of any other persons now or hereafter obligated, as
borrower, guarantor or otherwise, in respect of all or any part of the Junior
Debt (Hanover and the Subsidiary Guarantors, together with any other persons so
obligated to Junior Creditor in respect of all or any part of the Junior Debt
and also obligated to Senior Creditor, as borrower, guarantor or otherwise, in
respect of all or any part of the obligations under the Loan Documents,
individually, an "Obligor" and, collectively, "Obligors") and related matters;
NOW THEREFORE, in consideration of the mutual benefits accruing to the
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used in this Subordination Agreement, the following terms shall have
the meanings ascribed to them below:
1.1 "Affiliate" shall have the meaning ascribed to such term in the
Credit Agreements.
1.2 "Agent" has the meaning specified in the preamble to this Agreement
and shall include any successor thereto or substitute therefor from time to time
acting in such capacity under the Credit Agreements or if there is no agent for
the Lenders thereunder, the holder or holders of a majority in aggregate
principal amount of indebtedness outstanding under the Credit Agreements.
1.3 "Borrowers" shall have the meaning ascribed to such term in the
Credit Agreements.
1.4 "Credit Agreements" means collectively the Credit Facilities and
Reimbursement Agreement and the Revolving Credit and Term Loan Agreement.
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1.5 "Indenture" shall mean that certain Indenture dated as of August
17, 1993, among The Horn & Hardart Company ("H&H"), Hanover, the Subsidiary
Guarantors and the Indenture Trustee, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.6 "Indenture Trustee" shall mean First Trust National Association, as
Trustee under the Indenture, any successor Trustee, and their respective
successors and assigns.
1.7 "Junior Creditor Agreements" shall mean, collectively, the Notes
(including any notes exchanged therefor), the Purchase Agreement dated on or
about the date hereof among H&H, Hanover, the Subsidiary Guarantors and Sun
Life, the Indenture, and all other agreements, documents and instruments now or
at any time hereafter executed and/or delivered by H&H, Hanover, the Subsidiary
Guarantors or any other person to, with or in favor of Junior Creditor in
connection therewith or related thereto, as all of the foregoing now exist or
may hereafter be amended, modified, supplemented, extended, renewed, exchanged,
restated or replaced.
1.8 "Junior Creditor Representative" shall mean the Indenture Trustee.
1.9 "Junior Debt" shall mean all of the following evidenced by or
arising under or in connection with the Notes or the other Junior Creditor
Agreements to the extent relating to the Notes or the debt evidenced thereby:
all loans, obligations, liabilities, letters of credit, credit facilities and
other indebtedness of any kind, nature and description owing by any Obligor to
Junior Creditor, including principal, interest, charges, fees, premiums,
indemnities and expenses, whether as principal, surety, endorser, guarantor or
otherwise, whether now existing or hereafter arising, whether arising after the
commencement of any case with respect to any Obligor under the U.S. Bankruptcy
Code or any similar statute, whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, original, renewed or extended, and whether
arising directly or howsoever acquired by Junior Creditor including from any
other person outright, conditionally or as collateral security, by assignment,
merger with any other person, participations or interests of Junior Creditor in
the obligations of any Obligor to others, or by assumption or operation of law,
or by way of a claim or right of contribution, exoneration, reimbursement,
indemnification, subrogation or otherwise, however evidenced, and shall also
include all amounts chargeable to any Obligor under the Junior Creditor
Agreements or in connection with any of the foregoing. Notwithstanding the
foregoing, the obligations, liabilities and indebtedness to Junior Creditor in
respect of the Notes owed by any person not an Obligor as defined herein, shall
not be part of the Junior Debt for purposes hereof.
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1.10 "Lien" shall mean any pledge, hypothecation, assignment, deposit
arrangement, right of setoff, security interest, encumbrance, mortgage, deed of
trust (including, but not limited to, easements, rights of way and the like),
lien (statutory or other), security agreement or transfer intended as security,
including, without limitation, any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease or any financing lease
having substantially the same economic effect as any of the foregoing.
1.11 "Payment Block Notice" shall have the meaning set forth in Section
3.2 hereof.
1.12 "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.
1.13 "Required Lenders" shall have the meaning assigned thereto in each
of the Credit Agreements.
