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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
For the fiscal year ended December 28, 1996
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 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 24, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $38,280,286 (based on the closing price of
the Common Stock on the American Stock Exchange on March 24, 1997).
As of March 24, 1997, the registrant had 144,318,452 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A is incorporated into items 10, 11, 12 and 13 of Part III of this
Form 10-K.
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P A R T I
ITEM 1. BUSINESS
GENERAL
Hanover Direct, Inc. (the "Company") is a leading direct specialty
retailer that markets, via a portfolio of branded specialty catalogs, home
fashions, general merchandise, men's and women's apparel and gifts. In December
1996, the Company regrouped its catalog titles so that all significant
decisions, including those regarding market positioning and strategy,
merchandising, circulation levels, catalog design, inventory management and cash
management, are made by six newly-created strategic business units -- Home
Fashions- Mid-Market, Home Fashions-Upscale, General Merchandise, Women's
Apparel, Men's Apparel and Gifts -- consisting of one or more catalog
operations. All of these business units will continue to utilize the Company's
central purchasing, telemarketing, fulfillment, distribution and administrative
functions.
The Company's home fashions-mid-market strategic business unit includes
Domestications(R), a leading specialty home textile catalog. The home
fashions-upscale group includes The Company Store(R), an upscale direct marketer
of down comforters and other down and related products for the home, and Kitchen
& Home(R), an upscale kitchen and home product catalog. The general merchandise
group includes Improvements(R), a do-it-yourself home improvements catalog, The
Safety Zone(R), a direct marketer of safety, prevention and protection products,
and Colonial Garden Kitchens(R), featuring work saving and lifestyle enhancing
items for the kitchen and home. The women's apparel group includes
Silhouettes(R), featuring everyday, workout, special occasion and career
fashions for larger sized women, and Tweeds(R), the European inspired women's
fashion catalog. The men's apparel group includes International Male(R),
offering unique men's fashions with an international flair, Austad's(R), a
direct marketer of golf equipment, apparel and accessories (the remaining
interest which the Company did not own was acquired in February 1996 in an asset
exchange), and Undergear(R), a leader in activewear, workout wear and fashion
underwear for men. The gifts group includes Gump's By Mail(R), a leading upscale
catalog of luxury gifts, and Gump's, a leading retail store based in San
Francisco.
The Company reviews its portfolio of catalogs as well as new
opportunities to acquire or develop catalogs from time to time. In 1995, the
Company discontinued six catalogs, One 212(R), Simply Tops(R), Essence By
Mail(R), Hanover House(R), Mature Wisdom(R), and Tapestry(R). No catalogs were
discontinued during the 1996 fiscal year. The Company is developing a new
version of the Hanover House(R) catalog which will be test mailed in the second
quarter of 1997.
During 1996, the Company mailed approximately 332.0 million catalogs.
The Company maintains a proprietary customer list currently containing
approximately 14 million names of customers (down from 18 million names in 1995
and 19 million names in 1994)
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who have made purchases from at least one of the Company's catalogs within the
past 36 months. Over 6 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 (down from approximately 7 million names in each of 1995 and 1994).
During 1996, the Company, in connection with its venture with Sears,
Roebuck and Co. ("Sears"), mailed several versions of its catalogs to the more
than 20 million mail order and credit card customers of Sears. Sears exercised
its right to terminate the venture in December 1996, but the Company and Sears
each retain the right to mail catalogs to customers of the venture.
In December 1996, the Company announced a plan to reduce its annual
operating costs on continuing catalogs by approximately $50 million starting
January 1, 1997. Under the plan, the Company's fixed overhead would be reduced
by approximately $16 million, its marketing expenditures would be reduced by
approximately $21 million and other operating costs would be reduced by
approximately $13 million. The fixed overhead reductions would result primarily
from the shutdown of excess telemarketing capacity in the Company's Roanoke,
Virginia facility. The Company also announced a reduction in permanent positions
of approximately 550. The marketing expenditures reduction is primarily driven
by elimination of unprofitable circulation and improved customer retention and
target segmentation, but does not contemplate the discontinuance of any of the
current core catalogs. Because of lower prepaid catalog costs and inventory
purchases, working capital requirements are anticipated to be reduced by
approximately $16 million. In December 1996, the Company formulated a plan to
further reduce costs by consolidating its apparel distribution facility in
Roanoke, Virginia and its warehouse operations in Hanover, Pennsylvania with and
into its home fashions distribution center in Roanoke, Virginia.
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 55.7% of
the Company's common stock on a fully diluted basis. 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 luxury goods, tobacco and
other business ("Richemont"). 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.
1997 RIGHTS OFFERING
On March 26, 1997, the Company announced that it entered into a Standby
Purchase Agreement with an affiliate of Richemont under which such affiliate
agreed to purchase all unsubscribed shares pursuant to a $50 million Rights
Offering to be conducted by the
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Company as soon as practicable following regulatory clearance. In connection
with such offering, NAR has agreed to apply $10 million of the Company's
indebtedness held by it to acquire $10 million of the Company's Common Stock
pursuant to such Rights Offering. NAR has not indicated whether it will exercise
Rights to be distributed to it to acquire additional shares. See "Financing --
Future Financing."
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 strategic business unit determines
each catalog's own merchandise strategy, including the appropriate price points,
mailing plans and presentation of its products. The Company is continuing its
development of exclusive or private label products for a number of its catalogs,
including Domestications, Tweeds, Austad's and The Company Store, to further
enhance the brand identity of the catalogs.
The Company's specialty catalogs typically range in size from 32 to 96
pages with four to twelve 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.
In December 1996, the Company's operations were divided into six
strategic business units -- Home Fashions-Mid-Market, Home Fashions-Upscale,
General Merchandise, Women's Apparel, Men's Apparel and Gifts -- so that all
significant decisions, including those regarding market positioning and
strategy, merchandising, circulation levels, catalog design, inventory
management and cash management, could be made by the newly-created units in
order to create efficiency and bottom-line accountability. Revenues and the
percent of total revenues for 1996 and 1995 for each business unit are set forth
below; all revenues are net of returns:
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<TABLE>
<CAPTION>
1996 1995
1996 Percent of 1995 Percent of
Revenues Total Revenues Revenues Total Revenues
-------- -------------- -------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Home Fashions -
Mid-Market $202.2 28.9% $223.7 29.8%
Upscale 97.2 13.9 81.8 10.9
General Merchandise 79.3 11.3 73.5 9.8
Women's Apparel 82.7 11.8 76.7 10.2
Men's Apparel 78.4 11.2 77.9 10.4
Gifts 57.7 8.2 50.7 6.8
------ ----- ------ -----
Total Continuing 597.5 85.3 584.3 77.9
Discontinued 102.8 14.7 165.5 22.1
------ ----- ------ -----
Total Company $700.3 100.0% $749.8 100.0%
====== ===== ====== =====
</TABLE>
As a result of the Company's plan to reduce annual operating costs,
revenues from continuing catalogs are expected to stay flat in 1997. Total
revenues are expected to decline by 14% in 1997, primarily due to the loss of
revenues from catalogs discontinued in fiscal 1995 and 1996.
The following is a description of the Company's core catalogs in each
of the Company's six strategic business units:
Home Fashions - Mid-Market
Domestications is a leading specialty home textile catalog and a
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. During 1996, Domestications was also mailed to
Sears customers under the name Show Place.
Home Fashions-Upscale
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.
Kitchen & Home features upscale kitchen and home products.
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General Merchandise
Improvements is a leading do-it-yourself home improvement catalog
featuring home improvement accessories. During 1996, Improvements was also
mailed to Sears customers under the name Sears Improvements.
The Safety Zone is a direct marketer of safety, protection and
prevention products.
Colonial Garden Kitchens features work saving and lifestyle enhancing
items for the kitchen and home. During 1996, Colonial Garden Kitchens was also
mailed to Sears customers under the name Great Kitchens.
The Company is developing a new version of the Hanover House(R) catalog
which will be test mailed in the second quarter of 1997.
Women's Apparel
Silhouettes is a women's fashion catalog featuring everyday, workout,
special occasion and career fashions for larger sized women.
Tweeds is a European inspired women's fashion catalog featuring
relaxed, cosmopolitan fashions uniquely designed by its in-house staff.
Men's Apparel
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.
Austad's, the remaining interest in which was acquired in February
1996, is a direct marketer of golf equipment and related apparel and
accessories.
Gifts
Gump's By Mail is a leading upscale catalog marketer of luxury gifts,
specialized housewares and other unique items.
Gump's is the well-known San Francisco retailer.
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
mailed under the program were
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based on existing Company catalogs and contained a title page with the Sears
name and logo. The specialty catalogs included: Show Place, based on the
Domestications catalog, Great Kitchens, based on the Colonial Garden Kitchens
catalog, and Sears Improvements, based on the Improvements catalog. The Sears
Agreement had an initial three-year term with automatic renewals thereafter
unless commencing December 31, 1996 either party gave at least 12 months prior
written notice that the agreement would terminate at the end of the initial term
or any extended term. The Company was obligated to meet various operational
performance standards under the Sears Agreement. If the Company was unable to
meet these standards (after written notice and a 30-day cure period), Sears
would be entitled to terminate the Sears Agreement. The Company was also
entitled to terminate the Sears Agreement in certain circumstances, including if
Sears failed to comply with any material provision of the Sears Agreement. Sears
exercised its right to terminate the venture in December 1996, since the Company
was not meeting certain of the operational standards, namely the order
fulfillment and reporting standards. The last catalogs were mailed in the first
quarter of 1997. The Company estimates that the termination of the venture will
not have a material impact on the Company's earnings for 1997.
MARKETING AND DATABASE MANAGEMENT
The Company maintains a proprietary customer list currently containing
approximately 14 million names of customers (down from 18 million names in 1995
and 19 million names in 1994) 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.
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 customer
contribution by catalog. This analysis is the basis for the Company's
determination of which of the Company's catalogs will be mailed and how
frequently to a particular customer, as well as the promotional incentive
content of the catalog(s) such customer receives. As part of its plan to reduce
annual operating costs, the Company intends to reduce catalog circulation and
improve customer retention and target segmentation.
The primary source of new customers for the Company's catalogs is lists
rented from other mailers and compilers. Prior to mailing 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.
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TELEMARKETING
The Company receives approximately 80% 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 two
primary telemarketing facilities in Hanover, Pennsylvania and LaCrosse,
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. A satellite
telemarketing center is also located in San Diego, California. The Company
handled approximately 7 million telephone order calls in 1996. As part of its
December 1996 plan to reduce operating costs, the Company shut down its
telemarketing capacity in its Roanoke, Virginia facility in February 1997. In
the first quarter of 1997, the Company entered into a call center services
agreement with MCI Communications Corp. See "Purchasing."
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.
DISTRIBUTION
The Company presently operates four distribution centers in three
principal locations: two in Roanoke, Virginia for home fashions and apparel, one
in Hanover, Pennsylvania for general merchandise including giftware and other
hardgoods, and one in LaCrosse, Wisconsin for home fashions. The Company's
facilities processed approximately 12.7 million packages in 1996. The Company's
plan to maximize efficiencies in merchandise handling and distribution by
consolidating its warehouse and fulfillment centers continued in 1996. The
relocation of Austad's fulfillment operations from Sioux Falls, South Dakota to
other Company facilities was completed by mid-July 1996. The Company incurred
operating inefficiencies in the new facilities and operating expenses related to
maintaining duplicate facilities in 1995 which continued in 1996.
As part of its plan to reduce annual operating costs, the Company
intends to consolidate its Roanoke, VA and its Hanover, PA fulfillment
operations into its home fashions distribution center in Roanoke, VA. These
moves are expected to be completed in the second half of 1997. However, there is
no assurance that the Company will be able to complete such moves on a timely
basis, or that it will be executed without disruption to the business of one or
more of the Company's catalogs.
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The Company mails it 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. Overall, catalog mailing and
package shipping costs approximated 18% of the Company's net revenues in 1996.
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. On July 1, 1996, the USPS reclassification of
postal rates became effective. The Company also utilizes the 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 or than would be
available to the Company's individual catalogs were they to operate as
independent 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 telephone telemarketing costs (both inbound and outbound
calls) are typically contracted for a three-year period. In the first quarter of
1997, the Company entered into a three-year call center services agreement with
MCI Communications Corp. under which it will obtain a material reduction in the
rate which it has been paying pursuant to the telecommunications contract now in
effect and savings with respect to certain database services to be provided to
it, which savings are expected to aggregate approximately $3 million over the
term of the contract. In that connection, the Company agreed to guarantee
certain levels of call volume with certain exceptions. See "Telemarketing".
The Company generally enters into annual arrangements for paper and
printing with a limited number of suppliers. These arrangements permit periodic
price increases or decreases based on prevailing market conditions, changes in
supplier costs and continuous productivity improvements. For 1996, paper costs
approximated 8% of the Company's net revenues. The Company anticipates that
paper prices will increase modestly in the second half of 1997.
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 to mid-range mini-computers 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. The Company is
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continuing to modify and install, on a catalog by catalog basis, these new
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 new software system is an on-line, real-time system which includes
order processing, fulfillment, inventory management, list management and
reporting. The software, where implemented, provides the Company with a flexible
system that offers data manipulation and in-depth reporting capabilities. The
new management information systems are designed to permit the Company to achieve
substantial improvements in the way its financial, merchandising, inventory,
telemarketing, fulfillment and accounting functions are performed. Until the new
system is installed Company-wide, the Company will not achieve the full benefits
of the new system. Two catalogs were brought on-line in 1994. The Company
brought eight additional catalogs on-line in 1995, and one in 1996. The balance
of its catalogs are scheduled to be brought on-line in 1997. As of December 28,
1996, the Company invested approximately $17.9 million of capitalized costs in
such systems and anticipates capital expenditures of approximately $1 million
to complete the conversion.
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 use of the Hanover Shop At Home
credit card. The Company has a five year $75 million credit facility with
General Electric Credit Corporation ("GECC") expiring in the year 2000, 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. The Company is required to maintain certain financial covenants
related to this agreement which the Company failed to maintain, but has
received a waiver for the event of default at December 28, 1996.
INVENTORY MANAGEMENT
Although 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's inventory levels at the end
of 1996 were in excess of planned amounts. The Company has initiated additional
procedures to reduce its inventory position. The Company manages inventory
levels by monitoring sales and fashion trends, 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. Due in
part to the transition to new management information systems, the Company is
currently operating with different systems which increases the difficulty of
optimizing inventory levels.
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 1996. The Company's vendors are selected based on their
ability to reliably meet the
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Company's production and quality requirements, as well as their financial
strength and willingness to meet the Company's needs on an ongoing basis.
RECENT ACQUISITIONS
Austad's. In May 1995, the Company acquired 67.5% of the outstanding
common stock of Austad Holdings, Inc. ("AHI"), which owned The Austad Company
("TAC"), the publisher of the Austad's catalog featuring golf equipment, apparel
and gifts. In February 1996, David Austad and certain family members surrendered
to AHI their AHI shares, amounting to 32.5% of the outstanding shares, and paid
approximately $1.1 million in exchange for all the outstanding shares of AGS,
Inc. ("AGS"), a South Dakota corporation newly formed by TAC to hold the
existing retail assets and liabilities of TAC. As a result of the
reorganization, AHI became a wholly owned subsidiary of the Company. AGS will
operate the four existing retail stores acquired from TAC, located in Illinois,
Minnesota and South Dakota, as Austad's stores under license from AHI. The
customer service and fulfillment operations of TAC were transferred to other
Company facilities in the first quarter of 1996 and the Company sold the TAC
warehouse and distribution facility in July 1996 for $2.1 million, which
approximated its book value. The net proceeds were used to pay the outstanding
mortgage on the property. In connection with the purchase of TAC, goodwill of
$4.5 million and mailing lists of $1.2 million were acquired. In December 1996,
the Company wrote off these assets.
FINANCING
Credit Facility. In November 1995, the Company entered into a $75
million secured credit facility (the "Credit Facility") with Congress Financial
Corporation ("Congress") consisting of a three-year revolving line of credit of
up to $65 million and two two-year term loans aggregating $10 million. The
revolving facility carries an interest rate of 1.25% above prime and the term
loan carries an interest rate of 1.5% above prime. The Credit Facility is
secured by all assets of the Company. At December 28, 1996, the Company had
approximately $18.2 million of outstanding borrowings under the revolving credit
facility (including documentary and standby letters of credit) and approximately
$8.9 million outstanding under the term loans, which are due in November 1997.
Remaining availability under the Congress facility was $26.0 million at
December 28, 1996. In April 1996, Congress provided the Company with an
additional $4 million over the borrowing base formula up to the maximum $75
million limit of the Credit Facility until the closing of the distribution of
transferable subscription rights (the "Rights") to subscribe for and purchase
additional shares of Common Stock and the sale of shares of Common Stock upon
the exercise of the Rights or pursuant to the Standby Purchase Agreement
executed on and dated as of July 18, 1996 between the Company and NAR (the
"Standby Purchase Agreement"). This distribution and sale of Common Stock is
referred to herein as the "Rights Offering." Under the Credit Facility, the
Company was required to comply with certain restrictive debt covenants including
maintaining minimum net worth of $80 million and working capital of $26 million
as of December 30, 1995. In April 1996, these restrictive debt covenants were
revised to $75 million and $21 million, respectively, in an amendment to the
Credit Facility and, upon the closing of the Rights
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Offering, returned to their previous levels. In December 1996, the minimum net
worth covenant was lowered to $70 million and Congress also agreed to address
the 1997 net worth covenant level after a review of the Company's business plan.
Congress also began lowering the advance rate for inventories in November 1996
and continued to reduce it monthly until a new appraisal was completed in March
1997. The current advance rate for inventories is 52%. On March 26, 1997, the
Company reached an agreement in principle with Congress under which Congress
would waive certain defaults and amend the Credit Facility to (a) reduce the
aggregate amount of required net worth and working capital to be maintained by
the Company and (b) amend the covenant relating to material adverse changes so
that measurement thereunder will commence from December 28, 1996.
In September 1996, Intercontinental Mining & Resources Incorporated, an
affiliate of NAR ("IMR"), loaned the Company $10 million as evidenced by a
subordinated promissory note in the amount of $10 million (the "NAR Promissory
Note"). Such loan bears interest at prime plus 1 1/2%, was due on November 14,
1996 and, if it is not repaid before May 15, 1997, is convertible at the option
of NAR into shares of Common Stock at the lower of the fair market value thereof
on the date of execution or the then current fair market value thereof. The NAR
Promissory Note is subordinate to the Credit Facility and excluded from the
working capital covenant calculation. NAR has agreed to apply this $10 million
note to acquire $10 million of the Company's Common Stock (see Future
Financing).
On December 19, 1996, the Company finalized its agreement (the
"Reimbursement Agreement") with Richemont Finance S.A., an affiliate of
Richemont, together with the family of Alan G. Quasha, Chairman of the Board of
the Company, jointly own NAR, that provided the Company with up to approximately
$28 million of letters of credit which were issued under the Credit Facility.
The letters of credit will expire on February 18, 1998 and carry an interest
rate of 3.5% above the prime rate, currently 11.75%, payable to Richemont
quarterly on amounts drawn under the letters of credit. The Company has agreed
to pay a facility fee equal to 5% of the principal amount of the letters of
credit as well as all other fees incurred in connection with providing the
facility. In the event that the Company has not paid in full, by the expiration
date, any outstanding balances under the letters of credit, Richemont shall have
the option, exercisable at any time prior to payment in full of all amounts
outstanding under the letters of credit to convert such amount into Common Stock
of the Company at the mean of the bid and ask prices of the Company's Common
Stock on November 8, 1996, or the mean of the bid and ask prices of the
Company's Common Stock on each of the thirty days immediately prior to the date
of exercise of the conversion privilege. The Reimbursement Agreement is
subordinate to the Credit Facility. On December 5, 1996, Richemont advanced the
Company $10 million against the anticipated $28 million line of credit. The
Company repaid the $10 million loan after the letter of credit agreement was in
place on December 19, 1996.
Rights Offering. The Company commenced a $50 million rights offering
(the "Rights Offering") on July 19, 1996. Holders of record of the Company's
Common Stock, 6% Series A Convertible Additional Preferred Stock and Series B
Convertible Additional
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Preferred Stock as of July 18, 1996, the record date, were eligible to
participate in the Rights Offering. The Rights were exercisable at a price of
$1.03 per share. Shareholders received .51 Rights for each share of Common
Stock held, 3.72 rights for each share of Series A Convertible Additional
Preferred Stock held and .77 rights for each share of Series B Convertible
Additional Preferred Stock held as of the record date. The Rights Offering
closed on August 23, 1996.
Due to the Company's continued operating losses, the Company requested
that NAR advance up to $25 million against all the Rights distributed to it
and/or its commitment to purchase all of the unsubscribed shares. In May 1996,
NAR advanced the Company $25 million under a promissory note. Under the
provisions of such promissory note, the Company repaid NAR the $25 million
advance plus accrued interest upon the closing of the Rights Offering.
The Company issued 48,748,785 shares as a result of the Rights Offering
which generated proceeds of approximately $48 million, net of expenses. NAR
received Rights entitling it to purchase 24,015,964 shares in the Rights
Offering and exercised such Rights. In addition, the Company and NAR entered
into a Standby Purchase Agreement, pursuant to which NAR purchased 6,898,866
shares not subscribed by shareholders and received approximately $.5 million as
a fee. The proceeds of the Rights Offering were used by the Company: (i) to
repay the $14 million principal amount of 9.25% Senior Subordinated Notes
("9.25% Notes") due on August 1, 1998 held by an affiliate of NAR plus accrued
interest, (ii) to repay the $25 million principal amount advanced under the
promissory note plus accrued interest and (iii) to repay approximately $9
million under the credit facility with Congress. The Company recorded an
extraordinary expense related to the early extinguishment of the 9.25% Notes,
representing a write-off of the unamortized debt issuance costs of approximately
$1.1 million.
Future Financing. The Company has announced that it intends to
distribute transferable subscription rights to subscribe for and purchase
additional shares of Common Stock to the holders of record of the Company's
Common Stock and Series B Convertible Additional Preferred Stock (the "1997
Rights Offering") as soon as it has filed with and has declared effective by the
SEC a registration statement with respect thereto. The Rights will be
exercisable at a price of $.90 per share. NAR has agreed to subscribe for and
purchase shares of Common Stock having a value of at least $10 million and to
pay for such shares by the surrender of the NAR Promissory Note in the principal
amount of $10 million held by its affiliate. Richemont has agreed to purchase
all shares of Common Stock which have not been subscribed for and purchased by
shareholders in the 1997 Rights Offering. Richemont has agreed to advance up to
$30 million against its commitment to purchase all of the unsubscribed shares.
In connection with the agreement the Company named two Richemont
representatives, Messrs. Jan du Plessis and Howard Tanner, to its Board of
Directors (the "Board") and Executive Committee, and will nominate a third
Richemont representative to the Board at the next annual meeting. The new Board
members fill positions vacated by the recent resignations of Geraldine Stutz and
Jeffery R. Laikind. In addition, Mr. du Plessis has been named to the Audit
Committee of the Board.
13
<PAGE> 14
EMPLOYEES
The Company currently employs approximately 2,800 persons on a full
time basis and approximately 900 persons on a part time basis. In December 1996,
the Company announced a plan to reduce annual operating costs which included a
plan to reduce permanent positions by approximately 550. Approximately 160
employees at one of the Company's subsidiaries are represented by a union. The
Company believes its relations with its employees are good.
SEASONALITY
The Company has experienced substantially increased sales in the fourth
quarter of each year as compared to the first three quarters, due in part to the
Company mailing more catalogs in the second part of the year and decreasing
apparel sales as a percentage of total sales.
COMPETITION
The Company believes that the principle basis upon which it competes
are quality, value, service, product offerings, catalog design, convenience and
efficiency. 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 apparel, home fashions, general merchandise,
men's apparel and gifts. A number of the Company's competitors have
substantially greater financial, distribution and marketing resources than the
Company.
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. Show
Place and Great Kitchens are trademarks of Sears.
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 directly imports.
14
<PAGE> 15
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
85,000-square-foot facility in Weehawken, New Jersey. The facility houses
merchandising and marketing personnel, catalog production personnel and
corporate and administrative officers. The Weehawken facility is leased for a
15-year term expiring in 2005. The Company intends to vacate these premises in
1997 as part of its plan to further reduce costs. The Company operates four
warehouses and fulfillment facilities in three principal locations: two in
Roanoke, Virginia for home fashions and apparel, one in Hanover, Pennsylvania
for general merchandise, including giftware and other hardgoods, and one in
LaCrosse, Wisconsin for upscale home fashions.
In Roanoke, the Company owns a newly completed 530,000 square-foot home
fashions distribution center. The facility became operational in the second half
of 1995 and handles all of Domestications' fulfillment processing. Also in
Roanoke, the Company leases a 175,000 square-foot apparel distribution center
from a partnership in which it owns a 50% interest. As part of the Company's
plan to further reduce costs, the Company intends to consolidate the apparel
distribution facility in Roanoke, Virginia and the Hanover, PA distribution
facility with and into the home fashions distribution center in Roanoke,
Virginia in the third quarter of 1997. See "Distribution."
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 on the telemarketing center extend through 2009. The warehouse
lease expires in May 1997 with two short-term renewal periods.
In LaCrosse, 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.
In addition to these principal facilities, the Company leases
administrative facilities for men's apparel in San Diego, California. The San
Diego facility also serves as a telemarketing and customer service facility.
15
<PAGE> 16
The Company's principle retail operations consist of the 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 approximately 15,000 square feet of administrative
offices. The Company also operates and leases 9 other retail and outlet stores
at various locations.
The Company leases premises in Edgewater, New Jersey and owns a
building subject to a lease in Cleveland, Ohio. The Company is actively seeking
to sell its interest in the Cleveland facility. The Company has sublet a portion
of the Edgewater facility and is actively seeking to sub-lease the remainder.
16
<PAGE> 17
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION(a) STATUS SQUARE FOOTAGE
- ----------- ------ --------------
<S> <C> <C>
Warehouse and Fulfillment
Centers:
Roanoke, VA Owned 530,000
Roanoke, VA Leased 175,000
Hanover, PA Leased 433,000
Hanover, PA Leased/Owned(c) 265,000
LaCrosse, WI Leased 185,000
Corporate and
Administrative Offices:
Weehawken, NJ Leased 85,000
San Diego, CA Leased 30,000(b)
San Francisco, CA Leased 15,000(c)
Beachwood, OH Leased 7,740
Telemarketing and
Customer Service:
Hanover, PA Leased 123,000
LaCrosse, WI Owned 58,000
San Diego, CA Leased 30,000(b)
Retail Stores:
San Francisco, CA Leased 30,000(c)
San Diego, CA Leased 3,800
West Hollywood, CA Leased 3,600
Tysons Corner, VA Leased 1,700
Mayfield Heights, OH Leased 3,750
Hanover, PA Leased 24,000
Kenosha, WI Leased 4,708
LaCrosse, WI Leased 13,326
Madison, WI Leased 5,206
Oshkosh, WI Leased 2,000
Manufacturing and
Assembly:
LaCrosse, WI Owned 150,000
</TABLE>
(a) Does not include the Sioux Falls, South Dakota (closed 1996),
Cleveland, Ohio (closed 1995) or Edgewater, New Jersey (closed 1995),
in conjunction with the consolidation of the Company's warehouse
facilities.
17
<PAGE> 18
(b) Telemarketing and corporate/administrative functions are all located
and performed at the one facility. Square footage stated represents the
entire facility.
(c) 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine lawsuits of a nature which
are 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 was purportedly 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, sought to recover monetary
damages the class had allegedly suffered as a result of certain alleged false
and materially misleading statements contained in the Company's public offering
prospectus dated March 30, 1994. In lieu of an answer, defendants filed a motion
to dismiss the complaint in its entirety for failure to state a claim upon which
relief could be granted. On May 23, 1995, the United States District Court for
the District of New Jersey dismissed the plaintiff's claim, with prejudice, for
failure to state a claim upon which relief could be granted. On June 22, 1995,
plaintiff filed a notice of appeal of the May 23, 1995 decision to the United
States Court of Appeals for the Third Circuit. On March 26, 1996, the Court of
Appeals rendered its decision affirming the District Court's decision. On or
about July 8, 1996, a petition for certiorari was filed by plaintiff with the
United States Supreme Court. The Company filed a brief in opposition to the
petition on August 13, 1996. On October 7, 1996, the United States Supreme Court
denied the plaintiff's petition.
18
<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors of the Company and NAR Group Limited, the holder
of 54.3% of the Company's Common Stock, approved on September 26, 1996, pursuant
to Sections 242 and 228 of the Delaware Business Corporation Law, an amendment
to the Company's Certificate of Incorporation increasing the number of shares of
Common Stock which the Company shall have authority to issue from 150,000,000 to
225,000,000 shares. This action became effective upon the filing of a
Certificate of Amendment to the Certificate of Incorporation on October 31,
1996. The increase in authorized shares was necessary to provide enough shares
of Common Stock for issuance pursuant to options and warrants previously granted
by the Company to directors and officers, including options to purchase an
aggregate of 7,530,000 shares granted by the Company on August 23, 1996 to the
Company's President and Chief Executive Officer, Rakesh K. Kaul. The additional
shares of Common Stock not used for such purpose, together with the shares of
Common Stock held in treasury, are available for general corporate purposes, as
determined by the Board of Directors, without (except as otherwise required by
law) further authority from shareholders.
As of September 26, 1996, the record date for the action (the "Record
Date"), there were 143,044,492 shares of Common Stock and 634,900 shares of
Series B Convertible Additional Preferred Stock, par value $.01 and stated value
$10.00 per share (the "Series B Preferred Stock"), outstanding. The approval of
the holders of a majority of the outstanding shares of Common Stock and Series B
Preferred Stock, voting together as a single class, was necessary to adopt the
amendment to the Certificate of Incorporation. Each outstanding share of Common
Stock was entitled to one vote on the proposal to adopt the amendment and each
outstanding share of Series B Preferred Stock was entitled to 1.5 votes on the
amendment. NAR, as the holder of 78,004,954 shares of Common Stock, or 54.3% of
the voting power of the Common Stock and the Series B Preferred Stock voting
together as a class, therefore, had the requisite power to approve the amendment
by written consent. Such consent was executed and delivered on September 26,
1996. Under Delaware law, shareholders who did not consent to the amendment did
not have appraisal rights with respect to the shares held by them.
19
<PAGE> 20
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>
1995 HIGH LOW
- ---- -------- --------
<S> <C> <C>
First Quarter $3 5/8 $2 1/2
Second Quarter 3 1/16 2 5/16
Third Quarter 2 13/16 1 15/16
Fourth Quarter 2 1/16 1 1/2
1996
First Quarter 1 3/4 1 1/8
Second Quarter 2 1 1/8
Third Quarter 1 5/8 7/8
Fourth Quarter 1 5/8
</TABLE>
The Company is restricted from paying dividends on its Common Stock or
from acquiring its capital stock by certain debt covenants contained in
agreements to which the Company is a party.
As of March 24, 1997, there were approximately 4,600 holders of record
of Common Stock.
20
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the years
indicated:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 586,562 $ 642,511 $ 768,884 $ 749,767 $ 700,314
Depreciation and amortization 2,681 3,279 6,157 9,020 12,192
Operating (loss) income 14,402 19,076 15,975 (22,619) (94,497)
Interest expense, net 13,135 2,757 2,813 4,531 8,398
Income (loss) before extraordinary
items and cumulative effect of
accounting change for income taxes 1,048 17,337 14,838 (28,153) (103,895)
Extraordinary items 9,201 -- -- (1,837) (1,134)
Cumulative effect of accounting
change for income taxes 10,000 -- -- -- --
----------- ----------- ----------- ----------- -------------
Net income (loss) 20,249 17,337 14,838 (29,990) (105,029)
Preferred stock dividends (3,197) (4,093) (135) (240) (225)
----------- ----------- ----------- ----------- -------------
Net income (loss) applicable to
common stockholders $ 17,052 $ 13,244 $ 14,703 $ (30,230) $ (105,254)
=========== =========== =========== =========== =============
Per share:
Income (loss) before extraordinary
items and cumulative effect of
accounting change for income
taxes $ (.06) $ 0.17 $ 0.16 $ (.30) $ (.93)
Extraordinary items .24 -- -- (.02) (.01)
Cumulative effect of accounting
change for income taxes .26 -- -- -- --
----------- ----------- ----------- ----------- -------------
Net income (loss) $ .44 $ .17 $ .16 $ (.32) $ (.94)
=========== =========== =========== =========== =============
Weighted average number of shares
outstanding:
Primary 38,467,015 75,625,330 93,285,190 93,029,816 111,441,247
=========== =========== =========== =========== =============
Fully diluted 38,467,015 77,064,131 93,235,190 93,029,816 111,441,247
=========== =========== =========== =========== =============
Balance Sheet Data (end of period):
Working capital (deficit) 31,566 25,180 58,501 28,774 (1,507)
Total assets 134,352 188,838 262,246 279,009 220,827
Total debt 43,362 36,160 37,915 62,802 65,189
Preferred stock of subsidiary 32,842 -- -- -- --
Shareholders' (deficit) equity (19,758) 45,868 109,725 87,210 31,740
</TABLE>
There were no cash dividends declared on the Common Stock in any of the periods.
See Notes to Consolidated Financial Statements.
21
<PAGE> 22
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
---------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales and operating expenses 62.9 64.5 68.4
Write-down of inventory of
discontinued catalogs -- 1.1 .2
Special charges -- .3 5.2
Selling expenses 25.7 27.4 27.9
General and administrative expenses 8.5 8.5 10.1
Depreciation and amortization .8 1.2 1.7
----- ----- -----
Income (loss) from operations 2.1 (3.0) (13.5)
Interest expense, net .4 .6 1.2
Other income (expense) (.2) -- --
Net income (loss) 1.9% (4.0%) (15.0%)
</TABLE>
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net Income(Loss). The Company reported a net loss before extraordinary
items of $103.9 million, or $(.93) per share for the year ended December 28,
1996 compared to a net loss before extraordinary items of $28.2 million, or
$(.30) per share in 1995. Including the effect of the extraordinary losses of
$1.1 million and $1.8 million for the early extinguishment of debt, the Company
reported net losses of $105.0 million and $30.0 million, or $(.94) and $(.32)
per share for the years ended December 28, 1996 and December 30, 1995,
respectively. Per share amounts are expressed after deducting preferred
dividends of $.2 million in both 1996 and 1995. The weighted average number of
shares outstanding was 111,441,247 for the year ended December 28, 1996 compared
to 93,029,816 in 1995.
In December 1996, after a review of its fourth quarter and year-to-date
operating results and in connection with formulating its 1997 business plan, the
Company announced its intentions to realign its operating units into six
decentralized operating units, Home Fashions - Upscale, Home Fashions - Mid-
Market, General Merchandise, Gifts, Women's Apparel, and Men's Apparel. The
Company believes that this new business structure will increase business unit
accountability, through improved working capital management, and provide
increased service levels to the Company's core customers. This new structure
will also result in reduced fixed overhead costs as the Company's centralized
services will be utilized more efficiently. During the latter part of the year,
the Company began to implement this plan, completed an assessment of
recoverability of long-lived assets for certain underperforming catalogs and
recorded special charges that totaled $36.7 million. These charges included a
provision for the consolidation of distribution centers and relocation of
facilities and severance expenses approximating $14.7 million. Also included in
these charges was the write-off of certain long-lived assets that Company's
management determined were impaired of approximately $22.0 million.
22
<PAGE> 23
The net loss in 1996, after considering special charges, was primarily the
result of (i) increased inventory write-downs due to the Company's inability to
properly sustain its inventory in-stock position due to liquidity problems, and,
in certain instances, the purchase of inventory quantities in excess of demand
(ii) lower response rates as a result of increased order cancellations, (iii)
increased fulfillment and telemarketing costs due to inventory handling costs
associated with the higher backorder levels and increased merchandise returns
and (iv) the fixed cost infrastructure which the Company's continuing catalogs
could not fully absorb. The Company does not expect these problems to continue
in 1997, however, there is no assurance that these or similar problems will not
recur in 1997.
Revenues. Revenues decreased 6.6 % in 1996 to $700 million from $750
million in 1995. Revenues of continuing catalogs increased approximately 2% from
$584 million in 1995 to $597 million in 1996, which was offset by a 38% decline
to $103 million in revenues from discontinued catalogs. The Company circulated
332 million catalogs in 1996. Although this represents a 10% reduction from the
prior year, continuing catalog circulation increased 1% from the prior year.
The following table summarizes the Company's revenues and the percent of
total revenues for 1996 and 1995 for each business unit; all revenues are net of
returns:
<TABLE>
<CAPTION>
1996 1995
PERCENT PERCENT
1996 OF TOTAL 1995 OF TOTAL
Business Unit (in thousands) REVENUES REVENUES REVENUES REVENUES
<S> <C> <C> <C> <C>
Home Fashions -
Mid-Market $202.2 28.9% $223.7 29.8%
Upscale 97.2 13.9 81.8 10.9
General Merchandise 79.3 11.3 73.5 9.8
Woman's Apparel 82.7 11.8 76.7 10.2
Men's Apparel 78.4 11.2 77.9 10.4
Gifts 57.7 8.2 50.7 6.8
------ ----- ------ -----
Total Continuing 597.5 85.3 584.3 77.9
Discontinued 102.8 14.7 165.5 22.1
------ ----- ------ -----
Total Company $700.3 100.0% $749.8 100.0%
====== ===== ====== =====
</TABLE>
Revenues from the Home Fashions - Mid Market group decreased 10% to $202.2
million for the current year from $223.7 million in 1995. Domestications'
revenues decreased in 1996 due to a 6% increase in order cancellation, while
filling backorders resulted in a 3% increase in merchandise returns and a
decrease in average order size. This decrease was partially offset by an
increase in response rates. Revenues from the Home Fashions-Upscale group
increased 19% to $97.2 million as customer response rates and average order size
increased in the current year. The General Merchandise group's revenues
increased 8% due mainly to an increase in
23
<PAGE> 24
Improvements revenues which were partially offset by decreases in Colonial
Garden Kitchens and The Safety Zone revenues. The increase in Improvements
revenues is due to increased average order size and a 29% increase in
circulation which was partially offset by a decrease in response rates. Revenues
generated by the Men's Apparel group increased .5% to $78.4 million. Revenues
for the Women's Apparel group increased 7.8% to $82.7 million due to a 12%
increase in circulation, increased response rates, and average order size.
Revenues for the Gifts group increased 14% to $57.7 million mainly due to
increased response rates and average order size of the Gump's By Mail catalog.
Revenues from the catalogs discontinued in 1995 and the discontinued Sears
venture decreased by $62.6 million to $102.9 million in 1996.
Operating Costs and Expenses. Cost of sales and operating expenses,
which include fulfillment and telemarketing costs, as a percentage of revenues
increased to 68.4% in 1996 from 64.5% in 1995. This increase is primarily
attributable to lower product margins due to lower recovery rates experienced
from accelerated disposition of inventory as a result of poor in-stock positions
resulting from liquidity problems, as well as the Company's decision to
continue to reduce inventory levels. Also, inventory write-downs for continuing
catalogs were $11.2 million in 1996, compared to $4.4 million in 1995, primarily
for Domestications, Tweeds and Austad's. These incremental write-downs were
recorded as part of the Company's plans to reduce its inventory levels and the
resulting expectation of lower recovery rates. In addition, fulfillment costs
were higher in 1996 as a result of increased backorder levels and operating
inefficiencies for most of the year in the Company's Roanoke, Va. fulfillment
center.
The write-down of inventory of discontinued catalogs was $1.1 million in
1996 compared to $8.6 million in 1995. These write-downs consisted of
incremental inventory write-downs in excess of normal seasonal write-downs.
During 1995, the Company discontinued six poorly performing catalogs which had
incurred substantial losses and which the Company believed could not overcome
increased paper and postage prices. The write-down in 1996 was recorded due to
the significantly lower recovery rates than previously anticipated experienced
on the liquidation of inventory related to these catalogs.
Special charges taken by the Company in 1996 totaled $36.7 million.
These charges consist, in part, of severance ($3.2 million), facility
exit/relocation costs and fixed assets write-offs ($11.5 million). These charges
were recorded due to the Company's decision to move to a decentralized business
structure with a streamlined infrastructure. This plan calls for the
consolidation of several inefficient fulfillment facilities into existing
underutilized facilities and the relocation of corporate offices. In addition,
the Company's review of the carrying value of certain long-lived assets of
Tweeds, Austad's and The Safety Zone's led to the write-off of approximately $22
million. The Company recorded charges of $1.5 million in 1995 consisting
primarily of facility exit costs ($.7 million), lease termination fees ($.3
million) and severance expenses ($.5 million) in connection with the closing of
some of its facilities.
Selling expenses decreased $10.6 million but increased to 27.9% of
revenues in 1996 from 27.4% of revenues in 1995. The total expense decreased
mainly due to a 10% reduction in catalog circulation. This decrease was offset
by increased catalog postage expense and lower response rates in the current
year for the discontinued catalogs. This expense as a percentage of
24
<PAGE> 25
revenues increased due to lower response rates as a result of weak customer
demand and increased order cancellations. Catalog postage and paper expense
increased as the Company increased the number of sale pages in its catalogs
which was designed to speed the sale of slow moving inventory.
General and administrative expenses increased $6.5 million, or 10% in 1996
to $70.6 million. The increase is primarily attributable to costs associated
with hiring the Company's new management team and to increased bad debt
expense, reflecting higher losses on the Company's private label credit card.
Depreciation and amortization increased $3.2 million to $12.2 million in
1996 from $9.0 million in 1995. The increase was attributable to amortization
charges associated with the Roanoke, Virginia fulfillment facility, the
management information system, the new Gump's retail store and the goodwill and
mailing lists associated with the 1995 acquisitions that did not impact the 1995
operating results for the entire year.
Income (Loss) from Operations. Loss from operations increased to $94.5
million in 1996 from a loss of $22.6 million in 1995. Losses from operations for
discontinued catalogs decreased to $4.8 million in 1996 from $18.1 million in
1995.
The increased loss from operations was mainly due to an overall erosion of
the Company's product margin. This was caused by increased promotional activity
and higher fulfillment costs. The Company's loss from operations was also
negatively impacted by increased catalog costs due to increased catalog mailing
costs, lower response rates and increased order cancellations.
Interest Income (Expense). Interest expense increased approximately $3.8
million to $8.9 million in 1996 from $5.1 million in 1995. This increase was due
to a higher level average borrowings outstanding under the Company's revolving
credit facility in 1996 which is attributable to the Company's deteriorating
financial performance in 1996 and increased demands on its working capital
throughout most of the year. Interest income was $.5 million in 1996 and 1995.
Income Taxes. The Company did not record a Federal income tax provision in
1996 or 1995 based on each years' net operating losses. The Company's state tax
provision was $1.0 million in 1996 and 1995.
Shareholders' Equity. The number of shares of Common Stock outstanding
increased by 51,195,130 in 1996 due to shares issued in connection with the
Company's Right's Offering, its equity and incentive plans, the exchange of the
6% Series A Convertible Preferred Stock and other activities. At December 28,
1996, there were 144,647,898 shares of Common Stock outstanding compared to
93,452,768 shares of Common Stock outstanding at December 30, 1995.
Extraordinary Items. The extraordinary loss of $1.1 million in 1996
represented a loss on the early extinguishment of debt which arose in connection
with the payment of the Company's 9.25% Senior Subordinated Notes due 1998 with
proceeds from the Rights Offering. The extraordinary loss of $1.8 million in
1995 represented a loss on the early extinguishment of debt which arose in
connection with the refinancing of the Company's $75 million Revolving Credit
Facility and its $14 million 9.25% Senior Subordinated Notes due 1998.
25
<PAGE> 26
1995 COMPARED WITH 1994
Net Income (Loss). The Company reported a net loss before extraordinary
items of $28.2 million or $(.30) per share for the year ended December 30, 1995
compared to net income of $14.8 million or $.16 per share in 1994. Including the
effect of the extraordinary loss of $1.8 million for the early extinguishment of
debt, the Company reported a net loss of $30 million or $(.32) per share for the
year ended December 30, 1995. Per share amounts are expressed after deducting
preferred dividends of $.2 million in 1995 and $.1 million in 1994. The weighted
average number of shares outstanding was 93,029,816 for the year ended December
30, 1995 compared to 93,285,190 in 1994.
The net loss in 1995 was primarily the result of the cumulative impact on
the Company of the 14% to 18% increase in USPS rates, a 43% increase in paper
prices and weak consumer demand. As a result of these factors, the Company
discontinued six poorly performing catalogs in 1995 which incurred substantial
losses. The Company believed that the discontinued catalogs could not overcome
these obstacles. Including an incremental write-down of inventory associated
with discontinuing these catalogs of $8.6 million, these catalogs lost $20
million in 1995 compared to $4.7 million in the prior year. In addition, the
Company also incurred costs, aggregating $2.7 million, in connection with the
consolidation of facilities into its new Roanoke, VA fulfillment center. These
costs included operating expenses related to maintaining duplicate facilities of
$1.0 million and $1.7 million of costs related to start-up problems, operating
down-time and inefficiencies in the new facility. Due to these cost pressures,
the Company implemented a cost reduction program in 1995 whereby the Company
instituted a salary freeze, reduced its work force by approximately 10%, closed
5 facilities and reduced other administrative and overhead expenses. In
connection with the closing of these 5 facilities, the Company incurred
non-recurring costs of $1.5 million. The Company also incurred one-time
severance and employee separation expenses of $2.0 million.
Revenues. Revenues decreased 2.5% in 1995 to $750 million from $769
million in 1994. Revenues of continuing catalogs increased approximately 2% from
$651 million in 1994 to $662 million in 1995, which was offset by a 26% decline
to $88 million in revenues from discontinued catalogs. The Company circulated
370 million catalogs in 1995, a 2% reduction from the prior year.
Non-Apparel continuing catalog revenues increased 1% to $528 million, due
to a 14% increase in revenues from the Company's venture with Sears to $81
million and $68 million of revenues from the 1995 acquisitions of Improvements,
The Safety Zone and Austad's which offset revenue reductions in the other
Non-Apparel catalogs, principally Domestications and Colonial Garden Kitchens.
Domestications revenues were down 28% as improved customer response rates
partially offset a decline in the average order and a 31% reduction in
circulation. Revenues from discontinued catalogs decreased $11.7 million from
$77.7 million in 1994 to $66 million in 1995. The Company discontinued the
Mature Wisdom catalog in mid-1995 and the Tapestry and Hanover House catalogs in
the fourth quarter of 1995.
Apparel continuing catalog revenues increased $5 million, or approximately
4%, from $129 million in 1994 to $134 million in 1995, as all continuing
catalogs, International Male, Undergear, Silhouettes and Tweeds reported higher
sales than the prior year. Revenues from
26
<PAGE> 27
discontinued Apparel catalogs declined 46% from $40 million in 1994 to $22
million in 1995, including the effect of discontinuing Essence by Mail, One 212
and Simply Tops.
Operating Costs and Expenses. Cost of sales and operating expenses as a
percentage of revenues increased from 62.9% in 1994 to 64.5% in 1995. This
increase is primarily attributable to lower overall product margins due to
greater sale activity as a result of the generally weak consumer demand and the
impact of write-downs for the discontinued catalogs. In addition, fulfillment
costs were higher in 1995 due to the start up of the new facility in Roanoke and
higher outbound freight expenses of approximately $7 million or 15% as a result
of the increase in USPS rates.
The write-down of inventory for the discontinuance of six of the Company's
catalogs of $8.6 million primarily consisted of incremental inventory
write-downs in excess of normal seasonal write-downs and severance expenses.
During 1995, the Company recorded a Provision for Facility Closings totalling
$1.5 million consisting primarily of facility exit costs ($.7 million), lease
termination fees ($.3 million) and severance expenses ($.5 million),
substantially all of which were paid in 1995. No such charges were recorded in
1994.
Selling expenses increased $8.2 million or 4.2% in 1994 to 27.4% of
revenues for the current year, primarily due to a 43% increase in average paper
costs and a 15% increase in the average cost of mailing a catalog which more
than offset the 2.0% reduction in catalog circulation and higher customer
response rates. As a result of these price increases, the Company incurred
approximately $18.0 million of higher costs to prepare and deliver its catalogs
in 1995.
General and administrative expenses declined $1.1 million or 2% in 1995
although they remained constant as a percentage of revenues at 8.5% in both
years. Excluding the impact of one-time severance expenses of $2.0 million,
these expenses declined as a percentage of sales to 8.3% due to the Company's
cost reduction program instituted in early 1995. This reduction was partially
offset by higher bad debt expenses, reflecting increased losses on major credit
cards and the Company's private label credit card.
Depreciation and amortization increased $2.8 million from $6.2 million in
1994 to $9.0 million in 1995. The increase was attributable to new amortization
charges associated with the Roanoke, Virginia fulfillment facility, the
management information system, the new Gump's retail store and the goodwill and
mailing lists associated with the 1995 acquisitions.
Income (Loss) from Operations. Income from operations declined from $16.0
million in 1994 to a loss of $22.6 million in 1995. Losses from discontinued
catalogs increased from $4.7 million in 1994 to $20 million in 1995.
Non-Apparel income from operations decreased from $20.5 million in 1994 to
a loss of $7.8 million in 1995. The most significant contributor to the decrease
in profitability was Domestications, which in addition to being significantly
impacted by the higher postage and paper costs also incurred additional costs in
connection with the move of its operations into the new Roanoke facility. These
costs included start-up costs, down time due to equipment problems, temporary
labor costs, higher shipping, damages and replacement costs. Additionally,
Domestications' product margin was adversely impacted by product mix changes,
increased
27
<PAGE> 28
promotional activities and higher obsolescence charges. The loss from
discontinued Non-Apparel catalogs increased from $1.3 million in 1994 to $10.1
million in 1995. Profitability from the Sears venture increased by $.1 million
to $3 million in 1995 and the 1995 acquisitions contributed income of $2.5
million. The Company Store and Gump's also had higher operating profits in 1995
compared to 1994.
Apparel results of operations declined $7.7 million from a loss of $.5
million in 1994 to a loss of $8.2 million in 1995. This decrease is mainly
attributable to the discontinued Apparel catalogs whose losses increased $6.5
million from $3.4 million in 1994 to $9.9 million in 1995. Mens Apparel
operating income increased 35% to $2.6 million which offset lower earnings at
Tweeds and an operating loss at Silhouettes, where credit problems in the fourth
quarter of 1995 contributed to its loss.
Interest Income (Expense). Interest expense increased approximately $1.5
million from $3.5 million in 1994 to $5.0 million in 1995. This increase was due
to higher average borrowings outstanding under the Company's revolving credit
facility in 1995 as well as an increase in the basis point of approximately 3%
in the Company's borrowing rate which is attributable to the Company's
deteriorating financial performance in 1995. Interest income declined by $.2
million to $.5 million in 1995 because the Company had less cash available for
investment.
Other Income (Expense). Other expenses in 1994 totaled a net $1.8 million
while there were no similar expenses in 1995. The loss in 1994 was comprised of
$1.2 million related to the Company's investment in Boston Publishing Company
and $1.3 million related to its investment in Regal Communications, Inc. offset
by other income of $.7 million. The Company acquired a 20% ownership in Boston
Publishing Company in February 1994. The Company made this investment with the
intention of possibly acquiring Boston Publishing Company at some point in the
future. During 1994 the Company made an investment in debt securities of Regal
Communications, Inc. It was the Company's intention to hold these debt
securities as a long-term investment and perhaps at some point in the future
obtain certain operating subsidiaries of Regal in exchange for such securities.
Income Taxes. The Company did not record a Federal income tax provision in
1995 based on the current year net operating loss. The Federal income tax
provision of $5.9 million in 1994 was offset by the utilization of net operating
loss carry forwards. The Company's state tax provision was $1.0 million and $.9
million in 1995 and 1994, respectively.
Shareholders' Equity. The number of shares of Common Stock outstanding
increased by 714,928 in 1995 due to shares issued in connection with the
Company's equity and incentive plans, the exchange of the 6% Series A
Convertible Preferred Stock and other activities. At December 30, 1995 there
were 93,452,768 shares of Common Stock outstanding compared to 92,737,840 shares
of Common Stock outstanding at December 31, 1994.
Extraordinary Items. The extraordinary loss of $1.8 million in 1995
represented a loss on the early extinguishment of debt which arose in connection
with the refinancing of the Company's $75 million Revolving Credit Facility and
its $14 million 9.25% Senior Subordinated Notes due 1998.
28
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company had $5.2 million and $2.7 million in cash and cash
equivalents at December 28, 1996 and December 30, 1995, respectively. Working
capital deficit and the current ratio were ($1.5) million and .99 to 1 at
December 28, 1996 versus working capital of $28.8 million and current ratio of
1.22 to 1 at December 30, 1995.
The primary sources of cash in 1996 were the $10.0 million of proceeds
from the issuance of debt, the $11.7 million of borrowings under the Company's
credit facility, the $50 million of proceeds from the Rights Offering and $25.4
million due to a reduction in inventories and prepaid catalog costs. Cash was
used primarily to fund: (i) the Company's 1996 operating loss, (ii) $8.9 million
of capital expenditures, (iii) $13.7 million for the reduction of accounts
payable, and (iv) $19.6 million for payments of long-term debt and debt issuance
costs.
Due to the Company's continued poor financial performance it was necessary
to obtain an equity infusion in 1996 which would (i) restore the Company's
equity base, (ii) reduce long-term debt and (iii) provide the Company with
additional liquidity. As a result, the Company conducted a $50 million Rights
Offering which was completed in August 1996. The proceeds of the Rights Offering
were used by the Company to (i) repay the $14 million principal amount of the
9.25% Notes held by an affiliate of NAR plus accrued interest, (ii) to repay the
$25 million principal amount advanced under the promissory note plus accrued
interest and (iii) to repay approximately $9 million under the Congress
Facility. The Company continued to experience operating losses in 1996 which
have eroded the recently increased equity base. This resulted in continued high
levels of back orders (unfilled orders) and increased order cancellations due to
the Company's poor in-stock position throughout 1996. In December 1996, the
Company closed its agreement (the "Reimbursement Agreement") with Richemont
Finance S.A. ("Richemont") that provides the Company with approximately $28
million of letters of credit to replace letters of credit which were issued
under the Credit Facility with Congress. Although this agreement provided the
Company added liquidity, its timing, December 19, 1996, had a minimal effect on
reducing back orders in the 1996 fiscal year. This agreement will expire in
February 1998. When the final 1996 results became known to the Company, it
concluded such results would have further negative impact on the Company's
ability to conduct business on normal trade terms. Therefore, the Company
decided that it was necessary to obtain an equity infusion which would restore
the Company's equity base that had deteriorated in 1996 and provide the Company
with additional liquidity. As a result of the equity infusion, the $10 million
NAR Promissory Note would also be satisfied.
On March 26, 1997, the Company announced that it intends to distribute
subscription rights to subscribe for and purchase additional shares of
Common Stock to the holders of record of the Company's Common Stock and
Series B Convertible Additional Preferred Stock (the "1997 Rights Offering") as
soon as it has filed with and had declared effective by the SEC a registration
statement with respect thereto. The Rights will be exercisable at a price of
$.90 per share. NAR has agreed to apply $10 million of the Company's
indebtedness to acquire $10 million of the Company's Common Stock. Richemont has
agreed to purchase all shares of Common Stock which have not been subscribed for
and purchased by shareholders other than NAR in the 1997 Rights Offering. Any
offering will be made solely by means of a prospectus. Richemont has agreed to
advance $30 million against its commitment to purchase all of the unsubscribed
shares. In connection with the agreement the Company named two Richemont
29
<PAGE> 30
representatives, Messrs. Jan du Plessis and Howard Tanner, to its Board of
Directors (the "Board) and Executive Committee, and it is intended that a third
Richemont representative for election to the Board at the next annual meeting.
The new Board members fill vacancies created by the recent resignations of
Geraldine Stutz and Jeffery R. Laikind. In addition, Mr. du Plessis has been
named to the Audit Committee of the Board.
At December 28, 1996, the Company had outstanding $11.5 million of
current borrowings. This balance, consisting primarily of the $8.9 million
Revolving Term Notes under the Congress Facility, will be paid down with cash
generated from operations in 1997.
The Company has received waivers for the December 1996 events of default
under the Congress Facility related to the working capital and net worth
covenants as of and through December 28, 1996. In addition, the Company received
a waiver for any event of default relating to the material adverse change
provision that was in effect through and including December 28, 1996. The
Company received working capital and net worth covenant amendments for fiscal
1997 which are less restrictive.
The Company is required to maintain certain financial covenants
related to this agreement which the Company failed to maintain, but has
received a waiver for the event of default at December 28, 1996.
The Company believes that the 1997 Rights Offering (with Richemont's
commitment to advance $30 million against its purchase of all unsubscribed
shares) together with the Congress Facility financial covenant modifications
will ease vendor/credit concerns about the Company's viability. The Company
believes that upon the conclusion of the 1997 Rights Offering, the Company will
return to normal trade terms with all suppliers and will be able to obtain
normal trade terms with its suppliers and obtain sufficient merchandise on a
timely basis to satisfy customer demand. The Company's ability to sufficiently
improve upon its prior year's performance and implement its business strategy,
including realignment of business units and expense reductions, is critical to
maintaining adequate liquidity.
Operating Plan. The Company has begun an operational realignment plan that
it believes will better enable it to capitalize on its internal strengths. The
Company is moving to a decentralized structure whereby the individual catalogs
will be better able to manage their resources and capitalize on business
opportunities. This plan provides for each catalog's management team to be
responsible for its financial results, working capital resources and future
business investment needs. The Company believes that this structure will result
in better management of vendor relationships, inventories and working capital.
The Company experiences seasonality in its working capital requirements
and fluctuations in the revolving Credit Facility which occur usually within the
first and fourth quarters of the year.
Infrastructure Investments. In early 1995, the Company completed the
construction of a new fulfillment facility on a 53 acre site in Roanoke,
Virginia to support the Domestications catalog. The total cost of the facility
was $18.3 million. The Company experienced operating inefficiencies and start-up
problems in conjunction with bringing this facility into service. The Company
continued to experience inefficiencies in 1996, and made an additional
investment of approximately $3 million to help improve these operating problems
before the end of 1996.
30
<PAGE> 31
The Company's plan to restructure its catalog's into strategic business
groups and concentrate its mailing efforts on profitable customers will result
in excess capacity throughout its fulfillment centers. Therefore, the Company
intends to consolidate certain of its fulfillment operations into its new
Roanoke fulfillment center. This will require a capital investment of
approximately $5.0 million.
The Company continued its management information systems up-grade in 1996.
The new system was operational in ten catalogs at the end of 1996. The Company
expects to complete the roll-out of the system to the remaining catalogs in 1997
for an additional capital investment of approximately $1 million. The Company
incurred higher MIS costs in 1996 due to the continued transition to the new
system. As of December 28, 1996, the Company had incurred capitalized costs of
approximately $17.9 million as part of this plan, including $2.0 million in
1996. Such costs included hardware and software costs aggregating $14.2 million
and internal costs of $3.7 million related to production of this new system.
The Company began to amortize these costs over 5 years in 1995.
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
internal cost reductions and operating efficiencies and then through selective
price increases where market conditions permit. The Company's inventory is
mail-order merchandise which undergoes sufficiently high turnover so that the
costs of goods sold approximate 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.
Paper and Postage. 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 18% of revenues
in 1996. Paper costs represented approximately 8% of revenues in 1995.
Cautionary Statements
The following statements constitute forward looking statements which
involve risks and uncertainties:
This new structure will also result in reduced fixed overhead costs as
the Company's centralized services will be utilized more efficiently.
The Company is moving to a decentralized structure whereby the
individual catalogs will be better able to manage their resources and
capitalize on business opportunities.
The following are important factors, among others, that could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf, of the Company:
The Company's new decentralized structure represents a significant
change in the manner in which management of the newly created business
units are accustomed to operate and the principal managers of the
business units may not be able to effectively manage their businesses
in a decentralized environment, particularly with respect to monitoring
and implementing financial controls adequately to maintain appropriate
working capital levels due to their limited experience or because of
other factors which the Company may not have anticipated.
Many of the managers of the Company's business units have not operated
in a decentralized environment in the past and it may take substantial
time before they are able to take advantage of the business
opportunities, if any, that may inhere in the new structure.
A general deterioration in the economic conditions in the United States
leading to increased competitive activity including a business failure
of a substantial size company in the retail industry, a reduction in
consumer spending generally or specifically with reference to the types
of merchandise that the Company offers in its catalogs.
An increase in the failure rate of consumer indebtedness generally; an
increase in credit sales by the Company accompanied by an increase in
its bad debt experience with respect to consumer debt.
