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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 25, 1999
COMMISSION FILE NUMBER 1-12082
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HANOVER DIRECT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
13-0853260
(IRS EMPLOYER IDENTIFICATION NO.)
07087
(ZIP CODE)
(201) 863-7300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.66 2/3 PAR VALUE AMERICAN STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No []
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 17, 2000, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant was
$105,135,953 (based on the closing price of the Common Stock on the American
Stock Exchange on March 17, 2000; shares of Common Stock owned by directors and
officers of the Company are excluded from this calculation; such exclusion does
not represent a conclusion by the Company that all of such directors and
officers are affiliates of the Company).
As of March 17, 2000, the registrant had 213,308,946 shares of Common Stock
outstanding.
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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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HANOVER DIRECT, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
INDEX
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PAGE
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PART I
ITEM 1. Business.................................................... 1
General................................................... 1
Hanover Brands............................................ 1
erizon.................................................... 3
Incubator Investments..................................... 5
Credit Management......................................... 5
Financing................................................. 5
Additional Investments.................................... 8
Employees................................................. 8
Seasonality............................................... 8
Competition............................................... 8
Trademarks................................................ 8
Government Regulation..................................... 9
ITEM 2. Properties.................................................. 9
ITEM 3. Legal Proceedings........................................... 9
ITEM 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Market for Registrant's Common Equity and Related
ITEM 5. Stockholder Matters......................................... 10
ITEM 6. Selected Financial Data..................................... 11
Management's Discussion and Analysis of Consolidated
ITEM 7. Financial Condition and Results of Operations............... 12
Results of Operations..................................... 12
Liquidity and Capital Resources........................... 15
Year 2000................................................. 16
Cautionary Statements..................................... 17
Quantitative and Qualitative Disclosures about Market
ITEM 7A. Risk........................................................ 17
ITEM 8. Financial Statements and Supplementary Data................. 18
Changes in and Disagreements with Accountants on Accounting
ITEM 9. and Financial Disclosure.................................... 41
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 42
ITEM 11. Executive Compensation...................................... 43
Security Ownership of Certain Beneficial Owners and
ITEM 12. Management.................................................. 43
ITEM 13. Certain Relationships and Related Transactions.............. 43
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
ITEM 14. 8-K......................................................... 44
Signatures.................................................. 45
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PART I
ITEM 1. BUSINESS
GENERAL
Hanover Direct, Inc. (the "Company") provides quality, branded merchandise
through a portfolio of catalogs and e-commerce platforms to consumers, as well
as a comprehensive range of Internet, e-commerce and fulfillment services to
businesses. In December 1999, the Company completed a strategic realignment
pursuant to which it created two separately incorporated business units, Hanover
Brands, Inc. ("Hanover Brands") and erizon, Inc. ("erizon").
Hanover Brands, the Company's business-to-consumer subsidiary, is comprised
of its catalog and Web site portfolio of home fashions, apparel, general
merchandise and gift brands including Domestications, The Company Store, Scandia
Down, Turiya, Domestications Kitchen & Garden, Kitchen & Home, Encore,
Improvements, Silhouettes, International Male, Undergear and Gump's By Mail.
Each brand can be accessed on the Internet individually by name. In addition,
the Company is the exclusive distributor of the Compagnie de la Chine brand in
North America and owns Gump's, a retail store based in San Francisco,
California.
erizon, the Company's business-to-business subsidiary, is comprised of the
Company's direct commerce IT platform, Keystone Internet Services, Inc., the
Company's third party, end-to-end, fulfillment, logistics and e-care provider,
and Desius LLC, the Company's joint venture with RS Software (India), Ltd.,
offering Web shop services and e-commerce systems development. erizon also
services the logistical, IT and fulfillment needs of Hanover Brands through an
intercompany services agreement.
Rakesh K. Kaul has continued as President and Chief Executive Officer of
the Company, overseeing both of the newly created subsidiaries.