1.14 "Senior Debt" shall mean any and all loans, obligations,
liabilities, letters of credit, credit facilities and indebtedness of every
kind, nature and description owing by any Obligor to Senior Creditors or their
participants, including principal, interest, charges, fees, premiums,
indemnities and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, in each case arising under the Loan Documents,
whether now existing or hereafter arising, whether arising before, during or
after the initial or any renewal term of the Loan Documents, whether direct or
indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, original, renewed
or extended and whether arising directly or howsoever acquired by Senior
Creditors under the Loan Documents or by assumption or operation of law, or by
way of any claim or right of contribution, indemnification, exoneration,
reimbursement, subrogation or otherwise and shall also include all amounts
chargeable to any Obligor under the Loan Documents or in connection with any of
the foregoing.
1.15 "Standstill Period" shall mean the period beginning on the earlier
of the date that Junior Creditor has received a Payment Block Notice or the date
that Junior Creditor has given written notice to Senior Creditor that an event
of default under the Junior Creditor Agreements has occurred and specifying such
event of default and ending 180 days after such date; provided, however, that
the aggregate number of days that any one or more Standstill Periods shall be in
effect may not exceed 180 days in any consecutive 365 day period; and provided,
further, that no event of default under the Loan Documents which (i) is
specified in the written notice under this Section commencing a Standstill
Period and (ii) is subsequently waived by the Required Lenders shall be or be
made the basis for the
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commencement of a subsequent Standstill Period unless such event of default
shall be waived by the Required Lenders as to the specific circumstances giving
rise to such event of default for a period of not less than 365 days following
the occurrence of such event of default.
1.16 "Triggering Default" shall mean the occurrence or existence of any
event of default in respect of the Junior Debt under the Junior Creditor
Agreements, which remains uncured or unwaived and continues beyond the
expiration of the Standstill Period hereunder with respect to such event of
default.
1.17 References. All terms defined in the Uniform Commercial Code as in
effect in the State of New York, unless otherwise defined herein, shall have the
meanings set forth therein. All references to any term in the plural shall
include the singular and all references to any term in the singular shall
include the plural. Use of the term "or" shall mean "and/or" unless the context
otherwise clearly requires. Unless the context otherwise clearly requires,
references to "herein" or "hereunder" shall mean this entire Subordination
Agreement, not only the particular provision in which such reference appears.
2. RESTRICTIONS OF JUNIOR CREDITOR RIGHTS. Notwithstanding any right or
remedy available to Junior Creditor under any of the Junior Creditor Agreements,
applicable law or otherwise, Junior Creditor may accelerate the Junior Debt, but
shall not, subject to Section 3.5, directly or indirectly take any of the
following actions until all of the Senior Debt has been indefeasibly paid and
satisfied:
(a) unless and until a Triggering Default has occurred, exercise
any of its rights or remedies (other than acceleration of the Junior Debt as
aforesaid) as against any Obligor or its property upon an event of default by
any Obligor under the Junior Creditor Agreements or otherwise, including,
without limitation, the termination of the Junior Creditor Agreements or the
commencement of suit for the enforcement of any provisions of the Junior
Creditor Agreements or for collection of the Junior Debt as against or from any
Obligor or its property;
(b) hold, seek to obtain or enforce any Lien in or upon any
collateral or any other property of any Obligor, except after a Triggering
Default has occurred; or
(c) unless and until a Triggering Default has occurred, commence,
any administrative, legal or equitable action or proceeding against any Obligor
or its properties seeking any reorganization, arrangement, composition,
readjustment, liquidation, bankruptcy or any other action involving the
readjustment of all or any part of any Obligor's obligations, or other similar
relief under the U.S. Bankruptcy Code or any present or future statute, law or
regulation relative to any Obligor or its properties or any proceedings for
voluntary liquidation, dissolution or other winding
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up of any Obligor's businesses or the appointment of any trustee, receiver or
liquidator for any Obligor or any part of its properties or any assignment for
the benefit of creditors or any marshalling of assets of any Obligor.
3. SUBORDINATION OF JUNIOR DEBT
3.1 Subordination. Except as specifically set forth below, Junior
Creditor hereby subordinates its right to payment and satisfaction of the Junior
Debt, and the payment thereof, directly or indirectly, by any means whatsoever,
is deferred and subordinated, to the prior indefeasible payment and satisfaction
in full of all Senior Debt.