31
<PAGE> 32
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) and subsidiaries as of December 28, 1996
and December 30, 1995, and the related consolidated statements of income (loss),
shareholders' (deficit) equity and cash flows for each of the three fiscal years
in the period ended December 28, 1996. These consolidated 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 consolidated
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 December 28, 1996 and December 30, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 28, 1996 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 audit 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
March 26, 1997
32
<PAGE> 33
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,682 $ 5,173
Accounts receivable, net of allowance for
doubtful accounts of $2,597 in 1995 and
$5,030 in 1996 30,176 29,399
Inventories 79,281 67,610
Prepaid catalog costs 37,118 23,401
Deferred tax asset, net 3,300 3,300
Other current assets 6,170 3,148
-------- --------
Total Current Assets 158,727 132,031
-------- --------
Property and Equipment, at cost:
Land 4,811 4,797
Buildings and building improvements 19,353 16,554
Leasehold improvements 14,001 9,956
Furniture, fixtures and equipment 39,508 31,510
Construction in progress 5,479 8,315
-------- --------
83,152 71,132
Accumulated depreciation and amortization (26,090) (22,523)
-------- --------
Property and Equipment, net 57,062 48,609
-------- --------
Goodwill 36,586 17,901
Deferred tax asset, net 11,700 11,700
Other assets 14,934 10,586
-------- --------
Total Assets $279,009 $220,827
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(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 $ 3,546 $ 11,452
Accounts payable 93,291 79,587
Accrued liabilities 25,969 37,782
Customer prepayments and credits 7,147 4,717
-------- --------
Total Current Liabilities 129,953 133,538
-------- --------
Noncurrent Liabilities:
Long-term debt 57,283 53,255
Capital lease obligations 1,973 482
Other 2,590 1,812
-------- --------
Total Noncurrent Liabilities 61,846 55,549
-------- --------
Total Liabilities 191,799 189,087
-------- --------
Commitments and Contingencies (Note 17)
Shareholders' Equity
Preferred Stock:
6% Series A Convertible Additional
Preferred Stock, $10 stated value,
authorized 5,000,000 shares; issued and
outstanding 78,300 shares in 1995 795 --
Series B Convertible Additional Preferred Stock,
$.01 par value, authorized, issued and outstanding
634,900 shares in 1995 and 1996 5,558 5,748
Common Stock, $.66 2/3 par value, authorized
225,000,000 shares; issued 93,693,162 shares in
1995 and 145,039,915 shares in 1996 62,461 96,693
Capital in excess of par value 255,390 270,097
Accumulated deficit (231,332) (336,586)
-------- --------
92,872 35,952
Less:
Treasury stock, at cost (1,157,061 shares in 1995
and 392,017 shares in 1996) (3,345) (813)
Notes receivable from sale of Common Stock (2,023) (3,399)
Deferred compensation (294) --
-------- --------
Total Shareholders' Equity 87,210 31,740
-------- --------
Total Liabilities and Shareholders' Equity $279,009 $220,827
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
34
<PAGE> 35
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the years ended December 31, 1994, December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues $768,884 $749,767 $ 700,314
-------- -------- ---------
Operating costs and expenses:
Cost of sales and operating expenses 484,059 483,493 479,155
Write-down of inventory of
discontinued catalogs -- 8,580 1,100
Special charges -- 1,563 36,724
Selling expenses 197,436 205,618 195,032
General and administrative expenses 65,257 64,112 70,608
Depreciation and amortization 6,157 9,020 12,192
-------- -------- ---------
752,909 772,386 794,811
-------- -------- ---------
INCOME (LOSS) FROM OPERATIONS 15,975 (22,619) (94,497)
Interest expense (3,544) (5,050) (8,858)
Interest income 731 519 460
Other income (expense) (1,833) -- --
-------- -------- ---------
Income (loss) before income taxes 11,329 (27,150) (102,895)
Income tax provision (benefit) (3,509) 1,003 1,000
-------- -------- ---------
Income (loss) before extraordinary item 14,838 (28,153) (103,895)
Extraordinary item (Note 8) -- (1,837) (1,134)
-------- -------- ---------
NET INCOME (LOSS) 14,838 (29,990) (105,029)
Preferred stock dividends (135) (240) (225)
-------- -------- ---------
Net income (loss) applicable to
Common Shareholders $ 14,703 $(30,230) $(105,254)
======== ======== =========
Net income (loss) per share:
Income (loss) before extraordinary item $ .16 $ (.30) $ (.93)
Extraordinary item -- (.02) (.01)
-------- -------- ---------
NET INCOME (LOSS) PER SHARE $ .16 $ (.32) $ (.94)
======== ======== =========
Weighted average common shares
outstanding 93,285 93,030 111,441
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 36
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series B, Cumulative Series A, 6.0%
Shares Amount Shares Amount
----------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 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 $ 0 156,600 $1,589
Net income/(loss) applicable to common shareholders
Issuance of Preferred Stock 634,900 5,400
Fair market value of warrant extensions
Preferred stock dividends and accretion 158 83
Conversion of one-third of the 6% Preferred Stock (78,300) (877)
Issuance of Common Stock for Employee Benefit Plans, net
----------------------------------------------
Balance at December 30, 1995 634,900 $5,558 78,300 $ 795
Net income/(loss) applicable to common shareholders
Shares issued in Rights Offering
Preferred stock dividends and accretion 190 35
Conversion of the 6% Preferred Stock (78,300) (830)
Purchase of treasury stock
Transfer of treasury stock related to employement agreement
Sale of treasury stock
Issuance of Common Stock for Employee Benefit Plans, net
----------------------------------------------
Balance at December 28, 1996 634,900 $5,748 0 $ 0
==============================================
</TABLE>
<TABLE>
<CAPTION>
Capital
Common Stock in Excess
$.66 2/3 par value of Par Accum.
Shares Amount Value (Deficit)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 83,136,542 $55,423 $209,834 $(215,805)
Net income applicable to common shareholders 14,703
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 92,978,234 $61,985 $253,210 $(201,102)
Net income/(loss) applicable to common shareholders (30,230)
Issuance of Preferred Stock
Fair market value of warrant extensions 1,200
Preferred stock dividends and accretion
Conversion of one-third of the 6% Preferred Stock 427,785 285 592
Issuance of Common Stock for Employee Benefit Plans, net 287,143 191 388
--------------------------------------------------------
Balance at December 30, 1995 93,693,162 $62,461 $255,390 $(231,332)
Net income/(loss) applicable to common shareholders (105,254)
Shares issued in Rights Offering 48,748,785 32,499 16,467
Preferred stock dividends and accretion
Conversion of the 6% Preferred Stock 819,733 546 284
Purchase of treasury stock
Transfer of treasury stock related to employement agreement (2,750)
Sale of treasury stock 28
Issuance of Common Stock for Employee Benefit Plans, net 1,778,235 1,187 678
--------------------------------------------------------
Balance at December 28, 1996 145,039,915 $96,693 $270,097 $(336,586)
========================================================
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable
From Sale
Treasury Stock of Common Deferred
Shares Amount Stock Comp. Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 (1,120,032) $(3,130) $(1,774) $(1,058) $ 45,868
Net income applicable to common shareholders 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 (1,157,061) $(3,345) $(1,912) $ (700) $ 109,725
Net income/(loss) applicable to common shareholders (30,230)
Issuance of Preferred Stock 5,400
Fair market value of warrant extensions 1,200
Preferred stock dividends and accretion 241
Conversion of one-third of the 6% Preferred Stock (0)
Issuance of Common Stock for Employee Benefit Plans, net (111) 406 874
----------------------------------------------------------
Balance at December 30, 1995 (1,157,061) $(3,345) $(2,023) $ (294) $ 87,210
Net income/(loss) applicable to common shareholders (105,254)
Shares issued in Rights Offering 48,966
Preferred stock dividends and accretion 225
Conversion of the 6% Preferred Stock 0
Purchase of treasury stock (301,623) (396) (396)
Transfer of treasury stock related to employement agreement 916,667 2,750 0
Sale of treasury stock 150,000 178 206
Issuance of Common Stock for Employee Benefit Plans, net (1,376) 294 783
----------------------------------------------------------
Balance at December 28, 1996 (392,017) $ (813) $(3,399) $ 0 $ 31,740
==========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 37
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, December 30, 1995, and December 28,
1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,838 $(29,990) $(105,029)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization including
deferred fees 6,499 9,419 13,277
Provision for doubtful accounts 3,697 4,448 6,805
Provision for catalog and facility closings -- 10,143 14,720
Write-off of long-lived assets -- 500 22,000
Extraordinary item - early extinguishment of
debt -- 1,837 1,134
Provision for losses on notes receivable and
marketable securities 2,121 -- 888
Deferred transaction costs (837) -- (1,211)
Deferred taxes (4,369) -- --
Other, net 43 76 94
Changes in assets and liabilities, net of effects of
acquired businesses and dispositions of assets:
Accounts receivable, net (9,901) (6,161) (7,863)
Inventories (3,424) 8,679 11,671
Prepaid catalog costs (8,154) 206 13,717
Other current assets (1,220) (3,131) 1,332
Accounts payable 10,518 (8,671) (13,704)
Accrued liabilities 185 (1,583) 1,219
Customer prepayments and credits (1,389) 3,134 (2,430)
-------- -------- ---------
Net cash provided (used) by operating activities 8,607 (11,094) (43,380)
-------- -------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (23,856) (13,686) (8,862)
Purchase of businesses -- (13,008) --
Proceeds from sales of businesses -- -- 1,980
Proceeds from investment -- -- 794
Purchase of convertible debt securities (2,693) -- --
Investments in affiliates (3,183) -- --
Advances (2,300) -- --
Other, net (3,293) (1,387) --
-------- -------- ---------
Net cash (used by) investing activities (35,325) (28,081) (6,088)
-------- -------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE> 38
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1994, December 30, 1995 and December 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds (payments) under revolving credit
facility $ (230) $ -- $ 11,699
Proceeds from issuance of debt 10,000 20,685 10,000
Payments of long-term debt and capital lease
obligations (8,015) (1,419) (17,625)
Cash dividends paid (1,027) -- --
Payment of debt issuance costs (1,458) (2,202) (1,990)
Repurchase of Common Stock (215) -- --
Proceeds from issuance of Common Stock 49,305 400 50,653
Other, net (172) 340 (778)
------- -------- --------
Net cash provided by financing activities 48,188 17,804 51,959
------- -------- --------
Net increase (decrease) in cash and cash equivalents 21,470 (21,371) 2,491
Cash and cash equivalents, beginning of year 2,583 24,053 2,682
------- -------- --------
Cash and cash equivalents, end of year $24,053 $ 2,682 $ 5,173
======= ======== ========
Supplemental cash flow disclosure:
Interest paid $ 2,923 $ 4,586 $ 6,224
Income taxes paid $ 701 $ 1,318 $ 1,096
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE> 39
HANOVER DIRECT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
1. BACKGROUND OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Nature of Operations - Hanover Direct, Inc., a Delaware company, ("HDI")
is a direct specialty retailer in the United States that publishes a portfolio
of branded specialty catalogs offering home fashions, general merchandise, men's
and women's apparel and gifts. HDI also operates several retail operations in
the United States which comprised approximately 4% of HDI's net revenues for the
year ended December 28, 1996.
The Company has experienced significant operating losses during 1995 and
1996 which resulted in numerous issues, including liquidity and vendor
concern. The Company completed a Rights Offering in August 1996 (Note 9) which
helped to alleviate these issues and concerns, however, continued operating
losses through the remainder of fiscal 1996 has resulted in the Company
proceeding with a 1997 Rights Offering and a modification of the Congress
Facility financial covenants to less restrictive terms (Note 18). The Company's
ability to significantly improve upon its prior year's performance and
implement its business strategy, including realignment of business units and
expense reductions, is critical to maintaining adequate liquidity.
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 or 53 week fiscal year. The
years ended December 28, 1996, December 30, 1995 and December 31, 1994 were 52
week years.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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. The Company considers slow moving
inventory to be surplus and calculates a loss on the impairment as the
difference between an individual item's cost and the net proceeds anticipated to
be received upon disposal. Such inventory is written down to its net realizable
value. The costs capitalized by the Company are the costs of the product and
freight-in charges.
Prepaid Catalog Costs - Costs related to mail order catalogs and
promotional material are capitalized and amortized over their estimated
productive lives, generally not exceeding six months. Total catalog expense was
$193.5 million, $197.3 million and $191.8 million, respectively, in 1996, 1995
and 1994.
Depreciation and Amortization - Depreciation and amortization of property
and equipment is provided on the straight-line method over the following lives:
buildings and building improvements, 30-40 years; furniture, fixtures and
equipment, 3-10 years; and leasehold improvements, over the shorter of the
estimated useful lives or the terms of the related leases. Expenditures for
maintenance and repairs are charged to operations as incurred.
39
<PAGE> 40
Capitalized development costs for the Company's new management
information systems aggregated $6.4 million at December 30, 1995. Such costs are
included in Other assets and are being amortized over a five year period
commencing July 1995. No such costs were capitalized during 1996.
Goodwill - Excess of cost over the net assets of acquired businesses is
amortized on a straight-line basis over periods of up to forty years.
Accumulated amortization was $3.0 million and $5.6 million at December 28, 1996
and December 30, 1995, respectively.
Mailing Lists - The costs of acquired mailing lists are amortized over a
five year period. Mailing lists, included in Other assets, amounted to $1.2
million and $3.5 million at December 28, 1996 and December 30, 1995,
respectively, and are carried net of accumulated amortization of $1.5 million
and $1.6 million, respectively.
Accounting for the Impairment of Long-Lived Assets - Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of" was issued by
the Financial Accounting Standards Board in March 1995. This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
recoverable. Based upon the assessment of cash flows for certain underperforming
catalogs, the Company recorded a charge related to impaired assets of $22.0
million for the fiscal year ended December 28, 1996 (Note 3).
Accounting for Stock Based Compensation - In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective in 1996. The Statement encourages entities to
adopt the fair value-based method of accounting for employee stock option plans,
as opposed to the method which measures compensation cost for those plans using
the intrinsic value-based accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." In accordance with the provisions of
SFAS No. 123, the Company recorded a compensation charge of $.5 million in
fiscal 1996.
Accounting for Income Taxes - The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." This pronouncement
established financial accounting and reporting standards for the effects of
income taxes that result from the Company's activities during the current and
preceding years. It requires an asset and liability approach for financial
accounting and reporting for income taxes. The provision for income taxes is
based upon income after adjustment for those temporary and permanent items which
are not considered in the determination of taxable income. Deferred taxes result
when the Company recognizes revenue or expenses for income tax purposes in a
different year than for financial reporting purposes.
Cash and Cash Equivalents - Cash and cash equivalents include cash and
all highly liquid investments with original maturities of ninety days or less.
40
<PAGE> 41
Net Income Per Share - Net income per share is 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 1996, 1995 and 1994 was 111,441,247, 93,029,816 and
93,285,190, shares, respectively. Common share equivalents for purposes of net
income per share consist of stock options and warrants.
Recently Issued Accounting Standard - Subsequent to December 28, 1996,
the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share." This statement establishes standards for computing and presenting
earnings per share ("EPS"), replacing the presentation of currently required
primary EPS with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS and
Diluted EPS on the face of the statement of operations. Under this new standard,
Basic EPS is computed based on weighted average shares outstanding and excludes
any potential dilution. Diluted EPS reflects potential dilution from the
exercise or conversion of securities into common stock or from other contracts
to issue common stock and is similar to the currently required fully diluted
EPS. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all periods presented. The Company does not expect the
impact of the adoption of this statement to be material to previously reported
EPS amounts.
Revenues - The Company recognizes revenue at the time the merchandise is
shipped to the customer. Amounts billed to customers for postage and handling
charges are recognized as revenue at the time that the revenues on the product
shipment are recognized. The Company provides a reserve for expected future
returns at the time the sale is recorded based upon historical experience.
Fair Value of Financial Instruments - The fair value of financial
instruments does not materially differ from their carrying values.
Supplemental Disclosure of Noncash Activities
<TABLE>
<CAPTION>
1994 1995 1996
------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations .......... $ -- $ 1,155 $ --
====== ======== =======
Other equity issuances and exchanges $1,823 $ 1,456 $ 2,855
====== ======== =======
Acquisition of businesses:
Fair value of assets acquired .... $ -- $ 45,165 $ --
Fair value of liabilities assumed -- (26,757) --
Preferred stock issued ........... -- (5,400) --
------ -------- -------
Net cash paid .................... $ -- $ 13,008 $ --
====== ======== =======
</TABLE>
41
<PAGE> 42
2. ACQUISITIONS AND INVESTMENTS
ACQUISITIONS - During fiscal 1995, the Company acquired the entities
described below, which were accounted for by the purchase method of accounting.
The operating results of these acquired businesses have been included in the
consolidated statements of income from the date of acquisition:
Improvements--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 Improvements and Leichtung
Workshops names, for a purchase price of approximately $12.8 million in cash and
the assumption of certain liabilities. The excess purchase price over the fair
values of the net assets acquired (goodwill) was $7.3 million. Approximately
$1.4 million of customer mailing list intangible assets were also purchased in
this transaction.
In the first quarter of 1996, the Company sold the assets of the
Leichtung Workshops catalog for $.9 million in cash and short-term notes and
relocated all Improvements' telemarketing and fulfillment operations to the
Company's Hanover, PA facility. There was no gain or loss recognized on the sale
of the assets of the Leichtung Workshops catalog. The distribution facility in
Ohio, which is being held for sale, was written down to its estimated net
realizable value of $.1 million, as of December 28, 1996. In 1996, the Company
provided $.7 million, included as a component of special charges, to write-down
this facility (Note 3).
The Safety Zone--In February 1995, the Company acquired the remaining 80%
of the outstanding common stock it did not already own of Aegis Safety Holdings,
Inc. ("Aegis"), publisher of The Safety Zone catalog, through the issuance of
634,900 shares of a newly-created Series B Convertible Additional Preferred
Stock ("Series B Stock") of the Company with a stated value of $10 per share.
Dividends are payable on the Series B Stock at various rates and times and are
contingent on specific earnings targets. The Series B Stock is also convertible,
subject to antidilution, as discussed in Note 10. The excess purchase price over
the fair values of the net assets acquired (goodwill) was $7.1 million. In
December 1996, the Company wrote-off the goodwill related to this acquisition
in accordance with SFAS No. 121 (Note 3).
Austad's--In May 1995, the Company acquired 67.5% of the outstanding
shares of Austad's Holdings, Inc. ("Austad's"), which owned The Austad Company
("TAC"), the publisher of the Austad's catalog featuring golf equipment, apparel
and gifts, for a purchase price of $1.8 million in cash. The Company also lent
TAC, on a subordinated basis, $2.2 million which bears interest at the rate of
10% per annum and is due by May 2000. The Company also provided a $.4 million
loan to TAC which bears interest at a fluctuating rate (8.75% at December 28,
1996 and December 30, 1995) and is secured by a second mortgage on TAC's office
and warehouse. The excess purchase price over the fair values of the net assets
acquired (goodwill) was $4.5 million. Approximately $1.2 million of customer
mailing list intangible assets were also acquired in this transaction. In
December 1996, the Company wrote-off the goodwill and mailing lists in
accordance with SFAS No. 121 (Note 3).
42
<PAGE> 43
On February 16, 1996, former minority shareholders surrendered to
Austad's their Austad's shares, amounting to 32.5% of the outstanding shares,
and paid approximately $1.1 million in exchange for all the outstanding shares
of AGS, Inc. ("AGS"), a South Dakota corporation formed by TAC to hold the
existing retail assets and liabilities of TAC. The transaction assumed a value
for Austad's and TAC based on the Company's purchase price in the May 1995
acquisition, as adjusted by adding the net income of Austad's and TAC from May
25, 1995 through February 16, 1996.
As a result of the reorganization, Austad's became a wholly owned
subsidiary of the Company. In connection with the reorganization, TAC was
released from all future obligations under all store leases. AGS will operate
the four existing retail stores acquired from TAC as Austad's stores under
license from Austad's. The customer service and fulfillment operations of
Austad's were transferred to other Company facilities in the first quarter of
1996, and the Company sold the Austad's South Dakota warehouse and distribution
facility in July 1996 for $2.1 million which approximated its book value. The
net proceeds were used to pay the outstanding mortgage on the property (Note 8).
TAC had a revolving credit facility that was secured by substantially all
of TAC's assets that expired on February 26, 1996. Such facility was paid off at
the February 16th closing with the proceeds from the sale of the retail
operations and from the Company's revolving credit facility (Note 8).
The following represents the unaudited pro forma results of operations
for the years ended December 31, 1994 and December 30, 1995 as if these
acquisitions had occurred at the beginning of fiscal year 1994.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
(Unaudited)
1994 1995
-------- --------
<S> <C> <C>
Revenues $840,295 $763,786
======== ========
Income (loss) before extraordinary item $ 14,305 $(28,083)
======== ========
Net income (loss) $ 14,170 $(30,160)
======== ========
Per Share:
Income (loss) before extraordinary item $ .15 $ (.30)
Extraordinary item -- (.02)
-------- --------
Net income (loss) $ .15 $ (.32)
======== ========
</TABLE>
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. Per share amounts are expressed after deducting preferred
stock dividends of $.1 and $.2 million in 1994 and 1995, respectively.
OTHER INVESTMENTS - Other investments, which are recorded in Other assets
in the accompanying consolidated balance sheets, include the following:
43
<PAGE> 44
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. The remaining
50% interest is held by an unrelated third party. This investment is accounted
for by the equity method of accounting. The Company made annual rent payments to
the partnership of approximately $.7 million in both 1996 and 1995 as part of a
15 year lease through 2008. The Company also recorded $.1 million in income for
its portion of the partnership income in both 1996 and 1995. The Company's
investment in Blue Ridge was approximately $.9 million and $1 million at
December 28, 1996 and December 30, 1995, respectively. In December 1996, the
Company decided to consolidate this facility into its new Roanoke, Virginia
distribution facility.
Regal Communications, Inc. - During 1994, the Company invested
approximately $2.7 million in convertible debt securities of Regal
Communications, Inc. ("Regal"). In September 1994, Regal filed for protection
under Chapter 11 of the United States Code. As a result, during 1994, the
Company wrote down the convertible debentures to the estimated fair value of
$1.7 million. The $1 million decline in fair value of the investment was
considered an other- than-temporary impairment and included in the income
statement in 1994. The convertible debt matures on June 15, 2008. In December
1995, a plan of reorganization was confirmed by the Bankruptcy Court and the
Company expected to recover the $1.7 million carrying value of its investment,
however, only $.8 million of distributions were received through 1996. During
1996, a federal income tax refund due to Regal was reviewed by the Internal
Revenue Service (the "IRS"), and the results of this review have been submitted
to the Joint Committee of the IRS for approval. Due to the uncertainty that
recoverability of substantially all of the remaining investment balance is
subject to a favorable outcome, in December 1996, the Company wrote-off the
remaining $.9 million balance as the decline in fair value was considered an
other than temporary impairment.
Tiger Direct - In February 1995, the Company entered into an agreement to
acquire certain securities of Tiger Direct, Inc. ("Tiger"), a direct marketer of
computer software, peripherals and CD-ROM hardware and software. In February
1995, the Company entered into a loan and security agreement with Tiger pursuant
to which the Company provided a secured working capital line of credit to Tiger,
up to a maximum of $3.0 million, which was loaned under such agreement. In
September 1995, due to the continued deterioration of Tiger's financial
condition, the Company terminated the securities purchase agreement and sold the
loan to a third party and received payment in full for the principal of the loan
and interest to the date of sale.
During the period from February 1995 to September 1995, the Company
provided certain services to Tiger and also incurred certain costs related to
entering into the loan and security agreements aggregating $.5 million. Under
the terms of the agreement, Tiger is required to reimburse the Company for such
costs and services rendered. Tiger refused to reimburse the Company for these
costs causing the Company to institute an action to recover such costs, which
were carried at their estimated realizable value. In February 1997, the Company
recovered $.2 million in settlement of such action.
Boston Publishing Company - In February 1994, the Company acquired a 20%
equity interest in Boston Publishing Company ("BPC") and provided secured and
unsecured loans to BPC. In August 1994, BPC filed for protection under Chapter
11 of the United States Code.
44
<PAGE> 45
In 1995, the Company received inventory and the customer mailing list of BPC in
payment of its $1.2 million loan and subsequently realized $.3 million upon
disposition of these assets and wrote-off the remaining assets.
3. SPECIAL CHARGES
In December 1996, the Company recorded special charges aggregating
approximately $36.7 million. These charges consist of severance ($3.2 million)
and facility exit/relocation costs and fixed asset write-offs ($11.5 million)
related to the previously announced downsizing of the Company, as discussed in
its December 1996 press release. In addition, the Company's review of the
impairment of its long-lived assets of certain under-performing catalogs led to
a write-off of $22.0 million.
Severance - The cost of employee severance includes termination benefits
for line and supervisory personnel in fulfillment, telemarketing, MIS,
merchandising, and various levels of corporate and catalog management. These
costs are recorded in Accrued liabilities in the accompanying consolidated
balance sheet at December 28, 1996.
Facility Exit/Relocation Costs and Fixed Asset Write-Offs - These costs
are primarily composed of the Company's decision to relocate from its Weehawken,
NJ corporate facility, and consolidate its Roanoke, VA apparel distribution
center and Hanover, PA distribution center into its Roanoke home fashion
distribution center. The consolidation of these distribution centers and the
relocation of the corporate operations is expected to be completed by the end of
fiscal 1997. Approximately $6.3 million of these costs are recorded in Accrued
liabilities in the accompanying consolidated balance sheet at December 28, 1996.
In 1995, the Company incurred costs, aggregating approximately $1.5
million, in connection with the consolidation of its fulfillment facilities.
These costs include moving expenses, lease termination fees and severance
expenses, substantially all of which were paid in 1995. There were no such
charges incurred by the Company in 1994.
Impairment of long-lived assets - The Company considers a history of
catalog operating losses to be its primary indicator of potential impairment.
Assets are grouped and evaluated for impairment at the lowest level for which
there are identifiable cash flows that are independent of the cash flows of
other groups of assets. The Company has identified the appropriate grouping of
assets to be individual catalogs, except where certain catalogs are a part of a
group that, together, generate joint cash flows. The assets are deemed to be
impaired if a forecast of undiscounted future operating cash flows is less than
the carrying amounts. The loss is measured as the amount by which the carrying
amount of the assets exceeds its fair value. The Company generally measures fair
value by discounting estimated future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows and, accordingly,
actual results could vary significantly from such estimates. The impairment loss
was approximately $22.0 million and is primarily composed of the write-off of
goodwill and mailing lists associated with Tweeds, Austad's and The Safety Zone
(Note 2). No such charges were recorded by the Company in 1995 and 1994.
45
<PAGE> 46
4. WRITE-DOWN OF INVENTORY OF DISCONTINUED CATALOGS
In 1995, the Company made a decision to discontinue six catalogs. The six
discontinued catalogs generated revenues of $20 million, $88 million and $118
million and losses of $5.1 million, $20 million and $4.7 million in 1996, 1995
and 1994, respectively. These losses are attributable to falling revenues due to
poor sales on the discontinued catalogs, increasing operating costs and expenses
and increasing selling expenses predominantly incurred to create liquidation
catalogs. The losses in 1996 and 1995 include provisions of approximately $1.1
million and $8.6 million, respectively, primarily related to the write-down of
inventory associated with these catalogs to their net realizable value based on
the planned liquidation of such inventory. The $8.6 million write-down in 1995
occurred because the Company anticipated mailing fewer catalogs than originally
planned for 1996, which resulted in significantly more merchandise on-hand that
needed to be moved through non-catalog channels. The inventory write-down of
$1.1 million in 1996 was required due to lower than anticipated recovery rates
on liquidation of such inventory. The Company utilizes various methods to
dispose of the inventory related to discontinued catalogs, including special
sale catalogs, sales sections in other catalogs and liquidations of remaining
inventory through off-price merchants. This liquidation process typically takes
from six to nine months. These losses represent an incremental provision in
excess of the original provision included in cost of sales expense. There were
no such charges incurred by the Company in 1994. Fixed overhead expenses,
primarily telemarketing and fulfillment costs, that were allocated to the six
discontinued catalogs have been absorbed by the operations of the 1995
acquisitions and through cost containment measures instituted by the Company.
5. 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 discontinued Sears
catalog. The specialty catalogs included: Show Place, based on the
Domestications catalog, Great Kitchens, based on the Colonial Garden Kitchens
catalog, and Sears Improvements, based on the Improvements catalog. The Sears
Agreement had an initial three-year term and was to continue thereafter unless
terminated. In December 1996, the Sears Agreement was terminated by Sears with
the last catalogs to be mailed in the first quarter of 1997. Sears terminated
the agreement based on the Company's non-compliance with certain operating
standards in order fulfillment and certain reporting standards.
Profits and losses from the venture are shared between the parties on an
equal basis until the venture is completed in the first quarter of 1997. In
accordance with the Sears Agreement, earnings before interest and taxes ("EBIT")
generated by the Sears catalogs is the basis for dividing these profits. The
Sears specialty catalogs generated revenues of $82 million, $81 million and $71
million and EBIT of $.3 million, $3.0 million and $2.9 million in 1996, 1995 and
1994, respectively.
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 had
revenues of at least $250 million and EBIT of at least $30 million in 1998.
Alternately, Sears would have been entitled to purchase 7 million shares of
Common Stock in 1999 if the licensed business with Sears had revenues of at
least $500 million and EBIT of at least $60 million in 1998. The warrant
exercise
46
<PAGE> 47
price was $10.57 per share. Through 1996, no charges have been recorded in
connection with the warrants. Due to the termination of the Sears Agreement, the
Company believes that the venture wind-up activities will not generate
sufficient financial performance to enable Sears to exercise these warrants. The
Company believes that the termination of this venture will not have a material
impact on the Company's 1997 operating results.
6. 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 cards. The agreement expires in
December 2000. The Company remains obligated to repurchase uncollectible
accounts pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables sold under the
program as a deposit with the third party to secure its obligations under the
agreement. The Company is required to maintain certain financial covenants
related to this agreement and has received a waiver for the events of default at
December 28, 1996.
The proceeds to the Company relating to the sale of receivables for 1996,
1995 and 1994 were $39.2 million, $46.2 million and $56.1 million, respectively.
At December 28, 1996 and December 30, 1995, the uncollected balances under this
program were $33.5 million and $38.6 million, respectively, of which $4.8
million, and $5.5 million respectively, represent deposits under the agreement
which are included in Accounts receivable, net. The total reserve balance
maintained for the repurchase of uncollectible accounts was $2.5 million and
$2.4 million at December 28, 1996 and December 30, 1995, respectively, of which
$1.4 million in both years is 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.
47
<PAGE> 48
7. ACCRUED LIABILITIES.
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C> <C>
Restructuring $ -- $ 9,504
Reserve for future sales returns 5,535 9,036
Compensation 5,795 3,968
Taxes 3,007 2,696
Reserve for repurchase of accounts
receivable sold with recourse 1,391 1,389
Other 10,241 11,189
------- -------
Total $25,969 $37,782
======= =======
</TABLE>
8. LONG-TERM DEBT.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
---- ----
<S> <C> <C>
Congress Facility $ 9,931 $22,627
Term Financing Facility 20,000 19,000
TAC Revolving Credit Facility 2,011 --
NAR Promissory Note -- 10,000
6% Mortgage Notes Payable due 1998 3,139 2,969
Industrial Revenue Bonds with variable interest rates
averaging 4.1% in 1995 and 3.6% in 1996 due
2003 8,000 8,000
7.5% Convertible Subordinate Debentures due
2007 751 751
8.75% Mortgage Note Payable due 2003 1,718 --
9.25% Senior Subordinated Notes due 1998 14,000 --
Other 19 16
------- -------
59,569 63,363
Less current portion 2,286 10,108
------- -------
$57,283 $53,255
======= =======
</TABLE>
In November 1995, the Company replaced their previous $80 million
unsecured revolving credit facility (the "Revolver") with a new $75 million
secured credit facility (the "Congress Facility") with Congress Financial
Corporation ("Congress"), and repaid all amounts outstanding under the Revolver.
In addition, all standby letters of credit issued under the previous arrangement
were replaced with letters of credit issued by Congress under the Congress
Facility.
48
<PAGE> 49
Congress Facility - The Congress Facility is comprised of a revolving
line of credit of up to $65 million with a three year term ("Congress Revolving
Credit Facility") and two year term loans aggregating $10 million ("Revolving
Term Notes"). The amount that can be borrowed under the Congress Facility is
based on percentages of eligible inventory and accounts receivable from time to
time. Beginning in November 1996, Congress lowered the advance rate by which the
available inventory is calculated by $4.4 million. This calculation was further
reduced by $2.0 million, pending completion of a new inventory appraisal which
was completed in March 1997. The Congress Revolving Credit Facility bears
interest at 1.25% above CoreStates' prime rate and the Revolving Term Notes
bears interest at 1.5% above CoreStates' prime rate. The Congress Facility is
secured by all assets of the Company, and the Company was required to maintain a
minimum net worth of $80 million, and working capital of $26 million. In
addition, the Congress Facility places limitations on the incurrence of
additional indebtedness. The rates of interest related to the Congress Revolving
Credit Facility and Revolving Term Notes at such dates were 9.50% and 9.75%,
respectively. At December 28, 1996 and December 30, 1995, the Company had $13.7
million and no outstanding borrowings under the Congress Revolving Credit
Facility and $8.9 million and $9.9 million outstanding under the Revolving Term
Notes, respectively. The face amount of unexpired documentary letters of credit
at December 28, 1996 and December 30, 1995, were $4.5 million and $4.2 million,
respectively. At December 28, 1996 unused borrowing capacity under the Congress
Facility was $26.0 million. In 1995, the Company issued under the Congress
Facility, $31.2 million of standby letters of credit which included
$8.6 million related to the Industrial Revenue Bonds due 2003, and
$20.3 million related to the Term Financing Facility.
The Congress Facility was amended in February 1996 to permit the
reorganization of Austad's (Note 2) and was further amended in April 1996 to
permit borrowings of an additional $4 million over the borrowing base formula
until the closing of the Company's $50 million rights offering (the "Rights
Offering") in August 1996 (Note 9), subject to the $75 million limit of the
Congress Facility. Also in April 1996, the minimum working capital and net worth
requirements contained in the Congress Facility and in the indenture relating to
the 9.25% Senior Subordinated Notes due 1998 ("9.25% Notes") were reduced by $5
million to $21 million and $75 million, respectively. In May 1996, the net worth
and working capital covenants were further amended to take into account a $25
million advance by NAR Group Limited ("NAR") until its repayment with the
proceeds of the Rights Offering in August 1996 (Note 9). In September 1996,
working capital was amended again to take into account the $10 million advance
by Intercontinental Mining & Resources Incorporated, an affiliate of NAR
("IMR"). The net worth covenant was further amended to $70 million in December
1996 and Congress agreed to address the 1997 net worth covenant level after a
review of the Company's business plan. As a result of the operating losses
incurred in 1996, the Company was not in compliance with the working capital and
net worth covenants for which the Company received waivers from Congress (Note
18).
Term Financing Facility - The Company borrowed $10 million in each of
1994 and 1995 under a Term Financing Facility. The interest rate on the Term
Financing Facility is based on the equivalent rate of A-1 commercial paper
existing at the time of each borrowing. The face rate ranged from 5.47% to
5.73%, and 5.73% to 6.02% at December 28, 1996 and December 30, 1995,
respectively. The Term Financing Facility was reduced by an annual sinking fund
payment of $1.0 million in October 1996 and requires annual sinking fund
payments of $1.0 million from October 1997 though October 1999 with this amount
increasing to $1.6 million for each of the ten years thereafter. The Term
Financing Facility continues to be outstanding and in effect under its original
terms.
49
<PAGE> 50
In December 1996, the Company finalized its agreement (the
"Reimbursement Agreement") with Richemont Finance S.A. ("Richemont"), who along
with the family of Alan G. Quasha, Chairman of the Board of the Company, jointly
own NAR, that provided the Company with approximately $27.9 million of letters
of credit through Swiss Bank Corporation's, New York Branch, to replace letters
of credit which were issued under the Congress Facility. These letters of credit
were issued for $8.6 million related to the Industrial Revenue Bonds due 2003
and $19.3 million related to the Term Financing Facility. The letters of credit
will expire on February 18, 1998 and carry an interest rate of 3.5% above the
prime rate, currently 11.75%, payable to Richemont quarterly on amounts drawn
under the letters of credit. The Company paid a facility fee of $1.4 million
which was equal to 5% of the principle amount of the letters of credit as well
as other fees incurred in connection with providing the facility as of December
28, 1996. In the event that the Company has not paid in full, by the expiration
date, any outstanding balances under the letters of credit, Richemont shall have
the option, exercisable at any time prior to payment in full of all amounts
outstanding under the letters of credit to convert such amount into common stock
of the Company at the mean of the bid and ask prices of the Company's Common
Stock on November 8, 1996, or the mean of the bid and ask prices of the
Company's Common Stock on each of the thirty days immediately prior to the date
of exercise of the conversion privilege. The Reimbursement Agreement is
subordinate to the Congress Facility. On December 5, 1996, Richemont advanced
the Company $10 million against the anticipated $27.9 million line of credit.
The Company repaid the $10 million loan after the letter of credit agreement was
in place on December 19, 1996.
The TAC Revolving Credit Facility - The TAC Revolving Credit Facility
was paid off with the proceeds from the Congress Facility and with the proceeds
from the sale of the retail operations, on February 16, 1996 (Note 2), and was
classified as a long-term obligation at December 30, 1995.
NAR Promissory Note - In September 1996, IMR loaned the Company $10
million as evidenced by a subordinated promissory note (the "NAR Promissory
Note"). This loan bears interest at prime plus 1.5%, was due on November 14,
1996 and, if it is not repaid before May 15, 1997, is convertible at the option
of NAR into shares of Common Stock at the lower of the fair market value thereof
on the date of execution or the then current fair market value thereof. The NAR
Promissory Note is subordinate to the Congress Facility and is excluded from the
working capital covenant calculation. NAR has agreed to apply $10 million of the
Company's indebtedness to acquire $10 million of the Company's Common Stock
pursuant to the 1997 Rights Offering (Note 18). As a result, the classification
of this debt remains long-term.
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 schedule 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. The amounts outstanding were $3.0 million and
$3.1 million at December 28, 1996 and December 30, 1995, respectively.
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
50
<PAGE> 51
an irrevocable letter of credit in the amount of $8.6 million. The obligations
are guaranteed by the Company.
8.75% Mortgage Note Payable due 2003 - TAC's 8.75% Mortgage Note
Payable is reflected as an obligation of the Company at December 30, 1995 in
consequence of the corporate reorganization, completed in February 1996 (Note
2). Pursuant to the reorganization, TAC's retail business was split off to Mr.
David Austad and certain of his family members, in exchange for their 32.5%
interest in Austad's (and a cash payment of $1.1 million) and the Company became
the owner of all the outstanding capital shares of TAC. The 8.75% Mortgage Note
Payable was secured by the TAC warehouse and distribution facility in South
Dakota. That facility's operations were largely transferred to other Company
facilities. This note was paid in July 1996 from the proceeds of the sale of the
facility.
9.25% Senior Subordinated Notes due 1998 - At December 28, 1996 and
December 30, 1995, the Company had $0 and $14.0 million of 9.25% Notes
outstanding, respectively. In August 1996, the principal amount due under the
9.25% Notes was repaid from the proceeds of the Rights Offering (Note 9).
In November 1995, IMR purchased the 9.25% Notes from a third party in
connection with the refinancing of the indebtedness under the Congress Facility.
The Company paid NAR a commitment fee of $105,000 upon the signing of a
repurchase and option agreement and a fee of $210,000 (1.5% of the outstanding
principal amount of the 9.25% Notes acquired by IMR) upon the funding, as well
as all expenses incurred by NAR in performing its obligation. The Company also
extended by two years the terms of the warrants to purchase 5,033,735 shares
held by NAR and IMR to August 1, 1998. The Company recorded as debt issuance
costs approximately $1.2 million, representing the fair value of the warrant
extensions as determined using the Black Scholes model. Such costs were being
amortized over the life of the 9.25% Notes. The Company has also agreed to
indemnify NAR against any and all claims or losses asserted against it or
incurred by it relating to the transactions contemplated by the repurchase and
option agreement.
Extraordinary Items - As a result of the replacement of the Revolver,
the purchase by IMR of the 9.25% Notes and early repayment of 9.25% Notes from
the proceeds of the Rights Offering, the Company wrote-off approximately $1.8
million and $1.1 million of unamortized debt issuance costs as extraordinary
items due to the early extinguishment of debt for 1995 and 1996, respectively.
General - At December 28, 1996, the aggregate annual principal and
sinking fund payments required on all long-term debt instruments are as follows
(in thousands): 1997 - $10,102; 1998 - $27,497; 1999 - $1,000; 2000 - $1,600;
2001 - $1,600 and thereafter - $21,551.
9. RIGHTS OFFERING.
The Company commenced its $50 million Rights Offering on July 19, 1996.
Holders of record of the Company's Common Stock, 6% Series A Convertible
Additional Preferred Stock and Series B Convertible Additional Preferred Stock
as of July 18, 1996, were eligible to participate in the Rights Offering. The
Rights were exercisable at a price of $1.03 per share.
51
<PAGE> 52
Shareholders received 0.51 Rights for each share of Common Stock held, 3.72
rights for each share of Series A Convertible Additional Preferred Stock held
and 0.77 rights for each share of Series B Convertible Additional Preferred
Stock held as of the record date. The Rights Offering closed on August 23, 1996.
Due to the Company's continued operating losses, the Company requested
that NAR advance up to $25 million against all the Rights distributed to it
and/or its commitment to purchase all of the unsubscribed shares. In May 1996,
NAR advanced the Company $25 million under a promissory note (Note 8). Under the
provisions of the promissory note, the Company repaid NAR the $25 million
advance plus accrued interest upon the closing of the Rights Offering.
The Company issued 48,748,785 shares pursuant to the Rights Offering
which generated proceeds of approximately $48 million, net of expenses. NAR
received rights entitling it to purchase 24,015,964 shares in the Rights
Offering and exercised such rights. In addition, the Company and NAR entered
into a Standby Purchase Agreement, pursuant to which NAR purchased 6,898,866
shares not subscribed by shareholders and received approximately $.5 million as
a fee. The proceeds of the Rights Offering were used by the Company: (i) to
repay the $14 million principal amount of 9.25% Notes held by an affiliate of
NAR plus accrued interest, (ii) to repay the $25 million principal amount
advanced under the promissory note plus accrued interest and (iii) to repay
approximately $9 million under the Congress Facility. The Company recorded an
extraordinary expense related to the early extinguishment of the 9.25% Notes,
representing a write-off of the unamortized debt issuance costs of approximately
$1.1 million.
10. CAPITAL STOCK.
6% Series A Convertible Additional Preferred Stock - In December 1993,
in connection with the Company's acquisition of Tweeds, Inc. ("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 Additional 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 was 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 was an amount equal to the average of the per share closing
prices for the five trading days preceding the conversion dates. The Company
converted each of the one third equal portions of the 234,900 issued shares of
the 6% Preferred Stock into 819,733, 427,785 and 189,818 shares of Common Stock
plus accrued dividends on September 30, 1996,1995 and 1994, respectively. The
Company elected to pay cash dividends of $.1 million related to the September
1994 conversion.
Series B Convertible Additional Preferred Stock - In February 1995, the
Company issued 634,900 shares of its Class B Convertible Additional Preferred
Stock ("Series B Stock") to acquire the remaining 80% of the outstanding common
stock of Aegis Safety Holdings, Inc. ("Aegis"), publisher of The Safety Zone
catalog. The Series B Stock has a stated value of $10
52
<PAGE> 53
per share. Non-cumulative dividends will accrue and be paid at 5% per annum
during each of the first three years if Aegis attains at least $1 million in
earnings before interest and taxes each year. In years four and five, dividends
are cumulative and will accrue and be paid at 7% per annum and are not
contingent on the achievement of any earnings target. Dividends were not paid in
1996 and 1995 based on The Safety Zone catalog's operating results in each
respective year.
The Series B Stock is convertible at any time, at $6.66 per share,
subject to antidilution, at the option of the holder and is convertible at the
Company's option if the market value of the Company's Common Stock is greater
than $6.66 per share, subject to antidilution, for 20 trading days in any
consecutive 30 day trading period or at the holder's option from time to time.
If, after five years, the Series B Stock is not converted, it is mandatorily
redeemable, at the Company's option, in cash or for 952,352 shares of the
Company's Common Stock provided the market value of the stock is at least $6.33
per share, subject to antidilution. If the market value of the Company's Common
Stock does not meet this minimum, the redemption rate is subject to adjustment
which would increase the number of shares for which the Series B Stock is
redeemed. In December 1996, the Company filed a registration statement on form
S-3 with the Securities and Exchange Commission registering 952,352 shares of
the Company's Common Stock related to the future conversion of the Series B
Stock.
The fair value of the Series B Stock, which is based on an independent
appraisal, was $.9 million less than the stated value at February 1995. This
discount is being amortized over a five year period and resulted in a charge of
$.2 million to preferred stock dividends in the statement of income in 1996 and
1995.
Warrants - The warrants outstanding at December 28, 1996 are as
follows:
<TABLE>
<CAPTION>
WARRANTS EXERCISE EXPIRATION
ISSUED PRICE DATE
--------- -------- ----------
<S> <C> <C>
1,728,923 $2.16 8/01/98
3,542,292 2.59 8/01/98
375,275 1.95 8/01/98
---------
5,646,490
=========
</TABLE>
All of the above issued warrants are held by NAR and its affiliates.
The Company agreed to extend the terms of the warrants held by NAR and its
affiliates by two years in consideration of IMR's purchase of the 9.25% Notes
from a third party in November of 1995 (Note 8). The original terms of these
warrant agreements contain certain antidilution provisions which increased, in
aggregate, the warrants by 612,755 from 5,033,735 to 5,646,490 due to the Rights
Offering (Note 9). The antidilution provisions resulted in an adjustment to the
previous exercise prices of $2.42, $2.91 and $2.49, respectively.
General - At December 28, 1996, there were 144,647,898 shares of Common
Stock and 634,900 shares of Series B Stock outstanding. Additionally, an
aggregate of 18,810,956 shares of Common Stock were reserved for issuance
pursuant to (i) the exercise of outstanding options 11,045,000, (ii) the
exercise of outstanding warrants 5,646,490, (iii) the Executive Equity Incentive
Plan 640,498, and (iv) the All Employee Equity Investment Plan 1,478,968.
53
<PAGE> 54
Dividend Restrictions - The Company is restricted from paying dividends
on its Common Stock or from acquiring its capital stock by certain debt
covenants contained in agreements to which the Company is a party.
11. STOCK BASED COMPENSATION PLANS
At December 28, 1996, the Company has thirteen stock based compensation
plans. In accordance with the provisions of SFAS No.123, the Company has
recorded a compensation charge of $.5 million. The effects of applying SFAS No.
123 for recognizing compensation costs are not indicative of future amounts.
SFAS No. 123 does not apply to awards prior to 1996 and additional awards in the
future are anticipated. The information below details each of the respective
plans, including the changes during the years presented.
1978 Stock Option Plan - Pursuant to the Company's Stock Option Plan
(the "1978 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.
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, expressed in numbers of shares, are as follows:
<TABLE>
<CAPTION>
1994 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period 365,250 $3.95 496,050 $3.60 90,000 $2.42
Granted 162,000 $3.50 70,000 $2.11 -- --
Exercised (1,000) $5.00 -- -- -- --
Forfeited (9,500) $5.00 (142,000) $3.50 -- --
Expired (20,700) $8.29 (334,050) $3.65 (20,000) $3.50
------- -------- -------
Options outstanding,
end of period 496,050 $3.60 90,000 $2.42 70,000 $2.11
======== ======== =======
Options exercisable, end
of period 334,050 $3.65 20,000 $3.50 23,333 $2.11
======== ======== =======
</TABLE>
54
<PAGE> 55
The options outstanding at December 28, 1996 have exercise prices
between $1.75 and $2.25 with a weighted average contractual life of 3.8 years.
In June 1994, one director was granted non-qualified options to
purchase shares at an exercise price of $6.125 per share, of which 50,000 shares
will expire in March 2000. In September 1992, six directors were granted options
to purchase 20,000 shares each, at the market price, which at the time was $1.75
per share. These option grants were approved at the 1993 Annual Meeting of
Shareholders and the options expire in 1997.
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 up to a maximum of 250,000, 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
55
<PAGE> 56
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. Changes in shares and options outstanding,
expressed in numbers of shares, for the Incentive Plan are as follows:
<TABLE>
<CAPTION>
1994 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Shares outstanding,
beginning of period 663,830 753,830 877,163
Shares purchased 90,000 143,333 200,000
Shares forfeited -- (20,000) (16,667)
--------- --------- ----------
Shares outstanding, end
of period 753,830 877,163 1,060,496
========= ========= ==========
Options outstanding,
beginning of period 1,101,000 $2.69 1,073,836 $2.98 1,021,170 $2.66
Granted 180,000 $4.56 286,666 $2.53 350,000 $1.00
Forfeited (207,164) $2.70 (339,332) $3.59 (730,672) $2.68
--------- --------- ----------
Options outstanding, end
of period 1,073,836 $2.98 1,021,170 $2.66 640,498 $1.73
========= ========= ==========
Options exercisable, end
of period -- -- -- -- 173,832 $2.56
========= ========= ==========
Weighted average fair
value of options granted
during the year $ .67 --
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest rate of 6.06% - 6.37%,
expected lives of 6 years, expected volatility of 39.07% - 40.81%, expected
dividends of $0.
56
<PAGE> 57
The following table summarizes information about stock options outstanding at
December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Average
Range of Number Outstanding Remaining Weighted Average Number Exercisable Weighted Average
Exercise Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 350,000 5.5 $1.00 0 $1.00
$2.50 to $3.00 290,498 3.1 $2.61 173,832 $2.56
$1.00 to $3.00 640,498 4.4 $1.73 173,832 $2.56
</TABLE>
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 amount of amortization charged to expense was
approximately $(.3) million, $.1 million and $.1 million for 1996, 1995 and
1994, respectively, net of forfeitures.
Changes to the notes receivable related to the Incentive Plan are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Notes receivable balance beginning of period $1,424,000 $1,522,000 $1,651,000
Additions 328,000 229,000 200,000
Payments (230,000) (100,000) (111,000)
---------- ---------- ----------
Notes receivable end of period $1,522,000 $1,651,000 $1,740,000
========== ========== ==========
</TABLE>
Under the terms of the Incentive Plan, the purchase price for shares is
based upon the market price at the date of purchase, and payment is made in the
form of a 20% cash down payment and a six year note that bears interest at the
mid-term applicable federal rate, as determined by the Internal Revenue Service,
as of the month of grant of such shares. The Incentive Plan participants
purchased shares at prices ranging from $1.00 to $4.94 with the Company
accepting notes bearing interest at rates ranging from 5.00% to 7.75%.
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 will 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
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<PAGE> 58
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 vest 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.
Changes in shares outstanding and available for grant, expressed in
numbers of shares for the Investment Plan are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Shares outstanding, beginning of
period 211,883 380,563 508,134
Shares purchased 260,124 216,931 80,550
Shares Forfeited (91,444) (89,360) (67,652)
--------- --------- ---------
Shares outstanding end of period 380,563 508,134 521,032
========= ========= =========
Shares available for grant, end of
period 1,619,437 1,491,866 1,478,968
========= ========= =========
</TABLE>
The difference between the market price and the discounted price
aggregated approximately $0, $.2 million and $.4 million in 1996, 1995 and 1994,
respectively. These amounts have been reduced by approximately $.3 million in
1996 and $.2 million in 1995 and have been charged to amortization expense.
Restricted Stock Award Plan - In December 1992, the Board of Directors
adopted the 1993 Restricted Stock Award Plan (the "Restricted Stock Plan"). 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 $.8 million. Such amount has been amortized
over a three-year vesting period. The amount of amortization charged to expense
was approximately $.2 million in 1995, net of forfeitures.
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 $.5 million, $1.5 million
and $1.1 million in 1996, 1995 and 1994, respectively. Under the bonus plan, 25%
of the bonus is deferred and payable in cash or restricted stock that vests over
a three year period.
58
<PAGE> 59
The Chief Executive Officer (the "CEO") Tandem Plan - Pursuant to the
Company's Tandem Plan (the "Tandem Plan") the right to purchase an aggregate of
1,000,000 shares of Common Stock and an option to purchase 2,000,000 shares of
Common Stock was approved for issuance to the CEO. The option price represents
the average of the low and high fair market value of the common stock on August
23, 1996, the date of the closing of the Rights Offering. The option is subject
to antidilution provisions and due to the Company's 1996 Rights Offering were
adjusted to 1,510,000 shares of Common Stock and 3,020,000 options.
The options expire 10 years from the date of grant and vest over four
years. Payment for shares purchased upon the exercise of the option shall be in
cash or stock of the Company.
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period --
Granted 3,020,000 1.16
Forfeited -- --
Expired -- --
----------
Options outstanding, end of period 3,020,000 1.16
==========
Options exercisable, end of period -- --
Weighted average fair value of options,
granted during year $ .77 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 9.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black- Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.79%,
expected lives of 9.85 years, expected volatility of 45.02% and expected
dividends of $0.
The CEO Performance Year Plan - Pursuant to the Company's Performance
Year Plan (the "Performance Plan") an option to purchase an aggregate of
1,000,000 shares of Common Stock was approved for issuance to the CEO. The
option price represents the average of the low and high fair market value of the
Common Stock on August 23, 1996, the date of the closing of the Rights Offering.
59
<PAGE> 60
The options expire 10 years from the date of grant and vest over four
years. The options are based upon performance as defined by the Compensation
Committee of the Board of Directors. Should a performance target not be
attained, the option is carried over to the succeeding year in conjunction with
that year's option until the expiration date. Payment for shares purchased upon
the exercise of the options shall be in cash or stock of the Company.
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 1,000,000 $1.16
Forfeited -- --
Expired -- --
----------
Options outstanding, end of period 1,000,000 $1.16
==========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .77 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 9.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black- Scholes option-price model with the following weighted average
assumptions or grants in 1996: risk free interest rate of 6.79%, expected lives
of 9.85 years, expected volatility of 45.02% and expected dividends of $0.
The CEO Closing Price Option Plan - Pursuant to the Company's Closing
Price Option Plan (the "Closing Price Plan") an option to purchase an aggregate
of 2,000,000 shares of Common Stock was approved for issuance to the CEO. The
option price represents the average of the low and high fair market value of the
Common Stock on August 23, 1996, the date of the closing of the Rights Offering.
The options expire 10 years from the date of grant and vest based upon
the performance of the Company's stock price over a consecutive 91 calendar day
period as defined by the Compensation Committee of the Board of Directors. The
performance period has a range of 6 years beginning August 23, 1996, the date of
the closing Rights Offering. Payment for shares purchased upon the exercise of
the options shall be in cash or stock of the Company.
60
<PAGE> 61
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 2,000,000 $1.16
Cancelled -- --
Expired -- --
----------
Options outstanding, end of period 2,000,000 $1.16
==========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .17 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 9.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black Scholes option-price model utilizing a Monte Carlo simulation
with the following weighted average assumptions for grants in 1996: risk free
interest rate of 6.79%, expected lives of 9.85 years, expected volatility of
45.02% and expected dividends of $0.
The CEO Six Year Stock Option Plan - Pursuant to the Company's Six Year
Stock Option Plan (the "Six Year Plan") an option to purchase an aggregate of
250,000 shares of Common Stock was approved for issuance to the CEO from NAR.
The option price represents the average of the low and high fair market value of
the Common Stock on August 23, 1996, the date of the closing of the Rights
Offering. The option is subject to antidilution provisions and due to the
Company's 1996 Rights Offering was adjusted to 377,500 options.
The options expire 6 years from the date of grant and vest after one
year. Payment for shares purchased upon the exercise of the options shall be in
cash or stock of the Company.
61
<PAGE> 62
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 377,500 $1.16
Forfeited -- --
Expired -- --
--------
Options outstanding, end of period 377,500 $1.16
========
Options exercisable, end of period -- --
Weighted average fair value of options -- --
granted during the year $ .60 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 5.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest rate of 6.42%, expected lives
of 5.85 years, expected volatility of 45.02% and expected dividends of $0.
The CEO Seven Year Stock Option Plan - Pursuant to the Company's Seven
Year Stock Option Plan (the "Seven Year Plan") an option to purchase an
aggregate of 250,000 shares of Common Stock was approved for issuance to the CEO
from NAR. The option price represents the average of the low and high fair
market value of the Common Stock on August 23, 1996, the date of the closing of
the Rights Offering. The option is subject to antidilution provisions and due to
the Company's 1996 Rights Offering was adjusted to 377,500 options.
The options expire 7 years from the date of grant and vest after two
years. Payment for shares purchased upon the exercise of the options shall be in
cash or stock of the Company.
62
<PAGE> 63
Options outstanding, granted and the weighted average exercise
prices are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 377,500 $1.16
Forfeited -- --
Expired -- --
--------
Options outstanding, end of period 377,500 $1.16
========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .65 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 6.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black - Scholes option-pricing model with the following weighted
average assumptions for grants in 1996: risk free interest rate of 6.53%,
expected lives of 6.85 years, expected volatility of 45.02% and expected
dividends of $0.
The CEO Eight Year Stock Option Plan - Pursuant to the Company's Eight
Year Stock Option Plan (the "Eight Year Plan") an option to purchase an
aggregate of 250,000 shares of Common Stock was approved for issuance to the CEO
from NAR. The option price represents the average of the low and high fair
market value of the Common Stock on August 23, 1996, the date of the closing of
the Rights Offering. The option is subject to antidilution provisions and due to
the Company's 1996 Rights Offering was adjusted to 377,500 options.
The options expire 8 years from the date of grant and vest after three
years. Payment for shares purchased upon the exercise of the options shall be in
cash or stock of the Company.
63
<PAGE> 64
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 377,500 $1.16
Forfeited --
Expired -- --
--------
Options outstanding, end of period 377,500 $1.16
========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .69 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 7.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest rate of 6.62%, expected lives
of 7.85 years, expected volatility of 45.02% and expected dividends of $0.
The CEO Nine Year Stock Option Plan - Pursuant to the Company's Nine
Year Stock Option Plan (the "Nine Year Plan") an option to purchase an aggregate
of 250,000 shares of common stock was approved for issuance to the CEO from NAR.
The option price represents the average of the low and high fair market value of
the common stock on August 23, 1996, the date of the closing of the Rights
Offering. The option is subject to antidilution provisions and due to the
Company's 1996 Rights Offering was adjusted to 377,500 options.
The options expire 9 years from the date of grant and vest after four
years. Payment for shares purchased upon the exercise of the options shall be in
cash or stock of the Company.
64
<PAGE> 65
Options outstanding, granted and the weighted average exercise prices
are as follows:
<TABLE>
<CAPTION>
1996
----
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Granted 377,500 $1.16
Forfeited -- --
Expired --
--------
Options outstanding, end of period 377,500 $1.16
========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .74 --
</TABLE>
The options outstanding at December 28, 1996 have an exercise price of
$1.16 with a weighted average contractual life of 8.25 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest of 6.73%, expected lives of
8.85 years, expected volatility of 45.02% and expected dividends of $0.
1996 Stock Option Plan - Pursuant to the Company's 1996 Stock Option
Plan (the "1996 Plan"), an aggregate of 3,445,000 shares were approved for
issuance to employees of the Company. The option exercise price shall be the
fair market value as of the date of grant. The total options granted to an
employee is one half performance based. The changes for each type of option
(performance based and non-performance based) are presented in separate tables
that follow.
Options expire after 10 years, unless an employee owns stock possessing
more than 10% of the total combined voting power of all classes of stock, in
which case the option would expire after 5 years. Payment for shares purchased
upon the exercise of an option shall be in cash or stock of the Company.
65
<PAGE> 66
NON-PERFORMANCE BASED
<TABLE>
<CAPTION>
1996
----
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Options granted 1,722,500 $.98
Options forfeited -- --
Options expired -- --
----------
Options outstanding, end of period 1,722,500 $.98
==========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .67 --
</TABLE>
The options outstanding at December 28, 1996 have exercise prices
between $.69 and $1.00 with a weighted average contractual life of 9.9 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest rate of 6.80%, expected lives
of 7 years, expected volatility of 45.35% and expected dividends of $0.
66
<PAGE> 67
PERFORMANCE BASED
<TABLE>
<CAPTION>
1996
----
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ -----
<S> <C> <C>
Options outstanding, beginning of period -- --
Options granted 1,722,500 $.98
Options forfeited -- --
Options expired -- --
----------
Options outstanding, end of period 1,722,500 $.98
==========
Options exercisable, end of period -- --
Weighted average fair value of options
granted during the year $ .67 --
</TABLE>
The options outstanding at December 28, 1996 have exercise prices
between $.69 and $1.00 with a weighted average contractual life of 9.9 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996: risk free interest rate of 6.80%, expected lives
of 7 years, expected volatility of 45.35% and expected dividends of $0.
12. EMPLOYEE BENEFIT PLANS.
Hanover Direct, Inc. Savings Plan - The 401(k) Savings and Retirement
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 up to a
maximum of 6%. Participants may invest contributions in various investment funds
or in the Company's Common Stock.
The Company's contributions charged to expense for 1996, 1995 and 1994
were approximately $.4 million, $.6 million and $.6 million, 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 1996, 1995 and 1994 amounted to
approximately $.1 million, $.2 million and $.2 million, respectively.
67
<PAGE> 68
The Retirement Plan permits eligible employees to contribute up to 4%
of their salary. The Company matches all participant contributions, up to 50% of
their contributions with a cap of 2%. The Retirement Plan is not tax-qualified
under the applicable provisions of the Internal Revenue Code of 1986, as
amended.
13. INCOME TAXES - At December 28, 1996, the Company had net operating loss
carryfowards ("NOLs") totalling $241.2 million, which expire as follows: In the
year 2001 - $17.3 million, 2003 - $14.6 million, 2004 - $14.3 million, 2005 -
$20.6 million, 2006 - $46.9 million, 2007 - $27.7 million, 2010 - $22.7 million
and 2011 - $77.1 million. The Company also has $1 million of general business
tax credit carryforwards that expire in 2000 through 2009. The Company's
available NOLs for tax purposes consists of $91.4 million of NOLs subject to a
$4 million annual limitation under Section 382 of the Internal Revenue Code of
1986 and $149.8 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.
SFAS No. 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". Despite incurring additional NOLs of
$22.7 million in 1995 and $77.1 million in 1996, management believes that the
Company will be able to utilize up to $43 million of NOLs based upon the
Company's assessment of numerous factors, including its planned restructuring
and future operating plans.
For the years ended December 30, 1995 and December 28, 1996, the
Company maintained its deferred tax asset of $15 million (net of a valuation
allowance of $48.5 million in 1995 and $82.6 million in 1996). Management
believes that the $15 million net deferred tax asset still represents a
reasonable, conservative estimate of the future utilization of the NOLs and the
reversal of timing items and will continue to routinely evaluate the likelihood
of future profits and the necessity of future adjustments to the deferred tax
asset valuation allowance.
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 $4.2 million in 1994 and
zero in 1995 and 1996. The 1994 provision was offset by utilization of the NOLs.
The Company's provision for state income taxes was $.9 million in 1994, $1.0
million in 1995 and $1.0 million in 1996.
68
<PAGE> 69
A reconciliation of the Company's net income for financial statement
purposes to taxable income (loss) for the years ended January 1, 1994, December
31, 1994 and December 30, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Net income (loss) $ 14,838 $(30,230) $(105,254)
Income tax provision (benefit) (3,509) 1,003 1,000
Income (loss) before income taxes 11,329 (29,227) (104,254)
Differences between income before taxes
for financial statement purposes and
taxable income:
State income taxes (860) (1,003) (1,000)
Utilization of carryovers (12,652) -- --
Differences attributable to subsidiary not
included in Company's tax return -- (313) --
Permanent differences 717 1,011 7,630
Net change in temporary
differences 1,466 6,881 20,484
-------- -------- ---------
(11,329) 6,576 27,114
-------- -------- ---------
Taxable income (loss) $ -- $(22,651) $ (77,140)
-------- -------- ---------
</TABLE>
The components of the net deferred tax asset at December 28, 1996 are
as follows (in millions):
<TABLE>
<CAPTION>
Non-
Current current Total
------- ------- -----
<S> <C> <C> <C>
Federal tax NOL and business tax credit
carryforwards ................................... $ -- $85.5 $85.5
Allowance for doubtful accounts .................. 1.6 -- 1.6
Inventories ...................................... 1.9 -- 1.9
Prepaid catalog costs ............................ (3.1) -- (3.1)
Property and equipment ........................... -- (1.2) (1.2)
Excess of net assets of acquired business ........ -- (2.9) (2.9)
Accrued liabilities .............................. 11.3 -- 11.3
Customer prepayments and credits ................. 3.0 -- 3.0
Tax basis in net assets of discontinued operations
in excess of financial statement amount ......... 0.8 -- 0.8
Other ............................................ -- 0.7 0.7
----- ----- -----
Deferred Tax Asset ............................... 15.5 82.1 97.6
Valuation allowance ............................ (12.2) (70.4) (82.6)
----- ----- -----
Deferred Tax Asset, net .......................... 3.3 $11.7 $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 NOLs.