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. The Company is a successor in interest to The Horn &
Hardart Company, a restaurant company founded in 1911, and Hanover House
Industries, Inc., founded in 1934. Richemont Finance S.A. ("Richemont"), a
Luxembourg company, owns approximately 48.2% of the Company's outstanding common
stock and holds an irrevocable proxy from a third party to vote an additional
approximately 2.0% of the Company's common stock currently held by such third
party. Richemont is an affiliate of Compagnie Financiere Richemont, A.G., a
Swiss based publicly-traded luxury goods company.
HANOVER BRANDS
General. The Company, through Hanover Brands, is a leading specialty
direct marketer with a diverse portfolio of branded home fashions, general
merchandise, men's and women's apparel and gift products marketed via direct
mail-order catalogs and connected Internet Web sites. The Company's catalog
titles are organized into 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 brands groups -- each consisting
of one or more catalog/online titles. All of these brand groups utilize central
purchasing and inventory management functions and erizon's common systems
platform, telemarketing, fulfillment, distribution and administrative functions
pursuant to an intercompany services agreement. During 1999, the Company mailed
approximately 235 million catalogs, answered more than 9.5 million customer
service/order calls and processed and shipped over 7.5 million packages to
customers in North America.
The Company reviews its portfolio of catalogs as well as new opportunities
to acquire or develop catalogs from time to time. During 1999, the Company sold
its Austad's catalog; discontinued its Tweeds catalog operation; and
repositioned and relaunched its Colonial Garden Kitchens catalog as
Domestications Kitchen & Garden. All three of these catalogs had been selected
in the first quarter of 1999 to either be repositioned, discontinued or sold.
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 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, The Company Store and Improvements, to further enhance the brand
identity of the catalogs.
The Company's specialty catalogs typically range in size from approximately
30 to 130 pages with two to twenty-five 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 catalogs in each of the
Company's six brand groups:
Home Fashions -- Mid-Market Brands:
Domestications is a leading home fashions catalog offering affordable
luxury for every room in the home for today's value-oriented and style-conscious
consumer.
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Domestications Kitchen & Garden offers decorating products geared toward
answering and solving kitchen and garden needs.
Home Fashions-Upscale Brands:
The Company Store is an upscale home fashions catalog focused on high
quality down products and other private label and branded home furnishings.
Kitchen & Home features distinctive and highly functional entertaining and
decorating products.
Scandia Down is a nationally known retailer specializing in luxury down
products and home fashions.
Launched in 1999, Turiya is a luxury home furnishings catalog featuring
exclusive designers with the finest products, textiles, tailoring and concierge
level customer care.
General Merchandise Brands:
Improvements is a leading do-it-yourself home improvement catalog offering
quick and clever problem solvers to make life easier around the home, yard and
car. Improvements also presents The Safety Zone which offers innovative products
for health, comfort and safety.
Launched in 1999, Encore offers the best from America's finest catalogs in
one easy-to-shop-from format.
Women's Apparel Brands:
Silhouettes is a leading fashion catalog offering large size women upscale
apparel and accessories.
Men's Apparel Brands:
International Male offers contemporary men's fashions and accessories at
reasonable prices.
Undergear is a leader in fashionable and functional men's underwear,
workout wear and active wear.
Gift Brands:
Gump's By Mail(R) and Gump's(R) San Francisco are luxury sources for
discerning customers of jewelry, gifts and home furnishings, as well as market
leaders in offering Asian inspired products.
Compagnie de la Chine offers collections of tableware, glassware, textiles
and home decor based on Chinese ancestral designs, natural materials and
traditional techniques. In 1999, the Company became the exclusive distributor of
the Compagnie de la Chine brand in North America.
The Shopper's Edge. In March 1999, the Company, through a newly formed
subsidiary, started up and promoted a discount buyers club to consumers known as
"The Shopper's Edge." In exchange for an up-front membership fee, the Shopper's
Edge program enables members to purchase a wide assortment of merchandise at
discounts which are not available through traditional retail channels.
Initially, prospective members participate in a 45-day trial period that, unless
canceled, is automatically converted into a full membership term, which is one
year in duration. Memberships are automatically renewed at the end of each term
unless canceled by the member.