3.2 Permitted Payments.
(a) Subject to all the other terms and conditions of this
Subordination Agreement, Senior Creditors hereby agree that, unless and until
the Agent has notified the Junior Creditor Representative of the occurrence of a
default or an event of default or the occurrence of an event or existence of a
condition which does, or would, with notice or lapse of time or both constitute
an event of default under the Loan Documents, and in each case specifying such
event (such notice a "Payment Block Notice"), Hanover may make and Junior
Creditor may receive and retain from Hanover (i) payments of interest when due
as regularly scheduled, (ii) payment of principal when due at scheduled maturity
on August 1, 1998 (or later), in each case under clauses (i) and (ii) in
accordance with the terms of the Notes and the Indenture as in effect on the
date hereof (but not any other prepayment of principal or interest or other
payment of principal or any payment pursuant to acceleration or claims of breach
or any payment to acquire any Junior Debt or otherwise), and (iii) reimbursement
to Junior Creditor, prior to an event of default under any Junior Debt, for
out-of-pocket expenses payable by Hanover pursuant to the Junior Creditor
Agreements. After a Payment Block Notice is given, no payment otherwise
permitted to be made to or received in respect of the Junior Debt may be made to
or received by Junior Creditor until the expiration of the Standstill Period
hereunder.
(b) No event of default which existed or was continuing under the
Loan Documents on the date any Payment Block Notice is given, and which is
subsequently waived by the Agent, shall be or be made the basis for the giving
of a subsequent Payment Block Notice, unless such event of default shall be
waived by the Agent as to the specific circumstances giving rise to such event
of default for a period of not less than 365 days following the occurrence of
such event of default.
(c) The Agent may give any number of Payment Block Notices
hereunder, provided that the aggregate number of days that any one or more
Standstill Period(s) hereunder shall be in effect shall not exceed 180 days
during any 365 consecutive days, irrespective of the
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number of defaults with respect to the Loan Documents; and provided further
that, upon expiration or rescission of such Standstill Period, Junior Creditor
must receive payment of all regularly scheduled payments of interest and, if
applicable, principal payments described in clause (ii) of Section 3.2(a) which
have become due (on an unaccelerated basis, whether or not there has been an
acceleration of any Junior Debt), plus interest on such overdue payments as
provided in the Indenture, before a subsequent Payment Block Notice may be
given.
3.3 Distributions. In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of any Obligor or the proceeds
thereof to the creditors of any Obligor or readjustment of the obligations and
indebtedness of any Obligor, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors, marshalling
of assets of any Obligor or any other action or proceeding involving the
readjustment of all or any part of the obligations of any Obligor or the
application of the assets of any Obligor to the payment or liquidation thereof,
or upon the dissolution or other winding up of any Obligor's business, or upon
the sale of all or substantially all of the assets of any Obligor then, and in
any such event, Junior Creditor agrees that:
(a) Senior Creditors shall first receive indefeasible payment in
full in cash of all of the Senior Debt prior to the payment of all or any part
of the Junior Debt, and
(b) Until the Senior Debt is paid in full as provided in clause
(a) above, Senior Creditors shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, securities or other
property which may be payable or deliverable in respect of any or all of the
Junior Debt; provided, however, that notwithstanding clauses (a) and (b) of this
Section 3.3, Junior Creditor may receive shares of stock and/or debt securities
issued by an Obligor in connection with any liquidation, dissolution or
bankruptcy case or proceeding that are subordinated to the remaining Senior Debt
and any stock or debt securities issued to Senior Creditors at least to the same
extent and pursuant to the same or more stringent terms as is the Junior Debt,
as evidenced by a supplement hereto, executed by the Senior Creditors and the
Junior Creditor representative.