69
<PAGE> 70
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>
1994 1995 1996
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
INCOME LOSS LOSS
---------- ---------- ----------
<S> <C> <C> <C>
Tax (benefit) at Federal statutory rate ........... 35.0% (35.0%) (35.0%)
State and local taxes ............................. 4.9 2.2 0.6
Reversal of valuation allowance ................... (38.5) -- --
Net increase in (reversal of) temporary differences
Depreciation and amortization ................ 3.5 (5.4) 0.3
Deferred compensation ........................ 11.4 -- (0.2)
Restructuring reserves ....................... -- -- 8.7
Other ........................................ (10.4) 15.1 (2.0)
Utilization of contribution and NOL carryover ..... (39.1) -- --
Tax NOLs for which no benefit could be recognized . -- 25.3 25.9
Other ............................................. 2.2 1.2 2.7
---- ---- ----
(31.0%) 3.4% 1.0%
==== ==== ====
</TABLE>
14. 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>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Minimum rentals $13,572 $13,070 $12,931
======= ======= =======
</TABLE>
70
<PAGE> 71
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 28, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING LEASES LEASES
- ----------- --------- -------
<S> <C> <C>
1997 ...................................... $10,646 $1,438
1998 ...................................... 7,493 482
1999 ...................................... 6,257 21
2000 ...................................... 5,129 --
2001 ...................................... 4,817 --
Thereafter ................................ 33,792 --
------- ------
Total minimum lease payments .............. $68,134 1,941
======= ======
Less amount representing interest (a) ..... 115
------
Present value of minimum lease payments (b) $1,826
======
</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 $1,260,000 and $1,973,000 at December 30, 1995 and $1,344,000 and
$482,000 at December 28, 1996, respectively.
The future minimum lease payments under noncancellable leases that
remain from the discontinued restaurant operations as of December 28, 1996 are
as follows: 1997 - $.9 million; 1998 - $.8 million; 1999 - $.8 million; 2000 -
$.8 million; 2001 - $.8 million; and thereafter $2.5 million. The above amounts
exclude annual sublease income of $1.0 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. The Company
does not guarantee the indebtedness associated with the Roanoke apparel center
held by Blue Ridge Associates.
15. CHANGES IN MANAGEMENT AND EMPLOYMENT AGREEMENTS
Jack E. Rosenfeld resigned as President and Chief Executive Officer and
as a Director of the Company effective December 30, 1995. In connection with
such resignation, the Company and Mr. Rosenfeld entered into a Termination of
Employment Agreement, dated December 30, 1995 (the "Termination Agreement"),
providing for the termination of (i) the Employment Agreement, dated as of
October 25, 1991, between the Company and Mr. Rosenfeld, and (ii) all benefits,
salary and prerequisites provided for therein except for (a) benefits, salary
and prerequisites earned and accrued up to December 30, 1995, (b) salary of
$500,000 through December 31, 1996, and (c) benefits including (I) continued
disability and term life insurance in amounts not less than the amounts in force
71
<PAGE> 72
on the date of the Termination Agreement for a three-year period and (II) the
right to continue to participate in the Company's medical plans to the extent he
is eligible for up to three years from the date of the Termination Agreement.
The Termination Agreement calls for Mr. Rosenfeld to serve as a Director
Emeritus of the Company and will allow Mr. Rosenfeld to attend meetings of the
Board of Directors and participate in Board discussions for a one-year period,
but Mr. Rosenfeld has no right to vote on any matters that come before the Board
of Directors. The Termination Agreement will preclude Mr. Rosenfeld for a
one-year period from competing with the Company under certain circumstances.
On March 7, 1996, Rakesh K. Kaul was named President and Chief
Executive Officer and elected to the Board of Directors of the Company.
Effective that date, Mr. Kaul entered into an Executive Employment Agreement
(the "Employment Agreement") which provides for an "at will" term commencing on
March 7, 1996 at a base salary of $525,000 per year. The Employment Agreement
also provides for Mr. Kaul's participation in the Short-Term Incentive Plan for
Rakesh K. Kaul. That plan, which was approved by the shareholders at the June
20, 1996 shareholders meeting, provides for an annual bonus of between 0% and
125% of Mr. Kaul's base salary, depending on the attainment of various
performance objectives as determined in accordance with the objective formula or
standard to be adopted by the Compensation Committee as part of the performance
goals for each such year. The Employment Agreement also provides for Mr. Kaul's
participation in the Long-Term Incentive Plan for Rakesh K. Kaul. That plan,
which was approved by the shareholders at the June 20, 1996 shareholders
meeting, provides for the purchase by Mr. Kaul of 1,000,000 shares of Common
Stock at their fair market value; an option expiring March 7, 2006 for the
purchase of 2,000,000 shares of (the "Tandem Stock Purchase Right") Common
Stock; an option expiring March 7, 2006 to purchase 2,000,000 shares of Common
Stock (the "Tandem Option") exercisable only upon satisfaction of the condition
that the closing price of the Common Stock has attained an average of $7.00 per
share during a 91-day period ending on or before March 7, 2002; an option
expiring March 7, 2006 to purchase 1,000,000 shares of Common Stock at their
fair market value, subject to the attainment of certain objective performance
goals to be set by the Compensation Committee; and four options expiring March
7, 2002, and the first three anniversaries thereof, respectively, for the
purchase of 250,000 shares of Common Stock each, to be granted by NAR, the
Company's majority shareholder ("the NAR Options"). As a result of the Rights
Offering, Mr. Kaul was granted an additional .51 shares for each share of Common
Stock he was granted under the Tandem Stock Purchase Right, the Tandem Option,
and the NAR Options (collectively, the "Award Shares") which resulted in his
being granted 1,510,000 shares, 3,020,000 options and 1,510,000 options,
respectively. The Employment Agreement also provides for the grant of
registration rights under the Securities Act of 1993, as amended (the
"Securities Act"), for shares of Common Stock owned by Mr. Kaul. Pursuant to the
Employment Agreement, the Company will make Mr. Kaul whole, on an after-tax
basis, for various relocation and temporary living expenses related to his
employment with the Company. In the event that Mr. Kaul's employment is actually
or constructively terminated by the Company, other than for cause, he will be
entitled for a 12-month period commencing on the date of his termination to (i)
a continuation of his base salary, (ii) continued participation in the Company's
medical, dental, life insurance and retirement plans offered to senior
executives of the Company, and (iii) a bonus, payable in 12 equal installments,
equal to 100% of his base salary (at the rate in effect immediately prior to
such termination). In addition, Mr. Kaul will be entitled to receive (i) to the
extent not previously paid, the short-term bonus payable to Mr. Kaul
72
<PAGE> 73
for the year preceding the year of termination and (ii) for the year in which
Mr. Kaul's employment is terminated, an additional bonus equal to his annual
base salary for such year, pro-rated to reflect the portion of such year during
which Mr. Kaul is employed. Mr. Kaul's employment will be deemed to be
constructively terminated by the Company in the event of a change in control (as
defined in the Employment Agreement), the Company's bankruptcy, a material
diminution of his responsibilities, or a relocation of the Company's
headquarters outside the New York metropolitan area without his prior written
consent. In the event that Mr. Kaul's employment terminates other than as a
result of a termination by the Company, Mr. Kaul will not be entitled to any
payment or bonus, other than any short-term bonus he is entitled to receive from
the year prior to termination.
In April 1996, the Executive Vice President, Secretary and General
Counsel resigned. Also, in April 1996, the Executive Vice President and Chief
Financial Officer indicated his intention to resign his position in order to
pursue other interests. He remained with the Company until the closing of the
Rights Offering. In connection therewith, the Company entered in a settlement of
his employment agreement. The Chief Information Officer resigned in June 1996.
The General Counsel position is currently being filled on a part-time basis by
an individual who has served as a service provider to the Company. The Company
has hired a new Chief Financial Officer and promoted an executive to the
position of Chief Information Officer.
16. RELATED PARTY TRANSACTIONS
At December 28, 1996, current and former officers and executives of the
Company owed the Company approximately $3.1 million of which approximately $1.7
million relates to receivables under the Executive Equity Incentive Plan. These
amounts due to the Company bear interest at rates ranging from 5.00% to 7.75%
and are due from 1999 to 2002. The remaining $1.4 million relates to a
receivable under the Long Term Incentive Plan for Rakesh K. Kaul.
In May 1996, NAR advanced the Company $25 million under a promissory
note against all the Rights distributed to it /or its commitment to purchase all
unsubscribed shares in the Rights Offering (Notes 8 and 9). NAR purchased
24,015,964 shares available to it pursuant to the terms of the Rights Offering
and received a fee of $.5 million for purchasing an additional 6,898,866 shares
not subscribed to by other shareholders. On August 23, 1996, the Rights Offering
closing date, the Company paid the principle and interest amounts outstanding
under the $25 million promissory note and the $14 million of 9.25% Notes held by
IMR (Notes 8 and 9).
In September 1996, IMR loaned the Company $10 million as evidenced by a
subordinated promissory note which is subordinate to the Credit Facility. Such
loan bears interest at prime plus 1.5%, was due on November 14, 1996, and, if it
is not repaid before May 15,1997, is convertible at the option of IMR into
shares of Common Stock (Note 8). NAR has agreed to apply $10 million of the
Company's indebtedness to acquire $10 million of the Company's Common Stock
pursuant to the 1997 Rights Offering (Note 18).
In December 1996, Richemont finalized its agreement with the Company
that will provide approximately $27.9 million of letters of credit to replace
letters of credit which were issued under the Congress Facility. The Company
paid a facility fee of $1.4 million to Richemont in connection
73
<PAGE> 74
with providing the facility. On December 5, 1996, Richemont advanced the Company
$10 million against the anticipated $27.9 million line of credit which was
repaid after the letter of credit facility was in place on December 19, 1996
(Note 8).
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. NAR did not collect such
a fee in 1996 as no such services were performed and will not collect such a fee
in 1997.
At December 28, 1996, NAR owned approximately 54% of the Company's
outstanding Common Stock and would own 56% upon exercising all of their
outstanding warrants.
17. COMMITMENTS AND CONTINGENCIES
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 was purportedly 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, sought to recover
monetary damages the class had allegedly suffered as a result of certain alleged
false and materially misleading statements contained in the Company's public
offering prospectus dated March 30, 1994. In lieu of an answer, defendants filed
a motion to dismiss the complaint in its entirety for failure to state a claim
upon which relief can be granted. On May 23, 1995, the United States District
Court for District of New Jersey dismissed the plaintiff's claim, with
prejudice, for failure to state a claim upon which relief could be granted. On
June 22, 1995, plaintiff filed a notice of appeal of the May 23, 1995 decision
to the United States Court of Appeals for the Third Circuit. On March 26, 1996,
the Court of Appeals rendered its decision affirming the District Court's
decision. On or about June 24, 1996, a petition for certiorari was filed by
plaintiff with the United States Supreme Court. The Company filed a brief in
opposition to the petition on August 12, 1996. In October 7, 1996, the United
States Supreme Court denied the plaintiff's petition.
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.
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.
74
<PAGE> 75
In connection with certain discontinued restaurant transactions, the
Company remains contingently liable with respect to lease obligations for 6
restaurant properties, should the buyers fail to perform under the agreements.
The future minimum lease payments as of December 28, 1996 are as follows (in
thousands): 1997 - $375; 1998 - $375; 1999 - $375; 2000 - $375; 2001 - $365; and
thereafter $1,185.
18. SUBSEQUENT EVENTS
1997 Rights Offering - On March 26, 1997, the Company announced that it
intends to distribute transferable subscription rights to subscribe for and
purchase additional shares of Common Stock to the holders of record of the
Company's Common Stock and Series B Convertible Additional Preferred Stock (the
"1997 Rights Offering") as soon as it has filed with and has declared effective
by the SEC a registration statement with respect thereto. The Rights will be
exercisable at a price of $.90 per share. NAR has agreed to apply $10 million of
the Company's indebtedness to acquire $10 million of the Company's Common Stock
pursuant to the 1997 Rights Offering (Note 18). Richemont has agreed to purchase
all shares of Common Stock which have not been subscribed for and purchased by
shareholders in the 1997 Rights Offering. Due to the Company's liquidity issues
and to alleviate vendor concerns, Richemont has agreed to advance $30 million
against its commitment to purchase all of the unsubscribed shares. In connection
with the agreement the Company named two Richemont representatives, Messrs. Jan
du Plessis and Howard Tanner, to its Board of Directors (the "Board") and
Executive Committee, and will nominate a third Richemont representative to the
Board at the next annual meeting. The new Board members fill positions vacated
by the recent resignations of Geraldine Stutz and Jeffery R. Laikind. In
addition, Mr. du Plessis has been named to the Audit Committee of the Board.
Waiver and Amendment to the Congress Facility - The Company has
received waivers for the December 1996 events of default under the Congress
Facility related to the working capital and net worth covenants as of and
through December 28, 1996. In addition, the Company received a waiver for any
event of default relating to the material adverse change provision that was in
effect through and including December 28, 1996. The calculation of the working
capital covenant excludes the Congress Revolving Term Notes. The working
capital and net worth covenants for fiscal 1997 are as follows (in 000's):
<TABLE>
<CAPTION>
Working Capital Amount
--------------- ------
<S> <C>
January through May 1997 $ (5,000)
June through November 1997 $(10,000)
December 1997 thereafter $(20,000)
Net Worth Amount
--------- ------
January through May 1997 $14,000
June 1997 thereafter $11,500
</TABLE>
75
<PAGE> 76
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1995
Revenues $176,592 $182,774 $169,175 $221,227
Gross profit 62,905 63,003 54,285 79,565
Loss from operations (4,147) (5,988) (6,042) (6,442)
-------- -------- -------- --------
Net loss (4,903) (7,490) (9,586) (8,011)
Preferred stock dividends (45) (59) (66) (70)
-------- -------- -------- --------
Net loss applicable to
Common Shareholders $ (4,948) $ (7,549) $ (9,652) $ (8,081)
======== ======== ======== ========
Net loss per share $ (.05) $ (.08) $ (.10) $ (.09)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
Revenues $165,527 $180,195 $156,732 $197,860
Gross profit 55,989 59,912 41,152 63,006
Loss from operations (7,733) (9,896) (25,621) (51,247)
-------- -------- -------- --------
NET LOSS (9,477) (12,520) (29,565) (53,467)
Preferred stock dividends (59) (59) (59) (48)
-------- -------- -------- --------
Net loss applicable to
Common Shareholders $ (9,536) $(12,579) $(29,624) $(53,515)
======== ======== ======== ========
Net loss per share $ (.10) $ (.13) $ (.26) $ (.37)
======== ======== ======== ========
</TABLE>
76
<PAGE> 77
PART 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>
Rakesh K. Kaul 45 President, Chief Executive Officer 1996
and Director since March 7, 1996.
From 1995 until February 1996, Mr.
Kaul was the Vice Chairman and Chief
Operating Officer of Fingerhut
Companies, Inc. From January 1992
until March 1995, Mr. Kaul was also
the Executive Vice President and
Chief Administrative Officer of
Fingerhut. Prior to January 1992,
Mr. Kaul was the Senior Vice
President, Strategy and Finance and
a director at Shaklee Corporation.
Larry J. Svoboda 48 Senior Vice President and Chief 1996
Financial Officer since September
25, 1996. From 1987 to September
1996, Mr. Svoboda was the Chief
Financial Officer of the Florsheim
Shoe Company. Prior to 1987, Mr.
Svoboda was with the Sara Lee
Corporation.
Michael Lutz 54 Executive Vice President Operations 1994
since September 1994. Prior to
September 1994, Mr. Lutz held
various positions with New Hampton,
Inc./Avon Direct Response.
Chuck Hudson 51 Executive Vice President, Men's 1993
Apparel since September 1993. Mr.
Hudson joined the Company in 1986 as
Vice President, Marketing.
</TABLE>
<PAGE> 78
<TABLE>
<S> <C> <C> <C>
Edward J. O'Brien 53 Senior Vice President and Treasurer 1991
since March 1991. Mr. O'Brien joined
the Company in 1986 and was elected
Vice President in 1988.
Michael D. Contino 36 Senior Vice President and Chief 1996
Information Officer since December
1996. Mr. Contino joined the Company
in 1995 as Director of Computer
Operations and Telecommunications.
Prior to 1995, Mr. Contino was the
Senior Manager of I.S. Operations at
New Hampton, Inc. a subsidiary of
Spiegel, Inc.
Ralph Bulle 47 Senior Vice President - Human 1996
Resources since June 1996. Mr. Bulle
joined the Company in 1993 as Vice
President - Human Resources. Prior
to 1993, Mr. Bulle was Senior Vice
President - Operations & Human
Resources for Seaman Furniture
Company.
</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.
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.
<PAGE> 79
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.
PART 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. Index to Financial Statements
Report of Independent Public Accountants Hanover Direct, Inc.
and Subsidiaries Financial Statements 32
Consolidated Balance Sheets as of December 30, 1995 and
December 28, 1996 33
Consolidated Statements of Income (Loss) for the three years
ended December 28, 1996 35
Consolidated Statements of Shareholders' (Deficit) Equity for
the three years ended December 28, 1996 36
Consolidated Statements of Cash Flows for the three years
ended December 28, 1996 37
Notes to Consolidated Financial Statements 39
Supplementary Data:
Selected quarterly financial information (unaudited) for the
two fiscal years ended December 28, 1996 76
2. Index to Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
<PAGE> 80
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.
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) Exhibits required by Item 601 of Regulation S-K.
See Exhibit Index.
(c) Financial Statement Schedules
See (a) 2. above.
<PAGE> 81
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, 1997 By: /s/ Rakesh K. Kaul
----------------------
Rakesh K. Kaul
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 and on the date indicated below.
Principal Financial Officer:
/s/ Larry J. Svoboda
----------------------------------
Larry J. Svoboda
Senior Vice President and
Chief Financial Officer
Board of Directors:
/s/ Ralph Destino /s/ Edmund R. Manwell
---------------------------------- ------------------------------
Ralph Destino, Director Edmund R. Manwell, Director
---------------------------------- ------------------------------
J. David Hakman, Director Jan du Plessis, Director
/s/ Rakesh K. Kaul
---------------------------------- ------------------------------
Rakesh K. Kaul, Director Alan G. Quasha, Director
/s/ S. Lee Kling /s/ Howard Tanner
---------------------------------- ------------------------------
S. Lee Kling, Director Howard Tanner, Director
/s/ Robert F. Wright
---------------------------------- ------------------------------
Theodore H. Kruttschnitt, Director Robert F. Wright, Director
/s/ Elizabeth Valk Long
----------------------------------
Elizabeth Valk Long, Director
Date: March 28, 1997
<PAGE> 82
SCHEDULE II
HANOVER DIRECT
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 28, 1996, DECEMBER 30,1995 AND DECEMBER 31,1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996:
- -------------------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE, CURRENT $ 3,988,000 2,431,000 $ 6,419,000
RESERVES FOR
DISCONTINUED OPERATIONS 1,639,000 (2) 83,000 1,722,000
RESTRUCTURING RESERVE 9,504,000 9,504,000
RESERVES FOR
SALES RETURNS 5,535,000 106,836,000 (2) 103,335,000 9,036,000
DEFERRED TAX ASSET
VALUATION ALLOWANCE 48,500,000 (5) 34,100,000 82,600,000
ALLOWANCE FOR NET UNREALIZED
LOSSES ON CONVERTIBLE
DEBT SECURITIES 1,000,000 888,000 1,888,000
1995:
- -------------------------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE, CURRENT $ 3,912,000 4,796,00(3) 42,000(1) 4,762,000 $ 3,988,000
RESERVES FOR
DISCONTINUED OPERATIONS 1,668,000 (2) 29,000 1,639,000
RESERVES FOR
SALES RETURNS 6,023,000 103,602,000 (2) 104,090,000 5,535,000
DEFERRED TAX ASSET
VALUATION ALLOWANCE 38,600,000 (5) 9,900,000 48,500,000
ALLOWANCE FOR NET UNREALIZED
LOSSES ON CONVERTIBLE
DEBT SECURITIES 1,000,000 1,000,000
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
RESERVES FOR
SALES RETURNS 4,911,000 114,665,000 (2) 113,553,000 6,023,000
DEFERRED TAX ASSET
VALUATION ALLOWANCE 49,700,000 (4) 11,100,000 38,600,000
ALLOWANCE FOR NET UNREALIZED
LOSSES ON CONVERTIBLE
DEBT SECURITIES 1,000,000 1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Accounts written -off.
(2) Utilization of reserves.
(3) Represents acquired allowance for doubtful accounts receivable.
(4) Represents decrease due to: utilization of valuation allowance and
recognition of NOL's estimated to be utilized by future operating results.
(5) Represents the increase in the valuation allowance offset by an increase
in the gross tax asset.
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCORPORATION
REGULATION S-K BY REFERENCE WHERE APPLICABLE
- -------------- -----------------------------
PAGE
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. Incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
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"). Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
2.3 Stock Purchase Agreement dated as of May 19, 1995 by and
among the Company, Austad Holdings, Inc. ("AHI"), The Austad
Company ("TAC"), David B. Austad ("DBA"), Denise Austad
("DA"), David Austad, as custodian ("DBAC"), Oscar Austad,
Dorothy Austad, Randall Austad, Kristi Austad, Lori Miller,
Robin Miller, Kerri Derenge, Sharon Stahl, Lori Miller, as
custodian, Dorothy Austad, as attorney-in-fact, and
</TABLE>
<PAGE> 84
Kara Miller (collectively, the "Austad Individuals").
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 30, 1995.
2.4 Agreement and Plan of Corporate Separation and
Reorganization dated as of February 16, 1996 by and among
the Company, AHI, TAC, DBA, DBAC, and DA. Incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995.
3.1 Restated Certificate of Incorporation. FILED HEREWITH.
3.2 By-laws. FILED HEREWITH.
4.1 Warrant Agreement dated as of October 25, 1991 ("NAR
Warrant") between the Company* and NAR Group Limited ("NAR")
for 279,110 shares of Common Stock. Incorporated by
reference to the Company's* Current Report on Form 8-K dated
October 25, 1991.
4.2 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.
4.3 Warrant Agreement dated as of January 1, 1994 between the
Company and Sears Shop At Home Services, Inc. ("Sears").
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
<PAGE> 85
4.4 Registration Rights Agreement dated as of February 16, 1995
among the Company and the Aegis Sellers. Incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
4.5 Warrant Agreement dated as of July 8, 1991 between the
Company and IMR for 1,750,000 shares of Common Stock.
Incorporated by reference to the Company's Current Report on
form 8-K dated July 10, 1991.
4.6 Warrant Agreement dated as of October 25, 1991 between the
Company and NAR for 931,791 shares of Common Stock.
Incorporated by reference to the Company's Current Report on
form 8-K dated October 25, 1991.
4.7 Second Amendment to Warrant Agreement and Warrant
Certificate for 931,791 shares of Common Stock, between the
Company and NAR dated as of November 13, 1995. Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995.
4.8 First Amendment to Warrant Agreement and Warrant Certificate
for 1,750,000 shares of Common Stock, between the Company
and IMR dated as of November 13, 1995. Incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995.
4.9 First Amendment to Warrant Agreement and Warrant Certificate
for 279,110 shares of Common Stock, between the Company and
NAR dated as of November
<PAGE> 86
13, 1995. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
4.10 [Numbered in error]
4.11 Second Amendment to Warrant Agreement between the Company
and NAR dated as of August 23, 1996. FILED HEREWITH.
4.12 Third Amendment to Warrant Agreement between the Company and
NAR dated as of August 23, 1996. FILED HEREWITH.
10.1 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 Account Purchase 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.
10.3 Amendment No. 1 to the Account Purchase Agreement dated as
of July 12, 1993 among the Company*, HDPI, Brawn, Gump's By
Mail, Gump's, Gump's Holdings and GECC. Incorporated by
reference to the Company's* Current Report on Form 8-K dated
July 12, 1993.
<PAGE> 87
10.4 Amendment No.2 to the Account Purchase Agreement dated as of
June 1, 1995 among the Company, HDPI, Brawn, Gump's, Gump's
By Mail, Gump's Holdings and GECC. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 30, 1995.
10.5 Waiver and Amendment No. 3 to the Account Purchase Agreement
dated as of December 14, 1995 among the Company, HDPI, Brawn
and GECC. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
10.6 Amendment No. 4 to the Amended and Restated Account Purchase
Agreement dated as of June 28, 1996 among the Company, HDPI,
Brawn, Gump's, Gump's by Mail, Gump's Holdings and GECC.***
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 Termination of Employment Agreement and Employment and
Consulting Agreement dated as of December 31, 1995 between
the Company and Jack E. Rosenfeld. FILED HEREWITH.
10.9 Registration Rights Agreement
between the Company and Rakesh K. Kaul, dated as of August
23, 1996.***
<PAGE> 88
10.10 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.
10.11 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.
10.12 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.
10.13 Restricted Stock Award Plan. Incorporated by reference to
the Company's* Registration Statement on Form S-8 filed on
February 24, 1993, Registration No. 33-58760.
10.14 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.
10.15 Executive Equity Incentive Plan, as amended. FILED HEREWITH.
10.16 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.
<PAGE> 89
10.17 1996 Stock Option Plan. Incorporated by reference to the
Company's 1996 Proxy Statement.
10.18 Loan and Security Agreement dated as of November 14, 1995 by
and among Congress Financial Corporation ("Congress"),
Hanover Direct Pennsylvania, Inc. ("HDPA"), Brawn of
California, Inc. ("Brawn"), Gump's by Mail, Inc. ("Gump's by
Mail"), Gump's Corp.("Gump's"), The Company Store, Inc.
("The Company Store") , Tweeds, Inc. ("Tweeds"), LWI
Holdings, Inc.("LWI"), Aegis Catalog Corporation ("Aegis"),
Hanover Direct Virginia, Inc. ("HDVA") and Hanover Realty
Inc. ("Hanover Realty"). Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 30, 1995.
10.19 First Amendment to Loan and Security Agreement dated as of
February 22, 1996 by and among Congress, HDPI, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty.***
10.20 Second Amendment to Loan and Security Agreement dated as of
April 16, 1996 by and among Congress, HDPI, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty.***
10.21 Third Amendment to Loan and Security Agreement dated as of
May 24, 1996 by and among Congress, HDPI, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty.***
<PAGE> 90
10.22 Fourth Amendment to Loan and Security Agreement dated as of
May 31, 1996 by and among Congress, HDPI, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty. ***
10.23 Fifth Amendment to Loan and Security Agreement dated as of
September 11, 1996 by and among Congress, HDPI, Brawn,
Gump's by Mail, Gump's, The Company Store, Tweeds, LWI,
Aegis, HDVA and Hanover Realty. ***
10.24 Sixth Amendment to Loan and Security Agreement dated as of
December 5, 1996 by and among Congress, HDPI, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty. ***
10.25 Seventh Amendment to Loan and Security Agreement dated as of
December 18, 1996 by and among Congress, HDPI, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA
and Hanover Realty. ***
10.26 Subordination Agreement, dated as of November 14, 1995,
among Congress, IMR, and the Trustee. Incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 30, 1995.
10.27 Long-Term Incentive Plan for Rakesh K. Kaul. ***
10.28 Short-Term Incentive Plan for Rakesh K. Kaul. Filed
herewith.
<PAGE> 91
10.29 Employment Agreement dated as of March 7, 1996 between the
Company and Rakesh K. Kaul. FILED HEREWITH.
10.30 Tandem Option Plan dated as of August 23, 1996 between the
Company and Rakesh K. Kaul. FILED HEREWITH.
10.31 Closing Price Option dated as of August 23, 1996 between the
Company and Rakesh K. Kaul. FILED HEREWITH.
10.32 Performance Price Option dated as of August 23, 1996 between
the Company and Rakesh K. Kaul. FILED HEREWITH.
10.33 Six-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. FILED HEREWITH.
10.34 Seven-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. FILED HEREWITH.
10.35 Eight-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. FILED HEREWITH.
10.36 Nine-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. FILED HEREWITH.
10.37 Letter of Credit, dated December 18, 1996, from Swiss Bank
Corporation, New York Branch ("Swiss Bank") in favor of
Fleet National Bank, as trustee ("Fleet Bank"). FILED
HEREWITH.
10.38 Reimbursement Agreement, dated as of December 18, 1996, by
and among Swiss Bank and the Company. FILED HEREWITH.
<PAGE> 92
10.39 Hanover Indemnity Agreement, dated as of December 18, 1996,
between Richemont Finance S.A. ("Richemont") and the
Company, HDPI, Brawn, Gump's, Gump's by Mail, The Company
Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED
HEREWITH.
10.40 Subordination Agreement, dated as of December 18, 1996,
between Congress and Swiss Bank. ***
10.41 Subordination Agreement, dated as of December 18, 1996
between Congress and Richemont. ***
10.42 Series A Note Agreement, dated as of November 9, 1994,
between the Company and Norwest Bank Minnesota, N.A.
("Norwest"), as trustee. ***
10.43 Placement Agreement, dated as of November 9, 1994, by and
between the Company and NationsBank of North Carolina, N.A.
***
10.44 Remarketing and Interest Services Agreement, dated as of
November 9, 1994, by and between the Company and NationsBank
of North Carolina, N.A. ***
10.45 First Supplemental Series A Note Agreement, dated as of
December 29, 1995, between the Company and Norwest. ***
10.46 First Amendment to Placement Agreement, dated as of December
29, 1995 by and between the Company and NationsBank of North
Carolina, N.A. ***
<PAGE> 93
10.47 First Amendment to Remarketing and Interest Services
Agreement, dated as of December 29, 1995 by and between the
Company and NationsBank of North Carolina, N.A. ***
10.48 Second Supplemental Series A Note Agreement, dated as of
December 18, 1996, between the Company and Norwest. FILED
HEREWITH.
10.49 Second Amendment to Series A Note, dated December 18, 1996
made by the Company. FILED HEREWITH.
10.50 Second Amendment to Placement Agreement, dated as of
December 18, 1996 by and between the Company and NationsBank
of North Carolina, N.A. FILED HEREWITH.
10.51 Second Amendment to Remarketing Agreement, dated as of
December 18, 1996 by and between the Company and NationsBank
of North Carolina, N.A. FILED HEREWITH.
10.52 Series B Note Agreement dated as of April 25, 1995, between
the Company and Norwest. ***
10.53 Placement Agreement, dated as of April 25, 1995, by and
between the Company and NationsBank of North Carolina, N.A.
***
10.54 Remarketing and Interest Services Agreement, dated as of
April 25, 1995, by and between the Company and NationsBank
of North Carolina, N.A. ***
10.55 First Amendment to Series B Note Agreement, dated as of
December 29, 1995, between the Company and Norwest. ***
<PAGE> 94
10.56 Second Supplemental to Series B Note Agreement, dated as of
December 18, 1996, between the Company and Norwest. ***
10.57 Second Amendment to Series B Note, dated December 18, 1996
made by the Company. FILED HEREWITH.
10.58 Series B Letter of Credit, dated as of December 18, 1996,
issued by Swiss Bank. FILED HEREWITH.
10.59 Series A Letter of Credit, dated as of December 18, 1996.
***
10.60 NAR Promissory Note dated as of September 11, 1996. FILED
HEREWITH.
10.61 Series A Letter of Credit, dated as of December 18, 1996,
issued by Swiss Bank. FILED HEREWITH.
10.62 First Amendment to Series A Note, dated as of December 29,
1995 made by Hanover Direct, Inc. ***
10.63 $10,000,000 Series B Note, dated as of April 27, 1995 and
made by Hanover Direct, Inc. ***
10.64 First Supplemental Series B Note Agreement, dated as of
December 29, 1995. ***
11 Computation of Per Share Earnings. FILED HEREWITH.
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.
*** To be filed by amendment.
<PAGE> 1
RESTATED CERTIFICATE OF INCORPORATION
OF
HANOVER DIRECT, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is Hanover Direct, Inc., which is the name under which the
Corporation was originally incorporated; and the date of filing the original
certificate of incorporation of the Corporation with the Secretary of State of
the State of Delaware is April 15, 1993.
2. This Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of
Incorporation, as heretofore amended, by increasing the total number of shares
of all classes of stock which the Corporation shall have authority to issue to
225,000,000.
3. The text of the Certificate of Incorporation, as amended
hereby, is restated to read as herein set forth in full:
"FIRST: The name of the corporation (hereinafter called the
"Corporation") is Hanover Direct, Inc.
SECOND: The Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and purposes to be conducted
or promoted are to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 225,000,000 shares, of
which 40,000 shares shall be class B 8% cumulative preferred stock, par value
$.01 per share and stated value of $1,000 per share (the "Class B Preferred"),
861,900 shares shall be shares of 7.5% cumulative convertible preferred stock,
par value $.01 and stated value of $20.00 per share (the "7.5% Preferred"),
5,000,000 shares shall be shares of additional preferred stock, par value $.01
per share (the "Additional Preferred Stock"), 206,827,597 shares shall be shares
of common stock, par value $.66-2/3 per share (the "Common Stock"), and
12,270,503 shares shall be shares of class B common stock, par value $.01 per
share (the "Class B Common Stock").
1
<PAGE> 2
The designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions of each class of shares of the
Corporation which are fixed by this Certificate of Incorporation and the express
grant of authority to the Board of Directors of the Corporation to fix by
resolution or resolutions certain designations and powers, preferences and
rights of such shares, and the qualifications, limitations or restrictions
thereof, are as follows:
1. Class B Preferred.
(a) Dividends. The holders of record of shares of the Class B
Preferred shall be entitled to receive preferential cumulative dividends, when
and as declared by the Board of Directors out of funds legally available
therefor, at a rate of 8% of the stated value per annum. Dividends on the Class
B Preferred shall commence to accrue on March 18, 1993, and shall accrue
cumulatively on a daily basis whether or not earned or expressly declared by the
Board of Directors. Until June 30, 1993, all such dividends shall be payable in
cash or in Common Stock at the option of the Corporation (an "8% Stock
Dividend"). From July 1, 1993 through December 31, 1996, all such dividends
shall be payable in cash or in Common Stock upon the written request of the
holders of record of 51% of the shares of the Class B Preferred delivered to the
Corporation within 20 days after service of written notice by the Corporation
upon the holders of the Class B Preferred of the record date for such dividend.
From January 1, 1997, all such dividends shall be payable in cash only. If any
dividend is paid in Common Stock, (i) no fractional shares shall be issued, but
a cash payment in an amount equal to the value of such fractional share shall be
made in lieu thereof, and (ii) such stock shall be valued at the average
per-share closing price (regular way) for a round lot of the Common Stock during
the 20 consecutive trading days immediately preceding the date on which the
dividend is paid if such stock is listed for trading on the American Stock
Exchange, the New York Stock Exchange or the National Association of Securities
Dealers, Inc. National Market System (if not so listed, the stock shall be
valued by an appraiser selected by mutual agreement of the parties, or, if they
cannot agree, selected by the American Arbitration Association); provided,
however, that, for this purpose, the Common Stock shall never be valued at less
than $2.00 or more than $5.00 per share. In case the Corporation shall have
taken any of the steps described in Section 2(g)(i) of this Article FOURTH, then
such dollar amount per share shall be adjusted to equal (x) such dollar amount
per share multiplied by the number of shares of Common Stock to which the holder
would have been entitled upon exchange immediately prior to the taking of such
step divided by (y) the number of shares of Common Stock to which the holder
shall be entitled upon exchange immediately after the taking of any such step.
Dividends on the Class B Preferred shall be payable each year
in equal semi-annual installments on the 23rd day of September and March (the
"8% Dividend Payment Dates") when and as declared by the Board of Directors to
holders of record as they appear on the records of the Corporation on such
respective dates (not exceeding 60 days preceding such 8% Dividend Payment
Dates) as may be determined by the Board of Directors in advance of the payment
of each particular dividend. Dividends in arrears may be declared by the Board
and paid at any time out of funds legally available therefor, without reference
to any regular 8% Dividend Payment Date, to holders of record on such date (not
exceeding 60 days preceding the payment date thereof) as may be fixed by the
2
<PAGE> 3
Board of Directors. Dividends payable on the Class B Preferred shall be computed
on the basis of a 360-day year consisting of twelve 30-day months.
No dividends shall be declared or paid or set aside for
payment or distribution on any stock or warrants of the Corporation (other than
the 7.5% Preferred) for any period unless full cumulative dividends through and
including the most recent 8% Dividend Payment Date in respect of the Class B
Preferred have been or contemporaneously are declared and either paid in cash or
Common Stock or a sum of money (or shares) sufficient for payment has been set
apart therefor. Additionally, commencing June 30, 1993, no Common Stock or other
stock of the Corporation (other than the 7.5% Preferred) or securities of the
Corporation convertible or exchangeable into Common Stock shall be redeemed,
purchased or otherwise acquired for any consideration (or any monies be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation.
(b) Liquidation Preference. In the event of any distribution
of assets upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holder of each share of the
then outstanding Class B Preferred shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital, surplus or earnings,
before any payments or distributions are made to, or set aside for, the holders
of the Common Stock or any other equity security of the Corporation other than
the holders of the then outstanding 7.5% Preferred, an amount equal to the sum
of (x) $710.14 and (y) all cumulative dividends accrued on such share of Class B
Preferred since April 7, 1992 which have not been paid. If the assets of the
Corporation are insufficient to pay such amounts in full, then the entire assets
of the Corporation shall be distributed pro rata to the holders of shares of the
Class B Preferred.
(c) Voting Rights. The holders of shares of Class B Preferred
shall not be entitled to any voting rights, except as hereinafter provided or as
otherwise required by law.
Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
a majority of all of the shares of the Class B Preferred at the time
outstanding, given in person or by proxy either in writing or by a vote at a
meeting called for such purpose at which the holders of such shares shall vote
as a separate class without regard to shares of any other class or series, shall
be necessary for (i) the creation by the Corporation of any series or class of
preferred stock of the Corporation which is on a parity with the Class B
Preferred as to dividends or upon liquidation, dissolution or winding-up or
which provides that any shares of such preferred stock of the Corporation be
mandatorily redeemed on the redemption of the Class B Preferred, (ii) the
Corporation to increase the number of authorized shares of the Class B
Preferred, and (iii) the Corporation directly or indirectly to redeem, purchase
or otherwise acquire for value any preferred stock of any series, or stock of
any other class, ranking, as to dividends or on liquidation, dissolution or
winding up, junior to the Class B Preferred.
3
<PAGE> 4
Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66-2/3% of all of the shares of the Class B Preferred at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of such shares shall vote as a separate
class without regard to any shares of any other class or series, shall be
necessary for (i) authorizing, effecting or validating the amendment, alteration
or repeal of any of the provisions of the Certificate of Incorporation or of any
amendatory certificate thereto so as to amend the rights, preferences,
privileges or voting power of shares of the Class B Preferred and (ii)
authorizing or increasing the authorized amount of any class of stock, or
establishing or designating any series of stock, or the issuing or selling of
any obligation, security or instrument convertible into, exchangeable for, or
evidencing the right to purchase, acquire or subscribe for shares of a class or
series of stock of the Corporation, if, in any such case, such class or series
of stock ranks prior to the Class B Preferred as to dividends or distribution of
assets upon liquidation, dissolution or winding up or which provides that any
shares of such class or series of stock be mandatorily redeemed prior to the
redemption of the Class B Preferred.
(d) Redemption of the Class B Preferred. The Corporation shall
have the right to redeem the Class B Preferred at any time and from time to time
after December 31, 1996 at the liquidation value of such shares payable in cash
together with any accrued but unpaid dividends accrued on the Class B Preferred
since March 18, 1993, which have not been paid. In the event the Corporation
shall redeem the Class B Preferred, notice of such redemption shall be given by
first-class mail, postage prepaid, mailed not less than 30 days nor more than 60
days prior to the redemption date (the "Redemption Date"), to each holder of
record of the shares to be redeemed at such holder's address as the same appears
on the stock register of the Corporation; provided, however, that no failure to
mail such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of the Class B Preferred to be redeemed except as
to the holder to whom the Corporation has failed to mail said notice or except
as to the holder whose notice was defective. Each such notice shall state (i)
the Redemption Date, (ii) the redemption price (including accrued but unpaid
dividends), (iii) the place or places where certificates for such shares are to
be surrendered for payment of the redemption price, and (iv) that dividends on
the shares to be redeemed will cease to accrue on the day following the
Redemption Date unless the Corporation defaults in making such payment.
Upon the Redemption Date, the holders of the Class B Preferred
shares which are to be redeemed (the "Redemption Shares") shall deliver
certificates for their shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the Redemption Shares on the day
following the Redemption Date whether or not the certificates therefor are
delivered to the Corporation. During any period in which any shares of the 7.5%
Preferred are then outstanding, the Corporation shall not redeem any shares of
the Class B Preferred unless simultaneously therewith or prior thereto, it
redeems that number of shares of 7.5% Preferred at the consideration provided
for in Section 2(h) of this Article FOURTH, such that the aggregate
consideration paid by the Corporation for the shares of Class B Preferred to be
redeemed by it, pursuant to this Section 1(d), is no greater than the aggregate
consideration paid or to be paid by the Corporation for the redemption of shares
of 7.5% Preferred (unless the shares of 7.5%
4
<PAGE> 5
Preferred redeemed by the Corporation constitute all of the then outstanding
shares of 7.5% Preferred).
2. 7.5% Preferred.
(a) Dividends. The holders of record of shares of the 7.5%
Preferred shall be entitled to receive preferential cumulative dividends, when
and as declared by the Board of Directors out of funds legally available
therefor, at a rate of 7.5% of the stated value per annum. Dividends on the 7.5%
Preferred shall commence to accrue on March 18, 1993, and shall accrue
cumulatively on a daily basis whether or not earned or expressly declared by the
Board of Directors. For one 360-day year from September 23, 1992, at the option
of the Corporation, the dividends may be paid in shares of 7.5% Preferred (a
"7.5% Stock Dividend"); provided, however, that the Corporation shall not
declare or pay a 7.5% Stock Dividend during any period with respect to which
dividends on the Class B Preferred shall have been paid in cash; and provided
further, however, that no fractional shares shall be issued, but a cash payment
in an amount equal to the value of such fractional share shall be made in lieu
thereof. At all times thereafter, as well as during any period in which the
Corporation is prohibited (pursuant to the provisions of the preceding sentence)
from declaring or paying a 7.5% Stock Dividend, all dividends shall be payable
in cash only. If any dividend is paid in 7.5% Preferred, such stock shall be
valued at its stated value.
Dividends on the 7.5% Preferred shall be payable each year in
equal semi-annual installments on the 23rd day of March and September (the "7.5%
Dividend Payment Dates") when and as declared by the Board of Directors to
holders of record as they appear on the records of the Corporation on such
respective dates (not exceeding 60 days preceding such 7.5% Dividend Payment
Dates) as may be determined by the Board of Directors in advance of the payment
of each particular dividend. Dividends in arrears may be declared by the Board
and paid at any time out of funds legally available therefor, without reference
to any regular 7.5% Dividend Payment Date, to holders of record on such date
(not exceeding 60 days preceding the payment date thereof) as may be fixed by
the Board of Directors. Dividends payable on the 7.5% Preferred shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
No payments shall be declared or paid or set apart for payment
or distribution on any stock or warrant of the Corporation for any period unless
full cumulative dividends through and including the most recent 7.5% Dividend
Payment Date in respect of the 7.5% Preferred have been or contemporaneously are
declared and paid.
As soon as practicable after the declaration of a 7.5% Stock
Dividend, the Corporation shall issue and register stock certificates evidencing
the shares of 7.5% Preferred (the "Dividend Shares") to which the holders of the
7.5% Preferred are entitled. The Corporation shall pay all documentary stamp
taxes that are attributable to the issuance of the Dividend Shares. The
Corporation shall reserve and keep available a sufficient number of authorized
but unissued shares of 7.5% Preferred to enable the Board of Directors to issue
the Dividend Shares.
5
<PAGE> 6
(b) Liquidation Preference. In the event of any distribution
of assets upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of the then
outstanding 7.5% Preferred shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital, surplus or earnings, before any
payments or distributions are made to, or set aside for, the holders of the
Common Stock, or any other equity security of the Corporation, an amount equal
to the sum of (x) the stated value of such shares and (y) all cumulative,
accrued but unpaid dividends. If the assets of the Corporation are insufficient
to pay such amounts in full, then the entire assets of the Corporation shall be
distributed pro rata to the holders of shares of the 7.5% Preferred.
(c) Voting Rights. The holders of shares of 7.5% Preferred
shall not be entitled to any voting rights except as hereinafter provided or as
otherwise required by law.
Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
a majority of all of the shares of the 7.5% Preferred at the time outstanding,
given in person or by proxy either in writing or by a vote at a meeting called
for such purpose at which the holders of such shares shall vote as a separate
class without regard to shares of any other class or series, shall be necessary
for (i) the creation by the Corporation of any series or class of preferred
stock of the Corporation which is on a parity with the 7.5% Preferred as to
dividends or upon liquidation, dissolution or winding-up or which provides that
any shares of such preferred stock of the Corporation be mandatorily redeemed on
the redemption of the 7.5% Preferred, (ii) the Corporation to increase the
number of authorized shares of the 7.5% Preferred, and (iii) the Corporation
directly or indirectly to redeem, purchase or otherwise acquire for value any
preferred stock of any series (other than with respect to the Class B Preferred
as provided in Section 1(d) of this Article FOURTH) or stock of any other class,
ranking, as to dividends or on liquidation, dissolution or winding up, junior to
the 7.5% Preferred.
If and whenever at any time or times dividends payable on the
7.5% Preferred pursuant to Section 2(a) of this Article FOURTH shall have been
in arrears and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable thereon for any four quarterly periods (whether or not
consecutive), then the number of directors constituting the Board of Directors
shall, without further action, be increased by two and the holders of the 7.5%
Preferred shall have the exclusive right, voting separately as a class, to elect
directors of the Corporation to fill such newly created directorships, the
remaining directors to be elected by the other class or classes of stock
entitled to vote therefor, at each meeting of stockholders held for the purpose
of electing directors.
Whenever such voting right shall have vested, such right may
be exercised initially either at a special meeting of the holders of the 7.5%
Preferred, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of the holders of the 7.5% Preferred
pursuant to Section 228 of the Delaware General Corporation Law. Such voting
right shall continue until such time as all cumulative
6
<PAGE> 7
dividends accumulated on the 7.5% Preferred together with additional dividends
accrued thereon, if any, shall have been paid in full, at which time such voting
right of the holders of the 7.5% Preferred shall terminate, subject to
re-vesting in the event of each and every subsequent event of default of the
character indicated above.
At any time when such voting right shall have vested in the
holders of the 7.5% Preferred, and if such right shall not already have been
initially exercised, a proper officer of the Corporation shall, upon the written
request of holders of record of 25% of the shares of the 7.5% Preferred then
outstanding addressed to the Secretary of the Corporation, call a special
meeting of holders of the 7.5% Preferred and of any other class or classes of
stock having voting power with respect thereto for the purpose of electing
directors. Such meeting shall be held at the earliest practicable date upon the
notice required for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation or, if none, at a place in
the City of New York designated by the Secretary of the Corporation. If such
meeting shall not be called by the proper officers of the Corporation within 30
days after the personal service of such written request upon the Secretary of
the Corporation, or within 30 days after mailing the same within the United
States, by registered mail, addressed to the Secretary of the Corporation at its
principal office (such mailing to be evidenced by the registry receipt issued by
the postal authorities), then the holders of record of 25% of the shares of the
7.5% Preferred then outstanding may designate in writing a holder of the 7.5%
Preferred to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice required for
annual meetings of stockholders and shall be held at the same place as is
elsewhere provided in this Section 3(c). Any holder of the 7.5% Preferred
entitled to vote at such meeting shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this Section 2(c). Notwithstanding the provisions
of this Section 2(c), however, no such special meeting shall be called during a
period within 60 days immediately preceding the date fixed for the next annual
meeting of stockholders.
At any meeting held for the purpose of electing directors at
which the holders of the 7.5% Preferred shall have the right to elect directors
as provided herein, the presence in person or by proxy of the holders of a
majority of the then outstanding shares of the 7.5% Preferred shall be required
and be sufficient to constitute a quorum of such class for the election of
directors by such class. At any such meeting or adjournment thereof (i) the
absence of a quorum of the holders of the 7.5% Preferred having such right shall
not prevent the election of directors other than those to be elected by the
holders of the 7.5% Preferred and the absence of a quorum or quorums of the
holders of capital stock entitled to elect such other directors shall not
prevent the election of directors to be elected by the holders of the 7.5%
Preferred entitled to elect such directors and (ii) in the absence of a quorum
of the holders of any class of stock entitled to vote for the election of
directors, a majority of the holders of such class present in person or by proxy
shall have the power to adjourn the meeting for the election of directors which
the holders of such class are entitled to elect, from time to time, without
notice (except as required by law) other than announcement at the meeting, until
a quorum shall be present.
The term of office of all directors elected by the holders of
the 7.5% Preferred pursuant to this Section 2(c) in office at any time when the
aforesaid voting
7
<PAGE> 8
rights are vested in the holders of the 7.5% Preferred shall terminate upon the
election of their successors at any meeting of stockholders for the purpose of
electing directors (it being understood that such successors shall be elected by
the holders of the 7.5% Preferred). Upon any termination of the aforesaid voting
rights, the term of office of all directors elected by the holders of the 7.5%
Preferred pursuant to this Section 2(c) then in office shall thereupon terminate
and upon such termination the number of directors constituting the Board of
Directors shall, without further action, be reduced by two, subject always to
the increase of the number of directors pursuant to this Section 2(c) in case of
the future right of the holders of the 7.5% Preferred to elect directors.
For the purposes of this Section 2(c) no shares of the 7.5%
Preferred held by the Corporation or a subsidiary of the Corporation shall be
deemed to be outstanding shares of the 7.5% Preferred.
Unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of at least
66-2/3% of all of the shares of the 7.5% Preferred at the time outstanding,
given in person or by proxy, either in writing or by a vote at a meeting called
for the purpose at which the holders of such shares shall vote as a separate
class without regard to any shares of any other class or series, shall be
necessary for (i) authorizing, effecting or validating the amendment, alteration
or repeal of any of the provisions of the Certificate of Incorporation or of any
amendatory certificate thereto so as to amend the rights, preferences,
privileges or voting power of shares of the 7.5% Preferred and (ii) authorizing
or increasing the authorized amount of any class of stock, or establishing or
designating any series of stock, or the issuing or selling of any obligation,
security or instrument convertible into, exchangeable for, or evidencing the
right to purchase, acquire or subscribe for shares of a class or series of stock
of the Corporation, if, in any such case, such class or series of stock ranks
prior to the 7.5% Preferred as to dividends or distribution of assets upon
liquidation, dissolution or winding up or which provides that any shares of such
class or series of stock be mandatorily redeemed prior to the redemption of the
7.5% Preferred.
(d) Conversion at the Option of the Holder. Subject to the
provisions of Section 2(f) of this Article FOURTH, the holders of the 7.5%
Preferred shall be entitled at any time and from time to time to convert the
7.5% Preferred into shares of Common Stock.
(e) Conversion at the Option of the Corporation. At any time
subsequent to the date upon which the per-share closing price (regular way) for
a round lot of the Common Stock on the American Stock Exchange (or such other
exchange or system on which the Common Stock shall from time to time be traded)
has been greater than $6.00 for 20 trading days in a 30 consecutive trading day
period, the Corporation shall have the right to require the conversion of the
7.5% Preferred subject to the provisions of Section 2(f) of this Article FOURTH.
In case the Corporation shall have taken any of the steps described in Section
2(g) of this Article FOURTH during such period, then such price shall be
adjusted as provided for in, or as may be appropriate pursuant to the provisions
of, such Section. The Corporation shall provide holders of the 7.5% Preferred
with at least 30 days written notice of the date upon which conversion of the
7.5% Preferred is required by the Corporation pursuant to this Section 2(e) (the
"7.5% Conversion Date").
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Upon the 7.5% Conversion Date, the holders of the 7.5% Preferred shares which
are to be converted (the "7.5% Conversion Shares") shall deliver certificates
for their shares to the Corporation against delivery of appropriate
documentation for the securities into which they are to be converted. Dividends
shall cease to accrue on the 7.5% Conversion Shares on the day following the
7.5% Conversion Date whether or not the certificates therefor are delivered to
the Corporation.
(f) Conversion Terms and Procedures. Each share of 7.5%
Preferred shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, into a number of shares of Common
Stock determined by dividing the stated value of the share by the Conversion
Price.
The "Conversion Price" shall be $5.00 at all times except
during the Conversion Window (as defined hereafter), if one should occur, and
shall be subject to adjustment from time to time as provided herein. During the
Conversion Window, the Conversion Price shall be an amount equal to the average
per-share closing price (regular way) for a round lot of the Common Stock on the
American Stock Exchange (or such other exchange or system on which the Common
Stock shall from time to time be traded) on each of the 20 trading days
immediately preceding the Conversion Window; provided, however, that the
Conversion Price shall not be less than $2.50, subject to adjustment from time
to time as provided for in the next sentence. In case the Corporation shall have
taken any of the steps described in Section 2(g) of this Article FOURTH during
such period, then such Conversion Price shall be adjusted as provided for in, or
as may be appropriate pursuant to the provisions of, such Section.
The "Conversion Window" shall occur only if the per-share
closing price (regular way) for a round lot of the Common Stock on the American
Stock Exchange (or such other exchange or system on which the Common Stock shall
from to time be traded) has never been $5.00 or more on 20 trading days during
any 30 consecutive trading day period occurring prior to September 24, 1998. The
Conversion Window shall be a 60-calendar-day period beginning on September 24,
1998.
The conversion of the 7.5% Preferred shall be effected by the
surrender to the Corporation of the certificates representing the shares of the
7.5% Preferred to be converted at the principal office of the Corporation's
transfer agent at any time during its usual business hours, together with
written notice by the holder specifying the number of shares represented by such
certificate or certificates to be so converted. The notice shall also state the
name or names (and addresses) and denominations in which the certificate or
certificates shall be issued for the shares of Common Stock to be delivered upon
such conversion and shall include instructions for delivery thereof.
Surrender of such certificates together with such notice shall
obligate the Corporations to deliver, in accordance with such instructions, the
certificate or certificates for the Common Stock deliverable upon such
conversion and, in the event that only a part of the shares of the 7.5%
Preferred evidenced by such certificate or certificates are converted, the
Corporation shall deliver a certificate evidencing the number of shares of the
7.5% Preferred that are not converted. The Corporation shall make such
deliveries as soon as practicable after the surrender of the certificate or
certificates evidencing shares
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of the 7.5% Preferred for conversion and shall pay all accrued but unpaid
dividends on the 7.5% Preferred. To the extent permitted by law, such conversion
shall be deemed to have been effected as of the close of business on the date on
which such certificates shall have been surrendered and such notice shall have
been received by the Corporation, and at such time the person or persons in
whose name or names any certificate or certificates for such shares are issuable
upon such conversion shall be deemed to have become the holder or holders of
record thereof.
(g) Anti-dilution Provisions. The Conversion Price shall be
subject to adjustment from time to time as set forth in this Section 2(g), and
as so adjusted or readjusted, shall remain in effect until a further adjustment
or readjustment thereof is required hereby.
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case,
at any time or from time to time, the Corporation shall
- take a record of the holders of the Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock or other securities of convertible into
or exchangeable for Common Stock (in which latter event the number of
shares of Common Stock issuable upon the conversion or exchange of such
securities shall be deemed to be distributed) (collectively, a
"Dividend") or
- subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock (a "Subdivision"), or
- combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock (a "Combination"),
then the Conversion Price in effect immediately prior to such Subdivision or at
the record date of such Dividend shall, simultaneously with the effectiveness of
such Subdivision or immediately after the record date of such Dividend, be
proportionately reduced, and conversely, in the case of a Combination, the
Conversion Price in effect immediately prior to such Combination shall
simultaneously with the effectiveness of such Combination, be proportionately
increased.
Any adjustment to the Conversion Price under this Section
2(g)(i) shall become effective at the close of business on the record date for
such Dividend or on the date such Subdivision or Combination referred to herein
becomes effective, as the case may be.
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(ii) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In case, at
any time or from time to time, the Corporation shall make or issue or take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of
- any evidence of its indebtedness, any shares of its stock
(other than Common Stock) or any other securities or property of any
nature whatsoever (other than cash), or
- any warrants or other rights to subscribe for or purchase
any evidence of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever,
then, and in each such event, the holder shall be entitled to receive upon
conversion of the shares of 7.5% Preferred such evidence of indebtedness, shares
of stock, warrants or other rights or any other securities or property of any
nature whatsoever as the holder would have actually been entitled to as a holder
of Common Stock if the holder had exercised the conversion rights immediately
prior thereto. Such evidence of indebtedness, shares of stock, warrants or other
rights or any other securities or other property shall be paid to the holder at
the time of delivery by the Corporation of the certificate or certificates for
the Common Stock deliverable upon conversion of the 7.5% Preferred. A
reclassification of the Common Stock into shares of Common Stock and shares of
any other class of stock shall be deemed a distribution by the Corporation to
the holders of its Common Stock of such shares of such other class of stock
within the meaning of this Section and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of Common Stock
as a part of such reclassification, this shall be deemed a Subdivision or
Combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 2(g)(i) of this Article FOURTH.
(iii) OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provision shall be applicable to the making of
adjustments of the number of shares of Common Stock to which the holder shall be
entitled upon conversion as provided for in this Section 2(g):
- When Adjustments to be Made. The adjustments required shall
be made whenever and as often as required. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
- Fractional Interests. In computing adjustments under this
Section 2(g), fractional interests in Common Stock shall be taken into
account to the nearest one-tenth of a share.
- When Adjustment Not Required. If the Corporation shall take
a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution and shall,
thereafter and before the distribution thereof to stockholders, abandon
its plan to pay or deliver such dividend or distribution under
circumstances such that it shall not
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have become (or shall no longer remain) obligated under applicable law
to pay or deliver the same, then no adjustment shall be required by
reason of the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(iv) CHANGES IN CAPITAL STOCK. In case at any time the
Corporation shall be a party to any transaction (including, without limitation,
a merger, consolidation, sale or other disposition of all or substantially all
of the Corporation's assets or capital reorganization), in which previously
outstanding Common Stock shall be changed into or exchanged for common stock or
other securities of another corporation or interests in a non-corporate entity
or other property (including cash) or any combination of any of the foregoing
(each such transaction being hereinafter referred to as a "Transaction") then,
as a condition to the consummation of the Transaction, lawful and adequate
provision shall be made so that the holder, upon conversion at any time on or
after the consummation of the Transaction, shall be entitled to receive the
highest amount of securities, cash or other property to which the holder would
actually have been entitled as a holder of Common Stock upon the consummation of
the Transaction if the holder had converted immediately prior thereto (subject
to adjustments from and after the consummation of the Transaction as nearly
equivalent as possible to the adjustment provided for in this Section 2(g)
(including, without limitation, provisions for adjustments of the Conversion
Price)).
(v) SALE OF ADDITIONAL SHARES. If at any time or from time to
time the Corporation shall issue or sell Additional Shares of Common Stock (as
hereinafter defined) other than as a dividend or other distribution on any class
of stock and other than as a subdivision or combination of shares of Common
Stock as provided in Section 2(g)(i) of this Article FOURTH, for a consideration
per share less than the Then Existing Market Price (as hereinafter defined),
then, and in each such case, the then existing Conversion Price shall be
reduced, as of the opening of business on the date of such issuance or sale, to
a price determined by dividing (A) an amount equal to the sum of (1) the
Conversion Price immediately prior to such issue or sale multiplied by the
number of shares of Common Stock outstanding at the close of business on the day
next preceding the date of such issue or sale, plus (2) the aggregate
consideration, if any, received or to be received by the Corporation upon such
issue or sale, by (B) the number of shares of Common Stock outstanding at the
close of business on the date of such issue or sale after giving effect to the
issuance of such Additional Shares of Common Stock. "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued by the Corporation, whether
or not subsequently reacquired or retired by the Corporation, other than shares
of Common Stock issued upon the conversion of the 7.5% Preferred. "Then Existing
Market Price" as used in this Section shall mean the per-share closing price
(regular way) for a round lot of the Common Stock on the American Stock Exchange
(or such other exchange or system on which the Common Stock shall from time to
time be traded) on the day next preceding the date of such issue or sale of
Additional Shares of Common Stock.
For the purpose of making any adjustment in the Conversion
Price or number of shares of Common Stock to be issued upon conversion of the
7.5% Preferred, as provided above, the consideration received by the Corporation
for any issue or sale of any securities shall:
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<PAGE> 13
- To the extent it consists of cash, be computed at the net
amount of cash received by the Corporation after deduction of any
expenses payable directly or indirectly by the Corporation and any
underwriting or similar commissions, compensations, discounts or
concessions paid or allowed by the Corporation in connection with such
issue or sale;
- To the extent it consists of property other than cash, the
consideration other than cash shall be computed at the fair market
value thereof as determined in good faith by the Board of Directors of
the Corporation, at or about, but as of, the date of the adoption of
the resolution specifically authorizing such issuance or sale,
irrespective of any accounting treatment thereof; provided, however,
that such fair market value as determined by such Board of Directors,
when added to any cash consideration received in connection with such
issuance or sale, shall not exceed the aggregate market price of the
Additional Shares of Common Stock being issued, as of the date of the
adoption of such resolution; and
- If Additional Shares of Common Stock, Convertible Securities
(as hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued
or sold together with other stock or securities or other assets of the
Corporation for consideration which covers both, the consideration
received for the Additional Shares of Common Stock, Convertible
Securities or rights or options shall be computed as that portion of
the consideration so received which is reasonably determined in good
faith by the Board of Directors of the Corporation to be allocable to
such Additional Shares of Common Stock, Convertible Securities or
rights or options.
For the purpose of making any adjustment in the Conversion
Price provided in this Section, if at any time, or from time to time, the
Corporation issues any stock or other securities convertible into Additional
Shares of Common Stock (such stock or other securities being hereinafter
referred to as "Convertible Securities") or issues any rights or options to
purchase Additional Shares of Common Stock or Convertible Securities (such
rights or options being hereinafter referred to as "Rights"), then, and in each
such case, if the Effective Conversion Price (as hereinafter defined) of such
Rights or Convertible Securities shall be less than the Conversion Price
immediately prior to the issuance of such Rights or Convertible Securities, the
Corporation shall be deemed to have issued at the time of the issuance of such
Rights or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
in consideration for the issuance of such shares an amount equal to the
aggregate Effective Conversion Price of such Rights or Convertible Securities.
For the purposes of this Section, "Effective Conversion Price" shall mean an
amount equal to the sum of the lowest amount of consideration, if any, received
or receivable by the Corporation with respect to any one Additional Share of
Common Stock upon issuance of the Rights or Convertible Securities and upon
their exercise or conversion, respectively. No further adjustment of the
Conversion Price adjusted upon the issuance of such Rights or Convertible
Securities shall be made as a
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result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such Rights or the conversion of any such Convertible
Securities.