Effective December 1999, the Company sold its interest in The Shopper's
Edge subsidiary to an unrelated third party for a nominal fair value based upon
an independent appraisal. The Company entered into a solicitation services
agreement with the purchaser whereby the Company will provide solicitation
services for the program, and will receive commissions for member acceptances
based on a fixed fee per member basis, adjusted for cancellation rates on a
prospective basis.
Marketing and Database Management. The Company maintains a proprietary
customer list currently containing approximately 9 million names of customers
who have purchased from one of the Company's catalogs within the past 36 months.
Approximately 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. 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 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.
The Company utilizes name lists rented from other mailers and compilers as
a primary source of new customers for the Company's catalogs. 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's recently launched
Encore catalog, by offering the best selling merchandise from both the Company's
and third party catalogs, is tailor-made to appeal to and attract new customers
derived from
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these name lists. Other sources of new customers include traditional print space
advertisements and promotional inserts in outbound merchandise packages.
The Internet as a source of new customers continues to grow in importance.
The Company maintains an active presence on the Internet by having a
commerce-enabled Web site for each 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 Web sites for each brand are
promoted within each catalog, in traditional print media advertising, in TV
commercials, and on third party Web sites. The Company utilizes marketing
opportunities available to it by posting its catalog merchandise and accepting
orders on third party Web sites, for which it is charged a commission. Third
party Web site advertising arrangements entered into by the Company includes
partnerships with Excite, ArtSelect, Yahoo, and AOL.
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 phone service costs (both inbound and
outbound calls) are typically contracted for a two to three-year period. In the
fourth quarter of 1999, the Company entered into a two-year call center services
agreement with MCI Worldcom under which it obtained a reduction in the rate it
had been paying pursuant to its then current telecommunications contract. In
that connection, the Company agreed to guarantee certain levels of call volume
and the Company anticipates it will meet such targets. See
"erizon -- 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 1999, paper costs
approximated 5.5% of the Company's net revenues. Although the Company
experienced a reduction paper prices during 1999, the Company expects that paper
prices will increase by approximately 11% during the year 2000. The Company
normally experiences increased costs of sales and operating expenses as a result
of the general rate of inflation and commodity price fluctuations. Operating
margins are generally maintained through internal cost reductions and operating
efficiencies, and then through selective price increases where market conditions
permit.
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
through special sale catalogs, sales/liquidation postings in brand Web sites,
e-auctions, 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 1999. 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.
The Company receives approximately 81% of its orders through its toll-free
telephone service, which offers customer access seven days per week, 24 hours
per day.
Telemarketing and Distribution. Hanover Brands' telemarketing and
distribution needs are provided by erizon pursuant to an intercompany services
agreement. The management information systems used by Hanover Brands are
discussed below. The Company mails its catalogs through the United States Postal
Service ("USPS") utilizing pre-sort, bulk mail and other discounts. Most of the
Company's packages are shipped through the USPS. Overall, catalog mailing and
package shipping costs approximated 16% of the Company's net revenues in 1999.
The USPS has initiated a proposed rate case that would allow for postage rate
increases ranging from 15% for Priority Mail to 1.3% for 4th class mail
effective January 2001. The Company mitigates the impact of postage rate
increases by obtaining rate discounts from the USPS by automatically weighing
each parcel and sorting and trucking packages to a number of USPS drop points
throughout the country. Some packages are shipped using a consolidator for less
frequently used drop points. The Company also utilizes United Parcel Service and
other delivery services. In February 2000, United Parcel Service increased its
ground and air rates by a further 3.1% and 3.5%, respectively. The Company does
not expect the increase to have a material adverse effect on its results of
operations.
ERIZON
General. The Company, through erizon, is an end-to-end technology
solutions provider for e-commerce customers. erizon is comprised of the
Company's telemarketing, fulfillment and distribution functions as well as its
proprietary, fully integrated systems platform internally known as Pegasus. That
system is described under "Management Information Systems" below. Other assets
include three warehouse fulfillment centers totaling approximately 1.2 million
square feet, and four telemarketing/e-care centers with over 750 agent
positions. In 1999, erizon introduced real-time, online inventory status, Web
hosting and co-location, a supply chain extranet and installation of new Dell
workstations at the Company's call centers.