3.4 Payments Received by Junior Creditor. Except for permitted
payments received by Junior Creditor as provided in Section 3.2 or through
permitted enforcement of the Junior Debt as provided in Sections 2 and 3.5
hereof, or distributions permitted under Section 3.3 hereof, if any payment or
distribution or security or instrument or proceeds thereof is received by the
Junior Creditor in respect of the Junior Debt, or if any sums are recovered in
respect of the Junior Debt upon enforcement not permitted pursuant to Sections 2
and 3.5 hereof, Junior Creditor shall receive and hold the
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same in trust, as trustee, for the benefit of Senior Creditors. Junior Creditor
shall segregate each such payment, distribution or recovery from all other funds
and property of Junior Creditor and shall forthwith deliver such payment,
distribution or recovery to the Agent for the benefit of Senior Creditors
(together with any endorsement or assignment of Junior Creditor where
necessary), for application to any of the Senior Debt. In the event of the
failure of the Junior Creditor to make any such endorsement or assignment to the
Agent, the Agent, or any of its officers or employees, is hereby irrevocably
authorized on behalf of Junior Creditor to make the same.
3.5 Permitted Enforcement. If any event of default under the Junior
Creditor Agreements has occurred and is continuing, Junior Creditor may (i)
accelerate such portion of the Junior Debt as is in default or any other amounts
as may otherwise be accelerated pursuant to the terms of the Junior Creditor
Agreements, and/or (ii) upon the expiration of any Standstill Period arising
with respect to such event of default, commence and prosecute judicial
enforcement of the Junior Creditor Agreements and collection of the Junior Debt
as against any Obligor or take other actions otherwise prohibited under Section
2(a), (b) or (c). Upon the expiration of such Standstill Period, Junior Creditor
may receive and retain any payments owing (by acceleration or otherwise) to
Junior Creditor.
3.6 Instrument Legend and Notation.
(a) Each of the Notes and any other instruments at any time
evidencing any Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinated in right of payment to the Senior Debt and is subject to the terms
and conditions of this Subordination Agreement; and after being so marked
certified copies thereof shall be delivered to the Agent.
(b) In the event any legend or endorsement is omitted, the
Agent or any of its officers or employees, are hereby irrevocably authorized on
behalf of Junior Creditor to make the same. No specific legend, further
assignment or endorsement or delivery of notes, guarantees or instruments shall
be necessary to subject any Junior Debt to the subordination thereof contained
in this Subordination Agreement.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 Additional Covenants. Junior Creditor agrees in favor of Senior
Creditors that until all Senior Debt has been indefeasibly paid and satisfied in
full:
(a) except as specifically set forth in Sections 3.2, 3.3 and
3.5 above, Junior Creditor shall not, directly or indirectly, accept or receive
any payment of principal or interest or expenses or any prepayment or other
payment of principal or any payment
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pursuant to acceleration or claims of breach or any payment to acquire Junior
Debt or otherwise in respect of any Junior Debt; and
(b) Junior Creditor shall not, directly or indirectly, accept
or receive from any Obligor any loan, gift or, except as permitted herein,
distribution of assets to Junior Creditor, and Junior Creditor shall not accept
or hold any guaranties for the Junior Debt except the Guarantees of the
Subsidiary Guarantors whether now existing or as contemplated by the Junior
Creditor Agreements as in effect on the date hereof, and shall not hold or
acquire any Lien upon the assets of any Obligor, except any Lien held and
obtained to the extent permitted under the exception contained in Section 2(b)
and subject to the enforcement restrictions of Section 2(b).
4.2 Additional Representations and Warranties. Junior Creditor
represents and warrants to Senior Creditors that:
(a) as of the date hereof, the total indebtedness owing by
Hanover to Junior Creditor in respect of the debt evidenced by the Notes and by
the Subsidiary Guarantors as guarantors thereof, is in the aggregate principal
amount of TWENTY MILLION ($20,000,000) DOLLARS, all of which is presently
unsecured.
(b) as of the date hereof, no default or event of default, or
event or condition which with notice or passage of time or both would constitute
a default or an event of default, exists or has occurred under the Junior
Creditor Agreements;
(c) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(d) none of the rights of Junior Creditor in and to the Junior
Debt are subject to any lien, security interest, financing statements,
subordination, assignment or other claim, except in favor of Senior Creditors;
(e) true, correct and complete copies of all Junior Creditor
Agreements in effect as of the date hereof have been furnished to the Agent;
(f) the execution, delivery and performance of this Agreement
is within the corporate powers of Junior Creditor, has been duly authorized by
all necessary corporate action of Junior Creditor, and does not contravene any
law, any provision of the certificate of incorporation or other charter document
or the by-laws of Junior Creditor or any agreement to which Junior Creditor is a
party or by which it or its properties are bound; and
(g) this Agreement constitutes the legal, valid and binding
obligations of Junior Creditor, enforceable in accordance with its terms.