(vi) OTHER DILUTING EVENTS. In case any event shall occur as
to which the provisions of this Section 2(g) are not strictly applicable but the
failure to make any adjustment would not in the opinion of the holders fairly
protect the rights of the holders in accordance with the essential intent and
principles of this Section, then, in each such case, upon the written request of
the holders of at least 25% of all of the shares of the 7.5% Preferred at the
time outstanding, the Corporation shall appoint a firm of independent certified
public accountants of recognized national standing (which may be the regular
auditors of the Corporation) which shall give their opinion upon the adjustment,
if any, on a basis consistent with the essential intent and principles
established in this Section, necessary to preserve, without dilution of the
rights of the holders. Upon receipt of such opinion, the Corporation will
promptly mail a copy thereof to the holders and shall make the adjustments
described therein.
(vii) NO DILUTION OR IMPAIRMENT. The Corporation shall not, by
amendment of this Certificate of Incorporation or through any consolidation,
merger, reorganization, recapitalization, transfer of assets, dissolution,
issuance or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Section 2(g),
but shall at all times in good faith use its best efforts to assist in carrying
out all of such terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the holders against dilution or
other impairment.
(viii) COMMON STOCK. "Common Stock" as used in this Section
2(g) shall mean any shares of any class of the Corporation's capital stock other
than the Corporation's preferred stock; provided that such class of preferred
stock has a fixed limit on dividends and a fixed amount payable in the event of
a voluntary or involuntary liquidation, dissolution or winding up of the
Corporation. The Common Stock issuable upon conversion of the 7.5% Preferred,
however, shall be the Common Stock of the Corporation as constituted on the date
hereof, except as otherwise provided in this Section 2(g).
(ix) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of
an adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of the 7.5% Preferred,
the Corporation, at its expense, shall cause the independent public accountants
then auditing the books of the Corporation to compute such adjustment or
readjustment in accordance with this Article and prepare a certificate showing
such adjustment or readjustment, and shall mail such certificate, by first-class
mail, postage prepaid, to each registered holder of the 7.5% Preferred at the
holder's address as shown on the Corporation's stock transfer books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (A) the consideration received or to be received by the Corporation
for any Additional Shares of Common Stock issued or sold or deemed to have been
issued or sold, (B) the Conversion Price at the time in effect for the 7.5%
Preferred, and (C) the number of Additional Shares of Common Stock and the type
and amount, if any, of other property which at the
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<PAGE> 15
time would be received upon conversion of the 7.5% Preferred. Such notice may be
given in advance of such adjustment or readjustment and may be included as part
of a notice required to be given pursuant to Section 2(g)(x) of this Article
FOURTH.
(x) NOTICES OF RECORD DATE. In the event the Corporation shall
propose to take any action of the type or types requiring an adjustment to the
Conversion Price or the number or character of the 7.5% Preferred as set forth
herein, the Corporation shall give notice to the holders of the 7.5% Preferred
in the manner set forth in Section 2(g)(ix) of this Article FOURTH, which notice
shall specify the record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable upon the occurrence of
such action or deliverable upon the conversion of the 7.5% Preferred. In the
case of any action which would require the fixing of a record date, such notice
shall be given at least 20 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 30 days prior to the taking of
such proposed action.
(xi) PAYMENT OF TAXES. The Corporation shall pay all
documentary stamp taxes that are attributable to the issuance of shares of
Common Stock or other securities or property upon conversion of shares of the
7.5% Preferred.
(xii) SURRENDERED SHARES. All certificates representing the
7.5% Preferred surrendered for conversion or redemption shall be appropriately
canceled on the books of the Corporation, and the shares so converted
represented by such certificates shall be restored to the status of authorized
but unissued shares of the 7.5% Preferred of the Corporation, but may not be
reissued as part of the 7.5% Preferred.
(xiii) CLOSING OF BOOKS. The Corporation will not close its
transfer books against the transfer of any shares of the 7.5% Preferred or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of the 7.5% Preferred in any manner that interferes with the timely conversion
of such 7.5% Preferred, except as may otherwise be required to comply with
applicable securities laws.
(h) Redemption of the 7.5% Preferred. The Corporation shall
have the right to redeem any or all of the outstanding shares of the 7.5%
Preferred at any time and from time to time at the stated value of such shares
payable in cash together with any accrued but unpaid dividends thereon. In the
event the Corporation shall redeem shares of the 7.5% Preferred, notice of such
redemption shall be given by first-class mail, postage prepaid, mailed not less
than 30 days nor more than 60 days prior to the redemption date (the "7.5%
Redemption Date"), to each holder of record of the shares to be redeemed at such
holder's address as the same appears on the stock register of the Corporation;
provided, however, that no failure to mail such notice nor any defect therein
shall affect the validity of the proceeding for the redemption of any shares of
the 7.5% Preferred to be redeemed except as to the holder to whom the
Corporation has failed to mail said notice or except as to the holder whose
notice was defective. Each such notice shall state: (i) the 7.5% Redemption
Date, (ii) the number of shares of the 7.5% Preferred to be
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redeemed and, if less than all the shares held by such holder are to be redeemed
from such holder, the number of shares to be redeemed from such holder, (iii)
the redemption price (including accrued but unpaid dividends), (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price, and (v) that dividends on the shares to be redeemed will
cease to accrue on the day following the 7.5% Redemption Date unless the
Corporation defaults in making such payment.
Upon the 7.5% Redemption Date, the holders of the 7.5%
Preferred shares which are to be redeemed (the "7.5% Redemption Shares") shall
deliver certificates for those shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the 7.5% Redemption Shares on the
day following the 7.5% Redemption Date whether or not the certificates therefor
are delivered to the Corporation.
If less than all of the shares of the 7.5% Preferred are to be
redeemed, the Corporation shall select the shares of the 7.5% Preferred to be
redeemed in whole shares on a pro rata basis (or as close thereto as practical).
3. Common Stock and Class B Common Stock.
(a) Except as otherwise provided in this Section 3, all shares
of common stock of whatever class or series shall be identical and shall entitle
the holders thereof to the same rights and privileges.
(b) Holders of shares of Common Stock shall be entitled to one
vote per share registered on the books of the Corporation on matters submitted
to stockholders. Holders of shares of Class B Common Stock shall be entitled to
one vote per share registered on the books of the Corporation on matters
submitted to stockholders. Except as otherwise required by law, holders of
Common Stock and Class B Common Stock shall vote together as one class on all
matters submitted to stockholders.
(c) In the event of a liquidation, dissolution or winding-up
of the Corporation, whether voluntary or involuntary, subject to the proviso
below and subject to the rights of the holders of the Class A Preferred, the
Class B Preferred, the 7.5% Preferred and any other class or series of stock
ranking senior to the Common Stock or the Class B Common Stock as to liquidation
preferences, the holders of shares of Common Stock and Class B Common Stock then
outstanding shall be entitled to share ratably, according to the number of
shares held, in the distribution of assets; provided, however, that any such
distribution of assets to holders of shares of Class B Common Stock shall be
limited to an amount equal to $.01 per share.
4. Additional Preferred Stock
(a) The Additional Preferred Stock may be issued from time to
time in one or more series, with such distinctive designation or title and in
such number of shares as may be fixed by resolution of the Board of Directors
without further action by stockholders. The Board of Directors is expressly
granted authority to establish, by resolution or resolutions adopted before the
issuance of any shares of a particular series of
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Additional Preferred Stock, the powers, preferences and rights of each series
and the qualifications, limitations or restrictions thereof, including but not
limited to the following:
(i) The voting powers, full, special or limited, or no voting powers,
of such series of Additional Preferred Stock;
(ii) The rate, terms and conditions on which dividends, if any, shall
be paid, whether such dividends will be cumulative and what preference such
dividends have in relation to the dividends on other series or classes of stock;
(iii) The rights, terms and conditions, if any, for conversion of such
series of Additional Preferred Stock into shares of other series or classes of
stock;
(iv) Any right of the Corporation to redeem the shares of such series
of Additional Preferred Stock, and the price, time and conditions of such
redemption, including the provisions for any sinking fund; and
(v) The rights of holders of such series of Additional Preferred Stock
upon liquidation, distribution of assets, consolidation or sale of assets by the
Corporation.
(b) Unless the Board of Directors otherwise provides in the resolution
establishing a series of Additional Preferred Stock, upon repurchase by the
Corporation, redemption or conversion, the shares of Additional Preferred Stock
shall revert to authorized but unissued shares and may be reissued as shares of
any series of Additional Preferred Stock.
(c) In case the stated dividends and the amounts payable on liquidation
are not paid in full, each share of any series of Additional Preferred Stock
shall share ratably with each other share of any series of Additional Preferred
Stock, but not with any shares of Common Stock, (a) in the payment of dividends,
including cumulations, if any, in accordance with the sums which would be
payable on such share if all dividends were declared and paid in full and (b) in
any distribution of assets other than by way of dividends, in accordance with
the sums which would be payable in such distribution if all sums payable were
discharged in full.
(d) The holders of Additional Preferred Stock shall be entitled to
receive when and as declared by the Board of Directors, but only out of assets
legally available for the payment of dividends, cash dividends at the annual
rate of each series fixed by the Board of Directors at the time of the original
authorization of the issue of the shares of such series.
(e) So long as any share of Additional Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for payment any
dividends (other than dividends payable in Common Stock) on the Common Stock,
make any other distributions on the Common Stock, or redeem, purchase or
otherwise acquire for consideration or permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any Common Stock unless all
accrued dividends of the
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Additional Preferred Stock of all series, including any unpaid cumulative
dividends thereon, but without interest, shall have been paid and full dividends
thereon for the then current dividend period shall have been paid or declared,
and a sum sufficient for the payment thereof set apart. Notwithstanding the
foregoing, the Corporation may at any time redeem, purchase or otherwise acquire
shares of Common Stock in exchange for, or out of the net proceeds from the sale
or other use of, other shares of Common Stock.
(f) In the event of a liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, but before any
distribution or payment shall be made to the holders of the Common Stock, the
holders of each series of Additional Preferred Stock shall be entitled to be
paid in cash the applicable liquidation price per share fixed at the time of the
original authorization of shares of such series and, in the case of each share
of Additional Preferred Stock having cumulative dividend rights, an amount equal
to all dividends (whether or not earned or declared) accrued and unpaid thereon,
but without interest, to the date fixed for such distribution or payment.
5. Series A Convertible Additional Preferred Stock
(a) Designation and Amount. There shall be a series of
Additional Preferred Stock, designated as "Series A Convertible Additional
Preferred Stock," and the number of shares constituting such series shall be
234,900, each share having a stated value upon issuance of $10.00. Such series
is referred to herein as the "Series A Preferred."
(b) Rank. As to payment of dividends and as to distributions
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, all shares of Series A Preferred shall rank
prior to all of the Corporation's Common Stock, Class B Common Stock, and the
Series B Preferred, shall rank equal to any other hereinafter issued series of
Additional Preferred Stock (other than the Series B Preferred), and shall be
subordinate to all of the Corporation's 7.5% Preferred and the Class B
Preferred.
(c) Dividends. The holders of record of shares of the Series A
Preferred shall be entitled to receive dividends, out of funds legally available
therefor, at a rate of 6% of the stated value per annum. Dividends on the Series
A Preferred shall commence to accrue on September 30, 1993, and shall accrue
cumulatively and be added to the stated value on a daily basis whether or not
earned or expressly declared by the Board of Directors.
(d) Liquidation Preference. In the event of any distribution
of assets upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holder of each share of the
then outstanding Series A Preferred shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital, surplus or earnings,
an amount equal to the then stated value of each share of Series A Preferred,
before any payments or distributions are made to, or set aside for, any other
equity security of the Corporation other than the holders of the 7.5% Preferred,
the Class
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<PAGE> 19
B Preferred and any other series of Additional Preferred Stock. If the assets of
the Corporation are insufficient to pay such amounts in full, then the entire
assets of the Corporation shall first be distributed to the holders of the 7.5%
Preferred, 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) Conversion. On September 30, 1994, each holder of the
Series A Preferred shall automatically, without any action being required on the
part of such holder, have one-third of each such holder's holdings of Series A
Preferred (the "First Conversion Allotment") converted into a number or shares
of Common Stock of the Corporation determined by dividing the then stated value
of the shares by the Series A Conversion Price. On September 30, 1995, each
holder of the Series A Preferred shall automatically, without any action being
required on the part of such holder, have one-half of each such holder's
holdings of Series A Preferred (the "Second Conversion Allotment") converted
into a number of shares of Common Stock determined by dividing the then stated
value of the shares by the Series A Conversion Price. On September 30, 1996, all
shares of the Series A Preferred that remain outstanding (the "Final Conversion
Allotment") shall automatically, without any action being required on the part
of the holders thereof, be converted into a number of shares of Common Stock
determined by dividing the then stated value of the shares by the Series A
Conversion Price. Each of September 30, 1994, September 30, 1995 and September
30, 1996 is referred to herein as a "Conversion Date." The "Series A Conversion
Price" shall be an amount equal to the average of the per-share closing prices
(regular way) for a round lot of the Common Stock on the American Stock Exchange
(or, if the Common Stock is then not listed for trading on the American Stock
Exchange, such other exchange or system on which the Common Stock shall from
time to time be traded) on each of the five trading days immediately preceding a
Conversion Date.
Promptly upon the occurrence of a Conversion Date, the
Corporation, or its stock transfer agent at the direction of the Corporation,
shall give notice by first class mail, postage prepaid, to each holder of record
on the Conversion Date of the Series A Preferred at such holder's address as it
shall appear upon the stock transfer books of the Corporation. Each such notice
of conversion shall specify the Conversion Date and the number of shares of
Common Stock into which such shares of Series A Preferred have been converted,
and be accompanied by certificates representing the number of full shares of
Common Stock into which such Series A Preferred has been converted, registered
in the same name and address in which such Series A Preferred is then
registered, and any cash adjustment in lieu of fractional shares as hereinafter
provided.
Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of the
Series A Preferred receives such notice; and failure to give such notice by
mail, or any defect in such notice, to the holders of any of the shares of
outstanding Series A Preferred shall not affect the validity of the proceedings
for the conversion of any of the shares of Series A Preferred.
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<PAGE> 20
Within 5 days following receipt of such notice, holders of shares of Series A
Preferred shall surrender the certificate or certificates for such shares of
Series A Preferred at the office of the Corporation or the Corporation's stock
transfer agent, which certificate or certificates, if the Corporation shall so
require, shall be duly endorsed to the Corporation or in blank, or accompanied
by proper instruments of transfer to the Corporation or in blank.
Subject to the provisions hereof, such conversion shall be
deemed to have been made as of the Conversion Date, and the person or persons
entitled to receive the Common Stock deliverable upon conversion of such Series
A Preferred shall be treated for all purposes as the record holder or holders of
such Common Stock on such date.
No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon conversion of Series A Preferred. If more
than one certificate representing shares of Series A Preferred shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred so surrendered. Instead of any
fractional share of Common Stock that would otherwise be issuable upon
conversion or any shares of Series A Preferred, the Corporation will pay a cash
adjustment in respect of such fractional interest in an amount equal to the same
fraction of the Series A Conversion Price per share of Common Stock.
The Corporation shall at all times receive and keep available,
out of its authorized and unissued stock, solely for the purpose of affecting
the conversion of the Series A Preferred, such number of shares of its Common
Stock free of preemptive rights as shall from time to time be sufficient to
effect the conversion of all shares of Series A Preferred from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, increase the authorized number of shares of
Common Stock if at any time the number of shares of Common Stock not outstanding
shall not be sufficient to permit the conversion of all the then outstanding
shares of Series A Preferred.
The Corporation will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of any shares of Series A Preferred. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series A Preferred
so converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(f) Redemption. The Corporation shall have the right to redeem
the First Conversion Allotment at any time prior to September 20, 1994, the
Second Conversion Allotment at any time prior to September 20, 1995 and the
Final Conversion Allotment at any time prior to September 20, 1996 at the
liquidation value (initial stated value plus all accrued but unpaid dividends)
of such shares payable in cash. In the event the Corporation shall redeem any
such shares of Series A Preferred, notice of such
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<PAGE> 21
redemption shall be given by first-class mail, postage prepaid, mailed not less
than 10 days nor more than 30 days prior to the redemption date (the "Redemption
Date") to each holder of record of the shares to be redeemed at such holder's
address as the same appears on the stock register of the Corporation; provided,
however, that no failure to mail such notice nor any defect therein shall affect
the validity of the proceeding for the redemption of any shares of Series A
Preferred to be redeemed except as to the holder to whom the Corporation has
failed to mail said notice or except as to the holder where notice was
defective. Each such notice shall state: (i) the Redemption Date, (ii) the
redemption price, (iii) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price, and (iv) that
dividends on the shares to be redeemed will cease to accrue on the day following
the Redemption Date unless the Corporation defaults in making payment of the
redemption price.
Upon the Redemption Date, the holders of the Series A
Preferred shares which are to be redeemed (the "Redemption Shares") shall
deliver certificates for their shares to the Corporation against payment of the
redemption price. Unless the Corporation shall default in the making of such
payment, dividends shall cease to accrue on the Redemption Shares on the day
following the Redemption Date whether or not the certificates therefor are
delivered to the Corporation.
(g) Voting Rights. The holders of the Series A Preferred shall
not have any voting rights except as may be required by law.
(h) Status of Acquired Shares. Shares of Series A Preferred
received by the Corporation pursuant to paragraph (e) or (f) hereof, or
otherwise acquired by the Corporation, will be restored to the status of
authorized and unissued shares of Additional Preferred Stock, without
designation as to series, and may thereafter be issued, but not as shares of
Series A Preferred.
(i) Preemptive Rights. The Series A Preferred is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
6. Series B Convertible Additional Preferred Stock
(a) Designation and Amount. There shall be a series of
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."
(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, and Class B Common Stock, and
shall be subordinate to all of the Corporation's 7.5% Preferred, Class B
Preferred, Series A Preferred, and any series of Additional Preferred Stock
hereinafter issued.
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<PAGE> 22
(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 16, 1995 through February 16, 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 17, 1998 through
February 16, 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 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
Series B Conversion Price. The existing Series B 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
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<PAGE> 23
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 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 Series B 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 Series B 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 Series B 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.
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<PAGE> 24
(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 Series B
Conversion Price. The " Series B 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 Series B 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 Series B 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 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
24
<PAGE> 25
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 Series B Conversion Price, the
Corporation shall give prompt written notice thereof to the holders of the
Series B Preferred, which notice shall state the Series B 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 Series B 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 Series B Conversion 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
Series B 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 Series B 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
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<PAGE> 26
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 Series B 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 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.
FIFTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional, misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification. Except as prohibited by Section 145 of the
Delaware General Corporation Law, every director and officer of the Corporation
shall be entitled as a matter of right to be indemnified by the Corporation
against reasonable expense and any liability paid or incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
civil, criminal, administrative, investigative or other, whether brought by or
in the right of the Corporation or otherwise, in which he or she may be
involved, as a party or otherwise, by reason of such person being or having been
a director or officer of the Corporation or by reason of the fact that such
person is or was serving at the request of the Corporation as a director,
officer, employee, fiduciary or other representative of the Corporation or
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity (such claim, action, suit or proceeding hereinafter being referred
to as an "action"); provided, however, that no such right of indemnification
shall exist with respect to an action brought by a director or officer against
the Corporation other than in a suit for indemnification as provided hereunder.
Such indemnification shall include the right to have expenses incurred by such
person in connection with an action paid in advance by the Corporation prior to
final disposition of such action, subject to such conditions as may be
prescribed by law. As used herein,
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<PAGE> 27
"expense" shall include, among other things, fees and expenses of counsel
selected by such person, and "liability" shall include amounts of judgments,
excise taxes, fines and penalties, and amounts paid in settlement.
Insurance; Other Funding. The Corporation may purchase and
maintain insurance to protect itself and any person eligible to be indemnified
hereunder against any liability or expense asserted or incurred by such person
in connection with any action, whether or not the Corporation would have the
power to indemnify such person against such liability or expense by law or under
the provisions of this Article FIFTH. The Corporation may make other financial
arrangements, which may include, among other things, a trust fund, program of
self-insurance, grant of a security interest or other lien on any assets of the
Corporation, or establishment of a letter of credit, guaranty or surety, to
ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
Non-Exclusive; Nature and Extent of Rights. The right of
indemnification provided for herein (i) shall not be deemed exclusive of any
other rights, whether now existing or hereafter created, to which those seeking
indemnification hereunder may be entitled under any agreement, by-law or article
provision, vote of the stockholders or directors or otherwise, (ii) shall be
deemed to create contractual rights in favor of persons entitled to
indemnification hereunder, (iii) shall continue as to persons who have ceased to
have the status pursuant to which they were entitled or were designated as
entitled to indemnification hereunder and shall inure to the benefit of the
heirs and legal representatives of persons entitled to indemnification hereunder
and (iv) shall be applicable to actions, suits or proceedings commenced after
the adoption of this Article FIFTH whether arising from acts or omissions
occurring before or after the adoption hereof. The right of indemnification
provided for herein may not be amended, modified or repealed so as to limit in
any way the indemnification provided for herein with respect to any acts or
omissions occurring prior to the adoption of any such amendment or repeal."
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<PAGE> 28
4. The amendment and the restatement of the certificate of
incorporation herein certified have been duly adopted by the stockholders in
accordance with the provisions of Sections 228, 242, and 245 of the General
Corporation Law of the State of Delaware. Prompt written notice of the adoption
of the amendment and of the restatement of the certificate of incorporation
herein certified has been given to those stockholders who have not consented in
writing thereto, as provided in Section 228 of the General Corporation Law of
the State of Delaware.
5. This Restated Certificate of Incorporation shall be effective on
October 31, 1996.
IN WITNESS WHEREOF, said Corporation has caused this
Certificate to be signed by Rakesh K. Kaul its President and Chief Executive
Officer, and attested by Edward J. O'Brien, its Secretary, this 28th day of
October, 1996.
HANOVER DIRECT, INC.
By: /s/Rakesh K. Kaul
--------------------------------------------
Name: Rakesh K. Kaul
Title: President and Chief Executive Officer
ATTEST:
By: /s/Edward J. O'Brien
-----------------------------------
Name: Edward J. O'Brien
Title: Secretary
28
<PAGE> 1
EFFECTIVE 9/26/96
BYLAWS
OF
HANOVER DIRECT, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation or by agents designated by the Board of Directors, certifying the
number of shares owned by him in the corporation and setting forth any
additional statements that may be required by the General Corporation Law of
Delaware. If any such certificate is countersigned or otherwise authenticated by
a transfer agent or transfer clerk or by a registrar other than the corporation,
a facsimile of the signature of any such officers or agents designated by the
Board may be printed or lithographed upon such certificate in lieu of the actual
signatures. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the corporation
before such certificate or certificates shall have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to be such officer or
officers of the corporation.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of special stock, the certificates
representing shares of any such class or series or of any such special stock
shall set forth thereon the statements prescribed by the General Corporation
Law. Any restrictions on the transfer or registration of transfer of any shares
of stock of any class or series shall be noted conspicuously on the certificate
representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost, stolen,
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate.
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2. FRACTIONAL SHARE INTERESTS. The corporation shall not be obliged to
but may execute and deliver a certificate for or including a fraction of a
share. In lieu of executing and delivering a certificate for a fraction of a
share, the corporation may (i) pay to any person otherwise entitled to become a
holder of a fraction of a share an amount in cash specified for such purpose as
the value thereof in the resolution of the Board of Directors, or other
instrument pursuant to which such fractional share would otherwise be issued,
or, if not specified therein, then as may be determined for such purpose by the
Board of Directors of the issuing corporation or (ii) execute and deliver
registered or bearer scrip over the manual or facsimile signature of an officer
of the corporation or of its agent for that purpose, exchangeable as therein
provided for full share certificates, but such scrip shall not entitle the
holder to any rights as a stockholder except as therein provided. Such scrip may
provide that it shall become void unless the rights of the holders are exercised
within a specified period and may contain any other provisions or conditions
that the corporation shall deem advisable. Whenever any such scrip shall cease
to be exchangeable for full share certificates, the shares that would otherwise
have been issuable as therein provided shall be deemed to be treasury shares
unless the scrip shall contain other provisions for their disposition.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, of
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes, if any, due
thereon. The Board of Directors shall have power and authority to make all such
rules and regulations as they deem expedient concerning the issue, transfer, and
registration of certificates of stock, and may appoint a transfer agent and a
registrar, and may require all stock certificates to bear the signature of such
transfer agent and of such registrar.
4. TREASURY STOCK. The Chairman or Vice-Chairman of the Board of
Directors, if any, or President or a Vice-President or Treasurer or an Assistant
Treasurer or Secretary or an Assistant Secretary of the corporation is
authorized and hereby is directed to assign, sell, purchase, or transfer shares
of the common stock of the corporation for the purpose of effecting
stock-for-stock transactions in accordance with the provisions of any Stock
Option Plan which may be in effect from time to time.
5. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other lawful action, the directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty
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days prior to any other action, provided, however, that in the case of the
payment of any dividend, the record date fixing the stockholders entitled to
payment thereof shall be at least ten days after the date on which such dividend
is declared by the Board of Directors. If no record date is fixed, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining stockholders for any other purpose, other than
the payment of dividends, shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto. A determination
of stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
6. BENEFICIAL OWNERS. The corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
7. MEETING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the corporation is authorized to issue only one class of
shares of stock, and such reference is also intended to include any outstanding
share or shares of stock of any class and any holder or holders of record of
outstanding shares of stock of any class upon which or upon whom the Articles of
Incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the Articles of Incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that,
except as provided by the General Corporation Law, no such right shall vest in
the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the Articles of Incorporation.
8. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the Board of Directors, provided, that the first
annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual
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meeting shall be held on a date within thirteen months after the date of the
preceding annual meeting. A special meeting shall be held on the date and at the
time fixed by the Board of Directors.
(b) PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the principle office of the corporation in the State of
Delaware.
(c) CALL. Annual meetings and special meetings may be called by the
directors or by any officer designated by the directors to call the meeting.
(d) NOTICE OR WAIVER OF NOTICE. Notice of all meetings shall be in
writing and signed by the President or a Vice-President, or the Secretary, or an
Assistant Secretary, or by such other person or persons as the directors shall
designate. Such notice shall state the purpose or purposes for which the meeting
is called and the time when, and the place where, it is to be held. A copy of
such notice shall be either delivered personally to, or shall be mailed postage
prepaid to, each stockholder not less than ten or more than sixty days before
such meeting. If mailed, it shall be directed to a stockholder at his address as
it appears upon the records of the corporation. Any stockholder may waive notice
of any meeting by a writing signed by him or his duly authorized attorney,
either before or after the meeting; and whenever notice of any kind is required
to be given under the provisions of the General Corporation Law, a waiver
thereof in writing and duly signed, whether before or after the time of such
required notice, shall be deemed equivalent thereto.
(e) STOCKHOLDER LIST The officer who has charge of the stock ledger of
the corporation shall prepare and make or cause to be prepared and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or other
municipality or community where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, any may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
(f) CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting; the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the
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stockholders. The Secretary of the corporation, or in his absence an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
(g) PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
in all matters in which a stockholder is entitled to participate, whether by
voting or by participating at a meeting, or by expressing consent or dissent
without a meeting. Every proxy must be executed by the stockholder or by his
attorney-in-fact. No proxy shall be valid after the expiration of three years
from the date of its execution, unless it specifies therein a longer period.
(h) INSPECTORS. The Board of Directors, in advance of any meeting of
stockholders shall appoint one or more inspectors to act at the meeting or any
adjournment thereof and make a written report thereof. In case any person who
may be appointed as an inspector fails to appear or act, the vacancy may be
filled by the person presiding at the meeting. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (i) determine the number of
shares of stock outstanding and the voting power of each; (ii) determine the
shares of stock represented at the meeting and validity of proxies and ballots;
(iii) shall count all votes and ballots; (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors; and (v) certify their determination of the
number of shares represented at the meeting, and their count of all votes and
ballots.
(i) QUORUM. The holders of a majority of the outstanding shares of
stock or of the voting power, as the case may be, shall constitute a quorum at a
meeting of stockholders for the transaction of any business unless the action to
be taken at the meeting shall require a greater proportion. The stockholders
present may adjourn the meeting despite the absence of a quorum.
(j) VOTING. Each share of stock shall entitle the holder thereof to one
vote except where the General Corporation Law, the Certificate of Incorporation,
or the Bylaws prescribe a different exercise of voting power. In the election of
directors, a plurality of the votes cast shall elect. Any other action shall be
authorized by a majority of the votes cast except where the General Corporation
Law, the Certificate of Incorporation, or the Bylaws prescribe a different
percentage of votes. In the election of directors, voting need not be by ballot;
and, except as otherwise may be provided by the General Corporation Law, voting
by ballot shall not be required for any other action.
9. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action, except the election
of directors and except as may otherwise be provided by the General Corporation
Law, which may be taken by the vote of stockholders at a meeting may be taken
without a meeting if authorized by the written consent of stockholders holding
at least a majority of the voting power; provided that, if any greater
proportion of voting power is required for such action at a meeting,
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then such greater proportion of written consents shall be required. In no
instance where action is authorized by written consent need a meeting of
stockholders be called or noticed.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by the Board of Directors of the corporation. The
Board of Directors shall have the authority to fix the compensation of the
members thereof for services in any capacity. The use of the phrase "whole
Board" herein refers to the total number of directors which the corporation
would have if there were no vacancies, as determined by the Board of Directors.
2. QUALIFICATIONS. Each director must be least 18 years of age. At
least one director must be a citizen of the United States. A director need not
be a stockholder or a resident of the State of Delaware.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation at the meeting
who complies with the notice procedures set forth in this Article II, Section 2.
Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation at least 75 days before initiation of solicitation to the
stockholders for election in the event of an election other than at an annual
meeting and at least 75 days before the corresponding date that was the record
date of the previous year's annual meeting of stockholders in the event of an
election at an annual meeting. Any such notification pursuant to this paragraph
shall be effective and such person shall be eligible to be elected or to serve
only if the notification contains all information required under Regulation S-K
and the Rules, each promulgated under the Securities Exchange Act of 1934, as
amended. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Article II, Section 2. The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribe by the Bylaws; and, if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
3. NUMBER, ELECTION, AND TERM. The Board of Directors shall consist of
eleven directors. A director shall hold office until the next annual meeting of
stockholders and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification, or
removal from office. Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, any other vacancy occurring in the Board of Directors
may be filled by a
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majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his predecessor.
4. MEETINGS.
(a) TIME. Meetings shall be held at such time as the Board shall fix.
(b) PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
(c) CALL. No call shall be required for regular meetings for which time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any,
the President, or a majority of the directors in office.
(d) NOTICE OF ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice, if any, need not be given to a director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written notice.
(e) QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as the Articles of Incorporation or
the Bylaws may otherwise provide, and except as otherwise provided by the
General Corporation Law, the act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. The quorum
and voting provisions herein stated shall not be construed as conflicting with
any provisions of the General Corporation Law and the Bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or which govern actions of disinterested directors.
Members of the Board or of any committee which may be designated by the
Board may participate in a meeting of the Board or of any such committee, as the
case may be, by means of a conference telephone network or a similar
communications method by which all persons
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participating in the meeting hear each other. Participation in a meeting by said
means shall constitute presence in person at any such meeting. Each person
participating in a meeting by such means shall sign the minutes thereof.
(f) CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for
cause or without cause by the holders of at least two thirds of the outstanding
stock of the corporation entitled to vote at an election of directors. One or
more of the directors may be removed for cause by the Board of Directors.
6. COMMITTEES. There shall be a Nominating Committee which shall
consist of four members. The Board of Directors may, in addition, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation and each
committee to have such authority as the Board shall determine. Any such
committee, to the extent provided in the resolution or resolutions of the Board
and as limited by General Corporation Law, shall have and may exercise the
powers and authority of the Board of Directors in the management of the business
except that no such committee shall have authority as to the following matters:
(a) The submission to shareholders of any action that needs
shareholders' approval under the General Corporation Law, the Articles of
Incorporation, or the Bylaws.
(b) The filling of vacancies in the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on the
Board or on any committee.
(d) The amendment or repeal of the Bylaws, or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if a written consent thereto is signed by all the members of the Board
or committee, as the case may be.
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ARTICLE III
OFFICERS
1. The corporation shall have a President, a Secretary, a Treasurer, a
Resident Agent, and, if deemed necessary, expedient, or desirable by the Board
of Directors, a Chairman of the Board, a Vice-Chairman of the Board, one or more
Executive Vice-Presidents, one or more Senior Vice-Presidents, one or more other
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers, agents, and factors with such titles as the
resolutions choosing them shall designate. Each of any such officers, agents,
and factors shall be elected by a majority vote of the Board of Directors or in
the manner determined by the Board of Directors.
2. QUALIFICATIONS. Except as may otherwise be provided in the
resolution choosing him, no officer other than the Chairman of the Board, if
any, and the Vice-Chairman of the Board, if any, need be a director. Any two or
more offices may be held by the same person, as the directors may determine.
3. TERM OF OFFICE. (a) Unless otherwise provided in the resolution
choosing him, each officer, except the Resident Agent, shall be chosen for a
term which shall continue until the meeting of the Board of Directors following
the next annual of stockholders and until his successors shall have been chosen
and qualified. The Resident Agent shall serve until his or its successor shall
have been chosen and qualified.
(b) Any officer may be removed, with or without cause, by the Board of
Directors or in the manner determined by the Board.
(c) Any vacancy in any office may be filled by the Board of Directors
or in the manner determined by the Board. In case of any vacancy in the position
of Chairman of the Board, if any, President, any Executive Vice-President, if
any, any Senior Vice President, if any, any Vice-President, Secretary, or
Treasurer, there shall be no automatic succession but such vacancy shall be
filled by the Board of Directors.
4. DUTIES AND AUTHORITY. (a) All officers of the corporation shall have
such authority and perform such duties in the management and operation of the
corporation as shall be prescribed in the resolution designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions or instruments may be inconsistent therewith.
(b) The Treasurer shall give bond with corporate surety, in an amount
fixed by the Board of Directors. The President shall preside at all meetings of
the officers and shall exercise such general executive powers as are usually
incident to such office.
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ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. Except as prohibited by General Corporation Law,
every director and officer of the corporation shall be entitled as a matter of
right to be indemnified by the corporation against reasonable expense and any
liability paid or incurred by such person in connection with any actual or
threatened claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the corporation or
otherwise, in which he or she may be involved, as a party or otherwise, by
reason of such person being or having been a director or officer of the
corporation or by reason of the fact that such person is or was serving at the
request of the corporation as a director, officer, employee, fiduciary or other
representative of the corporation or another corporation, partnership, joint
venture, trust, employee benefit plan or other entity (such claim, action, suit
or proceeding hereinafter being referred to as an "action"); provided, however,
that no such right of indemnification shall exist with respect to an action
brought by a director or officer against the corporation other than in a suit
for indemnification as provided hereunder. Such indemnification shall include
the right to have expenses incurred by such person in connection with an action
paid in advance by the corporation prior to final disposition of such action,
subject to such conditions as may be prescribed by law. As used herein,
"expense" shall include, among other things, fees and expenses of counsel
selected by such person, and "liability" shall include amounts of judgments,
excise taxes, fines and penalties, and amounts paid in settlement.
2. INSURANCE; OTHER FUNDING. The corporation may purchase and maintain
insurance to protect itself and any person eligible to be indemnified hereunder
against any liability or expense asserted or incurred by such person in
connection with any action, whether or not the corporation would have the power
to indemnify such person against such liability or expense by law or under the
provisions of this Article IV. The corporation may make other financial
arrangements, which may include, among other things, a trust fund, program of
self-insurance, grant of a security interest or other lien on any assets of the
corporation, or establishment of a letter of credit, guaranty, or surety to
ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
3. NON-EXCLUSIVE; NATURE AND EXTENT OF RIGHTS. The right of
indemnification provided for herein (i) shall not be deemed exclusive of any
other rights, whether now existing or hereafter created, to which those seeking
indemnification hereunder may be entitled under any agreement, the Articles of
Incorporation, vote of stockholders or directors, or otherwise, (ii) shall be
deemed to create contractual rights in favor of persons entitled to
indemnification hereunder, (iii) shall continue as to persons who have ceased to
have the status pursuant to which they were entitled or were designated as
entitled to indemnification hereunder and shall inure to the benefit of the
heirs and legal representatives of persons entitled to indemnification
hereunder, and (iv) shall be applicable to actions, suits, or proceedings
commenced after the adoption of this Bylaw, whether arising from acts or
omissions occurring before or after the adoption hereof. The right of
indemnification provided for herein may not be
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amended, modified, or repealed so as to limit in any way the indemnification
provided for herein with respect to any acts or omissions occurring prior to the
adoption of any such amendment or repeal.
ARTICLE V
CHECKS AND NOTES
1. All checks, drafts and orders for the payment of money shall be
signed by the President or Treasurer or such officer as may be designated by the
Board of Directors, and such signature may be affixed by facsimile signature
except that any disbursement in an amount of $5,000.00 or more must be
countersigned manually by another designated officer.
2. All promissory notes of the corporation and acceptances must be
authorized by the Board of Directors and signed by the President and Treasurer.
ARTICLE VI
FISCAL YEAR, WORKING
CAPITAL AND DIVIDENDS
1. The fiscal year of the corporation shall consist of a fifty-two or
fifty-three week period beginning on the first Sunday after the last Saturday of
each calendar year and ending on the last Saturday of each calendar year, unless
otherwise changed by the Board of Directors.
2. The Board of Directors shall have power to fix a sum, which may be
set aside or reserved, over and above the corporation's capital paid-in, as
working capital for the corporation, and from time to time they may increase,
diminish, and vary same in their absolute judgment and discretion.
3. Dividends upon the capital stock of the corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, and may be paid in cash,
in property, or in shares of the capital stock. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
ARTICLE VII
CORPORATE SEAL OR STAMP
The corporate seal or stamp shall be in such form as the Board of
Directors may prescribe.
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ARTICLE VIII
PRINCIPAL OFFICE-RESIDENT AGENT-RECORDS
The location of the initial principal office of the corporation in the
State of Delaware is set forth in the original Articles of Incorporation of the
corporation; and the name of the initial resident agent of the corporation in
charge of said principal office is The Corporation Trust Company.
The corporation shall maintain at said principal office a copy of its
Articles of Incorporation and all amendments thereto, and a copy of the Bylaws
and all amendments thereto, as certified by the Secretary of the corporation.
The corporation shall also keep at said principal office a stock ledger or a
duplicate stock ledger revised annually, containing the names, alphabetically
arranged, of all persons who are stockholders of the corporation, showing their
places of residence, if known, and the number of shares held by them
respectively, or a statement setting out the name of the custodian of the stock
ledger or duplicate stock ledger, and the present and complete post office
address, including street and number, if any, where such stock ledger or
duplicate stock ledger is kept.
ARTICLE IX
CONTROL OVER BYLAWS
The Bylaws may be amended or repealed, and new Bylaws may be adopted,
(1) by vote of the holders of shares representing at least 75% of the votes
entitled to be cast at any annual meeting of stockholders, or at any special
meeting of the stockholders called for that purpose, or (2) by a majority vote
of the Board of Directors. Any Bylaw adopted by the Board may be amended or
repealed by the stockholders entitled to vote thereon as herein provided, but a
Bylaw adopted by the stockholders may provide that such Bylaws shall not be
subject to amendment or repeal by the Board. If any Bylaw regulating an
impending election of directors is adopted, amended, or repealed by the Board,
there shall be set forth in the notice of the next meeting of stockholders for
the election of directors the Bylaw so adopted, amended, or repealed, together
with a concise statement of the changed made.
12
<PAGE> 1
Exhibit 4.11
SECOND AMENDMENT
TO
WARRANT AGREEMENT
BETWEEN HANOVER DIRECT, INC. AND
NAR GROUP LIMITED
This Second Amendment, dated as of August 23, 1996 (this
"Amendment"), to that certain Warrant Agreement, dated as of October 25, 1991,
between NAR Group Limited (formerly known as North American Resources Limited)
("NAR") and The Horn & Hardart Company ("H&H"), predecessor-in-interest to
Hanover Direct, Inc. (the "Company").
WHEREAS, H&H and NAR are parties to that certain Warrant Agreement,
dated as of October 25, 1991, amended by a First Amendment to Warrant
Certificate and Warrant Agreement, dated as of November 13, 1995 (as so amended,
the "Warrant Agreement").
WHEREAS, pursuant to an Assumption Agreement, dated as of September
7, 1993, between H&H and the Company, the Company assumed the due and punctual
performance and observance of each and every covenant and condition of H&H in
the Warrant Agreement.
WHEREAS, the Company and NAR desire to further amend the Warrant
Agreement.
NOW, THEREFORE, in consideration of the premises and agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
A. Amendments to the Warrant Agreement. The Warrant Agreement is
hereby amended as follows:
Section 5 is hereby amended by adding a new subparagraph (c) as
follows and redesignating subparagraphs 5(c) and 5(d) as subparagraphs 5(d) and
5(e), respectively:
"(c) The Holder may also exercise all, but not less than all, of its
Warrants in a "cashless" or "net-issue" exercise of each such Warrant
by presentation and surrender of the Holder's Warrant Certificate to
the Company at its principal executive offices with a Cashless
Exercise Form annexed hereto duly executed (a "Cashless Exercise"). In
the event of a Cashless Exercise, the Holder shall exchange each
Warrant subject to a Cashless Exercise for that number of Warrant
Shares stated in the Agreement, as the same
<PAGE> 2
may have been duly adjusted from time to time, multiplied by a
fraction, the numerator of which shall be the difference between (x)
the then current market price per share of Common Stock (as defined in
Section 1(d) of Annex B hereto) and (y) the Exercise Price per share
of Common Stock for each such warrant, and the denominator of which
shall be the then current market price per share. The Cashless
Exercise Form shall set forth the calculation upon which the Cashless
Exercise is based."
B. Ratification. Except as expressly amended hereby all terms and
provisions of the Warrant Agreement, as heretofore amended, remain unamended,
unmodified and in full force and effect. The Warrant Agreement, as amended
hereby, and all rights and powers created thereby, is in all respects ratified
and confirmed. From and after the date hereof, all references to the Warrant
Agreement shall be deemed to mean the Warrant Agreement as amended by this
Amendment.
C. Counterparts. This Amendment may be executed in counterparts,
each of which, when executed and delivered, shall for all purposes be deemed an
original. Both of the counterparts, when taken together, shall constitute but
one and the same Amendment.
D. Governing Law. This Amendment 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.
E. Definitions. Except as otherwise expressed or provided or unless
the context otherwise requires, all terms used herein which are defined in the
Warrant Agreement shall have the meanings ascribed to them in the Warrant
Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
HANOVER DIRECT, INC.
By: ___________________________
Name:
Title
NAR GROUP LIMITED
By: ___________________________
Name:
Title
-3-
<PAGE> 4
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 5(c))
To Hanover Direct, Inc.:
The undersigned hereby irrevocably elects to exchange its Warrants
for such number of shares of Common Stock set forth on the calculation attached
hereto pursuant to the Cashless Exercise provisions of Section 5(c) of the
Warrant Agreement, dated as of October 25, 1991, and a First Amendment thereto,
dated as of November 13, 1995, between NAR Group Limited (formerly known as
North American Resources Limited) and Hanover Direct, Inc, successor-in-interest
to The Horn & Hardart Company. The undersigned's Warrant Certificate is attached
hereto.
Please issue a certificate or certificates for such Common Stock in
the name of:
Name _________________________________
(Please Print Name, Address and Federal
Tax ID Number)
Address ______________________________
______________________________________
______________________________________
Federal Tax ID Number ________________
Signature_____________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the
assignee appearing in the assignment form below.
<PAGE> 5
Calculation of Cashless Exercise
Current Market Price $ ________= A
Exercise Price for Warrant Shares, as adjusted $ _________= B
A-B = $ ________
Number of Warrants to be exchanged, as adjusted _____________= C
Number of Warrant Shares = (_______________ /_____________) X _____________
(insert A-B) (insert A) (insert C)
<PAGE> 1
Exhibit 4.12
THIRD AMENDMENT
TO
WARRANT AGREEMENT
BETWEEN HANOVER DIRECT, INC. AND
NAR GROUP LIMITED
This Third Amendment, dated as of August 23, 1996 (this
"Amendment"), to that certain Warrant Agreement, dated as of October 25, 1991,
between NAR Group Limited (formerly known as North American Resources Limited)
("NAR") and The Horn & Hardart Company ("H&H"), predecessor-in-interest to
Hanover Direct, Inc. (the "Company").
WHEREAS, H&H and NAR are parties to that certain Warrant Agreement,
dated as of October 25, 1991, amended by a First Amendment to Warrant Agreement
and Warrant Certificate, dated as of July 29, 1992, and by a Second Amendment to
Warrant Agreement and Warrant Certificate, dated as of November 13, 1995 (as so
amended, the "Warrant Agreement").
WHEREAS, pursuant to an Assumption Agreement, dated as of September
7, 1993, between H&H and the Company, the Company assumed the due and punctual
performance and observance of each and every covenant and condition of H&H in
the Warrant Agreement.
WHEREAS, the Company and NAR desire to further amend the Warrant
Agreement.
NOW, THEREFORE, in consideration of the premises and agreements
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
A. Amendments to the Warrant Agreement. The Warrant Agreement is
hereby amended as follows:
Section 5 is hereby amended by adding a new subparagraph (c) as
follows and redesignating subparagraphs 5(c) and 5(d) as subparagraphs 5(d) and
5(e), respectively:
"(c) The Holder may also exercise all, but not less than all, of its
Warrants in a "cashless" or "net-issue" exercise of each such Warrant
by presentation and surrender of the Holder's Warrant Certificate to
the Company at its principal executive offices with a Cashless
Exercise Form annexed hereto duly executed (a "Cashless Exercise"). In
the event of a Cashless Exercise, the Holder shall exchange each
Warrant subject to a Cashless Exercise for that number
<PAGE> 2
of Warrant Shares stated in the Agreement, as the same may have been
duly adjusted from time to time, multiplied by a fraction, the
numerator of which shall be the difference between (x) the then
current market price per share of Common Stock (as defined in Section
1(d) of Annex B hereto) and (y) the Exercise Price per share of Common
Stock for each such warrant, and the denominator of which shall be the
then current market price per share. The Cashless Exercise Form shall
set forth the calculation upon which the Cashless Exercise is based."
B. Ratification. Except as expressly amended hereby all terms and
provisions of the Warrant Agreement, as heretofore amended, remain unamended,
unmodified and in full force and effect. The Warrant Agreement, as amended
hereby, and all rights and powers created thereby, is in all respects ratified
and confirmed. From and after the date hereof, all references to the Warrant
Agreement shall be deemed to mean the Warrant Agreement as amended by this
Amendment.
C. Counterparts. This Amendment may be executed in counterparts,
each of which, when executed and delivered, shall for all purposes be deemed an
original. Both of the counterparts, when taken together, shall constitute but
one and the same Amendment.
D. Governing Law. This Amendment 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.
E. Definitions. Except as otherwise expressed or provided or unless
the context otherwise requires, all terms used herein which are defined in the
Warrant Agreement shall have the meanings ascribed to them in the Warrant
Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
HANOVER DIRECT, INC.
By: __________________________
Name:
Title
NAR GROUP LIMITED
By: __________________________
Name:
Title
-3-
<PAGE> 4
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 5(c))
To Hanover Direct, Inc.:
The undersigned hereby irrevocably elects to exchange its Warrants
for such number of shares of Common Stock set forth on the calculation attached
hereto pursuant to the Cashless Exercise provisions of Section 5(c) of the
Warrant Agreement, dated as of October 25, 1991, and a First Amendment and
Second Amendment thereto, dated as of July 29, 1992 and November 13, 1995,
respectively, between NAR Group Limited (formerly known as North American
Resources Limited) and Hanover Direct, Inc, successor-in-interest to The Horn &
Hardart Company. The undersigned's Warrant Certificate is attached hereto.
Please issue a certificate or certificates for such Common Stock in
the name of:
Name __________________________________
(Please Print Name, Address and Federal
Tax ID Number)
Address _______________________________
_______________________________________
_______________________________________
Federal Tax ID Number _________________
Signature _____________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the
assignee appearing in the assignment form below.
<PAGE> 5
Calculation of Cashless Exercise
Current Market Price $________ = A
Exercise Price for Warrant Shares, as adjusted $ _______ = B
A-B = $ _______
Number of Warrants to be exchanged, as adjusted _______________ = C
Number of Warrant Shares = ( ________________ / ____________) X _____________
(insert A-B) (insert A) (insert C)
<PAGE> 1
Exhibit 10.8
TERMINATION OF EMPLOYMENT AGREEMENT AND
EMPLOYMENT AND CONSULTING AGREEMENT
TERMINATION OF EMPLOYMENT AGREEMENT AND EMPLOYMENT AND CONSULTING AGREEMENT
(this "Agreement") made as of the 31st day of December, 1995, by and between
HANOVER DIRECT, INC., a Delaware corporation, with offices at 1500 Harbor
Boulevard, Weehawken, New Jersey 07087 (the "Company"), and JACK E. ROSENFELD,
residing at 176 East 70th Street, New York, New York 10021 ("Mr. Rosenfeld").
RECITALS
A. Rosenfeld and the Company entered into an Executive Employment
Agreement dated October 25, 1991 for a term of five years (the "Employment
Agreement").
B. Rosenfeld and the Company desire to provide for an early
termination of the Employment Agreement and for the continuing services of
Rosenfeld as an employee and thereafter as a consultant to the Company.
The parties hereto hereby agree as follows:
1. Resignation as an Officer and Director. Mr. Rosenfeld shall
resign as President and Chief Executive Officer and as a Director of the Company
and as an officer and director of each of the Company's subsidiaries effective
at the close of business on December 31, 1995.
2. Termination of Employment Agreement. (a) Effective at the close
of business on December 31, 1995, the Employment Agreement shall terminate and
neither the Company nor Mr. Rosenfeld shall have any further obligations or
liabilities thereunder and all benefits, salary and perquisites provided for
within such Employment Agreement shall terminate except for benefits, salary and
perquisites earned and accrued through the date of such termination and except
as otherwise provided herein. Mr. Rosenfeld hereby waives any right to receive
any further payments from the Company under such Employment Agreement, including
under paragraphs 4, 7 and 8 thereof.
(b) Mr. Rosenfeld has returned to the Company all memorandum, notes,
records reports and other documents (and all copies thereof) and other property
in his possession owned by the Company and relating to the businesses of the
Company which he obtained while employed by, or otherwise serving or acting on
behalf of, the Company or any of its subsidiaries or affiliates
<PAGE> 2
and which he possessed or had under his control.
3. Employment and Consulting Agreement; Term and Duties. (a)
Commencing with the termination of his employment under the Employment Agreement
and until January 1, 1997, Mr.Rosenfeld shall continue as an employee of the
Company and commencing January 2, 1997 until December 26, 1999, Mr. Rosenfeld
shall serve as a special consultant to the Company and, in such capacity, shall
be available, at such times by telephone or in person (the choice of which shall
be at the sole option of Mr. Rosenfeld) and for such periods (not to exceed
three (3) days or any portion thereof in any calendar quarter) as may be
reasonably requested from time to time by the Board of Directors, the Chairman
of the Board or the President of the Company to render such advice to, and as
may be reasonably requested from time to time by, the Board of Directors, the
Chairman of the Board or the President of the Company in connection with the
business and operations of the Company. Mr. Rosenfeld shall, through December
28, 1996, represent the Company at the Direct Marketing Association and the
Advertising Mail and Marketing Association and have the title Senior Board
Advisor.
(b) Mr. Rosenfeld shall also serve as a Director Emeritus of the
Company. The Company and Mr. Rosenfeld understand and agree that the term
"Director Emeritus" shall entitle Mr. Rosenfeld to attend the meetings of the
Board of Directors of the Company during the term hereof and to participate in
the discussions of the Board during such meetings, but only in a non-voting
capacity, and Mr. Rosenfeld shall not be deemed to be a director of the company
for any other purpose but he shall be entitled to the same indemnification and
liability and indemnity insurance coverage as any director of the Company.
(c) All of the Company's obligations and liabilities under this
Agreement shall terminate in the event that Mr. Rosenfeld engages in employment
which is prohibited pursuant to Paragraph 6 hereof, without the written consent
of the Board of Directors of the Company, which consent shall not be
unreasonably withheld.
4. Compensation. (a) In consideration for services to be performed
hereunder, the Company shall pay to Mr. Rosenfeld, annual compensation of
$500,000 for the year commencing January 1, 1996 through December 28, 1996 (and
the benefits provided below), in installments payable at the times that the
Company's customary payroll is paid or accrued. It is expressly agreed and
understood that Mr. Rosenfeld shall be entitled to receive the compensation and
benefits provided herein throughout the term of this Agreement whether or not he
has been requested to render advice in connection with the business and
-2-
<PAGE> 3
operations of the Company.
(b) Mr. Rosenfeld shall be entitled to reimbursement of all
reasonable expenses incurred by him in the performance of his duties hereunder
upon the presentation of documentation therefor reasonably satisfactory to the
Board of Directors, the Chairman of the Board or the President of the Company
pursuant to established procedure.
5. Benefits.
(a) Office Space. During the term of this Agreement, the Company
shall pay Mr. Rosenfeld an allowance of $1,000 per month for office space and
secretarial help to assist him to fulfill his duties hereunder.
(b) Automobile. The Company shall continue to provide Mr. Rosenfeld
with the Lincoln Town Car which has been assigned to him through December 28,
1996 and shall be responsible for all reasonable costs of insuring such
automobile for such period. Mr. Rosenfeld shall be responsible for all costs of
repairing and maintaining such automobile during such period.
(c) Insurance. During the term of this Agreement, the Company shall
continue to purchase disability insurance covering Mr. Rosenfeld in amounts not
less than the amounts in force as of the date of this Agreement and the Company
shall provide Mr. Rosenfeld with a policy of term life insurance in an amount
not less than the amount of life insurance on Mr. Rosenfeld in force on the last
day of fiscal 1995, payable to such beneficiary or such beneficiaries as shall
be designated in writing by Mr. Rosenfeld.
(d) Medical. During the term of this Agreement, Mr. Rosenfeld shall
be entitled to participate in any group insurance, hospitalization, medical,
health and accident, disability or similar or dissimilar plan or program of the
Company now existing for the benefit of its most senior employees or executives
generally to the extent that he is eligible under the general provisions thereof
but in no event shall Mr. Rosenfeld's benefits be less favorable than those to
which he was entitled during 1995.
(e) Tandem Plan. Subject to approval of the stockholders of the
Company, the promissory note dated March 2, 1993 in the principal amount of
$187,500 issued by Mr. Rosenfeld in connection with his participation in the
Company's Tandem Stock Purchase Plan shall be amended to provide that the
principal and interest thereon shall be due and payable in full on December 31,
2001. If, and to the extent, such Plan shall be
-3-
<PAGE> 4
amended in a manner more favorable to the participants, then Mr. Rosenfeld shall
be accorded the same treatment.
(f) Other Benefit Plans. Through December 28, 1996, Mr. Rosenfeld
shall participate in, but from and after the close of business on December 28,
1996, Mr. Rosenfeld shall not be eligible to participate in, any of the
Company's 401-K, supplemental retirement or other pension, profit-sharing or
stock option or similar plans or programs now existing or hereafter established
for the benefit of its employees generally, but through December 28, 1996, Mr.
Rosenfeld shall be entitled to participate therein, and in any event Mr.
Rosenfeld shall be entitled to benefits which shall be no less favorable than
those to which he was entitled at December 31, 1995. Similarly, in the event
that Mr. Rosenfeld should die prior to the end of the term of this Agreement,
Mr. Rosenfeld shall not be entitled to any death benefits offered by the
Company. All distributions from the Company's 401-K, supplemental retirement or
other pension, profit-sharing or stock option or similar plans or programs in
which Mr. Rosenfeld participated shall be made to Mr. Rosenfeld on January 2,
1997. Mr. Rosenfeld hereby acknowledges that the stock options granted to him
pursuant to the Stock Option Agreement, dated as of January 1, 1992, between the
Company and Mr. Rosenfeld, expired unexercised and he as no claims of any type
against the Company thereunder or as a result thereof.
(g) Vacation. Mr. Rosenfeld shall be entitled to payment for eight
weeks of vacation accrued but untaken through fiscal 1995. Payment for such
accrued vacation time shall be made contemporaneously herewith.
6. Non-Competition. (a) Mr. Rosenfeld agrees that until December 28,
1996, he shall not render services of any kind, either as an employee,
consultant, shareholder, officer or director for any direct response catalog
listed on the letter dated May 7, 1996 from Whitman Breed Abbott & Morgan to
Loeb & Loeb attached hereto as Exhibit A that competes directly and
substantially with any catalog published or distributed by the Company, except
for TAPESTRY or SAFETY ZONE. Nothing herein is intended to, nor shall it,
prohibit Mr. Rosenfeld from rendering any such services for an entity that
publishes or distributes any such directly and substantially competing catalog
so long as Mr. Rosenfeld's services for such entity are not rendered in relation
to such catalog. Mr. Rosenfeld's employment or consulting arrangement with such
entity shall specifically prohibit services for such catalog.
(b) Notwithstanding the provisions of subsection (a) of this
Paragraph 6, Mr. Rosenfeld may own, as an inactive investor, securities of any
corporation engaged in a competitive
-4-
<PAGE> 5
line of business whose equity securities are registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended, so long as his
beneficial ownership in any one such corporation shall not in the aggregate
constitute more than five percent (5%) of any class of equity securities of such
corporation.
7. Confidentiality. Mr. Rosenfeld shall not knowingly divulge or
disclose, for any reason, any material confidential matters of the Company which
are not otherwise known outside the Company to anyone outside of the Company
during the term of this Agreement or following the expiration or termination of
this Agreement.
8. Remedies. (a) Mr. Rosenfeld agrees that the remedy at law for any
breach or threatened breach of any covenant contained in Paragraphs 6 and 7 will
be inadequate and that the Company, in addition to such other remedies as may be
available to it, at law or in equity, shall be entitled to injunctive relief
without bond or other security.
(b) In the event any suit or other legal proceeding is brought for
the enforcement of any of the provisions of this Agreement, the parties hereto
agree that the prevailing party shall be entitled to recover from the other
party upon final judgment on the merits reasonable attorneys' fees, including
reasonable attorneys' fees for any appeal, and reasonable costs incurred in
bringing such suit or proceeding.
9. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to contracts
executed in and to be performed solely within such state.
10. Notices. All notices required or permitted to be given by either
party hereunder, including notice of change of address shall be in writing and
delivered by hand, or mailed, postage prepaid, certified or registered mail,
return receipt requested, to the other party as follows:
If to the Company: Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attn.: Rakesh K. Kaul,
President and Chief
Executive Officer
-5-
<PAGE> 6
With a copy to: Brown Raysman Millstein Felder &
Steiner, LLP
120 West 45th Street
New York, New York 10036
Attn.: Monte E. Wetzler, Esq.
If to Mr. Rosenfeld: Jack E. Rosenfeld
176 East 70th Street
New York, New York 10021
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior oral or written agreements and understandings,
including without limitation, the Employment Agreement but excluding the
Registration Rights Agreement, dated as of October 25, 1991, between the Company
and Mr. Rosenfeld and the Trust Agreement, dated as of July 16, 1987, as
amended, between the Company and Wells Fargo Bank, National Association, as
trustee, which will be terminated. No provisions of the Employment Agreement
shall survive the effectiveness of this Agreement. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof or in effect among the
parties. This Agreement may not be amended, and no provision hereof shall be
waived, except by a writing signed by the Company and Mr. Rosenfeld, or in the
case of a waiver, by the party waiving compliance therewith, which states that
it is intended to amend or waive a provision of this Agreement. Any waiver of
any rights or failure to act in a specific instance shall relate only to such
instance and shall not be construed as an agreement to waive any rights or
failure to act in any other instance, whether or not similar.
(b) Further Assurances. The parties hereto agree that, after the
execution of this Agreement, they will make, do, execute or cause or permit to
be made, done or executed all such further and other lawful acts, deeds, things,
devices, conveyances and assurances in law whatsoever as may be required to
carry out the true intention and to give full force and effect to this
Agreement.
(c) Severability. Should any provision of this Agreement be held by
a court of competent jurisdiction to be unenforceable or prohibited by an
applicable law, this Agreement shall be considered divisible as to such
provision, which shall be inoperative, and the remainder of this Agreement shall
be valid and binding as though such provision were not included herein.
-6-
<PAGE> 7
(d) Successors and Assigns. This Agreement shall not be assignable
by the Company except to any corporation with which the Company merges or
consolidates or to which the Company sells all or substantially all of its
assets, and shall inure to the benefit of, and be binding upon, the Company and
its successors and permitted assigns and shall inure to the benefit of, and be
binding upon, Mr. Rosenfeld and his executors, administrators, heirs and legal
representatives. The performance by Mr. Rosenfeld of his duties under this
Agreement is the personal obligation of Mr. Rosenfeld and may not be delegated
by Mr. Rosenfeld without the prior written consent of the Company.
(e) Headings. All headings in this Agreement are for convenience
only and are not intended to affect the meaning of any provision hereof.
(f) Counterparts. This Agreement may be executed in two counterparts
with the same effect as if the signatures to both such counterparts were upon
the same instrument, and both such counterparts shall constitute but one
instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, Mr. Rosenfeld has executed this Agreement and
the Company has caused this Agreement to be executed by its duly authorized
officer as of the day and year first above written.
HANOVER DIRECT, INC.
By: ________________
Rakesh K. Kaul
President
______________________
Jack E. Rosenfeld
-8-
<PAGE> 1
1993 EXECUTIVE EQUITY INCENTIVE PLAN, AS AMENDED
1. PURPOSE. The purpose of this 1993 Executive Equity Incentive Plan
is to promote an alignment of the interests of selected key executives of
Hanover Direct, Inc. (the "Company") and its Affiliates who can significantly
impact the long-term success of the Company with the interests of its
shareholders by affording such executives a proprietary interest in the
Company's growth while providing them with an incentive to make a personal
financial investment in the Company and to remain in the employ of the Company
or its Affiliates.
2. DEFINITIONS. As used in this Plan, the following terms shall have
the meanings set forth below:
(a) "Affiliate" shall mean any entity which is controlled, directly
or indirectly, by the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder.
(d) "Committee" shall mean the Compensation Committee of the Board.
(e) "Company" shall mean Hanover Direct, Inc. and any successor
thereto by merger or otherwise.
(f) "Date of Grant" of an Option shall mean the date on which such
Option is granted.
(g) "Estate" shall mean an Optionee's legal representatives upon
death or any person who acquires the right under the laws of descent and
distribution to exercise an Option by reason of the Optionee's death. References
to an "Optionee" shall be deemed to include the Optionee's Estate where the
context so requires.
(h) "Executive" shall mean an officer or key employee of the Company
or an Affiliate.