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In addition, erizon is home to Keystone Internet Services, Inc.
("Keystone"), providing back-end e-commerce services to a roster of Internet
players. Keystone's services range from fulfillment and e-care to platform
logistics products. erizon is also home to Desius, LLC, the Company's recently
formed e-commerce software systems and programming Web shop joint venture for
e-commerce applications. erizon also services the logistical, IT and fulfillment
needs of Hanover Brands through an intercompany services agreement.
Telemarketing. The Company has created a telephone network to link its
four primary telemarketing facilities in Hanover, Pennsylvania, York,
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. In the fourth quarter of 1999, the Company
entered into a two-year call center services agreement with MCI Worldcom. See
"Hanover Brands -- Purchasing."
The Company trains its telemarketing service representatives to be
courteous, efficient and knowledgeable about the Company's products and those of
its third party customers. 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, one in Hanover,
Pennsylvania, and one in LaCrosse, Wisconsin. The Company uses these facilities
to handle merchandise distribution for Hanover Brands as well as its third-party
e-tail clients. See "Properties."
Management Information Systems. The Company has successfully converted all
catalogs to its integrated mail order and catalog system operating on its
mid-range computer systems. Additionally, the remaining fulfillment center
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.
The Company incurred for Y2K remediation expenditures of $3.8 million to
modify its computer information systems enabling proper processing of
transactions relating to the Year 2000 and beyond. The Company took courses of
corrective action, including replacement of certain systems and contracting with
a consultant to develop contingency plans. The Company contacted vendors and
others on whom it relied to assure that their systems would be timely converted.
Upon the turn of the millennium and subsequent thereto, the Company did not
experience any significant systems malfunctions related to the Year 2000
conversion.
Keystone Internet Services. Launched in 1998, Keystone initially serviced
the needs of other direct marketers without back-end fulfillment resources.
Keystone currently offers e-commerce solutions and services to a customer base
of brand name manufacturers and retailers who lack the end-to-end systems needed
to enter e-commerce quickly, easily and affordably.
Keystone offers its client base of 18 third-party clients as of December
25, 1999 resources needed on the "front-end" ranging from Web site creation and
management to Internet marketing to multi-channel marketing promotions to
structured financing. "Front-end" logistical services provided by Keystone
include telemarketing and e-care. Keystone can take orders off the Web and
answer e-mails as well as handle order processing, credit card transaction
processing, customer database management and systems programming and interface
support. On the "back-end," Keystone offers services including fulfillment,
order management, inventory management and facility management. All this can be
done using the Company's proprietary Pegasus multi-channel, multi-title platform
described above.
Desius. In 1999, the Company entered into a 60/40 joint venture with RS
Software (India), Ltd. to provide Web shop services and e-commerce software,
systems and programming. Augmenting the Company's programming services, the
Desius teams, based in Calcutta, India and the United States, together can
provide 24/7 service. The Calcutta based Desius team also provides additional
resources including creative marketing, Web site creation, maintenance and
management. Desius also serves as the outsourcing arm for Keystone clients which
lack resources in these areas.
Intercompany Services Agreement. erizon and Hanover Brands, two
wholly-owned subsidiaries of the Company, have entered into an exclusive
intercompany services agreement. Under the intercompany services agreement,
erizon is obligated to provide services to Hanover Brands for (i) fulfillment
services, such as order processing, customer service, warehousing, inventory
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maintenance, shipping and billing; (ii) information technology and Internet
services, such as Web site design, development, hosting, systems administration
and maintenance; and (iii) general and administrative services. The provision of
services is coordinated by designated management teams from erizon and Hanover
Brands and performed in accordance with agreed upon service levels.