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4.3 Waivers. Notice of acceptance hereof, the making of loans, advances
and extensions of credit or other financial accommodations to, and the incurring
of any expenses by or in respect of, any Obligor or any other subordinate
creditor, by Senior Creditors, and presentment, demand, protest, notice of
protest, notice of nonpayment or default and all other notices to which Junior
Creditor and any Obligor are or may be entitled are hereby waived (except to the
extent, if any, expressly provided for herein). Junior Creditor also waives
notice of (a) any amendment, modification, supplement, renewal, restatement or
extensions of the Loan Documents or any collateral, or of the time of payment
of, or increase or decrease in the amount of, any of the Senior Debt, (b) the
taking, exchange, surrender and releasing of collateral or guarantees now or at
any time held by or available to Senior Creditors for the Senior Debt or any
other person at any time liable for or in respect of the Senior Debt, (c) the
exercise of, or refraining from the exercise of any right against any Obligor or
any collateral, (d) the settlement, compromise or release of, or the waiver of
any default with respect to, any of the Senior Debt, and/or (e) Senior
Creditors' election, in any proceeding instituted under the U.S. Bankruptcy Code
of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. None of
the foregoing shall, in any manner, affect the terms hereof or impair the
obligations of Junior Creditor hereunder or give rise to any claim by Junior
Creditor against Senior Creditors, whether or not any of the foregoing are or
purport to be restricted in any manner under the terms of the Junior Creditor
Agreements. All of the Senior Debt shall be deemed to have been made or incurred
in reliance upon this Subordination Agreement. Junior Creditor hereby agrees
that all payments received by Senior Creditors may be applied, reversed, and
reapplied, in whole or in part, to any of the Senior Debt, as Senior Creditors,
in their discretion, deem appropriate.
4.4 Subrogation. After the full and indefeasible payment and
satisfaction of all Senior Debt, and after all of the Loan Documents have been
terminated, Junior Creditor shall be subrogated to the rights of the holders of
Senior Debt to receive distributions applicable to the Senior Debt to the extent
that distributions otherwise payable to Junior Creditor have been applied to
payment of Senior Debt, and any such distributions otherwise payable to Junior
Creditor and applied to Senior Debt shall not, as between Hanover and Junior
Creditor, constitute a payment by Hanover of Senior Debt.
4.5 Information Concerning Obligors.
(a) Junior Creditor hereby assumes sole responsibility for keeping
itself informed of the financial condition of Hanover, any and all endorsers and
any and all guarantors of the Junior Debt and any other Obligor, and of all
other circumstances bearing upon the risk of nonpayment of the Senior Debt
and/or the Junior Debt that diligent inquiry would reveal, and Junior Creditor
hereby agrees that Senior Creditors shall have no duty to advise Junior Creditor
of
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information known to Senior Creditors regarding such condition or any such
circumstances.
(b) In the event Senior Creditors, in their discretion, undertake,
at any time or from time to time, to provide any such information to Junior
Creditor, Senior Creditors shall be under no obligation (i) to provide any such
information to the Junior Creditor on any subsequent occasion or (ii) to
undertake any investigation and shall be under no obligation to disclose any
information obtained in any investigation, routine or otherwise.
5. MISCELLANEOUS
5.1 Amendments. Any waiver, permit, consent or approval by a Creditor
of or under any provision, condition or covenant to this Subordination Agreement
must be in writing executed by such Creditor, or its successors and assigns, and
shall be effective only to the extent it is set forth in such signed writing and
as to the specific facts or circumstances covered thereby. Any amendment of this
Subordination Agreement must be in writing and signed by each of the parties to
be bound thereby. Execution of any amendment by the Junior Creditor
Representative shall bind the Junior Creditor and its successors and assigns,
and shall be effective for any Junior Creditor.
5.2 Successors and Assigns.
(a) This Subordination Agreement shall be binding upon the parties
hereto and their respective successors and assigns and shall inure to the
benefit of each of the Creditors and its respective successors, participants and
assigns.