(i) "Fair Market Value" of a Share shall mean the closing per-share
sale price of the Shares on the American Stock Exchange, composite tape or other
recognized market source, as determined by the Committee, on the applicable date
of reference
1
<PAGE> 2
hereunder, or if there is no sale on such date, then the closing sale price on
the last previous day on which a sale is reported.
(j) "Mid-Term Rate" with respect to indebtedness shall mean the
mid-term applicable Federal rate in effect under Section 1274(d) of the Code as
of the day on which the indebtedness was incurred, compounded annually.
(k) "Note" shall mean a note subject to the terms and conditions
described in Section 8 and used to pay a portion of the purchase price for
Tandem Shares.
(l) "Option" shall mean any option granted pursuant to Section 6 to
an Executive to purchase Shares from the Company.
(m) "Option Shares" shall mean the Shares purchased by an Optionee
pursuant to the exercise of an Option.
(n) "Optionee" shall mean any Executive to whom an Option is granted
under the Plan.
(o) "Plan" shall mean this 1993 Executive Equity Incentive Plan.
(p) "Ratification Date" shall mean the date approval of the Plan is
submitted to the Company's shareholders for ratification pursuant to Section 4.
(q) "Refinancing Note" shall mean a note subject to the terms and
conditions described in Section 9, the proceeds of which are applied to the
payment of a Note.
(r) "Right" shall mean a right granted pursuant to Section 7 to an
Executive to purchase Shares from the Company at their Fair Market Value.
(s) "Shares" shall mean the common stock of the Company, par value
$.66-2/3 per share.
(t) "Short-Term Rate" with respect to indebtedness shall mean the
short-term applicable Federal rate in effect under Section 1274(d) of the Code
as of the day on which indebtedness was incurred.
(u) "Tandem Investment Date" shall mean the date established by the
Committee for the purchase of Tandem Shares pursuant to the exercise of the
Right related to an Option.
(v) "Tandem Shares" shall mean the Shares purchased by an Optionee
pursuant to the exercise of a Right.
2
<PAGE> 3
3. PARTICIPATION. The Executives to whom Options and Rights may be
granted under the Plan shall be determined by the Committee.
Nothing contained in the Plan, or in any Option or Right granted
pursuant to the Plan, shall confer upon any Executive any right to continue in
the employ of the Company or an Affiliate or limit in any way the right of the
Company or an Affiliate to terminate such Executive's employment at any time.
4. EFFECTIVENESS AND TERMINATION OF PLAN. The Plan shall become
effective January 28, 1993, subject to ratification of the approval thereof at a
meeting of shareholders by the holders of a majority of the Shares present and
entitled to vote at such meeting. Prior to such approval no Option may be
exercised and no Tandem Shares may be sold or transferred. Should such holders
fail so to approve the Plan, the Plan and all actions taken thereunder shall
automatically be rescinded and become null and void.
The Plan shall terminate on December 31, 1996 or such earlier date
as the Board may determine. Any Option outstanding at the time of such
termination shall remain in effect in accordance with its terms and those of the
Plan.
5. THE SHARES. Options and Rights may be granted from time to time
under the Plan for the purchase, in the aggregate, of not more than 2,400,000
Shares (subject to adjustment pursuant to Section 10). Such Shares shall be made
available either from authorized and unissued Shares, Shares held by the Company
in its treasury, or reacquired Shares. All Shares subjected under the Plan to an
Option or Right which expires or terminates as to such Shares may again be
subjected to an Option or Right under the Plan. Options may not be granted to
any Executive covering an aggregate of more than 250,000 Shares during any
12-month period.
6. OPTIONS. Options, evidenced by option agreements which shall be
subject to the terms and conditions set forth in the Plan and such other terms
and conditions not inconsistent herewith as the Committee may approve, may be
granted at any time and from time to time prior to the termination of the Plan.
Except as hereinafter provided, all Options shall be subject to the
following terms and conditions:
(a) Status of Options. Options granted under the Plan shall be
nonstatutory options not qualifying as incentive stock options under
Section 422 of the Code.
(b) Price. The per-share purchase price of the Shares subject to the
Option shall be (i) $2.50 in the case of an Option granted on or before
March 2, 1993 and (ii) the Fair Market Value of a Share on the Date of
Grant in the case of all other Options. The purchase price shall be
subject to adjustment as provided in Section 10.
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<PAGE> 4
(c) Payment. The purchase price shall be paid in full at the time of
purchase in cash, in Shares valued at the Fair Market Value thereof on the
date of purchase, or in a combination thereof.
(d) Duration and Exercise of Options. Options shall expire six years
from their Date of Grant. Except as otherwise provided in Section 6(f),
Options shall not be exercisable before the third anniversary of their
Date of Grant.
(e) Tandem Investment. If the Optionee fails to purchase Tandem
Shares on the Tandem Investment Date associated with an Option, the Option
shall be canceled in its entirety. In the event the Optionee purchases on
the Tandem Investment Date a number of Tandem Shares that is less than
one-half the number of Shares covered by the Option, the number of Shares
covered by the Option shall be reduced to twice such number of Tandem
Shares and the balance of the Option shall be canceled.
(f) Termination of Employment. Upon an Optionee's termination
of employment, an Option granted to such Optionee may be exercised
only as follows:
(i) Death, Disability, or Retirement. If the Optionee's
employment is terminated by death, permanent disability (as
determined by the Committee), or retirement at or after age 65, the
Optionee (or the Optionee's Estate in the event of the Optionee's
death) may, within 90 days following such termination, exercise the
Option with respect to all or any part of the Shares subject thereto
regardless of whether the Option was otherwise exercisable at the
time of termination of employment.
(ii) Other Reasons. If the Optionee's employment is terminated
for any reason other than death, permanent disability, or retirement
at or after age 65, the Optionee may, within 30 days following such
termination, exercise the Option with respect to all or any part of
the Shares subject thereto; provided, however, that such Option may
be exercised only if it was exercisable at the time of termination
of employment (except to the extent the Committee may waive such
requirement in its sole discretion in the case of an Optionee whose
job has been eliminated).
Notwithstanding the foregoing, no Option shall be exercisable in whole or
in part after such Option expires.
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<PAGE> 5
(g) Transferability of Options. Options shall be transferable only
by will or the laws of descent and distribution and shall be exercisable
during the Optionee's lifetime only by the Optionee.
(h) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee shall deem appropriate.
7. RIGHTS. In connection with the granting of an Option to an
Executive, the Committee shall grant such Executive a Right to purchase from the
Company on the Tandem Investment Date, at their Fair Market Value, a number of
Tandem Shares equal to one-half the maximum number of Shares covered by the
related Option. Each such Right shall be subject to the following terms and
conditions:
(a) Effectiveness and Exercise of Right. An Optionee may exercise a
Right with respect to all or a portion of the Shares covered by such Right
by executing and delivering to the Company on or before the Tandem
Investment Date the exercise form provided to the Executive for such
purpose, accompanied by the purchase price for such Shares. The exercise
of the Right shall become effective on the Tandem Investment Date, and the
purchase of the Tandem Shares shall occur on such date. Any unexercised
portion of such Right shall expire at the close of business on the Tandem
Investment Date.
(b) Price. The purchase price of the Tandem Shares shall be their
Fair Market Value on the Date of Grant of the related Option.
(c) Payment. The purchase price shall be paid in full on the date
of purchase as follows:
(i) Cash. The Optionee shall pay at least 20 percent of the
purchase price of the Tandem Shares in cash or by delivery of a
short-term note, in such form and subject to such terms and
conditions as the Committee may prescribe, having a term not
exceeding three months.
(ii) Note. The Optionee shall pay the balance, if any, of
the purchase price with a Note.
(d) Termination of Employment. A Right granted to an Optionee shall
be void in the event of such Optionee's termination of employment for any
reason prior to the Tandem Investment Date.
(e) Transferability of Rights. Rights are not transferable and shall
be exercisable only by the Optionee.
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<PAGE> 6
(f) Transferability of Tandem Shares. Tandem Shares shall not be
transferable until the earlier of (i) the date on which the Option to
which the Tandem Shares relate becomes exercisable pursuant to Section
6(d) and (ii) the date on which the Optionee's employment terminates.
(g) Other Terms and Conditions. Rights may also contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee shall deem appropriate.
8. NOTE. Each Note used to finance a portion of the purchase price
of Tandem Shares prior to the Ratification Date shall be subject to the
following terms and conditions:
(a) Term. Subject to acceleration as hereinafter provided, the Note
shall become due and payable in full on the earlier of (i) December 31,
1993 and (ii) the fifth business day following the Ratification Date.
(b) Interest. Interest shall accrue at the Short-Term Rate and shall
be payable in a single payment concurrently with the payment of principal.
(c) Prepayment. The Optionee may prepay the Note at any time
without penalty.
(d) Acceleration. The entire unpaid principal and interest on the
Note shall become immediately due and payable in the event of the
Optionee's termination of employment for any reason, including death or
retirement.
In the event of the Optionee's sale or other disposition of any
Tandem Shares, the proceeds, net of brokerage commissions, from such sale
(or the Fair Market Value of such Tandem Shares on the date of their
disposition other than by sale) must be applied to the repayment of
principal and interest on the Note within 15 days after such sale or other
disposition.
(e) Other Terms and Conditions. The Note may also contain such other
provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee shall deem appropriate.
Each Note used to finance a portion of the purchase price of Tandem Shares on or
after the Ratification Date shall be subject to the same terms and conditions as
a Refinancing Note, except that the term of the Note shall be six years (subject
to acceleration under the same terms and conditions as under the Refinancing
Note).
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<PAGE> 7
9. REFINANCING NOTE. Upon the maturity of a Note executed prior to
the Ratification Date by an Executive to purchase Tandem Shares, the Executive
may borrow from the Company the total amount of principal and interest due on
such Note, by delivery of a Refinancing Note and accompanying pledge of
collateral satisfying the terms and conditions set forth below. The proceeds of
such Refinancing Note shall be applied to the payment of the Note in
satisfaction thereof.
(a) Term. Subject to acceleration as hereinafter provided, the
Refinancing Note shall become due and payable in full on the sixth
anniversary of the date of the original Note.
(b) Interest. Interest shall accrue at the Mid-Term Rate and shall
be payable in a single payment concurrently with the payment of principal.
(c) Prepayment. The Optionee may prepay the Refinancing Note
at any time without penalty.
(d) Acceleration. The entire unpaid principal and interest on the
Refinancing Note shall become immediately due and payable (i) 90 days
after the Optionee's termination of employment by reason of death,
permanent disability, or retirement at or after age 65, and (ii) 30 days
after the Optionee's termination of employment for any other reason,
except to the extent such acceleration is waived by the Committee in its
sole discretion.
In the event of the Optionee's sale or other disposition of any
Tandem Shares (other than as payment of the purchase price of an Option),
the proceeds, net of brokerage commissions, from such sale (or the Fair
Market Value of such Tandem Shares on the date of their disposition other
than by sale) must be applied to the repayment of principal and interest
on the Note within 15 days after such sale or other disposition.
In the event of the Optionee's sale or other disposition of any
Option Shares acquired by exercise of the Option to which the Tandem
Shares relate (other than as payment of the purchase price of an Option),
the excess of the proceeds, net of brokerage commissions, from such sale
(or the Fair Market Value of such Option Shares on the date of their
disposition other than by sale) over the purchase price paid by the
Optionee for such Option Shares must be applied to the repayment of
principal and interest on the Note within 15 days after such sale or other
disposition.
(e) Collateral. The Refinancing Note shall be secured by a pledge
of the Tandem Shares. In the event that the Optionee makes a partial
7
<PAGE> 8
payment of the Note, a proportionate number of the Tandem Shares shall be
released and delivered to the Optionee.
(f) Other Terms and Conditions. The Refinancing Note may also
contain such other provisions, which shall not be inconsistent with any of
the foregoing terms, as the Committee shall deem appropriate.
10. ADJUSTMENT OF AND CHANGES IN SHARES. In the event that the
Shares, as presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or if the number of such Shares shall be increased through the
payment of a stock dividend or a dividend on the Shares of rights or warrants to
purchase securities of the Company shall be made, then there shall be
substituted for or added to each Share theretofore appropriated or thereafter
subject or which may become subject to an Option the number and kind of shares
of stock or other securities into which each outstanding Share shall be so
changed, or for which each such Share shall be exchanged, or to which each such
Share shall be entitled, as the case may be, and references herein to Shares
shall be deemed to be references to any such stock or other securities as
appropriate. Outstanding Options shall also be appropriately amended as to price
and other terms as may be necessary to reflect the foregoing events. In the
event there shall be any other change in the number or kind of the outstanding
Shares or of any stock or other securities into which such Shares shall have
been changed or for which it shall have been exchanged, then if the Committee
shall, in its sole discretion, determine that such change equitably requires an
adjustment in any Option theretofore granted or which may be granted under this
Plan, such adjustments shall be made in accordance with such determination.
Fractional shares resulting from any adjustment in Options pursuant to this
Section 10 may be settled in cash or otherwise as the Committee shall determine.
Notice of any adjustment shall be given by the Company to each holder of an
Option which shall have been so adjusted and such adjustment (whether or not
such notice is given) shall be effective and binding for all purposes of this
Plan.
11. SECURITIES ACT REQUIREMENTS. No Option or Right granted pursuant
to the Plan shall be exercisable in whole or in part, and the Company shall not
be obligated to sell any Shares subject to any such Option or Right, if such
exercise would, in the opinion of counsel for the Company, violate the
Securities Act of 1933, as amended (or other Federal or state statutes having
similar requirements), as in effect at that time. Each Option or Right shall be
subject to the further requirement that, if at any time the Board shall
determine in its discretion that the listing or qualification of the Shares
subject to such Option or Right under any securities exchange requirements or
under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or Right or the issuance of Shares thereunder,
such Option or Right may not be exercised in whole or in part unless such
listing, qualification, consent, or approval
8
<PAGE> 9
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
12. WITHHOLDING. Appropriate provision shall be made for all taxes
required to be withheld from Shares issued under the Plan under the applicable
laws or other regulations of any governmental authority, whether federal, state
or local, and whether domestic or foreign. To that end, the Company may at any
time take such steps as it may deem necessary or appropriate (including sale or
retention of Shares) to provide for payment of such taxes.
13. ADMINISTRATION AND AMENDMENT OF PLAN. The Plan shall be
administered by the Committee. The Committee shall have and shall exercise all
powers and duties with respect to the Plan and its administration except such
powers and duties as are reserved under this Section 13 to the Board or to the
shareholders of the Company. The Board may from time to time remove members from
the Committee or add members thereto, and vacancies in the Committee, however
caused, shall be filled by the Board. The Committee from time to time may adopt
rules and regulations for carrying out this Plan. The interpretation and
construction by the Committee of any provision of the Plan or any Option or
Right shall be final and conclusive. No member of the Board or of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option or Right granted pursuant hereto.
The Board may from time to time make such changes in and additions
to the Plan, and the Committee may amend the terms and conditions of any Option
or Right, in each case as it may deem proper and in the best interests of the
Company, without further action on the part of the shareholders of the Company;
provided, however, that no amendment shall become effective unless approved by
affirmative vote of the Company's shareholders if such approval is necessary or
desirable for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
or any successor rule under the Securities Exchange Act of 1934 or any other
rule or regulation. Amendments to the Plan or to any Option or Right may be
applied prospectively or retroactively; provided, however, that no such
amendment to any Option previously granted to an Optionee shall impair the
rights of the Optionee without the consent of such Optionee or such Optionee's
Estate.
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<PAGE> 1
Exhibit 10.28
SHORT-TERM INCENTIVE PLAN FOR RAKESH K. KAUL
1. Purpose. The purpose of this Short-Term Incentive Plan for Rakesh
K. Kaul (the "Plan") is to promote incentives and rewards to Rakesh K. Kaul
("Kaul"), who will have a significant impact on the long-term success of Hanover
Direct, Inc. (the "Company").
2. Administration. The Plan shall be administered by the
Compensation Committee of the Company's Board of Directors (the "Committee").
The Committee shall consist of two or more members and shall be constituted in
such a manner as to satisfy the requirements of applicable law, the provisions
of Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule,
and the provisions of Section 162(m)(4)(C)(i) of the Internal Revenue Code of
1986, as amended (the "Code"). The Committee shall have full power and authority
to grant awards hereunder and to administer and interpret the Plan and to adopt
such rules, regulations, agreements, guidelines, and instruments for the
administration of the Plan as it deems necessary or advisable.
3. Eligibility. Kaul shall be the only person eligible to
participate in the Plan.
4. Performance Goals. On or before August 1, 1996, and on or before
March 31 of each successive year commencing during the term of the Employment
Agreement dated March 7, 1996 between Kaul and the Company (the "Employment
Agreement"), the Committee shall establish written performance goals. with
respect to such year ("performance year"). The performance goals shall be
expressed in terms of one or more of the following objective financial criteria
with respect to the Company: earnings per share, earnings before interest and
taxes, earnings before interest, taxes, depreciation and amortization, or
quantifiable improvements in inventory levels. The performance goals shall
incorporate a performance target for such performance year and shall state, in
terms of an objective formula or standard (the terms of which shall preclude
discretion to increase the bonus amount that would otherwise be payable upon
attainment of the goal), the bonus payable to the Executive pursuant to this
Section 4 as a function of the actual performance level attained; provided,
however, that (i) the bonus for any fiscal year shall be between 0% and 125% of
the Executive's base salary during such year, (ii) the bonus payable
<PAGE> 2
in the event of the attainment of 100% of the performance target shall be 100%
of such base salary, and (iii) such bonus shall in no event exceed $1,000,000
(or, in fiscal years after 1999, such other dollar limit (not less than
$1,000,000) as the Committee may establish). The Committee shall obtain Kaul's
input and advice before establishing the performance goals for any fiscal year
and before establishing the dollar limit for any fiscal year after 1999. The
bonus payable for the 1996 fiscal year shall be calculated as if the Executive
had been employed since January 1, 1996, and shall be not less than $250,000.
5. Bonus Payments. Except as otherwise provided in Section 9 of the
Employment Agreement (relating to termination of employment), upon the
Compensation Committee's certification following the end of each performance
year as to the actual performance level attained, the Company shall pay the
Executive, in cash, the bonus for such year, as determined in accordance with
the objective formula or standard adopted as part of the performance goals for
such year. Such payment shall be made at the same time as short-term bonuses are
paid to other Company executives. The Committee shall not have discretion to
increase the bonus above the amount determined under the objective formula or
standard adopted for such performance year.
6. Effectiveness of Plan. The Plan shall be effective as of the date
of its adoption by the Committee, subject to approval thereof at a meeting of
shareholders by the holders of a majority of the shares of Common Stock present
and entitled to vote at the meeting. Following the initial approval of the Plan
by the Company's shareholders, shareholder approval of the Plan shall be
required thereafter only to the extent required in order for compensation paid
under the Plan to qualify as performance-based compensation for purposes of
Section 162(m)(4)(C) of the Code.
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Exhibit 10.29
EMPLOYMENT AGREEMENT
AGREEMENT entered into as of March 7, 1996 between HANOVER DIRECT,
INC., a Delaware corporation (the "Company"), and Rakesh K. Kaul (the
"Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept such employment, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Company and the Executive agree
as follows:
1. Term. The Company hereby employs the Executive, and the Executive
hereby accepts employment with the Company, as an employee "at will" for the
period (the "Term") commencing on March 7, 1996 and ending on the first to occur
of the following:
(a) termination of the Executive's employment by the Company for
cause. As used herein, "cause" shall mean (i) misappropriating any funds or
property of the Company, (ii) attempting to obtain any personal profit from
any transaction in which the Executive has an interest that is adverse to
the interest of the Company, other than a transaction disclosed to and
approved by the Company, (iii) the Executive's willful and continuing
neglect or refusal to perform his duties pursuant to this Agreement, (iv)
the commission by the Executive of any material act of misconduct or
dishonesty or any wrongful act which has a direct, substantial and adverse
effect on the Company's business or reputation, or (v) conviction of a
felony;
(b) termination of the Executive's employment by the Company other
than for "cause" as defined in clause (a). The Company shall be deemed to
have constructively terminated the Executive's employment if the Executive
terminates employment within 90 days following the occurrence of (i) a
change in control (as hereinafter defined), (ii) the Company's filing of a
petition for relief under Chapter 11 of the United States Bankruptcy Code,
(iii) a material diminution in the Executive's responsibilities, or (iv) a
relocation of the Company's headquarters outside the New York metropolitan
area without the Executive's prior written consent. As used herein, a
"change in control" shall mean that individuals who constitute the
Company's Board of Directors (the "Board") on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any director whose election or nomination for
election by the Company's shareholders
<PAGE> 2
was approved by a majority of the directors comprising the Incumbent
Board shall be treated for purposes of this clause (b) as though he
were a member of the Incumbent Board. A change in control shall also
be deemed to occur in the event of a fundamental change in the nature
of the Company's business resulting from a sale of a significant
portion of the Company's assets or from some other capital
transaction.
(c) termination of the Executive's employment in circumstances not
described in clauses (a) or (b), including but not limited to the
Executive's retirement, resignation, death, or permanent disability.
2. Duties. During the Term, the Executive shall serve as President
and Chief Executive Officer of the Company. As such, he shall serve as a member
of the Company's Board, and shall have the full authority customary to a Chief
Executive Officer's office to manage the Company, subject to the policies and
direction of the Board. The Executive shall devote his full working time and
effort during the Term exclusively to the performance of his duties hereunder
and to the furtherance of the best interests of the Company. During the Term,
the Executive shall not undertake any business or professional activity except
for the benefit of the Company or engage in any business or profession other
than the rendition of management services for and on behalf of the Company and
the performance of the other duties herein prescribed unless the Company shall
consent thereto in advance in writing. Nothing in this Section 2 shall be
interpreted as precluding the Executive from acting as a volunteer for, or
serving on the boards of, non-profit corporations or trusts.
3. Salary. As compensation for his services hereunder, the Company
shall pay the Executive a base salary at the annual rate of $525,000, payable in
accordance with the regular payroll procedures of the Company. Such base salary
shall be subject to annual review, but shall not be decreased below $525,000.
4. Short-Term Incentive Plan. During the Term, the Executive shall
participate in the Short-Term Incentive Plan for Rakesh K. Kaul (the "Short-Term
Plan"), attached hereto as Exhibit 1, subject to shareholder approval of such
plan.
5. Long-Term Incentive Plan. (a) During the Term, the Executive
shall participate in the Long-Term Incentive Plan for Rakesh K. Kaul (the
"Long-Term Plan"), attached hereto as Exhibit 2, subject to shareholder approval
of such plan.
(b) The Executive agrees that there will be no disposition of all or
any part of shares of common stock of the Company ("Common Stock"), or of any
interest or interests therein, unless and until such disposition has been
registered under the Securities Act of 1933, as amended (the "Act"), or the
Company receives an opinion of its counsel that registration under the Act is
not required in connection with such disposition. The Executive agrees that
unless such shares have been registered under the Act, the certificate or
certificates to be issued representing shares of Common Stock acquired pursuant
to this
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<PAGE> 3
Section 5 will conspicuously bear a legend substantially as follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged, hypothecated,
or otherwise disposed of in the absence of an effective registration
statement for the shares under the Securities Act of 1933 or an
opinion of counsel to Hanover Direct, Inc. that registration is not
required under said Act.
(c) The Company shall grant the Executive "piggyback" rights and a
demand registration right with respect to shares of Common Stock acquired
pursuant to this Section 5, as set forth in a Registration Rights Agreement in
substantially the form set forth in Exhibit 3.
(d) It is agreed that except as otherwise set forth in this Section
5(d), the date on which an amount becomes payable on the Note referred to in
Section 5(a) of the LongTerm Plan as a result of an acceleration of such Note
shall not be considered a "due date" for purposes of applying such Section 5(a),
and the Executive shall be entitled to no bonus with respect to the amount of
principal and/or interest payable as a result of such acceleration.
Notwithstanding the preceding sentence, in the event of an acceleration of such
Note as a result of the Company's termination of the Executive's employment
under circumstances described in Section 1(b) hereof, the Executive shall be
entitled to a bonus, payable on or before the accelerated due date of the Note,
equal to the amount of any principal and/or interest then payable.
(e) Within 30 days after each date as of which any stock option
granted under the Long-Term Plan vests with respect to all or a portion of the
shares of Common Stock covered by such option, the Company shall pay the
Executive an additional cash amount equal to the number of shares of Common
Stock with respect to which such option became vested on such vesting date
multiplied by the excess of (i) the lesser of the option price of such option or
the fair market value on such vesting date of a share of Common Stock, over (ii)
$1.03. In the event that prior to such vesting an adjustment has been made to
the option price of an option as a result of an event described in the first
sentence of Section 6 of the Long-Term Plan, an appropriate adjustment shall be
made to the dollar amounts in clauses (i) and (ii). Notwithstanding the
foregoing, in the case of the NAR Options (as defined in the Long-Term Plan),
such payment shall be made by NAR Group Limited rather than the Company. For
purposes hereof, the fair market value of a share of Common Stock on a vesting
date shall be the closing price on such date (or, if such date occurs on a
weekend or holiday, the last business day preceding such date) of the Common
Stock on the American Stock Exchange or, if no sale of Common Stock occurs on
such date, the fair market value of the Common Stock as determined by the
Company in good faith.
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<PAGE> 4
6. Benefit Plans. During the Term, the Executive (and, to the extent
provided under the terms of such plans, members of his family) shall be eligible
to participate in the Company's medical, dental, life insurance, and retirement
plans offered to senior executives, subject to the terms of such plans as in
effect from time to time.
7. Relocation Expenses. (a) The Company shall reimburse the
Executive for (i) all reasonable moving expenses relating to the relocation of
the Executive and his family, including transportation and direct moving costs,
(ii) all reasonable costs incurred in connection with the search by him and his
family for a new principal residence in the New York metropolitan area, (iii)
all reasonable commuting and temporary housing costs incurred by the Executive
until he is able to relocate his family at the end of the 1995-96 school year.
(b) The Company shall reimburse the Executive for carrying costs, if
any, incurred with respect to his current principal residence ("Current
Residence") for the period commencing on the date the Executive's family
relocates to the New York metropolitan area and ending on the date of closing of
the sale of the Executive's Current Residence. For purposes of this Section
7(b), carrying costs shall mean property taxes, mortgage interest, and costs of
insurance, maintenance, and utilities.
(c) In the event that the Executive is unable to sell his Current
Residence for a net amount, after selling expenses, at least equal to his cost
basis therein, after making a good-faith effort to do so, the Company shall
reimburse the Executive the difference between the net amount realized on such
sale and such cost basis. Such payment shall be made within 10 days after the
Executive provides the Company with written notice of such sale, together with
certification of the net amount realized on such sale, and such additional
information and backup documentation as the Company may reasonably request.
(d) The Company shall pay the Executive a "gross-up" payment in the
amount necessary to make him whole for the payment of any Federal and state
income taxes on the amounts described in clauses (b) and (c) and on the gross-up
payment. The payment to be made pursuant to this clause (d) shall be made on
April 15, 1997.
(e) The Executive represents that the amount of the mortgage on his
Current Residence does not exceed $1.2 million and that his cost basis in his
Current Residence is $1,897,912.52.
(f) The Executive agrees to cooperate with the Company, and with any
third-party relocation service designated by the Company, with respect to the
sale of his Current Residence.
8. Covenants of the Executive. (a) The Executive acknowledges that
his employment by the Company will bring him into close contact with many
confidential affairs of the Company, including information about costs, profits,
markets, sales, key personnel,
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<PAGE> 5
pricing policies, operational methods, and other business affairs, methods and
information, including plans for future developments, not readily available to
the public. The Executive further acknowledges that the services to be performed
under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character; that the business of the Company is national in scope,
that its services are marketed throughout the United States, and the Company
competes with other organizations that are or could be located in nearly any
part of the United States. In recognition of the foregoing, the Executive
covenants and agrees that:
(i) he will not knowingly divulge (other than in privileged
communications with his counsel) any material confidential matters
with respect to the Company which are not otherwise in the public
domain and will not intentionally disclose them to anyone outside of
the Company during his employment by the Company hereunder or
following the expiration or termination of his employment with the
Company for any reason;
(ii) he will deliver promptly to the Company at the end of the Term,
or at any other time the Company may so request, at the Company's
expense, all memoranda, notes, records, reports and other documents
(and all copies thereof) relating to the businesses of the Company
which he obtained while employed by, or otherwise serving or acting on
behalf of, the Company, and which he may then possess or have under
his control;
(iii) during the Term the Executive will not, unless the Board shall
otherwise consent, alone or together with any other person, firm,
partnership, corporation or other entity whatsoever (except any
subsidiaries or affiliates of the Company), directly or indirectly,
whether as an officer, director, shareholder, partner, proprietor,
associate, employee, representative, public relations or advertising
representative, management consultant or otherwise engage in, or
become or be interested in or associated with any other person,
corporation, firm, partnership or other entity whatsoever engaged in,
any business which is competitive with any business conducted by the
Company.
(b) Notwithstanding the provisions of clause (iii) of Section 8(a),
the Executive may own, as an inactive investor, securities of any corporation
engaged in a competitive line of business whose equity securities are registered
under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, so long as
his beneficial ownership in any one such corporation shall not in the aggregate
constitute more than five percent of any class of equity securities of such
corporation.
(c) The Executive agrees that the remedy at law for any breach or
threatened breach of any covenant contained in this Section 8 will be inadequate
and that the Company, in addition to such other remedies as may be available to
it, in law or in equity, shall be
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<PAGE> 6
entitled to injunctive relief without bond or other security.
9. Termination of Employment. In the event of a termination of the
Executive's employment, he shall be entitled to compensation and benefits on and
after the date of such termination only as provided in this Section 9 and in the
Short-Term Plan and the Long-Term Plan.
(a) In the event of a termination of Executive's employment under
this Agreement under the circumstance described in Section 1(a), Executive's
base salary described in Section 3, entitlement to the short-term bonus
described in Section 4 (including any short-term bonus for the year preceding
the year of termination to the extent not previously paid), and benefits
described in Section 6 shall cease as of the date of termination.
(b) In the event of a termination of the Executive's employment
under this agreement pursuant to Section 1(b), as a severance benefit he shall
be entitled for a 12-month period commencing on the date of such termination to
(i) a continuation of his base salary pursuant to Section 3 (at the rate in
effect immediately prior to such termination), payable in monthly installments,
(ii) continued participation in the benefit plans outlined in Section 6 to the
extent consistent with the terms of such plans, and (iii) a target bonus,
payable in 12 equal annual installments, equal to 100% of his base salary (at
the rate in effect immediately prior to such termination). In addition, the
Executive shall be entitled to receive (i) to the extent not previously paid,
the short-term bonus payable pursuant to the Short-Term Plan for the year
preceding the year of termination, and (ii) for the year of termination a
short-term bonus calculated pursuant to the Short-Term Plan as if the Company
had met 100% of its target for such year, but pro-rated to reflect the portion
of such year during which the Executive was employed.
(c) In the event of a termination of the Executive's employment
under this Agreement under a circumstance described in Section 1(c), the
Executive's base salary described in Section 3 and benefits described in Section
6 shall cease as of the date of termination. The Executive (or, in the event of
his death, his estate) shall be entitled to receive, to the extent not
previously paid, the short-term bonus payable pursuant to Section 4 for the year
preceding the year of termination, but shall not be entitled to any bonus for
the year in which such termination occurs.
10. Severability. If any term or provision of this Agreement shall
be determined to be invalid or unenforceable to any extent or in any
application, the remainder of this Agreement, and the remainder of such term or
provision except to such extent or in such application, shall not be affected
thereby, and each term and provision of this Agreement shall be enforced to the
fullest extent and in the broadest application permitted by law.
11. Entire Agreement. This Agreement constitutes the entire
Agreement
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<PAGE> 7
between the parties pertaining to the subject matter contained herein and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties with respect thereto. No provision of this
Agreement may be altered or waived except in a writing executed by both parties
hereto.
12. Binding Effect and Assignability. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company. The rights and
obligations of the Executive hereunder may not be assigned or alienated by the
Executive.
13. Expenses. All costs and expenses incurred in connection with
this Agreement (other than those incurred in connection with the initial
preparation and review of this Agreement, all of which shall be borne by the
Company) shall be borne by the party incurring such costs and expenses. In the
event that any party resorts to litigation to enforce its rights under this
Agreement, the prevailing party shall be entitled to court costs and reasonable
attorney's fees.
14. Governing Law. This Agreement shall be construed and enforced in
accordance with the internal substantive laws of the State of New York without
giving effect to the conflict of law rules thereof.
15. Counterparts. This Agreement may be executed in one or more
counterparts and shall become effective when one or more counterparts have been
signed by each of the parties.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
___________________
Rakesh K. Kaul
HANOVER DIRECT, INC.
By: _______________
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<PAGE> 8
Agreed re NAR Options under
Long-Term Incentive Plan:
NAR GROUP LIMITED
By: _____________
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<PAGE> 1
Exhibit 10.30
TANDEM OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between Hanover Direct, Inc., a Delaware corporation (the "Company"),
and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") has heretofore adopted and the
Company's shareholders have heretofore approved and ratified the Long-Term
Incentive Plan for Rakesh K. Kaul (the "Plan");
WHEREAS, in accordance with the terms of the Plan the Compensation
Committee has granted the Executive the opportunity (the "Right") to purchase up
to 1,510,000 shares of common stock of the Company, par value $.66-2/3 per share
("Common Stock"), under the terms set forth in the Plan;
WHEREAS, the Plan provides that the Compensation Committee shall
grant the Executive an option to purchase a number of shares of Common Stock
equal to twice the number of shares purchased by the Executive pursuant to his
exercise of the Right;
WHEREAS, the Executive has purchased 1,510,000 shares of Common
Stock as of August 23, 1996 pursuant to his exercise of the Right;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on the date hereof (the "Date of Grant") by the Compensation Committee
of an option (the "Option") to purchase 3,020,000 shares of Common Stock (the
"Shares") at an option price of $1.15625 per share, representing the fair market
value of the Common Stock on the date hereof. The Option shall expire on March
7, 2006 (the "Expiration Date"), subject to earlier cancellation or termination
as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall vest and become exercisable with
respect to 755,000 Shares on March 7, 1997 and with respect to an additional
755,000 Shares on
<PAGE> 2
each of the next three anniversaries of such date; provided, however, that the
Option shall immediately vest and become exercisable in full upon the
Executive's termination of employment by reason of death or permanent disability
(as determined by the Compensation Committee), or upon the occurrence of a
change in control (as defined in the Employment Agreement) during the term of
the Employment Agreement or within six months following the end of such term.
For purposes hereof, a permanent disability means the Executive's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for cause, the
Executive may, until the later of (i) 12 months following the date of such
termination or (ii) March 10 of the year following the year in which the
termination occurs if such termination occurs before March 10, 1999,
exercise the Option with respect to such number of Shares as to which the
Option is exercisable (or would be exercisable if his employment had not
terminated) on the date of exercise, as determined pursuant to Section 2.
For purposes hereof, the provisions of the Employment Agreement shall
apply in determining whether the Executive's employment has been
involuntarily terminated by the Company other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iii), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares as
to which the Option is exercisable (or would be exercisable if his
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<PAGE> 3
employment had not terminated) on the date of exercise, as determined
pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by the
Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the
Option's status under such rule:
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power
of Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive, the
Executive's spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to the Company, specifying the number of
Shares to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares of
Common Stock evidenced by negotiable certificates, valued at their fair market
value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company shall
deliver to the Executive (or to any other person entitled to exercise the
Option) a certificate or certificates for such Shares. If certificates
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<PAGE> 4
representing shares of Common Stock are used to pay all or part of the purchase
price of the Option, separate certificates shall be delivered by the Company
representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state or local, and
whether domestic or foreign. The Company shall promptly remit such taxes to the
applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law or
the provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
HANOVER DIRECT, INC.
By: _________________________
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<PAGE> 5
______________________________
Rakesh K. Kaul
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<PAGE> 1
Exhibit 10.31
CLOSING PRICE OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between Hanover Direct, Inc., a Delaware corporation (the "Company"),
and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") has heretofore adopted and the
Company's shareholders have heretofore approved and ratified the Long-Term
Incentive Plan for Rakesh K. Kaul (the "Plan");
WHEREAS, the Plan provides for the granting of a closing price
option subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on the date hereof (the "Date of Grant") by the Compensation Committee
of an option (the "Option") to purchase 2,000,000 shares of Common Stock (the
"Shares") at an option price of $1.15625 per share, representing the fair market
value of the Common Stock on the date hereof. The Option shall expire on March
7, 2006 (the "Expiration Date"), subject to earlier cancellation or termination
as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) Except as otherwise provided in paragraph (b), this Option shall
become exercisable only upon satisfaction of the condition, as certified by the
Compensation Committee (such certification not to be improperly withheld), that
the average closing price of the Common Stock on the American Stock Exchange
composite tape or other recognized market source, as determined by the
Compensation Committee, on each trading day during any period of 91 consecutive
calendar days commencing after August 23, 1996 and ending on or before March 7,
2002 has equaled or exceeded $7.00 per share.
(b) Notwithstanding the foregoing, the Option shall immediately vest
and become exercisable in full upon the Executive's termination of employment by
reason of death or
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<PAGE> 2
permanent disability (as determined by the Compensation Committee), or
upon the occurrence of a change in control (as defined in the
Employment Agreement) during the term of the Employment Agreement or
within six months following the end of such term. For purposes hereof,
a permanent disability means the Executive's inability to engage in
any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for cause, the Executive
may, until 12 months following the date of such termination, exercise the
Option with respect to such number of Shares as to which the Option is
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2. For purposes
hereof, the provisions of the Employment Agreement shall apply in
determining whether the Executive's employment has been involuntarily
terminated by the Company other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's employment
terminates in circumstances not described in clauses (i) through (iii), the
Executive may, within 30 days following such termination, exercise the
Option with respect to such number of Shares as to which the Option is
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
-2-
<PAGE> 3
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by the
Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such rule:
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power of
Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's spouse
and/or issue or trusts for the benefit of the Executive, the Executive's
spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to the Company, specifying the number of
Shares to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares of
Common Stock evidenced by negotiable certificates, valued at their fair market
value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company shall
deliver to the Executive (or to any other person entitled to exercise the
Option) a certificate or certificates for such Shares. If certificates
representing shares of Common Stock are used to pay all or part of the purchase
price of the Option, separate certificates shall be delivered by the Company
representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
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<PAGE> 4
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state or local, and
whether domestic or foreign. The Company shall promptly remit such taxes to the
applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law or
the provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
HANOVER DIRECT, INC.
By: _______________________
___________________________
Rakesh K. Kaul
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<PAGE> 1
Exhibit 10.32
PERFORMANCE YEAR OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between Hanover Direct, Inc., a Delaware corporation (the "Company"),
and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") has heretofore adopted and the
Company's shareholders have heretofore approved and ratified the Long-Term
Incentive Plan for Rakesh K. Kaul (the "Plan"); and
WHEREAS, the Plan provides for the granting of a performance year
option subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on the date hereof (the "Date of Grant") by the Compensation Committee
of an option (the "Option") to purchase 1,000,000 shares of Common Stock (the
"Shares") at an option price of $1.15625 per share, representing the fair market
value of the Common Stock on the date hereof. The Option shall expire on March
7, 2006 (the "Expiration Date"), subject to earlier cancellation or termination
as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) On or before December 1, 1996 and March 31 of each of the three
successive years (four years if required to implement the carryover
provisions described below), the Compensation Committee shall establish
written performance goals, including a performance target, with respect to
such year ("performance year"). The performance goals shall be expressed in
terms of one or more of the following objective financial criteria with
respect to the Company: earnings per share, earnings before interest and
taxes, earnings before interest, taxes, depreciation, and amortization, or
inventory management. The Compensation Committee shall promptly certify
following the end of each performance year whether the preestablished
performance target with respect to such performance year has been attained.
The Option
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<PAGE> 2
shall become exercisable with respect to 250,000 Shares on the Vesting Date
for the performance year ending December 31, 1996, and with respect to an
additional 250,000 Shares on the respective Vesting Dates for each of the
three succeeding performance years, provided in each case that the
Compensation Committee certifies that the preestablished performance target
with respect to such performance year has been attained. The Vesting Date
for a performance year means the March 7 that next follows the end of such
performance year.
(b) If the performance target for 1996, 1997, or 1998 is not attained,
the number of Shares as to which the Option would otherwise have become
exercisable on the Vesting Date for such performance year but for such
failure (as determined after applying the carryover provisions of this
Section 2(b)) shall be carried over and added to the number of Shares as to
which the Option shall become exercisable on the Vesting Date for the next
performance year in the event the performance target for such next
performance year is attained. If the performance target for 1999 is not
attained, the number of Shares as to which the Option would otherwise have
become exercisable on the Vesting Date for such performance year but for
such failure (as determined without applying the carryover provisions of
this Section 2(b)) shall be carried over and become exercisable on the
Vesting Date for the performance year 2000 in the event the performance
target for the performance year 2000 is attained.
(c) Notwithstanding the foregoing, the Option shall immediately vest
and become exercisable in full upon the Executive's termination of
employment by reason of death or permanent disability (as determined by the
Compensation Committee), or upon the occurrence of a change in control (as
defined in the Employment Agreement) during the term of the Employment
Agreement or within six months following the end of such term. For purposes
hereof, a permanent disability means the Executive's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous period of not
less than 12 months.
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
-2-
<PAGE> 3
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for cause, the Executive
may, until the later of (i) 12 months following the date of such
termination or (ii) in the event such termination occurs during a
performance year, three days after the Compensation Committee has
certified, and communicated to the Executive, whether the performance
target for such performance year has been met, exercise the Option with
respect to such number of Shares as to which the Option is exercisable (or
would be exercisable if his employment had not terminated) on the date of
exercise, as determined pursuant to Section 2. For purposes hereof, the
provisions of the Employment Agreement shall apply in determining whether
the Executive's employment has been involuntarily terminated by the Company
other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12- month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's employment
terminates in circumstances not described in clauses (i) through (iii), the
Executive may, within 30 days following such termination, exercise the
Option with respect to such number of Shares as to which the Option is
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not transferable
by the Executive other than by will or the laws of descent and distribution and
is exercisable, during the Executive's lifetime, only by the Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such
-3-
<PAGE> 4
rule:
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power of
Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's spouse
and/or issue or trusts for the benefit of the Executive, the Executive's
spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to the Company, specifying the number of
Shares to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares of
Common Stock evidenced by negotiable certificates, valued at their fair market
value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company shall
deliver to the Executive (or to any other person entitled to exercise the
Option) a certificate or certificates for such Shares. If certificates
representing shares of Common Stock are used to pay all or part of the purchase
price of the Option, separate certificates shall be delivered by the Company
representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state or local, and
whether domestic or foreign. The Company shall promptly remit
-4-
<PAGE> 5
such taxes to the applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law or
the provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
HANOVER DIRECT, INC.
By: ________________________
____________________________
Rakesh K. Kaul
-5-
<PAGE> 1
Exhibit 10.33
NAR GROUP LIMITED
SIX-YEAR STOCK OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between NAR Group Limited, a British Virgin Islands corporation
("NAR"), and Rakesh K. Kaul (the "Executive").
WHEREAS, NAR is the majority shareholder of Hanover Direct, Inc., a
Delaware corporation ("Hanover");
WHEREAS, NAR deems it to be in its interest and in the interest of
Hanover for the Executive to serve as President and Chief Executive Officer of
Hanover; and
WHEREAS, the Compensation Committee of Hanover's Board of Directors
(the "Compensation Committee") has heretofore adopted and Hanover's shareholders
have heretofore approved and ratified the Long-Term Incentive Plan for Rakesh K.
Kaul (the "Plan");
WHEREAS, in consideration of the Executive's agreement to serve as
President and Chief Executive Officer of Hanover, and to compensate the
Executive for his services in such capacity, NAR has agreed in accordance with
the Plan to grant the Executive an option to purchase securities in Hanover held
by NAR.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. NAR hereby evidences and confirms its grant to the Executive on
August 23, 1996 (the "Date of Grant") of an option (the "Option") to purchase
377,500 shares of common stock, par value $.66-2/3 per share (the "Common
Stock"), of Hanover (the "Shares") at an option price of $1.15625 per share. The
Option shall expire on March 7, 2002 (the "Expiration Date"), subject to earlier
cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall vest and become exercisable on
March 7, 1997; provided, however, that the Option shall immediately vest and
become exercisable in full upon the Executive's death or permanent disability
(as determined by the Compensation Committee), or upon the occurrence
<PAGE> 2
of a change in control (as defined in the Employment Agreement dated March 7,
1996 between Hanover and the Executive (the "Employment Agreement")). For
purposes hereof, a permanent disability means the Executive's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
3. In the event of a termination of the Executive's employment with
Hanover while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by Hanover other than for cause, the Executive
may, until 12 months following the date of such termination, exercise the
Option with respect to such number of Shares as to which the Option is
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2. For purposes
hereof, the provisions of the Employment Agreement shall apply in
determining whether the Executive's employment has been involuntarily
terminated by Hanover other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iii), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares as
to which the Option is exercisable (or would be exercisable if his
employment had not terminated) on the date of exercise, as determined
pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or
<PAGE> 3
the laws of descent and distribution and is exercisable, during
the Executive's lifetime, only by the Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such rule:
(i) In the event of the Executive's incapacity, the
Option may be exercised by a conservator, guardian, or the
agent under a Durable Power of Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
NAR prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive, the
Executive's spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to NAR, specifying the number of Shares to
be purchased and the purchase price to be paid, and accompanied by the payment
of the purchase price. Such purchase price may be paid in cash, a certified
check, or a bank check payable to NAR, or in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value on the
date of exercise, or in a combination of the foregoing. Alternatively, the
Option may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to deliver
promptly to NAR the amount of sale or loan proceeds necessary to pay the
purchase price, and such other documents as NAR may require. Upon receipt of
payment, NAR shall deliver to the Executive (or to any other person entitled to
exercise the Option) a certificate or certificates for such Shares. If
certificates representing shares of Common Stock are used to pay all or part of
the purchase price of the Option, separate certificates shall be delivered by
NAR representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
6. The Option shall be exercised only with respect to
<PAGE> 4
full Shares; no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to Hanover at the time of exercise any taxes required
to be withheld by Hanover under the applicable laws or other regulations of any
governmental authority, whether federal, state or local, and whether domestic or
foreign.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of NAR and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NAR GROUP LIMITED
By: ____________________________
________________________________
Rakesh K. Kaul
<PAGE> 1
Exhibit 10.34
NAR GROUP LIMITED
SEVEN-YEAR STOCK OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between NAR Group Limited, a British Virgin Islands corporation
("NAR"), and Rakesh K. Kaul (the "Executive").
WHEREAS, NAR is the majority shareholder of Hanover Direct, Inc., a
Delaware corporation ("Hanover");
WHEREAS, NAR deems it to be in its interest and in the interest of
Hanover for the Executive to serve as President and Chief Executive Officer of
Hanover; and
WHEREAS, the Compensation Committee of Hanover's Board of Directors
(the "Compensation Committee") has heretofore adopted and Hanover's shareholders
have heretofore approved and ratified the Long-Term Incentive Plan for Rakesh K.
Kaul (the "Plan");
WHEREAS, in consideration of the Executive's agreement to serve as
President and Chief Executive Officer of Hanover, and to compensate the
Executive for his services in such capacity, NAR has agreed in accordance with
the Plan to grant the Executive an option to purchase securities in Hanover held
by NAR.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. NAR hereby evidences and confirms its grant to the Executive on
August 23, 1996 (the "Date of Grant") of an option (the "Option") to purchase
377,500 shares of common stock, par value $.66-2/3 per share (the "Common
Stock"), of Hanover (the "Shares") at an option price of $1.15625 per share. The
Option shall expire on March 7, 2003 (the "Expiration Date"), subject to earlier
cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall vest and become exercisable on
March 7, 1998; provided, however, that the Option shall immediately vest and
become exercisable in full upon the Executive's death or permanent disability
(as determined by the Compensation Committee), or upon the occurrence of a
change in control (as defined in the Employment Agreement
<PAGE> 2
dated March 7, 1996 between Hanover and the Executive (the "Employment
Agreement")). For purposes hereof, a permanent disability means the Executive's
inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
3. In the event of a termination of the Executive's employment with
Hanover while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by Hanover other than for cause, the Executive
may, until the later of (i) 12 months following the date of such
termination, or (ii) March 10, 1998 if such termination occurs after
December 31, 1996 and before March 10, 1997, exercise the Option with
respect to such number of Shares as to which the Option is exercisable (or
would be exercisable if his employment had not terminated) on the date of
exercise, as determined pursuant to Section 2. For purposes hereof, the
provisions of the Employment Agreement shall apply in determining whether
the Executive's employment has been involuntarily terminated by Hanover
other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iii), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares as
to which the Option is exercisable (or would be exercisable if his
employment had not terminated) on the date of exercise, as determined
pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the
<PAGE> 3
Option is not transferable by the Executive other than by will or the laws of
descent and distribution and is exercisable, during the Executive's lifetime,
only by the Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such rule:
(i) In the event of the Executive's incapacity, the
Option may be exercised by a conservator, guardian, or the
agent under a Durable Power of Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
NAR prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive, the
Executive's spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to NAR, specifying the number of Shares to
be purchased and the purchase price to be paid, and accompanied by the payment
of the purchase price. Such purchase price may be paid in cash, a certified
check, or a bank check payable to NAR, or in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value on the
date of exercise, or in a combination of the foregoing. Alternatively, the
Option may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to deliver
promptly to NAR the amount of sale or loan proceeds necessary to pay the
purchase price, and such other documents as NAR may require. Upon receipt of
payment, NAR shall deliver to the Executive (or to any other person entitled to
exercise the Option) a certificate or certificates for such Shares. If
certificates representing shares of Common Stock are used to pay all or part of
the purchase price of the Option, separate certificates shall be delivered by
NAR representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
<PAGE> 4
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to Hanover at the time of exercise any taxes required
to be withheld by Hanover under the applicable laws or other regulations of any
governmental authority, whether federal, state or local, and whether domestic or
foreign.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of NAR and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NAR GROUP LIMITED
By: __________________________
______________________________
Rakesh K. Kaul
<PAGE> 5
Exhibit 10.35
NAR GROUP LIMITED
EIGHT-YEAR STOCK OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between NAR Group Limited, a British Virgin Islands corporation
("NAR"), and Rakesh K. Kaul (the "Executive").
WHEREAS, NAR is the majority shareholder of Hanover Direct, Inc., a
Delaware corporation ("Hanover");
WHEREAS, NAR deems it to be in its interest and in the interest of
Hanover for the Executive to serve as President and Chief Executive Officer of
Hanover; and
WHEREAS, the Compensation Committee of Hanover's Board of Directors
(the "Compensation Committee") has heretofore adopted and Hanover's shareholders
have heretofore approved and ratified the Long-Term Incentive Plan for Rakesh K.
Kaul (the "Plan");
WHEREAS, in consideration of the Executive's agreement to serve as
President and Chief Executive Officer of Hanover, and to compensate the
Executive for his services in such capacity, NAR has agreed in accordance with
the Plan to grant the Executive an option to purchase securities in Hanover held
by NAR.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. NAR hereby evidences and confirms its grant to the Executive on
August 23, 1996 (the "Date of Grant") of an option (the "Option") to purchase
377,500 shares of common stock, par value $.66-2/3 per share (the "Common
Stock"), of Hanover (the "Shares") at an option price of $1.15625 per share. The
Option shall expire on March 7, 2004 (the "Expiration Date"), subject to earlier
cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall vest and become exercisable on
March 7, 1999; provided, however, that the Option shall immediately vest and
become exercisable in full upon the Executive's death or permanent disability
(as
<PAGE> 6
determined by the Compensation Committee), or upon the occurrence of a change in
control (as defined in the Employment Agreement dated March 7, 1996 between
Hanover and the Executive (the "Employment Agreement")). For purposes hereof, a
permanent disability means the Executive's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than 12 months.
3. In the event of a termination of the Executive's employment with
Hanover while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by Hanover other than for cause, the Executive
may, until the later of (i) 12 months following the date of such
termination, or (ii) March 10, 1999 if such termination occurs before
after December 31, 1997 and before March 10, 1998, exercise the Option
with respect to such number of Shares as to which the Option is
exercisable (or would be exercisable if his employment had not terminated)
on the date of exercise, as determined pursuant to Section 2. For purposes
hereof, the provisions of the Employment Agreement shall apply in
determining whether the Executive's employment has been involuntarily
terminated by Hanover other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iii), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares as
to which the Option is exercisable (or would be exercisable if his
employment had not terminated) on the date of exercise, as determined
pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be
<PAGE> 7
exercisable in whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by the
Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the Option's
status under such rule:
(i) In the event of the Executive's incapacity, the
Option may be exercised by a conservator, guardian, or the
agent under a Durable Power of Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
NAR prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive, the
Executive's spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to NAR, specifying the number of Shares to
be purchased and the purchase price to be paid, and accompanied by the payment
of the purchase price. Such purchase price may be paid in cash, a certified
check, or a bank check payable to NAR, or in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value on the
date of exercise, or in a combination of the foregoing. Alternatively, the
Option may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to deliver
promptly to NAR the amount of sale or loan proceeds necessary to pay the
purchase price, and such other documents as NAR may require. Upon receipt of
payment, NAR shall deliver to the Executive (or to any other person entitled to
exercise the Option) a certificate or certificates for such Shares. If
certificates representing shares of Common Stock are used to pay all or part of
the purchase price of the Option, separate certificates shall be delivered by
NAR representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares
<PAGE> 8
to which the Executive is entitled as a result of exercise of the
Option.
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to Hanover at the time of exercise any taxes required
to be withheld by Hanover under the applicable laws or other regulations of any
governmental authority, whether federal, state or local, and whether domestic or
foreign.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of NAR and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NAR GROUP LIMITED
By: __________________________
______________________________
<PAGE> 9
Rakesh K. Kaul
<PAGE> 1
Exhibit 10.36
NAR GROUP LIMITED
NINE-YEAR STOCK OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of August
23, 1996 between NAR Group Limited, a British Virgin Islands corporation
("NAR"), and Rakesh K. Kaul (the "Executive").
WHEREAS, NAR is the majority shareholder of Hanover Direct, Inc., a
Delaware corporation ("Hanover");
WHEREAS, NAR deems it to be in its interest and in the interest of
Hanover for the Executive to serve as President and Chief Executive Officer of
Hanover; and
WHEREAS, the Compensation Committee of Hanover's Board of Directors
(the "Compensation Committee") has heretofore adopted and Hanover's shareholders
have heretofore approved and ratified the Long-Term Incentive Plan for Rakesh K.
Kaul (the "Plan");
WHEREAS, in consideration of the Executive's agreement to serve as
President and Chief Executive Officer of Hanover, and to compensate the
Executive for his services in such capacity, NAR has agreed in accordance with
the Plan to grant the Executive an option to purchase securities in Hanover held
by NAR.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. NAR hereby evidences and confirms its grant to the Executive on
August 23, 1996 (the "Date of Grant") of an option (the "Option") to purchase
377,500 shares of common stock, par value $.66-2/3 per share (the "Common
Stock"), of Hanover (the "Shares") at an option price of $1.15625 per share. The
Option shall expire on March 7, 2005 (the "Expiration Date"), subject to earlier
cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall vest and become exercisable on
March 7, 2000; provided, however, that the Option shall immediately vest and
become exercisable in
<PAGE> 2
full upon the Executive's death or permanent disability (as determined by the
Compensation Committee), or upon the occurrence of a change in control (as
defined in the Employment Agreement dated March 7, 1996 between Hanover and the
Executive (the "Employment Agreement")). For purposes hereof, a permanent
disability means the Executive's inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months.
3. In the event of a termination of the Executive's employment with
Hanover while any portion of the Option remains unexercised, the Executive's
rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by Hanover other than for cause, the Executive
may, until the later of (i) 12 months following the date of such
termination, or (ii) March 10, 2000 if such termination occurs after
December 31, 1998 and before March 10, 1999, exercise the Option with
respect to such number of Shares as to which the Option is exercisable (or
would be exercisable if his employment had not terminated) on the date of
exercise, as determined pursuant to Section 2. For purposes hereof, the
provisions of the Employment Agreement shall apply in determining whether
the Executive's employment has been involuntarily terminated by Hanover
other than for cause.
(ii) Death. If the Executive's employment terminates by reason of
death, his Option may be exercised during the 12-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of permanent disability (as determined by the Compensation Committee), the
Option may be exercised during the three-month period following such
termination.
(iv) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iii), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares as
to which the Option is exercisable (or would be exercisable if his
employment had not terminated) on the date of exercise, as determined
pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be
<PAGE> 3
exercisable in whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by the
Executive.
(b) Notwithstanding the provisions of paragraph (a), if the current
transferability restrictions imposed by the Securities and Exchange Commission
under Rule 16b-3 are eliminated or modified, the following provisions shall
apply if and to the extent that they will not adversely affect the
Option's status under such rule:
(i) In the event of the Executive's incapacity, the
Option may be exercised by a conservator, guardian, or the
agent under a Durable Power of Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to
NAR prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive, the
Executive's spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to NAR, specifying the number of Shares to
be purchased and the purchase price to be paid, and accompanied by the payment
of the purchase price. Such purchase price may be paid in cash, a certified
check, or a bank check payable to NAR, or in whole shares of Common Stock
evidenced by negotiable certificates, valued at their fair market value on the
date of exercise, or in a combination of the foregoing. Alternatively, the
Option may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to deliver
promptly to NAR the amount of sale or loan proceeds necessary to pay the
purchase price, and such other documents as NAR may require. Upon receipt of
payment, NAR shall deliver to the Executive (or to any other person entitled to
exercise the Option) a certificate or certificates for such Shares. If
certificates representing shares of Common Stock are used to pay all or part of
the purchase price of the Option, separate certificates shall be delivered by
NAR representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares
<PAGE> 4
to which the Executive is entitled as a result of exercise of the
Option.
6. The Option shall be exercised only with respect to full Shares;
no fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to Hanover at the time of exercise any taxes required
to be withheld by Hanover under the applicable laws or other regulations of any
governmental authority, whether federal, state or local, and whether domestic or
foreign.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of
any successor or assignee of NAR and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
11. The Option is subject in all respects to the terms
of the Plan, the provisions of which are incorporated in this
Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NAR GROUP LIMITED
By: ___________________________
______________________________
<PAGE> 5
Rakesh K. Kaul
<PAGE> 1
Exhibit 10.37
SWISS BANK CORPORATION,
New York Branch
210 East 50th Street
New York, New York 10022
Letter of Credit No. S567171
December 18, 1996
Fleet National Bank
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.
MK.Project) (individually a "Bond" and collectively the
"Bonds")
Ladies and 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. S567171 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
<PAGE> 2
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 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
February 18, 1998 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 during our business hours on a Business Day (as hereinafter
defined) at our offices located at Swiss Bank Corporation, 10 East 50th Street,
New York, New York 10022, Attention: Documentary Department, marked "Urgent" and
"For Immediate Delivery", or at any other offices 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., New York City 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., New York
City time, on the same Business Day. If a presentation in respect of payment is
made by you hereunder after 11:30 a.m., New York City 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., New
York City 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
2
<PAGE> 3
located, 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. 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, as such term is defined in Schedule G hereto) of either of them
for such drawing, or a previous or subsequent Interest Drawing, or (b) an event
of default under the Reimbursement Agreement between the Company and us dated as
of December 18, 1996 (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
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.
By paying to you an amount demanded in such certificate(s) we make
no representation as to the correctness of such amount.
This Letter of Credit applies only to the payment of principal of
the Bonds when due, purchase price of Bonds when due and interest accruing on
the Bonds on or prior to the due date(s)
3
<PAGE> 4
of the Bonds (in whole or in part) when due, and does not apply to any interest
that may accrue after any such due date.
This Letter of Credit is effective and commences coverage as of
December 18, 1996.
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) February 18, 1998, (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 February 18, 1998, (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, appropriately
completed, in the form of Schedule G hereto, this Letter of Credit shall
automatically terminate and be delivered to us for cancellation.
TO THE EXTENT CONSISTENT WITH THE EXPRESS PROVISIONS HEREOF, THIS LETTER
OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION),
INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500, OR ANY SUCCESSOR
PUBLICATION THERETO (THE "UCP") AS INTERPRETED UNDER THE LAWS OF THE STATE
OF NEW YORK; PROVIDED, HOWEVER, THAT: (A) NOTWITHSTANDING THE PROVISIONS
OF ARTICLE 17 OF THE UCP, IF THIS LETTER OF CREDIT EXPIRES DURING AN
INTERRUPTION OF BUSINESS (AS DESCRIBED IN ARTICLE 17 OF THE UCP), WE AGREE
TO EFFECT PAYMENT UNDER THIS LETTER OF CREDIT IF A DRAWING WHICH STRICTLY
CONFORMS TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT IS MADE
WITHIN FIFTEEN (15) DAYS AFTER THE RESUMPTION OF BUSINESS; (B) WE WILL NOT
ACCEPT REPRODUCED DOCUMENTS AS ORIGINALS AS PROVIDED IN ARTICLE 20(b) OF
THE UCP; (C) THIS LETTER OF CREDIT WILL NOT TERMINATE BECAUSE OF A FAILURE
TO MAKE ANY PERMITTED DRAWINGS HEREUNDER AS PROVIDED IN ARTICLE 41 OF THE
UCP; AND (D) NOTWITHSTANDING THE PROVISIONS OF SUB-ARTICLE 48(d) OF THE
UCP, THE CONSENT OF A PRIOR TRUSTEE WILL NOT BE REQUIRED IN CONNECTION
WITH THE AMENDMENT OF THIS LETTER OF CREDIT FOLLOWING A TRANSFER OF SAID
LETTER OF CREDIT TO ANY SUCCESSOR TRUSTEE. AS TO MATTERS NOT COVERED BY
THE UCP, THIS LETTER OF CREDIT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK, INCLUDING, TO THE EXTENT NOT INCONSISTENT WITH THE UCP, THE
UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.
4
<PAGE> 5
Notwithstanding anything in the UCP to the contrary, this Letter of
Credit is transferrable 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 and upon payment to the Bank of a transfer fee in
the amount of $2,500.00.
All certificates 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. The certificate(s) you are required to submit to us
along with each drawing should be prepared either (i) in the form of a letter on
your letterhead signed by your authorized officer or (ii) in the form of a
facsimile copy of such a letter sent by one of your authorized officers to one
of the following numbers, or as we shall notify you from time to time (with the
original of any such certificate(s), drafts and letters to be delivered to us on
the next succeeding Business Day):
Telecopier No. (212) 574-4634 or (212) 574-4757
A drawing shall be deemed to have been presented on the date actually received
by us.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not be in any way modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds and the UCP referred to herein or the
Indenture), except only Schedules A through I hereto; and any such reference
shall not be deemed to incorporate herein by reference any document, instrument
or agreement except for such Schedules.
Very Truly Yours
SWISS BANK CORPORATION,
New York Branch
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
5
<PAGE> 6
SCHEDULE A TO
LETTER OF CREDIT*
CERTIFICATE FOR "A DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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 the payment of
principal of the Bonds in accordance with the terms and provisions of the
Bonds.
