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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 27, 1997
COMMISSION FILE NUMBER 1-12082
HANOVER DIRECT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-0853260
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1500 HARBOR BOULEVARD WEEHAWKEN, NEW JERSEY 07087
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 863-7300)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, $.66-2/3 PAR VALUE AMERICAN STOCK EXCHANGE
Securities to be 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. [X]
As of March 20, 1998, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$193,819,807 (based on the closing price of the Common Stock on the American
Stock Exchange on March 20, 1998).
As of March 20, 1998, the registrant had 203,800,569 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 specialty direct
marketer with a diverse branded portfolio of home fashions, general merchandise,
men's and women's apparel and gift catalogs delivered via direct mail and
electronic commerce. 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 management of each of six brand
groups -- Home Fashions - Mid-Market brands, Home Fashions-Upscale brands,
General Merchandise brands, Women's Apparel brands, Men's Apparel brands and
Gift brand groups each consisting of one or more catalog titles. All of these
brand groups have continued to utilize the Company's common systems platform and
central purchasing, telemarketing, fulfillment, distribution and administrative
functions.
The Company's Home Fashions-Mid-Market brands includes
Domestications(R), a leading specialty home fashions catalog. The Home
Fashions-Upscale brands includes The Company Store(R), a direct marketer of
upscale home fashions focusing on high quality down comforters and other down
and related products for the home including sheets and towels, and Kitchen &
Home(R), an upscale kitchen and home product catalog. The General Merchandise
brands 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 brands 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 brands 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, and Undergear(R), a
leader in activewear, workout wear and fashion underwear for men. The Gift
brands includes Gump's By Mail(R), a leading upscale catalog of jewelry and
luxury gifts, and Gump's, the well known 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. No catalogs were
discontinued during the 1996 or 1997 fiscal years.
During 1997, the Company mailed approximately 244 million catalogs. The
Company maintains a proprietary customer list currently containing approximately
12 million names of customers (down from approximately 14 million names in 1996
and 18 million in 1995) who have made purchases from at least one of the
Company's catalogs within the past 36 months. Over 4 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 6 million
names in 1996 and 7 million in 1995).
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. Actual cost savings under this plan were in excess of $60
million in 1997.
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. Richemont Finance S.A. ("Richemont
Finance"), a Luxembourg public company, owns approximately 20.3% of the
Company's common stock on a fully diluted basis. Richemont Finance is an
affiliate of Compagnie Financiere Richemont, A.G., a Swiss public company
engaged in luxury goods, tobacco and other business ("Richemont"). NAR Group
Limited, a British Virgin Islands corporation (together with its affiliates,
"NAR"), owns approximately 46.5% 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 Richemont. The Company is a successor in interest to The
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Horn & Hardart Company, a restaurant company founded in 1911, and Hanover House
Industries, Inc., founded in 1934.
THE COMPANY'S CATALOGS
Each of the Company's specialty catalogs targets distinct market
segments offering a focused assortment of merchandise designed to meet the needs
and preferences of its target customers. Through market research and ongoing
testing of new products and concepts, each brand group 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, The Company Store and Improvements, to further
enhance the brand identity of the catalogs.
The Company's specialty catalogs typically range in size from 32 to 132
pages with six to 12 new editions per year depending on the seasonality and
fashion content of the products offered. Each edition may be mailed several
times each season with variations in format and content. Each catalog employs
the services of an outside creative agency or has its own creative staff which
is responsible for the design, layout, copy, feel and theme of the book.
Generally, the initial sourcing of new merchandise for a catalog begins two to
six months before the catalog is mailed.
The following is a description of the Company's core catalogs in each
of the Company's six brand groups:
Home Fashions - Mid-Market Brands:
Domestications is a leading specialty home fashions 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.
Home Fashions-Upscale Brands:
The Company Store is an upscale direct marketer of home fashions
focusing on high quality down comforters and other down and related products for
the home including sheets and towels. The Company Store also features designer
brand name sheets, towels and other bedding accessories.
Kitchen & Home features distinctive and highly functional kitchen and
home products for entertaining and decorating.
General Merchandise Brands:
Improvements is a leading do-it-yourself home improvement catalog
featuring home improvement accessories.
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.
Women's Apparel Brands:
Silhouettes is a leading fashion authority for larger sized women
specializing in casual, career and special occasion apparel for this customer's
lifestyle needs.
Tweeds is a European inspired women's fashion catalog featuring
stylish, updated apparel uniquely designed specifically for the Tweeds customer,
emphasizing the varied busy lifestyle.
Men's Apparel Brands:
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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 is a direct marketer of golf equipment and related apparel and
accessories.
Gift Brands:
Gump's By Mail is a leading upscale catalog marketer of jewelry, luxury
gifts, specialized housewares and other unique items.
Gump's is the well-known San Francisco retailer.
MARKETING AND DATABASE MANAGEMENT
The Company maintains a proprietary customer list currently containing
approximately 12 million names of customers who have purchased from one of the
Company's catalogs within the past 36 months. The list contains name, gender,
residence and historical transaction data. This database is selectively enhanced
with demographic, socioeconomic, lifestyle and purchase behavior overlays from
other sources.
The Company utilizes modeling and 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
for the reduction of annual operating costs, the Company reduced catalog
circulation in 1997 in an effort to 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 lists, the lists
are edited using statistical segmentation tools to enhance their probable
performance. Other sources of new customers include not only traditional print
space advertisements and promotional inserts in outbound merchandise packages,
but also Internet Web site space advertisements for catalog requests, placed on
both the Company's proprietary sites and third party sites, and visitors to the
Company's proprietary Internet Web sites for all of its catalogs, as well as
third party Internet Web sites on which some catalogs advertise their
merchandise. In addition, many of the catalogs participate in a consortium
database of catalog buyers whereby new customers are obtained by the periodic
submission of desired customer buying behavior and interests to the consortium
and the subsequent rental of non-duplicative names from the consortium.
The Company maintains an active presence on the Internet by having a
commerce-enabled Web site for each one of its catalogs which offers its
merchandise, takes catalog requests, and accepts orders for not only Web site
merchandise but also from any print catalog already mailed. The Company also
utilizes commissionable marketing opportunities available to it by posting its
catalog merchandise and accepting orders on third party Web sites.
The Company is about to enter the evolving field of direct response
television marketing, having taken advantage of the opportunity to offer a
particular catalog's merchandise on a 24-hour television shopping channel and
long-form television programming. In addition, the Company has entered into an
agreement to post some of its catalogs' merchandise offerings on electronic
marketing channels which are not directed to residences but to airport lounges,
hotel room and airplane electronic networks.
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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 three
primary telemarketing facilities in Hanover, Pennsylvania, LaCrosse, Wisconsin
and San Diego, California. 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.
The Company handled approximately 11 million telephone order and customer
service calls in 1997. 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. which
resulted in significant cost savings for such services. 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 three distribution centers in three
principal locations: one in Roanoke, Virginia for home fashions, general
merchandise 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 8.6 million packages
in 1997. As part of its plan to reduce annual operating costs, the Company
developed a plan to consolidate its apparel operations in Roanoke, VA and its
Hanover, PA fulfillment operations into its home fashions distribution center in
Roanoke, VA. The apparel operations and two of the six catalogs located in
Hanover, PA were consolidated into the Roanoke home fashions distribution center
in the second half of 1997. The other four catalogs are expected to be
consolidated into the Roanoke home fashions distribution center by the end of
1998.
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 14% of the Company's net revenues in 1997.
The Company obtains rate discounts from the USPS by automatically weighing each
parcel and sorting and trucking packages to a number of USPS drop points
throughout the country. Some packages are shipped using a consolidator for less
frequently used drop points. The USPS announced a proposed increase in mailing
rates that will take effect in mid-1998. The Company is currently investigating
ways to mitigate the effects of these expected increases. If the Company does
not successfully develop any such plan, it may have a material adverse effect on
its results of operations. The Company also utilizes United Parcel Service,
Federal Express and other delivery services. On August 4, 1997, United Parcel
Service went on strike for 16 days. This strike did not have a material effect
on the Company's ability to conduct its business during this time. United Parcel
Service raised its rates for domestic deliveries by 3.6% for ground rates and
3.3% for air rates effective February 7, 1998. The Company expects its actual
United Parcel Service costs to exceed the stated percentage increases and is
investigating alternatives to minimize this impact. The Company does not expect
the increase to have a material adverse effect on its results of operations.
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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
independently. 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 obtained a material reduction in the
rate which it had been paying pursuant to its then current telecommunications
contract and savings with respect to certain database services which are
provided to it. In that connection, the Company agreed to guarantee certain
levels of call volume and the Company anticipates it will meet such targets for
the first performance period. 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 1997, paper costs
approximated 6% of the Company's net revenues. The Company experienced
substantial paper price increases in 1997. In spite of these increased paper
prices, the Company was able to reduce its paper costs by 2% as a percentage of
net revenues versus 1996 as a result of more targeted circulation strategies.
The Company anticipates that any paper price increase in 1998 will not have a
significant impact on its cost structure.
MANAGEMENT INFORMATION SYSTEMS
The Company has successfully converted all catalogs to the integrated
mail order and catalog system operating on the mid-range computer systems.
Additionally, there is only one remaining fulfillment center to be migrated to
the newly developed warehouse management system. The migration of the Company's
business applications to mid-range computers was an important part of the
Company's overall systems plan which defined the long-term systems and computing
strategy for the Company. The Company modified and installed, 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 Company is
continuing to devote resources to improving its systems.
The new software system is an on-line, real-time system which includes
order processing, fulfillment, inventory management, list management and
reporting. The software 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. Two catalogs were brought
onto the Company's common systems platform in 1994. The Company brought eight
additional catalogs onto the Company's common systems platform in 1995, one in
1996 and the balance of the catalogs onto the Company's common systems platform
in 1997. As of December 27, 1997, the Company had invested approximately $18.1
million of capitalized costs in such systems and anticipates capital
expenditures of approximately $.5 million to complete the conversion.
Based on its preliminary study, the Company does not expect to have
significant expenditures to modify its computer information systems enabling
proper processing of transactions relating to the year 2000 and beyond. The
Company continues to evaluate appropriate courses of corrective action,
including replacement of certain systems. The Company does not expect the
amounts required to be expensed over the next two years related to the year 2000
modifications to have a material effect on its
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financial position or results of operations. The Company is attempting to
contact vendors and others on whom it relies to assure that their systems will
be timely converted. However, there can be no assurance that the systems of
other companies on which the Company's systems rely also will be timely
converted or that any such failure to convert by another company would not have
an adverse effect on the Company's systems.
CREDIT MANAGEMENT
Several of the Company's catalogs, including Domestications,
International Male and Gump's by Mail, offer their own private label credit
cards. 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 27, 1997.
INVENTORY MANAGEMENT
The Company's inventory management strategy is designed to maintain
inventory levels that provide optimum in-stock positions while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at the
end of each season. The Company manages inventory levels by monitoring sales and
fashion trends, making purchasing adjustments as necessary and by promotional
sales. Additionally, the Company sells excess inventory in its special sale
catalogs, its outlet stores and to jobbers.
The Company acquires products for resale in its catalogs from numerous
domestic and foreign vendors. No single source supplied more than 5% of the
Company's products in 1997. The Company's vendors are selected based on their
ability to reliably meet the Company's production and quality requirements, as
well as their financial strength and willingness to meet the Company's needs on
an ongoing basis.
SEARS
In January 1994, the Company entered into a licensing agreement (the
"Sears Agreement") with the direct marketing subsidiary of Sears Roebuck and Co.
("Sears") to produce specialty catalogs for customers of the discontinued Sears
catalog. The Sears Agreement was terminated by Sears in December 1996 and no
catalogs were mailed by the Company in 1997. The termination of the Sears
Agreement did not have a material impact on the Company's earnings for 1997.
Warrants to purchase Common Stock in 1998 and 1999 conditional upon the business
meeting certain criteria will not be exercisable due to the termination of the
Sears Agreement.
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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 other than certain receivables. At December
27, 1997, the Company had no outstanding borrowings under the revolving credit
facility (excluding approximately $3.0 million of documentary and standby
letters of credit) and approximately $7.9 million outstanding under the term
loans, which were originally due November 1997 and were extended to November
1998. Remaining availability under the Congress facility was $29.0 million at
December 27, 1997. Under the Credit Facility, the Company is required to comply
with certain restrictive debt covenants including maintaining minimum levels of
net worth and working capital. In December 1996, the minimum net worth covenant
was lowered to $70 million. On March 26, 1997, Congress agreed to waive certain
defaults and further reduce the working capital and net worth covenants for
fiscal 1997 as follows:
<TABLE>
<CAPTION>
WORKING CAPITAL (AS DEFINED) IN THE CREDIT
FACILITY AMOUNT
- --------------- --------------
<S> <C>
January through May 1997 $ (5,000,000)
June through November 1997 $ 0
December 1997 and thereafter $ (10,000,000)
</TABLE>
<TABLE>
<CAPTION>
NET WORTH AMOUNT
- --------- --------------
<S> <C>
January through May 1997 $ 14,000,000
June 1997 and thereafter $ 21,500,000
</TABLE>
Congress also agreed at that time to amend the covenant relating to material
adverse changes so that measurement thereunder would commence from December 28,
1996. The amount that can be borrowed under the Congress Facility is based on
percentages of acceptable inventory and accounts receivable as reported to
Congress from time to time. Congress began lowering the advance rate for
inventories in November 1996 and continued to reduce it until a new inventory
appraisal was completed in March 1997. The advance rate remained the same
through the balance of 1997. In November 1997, a new inventory appraisal was
completed and negotiations for the refinancing of the Revolving Credit Facility
commenced. Under the terms of the re-negotiated Credit Facility, effective March
1998, the inventory advance rate will be increased at this time and the facility
will be extended to January 31, 2001.
In September 1996, IMR (an affiliate of NAR) loaned the Company $10
million as evidenced by a subordinated promissory note in the amount of $10
million (the "IMR Promissory Note"). Such loan bore interest at prime plus 1
1/2%, was due on November 14, 1996 and, if it was not repaid before May 15,
1997, was 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 IMR Promissory Note was subordinate to
the Credit Facility and excluded from the working capital covenant calculation.
NAR applied this $10 million note to acquire $10 million of the Company's Common
Stock in the 1997 Rights Offering (see "1997 Rights Offering").
In December 1996, the Company finalized its agreement (the
"Reimbursement Agreement") with Richemont Finance S.A. ("Richemont") that
provided the Company with up to approximately $28 million of letters of credit
through Swiss Bank Corporation, New York Branch. The three letters of credit,
which were to expire on February 18, 1998, carry an interest rate of 3.5% above
the prime rate, currently 12.0%, payable to Richemont quarterly on amounts drawn
under the letters of credit. The Company also 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
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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. In November 1997, Richemont Finance definitively agreed to extend its
guarantee under the Reimbursement Agreement to March 30, 1999. As consideration
for this transaction, the Company agreed to pay to Richemont Finance a fee of 4%
of the principal amount of each letter of credit aggregating $1,073,483.28. The
extension required the approval of Congress and Swiss Bank which approvals were
obtained in February 1998, and was subject to certain other conditions. On
February 18, 1998, the extension of the Richemont guarantee and the closing of
this transaction were consummated. Accordingly, the expiration dates of two of
the letters of credit were extended through March 30, 1999, and the letters of
credit were amended to reflect the assignment of all obligations thereon from
Swiss Bank, New York Branch to Swiss Bank, Stamford Branch. A substitute letter
of credit having an expiration date of March 30, 1999 was issued to replace the
third letter of credit.
1997 Rights Offering. The Company commenced a $50 million rights
offering (the "1997 Rights Offering") on April 29, 1997. Holders of record of
the Company's Common Stock, par value $.66-2/3 per share (the "Common Stock"),
and Series B Convertible Additional Preferred Stock, par value $.01 and stated
value $10.00 per share (the "Series B Preferred"), as of April 28, 1997, the
record date, were eligible to participate in the 1997 Rights Offering. The
rights were exercisable at a price of $.90 per share. Shareholders received .38
rights for each share of Common Stock held and .57 rights for each share of
Series B Preferred held as of the record date. The 1997 Rights Offering expired
on May 30, 1997, with 55,654,623 rights to purchase shares exercised, and it
closed on June 6, 1997.
Richemont Finance entered into a standby purchase agreement (the
"Richemont Standby Purchase Agreement") to purchase all shares not subscribed to
by shareholders of record at the subscription price. Richemont Finance purchased
40,687,970 shares in the 1997 Rights Offering and, as a result, then owned
approximately 20.3% of the Company. The Company paid in cash, from the proceeds
of the 1997 Rights Offering, to Richemont Finance on the closing date
approximately $1.8 million which represented an amount equal to 1% of the
aggregate offering price of the aggregate number of shares issuable upon closing
of the 1997 Rights Offering other than with respect to the shares of Common
Stock held by NAR or its affiliates plus an amount equal to one-half of one
percent of the aggregate number of shares acquired by NAR upon exercise of their
rights (Standby Fee) plus an amount equal to 4% of the aggregate offering price
in respect to all unsubscribed shares (Take-Up Fee). In connection with the
entering of the Richemont Standby Purchase Agreement, the Company named two
Richemont representatives, Messrs. Jan P. du Plessis and Howard M.S. Tanner, to
its Board of Directors (the "Board") and nominated a third representative to
become a member of the Board, Mr. Shailesh J. Mehta, at the 1997 Annual Meeting
of Shareholders. Messrs. du Plessis and Tanner filled positions vacated by the
resignations of Geraldine Stutz and Jeffery R. Laikind. Mr. Mehta was nominated
and elected to the Board in 1997 to fill a newly created Board position. In
addition, Messrs. du Plessis and Tanner were named to the Audit, Executive and
Stock Option & Executive Compensation Committees of the Board.
On April 26, 1997, NAR irrevocably agreed with the Company, subject to
and upon the consummation of the 1997 Rights Offering, to exercise certain of
the rights distributed to it for the purchase of 11,111,111 shares of Common
Stock that had an aggregate purchase price of approximately $10 million. NAR
agreed to pay for and the Company agreed to accept as payment for the exercise
of such rights the surrender by NAR of the principal amount due under a
subordinated promissory note dated September 1996 due by the Company to
Intercontinental Mining & Resources Incorporated, an affiliate of NAR ("IMR"),
in the principal amount of $10 million the ("IMR Promissory Note") and
cancellation thereof.
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In order to facilitate vendor shipments and to permit the commencement
of the Company's plan to consolidate certain of its warehouse facilities,
Richemont Finance advanced $30 million as of April 23, 1997 against its
commitment to purchase all of the unsubscribed shares pursuant to the Richemont
Standby Purchase Agreement. The Company then executed a subordinated promissory
note in the amount of $30 million to evidence this indebtedness (the "Richemont
Promissory Note") which was repaid out of the proceeds of the 1997 Rights
Offering.
The Company issued 55,654,623 shares as a result of the 1997 Rights
Offering which generated gross cash proceeds of approximately $40 million (after
giving effect to the acquisition and exercise by NAR of rights having an
aggregate purchase price of $10 million which were paid for by the surrender and
cancellation of the IMR Promissory Note). The proceeds of the 1997 Rights
Offering were used by the Company: (i) to repay the $30 million principal amount
outstanding under the Richemont Promissory Note, and (ii) for working capital
and general corporate purposes including repayment of amounts outstanding under
the Credit Facility with Congress.
Additional Investments. In November 1997, SMALLCAP World Fund, Inc.
("SMALLCAP"), a mutual fund and substantial investor in the Company, agreed to
purchase 3.7 million shares of the Company's Common Stock at $1.41 per share for
an aggregate purchase price of approximately $5.2 million in a private
placement. This transaction was consummated on November 6, 1997. These shares
are restricted and have not been registered under the Securities Act of 1933, as
amended. The Company also entered into a registration rights agreement with
SMALLCAP that calls for the Company to use its best efforts to effect the
registration of such shares as soon as practicable after April 1, 1998 and has
granted certain piggyback registration rights. The Company may delay such
registration for a period of not more that ninety calendar days if, in the
reasonable judgment of the Board, such filing is not in the best interests of
the Company at such time. Such registration is to be effected by preparation and
filing by the Company with the Securities and Exchange Commission of a
registration statement on Form S-3. The Company is to pay all expenses in
connection with the registration of such shares.
EMPLOYEES
The Company currently employs approximately 2,700 persons on a full
time basis and approximately 400 persons on a part time basis. In accordance
with a cost savings plan announced in December 1996, the Company eliminated 400
positions in 1997. Approximately 200 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 principal bases 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.
The Company is maintaining an active commerce-enabled Internet Web site
presence for all of its catalogs. A substantial number of each of the Company's
catalog competitors maintain an active commerce-enabled Internet Web site
presence as well. Sales from the Internet for
9
<PAGE> 11
Web site merchandisers have grown in 1997. The Company believes strongly in the
future of the Internet and online commerce and has adjusted its marketing focus,
resources, and manpower to that end. However, there can be no assurance that the
Company will be successful in these endeavors.
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.
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.
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 office in Weehawken, New Jersey. The facility houses
merchandising and marketing personnel, catalog production personnel and
corporate and administrative offices. The Weehawken facility is leased for a
15-year term expiring in 2005. The Company has subleased a portion of these
premises effective April 1998 as part of its plan to further reduce costs. In
addition to this office facility, the Company leases administrative facilities
for men's apparel in San Diego, California, maintains 15,000 square feet of
administrative facilities for the Gump's retail business in its store facility
in San Francisco, California discussed below and maintains administrative
facilities for the Improvements business in Beachwood, Ohio.
The Company currently operates three warehouses and fulfillment
facilities in three principal locations: one in Roanoke, Virginia for home
fashions, apparel and general merchandise, one in Hanover, Pennsylvania for
hardgoods, including sporting goods and giftware, and one in LaCrosse, Wisconsin
for upscale home fashions. The Company also leased a warehouse facility of
433,000 square feet in Hanover, Pennsylvania which lease expired in May 1997.
In Roanoke, Virginia, the Company owns a 530,000 square-foot home
fashions distribution center. The facility became operational in the second
half of 1995 and handled all of Domestications' fulfillment processing. As a
result of the Company's cost reduction plan, the Company transferred during
1997 the fulfillment functions for two of the six catalogs previously fulfilled
from the Hanover, Pennsylvania distribution facility as well as all the
fulfillment functions handled by the now closed apparel distribution facility
located in Roanoke, Virginia to the home fashions distribution center in
Roanoke, Virginia. See "Distribution." The apparel distribution center in
Roanoke, Virginia is a 175,000 square-foot facility which the Company leases
from a partnership in which it owns a 50% interest. The Company and the
partnership are currently looking for a sublessee for this now empty facility.
In Hanover, Pennsylvania, the Company owns a distribution center of
approximately 265,000 square feet which handles hardgoods, including sporting
goods and giftware. Two of the six catalogs previously serviced by such
facility were consolidated with and into the home fashions distribution center
in Roanoke, Virginia in 1997 and the remaining four catalogs are expected to be
consolidated with and into the Roanoke home fashions distribution center by the
end of 1998. During 1998, the Company intends to use the
10
<PAGE> 12
distribution center for third-party fulfillment and processing. The Company
currently intends to vacate this facility in fiscal 1998.
In LaCrosse, Wisconsin, the Company leases a warehouse and fulfillment
center of 185,000 square feet under a short-term lease. 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 in LaCrosse,
Wisconsin.
In addition to the LaCrosse, Wisconsin facility, the Company utilizes
portions of facilities in San Diego, California and Hanover, Pennsylvania as
telemarketing and customer service facilities. Specifically, in Hanover,
Pennsylvania, the Company leases a telemarketing and administrative office
facility of 123,000 square feet. Renewal terms on the telemarketing center
extend through 2009.
The Company's principal retail operations consist of the Gump's retail
store, which occupies approximately 38,600 square feet in a building in
downtown San Francisco, California which is leased pursuant to a 15-year lease
expiring in the year 2010 with two successive five-year renewal options.
A portion of the Gump's facility, consisting of approximately 30,000 square
feet, is subleased and a portion, consisting of approximately 18,800 square
feet, is used for administrative offices. The Company also operates and
leases 10 other retail and outlet stores at various locations.
The Company leases premises in Edgewater, New Jersey which it vacated
in 1995. The Company has sublet a portion of the Edgewater facility and is
actively seeking to sub-lease the remainder. The Company sold its interest in a
Cleveland facility in May 1997.
11
<PAGE> 13
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION(a) STATUS SQUARE FOOTAGE
- -------------------------------------- ------------ --------------
<S> <C> <C>
WAREHOUSE AND FULFILLMENT CENTERS:
Roanoke, VA Owned 530,000
Hanover, PA Leased 433,000(b)
Hanover, PA Leased/Owned 265,000
LaCrosse, WI Leased 185,000
CORPORATE AND ADMINISTRATIVE OFFICES:
Weehawken, NJ Leased 85,000(c)
San Diego, CA Leased 30,000(d)
San Francisco, CA Leased 18,800(e)
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(d)
RETAIL STORES:
Carlsbad, CA Leased 3,455
San Francisco, CA Leased 38,600(e)
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 leased Roanoke, Virginia facility (closed 1997 in
conjunction with the consolidation of the Company's warehouse
facilities) or Edgewater, New Jersey (closed 1995).
(b) Lease ended in May 1997.
(c) After sublease of approximately 20,000 square feet to an outside tenant
effective April, 1998, approximate square footage will be reduced to
65,000 square feet of office space.
(d) Telemarketing and corporate/administrative functions are all located
and performed at the one facility. Square footage stated represents the
entire facility.
(e) Retail and office space are all located at the one facility. Square
footage stated represents allocations to corporate/administrative,
retail and retail storage space.
12
<PAGE> 14
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 August 14, 1996, People's Bank brought an action in United States
District Court for the District of Connecticut, Civil Action No. 396CV01572,
against the Company alleging breach of contract and requesting $20,000,000 in
damages. The matter was settled in January 1998 by payment of $150,000 without
admission of wrongdoing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 15
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the American Stock Exchange (Symbol:
HNV). The following table sets forth, for the periods shown, the high and low
sale prices of the Common Stock reported on the American Stock Exchange
Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
1996
First Quarter $1-13/16 $1-1/8
Second Quarter 2 1-1/8
Third Quarter 1-5/8 7/8
Fourth Quarter 1 5/8
1997
First Quarter 1-1/8 5/8
Second Quarter 1-1/8 5/8
Third Quarter 1-11/16 1-1/16
Fourth Quarter 3 1-1/4
</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 11, 1998, there were approximately 4,440 holders of record
of Common Stock.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
The following table presents selected financial data for each of the years indicated:
(in thousands, except share and per share data) 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 642,511 $ 768,884 $ 749,767 $ 700,314 $ 557,638
Special charges -- -- 1,563 36,724 (2,209)
Depreciation and amortization 3,279 6,157 9,020 12,192 8,227
Operating (loss) income 19,076 15,975 (22,619) (94,497) (1,849)
Interest expense, net 2,757 2,813 4,531 8,398 8,028
Income (loss) before extraordinary items 17,337 14,838 (28,153) (103,895) (10,876)
Extraordinary items -- -- (1,837) (1,134) --
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 17,337 14,838 (29,990) (105,029) (10,876)
Preferred stock dividends (4,093) (135) (240) (225) (190)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common stockholders $ 13,244 $ 14,703 $ (30,230) $ (105,254) $ (11,066)
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA (earnings before interest,
taxes, depreciation and amortization) $ 22,355 $ 22,132 $ (13,599) $ (82,305) $ 6,378
EBITDA before special charges $ 22,355 $ 22,132 $ (12,036) $ (45,581) $ 4,169
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE:
Income (loss) before extraordinary items $ .17 $ .16 $ (.30) $ (.93) $ (.06)
Extraordinary items -- -- (.02) (.01) --
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) - basic and diluted $ .17 $ .16 $ (.32) $ (.94) $ (.06)
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares outstanding
Basic 75,625,330 93,285,190 93,029,816 111,441,247 176,621,080
Diluted 77,064,131 93,285,190 93,029,816 111,441,247 176,621,080
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit) $ 25,180 $ 58,501 $ 28,774 $ (1,507) $ 47,570
Total assets 188,838 262,246 279,009 220,827 230,299
Total debt 36,160 37,915 62,802 65,189 38,040
Shareholders' equity 45,868 109,725 87,210 31,740 75,551
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no cash dividends declared on the Common Stock in any of the periods.
See Notes to Consolidated Financial Statements.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the percentage
relationship to revenues of certain items in the Company's Consolidated
Statements of Income (Loss):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal Year 1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales and operating expenses 64.5 68.4 64.2
Write-down of inventory of
discontinued catalogs 1.1 .2 --
Special charges .3 5.2 (.4)
Selling expenses 27.4 27.9 25.3
General and administrative expenses 8.5 10.1 9.7
Depreciation and amortization 1.2 1.7 1.5
Loss from operations (3.0) (13.5) (.3)
Interest expense, net .6 1.2 1.4
Net (loss) (4.0)% (15.0)% (2.0)%
- --------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
1997 Compared with 1996
Net (Loss). The Company reported a net loss of $10.9 million or $(.06) per
common share, compared with a net loss before an extraordinary item of $104
million, or ($.93) per common share, for 1996. The 1996 extraordinary item of
$1.1 million, or ($.01) per common share relates to the early extinguishment of
debt. After giving effect to the extraordinary item, the net loss for 1996 was
$105 million, or ($.94) per common share. Per share amounts are expressed after
deducting preferred dividends of $.2 million in both 1997 and 1996. The weighted
average number of shares outstanding was 176,621,080 for the year ended December
27, 1997 compared to 111,441,247 in 1996. The increase in weighted average
shares outstanding is due to two $50 million rights offerings which were
completed in August 1996 and June 1997, respectively.
The improved operating results in fiscal 1997 are attributed to (i) reduced
circulation to prospective customers and to customers other than core customers,
which resulted in decreased catalog costs, (ii) increased circulation to core
customers, focusing on core products, which resulted in lower selling expenses
relative to sales, (iii) reduced costs of merchandise as the Company began to
realize improvements in its product offerings, (iv) reduced fixed overhead costs
due to the planned relocation and consolidation of facilities, as well as the
Company's cost reduction plan implemented in 1997, (v) improved liquidity,
reduced backorder levels and improved inventory in-stock positions due to the
Company's 1997 Rights Offering, all of which contributed to operating
efficiencies, and (vi) the reversal of a portion of certain non-recurring
charges accrued in the prior year.
Revenues. Revenues decreased in 1997 to $557.6 million from $700.3 million in
1996, primarily as a result of a decrease in sales for discontinued catalogs of
$93.8 million. Revenues from continuing catalogs decreased $48.9 million to
$548.6 million from $597.5 million for the prior year. The Company's revenues
for 1997 were planned at reduced levels from 1996 due to the Company's business
formula of reduced circulation, reduced prospecting for most catalogs and a
concentrated focus on core customers with core products. Circulation of
continuing catalogs decreased 7.9% to 243.8 million in 1997.
Operating Costs and Expenses. Cost of sales and operating expenses, which
include fulfillment and telemarketing costs, decreased by $121 million from
1996. This decrease was primarily the result of reduced merchandise costs of
$91.2 million and other cost reductions of $29.8 million for telemarketing and
fulfillment activities, which are attributable to the planned sales reduction
for 1997, as well as savings created by the consolidation of telemarketing and
fulfillment facilities during the year. In addition, on an overall basis, the
Company's margins were enhanced by improved purchasing strategies and
efficiencies attained through inventory management.
Selling expenses decreased $53.6 million to $141.4 million from $195 million in
1996 as a result of the reduced circulation plan implemented in 1997. The
Company experienced substantial paper price increases in 1997. In spite of these
increased paper prices, the Company was able to reduce its paper costs by 2% as
a percentage of net revenues versus 1996 as a result of more targeted
circulation strategies.
General and administrative expenses decreased $16.8 million to $53.8 million in
1997. This decrease has resulted from the Company's previously announced cost
reduction plan. These savings have primarily been achieved from the reduced
overhead structure resulting from the reorganization of management and
operations that began at the end of 1996. The Company also experienced
approximately $2.9 million of decreased costs and bad debt expense associated
with its private label credit program as compared with 1996. In addition,
general and administrative expenses were offset by $1.3 million of income
recorded in 1997 as a result of asset distributions made to the Company relating
to previously written-off investment securities.
The operating results for 1997 include a $2.2 million benefit relating to the
reversal of a portion of the restructuring charges that were recorded in 1996.
The reversal relates primarily to the Company's decision to remain in its
Weehawken corporate facility.
Depreciation and amortization decreased $4.0 million to $8.2 million in 1997 as
a result of the Company's decision to write-off certain intangible assets and
close certain of its facilities at the end of the 1996 fiscal year.
(Loss) from Operations. The Company's loss from operations decreased to $1.8
million in 1997 from a loss of $94.5 million in 1996. The Company's focus on
building brands with a core customer base coupled with the cost savings programs
implemented in 1997, as discussed above, have resulted in an improved operating
margin.
Interest Expense, Net. Interest expense, net decreased $.4 million to $8.0
million in 1997, which includes amortization on debt costs paid in prior years
of $2.3 million. Throughout the 1997 year, the Company maintained lower debt
levels than the prior year due to better management of its working capital. This
improvement was partially offset by increased amortization of debt costs related
to the Company's $26.9 million letter of credit facility.
Income Taxes. The Company did not record a Federal income tax provision in 1997
or 1996 based on each years' net operating losses. The Company's state tax
provision was $1.0 million in 1997 and 1996.
Shareholders' Equity. The number of shares of Common Stock outstanding increased
by 59,107,424 in 1997 due to shares issued in connection with the Company's 1997
Rights Offering, its equity and incentive plans, and other activities. At
December 27, 1997, there were 203,755,322 shares of Common Stock outstanding
compared to 144,647,898 shares of Common Stock outstanding at December 28,
1996.
16
<PAGE> 18
1996 Compared with 1995
Net (Loss). The Company reported a net loss before extraor dinary items of
$103.9 million, or $(.93) per share for the year ended December 28, 1996
compared with 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 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.
During the latter part of the year, the Company completed an assessment of
recoverability of long-lived assets for certain underperforming catalogs and
recorded special charges of $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 the Company's management
determined were impaired of approximately $22.0 million.
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 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 higher backorder levels and increased merchandise returns, and
(iv) the fixed cost infrastructure which the Company's continuing catalogs could
not fully absorb.
Revenues. Revenues decreased 6.6% in 1996 to $700 million from $750 million in
1995. Revenues of continuing business units 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.
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, Virginia 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
significantly lower recovery rates than previously 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 asset write-offs ($11.5 million). These charges were recorded
due to the Company's decision to move to a more streamlined infrastructure. This
plan included 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 special charges of approximately
$1.5 million in 1995 consisting primarily of facility exit costs ($.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 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 were 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.
(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. Included in interest expense
is approximately $1.1 million of debt costs which were paid in prior years. The
increase was due to a higher level of 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.
17
<PAGE> 19
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 52,111,797 in 1996 due to shares issued in connection with the Company's 1996
Rights 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 92,536,101
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 in 1998 with
proceeds from the 1996 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 of 9.25% Senior Subordinated Notes due 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company had $14.8 million and $5.2 million of cash and cash
equivalents at December 27, 1997 and December 28, 1996, respectively. Working
capital and current ratio were $47.6 million and 1.48 to 1 at December 27, 1997
versus a working capital deficit and current ratio of ($1.5) million and .99 to
1 at December 28, 1996. The primary sources of cash in 1997 were the 1997 Rights
Offering, which provided $40.1 million of cash and the $5.2 million issuance of
the Company's Common Stock to SMALLCAP WorldFund, Inc. in a private placement.
Cash was used primarily to fund the $20.8 million reduction of accounts payable,
the $13.7 million reduction and complete pay-down of the Company's revolving
debt, $3.5 million of debt payments and $4.2 million of capital expenditures,
primarily for construction at the Roanoke, VA distribution facility.
As a result of the Company's continued operating losses in 1996, the Company
experienced tightened vendor credit and increased levels of debt. Order
cancellation rates increased and negatively affected initial fulfillment which
resulted in an increase in split shipments and higher customer inquiry calls in
1996 and the first quarter of 1997. As a result of these factors, the Company
decided in late 1996 that it was necessary to obtain relief under its Credit
Facility and to investigate an equity infusion. In December 1996, the Company
closed its agreement with Richemont that provided 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, on December 19, 1996, had minimal effect on
reducing back orders in 1996. Therefore, these back orders carried over to the
first quarter of 1997 and caused an increase in the order cancellation rates in
the period. When the final financial results became known to the Company, it
concluded such results would have a further negative impact on the Company's
ability to conduct business on normal trade terms. Therefore, the Company
decided it was necessary to obtain an additional equity infusion which would
restore the Company's equity base and provide the Company with additional
liquidity.
On March 26, 1997, the Company announced that it intended to distribute
subscription rights to subscribe for and purchase additional shares of Common
Stock to holders of record of the Company's Common Stock and Series B
Convertible Additional Preferred Stock. The 1997 Rights Offering expired on May
30, 1997 and closed on June 6, 1997. The 1997 Rights Offering generated gross
proceeds of approximately $40 million after giving effect to the $10 million of
indebtedness NAR applied to acquire its shares. Richemont purchased 40,687,970
shares of Common Stock with rights which were not subscribed for and purchased
by shareholders in the 1997 Rights Offering per an agreement with the Company.
On April 23, 1997, Richemont advanced $30 million against this commitment. This
advance was used to repay approximately $13 million of indebtedness under the
revolving line of credit, bring past due vendor accounts current and for other
general corporate purposes. The Company also incurred fees of approximately $3
million in relation to the 1997 Rights Offering which were paid from such gross
proceeds.
The agreement by which Richemont provided the Company with a $28 million letter
of credit facility was to expire in February 1998. On October 1, 1997, the
Company paid down $1 million of the underlying debt, reducing the letters of
credit to approximately $26.9 million. The letters of credit carry an interest
rate of 3.5% above the prime rate, currently 12%. Richemont agreed to extend its
guarantee to March 30, 1999. As consideration for this transaction, the Company
paid to Richemont, in 1998, a fee equal to 4% of the $26.9 million outstanding
letters of credit.
At December 27, 1997, the Company had $5.3 million of current debt. On March 25,
1998, Congress agreed to extend the Revolving Credit Facility until January 31,
2001. In addition, the Revolving Term Notes of $7.9 million were extended to
January 31, 2001. The Company will continue to make principal payments of
approximately $.1 million per month. The Company had zero amounts outstanding on
the Congress Credit Facility at December 27, 1997 and $13.7 million at December
28, 1996. The total amount available under the Congress Credit Facility at
December 27, 1997 was $29 million.