The term of the intercompany services agreement is from December 27, 1998
through December 28, 2002, subject to renewal if the parties agree within twelve
(12) months prior to the expiration of a term. Services to support additional
catalogs, as well as new services, may be added to the contract. If erizon and
Hanover Brands no longer report to the same chief executive officer or similar
officer because of a change of control of erizon, erizon will have a thirty (30)
day exclusive period in which to form an agreement with Hanover Brands regarding
fees, performance standards, and other terms and conditions for additional
catalogs or new services. The intercompany services agreement may be terminated
upon a material breach by either party, nonpayment by Hanover Brands or erizon's
failure to perform, in each case, following an opportunity to cure or the
insolvency of either party. Upon termination for any reason, erizon will provide
reasonable termination assistance to Hanover Brands.
For provision of the services under the intercompany services agreement,
Hanover Brands periodically will pay erizon fees, and reimburse erizon for
certain out-of-pocket expenses and any taxes, duties or tariffs. If the volume
of transactions exceeds projections, erizon may earn certain incremental fees,
charges and/or other payments.
Any Web sites created in connection with the agreement will belong to
Hanover Brands. Any proprietary rights in information, data or knowledge
provided by erizon for Hanover Brands under the intercompany services agreement
will be the property of erizon, subject to a non-exclusive, non-transferable
license to Hanover Brands. Generally, each party will retain the right to use
general knowledge, experience and know-how obtained in connection with the
intercompany services agreement. erizon will maintain ownership of all hardware
and software used in performance of the services.
Under the agreement, each party is obligated to indemnify the other (and
its related entities) from third party claims arising out of infringement of
intellectual property rights; arising out of that party's property, as well as
personal and property damage to employees, agents, subcontractors and business
associates caused by the party or its related entities; and arising out of
certain additional indemnities regarding certain obligations under the
agreement. With certain exceptions, both parties have limited their liability to
the other to direct damages with an aggregate limit. In the event that erizon
and Hanover Brands no longer share a chief executive officer or similar officer,
certain modifications will apply to the dispute resolution and other provisions
of the agreement.
INCUBATOR INVESTMENTS
In 1999, the Company began to focus on growth via the expansion of its
business portfolio through new Internet-related initiatives. To date, the
Company has focused on taking equity stakes in promising on-line businesses and
taking an active role in their development and technology.
In 1999, the Company acquired a majority equity interest in Always In
Style, LLC, an interactive service that provides consumers with personalized
style and taste advice and tailored e-commerce merchandise offers. Retailers
participating in the Always In Style retail network are provided with a
ready-made solution and a virtually instantaneous way of adding this
functionality to their Web sites. Always In Style was formally launched in
November 1999.
In March 2000, the Company acquired a minority equity interest in
I-Behavior, Inc., an on-line data-mining cooperative in which the Company will
serve as an anchor tenant and be joined by other e-tailers, retailers,
catalogers and portals who will contribute quantitative and qualitative consumer
data to the co-op, thereby becoming eligible to make withdrawals of data for
their own marketing programs.
CREDIT MANAGEMENT
Several of the Company's catalogs, including Domestications, International
Male and Gump's by Mail, offer their own private label credit cards. Prior to
July 1999, the Company had a five year $75 million credit facility with General
Electric Credit Corporation ("GECC") expiring in the year 2000 which provided
for the sale and servicing of accounts receivable originating from the Company's
revolving credit cards. GECC's servicing responsibilities included credit
processing, collections, billing/payment processing, reporting and credit card
issuance. In March 1999, the Company entered into a new three-year account
purchase and credit card marketing and services agreement with Capital One
Services, Inc. and Capital One Bank under which Capital One would provide
services generally of a type provided previously by GECC with respect to the
Company's private label credit card program. Capital One would do this by
purchasing from the Company the existing portfolio of credit card accounts on
terms which would create neither a gain or loss to the Company on the closing
date. During July 1999, the Company entered into a termination agreement with
GECC in regard to its credit facility and closed the Capital One transaction.
FINANCING
Congress Credit Facility. The Congress Financial Corporation ("Congress")
credit facility (the "Congress Credit Facility") was comprised of a revolving
line of credit of up to $65 million (the "Congress Credit Facility") and term
loans aggregating $12.5 million (the "Congress Term Note") at December 25, 1999.