(3) 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.
(4) The amount set forth in paragraph 2, together with the aggregate
of all prior payments made pursuant to drawings under this Letter of
Credit for the payment of principal of the Bonds, does not exceed
$8,000,000.
(5) 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
Littlestown Industrial Development Authority, Industries, or any Affiliate
(as defined in the Indenture) of either of them.
(6) The amount set forth in paragraph 2 should be:
- ----------
* For payment of principal of Bonds due to redemption, at maturity or
acceleration of maturity.
A-1
<PAGE> 7
|_| 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.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of __________, 19____.
FLEET NATIONAL BANK, as Trustee
By:______________________________________
Title:_____________________________
A-2
<PAGE> 8
SCHEDULE B TO
LETTER OF CREDIT*
CERTIFICATE FOR "B DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable letter of Credit No. _____
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 the Littlestown Industrial Development Authority,
- ----------
* For payment of interest due and payable on the Bonds.
B-1
<PAGE> 9
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
|_| wire transferred as follows:
(name of bank)
(address of bank)
for credit to the account of ___________________
account number __________________
Any capitalized terms 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__.
FLEET NATIONAL BANK, as Trustee
By: ____________________________________
Title:______________________________
B-2
<PAGE> 10
SCHEDULE C TO
LETTER OF CREDIT*
CERTIFICATE FOR "C DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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 3 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 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 (Put on First Day of Interest Rate Period).
C-1
<PAGE> 11
Any capitalized term used herein and not defined herein shall have
the same meaning herein as described to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____________ day of ______________________, 19__.
FLEET NATIONAL BANK, as Trustee
By: _____________________________________
Title: _______________________________
C-2
<PAGE> 12
SCHEDULE D TO
LETTER OF CREDIT*
CERTIFICATE FOR "D DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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.
- ----------
* For payment of a portion of 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 (Put on First Day of Interest Rate Period).
D-1
<PAGE> 13
(6) 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 described to it in the Letter of Credit.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____________ day of _________________________, 19__.
FLEET NATIONAL BANK, as Trustee
By: ____________________________________
Title: ______________________________
D-2
<PAGE> 14
SCHEDULE E TO
LETTER OF CREDIT*
CERTIFICATE FOR "E DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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 bearing interest at a Weekly or
Monthly Interest Rate 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 (Weekly or Monthly Interest Rate Put).
E-1
<PAGE> 15
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the ____ day of _________________, 19__.
FLEET NATIONAL BANK, as Trustee
By: _____________________________________
Title: _______________________________
E-2
<PAGE> 16
SCHEDULE F TO
LETTER OF CREDIT*
CERTIFICATE FOR "F DRAWING"
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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 bearing interest at a Weekly or
Monthly Interest Rate 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 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.
- ----------
* 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 (Weekly or Monthly Interest Rate Put).
F-1
<PAGE> 17
(6) 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.
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of _________________, 19__.
FLEET NATIONAL BANK, as Trustee
By: __________________________________
Title: ____________________________
F-2
<PAGE> 18
SCHEDULE G TO
LETTER OF CREDIT
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
Re: Irrevocable Letter of Credit
No. ________________________
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (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 acceptances 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.
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,
FLEET NATIONAL BANK
By: _______________________________
Title: ______________________
Approved:
HANOVER DIRECT PENNSYLVANIA, INC. (formerly
HANOVER HOUSE INDUSTRIES, INC.)
By: ____________________________________
Title:____________________________
Date:_____________________________
G-1
<PAGE> 19
SCHEDULE H TO
LETTER OF CREDIT
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
Re: Irrevocable Letter of Credit
No. ________________________
Ladies and Gentlemen:
The undersigned, a duly authorized officer of FLEET NATIONAL BANK,
as Trustee (the "Trustee"), hereby certifies to SWISS BANK CORPORATION, New York
Branch (the "Bank"), with reference to Irrevocable Letter of Credit No. _____
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.
H-1
<PAGE> 20
IN WITNESS WHEREOF, the Trustee has executed and delivered this
Certificate as of the _____ day of _________________, 19__.
FLEET NATIONAL BANK, as Trustee
By: ____________________________________
Title: ______________________________
Approved:
HANOVER DIRECT PENNSYLVANIA, INC. (formerly
HANOVER HOUSE INDUSTRIES, INC.)
By: ________________________________________
Title: _______________________________
Date: ________________________________
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<PAGE> 21
SCHEDULE I TO
LETTER OF CREDIT
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
Attention: Documentary Department [SBT-14-N]
Re: Irrevocable Letter of Credit
No. ________________________
Ladies and 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 Authority.
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 of 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: _____________________
I-1
<PAGE> 1
Exhibit 10.38
REIMBURSEMENT AGREEMENT
by and between
HANOVER DIRECT, INC.
and
SWISS BANK CORPORATION,
NEW YORK BRANCH
Dated as of December 18, 1996
<PAGE> 2
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT, dated as of December 18, 1996 (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"), and SWISS BANK CORPORATION, a banking corporation organized under
the laws of Switzerland and whose principal office is located in Basel,
Switzerland, acting through its New York Branch (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower, NationsBank of North Carolina, N.A. (predecessor to
NationsBank, N.A.) ("NationsBank") and certain other lenders (the "Prior
Lenders") have previously entered into a Credit Facilities and Reimbursement
Agreement dated as of October 12, 1994, as amended by the Consolidated Amendment
No. 1 Agreement among each of such parties dated as of March 24, 1995 and by
that certain letter agreement dated as of September 29, 1995 among such parties
and certain subsidiaries of the Borrower (as amended, the "Credit Agreement"),
pursuant to which the Prior Lenders made available to the Borrower certain
credit facilities, including three letters of credit facilities;
WHEREAS, the Credit Agreement was amended and restated pursuant to the
terms of that certain Amended and Restated Reimbursement Agreement by and among
the Borrower and the Prior Lenders dated as of November 14, 1995 in order to,
among other things, provide for the repayment or expiration of the letter of
credit facilities;
WHEREAS, two of the three letter of credit facilities provided by
NationsBank were replaced by letters of credit issued by CoreStates Bank, N.A.
("CoreStates");
WHEREAS, one of the three letter of credit facilities was not replaced but
is supported by a letter of credit issued by CoreStates;
WHEREAS, the Borrower has requested that the Bank issue the Direct Pay
Letters of Credit (as defined herein) for the benefit of the Note Trustee and
the Bond Trustee (as those terms are defined herein) and in substitution for the
letters of credit issued by the Prior Lenders and CoreStates;
WHEREAS, the Borrower has certain outstanding term loans and a revolving
credit facility with Congress Financial Corporation pursuant to that certain
Loan and
<PAGE> 3
Security Agreement dated as of November 14, 1995, as amended (the "Loan and
Security Agreement"), and it is understood that the Reimbursement Obligations
(as defined herein) of the Borrower under this Agreement are, except as
otherwise set forth herein, subordinate in right of payment to the existing and
future obligations of the Borrower and its Subsidiaries to Congress Financial
Corporation under the Loan and Security Agreement and the other Financing
Agreements (as defined therein) to the extent provided in the Subordination
Agreement (as defined herein);
WHEREAS, Richemont Finance S.A., a societe anonyme organized under the
laws of the Grand Duchy of Luxembourg, has agreed to guarantee the Reimbursement
Obligations of the Borrower under this Agreement in order to induce the Bank to
issue the Direct Pay Letters of Credit; and
WHEREAS, the Bank is willing, upon the terms and subject to the conditions
set forth herein, to issue such Direct Pay Letters of Credit, substantially in
the forms attached hereto as Exhibits A, B and C;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto 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:
"A Drawing" means a drawing on any of the Direct Pay Letters of
Credit for the payment of principal on the Notes or Bonds;
"Agreement" means this Reimbursement Agreement as it may be
supplemented, amended, renewed, restated or extended;
"Applicable Rate" means, for each day as to which any
Reimbursement Obligation shall be due and unpaid, the greater of the
rates set forth beside the period below in which such day shall occur,
subject in each case, however, to the Maximum Rate (each of the
periods below is expressed in terms of number of days elapsed from the
date such Reimbursement Obligation shall first become due and payable,
and the day upon which such Reimbursement Obligation is paid and the
day upon which it shall be paid shall be included in determining the
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<PAGE> 4
total number of days that such Reimbursement Obligation shall be deemed to
be due and unpaid for purposes of this definition):
o days 1-30: (a) Prime Rate and (b) Federal
Funds Effective Rate plus 1.00
% per annum
o days 31-90: (a) Prime Rate plus 0.50% per
annum and (b) Federal Funds
Effective Rate plus 1.50% per
annum
o days 91 and there-
after: Default Rate;
provided, however, if at any time interest accruing on any Reimbursement
Obligation exceeds the Maximum Rate, the Applicable Rate shall equal the
Maximum Rate and such Maximum Rate shall remain in effect until the Bank
shall receive the Claw Back Amount. In the event any amount due hereunder
shall not be paid on the applicable due date, such delinquent amount shall
bear interest at the Default Rate (subject to the Maximum Rate) in
accordance with the repayment provisions specified in this definition.
"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;
"Bank" has the meaning assigned thereto in the Recitals to this
Agreement;
"B Drawing" means a drawing on any of the Direct Pay Letters of Credit
for the payment of interest on the Notes or Bonds;
"Bond Documents" means the Indenture, the Sale Agreement and any other
agreement, instrument or document relating thereto or to the Bonds to which
the Borrower is a party or signatory, as such agreements, instruments or
documents may be supplemented, amended, modified or restated from time to
time in accordance with the terms thereof;
"Bond Trustee" means Fleet National Bank, as successor to Shawmut Bank
Connecticut, National Association, successor to National Westminster Bank,
and any other successor Bond Trustee permitted under the Indenture;
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<PAGE> 5
"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" has the meaning assigned thereto in the Recitals to this
Agreement;
"Business Day" means any day other than (i) a Saturday or a Sunday,
(ii) a legal holiday or the equivalent on which banking institutions
generally are authorized or required to close in New York, New York or any
other city where (a) the principal corporate trust office of the Bond
Trustee or the Note Trustee, as the case may be, is located or (b) the
office of the Bank at which claims for payment under the Direct Pay Letters
of Credit are to be presented is located or (iii) a day on which the New
York Stock Exchange is closed;
"C Drawing" means a drawing on the Direct Pay Letters of Credit for
the payment of amounts equal to principal with respect to a purchase of the
Notes or with respect to a tender of the Bonds on the first day of an
Interest Rate Period (as defined in the Indenture);
"Change of Control" means (a) with respect to the Borrower, any event
or series of events whereby the Persons which on the date hereof own
beneficially, directly or indirectly, a majority of the voting equity of
the Borrower or which otherwise, directly or indirectly, control the
Borrower cease to so own a majority of such voting equity of, or to
otherwise so control, the Borrower, and (b) with respect to the Guarantor,
(i) any event or series of events whereby the current majority shareholder
of Richemont Finance S.A. shall cease to own beneficially, directly or
indirectly, a majority of the voting equity of Richemont Finance S.A. or to
otherwise, directly or indirectly, control Richemont Finance S.A. or (ii)
any event or series of events whereby any acquiring person acquires,
directly or indirectly, beneficial ownership of a majority of the stock of
Richemont Finance S.A. having the power ordinarily to elect a majority of
the corporate directors of such entity. For purposes of this definition,
"acquiring person" means a "person" or "group of persons" within the
meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of
1934, as amended;
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<PAGE> 6
"Claw Back Amount" means, with respect to each Reimbursement
Obligation bearing interest at the Maximum Rate, the excess of (i) the
amount of interest the Bank would have received in respect of such
Reimbursement Obligation without regard to the Maximum Rate limitation set
forth in the definition of Applicable Rate over (ii) the amount actually
received as interest in respect of such Reimbursement Obligation taking
into account such Maximum Rate limitation;
"Closing Date" means the date as of which this Agreement is executed
by the Borrower and the Bank and on which all of the conditions set forth
in Article V hereof have been satisfied;
"Code" means the Internal Revenue Code of 1986, as amended, any
successor provision or provisions and any regulations promulgated
thereunder;
"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 previously delivered to the Bank hereunder;
"Credit Agreement" has the meaning assigned thereto in the Recitals to
this Agreement;
"D Drawing" means an Interest Drawing on the Hanover House LC for
payment of amounts equal to accrued and unpaid interest with respect to a
tender of the Bonds on the first day of an Interest Rate Period (as defined
in the Indenture);
"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, for any day, the Prime Rate for such day plus
5.00% per annum; provided, that in no event shall the Default Rate exceed
the Maximum Rate;
"Direct Pay Letters of Credit" means the Hanover Direct LC and the
Hanover House LC;
"E Drawing" means a Principal Drawing on the Hanover House LC for the
payment of amounts equal to principal with respect to a tender of the Bonds
in connection with a Weekly or Monthly Interest Rate (as defined in the
Indenture);
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<PAGE> 7
"Event of Default" means any of the occurrences set forth as such in
Section 9.01 hereof;
"Expiration Date" means, with respect to the Direct Pay Letters of
Credit, (i) a date no later than February 18, 1998 or such earlier date as
provided in the Direct Pay Letters of Credit, or (ii) any later date to
which the Expiration Date is extended pursuant to Section 2.07 hereof;
"F Drawing" means an Interest Drawing on the Hanover House LC equal to
interest with respect to a tender of the Bonds in connection with a Weekly
or Monthly Interest Rate (as defined in the Indenture);
"Federal Funds Effective Rate" for any day, as used herein, means the
rate per annum (rounded upward to the nearest 1/100 of l%) 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;
"Financing Agreements" has the meaning assigned thereto in the Loan
and Security Agreement;
"Fiscal Quarter" means any fiscal quarter of a Fiscal Year;
"Fiscal Year" means the 52-week or 53-week period of the Borrower
ending on the Saturday closest to December 31;
"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;
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<PAGE> 8
"Governmental Authority" means 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 Richemont Finance S.A., a societe anonyme organized
under the laws of the Grand Duchy of Luxembourg, and any successor or
assign consented to by the Bank pursuant to this Agreement and the
Guaranty;
"Guaranty" means the unconditional guaranty of payment of all
Reimbursement Obligations hereunder and under any of the Direct Pay Letters
of Credit, dated December 18, 1996, issued by the Guarantor in favor of the
Bank, as the same may be supplemented, amended, modified or restated;
"Hanover Direct LC" means, collectively, the Hanover Series A Letter
of Credit and the Hanover Series B Letter of Credit;
"Hanover House LC" means the irrevocable letter of credit which is
being issued on the Closing Date by the Bank to the Bond Trustee, as
beneficiary, pursuant to this Agreement in order to provide security for
the payment when due of the Stated Amount of the Bonds equal to $8,560,000
of which (a) $8,000,000 representing the Principal Portion may be drawn
upon with respect to payment of the unpaid principal amount of the Bonds,
and (b) $560,000 representing the Interest Portion may 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;
"Hanover Series A Letter of Credit" means the irrevocable letter of
credit issued on the Closing Date by the Bank to the Note Trustee, as
beneficiary, pursuant to this Agreement (and any successor letter of credit
provided for herein) in order to provide security for the payment when due
of the Stated Amount of the Initial Flexible Term Notes in the amount of
$9,638,541 (as reduced and reinstated from time to time as described
herein) of which (a) $9,500,000 representing the Principal Portion shall
support the payment of principal or portion of the purchase price
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<PAGE> 9
corresponding to the principal of the Initial Flexible Term Notes and (b)
$138,541 representing the Interest Portion 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;
"Hanover Series B Letter of Credit" means the irrevocable letter of
credit issued on the Closing Date by the Bank to the Note Trustee, as
beneficiary, pursuant to this Agreement (and any successor letter of credit
provided for herein) in order to provide security for the payment when due
of the Stated Amount of the Second Issue Flexible Term Notes in the amount
of $9,638,541 (as reduced and reinstated from time to time as described
herein) of which (a) $9,500,000 representing the Principal Portion shall
support the payment of principal or a portion of the purchase price
corresponding to the principal of the Second Issue Flexible Term Notes and
(b) $138,541 representing the Interest Portion 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;
"Indenture" means that certain Indenture of Trust, dated as of
September 1, 1987, between the Issuer and National Westminster Bank USA, as
predecessor to the Bond Trustee, as the same may be supplemented, amended,
modified or waived hereafter;
"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 issued under the Series A Note Agreement
dated as of November 9, 1994 between the Borrower and the Note Trustee, as
amended, the outstanding principal amount of which is $9,500,000 as of the
Closing Date;
"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 Notes pursuant to the Note Agreements or (ii) the Bonds pursuant
to the Bonds and the Indenture;
"Interest Portion" has the meaning assigned thereto in each of the
respective Direct Pay Letters of Credit;
"Issuer" means the Littlestown Industrial Development Authority, a
body corporate and public and a public instrumentality of the Commonwealth
of Pennsylvania created and existing under and by virtue
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<PAGE> 10
of the Constitution and Laws of the Commonwealth of Pennsylvania;
"Laws" means, collectively, all international, foreign, federal, state
or local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial decisions or precedents, of or by any
Governmental Authority;
"Liquidity Drawing" means (a) with respect to the Bonds, a C, D, E or
F Drawing and (b) with respect to the Notes, a C Drawing (and to the extent
necessary to pay accrued interest on Notes pursuant to a C Drawing, a B
Drawing);
"Liquidity Securities" means Bonds or Notes or both purchased with the
proceeds of a Purchase Drawing under a Direct Pay Letter of Credit which
shall be owned by or on behalf of the Bank, until such time as the Bank or
the designee therefor shall have been paid in full the amount of such
Purchase Drawing and all interest accrued thereon as provided in Section
2.02 and said Direct Pay Letter of Credit shall have been reinstated
accordingly;
"Loan and Security Agreement" has the meaning assigned thereto in the
Recitals to this Agreement;
"Loan Documents" means the Subordination Agreement, the Bond
Documents, the Note Documents, the Guaranty, and this Agreement and all
other agreements, instruments and documents heretofore or hereafter
executed or delivered to and in connection with the Direct Pay Letters of
Credit issued pursuant to this Agreement, as each of said agreements,
instruments and documents may be supplemented, amended, modified or
restated from time to time;
"LOC Fee" shall have the meaning assigned to such term in Section
2.03(b) hereof;
"Material Adverse Effect" means a material adverse effect (i) on the
business, properties, operations or condition, financial or otherwise, of
the Borrower and its Subsidiaries, taken as a whole, on a consolidated
basis, or the Guarantor or (ii) any impairment of the validity or
enforceability (which impairment shall, in the reasonable judgment of the
Bank, be of more than inconsequential effect) of this Agreement or the
Guaranty, any of the other Loan Documents or any other material agreement,
instrument or document to which the Borrower is subject or is a party or by
which the Borrower is bound;
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<PAGE> 11
"Maximum Credit" means, at any given time, the aggregate of the Stated
Amounts available under the Direct Pay Letters of Credit. On the Closing
Date, the Maximum Credit shall be equal to the aggregate of the Stated
Amounts, as set forth in Exhibits A, B and C hereto;
"Maximum Rate" means the maximum rate of interest permitted under any
applicable law and shall in any event not be limited by the "Maximum Rate"
specified in any Direct Pay Letter of Credit;
"Note Agreement" means, collectively, the Series A Note Agreement
dated as of November 9, 1994 between the Borrower and the Note Trustee, as
amended, with respect to the Initial Flexible Term Notes and the Series B
Note Agreement dated as of April 27, 1995 between the Borrower and the Note
Trustee, as amended, with respect to the Second Issue Flexible Term Notes;
"Note Documents" means the Note Agreement and any other agreement,
instrument or document relating thereto or to the Notes to which the
Borrower is a party or signatory, as such agreements, instruments or
documents may be supplemented, amended, modified or restated from time to
time in accordance with the terms thereof;
"Note Trustee" means Norwest Bank Minnesota, N.A., as trustee under
the Note Agreement and any successor and assign permitted under such Note
Agreement;
"Notes" means, collectively, the Initial Flexible Term Notes and the
Second Issue Flexible Term Notes;
"Obligations" means the Reimbursement Obligations and the obligation
of the Borrower to observe and/or perform all other representations,
warranties, covenants and agreements of the Borrower hereunder;
"Participating Banks" shall have the meaning assigned to such term in
Section 10.01;
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision thereof;
"Pledged Bonds" has the meaning assigned to such term in Section
3.03(b) hereof;
"Pledged Collateral" has the meaning assigned to such term in Section
3.03 hereof;
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<PAGE> 12
"Pledged Notes" has the meaning assigned to such term in Section
3.03(a) hereof;
"Prime Rate" means a fluctuating rate of interest per annum equal to
the rate of interest announced by the Bank from time to time at the office
of its New York Branch in New York, New York, as its "prime rate". Each
change in the Prime Rate shall be effective for purposes of this Agreement
on the date on which such change is announced to be effective by the Bank;
"Principal Drawing" has the meaning assigned to that term in the
Direct Pay Letters of Credit;
"Principal Office" means the office of the Bank at Swiss Bank
Corporation, New York Branch, 10 East 50th Street, New York, New York
10022, Attention: Documentary Department (SBT-14-N) or such other office
and address as the Bank may from time to time designate;
"Principal Portion" has the meaning assigned thereto in each of the
respective Direct Pay Letters of Credit;
"Prior Lenders" has the meaning assigned thereto in the Recitals to
this Agreement;
"Purchase Drawing" has the meaning assigned to that term in the Direct
Pay Letters of Credit;
"Reimbursement Obligation" means all amounts payable to the Bank
hereunder, under the Direct Pay Letters of Credit and the Liquidity
Securities;
"Remarketing Agent" means NationsBank, N.A. and any other Person
acting as successor Remarketing Agent under the Note Agreement, as such
successor Remarketing Agent shall be approved by the Bank;
"Remarketing Agreement" has the meaning assigned to that term in the
Note Agreement;
"Sale Agreement" means that certain Sale Agreement dated as of
September 1, 1987 between the Issuer and the Borrower, as the same may be
supplemented, amended, modified or restated hereafter;
"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 which were issued under that certain
Series B Note Agreement dated as of
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<PAGE> 13
April 27, 1995 between the Borrower and the Note Trustee, the outstanding
principal amount of which is $9,500,000 as of the Closing Date;
"Secured Obligations" has the meaning assigned to such term in Section
3.03(d) hereof;
"Securities Depository" has the meaning assigned to that term in the
Note Agreement;
"Senior Lender" means Congress Financial Corporation, a California
corporation, and any successors or assigns and any entity that provides
replacement financing for all or a substantial portion of the financing
under the Loan and Security Agreement;
"Stated Amount" has the meaning assigned thereto in each of the
respective Direct Pay Letters of Credit;
"Stated Termination Date" has the meaning assigned thereto in each of
the respective Direct Pay Letters of Credit;
"Subordination Agreement" means the subordination Agreement dated as
of December 17, 1996 by and between Congress Financial Corporation and the
Bank;
"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; and
"Taxes" has the meaning assigned to such term in Section 4.02 hereof.
1.02 Terms Consistent. All of the terms defined in this Agreement shall
have such defined meanings when used in any of the other Loan Documents unless
the context shall require otherwise. All references to the Borrower, the
Guarantor, the Senior Lender, the Prior Lenders and the Bank 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. The use of any gender includes the other gender.
1.03 Accounting Principles. Any accounting term used and not specifically
defined in any Loan Document shall be construed in conformity with, and all
financial data required to be submitted under any Loan Document shall be
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<PAGE> 14
prepared in conformity with, Generally Accepted Accounting Principles applied on
a Consistent Basis or such other accounting principles as shall be approved in
writing by the Bank from time to time.
1.04 Exhibits Incorporated. All exhibits to this Agreement, as now existing
and as the same may from time to time be supplemented and modified in accordance
with the terms hereof and thereof, are incorporated herein by this reference.
1.05 References. Any reference to any Loan Document or other document shall
include such document both as originally executed and as it may from time to
time be amended, supplemented, restated or modified in accordance with the terms
hereof and thereof. References herein to Articles, Sections and Exhibits shall
be construed as references to this Agreement unless a different document is
named. References to subparagraphs shall be construed as references to the same
Section in which the reference appears.
1.06 Other Terms. The term "document" is used in its broadest sense and
encompasses agreements, certificates, opinions, consents, instruments and other
written material of every kind. The terms "including" and "include" mean
including without limitation and "include without limitation". The requirement
that any party "deliver" any item to another party shall be construed to require
that the first party "deliver or cause to be delivered" such item to the second
party. The term "any" as a modifier to any noun, shall be construed to mean "any
and/or all" preceding the same noun in the plural. The terms "herein",
"hereunder" and other similar compounds of the word "here" refer to the entire
document in which the term appears and not to any particular provision or
section of the document.
1.07 Headings. All headings appearing in this Agreement and Article and
Section headings in the other Loan Documents are for convenience of reference
only and shall be disregarded in construing this Agreement and the other Loan
Documents.
1.08 Other Documents. This Agreement shall be deemed a supplement to the
other Loan Documents and shall not be construed as a modification thereto.
1.09 Construction. The parties hereto acknowledge that their attorneys have
reviewed and revised this Agreement and that the normal rule of construction to
the effect that any drafting ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement, the Direct
Pay Letters of
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<PAGE> 15
Credit, the Guaranty or any amendment or exhibits hereto or thereto.
1.10 Intention. The provisions of this Article I shall apply in every
instance except where a different meaning, construction or reference is clearly
specified and intended.
ARTICLE II
Letters of Credit
2.01 Direct Pay Letters of Credit. The Bank agrees, subject to the terms
and conditions set forth herein, to issue and deliver (i) the Hanover Direct LC
and (ii) the Hanover House LC, in substantially the forms set forth in Exhibits
A, B and C hereto.
2.02 Reimbursement. (a) In the event any Direct Pay Letter of Credit is
drawn upon for any reason, the Borrower agrees to pay to the Bank, or cause
funds held by the Bond Trustee or the Note Trustee, as the case may be, to be
paid to the Bank, as follows:
(i) On the date of any A Drawing or B Drawing, an amount equal to the
amount disbursed by the Bank pursuant to such drawing.
(ii) With respect to any Liquidity Drawing, the following amounts on
the first to occur of (A) the date of the remarketing of the related
Liquidity Securities, in which event the Borrower shall pay or cause to be
paid to the Bank an amount equal to the principal portion of the purchase
price or the portion thereof that was paid with proceeds of such C or E
Drawing, (B) the date on which the related Liquidity Securities shall
become due and payable, whether at stated maturity or upon acceleration,
mandatory redemption or otherwise in accordance with the Bond Documents or
the Note Documents, as the case may be, in which event the Borrower shall
pay or cause to be paid to the Bank an amount equal to the principal
portion of the purchase price of such Liquidity Securities, (C) the
Expiration Date of the related Hanover House LC, in which event the
Borrower shall pay or cause to be paid to the Bank an amount equal to the
principal portion of the amount disbursed by the Bank pursuant to such C or
E Drawing, or (D) the Expiration Date of the Hanover Series A Letter of
Credit or the Hanover Series B Letter of Credit, in which event the
Borrower shall pay or cause to be paid to the Bank an amount equal to the
principal
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<PAGE> 16
portion of the amount disbursed by the Bank pursuant to a Liquidity Drawing
thereunder.
(iii) On the date of any drawing on a Direct Pay Letter of Credit,
interest on any amount disbursed by the Bank under such Direct Pay Letter
of Credit pursuant to each A Drawing and B Drawing, from the date of
drawing of such amount until payment thereof in full (after as well as
before judgment), at a fluctuating interest rate per annum equal to the
Default Rate.
(iv) On the first Business Day of each month and on the date any
amount payable in connection with a drawing under clause (ii) above is paid
in full, interest on any amount disbursed by the Bank pursuant to such
Liquidity Drawing from the date of such drawing of such amount until
payment thereof in full, at a fluctuating interest rate per annum equal to
the Applicable Rate; provided, that if any such amount due under clause
(ii) above is not paid when due, it shall thereafter, until paid in full
(after as well as before judgment), bear interest at a fluctuating rate per
annum equal to the Default Rate; and provided, further, if for any interest
payment period the Applicable Rate and/or Default Rate would have exceeded
the Maximum Rate, and if, for any subsequent interest payment period, the
Applicable Rate and/or Default Rate, as the case may be, is less than the
Maximum Rate, the interest payable on the interest component of such
Liquidity Drawing for such subsequent interest payment period shall be
increased by the Claw Back Amount, but only to the extent that the interest
payable on the interest component of such Liquidity Drawing would not for
each period exceed the Maximum Rate.
(b) The Borrower shall cause all payments of principal of, premium
(if any) on and interest on Liquidity Securities which become due and payable to
be paid directly to the Bank. All sums of money that are actually paid to the
Bank in respect of Liquidity Securities shall be credited against the obligation
of the Borrower to reimburse the Bank, with interest, under subsection (a) for
the amount drawn to pay the purchase price of such Liquidity Securities.
(c) Except as provided in subsection (b), all amounts paid to the
Bank pursuant to this Section 2.02 shall be applied first to amounts due to the
Bank pursuant to this Agreement, other than pursuant to this Section 2.02,
secondly to any accrued interest past due pursuant to subparagraphs (iii) and
(iv) of subsection (a), as selected by the Bank, and lastly, in the order
selected by the Bank
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<PAGE> 17
in its discretion, the amounts payable pursuant to subparagraphs (i) and
(ii) of subsection (a).
2.03 Charges and Expenses. In connection with the issuance of the
Direct Pay Letters of Credit, the Borrower agrees to pay to the Bank the
following:
(a) on or before the Closing Date, all fees, expenses,
disbursements, taxes and other charges described in Section 7.02
hereof as to which the Borrower shall have received invoices on or
prior to the Closing Date, and such fees as are set forth in that
certain letter agreement, dated the Closing Date, between the Borrower
and the Bank, to which fees no Participating Bank shall have any
right, claim or interest;
(b) quarterly in arrears, on the first Business Day of each
quarter (the first such payment being due January 1, 1997, pro-rated
for the actual number of days elapsed from the Closing Date), an
annual letter of credit fee ("LOC Fee") of 0.25% per annum of the
Maximum Credit (but in no event will any such quarterly payment for
each Direct Pay Letter of Credit be less than $2,500 regardless of the
LOC Fee calculation set forth herein), which fees accrue on and from
the Closing Date through and including the Expiration Date, together
with interest at the Default Rate from the date payment thereof is due
until payment in full;
(c) in connection with the written request by the Borrower for
(i) any amendment, supplement, restatement or modification of this
Agreement, or (ii) any transfer of the rights and obligations of the
parties to this Agreement, the Borrower shall pay or cause to be paid
to the Bank a sum equal to $2,500 plus the reasonable fees and
expenses of the Bank's domestic and Swiss counsel;
(d) a drawing fee equal to $300 for each drawing on any Direct
Pay Letter of Credit made on any one Business Day, which fee is
subject to change from time to time, upon prior notice to the
Borrower, to the extent that the standard drawing fees of the Bank for
similar outstanding letters of credit are changed;
(e) upon each transfer of a Direct Pay Letter of Credit to a
trustee who has succeeded the Bond Trustee or the Note Trustee, as the
case may be, a sum equal to $2,500, payable upon the date such
transfer is requested; and
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<PAGE> 18
(f) promptly upon demand therefor by the Bank, the amount of any taxes
(other than any taxes measured by or based upon the income of the Bank
imposed by any jurisdiction having control over the Bank), fees and charges
required to be paid by the Bank (or any other reasonable out-of-pocket
costs or expenses whatsoever incurred by the Bank) in connection with any
action taken pursuant to or related to this Agreement or any other Loan
Document (including without limitation the issuance of any Direct Pay
Letter of Credit) or any payment made by the Bank on or with respect to any
Direct Pay Letter of Credit including, but not limited to, the following:
(i) recording fees, filing fees, and release fees, if any; (ii) funds
advanced by the Bank in connection with the performance by the Bank of any
obligation that the Borrower has failed or refused to perform under any
Note Document or Bond Document (after giving effect to any applicable
provisions as to notice or grace periods); (iii) costs and expenses
incurred by the Bank in connection with the commencement of, appearance in
or defense of any action or proceeding purporting to affect the rights or
obligations of the Bank with respect to any Loan Document; and (iv) any
reasonable expenditures by the Bank on behalf of the Borrower pursuant to
any Loan Document.
In the event the Borrower fails to pay the Bank the amount of any fees or
other amounts described in subparagraph (a) or (b) of this Section 2.03 when
due, or any of the fees or other amounts described in subparagraphs (c), (d),
(e) or (f) of this Section 2.03 within fifteen (15) days of written demand
therefor, the Borrower agrees to pay interest on any such unpaid amount at the
Default Rate from the date such amount became due and payable or was demanded,
as the case may be, until payment of such amount in full, such interest to be
due and payable on demand.
The fees provided for in Section 2.03(b) shall be calculated on the basis
of a year of three hundred and sixty (360) days for the actual number of days
elapsing from the Closing Date to the end of the calendar month in which such
Closing Date shall occur and thereafter from the first day to and including the
last day of each succeeding month (including the Closing Date and the Expiration
Date), provided that if the Expiration Date shall occur on or prior to the one
hundred eightieth (180th) day following such Closing Date, the Borrower shall
nonetheless be required to pay to the Bank in respect of such fees the amount
thereof which would have been payable had such Expiration Date occurred on such
one hundred eightieth (180th) day.
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<PAGE> 19
2.04 Cure. Subject to the provisions of Section 2.02 hereof, the Borrower
agrees to pay to the Bank, on demand, any amounts advanced by the Bank to pay
the principal of, interest on or purchase price for any Bonds or Notes applied
to cure any default by the Borrower under any Bond Document or Note Document, as
the case may be, and the Borrower further agrees to pay to the Bank any other
amounts advanced by the Bank to cure a default under any Bond Document or Note
Document, as the case may be, within fifteen (15) days of written demand
therefor and, in each such case, the Borrower agrees to pay interest on any such
advance from the date such advance became due and payable or was demanded, as
the case may be, until payment of such amount in full at the Default Rate, such
interest to be due and payable on demand. This provision shall not be construed
as obligating and shall not in any way obligate the Bank to cure any such
default.
2.05 Obligations Absolute. The reimbursement obligations of the Borrower
under this Agreement shall be absolute, unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(a) any lack of validity or enforceability of any Direct Pay Letter of
Credit, or to the fullest extent permitted under applicable law, this
Agreement or any of the other Loan Documents;
(b) any amendment or waiver of or any consent to departure from all or
any portion of this Agreement, any of the other Loan Documents or any of
the Direct Pay Letters of Credit;
(c) any dispute between or among the Borrower, the Guarantor, the
Prior Lenders, the Senior Lender, the Issuer, the Bond Trustee, the Note
Trustee, the Remarketing Agent, or any holder of Bonds or Notes, or any
claims whatsoever of the Borrower against any of such Persons;
(d) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against the Bank, any Participating Bank,
the Senior Lender, the Bond Trustee, the Note Trustee, any beneficiary or
any transferee of any Direct Pay Letter of Credit (or any Persons for whom
the Bond Trustee or the Note Trustee, or any such beneficiary or any such
transferee may be acting), or any other Person, whether in connection with
this Agreement, the transactions
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contemplated herein or in the other Loan Documents, any Direct Pay Letter
of Credit or any unrelated transactions; or
(e) any of the circumstances contemplated in Section 2.06 hereof.
2.06 Liability of the Bank.
(a) The Borrower assumes all risks of the acts or omissions of the
Bond Trustee or the Note Trustee, as the case may be, and any beneficiary or
transferee of any Direct Pay Letter of Credit with respect to its use of such
Direct Pay Letter of Credit. Neither the Bank nor any of its agents, employees,
officers, directors or counsel shall be liable or responsible for:
(i) the use which may be made of any Direct Pay Letter of Credit or
for any acts or omissions of the Bond Trustee or the Note Trustee holding
said Direct Pay Letter of Credit and any beneficiary or transferee in
connection therewith;
(ii) the form, validity, sufficiency, accuracy or genuineness of any
document (including, without limitation, any document presented under any
Direct Pay Letter of Credit), or of any statement or endorsement(s)
thereon, even if such documents, statements or endorsements should in fact
prove to be in any or all respects invalid, insufficient, fraudulent,
forged, inaccurate or untrue;
(iii) payment by the Bank against presentation of documents which do
not comply with the terms of a particular Direct Pay Letter of Credit,
including failure of any documents to bear any reference or adequate
reference to said Direct Pay Letter of Credit, or any other failure by the
Bond Trustee or the Note Trustee, as the case may be, to comply fully with
conditions required in order to effect a drawing under any Direct Pay
Letter of Credit issued to it or any failure of said Trustee in connection
with its obligations under the Bond Documents or the Note Documents, as the
case may be;
(iv) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a particular Direct Pay
Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason;
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<PAGE> 21
(v) errors, omissions, interruptions or delays in transmission or
delivery of any messages by mail, cable, telegraph, telex, telephone or
otherwise;
(vi) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a drawing under a particular
Direct Pay Letter of Credit; or
(vii) any action, inaction or omission which may be taken by the Bank
in good faith in connection with a Direct Pay Letter of Credit or any other
circumstances whatsoever in making or failing to make payment under a
Direct Pay Letter of Credit;
except only that the Borrower shall have a claim against the Bank, and the Bank
shall be liable to the Borrower, to the extent, but only to the extent, of any
direct, as opposed to consequential, damages suffered by the Borrower which were
caused by (A) the Bank's willful misconduct or gross negligence, or that of any
of its agents, employees, officers, directors or counsel, in determining whether
documents presented under a particular Direct Pay Letter of Credit comply with
the terms of said Direct Pay Letter of Credit or (B) the Bank's, or that of any
of its agents, employees, officers, directors or counsel, willful failure to pay
under a particular Direct Pay Letter of Credit after the presentation to it or
any of them by the Bond Trustee or the Note Trustee, as the case may be, holding
a particular Direct Pay Letter of Credit of a draft and certificate strictly
complying with the terms and conditions of said Direct Pay Letter of Credit,
unless the Bank or such other Person in good faith and upon advice of counsel
believes that it is prohibited by law or other legal authority from making such
payment. In furtherance and not in limitation of the foregoing, the Bank may
accept documents which appear on their face to be in order, without
responsibility for further investigation regardless of any notice or information
to the contrary; provided that if the Bank shall receive written notification
from either the Bond Trustee or the Note Trustee, as the case may be, holding a
particular Direct Pay Letter of Credit and the Borrower that documents
conforming to the terms of said Direct Pay Letter of Credit to be presented to
the Bank are not to be honored, the Bank agrees that it will not honor such
documents.
(b) Except for the Bank's obligations under a particular Direct Pay
Letter of Credit, the Bank shall have no liability to the Borrower or any other
Person as a result of any tender of Bonds resulting from a reduction of the
credit rating of the Bank or any deterioration in the Bank's financial
condition. No such tender of Bonds shall reduce
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<PAGE> 22
or in any way diminish the Obligations of the Borrower to the Bank under this
Agreement.
2.07 Extension of Expiration Date. Provided that no Default or Event of
Default shall have occurred and be continuing, the Borrower may request that the
scheduled Expiration Date for any Direct Pay Letter of Credit be extended for an
additional one-year period. The Borrower shall submit any request for extension
in writing to the Bank at least ninety (90) days prior to the Expiration Date of
the Direct Pay Letter of Credit then in effect. The Bank, in its sole
discretion, may extend the Expiration Date of any Direct Pay Letter of Credit
for an additional one-year period from the scheduled Expiration Date. The Bank
shall have a period of thirty (30) days from the date that the Borrower's
written request for extension is received to consider such request. In the event
the Bank does not respond to the Borrower's request for an extension of the
Expiration Date within thirty (30) days from the date that such request was
submitted to the Bank, the request shall be deemed to have been denied and the
Direct Pay Letter of Credit shall expire on the Expiration Date then in effect.
In the event the Bank elects to extend the Expiration Date of any Direct Pay
Letter of Credit, the Bank shall (a) issue a substitute letter of credit
substantially in the form of Exhibit A, B or C hereto, but dated the date of
issuance thereof and for a term expiring on the Expiration Date as so extended
or (b) issue an amendment to the Direct Pay Letter of Credit providing for such
extension of the Expiration Date.
ARTICLE III
Liquidity Drawings; Pledge of Notes
and Bonds; Other Security for Obligations
3.01 Prepayments; Reinstatement of Letter of Credit Amounts;
Delivery of Bonds upon Purchase or Conversion.
(a) The Borrower may repay the outstanding amount of any Liquidity
Drawings at any time, in whole or in part, together with accrued interest to the
date of such repayment on the amount prepaid at the Applicable Rate due and
payable to such date pursuant to Section 2.02 hereof. In the event the Borrower
elects to repay the outstanding amount of any Liquidity Drawing at any time, the
Borrower or its designee shall notify the Bank on the date of such repayment
and, prior to such repayment, of the amount to be repaid. In connection with any
such repayment, the Borrower shall direct the Bank to deliver the Notes or the
Bonds held by the Bank or its designee to the Note Trustee or the Bond Trustee,
as the case may be, for sale pursuant to the Note
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<PAGE> 23
Documents or Bond Documents, as the case may be, and specifying the principal
amount of 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 the Bank prior to 11:00 A.M. (New York, New York time) on the day of the
proposed repayment referred to above. In addition, the Borrower shall,
forthwith, repay or cause to be repaid any amount owing to the Bank as a result
of any Liquidity Drawing made for the purpose of paying the purchase price of
any Note or Bond delivered to the Note Trustee or the Bond Trustee, as the case
may be, if (i) the Note Trustee or the Bond Trustee, as the case may be, failed,
for any reason, to pay or tender payment of the purchase price of such Note or
Bond when due to or for the account of the Person entitled thereto and such
failure is continuing, or (ii) any Person (other than the Bank) shall assert
that such Person has a lien on or security interest against such Note or Bond.
Upon payment to the Bank of the amount of such Liquidity Drawing to be repaid
pursuant to the next preceding sentence of this subsection (a), together with
accrued interest on such Liquidity Drawing to the date of such repayment on the
amount to be repaid at the Applicable Rate required pursuant to Section 2.02,
the principal amount outstanding of Liquidity Drawings shall be reduced by the
amount of such repayment, interest shall cease to accrue on the amount repaid
and the Bank shall release or cause to be released to the Note Trustee or the
Bond Trustee, as the case may be, in accordance with the terms of the Note
Documents or Bond Documents, as the case may be, a principal amount of Notes or
Bonds, as the case may be, then held under the pledge hereunder equal to the
principal amount of such repayment.
(b) The Borrower agrees that, pursuant to the provisions of the Note
Agreement, Notes purchased with proceeds of a Purchase Drawing under the Hanover
Direct LC shall be (i) registered by the Note Trustee and the Securities
Depository in the name of the Note Trustee, as agent and bailee of the Bank,
expressly subject to the pledge in favor of the Bank, and deemed held by the
Note Trustee as agent and bailee for the account of the Bank and (ii) at the
Bank's election in the event Notes shall be certificated, delivered by the Note
Trustee to the Bank or its designee, in either case, to be held by the Bank or
its agent, bailee or designee in pledge as collateral securing the Borrower's
payment obligations to the Bank hereunder. Notes so delivered to or deemed held
by the Bank or its designee shall be registered in the name of the Note Trustee,
as agent and bailee of the Bank, expressly subject to the pledge in favor of the
Bank, as pledgee of the Borrower, as provided for in Section 3.03 hereof. Upon
repayment to the Bank of the amount of any such Purchase Drawing, together with
accrued interest, if any, on such
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<PAGE> 24
amount, calculated at the Applicable Rate, to the date of payment, or upon
written notice to the Note Trustee that the Bank has reinstated the Hanover
Direct LC with respect to Notes purchased with proceeds of any such Drawing, the
Bank shall release to the Note Trustee, in accordance with the terms of the Note
Agreement, a principal amount of Notes, if any, then held under the pledge equal
to the amount of such repayment corresponding to the principal portion of such
Notes.
(c) 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 the Bank,
expressly subject to the pledge in favor of the Bank, and (ii) at the Bank's
election in the event Bonds shall be certificated, delivered by the Bond Trustee
to the Bank or its designee, in either case, to be held by the Bank or its
agent, bailee or designee in pledge as collateral securing the Borrower's
payment obligations to the Bank hereunder. Bonds so delivered to or deemed held
by the Bank or its designee shall be registered in the name of the Bank, as
pledgee of the Borrower. 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 the Bank 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.
3.02 Evidence of Debt. The Bank 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
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 Reimbursement Obligations therein recorded, absent
manifest error.
3.03 Pledge of Notes and the Bonds. The Borrower hereby pledges, assigns,
hypothecates, transfers and delivers to the Bank all of its right, title and
interest to, and hereby grants to the Bank 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 Notes which may from time to time have been purchased with
proceeds of Purchase Drawings under the Hanover Direct LC (the "Pledged Notes");
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<PAGE> 25
(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, (i) neither the Pledged Notes nor the Pledged Bonds nor
the Pledged Collateral related to each respectively shall serve as collateral
security for the other and (ii) the security interest in the Pledged Notes and
the Pledged Bonds shall be limited to the Bank's rights to receive the proceeds
of the remarketing, sale, exchange or other disposition of the Pledged Notes and
Pledged Bonds, to the extent permitted under the Subordination Agreement.
Pledged Notes and Pledged Bonds shall be registered, held and released
from this pledge pursuant to the provisions of this Article III, Section 3.08(d)
of the Note Agreement, Section 3.08(a) of the Indenture or as otherwise directed
by the Bank.
Except as otherwise prohibited in the Subordination Agreement, 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, the Bank, 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, except as otherwise prohibited in the Subordination Agreement, the
Bank may forthwith sell, assign, give an 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 public or private sale or sales, at any
exchange, broker's board or at any of the Bank'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
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<PAGE> 26
any credit risk. The Bank 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. The Bank 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 take care, safekeeping or otherwise of any and
all of the Pledged Collateral or in any way relating to the rights of the Bank
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Secured Obligations in such order as the Bank
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 the Bank of any other amount required by any provision of law,
including, without limitation, Section 9-504(i) of the Uniform Commercial Code
of the State of New York, will the Bank need to account for the surplus, if any,
to the Borrower. The Borrower agrees that the Bank need not give more than ten
(10) 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, the Bank 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, 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, except for the
Subordination Agreement. The Borrower covenants and agrees that, except for the
rights of the Senior Lender provided for under the Subordination Agreement, it
will defend the Bank'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
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<PAGE> 27
title defect is caused by the gross negligence or willful misconduct of the
Bank.
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, under any of the Liquidity Securities or under any of
the other Loan Documents.
3.04 Reduction in Available Amount of Hanover Direct LC. As provided in the
Hanover Series A Letter of Credit and the Hanover Series B Letter of Credit,
each of which is outstanding as of the Closing Date in the face amount of
$9,638,541, the maximum amount available for drawing under such Direct Pay
Letters of Credit in respect of (i) Principal Drawings and Purchase Drawings and
(ii) Interest Drawings, shall, without further action or notice, be permanently
reduced on October 1, 1997 (without right of reinstatement) to the amounts set
forth below, if not earlier reduced to amounts at or below the stated amounts
pursuant to the terms of such Direct Pay Letters of Credit:
Remaining Remaining
Principal Interest
Effective Date Drawing Drawing Remaining
of Reduction Amount Amount Commitment
- ------------- ------ ------ ----------
October 1, 1997 $9,000,000 $131,249 $9,131,249
3.05 Relationship with the Senior Lender. The Borrower shall cause the
Senior Lender to enter into the Subordination Agreement. Except as otherwise
provided in the Subordination Agreement, the right of the Bank to payment and
satisfaction of the Reimbursement Obligations, and the payment thereof, shall be
subordinate to the prior payment and satisfaction of any outstanding loans and
advances made by the Senior Lender to the Borrower and the Subsidiaries under
the Loan and Security Agreement and the other Financing Agreements referred to
therein.
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ARTICLE IV
Additional Costs; Taxes
4.01 Additional Costs. (a) If any change in applicable law, treaty,
regulation, guideline or directive (including, without limitation, Regulation D
promulgated by the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect) or any new law, treaty, regulation,
guideline or directive, or any interpretation of any of the foregoing by any
authority charged with the administration or interpretation thereof or any
central bank or other fiscal, monetary or other authority having jurisdiction
over the Bank, or any Participating Bank or the transactions contemplated by
this Agreement (whether or not having the force of law) shall:
(i) subject the Bank or any Participating Bank to any tax, charge,
fee, deduction or withholding of any kind with respect to any Direct Pay
Letter of Credit, this Agreement, or the other Loan Documents, or any
amount paid or to be paid by the Bank or any Participating Bank as the
issuer of any Direct Pay Letter of Credit (other than any tax measured by
or based upon the overall net income of the Bank or a Participating Bank);
(ii) impose, modify or deem applicable any reserve, premium, special
deposit or similar requirements against any assets held by, deposits with
or for the account of, or loans, letters of credit or commitments by, an
office of the Bank or any Participating Bank;
(iii) change the basis of taxation of payments due the Bank or any
Participating Bank under this Agreement, any Direct Pay Letter of Credit or
the other Loan Documents (other than a change in taxation of the overall
net income of the Bank or a Participating Bank); or
(iv) impose upon the Bank or any Participating Bank any other
condition with respect to such amount paid or payable to or by the Bank or
any Participating Bank or with respect to this Agreement, any Direct Pay
Letter of Credit or the other Loan Documents;
and the result of any of the foregoing is to increase the cost to the Bank or
any Participating Bank of agreeing to issue, issuing, making any payment under
or maintaining this Agreement, any Direct Pay Letter of Credit or any other Loan
Document, or to reduce the amount of any payment (whether of principal, interest
or otherwise) receivable by the Bank or
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any Participating Bank or to require the Bank or any Participating Bank to make
any payment on or calculated by reference to the gross amount of any sum
received by it, in each case by an amount which the Bank or such Participating
Bank in its reasonable judgment deems material, then:
(1) the Bank shall promptly notify the Borrower in writing of the
happening of such event;
(2) the Bank shall promptly deliver to the Borrower a certificate
stating the change which has occurred or the reserve requirements or other costs
or conditions which have been imposed on the Bank or a Participating Bank or the
request, direction or requirement with which it has complied together with the
date thereof, the amount of such increased cost, reduction or payment and the
way in which such amount has been calculated, including a reasonably detailed
calculation and the Bank's determination of such amounts, absent fraud or
manifest error, shall be conclusive; and
(3) the Borrower shall pay to the Bank, from time to time as
specified by the Bank, such an amount or amounts as will compensate the Bank or
such Participating Bank for such additional cost, reduction or payment, together
with interest on such amount from the date of demand therefor at the Default
Rate.
(b) In addition to the foregoing, if after the date hereof the Bank
or any Participating Bank shall have determined that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation, implementation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation, implementation or administration thereof, or compliance
by the Bank or any Participating Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the capital of the Bank or any Participating Bank to a level
below that which the Bank or such Participating Bank could have achieved but for
such adoption, change or compliance (taking into consideration the policies of
the Bank or such Participating Bank with respect to capital adequacy) by an
amount deemed by the Bank or such Participating Bank to be material, or affects
or would affect the amount of capital required or expected to be maintained by
the Bank or any Participating Bank or any corporation controlling the Bank or
any Participating Bank by an amount deemed by the Bank or such Participating
Bank to be material, as a consequence of its obligations hereunder or under any
Direct Pay Letter of Credit or other
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Loan Document, then from time to time the Borrower shall be obligated to pay or
cause to be paid to the Bank such additional amount or amounts as will
compensate the Bank or such Participating Bank for such reduction or capital
increase with respect to any period for which such reduction or capital increase
was incurred upon demand by the Bank, together with interest on such amount for
each day from such date of demand until payment in full at the Default Rate. A
certificate setting forth in reasonable detail such reduction in the rate of
return on capital, or such capital increase, of the Bank or a Participating Bank
as a result of any event mentioned in this paragraph shall be submitted by the
Bank to the Borrower, and such certificate shall, in the absence of manifest
error, be conclusive as to the amount thereof.
(c) Notwithstanding anything in this Section to the contrary, if
such costs are to be incurred on a continuing basis and the Bank shall so notify
the Borrower in writing as to the amount thereof, such costs shall be paid by
the Borrower to the Bank monthly in arrears. The Bank shall use a reasonable
method of allocation or attribution to equitably apportion any increased costs
or reduction in the rate of return on capital among all of its customers so
affected.
(d) The protection of this Section shall be available to the Bank
and the Participating Banks, regardless of any possible contention of invalidity
or inapplicability of the law, regulation or condition which has been imposed;
provided, however, that if it shall be later determined that any amount so paid
by the Borrower pursuant to this Section is in excess of the amount payable
under the provisions hereof, the Bank or such Participating Bank, as the case
may be, shall refund such excess amount to the Borrower as soon as practicable.
4.02 Taxes. (a) All payments by the Borrower of all 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 the Bank or Participating Bank and the jurisdiction imposing
such taxes (other than a connection arising solely by virtue of the activities
of the Bank or Participating Bank pursuant to or in respect of this Agreement,
the Direct Pay Letters of Credit 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 4.02(b) or which would not
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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, the Direct
Pay Letters of Credit or any other Loan Document or (B) a change by the Bank or
Participating Bank of its lending office, and (v) any taxes imposed on or
measured by any of the Bank's or Participating Bank'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:
(1) pay directly to the relevant authority the full amount required to be
so withheld or deducted;
(2) if requested by the Bank, promptly forward to the Bank or
Participating Bank an official receipt or other documentation reasonably
satisfactory to the Bank or Participating Bank evidencing such payment to such
authority; and
(3) pay to the Bank or Participating Bank such additional amount or
amounts as is necessary to ensure that the net amount actually received by the
Bank or Participating Bank will equal the full amount the Bank or Participating
Bank would have received had no such withholding or deduction been required.
(b) Prior to the date that any Participating Bank organized under the
laws of a jurisdiction outside the United States becomes a party hereto, such
Participating Bank shall deliver to the Borrower and the Bank such certificates,
documents or other evidence, as required by the Code, properly completed,
currently effective and duly executed by the Participating Bank establishing
that any payment thereto 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 the Participating Bank 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 Participating Bank 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 Bank or Participating Bank the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Bank or Participating Bank for any incremental Taxes, interest or
penalties that may become payable by the Bank or Participating Bank as a result
of any such failure.
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For purposes of this Section 4.02, a distribution hereunder by the Bank or
Participating Bank for the account of the Bank or Participating Bank shall be
deemed a payment by the Borrower.
ARTICLE V
Conditions to Closing
The Bank's obligations under this Agreement to issue the Direct Pay
Letters of Credit are subject to the satisfaction by the Borrower of the
following conditions precedent on or before the Closing Date.
5.01 Documents to be Delivered. The Bank shall have received each of the
following executed by the Borrower, and/or other appropriate Person(s), in form
and substance satisfactory to the Bank:
(a) an original executed counterpart of this Agreement;
(b) the original executed Guaranty;
(c) an original executed counterpart of the Subordination Agreement;
(d) opinions from each of (i) the Bank's special New York counsel,
(ii) the Bank's special Swiss counsel, (iii) the Borrower's counsel, (iv)
bond counsel, as and to the extent required by the Indenture, accompanied
by an appropriate reliance letter from such counsel addressed to the Bank,
(v) Guarantor's counsel and (vi) such other counsel to this transaction as
the Bank reasonably deems necessary, in each case, such opinion covering
such matters as shall be reasonably requested by the Bank and in form and
substance satisfactory to the Bank;
(e) copies of by-laws, articles of incorporation, resolutions and
officer's certificates of the Borrower, certificates of good standing from
the appropriate state authorities, and corporate authorizations authorizing
the execution, delivery and performance of each of the Loan Documents and
any documents executed in connection with the Loan Documents (and any
amendments thereto) to which the Borrower is a party, all certified to be
true and complete by duly authorized officers;
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(f) a balance sheet of the Borrower as of a recent date; and
(g) all other documents reasonably required by the Bank.
5.02 Transcript and Certificate. The Bank shall have received a transcript
containing copies of all the Bond Documents and Note Documents and all
amendments or supplements thereto, together with a certificate of an Authorized
Representative certifying that (a) the documents are true and correct copies of
all such Bond Documents and Note Documents, that the transcript contains all
such Bond Documents and Note Documents and that to the best of its knowledge
there are no additional Bond Documents and Note Documents, amendments or
supplements thereto except as set forth in the transcript and (b) to the best of
its knowledge, there is no event, circumstance or occurrence that has occurred
and is continuing under any Bond Document or Note Document, amendment or
supplement thereto which, with the passage of time or the giving of notice, or
both, would result in an "Event of Default" under and as defined in any such
Bond Document or Note Document, as appropriate.
5.03 Representations and Warranties. The representations and warranties
set forth in Article VI hereof or otherwise made in writing to the Bank with
respect to the Borrower generally or the Loan Documents shall be true and
correct in all material respects as of the Closing Date as though made as of
that date.
5.04 Conditions Satisfied. The Borrower shall have complied with all
conditions to the issuance of each Direct Pay Letter of Credit and no Event of
Default shall have occurred which is continuing or not otherwise cured or
waived, and no event shall have occurred which, with the giving of notice or the
passage of time or both, would constitute an Event of Default hereunder.
5.05 Authorized Representative Certificate. The Bank shall have received a
certificate executed by an Authorized Representative certifying as to the
matters set forth in Sections 5.03 and 5.04 hereof.
5.06 No Material Adverse Change. There shall not have occurred any
material adverse change in the financial condition of the Borrower or the
Guarantor since the most recent financial statements of the Borrower or the
Guarantor furnished to the Bank nor in any law, rule or regulation (or
implementation thereof) affecting the Borrower's ability to perform its
obligations under this Agreement and the other Loan Documents or the ability of
the Guarantor to perform its obligations under the Guaranty. There shall not
have
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occurred any change in or disruption of financial capital market conditions
generally since December 1, 1996 which change, in the Bank's reasonable
judgment, could have a material adverse effect on the ability of the Bank to
enter into satisfactory agreements with Participating Banks as contemplated by
Section 10.01. There shall not have occurred any change in any law or regulation
or the interpretation thereof nor shall any such law have been enacted which
makes the issuance by the Bank of the Direct Pay Letters of Credit or the
participation therein by any Participating Bank unlawful.
5.07 Other Documents. The Borrower shall have executed and acknowledged
(or caused to be executed and acknowledged) and delivered to the Bank all
documents, and taken all actions reasonably required by the Bank from time to
time to confirm the rights created, or now or hereafter intended to be created,
under this Agreement and the other Loan Documents, or otherwise to carry out the
purposes of this Agreement or the other Loan Documents or the transactions
contemplated hereunder and thereunder.
5.08 Payment of Fees. The Bank shall have been paid in full, or Borrower
shall have provided for payment thereof reasonably satisfactory to the Bank, the
fees and other amounts provided for under Section 2.03(a) hereof.
5.09 Requested Information. The Bank shall have received all other
evidence and information that it may reasonably require.
ARTICLE VI
Representations and Warranties
As a material inducement to the Bank's entry into this Agreement,
the Borrower represents and warrants to the Bank as follows:
6.01 Organization, Qualification and Authority. The Borrower is a
corporation duly organized and validly existing under the laws of Delaware and
is qualified do business under the laws of each jurisdiction in which it is
required to qualify to do business. The Borrower has the requisite power and
authority to own its properties and assets and to carry on its business as now
being conducted. The Borrower is in compliance in all respects with all laws and
requirements applicable to its business, the violation of which might materially
affect its ability to perform its obligations hereunder, and has obtained all
approvals, licenses, exemptions and other authorizations from, and has
accomplished all filings, registrations and qualifications
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with, any Governmental Authority that are necessary for the
transaction of its business.
6.02 Execution and Performance of Loan Documents and Bond Documents.
(a) The Borrower has and will have all requisite power and authority
to execute and perform its obligations under this Agreement and the other
Loan Documents to which it is a party.
(b) The execution by the Borrower and the performance by the Borrower
of its obligations under each Loan Document to which it is a party have
been authorized by all necessary action on the part of the Borrower and do
not and will not:
(i) require any consent or approval not heretofore obtained of
any Person having any interest in the Borrower;
(ii) violate any provision of, or require any consent or approval
not heretofore obtained under, the governing documents of the
Borrower;
(iii) result in or require the creation or imposition of any
lien, claim, charge or other right of others of any kind (other than
under the Loan Documents) on or with respect to any property or asset
owned or leased by the Borrower;
(iv) violate any provision of any law, order, writ, judgment,
injunction, decree, determination or award applicable to the Borrower
presently in effect which could result in a Material Adverse Effect;
or
(v) conflict with or constitute a breach or default under, or
permit the acceleration of obligations owed pursuant to, any contract,
loan agreement, lease or other document to which the Borrower is a
party or by which the Borrower or any of its property is bound.
6.03 Valid Obligations. This Agreement and the other Loan Documents to
which the Borrower is a party, as executed and delivered or when executed and
delivered, as applicable, do or will constitute legal, valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws for the relief of debtors and general principles of
equity.
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6.04 Existing Default. The Borrower is not in default in any respect under
any law, order, writ, judgment, injunction, decree, determination, award,
contract or lease, which could result in a Material Adverse Effect.
6.05 Government Approvals. No approval, license, exemption or other
authorization from, or filing, registration or qualification with, any
Governmental Authority not already obtained is required in connection with:
(a) the execution by the Borrower of, and the performance by the
Borrower of its obligations under, this Agreement and each other Loan
Document to which the Borrower is a party; and
(b) the creation and perfection of the liens described in the Loan
Documents to which it is a party.
6.06 Financial and Other Information. The Borrower has furnished to the
Bank its unaudited financial statements for the year ended December 28, 1995 and
its Form 10-Q containing its unaudited financial statements for the nine-month
period ending September 28, 1996. All such statements are complete and correct
copies of Borrower's financial statements for the periods indicated.
6.07 No Default. No event has occurred and is continuing that is an Event
of Default, or that would be an Event of Default hereunder with the giving of
notice or the passage of time or both.
6.08 Margin Regulations. None of the transactions contemplated herein or
in the other Loan Documents, nor the direct or indirect use of the proceeds of
any drawing on any Direct Pay Letter of Credit, will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including, without limitation,
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II.
6.09 Solvency. The Borrower is and, after giving effect to this Agreement
and all other agreements by the Borrower being entered into on the Closing Date,
will be solvent (which for this purpose shall mean that it is able to pay its
current debts as they become due).
6.10 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 hereto or to any other Loan Document
contains any misrepresentation or untrue statement of a
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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.
ARTICLE VII
Affirmative Covenants
So long as any Direct Pay Letter of Credit remains outstanding or any
other Obligation remains outstanding under this Agreement, the Borrower shall:
7.01 Financial Reports, Etc. (a) As soon as practical and in any event
within ninety (90) days after the end of each Fiscal Year, deliver or cause to
be delivered to the Bank (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 Bank, 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;
(b) As soon as practical and in any event within forty-five (45) days after
the end of each Fiscal Quarter, deliver to the Bank 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 customary standards with respect to interim
financials.