Throughout fiscal 1997, the Company implemented several initiatives to
strengthen financial disciplines and account ability across its catalog brands
and corporate organization. These initiatives, in addition to the Company's
operating and cost reduction plan, are designed to better enable the Company to
meet its operating goals through better cash control and "bottom-line"
accountability. Such initiatives have begun to show positive results across the
Company's infrastructure.
In March 1997, the Company received waivers for events of default under the
Credit Facility with Congress which existed at December 28, 1996. In addition,
Congress and the Company agreed to new working capital and net worth covenants
for fiscal 1997. The Company believes that the 1997 Rights Offering, together
with the Credit Facility modifications and the extension of the letter of credit
by Richemont has eased the vendor/credit concerns about the Company's viability.
The Company's ability to continue to improve upon its prior year's performance
and implement its business strategy is critical to maintaining adequate
liquidity.
In November 1997, the Company announced that SMALLCAP World Fund, Inc.
("SMALLCAP"), a mutual fund and substantial investor in the Company, agreed to
purchase 3.7 million shares of the Company's Common Stock for an aggregate
purchase price of approximately $5.2 million in a private placement.
The Company experiences seasonality in its working capital requirements and
fluctuations in the revolving Credit Facility with peak borrowing requirements
normally occurring during the first and fourth quarters of the year.
18
<PAGE> 20
The Company is required to maintain certain financial covenants related to the
Credit Facility with Congress with which the Company is in compliance at
December 27, 1997.
Operating Plan. In December 1996, the Company began an operational realignment
that it believes will better enable it to capitalize on its internal strengths.
The Company is continuing to move to a brand structure whereby 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 brand financial results, working capital requirements and
business investment needs. The Company believes that this structure will result
in better management of vendor relationships, inventories and working capital.
Infrastructure Investments. The Company's plan to restructure its catalogs into
distinct brands and concentrate its mailing efforts on profitable customers is
expected to result in excess capacity throughout its fulfillment centers. The
Company has begun the process to consolidate certain of its fulfillment
operations into its home fashions distribution facility in Roanoke, VA. The
consolidation will be completed in 1998. This will require a capital investment
of approximately $8.0 million during 1997 and 1998, of which approximately $3.6
million was paid for in 1997.
Based on preliminary study, the Company is not expected to have significant
expenditures to modify its computer information systems enabling proper
processing of transactions relating to the year 2000 and beyond. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems. The Company does not expect the amounts required
to be expensed over the next two years to have a material effect on its
financial position or results of operations. The Company is attempting to
contact vendors and others on whom it relies to assure their systems will be
timely converted. However, there can be no assurance that the systems of other
companies on which the Company's systems rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems and its business.
Effect 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 and commodity price fluctuations. In 1997 paper prices increased
significantly. 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 cost of goods
sold approximates replacement cost. Because sales are not dependent on 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 14% of revenues
in 1997. Paper costs represented approximately 6% of revenues in 1997. The
Company anticipates that any paper price increase in 1998 will not have a
significant impact on its cost structure.
The USPS announced a proposed increase in mailing rates that will take effect in
mid-1998. The Company is currently investigating ways to mitigate the effects of
these expected increases. If the Company does not successfully develop any such
plan, it may have a material adverse effect on the results of operations. The
United Parcel Service (UPS) raised its rates for domestic deliveries by 3.6
percent for ground rates and 3.3 percent for air rates effective February 7,
1998. The Company expects its actual United Parcel Services costs to exceed the
stated percentage increases and is investigating alternatives to minimize this
impact. The Company does not expect the increase to have a material adverse
effect on its results of operations.
Cautionary Statements
The following statements constitute forward looking statements which involve
risks and uncertainties:
"The Company is continuing to move to a brand structure whereby individual
catalogs will be better able to manage their resources and capitalize on
business opportunities."
Based on the preliminary study, the Company is not expected to have significant
expenditures to modify its computer information systems enabling proper
processing of transactions relating to the year 2000 and beyond.
The Company does not expect the amount required to be expensed over the next two
years to have a material effect on its financial position or results of
operations.
The Company anticipates that any paper price increase in 1998 will not have a
significant impact on its cost structure.
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 may develop a plan which fails to offset the effect of anticipated
increases in its postage and UPS costs or which inadequately does so.
The Company is unable to complete, substantially as scheduled, the migration of
fulfillment activities for all of its catalogs to its facility in Roanoke, Va.
A general reduction in the price level of some or all of the merchandise offered
by the Company in its catalogs due to economic conditions in Asia and the highly
competitive nature of the Company's business resulting, for example, in a
decrease in the Company's margins.
A reduction in consumer spending generally or specifically with respect to the
types of merchandise that the Company offers in its catalogs.
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.
19
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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 27, 1997 and
December 28, 1996, and the related consolidated statements of income (loss),
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 27, 1997. 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 27, 1997 and December 28, 1996 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 27, 1997 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 of valuation and qualifying
accounts 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
New York, New York
March 4, 1998 (except with respect to the matter discussed in Note 8, as to
which the date is March 25, 1998).
20
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 28, December 27,
As of December 28, 1996 and December 27, 1997 (in thousands) 1996 1997
- -------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,173 $ 14,758
Accounts receivable, net of allowance for doubtful accounts
of $5,030 in 1996 and $3,358 in 1997 29,399 17,684
Accounts receivable under financing agreement -- 21,918
Inventories 67,610 64,330
Prepaid catalog costs 23,401 20,684
Deferred tax asset, net 3,300 3,300
Other current assets 3,148 3,083
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 132,031 145,757
- -------------------------------------------------------------------------------------------------------------
Property and Equipment, at cost:
Land 4,797 4,909
Buildings and building improvements 16,554 16,486
Leasehold improvements 9,956 9,040
Furniture, fixtures and equipment 36,511 47,210
Construction in progress 8,315 4,519
- -------------------------------------------------------------------------------------------------------------
76,133 82,164
Accumulated depreciation and amortization (22,523) (29,712)
- -------------------------------------------------------------------------------------------------------------
Property and Equipment, net 53,610 52,452
- -------------------------------------------------------------------------------------------------------------
Goodwill, net 17,901 17,412
Deferred tax asset, net 11,700 11,700
Other assets 5,585 2,978
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 220,827 $ 230,299
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and capital lease obligations $ 11,452 $ 5,305
Accounts payable 79,587 58,799
Accrued liabilities 37,782 30,259
Customer prepayments and credits 4,717 3,824
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 133,538 98,187
- -------------------------------------------------------------------------------------------------------------
Non-current Liabilities:
Long-term debt 53,255 32,668
Obligations under receivable financing -- 21,918
Capital lease obligations 482 67
Other 1,812 1,908
- -------------------------------------------------------------------------------------------------------------
Total Non-current Liabilities 55,549 56,561
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 189,087 154,748
- -------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 17)
Shareholders' Equity
Series B Convertible Additional Preferred Stock, $.01 par value, authorized,
issued and outstanding 634,900 shares in 1996 and 1997 5,748 5,938
Common Stock, $.66 2/3 par value, authorized 225,000,000 shares; issued
145,039,915 shares in 1996 and 204,441,538 in 1997 96,693 136,294
Capital in excess of par value 270,097 285,165
Accumulated deficit (336,586) (347,652)
- -------------------------------------------------------------------------------------------------------------
35,952 79,745
- -------------------------------------------------------------------------------------------------------------
Less:
Treasury stock, at cost (392,017 shares in 1996 and 686,216 shares in 1997) (813) (968)
Notes receivable from sale of Common Stock (3,399) (3,226)
- -------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 31,740 75,551
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 220,827 $ 230,299
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE> 23
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For the years ended December 30, 1995, December 28, 1996 and December 27, 1997
(In thousands, except per share amounts) 1995 1996 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 749,767 $ 700,314 $ 557,638
- --------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of sales and operating expenses 483,493 479,155 358,219
Write-down of inventory of discontinued catalogs 8,580 1,100 --
Special charges (credit) 1,563 36,724 (2,209)
Selling expenses 205,618 195,032 141,411
General and administrative expenses 64,112 70,608 53,839
Depreciation and amortization 9,020 12,192 8,227
- --------------------------------------------------------------------------------------------------------
772,386 794,811 559,487
- --------------------------------------------------------------------------------------------------------
(Loss) from operations (22,619) (94,497) (1,849)
Interest expense (5,050) (8,858) (8,028)
Interest income 519 460 --
(Loss) before income taxes (27,150) (102,895) (9,877)
Income tax provision 1,003 1,000 999
- --------------------------------------------------------------------------------------------------------
(Loss) before extraordinary item (28,153) (103,895) (10,876)
Extraordinary item (Note 8) (1,837) (1,134) --
- --------------------------------------------------------------------------------------------------------
Net (loss) (29,990) (105,029) (10,876)
Preferred stock dividends (240) (225) (190)
- --------------------------------------------------------------------------------------------------------
Net (loss) applicable to Common Shareholders $ (30,230) $(105,254) $ (11,066)
- --------------------------------------------------------------------------------------------------------
Net (loss) per share:
Loss before extraordinary item $ (.30) $ (.93) $ (.06)
- --------------------------------------------------------------------------------------------------------
Extraordinary item (.02) (.01) --
- --------------------------------------------------------------------------------------------------------
Net (loss) per share - basic and diluted $ (.32) $ (.94) $ (.06)
- --------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding - basic and diluted 93,030 111,441 176,621
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For the years ended December 30, 1995, December 28, 1996, and December 27, 1997 (in
thousands) 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (29,990) $(105,029) $ (10,876)
Adjustments to reconcile net (loss) to net cash (used) by operating
activities:
Depreciation and amortization including deferred fees 9,419 13,277 10,581
Provision for doubtful accounts 4,448 6,805 3,973
Provision for catalog and facility closings 10,143 14,720 (2,209)
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 -- 888 --
Other, net 76 53 --
Compensation expense related to stock options -- 540 1,800
Recovery from investments previously written off -- -- (1,274)
Changes in assets and liabilities, net of effects of acquired businesses
and dispositions of assets:
Accounts receivable, net (6,161) (7,863) 7,742
Inventories 8,679 11,671 3,280
Prepaid catalog costs 206 13,717 2,717
Other assets (3,131) 1,332 (205)
Accounts payable (8,671) (13,704) (20,788)
Accrued liabilities (1,583) 679 (6,583)
Customer prepayments and credits 3,134 (2,430) (893)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used) by operating activities (11,094) (42,210) (12,735)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of property and equipment, net (13,686) (8,862) (4,222)
Purchase of businesses (13,008) -- --
Proceeds from sales of businesses -- 1,980 --
Proceeds from investment -- 794 1,274
Other, net (1,387) -- --
- -------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (28,081) (6,088) (2,948)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds (payments) under revolving credit facility -- 11,699 (13,710)
Proceeds from issuance of debt 20,685 10,000 --
Payments of long-term debt and capital lease obligations (1,419) (17,625) (3,575)
Payment of stock issuance costs -- (1,670) (3,073)
Payment of debt issuance costs (2,202) (1,490) --
Proceeds from issuance of Common Stock 400 50,653 45,351
Other, net 340 (778) 275
- -------------------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities 17,804 50,789 25,268
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (21,371) 2,491 9,585
Cash and cash equivalents, beginning of year 24,053 2,682 5,173
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,682 $ 5,173 $ 14,758
- -------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosure:
Interest paid $ 4,586 $ 7,773 $ 5,674
Income taxes paid $ 1,318 $ 1,096 $ 685
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 25
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the years ended December 30, 1995, December 28, 1996 and December 27, 1997
Preferred Stock Preferred Stock
Series B, Cumulative Series A, 6.0%
(in thousands, except share amounts) Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 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 the 6% Preferred Stock (78,300) (877)
Issuances and forfeitures of Common Stock for
employee stock plans
- -----------------------------------------------------------------------------------------------------------
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 employment
agreement
Sale of treasury stock
Issuances and forfeitures of Common Stock for
employee stock plans
- -----------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 634,900 $5,748 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders
Preferred stock dividends and accretion 190
Stock options granted
Shares issued in 1997 Rights Offering, net of
issue costs
Issuance of Common Stock to SMALLCAP World
Fund, Inc.
Issuances and forfeitures of Common Stock for
employee stock plans
- -----------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 634,900 $5,938 0 $ 0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the years ended December 30, 1995, December 28, 1996 and December 27, 1997
Common Stock
$.66 2/3 par value Capital in Excess Accum.
(in thousands, except share amounts) Shares Amount of Par Value (Deficit)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 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 the 6% Preferred Stock 427,785 285 592
Issuances and forfeitures of Common Stock for
employee stock plans 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 employment
agreement (2,750)
Sale of treasury stock 28
Issuances and forfeitures of Common Stock for
employee stock plans 1,778,235 1,187 678
- -------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 145,039,915 $ 96,693 $ 270,097 $ (336,586)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders (11,066)
Preferred stock dividends and accretion
Stock options granted 2,340
Shares issued in 1997 Rights Offering, net of
issue costs 55,654,623 37,103 9,958
Issuance of Common Stock to SMALLCAP World
Fund, Inc. 3,700,000 2,467 2,750
Issuances and forfeitures of Common Stock for
employee stock plans 47,000 31 20
- -------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 204,441,538 $ 136,294 $ 285,165 $ (347,652)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the years ended December 30, 1995, December 28, 1996 and December 27, 1997
Notes Receivable
Treasury Stock From Sale of Deferred
(in thousands, except share amounts) Shares Amount Common Stock Comp. Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (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 the 6% Preferred Stock 0
Issuances and forfeitures of Common Stock for
employee stock plans (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 employment
agreement 916,667 2,750 0
Sale of treasury stock 150,000 178 206
Issuances and forfeitures of Common Stock for
employee stock plans (1,376) 294 783
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 (392,017) $ (813) $ (3,399) $ 0 $ 31,740
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders $ (11,066)
Preferred stock dividends and accretion 190
Stock options granted 2,340
Shares issued in 1997 Rights Offering, net of
issue costs 47,061
Issuance of Common Stock to SMALLCAP World
Fund, Inc. 5,217
Issuances and forfeitures of Common Stock for
employee stock plans (294,199) (155) 173 69
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 (686,216) $ (968) $ (3,226) $ 0 $ 75,551
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND DECEMBER 27, 1997
1. BACKGROUND OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Hanover Direct, Inc., a Delaware corporation ("HDI"), is
a leading specialty direct marketer with a diverse branded portfolio of home
fashions, general merchandise, men's and women's apparel and gift catalogs,
delivered via direct mail and electronic commerce. HDI also operates several
retail operations in the United States which comprised approximately 5% of HDI's
revenues for the year ended December 27, 1997.
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. Effective for
fiscal 1997, the Company changed its fiscal year to the last Saturday in
December. The years ended December 27, 1997, December 28, 1996 and December 30,
1995 were 52 week years. Had the Company not changed its year end, fiscal 1997
would have been a 53 week year and the net loss for 1997 would have increased by
approximately $.6 million.
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 $139.0 million,
$193.5 million and $197.3 million, respectively, in 1997, 1996 and 1995.
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.
Goodwill, Net - 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 $3.5 million and $3.0 million at December 27, 1997
and December 28, 1996, respectively.
Mailing Lists - The costs of acquired mailing lists are amortized over a five
year period. Mailing lists, included in Other assets, amounted to $.6 million
and $1.2 million at December 27, 1997 and December 28, 1996, respectively, and
are carried net of accumulated amortization of $2.1 million and $1.5 million,
respectively.
Asset Recoverability - In accordance with Statement of Financial Accounting
Standards (SFAS)No. 121, "Accounting for the Improvement of Long-lived Assets
and Long-Lived Assets 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 undiscounted 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). No such adjustment was recorded in 1997.
Accounting for Stock Based Compensation - The Company accounts for its stock
based compensation to employees using the fair value-based method under SFAS No.
123, "Accounting for Stock-Based Compensation."
Accounting for Income Taxes - The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." It requires an
asset and liability approach for financial accounting and reporting for income
taxes. The provision for income taxes is based on 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.
Accounting for Transfers of Credit Card Receivables - The Company accounts for
transfers and servicing of financial assets in accordance with SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of this statement in fiscal 1997 resulted in the
recognition of approximately $21.9 million of additional accounts receivable and
associated long-term debt. This adjustment was based on the terms of the
Company's agreement with an unrelated third party for the sale and servicing of
accounts receivable. The provisions of this pronouncement are to be applied
prospectively, from January 1, 1997. Retroactive application is not permitted,
however, the amount of adjustment at December 28, 1996 would have been a
recognition of an additional $24.7 million in both receivables and the
associated receivable financing obligation.
Cash and Cash Equivalents - Cash and cash equivalents include cash and all
highly liquid investments with original maturities of ninety days or less.
Net (Loss) Per Share - Net (loss) per share is computed using the weighted
average number of common shares outstanding in accordance with the provisions of
SFAS No. 128 "Earnings Per Share". The weighted average number of shares used in
the calculation for both basic and diluted net (loss) per share in 1997, 1996
and 1995 was 176,621,080, 111,441,247 and 93,029,816 shares, respectively.
Diluted earnings per share equals basic earnings per share as the dilutive
calculation would have an antidilutive impact as a result of the net loss
incurred in each of the years 1995, 1996 and 1997.
26
<PAGE> 28
Recently Issued Accounting Standards - In June 1997, the Financial Accounting
Standards Board issued SFAS No.130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The statement is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company is still assessing the impact of the adoption of this statement to
the financial statements.
Additionally, in June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement is effective for financial statements for periods beginning after
December 15, 1997 and need not be applied to interim periods in the initial year
of application. Comparative information for earlier years presented is to be
restated. The Company is still assessing the impact of this statement on its
financial statement disclosure.
Revenues - The Company recognizes revenue at the time 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 NON-CASH ACTIVITIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In thousands) 1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital lease obligations $ 1,155 $ -- $ 163
Other equity issuances and
exchanges $ 1,456 $ 2,855 $ 10,000
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>
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 (loss) 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 was
being held for sale, was written down to its estimated net realizable value as
of December 28, 1996. During fiscal 1997, the Company sold this facility.
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 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 Com pany wrote-off the
goodwill and mailing lists in accordance with SFAS No. 121 (Note 3).
Other Investments - Other investments, which are recorded in Other assets in the
accompanying consolidated balance sheets, include the following:
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, VA. The remaining 50% interest is
held an unrelated third party. This investment is accounted for by the equity
method of accounting. The Company's investment in Blue Ridge was approximately
$.9 million at December 27, 1997 and December 28, 1996. In December 1996, the
Company decided to consolidate fulfillment and telemarketing activities handled
at this facility into its home fashions distribution facility in Roanoke, VA and
attempt to sublease the vacated space. The partnership is currently looking for
a sub-lessee for the apparel distribution center.
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 were submitted to the Joint Committee
of the IRS for approval. Due to the uncertainty that recoverability of
substantially all of the remaining
27
<PAGE> 29
investment balance was 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. In the third and fourth
quarters of 1997, the Company received approximately $1.3 million related to
distributions made by Regal. This amount was recorded as income and is reflected
as a reduction in general and administrative expenses in the accompanying
consolidated statements of income (loss).
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 agreement 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.
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 consisted of severance and facility
exit/relocation costs and fixed asset write-offs related to the previously
announced downsizing of the Company, as discussed in its December 1996 press
release. In addition, the special charges included a write-off for impairment of
long-lived assets of certain under-performing catalogs. In December 1997, the
Company adjusted its previous estimates for severance, facility exit/relocation
and fixed asset write-offs based upon exit plan modifications related to its
Weehawken, NJ corporate facility and delays in relocating from its Hanover, PA
distribution center. Such adjustments resulted in a reduction of special charges
of approximately $2.2 million which consists of $.4 million in restructuring
reserve reductions and $1.8 million related to the reversal of the reserve for
fixed assets expected to be abandoned.
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. The
Company paid approximately $2.7 million of severance during fiscal 1997 and
provided approximately $.5 million for remaining severance to be paid at its
Hanover, PA. distribution center. Reserves for severance costs approximated $1
million and $3.2 million at December 27, 1997 and December 28, 1996,
respectively, and are included in Accrued liabilities in the accompanying
consolidated balance sheet.
Facility Exit/Relocation Costs and Fixed Asset Write-Offs - These costs are
primarily composed of the Company's decision to sublet 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. As of December 27, 1997, the Company consolidated the Roanoke, VA
apparel distribution center and relocated two of six catalogs from its Hanover,
PA distribution center into its Roanoke, VA home fashion distribution center.
The remaining four catalogs are expected to be relocated by the end of fiscal
1998. In addition, the Company modified its plan to vacate from its Weehawken,
NJ corporate facility by agreeing to sublet a portion of the facility.
Approximately $4.4 million and $6.3 million of these costs are recorded in
Accrued liabilities in the accompanying consolidated balance sheets at December
27, 1997 and 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.
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 assets are deemed to be impaired if a forecast of undiscounted
future operating cash flows is less than the carrying amounts. Considerable
management judgment is necessary to estimate discounted future cash flows and,
accordingly, actual results could vary significantly from such estimates. The
Company recognized an impairment loss of approximately $22.0 million in fiscal
1996 which was primarily composed of the write-off of goodwill and mailing lists
associated with Tweeds, Austad's and The Safety Zone.
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 $0.6 million, $20 million and $88
million and losses of $0.1 million, $5.1 million and $20 million in 1997, 1996
and 1995, respectively. These losses were 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. No such
provision was recorded in 1997. 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. These losses represent an incremental
provision in excess of the original provision included in cost of sales expense.
28
<PAGE> 30
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 Sears Agreement was terminated by Sears in December 1996, and no
catalogs were mailed by the Company in 1997. The 1997 revenues from the Sears
Agreement amounted to $8.5 million which related to catalogs issued in 1996.
Revenues from the Sears Agreement were $82 million and $81 million in 1996 and
1995, respectively. In conjunction with the licensing agreement the Company
issued to Sears a performance warrant to purchase Common Stock in 1998 and 1999.
Due to termination of the Sears agreement, the warrants will not be exercisable.
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 annual financial covenants related to this
agreement and was not in compliance at December 27, 1997 and subsequently has
received waivers for the default.
The proceeds to the Company relating to the sale of receivables for 1997, 1996
and 1995 were $39.0 million, $39.2 million and $46.2 million, respectively. At
December 27, 1997 and December 28, 1996, the uncollected balances under this
program were $29.4 million and $33.5 million, respectively, of which $4.0
million and $4.8 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 at
December 27, 1997 and December 28, 1996, 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.
In addition, in accordance with SFAS No. 125 (Note 1), the Company has reflected
approximately $21.9 million of balances transferred pursuant to the agreement
with the unrelated third party as Accounts receivable under financing agreement
and as a long-term obligation on the consolidated balance sheet at December 27,
1997.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 28, December 27,
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Restructuring $ 9,504 $ 5,424
Reserve for future sales returns 9,036 6,043
Compensation 3,968 7,189
Taxes 2,696 1,983
Reserve for repurchase of accounts receivable
sold with recourse 1,389 1,397
Other 11,189 8,223
Total $37,782 $30,259
- --------------------------------------------------------------------------------
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 28, December 27,
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Congress Facility $22,627 $ 7,917
Term Financing Facility 19,000 18,000
IMR Promissory Note 10,000 --
6% Mortgage Notes Payable due 1998 2,969 2,787
Industrial Revenue Bonds with variable interest
rates averaging 3.6% in 1996 and 4% in 1997
due 2003 8,000 8,000
7.5% Convertible Subordinate Debentures due 2007 751 751
Other 16 --
63,363 37,455
Less: current portion 10,108 4,787
Total $53,255 $32,668
- --------------------------------------------------------------------------------
</TABLE>
Congress Facility - The Congress Facility is comprised of a revolving line of
credit of up to $65 million with a three year term expiring in November 1998
("Congress Revolving Credit Facility") and two year term loans aggregating $10
million expiring in November 1998 ("Revolving Term Notes"). The amount that can
be borrowed under the Congress Facility is based on percentages of eligible
inventory and accounts receivable. The Congress Facility is secured by all
assets of the Company. On March 25, 1998, the Company amended its agreement with
Congress to extend the facility until January 31, 2001. In addition, the
Congress Facility places limitations on the incurrence of additional
indebtedness. Beginning in November 1996, Congress lowered the advance rate by
which the available inventory is calculated. Pursuant to the amendment discussed
above, advance rates were increased along with other modifications that
increased the Company's availability under the Facility. The Congress Revolving
Credit Facility, prior to the amendment, bears interest at 1.25% above
CoreStates' prime rate and the Revolving Term Notes bears interest at 1.5% above
CoreStates' prime rate. As amended, the Revolving Credit Facility bears interest
at prime plus .5% or Eurodollar plus 2.5% and the Revolving Term Note bears
interest at prime plus .75% or Eurodollar plus 2.75%. The Company is required to
maintain minimum net worth and working capital throughout the terms of the
agreement. The Company was in compliance with such covenants throughout fiscal
1997. At December 27, 1997 and for the remainder of the agreement, net worth and
working capital are required to be $21.5 and $(10) million, respectively. The
rates of interest related to the Congress Revolving Credit Facility and
Revolving Term Notes at December 27, 1997 were 9.70% and 10%, respectively. As
of December 27, 1997, the Company had no revolving indebtedness and $7.9 mil
lion under the Revolving Term Notes. As of December 28, 1996, the Company had
$13.7 million and $8.9 million under the
29
<PAGE> 31
Congress Revolving Credit Facility and Revolving Term Notes, respectively. The
face amount of unexpired documentary letters of credit at December 27, 1997 and
December 28, 1996 were $3 million and $4.5 million, respectively. At December
27, 1997, availability under the Congress Facility was $29 million.
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 5.13% to 6.04% at December 27,
1997 and 5.47% to 5.73% at December 28, 1996, respectively. The Term Financing
Facility was reduced by annual sinking fund payments of $1.0 million in October
1996 and 1997 and requires annual sinking fund payments of $1.0 million in
October 1998 and October 1999 with this amount increasing to $1.6 million for
each of the nine years thereafter. The Term Financing Facility continues to be
outstanding and in effect under its original terms.
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, New York Branch 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. On
October 1, 1997, the Company paid down $1 million of the underlying debt,
reducing the letters of credit to approximately $26.9 million. The letters of
credit were originally due on February 18, 1998, however, Richemont has extended
the term through March 30, 1999 and modified the letters of credit to reflect
assignment of obligations to Swiss Bank, Stamford Branch. The letters of credit
carry an interest rate of 3.5% above the prime rate, currently 12%. In 1998, the
Company will pay a facility fee of $1.1 million which is equal to 4% of the
principle amount of the letters of credit. 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.
IMR Promissory Note - In September 1996, IMR, an affiliate of NAR, loaned the
Company $10 million as evidenced by a subordinated promissory note (the "IMR
Promissory Note"). This loan bore interest at prime plus 1.5%, was due on
November 14, 1996 and, if it was not repaid before May 15, 1997, was 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 IMR Promissory Note was subordinate to the Congress Facility and
was excluded from the working capital covenant calculation. NAR 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 9).
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 $2.8 million and $3.0 million at
December 27, 1997 and December 28, 1996, 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 an irrevocable letter of credit in the amount of
$8.6 million. The obligations are guaranteed by the Company.
Extraordinary Items - The Company wrote-off approximately $1.8 million and $1.1
million of unamortized debt issuance costs as extraordinary items due to early
extinguishment of debt in 1995 and 1996.
General - At December 27, 1997, the aggregate annual principal and sinking fund
payments required on debt instruments are as follows (in thousands): 1998 -
$4,787; 1999 - $2,000; 2000 - $2,600; 2001 - $6,517; 2002 - $1,600 and
thereafter - $19,951.
9. RIGHTS OFFERINGS AND ADDITIONAL INVESTMENTS
1997 Rights Offering
The Company commenced a $50 million rights offering (the "1997 Rights Offering")
on April 29, 1997. Holders of record of the Company's Common Stock and Series B
Convertible Additional Preferred Stock as of April 28, 1997, the record date,
were eligible to participate in the 1997 Rights Offering. The 1997 Rights
Offering expired on May 30, 1997, with 55,654,623 rights to purchase shares
exercised, and it closed on June 6, 1997.
Richemont, a Luxemborg public company, entered into a standby purchase agreement
to purchase all shares not subscribed for by shareholders of record at the
subscription price. Richemont purchased 40,687,970 shares in the 1997 Rights
Offering and, as a result, then owned approximately 20.3% of the Company. The
Company paid in cash, from the proceeds of the 1997 Rights Offering, to
Richemont on the closing date approximately $1.8 million, which represented an
amount equal to 1% of the aggregate offering price of the aggregate number of
shares issuable upon closing of the 1997 Rights Offering other than with respect
to the shares of Common Stock held by NAR or its affiliates plus an amount equal
to one-half of one percent of the aggregate number of shares acquired by NAR
upon exercise of their rights (Standby Fee) plus an amount equal to 4% of the
aggregate offering price in respect to all unsubscribed shares (Take-Up Fee).
On April 26, 1997, NAR irrevocably agreed with the Company, subject to and upon
the consummation of the 1997 Rights Offering, to exercise certain of the rights
distributed to it for the purchase of 11,111,111 shares of Common Stock that had
an aggregate purchase price of approximately $10 million. NAR agreed to pay
for, and the Company agreed to accept as payment, for the exercise of such
rights the surrender by NAR of the principal amount due under the IMR Promissory
Note dated September 1996 in the principal amount of $10 million and
cancellation thereof.
In order to facilitate vendor shipments and to permit the commencement of the
Company's plan to consolidate certain of its warehousing facilities, Richemont
advanced $30 million as of April 23, 1997 against its commitment to purchase all
of the unsubscribed shares pursuant to the standby purchase agreement. The
Company executed a subordinated promissory note in the amount of $30 million to
evidence this indebtedness (the "Richemont Promissory Note").
30
<PAGE> 32
The gross cash proceeds from the 1997 Rights Offering of $40 million (after
giving effect to the acquisition and exercise by NAR of rights having an
aggregate purchase price of $10 million which were paid for by surrender and
cancellation of the $10 million IMR Promissory Note) were used to repay the $30
million principal amount outstanding under the Richemont Promissory Note and the
balance of the proceeds were used for working capital and general corporate
purposes, including repayment of amounts outstanding under the Company's
Revolving Credit Facility.
1996 Rights Offering
The Company commenced its $50 million Rights Offering (the "1996 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 1996 Rights Offering. The rights were exercisable at a price of $1.03 per
share.
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 1996 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 1996 Rights Offering.
The Company issued 48,748,785 shares pursuant to the 1996 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 1996 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 for by shareholders and received approximately $.5 million as a fee.
The proceeds of the 1996 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.
Additional Investments
In November 1997, the Company announced that SMALLCAP World Fund, Inc.
("SMALLCAP"), a mutual fund and substantial investor in the Company, agreed to
purchase 3.7 million shares of the Company's Common Stock at $1.41 per share,
which represented fair market value, for an aggregate purchase price of
approximately $5.2 million in a private placement. This transaction was
consummated on November 6, 1997. These shares are restricted and will be
registered under the Securities Act of 1933, as amended, pursuant to a
registration rights agreement with SMALLCAP that calls for the Company to use
its best efforts to effect the registration of such shares as soon as
practicable after April 1, 1998 and has granted certain piggyback registration
rights. The Company may delay such registration for a period of not more than
ninety calendar days. Such registration shall be effected by preparation and
filing by the Company with the Securities and Exchange Commission of a
registration statement on Form S-3. The Company will pay all expenses in
connection with the registration of such shares.
10. CAPITAL STOCK
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 per share. Non-cumulative dividends
will accrue and be paid at 5% per annum during each of the first three years
after the February 1995 closing 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 1997 and 1996
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. 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 consolidated statements of
income (loss) in 1997, 1996 and 1995.
Warrants - The warrants outstanding at December 27, 1997 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Warrants Issued Exercise Price Expiration 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
original terms of these warrant agreements contain certain antidilution
provisions which increased, in the aggregate, the warrants by 612,755 from
5,033,735 to 5,646,490 due to the 1996 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.
31
<PAGE> 33
General - At December 27, 1997, there were 203,755,322 shares of Common Stock
and 634,900 shares of Series B Stock outstanding. Additionally, an aggregate of
20,665,576 shares of Common Stock were reserved for issuance pursuant to (i) the
exercise of outstanding options, 13,081,249 (ii) the exercise of outstanding
warrants, 5,646,490 and (iii) the Executive Equity Incentive Plan, 1,937,837.
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
The Company has established several stock based compensation programs for the
benefit of its employees. As discussed in Note 1, the Company adopted the fair
value provision of SFAS No 123. The Company has recorded compensation charges of
$1.8 million and $.5 million in 1997 and 1996, respectively. 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>
- ----------------------------------------------------------------------------------------------------------------
1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------
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 496,050 $ 3.60 90,000 $ 2.42 70,000 $ 2.11
Granted 70,000 $ 2.11 -- -- -- --
Exercised -- -- -- -- -- --
Forfeited (142,000) $ 3.50 -- -- (40,000) $ 2.00
Expired (334,050) $ 3.65 (20,000) $ 3.50 -- --
- ----------------------------------------------------------------------------------------------------------------
Options outstanding, end of period 90,000 $ 2.42 70,000 $ 2.11 30,000 $ 2.25
- ----------------------------------------------------------------------------------------------------------------
Options exercisable, end of period 20,000 $ 3.50 23,333 $ 2.11 20,000 $ 2.25
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have weighted average exercise
prices of $2.25 with a weighted average contractual life of 2.8 years.
Director's Options - 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 February 1996, four directors were
granted options to purchase 5,000 shares each, at the current market price,
which at the time was $1.44. These options expire in February 2001.
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 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>
- --------------------------------------------------------------------------------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------------------------------------------------
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 753,830 877,163 1,062,496
Shares purchased 143,333 202,000 47,000
Shares forfeited (20,000) (16,667) --
- --------------------------------------------------------------------------------------------------------------------------
Shares outstanding, end of period 877,163 1,062,496 1,109,496
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding, beginning of period 1,073,836 $2.98 1,021,170 $2.66 640,498 $1.73
- --------------------------------------------------------------------------------------------------------------------------
Granted 286,666 $2.53 350,000 $1.00 94,000 $1.00
Forfeited (339,332) $3.59 (730,672) $2.68 (70,498) $2.60
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of period 1,021,170 $2.66 640,498 $1.73 664,000 $1.53
- --------------------------------------------------------------------------------------------------------------------------
Options exercisable, end of period -- -- 173,832 $2.56 130,000 $2.58
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 34
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 1997 and 1996: risk free interest rate of 6.06% -
6.37%, expected lives of 6 years, expected volatility of 39.07% - 40.81%, and no
expected dividends.
The following table summarizes information about stock options outstanding at
December 27, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Options Options
Outstanding Exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/27/97 Contractual Life Price at 12/27/97 Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.69 to $1.00 444,000 4.8 $.97 -- $ --
$2.50 to $3.00 220,000 2.1 $2.62 130,000 $2.58
$.69 to $3.00 664,000 3.9 $1.52 130,000 $2.58
- ----------------------------------------------------------------------------------------------------------------
</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 is payable 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 relating to differences between the exercise
prices and market value of the Company's common stock on grant dates charged to
expense was approximately $(.3) million and $.1 million for 1996 and 1995,
respectively, net of forfeitures. No amortization was required in 1997 as all
expenses associated with the applicable options were recognized as of the end of
1996 in conjunction with the vesting of the options.
Changes to the notes receivable related to the Incentive Plan are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes receivable balance,
beginning of period $1,522,000 $1,651,000 $1,742,000
Additions 229,000 202,000 32,000
Payments (100,000) (111,000) (40,000)
Notes receivable,
end of period $1,651,000 $1,742,000 $1,734,000
- -------------------------------------------------------------------------------
</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. The plan was
terminated on July 31, 1996 and closed to any future purchases.
Under this plan, employees were given the opportunity to purchase shares of the
Company's Common Stock at a 40% discount from the average market value of a
share of stock over a 20-day period prior to subscription. Shares became vested
over a three-year period and upon such date when a participant ceased
employment, any unvested shares were forfeited.
Changes in shares outstanding expressed in numbers of shares for the Investment
Plan were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding, beginning
of period 380,563 508,134 521,032
Shares purchased 216,931 80,550 --
Shares forfeited (89,360) (67,652) (38,261)
Shares outstanding,
end of period 508,134 521,032 482,771
- --------------------------------------------------------------------------------
</TABLE>
As of December 27, 1997, a total of 69,550 of outstanding shares are scheduled
to vest in February 1998 and August 1998. There are no other outstanding shares
purchased under the plan which have not yet been vested.
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.
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 was
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.
33
<PAGE> 35
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 3,020,000 $ 1.16
Granted 3,020,000 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 3,020,000 $ 1.16 3,020,000 $ 1.16
Options exercisable,
end of period -- $ -- 755,000 $ 1.16
Weighted average
fair value of
options granted $ .77 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 8.25 years.
The fair value of the options granted in 1996 was estimated on the date of grant
using the Black- Scholes option-pricing model with the following weighted
average assumptions: risk free interest rate of 6.79%, expected lives of 9.85
years, expected volatility of 45.02% and no expected dividends.
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 in 1996. 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 1996 Rights Offering.
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 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 1,000,000 $ 1.16
Granted 1,000,000 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 1,000,000 $ 1.16 1,000,000 $ 1.16
Options exercisable,
end of period -- $ -- 250,000 $ 1.16
Weighted average
fair value of
options granted $ 0.77 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 8 years.
The fair value of the options granted in 1996 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: risk free interest rate of 6.79%, expected lives of 9.85 years,
expected volatility of 45.02% and no expected dividends.
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 in 1996.
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 1996 Rights
Offering.
The options expire 10 years from the date of grant and will become vested upon
the Company's stock price reaching a specific target 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 of the 1996 Rights Offering. 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 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 2,000,000 $ 1.16
Granted 2,000,000 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 2,000,000 $ 1.16 2,000,000 $ 1.16
Options exercisable,
end of period -- $ -- -- $ 1.16
Weighted average
fair value of
options granted $ 0.17 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 8.25 years.
The fair value of the options granted in 1996 was estimated on the date of grant
using the Black-Scholes option-price model utilizing a Monte Carlo simulation
with the following weighted average assumptions: risk free interest rate of
6.79%, expected lives of 9.85 years, expected volatility of 45.02% and no
expected dividends.