(b) Senior Creditors reserve the right to grant participations in,
or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and any collateral from time to time securing same.
5.3 Insolvency. This Subordination Agreement shall be applicable both
before and after the filing of any petition by or against any Obligor under the
U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof,
and all references herein to any Obligor shall be deemed to apply to a trustee
for any Obligor as debtor and debtor-in-possession. The relative rights of
Senior Creditors and Junior Creditor to payment of the Senior Debt and the
Junior Debt, respectively, and in or to any distributions from or in respect of
any Obligor or any collateral or proceeds of collateral, shall continue after
the filing thereof on the same basis as prior to the date of the petition.
5.4 Notices.
(a) All notices, requests and demands to or upon the respective
parties hereto shall be deemed duly given, made or
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received if in writing and: if by hand, immediately upon sending; if by Federal
Express, Express Mail or any other overnight delivery service, one (1) day after
dispatch; and if mailed by certified mail, return receipt requested, five (5)
days after mailing to the parties at their addresses set forth below (or to such
other addresses as the parties may designate in accordance with the provisions
of this Section 5.4:
To the Senior
Creditors: NationsBank of North Carolina, National
Association, as Agent
NationsBank Plaza, NC 1002-06-19
6th Floor
Charlotte, North Carolina 28255
Attention: Ms. Joyce Ruppe,
Agency Services
with a copy to: NationsBank of North Carolina, National
Association, as Agent
Corporate Banking
767 Fifth Avenue, 5th Floor
New York, New York 10153-0083
Attention: Mr. Christopher C. Browder,
Vice President
To any Junior
Creditor or to
the Junior
Creditor
Representative: First Trust National Association
180 East Fifth Street
P.O. Box 64111
St. Paul, Minnesota 55164
Attention: Mr. Frank P. Leslie, III
(b) A Creditor may change the address(es) to which all notices,
requests and other communications are to be sent by giving ten (10) days written
notice of such address change to the other Creditor in conformity with this
Section 5.4, but such change shall not be effective until notice of such change
has been received by the other Creditor.
5.5 Counterparts. This Subordination Agreement may be executed in any
number of counterparts, each of which shall be an original with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument.
5.6 Governing Law. The validity, construction and effect of this
Subordination Agreement shall be governed by the laws of the
State of New York.
5.7 Consent to Jurisdiction; Waiver of Jury Trial. Each of Junior
Creditor and Senior Creditors hereby irrevocably consents to
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<PAGE> 150
the non-exclusive jurisdiction of the Supreme Court of the State of New York and
the United States District Court for the Southern District of New York and
waives trial by jury in any action or proceeding with respect to this
Subordination Agreement or any matter directly or indirectly arising out of or
relating to their financing arrangements with any Obligor.
5.8 Complete Agreement. This written Subordination Agreement is
intended by the parties as a final expression of their agreement and is intended
as a complete statement of the terms and conditions of their agreement.
5.9 No Third Parties Benefitted. This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person, including any other creditor or
creditor's representative of any Obligor shall have any right, benefit, priority
or interest under, or because of the existence of, this Subordination Agreement.
5.10 Disclosures, Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of each Obligor, and neither Creditor shall have any obligation or
duty to disclose any such information to the other Creditor. Except as expressly
set forth in this Subordination Agreement, the parties hereto have not otherwise
made to each other nor do they hereby make to each other any warranties, express
or implied, nor do they assume any liability to each other with respect to: (a)
the enforceability, validity, value or collectibility of any of the Junior Debt
or Senior Debt or any guarantee or security which may have been granted to any
of them in connection therewith, or (b) any other matter except as expressly set
forth in this Subordination Agreement.
5.11 Term. This Subordination Agreement is a continuing agreement and
shall remain in full force and effect until the indefeasible satisfaction in
full of all Senior Debt and the termination of the Loan Documents.
5.12 Severability. If any provision of this Subordination Agreement is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Subordination Agreement as a whole but this Subordination
Agreement 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.