The Congress Credit Facility was secured by all assets of the Company and placed
limitations on the incurrence of additional indebtedness. The amount that could
have been borrowed under the Congress Credit Facility was based on percentages
of eligible inventory and accounts receivable as reported to Congress from time
to time. An
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inventory appraisal was completed in March 1997 and the advance rate remained
the same through the balance of 1997. In November 1997, a new inventory
appraisal was completed and advance rates were increased along with other
modifications that increased the Company's availability under the Congress
Credit Facility. At that time, negotiations for the refinancing of the Congress
Revolving Credit Facility commenced. Under the terms of the re-negotiated
Congress Credit Facility, effective March 1998, the facility was extended to
January 31, 2001.
The Congress revolving credit facility bore interest during 1999 at prime
plus .5% or Eurodollar plus 2.5% and the Congress Term Note bore interest at
prime plus .75% or Eurodollar plus 2.75%. Under the Congress Credit Facility,
the Company was required to maintain minimum net worth and working capital
throughout the term of the agreement. The Company was in compliance with such
covenants at December 25, 1999. At December 25, 1999, the Company had $5.2
million of outstanding borrowings under the Congress revolving credit facility
and $12.5 million outstanding under the Congress Term Note under the Congress
Credit Facility. As of December 26, 1998, the Company had no revolving
indebtedness and $14 million outstanding under the Congress Term Note under the
Congress Credit Facility. At December 25, 1999, availability under the Congress
revolving credit facility was approximately $32.8 million, including cash on
hand. The Congress Credit Facility financial covenant requirements as of
December 25, 1999 were as follows:
<TABLE>
<CAPTION>
WORKING CAPITAL (AS DEFINED) AMOUNT
---------------------------- ---------------
<S> <C>
December 1997 and forward................................... $(10.0) million
---------------
</TABLE>
<TABLE>
<CAPTION>
NET WORTH AMOUNT
--------- -------------------
<S> <C>
June 1997 and thereafter.................................... $ 21.5 million
-------------------
</TABLE>
On March 24, 2000, the Congress Credit Facility was further amended to
provide for a maximum credit of up to $82,500,000, comprised of a revolving line
of credit facility (the "Revolving Line of Credit"), a letter of credit facility
with a sublimit of $40,000,000, and term loans with an initial principal balance
of $25,035,000. The maximum credit available under the Revolving Line of Credit
is $82,500,000, less the amount of outstanding letters of credit, and less the
outstanding principal balance of the term loans. The Company paid a $1,400,000
closing fee to Congress to secure the amendment of the Congress Credit Facility.
The $25.0 million initial principal term loan balance includes a $17.5 million
Tranche A Term Loan having an eighty-four month term, and a $7.5 million Tranche
B Term Loan having a thirty-six month term.
The Congress Credit Facility, as amended, is secured by all assets of the
Company and places limitations on the incurrence of additional indebtedness. The
amount that can be borrowed under the amended Congress Credit Facility is based
on percentages of eligible inventory, eligible accounts receivable, eligible
credit card receivables and eligible fulfillment contract receivables as
reported to Congress from time to time. Effective March 24, 2000, the Congress
Credit Facility was extended to January 31, 2004.
Effective as of March 24, 2000, Revolving Loans will bear interest at prime
plus .5% or Eurodollar plus 2.5%, the Tranche A Term Loans will bear interest at
prime plus .75% or Eurodollar plus 3.5%, and the Tranche B Term Loan will bear
interest at prime plus 4.25%, but in no event less than 13.0%. Under the amended
Congress Credit Facility, the Company will be required to maintain minimum net
worth and working capital throughout the term of the agreement.
Term Financing Arrangement/Letters of Credit. During 1994 and 1995, the
Company entered into a term loan agreement with a syndicate of financial
institutions, which provided for borrowings of $20 million (the "Term Financing
Facility"). The Term Financing Facility bore interest based on A-1 commercial
paper rates existing at the time of each borrowing. As of December 25, 1999, the
Company had $16 million of outstanding borrowings under the Term Financing
Facility bearing applicable rates of interest ranging from 5.3% to 6.0%. The
Company was required to make annual principal payments of approximately $1.6
million for each of the next ten years.