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(c) Within fourteen (14) days after the Bank's written request therefor, in
form and substance reasonably satisfactory to the Bank, (i) copies of all
regular or periodic financial statements and reports prepared by the Borrower;
(ii) copies of all regular and periodic reports which are available for public
inspection or which the Borrower is required to file with any Governmental
Authority; (iii) a certificate stating that no Event of Default remains uncured
or setting forth all existing Events of Default in reasonable detail; and (iv)
all other relevant information relating to the Borrower or any Loan Document
reasonably required by the Bank from time to time.
7.02 Payment of Taxes, Assessments, Costs and Expenses. Pay all costs and
expenses of the Bank in connection with this Agreement and all costs and
expenses of the Bank, including, but not limited to, any closing and servicing
fees, inspection fees, and reasonable out-of-pocket expenses incurred by the
Bank in connection with the Loan Documents and the Direct Pay Letters of Credit,
as well as all costs relating to the repayment of any draws under the Direct Pay
Letters of Credit, and any reasonable fees and costs of outside and/or special
counsel and other providers of services which the Bank deems necessary or
prudent. In the event the obligations of the Borrower under this Agreement or
any other Loan Document are not paid at maturity, howsoever said maturity is
brought about, and the same is placed in the hands of an attorney for collection
or if collection by suit or through the probate court or bankruptcy court or by
any other legal proceeding is sought, the Borrower agrees to pay all expenses
incurred by the Bank, including reasonable attorneys fees, expenses and
disbursements.
7.03 Continued Compliance. Comply with all laws and requirements of any
Governmental Authority applicable to Borrower, and all rights of third parties
relating to the Borrower's business and deliver to the Bank from time to time,
within ten (10) days of the Bank's request therefor, evidence reasonably
satisfactory to the Bank that the Borrower has complied with any such law,
requirement or right.
7.04 Books and Records. Maintain complete books of account and other
records reflecting its operations, and permit the Bank and its agents, at
reasonable times and upon reasonable prior notice and at the Borrower's expense,
to inspect and copy any such document.
7.05 Right of Inspection. Permit any Person designated by the Bank, at the
Borrower's expense, to visit and inspect any of the properties, corporate books
and financial reports of the Borrower and the Subsidiaries, and
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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.
7.06 Further Assurances. Execute and acknowledge (or cause to be executed
and acknowledged) and deliver to the Bank all documents, and take all actions,
reasonably required by the Bank from time to time to confirm the rights created
or now or hereafter intended to be created hereunder and under the other Loan
Documents, or otherwise to carry out the purposes of this Agreement and the
other Loan Documents and the transactions contemplated hereunder and thereunder.
7.07 Continued Existence. Maintain its existence, and continue to be a
corporation in good standing in the State of Delaware.
7.08 Covenants. Comply with each of its covenants contained in each of the
Loan Documents to which it is a party.
7.09 Officer's Knowledge of Default. Upon any Authorized Representative or
other officer of the Borrower obtaining knowledge of (a) any Default or Event of
Default, (b) any adverse event, development or circumstance whereby any
financial statements or reports furnished hereunder fail in any material respect
to present fairly, in accordance with Generally Accepted Accounting Principles,
the financial condition and operational results of the Borrower or its
Subsidiaries, (c) any other development in the business or affairs of the
Borrower and any of its Subsidiaries which is likely to result in a Material
Adverse Effect, (d) any claim of non-performance, default or violation by any
Person of any of the terms of any of the other Loan Documents, or (e) any
material proposed amendment or supplement to any of the Loan Documents, then the
Borrower shall promptly deliver to the Bank written notice of any such event or
development, the period of existence thereof, and what action the Borrower
proposes to take with respect to such event or development.
ARTICLE VIII
Negative Covenants
While any Obligation of the Borrower hereunder remains outstanding, the
Borrower shall not, unless the Bank otherwise consents in writing:
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8.01 Amendments. Enter into or consent to any material amendments,
waivers, modifications or supplements to any of the Loan Documents or Bond
Documents to which it is a party and any such amendment, waiver modification or
supplement entered into without the Bank's consent shall be null and void ab
initio.
8.02 Merger, Consolidation, Sale of Assets, Etc. Permit the Borrower or
any Subsidiary to (a) merge or consolidate with any Person; or (b) sell, assign,
lease or otherwise transfer or dispose of (whether in one transaction or in a
series of related transactions) any substantial portion of its properties,
rights or other assets (whether now owned or hereafter acquired) to any Person.
8.03 Actions. Take any action which is inconsistent with the rights of the
Bank under this Agreement or any other Loan Document, including, without
limitation, the rights of the Bank to receive payments under this Agreement, or
any other Loan Document.
ARTICLE IX
Events of Default and Acceleration
9.01 Events of Default. The occurrence of any of the following, whatever
the reason therefor and whether it shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
judicial or governmental or administrative order or action or otherwise, shall
constitute an Event of Default:
(a) The Borrower fails to pay, when due, any Reimbursement Obligation
due and payable under this Agreement; or
(b) The Borrower fails to perform any Obligation (other than that
referred to in Section 9.01(a) above) or any other obligation under any
other Loan Document; or
(c) Any representation, warranty or statement made in this Agreement
or any other Loan Document proves to have been incorrect in any material
respect when made; or
(d) The Borrower or the Guarantor is dissolved, liquidated or
terminated, or all or substantially all of the assets of the Borrower or
the Guarantor are sold or otherwise transferred without the Bank's prior
written consent, or a Change of Control occurs with
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respect to the Borrower or the Guarantor without the Bank's prior written
consent; or
(e) The Borrower or the Guarantor shall (i) be adjudicated as bankrupt or
insolvent; (ii) make a general assignment for the benefit of its creditors;
(iii) file a petition, answer or consent seeking, or have entered against it (or
fail reasonably to contest the material allegations of any petition for) an
order for relief (or any similar remedy) under any provision of Title 11 of the
United States Code or any other federal, state or foreign law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization, or
consent to the institution of any proceedings thereunder; (iv) convene a meeting
of its creditors, or any class thereof, for the purpose of effecting a
moratorium upon or extension or composition of its debts; (v) admit in writing
that it is generally not able to pay its debts as they mature; (vi) apply for or
consent to the appointment of a receiver, trustee, custodian, liquidator or
other similar official of all or a portion of its assets; or (vii) become unable
to pay its debts or obligations as the same become due and payable; or
(f) If (i) a petition is filed or any case or proceeding described in (e)
above is commenced against the Borrower or the Guarantor, or against the assets
of the Borrower or the Guarantor, unless such petition and the case or
proceeding initiated thereby is dismissed within sixty (60) days from the date
of the filing; (ii) an answer is filed by the Borrower or the Guarantor
admitting the allegations of any such petition; or (iii) a court of competent
jurisdiction enters an order, judgment or decree appointing, without the consent
of the Borrower or the Guarantor, a custodian, trustee, agent or receiver of any
of them, or for all or any part of their respective property, or authorizing the
taking of possession by a custodian, trustee, agent or receiver of the Borrower
or the Guarantor, or all or any part of their respective property unless such
appointment is vacated or dismissed or such possession is terminated within
sixty (60) days from the date of such appointment or commencement of such
possession, but not later than five (5) days before the proposed sale of any
assets of the Borrower or the Guarantor, as the case may be, by such custodian,
trustee, agent or receiver, other than in the ordinary course of the business of
the Borrower or the Guarantor, as the case may be; or
(g) A final judgment or decree shall be rendered against the Borrower or
the Guarantor by a court of
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competent jurisdiction which, either alone or together with all other
outstanding judgments or decrees against the Borrower or the Guarantor
shall aggregate more than $5,000,000 and, in each case, such Person shall
not discharge the same or provide for its discharge within sixty (60) days
from the entry thereof, or within such longer period during which the
execution of such judgment shall have been stayed; or
(h) The Guarantor shall fail to perform or observe any term, covenant,
agreement or obligation contained in the Guaranty or the Subordination
Agreement on its part to be performed or observed; or
(i) The occurrence and continuation beyond any applicable grace or
cure period of an "Event of Default" under any of the Loan Documents; or
(j) The Borrower receives written notice from the Senior Lender that an
event of default has occurred under the Loan and Security Agreement or any other
agreement evidencing or relating to indebtedness of the Borrower or the
Subsidiaries to the Senior Lender and that such event of default shall have
continued uncured and unwaived beyond any grace or cure period applicable
thereto.
It is specifically stipulated and agreed that the occurrence of any event of
default beyond any applicable grace or cure period as to any Loan Document shall
constitute an Event of Default under all Loan Documents.
9.02 Remedies Upon Default. Upon the occurrence of any Event of Default,
the Bank may, at its option, do any or all of the following:
(a) The Bank may, by written notice to the Borrower, declare all
Reimbursement Obligations, if any, to be immediately due and payable, and
the same (including interest accrued to the date of such declaration) shall
thereupon be immediately due and payable, without protest, demand,
presentment, notice of intent to accelerate, notice of acceleration or any
other notice of any kind, all of which are hereby expressly waived by the
Borrower, provided that any Event of Default described in Sections 9.01(d),
9.01(e) and 9.01(f) shall automatically, without declaration or other
action on the Borrower's part, cause all such amounts to be immediately due
and payable without notice or demand.
(b) The Bank may give written notice to the Note Trustee and/or the
Bond Trustee (i) stating that an
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Event of Default has occurred and is continuing hereunder or (ii) as and to
the extent permitted thereby, exercising its option under any Direct Pay
Letter of Credit held by such Note Trustee and/or Bond Trustee not to
reinstate the amount of funds available thereunder for the payment of
principal or interest.
(c) Exercise any of its rights under the Loan Documents and any rights
provided by law, including the right to foreclose on any security and
enforce its rights under the Guaranty and exercise any other rights with
respect to any security, all in such order and manner as the Bank in its
sole discretion may determine.
The Bank shall provide a copy of any notice delivered pursuant to this Section
to the Guarantor, provided, that failure by the Bank to provide any such notice
shall not affect the rights of the Bank hereunder or under the other Loan
Documents including, without limitation, the Guaranty.
9.03 Setoff. Upon the occurrence and during the continuance of any Event
of Default, the Bank is hereby authorized at any time and from time to time to
the fullest extent permitted by law, without notice to the Borrower (any such
notice being expressly waived by the Borrower) to set off and to apply any and
all balances, credits, deposits (general or special, time or demand, provisional
or final), accounts or monies at any time held and other indebtedness at any
time owing by the Bank or any affiliate of the Bank to or for the account of the
Borrower against any and all of the obligations of the Borrower now or hereafter
existing hereunder or under the other Loan Documents or any other agreement or
instrument delivered by the Borrower to the Bank in connection therewith,
whether or not the Bank shall have made any demand hereunder or thereunder and
although such obligations may be unmatured. Subject to the foregoing provisions
of this Section, the rights of the Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Bank may have.
9.04 Cumulative Remedies; No Waiver. The Bank's rights and remedies
hereunder and under the other Loan Documents are cumulative and shall be in
addition to all rights and remedies provided by law or in equity from time to
time, including any banker's lien or right of offset. The exercise by the Bank
of any right or remedy shall not constitute a cure or waiver of any default, nor
invalidate any notice of default or any act done pursuant to any such notice,
nor prejudice the Bank in the exercise of any other right or remedy. No waiver
by the Bank of any Default shall be implied from any omission by the Bank to
take action on
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account of such Default if such Default persists or is repeated. No waiver by
the Bank of any Default shall affect any Default other than the Default
expressly waived, and any such waiver shall be operative only for the time and
to the extent stated. No waiver of any covenant or condition of this Agreement
or any other Loan Document shall be construed as a waiver of any subsequent
breach of the same covenant or condition. The Bank's consent to or approval of
any act by the Borrower requiring further consent or approval shall not be
deemed to waive or render unnecessary the Bank's consent to or approval of any
subsequent act by the Borrower.
ARTICLE X
Miscellaneous
10.01 Participation. Notwithstanding any other provision of this
Agreement, the Borrower understands that the Bank may enter into a
participation, or co-ownership or co-lending agreements with other banks and may
at any time enter into other such agreements with one or more additional banks
acceptable to the Borrower ("Participating Banks") whereby the Bank will
allocate to the Participating Banks certain percentages of the payment
obligations of the Borrower under this Agreement and the funding obligations of
the Bank under the Direct Pay Letters of Credit and this Agreement. The Borrower
acknowledges that, for the convenience of all parties, this Agreement is being
entered into with the Bank only and that the Borrower's obligations under this
Agreement are and will be undertaken for the benefit of, and as an inducement
to, the Participating Banks as well as the Bank. Without limiting the foregoing,
the Borrower acknowledges that Section 4.01 and the indemnity of the Bank
thereunder and under Section 10.08 are for the benefit of the Participating
Banks as if such Sections specifically referred to the Participating Banks and
their participation in the payment obligations of the Borrower and the funding
obligations of the Bank, and the Borrower agrees to make any payments required
by such provisions for the account of any one or more Participating Banks to the
Bank on demand of the Bank. The Borrower hereby grants to each Participating
Bank, to the extent of its participation and to the extent permitted by
applicable law, the right to set off deposit accounts maintained by the Borrower
with such bank, subject to the provisions of Section 9.3 as if the Participating
Banks were specifically referred to therein. No such participation or other
arrangement shall relieve the Bank of its obligations under this Agreement.
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
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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:
(a) if to the Borrower:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Edward O'Brien
Senior Vice President,
Secretary and Treasurer
Telephone: (201) 319-3403
Telefacsimile: (201) 319-5005
with copies to:
Brown Raysman Millstein Felder & Steiner, LLP
120 West 45th Street
New York, New York 10036
Attention: Monte E. Wetzler, Esq.
Telephone: (212) 703-1315
Telefacsimile: (212) 840-2429
(b) if to the Bank:
Swiss Bank Corporation
10 East 50th Street
New York, New York 10022
Attention: Jorg Rauthe
Telephone: (212) 574-3176
Telefacsimile: (212) 574-3551
with a copy to:
Whitman Breed Abbott & Morgan
200 Park Avenue
New York, New York 10166
Attention: D. de La Chapelle
Telephone: (212) 351-3254
Telefacsimile: (212) 351-3131
10.03 Survival. All covenants, agreements, representations and warranties
made herein shall survive the expiration of the Direct Pay Letters of Credit and
the
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execution and delivery to the Bank of this Agreement and shall continue in full
force and effect so long as any of the Obligations remain outstanding. 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 the other Loan Documents shall inure to the benefit of the
successors and permitted assigns of the Bank or any of them.
10.04 Amendments. No amendment, modification or waiver of any provision of
this Agreement or any of the Loan Documents and no consent by the Bank to any
departure therefrom by the Borrower shall be effective unless such amendment,
modification, waiver or consent shall be in writing and signed by the Borrower
and the Bank 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. 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 the Bank'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 Event
of Default.
10.05 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.
10.06 Termination. This Agreement shall terminate upon (i) the irrevocable
and final payment in full of all Reimbursement Obligations hereunder, and (ii)
the expiration of all Direct Pay Letters of Credit and the surrender of each to
the Bank for cancellation. Notwithstanding the foregoing, if after receipt of
any payment of all or any part of the Reimbursement Obligations, the Bank 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 the Bank harmless for, the amount of such payment surrendered until the
Bank shall have been finally and irrevocably paid in full. Notwithstanding the
foregoing provisions of this Section 10.06, the provisions of Section 10.08
shall survive the termination of this Agreement.
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<PAGE> 47
10.07 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.
10.08 Indemnification; Limitation of Liability. The Borrower hereby agrees
to indemnify and hold harmless the Bank (and its directors, officers, employees,
agents and counsel) from and against any and all claims, damages, losses,
liabilities, costs or expenses (including reasonable attorneys' fees) whatsoever
which the Bank may incur (or which may be claimed against the Bank by any Person
whatsoever) by reason of or in connection with (a) the issuance or a transfer
of, or payment or failure to pay under, the Direct Pay Letters of Credit, (b)
any breach by the Borrower of any representation, warranty, covenant, term or
condition in, or the occurrence of any default under, this Agreement and any of
the other Loan Documents, including all reasonable fees or expenses resulting
from the settlement or defense of any claims or liabilities arising as a result
of any such breach or default, (c) involvement of the Bank in any legal suit,
investigation, proceeding, inquiry or action as a consequence, direct or
indirect, of the Bank's issuance of the Direct Pay Letters of Credit or
participation therein, its entering into this Agreement and any other Loan
Document or any other event or transaction contemplated by any of the foregoing,
(d) any untrue statement or misleading statement or alleged untrue statement or
alleged misleading statement of a material fact contained in an official
statement or remarketing statement or other offering document relating to the
Notes or Bonds offered for sale or remarketing thereby, or any omission or
alleged omission from such official statement or remarketing statement or other
offering document or any amendment thereof or supplement thereto, of any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading, except that the
Borrower shall have no such liability with respect to any information set forth
therein regarding the Bank, the Direct Pay Letters of Credit, this Agreement or
the other Loan Documents that was made, provided or certified by the Bank, or
(e) any tender of the Bonds resulting from a reduction of the credit rating of
the Bank or any deterioration in the Bank's financial condition (provided that
the Bank shall have honored its obligation to purchase Bonds or Notes in
connection with any tender thereof pursuant to the applicable Direct Pay Letters
of
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<PAGE> 48
Credit); provided, however, that the Borrower shall not be required to indemnify
the Bank for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by (i) the willful misconduct or gross
negligence of the Bank, or (ii) the Bank's willful or grossly negligent failure
to pay under any Direct Pay Letters of Credit after the presentation to it by
the Note Trustee or Bond Trustee, as the case may be, of a sight draft and
certificate strictly complying with the terms and conditions of said Direct Pay
Letter of Credit, unless the Bank in good faith and upon advice of counsel
believes that it is prohibited by law or other legal authority from making such
payment. In the event that any claim is made or action is brought against the
Bank (or any director, officer, employee, counsel or agent of the Bank) in
respect of which the Borrower is obligated to indemnify and hold harmless the
Bank under this Section, the Bank will give prompt written notice to the
Borrower of such claim or action and the Bank may direct the Borrower to assume
the defense of the claim and any action brought thereon and pay all reasonable
fees and expenses incurred therein, and if the Borrower fails to do so, the Bank
may assume the defense of any such claim or action, the reasonable costs of
which shall be paid by the Borrower. Nothing in this Section 10.08 is (a)
intended to limit any of the Borrower's reimbursement or payment obligations
contained in this Agreement or the other Loan Documents or (b) intended to
mitigate any obligation of the Borrower to indemnify the Bank hereunder
notwithstanding any payment by the Guarantor under the terms of the Guaranty.
THE BORROWER'S INDEMNIFICATION OBLIGATIONS UNDER THIS SECTION 10.08
SHALL SURVIVE THE TERMINATION OF THE DIRECT PAY LETTERS OF CREDIT AND THIS
AGREEMENT.
10.09 Nonliability of the Bank. The Borrower acknowledges and agrees that:
(a) The relationship between the Borrower and the Bank is and shall
remain solely that of borrower and lender, and the Bank neither undertakes
nor assumes any responsibility to select, review, inspect, supervise, pass
judgment upon or inform the Borrower of any matter in connection with the
Loan Documents or the Direct Pay Letters of Credit, and the Borrower shall
rely entirely on its own judgment with respect to such matters and
acknowledges that any review, inspection, supervision, exercise of judgment
or information supplied to the Borrower by the Bank in connection with such
matters is solely for the protection of the Bank and that neither the
Borrower nor any third party is entitled to rely on it;
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<PAGE> 49
(b) Notwithstanding any other provision of any Loan Document: (i) the
Bank is not a partner, joint venturer, alter-ego, manager, controlling
person or other business associate or participant of any kind of the
Borrower and the Bank does not intend to ever assume any such status; and
(ii) the Bank shall not be deemed responsible for or a participant in any
acts, omissions or decisions of the Borrower.
10.10 No Representations by the Bank. By accepting or approving anything
required to be performed or given to the Bank under the Loan Documents,
including any certificate, financial statement, survey, appraisal or insurance
policy, the Bank shall not be deemed to have warranted or represented the
sufficiency or legal effect of the same (unless expressly acknowledged, agreed
to or accepted by the Bank), and no such acceptance or approval shall constitute
a warranty or representation by the Bank to anyone.
10.11 Manner and Place of Payments; Calculation of Interest.
(a) All payments to be made to the Bank under this Agreement or any
other Loan Document, whether by the Borrower or the Note Trustee or the
Bond Trustee, as the case may be, on behalf of the Borrower, shall be made
to the Bank at its office identified in Section 10.02 hereof in U.S.
Dollars in immediately available funds. All such payments shall be made to
the Bank as aforesaid not later than 3:00 P.M., New York City time, on the
date due at the account specified by the Bank; and funds received after
that hour shall be deemed to have been received on the next succeeding
Business Day. Except as otherwise provided in this Agreement, all payments
not received on the date due shall bear interest until payment in full
thereof at the Default Rate.
(b) Whenever a payment is due to the Bank under this Agreement, the
Borrower shall be deemed to have made such payment at the time such payment
is received by the Bank.
(c) All fees payable under this Agreement or any other Loan Document
shall be calculated on the basis of a year of 360 days based on the actual
number of days elapsed (including the date of issuance and the expiration
date) and interest payable hereunder shall be calculated on the basis of a
360 day year, consisting of twelve (12) thirty (30) day months.
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<PAGE> 50
10.12 Survival of Representations and Warranties. All representations and
warranties of the Borrower in the Loan Documents and the Bond Documents shall
survive the issuance and delivery of the Direct Pay Letters of Credit during the
term of this Agreement, are material, and have been or will be relied on by the
Bank notwithstanding any investigation made by or on behalf of the Bank.
10.13 No Third Parties Benefitted; Tax-Exempt Status of the Bonds. (a)
This Agreement is made for the purpose of setting forth certain rights and
obligations of the Borrower and the Bank in connection with the Direct Pay
Letters of Credit, and it is made for the sole protection of the Borrower, the
Bank and the Borrower's and Bank's permitted successors and assigns, and no
other Person shall have any rights hereunder or by reason hereof.
(b) Notwithstanding the provisions of sub-paragraph (a) above,
neither the Bank nor the Borrower shall take any action or fail to take any
action that would adversely affect the exclusion from gross income of the
recipient thereof for purposes of federal income taxation on the Bonds.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
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<PAGE> 51
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:
SWISS BANK CORPORATION,
New York Branch
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
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<PAGE> 52
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Terms
1.01 Definitions.................................................... 2
1.02 Terms Consistent............................................... 12
1.03 Accounting Principles.......................................... 12
1.04 Exhibits Incorporated.......................................... 13
1.05 References..................................................... 13
1.06 Other Terms.................................................... 13
1.07 Headings....................................................... 13
1.08 Other Documents................................................ 13
1.09 Construction................................................... 13
1.10 Intention...................................................... 14
ARTICLE II
Letters of Credit
2.01 Direct Pay Letters of Credit................................... 14
2.02 Reimbursement.................................................. 14
2.03 Charges and Expenses........................................... 16
2.04 Cure........................................................... 18
2.05 Obligations Absolute........................................... 18
2.06 Liability of the Bank.......................................... 19
2.07 Extension of Expiration Date................................... 21
ARTICLE III
Liquidity Drawings; Pledge of Notes
and Bonds; Other Security for Obligations
3.01 Prepayments; Reinstatement of Letter of Credit
Amounts; Delivery of Bonds upon Purchase or
Conversion.................................................. 21
3.02 Evidence of Debt............................................... 23
3.03 Pledge of Notes and the Bonds.................................. 23
3.04 Reduction in Available Amount of Hanover Direct
LC.......................................................... 26
3.05 Relationship with the Senior Lender............................ 26
ARTICLE IV
Additional Costs; Taxes
4.01 Additional Costs............................................... 27
4.02 Taxes.......................................................... 29
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ARTICLE V
Conditions to Closing
5.01 Documents to be Delivered...................................... 31
5.02 Transcript and Certificate..................................... 32
5.03 Representations and Warranties................................. 32
5.04 Conditions Satisfied........................................... 32
5.05 Authorized Representative Certificate.......................... 32
5.06 No Material Adverse Change..................................... 32
5.07 Other Documents................................................ 33
5.08 Payment of Fees................................................ 33
5.09 Requested Information.......................................... 33
ARTICLE VI
Representations and Warranties
6.01 Organization, Qualification and Authority...................... 33
6.02 Execution and Performance of Loan Documents and
Bond Documents.............................................. 34
6.03 Valid Obligations.............................................. 34
6.04 Existing Default............................................... 35
6.05 Government Approvals........................................... 35
6.06 Financial and Other Information................................ 35
6.07 No Default..................................................... 35
6.08 Margin Regulations............................................. 35
6.09 Solvency....................................................... 35
6.10 No Untrue Statement............................................ 35
ARTICLE VII
Affirmative Covenants
7.01 Financial Reports, Etc......................................... 36
7.02 Payment of Taxes, Assessments, Costs and
Expenses.................................................... 37
7.03 Continued Compliance........................................... 37
7.04 Books and Records.............................................. 37
7.05 Right of Inspection............................................ 37
7.06 Further Assurances............................................. 38
7.07 Continued Existence............................................ 38
7.08 Covenants...................................................... 38
7.09 Officer's Knowledge of Default................................. 38
ARTICLE VIII
Negative Covenants
8.01 Amendments..................................................... 39
8.02 Merger, Consolidation, Sale of Assets, Etc..................... 39
8.03 Actions........................................................ 39
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ARTICLE IX
Events of Default and Acceleration
9.01 Events of Default.............................................. 39
9.02 Remedies Upon Default.......................................... 41
9.03 Setoff......................................................... 42
9.04 Cumulative Remedies; No Waiver................................. 42
ARTICLE X
Miscellaneous
10.01 Participation................................................. 43
10.02 Notices....................................................... 43
10.03 Survival...................................................... 44
10.04 Amendments.................................................... 45
10.05 Counterparts.................................................. 45
10.06 Termination................................................... 45
10.07 Governing Law................................................. 46
10.08 Indemnification; Limitation of Liability...................... 46
10.09 Nonliability of the Bank...................................... 47
10.10 No Representations by the Bank................................ 48
10.11 Manner and Place of Payments; Calculation of
Interest................................................... 48
10.12 Survival of Representations and Warranties.................... 49
10.13 No Third Parties Benefitted; Tax-Exempt Status
of the Bonds............................................... 49
10.14 Severability.................................................. 49
10.15 Entire Agreement.............................................. 49
10.16 Agreement Controls............................................ 49
10.17 Waiver of Jury Trial.......................................... 49
EXHIBITS DESCRIPTION
A Hanover Series A Letter of Credit
B Hanover Series B Letter of Credit
C Hanover House LC
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<PAGE> 1
Exhibit 10.39
HANOVER INDEMNITY AGREEMENT
HANOVER INDEMNITY AGREEMENT dated as of December 17, 1996 by and between
RICHEMONT FINANCE S.A., a Luxembourg corporation ("Richemont") and HANOVER
DIRECT, INC., a Delaware corporation ("Hanover"), HANOVER DIRECT PENNSYLVANIA,
INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a
California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation
("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE,
INC., a Wisconsin corporation ("TCS"), TWEEDS, INC., a Delaware corporation
("Tweeds"), LWI HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG
CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC.,
("HDV") and HANOVER REALTY, INC., Virginia corporations ("Hanover Realty"); and
together with Hanover, HDPI, Brawn, GBM, Gump's, TCS, Tweeds, LWI, Aegis and
HDV, each individually a "Borrower" and collectively, "Borrowers").
WHEREAS, Hanover has entered into that certain Reimbursement Agreement
dated as of the date hereof with Swiss Bank Corporation, New York Branch (the
"Bank"), a copy of which is attached hereto as Exhibit I (the "Reimbursement
Agreement"), in connection with the Bank's issuance of three letters of credit
dated the date hereof which support certain obligations of Hanover (the "Letters
of Credit");
WHEREAS, Richemont has entered into an agreement dated the date hereof with
the Bank, a copy of which is attached hereto as Exhibit II (the "Guarantee"),
pursuant to which Richemont has guaranteed the reimbursement obligations of
Hanover in connection with draws under any Letter of Credit;
WHEREAS, the Borrowers have agreed to reimburse Richemont for any payment
it makes to the Bank under the Guarantee in accordance with the Reimbursement
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Borrowers agree, jointly and severally, to pay to Richemont on or
before February 28, 1998 (or such later date as to additional amounts if such
additional amounts are paid by Richemont pursuant to the Guarantee after
February 28, 1998 in accordance with this Agreement) that amount required to
reimburse Richemont for all amounts paid by Richemont under the Guarantee in
connection with the Letters of Credit and all reasonable expenses incurred by
Richemont in connection therewith.
<PAGE> 2
2. The Borrowers agree, jointly and severally, to pay Richemont interest on
any amounts paid by Richemont pursuant to the Guarantee at the Prime Rate of the
Bank in effect from time to time plus three and one-half percent (3.5%) from the
date such payments were made to the date Richemont is reimbursed therefor, but
in no event shall such rate be less than the rate charged Richemont by the Bank
with respect to any such drawings.
3. All amounts due and owing hereunder shall be paid within ten (10) days
following receipt by Hanover, as agent for the Borrowers, of written notice from
Richemont that it has paid any amounts pursuant to the Guarantee.
4. Notwithstanding any other provision contained herein, the aggregate
interest rate charged hereunder, 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 amounts paid by Richemont hereunder shall bear interest at the
Highest Lawful Rate until the total amount of interest due hereunder equals the
amount of total 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 amounts paid by Richemont 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 Borrowers shall
pay to Richemont 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 Richemont and the Borrowers to conform
strictly to any applicable usury laws. Accordingly, if Richemont 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 Richemont's option be applied to the
outstanding amounts due hereunder or be refunded to Hanover, as agent for the
Borrowers. 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 Richemont
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.
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<PAGE> 3
5. The Borrowers agree, jointly and severally, to defend, indemnify and
hold harmless Richemont from and against any and all claims and damages, losses,
liabilities, reasonable costs and expenses (including attorneys fees and costs)
which Richemont may incur (or which may be claimed against Richemont) by any
Person by reason of or in connection with the Guarantee or the issuance or
transfer of or payment or failure to pay under any Letter of Credit; provided
that the Borrowers shall not be required to indemnify Richemont 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 Richemont.
6. Upon the execution hereof, the Borrowers agree to pay to Richemont a
one-time non-refundable fee equal to five percent (5%) of the principal amount
of each Letter of Credit, plus all fees incurred by Richemont in connection with
providing the Guarantee including legal fees, expenses, bank fees and any
similar costs and expenses.
7. To the extent that any of the Letters of Credit have outstanding
balances at their date of maturity which are not paid in full by the Borrowers,
or if the Borrowers by February 28, 1998 has failed to pay to Richemont all
amounts due to Richemont as provided in Section 2 hereof, Richemont shall have
the option, but not the obligation, exercisable at any time prior to payment in
full of all amounts due to Richemont hereunder by written notice to Hanover, to
convert the then outstanding principal and interest in respect of this Agreement
into common stock of Hanover (the "Hanover Common Stock"), such conversion to be
exercisable at the lower of the mean of the bid and ask prices of Hanover Common
Stock on November 8, 1996, or the mean of the bid and ask prices of Hanover
Common Stock on each of the thirty days immediately prior to the date of
exercise of the conversion privilege. Richemont shall be entitled to require
that Hanover, at its expense, use its best efforts to issue and to register with
the Securities and Exchange Commission and with any state which may require
registration of such common stock and list on the appropriate securities
exchange any such common stock so required to be delivered to Richemont.
8. The Borrowers and Richemont each hereby (i) acknowledge that the
obligations hereunder (other than those set forth in paragraph 5 above) are
subordinate in right of payment to the Borrowers' existing and future
obligations to Congress Financial Corporation ("Congress") under that certain
Loan and Security Agreement dated as of November 14, 1995 by and among Congress
and the Borrowers, as amended and the other Financing Agreements (as defined
therein) (ii) agree that, concurrently with the execution and delivery of this
Agreement, the Borrowers and Richemont will enter into a Subordination Agreement
with Congress in form and substance satisfactory to Richemont and Congress.
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<PAGE> 4
9. Hanover agrees that it shall provide Richemont with notice of any
request for an extension of the Expiration Date of a Letter of Credit under
Section 2.07 of the Reimbursement Agreement and that any extension shall be
subject to the prior written consent of Richemont.
10. Each Borrower represents and warrants with respect to itself that (i)
such Borrower is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation or creation and is qualified do
business under the laws of each jurisdiction in which it is required to qualify
to do business, (ii) such Borrower has the power and authority to execute,
deliver and perform this Agreement, and (iii) when executed and delivered, this
Agreement will be the legal, valid and binding obligation or agreement, as the
case may be, of such 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.
11. No amendment, modification or waiver of any provision of this Agreement
shall be effective unless such amendment, modification, waiver or consent shall
be in writing and signed by Hanover, as agent for the Borrowers, and Richemont,
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.
12. All documents executed pursuant to the transactions contemplated
herein, including, without limitation, this Agreement 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
Borrowers and Richemont hereby submit to the jurisdiction and venue of the
federal courts of New York for the purposes of resolving disputes hereunder or
for the purposes of collection.
13. If any provision of this Agreement 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.
14. This Agreement, 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.
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<PAGE> 5
15. This Agreement may be executed in counterparts, each of which shall be
an original and all of which, taken together, shall constitute one and the same
instrument.
16. The parties acknowledge and agree that Hanover is acting as agent for
the Borrowers and that notice to Hanover shall be deemed to be sufficient notice
to the Borrowers under this Agreement.
IN WITNESS WHEREOF, the undersigned hereby agree as of the date first above
written.
RICHEMONT FINANCE S.A.
By: __________________________________
Name:_______________________________
Title:______________________________
By: __________________________________
Name: _____________________________
Title: ____________________________
HANOVER DIRECT, INC.
By: __________________________________
Name: _____________________________
Title: ____________________________
HANOVER DIRECT PENNSYLVANIA, INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
BRAWN OF CALIFORNIA, INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
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<PAGE> 6
GUMP'S BY MAIL, INC.
By: _________________________________
Name: ____________________________
Title:____________________________
GUMP'S CORP.
By: _________________________________
Name: ____________________________
Title: ___________________________
THE COMPANY STORE, INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
TWEEDS, INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
LWI HOLDINGS, INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
AEGIS CATALOG CORPORATION
By: _________________________________
Name: ____________________________
Title: ___________________________
HANOVER DIRECT VIRGINIA INC.
By: _________________________________
Name: ____________________________
Title: ___________________________
-6-
<PAGE> 1
Exhibit 10.49
SECOND SUPPLEMENTAL SERIES A NOTE AGREEMENT
This SECOND SUPPLEMENTAL SERIES A NOTE AGREEMENT dated as of December 18,
1996, between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and
NORWEST BANK MINNESOTA, N.A., a national banking association organized under the
laws of the United States of America and having its principal office in
Minneapolis, Minnesota, as trustee and paying agent (the "Trustee" or the
"Paying Agent", as applicable);
W I T N E S S E T H :
WHEREAS, the Borrower and the Trustee entered into the Series A Note
Agreement dated as of November 9, 1994 (the "Series A Note Agreement") pursuant
to which the Borrower issued and sold its interest bearing Flexible Term Notes,
Series A (the "Series A Notes") in the aggregate principal amount of
$10,000,000; and
WHEREAS, the Series A Note Agreement was modified on December 29, 1995 by
the First Supplemental Series A Note Agreement by and between Borrower and
Trustee (the "First Supplemental Series A Note Agreement") to reflect the
delivery of a substitute Letter of Credit;
WHEREAS, the Borrower has this day, delivered to the Trustee a Substitute
Series A Letter of Credit in substitution for the Series A Letter of Credit
(each as defined in the Series A Note Agreement); and
WHEREAS, in order to more fully evidence the delivery of the Substitute
Series A of Letter of Credit referenced above, the Borrower and the Trustee
desire to further amend the Series A Note Agreement, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used in this First
Supplemental Series A Note Agreement and not otherwise herein defined shall have
the meaning ascribed to them in the Series A Note Agreement.
Section 2. Amendment to Second Recital of the Series A Note Agreement. The
second recital of the Series A Note Agreement on page 1 thereof is hereby
amended by deleting the reference to the "L/C Issuer" in the third line thereof
and replacing it with a reference to the "Bank".
<PAGE> 2
Section 3. Amendments to Section 1.01 of the Series A Note Agreement.
(a) The definition of "Bank" set forth in Section 1.01 of the Series A
Note Agreement is hereby deleted in its entirety and replaced with the
following:
"Bank" means the issuer of the Series A Letter of Credit,
initially NationsBank of North Carolina, N.A. (predecessor to
NationsBank, N.A.) and upon the issuance and delivery of a
Substitute Series A Letter of Credit, shall mean the issuer of such
Substitute Series A Letter of Credit.
(b) The definition of "Bank Notes" set forth in Section 1.01 of the Series
A Note Agreement is hereby deleted in its entirety and replaced with the
following:
"Bank Notes" means any Series A Notes purchased with proceeds
from a draw under the Series A Letter of Credit and pledged to the
Bank under the Reimbursement Agreement, including, in the event a
book-entry system with respect to the Series A Notes is in effect,
any beneficial ownership interest therein; provided that in the
event that the Bank fails to honor a drawing under the Series A
Letter of Credit to fund such a purchase and the Borrower purchases
such Series A Notes with its own funds, "Bank Notes" shall include
such Series A Notes, except that such Series A Notes shall not be
pledged to the Bank under the Reimbursement Agreement.
(c) The definition of "Business Day" set forth in Section 1.01 of the
Series A Note Agreement is amended by deleting the last sentence thereof in its
entirety and replacing it with the following:
For purposes of this definition, "paying office of the Bank" means
the Bank office responsible for making payments under any Series A
Letter of Credit.
(d) The definition of "Opinion of Counsel" set forth in Section 1.01 of
the Series A Note Agreement is hereby deleted in its entirety and replaced with
the following:
"Opinion of Counsel" means a written opinion of counsel who is
reasonably acceptable to the Trustee, the Bank, the Placement Agent
and Remarketing Agent. The counsel may be an employee of or counsel
to the Borrower, the Placement Agent, the Remarketing Agent, the
Bank or the Trustee.
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<PAGE> 3
(e) The definition of "Reimbursement Agreement" set forth in Section 1.01
of the Series A Note Agreement is hereby deleted in its entirety and replaced
with the following:
"Reimbursement Agreement" means, individually and
collectively, the Reimbursement Agreement dated as of December 18,
1996, by and among the Borrower and certain subsidiaries of the
Borrower, and the Bank, pursuant to which, among other things, the
Bank has issued the Series A Letter of Credit, and any and all
modifications, alterations, amendments and supplements thereto, and
any similar agreements between or among the Borrower and the issuer
of a Substitute Series A Letter of Credit or Lender providing credit
support to such issuer.
(f) The definition of "Series A Letter of Credit" set forth in Section
1.01 of the Series A Note Agreement is amended by (a) deleting the words
"Commonwealth of Pennsylvania" in the third line thereof and replacing them with
"State of New York" and (b) by deleting the word "L/C Issuer" in the fourteenth
line thereof and replacing it with "Bank".
(g) Section 1.01 of the Series A Note Agreement is hereby amended by
deleting the following definitions thereto:
"Account Parties" means Hanover Direct Pennsylvania, Inc.,
Hanover Direct Virginia Inc. and Gump's Corp., and their successors
and assigns.
"L/C Issuer" means the issuer of the Series A Letter of
Credit, initially CoreStates Bank, N.A., and upon the issuance and
delivery of a Substitute Series A Letter of Credit, shall mean the
issuer of such Substitute Series A Letter of Credit.
"Lender" means Congress Financial Corporation, its successors
and assigns, or other lender that refinances the obligations to
Lender under the Reimbursement Agreement and replaces all credit
support given by Lender to the L/C Issuer in respect of the Series A
Letter of Credit or any Substitute Series A Letter of Credit.
Section 4. Amendment to Section 2.07 of the Series A Note Agreement.
Subsection (b) of Section 2.07 of the Series A Note Agreement is amended by
deleting the third sentence thereof in its entirety and replacing it with the
following:
Subject to the provisions of Section 7.09, the Borrower, the Trustee
and the Paying Agent will recognize the Securities Depository
Nominee, while the
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<PAGE> 4
registered owner of the Series A Notes so held, as the owner of the
Series A Notes for all purposes, including (i) payments of principal
and Purchase Price of, and interest on, the Series A Notes, (ii)
notices and (iii) voting.
Section 5. Amendment to Section 2.08 of the Series A Note Agreement.
Subsection (a) of Section 2.08 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the sixth line thereof and replacing
it with a reference to the "Bank".
Section 6. Amendment to Section 3.01 of the Series A Note Agreement.
Subsection (a)(ii) of Section 3.01 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the second line thereof and replacing
it with a reference to the "Bank". It is acknowledged that the purported
amendment to Subsection (c) of Section 3.10 of the Series A Note Agreement
pursuant to the First Supplemental Series A Note Agreement was a scrivener's
error and is of no force and effect.
Section 7. Amendment to Section 3.04 of the Series A Note Agreement.
Section 3.04 of the Series A Note Agreement is amended by deleting the reference
to the "Lender" in the third line thereof and replacing it with a reference to
the "Bank".
Section 8. Amendment to Section 3.08 of the Series A Note Agreement.
Subsection (d)(ii) of Section 3.08 of the Series A Note Agreement is hereby
deleted in its entirety and replaced with the following:
(ii) All Bank Notes (other than Bank Notes purchased with the
Borrower's own funds and not with the proceeds of a draw on the
Series A Letter of Credit) will be registered in the name of the
Trustee, as agent and bailee of the Bank and subject to the pledge
by the Borrower to the Bank, and shall be held by the Trustee
pursuant to this Agreement and the Reimbursement Agreement. Upon
receipt of Remarketing Proceeds in respect of Bank Notes, the
Remarketing Agent shall notify, the Bank, the Trustee and the
Borrower of such receipt. Upon its receipt of such notice, the Bank
shall, pursuant to the Reimbursement Agreement, notify the
Remarketing Agent and the Trustee by telephone, telecopy or telex,
promptly confirmed in writing, that the Series A Notes have ceased
to be Bank Notes and that the amount of the Letter of Credit has
been automatically reinstated as provided therein, whereupon the
Remarketing Agent will remit such Remarketing Proceeds as directed
by the Bank. The Trustee shall not release the Bank Notes until it
receives from the Bank the notice referred to in the
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<PAGE> 5
preceding sentence. The Remarketing Agent shall hold such
Remarketing Proceeds in a segregated account of the Remarketing
Agent for the benefit of the Bank, except that if the Series A
Letter of Credit is not reinstated by an amount equal to the
Remarketing Proceeds, then the Remarketing Agent shall hold such
funds for the benefit of the purchasers which provided such
Remarketing Proceeds.
Section 9. Amendments to Section 4.03 of the Series A Note Agreement.
(a) Subsection (c) of Section 4.03 of the Series A Note Agreement is
amended by deleting all references to the "Lender" therein and replacing them
with references to the "Bank".
(b) Subsection (e) of Section 4.03 of the Series A Note Agreement is
amended by deleting the reference to the "Lender" in the last line thereof and
replacing it with a reference to the "Bank".
Section 10. Amendment to Section 5.02 of the Series A Note Agreement.
Subsection (c) of Section 5.02 of the Series A Note Agreement is amended by
deleting all references therein to the "Lender" and replacing them with
references to the "Bank".
Section 11. Amendment to Section 5.03 of the Series A Note Agreement.
Subsection (b) of Section 5.03 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the last line thereof and replacing it
with a reference to the "Bank".
Section 12. Amendment to Section 5.04 of the Series A Note Agreement.
Section 5.04 of the Series A Note Agreement is amended by deleting the second
and third paragraphs thereof in their entirety and replacing them with the
following:
When the Series A Letter of Credit terminates or expires in
accordance with its terms or a Substitute Series A Letter of Credit
therefor is accepted hereunder, the Trustee shall immediately surrender
the Series A Letter of Credit to the Bank. The Trustee hereby agrees that,
except in the case of a redemption in part pursuant to Article III hereof
or any other reduction in the principal amount of Series A Notes
Outstanding, it will not under any circumstances request that the Bank
reduce the amount of the Series A Letter of Credit. If at any time, all
Series A Notes shall cease to be Outstanding, the Trustee shall surrender
the Series A Letter of Credit to the Bank, in accordance with the terms
thereof.
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<PAGE> 6
If at any time, the Bank shall fail to honor a draft presented under
the Series A Letter of Credit, in conformity with the terms thereof, the
Trustee shall give immediate telephonic notice thereof to the Remarketing
Agent and the Borrower.
Section 13. Amendment to Section 7.01 of the Series A Note Agreement.
Subsection (d) of Section 7.01 of the Series A Note Agreement is hereby deleted
in its entirety and replaced with the following:
(d) Receipt by the Trustee of written notice from the Bank that an
Event of Default has occurred under the Reimbursement Agreement
accompanied by a demand by the Bank that the Trustee declare the
Series A Notes to be immediately due and payable.
Section 14. Amendments to Section 7.02 of the Series A Note Agreement.
(a) Subsection (a) of Section 7.02 of the Series A Note Agreement is
amended by deleting the reference to the "Lender" in the second line thereof and
replacing it with a reference to the "Bank".
(b) Subsection (b) of Section 7.02 of the Series A Note Agreement is
hereby deleted in its entirety and replaced with the following:
(b) Upon the occurrence of any Event of Default specified in
Section 7.01(c), the Trustee shall notify the Bank of such Event of
Default and shall, by notice to the Borrower, the Paying Agent (who
shall promptly give such notice to the holders) and the Remarketing
Agent declare the entire unpaid principal of and interest on the
Series A Notes immediately due and payable, but only if directed to
do so by the Bank, unless the Bank has dishonored a valid draw under
the Series A Letter of Credit, in which event the Trustee may
declare the entire unpaid principal of and interest on the Series A
Notes immediately due and payable and, thereupon, in either case,
the entire unpaid principal of and interest on the Series A Notes
shall forthwith become due and payable.
Section 15. Amendment to Section 7.03 of the Series A Note Agreement.
Section 7.03 of the Series A Note Agreement is amended (a) by deleting the
reference to the "Lender" in the first sentence thereof and replacing it with a
reference to the "Bank" and (b) by deleting the second sentence thereof in its
entirety and replacing it with the following:
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<PAGE> 7
If such instructions are received by, the Trustee, such draw
proceeds and, if necessary, the moneys on deposit in the Interest
Reserve Account, shall be immediately applied to the purchase of the
Series A Notes, the acceleration of the Series A Notes shall be
cancelled, the Series A Notes shall become Bank Notes and the Series
A Notes shall be registered in the name of the Trustee, as agent and
bailee of the Bank, and pledged under the Reimbursement Agreement as
additional security for repayment of the Borrower's obligations
under the Reimbursement Agreement.
Section 16. Amendment to Section 7.05 of the Series A Note Agreement.
Section 7.05 of the Series A Note Agreement is amended by deleting the phrase
"and the Account Parties" between the words "Borrower" and "to" in the seventh
line thereof.
Section 17. Amendment to Section 7.06 of the Series A Note Agreement.
Section 7.06 of the Series A Note Agreement is amended (a) by deleting the
references to the "Lender" in the second and fourth lines thereof and replacing
therein with references to the "Bank" and (b) by deleting the reference to the
"Lender" in the second line of subsection (b) thereof and replacing it with a
reference to the "Bank".
Section 18. Amendment to Section 7.09 of the Series A Note Agreement. It
is acknowledged that reference to Section 7.03 in the first line of Section 19
of the First Supplemental Series A Note Agreement entitled "Amendment to Section
7.09 of the Series A Note Agreement" was a scrivener's error and that the
correct reference should have been to Section 7.09. Section 7.09 of the Series A
Note Agreement is deleted in its entirety and replaced with the following:
Section 7.09 Bank Deemed Holder. For all purposes of this Article
VII (other than receipt of payments), the Bank shall, so long as the
Series A Letter of Credit shall not have been dishonored (other than for
failure to receive a drawing in strict compliance with the terms thereof
or other reason permitted by the Series A Letter of Credit), be deemed the
holder and registered owner of all Series A Notes. As such, the Bank may
take all actions permitted by this Article VII to be taken by the holders
or registered owners of the Series A Notes, to the exclusion of the actual
beneficial owners and registered owners of the Series A Notes.
Notwithstanding any provision to the contrary herein, on or after the
effective date of a Substitute Series A Letter of Credit which results in
a Credit Modification, the Bank, as issuer of the Series A Letter of
Credit replaced by such Substitute Series A Letter of Credit, shall be
deemed the "Bank" hereunder for purposes of giving notice of default under
Section 7.01(d) and for
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<PAGE> 8
purposes of exercising remedies hereunder, but only so long as (i)
obligations remain owing to the Bank under the Reimbursement Agreement or
the Loan Documents (as defined in the Reimbursement Agreement) or (ii)
there remain outstanding hereunder any Bank Notes pledged to the Bank
under the Reimbursement Agreement.
Section 19. Amendment to Section 8.05 of the Series A Note Agreement.
Section 8.05 of the Series A Notes Agreement is amended by deleting the
references to the "Lender" in the sixth and tenth lines thereof and replacing
therein with references to the "Bank".
Section 20. Amendment to Section 8.08 of the Series A Note Agreement.
Section 8.08 of the Series A Note Agreement is amended (a) by deleting all
references therein to the "Lender" or "Lenders" and replacing them with
references to the "Bank" or "Bank's", as applicable, and (b) by deleting the
following sentence after the last paragraph thereof:
No resignation or removal of the Trustee shall be binding upon the
L/C Issuer for purposes of the Series A Letter of Credit, and no successor
Trustee shall have any rights to draw, except upon compliance with the
transfer provisions therein set forth.
Section 21. Amendment to Section 8.10 of the Series A Note Agreement.
Section 8.10 of the Series A Note Agreement is amended (a) by deleting all
references therein to the "Lender" and replacing them with references to the
"Bank" and (b) by deleting the following sentence after the last paragraph
thereof:
No such resignation or removal of the Remarketing Agent or
appointment of or assignment to a successor Remarketing Agent shall
be binding upon the L/C Issuer for purposes of the Series A Letter
of Credit, unless set forth in an amendment to the Series A Letter
of Credit issued by the L/C Issuer.
Section 22. Amendment to Section 8.11 of the Series A Note Agreement.
Subsection (c) of Section 8.11 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the fourth line thereof and replacing
it with a reference to the "Bank".
Section 23. Amendment to Section 8.12 of the Series A Note Agreement.
Section 8.12 of the Series A Note Agreement is amended by deleting all
references to the "Lender" therein and replacing them with references to the
"Bank".
Section 24. Amendment to Section 8.13 of the Series A Note Agreement.
Section 8.13 of the Series A Note Agreement is
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<PAGE> 9
amended by deleting all references to the "Lender" therein and replacing them
with references to the "Bank".
Section 25. Amendment to Section 8.14 of the Series A Note Agreement.
Section 8.14 of the Series A Note Agreement is amended by deleting all
references to the "Lender" or "Lender's" therein and replacing therein with
references to the "Bank" or "Bank's", as applicable.
Section 26. Amendment to Section 8.16 of the Series A Note Agreement.
Section 8.16 of the Series A Note Agreement is amended (a) by deleting the
phrase ", to the extent provided in the Reimbursement Agreement," after the word
"shall" at the end of the fourth line thereof and (b) by deleting the reference
to the "Lender" in the fifth line thereof and replacing it with a reference to
the "Bank".
Section 27. Amendment to Section 9. 01 of the Series A Note Agreement.
Subsection (f) of Section 9.01 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the fifth line thereof and replacing
it with a reference to the "Bank".
Section 28. Amendment to Section 9.02 of the Series A Note Agreement.
Section 9.02 of the Series A Note Agreement is amended by deleting the reference
to the "Lender" in the fourteenth line thereof and replacing it with a reference
to the "Bank".
Section 29. Amendment to Section 9.06 of the Series A Note Agreement. The
heading and the first sentence of Section 9.06 of the Series A Note Agreement
are hereby deleted in their entirety and replaced with the following:
Section 9.06. Bank and Remarketing Agent Consent Required.
Except to the extent that the consent of the Remarketing Agent or
the Bank is not required for the action that is the subject of the
amendment (e.g., removal of the Remarketing Agent, the Trustee or
the Paying Agent by the Borrower upon the terms specified herein),
an amendment to this Agreement or the Series A Notes shall not
become effective unless the Remarketing Agent (but only to the
extent that such amendment affects the rights, duties or obligations
of the Remarketing Agent hereunder) and the Lender deliver to the
Trustee their written consents to the amendment.
Section 30. Amendment to Section 10.01 of the Series A Note Agreement.
Subsection (b) of Section 10.01 of the Series A Note Agreement is amended by
deleting the reference to, and the address of, the "L/C Issuer" and the "Lender"
therein and replacing them with the following:
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<PAGE> 10
If to the Bank: Swiss Bank Corporation, New York
Branch
222 Broadway
New York, New York, 10038
Attention:
Telephone No.:
Fax No.:
Section 31. Amendment to Section 10.09 of the Series A Note Agreement.
Section 10.09 of the Series A Note Agreement is amended by deleting the
reference to the "Lender" in the fourth line thereof and replacing it with a
reference to the "Bank".
Section 32. Amendments to Exhibit A to the Series A Note Agreement - Form
of Series A Note. Exhibit A to the Series A Note Agreement (the "Form of Series
A Note") is hereby amended as follows:
(a) The second boldface paragraph on the first page of the Form of Series
A Note (prior to the text thereof) is hereby deleted in its entirety and
replaced with the following:
THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
BY, SWISS BANK CORPORATION, NEW YORK BRANCH (THE "BANK"), IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL
AND INTEREST ON THIS SERIES A NOTE AND, IF REMARKETING PROCEEDS ARE
NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES A NOTE, WILL BE
MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT ISSUED BY THE
BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER THE SERIES
A LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN
AGAINST THE BANK.
(b) The second paragraph of the text of the Form of Series A Note,
beginning on page A-2 thereof, is amended by deleting the first sentence thereof
and replacing it with the following:
This Series A Note is one of an issue not to exceed $10,000,000
Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A
Notes"), issued pursuant to a Series A Note Agreement dated as of
November 9, 1994 (the "Series A Note Agreement"), as amended by the
First Supplemental Series A Note Agreement dated December 29, 1995
and the Second Supplemental Note Agreement dated December 18, 1996
between the Borrower and Norwest Bank Minnesota, N.A., as trustee
(in such capacity, the "Trustee") and Paying Agent, for the purpose
of refinancing and/or financing certain
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<PAGE> 11
construction, refurbishment and related costs of an approximately
530,000 square foot distribution facility of the Borrower located in
Roanoke, Virginia and a new retail store of Gump's, Inc., a
subsidiary of the Borrower located in San Francisco, California.
Pursuant to the Series A Note Agreement, the Borrower has caused
Swiss Bank Corporation, New York Branch (the "Bank") to issue its
irrevocable Series A Letter of Credit dated the Date of Issuance (as
hereinafter defined and as set forth above) of the Series A Notes
(the "Series A Letter of Credit") in favor of the Trustee, in an
amount sufficient to pay the Series A Facility Amount and unpaid
interest on or Purchase Price of the Series A Notes, but not to
exceed $9,638,541, pursuant to a Reimbursement Agreement dated as of
December 18, 1996 (the "Reimbursement Agreement") by and among the
Borrower and the Bank, which Series A Letter of Credit initially
expires (subject to extension or earlier termination as provided in
the Reimbursement Agreement and the Series A Note Agreement) on
February 18, 1998. Substitute letters of credit may be delivered in
accordance with the Series A Note Agreement.
(c) The seventh paragraph of the text of the Form of Series A Note,
beginning on page A-4 thereof, is amended by deleting the third sentence thereof
in its entirety and replacing it with the following:
Subject to the provisions of Section 7.09 of the Series A Note
Agreement relating to the Bank as holder of the Series A Notes, the
Borrower, the Trustee and the Paying Agent will recognize the
Securities Depository Nominee, as hereinafter defined, while the
registered owner of the Series A Notes so held, as the owner of the
Series A Notes for all purposes, including (i) payments of principal
and Purchase Price of, and interest on, the Series A Notes, (ii)
notices and (iii) voting, subject to certain qualifications as
stated in the Series A Note Agreement.
(d) Section 1 of the Form of Series A Note, beginning on page A-5 thereof,
is amended by deleting the following definition:
"Bank" means, individually and collectively, the Lender and the L/C
Issuer.
(e) Subsection (f) of Section 3 of the Form of Series A Note, beginning on
page A-9 thereof, is amended by deleting the reference to the "Lender" in the
third line thereof and replacing it with a reference to the "Bank."
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<PAGE> 12
(f) Subsection (a) of Section 4 of the Form of Series A Note, beginning on
page A-10 thereof, is amended by deleting the reference to the "Lender" in the
fourth line of the last paragraph thereof and replacing it with a reference to
the "Bank."
(g) Section 7 of the Form of Series A Note, beginning on page A-13
thereof, is amended by deleting the second sentence of the first paragraph
thereof in its entirety and replacing them with the following:
The Series A Note Agreement directs the Trustee to declare an
acceleration upon written notice by the Bank of the occurrence and
continuance of an event of default under the Reimbursement Agreement
and upon the occurrence of certain other Events of Default under the
Series A Note Agreement. The Trustee has the right to accelerate the
entire unpaid principal of and interest on the Series A Notes in
certain events only with the Bank's consent, all as provided in more
detail in Article VII of the Series A Note Agreement to which
reference is hereby made.
Section 33. Deletion of Exhibit C to Series A Note Agreement. The Series A
Note Agreement is amended by deleting Exhibit C thereto.
Section 34. Effect of Second Supplemental Series A Note Agreement. Except
as modified hereby, all of the terms and provisions of the Series A Note
Agreement shall remain in full force and effect.
Section 35. Governing Law. This Second Supplemental Series A Note
Agreement and the Series A Note Agreement, as amended hereby, shall be deemed to
be contracts made under, and for all purposes shall be construed in accordance
with, the laws of the State of New York.
Section 36. Severability. If any provision of this Second Supplemental
Series A Note Agreement shall be determined to be unenforceable by a court of
law, that shall not affect any other provision of this Second Supplemental
Series A Note Agreement.
Section 38. Counterparts. This Agreement may be signed in several
counterparts, each of which will be an original and all of which together will
constitute the same instrument.
[Signatures on following page.]
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Series A Note Agreement to be duly executed as of the day and year
first above written.
HANOVER DIRECT, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
[CORPORATE SEAL]
NORWEST BANK MINNESOTA, N.A.
as Trustee and Paying Agent
By: _________________________________
Name: _______________________________
Title: ______________________________
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<PAGE> 1
Exhibit 10.49
SECOND SUPPLEMENTAL SERIES A NOTE AGREEMENT
This SECOND SUPPLEMENTAL SERIES A NOTE AGREEMENT dated as of December 18,
1996, between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and
NORWEST BANK MINNESOTA, N.A., a national banking association organized under the
laws of the United States of America and having its principal office in
Minneapolis, Minnesota, as trustee and paying agent (the "Trustee" or the
"Paying Agent", as applicable);
W I T N E S S E T H :
WHEREAS, the Borrower and the Trustee entered into the Series A Note
Agreement dated as of November 9, 1994 (the "Series A Note Agreement") pursuant
to which the Borrower issued and sold its interest bearing Flexible Term Notes,
Series A (the "Series A Notes") in the aggregate principal amount of
$10,000,000; and
WHEREAS, the Series A Note Agreement was modified on December 29, 1995 by
the First Supplemental Series A Note Agreement by and between Borrower and
Trustee (the "First Supplemental Series A Note Agreement") to reflect the
delivery of a substitute Letter of Credit;
WHEREAS, the Borrower has this day, delivered to the Trustee a Substitute
Series A Letter of Credit in substitution for the Series A Letter of Credit
(each as defined in the Series A Note Agreement); and
WHEREAS, in order to more fully evidence the delivery of the Substitute
Series A of Letter of Credit referenced above, the Borrower and the Trustee
desire to further amend the Series A Note Agreement, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used in this First
Supplemental Series A Note Agreement and not otherwise herein defined shall have
the meaning ascribed to them in the Series A Note Agreement.
Section 2. Amendment to Second Recital of the Series A Note Agreement. The
second recital of the Series A Note Agreement on page 1 thereof is hereby
amended by deleting the reference to the "L/C Issuer" in the third line thereof
and replacing it with a reference to the "Bank".
<PAGE> 2
Section 3. Amendments to Section 1.01 of the Series A Note Agreement.
(a) The definition of "Bank" set forth in Section 1.01 of the Series A
Note Agreement is hereby deleted in its entirety and replaced with the
following:
"Bank" means the issuer of the Series A Letter of Credit,
initially NationsBank of North Carolina, N.A. (predecessor to
NationsBank, N.A.) and upon the issuance and delivery of a
Substitute Series A Letter of Credit, shall mean the issuer of such
Substitute Series A Letter of Credit.
(b) The definition of "Bank Notes" set forth in Section 1.01 of the Series
A Note Agreement is hereby deleted in its entirety and replaced with the
following:
"Bank Notes" means any Series A Notes purchased with proceeds
from a draw under the Series A Letter of Credit and pledged to the
Bank under the Reimbursement Agreement, including, in the event a
book-entry system with respect to the Series A Notes is in effect,
any beneficial ownership interest therein; provided that in the
event that the Bank fails to honor a drawing under the Series A
Letter of Credit to fund such a purchase and the Borrower purchases
such Series A Notes with its own funds, "Bank Notes" shall include
such Series A Notes, except that such Series A Notes shall not be
pledged to the Bank under the Reimbursement Agreement.
(c) The definition of "Business Day" set forth in Section 1.01 of the
Series A Note Agreement is amended by deleting the last sentence thereof in its
entirety and replacing it with the following:
For purposes of this definition, "paying office of the Bank" means
the Bank office responsible for making payments under any Series A
Letter of Credit.
(d) The definition of "Opinion of Counsel" set forth in Section 1.01 of
the Series A Note Agreement is hereby deleted in its entirety and replaced with
the following:
"Opinion of Counsel" means a written opinion of counsel who is
reasonably acceptable to the Trustee, the Bank, the Placement Agent
and Remarketing Agent. The counsel may be an employee of or counsel
to the Borrower, the Placement Agent, the Remarketing Agent, the
Bank or the Trustee.
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<PAGE> 3
(e) The definition of "Reimbursement Agreement" set forth in Section 1.01
of the Series A Note Agreement is hereby deleted in its entirety and replaced
with the following:
"Reimbursement Agreement" means, individually and
collectively, the Reimbursement Agreement dated as of December 18,
1996, by and among the Borrower and certain subsidiaries of the
Borrower, and the Bank, pursuant to which, among other things, the
Bank has issued the Series A Letter of Credit, and any and all
modifications, alterations, amendments and supplements thereto, and
any similar agreements between or among the Borrower and the issuer
of a Substitute Series A Letter of Credit or Lender providing credit
support to such issuer.