The CEO Six Year Stock Option Plan - Pursuant to NAR's Six Year Stock Option
Plan (the "Six Year Plan"), an option to purchase an aggregate of 250,000 shares
of Common Stock was granted to the CEO by 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 1996 Rights Offering. The option is subject
to antidilution provisions and due to the Company's 1996 Rights Offering was
adjusted to 377,500 options.
34
<PAGE> 36
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.
Options outstanding, granted and the weighted average exercise prices are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 377,500 $ 1.16
Granted 377,500 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 377,500 $ 1.16 377,500 $ 1.16
Options exercisable,
end of period -- $ -- 377,500 $ 1.16
Weighted average
fair value of
options granted $ 0.60 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 4.25 years.
The fair value of the options granted in 1996 is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: risk free interest rate of 6.42%, expected lives of 5.85 years,
expected volatility of 45.02% and no expected dividends.
The CEO Seven Year Stock Option Plan - Pursuant to NAR's Seven Year Stock Option
Plan (the "Seven Year Plan"), an option to purchase an aggregate of 250,000
shares of Common Stock was granted to the CEO by 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 1996 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.
Options outstanding, granted and the weighted average exercise prices are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 377,500 $ 1.16
Granted 377,500 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 377,500 $ 1.16 377,500 $ 1.16
Options exercisable,
end of period -- $ -- -- $ 1.16
Weighted average
fair value of
options granted $ 0.65 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 5.25 years.
The fair value of the options granted in 1996 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: risk free interest rate of 6.53%, expected lives of 6.85 years,
expected volatility of 45.02% and no expected dividends.
The CEO Eight Year Stock Option Plan - Pursuant to NAR's Eight Year Stock Option
Plan (the "Eight Year Plan"), an option to purchase an aggregate of 250,000
shares of Common Stock was granted to the CEO by 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 1996 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.
Options outstanding, granted and the weighted average exercise prices are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 377,500 $ 1.16
Granted 377,500 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 377,500 $ 1.16 377,500 $ 1.16
Options exercisable,
end of period -- $ -- -- $ 1.16
Weighted average
fair value of
options granted $ 0.69 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 6.25 years.
35
<PAGE> 37
The fair value of the options granted in 1996 was 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 no expected dividends.
The CEO Nine Year Stock Option Plan - Pursuant to NAR's Nine Year Stock Option
Plan (the "Nine Year Plan"), an option to purchase an aggregate of 250,000
shares of common stock was granted to the CEO by 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 1996 Rights Offering. The
option was 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.
Options outstanding, granted and the weighted average exercise prices are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 377,500 $ 1.16
Granted 377,500 $ 1.16 -- $ --
Exercised -- $ -- -- $ --
Forfeited -- $ -- -- $ --
Expired -- $ -- -- $ --
Options outstanding,
end of period 377,500 $ 1.16 377,500 $ 1.16
Options exercisable,
end of period -- $ -- -- $ 1.16
Weighted average
fair value of
options granted $ 0.74 --
- --------------------------------------------------------------------------------
</TABLE>
The options outstanding at December 27, 1997 have an exercise price of $1.16
with a weighted average contractual life of 7.25 years.
The fair value of the options granted in 1996 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: risk free interest of 6.73%, expected lives of 8.85 years, expected
volatility of 45.02% and no expected dividends.
1996 Stock Option Plan - Pursuant to the Company's 1996 Stock Option Plan (the
"1996 Plan"), an aggregate of 7,000,000 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 exercise price of incentive stock options
granted to an employee who owns more than 10%of the total combined voting power
of all classes of stock of the Company shall be equal to 110%of the fair market
value of the Company's Common Stock on the date of grant. Options granted may be
performance based and all options granted must be specifically identified as
incentive stock options or nonqualified options, as defined in the Internal
Revenue Code. No employee may be granted stock options in excess of 500,000
shares of the Company's Common Stock and, the aggregate fair market value of
Common Stock for which an employee is granted incentive stock options that first
became exercisable during any given calendar year shall be limited to $100,000.
To the extent such limitation is exceeded, the option shall be treated as
nonqualified. Stock options may be granted for terms not to exceed 10 years and
shall be exercisable in accordance with the terms and conditions specified in
each option agreement. In the case of an employee who owns stock possessing more
than 10%of the total combined voting power of all classes of stock, the options
must become exercisable within 5 years. Payment for shares purchased upon
exercise of options shall be in cash or stock of the Company.
NON-PERFORMANCE BASED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 1,722,500 $ 0.98
Granted 1,722,500 $ 0.98 882,500 $ 1.29
Exercised -- $ -- -- $ --
Forfeited -- $ -- (366,667) $ 1.01
Expired -- $ -- -- $ --
Options outstanding,
end of period 1,722,500 $ 0.98 2,238,333 $ 1.10
Options exercisable,
end of period -- $ -- 460,833 $ 0.98
Weighted average
fair value of
options granted $ 0.67 0.66
- --------------------------------------------------------------------------------
</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 1997 and 1996: risk free interest rate of 6.21% and
6.80% respectively, expected lives of 4 and 7 years, respectively, and expected
volatility of 59.40% and 45.35%, respectively, and no expected dividends.
The following table summarizes information about stock options outstanding at
December 27, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Options Options
Outstanding Exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/27/97 Contractual Life Price at 12/27/97 Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.69 to $1.00 1,605,833 5.9 $0.96 460,833 $0.98
$1.43 to $1.75 632,500 6.5 $1.46 -- $ --
- ----------------------------------------------------------------------------------------------------------------
$.69 to $1.75 2,238,333 6.0 $1.10 460,833 $0.98
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 38
PERFORMANCE BASED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of period -- $ -- 1,722,500 $ 0.98
Granted 1,722,500 $ 0.98 882,500 $ 1.29
Exercised -- $ -- -- $ --
Forfeited -- $ -- (392,084) $ 1.01
Expired -- $ -- -- $ --
Options outstanding,
end of period 1,722,500 $ 0.98 2,212,916 $ 1.10
Options exercisable,
end of period -- $ -- 394,610 $ 0.98
Weighted average
fair value of
options granted $ 0.67 0.66
- --------------------------------------------------------------------------------
</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 1997 and 1996: risk free interest rate of 6.21% and
6.80%, respectively, expected lives of 4 and 7 years, respectively, expected
volatility of 59.40% and 45.35%, respectively, and no expected dividends.
The following table summarizes information about stock options outstanding at
December 27, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Options Options
Outstanding Exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/27/97 Contractual Life Price at 12/27/97 Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.69 to $1.00 1,580,416 5.9 $0.96 394,610 $0.98
$1.43 to $1.75 632,500 6.5 $1.46 -- $ --
- ----------------------------------------------------------------------------------------------------------------
$.69 to $1.75 2,212,916 6.0 $1.10 394,610 $0.98
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER STOCK AWARDS
During 1997, the Company granted, and the Compensation Committee approved,
nonqualified options to certain employees for the purchase of an aggregate of
1,000,000 shares of the Company's Common Stock. The options become vested over
three years and expire in 2003.
The options have an exercise price of $1.00 and a remaining contractual life of
5.2 years. The fair value of the options at the date of grant was estimated to
be $.52 based on the following weighted average assumptions: risk free interest
rate of 6.48%, expected life of 4 years, expected volatility of 59.40% and no
expected dividends.
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 1997, 1996 and 1995 were
approximately $.5 million, $.4 million and $.6 million, respectively.
Supplemental Retirement Plan - The Supplemental Retirement Plan (the "Retirement
Plan") allowed eligible employees to make contributions to a trust where the
contributions were invested by the trust for each participant in a tax free
money market fund. The Company made matching contributions during 1995, 1996 and
1997. Company contributions charged to expense in 1996 and 1995 amounted to
approximately $.1 million and $.2 million, respectively. Expense charged in 1997
was not material. This plan was terminated in 1997.
13. INCOME TAXES
At December 27, 1997, the Company had net operating loss carryforwards ("NOLs")
totalling $246.7 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 - $23.1 million, 2011 - $63.1
million and 2012 - $19.1 million. The Company also has $1 million of general
business tax credit carry-forwards that expire in 2000 through 2009. The
Company's available NOLs for tax purposes consist of $91.4 million of NOLs
subject to a $4 million annual limitation under Section 382 of the Internal
Revenue Code of 1986 and $155.3 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 $63.1 million in
1996 and $19.1 million in 1997, 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 ongoing restructuring and future operating
plans.
For the years ended December 27, 1997 and December 28, 1996, the Company
maintained its deferred tax asset of $15 million (net of a valuation allowance
of $80.1 million in 1997 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.
37
<PAGE> 39
The Company's Federal income tax provision was zero in 1995, 1996 and 1997. The
Company's provision for state income taxes was $1.0 million in 1995, $1.0
million in 1996 and $1.0 million in 1997.
A reconciliation of the Company's net loss for financial statement purposes to
taxable loss for the years ended December 30, 1995, December 28, 1996 and
December 27, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1996 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
(Loss) before income taxes $ (27,150) $(102,895) $ (9,877)
Extraordinary item (1,837) (1,134) --
Differences between income before
taxes for financial statement
purposes and taxable income:
State income taxes (1,003) (1,000) (999)
Differences attributable to
subsidiary not included in
Company's tax return (313) -- --
Permanent differences 1,147 14,917 402
Net change in temporary
differences 6,048 26,983 (8,670)
Taxable loss $ (23,108) $ (63,129) $ (19,144)
- -------------------------------------------------------------------------------
</TABLE>
The components of the net deferred tax asset at December 27, 1997 are as follows
(in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Non-
Current current Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax NOL and business
tax credit carry forwards 87.4 87.4
Allowance for doubtful accounts 1.2 1.2
Inventories .4 .4
Prepaid catalog costs (2.2) (2.2)
Property and equipment (0.2) (0.2)
Excess of net assets of
acquired business (0.9) (0.9)
Mailing Lists 0.8 0.8
Accrued liabilities 4.1 4.1
Customer prepayments
and credits 2.1 2.1
Deferred Credits 0.4 0.4
Tax basis in net assets of
discontinued operations in excess
of financial statement amount 0.8 0.8
Executive Incentive Plan 0.8 0.8
Other 0.4 0.4
Deferred Tax Asset 6.4 88.7 95.1
Valuation allowance (3.1) (77.0) (80.1)
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.
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>
- --------------------------------------------------------------------------------
1995 1996 1997
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 2.4 0.6 6.6
Net increase in (reversal of)
temporary differences
Depreciation and amortization 3.5 4.0 2.0
Deferred compensation 2.5 -- 11.3
Restructuring reserves -- 5.3 (23.5)
Inventory 4.6 (0.4) (17.3)
Prepaid catalog costs 0.4 (1.1) 9.4
Allowance for doubtful accounts 1.0 1.1 (7.8)
Other (4.2) 0.3 (4.9)
Tax NOLs for which no benefit
could be recognized 27.0 21.1 67.9
Permanent differences 1.5 5.1 1.4
3.7)% 1.0% 10.1%
- --------------------------------------------------------------------------------
</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>
- --------------------------------------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $13,070 $12,931 $12,013
- --------------------------------------------------------------------------------
</TABLE>
Future minimum lease payments under noncancelable 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 27, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Year Ending Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1998 9,384.4 551.1
1999 7,098.9 51.2
2000 5,516.1 4.0
2001 4,755.1 4.0
2002 4,673.5 4.0
Thereafter 21,492.4 --
- --------------------------------------------------------------------------------
Total minimum lease payments 52,920.4 614.3
Less amount representing interest (a) 29.3
Present value of minimum lease payments (b) 585.0
- --------------------------------------------------------------------------------
</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 $1,344,000 and $482,000 at December 28, 1996 and $518,000 and
$67,000 at December 27, 1997, respectively.
38
<PAGE> 40
The future minimum lease payments under noncancelable leases that remain from
the discontinued restaurant operations as of December 27, 1997 are as follows:
1998 - $.9 million; 1999 - $.9 million; 2000 - $.9 million; 2001 - $.8 million;
2002 - $.5 million; and thereafter $1.1 million. The above amounts exclude
annual sublease income from subleases which have the same expiration as the
underlying leases as follows:1998 - $1.0 million, 1999 - $ .9 million, 2000 -
$.9 million, 2001 - $.7 million, 2002 - $.4 million and thereafter $.8 million.
In connection with the Company's investment in Blue Ridge Associates, a
subsidiary of the Company is contingently liable with respect to the lease
obligation related to the apparel distribution center in Roanoke, VA. 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 perquisite provided for therein except for (a) benefits, salary and
perquisite 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 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 allowed Mr. Rosenfeld to attend meetings of the Board of
Directors and participate in Board discussions for a one-year period, but Mr.
Rosenfeld had no right to vote on any matters that came before the Board of
Directors. The Termination Agreement precluded 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 objective formulae or standards 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 Plan") Common Stock; an option expiring March 7, 2006 to purchase
2,000,000 shares of Common Stock (the "Closing Price Plan") 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, granted
by NAR, the Company's majority shareholder (the "NAR Options"). As a result of
the 1996 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 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.
16. RELATED PARTY TRANSACTIONS
At December 27, 1997, current and former officers and executives of the Company
owed the Company approximately $3.0 million of which approximately $1.7 million
relates to receivables, excluding accrued interest, 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. An additional $1.0 million
relates to a receivable, excluding accrued interest, under the Long-Term
Incentive Plan for Rakesh K. Kaul.
39
<PAGE> 41
At December 27, 1997, NAR and Richemont owned approximately 46 % and 20 % of the
Company's common stock, respectively.
17. COMMITMENTS AND CONTINGENCIES
The Company is involved in various routine lawsuits of a nature which are deemed
customary and incidental to its business. In the opinion of management, the
ultimate disposition of such actions will not have a material adverse effect on
the Company's financial position or results of operations.
In connection with certain discontinued restaurant transactions, the Company
remains contingently liable with respect to lease obligations for 6 restaurant
properties, should the buyers fail to perform under the agreements. The future
minimum lease payments as of December 27, 1997 are as follows (in thousands):
1998 - $.4; 1999 - $.4; 2000 - $.4; 2001 - $.4; 2002 - $.3, and thereafter $.9.
18. SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<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 -
basic and diluted $ (.10) $ (.13) $ (.26) $ (.37)
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $ 129,725 $ 133,750 $ 122,597 $ 171,566
Gross profit 43,663 47,210 42,228 66,318
Income (loss) from operations (4,339) (3,142) (1,677) 7,309
Net income (loss) (6,621) (5,648) (3,421) 4,814
Preferred stock dividends (48) (47) (47) (48)
Net income (loss) applicable
to Common Shareholders $ (6,669) $ (5,695) $ (3,468) $ 4,766
Net income (loss) per
share - basic and diluted $ (.05) $ (.04) $ (.02) $ .02
- --------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41
<PAGE> 43
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 46 President, Chief Executive Officer and Director since March 1996
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.
Michael Lutz 55 Executive Vice President-Chief Operating Officer since 1994
March 1998. From September 1994 to March 1998, he was
Executive Vice President-Operations of the Company. Prior
to September 1994, Mr. Lutz held various positions with
New Hampton, Inc./Avon Direct Response.
Larry J. Svoboda 49 Senior Vice President and Chief Financial Officer since 1996
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.
Richard B. Hoffman 51 Senior Vice President and Chief Marketing Officer since 1998
March 1998. Prior to March 1998, Mr. Hoffman was engaged
in private marketing consulting from March 1997. Mr.
Hoffman was President and Chief Operating Officer of
Jayhawk Acceptance Corporation from February 1996 to March
1997. Prior to February 1996, Mr. Hoffman was a Senior
Vice President at Fingerhut Companies, Inc.
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
TITLE AND OTHER OFFICE HELD
NAME AGE INFORMATION (a) SINCE
- ---------------------------- ----- ------------------------------------------------------------- -----------
<S> <C> <C> <C>
Michael D. Contino 37 Senior Vice President and Chief Information Officer since 1996
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 48 Senior Vice President - Human Resources since June 1996. 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.
Edward J. O'Brien 54 Senior Vice President and Treasurer since March 1991. 1991
Secretary since May 1996. Mr. O'Brien joined the Company
in 1986 and was elected Vice President in 1988.
William C. Kingsford 51 Vice President and Corporate Controller since May 1997. 1997
Prior to May 1997, Mr. Kingsford was Vice President and
Chief Internal Auditor at Melville Corporation.
</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.
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.
43
<PAGE> 45
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> <C>
1. Index to Financial Statements
Report of Independent Public Accountants - Hanover
Direct, Inc. and Subsidiaries Financial Statements 20
Consolidated Balance Sheets as of December 28, 1996
and December 27, 1997 21
Consolidated Statements of Income (Loss) for the years
ended December 30, 1995, December 28, 1996 and December
27, 1997 22
Consolidated Statements of Cash Flows for the years
ended December 30, 1995, December 28, 1996 and December 23
27, 1997
Consolidated Statements of Shareholders' Equity for the
years ended December 30, 1995, December 28, 1996 and
December 27, 1997 24
Notes to Consolidated Financial Statements for the
years ended December 30, 1995, December 28, 1996 and
December 27, 1997 26
2. Index to Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts 46
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. 47
</TABLE>
(b) Reports on Form 8-K: Current Report on Form 8-K dated December
18, 1997 reporting pursuant to Item 8 the Company's change in
fiscal year.
(c) Exhibits required by Item 601 of Regulation S-K.
See Exhibit Index.
(d) Financial Statement Schedules
See (a) 2. above.
44
<PAGE> 46
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 26, 1998 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
/s/ J. David Hakman /s/ Shailesh J. Mehta
------------------------------------- ----------------------------
J. David Hakman, Director Shailesh J. Mehta, Director
/s/ Rakesh K. Kaul /s/ Jan P. du Plessis
------------------------------------- ----------------------------
Rakesh K. Kaul, Director Jan P. du Plessis, Director
/s/ S. Lee Kling
------------------------------------- ----------------------------
S. Lee Kling, Director Alan G. Quasha, Director
/s/ Howard M.S. Tanner
------------------------------------- ----------------------------
Theodore H. Kruttschnitt, Director Howard M.S. Tanner, Director
/s/ Elizabeth Valk Long /s/ Robert F. Wright
------------------------------------- ----------------------------
Elizabeth Valk Long, Director Robert F. Wright, Director
Date: March 26, 1998
45
<PAGE> 47
Schedule II
Hanover Direct, Inc.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 27, 1997, December 28, 1996
and December 30, 1995
<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>
1997:
Allowance for Doubtful Accounts
Receivable, Current $ 6,419,000 3,973,000 5,637,000(1) $ 4,755,000
Reserves for Discontinued Operations 1,722,000 368,000(2) 1,354,000
Restructuring Reserve 9,504,000 (400,000) 3,680,000(2) 5,424,000
Reserves for Sales Returns 9,036,000 76,507,000 79,500,000(2) 6,043,000
Deferred Tax Asset Valuation Allowance 82,600,000 (2,500,000)(4) 80,100,000
Allowance for Net Unrealized Losses on
Convertible Debt Securities 1,888,000 1,888,000(1) --
- ----------------------------------------------------------------------------------------------------------------------------------
1996:
Allowance for Doubtful Accounts
Receivable, Current $ 3,988,000 6,805,000 4,374,000(1) $ 6,419,000
Reserves for Discontinued Operations 1,639,000 83,000(2) 1,722,000
Restructuring Reserve 9,504,000 9,504,000
Reserves for Sales Returns 5,535,000 106,836,000 103,335,000(2) 9,036,000
Deferred Tax Asset Valuation Allowance 48,500,000 34,100,000(4) 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 4,796,000 42,000(3) 4,762,000(1) $ 3,988,000
Reserves for Discontinued Operations 1,668,000 29,000(2) 1,639,000
Reserves for Sales Returns 6,023,000 103,602,000 104,090,000(2) 5,535,000
Deferred Tax Asset Valuation Allowance 38,600,000 9,900,000(4) 48,500,000
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 the change in the valuation allowance offset by the change in the
gross tax asset.
46
<PAGE> 48
EXHIBIT INDEX
EXHIBIT NUMBER
ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCORPORATION
REGULATION S-K BY REFERENCE WHERE APPLICABLE
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 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. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
3.2 Certificate of Correction filed to correct a certain error in
the Restated Certificate of Incorporation. FILED HEREWITH.
3.3 By-laws. Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
27, 1997.
47
<PAGE> 49
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.
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 13, 1995. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 30, 1995.
4.10 Second Amendment to Warrant Agreement between the Company and
IMR dated as of August 23, 1996. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
4.11 Second Amendment to Warrant Agreement between the Company and
NAR dated as of August 23, 1996.
<PAGE> 50
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
4.12 Third Amendment to Warrant Agreement between the Company and
NAR dated as of August 23, 1996. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
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.
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.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
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. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.9 Registration Rights Agreement between the Company and Rakesh
K. Kaul, dated as of August 23, 1996.
<PAGE> 51
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
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. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
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.
10.17 1996 Stock Option Plan, as amended. Incorporated by reference
to the Company's 1997 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, HDPA, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and TAC. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
<PAGE> 52
10.20 Second Amendment to Loan and Security Agreement dated as of
April 16, 1996 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.21 Third Amendment to Loan and Security Agreement dated as of May
24, 1996 by and among Congress, HDPA, Brawn, Gump's by Mail,
Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA, Hanover
Realty and Austad. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.22 Fourth Amendment to Loan and Security Agreement dated as of
May 31, 1996 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.23 Fifth Amendment to Loan and Security Agreement dated as of
September 11, 1996 by and among Congress, HDPA, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.24 Sixth Amendment to Loan and Security Agreement dated as of
December 5, 1996 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.25 Seventh Amendment to Loan and Security Agreement dated as of
December 18, 1996 by and among Congress, HDPA, Brawn, Gump's
by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.26 Eighth Amendment to Loan and Security Agreement dated as of
March 26, 1997 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. FILED HEREWITH
10.27 Ninth Amendment to Loan and Security Agreement dated as of
April 18, 1997 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. FILED HEREWITH
10.28 Tenth Amendment to Loan and Security Agreement dated as of
October 31, 1997 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The
<PAGE> 53
Company Store, Tweeds, LWI, Aegis, HDVA, Hanover Realty and
Austad. FILED HEREWITH
10.29 Eleventh Amendment to Loan and Security Agreement dated as of
March 25, 1998 by and among Congress, HDPA, Brawn, Gump's by
Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA,
Hanover Realty and Austad. FILED HEREWITH
10.30 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.
10.31 Long-Term Incentive Plan for Rakesh K. Kaul. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
10.32 Short-Term Incentive Plan for Rakesh K. Kaul. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
10.33 Employment Agreement dated as of March 7, 1996 between the
Company and Rakesh K. Kaul. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.34 Tandem Option Plan dated as of August 23, 1996 between the
Company and Rakesh K. Kaul. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.35 Closing Price Option dated as of August 23, 1996 between the
Company and Rakesh K. Kaul. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.36 Performance Price Option dated as of August 23, 1996 between
the Company and Rakesh K. Kaul. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.37 Six-Year Stock Option dated as of August 23, 1996 between NAR
and Rakesh K. Kaul. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.38 Seven-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.39 Eight-Year Stock Option dated as of August 23, 1996 between
NAR and Rakesh K. Kaul. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
<PAGE> 54
10.40 Nine-Year Stock Option dated as of August 23, 1996 between NAR
and Rakesh K. Kaul. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.41 Letter of Credit, dated December 18, 1996, from Swiss Bank
Corporation, New York Branch in favor of Fleet National Bank,
as trustee. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996.
10.42 Substitute Letter of Credit, dated February 18, 1998, from
Swiss Bank Corporation, Stamford Branch ("Swiss Bank") in
favor of State Street Bank and Trust Company, as trustee.
FILED HEREWITH.
10.43 Reimbursement Agreement, dated as of December 18, 1996, by and
between Swiss Bank and the Company. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.44 First Amendment to Reimbursement Agreement, dated as of
February 18, 1998, by and between Swiss Bank and the Company.
FILED HEREWITH.
10.45 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. Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
10.46 Subordination Agreement, dated as of December 18, 1996,
between Congress and Swiss Bank. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.47 Subordination Agreement, dated as of December 18, 1996 between
Congress and Richemont. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.48 Series A Note Agreement, dated as of November 9, 1994, between
the Company and Norwest Bank Minnesota, N.A. ("Norwest"), as
trustee. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996.
10.49 Placement Agreement, dated as of November 9, 1994, by and
between the Company and NationsBank of North Carolina, N.A.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.50 Remarketing and Interest Services Agreement, dated as of
November 9, 1994, by and between the Company and NationsBank
of North Carolina, N.A. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
<PAGE> 55
10.51 First Supplemental Series A Note Agreement, dated as of
December 29, 1995, between the Company and Norwest.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.52 First Amendment to Placement Agreement, dated as of December
29, 1995 by and between the Company and NationsBank of North
Carolina, N.A. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.53 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. Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 28, 1996.
10.54 Second Supplemental Series A Note Agreement, dated as of
December 18, 1996, between the Company and Norwest.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.55 Second Amendment to Series A Note, dated December 18, 1996
made by the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.56 Second Amendment to Placement Agreement, dated as of December
18, 1996 by and between the Company and NationsBank of North
Carolina, N.A. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.57 Second Amendment to Remarketing and Interest Services
Agreement, dated as of December 18, 1996 by and between the
Company and NationsBank of North Carolina, N.A. Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 28, 1996.
10.58 Series B Note Agreement dated as of April 25, 1995, between
the Company and Norwest. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.59 First Amendment to Series B Note Agreement, dated as of
December 29, 1995, between the Company and Norwest.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.60 Second Amendment to Series B Note Agreement, dated as of
December 18, 1996, between the Company and Norwest.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
<PAGE> 56
10.61 Second Amendment to Series B Note, dated December 18, 1996
made by the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.62 Series B Letter of Credit, dated as of December 18, 1996,
issued by Swiss Bank. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.63 Amendment to Series B Letter of Credit, dated as of February
18, 1998, between Swiss Bank and Norwest. FILED HEREWITH.
10.64 NAR Promissory Note dated as of September 11, 1996.
Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.65 Series A Letter of Credit, dated as of December 18, 1996,
issued by Swiss Bank. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.66 Amendment to Series A Letter of Credit, dated as of February
18, 1998, between Swiss Bank and Norwest. FILED HEREWITH.
10.67 First Amendment to Series A Note, dated as of December 29,
1995 made by Hanover Direct, Inc. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.68 $10,000,000 Series B Note, dated as of April 27, 1995 and made
by Hanover Direct, Inc. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.69 First Supplemental Series B Note Agreement, dated as of
December 29, 1995. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 28,
1996.
10.70 $10,000,000 Series A Note, dated as of November 9, 1994 and
made by Hanover Direct, Inc. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 28, 1996.
10.71 Stock Purchase Agreement, dated as of November 4, 1997, by and
between the Company and SMALLCAP World Fund, Inc. ("SMALLCAP")
FILED HEREWITH.
10.72 Registration Rights Agreement, dated as of November 4, 1997,
by and between the Company and SMALLCAP. FILED HEREWITH.
<PAGE> 57
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.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN THE RESTATED CERTIFICATE OF
INCORPORATION OF HANOVER DIRECT, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON
OCTOBER 31, 1996
HANOVER DIRECT, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is Hanover Direct, Inc.
2. That a Restated Certificate of Incorporation was
filed with the Secretary of State of Delaware on
October 31, 1996 and that said Restated Certificate
requires corrections as permitted by Section 103 of
the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Restated Certificate
to be corrected is as follows: The total number of
shares of stock authorized and the number of shares
designated as common stock are inaccurate.
4. Article Fourth of the Restated Certificate is
corrected to read as follows:
Line two shall be deleted in its entirety and
replaced with "... Corporation shall have the
authority to issue is 243,172,403 shares, of which
40,000 shares ..."
Line seven shall be deleted in its entirety and
replaced with "... stock, par value $0.01 per share
(the "Additional Preferred Stock"), 225,000,000
shares ..."
IN WITNESS WHEREOF, said HANOVER DIRECT, INC. has caused this
certificate to be signed by Edward J. O'Brien, its Senior Vice President,
Treasurer and Secretary, this 27th day of June, 1997.
HANOVER DIRECT, INC.
By: /s/ Edward J. O'Brien
Edward J. O'Brien
Senior Vice President, Treasurer
and Secretary
<PAGE> 1
EXHIBIT 10.26
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
March 26, 1997, by and among CONGRESS FINANCIAL CORPORATION, a California
corporation ("Lender"), 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 ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI
HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a
Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and
together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and
Hanover Realty, each individually referred to herein as a "Borrower" and
collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation
("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY
HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware
corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN
WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a
Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation,
COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a
New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S
HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware
corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER
FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New
Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF
MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation,
SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a
Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania
corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each
individually a "Guarantor" and collectively, "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrowers, Guarantors and Lender entered into the
Loan and Security Agreement, dated November 14, 1995, as amended by the First
Amendment to Loan and Security Agreement, dated February 22, 1996, the Second
Amendment to Loan and Security Agreement, dated April 16, 1996, the Third
Amendment to Loan and Security Agreement, dated May 24, 1996, the Fourth
Amendment to Loan and Security Agreement, dated May 31, 1996, the Fifth
Amendment to Loan and Security Agreement, dated September 11, 1996, the Sixth
Amendment to Loan and Security Agreement, dated as of December 5, 1996, and
Seventh Amendment to Loan and Security Agreement, dated as of December 18, 1996
(the
<PAGE> 2
"Loan Agreement"), pursuant to which Lender has made loans and advances to
Borrowers; and
WHEREAS, Borrowers, Guarantors and Lender wish to set forth
their agreements relating to certain reductions to the Inventory Loan Formulas
applicable to Eligible Inventory of Revolving Loan Borrowers; and
WHEREAS, Borrowers and Guarantors have also requested that
Lender waive certain Events of Default under the Loan Agreement and enter into
certain amendments related thereto; and
WHEREAS, the parties to the Loan Agreement desire to enter
into this Eighth Amendment to Loan and Security Agreement (this "Amendment") to
evidence and effectuate such amendments, waivers and agreements and certain
additional amendments, to the extent set forth herein, and subject to the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
(a) Additional Definitions. As used herein or in
any of the other Financing Agreements, the following terms shall have the
meanings given to them below, and the Loan Agreement shall be deemed and is
hereby amended to include, in addition and not in limitation, the following
definitions:
(i) "Second Hanover Rights Offering" shall
mean the proposed offering by Hanover of rights to purchase shares of common
stock of Hanover for an aggregate, gross issuance price of up to $50,000,000,
and the consummation of the transactions involving the exercise of such rights
and the issuance of Hanover's common stock in respect of such exercise.
(ii) "January 1997 Appraisal" shall mean the
Appraisal prepared by Daley-Hodkin Appraisal Corporation setting forth, or
setting forth information sufficient to enable Lender to determine, as of one or
more dates in January 1997, the Net Orderly Liquidation Values of Eligible
Inventory of Revolving Loan Borrowers, other than Gump's, and the Net GOB Value
of Gump's Inventory.
(b) Amendments to Definitions. Effective as of
the date hereof, Section 1.143 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"1.143 [Intentionally Omitted]"
(c) Interpretation. For purposes of this Amendment,
unless otherwise defined herein, all capitalized terms
-2-
<PAGE> 3
used herein that are defined in the Loan Agreement, shall have the respective
meanings given to such terms in the Loan Agreement.
2. Acknowledgements and Amendments regarding Inventory Loan
Formulas.
(a) Borrowers, Guarantors and Lender hereby
acknowledge and agree that Lender has previously made certain reductions
applicable during the period beginning November 15, 1996 and ending on February
13, 1997 pursuant to the exercise by Lender of its rights under the Loan
Agreement, as such reductions are described in the letter, dated November 14,
1996, from Lender to Hanover re: Inventory Advance Rates, a copy of which is
attached hereto as Exhibit A.
(b) Notwithstanding anything to the contrary
contained in the November 14, 1996 letter attached hereto as Exhibit A or in the
January 1997 Appraisal, Borrowers, Guarantors and Lender agree that, effective
February 14, 1997, the Inventory Loan Formulas shall be as set forth in the
amendments to the Loan Agreement provided under Section 2(c) hereof. Borrowers
and Guarantors hereby further acknowledge (i) the continuing rights of Lender to
reduce further the Inventory Loan Formulas pursuant to the Loan Agreement,
establish Availability Reserves and determine the criteria for Eligible
Inventory as provided in the Loan Agreement and (ii) that nothing contained in
this Amendment shall in any way limit the right of Lender at any time to make
any further reductions to any of the Inventory Loan Formulas or limit or affect
Lender's other rights and remedies upon an Event of Default or Incipient
Default.
(c) Effective as of February 14, 1997, Section 2.1(b)
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"(b) Revolving Inventory Loans. Subject to, and upon the terms
and conditions contained herein and in the other Financing Agreements,
Lender shall, from time to time, make Revolving Inventory Loans (i) to
each Revolving Loan Borrower, other than Gump's and Austad's, at such
Revolving Loan Borrower's request, of up to the lesser of (A) fifty-two
percent (52%) of the Value of the Eligible Inventory of such Revolving
Loan Borrower or (B) the Net OLV Percentage of the Value of such
Eligible Inventory, and (ii) to Gump's, at its request, of up to the
lesser of (A) sixty percent (60%) of the Value of Eligible Inventory of
Gump's or (B) the Net GOB Percentage of the Value of Eligible Inventory
of Gump's, and (iii) to Austad, at its request, of up to the lesser of
(A) twenty-two (22%) of the Value of Eligible Inventory of Austad or
(B) the Net OLV Percentage of the Value of such Eligible Inventory, or,
in the case of Eligible Inventory described in each of clauses (b)(i),
(b)(ii) or (b)(iii), such greater or
-3-
<PAGE> 4
lesser percentages thereof as Lender shall, in its sole discretion,
determine from time to time (the "Inventory Loan Formulas"). Without
limiting the foregoing, the fifty-two percent (52%) lending formula
component referred to in clause (b)(i)(A), the sixty percent (60%)
lending formula component referred to in clause (b)(ii)(A) and the
twenty-two percent (22%) lending formula component referred to in
clause (b)(iii)(A) may be adjusted downward by Lender based upon any
adverse change, individually or in the aggregate, in the turnover of
Eligible Inventory or deterioration in mix, nature or quality of
Eligible Inventory in the respective categories of Eligible Inventory,
and any such downward adjustment made for such reason(s) (or on the
basis of the lending formula component set forth in clauses (b)(i)(B),
(b)(ii)(B) or (b)(iii)(B) above) shall not be considered solely
discretionary for purposes of the provision contained in the definition
of Interest Rate and Section 2.7(c) hereof."
3. Waiver and Amendment regarding Material Adverse Changes.
(a) Lender hereby waives any Event of Default arising
under Section 7.1(i) of the Loan Agreement, as such provision was in effect
through and including December 28, 1996.
(b) Effective as of December 29, 1996, Section 7.1(i)
of the Loan Agreement is hereby amended by deleting the phrase "after September
30, 1995" contained therein and replacing it with the phrase "after December 28,
1996."
4. Waiver and Amendment regarding Consolidated Working
Capital.
(a) Lender hereby waives any Event of Default arising
under Section 7.1(b) of the Loan Agreement by reason of the failure of Hanover
to maintain Consolidated Working Capital for Hanover and its Subsidiaries in the
amount required under Section 6.19 of the Loan Agreement as of and through
December 28, 1996.
(b) Effective as of December 29, 1996, Section 6.19
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"6.19 Consolidated Working Capital.
(a) Subject to Section 6.19(b) hereof, Hanover shall
maintain Consolidated Working Capital, calculated on a consolidated
basis for Hanover and its Subsidiaries, of not less than the following
amounts as at the end of each of the following fiscal months:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
(i) January 1997 through -$ 5,000,000
May 1997 (negative $5,000,000)
(ii) June 1997 through -$10,000,000
November 1997 (negative $10,000,000)
(iii) December 1997 -$20,000,000
and each fiscal (negative $20,000,000)
month thereafter
</TABLE>
(b) If Hanover consummates the Second Hanover Rights Offering
or any other equity offering or equity private placement and receives
net cash proceeds therefrom in an amount not less than Thirty Million
Dollars ($30,000,000), then the respective amount of Consolidated
Working Capital that Hanover and its Subsidiaries shall be required to
maintain as at the end of the then-current fiscal month ending after
receipt of such net cash proceeds and as at the end of each fiscal
month thereafter shall be increased to an amount equal to Ten Million
Dollars ($10,000,000) above the respective amounts otherwise provided
for as at the end of each such fiscal month pursuant to Section 6.19(a)
hereof."
5. Waiver and Amendment regarding Consolidated Net Worth.
(a) Lender hereby waives the Event of Default arising
under Section 7.1(b) of the Loan Agreement by reason of the failure of Hanover
to maintain Consolidated Net Worth for Hanover and its Subsidiaries in the
amount required under Section 6.20 of the Loan Agreement as of and through
December 28, 1996.
(b) Effective as of December 29, 1996, Section 6.20
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"6.20 Consolidated Net Worth.
(a) Subject to Section 6.20(b) hereof, Hanover shall
maintain Consolidated Net Worth, calculated on a consolidated basis for
Hanover and its Subsidiaries, of not less than the following amounts as
at the end of each of the following fiscal months:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
(i) January 1997 $14,000,000
through May 1997
(ii) June 1997 and $11,500,000
each fiscal month thereafter
</TABLE>
-5-
<PAGE> 6
(b) If Hanover consummates the Second Hanover Rights Offering
or any other equity offering or equity private placement and receives
net cash proceeds therefrom in an amount not less than Thirty Million
Dollars ($30,000,000), then the respective amount of Consolidated Net
Worth that Hanover and its Subsidiaries shall be required to maintain
as at the end of the then-current fiscal month ending after receipt of
such net cash proceeds and as at the end of each fiscal month
thereafter shall be increased to an amount equal to Ten Million Dollars
($10,000,000) above the respective amount otherwise provided for as at
the end of each such fiscal month pursuant to Section 6.20(a) hereof."
6. Second Hanover Rights Offering; Other Equity.
(a) Hanover shall provide Lender not less than ten
(10) Banking Days prior written notice of the scheduled consummation of the
Second Hanover Rights Offering or any other equity offering or equity private
placement by Hanover, together with a description of terms, amount and such
other information and copies of such documents, agreements and instruments as
Lender may reasonably request. Upon receipt by Hanover of the net cash proceeds
of the Second Hanover Rights Offering or any such other equity offering or
equity private placement, net of commissions and expenses relating thereto,
Hanover shall use all such net cash proceeds, to make a capital contribution or
intercompany advance to Borrowers, evidence of which Borrowers shall deliver to
Lender, in form and substance satisfactory to Lender, to be, in turn, delivered
to Lender for application to the outstanding balances of the Revolving Loans of
such Borrowers and in such amounts as Lender shall approve in good faith.