As of December 25, 1999, three letters of credit issued by UBS AG, Stamford
Branch ("UBS"), and guaranteed by Richemont Finance S.A. ("Richemont"),
supported the Term Financing Facility and the Company's Industrial Revenue
Bonds. These letters of credit originated in December 1996, when the Company
finalized its agreement (the "Reimbursement Agreement") with Richemont that
provided the Company with up to approximately $28 million of letters of credit
through Swiss Bank Corporation, New York Branch ("Swiss Bank"). The three
letters of credit were initially to expire on February 18, 1998. In the event
that the Company had not paid in full, by the expiration date of the letters of
credit, any outstanding balances under the letters of credit, Richemont had 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 was
subordinate to the Congress Credit Facility.
In November 1997, Richemont definitively agreed to extend its guarantee
under the Reimbursement Agreement to March 30, 1999. 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.
6
<PAGE> 9
In the first quarter of 1999, Richemont extended its guarantee under the
Reimbursement Agreement to March 31, 2000. As consideration for this
transaction, the Company paid to Richemont a fee of 9.5% of the principal amount
of each letter of credit including a facility fee of $500,000. The extension
required the approval of Congress and UBS (the successor to Swiss Bank
Corporation, Stamford Branch), which approvals were obtained in March 1999, and
was subject to certain other conditions. During March 1999, the extension of the
Richemont guarantee and the closing of this transaction were consummated.
Accordingly, the expiration dates of the three letters of credit were extended
through March 31, 2000.
The Company has not extended or renewed the UBS letters of credit
supporting the Term Financing Facility and the Industrial Revenue Bonds, and,
accordingly, the $16 million of outstanding borrowings under the Term Financing
Facility and the $8 million of outstanding borrowings under the Industrial
Revenue Bonds were required to be redeemed. On March 24, 2000, the Trustees
under the Term Financing Facility and the Industrial Revenue Bonds made drawings
under the UBS letters of credit, and used the proceeds of the drawings to redeem
the Term Financing Facility and the Industrial Revenue Bonds. The Company
borrowed approximately $24 million under the Congress Credit Facility on March
24, 2000 to reimburse UBS for the drawings on these letters of credit. As a
result, both the Term Financing Facility and the Industrial Revenue Bonds have
been paid in full, and the Company has also paid all amounts payable to UBS and
Richemont relating to the letters of credit.
Richemont Facility. On March 1, 2000, the Company negotiated a new
$25,000,000 unsecured line of credit (the "Richemont $25,000,000 Line of
Credit") with Richemont. Borrowings under the Richemont $25,000,000 Line of
Credit bear interest at a rate of 0.583% per month (an annualized rate of 7.0%)
on the average monthly balance outstanding. In addition, the Company will pay
Richemont a monthly fee of $62,500 each month from March 1, 2000 to the Maturity
Date. The Richemont $25,000,000 Line of Credit will mature on the earlier of
December 30, 2000 and the date on which Richemont makes an equity infusion in
the Company or any of the Company's subsidiaries (such earlier date, the
"Maturity Date."). As of March 24, 2000, there were $5 million of borrowings
outstanding under the Richemont $25,000,000 Line of Credit.
In addition, on March 24, 2000 the Company entered into a new $10,000,000
unsecured line of credit (the "Richemont $10,000,000 Line of Credit") with
Richemont. Borrowings under the Richemont $10,000,000 Line of Credit bear
interest at a rate of 0.125% per month (an annualized rate of 1.5%) on the
average monthly balance outstanding. In addition, the Company will pay Richemont
a monthly facility fee of $79,200 each month during the term of the Richemont
$10,000,000 Line of Credit. The maximum amount available to be drawn under the
Richemont $10,000,000 Line of Credit (the "Maximum Amount") was initially
$10,000,000 and will be reduced on a dollar-for-dollar basis for each dollar of
equity contributed to the Company or any of its subsidiaries after March 24,
2000 by Richemont or any subsidiary or affiliate of Richemont. If the excess
availability under the Congress Credit Facility is less than $3,000,000, the
Company will be required to borrow under the Richemont $10,000,000 Line of
Credit, and pay to Congress an amount such that the excess availability under
the Congress Credit Facility after such payment will be at least $3,000,000. The
Company may also borrow up to $5.0 million under the Richemont $10,000,000 Line
of Credit to pay trade creditors in the ordinary course of business. The
Richemont $10,000,000 Line of Credit will remain in place until the Congress
Credit Facility is terminated or the Maximum Credit is reduced to zero. As of
March 24, 2000, there were no borrowings outstanding under the Richemont
$10,000,000 Line 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 North American Resources Limited ("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.