5.13 Senior Creditors' Rights under Indenture. The rights and benefits
afforded the Senior Creditors under this Subordination Agreement shall be in
addition to any and all rights and benefits which the Senior Creditors may have
under the terms of the Indenture. The terms and provisions of the Indenture
shall in no way limit or impair the rights and benefits of the Senior Creditors
hereunder or
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limit or otherwise modify the obligations of, or restrictions upon, Junior
Creditor hereunder.
5.14 Indenture Trustee's Compensation Not Prejudiced. Nothing in this
Subordination Agreement shall restrict the rights of the Indenture Trustee to
sue upon its claims for compensation under the Indenture.
5.15 No Fiduciary Duty to Senior Creditors. Indenture Trustee, by its
execution of the Acknowledgment and Agreement hereto, undertakes to perform or
observe and be bound by only the terms and provisions hereof applicable to it or
applicable to the holders of Junior Debt on whose behalf the Indenture Trustee
is acting in that capacity under the Indenture. The Indenture Trustee shall not
be deemed to owe any fiduciary duty to Senior Creditors.
5.16 Application of Monies Deposited with Trustee. Nothing in this
Subordination Agreement shall (i) prevent the application by the Indenture
Trustee or any paying agent of any monies or the proceeds of U.S. government
obligations received from Hanover at a time when such payment and receipt
thereof by Junior Creditor would not have been prohibited hereunder, or (ii)
prevent the application by the Indenture Trustee or any paying agent of any
monies or the proceeds of any U.S. government obligations deposited by Hanover
under the Indenture to the payment of or on account of the principal of or
interest on the Notes if, at the time of such deposit, payment of such amounts
by Hanover under the Notes, and the receipt thereof by Junior Creditor, would
not have been prohibited by this Subordination Agreement.
5.17 Headings. The headings used herein are for convenience only and do
not constitute matters to be considered in interpreting this Subordination
Agreement.
5.18 Execution by Subsidiaries. By its execution hereby, each of the
undersigned Subsidiaries acknowledges and agrees to be bound by the terms and
provisions hereof.
[Signatures on following pages]
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IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed as of the day and year first above written.
Junior Creditor:
SUN LIFE INSURANCE COMPANY OF AMERICA
By:_______________________________
Name:_________________________
Title:________________________
Senior Creditors:
NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION, as Agent for
the Lenders
By: ______________________________
Name:________________________
Title:_______________________
Signature Page 1 of 2
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<PAGE> 153
HANOVER DIRECT,INC.
By:______________________________
Name: _______________________
Title: _______________________
Subsidiary Guarantors:
BRAWN OF CALIFORNIA, INC.
COMPANY STORE HOLDINGS, INC.
D. M. ADVERTISING, INC.
GUMP'S HOLDINGS, INC.
HANOVER CATALOG HOLDINGS, INC.
HANOVER DIRECT NEW JERSEY, INC.
HANOVER DIRECT PENNSYLVANIA, INC.
HANOVER DIRECT VIRGINIA, INC.
HANOVER FULFILLMENT OF VIRGINIA,
INC.
HANOVER HOLDINGS INC.
HANOVER REALTY INC.
HANOVER VENTURES, INC.
HENRE, INC.
TW ACQUISITIONS INC.
AMERICAN DOWN & TEXTILE COMPANY
THE COMPANY FACTORY, INC.
THE COMPANY OFFICE, INC.
THE COMPANY STORE, INC.
SCANDIA DOWN CORPORATION
SKANDIA DOWN SALES, INC.
SOUTHERN CALIFORNIA COMFORT
CORPORATION
GUMP'S BY MAIL, INC.
GUMP'S CORP.
HANOVER DIRECT MAIL MARKETING, INC.
HANOVER FINANCE CORPORATION
HANOVER FINANCING COMPANY, INC.
HANOVER LIST MANAGEMENT, INC.
YORK FULFILLMENT COMPANY, INC.
TWEEDS, INC.
TWEEDS OF VERMONT, INC.
H.H.B.K., INC.
BC CORPORATION OF TENNESSEE, INC.
H&H 1600 BROADWAY CORP.
HANOVER SYNDICATION CORP.