(b) After an aggregate of $50,000,000 of net proceeds
have been received by Hanover from the Second Hanover Rights Offering or any
other equity offering(s) or equity private placement(s) consummated by Hanover
after the date hereof, of which not less than $40,000,000 in net cash proceeds
shall have been received by Hanover and used and applied as provided in Section
6(a) of this Amendment, the provisions of Section 6(a) of this Amendment shall
not apply to any subsequent equity offering(s) or equity private placement(s) by
Hanover or the proceeds thereof (but all other applicable provisions of this
Amendment, the Loan Agreement and other Financing Agreements shall continue to
apply with respect thereto).
(c) Supplementing the provisions of the letter
agreement dated September 11, 1996 among Lender, Hanover and IMR, Lender agrees
that IMR may apply all or any portion of the outstanding indebtedness evidenced
by the $10,000,000 IMR Note to the purchase price of rights to purchase common
stock of Hanover issued pursuant to the Second Hanover Rights Offering. Such
application shall not, however, be deemed to give rise to cash proceeds for
purposes of this Amendment.
-6-
<PAGE> 7
7. Amendments to Certain Termination Fee Provisions.
(a) Section 9.1(a) of the Loan Agreement is hereby
amended by deleting the phrase "Renewal Date four (4) years" contained therein
and substituting therefor the phrase "Renewal Date to the date which is four (4)
years."
(b) Section 9.1(f) of the Loan Agreement is hereby
amended by deleting the phrase "Termination Date" and substituting the phrase
"Renewal Date" in its place.
(c) Section 9.1(g) hereof is hereby deleted in its
entirety and replaced with the following:
"(g) [Intentionally Omitted]"
8. Waiver and Amendment Fee.
(a) In addition to all other fees, charges, interest
and expenses payable by Borrowers to Lender under the Loan Agreement and the
other Financing Agreements, Borrowers shall pay to Lender a fee for entering
into this Amendment in the amount of Two Hundred Thousand Dollars ($200,000),
which fee is fully earned as of the date hereof, and shall be payable as
follows:
(i) One Hundred Twenty-Five Thousand Dollars ($125,000) of
such fee shall be payable as of the date hereof and may be charged directly to
HDPI's Revolving Loan account maintained by Lender; and
(ii) subject to Section 8(b) hereof, Seventy-Five Thousand
Dollars ($75,000) of such fee shall be payable on October 1, 1997.
(b) Solely as an accommodation to Borrowers and Guarantors,
Lender agrees to waive that portion of the fee in the amount of Seventy-Five
Thousand Dollars ($75,000) otherwise payable as provided in Section 8(a)(ii)
hereof; provided, that, (i) Hanover consummates the Second Hanover Rights
Offering or other equity offering or equity private placement on or before
September 30, 1997 and receives net cash proceeds therefrom in an amount not
less than $30,000,000 that are applied in accordance with the terms and
conditions of Section 6 hereof and (ii) as of the date of the receipt of such
net cash proceeds and after giving effect to the transactions contemplated
hereby, no Incipient Default or Event of Default exists or has occurred and is
continuing.
9. Representations Warranties and Covenants. Borrowers
represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
-7-
<PAGE> 8
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:
(a) This Amendment has been duly authorized, executed
and delivered by all necessary action of each of the Borrowers and Guarantors
which is a party hereto, and is in full force and effect, and the agreements and
obligations of Borrowers and Guarantors, as the case may be, contained herein
constitute legal, valid and binding obligations of Borrowers and Guarantors, as
the case may be, enforceable against them in accordance with their terms.
(b) All of the representations and warranties set
forth in the Loan Agreement as amended hereby, and the other Financing
Agreements, are true and correct in all material respects after giving effect to
the provisions of this Amendment, except to the extent any such representation
or warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct as of such date.
(c) Within thirty (30) days after the date hereof,
Borrowers and Guarantors shall deliver to Lender, in form and substance
satisfactory to Lender, together with all additional financing statements and
third party agreements as Lender shall require with respect thereto, a complete
and accurate chart, which chart shall amend, restate, and replace Exhibit C to
the Loan and Security Agreement, identifying the places of business or locations
of assets of each Borrower and Guarantor, including (i) the location of the
chief executive office of each Borrower and Guarantor, (ii) the location of
where each Borrower and Guarantor maintains its books and records pertaining to
accounts, contract rights, inventory, equipment and other assets, if different
from the location of its chief executive office, and the location of all other
places of business and locations of inventory, equipment or other assets of each
Borrower and Guarantor, indicating whether the locations are owned, leased or
operated by third parties and if leased or operated by third parties, their
names and addresses.
(d) After giving effect to the provisions of this
Amendment, no Event of Default or Incipient Default exists or has occurred and
is continuing.
10. Conditions Precedent. Concurrently with the execution
hereof, and as a condition to the effectiveness of this Amendment and the
agreement of Lender to the modifications, waivers and amendments set forth in
this Amendment, Lender shall have received an original of this Amendment, in
form and substance satisfactory to Lender, duly authorized, executed and
delivered by Borrowers and Guarantors.
-8-
<PAGE> 9
11. Effect of this Amendment. This Amendment constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.
12. Further Assurances. Borrowers and Guarantors shall execute
and deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.
13. Governing Law. The rights and obligations hereunder of
each of the parties hereto shall be governed by and interpreted and determined
in accordance with the internal laws of the State of New York (without giving
effect to principles of conflicts of laws).
14. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
15. Counterparts. This Amendment may be executed in any number
of counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By:/S/ JANET S. LAST
-------------------------
Title: Vice President
---------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-9-
<PAGE> 10
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT PENNSYLVANIA, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
BRAWN OF CALIFORNIA, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
GUMP'S BY MAIL, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
GUMP'S CORP.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
THE COMPANY STORE, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
TWEEDS, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
LWI HOLDINGS, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
-10-
<PAGE> 11
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS CATALOG CORPORATION
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
HANOVER DIRECT VIRGINIA INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
HANOVER REALTY, INC.
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
THE AUSTAD COMPANY
/s/ Edward J. O'Brien
By:_________________________
Title: Vice President
By their signatures below, the undersigned
Guarantors acknowledge and agree to be bound
by the applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Senior Vice President
AEGIS RETAIL CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
-11-
<PAGE> 12
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS SAFETY HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
AEGIS VENTURES, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
AMERICAN DOWN & TEXTILE COMPANY
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
BRAWN WHOLESALE CORP.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
THE COMPANY FACTORY, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
THE COMPANY OFFICE, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
COMPANY STORE HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 13
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
D.M. ADVERTISING, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
GUMP'S CATALOG, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
GUMP'S HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
HANOVER CASUALS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
HANOVER CATALOG HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
HANOVER FINANCE CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
HANOVER LIST MANAGEMENT, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 14
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER VENTURES, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
LEICHTUNG OF MICHIGAN, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
LWI RETAIL, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
SCANDIA DOWN CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
TWEEDS OF VERMONT, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
YORK FULFILLMENT COMPANY, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
AUSTAD HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Title: Vice President
-14-
<PAGE> 15
EXHIBIT A
TO
EIGHTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT
November 14, 1996 [Congress Financial LOGO]
VIA FACSIMILE
Mr. Larry Svoboda
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Re: INVENTORY ADVANCE RATES
Dear Larry:
Tomorrow we will commence our inventory advance rate reductions in
connection with the recent appraisal by Daley-Hodkin and in accordance with the
financing agreements. The following modifications to our advance formulas will
be implemented:
<TABLE>
<CAPTION>
Inventory Category New Advance Rate Implementation
- ------------------ ---------------- --------------
<S> <C> <C>
AUSTADS 25% 11/15/96 - Drops from 40% to 32.5%
12/16/96 - Drops from 32.5% to 25%
CATALOGS OTHER THAN AUSTADS 55% 11/15/96 - Drops from 60% to 57.5%
12/16/96 - Drops from 57.5% to 55%
GUMPS RETAIL 60% (No Change)
</TABLE>
Due to the deterioration in the inventory collateral we will require
another appraisal to be performed based upon inventory on hand at January 31,
1997. Until then, commencing January 15, 1997 and each 30 days thereafter, the
advance rates will be further reduced by 1.5% per month pending completion of
that appraisal.
Larry I would have preferred to discuss the above with you rather than to
inform you by letter, however, I have not been able to reach you this week.
Obviously we are available to discuss your questions or comments, so please
feel free to call us.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
/s/ Janet S. Last
-------------------------------
Janet S. Last
Vice President
CONGRESS FINANCIAL OFFICES IN MAJOR CITIES THROUGHOUT THE COUNTRY
A CORESTATES COMPANY
<PAGE> 1
EXHIBIT 10.27
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
April 18, 1997, by and among CONGRESS FINANCIAL CORPORATION, a California
corporation ("Lender"), 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 ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI
HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a
Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and
together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and
Hanover Realty, each individually referred to herein as a "Borrower" and
collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation
("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY
HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware
corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN
WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a
Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation,
COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a
New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S
HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware
corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER
FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New
Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF
MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation,
SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a
Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania
corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each
individually a "Guarantor" and collectively, "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrowers, Guarantors and Lender entered into the
Loan and Security Agreement, dated November 14, 1995, as amended by the First
Amendment to Loan and Security Agreement, dated February 22, 1996, the Second
Amendment to Loan and Security Agreement, dated April 16, 1996, the Third
Amendment to Loan and Security Agreement, dated May 24, 1996, the Fourth
Amendment to Loan and Security Agreement, dated May 31, 1996, the
<PAGE> 2
Fifth Amendment to Loan and Security Agreement, dated September 11, 1996, the
Sixth Amendment to Loan and Security Agreement, dated as of December 5, 1996,
the Seventh Amendment to Loan and Security Agreement, dated as of December 18,
1996, and the Eighth Amendment to Loan and Security Agreement, dated as of March
26, 1997 (the "Loan Agreement"), pursuant to which Lender has made loans and
advances to Borrowers; and
WHEREAS, Borrowers and Guarantors have requested that Lender
enter into certain amendments to the Loan Agreement and agreements in connection
with the making of a loan by Richemont to Hanover in the original principal
amount of up to $30,000,000; and
WHEREAS, the parties to the Loan Agreement desire to enter
into this Ninth Amendment to Loan and Security Agreement (this "Amendment") to
evidence and effectuate such amendments and agreements, subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
(a) Additional Definitions. As used herein or in any
of the other Financing Agreements, the following terms shall have the meanings
given to them below, and the Loan Agreement shall be deemed and is hereby
amended to include, in addition and not in limitation, the following
definitions:
(i) "$30,000,000 Richemont Loan" shall mean the
loan made on or about the date hereof by Richemont to Hanover in the original
principal amount of up to $30,000,000.
(ii) "$30,000,000 Richemont Note" shall mean the
Promissory Note, dated as of the date hereof, by Hanover payable to Richemont in
the original principal amount of up to $30,000,000 delivered to evidence the
$30,000,000 Richemont Loan plus interest thereon.
(b) Amendment to Definition. Section 1.23 of the Loan
Agreement is hereby amended by deleting the proviso appearing at the end thereof
and substituting the following proviso therefor, effective as of the date
hereof:
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<PAGE> 3
"; provided, however, that solely for
purposes of calculating Consolidated Working Capital
hereunder, the outstanding balance of the Revolving
Loans and the Term Loans and the outstanding balance
of the $10,000,000 IMR Note and the outstanding
balance of the $30,000,000 Richemont Note shall not
be considered current liabilities."
(c) Interpretation. For purposes of this Amendment,
unless otherwise defined herein, all capitalized terms used herein that are
defined in the Loan Agreement, shall have the respective meanings given to such
terms in the Loan Agreement.
2. Use of Proceeds and Repayment of Richemont Loan.
(a) Hanover agrees to use all of the proceeds of the
$30,000,000 Richemont Loan solely to make cash capital contributions or
intercompany cash advances to Revolving Loan Borrowers and Revolving Loan
Borrowers agree to use the proceeds thereof from Hanover solely for working
capital or for other proper corporate purposes of Revolving Loan Borrowers not
otherwise prohibited by the terms of the Loan Agreement and the other Financing
Agreements. Hanover and Revolving Loan Borrowers shall arrange for the
disbursement of the $30,000,000 Richemont Loan and the corresponding cash
capital contributions or intercompany cash advances by Hanover to Revolving Loan
Borrowers, by wire transfer(s) directly from Richemont to the Blocked Account(s)
designated by Lender, for credit to the applicable Revolving Loan Borrowers'
Revolving Loan accounts maintained by Lender.
(b) Hanover agrees and acknowledges that Richemont's
rights to payment of the $30,000,000 Richemont Loan and certain other related
indebtedness and obligations shall be subordinated in favor of Lender and may
only be paid by Hanover and received by Richemont as and to the extent permitted
by the terms of the subordination agreement delivered pursuant to Section
4(b)(ii) hereof.
(c) Hanover and the other Guarantors and Borrowers
hereby acknowledge and confirm that nothing contained herein or in Sections 6.5
and 6.6 of the Loan Agreement shall be construed or interpreted to permit
Revolving Loan Borrowers (i) to repay any intercompany cash advances made by
Hanover to Revolving Loan Borrowers with the proceeds of the $30,000,000
Richemont Loan for the purpose of repaying the indebtedness of Hanover to
Richemont or (ii) to declare or pay any dividend on account of any capital stock
of Revolving Loan Borrowers evidencing any cash capital contributions by Hanover
with the proceeds of the $30,000,000 Richemont Loan or to redeem, retire,
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<PAGE> 4
defease, purchase or otherwise acquire for value any shares of such capital
stock of Revolving Loan Borrowers.
3. Representations Warranties and Covenants. Borrowers
represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:
(a) This Amendment has been duly authorized, executed
and delivered by all necessary action of each of the Borrowers and Guarantors
which is a party hereto, and is in full force and effect, and the agreements and
obligations of Borrowers and Guarantors, as the case may be, contained herein
constitute legal, valid and binding obligations of Borrowers and Guarantors, as
the case may be, enforceable against them in accordance with their terms.
(b) Neither the execution and delivery of the
$30,000,000 Richemont Note, the making of the cash capital contributions or
intercompany cash loans by Hanover to Revolving Loan Borrowers contemplated by
Section 2 hereof, or any other agreements, documents or instruments in
connection therewith, nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof (i) has violated or
shall violate any Federal or State securities laws or any other law or
regulation or any order or decree of any court or governmental instrumentality
in any respect, or (ii) does, or shall conflict with or result in the breach of,
or constitute a default in any respect under any mortgage, deed of trust,
security agreement, agreement or instrument to which Hanover or any other
Guarantor or any Borrower is a party or may be bound, or (iii) does or shall
violate any provision of the Certificate of Incorporation or By-Laws of Hanover
of any other Guarantor or any Borrower.
(c) All of the representations and warranties set
forth in the Loan Agreement as amended hereby, and the other Financing
Agreements, are true and correct in all material respects after giving effect to
the provisions of this Amendment, except to the extent any such representation
or warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct as of such date.
(d) After giving effect to the provisions of this
Amendment, no Event of Default or Incipient Default exists or has occurred and
is continuing.
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<PAGE> 5
4. Conditions Precedent. Concurrently with the execution
hereof, and as a condition to the effectiveness of this Amendment and the
agreement of Lender to the modifications, waivers and amendments set forth in
this Amendment:
(a) Lender shall have received an original of this
Amendment, in form and substance satisfactory to Lender, duly authorized,
executed and delivered by Borrowers and Guarantors; and
(b) Lender shall have received, each in form and
substance satisfactory to Lender,
(i) a true and complete copy of the $30,000,000
Richemont Note and all agreements, documents and instruments relating thereto,
and
(ii) a written subordination agreement, dated as
of the date hereof, between Richemont and Lender, as acknowledged by Hanover,
pursuant to which, among other things, Richemont shall have subordinated its
right to payment under the $30,000,000 Richemont Note to the prior indefeasible
payment of all of the Obligations, to the extent provided therein, duly
authorized, executed and delivered by Hanover and Richemont, together with an
opinion of Luxembourg counsel to Richemont addressed to Lender with respect to
the due authorization, execution and validity and enforceability of such
subordination agreement, and as to such other matters as Lender shall reasonably
require; and
(iii) true and complete copies of all
agreements, documents instruments evidencing the cash capital contributions or
intercompany cash advances by Hanover to Revolving Loan Borrowers contemplated
by Section 2 hereof.
5. Effect of this Amendment. This Amendment constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.
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<PAGE> 6
6. Further Assurances. Borrowers and Guarantors shall execute
and deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.
7. Governing Law. The rights and obligations hereunder of each
of the parties hereto shall be governed by and interpreted and determined in
accordance with the internal laws of the State of New York (without giving
effect to principles of conflicts of laws).
8. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Counterparts. This Amendment may be executed in any number
of counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By:/S/ JANET S. LAST
-------------------------
Title: Vice President
----------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
----------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 7
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BRAWN OF CALIFORNIA, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
GUMP'S BY MAIL, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
GUMP'S CORP.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
THE COMPANY STORE, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
TWEEDS, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 8
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
LWI HOLDINGS, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
AEGIS CATALOG CORPORATION
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
HANOVER DIRECT VIRGINIA INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
HANOVER REALTY, INC.
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
THE AUSTAD COMPANY
/s/ Edward J. O'Brien
By:_________________________
Vice President
Title:______________________
By their signatures below, the undersigned
Guarantors acknowledge and agree to be bound
by the applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
/s/ Edward J. O'Brien
By:____________________________
Senior Vice President
Title:_________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 9
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS RETAIL CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
AEGIS SAFETY HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
AEGIS VENTURES, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
AMERICAN DOWN & TEXTILE COMPANY
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
BRAWN WHOLESALE CORP.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
THE COMPANY FACTORY, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
THE COMPANY OFFICE, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 10
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
COMPANY STORE HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
D.M. ADVERTISING, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
GUMP'S CATALOG, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
GUMP'S HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
HANOVER CASUALS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
HANOVER CATALOG HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
HANOVER FINANCE CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 11
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER LIST MANAGEMENT, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
HANOVER VENTURES, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
LEICHTUNG OF MICHIGAN, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
LWI RETAIL, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
SCANDIA DOWN CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
TWEEDS OF VERMONT, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 12
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
YORK FULFILLMENT COMPANY, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
AUSTAD HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
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<PAGE> 1
EXHIBIT 10.28
TENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
AND AMENDMENT TO TERM NOTES
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
October 31, 1997, by and among CONGRESS FINANCIAL CORPORATION, a California
corporation ("Lender"), 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 ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI
HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a
Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover
Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and
together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and
Hanover Realty, each individually referred to herein as a "Borrower" and
collectively, "Borrowers"), and HANOVER DIRECT, INC., a Delaware corporation
("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY
HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware
corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN
WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a
Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation,
COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a
New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S
HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware
corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER
FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New
Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LWI RETAIL,
INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation,
TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC.,
a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation
(each individually a "Guarantor" and collectively, "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrowers, Guarantors and Lender are parties to the
Loan and Security Agreement, dated November 14, 1995, as amended by the First
Amendment to Loan and Security Agreement, dated February 22, 1996 (the "First
Amendment to Loan Agreement"), the Second Amendment to Loan and Security
Agreement, dated April 16, 1996, the Third Amendment to Loan and Security
Agreement, dated May 24, 1996, the Fourth Amendment to Loan and Security
Agreement, dated May 31, 1996, the Fifth Amendment to
<PAGE> 2
Loan and Security Agreement, dated September 11, 1996, the Sixth Amendment to
Loan and Security Agreement, dated as of December 5, 1996, the Seventh Amendment
to Loan and Security Agreement, dated as of December 18, 1996, the Eighth
Amendment to Loan and Security Agreement, dated as of March 26, 1997, and the
Ninth Amendment to Loan and Security Agreement, dated as of April 18, 1997 (as
so amended, the "Loan Agreement"), pursuant to which Lender has made loans and
advances to Borrowers; and
WHEREAS, Borrowers and Guarantors have requested that Lender
consent to, and enter into certain amendments to the Loan Agreement and
agreements in connection with, certain mergers of certain former and existing
Borrowers and/or Guarantors described herein and the dissolution of a former
Guarantor described herein, and to extend the maturity dates and amortization
schedules in respect of the outstanding Term Loans; and
WHEREAS, the parties to the Loan Agreement desire to enter
into this Tenth Amendment to Loan and Security Agreement (this "Amendment") to
evidence and effectuate such consents, amendments and agreements, subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
(a) Additional Definitions. As used herein or in any
of the other Financing Agreements, the following terms shall have the meanings
given to them below, and the Loan Agreement shall be deemed and is hereby
amended to include, in addition and not in limitation, the following
definitions:
(i) "Hanover Direct NJ/DM Advertising Merger"
shall mean the merger of Hanover Direct New Jersey, Inc. with and into D.M.
Advertising, Inc., with D.M. Advertising, Inc. as the surviving corporation.
(ii) "Hanover Holdings/Aegis Holdings Merger"
shall mean the merger of Hanover Holdings, Inc. with and into Aegis Safety
Holdings, Inc., with Aegis Safety Holdings, Inc. as the surviving corporation.
(iii) "Hanover Subsidiary Merger Agreements"
shall mean, collectively, the certificates or agreements executed, delivered or
filed in connection with, or otherwise evidencing, the Hanover Direct NJ/DM
Advertising Merger, the Hanover Holdings/Aegis Holdings Merger, the
Skandia/American Down Merger and the TW Acquisitions/Tweeds Merger, and all
related
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<PAGE> 3
agreements, documents and instruments, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(iv) "Leichtung of Michigan Dissolution
Agreements" shall mean, collectively, the certificates or agreements executed,
delivered or filed in connection with, or otherwise evidencing, the dissolution
of Leichtung of Michigan, Inc., and all related agreements, documents and
instruments, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(v) "Skandia/American Down Merger" shall mean
the merger of Skandia Downsales, Inc. with and into American Down & Textile
Company, with American Down & Textile Company as the surviving corporation.
(vi) "TW Acquisitions/Tweeds Merger" shall mean
the merger of TW Acquisitions, Inc. with and into Tweeds, Inc., with Tweeds,
Inc. as the surviving corporation.
(b) Interpretation. For purposes of this Amendment,
unless otherwise defined herein, all capitalized terms used herein that are
defined in the Loan Agreement, shall have the respective meanings given to such
terms in the Loan Agreement.
2. Consents.
(a) Mergers. Subject to the terms and conditions
contained herein and in the Loan Agreement and in the other Financing
Agreements, and notwithstanding anything contained in Section 6.7 of the Loan
Agreement to the contrary, Lender consents to the Hanover Direct NJ/DM
Advertising Merger, the TW Acquisition/Tweeds Merger, the Hanover Holdings/Aegis
Holdings Merger and the Skandia/American Down Merger, each of which was effected
prior to the date hereof.
(b) Guarantor dissolution. Subject to the terms and
conditions contained herein and in the Loan Agreement and in the other Financing
Agreements, and notwithstanding anything contained in Section 6.7 of the Loan
Agreement to the contrary, Lender consents to the dissolution of Leichtung of
Michigan, Inc., which was effected prior to the date hereof.
(c) Additional consent. Subject to the terms and
conditions contained herein and in the Loan Agreement and in the other Financing
Agreements, and notwithstanding anything contained in Section 5.7 of the Loan
Agreement to the contrary, Lender consents to the relocation of the chief
executive office
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<PAGE> 4
of GBM from 135 Post Street, San Francisco, California 94108 to 1500 Harbor
Boulevard, Weehawken, New Jersey 07087.
3. Acknowledgments Regarding Mergers and Dissolutions.
(a) Mergers. Each of Borrowers and Guarantors hereby
acknowledges, confirms and agrees that, upon the effectiveness of the mergers
consented to under Section 2(a) hereof, by operation of law and this Amendment:
(i) Tweeds, as the surviving corporation
pursuant to the TW Acquisitions/Tweeds Merger, is now and shall continue to be
directly and primarily liable in all respects for the Obligations of TW
Acquisitions arising prior to the effective time of the TW Acquisitions/Tweeds
Merger;
(ii) American Down & Textile Company, as the
surviving corporation pursuant to the Skandia/American Down Merger, is now and
shall continue to be directly and primarily liable in all respects for the
Obligations of Skandia Downsales, Inc. arising prior to the effective time of
the Skandia/American Down Merger;
(iii) D.M. Advertising, Inc., as the surviving
corporation pursuant to the Hanover Direct NJ/DM Advertising Merger, is now and
shall continue to be directly and primarily liable in all respects for the
Obligations of Hanover Direct New Jersey, Inc. arising prior to the effective
time of the Hanover Direct NJ/DM Advertising Merger;
(iv) Aegis Safety Holdings, Inc., as the
surviving corporation pursuant to the Hanover Holdings/Aegis Holdings Merger, is
now and shall continue to be directly and primarily liable in all respects for
the Obligations of Hanover Holdings, Inc. arising prior to the effective time of
the Hanover Holdings/Aegis Holdings Merger;
(v) Lender has and shall continue to have valid
and perfected security interests, liens and rights in and to all assets and
properties owned and acquired by the respective surviving corporations,
including, without limitation, all assets and properties acquired pursuant to
the mergers consented to under Section 2(a) hereof, and all such assets and
properties shall be deemed included in the Guarantor Collateral or the
Collateral, as the case may be, and such security interests, liens and rights
and their perfection and priorities shall continue in all respects in full force
and effect; and
(vi) Without limiting the generality of the
foregoing, (A) none of the mergers consented to under Section 2(a) hereof shall
in any way limit, impair or adversely affect the Obligations now or hereafter
owed to Lender by any existing
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<PAGE> 5
or former Borrowers or Guarantors or any security interests or liens in any
assets or properties securing the same, and (B) the security interests, liens
and rights of Lender in and to the assets and properties of each Borrower and
each Guarantor that is either the merged or the surviving corporation pursuant
to the mergers consented to under Section 2(a) hereof, do and shall, upon and
after the consummation of such mergers, continue to secure all Obligations to
Lender of the merged corporation and of each surviving corporation, in addition
to all other existing and future Obligations of such surviving corporations to
Lender.
(b) Guarantor dissolutions. Each of Borrowers and
Guarantors hereby acknowledges, confirms and agrees that:
(i) The dissolutions of those former Guarantors
consented to under Section 2(b) hereof have not and shall not in any way limit,
impair or adversely affect the Obligations now or hereafter owed to Lender by
any continuing Borrower or Guarantor, including, without limitation, any such
Obligations they have as shareholders of such dissolved Guarantors pursuant to
applicable law; and
(ii) Lender has and shall continue to have valid
and perfected security interests, liens and rights in and to all assets and
properties of each existing or former Guarantor whose dissolution has been
consented to under Section 2(b) hereof. Such assets and properties shall
continue to be deemed included in the Guarantor Collateral, and such security
interests, liens and rights and their perfection and priorities shall continue
in all respects in full force and effect.
4. Conforming Amendments to Description of Austad and Austad
Holdings Collateral.
(a) Austad and Lender hereby agree that the last
sentence of Section 3(a) of the First Amendment to Loan Agreement appearing on
page 8 thereof is hereby deleted in its entirety and replaced with the
following:
"Notwithstanding the foregoing, the Collateral does not
include (a) the GECC Collateral owned by Austad, other than
the right, title and interest of Austad in and to the GECC
Reserve Balance or (b) any leasehold interests of Austad."
(b) Austad Holdings and Lender hereby agree that
the last sentence of Section 3(b) of the First Amendment to Loan Agreement
appearing on page 10 thereof, as amended by Section 4(a) hereof, shall be deemed
deleted in its entirety and replaced with the following:
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<PAGE> 6
"Notwithstanding the foregoing, the Collateral does not
include (a) the GECC Collateral owned by Austad Holdings,
other than the right, title and interest of Austad Holdings in
the GECC Reserve Balance or (b) any leasehold interest of
Austad Holdings."
5. Amendments to Term Notes.
(a) The Term Promissory Note, dated November 14, 1995, in the
original principal sum of $4,000,000, made by HDPI to the order of Lender in
order to evidence the HDPI Term Loan, is hereby amended, such that, in lieu of
the final principal installment otherwise payable thereunder on November 1,
1997, the unpaid principal balance thereof, being $3,233,318 as of the date
hereof, shall be payable in thirteen (13) consecutive monthly installments (or
earlier as provided in the Loan Agreement or in said note) on the first day of
each month commencing November 1, 1997, of which the first twelve (12) such
installments shall each be in the amount of THIRTY-THREE THOUSAND THREE HUNDRED
THIRTY-FOUR ($33,334) DOLLARS, and the last installment of which shall be in the
amount of the entire unpaid balance of such note. Interest accrued and accruing
under such note shall continue to be paid and payable as provided in such note
and the Loan Agreement. Such note shall continue to be secured by the
Collateral, including, without limitation, the Real Property and other property
of HDPI located in Hanover, Pennsylvania, as set forth in the Open-End Fee and
Leasehold Mortgage and Security Agreement dated as of November 14, 1995, made by
HDPI in favor of Lender, and by all other security granted by HDPI under the
other Financing Agreements.
(b) The Term Promissory Note, dated November 14, 1995, in the
original principal sum of $6,000,000, made by Hanover Realty to the order of
Lender is hereby amended, such that, in lieu of the final principal installment
otherwise payable thereunder on November 1, 1997, the unpaid principal balance
thereof, being $4,850,000 as of the date hereof, shall be payable in thirteen
(13) consecutive monthly installments (or earlier as provided in the Loan
Agreement or in said note) on the first day of each month commencing November 1,
1997, of which the first twelve (12) such installments shall each be in the
amount of FIFTY THOUSAND ($50,000) DOLLARS, and the last installment of which
shall be in the amount of the entire unpaid balance of such note. Interest
accrued and accruing under such note shall continue to be paid and payable as
provided in such note and the Loan Agreement. Such note shall continue to be
secured by the Collateral, including, without limitation, the Real Property and
other property of Hanover Realty located in Roanoke, Virginia, as set forth in
the Credit Line Deed of Trust, Assignment and Security Agreement dated as of
November 14, 1995, made by Hanover
-6-
<PAGE> 7
Realty in favor of Lender, and by all other security granted by Hanover Realty
under the other Financing Agreements.
6. Representations, Warranties and Covenants. Borrowers and
Guarantors represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:
(a) This Amendment has been duly authorized, executed
and delivered by all necessary action of each of the Borrowers and Guarantors
which is a party hereto, and is in full force and effect, and the agreements and
obligations of Borrowers and Guarantors, as the case may be, contained herein
constitute legal, valid and binding obligations of Borrowers and Guarantors, as
the case may be, enforceable against them in accordance with their terms.
(b) Each of the mergers consented to under Section
2(a) hereof has become effective in accordance with the terms of each of the
Hanover Subsidiary Merger Agreements applicable to it and of the applicable
corporate statutes of the States of incorporation of Tweeds and each Guarantor
that is a constituent corporation to the mergers consented to under Section 2(a)
hereof. As of the date hereof, (i) Tweeds is the surviving corporation of the TW
Acquisitions/Tweeds Merger, (ii) DM Advertising is the surviving corporation of
the Hanover Direct NJ/DM Advertising Merger, (iii) Aegis Safety Holdings, Inc.
is the surviving corporation of the Hanover Holdings/Aegis Holdings Merger, and
(iv) American Down & Textile Company is the surviving corporation of the
Skandia/American Down Merger.
(c) Neither the consummation of the mergers, as
consented to under Section 2(a) hereof, nor the dissolution of Leichtung of
Michigan, Inc. as consented to under Section 2(b) hereof, nor the execution,
delivery and/or filing of the Hanover Subsidiary Merger Agreements, the
Leichtung of Michigan Dissolution Agreements or any other agreements, documents
or instruments in connection therewith, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof has resulted in
or shall result in the creation or imposition of any lien, claim, charge or
incumbrance upon any of the Collateral, except in favor of Lender.
(d) All actions and proceedings required by the
Hanover Subsidiary Merger Agreements applicable to the mergers consented to
under Section 2(a) hereof and the Leichtung of
-7-
<PAGE> 8
Michigan Dissolution Agreements, applicable law and regulation, have been taken
prior to the effectiveness of such mergers and dissolutions and all transactions
required thereunder have been and shall be duly and validly consummated.
(e) No court of competent jurisdiction has or, prior
to the effectiveness thereof, shall have issued any injunction, restraining
order or other order which prohibits consummation of the mergers as consented to
under Section 2(a) hereof or the dissolution of Leichtung of Michigan, Inc. as
consented to under Section 2(b) hereof, and no governmental action or proceeding
has been threatened or commenced seeking any injunction, restraining order or
other order which seeks to void or otherwise modify the transactions described
in the Hanover Subsidiary Merger Agreements or the Leichtung of Michigan
Dissolution Agreements.
(f) Neither the consummation of the mergers consented
to under Section 2(a) hereof, nor the dissolution of Leichtung of Michigan, Inc.
consented to under Section 2(b) hereof, nor the execution, delivery or filing of
the Hanover Subsidiary Merger Agreements, the Leichtung of Michigan Dissolution
Agreements or any other agreements, documents or instruments in connection
therewith, nor the consummation of the transactions therein contemplated, nor
compliance with the provisions thereof (i) has violated or shall violate any
Federal or State securities laws, any State corporation law, or any other law or
regulation or any order or decree of any court or governmental instrumentality
in any respect, or (ii) does or shall conflict with or result in the breach of,
or constitute a default in any respect under any mortgage, deed of trust,
security agreement, agreement or instrument to which any existing or former
Guarantor or Borrower is a party or may be bound, or (iii) does or shall violate
any provision of the Certificate of Incorporation or By-Laws of any Guarantor or
any Borrower.
(g) The aggregate amount of the actual and contingent
indebtedness, liabilities and obligations, other than those owed to Lender,
incurred by or relating to Leichtung of Michigan, Inc. which was dissolved as
consented to under Section 2(b) hereof, does not exceed $1,000.
(h) The chief executive office of GBM is 1500 Harbor
Boulevard, Weehawken, New Jersey 07087.
(i) All of the representations and warranties set
forth in the Loan Agreement as amended hereby, and the other Financing
Agreements, are true and correct in all material respects after giving effect to
the provisions of this Amendment, except to the extent any such representation
or warranty is made as of a specified date, in which case such representation or
warranty shall have been true and correct as of such date.
-8-
<PAGE> 9
(j) After giving effect to the provisions of this
Amendment, no Event of Default or Incipient Default exists or has occurred and
is continuing.
(k) Within fifteen (15) days after the date hereof,
Borrowers and Guarantors shall deliver and/or cause to be delivered to Lender,
each in form and substance satisfactory to Lender, appropriate UCC amendments to
the existing UCC financing statements filed by the Lender against (A) the merged
Borrower or Guarantor changing the debtor's name and/or mailing address to that
of the respective surviving corporation of the merger with such merged
corporation as consented to under Section 2(a) hereof and (B) GBM changing the
mailing address of GBM to 1500 Harbor Boulevard, Weehawken, New Jersey 07087.
7. Conditions Precedent. Concurrently with the execution
hereof, and as a condition to the effectiveness of this Amendment and the
consents hereunder and the agreement of Lender to the modifications and
amendments set forth in this Amendment:
(a) Lender shall have received an original of this
Amendment, in form and substance satisfactory to Lender, duly authorized,
executed and delivered by Borrowers and Guarantors;
(b) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Hanover Subsidiary Merger Agreements
with respect to each of the Hanover Holdings/Aegis Holdings Merger, the Hanover
Direct NJ/DM Advertising Merger, the Skandia/American Down Merger and the TW
Acquisitions/Tweeds Merger (collectively, the "Consummated Subsidiary Mergers")
and the Leichtung of Michigan Dissolution Agreements with respect to the
dissolution of Leichtung of Michigan, Inc. have been duly executed and delivered
by and to the appropriate parties thereto and the transactions contemplated
under the terms of such Hanover Subsidiary Merger Agreements and Leichtung of
Michigan Dissolution Agreements have been effected prior to the execution and
delivery of this Amendment; and
(c) Lender shall have received, in form and substance
satisfactory to Lender, (i) on or before the date hereof as to the Consummated
Subsidiary Mergers, evidence that the certificates of merger with respect to
each of the mergers consented to under Section 2(a) hereof have been filed with
the Secretary of State of the appropriate States of incorporation of each
constituent corporation, and (ii) on or before the date hereof with respect to
the dissolution of Leichtung of Michigan, Inc. consented to under Section 2(b)
hereof, evidence that a certificate of dissolution has been issued by the
Michigan Department of Consumer and Industry Services.
8. Effect of this Amendment. This Amendment constitutes the
entire agreement of the parties with respect to
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<PAGE> 10
the subject matter hereof, and supersedes all prior oral or written
communications, memoranda, proposals, negotiations, discussions, term sheets and
commitments with respect to the subject matter hereof. Except as expressly
provided herein, no other changes or modifications to the Loan Agreement or any
of the other Financing Agreements, or waivers of or consents under any
provisions of any of the foregoing, are intended or implied by this Amendment,
and in all other respects the Financing Agreements are hereby specifically
ratified, restated and confirmed by all parties hereto as of the effective date
hereof. To the extent that any provision of the Loan Agreement or any of the
other Financing Agreements conflicts with any provision of this Amendment, the
provision of this Amendment shall control.
9. Further Assurances. Borrowers and Guarantors shall execute
and deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.
10. Governing Law. The rights and obligations hereunder of
each of the parties hereto shall be governed by and interpreted and determined
in accordance with the internal laws of the State of New York (without giving
effect to principles of conflicts of laws).
11. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
12. Counterparts. This Amendment may be executed in any number
of counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By /S/ JANET S. LAST
-----------------------
Title: Vice President
--------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 11
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
----------------------
BRAWN OF CALIFORNIA, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
GUMP'S BY MAIL, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
GUMP'S CORP.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
THE COMPANY STORE, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
TWEEDS, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
LWI HOLDINGS, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-11-
<PAGE> 12
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS CATALOG CORPORATION
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
HANOVER DIRECT VIRGINIA INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
HANOVER REALTY, INC.