(f) The definition of "Series A Letter of Credit" set forth in Section
1.01 of the Series A Note Agreement is amended by (a) deleting the words
"Commonwealth of Pennsylvania" in the third line thereof and replacing them with
"State of New York" and (b) by deleting the word "L/C Issuer" in the fourteenth
line thereof and replacing it with "Bank".
(g) Section 1.01 of the Series A Note Agreement is hereby amended by
deleting the following definitions thereto:
"Account Parties" means Hanover Direct Pennsylvania, Inc.,
Hanover Direct Virginia Inc. and Gump's Corp., and their successors
and assigns.
"L/C Issuer" means the issuer of the Series A Letter of
Credit, initially CoreStates Bank, N.A., and upon the issuance and
delivery of a Substitute Series A Letter of Credit, shall mean the
issuer of such Substitute Series A Letter of Credit.
"Lender" means Congress Financial Corporation, its successors
and assigns, or other lender that refinances the obligations to
Lender under the Reimbursement Agreement and replaces all credit
support given by Lender to the L/C Issuer in respect of the Series A
Letter of Credit or any Substitute Series A Letter of Credit.
Section 4. Amendment to Section 2.07 of the Series A Note Agreement.
Subsection (b) of Section 2.07 of the Series A Note Agreement is amended by
deleting the third sentence thereof in its entirety and replacing it with the
following:
Subject to the provisions of Section 7.09, the Borrower, the Trustee
and the Paying Agent will recognize the Securities Depository
Nominee, while the
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<PAGE> 4
registered owner of the Series A Notes so held, as the owner of the
Series A Notes for all purposes, including (i) payments of principal
and Purchase Price of, and interest on, the Series A Notes, (ii)
notices and (iii) voting.
Section 5. Amendment to Section 2.08 of the Series A Note Agreement.
Subsection (a) of Section 2.08 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the sixth line thereof and replacing
it with a reference to the "Bank".
Section 6. Amendment to Section 3.01 of the Series A Note Agreement.
Subsection (a)(ii) of Section 3.01 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the second line thereof and replacing
it with a reference to the "Bank". It is acknowledged that the purported
amendment to Subsection (c) of Section 3.10 of the Series A Note Agreement
pursuant to the First Supplemental Series A Note Agreement was a scrivener's
error and is of no force and effect.
Section 7. Amendment to Section 3.04 of the Series A Note Agreement.
Section 3.04 of the Series A Note Agreement is amended by deleting the reference
to the "Lender" in the third line thereof and replacing it with a reference to
the "Bank".
Section 8. Amendment to Section 3.08 of the Series A Note Agreement.
Subsection (d)(ii) of Section 3.08 of the Series A Note Agreement is hereby
deleted in its entirety and replaced with the following:
(ii) All Bank Notes (other than Bank Notes purchased with the
Borrower's own funds and not with the proceeds of a draw on the
Series A Letter of Credit) will be registered in the name of the
Trustee, as agent and bailee of the Bank and subject to the pledge
by the Borrower to the Bank, and shall be held by the Trustee
pursuant to this Agreement and the Reimbursement Agreement. Upon
receipt of Remarketing Proceeds in respect of Bank Notes, the
Remarketing Agent shall notify, the Bank, the Trustee and the
Borrower of such receipt. Upon its receipt of such notice, the Bank
shall, pursuant to the Reimbursement Agreement, notify the
Remarketing Agent and the Trustee by telephone, telecopy or telex,
promptly confirmed in writing, that the Series A Notes have ceased
to be Bank Notes and that the amount of the Letter of Credit has
been automatically reinstated as provided therein, whereupon the
Remarketing Agent will remit such Remarketing Proceeds as directed
by the Bank. The Trustee shall not release the Bank Notes until it
receives from the Bank the notice referred to in the
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<PAGE> 5
preceding sentence. The Remarketing Agent shall hold such
Remarketing Proceeds in a segregated account of the Remarketing
Agent for the benefit of the Bank, except that if the Series A
Letter of Credit is not reinstated by an amount equal to the
Remarketing Proceeds, then the Remarketing Agent shall hold such
funds for the benefit of the purchasers which provided such
Remarketing Proceeds.
Section 9. Amendments to Section 4.03 of the Series A Note Agreement.
(a) Subsection (c) of Section 4.03 of the Series A Note Agreement is
amended by deleting all references to the "Lender" therein and replacing them
with references to the "Bank".
(b) Subsection (e) of Section 4.03 of the Series A Note Agreement is
amended by deleting the reference to the "Lender" in the last line thereof and
replacing it with a reference to the "Bank".
Section 10. Amendment to Section 5.02 of the Series A Note Agreement.
Subsection (c) of Section 5.02 of the Series A Note Agreement is amended by
deleting all references therein to the "Lender" and replacing them with
references to the "Bank".
Section 11. Amendment to Section 5.03 of the Series A Note Agreement.
Subsection (b) of Section 5.03 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the last line thereof and replacing it
with a reference to the "Bank".
Section 12. Amendment to Section 5.04 of the Series A Note Agreement.
Section 5.04 of the Series A Note Agreement is amended by deleting the second
and third paragraphs thereof in their entirety and replacing them with the
following:
When the Series A Letter of Credit terminates or expires in
accordance with its terms or a Substitute Series A Letter of Credit
therefor is accepted hereunder, the Trustee shall immediately surrender
the Series A Letter of Credit to the Bank. The Trustee hereby agrees that,
except in the case of a redemption in part pursuant to Article III hereof
or any other reduction in the principal amount of Series A Notes
Outstanding, it will not under any circumstances request that the Bank
reduce the amount of the Series A Letter of Credit. If at any time, all
Series A Notes shall cease to be Outstanding, the Trustee shall surrender
the Series A Letter of Credit to the Bank, in accordance with the terms
thereof.
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<PAGE> 6
If at any time, the Bank shall fail to honor a draft presented under
the Series A Letter of Credit, in conformity with the terms thereof, the
Trustee shall give immediate telephonic notice thereof to the Remarketing
Agent and the Borrower.
Section 13. Amendment to Section 7.01 of the Series A Note Agreement.
Subsection (d) of Section 7.01 of the Series A Note Agreement is hereby deleted
in its entirety and replaced with the following:
(d) Receipt by the Trustee of written notice from the Bank that an
Event of Default has occurred under the Reimbursement Agreement
accompanied by a demand by the Bank that the Trustee declare the
Series A Notes to be immediately due and payable.
Section 14. Amendments to Section 7.02 of the Series A Note Agreement.
(a) Subsection (a) of Section 7.02 of the Series A Note Agreement is
amended by deleting the reference to the "Lender" in the second line thereof and
replacing it with a reference to the "Bank".
(b) Subsection (b) of Section 7.02 of the Series A Note Agreement is
hereby deleted in its entirety and replaced with the following:
(b) Upon the occurrence of any Event of Default specified in
Section 7.01(c), the Trustee shall notify the Bank of such Event of
Default and shall, by notice to the Borrower, the Paying Agent (who
shall promptly give such notice to the holders) and the Remarketing
Agent declare the entire unpaid principal of and interest on the
Series A Notes immediately due and payable, but only if directed to
do so by the Bank, unless the Bank has dishonored a valid draw under
the Series A Letter of Credit, in which event the Trustee may
declare the entire unpaid principal of and interest on the Series A
Notes immediately due and payable and, thereupon, in either case,
the entire unpaid principal of and interest on the Series A Notes
shall forthwith become due and payable.
Section 15. Amendment to Section 7.03 of the Series A Note Agreement.
Section 7.03 of the Series A Note Agreement is amended (a) by deleting the
reference to the "Lender" in the first sentence thereof and replacing it with a
reference to the "Bank" and (b) by deleting the second sentence thereof in its
entirety and replacing it with the following:
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<PAGE> 7
If such instructions are received by, the Trustee, such draw
proceeds and, if necessary, the moneys on deposit in the Interest
Reserve Account, shall be immediately applied to the purchase of the
Series A Notes, the acceleration of the Series A Notes shall be
cancelled, the Series A Notes shall become Bank Notes and the Series
A Notes shall be registered in the name of the Trustee, as agent and
bailee of the Bank, and pledged under the Reimbursement Agreement as
additional security for repayment of the Borrower's obligations
under the Reimbursement Agreement.
Section 16. Amendment to Section 7.05 of the Series A Note Agreement.
Section 7.05 of the Series A Note Agreement is amended by deleting the phrase
"and the Account Parties" between the words "Borrower" and "to" in the seventh
line thereof.
Section 17. Amendment to Section 7.06 of the Series A Note Agreement.
Section 7.06 of the Series A Note Agreement is amended (a) by deleting the
references to the "Lender" in the second and fourth lines thereof and replacing
therein with references to the "Bank" and (b) by deleting the reference to the
"Lender" in the second line of subsection (b) thereof and replacing it with a
reference to the "Bank".
Section 18. Amendment to Section 7.09 of the Series A Note Agreement. It
is acknowledged that reference to Section 7.03 in the first line of Section 19
of the First Supplemental Series A Note Agreement entitled "Amendment to Section
7.09 of the Series A Note Agreement" was a scrivener's error and that the
correct reference should have been to Section 7.09. Section 7.09 of the Series A
Note Agreement is deleted in its entirety and replaced with the following:
Section 7.09 Bank Deemed Holder. For all purposes of this Article
VII (other than receipt of payments), the Bank shall, so long as the
Series A Letter of Credit shall not have been dishonored (other than for
failure to receive a drawing in strict compliance with the terms thereof
or other reason permitted by the Series A Letter of Credit), be deemed the
holder and registered owner of all Series A Notes. As such, the Bank may
take all actions permitted by this Article VII to be taken by the holders
or registered owners of the Series A Notes, to the exclusion of the actual
beneficial owners and registered owners of the Series A Notes.
Notwithstanding any provision to the contrary herein, on or after the
effective date of a Substitute Series A Letter of Credit which results in
a Credit Modification, the Bank, as issuer of the Series A Letter of
Credit replaced by such Substitute Series A Letter of Credit, shall be
deemed the "Bank" hereunder for purposes of giving notice of default under
Section 7.01(d) and for
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<PAGE> 8
purposes of exercising remedies hereunder, but only so long as (i)
obligations remain owing to the Bank under the Reimbursement Agreement or
the Loan Documents (as defined in the Reimbursement Agreement) or (ii)
there remain outstanding hereunder any Bank Notes pledged to the Bank
under the Reimbursement Agreement.
Section 19. Amendment to Section 8.05 of the Series A Note Agreement.
Section 8.05 of the Series A Notes Agreement is amended by deleting the
references to the "Lender" in the sixth and tenth lines thereof and replacing
therein with references to the "Bank".
Section 20. Amendment to Section 8.08 of the Series A Note Agreement.
Section 8.08 of the Series A Note Agreement is amended (a) by deleting all
references therein to the "Lender" or "Lenders" and replacing them with
references to the "Bank" or "Bank's", as applicable, and (b) by deleting the
following sentence after the last paragraph thereof:
No resignation or removal of the Trustee shall be binding upon the
L/C Issuer for purposes of the Series A Letter of Credit, and no successor
Trustee shall have any rights to draw, except upon compliance with the
transfer provisions therein set forth.
Section 21. Amendment to Section 8.10 of the Series A Note Agreement.
Section 8.10 of the Series A Note Agreement is amended (a) by deleting all
references therein to the "Lender" and replacing them with references to the
"Bank" and (b) by deleting the following sentence after the last paragraph
thereof:
No such resignation or removal of the Remarketing Agent or
appointment of or assignment to a successor Remarketing Agent shall
be binding upon the L/C Issuer for purposes of the Series A Letter
of Credit, unless set forth in an amendment to the Series A Letter
of Credit issued by the L/C Issuer.
Section 22. Amendment to Section 8.11 of the Series A Note Agreement.
Subsection (c) of Section 8.11 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the fourth line thereof and replacing
it with a reference to the "Bank".
Section 23. Amendment to Section 8.12 of the Series A Note Agreement.
Section 8.12 of the Series A Note Agreement is amended by deleting all
references to the "Lender" therein and replacing them with references to the
"Bank".
Section 24. Amendment to Section 8.13 of the Series A Note Agreement.
Section 8.13 of the Series A Note Agreement is
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<PAGE> 9
amended by deleting all references to the "Lender" therein and replacing them
with references to the "Bank".
Section 25. Amendment to Section 8.14 of the Series A Note Agreement.
Section 8.14 of the Series A Note Agreement is amended by deleting all
references to the "Lender" or "Lender's" therein and replacing therein with
references to the "Bank" or "Bank's", as applicable.
Section 26. Amendment to Section 8.16 of the Series A Note Agreement.
Section 8.16 of the Series A Note Agreement is amended (a) by deleting the
phrase ", to the extent provided in the Reimbursement Agreement," after the word
"shall" at the end of the fourth line thereof and (b) by deleting the reference
to the "Lender" in the fifth line thereof and replacing it with a reference to
the "Bank".
Section 27. Amendment to Section 9. 01 of the Series A Note Agreement.
Subsection (f) of Section 9.01 of the Series A Note Agreement is amended by
deleting the reference to the "Lender" in the fifth line thereof and replacing
it with a reference to the "Bank".
Section 28. Amendment to Section 9.02 of the Series A Note Agreement.
Section 9.02 of the Series A Note Agreement is amended by deleting the reference
to the "Lender" in the fourteenth line thereof and replacing it with a reference
to the "Bank".
Section 29. Amendment to Section 9.06 of the Series A Note Agreement. The
heading and the first sentence of Section 9.06 of the Series A Note Agreement
are hereby deleted in their entirety and replaced with the following:
Section 9.06. Bank and Remarketing Agent Consent Required.
Except to the extent that the consent of the Remarketing Agent or
the Bank is not required for the action that is the subject of the
amendment (e.g., removal of the Remarketing Agent, the Trustee or
the Paying Agent by the Borrower upon the terms specified herein),
an amendment to this Agreement or the Series A Notes shall not
become effective unless the Remarketing Agent (but only to the
extent that such amendment affects the rights, duties or obligations
of the Remarketing Agent hereunder) and the Lender deliver to the
Trustee their written consents to the amendment.
Section 30. Amendment to Section 10.01 of the Series A Note Agreement.
Subsection (b) of Section 10.01 of the Series A Note Agreement is amended by
deleting the reference to, and the address of, the "L/C Issuer" and the "Lender"
therein and replacing them with the following:
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<PAGE> 10
If to the Bank: Swiss Bank Corporation, New York
Branch
222 Broadway
New York, New York, 10038
Attention:
Telephone No.:
Fax No.:
Section 31. Amendment to Section 10.09 of the Series A Note Agreement.
Section 10.09 of the Series A Note Agreement is amended by deleting the
reference to the "Lender" in the fourth line thereof and replacing it with a
reference to the "Bank".
Section 32. Amendments to Exhibit A to the Series A Note Agreement - Form
of Series A Note. Exhibit A to the Series A Note Agreement (the "Form of Series
A Note") is hereby amended as follows:
(a) The second boldface paragraph on the first page of the Form of Series
A Note (prior to the text thereof) is hereby deleted in its entirety and
replaced with the following:
THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
BY, SWISS BANK CORPORATION, NEW YORK BRANCH (THE "BANK"), IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT
TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL
AND INTEREST ON THIS SERIES A NOTE AND, IF REMARKETING PROCEEDS ARE
NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES A NOTE, WILL BE
MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT ISSUED BY THE
BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER THE SERIES
A LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN
AGAINST THE BANK.
(b) The second paragraph of the text of the Form of Series A Note,
beginning on page A-2 thereof, is amended by deleting the first sentence thereof
and replacing it with the following:
This Series A Note is one of an issue not to exceed $10,000,000
Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A
Notes"), issued pursuant to a Series A Note Agreement dated as of
November 9, 1994 (the "Series A Note Agreement"), as amended by the
First Supplemental Series A Note Agreement dated December 29, 1995
and the Second Supplemental Note Agreement dated December 18, 1996
between the Borrower and Norwest Bank Minnesota, N.A., as trustee
(in such capacity, the "Trustee") and Paying Agent, for the purpose
of refinancing and/or financing certain
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<PAGE> 11
construction, refurbishment and related costs of an approximately
530,000 square foot distribution facility of the Borrower located in
Roanoke, Virginia and a new retail store of Gump's, Inc., a
subsidiary of the Borrower located in San Francisco, California.
Pursuant to the Series A Note Agreement, the Borrower has caused
Swiss Bank Corporation, New York Branch (the "Bank") to issue its
irrevocable Series A Letter of Credit dated the Date of Issuance (as
hereinafter defined and as set forth above) of the Series A Notes
(the "Series A Letter of Credit") in favor of the Trustee, in an
amount sufficient to pay the Series A Facility Amount and unpaid
interest on or Purchase Price of the Series A Notes, but not to
exceed $9,638,541, pursuant to a Reimbursement Agreement dated as of
December 18, 1996 (the "Reimbursement Agreement") by and among the
Borrower and the Bank, which Series A Letter of Credit initially
expires (subject to extension or earlier termination as provided in
the Reimbursement Agreement and the Series A Note Agreement) on
February 18, 1998. Substitute letters of credit may be delivered in
accordance with the Series A Note Agreement.
(c) The seventh paragraph of the text of the Form of Series A Note,
beginning on page A-4 thereof, is amended by deleting the third sentence thereof
in its entirety and replacing it with the following:
Subject to the provisions of Section 7.09 of the Series A Note
Agreement relating to the Bank as holder of the Series A Notes, the
Borrower, the Trustee and the Paying Agent will recognize the
Securities Depository Nominee, as hereinafter defined, while the
registered owner of the Series A Notes so held, as the owner of the
Series A Notes for all purposes, including (i) payments of principal
and Purchase Price of, and interest on, the Series A Notes, (ii)
notices and (iii) voting, subject to certain qualifications as
stated in the Series A Note Agreement.
(d) Section 1 of the Form of Series A Note, beginning on page A-5 thereof,
is amended by deleting the following definition:
"Bank" means, individually and collectively, the Lender and the L/C
Issuer.
(e) Subsection (f) of Section 3 of the Form of Series A Note, beginning on
page A-9 thereof, is amended by deleting the reference to the "Lender" in the
third line thereof and replacing it with a reference to the "Bank."
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<PAGE> 12
(f) Subsection (a) of Section 4 of the Form of Series A Note, beginning on
page A-10 thereof, is amended by deleting the reference to the "Lender" in the
fourth line of the last paragraph thereof and replacing it with a reference to
the "Bank."
(g) Section 7 of the Form of Series A Note, beginning on page A-13
thereof, is amended by deleting the second sentence of the first paragraph
thereof in its entirety and replacing them with the following:
The Series A Note Agreement directs the Trustee to declare an
acceleration upon written notice by the Bank of the occurrence and
continuance of an event of default under the Reimbursement Agreement
and upon the occurrence of certain other Events of Default under the
Series A Note Agreement. The Trustee has the right to accelerate the
entire unpaid principal of and interest on the Series A Notes in
certain events only with the Bank's consent, all as provided in more
detail in Article VII of the Series A Note Agreement to which
reference is hereby made.
Section 33. Deletion of Exhibit C to Series A Note Agreement. The Series A
Note Agreement is amended by deleting Exhibit C thereto.
Section 34. Effect of Second Supplemental Series A Note Agreement. Except
as modified hereby, all of the terms and provisions of the Series A Note
Agreement shall remain in full force and effect.
Section 35. Governing Law. This Second Supplemental Series A Note
Agreement and the Series A Note Agreement, as amended hereby, shall be deemed to
be contracts made under, and for all purposes shall be construed in accordance
with, the laws of the State of New York.
Section 36. Severability. If any provision of this Second Supplemental
Series A Note Agreement shall be determined to be unenforceable by a court of
law, that shall not affect any other provision of this Second Supplemental
Series A Note Agreement.
Section 38. Counterparts. This Agreement may be signed in several
counterparts, each of which will be an original and all of which together will
constitute the same instrument.
[Signatures on following page.]
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Series A Note Agreement to be duly executed as of the day and year
first above written.
HANOVER DIRECT, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
[CORPORATE SEAL]
NORWEST BANK MINNESOTA, N.A.
as Trustee and Paying Agent
By: _________________________________
Name: _______________________________
Title: ______________________________
13
<PAGE> 1
Exhibit 10.50
SECOND AMENDMENT TO PLACEMENT AGREEMENT
This SECOND AMENDMENT TO PLACEMENT AGREEMENT (the "First Amendment"), dated
as of December 18, 1996 by and between HANOVER DIRECT, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Borrower"),
and NATIONSBANK, N.A., a national banking association and the successor to
NationsBank of North Carolina, N.A. (the "Placement Agent");
W I T N E S S E T H :
WHEREAS, the Borrower has previously issued and sold its interest bearing
flexible term notes in two separate series (the first series of such notes, as
amended as of the date hereof, being hereinafter referred to as the "Series A
Notes", the second series of such notes, as amended as of the date hereof, being
hereinafter referred to as the "Series B Notes", and the Series A Notes and the
Series B Notes being hereinafter collectively referred to as the "Notes") each
in the aggregate principal amount of $10,000,000, pursuant to the provisions of
a Series A Note Agreement dated as of November 9, 1994 between the Borrower and
Norwest Bank Minnesota, N.A., as Trustee and Paying Agent (the "Trustee") (as
amended by that certain First Supplemental Series A Note Agreement dated as of
December 29, 1995 and the Second Supplemental Series A Note Agreement dated as
of December 18, 1996 between the Borrower and the Trustee and as hereinafter
amended, the "Series A Note Agreement"), and the Series B Note Agreement dated
as of April 27, 1995 between the Borrower and the Trustee (as amended by that
certain First Supplemental Series B Note Agreement dated as of December 29, 1995
and the Second Supplemental Series B Note Agreement dated as of December 18,
1996 and as hereinafter amended, the "Series B Note Agreement", and together
with the Series A Note Agreement being hereinafter collectively referred to as
the "Note Agreements"), respectively; and
WHEREAS, the Borrower and the Placement Agent entered into the Placement
Agreement dated as of November 9, 1994 as amended by the First Amendment to
Placement Agreement dated December 29, 1995 (the "Placement Agreement") pursuant
to which the Borrower appointed the Placement Agent as its agent to perform
certain services in connection with the placement of the Notes upon initial
issuance thereof; and
WHEREAS, the Borrower has this day delivered to the Trustee a Substitute
Series A Letter of Credit in substitution for the Series A Letter of Credit
(each as defined in the Series A Note Agreement) and a Substitute Series B
Letter of Credit in substitution for the Series B Letter of Credit (each as
defined in the Series B Note Agreement) pursuant to the terms of the respective
Note Agreements; and
<PAGE> 2
WHEREAS, in order to more fully evidence the substitution of letters of
credit referenced above, the Borrower and the Placement Agent desire to amend
the Placement Agreement, subject to the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used herein and not otherwise
herein defined shall have the meanings ascribed to them in the applicable Note
Agreement.
Section 2. Amendment to Second Recital of the Placement Agreement. The
Second Recital of the Placement Agreement set forth on page 1 thereof is hereby
deleted in its entirety and replaced with the following:
WHEREAS, the payment when due of the principal of, interest on and Purchase
Price (as defined in the applicable Note Agreement) of the Series A Notes will
be supported, to the extent provided therein, by the Series A Letter of Credit,
and the payment when due of the principal of, interest on and Purchase Price of
the Series B Notes will be supported, to the extent provided therein, by the
Series B Letter of Credit (the Series A Letter of Credit and the Series B Letter
of Credit are sometimes hereinafter collectively referred to as the "Letter of
Credit"), each issued in favor of the Trustee by Swiss Bank Corporation, New
York Branch (the "Bank") and each in an amount of not less than $9,638,541,
representing the principal amount of the applicable series of Notes plus 35 days
interest on such amount computed at the Maximum Rate (as defined in the
applicable Note Agreement) on the basis of actual number of days elapsed in a
year of 360 days, all pursuant to the Reimbursement Agreement dated as of
December 18, 1996 (the "Reimbursement Agreement"), by and among the Borrower and
certain subsidiaries of the Borrower, and the Bank, acknowledged and agreed to
by the Borrower and certain other subsidiaries of the Borrower, pursuant to
which, among other things, the Bank has executed the respective Applications
pursuant to which the Series A Letter of Credit and the Series B Letter of
Credit are issued by the Bank and delivered to the Trustee, and any and all
modifications, alterations, amendments and supplements thereto, and any similar
agreements between or among the Borrower and the issuer of a Substitute Series A
Letter of Credit or Substitute Series B Letter of Credit or the lender providing
credit support to such issuer;
Section 3. Amendment to Section 7 of the Placement Agreement. Subsection
(b) of Section 7 of the Placement Agreement is hereby amended by deleting the
reference to the "Lender" in the third line thereof and replacing it with a
reference to the "Bank".
Section 4. Amendment to Section 10 of the Placement Agreement. Section 10
of the Placement Agreement is hereby amended by deleting the reference to, and
the address of, the "L/C Issuer" and the "Lender" therein and replacing them
with the following:
<PAGE> 3
If to the Bank: Swiss Bank Corporation,
New York Branch
222 Broadway,
New York, New York 10038
Attention:
Telephone No.:
Fax No.:
Section 5. Effect of Second Amendment. Except as modified hereby, all of
the terms and provisions of the Placement Agreement shall remain in full force
and effect.
Section 6. Governing Law. This Second Amendment and the Placement
Agreement, as amended hereby, shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with, the laws of the State of
North Carolina.
Section 7. Severability. If any provision of this Second Amendment shall be
determined to be unenforceable by a court of law, that shall not affect any
other provision of this Second Amendment.
Section 8. Counterparts. This Second Amendment may be executed in several
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed as of the day and year first above written.
HANOVER DIRECT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
NATIONSBANK, N.A.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 1
Exhibit 10.51
SECOND AMENDMENT TO
REMARKETING AND INTEREST SERVICES AGREEMENT
This SECOND AMENDMENT TO REMARKETING AND INTEREST SERVICES AGREEMENT (the
"Second Amendment"), dated as of December 18, 1996, by and between HANOVER
DIRECT, INC., a corporation organized and existing under the laws of the State
of Delaware (the "Borrower"), and NATIONSBANK, N.A., a national banking
association and the successor to NationsBank of North Carolina, N.A. (the
"Remarketing Agent");
W I T N E S S E T H :
WHEREAS, the Borrower has previously issued and sold its interest bearing
flexible term notes in two separate series (the first series of such notes, as
amended as of the date hereof, being hereinafter referred to as the "Series A
Notes", the second series of such notes, as amended as of the day hereof, being
hereinafter referred to as the "Series B Notes", and the Series A Notes and the
Series B Notes being hereinafter collectively, referred to as the "Notes") each
in the aggregate principal amount of $10,000,000, pursuant to the provisions of
a Series A Note Agreement dated as of November 9, 1994 between the Borrower and
Norwest Bank Minnesota, N.A., as Trustee and Paying Agent (the "Trustee") (as
amended by that certain First Supplemental Series A Note Agreement dated as of
December 29, 1995 and that certain Second Supplemental Series A Note Agreement
dated as of December 18, 1996 between the Borrower and the Trustee and as
hereinafter amended, the "Series A Note Agreement"), and the Series B Note
Agreement dated as of April 27, 1995 between the Borrower and the Trustee (as
amended by that certain First Supplemental Series B Note Agreement dated as of
December 29, 1995 and that certain Second Supplemental Series B Note Agreement
dated as of December 18, 1996 and as hereinafter amended, the "Series B Note
Agreement", and together with the Series A Note Agreement being hereinafter
collectively referred to as the "Note Agreements"), respectively; and
WHEREAS, the Borrower and the Remarketing Agent entered into the
Remarketing and Interest Services Agreement dated as of November 9, 1994 (the
"Remarketing Agreement") pursuant to which the Borrower appointed the
Remarketing Agent as its agent to perform certain services in connection with
the remarketing of the Notes tendered for purchase and the determination of the
interest rates and interest periods with respect to the Notes; and
WHEREAS, the Borrower has this day delivered to the Trustee a Substitute
Series A Letter of Credit in substitution for the Series A Letter of Credit
(each as defined in the Series A Note Agreement) and a Substitute Series B
Letter of Credit in
<PAGE> 2
substitution for the Series B Letter of Credit (each as defined in the Series B
Note Agreement) pursuant to the terms of the respective Note Agreements; and
WHEREAS, in order to more fully evidence the substitution of letters of
credit referenced above, the Borrower and the Remarketing Agent desire to amend
the Remarketing Agreement, subject to the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used herein and not otherwise
herein defined shall have the meanings ascribed to them in the applicable Note
Agreement.
Section 2. Amendment to Second Recital of the Remarketing Agreement. The
Second Recital of the Placement Agreement set forth on page 1 thereof is hereby
deleted in its entirety and replaced with the following:
WHEREAS, the payment when due of the principal of, interest on and
Purchase Price (as defined in the applicable Note Agreement) of the Series
A Notes will be supported, to the extent provided therein, by the Series A
Letter of Credit, and the payment when due of the principal of, interest on
and Purchase Price of the Series B Notes will be supported, to the extent
provided therein, by the Series B Letter of Credit (the Series A Letter of
Credit and the Series B Letter of Credit are sometimes hereinafter
collectively referred to as the "Letter of Credit"), each issued in favor
of the Trustee by Swiss Bank Corporation, New York Branch (the "Bank") and
each in an amount of not less than $9,638,541, representing the principal
amount of the applicable series of Notes plus 35 days interest on such
amount computed at the Maximum Rate (as defined in the applicable Note
Agreement) on the basis of actual number of days elapsed in a year of 360
days, all pursuant to the Reimbursement Agreement dated as of December 18,
1996 (the "Reimbursement Agreement"), by and between the Borrower and the
Bank, pursuant to which, among other things, the Bank has executed the
respective Application pursuant to which the Series A Letter of Credit and
the Series B Letter of Credit are issued by the Bank and delivered to the
Trustee, and any and all modifications, alterations, amendments and
supplements thereto any similar agreements between or among the Account
Parties, the Borrower and the issuer of a Substitute Series A Letter of
Credit or Substitute Series B Letter of Credit or the lender providing
credit support to such issuer;
Section 3. Amendment to Section 7 of the Remarketing Agreement. Subsection
(b) of Section 7 of the Remarketing
2
<PAGE> 3
Agreement is hereby amended by deleting the reference to the "Lender" in the
third line thereof and replacing it with a reference to the "Bank".
Section 4. Amendment to Section 11 of the Remarketing Agreement. Section 11
of the Remarketing Agreement is hereby amended by deleting the references to,
and the addresses of, the "Lender" and "L/C Issuer" therein and replacing them
with the following:
If to the Bank: Swiss Bank Corporation,
New York Branch
222 Broadway,
New York, New York 10038
Attention:
Telephone No.:
Fax No.:
Section 5. Effect of Second Amendment. Except as modified hereby, all of
the terms and provisions of the Remarketing Agreement shall remain in full force
and effect.
Section 6. Governing Law. This Second Amendment and the Remarketing
Agreement, as amended hereby, shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with, the laws of the State of
North Carolina.
Section 7. Severability. If any provision of this Second Amendment shall be
determined to be unenforceable by a court of law, that shall not affect any
other provision of this Second Amendment.
Section 8. Counterparts. This Second Amendment may be executed in several
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same instrument.
[Signatures on following page]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed as of the day and year first above written.
HANOVER DIRECT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
NATIONSBANK, N.A.
By:________________________________
Name:______________________________
Title:_____________________________
4
<PAGE> 1
Exhibit 10.57
SECOND AMENDMENT TO SERIES B NOTE
This SECOND AMENDMENT TO SERIES B NOTE dated as of December 18, 1996, is
made by HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), with the
consent of Norwest Bank Minnesota, N.A., as trustee and paying agent (the
"Trustee" or the "Paying Agent", as applicable);
W I T N E S S E T H:
WHEREAS, the Borrower and the Trustee entered into the Series B Note
Agreement dated as of April 27, 1995, as amended pursuant to that certain First
Supplemental Series B Note Agreement dated as of December 29, 1995 and that
certain Second Supplement Series B Note Agreement dated as of December 18, 1996
between the Borrower and the Trustee (as further amended, restated, supplemented
or otherwise modified from time to time in accordance with its terms, the
"Series B Note Agreement") pursuant to which the Borrower issued and sold its
interest bearing Flexible Term Notes, Series B (the "Series B Notes") in the
aggregate principal amount of $10,000,000 and in the form of Series B Note R-1,
registered in the name of Cede & Co. (as defined in the Series B Note Agreement)
and deposited with the Paying Agent ("Series B Note R-1"); and
WHEREAS, the Borrower has this day delivered to the Trustee a Substitute
Series B Letter of Credit in substitution for the Series B Letter of Credit
(each as defined in the Series B Note Agreement); and
WHEREAS, in order to more fully evidence the delivery of the Substitute
Series B of Letter of Credit referenced above, the Borrower and the Trustee
desire to amend Series B Note R-1. subject to the terms and conditions set forth
herein,
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms used in this Second Amendment
to Series B Note and not otherwise herein defined shall have the meaning
ascribed to them in the Series B Note Agreement.
Section 2. Amendments to Series B Note R-1. Series B Note R-1 is hereby
amended as follows:
(a) The second boldface paragraph on the first page of Series B Note R-1
(prior to the text thereof) is hereby, deleted in its entirety and replaced with
the following:
<PAGE> 2
THIS SERIES B NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY,
SWISS BANK CORPORATION, NEW YORK BRANCH (THE "BANK"), IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH NOT
GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL AND INTEREST ON THIS SERIES B
NOTE AND, IF REMARKETING PROCEEDS ARE NOT AVAILABLE, THE PURCHASE PRICE OF
THIS SERIES B NOTE, WILL BE MADE FROM DRAWINGS UNDER THE SERIES B LETTER OF
CREDIT ISSUED BY THE BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING
UNDER THE SERIES B LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER
THAN AGAINST THE BANK.
(b) The second paragraph of the text of Series B Note R-1, beginning on
page 2 thereof, is amended by deleting the first sentence thereof and replacing
it with the following:
This Series B Note is one of an issue not to exceed $10,000,000 Hanover
Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued
pursuant to a Series B note Agreement dated as of April 27, 1995 (the
"Series B Note Agreement"), as amended by the First Supplemental Series B
Note Agreement dated December 29, 1995 and the Second Supplemental Note
Agreement dated December 18, 1996 between the Borrower and Norwest Bank
Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying
Agent, for the purpose of refinancing and/or financing certain
construction, refurbishment and costs of an approximately 530,000 square
foot distribution facility of the Borrower located in Roanoke, Virginia and
a new retail store of Gump's, Inc., a subsidiary of the Borrower located in
San Francisco, California. Pursuant to the Series B Note Agreement, the
Borrower has caused Swiss Bank Corporation, New York Branch (the "Bank") to
issue its irrevocable Series B Letter of Credit dated the Date of Issuance
(as hereinafter defined and set forth above) of the Series B Notes (the
"Series B Letter of Credit") in favor of the Trustee, in an amount
sufficient to pay the Series B Facility Amount and unpaid interest on or
Purchase Price of the Series B Notes, but not to exceed $9,638,541,
pursuant to Reimbursement Agreement dated as of December 18, 1996 (the
"Reimbursement Agreement") by and among the Borrower and the Bank, which
Series B Letter of Credit initially expires (subject to extension of
earlier termination as provided in the Reimbursement Agreement and the
Series B Note Agreement) on February 28, 1998. Substitute letters of credit
may be delivered in accordance with the Series B Note Agreement.
(c) The seventh paragraph of the text of Series B Note R-1 beginning on
page 4 thereof, is amended by deleting the third
2
<PAGE> 3
sentence thereof in its entirety, and replacing it with the
following:
Subject to the provisions of Section 7.09 of the Series B Note Agreement
relating to the Bank as holder of the Series B Notes, the Borrower, the
Trustee and the Paying Agent will recognize the Securities Depository
Nominee, as hereinafter defined, while the registered owner of the Series B
Notes so held, as the owner of the Series B Notes for all purposes,
including (i) payments of principal and Purchase Price of. and interest on,
the Series B Notes, (ii) notices and (iii) voting, subject to certain
qualifications as stated in the Series B Note Agreement.
(d) Section 1 of Series B Note R-1, beginning on page 5 thereof, is amended
by deleting the following definition:
"Bank" means, individually and collectively, the Lender and the L/C Issuer.
(e) Subsection (f) of Section 3 of Series B Note R-1, beginning on page 9
thereof, is amended by deleting the reference to the "Lender" in the third line
thereof and replacing it with a reference to the "Bank."
(f) Subsection (a) of Section 4 of Series B Note R-1, beginning on page 10
thereof, is amended by deleting the reference to the "Lender" in the fourth line
of the last paragraph thereof and replacing it with a reference to the "Bank."
(g) Section 7 of Series B Note R-1, beginning on page 13 thereof, is
amended by deleting the second sentence of the first paragraph thereof in their
entirety and replacing them with the following:
The Series B Note Agreement directs the Trustee to declare an acceleration
upon written notice be, the Bank of the occurrence and continuance of an
event of default under the Reimbursement Agreement and upon the occurrence
of certain other Events of Default under the Series B Note Agreement. The
Trustee has the right to accelerate the entire unpaid principal of and
interest on the Series B Notes in certain events only with the Banks
consent, all as provided in Article VII of the Series B Note Agreement to
which reference is hereby made.
Section 3. Effect of Second Amendment to Series B Note; No Novation. Except
as modified hereby, all of the terms and provisions of Series B Note R-1 shall
remain in full force and effect. This Second Amendment to Series B Note amends
Series B
3
<PAGE> 4
Note R-1 and shall not be construed to constitute a novation thereof in any
manner whatsoever.
Section 4. Governing Law. This Second Amendment to Series B Note and Series
B Note R-1, as amended hereby, shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with the laws of the State of
New York.
Section 5. Severability. If any provision of this Second Amendment to
Series B Note shall be determined to be unenforceable by a court of law, that
shall not affect any other provision of this Second Amendment to Series B Note.
[Signatures on following page]
4
<PAGE> 5
IN WITNESS WHEREOF, the Borrower has caused this Second Amendment to Series
B Note to be duly executed as of the day and year first above written.
HANOVER DIRECT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
[CORPORATE SEAL]
5
<PAGE> 6
CONSENT TO SECOND AMENDMENT TO SERIES B NOTE
Norwest Bank Minnesota, N.A., as Paying Agent, hereby consents to the
amendments to Series B Note R-1 provided for herein.
NORWEST BANK MINNESOTA, N.A.,
as Trustee and Paying Agent
By:_____________________________________
Name:___________________________________
Title:__________________________________
6
<PAGE> 1
Exhibit 10.58
SWISS BANK CORPORATION,
New York Branch
10 East 50th Street
New York, New York 10022
Letter of Credit No. S567170
December 18, 1996
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"), the undersigned bank (the "Bank"),
hereby establishes, for the account of the Company, in your favor, as Trustee
under that certain Series B Note Agreement dated as of April 27, 1995 (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 Series B Notes (the "Notes") were issued, this
Irrevocable Transferable Letter of Credit No. S567170 (the "Letter of Credit")
in the initial amount of $9,638,541 (such amount, as it may from time to time be
reduced and reinstated as hereinafter provided, the "Stated Amount"), consisting
of (a) an aggregate amount not exceeding $9,500,000 (as such amount has been
reduced to the date hereof and as the same hereafter may be 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 $138,541 (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 1:30 p.m., New
York City time, on February 18, 1998 (the "Expiration Date"), unless earlier
terminated or extended as provided herein. This Letter of Credit is issued
pursuant to that certain Reimbursement Agreement dated as of December 18, 1996
(the "Reimbursement Agreement") between the Company and us.
<PAGE> 2
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 a "Drawing
Certificate").
Presentation of any such Drawing Certificate shall be made during our
business hours on a Business Day (as hereinafter defined) on or prior to the
Expiration Date to our offices located at Swiss Bank Corporation, 10 East 50th
Street, New York, New York 10022, Attention: Documentary Department, marked
"Urgent" and "For Immediate Delivery" or at any other office 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 numbers: (212) 574-4634 or (212) 574-4757, but only after first giving
telephone notice to us by contacting Ms. Virginia Gensch at the following
telephone number: (212) 574-4654 and receiving verbal approval, which approval
shall not be unreasonably withheld, to telecopy such Drawing Certificate to us
at the telecopy numbers shown above. You must confirm our receipt of each
telecopied Drawing Certificate by telephoning the above number. 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
Stated 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. For purposes of this Letter of Credit, Principal Drawings and
Interest Drawings (except as provided below) made at any time other than in
connection with a Default Drawing (as
-2-
<PAGE> 3
hereinafter defined) shall be referred to collectively herein as "Scheduled
Drawings", and Principal Drawings and Interest Drawings made in connection with
a Default Drawing and Purchase Drawings shall be referred to collectively herein
as "Unscheduled Drawings."
In the case of presentation of a Drawing Certificate in respect of a
Scheduled Drawing hereunder, if such Drawing Certificate is presented hereunder
by sight or by facsimile transmission as permitted hereunder, by 4:00 p.m., New
York City 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 1:30 p.m., New York City time, on the next succeeding
Business Day or on such later Business Day as you may specify. If a Drawing
Certificate in respect of a Scheduled Drawing is presented by you hereunder
after the time specified in the immediately preceding sentence, 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 1:30 p.m., New
York City time, on the second Business Day thereafter or on such later Business
Day as you may specify. In the case of presentation of a Drawing Certificate in
respect of an Unscheduled Drawing, if such Drawing Certificate is presented
hereunder by sight or facsimile transmission as permitted hereunder, by 10:00
a.m., New York City 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, payments shall be
made to you, or to your designee, of the amount specified, in immediately
available funds, not later than 1:30 p.m., New York City time, on the same day
or on such later Business Day as you may specify. If a Drawing Certificate in
respect of an Unscheduled Drawing is presented by you hereunder after the time
specified in the immediately preceding sentence, 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, payments shall be made to you, or to your designee, of the amount
specified, in immediately available funds, not later than 1:30 p.m., New York
City 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.
Any drawing under this Letter of Credit will be paid solely from our
general funds and not from any other source.
-3-
<PAGE> 4
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 (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 Stated Amount, as the Stated Amount may have been
reinstated by us.
REDUCTION OF STATED 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 Stated 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 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
Stated Amount shall have been so reduced, but otherwise having terms identical
to this Letter of Credit.
On October 1, 1997,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
below, 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 amounts set forth below:
Remaining Remaining Remaining
Effective Date Principal Interest Available
of Reduction Component Component Amount
------------ --------- --------- ------
October 1, 1997 $9,000,000 $131,249 $9,131,249
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
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<PAGE> 5
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 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.
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 1:30 p.m., New York City time on
February 18, 1998 (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
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<PAGE> 6
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 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 1:30 p.m., New York City 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, (d) shall state the name and address of the successor
Trustee under the Note Agreement and (e) shall be accompanied by an amount equal
to the transfer fee. 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 (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 are authorized or
required by law or executive order to
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<PAGE> 7
close or (iii) a day on which the New York Stock Exchange is closed.
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 paragraph and for the Note
Agreement definitions and Reimbursement Agreement definitions and the
certificates referred to herein.
TO THE EXTENT CONSISTENT WITH THE EXPRESS PROVISIONS HEREOF, THIS LETTER OF
CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE UNIFORM CUSTOMS
AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE PUBLICATION NO. 500, OR ANY SUCCESSOR PUBLICATION THERETO (THE "UCP")
AS INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT:
(A) NOTWITHSTANDING THE PROVISIONS OF ARTICLE 17 OF THE UCP, IF THIS LETTER OF
CREDIT EXPIRES DURING AN INTERRUPTION OF BUSINESS (AS DESCRIBED IN ARTICLE 17 OF
THE UCP), WE AGREE TO EFFECT PAYMENT UNDER THIS LETTER OF CREDIT IF A DRAWING
WHICH STRICTLY CONFORMS TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT IS
MADE WITHIN FIFTEEN (15) DAYS AFTER THE RESUMPTION OF BUSINESS; (B) WE WILL NOT
ACCEPT REPRODUCED DOCUMENTS AS ORIGINALS AS PROVIDED IN ARTICLE 20(b) OF THE
UCP; (C) THIS LETTER OF CREDIT WILL NOT TERMINATE BECAUSE OF A FAILURE TO MAKE
ANY PERMITTED DRAWINGS HEREUNDER AS PROVIDED IN ARTICLE 41 OF THE UCP; AND (D)
NOTWITHSTANDING THE PROVISIONS OF SUB-ARTICLE 48(d) OF THE UCP, THE CONSENT OF A
PRIOR TRUSTEE WILL NOT BE REQUIRED IN CONNECTION WITH THE AMENDMENT OF THIS
LETTER OF CREDIT FOLLOWING A TRANSFER OF SAID LETTER OF CREDIT TO ANY SUCCESSOR
TRUSTEE. AS TO MATTERS NOT COVERED BY THE UCP, THIS LETTER OF CREDIT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, INCLUDING, TO THE EXTENT NOT
INCONSISTENT WITH THE UCP, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE
OF NEW YORK.
[The remainder of this page intentionally left blank.]
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<PAGE> 8
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,
SWISS BANK CORPORATION,
New York Branch
By: ______________________________________
Name:
Title:
By: ______________________________________
Name:
Title:
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<PAGE> 9
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> 10
ANNEX A
DRAWING CERTIFICATE
FOR
PRINCIPAL DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Principal Component.
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), (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 Stated Amount of the Letter of Credit shall automatically
be reduced by $______ [insert amount of this Principal Drawing plus 35
days' interest on the amount of such Principal Drawing calculated at the Maximum
Rate
A-1
<PAGE> 11
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]
A-2
<PAGE> 12
ANNEX B
DRAWING CERTIFICATE
FOR
INTEREST DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Interest Component.
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.
B-1
<PAGE> 13
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]
B-2
<PAGE> 14
ANNEX C
DRAWING CERTIFICATE
FOR
PURCHASE DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Principal Component.
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 been remarketed in
accordance with the provisions of Section 3.08 of the Note Agreement.
C-1
<PAGE> 15
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]
C-2
<PAGE> 16
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 Swiss Bank Corporation, New
York Branch (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 __________, _____.
SWISS BANK CORPORATION,
New York Branch
By: _______________________________________
[Name and Title]
By: _______________________________________
[Name and Title]
D-1
<PAGE> 17
ANNEX E
DISCHARGE OF NOTE AGREEMENT AND
LETTER OF CREDIT CANCELLATION
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Swiss Bank Corporation, New York Branch (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 November 9, 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]
E-1
<PAGE> 18
ANNEX F
NOTICE OF DEMAND FOR ACCELERATION AND DEFAULT DRAWING
__________________________________, as Trustee
under a Note Agreement dated as of
November 9, 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 __________, ____.
SWISS BANK CORPORATION,
New York Branch
By: ____________________________________
[Name and Title]
By: ____________________________________
[Name and Title]
F-1
<PAGE> 19
ANNEX G
NOTICE OF DIRECTION TO PURCHASE
RATHER THAN PAY THE NOTES
__________________________________, as Trustee
under a Note Agreement dated as of
November 9, 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 __________, ____.
SWISS BANK CORPORATION,
New York Branch
By: _____________________________________
[Name and Title]
By: _____________________________________
[Name and Title]
G-1
<PAGE> 20
Exhibit xx
ANNEX H
INSTRUCTION TO ISSUE LETTER OF CREDIT TO SUCCESSOR HOLDER
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 November 9, 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 Stated 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]
H-1
<PAGE> 1
Exhibit 10.60
HANOVER DIRECT, INC.
PROMISSORY NOTE
$10,000,000 New York, New York
September 9, 1996
FOR VALUE RECEIVED, the undersigned, HANOVER DIRECT, INC., a
Delaware corporation ("Borrower"), promises to pay to the order of
INTERCONTINENTAL MINING & RESOURCES INCORPORATED, or its assigns ("Lender"), on
or before the Maturity Date referred to below, TEN MILLION DOLLARS
($10,000,000), or such lesser amount as shall then be outstanding under this
Note as evidenced by Lender's record of the loans made hereunder, together with
interest (computed on the basis of a 360-day year and actual days elapsed) (i)
on the unpaid principal amount hereof from the date hereof until the loans
evidenced hereby are paid in full, payable on the Maturity Date, at the rate of
1.5% per annum in excess of the prime commercial interest rate announced from
time to time by CoreStates Bank, N.A., or such other rate as shall then be
charged on term loans made to Borrower's affiliates under the Loan and Security
Agreement, dated as of November 14, 1995 (the "Congress facility"), between
Borrower's affiliates and Congress Financial Corporation, and (ii) to the extent
permitted by law, on any overdue payment of principal, interest or premium, if
any, on this Note, payable on demand, at a rate per annum equal to 3.5% per
annum in excess of the prime commercial interest rate announced from time to
time by CoreStates Bank, N.A., or such other default rate as shall then be
charged on term loans made to Borrower's affiliates under the Congress facility.
In addition to interest on this Note, Borrower shall pay together with such
interest an amount sufficient to enable Lender and/or its affiliates to pay
taxes, if any, required to be paid by Lender or its affiliates in respect of
interest on this Note or on intercompany loans made to facilitate the loan
evidenced by this Note.
All outstanding principal and interest not previously paid shall be
due and payable in full on the date (the "Maturity Date") which is the later to
occur of November 14, 1996 and the date on which, after giving effect to the
payment of the loan represented by this Note, there is at least $2,500,000 in
additional borrowings available to the Borrower's affiliates under the Congress
facility; provided, however, that all outstanding principal and interest not
previously paid shall be due and payable in full on the business day immediately
following payment in full of all Obligations of the Borrower's affiliates under
and as defined in the Congress facility. Principal and interest on this Note are
payable in lawful currency of the United States of America to the Lender at its
principal office at 127 East 73rd Street, New York, New York, or at such other
place as may be designated by Lender, in same day funds.
<PAGE> 2
A. Representations and Warranties.
1. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Borrower has
the corporate power and authority to execute and deliver this Note and to
perform its obligations hereunder.
2. This Note has been duly authorized by all necessary corporate
action on the part of Borrower, and this Note constitutes a legal, valid and
binding obligation of Borrower enforceable against Borrower in accordance with
its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3. The execution, delivery and performance by Borrower of this Note
will not (i) violate, or result in the creation of any lien in respect of any
property of Borrower under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other
agreement or instrument by which Borrower is bound, (ii) conflict with or result
in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or governmental authority
applicable to Borrower or (iii) violate any provision of any statute or other
rule or regulation of any governmental authority applicable to Borrower.
4. No approval, consent, waiver, authorization, registration,
declaration or filing by, from or with any governmental authority or other
person or entity is required in connection with the execution, delivery or
performance by Borrower of this Note.
B. Covenants
1. Borrower shall at all times maintain its corporate existence and
shall not merge or consolidate with any other entity (unless Borrower shall be
the survivor) without Lender's consent.
2. Borrower shall provide to Lender such information about its
assets, liabilities and business as Lender shall from time to time reasonably
request, including, without limitation, financial statements of Borrower and its
subsidiaries.
C. Events of Default
An "Event of Default" shall exist under this Note if any of the
following conditions or events shall occur and be continuing:
(a) Borrower defaults in the payment of any principal or interest on
this Note when the same becomes due and payable, whether at maturity or by
declaration or otherwise; or
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<PAGE> 3
(b) Borrower defaults in the performance of any other obligation
hereunder or any representation or warranty made by Borrower in this Note
proves to have been false or incorrect in any material respect on the date
as of which made; or
(c) Borrower (i) is unable to pay, or admits in writing its inability
to pay, its debts as they become due, (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii)
makes an assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, (v) is adjudicated as insolvent or to be liquidated, or (vi)
takes corporate action for the purpose of any of the foregoing; or
(d) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by Borrower, a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or constituting an order
for relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of Borrower, or any such petition
shall be filed against Borrower.
Upon the occurrence of an Event of Default, Lender may, at its
option, declare the entire unpaid principal balance of, and all accrued interest
on, this Note to be immediately due and payable. If an Event of Default
described in paragraph (c) or (d) above has occurred, this Note shall
automatically become immediately due and payable. Upon this Note becoming due
and payable, whether automatically or by declaration, this Note will forthwith
mature and the entire unpaid principal amount hereof, plus all accrued and
unpaid interest hereon, shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of which
are hereby waived.
In addition to the foregoing, Lender may proceed to protect and
enforce its rights hereunder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or by
law or otherwise.
Lender or its assignee may assign this Note to any person or entity
without Borrower's consent.
Failure of Lender to exercise any of its rights and remedies shall
not constitute a waiver of the right to exercise the same at that or any other
time. All rights and remedies of Lender
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<PAGE> 4
shall be cumulative to the full extent permitted by law.
The invalidity or unenforceability of any provision of this Note
shall not impair the validity or enforceability of any other provision of this
Note.
[Signature page follows.]
-4-
<PAGE> 5
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS.
HANOVER DIRECT, INC.
By:____________________________________
Name:
Title:
-5-
<PAGE> 1
Exhibit 10.61
SWISS BANK CORPORATION,
New York Branch
10 East 50th Street
New York, New York 10022
Letter of Credit No. S567169
December 18, 1996
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"), the undersigned bank (the
"Bank") hereby establishes, for the account of the Company, in your favor, as
Trustee under that certain Series A Note Agreement dated as of November 9, 1994
(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 Series A Notes (the "Notes") were issued, this
Irrevocable Transferable Letter of Credit No. S567169 (the "Letter of Credit")
in the amount of $9,638,541 (such amount, as it may from time to time be reduced
and reinstated as hereinafter provided, the "Stated Amount"), consisting of (a)
an aggregate amount not exceeding $9,500,000 (as such amount has been reduced to
the date hereat and as the same hereafter may be 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 $138,541 (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 1:30 p.m., New York City time, on February
18, 1998 (the "Expiration Date"), unless earlier terminated or extended as
provided herein. This Letter
<PAGE> 2
of Credit is issued pursuant to that certain Reimbursement Agreement dated as of
December 18, 1996 (the "Reimbursement Agreement") between the Company and us.
DRAWING 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 a "Drawing
Certificate").
Presentation of any such Drawing Certificate shall be made during
our business hours on a Business Day (as hereinafter defined) on or prior to the
Expiration Date at our offices located at Swiss Bank Corporation, 10 East 50th
Street, New York, New York 10022, Attention: Documentary Department, marked
"Urgent" and "For Immediate Delivery", or at any other office 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 numbers: (212) 574-4634 or (212) 574-4757; but only after first giving
telephone notice to us by contacting Ms. Virginia Gensch at the following
telephone number: (212) 574-4654, and receiving verbal approval, which approval
shall not be unreasonably withheld, to telecopy such Drawing Certificate to us
at the telecopy numbers shown above. You must confirm our receipt of each
telecopied Drawing Certificate by telephoning the above telephone number. 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 Stated 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
-2-
<PAGE> 3
Purchase Date (as defined in the Note Agreement) ("Purchase Drawings") must be
accompanied by a certificate in the form of Annex C.
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., New York City 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 1:30
p.m., New York City 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 1:30 p.m. New York City 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 designates in the applicable Drawing Certificate.
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 (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 Stated Amount, as the Stated 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 Stated 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 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
Stated Amount shall have been so reduced, but otherwise having terms identical
to this Letter of Credit.
-3-
<PAGE> 4
On October 1, 1997, 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
below 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 below:
Remaining Remaining Remaining
Effective Date Principal Interest Available
of Reduction Component Component Amount
- ------------ --------- --------- -------
October 1, 1997 $9,000,000 $131,249 $9,131,249
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 the 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 to 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 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.
-4-
<PAGE> 5
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 DRAWINGS
This Letter of Credit shall expire at 1:30 p.m., New York City time
on February 18, 1998 (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 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 1:30 p.m., New York City time, on the next
following Business Day.
-5-
<PAGE> 6
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, (d) shall state the name and address of the successor
Trustee under the Note Agreement and (e) shall be accompanied by an amount equal
to the transfer fee required pursuant to the Reimbursement 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 (i) a Saturday or Sunday, (ii)
a day on which commercial banks in New York, New York or the city or cities in
which the corporate trust office of the Trustee is located, are required or
authorized by law or executive order to close or (iii) a day on which the New
York Stock Exchange is closed.
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 paragraph and for the Note
Agreement definitions and Reimbursement Agreement definitions and the
certificates referred to herein.
-6-
<PAGE> 7
TO THE EXTENT CONSISTENT WITH THE EXPRESS PROVISIONS HEREOF, THIS LETTER
OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE UNIFORM
CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL
CHAMBER OF COMMERCE PUBLICATION NO. 500, OR ANY SUCCESSOR PUBLICATION THERETO
(THE "UCP") AS INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK; PROVIDED,
HOWEVER, THAT: (A) NOTWITHSTANDING THE PROVISIONS OF ARTICLE 17 OF THE UCP, IF
THIS LETTER OF CREDIT EXPIRES DURING AN INTERRUPTION OF BUSINESS (AS DESCRIBED
IN ARTICLE 17 OF THE UCP), WE AGREE TO EFFECT PAYMENT UNDER THIS LETTER OF
CREDIT IF A DRAWING WHICH STRICTLY CONFORMS TO THE TERMS AND CONDITIONS OF THIS
LETTER OF CREDIT IS MADE WITHIN FIFTEEN (15) DAYS AFTER THE RESUMPTION OF
BUSINESS; (B) WE WILL NOT ACCEPT REPRODUCED DOCUMENTS AS ORIGINALS AS PROVIDED
IN ARTICLE 20(b) OF THE UCP; (C) THIS LETTER OF CREDIT WILL NOT TERMINATE
BECAUSE OF A FAILURE TO MAKE ANY PERMITTED DRAWINGS HEREUNDER AS PROVIDED IN
ARTICLE 41 OF THE UCP; AND (D) NOTWITHSTANDING THE PROVISIONS OF SUB-ARTICLE
48(d) OF THE UCP, THE CONSENT OF A PRIOR TRUSTEE WILL NOT BE REQUIRED IN
CONNECTION WITH THE AMENDMENT OF THIS LETTER OF CREDIT FOLLOWING A TRANSFER OF
SAID LETTER OF CREDIT TO ANY SUCCESSOR TRUSTEE. AS TO MATTERS NOT COVERED BY THE
UCP, THIS LETTER OF CREDIT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, INCLUDING, TO THE EXTENT NOT INCONSISTENT WITH THE UCP, THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.
-7-
<PAGE> 8
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,
SWISS BANK CORPORATION,
New York Branch
By: _______________________
Authorized Officer
By: _______________________
Authorized Officer
-8-
<PAGE> 9
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
-9-
<PAGE> 10
ANNEX A
DRAWING CERTIFICATE
FOR
PRINCIPAL DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Principal Component.
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 as defined 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
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 Stated Amount of the Letter of Credit shall automatically
be reduced by $ [insert amount of this Principal Drawing plus 35 days' interest
on the
A-1
<PAGE> 11
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]
A-2
<PAGE> 12
ANNEX B
DRAWING CERTIFICATE
FOR
INTEREST DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Interest Component.
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 _____________ .
B-1
<PAGE> 13
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]
B-2
<PAGE> 14
ANNEX C
DRAWING CERTIFICATE
FOR
PURCHASE DRAWING
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Stated
Amount or the now applicable Principal Component.
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 been remarketed in
accordance with the provisions of [Section 3.08 of the Note Agreement.]
C-1
<PAGE> 15
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]
C-2
<PAGE> 16
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 Swiss Bank Corporation, New
York Branch (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 __________ , ________ .
SWISS BANK CORPORATION,
New York Branch
By: ____________________
[Name and Title]
By: ____________________
[Name and Title]
D-1
<PAGE> 17
ANNEX E
DISCHARGE OF NOTE AGREEMENT AND
LETTER OF CREDIT CANCELLATION
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 Swiss Bank Corporation, New York Branch (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 November 9, 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]
E-1
<PAGE> 18
ANNEX F
NOTICE OF DEMAND FOR ACCELERATION AND DEFAULT DRAWING
_________________________________ , as Trustee
under a Note Agreement dated as of
November 9, 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 ________ , ________ .
SWISS BANK CORPORATION,
New York Branch
By: ___________________
[Name and Title]
By: ___________________
[Name and Title]
F-1
<PAGE> 19
ANNEX G
NOTICE OF DIRECTION TO PURCHASE
RATHER THAN PAY THE NOTES
_________________________________ , as Trustee
under a Note Agreement dated as of
November 9, 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 _________ , _______.
SWISS BANK CORPORATION,
New York Branch
By: ___________________
[Name and Title]
By: ___________________
[Name and Title]
G-1
<PAGE> 20
ANNEX H
INSTRUCTION TO ISSUE LETTER OF CREDIT TO SUCCESSOR HOLDER
[Date]
Swiss Bank Corporation,
New York Branch
10 East 50th Street
New York, New York 10022
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 November 9, 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]
H-1
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
(In 000's, except per share
amounts)
TWELVE MONTHS ENDED
DEC. 28, DEC. 30,
1996 1995
---------------------------
<S> <C> <C>
Income (loss) before extraordinary item $(103,895) $(28,153)
Extraordinary item (1,134) (1,837)
--------- --------
Net income (loss) (105,029) (29,990)
Preferred stock dividends (225) (240)
Net income (loss) applicable to Common Shareholders $(105,254) $(30,230)
Average shares of common stock outstanding during
the period 111,441 93,030
Incremental shares from assumed exercise of stock
options (primary) 950 111
Total shares used to calculate PEPS* 111,441 93,030
Primary earnings per share before extraordinary item $ (0.93) $ (0.30)
Extraordinary item (0.01) (0.02)
--------- --------
Primary earnings per share $ (0.94) $ (0.32)
Average shares of common stock outstanding during
the period 111,441 93,030
Incremental shares from assumed exercise of stock
options (fully diluted) 950 111
Total shares used to calculate FDEPS* 111,441 93,030
Fully diluted earnings per share before extraordinary
item $ (0.93) $ (0.30)
Extraordinary item (0.01) (0.02)
--------- --------
Fully diluted earnings per share $ (0.94) $ (0.32)
Average shares of common stock outstanding during
the period 111,441 93,030
Basic earnings per share $ (0.94) $ (0.32)
</TABLE>
* Per APB 15, when a net loss is reported, exercise or conversion is not to be
assumed.
<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
LWI Holdings, Inc. Delaware
Scandia Down Corporation Delaware
Tweeds, Inc. Delaware
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report 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, 2-92383 and 333-13817.
/s/ Arthur Andersen LLP
New York, New York
March 26, 1997
<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 28, 1996 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-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 5,173
<SECURITIES> 0
<RECEIVABLES> 29,399
<ALLOWANCES> (5,030)
<INVENTORY> 67,610
<CURRENT-ASSETS> 132,031
<PP&E> 71,132
<DEPRECIATION> (22,523)
<TOTAL-ASSETS> 220,827
<CURRENT-LIABILITIES> 143,538
<BONDS> 43,255
5,748
0
<COMMON> 96,893
<OTHER-SE> (4,212)
<TOTAL-LIABILITY-AND-EQUITY> 220,827
<SALES> 700,314
<TOTAL-REVENUES> 700,314
<CGS> 479,155
<TOTAL-COSTS> 794,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,858
<INCOME-PRETAX> (102,895)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (103,895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105,029)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