By:______________________________
Name:________________________
Title:_______________________
Signature page 2 of 2
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<PAGE> 154
ACKNOWLEDGMENT AND AGREEMENT BY INDENTURE TRUSTEE
The undersigned Trustee under the Indenture referred to in the
foregoing Subordination Agreement hereby acknowledges and consents to the
foregoing Subordination Agreement to the extent its consent is or may be
required. The undersigned agrees that it will be bound by the provisions of the
Subordination Agreement as applicable to the undersigned as a Junior Creditor
(as defined in the Subordination Agreement) in its capacity as Trustee under the
Indenture.
FIRST TRUST NATIONAL ASSOCIATION,
as Indenture Trustee
By:______________________________
Name: ________________________
Title: ______________________
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<PAGE> 155
EXHIBIT A
TO
SUBORDINATION AGREEMENT
Subsidiary Guarantors
Hanover Direct Fulfillment, Inc.
Brawn of California, Inc.
Gump's By Mail, Inc.
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.
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<PAGE> 156
EXHIBIT O
UPFRONT FEES
The Upfront Fee payable by the Borrower on the Closing Date to the
Agent for the benefit of each Lender shall be equal to the sum of a percentage
of each Lender's Revolving Credit Commitment as in effect on the Closing Date as
follows:
<TABLE>
<CAPTION>
Upfront Fee
Revolving Credit Commitment Percentage
--------------------------- ----------
<S> <C>
less than $3,750,000 .100%
equal to or greater than .150%
$3,750,000 but less than $5,000,000
equal to or greater than $5,000,000 .200%
</TABLE>
O-1
<PAGE> 157
Schedule 5.01(c)
Guarantors excluded from
Solvency Representation and Warranty
<PAGE> 158
Schedule 5.01(d)
Subsidiaries
<PAGE> 159
Schedule 5.01(e)
Investments in Other Persons
<PAGE> 160
Schedule 5.01(f)
Contingent Liabilities
<PAGE> 161
Schedule 5.01(g)
Liens
<PAGE> 162
Schedule 5.01(h)
Tax Matters
<PAGE> 163
Schedule 5.01(j)
Litigation
<PAGE> 164
Schedule 5.01(m)
Patents
<PAGE> 165
Schedule 5.01(o)
Consents
<PAGE> 166
Schedule 5.01(r)
Hazardous Materials
<PAGE> 167
Schedule 6.05
Insurance
<PAGE> 168
Schedule 7.03(i)
Existing Indebtedness
<PAGE> 169
Schedule 7.03(xi)
Capital Leases
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
COMPANY INCORPORATION
------- -------------
<S> <C>
Aegis Safety Holdings, Inc. Delaware
American Down & Textile Company Wisconsin
Brawn of California, Inc. California
Company Store Holdings, Inc. Delaware
Gump's By Mail, Inc. Delaware
Gump's Corp. California
Hanover Direct Pennsylvania, Inc. Pennsylvania
Hanover Direct Virginia Inc. Delaware
Hanover Ventures, Inc. Pennsylvania
Henre, Inc. Delaware
LWI Holdings, Inc. Delaware
Scandia Down Corporation Delaware
Software Investment Corp. Delaware
Tweeds, Inc. Delaware
</TABLE>
<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, 33-58758, 33-52687, 33-52059, 33-52061,
2-94286 and 2-92383.
ARTHUR ANDERSEN LLP
New York, New York
February 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER
DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY, EXCEPT FOR GROSS ACCOUNTS RECEIVABLE AND THE
ALLOWANCE FOR DOUBTFUL ACCOUNTS, BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 24,053
<SECURITIES> 0
<RECEIVABLES> 27,977
<ALLOWANCES> (2,730)
<INVENTORY> 83,653
<CURRENT-ASSETS> 172,536
<PP&E> 62,179
<DEPRECIATION> (19,708)
<TOTAL-ASSETS> 262,246
<CURRENT-LIABILITIES> 114,035
<BONDS> 37,103
<COMMON> 61,985
1,589
0
<OTHER-SE> 46,151
<TOTAL-LIABILITY-AND-EQUITY> 262,246
<SALES> 768,884
<TOTAL-REVENUES> 768,884
<CGS> 486,477
<TOTAL-COSTS> 752,909
<OTHER-EXPENSES> 1,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,544
<INCOME-PRETAX> 11,329
<INCOME-TAX> (3,509)
<INCOME-CONTINUING> 14,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,838
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