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
THE AUSTAD COMPANY
By: /s/ Edward J. O'Brien
-------------------------
Title: Vice President
---------------------
By their signatures below, the undersigned
Guarantors acknowledge and agree to be bound
by the applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Senior Vice President
-------------------------
AEGIS RETAIL CORPORATION
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-12-
<PAGE> 13
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS SAFETY HOLDINGS, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
AEGIS VENTURES, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
AMERICAN DOWN & TEXTILE COMPANY
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
------------------------
BRAWN WHOLESALE CORP.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
THE COMPANY FACTORY, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
------------------------
THE COMPANY OFFICE, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
COMPANY STORE HOLDINGS, INC.
By: /s/ Edward J. O'Brien
----------------------------
Title: Vice President
-------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 14
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
D.M. ADVERTISING, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
GUMP'S CATALOG, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
GUMP'S HOLDINGS, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
HANOVER CASUALS, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
HANOVER CATALOG HOLDINGS, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
HANOVER FINANCE CORPORATION
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
HANOVER LIST MANAGEMENT, INC.
By: /s/ Edward J. O'Brien
---------------------------
Title: Vice President
-----------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 15
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER VENTURES, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
LWI RETAIL, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
SCANDIA DOWN CORPORATION
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
TWEEDS OF VERMONT, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
YORK FULFILLMENT COMPANY, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
AUSTAD HOLDINGS, INC.
/s/ Edward J. O'Brien
By:____________________________
Vice President
Title:_________________________
-15-
<PAGE> 1
Exhibit 10.29
ELEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
-------------------------------------------------
ELEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of March
25, 1998, by and among CONGRESS FINANCIAL CORPORATION, a California corporation
("Lender"), 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., a Delaware corporation ("HDV"), HANOVER
REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY,
a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM,
Gump's, TCS, Tweeds, LWI, Aegis, HDV and Hanover Realty, each, individually, a
"Borrower" and, collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware
corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS
SAFETY HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware
corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN
WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a
Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation,
COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a
New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S
HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware
corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER
FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New
Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LWI RETAIL,
INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation,
TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC.,
a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation
(each, individually, a "Guarantor" and, collectively, "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and
Security Agreement, dated November 14, 1995, as amended by the First Amendment
to Loan and Security Agreement, dated February 22, 1996, the Second Amendment to
Loan and Security Agreement, dated April 16, 1996 (the "Second Amendment to Loan
Agreement"), the Third Amendment to Loan and Security Agreement, dated May 24,
1996, the Fourth Amendment to Loan and Security Agreement, dated May 31, 1996,
the Fifth Amendment to Loan and Security Agreement, dated September 11, 1996,
the Sixth Amendment to Loan and Security Agreement, dated as of December 5,
1996, the Seventh Amendment to Loan and Security Agreement, dated as of
<PAGE> 2
December 18, 1996, the Eighth Amendment to Loan and Security Agreement, dated as
of March 26, 1997, the Ninth Amendment to Loan and Security Agreement, dated as
of April 18, 1997, and the Tenth Amendment to Loan and Security Agreement, dated
as of October 31, 1997 (the "Loan Agreement"), pursuant to which Lender has made
loans and advances to Borrowers; and
WHEREAS, Borrowers and Guarantors have requested that Lender (a) make
an additional term loan to HDPI, consolidate the principal amount of that term
loan with the outstanding principal balance of the existing HDPI Term Loan, and
agree to amend and restate the terms of the HDPI Term Loan as so consolidated,
(b) make an additional term loan to Hanover Realty, consolidate the principal
amount of that term loan with the outstanding principal balance of the existing
Hanover Realty Term Loan, and agree to amend and restate the terms of the
Hanover Realty Term Loan as so consolidated, (c) make available Eurodollar Rate
Loans (as hereinafter defined) to Borrowers, (d) modify the Interest Rate
applicable to loans, other than Eurodollar Rate Loans, (e) reduce the amount of
the monthly servicing fee, the annual facility fee and the Letter of Credit
Accommodation fee payable to Lender, (f) make certain revisions to the Inventory
Loan Formulas, (g) make available Revolving Accounts Loans to Revolving Loan
Borrowers in respect of Eligible Installment Receivables (as hereinafter
defined), and (h) extend the Renewal Date to January 31, 2001; and
WHEREAS, the parties to the Loan Agreement desire to enter into this
Eleventh Amendment to Loan and Security Agreement (this "Amendment") to evidence
and effectuate such amendments and agreements, to the extent and subject to the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
------------
(a) Additional Definitions. As used herein or in any of the other
Financing Agreements, the following terms shall have the meanings given to them
below, and the Loan Agreement shall be deemed and is hereby amended to include,
in addition and not in limitation, the following definitions:
(i) "Additional Hanover Realty Term Advance" shall have the
meaning set forth in Section 3 hereof.
(ii) "Additional HDPI Term Advance" shall have the meaning set
forth in Section 2 hereof.
- 2 -
<PAGE> 3
(iii) "Additional Term Advance Closing Date" shall mean the
date of funding of the Additional Term Advances.
(iv) "Additional Term Advances" shall mean the Additional HDPI
Term Advance and the Additional Hanover Realty Term Advance.
(v) "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (A) the Eurodollar Rate for such Interest Period by (B)
the percentage equal to: (1) one minus (2) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of the Reference Bank used to fund a Eurodollar Rate Loan or any
Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the
Reference Bank actually holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
(vi) "Deferred Billing Loan Formula" shall have the meaning
given in Section 2.1(a)(i) of the Loan Agreement as amended hereby.
(vii) "Eligible Installment Receivables" shall mean
MasterCard/VISA Receivables of Installment Plan Borrowers arising from sales of
merchandise offered for sale under an Installment Billing Program, and which
MasterCard/VISA Receivables are and continue to be acceptable to Lender based
on the criteria set forth below. In general, a MasterCard/VISA Receivable shall
be an Eligible Installment Receivable if:
(A) such MasterCard/VISA Receivable arises from the actual
and bona fide sale and delivery to a customer by an Installment Billing Borrower
in the ordinary course of business, which sale is completed in accordance with
an Installment Billing Program and pursuant to the terms and provisions
contained in any agreements between the Installment Billing Borrower and its
customer related thereto;
(B) the credit card transaction and sales records evidencing
such MasterCard/VISA Receivable are submitted to Litle by the Installment
Billing Borrower and/or Hanover in its capacity as its agent in accordance with
the Installment Billing Agreement as in effect on the date hereof and the other
Litle Agreements;
- 3 -
<PAGE> 4
(C) with respect to each such MasterCard/VISA Receivable
arising under an Installment Billing Program of an Installment Billing Borrower,
other than GBM, Austad or Brawn:
(1) Litle remits to the Blocked Account specified by
Lender, on or within three (3) business days after the date of the sale giving
rise to such sale or one (1) business day after the date of submission thereof
to Litle, whichever is earlier, an amount equal to the down payment payable in
respect of such sale, which down payment shall be in an amount equal to at least
(x) twenty-five percent (25%) of the catalog purchase price of the merchandise
so sold, plus (y) all sales, excise or similar taxes and all charges for
shipping and handling with respect to the merchandise so sold, and
(2) Litle remits to the Blocked Account specified by
Lender, an amount equal to the unpaid balance of the catalog purchase price of
the merchandise so sold (the "Installment Balance") in three (3) consecutive
monthly installments; provided, that, each such installment is in an amount not
less than thirty-three and one-third percent (33 1/3%) of such unpaid balance
and such installments are remitted by Litle no later than three (3) business
days following, respectively, the thirtieth (30th), sixtieth (60th) and
ninetieth (90th) days after the date of the sale giving rise to such
MasterCard/VISA Receivable or one (1) business day after the respective date of
submission thereof to Litle, whichever is earlier;
(D) with respect to each such MasterCard/VISA Receivable
arising under an Installment Billing Program of GBM or Austad:
(1) Litle remits to the Blocked Account specified by
Lender, on or within three (3) business days after the date of the sale giving
rise to such sale an amount equal to the down payment in respect of such sale or
one (1) business day after the date of submission thereof to Litle, whichever is
earlier, which down payment shall be in an amount equal to at least (x) twenty
percent (20%) of the catalog purchase price of the merchandise so sold, plus (y)
all sales, excise or similar taxes and all charges for shipping and handling
with respect to the merchandise so sold, and
(2) Litle remits to the Blocked Account specified by
Lender an amount equal to the unpaid balance of the catalog purchase price of
the merchandise so sold in four (4) consecutive monthly installments; provided,
that, each such installment payment is in an amount not less than twenty-five
percent (25%) of such unpaid balance and such installments are remitted by Litle
to such Blocked Account no later than three (3) business days following,
respectively, the thirtieth (30th),
- 4 -
<PAGE> 5
sixtieth (60th), ninetieth (90th), and one hundred twentieth (120th) days after
the date of the sale giving rise to such MasterCard/VISA Receivable or one (1)
business day after the respective date of submission thereof to Litle, whichever
is earlier;
(E) with respect to each such MasterCard/VISA Receivable
arising under an Installment Billing Program of Brawn:
(1) Litle remits to the Blocked Account specified by
Lender, on or within three (3) business days after the date of the sale giving
rise to such sale or one (1) business day after the date of submission thereof
to Litle, whichever is earlier, an amount equal to the down payment in respect
of such sale, which down payment shall be in an amount equal to at least (x)
thirty-three and one-third percent (33 1/3%) of the catalog purchase price of
the merchandise so sold, plus (y) all sales, excise or similar taxes and all
charges for shipping and handling with respect to the merchandise so sold, and
(2) Litle remits to the Blocked Account specified by
Lender an amount equal to the unpaid balance of the catalog purchase price of
the merchandise so sold in two (2) consecutive monthly installments; provided,
that, each such installment payment is in an amount not less than fifty percent
(50%) of such unpaid balance and such installments are remitted by Litle to such
Blocked Account no later than three (3) business days following, respectively,
the thirtieth (30th) and sixtieth (60th) days after the date of the sale giving
rise to such MasterCard/VISA Receivable or one (1) business day after the
respective date of submission thereof to Litle, whichever is earlier;
(F) Litle has not failed, for any reason, to authorize,
accept or purchase any part of the customer's obligations in respect of the
sale, or to remit to the Blocked Account specified by Lender, the down payment
or any installment payment (or amounts equal thereto) when required hereunder
with respect to such MasterCard/VISA Receivable, as provided in clauses (C)(1),
(C)(2), (D)(1), (D)(2), (E)(1) or (E)(2) above, as applicable;
(G) such MasterCard/VISA Receivable complies with the
applicable terms and conditions contained in Section 6.12A of the Loan Agreement
as amended hereby;
(H) Litle has not asserted a counterclaim, defense or
dispute, and does not have any right of setoff against any MasterCard/VISA
Receivables, other than in respect of chargebacks for returns and customer
disputes in the ordinary course of business in accordance with the terms of the
Litle Agreements;
- 5 -
<PAGE> 6
(I) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of any MasterCard/VISA
Receivables or reduce the amount payable or delay payment by Litle or the
purchase thereof;
(J) such MasterCard/VISA Receivable, until purchased and paid
for in full by Litle, is subject to the first priority, valid and perfected
security interest of Lender and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except those permitted
in the Loan Agreement;
(K) Lender shall have received, in form and substance
reasonably satisfactory to Lender, a Third Party Credit Card Acknowledgment and
a copy of the Installment Billing Agreement, upon which Lender is expressly
permitted to rely, each duly authorized, executed and delivered by Litle, and no
cancellation, termination, or default by Litle or Hanover or any Revolving Loan
Borrower, or any suspension of Hanover or any Revolving Loan Borrower, or any
institution of or increase in reserves or designation of special member status,
shall have occurred under the Litle Agreements;
(L) neither Litle nor any officer or employee of Litle nor
the customer with respect to such MasterCard/VISA Receivable is an officer,
employee or agent of or affiliated with a member of the Affiliated Borrower
Group directly or indirectly by virtue of family membership, ownership, control,
management or otherwise; and
(M) there are no proceedings or actions which are threatened
or pending against Litle which might result in any material adverse change in
the financial condition of Litle or impair its ability to purchase and pay for
any MasterCard/VISA Receivables.
General criteria for Eligible Installment Billing Receivables may be established
and revised from time to time by Lender in good faith. Any MasterCard/VISA
Receivables or other Accounts of Borrowers which are not Eligible Installment
Billing Receivables shall nevertheless be part of the Collateral.
(viii) "Eurodollar Rate" shall mean with respect to the
Interest Period for a Eurodollar Rate Loan to a Borrower, the interest rate per
annum equal to the arithmetic average of the rates of interest per annum
(rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
percent) at which the Reference Bank is offered deposits of United States
dollars in the London interbank market (or other Eurodollar Rate market selected
by or on behalf of such Borrower and approved by Lender) on or about 9:00 a.m.
(New York time) two (2) Banking Days prior to the commencement of such Interest
Period in amounts substantially equal to the principal amount of the Eurodollar
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<PAGE> 7
Rate Loans requested by and available to such Borrower in accordance with the
Loan Agreement as amended hereby, with a maturity of comparable duration to the
Interest Period selected by such Borrower.
(ix) "Eurodollar Rate Loans" shall mean, individually and
collectively, Eurodollar Rate Revolving Loans and Eurodollar Rate Term Loans.
(x) "Eurodollar Rate Revolving Loans" shall mean any Revolving
Loans or portion thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the Loan Agreement as amended hereby.
(xi) "Eurodollar Rate Term Loans" shall mean any Term Loans or
portion thereof on which interest is payable based on the Adjusted Eurodollar
Rate in accordance with Loan Agreement as amended hereby.
(xii) "Installment Billing Agreement" shall mean the letter
agreement, dated on or about the date hereof, by and among Litle, Hanover and
Lender with respect to Installment Billing Programs of Borrowers, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
restated, renewed or replaced.
(xiii) "Installment Billing Borrowers" shall mean, individually
and collectively, each Revolving Loan Borrower who sells goods under an
Installment Billing Program.
(xiv) "Installment Billing Loan Formula" shall have the meaning
given in Section 2.1(a)(ii) of the Loan Agreement as amended hereby.
(xv) "Installment Billing Program" shall mean an installment
billing program from time to time made available by a Revolving Loan Borrower to
its mail order customers who wish to purchase merchandise from such Revolving
Loan Borrower offered for sale in its mail order catalogs pursuant to which each
of the following conditions are satisfied:
(A) such Revolving Loan Borrower, or Hanover as agent for
such Revolving Loan Borrower, verifies with the applicable Third Party Credit
Card Issuer or its agent that (1) upon the placement of an order by such
customer, such customer's bank credit card is valid, and that such customer has
sufficient credit available at such time to be charged the amount of the
applicable down payment as provided in subclause (B)(1), (C)(1) or (D)(1) below
and (2) on or before the respective installment payment date as provided in
subclause (B)(2), (C)(2) or (D)(2) below, that such customer has sufficient
credit available at such times to be charged the respective installment amount
as provided in those subclauses;
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<PAGE> 8
(B) after such verification, in the case of the purchase of
merchandise from such Revolving Loan Borrower, other than GBM, Austad or Brawn,
such Revolving Loan Borrower submits authorized charges on such customer's
credit card to Litle in the following amounts on the following dates:
(1) a down payment on the date of sale in the amount equal to
at least (x) twenty-five percent (25%) of the catalog purchase price of such
merchandise, plus (y) all sales, excise or similar taxes and all charges for
shipping and handling with respect to the merchandise so sold, and
(2) the unpaid balance of the catalog purchase price
with respect to such merchandise so sold in three (3) consecutive monthly
charges, each such charge to be in an amount equal to not less than thirty-three
and one-third percent (33 1/3%) of such unpaid balance, which charges shall be
submitted on or before, respectively, thirty (30) days, sixty (60) days and
ninety (90) days from the date of the sale;
(C) after such verification, in the case of the purchase of
merchandise from GBM or Austad, GBM or Austad submits authorized charges arising
from the respective purchase of its merchandise on such customer's credit card
to Litle in the following amounts on the following dates:
(1) a down payment on the date of sale in an amount
equal to at least (x) twenty percent (20%) of the catalog purchase price of such
merchandise, plus (y) all sales, excise or similar taxes and all charges for
shipping and handling with respect to the merchandise so sold, and
(2) the unpaid balance of the catalog purchase price
with respect to such merchandise in four (4) consecutive monthly charges, each
such charge to be in an amount equal to not less than twenty-five percent (25%)
of such unpaid balance, which charges shall be submitted on or before,
respectively, thirty (30) days, sixty (60) days, ninety (90) days and one
hundred twenty (120) days from the date of the sale;
(D) after such verification, in the case of the purchase of
merchandise from Brawn, Brawn submits authorized charges on such customer's
credit card to Litle in the following amounts on the following dates:
(1) a down payment on the date of sale in an amount
equal to at least (x) thirty-three and one-third percent (33 1/3%) of the
catalog purchase price of such merchandise, plus (y) all sales, excise or
similar taxes and all charges for shipping and handling with respect to the
merchandise so sold, and
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<PAGE> 9
(2) the unpaid balance of the catalog purchase price
with respect to such merchandise in two (2) consecutive monthly charges, each
such charge to be in an amount equal to not less than fifty percent (50%) of
such unpaid balance, which charges shall be submitted on or before,
respectively, thirty (30) days and sixty (60) days from the date of the sale;
(E) after such verification and prior to submission of the
charge for the down payment, such Revolving Loan Borrower ships the Inventory
purchased by such customer, together with an invoice dated the sale date;
(F) such Revolving Loan Borrower completes the credit card
transaction and sales records for such sale in accordance with the Litle
Agreements,
(G) Litle accepts the sales and charges for purchase on the
dates and in the amounts set forth in clauses (B), (C) and (D) above, as
applicable; and
(H) Litle remits amounts equal to the down payment and each
such installment payment to the Blocked Accounts in the amounts and on or within
three (3) business days after the respective dates set forth in clauses (B), (C)
or (D) above giving rise to such sales or one (1) business day after the
respective dates of submission thereof to Litle, whichever is earlier, as
applicable.
(xvi) "Interest Period" shall mean, for any Eurodollar Rate
Loan, a period of approximately one (1), two (2), or three (3) months duration
as a Borrower or Hanover on behalf of a Borrower may elect, the exact duration
to be determined in accordance with the customary practice in the applicable
Eurodollar Rate market; provided, that, no Borrower or Hanover on behalf of a
Borrower may elect an Interest Period that will end after the last day of the
then-current term of this Agreement.
(xvii) "Net Amount of Eligible Installment Billing Receivables"
shall mean the gross amount of Eligible Installment Billing Receivables, less
(A) discounts and fees payable by Installment Billing Borrowers to Litle or
claimed by Litle with respect thereto, and (B) to the extent not included under
clause (A) any prepayments, holdbacks, chargeback deposits, chargeback reserves,
refund reserves, processing fees and other reserves, claims, credits (including
credits for returned goods), allowances or other charges payable to or claimed
by Litle.
(xviii) "Original Hanover Realty Term Note" shall mean the Term
Promissory Note, dated November 14, 1995, made by Hanover Realty payable to the
order of Lender in the original principal amount of $6,000,000, as in effect
immediately prior to
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<PAGE> 10
the execution and delivery of the Restated Hanover Realty Term Note.
(xix) "Original HDPI Term Note" shall mean the Term Promissory
Note, dated November 14, 1995, made by HDPI payable to the order of Lender in
the original principal amount of $4,000,000, as in effect immediately prior to
the execution and delivery of the Restated HDPI Term Note.
(xx) "Prime Rate Loans" shall mean, individually and
collectively, the Prime Rate Revolving Loans and the Prime Rate Term Loans.
(xxi) "Prime Rate Revolving Loans" shall mean any Revolving
Loans or portion thereof on which interest is payable based on the Prime Rate in
accordance with the Loan Agreement as amended hereby.
(xxii) "Prime Rate Term Loans" shall mean any Term Loans or
portion thereof on which interest is payable based on the Prime Rate in
accordance with the Loan Agreement as amended hereby.
(xxiii) "Reference Bank" shall mean CoreStates Bank, N.A., or
such other bank as Lender may from time to time designate.
(xxiv) "Restated Hanover Realty Term Note" shall mean the
Amended and Restated Term Promissory Note, in the form of Exhibit B annexed
hereto, appropriately completed, to be dated as of the Additional Term Advance
Closing Date, to be made by Hanover Realty payable to the order of Lender in the
original principal amount equal to (A) $8,800,000, minus (B) the product of
$73,333 multiplied by the number of calendar months between March 1, 1998 and
the first day of the month in which the Additional Term Advance Closing Date
occurs, as such note exists on the date it is executed and delivered or may
thereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(xxv) "Restated HDPI Term Note" shall mean the Amended and
Restated Term Promissory Note, in the form of Exhibit A annexed hereto,
appropriately completed, to be dated as of the Additional Term Advance Closing
Date, made by HDPI payable to the order of Lender in the original principal
amount equal to (A) $3,500,000, minus (B) the product of $29,167 multiplied by
the number of calendar months between March 1, 1998 and the first day of the
month in which the Additional Term Advance Closing Date occurs, as such note
exists on the date it is executed and delivered or may thereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
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<PAGE> 11
(b) Amendments to Definitions.
(i) Accounts Loan Formula. Section 1.4 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"1.4 "Accounts Loan Formula" shall mean,
collectively, the Deferred Billing Loan Formula and the
Installment Billing Loan Formula."
(ii) Banking Day. All references to the term "Banking
Day" herein and in the Loan Agreement and the other Financing Agreements shall
be deemed and each such reference is hereby amended to mean any day other than a
Saturday, Sunday, or other day on which commercial banks are authorized or
required to close under the laws of the State of New York or the Commonwealth of
Pennsylvania, and a day on which the Reference Bank and Lender are open for the
transaction of business, except that if a determination of a Banking Day shall
relate to any Eurodollar Rate Loans, the term Banking Day shall also exclude any
day on which banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
(iii) Eligible Deferred Billing Receivables. Section
1.33 of the Loan Agreement is hereby amended by inserting between the word
"Litle" and the word "with" appearing in the second line of clause (j) the
following: "nor the customer".
(iv) Eligible Inventory. Section 1.34 of the Loan
Agreement is hereby amended by inserting between the word "materials" and the
comma appearing at the end of clause (a) in the third line of the fourth
sentence of that Section the following: "other than raw materials of TCS
determined by Lender to be TCS Eligible Inventory".
(v) HDPI Term Loan. Upon and after the Additional Term
Advance Closing Date, all references to the term "HDPI Term Loan" herein and in
the Loan Agreement and the other Financing Agreements shall be deemed amended to
mean the outstanding Obligations owed to Lender by HDPI evidenced by the
Restated HDPI Term Note.
(vi) Hanover Realty Term Loan. Upon and after the
Additional Term Advance Closing Date, all references to the term "Hanover Realty
Term Loan" herein and in the Loan Agreement and the other Financing Agreements
shall be deemed amended to mean the outstanding Obligations owed to Lender by
Hanover Realty evidenced by the Restated Hanover Realty Term Note.
(vii) Interest Rate. With respect to interest accruing
on or after April 1, 1998, all references to the term "Interest Rate" herein and
in the Loan Agreement and the other
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<PAGE> 12
Financing Agreements shall be deemed and each such reference is hereby amended
to mean (A) as to Prime Rate Revolving Loans, a rate of one-half of one percent
(.5%) per annum in excess of the Prime Rate, (B) as to Prime Rate Term Loans, a
rate of three-quarters of one percent (.75%) per annum in excess of the Prime
Rate, (C) as to Eurodollar Rate Revolving Loans, a rate of two and one-half
percent (2.5%) per annum in excess of the Adjusted Eurodollar Rate, and (D) as
to Eurodollar Rate Term Loans, a rate of two and three-quarters percent (2.75%)
per annum in excess of the Adjusted Eurodollar Rate (in each case under clauses
(C) or (D), based on the Eurodollar Rate applicable for the Interest Period
selected by or on behalf of the applicable Borrower as in effect three (3)
Banking Days prior to the commencement of such Interest Period for such
Eurodollar Rate Loans in accordance with the terms of the Loan Agreement as
amended hereby, whether such rate is higher or lower than any rate previously
quoted to or for such Borrower); provided, that, the Interest Rate, as to Prime
Rate Loans and Eurodollar Rate Loans, shall mean the rate two percent (2%) per
annum more than the otherwise applicable variable Interest Rate provided under
clause (A), (B), (C) or (D) above (as applicable), at Lender's option, without
notice, for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing, or after
termination or non-renewal of the Loan Agreement and the other Financing
Agreements. If the aggregate amount of Revolving Loans and Letter of Credit
Accommodations to one or more Revolving Loan Borrowers exceeds the amounts
determined by Lender to be available pursuant to the Revolving Loan Formulas,
net of reserves and subject to the applicable lending sublimits as to each
Revolving Loan Borrower, and subject to the Revolving Loan Limit as to all
Revolving Loan Borrowers considered together, the Interest Rate, as to Prime
Rate Revolving Loans and Eurodollar Rate Revolving Loans, shall mean the rate
two percent (2%) per annum more than the otherwise applicable Interest Rate
provided under clause (A) or (C) above (as applicable) as to the amount of any
such excess(es) (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default); provided, that, if such excess(es) arise solely by reason of the
exercise of Lender's discretion under the Loan Agreement to reduce the Revolving
Loan Formulas in the absence of an Event of Default that is continuing, the
Interest Rate, shall not be so increased as to the amount of any such excess(es)
for a period of five (5) days after Lender notifies the affected Revolving Loan
Borrowers of such discretionary reduction in the Revolving Loan Formulas and, at
and after the expiration of such period of five (5) days, the Interest Rate, may
be so increased by Lender as to the amount of any such excess(es) then
remaining.
(viii) Litle Agreements. Section 1.78 of the Loan
Agreement is hereby amended by redesignating clause (c) as clause (d), and
inserting between the comma and the redesignated clause
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<PAGE> 13
(d) appearing in the third line of that Section a new clause (c) as follows:
"(c) the Installment Billing Agreement,".
(ix) MasterCard/VISA Receivables.
(x) MasterCard/VISA Receivables. Section 1.82 of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"1.82 "MasterCard/VISA Receivables" shall mean Third
Party Credit Card Receivables that arise solely from goods sold by
Revolving Loan Borrowers or Guarantors to customers who have
purchased goods using a valid MasterCard or VISA bank-issued credit
card, which will be processed, purchased and paid for by Litle, and,
in the case of such receivables arising under a Deferred Billing
Program or an Installment Billing Program, which will be processed,
purchased and paid for by Litle pursuant to the applicable Deferred
Billing Program or Installment Billing Program that gives rise to
such receivables."
(xi) Maximum Credit. Upon and after the Additional Term
Advance Closing Date, Section 1.83 of the Loan Agreement shall be deemed deleted
and replaced in its entirety with the following:
"1.83 "Maximum Credit" shall mean the aggregate
principal amount of Seventy-Five Million Dollars ($75,000,000), less
payments and pre-payments made after the Additional Term Advance
Closing Date in respect of the Term Loans."
(xii) Mortgages. Upon and after the Additional Term
Advance Closing Date, Section 1.86 of the Loan Agreement shall be deemed deleted
in its entirety and replaced with the following:
"1.86 "Mortgages" shall mean, individually and
collectively, each of the following (as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced): (a) the Open-End Fee and Leasehold Mortgage
and Security Agreement, dated as of November 14, 1995, by HDPI in
favor of Lender with respect to the Real Property and related assets
of HDPI located in Hanover, Pennsylvania, as amended by the Mortgage
Modification Agreement, dated as of the Additional Term Advance
Closing Date, between Lender and HDPI, and (b) the Deed of Trust,
Assignment and Security Agreement, dated as of November 14, 1995, by
Hanover Realty in favor of Lender with respect to the Real Property
and related assets of Hanover Realty in Roanoke, Virginia, as
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<PAGE> 14
amended by Amendment No. 1 to Deed of Trust, Assignment and Security
Agreement, dated as of the Additional Term Advance Closing Date,
between Lender and Hanover Realty."
(xiii) Real Property. Section 4.1(vi) of the Loan
Agreement shall be deemed deleted and the following substituted therefor "(vi)
[Intentionally Deleted]; and". Section 4.1(iv) of the Loan Agreement shall
remain in full force and effect.
(xiv) Revolving Loan Limit. Upon and after the
Additional Term Advance Closing Date, Section 1.119 of the Loan Agreement shall
be deemed deleted and replaced in its entirety with the following:
"1.119 "Revolving Loan Limit" shall mean, at any time
the amount equal to (A) Seventy-Five Million ($75,000,000) Dollars
minus (B) the sum of (i) the amount of outstanding Letter of Credit
Accommodations at such time, (ii) the original principal amount of
the Restated HDPI Term Note, and (iii) the original principal amount
of the Restated Hanover Realty Term Note."
(xv) Term Loans. Upon and after the Additional Term
Advance Closing Date, all references to the "Term Loans" herein and in the Loan
Agreement and the other Financing Agreements shall be deemed amended to mean,
individually and collectively, the Obligations evidenced by the Restated HDPI
Term Note and the Restated Hanover Realty Term Note.
(xvi) TCS Eligible Inventory. Section 1.130 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"1.130 "TCS Eligible Inventory" shall mean: (A) all
Inventory of TCS in the merchandise categories of comforters,
blankets, sheets, towels, curtains, pillows, featherbeds, decorative
home products, loungewear and outer garments offered for sale by TCS
in its "The Company Store" catalog, or such other catalog created by
TCS covering substantially similar merchandise which TCS has
requested Lender to include in this Inventory category, and (B) raw
materials of TCS used for the manufacture by TCS of finished goods
described in the foregoing clause (A) that are deemed acceptable by
Lender for lending purposes, but excluding work-in-process and
packaging and shipping materials."
(c) Interpretation. For purposes of this Amendment, unless otherwise
defined herein, all capitalized terms used
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<PAGE> 15
herein, shall have the respective meanings ascribed to them in the Loan
Agreement.
2. Additional HDPI Term Advance.
(a) On the date upon which all of the conditions precedent set forth in
Section 20 hereof are fully satisfied, subject to the terms and conditions
contained herein, Lender agrees to make an additional term loan to HDPI in the
amount equal to (x) $433,352, minus (y) the product of $29,167 multiplied by the
number of calendar months between March 1, 1998 and the first day of the month
in which such loan is made (the "Additional HDPI Term Advance"), which loan (i)
shall be consolidated with the unpaid balance of the Obligations evidenced by
the Original HDPI Term Note, and (ii) as so consolidated, shall be evidenced by
and be payable pursuant to the terms of the Restated HDPI Term Note, the Loan
Agreement and the other Financing Agreements, and shall be secured by all of the
Collateral.
(b) Neither the consolidation of the Obligations evidenced by the
Original HDPI Term Note with the Additional HDPI Term Advance, nor the amendment
and restatement of the Original HDPI Term Note pursuant to the Restated HDPI
Term Note shall, in any manner, be construed to constitute payment of, or
impair, limit, cancel or extinguish, or constitute a novation in respect of, any
of the Obligations evidenced by or arising under the Original HDPI Term Note or
other Financing Agreements, and the liens and security interests securing such
Obligations shall not in any manner be impaired, limited, terminated, waived or
released.
3. Additional Hanover Realty Term Advance.
(a) On the date upon which all of the conditions precedent set forth in
Section 20 hereof are fully satisfied, subject to the terms and conditions
contained herein, Lender agrees to make an additional term loan to Hanover
Realty in the amount equal to (x) $4,200,000, minus (y) the product of $73,333
multiplied by the number of calendar months between March 1, 1998 and the first
day of the month in which such loan is made (the "Additional Hanover Realty Term
Advance"), which (i) shall be consolidated with the unpaid balance of the
Obligations evidenced by the Original Hanover Realty Term Note, and (ii) as so
consolidated, shall be evidenced by and payable pursuant to the terms of the
Restated Hanover Realty Term Note, the Loan Agreement and the other Financing
Agreements, and shall be secured by all of the Collateral.
(b) Neither the consolidation of the Obligations evidenced by the
Original Hanover Realty Term Note with the
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<PAGE> 16
Additional Hanover Realty Term Advance, nor the amendment and restatement of the
Original Hanover Realty Term Note pursuant to the Restated Hanover Realty Term
Note shall, in any manner, be construed to constitute payment of, or impair,
limit, cancel or extinguish, or constitute a novation in respect of, any of the
Obligations evidenced by or arising under the Original Hanover Realty Term Note
or other Financing Agreements, and the liens and security interests securing
such Obligations shall not in any manner be impaired, limited, terminated,
waived or released.
(c) Hanover Realty hereby irrevocably authorizes and directs Lender,
upon the Additional Term Advance Closing Date, to disburse the proceeds of the
Additional Hanover Realty Term Advance to the respective Revolving Loan
Borrowers in the respective amounts set forth on Exhibit C attached hereto to
repay or to partially repay the outstanding amounts of intercompany loans owed
by Hanover Realty to such Revolving Loan Borrowers in the amounts set forth on
Exhibit C (each such disbursement, an "Intercompany Loan Repayment Amount").
Each such Revolving Loan Borrower shall, in turn, treat such disbursements by
Lender of such Intercompany Loan Repayment Amounts as a payment or partial
payment of the outstanding amount of intercompany loans owed by Hanover Realty
to each such Revolving Loan Borrower. Each such Revolving Loan Borrower hereby
irrevocable authorizes and directs Lender to then apply each such Intercompany
Loan Repayment Amount to the respective Revolving Loan account of each such
Revolving Loan Borrower for application to the then outstanding Obligations of
each such Revolving Loan Borrower to Lender in respect of Revolving Loans.
4. Acknowledgment by Guarantors. Guarantors hereby acknowledge, confirm
and agree, and Borrowers, in their capacities as guarantors with respect to the
other Borrowers, hereby acknowledge, confirm and agree that their Guarantees
guaranteeing the payment and performance of all Obligations of Borrowers (or the
other Borrowers, as the case may be) are in full force and effect as of the date
hereof, and, without the need for any further acknowledgment or any consent by
Guarantors or Borrowers, upon and after the Additional Term Advance Closing
Date, the "Obligations" (as such term is defined in the Guarantees) shall,
without limitation, automatically extend to and cover, without limitation, the
HDPI Term Loan (other than in the Guarantees delivered by HDPI itself) and the
Hanover Realty Term Loan (other than in the Guarantees delivered by Hanover
Realty itself), as the balances thereof are consolidated with the Additional
Term Advances made to HDPI and Hanover Realty, and, as so consolidated, as the
terms thereof are amended and restated pursuant to this Amendment and
instruments hereunder.
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<PAGE> 17
5. Amendments to Revolving Accounts Loans. Section 2.1(a) of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"(a) Revolving Accounts Loans. Subject to and upon the terms
and conditions contained herein and in the other Financing Agreements,
Lender shall, from time to time, make Revolving Loans as follows:
(i) to each of the Deferred Billing Borrowers, at its
request, Revolving Loans of up to seventy percent (70%) of its
respective Net Amounts of Eligible Deferred Billing
Receivables, or such greater or lesser percentages thereof as
Lender shall, in its sole discretion, determine from time to
time (the "Deferred Billing Loan Formula"); provided, however,
that no Revolving Loans in respect of Eligible Deferred
Billing Receivables shall be made available or be permitted to
remain outstanding, unless (A) Lender receives written
notification from the applicable Deferred Billing Borrowers of
their intention to commence or continue as to new sales one or
more Deferred Billing Option Programs, which notice shall
describe the program in reasonable detail and be received by
Lender not less than thirty (30) days prior to the
commencement of each applicable Program Quarter, and (B) with
respect to each Program Quarter commencing after the first
fiscal quarter of 1996, Lender determines that the Deferred
Billing Borrowers meet the Accounts Loan Financial Test with
respect to such Program Quarter; and
(ii) to each of the Installment Billing Borrowers, at
its request, of up to seventy percent (70%) of its respective
Net Amounts of Eligible Installment Billing Receivables, or
such greater or lesser percentages thereof as Lender shall, in
its sole discretion, determine from time to time (the
"Installment Billing Loan Formula"); provided, however, that
no Revolving Loans in respect of Eligible Installment Billing
Receivables shall be made available or be permitted to remain
outstanding, unless (A) Lender receives written notification
from the applicable Installment Billing Borrowers of their
intention to commence or continue as to new sales one or more
Installment Billing Programs, which notice shall describe the
program in reasonable detail and be received by Lender not
less than thirty (30) days prior to the commencement of each
applicable Program Quarter, and (B) with respect to each
Program Quarter commencing after the first fiscal quarter of
1998, Lender determines that the Accounts Loan Financial Test
is satisfied with respect to such Program Quarter."
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<PAGE> 18
6. Inventory Loan Formulas. Section 2.1(b) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"(b) Revolving Inventory Loans. Subject to, and upon the terms
and conditions contained herein and in the other Financing Agreements,
Lender shall, from time to time, make Revolving Inventory Loans: (i) to
each Revolving Loan Borrower, other than Gump's, and other than TCS
with respect to TCS Eligible Inventory consisting of raw materials, at
such Revolving Loan Borrower's request, of up to the lesser of (A)
sixty-two percent (62%) of the Value of the Eligible Inventory of such
Revolving Loan Borrower or (B) the Net OLV Percentage of the Value of
such Eligible Inventory; and (ii) to Gump's, at its request, of up to
the lesser of (A) sixty percent (60%) of the Value of Eligible
Inventory of Gump's or (B) the Net GOB Percentage of the Value of
Eligible Inventory of Gump's; and (iii) to TCS, at its request, of up
to the lesser of (A) thirty percent (30%) of the Value of TCS Eligible
Inventory consisting of raw materials or (B) the Net OLV Percentage of
the Value of such Eligible Inventory; or, in the case of each of
clauses (b)(i), (b)(ii), and (b)(iii), such greater or lesser
percentages thereof as Lender shall, in its sole discretion, determine
from time to time (the "Inventory Loan Formulas"). Without limiting the
foregoing, the sixty-two percent (62%) lending formula component
referred to in clause (b)(i)(A), the sixty percent (60%) lending
formula component referred to in clause (b)(ii)(A), and the thirty
percent (30%) lending formula component referred to in clause
(b)(iii)(A) may be adjusted downward by Lender based upon any adverse
change, individually or in the aggregate, in the turnover of Eligible
Inventory or deterioration in mix, nature or quality of Eligible
Inventory in the respective categories of Eligible Inventory, and any
such downward adjustment made for such reason(s) (or on the basis of
the lending formula component(s) set forth in clauses (b)(i)(B),
(b)(ii)(B), or (b)(iii)(B) above) shall not be considered solely
discretionary for purposes of the provision contained in the definition
of Interest Rate and Section 2.7(c) hereof."
7. Revolving Accounts Loan. Section 2.2(j) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"(j) Without limiting the foregoing lending sublimits, (i) the
aggregate amount of Revolving Loans shall not at any one time
outstanding exceed the Revolving Loan Limit for all Revolving Loan
Borrowers and (ii) the aggregate amount of Revolving Accounts Loans for
all Deferred Billing Borrowers and Installment Billing Borrowers shall
not at any one time outstanding exceed Ten Million Dollars
($10,000,000).
- 18 -
<PAGE> 19
Lender shall have the right, from time to time, to establish
and revise Revolving Accounts Loan sublimits for each Deferred Billing
Borrower and each Installment Billing Borrower, within the overall Ten
Million Dollar ($10,000,000) sublimit applicable to all Revolving
Accounts Loans."
8. Fee for Letter of Credit Accommodations. The reference to "two
percent (2%)" contained in Section 2.3(f)(ii) of the Loan Agreement is hereby
deleted and replaced with the following: "one and one-half percent (1.5%)",
effective with respect to fees provided under such Section accruing on or after
April 1, 1998.
9. Annual Facility Fee. The reference to the amount "One Hundred
Eighty-Seven Thousand Five Hundred Dollars ($187,500)" contained in Section
2.7(b) of the Loan Agreement is hereby deleted and replaced with the following
amount: "One Hundred Thirty-Seven Thousand Five Hundred Dollars ($137,500)",
effective with respect to the facility fees payable under such Section on
November 9, 1998 or thereafter.
10. Servicing Fee. The reference to the amount "Twenty Thousand Dollars
($20,000)" contained in Section 2.7(d) of the Loan Agreement is hereby deleted
and replaced with the following: "Ten Thousand Dollars ($10,000)", effective
with respect to the fees payable under such Section on April 1, 1998 or
thereafter.
11. Interest. Section 2.8 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following, effective with respect to interest
accruing on or after April 1, 1998:
"2.8 Interest.
(a) Borrowers shall pay to Lender interest on the outstanding
principal amount of the non- contingent Obligations at the Interest
Rate. All interest accruing hereunder on and after the date of any
Event of Default or termination or non-renewal hereof shall be payable
on demand.
(b) Borrowers may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate loans or that any existing
Eurodollar Rate Loans continue for an additional Interest Period. Each
such request by or on behalf of Borrowers shall specify the amount of
the Prime Rate Loans which will constitute Eurodollar Rate Loans
(subject to the limits set forth below) and the Interest Period to be
applicable to such
- 19 -
<PAGE> 20
Eurodollar Rate Loans. Subject to the terms and conditions contained
herein, three (3) Banking Days after receipt by Lender of such a
request by or on behalf of Borrowers, such Prime Rate Loans shall be
converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be; provided, that, (i) no Event of Default
or Incipient Default exists or has occurred and is continuing, (ii) no
party hereto shall have sent any notice of termination or non-renewal
of this Agreement, (iii) Borrowers shall have complied with such
customary procedures as are established by Lender and specified by
Lender to Borrowers from time to time for requests by or on behalf of
Borrowers for Eurodollar Rate Loans, (iv) no more than four (4)
Interest Periods may be in effect at any one time, (v) the aggregate
amount of the Eurodollar Rate Loans to a given Borrower subject to a
given Interest Period must be in an amount not less than $2,000,000 or
an integral multiple of $500,000 in excess thereof, (vi) the aggregate
amount of the Eurodollar Rate Loans to all Borrowers subject to a given
Interest Period must be in an amount not less than $5,000,000, (vii)
the maximum amount of the Eurodollar Rate Loans at any time requested
by or on behalf of a Borrower shall not exceed seventy-five percent
(75%) of the lowest principal amount of the Revolving Loans to such
Borrower plus ninety percent (90%) of the Term Loans to such Borrower
which it is anticipated will be outstanding during the applicable
Interest Period, as determined by Lender (but with no obligation of
Lender to make such Revolving Loans or Term Loans), and (viii) Lender
shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Lender through the Reference Bank and can be
readily determined as of the date of the request for such Eurodollar
Rate Loan by Borrowers. Any request by Borrowers to convert Prime Rate
Loans to Eurodollar Rate Loans or to continue any existing Eurodollar
Rate Loans shall be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and the Reference Bank shall not be
required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to
apply as if Lender and the Reference Bank had purchased such deposits
to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period,
unless Lender has received and approved a request to continue such
Eurodollar Rate Loan at least three (3) Banking Days
- 20 -
<PAGE> 21
prior to such last day in accordance with the terms hereof. Any
Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender
to Borrowers, convert to Prime Rate Loans in the event that (i) an
Event of Default or Incipient Default shall exist, (ii) this Agreement
shall terminate or not be renewed, or (iii) the aggregate principal
amount of the Prime Rate Loans which have previously been converted to
Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as
the case may be, at the beginning of an Interest Period shall, at any
time during such Interest Period, with respect to any Borrower, exceed
either (A) the aggregate principal amount of the Revolving Loans and
Term Loans then outstanding to such Borrower, or (B) the Revolving
Loans then available to such Borrower under Section 2 of this
Agreement, plus the then outstanding balance of the Term Loans to such
Borrower. Borrowers shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrowers) any
amounts required to compensate Lender, the Reference Bank or any
participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any
of the foregoing.
(d) Interest shall be payable by Borrowers to Lender monthly
in arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed. The interest rate on noncontingent
Obligations (other than Eurodollar Rate Loans) shall increase or
decrease by an amount equal to each increase or decrease in the Prime
Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last
day of the month in which any such change occurs. In no event shall
charges constituting interest payable by Borrowers to Lender exceed the
maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision
shall be deemed amended to conform thereto."
12. Changes in Laws and Increased Costs of Loans. A new Section 2.12 of
the Loan Agreement is hereby added immediately after Section 2.11 thereof, as
follows:
"2.12 Changes in Laws and Increased Costs of Loans.
- 21 -
<PAGE> 22
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers,
convert to Prime Rate Loans in the event that (i) any change in
applicable law or regulation (or the interpretation or administration
thereof) shall either (A) make it unlawful for Lender, Reference Bank
or any participant to make or maintain Eurodollar Rate Loans or to
comply with the terms hereof in connection with the Eurodollar Rate
Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or
(C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost
to Lender, Reference Bank or any participant of making or maintaining
any Eurodollar Rate Loans shall otherwise increase by an amount deemed
by Lender to be material. Borrowers shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan account of
Borrowers) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a
result of the foregoing, including, without limitation, any such loss,
cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain
the Eurodollar Rate Loans or any portion thereof. A certificate of
Lender setting forth the basis for the determination of such amount
necessary to compensate Lender as aforesaid shall be delivered to
Borrowers and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day
of the applicable Interest Period (whether pursuant to acceleration,
upon maturity or otherwise), including any payments pursuant to the
application of collections under Section 8.2(a) hereof or any other
payments made with the proceeds of Collateral, Borrowers shall pay to
Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrowers) any amounts required to compensate Lender,
the Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense incurred
by such person as a result of such prepayment or payment, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds
- 22 -
<PAGE> 23
acquired by such person to make or maintain such Eurodollar
Rate Loans or any portion thereof."
13. Additional Collateral Reporting. Section 6.18(a) of the Loan
Agreement is hereby amended by adding new subsection (xiii) immediately after
subsection (xii) as follows:
"(xiii) Weekly summary reports on the Accounts of each
Borrower and Guarantor under Installment Billing Programs and other
installment billing Accounts of Borrowers and Guarantors and monthly
agings with detail by customer with respect to all Installment Billing
Program Accounts of each Borrower and Guarantor, including, as to the
foregoing, the aggregate outstanding amounts, prepayments, accruals and
returns and other credits."
14. Additional Accounts Covenants.
(a) Subsection 6.12A(a)(iii) of the Loan Agreement is hereby amended by
inserting between word "Receivables" and the period appearing in the fourth line
of that Subsection the following: "or Eligible Installment Receivables".
(b) Section 6.12A(b) of the Loan Agreement is hereby amended by
inserting between the word "Receivable" and the period appearing in the fourth
line of that Section the following:
"and at any time that Inventory sold under an Installment
Billing Program is returned, reclaimed or repossessed, the related
Account shall not be deemed an Eligible Installment Receivable".
(c) Section 6.12A of the Loan Agreement is hereby amended by adding new
Section 6.12A(j) immediately following Section 6.12A(i), as follows:
"(j) Each Revolving Loan Borrower shall give Lender
written notice of its intention to commence or continue as to
new sales any Installment Billing Program at least thirty (30)
days prior to the commencement of each Program Quarter
(whether or not the Accounts Loan Financial Test would be
satisfied and whether or not such Revolving Loan Borrower
intends to request Revolving Accounts Loans with respect to
such Program.)"
- 23 -
<PAGE> 24
15. Term.
(a) The first sentence of Section 9.1(a) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"(a) This Agreement and the other Financing Agreements shall
become effective as of the date hereof and this Agreement shall
continue in full force and effect for a term ending on January 31, 2001
(the "Renewal Date"), and from year-to-year thereafter, unless sooner
terminated pursuant to the terms hereof; provided, that, Lender may, at
its option, extend the Renewal Date to January 31, 2002 by giving
Borrowers notice on or before December 2, 2001."
(b) The reference to "Termination Date" in the fourth line of Section
9.1(f) of the Loan Agreement is deleted and replaced with the words "Renewal
Date";
(c) Subsections 9.1(f)(i) through (iii) of the Loan Agreement are
hereby deleted in their entirety and replaced with the following, effective with
respect to any termination after the date hereof:
"one-half of one percent (1/2%) of the Maximum
Credit, if either (i) such termination is effective on or
before January 30, 2001, or (ii) if the Renewal Date is
extended by Lender as provided in Section 9.1(a) hereof, such
termination is effective on or before January 30, 2002;
provided, however, if this Agreement and the other Financing
Agreements are terminated at Borrowers' written request and
such termination shall become effective within the ninety (90)
day period ending on January 31, 2001 (such period, the
"Refinance Period"), and provided no Event of Default or
Incipient Default exists or has occurred and is continuing as
of the effective date of such termination, then Borrowers
shall not be obligated to pay the early termination fee
otherwise payable under this Section 9.1(f) in respect of such
termination.
For purposes of the preceding proviso, if Lender
shall have exercised or exercises its option to extend the
Renewal Date to January 31, 2002 as provided in Section 9.1(a)
hereof, then the Refinance Period shall be the ninety (90) day
period ending on January 31, 2002, in lieu of the ninety (90)
day period ending on January 31, 2001."
- 24 -
<PAGE> 25
16. Proposed Additional Borrowers.
(a) Borrowers and Guarantors have preliminarily discussed with Lender a
prospective corporate reorganization of certain Borrowers and, in connection
therewith, Borrowers have formed the following Delaware limited liability
companies (the "Proposed LLC Borrowers"): (i) Tweeds, L.L.C., (ii) The Company
Store, L.L.C., (iii) Domestications, L.L.C., and (iv) Silhouettes, L.L.C.
Borrowers and Guarantors represent and warrant to Lender that (a) no membership
interests of the Proposed LLC Borrowers have been issued, (b) no assets or
liabilities of Borrowers or Guarantors have been transferred to the Proposed LLC
Borrowers, and no cash capital contributions to the Proposed LLC Borrowers have
been made and (c) the proposed corporate reorganization requires the prior
written consent of Lender, which consent has not been given as of the date
hereof and is not being given hereby or in connection with this Amendment.
(b) In order to expedite certain of the documentation that would be
required in connection with the proposed reorganization should Lender provide
its written consent thereto, and without limiting the other conditions,
documents, agreements and instruments that Lender may require in connection
therewith, each of Term Loan Borrowers shall have, pursuant to Sections 20(e)
and 20(f) hereof, executed and delivered to Lender its Guarantee with respect to
all Obligations of Proposed LLC Borrowers, to Lender, their liabilities under
such Guarantees to be among the obligations, liabilities and indebtedness
secured by the Mortgages as amended pursuant thereto and hereto.
17. Amendment Fee. In addition to all other fees, charges, interest and
expenses payable by Borrowers to Lender under the Loan Agreement and the other
Financing Agreements, Borrowers shall pay to Lender a fee for entering into this
Agreement in the amount of $75,000, which fee is fully earned and payable as of
the date hereof and may be charged directly to HDPI's Revolving Loan account
maintained by Lender.
18. Representations, Warranties and Covenants. Borrowers and Guarantors
represent, warrant and covenant with and to Lender as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with the representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any Revolving Loans or
Letter of Credit Accommodations by Lender to Borrowers:
- 25 -
<PAGE> 26
(a) As of the date hereof, Brawn, Austad, GBM and HDV have an
Installment Billing Program.
(b) This Amendment and each other agreement or instrument to be
executed and delivered by each of the Borrowers and Guarantors, as the case may
be, hereunder have been duly authorized, executed and delivered by all necessary
action on the part of each of the Borrowers and Guarantors which is a party
hereto and thereto, and is in full force and effect as of the date hereof, and
the agreements and obligations of each of the Borrowers and Guarantors, as the
case may be, contained herein and therein constitute legal, valid and binding
obligations of each of Borrowers and Guarantors, as the case may be, enforceable
against them in accordance with their terms.
(c) Neither the execution and delivery of this Amendment or any of the
agreements, documents or instruments to be delivered pursuant to this Agreement
(i) has violated or shall violate any Federal or State securities laws or any
other law or regulation or any order or decree of any court or governmental
instrumentality in any respect applicable to Borrowers or Guarantors, or (ii)
does or shall conflict with or result in the breach of, or constitute a default
in any respect under any mortgage, deed of trust, security agreement, agreement
or instrument to which Borrowers or Guarantors is a party or may be bound, or
(iii) shall violate any provision of the Certificates of Incorporation or
By-Laws of Borrowers or Guarantors.
(d) No action of, or filing with, or consent of any governmental or
public body or authority, other than the recording of the modification
agreements with respect to the Mortgages executed and delivered to Lender
pursuant to this Amendment, and no approval or consent of any other party, is
required to authorize, or is otherwise required in connection with, the
execution, delivery and performance of this Amendment and each other agreement
or instrument to be executed and delivered pursuant to this Amendment.
(e) All of the representations and warranties set forth in the Loan
Agreement, as amended hereby, and in the other Financing Agreements, are true
and correct in all material respects after giving effect to the provisions of
this Amendment, except to the extent any such representation or warranty is made
as of a specified date, in which case such representation or warranty shall have
been true and correct as of such date.
(f) Within fifteen (15) days after the date hereof, Borrowers and
Guarantors shall deliver, or cause to be delivered, to Lender, an opinion of
counsel to Borrowers and Lenders, substantially in the form of, and covering the
same substantive matters in, the opinion delivered on the date hereof to Lender
pursuant to Section 19(d) hereof with respect to those Borrowers
- 26 -
<PAGE> 27
and Guarantors that are incorporated in the States of New Jersey and California.
(g) After giving effect to the provisions of this Amendment, no Event
of Default or Incipient Default exists or has occurred and is continuing.
19. Conditions Precedent to the Amendment. Concurrently with the
execution hereof (except to the extent otherwise indicated below), and as a
further condition to the effectiveness of this Amendment and the agreement of
Lender to the modifications and amendments set forth in this Amendment:
(a) each of Borrowers and Guarantors shall have delivered to Lender an
original of this Amendment, duly authorized, executed and delivered by Borrowers
and Guarantors; and
(b) each of Borrowers and Guarantors shall have delivered to Lender, in
form and substance satisfactory to Lender, the Installment Billing Agreement,
duly authorized, executed and delivered by Litle and Hanover;
(c) Lender shall have received, in form and substance satisfactory to
Lender, Secretary's Certificates of Directors' Resolutions with Shareholders'
Consent evidencing the adoption and subsistence of corporate resolutions
approving the execution, delivery and performance by Borrowers, Guarantors of
this Amendment and the agreements, documents and instruments to be delivered
pursuant to this Amendment;
(d) Lender shall have received an opinion of counsel to Borrowers and
Guarantors with respect to this Amendment and the transactions and agreements
and instruments contemplated by this Amendment, and such other matters as Lender
shall reasonably require, in form and substance and satisfactory to Lender; and
(e) each of Borrowers and Guarantors shall deliver, or cause to be
delivered, to Lender a true and correct copy of each consent, waiver or approval
with respect to this Amendment or any of the instruments or agreements executed
and delivered pursuant to this Amendment, that any Borrower or Guarantor obtains
from any other Person, and which such consent, approval or waiver shall be in
form and substance acceptable to Lender.
20. Conditions Precedent to Additional Term Advance. Each of the
following shall be fully satisfied, as determined by Lender, as conditions
precedent to Lender's obligations hereunder to make the Additional Term
Advances:
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<PAGE> 28
(a) Lender shall have received an original of each of the Restated HDPI
Term Note and the Restated Hanover Realty Term Note, duly executed and delivered
by HDPI and Hanover Realty, respectively;
(b) Lender shall have received an original Mortgage Modification
Agreement, dated the Additional Term Advance Closing Date, in the form annexed
hereto as Exhibit D, appropriately completed, between HDPI and Lender, duly
executed and delivered by HDPI;
(c) Lender shall have received an original Amendment No. 1 to Deed of
Trust, Assignment and Security Agreement, dated the Additional Term Advance
Closing Date, appropriately completed, between Hanover Realty and Lender, in the
form of Exhibit E hereto, which shall, inter alia, increase the principal amount
of Obligations secured thereby to $16,000,000, plus interest, collateral
preservation costs and costs and expenses of collection, duly executed and
delivered by Hanover Realty;
(d) Lender shall have received, in form and substance satisfactory to
Lender, an original Estoppel Certificate of Landlord of Fee and Leasehold
Mortgage Property, dated on or about the date hereof, by Radio Hanover, Inc. in
favor of Lender, duly executed and delivered by Radio Hanover, Inc.;
(e) Lender shall have received, in form and substance satisfactory to
Lender, an original Guarantee by Hanover Realty in favor of Lender with respect
to all Obligations to Lender of the Proposed LLC Borrowers, duly executed and
delivered by Hanover Realty;
(f) Lender shall have received, in form and substance satisfactory to
Lender, an original Guarantee by HDPI in favor of Lender with respect to all
Obligations to Lender of the Proposed LLC Borrowers, duly executed and delivered
by HDPI;
(g) Lender shall have received, in form and substance satisfactory to
Lender, a Lease Agreement, duly executed and delivered by and between Hanover
Realty and the Revolving Loan Borrowers which occupy all or any portion of the
Real Property located at the fulfillment and distribution center owned by
Hanover Realty in Roanoke, Virginia;
(h) Lender shall have received a letter, dated on or before the
Additional Term Advance Closing Date, from Thorne Consultants, Inc., addressed
to Lender or upon which Lender is expressly permitted to rely, with respect to
the Appraisal, dated November 5, 1997, conducted by such appraiser previously
delivered to Lender, certifying that (i) the improvements with respect to the
facility of Hanover Realty located in Roanoke, Virginia have been completed and
(ii) the current fair market value of the Real Property owned by Hanover Realty
located in
- 28 -
<PAGE> 29
Roanoke, Virginia at least Sixteen Million Two Hundred Dollars ($16,200,000);
(i) Lender shall have received, in form and substance satisfactory to
Lender, updated endorsements to the existing title insurance policy or a new
title insurance policy issued by Lawyers Title Insurance Corporation acceptable
to Lender (i) insuring the priority, amount and sufficiency of the Mortgages
made by HDPI and Hanover Realty, as amended, and (ii) containing any legally
available endorsements, assurances or affirmative coverage requested by Lender
for protection of its interests;
(j) Lender shall have received, in form and substance satisfactory to
Lender, an "as built" ALTA survey showing all of the premises with respect to
the Real Property covered by the Mortgage by Hanover Realty in favor of Lender,
together with improvements and final certificate of occupancy issued by
appropriate governmental authority;
(k) Borrowers and Guarantors shall have caused to be delivered to
Lender updated environmental audits of the owned Real Property of HDPI and
Hanover Realty conducted by an independent environmental engineering firm
acceptable to Lender, and in form, scope and methodology satisfactory to Lender,
addressed to Lender or upon which Lender is expressly permitted to rely,
confirming to the satisfaction of Lender and its environmental consultant, which
consultant shall have reviewed such updated audits and any follow-up work
requested by such consultant at Borrowers' expense, that (i) Borrowers are in
compliance with all material applicable Environmental Laws and (ii) the absence
of any material environmental problems.
(l) Lender shall have received reports of satisfactory UCC, tax lien
and judgment lien searches against Hanover Realty and HDPI in jurisdictions
where their Equipment is located;
(m) Lender shall have received updated evidence of insurance and loss
payee endorsements required pursuant to the Loan Agreement and under the other
Financing Agreements, in form and substance satisfactory to Lender, including
updated certificates of insurance and such loss payee endorsements naming Lender
as loss payee and additional insured, as applicable;
(n) Lender shall have received an opinion of counsel to Borrowers and
Guarantors with respect to the Additional Term Advances and the transactions and
agreements and instruments contemplated thereby as set forth in this Amendment,
and such other matters as Lender shall reasonably require, in form and substance
and satisfactory to Lender;
(o) All of the conditions precedent set forth in Section 19 hereof
shall have been fulfilled;
- 29 -
<PAGE> 30
(p) No Event of Default or Incipient Default shall exist or have
occurred and be continuing;
(q) Lender shall have received not less than twenty (20) days' prior
written notice of Borrowers' request that the Additional Term Advances be made
in accordance herewith; and
(r) All of the other conditions precedent set forth or referred to in
this Section 20 shall have been fulfilled by the proposed date for the
Additional Term Advance Closing Date set forth in Borrowers' notice under
Section 20(q) hereof, which proposed date shall not be later than August 31,
1998.
21. Effect of this Amendment. This Amendment constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.
22. Further Assurances. Borrowers and Guarantors shall execute and
deliver such additional documents and take such additional action as may be
reasonably requested by Lender to effectuate the provisions and purposes of this
Amendment.
23. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the internal laws of the State of New York (without giving effect to
principles of conflicts of law).
24. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns.
25. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or
- 30 -
<PAGE> 31
account for more than one counterpart thereof signed by each of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet L. Last
----------------------------
Title: Vice President
-------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
BRAWN OF CALIFORNIA, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
GUMP'S BY MAIL, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
GUMP'S CORP.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
THE COMPANY STORE, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 31 -
<PAGE> 32
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TWEEDS, INC.
By:/s/ Edward J. O' Brien
------------------------
Title: Vice President
---------------------
LWI HOLDINGS, INC.
By:/s/ Edward J. O' Brien
-------------------------
Title: Vice President
----------------------
AEGIS CATALOG CORPORATION
By:/s/ Edward J. O' Brien
-------------------------
Title: Vice President
----------------------
HANOVER DIRECT VIRGINIA INC.
By:/s/ Edward J. O' Brien
-------------------------
Title: Vice President
----------------------
HANOVER REALTY, INC.
By:/s/ Edward J. O' Brien
-------------------------
Title: Vice President
-----------------------
THE AUSTAD COMPANY
By:/s/ Edward J. O' Brien
--------------------------
Title: Vice President
-----------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 32 -
<PAGE> 33
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
By their signatures below, the undersigned Guarantors acknowledge and agree to
be bound by the applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
By:/s/ Edward J. O' Brian
----------------------------
Title: Senior Vice President
-------------------------
AEGIS RETAIL CORPORATION
By:/s/ Edward J. O' Brian
----------------------------
Title: Vice President
-------------------------
AEGIS SAFETY HOLDINGS, INC.
By:/s/ Edward J. O' Brian
----------------------------
Title: Vice President
-------------------------
AEGIS VENTURES, INC.
By:/s/ Edward J. O' Brian
----------------------------
Title: Vice President
-------------------------
AMERICAN DOWN & TEXTILE COMPANY
By:/s/ Edward J. O' Brian
----------------------------
Title: Vice President
-------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 33 -
<PAGE> 34
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
BRAWN WHOLESALE CORP.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
THE COMPANY FACTORY, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
THE COMPANY OFFICE, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
COMPANY STORE HOLDINGS, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
D.M. ADVERTISING, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
GUMP'S CATALOG, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
GUMP'S HOLDINGS, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 34 -
<PAGE> 35
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER CASUALS, INC.
By:/s/ Edward J. O' Brien
---------------------------
Title: Vice President
------------------------
HANOVER CATALOG HOLDINGS, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
HANOVER FINANCE CORPORATION
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
HANOVER LIST MANAGEMENT, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
-------------------------
HANOVER VENTURES, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
--------------------------
LWI RETAIL, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title: Vice President
--------------------------
SCANDIA DOWN CORPORATION
By:/s/ Edward J. O' Brien
-----------------------------
Title: Vice President
--------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 35 -
<PAGE> 36
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TWEEDS OF VERMONT, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title:Vice President
-------------------------
YORK FULFILLMENT COMPANY, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title:Vice President
-------------------------
AUSTAD HOLDINGS, INC.
By:/s/ Edward J. O' Brien
----------------------------
Title:Vice President
-------------------------
- 36 -
<PAGE> 37
EXHIBIT A(1)
AMENDED AND RESTATED
TERM PROMISSORY NOTE
$_______________ ____________, 1998
FOR VALUE RECEIVED, HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania
corporation ("Debtor"), hereby unconditionally promises to pay to the order of
CONGRESS FINANCIAL CORPORATION, a California corporation ("Payee"), at the
offices of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at
such other place as to Payee or any holder hereof may from time to time
designate, the principal sum of ________ ($ W) in lawful money of to United
States of America and in immediately available funds, in _______ (X) consecutive
monthly installments (or earlier as hereinafter provided) on the first day of
each month commencing Y 1, 1998, of which the first _______ (Z) installments
shall each be in the amount of TWENTY-NINE THOUSAND ONE HUNDRED SIXTY-SEVEN
DOLLARS ($29,167), and the last installment shall be in to amount of the
entire unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate (as hereinafter
defined). Such interest shall be paid in like money at said office or place from
the date hereof, commencing Y 1, 1998 and on the first day of each month
thereafter until the indebtedness evidenced by this Note is paid in full.
Interest payable upon and after an Event of Default or termination or
non-renewal of the Loan Agreement shall be payable upon demand.
For purposes hereof, the following terms shall have the following meanings
set forth below:
- ----------
(1) Notes for Preparation:
W = $3,500,000 minus the product of $29,167 multiplied by the number of
calendar months between March 1,1998 and the first day of the month in
which the Additional Term Advance Closing Date occurs
X = 120 minus number of months between March 1, 1998 and first day of the
month in which the Additional Term Advance Closing Date occurs
Y = first day of the month following the month in which the Additional Term
Advance Closing Date occurs
Z = X-1
<PAGE> 38
(a) "Interest Rate" shall mean, as to Prime Rate Loans, a rate of
three-quarters of one percent (.75%) per annum in excess of the Prime Rate, and
as to Eurodollar Rate Loans, a rate of two and three-quarters percent (2.75%)
per annum in excess of the Adjusted Eurodollar Rate; provided, that, at Payee's
option, the Interest Rate shall mean a rate of two and three-quarters percent
(2.75%) per annum in excess of the Prime Rate as to Prime Rate Loans and a rate
of four and three-quarters percent (4.75%) per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans upon and after an Event of Default
of termination or non-renewal of the Loan Agreement;
(b) "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank;
(c) the term "Event of Default" shall mean an Event of Default as such
term is defined in the Loan Agreement, and
(d) the term "Loan Agreement" shall mean the Loan and Security Agreement,
dated as of November 14, 1995, by and among Debtor, the other Borrowers (as
defined therein) and Payee, as heretofore amended, and as amended by the
Eleventh Amendment to Loan and Security Agreement, dated as of March ________,
1998, among Debtor, the other Borrowers, Guarantors (as defined therein) and
Payee (the "Eleventh Amendment to Loan Agreement"), or as may hereafter be
further amended, modified, supplemented, extended, renewed, restated or
replaced. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings assigned thereto in the Loan Agreement.
The Interest Rate payable hereunder as to Prime Rate Loans shall increase
or decrease by an amount equal to each increase or decrease, respectively, in
the Prime Rate, effective on the first day of the month after any change in the
Prime Rate, based on the Prime Rate in effect on the last day of the month in
which any such change occurs. Interest shall be calculated on the basis of a
three hundred sixty (360) day year and actual days elapsed. In no event shall
the interest charged hereunder exceed the maximum permitted under the laws of
the State of New York or other applicable law.
This Note is issued pursuant to the terms and provisions of the Eleventh
Amendment to Loan Agreement to evidence the HDPI Term Loan (as such term is
defined in the Eleventh Amendment to Loan Agreement). This Note is secured by
the Collateral described in the Loan Agreement, including, without limitation,
the real property and other property of Debtor located in Hanover, Pennsylvania,
as set forth in the Open-End Fee and Leasehold Mortgage and Security Agreement
dated as of November 14, 1995, made by Debtor in favor of Payee, as amended by
the Mortgage Modification Agreement, dated of even date herewith, between Payee
and Debtor, and all notes, guarantees, security agreements and other agreements,
documents and instruments now or at any time hereafter executed and/or delivered
by Debtor or any other party in connection therewith (all of the foregoing,
together with the Loan Agreement, as the same now exist or may hereafter be
amended, modified, supplemented,
-2-
<PAGE> 39
renewed, extended, restated or replaced, being collectively referred to herein
as the "Financing Agreements"), and is entitled to all of the benefits and
rights thereof and of the other Financing Agreements. At the time any payment is
due hereunder, at its option, Payee may charge the amount thereof to any account
of Debtor or any other Borrower maintained by Payee.
This Note substitutes for and replaces the Term Promissory Note, dated as
of November 14, 1995, by Debtor payable to the order of Payee in the original
principal amount of $4,000,000 (the "Existing Term Note"), but does not
extinguish or constitute payment of, the unpaid obligations, liabilities and
indebtedness evidenced through or arising thereunder or in respect thereof.
This Note evidences the consolidation of the unpaid principal balance of
$_______ under the Existing Term Note and the Additional HDPI Term Advance being
made on the date hereof pursuant to the Eleventh Amendment to Loan Agreement.
Debtor hereby acknowledges that Debtor is indebted to Payee for interest through
the date hereof under the Existing Term Note and for interest accruing hereunder
from and after the date hereof. Neither the amendment and restatement contained
herein nor Payee's acceptance of this Note or other actions contemplated by the
Loan Agreement or any of the other Financing Agreements shall, in any manner, be
construed to constitute payment of, or impair, limit or extinguish the
indebtedness arising under or evidenced by the Existing Term Note or constitute
a novation with respect thereto and the liens and security interests securing
such indebtedness shall not in any manner be impaired, limited, terminated,
waived or released hereby.
If any payment of principal or interest is not made when due hereunder, or
if any other Event of Default shall occur for any reason, or if the Loan
Agreement shall be terminated or not renewed for any reason whatsoever, then and
in any such event, in addition to all rights and remedies of Payee under the
Financing Agreements, applicable law or otherwise, all such rights and remedies
being cumulative, not exclusive and enforceable alternatively, successively and
concurrently, Payee may, at its option, declare any or all of Debtor's
obligations, liabilities and indebtedness owing to Payee under the Loan
Agreement and the other Financing Agreements (the "Obligations"), including,
without limitation, all amounts owing under this Note, to be due and payable,
whereupon the then unpaid balance hereof, together with all interest accrued
thereon, shall forthwith become due and payable, together with interest accruing
thereafter at the then applicable Interest Rate stated above until the
indebtedness evidenced by this Note is paid in full, plus the costs and expenses
of collection hereof, including, but not limited to, reasonable attorneys' fees
and legal expenses.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for Payee to first institute
suit in order to enforce payment of this Note and (iii) consents to any one or
more extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence, without
notice or consent. The pleading of any statute of limitations as a defense to
any demand against Debtor is expressly hereby waived by Debtor. Upon any
-3-
<PAGE> 40
Event of Default or termination or non-renewal of the Loan Agreement, Payee
shall have the right, but not the obligation to setoff against this Note all
money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment, but
may proceed against Debtor and any guarantors or endorsers hereof in such order
and manner as Payee may choose. None of the rights of Payee shall be waived or
diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the other
Financing Agreements and any dispute arising in connection herewith or therewith
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
Debtor irrevocably consents and submits to the non-exclusive jurisdiction
of the Supreme Court of the State of New York for New York County and the United
States District Court for the Southern District of New York and waives any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Note or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of Debtor and Payee in respect of this Note or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute arising out of the relationship between
Debtor and Payee or the conduct of such persons in connection with this Note or
otherwise shall be heard only in the courts described above (except that Payee
shall have the right to bring any action or proceeding against Debtor or its
property in the courts of any other jurisdiction which Payee deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Debtor or its property).
Debtor hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by certified mail (return
receipt requested) directed to it and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Payee's option, by service upon Debtor in any other manner
provided under the rules of any such courts. Within thirty (30) days after such
service, Debtor shall appear in answer to such process, failing which Debtor
shall be deemed in default and judgment may be entered by Payee against Debtor
for the amount of the claim and other relief requested.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN DEBTOR AND PAYEE
IN RESPECT OF THIS NOTE OR THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. DEBTOR AGREES
-4-
<PAGE> 41
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the Board
of Directors and by any necessary vote or consent of the stockholders of Debtor.
Debtor hereby authorizes Payee to complete this Note in any particulars
according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Debtor and
inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
ATTEST:
HANOVER DIRECT PENNSYLVANIA, INC.
_____________________
Secretary By:___________________________________
[Corporate Seal] Title:________________________________
-5-
<PAGE> 42
EXHIBIT B(1)
AMENDED AND RESTATED
TERM PROMISSORY NOTE
$_______________ ____________, 1998
FOR VALUE RECEIVED, HANOVER REALTY, INC., a Virginia corporation
("Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a California corporation ("Payee"), at the offices of
Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other
place as the Payee or any holder hereof may from time to time designate, the
principal sum of_____________ ($ W) in lawful money of the United States of
America and in immediately available funds, in_______ (X) consecutive monthly
installments (or earlier as hereinafter provided) onto first day of each month
commencing Y 1, 1998, of which the first _____________ (Z) installments shall
each be in the amount of SEVENTY-THREE THOUSAND THREE HUNDRED AND THIRTY-THREE
DOLLARS ($73,333), and the last installment shall be in the amount of the entire
unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate (as hereinafter
defined). Such interest shall be paid in like money at said office or place from
the date hereof, commencing Y 1, 1998 and on the first day of each month
thereafter until the indebtedness evidenced by this Note is paid in full.
Interest payable upon and after an Event of Default or termination or
non-renewal of the Loan Agreement shall be payable upon demand.
For purposes hereof, the following terms shall have the following meanings
set forth below:
- ----------
(1) Notes for Preparation:
W = $8,800,000 minus to product of $73,333 multiplied by the number of
calendar months between March 1, 1998 and the first day of the month in
which the Additional Term Advance Closing Date occurs
X = 120 minus number of months between March 1, 1998 and first day of the
month in which the Additional Term Advance Closing Date occurs
Y = first day of the month following the month in which the Additional Term
Advance Closing Date occurs
Z = X-1
<PAGE> 43
(a) "Interest Rate" shall mean, as to Prime Rate Loans, a rate of
three-quarters of one percent (.75%) per annum in excess of the Prime Rate, and
as to Eurodollar Rate Loans, a rate of two and three-quarters percent (2.75%)
per annum in excess of the Adjusted Eurodollar Rate; provided, that, at Payee's
option, the Interest Rate shall mean a rate of two and three-quarters percent
(2.75%) per annum in excess of the Prime Rate as to Prime Rate Loans and a rate
of four and three-quarters percent (4.75%) per annum in excess of the Adjusted
Eurodollar Rate as to Eurodollar Rate Loans upon and after an Event of Default
or termination or non-renewal of the Loan Agreement;
(b) "Prime Rate" shall mean the rate from time to time publicly announced
by CoreStates Bank, N.A., or its successors, at its office in Philadelphia,
Pennsylvania, as its prime rate, whether or not such announced rate is the best
rate available at such bank;
(c) the term "Event of Default" shall mean an Event of Default as such
term is defined in the Loan Agreement; and
(d) the term "Loan Agreement" shall mean the Loan and Security Agreement,
dated as of November 14, 1995, by and among Debtor, the other Borrowers (as
defined therein) and Payee, as heretofore amended, and as amended by the
Eleventh Amendment to Loan and Security Agreement, dated as of March
_____________, 1998, among Debtor, the other Borrowers, Guarantors (as defined
therein) and Payee (the "Eleventh Amendment to Loan Agreement"), or as may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced. Unless otherwise defined herein, all capitalized terms
used herein shall have the meanings assigned thereto in the Loan Agreement.
The Interest Rate payable hereunder as to Prime Rate Loans shall increase
or decrease by an amount equal to each increase or decrease, respectively, in
the Prime Rate, effective on the first day of the month after any change in the
Prime Rate, based on the Prime Rate, in effect on the last day of the month in
which any such change occurs. Interest shall be calculated on the basis of a
three hundred sixty (360) day year and actual days elapsed. In no event shall
the interest charged hereunder exceed the maximum permitted under the laws of
the State of New York or other applicable law.
This Note is issued pursuant to the terms and provisions of the Eleventh
Amendment to Loan Agreement to evidence the Hanover Realty Term Loan (as such
term is defined in the Eleventh Amendment to Loan Agreement). This Note is
secured by the Collateral described in the Loan Agreement, including without
limitation, the real property and other property of Debtor located in Roanoke,
Virginia, as set forth in the Deed of Trust, Assignment and Security Agreement,
dated as of November 14, 1995, made by Debtor for the benefit of Payee as
amended by Amendment No. 1 to Deed of Trust, Assignment and Security Agreement,
dated of even date herewith, between Debtor and Payee, and all notes,
guarantees, security agreements and other agreements, documents and instruments
now or at any time hereafter executed and/or delivered by Debtor or any other
party in connection therewith (all of the foregoing, together with the Loan
Agreement, as the same now exist or
-2-
<PAGE> 44
may hereafter be amended, modified, supplemented, renewed, extended, restated or
replaced, being collectively referred to herein as the "Financing Agreements"),
and is entitled to all of the benefits and rights thereof and of the other
Financing Agreements. At the time any payment is due hereunder, at its option,
Payee may charge the amount thereof to any account of Debtor or any other
Borrower maintained, by Payee.
This Note substitutes for and replaces the Term Promissory Note, dated
November 14, 1995, by Debtor payable to the order of Payee in the original
principal amount of $6,000,000 (the "Existing Term Note"), but does not
extinguish or constitute payment of, the unpaid obligations, liabilities and
indebtedness evidenced through or arising thereunder or in respect thereof. This
Note evidences the consolidation of the unpaid principal balance of $_______
under the Existing Term Note and the Additional Hanover Realty Term Advance
being made on the date hereof pursuant to the Eleventh Amendment to Loan
Agreement. Debtor hereby acknowledges that Debtor is indebted to Payee for
interest through the date hereof under the Existing Term Note and for interest
accruing hereunder from and after the date hereof. Neither the amendment and
restatement contained herein nor Payee's acceptance of this Note or other
actions contemplated by the Loan Agreement or any of the other Financing
Agreements shall, in any manner, be construed to constitute payment of, or
impair, limit or extinguish the indebtedness arising under or evidenced by the
Existing Term Note or constitute a novation with respect thereto and the liens
and security interests securing such indebtedness shall not in any manner be
impaired, limited, terminated, waived or released hereby.
If any payment of principal or interest is not made when due hereunder, or
if any other Event of Default shall occur for any reason, or if the Loan
Agreement shall be terminated or not renewed for any reason whatsoever, then and
in any such event, in addition to all rights and remedies of Payee under the
Financing Agreements, applicable law or otherwise, all such rights and remedies
being cumulative, not exclusive and enforceable alternatively, successively and
concurrently, Payee may, at its option, declare any or all of Debtor's
obligations, liabilities and indebtedness owing to Payee under the Loan
Agreement and the other Financing Agreements (the "Obligations"), including,
without limitation, all amounts owing under this Note, to be due and payable,
whereupon the then unpaid balance hereof, together with all interest accrued
thereon, shall forthwith become due and payable, together with interest accruing
thereafter at the then applicable Interest Rate stated above until the
indebtedness evidenced by this Note is paid in full, plus the costs and expenses
of collection hereof, including, but not limited to, reasonable attorneys' fees
and legal expenses.
Debtor (i) waives diligence, demand, presentment, protest and notice of
any kind, (ii) agrees that it will not be necessary for Payee to first institute
suit in order to enforce payment of this Note and (iii) consents to any one or
more extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence, without
notice or consent. The pleading of any statute of limitations as a defense to
any demand against Debtor is expressly hereby waived by Debtor. Upon any
-3-
<PAGE> 45
Event of Default or termination or non-renewal of the Loan Agreement, Payee
shall have the right, but not the obligation to setoff against this Note all
money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment, but
may proceed against Debtor and any guarantors or endorsers hereof in such order
and manner as Payee may choose. None of the rights of Payee shall be waived or
diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the other
Financing Agreements and any dispute arising in connection herewith or therewith
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
Debtor irrevocably consents and submits to the non-exclusive jurisdiction
of the Supreme Court of the State of New York for New York County and the United
States District Court for the Southern District of New York and waives any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Note or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of Debtor and Payee in respect of this Note or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute arising out of the relationship between
Debtor and Payee or the conduct of such persons in connection with this Note or
otherwise shall be heard only in the courts described above (except that Payee
shall have the right to bring any action or proceeding against Debtor or its
property in the courts of any other jurisdiction which Payee deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Debtor or its property).
Debtor hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by certified mail (return
receipt requested) directed to it and service so made shall be deemed to be
completed five (5) days after the same have been so deposited in the U.S. mails,
or, at Payee's option, by service upon Debtor in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service, Debtor
shall appear in answer to such process, failing which Debtor shall be deemed in
default and judgment may be entered by Payee against Debtor for the amount of
the claim and other relief requested.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN DEBTOR AND PAYEE
IN RESPECT OF THIS NOTE OR THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. DEBTOR AGREES
-4-
<PAGE> 46
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the Board
of Directors and by any necessary vote or consent of the stockholders of Debtor.
Debtor hereby authorizes Payee to complete this Note in any particulars
according to the terms of the loan evidenced hereby.
This Note shall be binding upon to successors and assigns of Debtor and
inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
ATTEST:
HANOVER REALTY, INC.
_____________________
Secretary By:___________________________________
[Corporate Seal] Title:________________________________
-5-
<PAGE> 47
EXHIBIT C
Intercompany Loans Owed By Hanover Realty, Inc.
<TABLE>
<CAPTION>
Revolving Loan Outstanding Amount Intercompany Loan
Borrower that made of Intercompany Repayment Amount
loan to Hanover Loans
Realty, Inc.
<S> <C> <C>
Hanover Direct
Virginia, Inc. $7,469,519 Full Amount of
Hanover Realty Term
Advance
</TABLE>
-6-
<PAGE> 48
EXHIBIT D
MODIFICATION AGREEMENT WITH
RESPECT TO OPEN-END MORTGAGE
THIS MODIFICATION AGREEMENT WITH RESPECT TO OPEN-END MORTGAGE
("Modification Agreement"), made as of the __ day of _______, 1998, between
HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("Mortgagor"),
having an office at 101 East Kindig Lane, Hanover, Pennsylvania and CONGRESS
FINANCIAL CORPORATION, a California corporation ("Mortgagee"), having an office
at 1133 Avenue of the Americas, New York, New York 10036.
W I T N E S S E T H:
WHEREAS, Mortgagee and Mortgagor have entered into financing arrangements
pursuant to which Mortgagee has made and may make loans and advances and provide
other financial accommodations to Mortgagor as set forth in the Loan and
Security Agreement dated as of the 14th day of November, 1995, by and between
Mortgagee and Mortgagor, as amended (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement"); and
WHEREAS, in order to secure all existing and future obligations,
liabilities and indebtedness of Mortgagor evidenced by or arising under the Loan
Agreement, up to the aggregate principal amount outstanding at any time of
SEVENTY FIVE MILLION DOLLARS ($75,000,000), plus interest, costs and expenses
and other amounts as provided therein, the Mortgagor executed and delivered an
Open-End Fee and Leasehold Mortgage and Security Agreement, dated as of November
14, 1995 (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the "Mortgage"), with
respect to certain property set forth on Exhibit A annexed hereto and made a
part hereof (the "Mortgaged Property"), which Mortgage was recorded on November
15, 1995 in Adams County Record Book 1109 at Page 152; and
WHEREAS, Mortgagee has agreed to certain amendments to the terms of the
Loan Agreement, as set forth in the Eleventh Amendment to Loan and Security
Agreement, dated as of March __, 1998, among Mortgagor and its affiliates and
Mortgagee (the "Eleventh Amendment"), which Eleventh Amendment provides for,
among other things, (i) an extension of the term for the financing arrangements
between Mortgagee and Mortgagor and its affiliates, (ii) the making of a new
term loan to Mortgagor by Mortgagee in the principal amount of $_______, and the
consolidation of the existing balance of the Term Note referred
<PAGE> 49
to in the Mortgage with the new term loan, to be evidenced by an Amended and
Restated Term Promissory Note, as referred to below, and (iii) the execution and
delivery by Mortgagor of its Guarantee and Waivers in favor of Mortgagee with
respect to Silhouettes, L.L.C., The Company Store, L.L.C., Domestications,
L.L.C., and Tweeds, L.L.C., newly formed affiliates of Mortgagor that may
hereafter become "Borrowers" under and as defined in the Loan Agreement (such
Guarantee and Waivers, collectively, the "Additional Guaranties"); and
WHEREAS, the parties hereto wish to amend the Mortgage so that it conforms
to the terms of the Eleventh Amendment.
NOW, THEREFORE, in consideration of the above premises, Mortgagor and
Mortgagee hereby agree as follows (terms which are defined in the Mortgage shall
have their defined meanings when used herein, unless otherwise stated):
1. Amendment of Certain Definitions. From and after the date hereof, the
following terms now contained in the Mortgage shall be amended as set forth
below:
(a) Any reference to the Loan Agreement in the Mortgage shall mean
the Loan Agreement, as heretofore amended and as amended by the Eleventh
Amendment and any other further amendment, modification, supplement, extension,
renewal, restatement or replacement thereof.
(b) "Term Note" shall mean the Amended and Restated Term Promissory
Note, dated of even date herewith, in the original principal amount of
__________________________ ($________) made by Mortgagor to the order of
Mortgagee, delivered pursuant to Section 2 of the Eleventh Amendment, and any
amendment, modification, supplement, extension, renewal, restatement or
replacement thereof.
(c) "Financing Agreements" shall include the Term Note (as defined
in Section 1(b) hereof) and the Additional Guaranties.
(d) Whenever the term "Guaranty" shall appear in the Mortgage in
Paragraphs 1 through 36 thereof, the same shall include the Additional
Guaranties in addition to the Guaranty which is described in Subparagraph (c) on
Page 5 of the Mortgage.
(e) "Obligations" shall include those existing and future
obligations, liabilities and indebtedness of Mortgagor to Mortgagee evidenced
by, arising under or in connection with (i) the Term Note (as defined in Section
1(b) hereof), and (ii) the Additional Guaranties.
-2-
<PAGE> 50
2. Amendment of Conflicts Provision. Paragraph 34 of the Mortgage entitled
"Conflicts" is hereby deleted and the following Paragraph is inserted in its
place and stead:
"34. Conflicts. In case of any conflict between the provisions of this
Mortgage relating to Equipment and the Loan Agreement with respect to the
same matter, the provisions of the Loan Agreement shall control. In all
other cases of conflicts between the provisions of this Mortgage and the
provisions of the Loan Agreement, the provisions of this Mortgage shall
control. Consistent additional provisions shall not be considered
conflicting provisions for purposes of this Paragraph."
3. Ratification. Except as modified by this Modification Agreement, all
other terms, conditions, covenants, representations and warranties contained in
the Mortgage shall remain in full force and effect and are hereby ratified by
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Modification
Agreement as of the day and year first above written.
ATTEST: "MORTGAGOR"
HANOVER DIRECT PENNSYLVANIA, INC.
_____________________ By:___________________________
Name:_________________________
Title:________________________
"MORTGAGEE"
CONGRESS FINANCIAL CORPORATION
By:___________________________
Name:_________________________
Title:________________________
The precise residence address
of Mortgagee is:
1133 Avenue of the Americas
New York, New York 10036
_____________________________
on behalf of the Mortgagee
-3-
<PAGE> 51
STATE OF ____________ )
) ss.:
COUNTY OF ____________ )
And now this day of ________, 1998, before me a Notary Public, personally
appeared ____________________________, who acknowledged himself to be the
_________________________ of HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania
corporation, and that he, as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing the name
of the corporation by himself as such officer.
_______________________________
Notary Public
My Commission Expires: __________
STATE OF ____________ )
) ss.:
COUNTY OF ____________ )
And now this day of ________, 1998 before me a Notary Public, personally
appeared ____________________________, who acknowledged himself to be the
_________________________ of CONGRESS FINANCIAL CORPORATION, a California
corporation, and that he, as such officer, being authorized to do so, executed
the foregoing instrument for the purposes therein contained by signing the name
of the corporation by himself as such officer.
_______________________________
Notary Public
My Commission Expires: __________
-4-
<PAGE> 52
EXHIBIT E
This document is intended to be
recorded in the Deed Book in the
Office of the Clerk of the Circuit
Court of Roanoke County, Virginia
PREPARED BY AND AFTER
RECORDING RETURN TO:
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Attention: Stephen B. Weissman, Esq.
AMENDMENT NO. 1 TO DEED OF TRUST,
ASSIGNMENT AND SECURITY AGREEMENT
made by and between
HANOVER REALTY, INC.
as the Grantor
in favor of
GORDON F. RAINEY, JR.
as Trustee
for the benefit of
CONGRESS FINANCIAL CORPORATION
as the Noteholder
RECORDING TAXES IN THE AMOUNT OF $22,279 WERE PAID IN CONNECTION WITH THE
RECORDING OF A DEED OF TRUST, ASSIGNMENT AND SECURITY AGREEMENT ("DEED OF
TRUST") DATED NOVEMBER 14, 1995 GIVEN BY GRANTOR (DEFINED HEREIN) TO TRUSTEE
(DEFINED HEREIN) FOR THE BENEFIT OF NOTEHOLDER (DEFINED HEREIN) IN ROANOKE
COUNTY IN ACCORDANCE WITH SECTIONS 58.1-803 AND 58.1-814 OF THE CODE OF
VIRGINIA, 1950, AS AMENDED. THIS MODIFICATION AGREEMENT (DEFINED HEREIN)
CONSTITUTES A MODIFICATION OF THE DEED OF TRUST AND AN INCREASE IN THE MAXIMUM
AGGREGATE PRINCIPAL AMOUNT OF THE OBLIGATIONS (DEFINED HEREIN) AT ANY TIME
SECURED BY THE DEED OF TRUST FROM $11,400,000 TO $16,000,000. RECORDING TAXES IN
THE AMOUNT OF $7,360 ARE TENDERED HEREWITH IN CONNECTION WITH THE RECORDING OF
THIS MODIFICATION AGREEMENT AND, PURSUANT TO SECTION 58.1-809 OF THE CODE OF
VIRGINIA, 1950, AS AMENDED, NO OTHER OR FURTHER RECORDING TAXES SHALL BE DUE ON
OR IN CONNECTION WITH THE RECORDING OF THIS MODIFICATION AGREEMENT.
<PAGE> 53
AMENDMENT NO. 1 TO DEED OF TRUST,
ASSIGNMENT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO DEED OF TRUST, ASSIGNMENT AND SECURITY AGREEMENT
("Modification Agreement"), made as of the __ day of __________, 1998, between
HANOVER REALTY, INC., a Virginia corporation ("Grantor"), having its principal
place of business at 5020 Hollins Road, Roanoke, Virginia, GORDON F. RAINEY,
JR., TRUSTEE, of the City of Richmond, Virginia ("Trustee"), and CONGRESS
FINANCIAL CORPORATION, a California corporation ("Noteholder"), having an office
at 1133 Avenue of the Americas, New York, New York 10036.
W I T N E S S E T H:
WHEREAS, Noteholder and Grantor have entered into financing arrangements
pursuant to which Noteholder has made and may make loans and advances and
provide other financial accommodations to Grantor and its affiliates as set
forth in the Loan and Security Agreement dated as of the 14th day of November,
1995, by and between Noteholder and Grantor, as amended (as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, the "Loan Agreement"); and
WHEREAS, in order to secure all existing and future obligations,
liabilities and indebtedness of Grantor evidenced by or arising under the Loan
Agreement, up to the aggregate principal amount outstanding at any time of
ELEVEN MILLION FOUR HUNDRED THOUSAND DOLLARS ($11,400,000), plus interest, costs
and expenses and other amounts as provided therein, Grantor executed and
delivered to Trustee for the benefit of Noteholder a Deed of Trust, Assignment
and Security Agreement, dated as of November 14, 1995 (as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Deed of Trust"), with respect to certain property set forth on
Exhibit A annexed hereto and made a part hereof, which Deed of Trust was
recorded on November 15, 1995 in the Clerk's Office of the Circuit Court of
Roanoke County in Book 1491 at Page 00968.
WHEREAS, Noteholder has agreed to certain amendments to the terms of the
Loan Agreement, as set forth in the Eleventh Amendment to Loan and Security
Agreement, dated as of March __, 1998, among Grantor, Grantor's affiliates and
Noteholder (the "Eleventh Amendment"), which Eleventh Amendment provides for,
-2-
<PAGE> 54
among other things, (i) an extension of the term for the financing arrangements
between Noteholder and Grantor and its affiliates, (ii) the making of a new term
loan to Grantor by Noteholder in the principal amount of $_________, and the
consolidation of the existing balance of the Term Note referred to in the Deed
of Trust with the new term loan, to be evidenced by an Amended and Restated Term
Promissory Note, (iii) the execution and delivery by Grantor of its Guarantee
and Waivers in favor of Noteholder with respect to Silhouettes, L.L.C., The
Company Store, L.L.C., Domestications, L.L.C., and Tweeds, L.L.C., newly formed
affiliates, Grantor that may hereafter become "Borrowers" under and as defined
in the Loan Agreement (such Guarantee and Waivers collectively, the "Additional
Guaranties"), and (iv) an increase in the maximum aggregate principal amount of
the Obligations (as defined in the Deed of Trust) at any time secured by the
Deed of Trust from $11,400,000 to $16,000,000; and
WHEREAS, the parties hereto wish to amend the Deed of Trust so that it
conforms to the terms of the Eleventh Amendment.
NOW, THEREFORE, in consideration of the above premises, Grantor, Trustee
and Noteholder hereby agree as follows (terms which are defined in the Deed of
Trust shall have their defined meanings when used herein, unless otherwise
stated):
1. Amendment of Certain Definitions. From and after the date hereof, the
following terms now contained in the Deed of Trust shall be amended as set forth
below:
(a) Any reference to the Loan Agreement in the Deed of Trust shall
mean the Loan Agreement, as heretofore amended and as amended by the Eleventh
Amendment and any other further amendment, modification, supplement, extension,
renewal, restatement or replacement thereof.
(b) "Term Note" shall mean the Amended and Restated Term Promissory
Note, dated of even date herewith, in the original principal amount of
__________________________ ________ Dollars ($_______) made by Grantor to the
order of Noteholder, delivered pursuant to Section 3 of the Eleventh Amendment,
and any amendment, modification, supplement, extension, renewal, restatement or
replacement thereof.
(c) "Financing Agreements" shall include the Term Note (as defined
in Section 1(b) hereof) and the Additional Guaranties.
(d) Whenever the term "Guaranty" shall appear in the Deed of Trust
in Paragraphs 1 through 32 thereof, the same shall include the Additional
Guaranties in addition to the Guaranty which is described in Subparagraph (c) on
Page 5 of the Deed of Trust.
-3-
<PAGE> 55
(e) "Obligations" shall include, without limitation, those
obligations, liabilities and indebtedness of Grantor to Noteholder evidenced by,
arising under or in connection with (i) the Term Note (as defined in Section
1(b) hereof), and (ii) the Additional Guaranties.
2. Increase in Maximum Aggregate Principal Amount of Obligations Secured
by Deed of Trust. The maximum aggregate principal amount of the Obligations
which may at any time be secured by the Deed of Trust is hereby increased to
Sixteen Million Dollars ($16,000,000) at any time and from time to time
outstanding, or howsoever evidenced.
3. Amendment of Conflicts Provision. Paragraph 31 of the Deed of Trust
entitled "Conflicts" is hereby deleted and the following Paragraph is inserted
in its place and stead:
"31. Conflicts. In case of any conflict between the provisions of this
Deed of Trust relating to Equipment and the Loan Agreement with respect to
the same matter, the provisions of the Loan Agreement shall control. In
all other cases of conflicts between the provisions of this Deed of Trust
and the provisions of the Loan Agreement, the provisions of this Deed of
Trust shall control. Consistent additional provisions shall not be
considered conflicting provisions for purposes of this Paragraph."
4. Ratification. Except as modified by this Modification Agreement, all
other terms, conditions, covenants, representations and warranties contained in
the Deed of Trust shall remain in full force and effect and are hereby ratified
by the parties hereto.
5. Execution by Noteholder. The Noteholder joins in the execution of this
Modification Agreement to evidence its knowledge and consent hereto and to
instruct and authorize Trustee to execute the same.
-4-
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have executed this Modification
Agreement as of the day and year first above written.
"GRANTOR"
HANOVER REALTY, INC.
By:___________________________
Name:_________________________
Title:________________________
"TRUSTEE"
______________________________
Gordon. F. Rainey, Jr.
"NOTEHOLDER"
CONGRESS FINANCIAL CORPORATION
By:___________________________
Name:_________________________
Title:________________________
-5-
<PAGE> 57
STATE OF ________
COUNTY OF _______, to-wit:
The foregoing instrument was acknowledged before me this ________ day of
__________, 1998 in the County of _________, by ___________, as
________________of Hanover Realty, Inc., a Virginia corporation, on behalf of
the Grantor.
My Commission Expires: __________
_______________________
Notary Public
(NOTARY SEAL)
STATE OF ________
COUNTY OF _______, to-wit:
The foregoing instrument was acknowledged before me this ________ day of
____________, 1998 in the County of _________, by Gordon F. Rainey, Jr. in his
stated capacity.
My Commission Expires: __________
_______________________
Notary Public
(NOTARY SEAL)
-6-
<PAGE> 58
STATE OF ________
COUNTY OF _______, to-wit:
The foregoing instrument was acknowledged before me this _______ day of
______, 1998 in the County of ________, by ______________, as _________________
of Congress Financial Corporation, a California corporation, on behalf of the
Noteholder.
My Commission Expires: __________
_______________________
Notary Public
<PAGE> 1
EXHIBIT 10.42
SWISS BANK CORPORATION,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Letter of Credit No. S567171
February 18, 1998
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
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 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
<PAGE> 2
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 March 30, 1999 unless sooner terminated as
provided herein or until renewed or extended as provided herein (such date, as
it may sooner be terminated or as it may from time to time be extended pursuant
to the terms hereof, the "Scheduled Termination Date"). 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, Stamford Branch, 677
Washington Boulevard, Stamford, Connecticut 06901-3793, Attention: Mr. Joerg
Rauthe, 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., Connecticut 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., Connecticut time, on the same Business Day. If a
presentation in respect of payment is made by you hereunder after 11:30 a.m.,
Connecticut 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., Connecticut 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
Stamford, Connecticut, or the city or cities in which the corporate trust office
of the Trustee is located, are required or authorized by law to close or
2
<PAGE> 3
(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, as amended pursuant to that certain First Amendment to the
Reimbursement Agreement dated as of February 18, 1998 (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
3
<PAGE> 4
and interest accruing on the Bonds on or prior to the due date(s) 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 February 18, 1998.
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 your receipt of a written notice from us in the form of
Annex J 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, upon the earliest of (i) the Scheduled
Termination Date, (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 the Scheduled
Termination Date, (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. In the event the Scheduled
Termination Date of this Letter of Credit is not a Business Day, this Letter of
Credit shall expire at 1:30 p.m., Stamford, Connecticut time, on the next
following Business Day.
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
4
<PAGE> 5
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.
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 the
following number, 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. (203) 719-4634.
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,
Stamford Branch
/s/ James J. Diaz
By: ________________________
5
<PAGE> 6
Name: James J. Diaz
Title: Director Banking
Finance Support,
N.A.
/s/ Thomas R. Salzano
By: ________________________
Name: Thomas R. Salzano
Title: Associate Director
Banking Finance Support,
N.A.
6
<PAGE> 7
SCHEDULE A TO
LETTER OF CREDIT*
CERTIFICATE FOR "A DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 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> 8
/ / 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____.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:________________________________
Title:______________________
A-2
<PAGE> 9
SCHEDULE B TO
LETTER OF CREDIT*
CERTIFICATE FOR "B DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
letter of Credit No. S567171 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, Industries or any Affiliate (as defined in the Indenture) of
either of them.
________________________
* For payment of interest due and payable on the Bonds.
B-1
<PAGE> 10
(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__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:_____________________________
Title:_____________________
B-2
<PAGE> 11
SCHEDULE C TO
LETTER OF CREDIT*
CERTIFICATE FOR "C DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 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 ___________________
Any capitalized term used herein and not defined herein shall
have the same meaning herein as described to it in the Letter of Credit.
_________________
* For payment of a portion of purchase price of Bonds corresponding to
the principal amount thereof delivered to the Trustee or Remarketing
Agent upon notice at least two Business Days prior to the first day of
an Interest Rate Period (Put on First Day of Interest Rate Period).
C-1
<PAGE> 12
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Certificate as of the ______________ day of _________________________ ,
19__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:______________________________
Title:________________________
C-2
<PAGE> 13
SCHEDULE D TO
LETTER OF CREDIT*
CERTIFICATE FOR "D DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 issued by the Bank in favor of the Trustee (the
"Letter of Credit") that:
(1) The Trustee is the Trustee under the Indenture for the
owners of the Bonds.
(2) The Trustee is hereby making an Interest Drawing under the
Letter of Credit with respect to $ to be used for payment of the
portion of purchase price of Bonds delivered to the Trustee or
Remarketing Agent (as defined in the Indenture) pursuant to Section 7
of the Bonds equal to the amount of accrued and unpaid interest on such
Bonds to the date of purchase thereof.
(3) The aggregate amount of all drawings referred to in
paragraph 2 does not exceed that amount of such portion of purchase
price that is due and payable and does not exceed an amount equal to
210 days' accrued interest on the Bonds computed at the actual rate of
interest thereon during the period for which this drawing is being made
(which rate does not exceed twelve percent (12%) per annum).
(4) The amount set forth in paragraph 2 of this Certificate
does not exceed the amount available on the date hereof to be drawn
under the Interest Portion of the Letter of Credit in respect of
payment of interest accrued on the Bonds on or prior to their stated
maturity date.
(5) The amount set forth in paragraph 2 of this Certificate
was computed in accordance with the terms and conditions of the Bonds
and the Indenture.
(6) The amount set forth in paragraph 2 should be:
________________
* 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> 14
/ / 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__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:____________________________
Title:______________________
D-2
<PAGE> 15
SCHEDULE E TO
LETTER OF CREDIT*
CERTIFICATE FOR "E DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 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> 16
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Certificate as of the ________________ day of _________________________,
19__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:_________________________
Title:___________________
E-2
<PAGE> 17
SCHEDULE F TO
LETTER OF CREDIT*
CERTIFICATE FOR "F DRAWING"
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 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.
(6) The amount set forth in paragraph 2 should be:
________________
* 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> 18
/ / 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__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:___________________________
Title:___________________
F-2
<PAGE> 19
SCHEDULE G TO
LETTER OF CREDIT
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
Re: Irrevocable Letter of Credit
No. S567171
Ladies and Gentlemen:
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford 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,
STATE STREET BANK AND TRUST COMPANY
By:______________________________
Title:_____________________
Approved:
HANOVER DIRECT PENNSYLVANIA, INC. (formerly
HANOVER HOUSE INDUSTRIES, INC.)
By:________________________________
Title:_______________________
Date:________________________
G-1
<PAGE> 20
SCHEDULE H TO
LETTER OF CREDIT
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
Re: Irrevocable Letter of Credit
No. S567171
Ladies and Gentlemen:
The undersigned, a duly authorized officer of STATE STREET
BANK AND TRUST COMPANY, as Trustee (the "Trustee"), hereby certifies to SWISS
BANK CORPORATION, Stamford Branch (the "Bank"), with reference to Irrevocable
Letter of Credit No. S567171 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> 21
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Certificate as of the _______________________ day of ___________________,
19__ .
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:_______________________________
Title:_______________________
Approved:
HANOVER DIRECT PENNSYLVANIA, INC. (formerly
HANOVER HOUSE INDUSTRIES, INC.)
By:____________________________________
Title:___________________________
Date:____________________________
H-2
<PAGE> 22
SCHEDULE I TO
LETTER OF CREDIT
[Date]
Swiss Bank Corporation,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Trade Finance Operations Department [SBC-10-N]
Re: Irrevocable Letter of Credit
No. S567171
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> 23
ANNEX J
EXTENSION OF SCHEDULED TERMINATION DATE
State Street Bank and Trust Company, as Trustee
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103
Attention: Corporate Trust Department
Re: Irrevocable Letter of Credit Ref. No. S567171
For the Account of Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, a duly authorized officer of Swiss Bank Corporation,
Stamford 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,
Stamford Branch
By:_____________________________
[Name and Title]
By:_____________________________
[Name and Title]
J-1
<PAGE> 1
EXHIBIT 10.44
FIRST AMENDMENT
TO
REIMBURSEMENT AGREEMENT
FIRST AMENDMENT, dated as of February 18, 1998 ("First
Amendment"), by and between SWISS BANK CORPORATION, a banking corporation
organized under the laws of Switzerland and whose principal office is located in
Basel, Switzerland, acting through its Stamford Branch and HANOVER DIRECT, INC.,
a Delaware corporation having its principal place of business in Weehawken, New
Jersey (the "Borrower"). Capitalized terms used but not defined herein have the
meanings given to them in the Reimbursement Agreement referred to below.
WHEREAS, Swiss Bank Corporation, New York Branch and the
Borrower were parties to that certain Reimbursement Agreement, dated as of
December 18, 1996 (the "Reimbursement Agreement");
WHEREAS, Swiss Bank Corporation, New York Branch subsequently
transferred all of its rights and obligations under the Reimbursement Agreement
to Swiss Bank Corporation, Stamford Branch and Swiss Bank Corporation, Stamford
Branch assumed all of the obligations of Swiss Bank Corporation, New York Branch
under the Reimbursement Agreement;
WHEREAS, Swiss Bank Corporation, Stamford Branch (hereinafter
referred to as the "Bank") and the Borrower wish to amend the Reimbursement
Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. As of the date hereof, the Reimbursement Agreement is
hereby amended as follows:
(a) All references throughout the Reimbursement Agreement to
"Swiss Bank Corporation, New York Branch" are hereby amended to read "Swiss Bank
Corporation, Stamford Branch."
(b) The reference to "New York Branch" located in the seventh
and eighth lines of the preamble on page 1 of the Reimbursement Agreement is
hereby amended to read "Stamford Branch."
(c) Section 1.01 of the Reimbursement Agreement is hereby
amended by (i) adding the language ", or any substitute letter of credit that
may be issued on substantially the same terms by the Bank as replacement
therefor, as the same may be amended, supplemented, modified, extended or
restated hereafter" prior to the semicolon at the end of the definition of
"Hanover House LC", (ii) adding the language ", as the same may be amended,
supplemented, modified, extended or restated hereafter" prior to the semicolon
at the end of the definition of
<PAGE> 2
"Hanover Series A Letter of Credit", (iii) adding the language ", as the same
may be amended, supplemented, modified, extended or restated hereafter" prior to
the semicolon at the end of the definition of "Hanover Series B Letter of
Credit", (iv) deleting the language "Swiss Bank Corporation, New York Branch, 10
East 50th Street, New York, New York 10022" from the definition of "Principal
Office" and substituting in its place the following language: "Swiss Bank
Corporation, Stamford Branch, 677 Washington Boulevard, Stamford, Connecticut
06901-3793", and (v) adding the language ", as the same may be amended,
supplemented, modified or restated hereafter" prior to the semicolon at the end
of the definition of "Subordination Agreement."
(d) Section 2.03 of the Reimbursement Agreement is hereby
amended by eliminating the word "and" after paragraph (e), substituting a
semicolon for the period at the end of paragraph (f), adding the word "and"
after the semicolon at the end of paragraph (f) and adding the following
paragraph after paragraph (f):
(g) on or before the closing date of any extension to the
scheduled Expiration Date of any Direct Pay Letter of Credit,
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 such closing date,
and such additional fees as may be agreed to by the Borrower
and the Bank, to which fees no Participating Bank shall have
any right, claim or interest. In the event that the scheduled
Expiration Date of any Direct Pay Letter of Credit is extended
pursuant to Section 2.07 hereof, the parties hereto
acknowledge and agree that the Borrower shall be required to
pay to the Bank all fees, charges, and expenses described in
paragraphs (b) through (f) of this Section 2.03 as well as any
amounts described in Section 7.02 hereof during any extension
period.
(e) The first paragraph following new paragraph (g) in Section
2.03 of the Reimbursement Agreement is hereby amended by deleting the word "or"
in the fourth line of the paragraph and substituting a comma in its place and by
adding the language "or (g)" in the fifth line of said paragraph after the "(f)"
and before the words "of this Section 2.03."
(f) Section 2.07 of the Reimbursement Agreement is hereby
amended by (i) deleting the language "for an additional one-year period" at the
end of the first sentence thereof and (ii) deleting the language "an additional
one-year period" at the end of the tenth and the beginning of the eleventh lines
thereof and substituting "such additional period as may be mutually agreed upon
by the Bank and the Borrower" therefor.
(g) Section 9.02 of the Reimbursement Agreement is hereby
amended by (i) adding the language "and directing the Trustee to accelerate
payment of the Bonds pursuant to Section 8.02 of the Indenture" after the word
"hereunder" in the fourth line of paragraph (b) thereof and (ii) deleting the
words "principal or" in the last line of paragraph (b) thereof.
(h) Section 10.02 of the Reimbursement Agreement is hereby
amended by deleting the address of the Bank set forth in paragraph (b) of
Section 10.02 and replacing it with the following language:
-2-
<PAGE> 3
Swiss Bank Corporation
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Joerg Rauthe
Telephone: (203) 719-3176
Telefacsimile: (203) 719-3180
2. It shall be a condition precedent to the effectiveness of
this First Amendment that the Guarantor shall have provided the Bank with a
guarantee of the Reimbursement Obligations of the Borrower during the term of
the Direct Pay Letters of Credit, or shall have amended the Guaranty to extend
its term to March 30, 1999, as applicable.
3. This First Amendment may be executed in counterparts, each
of which, upon execution and delivery by the parties, shall be considered an
original, and all of which, taken together, shall constitute one and the same
instrument.
4. This First Amendment, and all of the obligations of the
parties hereunder, shall be construed in accordance with and governed by the
laws of the State of New York, without regard to the conflict of laws principles
thereof.
5. From and after the date hereof, all references to the
Reimbursement Agreement contained in the Reimbursement Agreement, the Loan
Documents, the Hanover Indemnity Agreement and any other documents or agreements
referred to in any of them, as such documents may from time to time be amended,
supplemented, modified or restated, shall be deemed to be references to the
Reimbursement Agreement as amended hereby. Except as specifically amended
hereby, the Reimbursement Agreement shall remain in full force and effect in
accordance with its terms.
6. The provisions of this First Amendment are severable, and
if any clause or provision shall be held invalid and unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this First Amendment in any
jurisdiction.
[Signature pages follow]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed as of the date first above written.
SWISS BANK CORPORATION,
Stamford Branch
By: /s/ Fran Martell
-------------------------------
Name: Fran Martell
Title: Associate Director Trade
Finance Services
By: /s/ David Kung
-------------------------------
Name: /s/ David Kung
Title: Associate Director Trade
Finance Services
HANOVER DIRECT, INC.
By: /s/ Edward J. O'Brien
-------------------------------
Name: Edward J. O'Brien
Title: Senior Vice President
-4-
<PAGE> 1
EXHIBIT 10.63
AMENDMENT TO LETTER OF CREDIT NO. S567170
Amendment to Letter of Credit No. S567170 issued by Swiss Bank
Corporation, New York Branch on December 18, 1996 (the "Letter of Credit") for
the account of Hanover Direct, Inc., a Delaware corporation (the "Company"), in
favor of Norwest Bank Minnesota, N.A., as Trustee under the Note Agreement (the
"Trustee"). Terms used herein but not otherwise defined shall have the meanings
ascribed to such terms in the Letter of Credit.
W I T N E S S E T H:
WHEREAS, Swiss Bank Corporation, New York Branch has assigned
all or substantially all of its interests and obligations under the Letter of
Credit to Swiss Bank Corporation, Stamford Branch and Swiss Bank Corporation,
Stamford Branch has assumed all of the obligations of Swiss Bank Corporation,
New York Branch under the Letter of Credit;
WHEREAS, Swiss Bank Corporation, Stamford Branch has agreed to
extend the Scheduled Expiration Date of the Letter of Credit from February 18,
1998 to March 30, 1999; and
WHEREAS, Swiss Bank Corporation, Stamford Branch and the
Trustee wish to amend the Letter of Credit as provided herein.
NOW, THEREFORE, in consideration of the premises set forth
herein and other valuable consideration, the parties hereto hereby agree as
follows.
1. As of the date hereof, the Letter of Credit is hereby
amended as follows:
(a) The references throughout the Letter of Credit to Swiss
Bank Corporation, New York Branch are hereby amended to refer to Swiss Bank
Corporation, Stamford Branch. The parties hereto hereby agree that any
references in the Letter of Credit to "the Bank" shall be deemed to be
references to Swiss Bank Corporation, Stamford Branch.
(b) The address "10 East 50th Street, New York, New York
10022" set forth in various places throughout the Letter of Credit and the
Exhibits thereto is hereby deleted, and the following address is hereby
substituted in its place: "677 Washington Boulevard, Stamford, Connecticut
06901-3793".
(c) The language "(212) 574-4634 or (212) 574-
<PAGE> 2
4757; but only after first giving telephone notice to us by contacting Ms.
Virginia Gensch at the following telephone number: (212) 574-4654" is hereby
deleted from the second paragraph under the section entitled "Drawing and Method
of Payment" on page 2 of the Letter of Credit and the following language is
substituted in its place: "(203) 719-4634 but only after first giving telephone
notice to us by contacting Fran Martel at the following telephone number: (203)
719-3985".
2. Except as provided herein, the Letter of Credit shall
remain in full force and effect and unaffected hereby except as the Letter of
Credit shall be deemed to have been amended by the terms of this Amendment from
and after the date hereof.
3. This Amendment may be executed in one or more counterparts,
each of which taken together shall constitute an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of this 18th day of February, 1998.
SWISS BANK CORPORATION,
Stamford Branch
By: /s/ James J. Diaz
--------------------------------
Name: James J. Diaz
Title: Director Banking Finance
Support, N.A.
By: /s/ Thomas R. Salzano
--------------------------------
Name: Thomas R. Salzano
Title: Associate Director Banking Finance
Support, N.A.
NORWEST BANK MINNESOTA, N.A.,
AS TRUSTEE
By: /s/ Paula Hecht
--------------------------------
Name: Paula Hecht
Title: Corporate Trust Officer
-2-
<PAGE> 1
EXHIBIT 10.66
AMENDMENT TO LETTER OF CREDIT NO. S567169
Amendment to Letter of Credit No. S567169 issued by Swiss Bank
Corporation, New York Branch on December 18, 1996 (the "Letter of Credit") for
the account of Hanover Direct, Inc., a Delaware corporation (the "Company"), in
favor of Norwest Bank Minnesota, N.A., as Trustee under the Note Agreement (the
"Trustee"). Terms used herein but not otherwise defined shall have the meanings
ascribed to such terms in the Letter of Credit.
W I T N E S S E T H:
WHEREAS, Swiss Bank Corporation, New York Branch has assigned
all or substantially all of its interests and obligations under the Letter of
Credit to Swiss Bank Corporation, Stamford Branch and Swiss Bank Corporation,
Stamford Branch has assumed all of the obligations of Swiss Bank Corporation,
New York Branch under the Letter of Credit;
WHEREAS, Swiss Bank Corporation, Stamford Branch has agreed to
extend the Scheduled Expiration Date of the Letter of Credit from February 18,
1998 to March 30, 1999; and
WHEREAS, Swiss Bank Corporation, Stamford Branch and the
Trustee wish to amend the Letter of Credit as provided herein.
NOW, THEREFORE, in consideration of the premises set forth
herein and other valuable consideration, the parties hereto hereby agree as
follows.
1. As of the date hereof, the Letter of Credit is hereby
amended as follows:
(a) The references throughout the Letter of Credit to Swiss
Bank Corporation, New York Branch are hereby amended to refer to Swiss Bank
Corporation, Stamford Branch. The parties hereto hereby agree that any
references in the Letter of Credit to "the Bank" shall be deemed to be
references to Swiss Bank Corporation, Stamford Branch.
(b) The address "10 East 50th Street, New York, New York
10022" set forth in various places throughout the Letter of Credit and the
Exhibits thereto is hereby deleted, and the following address is hereby
substituted in its place: "677 Washington Boulevard, Stamford, Connecticut
06901-3793".
(c) The language "(212) 574-4634 or (212) 574-
<PAGE> 2
4757; but only after first giving telephone notice to us by contacting Ms.
Virginia Gensch at the following telephone number: (212) 574-4654" is hereby
deleted from the second paragraph under the section entitled "Drawing and Method
of Payment" on page 2 of the Letter of Credit and the following language is
substituted in its place: "(203) 719-4634 but only after first giving telephone
notice to us by contacting Fran Martel at the following telephone number: (203)
719-3985".
2. Except as provided herein, the Letter of Credit shall
remain in full force and effect and unaffected hereby except as the Letter of
Credit shall be deemed to have been amended by the terms of this Amendment from
and after the date hereof.
3. This Amendment may be executed in one or more counterparts,
each of which taken together shall constitute an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of this 18th day of February, 1998.
SWISS BANK CORPORATION,
Stamford Branch
By: /s/ James J. Diaz
------------------------------------
Name: James J. Diaz
Title: Director Banking Finance
Support, N.A.
By: /s/ Thomas R. Salzano
------------------------------------
Name: Thomas R. Salzano
Title: Associate Director Banking Finance
Support, N.A.
NORWEST BANK MINNESOTA, N.A.,
AS TRUSTEE
By: /s/ Paula Hecht
------------------------------------
Name: Paula Hecht
Title: Corporate Trust Officer
-2-
<PAGE> 1
EXHIBIT 10.71
STOCK PURCHASE AGREEMENT, dated as of November 4, 1997 (this
"Agreement"), between SMALLCAP WORLD FUND, INC., a Maryland corporation (the
"Buyer"), and HANOVER DIRECT, INC., a Delaware corporation (the "Company").
R E C I T A L S
The Company is authorized to issue 225,000,000 shares of
common stock, $.66 2/3 par value (the "Common Stock"), of which 200,055,322
shares were issued and outstanding as of October 15, 1997; and
The Buyer desires to acquire from the Company and the Company
desires to sell to the Buyer 3,700,000 shares of Common Stock (the "Shares"),
all upon the terms and subject to the conditions set forth in this Agreement.
The parties hereto agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
Section 1.01. Sale and Purchase of Shares. On the Closing Date
(as hereinafter defined), the Company shall issue and sell the Shares to the
Buyer by delivering to the Buyer, against payment therefor as provided in
Section 1.02, certificates for the Shares registered in the name of Kane & Co.
in proper form for transfer by delivery.
Section 1.02. Purchase Price. The Shares shall be sold by the
Company and shall be purchased by the Buyer for an aggregate purchase price of
$5,217,000 (the "Purchase Price"). The Purchase Price shall be paid to the
Company against delivery of the certificates representing the Shares as provided
in Section 1.01 on the Closing Date, by wire transfer of immediately available
funds to an account designated by the Company at least two business days before
the Closing Date.
Section 1.03. The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall be held at the offices of
the Company at 1500 Harbor Boulevard, Weehawken, New Jersey 07087, at 10 o'clock
a.m., New York City time, on November 6, 1997, or at such other place or places
as the parties hereto may agree upon or, subject to Section 6.12, such other
time and date as may be mutually approved by the parties in writing, but not
later than November 14, 1997 (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that:
<PAGE> 2
Section 2.01. Organization and Authority. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware. The Company has all necessary corporate power to
own all of its properties and assets and to carry on its business as now being
conducted. The Company has the corporate power and, as of the Closing Date, will
be duly authorized to sell, convey, assign and transfer the Shares as
contemplated by this Agreement and to perform its obligations under this
Agreement.
Section 2.02. Company Capitalization. The Company has an
authorized capitalization of 225,000,000 shares of Common Stock, of which
200,055,322 shares were issued and outstanding as of October 15, 1997, and
392,017 shares were held in the treasury of the Company as of December 28, 1996.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable, and are not
subject to any right of rescission, and have been offered, issued, sold and
delivered by the Company in compliance with all applicable federal and state
securities laws. Except as set forth on Schedule 2.02, there are no outstanding
options, warrants, conversion privileges or other contractual rights or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. Except as set forth on Schedule 2.02, there are no existing
voting trusts, voting agreements or similar agreements between the Company and
any of its stockholders, nor are there any such agreements among any of the
Company's officers, directors or stockholders holding in excess of 5% of the
Company's outstanding voting securities. Except as set forth on Schedule 2.02,
the Company's securities are not subject to any preemptive or other preferential
rights under the Certificate of Incorporation of the Company or under any
agreement to which the Company is a party.
Section 2.03. The Shares. The Shares to be issued pursuant to
this Agreement, when issued and delivered in accordance with this Agreement,
will be duly and validly authorized and issued, fully paid and non-assessable
and, assuming the accuracy of the Buyer's representations set forth in Section
3.02, issued in accordance with all applicable state and federal securities
laws.
Section 2.04. No Conflict. The execution and delivery by the
Company of this Agreement does not, and the sale of the Shares by the Company
and the consummation of the transactions contemplated hereby by the Company will
not, conflict with, or result in any violation of or default under (with or
without notice or lapse of time or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or to a loss of a
material benefit under, any provision of the Certificate of Incorporation or
By-Laws of the Company; or under the provisions of any mortgage, indenture,
lease or other agreement or instrument or permit or license to which the Company
is a party or by which its properties or assets are bound; or under any
judgment, order, decree, statute, law, ordinance, rule or regulation of the
United States or any state thereof applicable to the Company, its properties or
assets, the effect of any of which would result in any material adverse change
to the business, financial condition or results of operations of the Company.
2
<PAGE> 3
Section 2.05. Litigation; Consents. (a) The Company knows of
no pending or threatened action, suit, proceeding or investigation before any
court or governmental body, or by any governmental agency to restrain or prevent
the performance of the transactions contemplated by this Agreement, or which
might affect the right of the Buyer to own the Shares. No constructive knowledge
shall be attributed to the Company under this Section 2.05(a).
(b) Except as otherwise referred to herein, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any governmental department, commission, agency or other instrumentality
having jurisdiction over the Company is required to be obtained by the Company
to authorize the execution and delivery by the Company of this Agreement or the
performance by the Company of its terms.
Section 2.06. Commission Filings. All reports, forms and
statements required to be filed by the Company during the period from December
28, 1996 to the date of this Agreement under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), have been duly and timely filed and were
in compliance with the requirements of their respective forms. The Company has
previously delivered to the Buyer copies of the Company's annual report on Form
10-K for the fiscal year ended December 28, 1996, with all amendments, all of
the Company's quarterly reports on Form 10-Q and current reports on Form 8-K
from December 29, 1996 to the date hereof, with all amendments (if any), the
Company's annual report to stockholders for the fiscal year ended December 28,
1996, the Company's proxy statement in connection with its annual meeting of
stockholders held on July 10, 1997 and all registration statements, if any, that
the Company has filed with the Securities and Exchange Commission (the
"Commission") in fiscal 1997. The Company has heretofore made public disclosure
of such additional material information since the date of the Company's annual
report on Form 10-K for the fiscal year ended December 28, 1996 as it was
required to disclose pursuant to the requirements of applicable Federal and
state securities and other laws and has furnished copies of such disclosure to
the Buyer. The annual report on Form 10-K for the fiscal year ended December 28,
1996, as amended, and all subsequent reports on Form 10-Q and 8-K, annual
reports to stockholders, proxy statements and other public disclosures as of the
dates thereof or the dates made, and such other documents or information with
respect to the Company, required to be supplied to the Buyer pursuant to this
Agreement or supplied to the Buyer at its request by the Company or on its
behalf, were or are true, correct and complete and did not or do not contain any
untrue statement of a material fact and did not or do not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3
<PAGE> 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants that:
Section 3.01. Organization and Authority. The Buyer is a
corporation duly organized and validly existing in good standing under the laws
of the State of Maryland. The Buyer has the corporate power to execute, deliver
and perform this Agreement. The Buyer has taken all action required by law, its
Certificate of Incorporation and By-Laws, or otherwise to authorize the
execution and delivery of this Agreement. The execution and delivery by the
Buyer of this Agreement does not, and the consummation of the transactions
contemplated hereby by the Buyer will not, violate any provision of the
Certificate of Incorporation and By-Laws of the Buyer, or any provision of any
agreement, instrument, order, judgment or decree to which the Buyer is a party
or by which it is bound.
Section 3.02. Acquisition of Shares. The Buyer is an
Accredited Investor, as such term is defined in Rule 501(a)(8) of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The Buyer, by reason of its business and financial experience (or the business
and financial experience of its officers, directors or employees), has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of its investment in the
Shares. The Buyer acknowledges that no representations or warranties have been
made to it by the Company, any of its officers, directors or employees or anyone
acting on its or their behalf, other than those contained in this Agreement, and
that, in entering into this Agreement, the Buyer is not relying upon any
information other than the information contained herein. The Buyer is purchasing
the Shares for its own account for investment only and not with a present view
to, or for sale in connection with, any distribution of the Shares. The Buyer
acknowledges that the Shares have not been registered under the Securities Act
and that the Shares cannot be sold, transferred or otherwise disposed of to any
person or entity unless registered under the Securities Act, if such
registration is required, or pursuant to an exemption therefrom applicable to
such transaction.
Section 3.03. Litigation; Consents. (a) The Buyer knows of no
pending or threatened action, suit, proceeding or investigation before any court
or governmental body, or by any governmental agency to restrain or prevent the
performance of the transactions contemplated by this Agreement, or which might
affect the right of the Buyer to own the Shares. No constructive knowledge shall
be attributed to the Buyer under this Section 3.03(a).
(b) Except as otherwise referred to herein, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any governmental department, commission, agency or other instrumentality
having jurisdiction over the Buyer is required
4
<PAGE> 5
to be obtained by the Buyer to authorize the execution and delivery by the Buyer
of this Agreement, or the performance by the Buyer of its terms.
ARTICLE IV
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to purchase the Shares pursuant
to this Agreement shall be subject to the satisfaction, at or before the Closing
Date, of the following conditions (any of which may be waived, in whole or in
part, in writing by the Buyer).
Section 4.01. Representations and Warranties. The
representations and warranties of the Company contained in this Agreement shall
be true in all material respects at the Closing Date as if made again on and as
of the Closing Date. The Company shall have duly performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it at or before the Closing Date.
Section 4.02. Certain Documents. The Company shall have
furnished the Buyer with such documents as the Buyer may reasonably request,
including a registration rights agreement substantially in the form attached
hereto as Exhibit A executed by the Company.
Section 4.03. The Shares. The Company shall have issued and
delivered to the custodian for the Buyer a certificate or certificates for the
Shares, with the legend set forth in Section 6.11 hereof, in proper form for
transfer by delivery.
Section 4.04. No Litigation. No action, suit, proceeding or
investigation shall be pending or, so far as is known to the Buyer or the
Company's executive officers, be threatened before any court or governmental
body, or by any governmental agency, challenging the transactions contemplated
by this Agreement or seeking to restrain or prevent consummation of the
transactions contemplated by this Agreement or to prohibit or limit the ability
of the Buyer to exercise full rights of ownership of the Shares.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to sell the Shares to the Buyer
pursuant to this Agreement shall be subject to the satisfaction, at or before
the Closing Date, of the following conditions (any of which may be waived, in
whole or in part, in writing by the Company).
Section 5.01. Representations and Warranties. The
representations and warranties of the Buyer contained in this Agreement shall be
true in all material respects at
5
<PAGE> 6
the Closing Date as if made again on and as of the Closing Date. The Buyer shall
have duly performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by it at or before the Closing
Date.
Section 5.02. Certain Documents. The Buyer shall have
furnished the Company with such documents as the Company may reasonably request.
Section 5.03. Payment. The Buyer shall have paid to the
Company by wire transfer on the Closing Date the amount required to be paid to
the Company pursuant to Section 1.02.
Section 5.04. No Litigation. No action, suit, proceeding or
investigation shall be pending or, so far as is known to the Buyer or the
Company's executive officers, be threatened before any court or governmental
body, or by any governmental agency, challenging the transactions contemplated
by this Agreement or seeking to restrain or prevent consummation of the
transactions contemplated by this Agreement or to prohibit or limit the ability
of the Buyer to exercise full rights of ownership of the Shares.
ARTICLE VI
MISCELLANEOUS
Section 6.01. Covenants. The covenants of the Buyer and the
Company shall continue in full force and effect after the Closing in accordance
with their terms.
Section 6.02. 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.
Section 6.03. Notices. All notices, consents, requests,
instructions, approvals and other communications provided for herein shall be
deemed validly given, made or served if in writing and delivered personally (as
of such delivery) or sent by certified mail (as of two days after deposit in a
United States post office), postage prepaid, or by facsimile transmission (as of
such transmission), addressed as follows:
(a) if to the Buyer, addressed to:
SMALLCAP World Fund, Inc.
c/o Capital Research & Management Co.
Attention: James P. Ryan, Esq.
333 South Hope Street
Los Angeles, CA 90710
Telephone: (213) 486-9318
Facsimile: (213) 486-9041
6
<PAGE> 7
(b) if to the Company, addressed to:
Hanover Direct, Inc.
Attention: Rakesh K. Kaul
1500 Harbor Boulevard
Weehawken, N.J. 07087
Telephone: (201) 863-7300
Facsimile: (201) 392-5005
with a copy to:
Brown Raysman Millstein Felder & Steiner LLP
Attention: Sarah Hewitt, Esq.
120 West 45th Street
New York, N.Y. 10036
Telephone: (212) 944-1515
Facsimile: (212) 840-2429
or such other address as shall be furnished in writing by either party to the
other.
Section 6.04. Fees and Expenses. Each party hereto shall bear
its respective legal, investment banking and accounting fees and other expenses
incurred with respect to this Agreement and the transactions contemplated
hereby.
Section 6.05. Assignment; Amendments, Waivers. (a) This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
acquire or have any rights under or by virtue of this Agreement.
(b) Neither the Buyer nor the Company shall assign any of its
rights or obligations under this Agreement without the prior written consent of
the other. Except as specifically referenced herein, this Agreement is being
entered into solely by and for the benefit of the parties hereto and thereto and
there is no intention, nor shall this Agreement have the effect, of benefiting
third parties in any manner not specifically referenced herein.
(c) No provision of this Agreement may be amended, modified or
waived except by written agreement duly executed by each of the parties.
Section 6.06. Entire Agreement. This Agreement represents the
entire agreement between the parties and supersedes and cancels any prior oral
or written agreement, letter of intent or understanding related to the subject
matter hereof.
Section 6.07. Titles and Subtitles. The titles of the
paragraphs and subparagraphs of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
7
<PAGE> 8
Section 6.08. 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.
Section 6.09. Severability of Provisions. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
Section 6.10. Best Efforts. Each of the Company and the Buyer
shall use its best efforts to take all actions required to ensure that the
conditions to Closing set forth herein are satisfied on or before the scheduled
date of such Closing.
Section 6.11. Securities Act Legend. Each certificate for the
Shares (and any other securities issued in respect of the Shares) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION MAY
BE MADE WITHOUT REGISTRATION OF THE SECURITIES UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, OR UNLESS SOLD
PURSUANT TO RULE 144."
Such legend shall be removed by the Company upon delivery to
it of an opinion of counsel satisfactory to the Company that a registration
statement under the Securities Act is at the time in effect with respect to the
legended security or that such security can be freely transferred without such
registration statement being in effect.
Section 6.12. Termination of Agreement. This Agreement and the
obligation of the Buyer to purchase, and the Company to sell, the Shares may be
terminated at any time prior to the Closing Date by the mutual written consent
of each of the parties hereto.
IN WITNESS WHEREOF, this Stock Purchase Agreement has been
duly executed by the parties hereto on the day and year first above written.
8
<PAGE> 9
HANOVER DIRECT, INC.
By /s/Larry J. Svoboda
------------------------------------
Name Larry J. Svoboda
------------------------------------
Title Senior Vice President and C.F.O.
------------------------------------
SMALLCAP WORLD FUND, INC.
By /s/Vincent P. Corti
------------------------------------
Name Vincent P. Corti
------------------------------------
Title Vice President
------------------------------------
9
<PAGE> 10
SCHEDULE 2.02
OPTIONS, WARRANTS OR OTHER AGREEMENTS
FOR THE PURCHASE OF SHARES OF COMPANY COMMON STOCK
AND
VOTING TRUSTS, VOTING AGREEMENTS OR OTHER SIMILAR AGREEMENTS
AND
PREEMPTIVE OR OTHER PREFERENTIAL RIGHTS
Options and Warrants - see attached list.
Conversion Privileges -
Series B Convertible Additional Preferred Stock, par value
$.01 per share, stated value $10 per share - outstanding
shares - 634,900 convertible into shares of the Company's
Common Stock in accordance with the provisions of the
Company's Certificate of Incorporation, ARTICLE FOURTH,
Section 6.
Voting Agreements -
Nomination and Standstill Agreement, by and among The Horn &
Hardart Company (the Company's predecessor), Theodore H.
Kruttschnitt, III, J. David Hakman and Edmund R. Manwell,
dated June 10, 1989. Messrs. Kruttschnitt, Hakman and Manwell
as a group own 5.0% of the outstanding shares of the Company's
Common Stock as of a recent date and all three currently serve
as directors of the Company. Pursuant to such agreement, the
Company agreed to nominate each of Messrs. Kruttschnitt,
Hakman and Manwell for election upon the expiration of their
respective terms provided that Mr. Kruttschnitt continues to
maintain certain specified levels of ownership of the
Company's Common Stock.
Preemptive or Other Preferential Rights -
see attached copy of the Company's Restated Certificate of
Incorporation
10
<PAGE> 11
ATTACHMENT TO SCHEDULE 2.02
HANOVER DIRECT, INC.
OPTION AND WARRANT ROLLFORWARD
SEPTEMBER 27, 1997
WARRANTS
Outstanding
Holder September 27, 1997
- ----------------------------------------------
Total 5,646,490
===================
Note: All of the outstanding warrants are held by NAR and affiliates.
OPTIONS
Horn & Hardart Stock Option Plan
Outstanding
Holder September 27, 1997
- ----------------------------------------------
Total 30,000
===================
Hanover Direct, Inc. 1996 Stock Option Plan
Total 5,425,000
===================
Various Option Plans for Rakesh Kaul
Total 7,530,000
===================
Note: Future grant for R. Kaul does not appear due to uncertainty of ability to
exercise. Please see attached copy of disclosure from 1997 Proxy
Statement.
Directors Options
Total 70,000
===================
Tandem Options
Total 624,000
===================
TOTAL OPTIONS 13,679,000
===================
<PAGE> 12
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
SEE EXHIBIT 10.72 FILLED HEREWITH
11
<PAGE> 1
EXHIBIT 10.72
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of November 4, 1997,
between HANOVER DIRECT, INC., a Delaware corporation (the "Company"), and
SMALLCAP WORLD FUND, INC., a Maryland corporation (the "Stockholder").
R E C I T A L S:
A. The parties hereto are parties to a Stock Purchase
Agreement, dated the date hereof (the "Purchase Agreement").
B. Pursuant to the Purchase Agreement, the Company is issuing
to the Stockholder an aggregate of 3,700,000 shares of the Company's Common
Stock, par value $.66 2/3 per share (the "Common Stock").
THE PARTIES AGREE AS FOLLOWS:
1. Certain Definitions. Capitalized terms used herein which
are not otherwise defined herein and which are defined in, or by reference in,
the Purchase Agreement shall have the meanings given therein. For the purposes
of this Agreement, the following terms shall have the following meanings:
"Agreement" shall mean this Registration Rights Agreement, as
the same may be amended, modified or supplemented from time to time.
"Demand Notice" shall have the meaning set forth in Section
2(a) hereof.
"Shelf Registration" shall have the meaning set forth in
Section 2(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"Holder" shall mean the Stockholder and each Person to whom
Registrable Securities are transferred so long as such Person holds such
Registrable Securities.
"Registrable Securities" shall mean the shares of Common Stock
issued pursuant to the Purchase Agreement. As to any particular Registrable
Securities, once issued, such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act in accordance
with Section 2(c) hereof, regardless of whether such securities are actually
sold pursuant to such
<PAGE> 2
registration statement, (ii) they shall have been disposed of pursuant to rule
144 (or any successor provision) under the Securities Act, (iii) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force (and the
Holder thereof shall have received an opinion of independent counsel for the
Holder reasonably satisfactory to the Company to the foregoing effects), or (iv)
they shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement, including, without
limitation, (i) all SEC and National Association of Securities Dealers, Inc.,
American Stock Exchange or relevant stock exchange registration, listing and
filing fees, (ii) all fees and expenses of complying with securities or blue sky
laws (including reasonable fees and disbursements of counsel for the Company,
the underwriters or the Holders in connection with blue sky qualifications of
the Registrable Securities), (iii) all printing, messenger, telephone and
delivery expenses and transfer taxes, (iv) the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, (v) the reasonable fees and
disbursements of one law firm retained in connection with such registration by
the Holders of Registrable Securities being registered and selected by the
Stockholder, (vi) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, and (vii) the reasonable fees and expenses of
any special experts retained in connection with the requested registration, but
excluding underwriting discounts and commissions of underwriters, agents or
dealers relating to the distribution of the Registrable Securities, if any.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act or any similar federal statutes then in effect.
2. Shelf Registration.
(a) Timing. As promptly as practicable after April 1, 1998,
the Company will use its best efforts to effect the registration under the
Securities Act of all the Registrable Securities to the extent necessary to
permit the disposition (in accordance with the intended method or methods of
distribution thereof as specified at the time by the Stockholder) of such
Registrable Securities ("Shelf Registration"); provided, however, that the
Company may delay the filing of such registration statement relating to the
Registrable Securities for not more than ninety (90) calendar days following
such date if, in the reasonable judgment of the Board of Directors of the
Company, such filing is not in the best interests of the Company at such time.
Such registration shall be effected by the preparation and filing by the Company
with the SEC of a registration statement on Form S-3 or other similar form with
respect to the offering and sale by the Holders
- 2 -
<PAGE> 3
of the Registrable Securities on a continuous or delayed basis in the future
pursuant to Rule 415 under the Securities Act.
(b) Expenses. The Company will pay all Registration Expenses
in connection with a registration of Registrable Securities requested pursuant
to this Section 2.
(c) Effective Registration Statement. A registration pursuant
to this Section 2 will be deemed to have been effected if (i) the registration
statement filed in connection with such registration shall have become effective
under the Securities Act and shall have remained effective until November 7,
1999 (provided that if, after such registration statement has become effective,
the offering of Registrable Securities pursuant to such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be deemed
not to have been effected), or (ii) the Company is unable to complete such
registration statement because one or more Holders of Registrable Securities
thus being registered failed to provide information for use in such registration
statement requested reasonably and in a timely manner by the Company or because
such Holders otherwise failed to do such reasonable acts and things as may be
requested in writing in a timely manner by the Company to enable the Company to
comply with the requirements of applicable law.
(d) The Stockholder shall be entitled to request one Shelf
Registration pursuant to this Agreement. No additional requests for Shelf
Registrations will be required to be effected by the Company.
3. Incidental Registration.
(a) Right to Include Registrable Securities. If at any time on
or after April 1, 1998 and before March 31, 2000 the Company proposes to
register any of its equity securities under the Securities Act (other than a
registration on Form S-4 or Form S-8), whether or not for sale for its own
account, it will give ten (10) days prior written notice to all Holders of
Registrable Securities of its intention to do so and of such Holders' rights
under this Section 3. Upon the written request of any such Holder made within
twenty (20) days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Holders
thereof, to the extent requisite to permit the disposition (in accordance with
such intended methods thereof) of the Registrable Securities so to be registered
("Incidental Registration"); provided that if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to each
Holder of Registrable Securities and thereupon shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration, without prejudice, however, to the rights of Holders under Section
2 herein. No registration effected under this Section 3 shall relieve the
Company of its obligations to effect a registration upon
- 3 -
<PAGE> 4
request under Section 2 herein. The Company will pay all Registration Expenses
in connection with the registration of Registrable Securities requested pursuant
to this Section 3.
(b) Priority in Incidental Registrations. If a registration
pursuant to this Section 3 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration would have an adverse
effect on such offering, including the price at which such shares can be sold,
the Company will include in such registration the maximum number of securities
which it is so advised by such managing underwriter can be sold without such an
adverse effect, allocated as follows:
(A) first, all securities proposed to be registered by the
Company for its own account, and
(B) second, all securities requested to be included in such
registration under this Section 3 and any other securities proposed to
be registered by the Company other than for its own account (if
necessary, allocated pro rata among all such requesting Holders on the
basis of the relative number of shares of securities each such Holder
has requested to be included in such registration).
4. Registration Procedures. Whenever the Company effects or
causes the registration of the Registrable Securities under the Securities Act
as provided in this Agreement, the Company will use its best efforts to permit
the sale of such Registrable Securities in accordance with the intended method
or methods of distribution thereof, and will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, provided, however, that the
Company may discontinue any registration of its securities which is being
effected pursuant to Section 3 herein at any time prior to the effective date of
the registration statement relating thereto;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective (i)
in the case of an Incidental Registration pursuant to Section 3 hereof, until
all securities registered pursuant to such registration statement have been
disposed of or (ii) in the case of a Shelf Registration pursuant to Section 2
hereof, for a period not to exceed ninety (90) days from the effective date
thereof, subject to the provisions of Section 2(c ) hereof, and to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holders set forth in
such registration statement;
(c) furnish to the Holders such number of executed and
conformed copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits and all documents
incorporated by reference therein), such number of copies
- 4 -
<PAGE> 5
of the prospectus included in such registration statement (including each
preliminary prospectus and supplemental prospectus), and such other documents as
the Holders may reasonably request in order to facilitate the disposition of the
Registrable Securities by such Holders;
(d) use its best efforts to register or qualify (and keep
effective such registration or qualification) such Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States as may be reasonably
required to permit the Holders to sell the Registrable Securities or as the
Holders shall reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable the Holders to consummate the
disposition in such jurisdictions of the Registrable Securities; provided that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction where, but for the
requirements of this subsection (d), it would not be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction; and provided, further,
that this subsection (d) shall not be construed to require the Company to
register as a broker-dealer in any jurisdiction any third person to whom or
through whom a Holder proposes to sell Registrable Securities;
(e) immediately notify the Holders, at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in subsection (b) of this Section 4, of
the Company becoming aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and at the request of the Holders promptly prepare and furnish to such
Holders a reasonable number of copies of an amended or supplemented prospectus
as may be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve (12) months beginning with the first month after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(g) use its best efforts to list such Registrable Securities
on the American Stock Exchange or any securities exchange on which securities of
such class are then listed, if such Registrable Securities are not already so
listed, and to provide a transfer agent and registrar for such Registrable
Securities covered by such registration statement not later than the effective
date of such registration statement;
(h) enter into such agreements (including an underwriting
agreement in customary form) and take such other actions as the Stockholder
reasonably requests in order to expedite or facilitate the disposition of such
Registrable Securities;
- 5 -
<PAGE> 6
(i) whether or not the registration relates to an underwritten
offering, make such representations and warranties to the Holders and to the
underwriters, if any, as are customarily made by issuers to underwriters in
underwritten offerings, obtain opinions of counsel to the Company addressed to
each Holder and to the underwriters, if any, covering the matters customarily
covered in underwritten offerings, and obtain a "cold comfort" letter or letters
and updates thereof from the Company's independent public accountants in
customary form and covering matters of the type customarily covered in
underwritten offerings, in each case as the underwriters or the Stockholder
shall request; and
(j) make available for inspection by the Holders, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant, or other agent retained
by the Holders or any such underwriter, all pertinent financial and other
records, pertinent corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all information
reasonably requested by the Holders, underwriter, attorney, accountant or agent
in connection with such registration statement.
The Company may require the Holders to furnish the Company such information
regarding the Holders and the distribution of such securities for use in the
registration statement relating to such registration as the Company may from
time to time reasonably request in writing and to do such reasonable acts and
things as the Company may from time to time reasonably request in writing in
order to permit the Company to comply with the requirements of law.
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in subsection (e) of this
Section 4, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subsection (e) of this Section 4, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in subsection (b) of this Section 4
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to subsection (e) of this Section 4
to and including the date when each Holder of Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by subsection (e) of this Section 4.
5. Indemnification.
- 6 -
<PAGE> 7
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to Sections 2 or 3 herein, the Company will, and it hereby does, indemnify and
hold harmless, to the fullest extent permitted by law, the sellers of any
Registrable Securities covered by such registration statement, its directors and
officers or general and limited partners (and directors and officers thereof),
each person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including legal, accounting and other expenses incurred in connection with
investigation, preparation or defense of any of the foregoing, and including any
amounts paid in any settlement effected with the Company's consent) to which
such seller, any such director or officer or general or limited partner or any
such underwriter or controlling person may become subject under the Securities
Act, the Exchange Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (a) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
supplemental prospectus contained therein, or any amendment or supplement
thereto, or (b) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such seller and each such
director, officer, general or limited partner, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or preparing for and defending any such loss,
claim, liability, action or proceeding from time to time as such expenses are
incurred; provided that the Company shall not be liable in any such case to any
such person, to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment or supplement thereto
or in any such preliminary, final or supplemental prospectus in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by such seller or underwriter specifically stating that
it is for use in the preparation thereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or any such director, officer, general or limited partner, underwriter or
controlling person and shall survive the transfer of such securities by such
seller.
(b) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed in accordance with Section 4 herein, that the Company shall have
received an undertaking reasonably satisfactory to it from the prospective
sellers of such Registrable Securities (except that no such undertaking shall be
required to the extent applicable law, charter documents or by-laws forbid such
prospective sellers from giving such undertaking) or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subsection (a) of this Section 5) the Company, its directors and
officers signing the registration statement and its controlling persons and all
other prospective sellers and their respective controlling persons with respect
to any statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or supplemental prospectus
contained therein, or any amendment or supplement,
- 7 -
<PAGE> 8
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such sellers or underwriter
specifically stating that it is for use in the final or supplemental prospectus
or amendment or supplement, or a document incorporated by reference into any of
the foregoing; provided in no event shall the liability of any selling Holder of
Registrable Securities be greater in amount than the amount of proceeds received
by such Holder upon such sale. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any other prospective sellers or any of their respective directors, officers or
controlling Persons and shall survive the transfer of such securities by such
sellers.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment (which is based on the written opinion of its counsel) a conflict of
interest between such indemnified and indemnifying parties exists in respect of
such claim, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof. If in an indemnified party's reasonable judgment (which is
based on the written opinion of its counsel) a conflict of interest between the
indemnified and indemnifying parties exists in respect of a claim or if the
indemnifying party refuses to participate in and to assume the defense of any
action brought against an indemnified party, the indemnified party may assume
the defense of such claim or action with counsel of its choosing which shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5. No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in or
pursuant to this Section 5 is due in accordance with the terms hereof but is
held by a court to be unavailable or unenforceable in respect of any losses,
claims, damages, liabilities or expenses referred to herein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified person,
shall contribute to the amount paid or payable by such indemnified person as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified person on the other in connection
with the statements or omissions which resulted in such losses, claims, damages,
- 8 -
<PAGE> 9
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of the indemnifying party on the one hand and of the
indemnified person on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified person by such persons'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. In no event shall the liability of any
selling Holder of Registrable Securities be greater in amount than the amount of
proceeds received by such Holder upon such sale.
6. Rule 144. The Company covenants that it will use its best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act and the rules and regulations adopted by the SEC thereunder
(or, if the Company is not required to file such reports, it will, upon the
request of the Holders, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act, as amended), and it
will do all such other acts and things from time to time as requested by the
Holders to the extent required from time to time to enable each Holder to sell
shares of Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
7. Public Trading Market. Until the earlier of (a) two years
after the effective date of the registration statement filed pursuant to Section
2 or (b) the date on which there are no Registrable Securities, the Company
shall use its best efforts to maintain a public trading market for its Common
Stock.
8. Restriction on Resale. Unless otherwise agreed by the
Company, until the earlier of (a) two years after the effective date of the
registration statement filed pursuant to Section 2 or (b) the date on which
there are no Registrable Securities, each Holder agrees that it will not resell
such Registrable Securities without registration under the Securities Act,
compliance with Rule 144 under the Securities Act or an opinion of counsel for
such Holder, addressed to the Company, to the effect that no such registration
is required. All reasonable costs, fees and expenses of counsel in connection
with such opinion shall be borne by the Holder.
9. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act of the
Stockholder. Holders of Registrable Securities shall be bound by any consent
authorized by this Section 9(a), whether or not such Registrable Securities
shall have been marked to indicate such consent.
- 9 -
<PAGE> 10
(b) Successors, Assigns and Transferees. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
legal successors-in-interest, and nothing in this Agreement, express or implied,
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
(c) Notices. All notices and other communications provided for
hereunder shall be given and shall be effective as provided in the Purchase
Agreement.
(d) Descriptive Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise effect the
meaning of the terms contained herein.
(e) Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase, or sentence
in every other respect and of the remaining provisions, paragraphs, words,
clauses, phrases or sentences hereof shall not be in any way impaired, it being
intended that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
(g) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
(h) Remedies. The parties hereto acknowledge that monetary
damages will not be adequate compensation for any loss incurred by reason of a
breach by either of them of the provisions hereof and agree, to the fullest
extent permitted by law, to waive the defense of adequacy of legal remedies in
any action for specific performance hereof.
(i) Merger, etc. If, directly or indirectly, (i) the Company
shall merge with and into, or consolidate with, any other Person, (ii) any
Person shall merge with and into, or consolidate with, the Company and the
Company shall be the surviving corporation of such merger or consolidation and,
in connection with such merger or consolidation, all or part of the Registrable
Securities shall be changed into or exchanged for stock or other securities of
any other Person, then, in each such case, proper provision shall be made so
that such Person shall be bound by the provisions of this Agreement and the term
"Company" shall thereafter be deemed to refer to such Person. For purposes
hereof, the term "Person" shall mean any individual, corporation, partnership,
trust or other nongovernmental entity.
(j) Legal Fees; Costs. If any party to this Agreement
institutes any action or proceeding, whether before a court or arbitrator, to
enforce any provision of this Agreement, the prevailing party therein shall be
entitled to receive from the losing party reasonable attorneys' fees
- 10 -
<PAGE> 11
and costs incurred in such action or proceeding, whether or not such action or
proceeding is prosecuted to judgment.
(k) Termination. Except as otherwise provided herein, the
Company's obligations under Sections 2 and 3 hereof shall terminate at the close
of business on March 31, 2000, or such earlier date on which there shall be no
Registrable Securities.
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, each of the undersigned has caused this
Registration Rights Agreement to be executed on its behalf as of the date first
written above.
HANOVER DIRECT, INC.
By: /s/Larry J. Svoboda
--------------------------------
Title: Senior Vice President and C.F.O.
--------------------------------
SMALLCAP WORLD FUND, INC.
By: /s/Vincent P. Corti
--------------------------------
Title: Vice President
--------------------------------
- 12 -
<PAGE> 13
ATTACHMENT TO SCHEDULE 2.02
HANOVER DIRECT, INC.
OPTION NAD WARRANT ROLLFORWARD
SEPTEMBER 27, 1997
WARRANTS
Outstanding
Holder September 27, 1997
- ----------------------------------------------
Total 5,646,490
===================
Note: All of the outstanding warrants are held by NAR and affiliates.
OPTIONS
Horn & Hardart Stock Option Plan
Outstanding
Holder September 27, 1997
- ----------------------------------------------
Total 30,000
===================
Hanover Direct, Inc. 1996 Stock Option Plan
Total 5,425,000
===================
Various Option Plans for Rakesh Kaul
Total 7,530,000
===================
Note: Future grant for R. Kaul does not appear due to uncertainty of ability to
exercise. Please see attached copy of disclosure from 1997 Proxy
Statement.
Directors Options
Total 70,000
===================
Tandem Options
Total 624,000
===================
TOTAL OPTIONS 13,679,000
===================
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
COMPANY INCORPORATION
- ------------------------------------- -------------
Angis 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
LWI Holdings, Inc. Delaware
Scandia Down Corporation Delaware
Tweeds, Inc. Delaware
Gumps Holdings, Inc. Delaware
D.M. Advertising, Inc. New Jersey
Hanover Realty, Inc. Virginia
The Company Store, Inc. Wisconsin
The Company Factory, Inc. Wisconsin
The Company Office, Inc. Wisconsin
Austad Holdings, Inc. Delaware
The Austad Company South Dakota
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into The Horn & Hardart Company's
(predecessor to Hanover Direct, Inc. ) previously filed Registration Statement
File Nos. 33-66394, 33-58760, 33-58756, 33-58758, 33-52687, 33-52059, 33-52061,
333-3871, 333-13817, 2-94286 and 2-92383. It should be noted that we have not
audited any financial statements of the company subsequent to the date of our
report.
ARTHUR ANDERSEN LLP
New York, New York
March 26, 1998
<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 TWELEVE MONTHS ENDED DECEMBER 27, 1997 AND IS
QUALIFIED IN IT ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 14,758
<SECURITIES> 0
<RECEIVABLES> 21,042
<ALLOWANCES> (3,358)
<INVENTORY> 64,330
<CURRENT-ASSETS> 145,757
<PP&E> 82,164
<DEPRECIATION> (29,712)
<TOTAL-ASSETS> 230,299
<CURRENT-LIABILITIES> 98,187
<BONDS> 32,735
5,938
0
<COMMON> 136,294
<OTHER-SE> (66,681)
<TOTAL-LIABILITY-AND-EQUITY> 230,299
<SALES> 557,638
<TOTAL-REVENUES> 557,638
<CGS> 358,219
<TOTAL-COSTS> 559,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,973
<INTEREST-EXPENSE> 8,028
<INCOME-PRETAX> (9,877)
<INCOME-TAX> 999
<INCOME-CONTINUING> (10,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,876)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