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.
7
<PAGE> 10
In order to facilitate vendor shipments and to permit the commencement of
the Company's plan to consolidate certain of its warehouse facilities, Richemont
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 were restricted and were
subsequently registered under the Securities Act of 1933, as amended, pursuant
to a registration rights agreement with SMALLCAP that called for the Company to
use its best efforts to effect the registration of such shares as soon as
practicable after April 1, 1998.
On July 31, 1998, Richemont acquired 5,646,490 additional shares of Common
Stock of the Company pursuant to the exercise of certain common stock purchase
warrants with exercise prices from $1.95 to $2.95 per share and an aggregate
total exercise price of $13.6 million. The Company used the proceeds of the
warrant exercise to reduce the amounts outstanding under the Congress Credit
Facility.
EMPLOYEES
As of December 25, 1999 the Company employed approximately 3,000 people on
a full-time basis and approximately 1,300 people on a part-time basis. The
number of part-time employees at December 25, 1999 reflects a temporary increase
in headcount necessary to fill the seasonal increase in orders during the
holiday season.
SEASONALITY
The revenues and business for both Hanover Brands and erizon are seasonal.
Hanover Brands processes and ships more catalog orders during the holiday season
than in any other portion of the year. Many of erizon's e-tail clients
experience similar seasonal trends resulting in increased order processing
during the holiday season. Accordingly, the Company, taken as a whole,
recognizes a disproportionate share of annual revenue during the last three
months of the year.
COMPETITION
The Company believes that the principal bases upon which it competes in the
Hanover Brands business are quality, value, service, proprietary product
offerings, catalog design, convenience, speed 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. A number of such competitors have substantially greater
financial, distribution and marketing resources than the Company. Sales from the
Internet for Web site merchandisers have grown in 1999. The Company believes
strongly in the future of the Internet and online commerce, including the
breakneck speed at which marketing opportunities are evolving in this medium,
and has adjusted its marketing focus, resources, and manpower to that end.
The Company believes that the principal bases upon which it competes in the
erizon business are value, service, flexibility, scalability, convenience and
efficiency. The Company's third party fulfillment business competes with
Fingerhut Companies, Inc., PSF Web, Inc., ASD Systems, Inc. and SubmitOrder.com,
amongst others. A number of the Company's competitors have substantially greater
financial, distribution and marketing resources than the Company.
TRADEMARKS
Each of the Company's catalogs has its own federally registered trademarks
which are owned by Hanover Brands. Hanover Brands also owns numerous trademarks,
copyrights and service marks on its subsidiary's logos, products and catalog
offerings. erizon
8
<PAGE> 11
has federally registered trademarks which are used by its subsidiaries. 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
Hanover Brands:
The Company's business-to-consumer subsidiary owns and operates a 150,000
square foot home fashion manufacturing facility located in LaCrosse, Wisconsin.
The facility produces down-filled comforters for sale under "The Company Store"
and "Turiya" brand names. In addition, the Company leases the following
properties:
- A 84,700 square foot corporate headquarters and administrative office
located in Weehawken, New Jersey under a 15 year lease expiring in April
2005, and
- 14 retail and outlet stores located in California, Ohio, Pennsylvania and
Wisconsin.
erizon:
The Company's business-to-business subsidiary owns and operates the
following properties:
- A 770,000 square foot warehouse and fulfillment center in Roanoke,
Virginia, which was expanded during fiscal 1999 by 137,000 square feet to
accommodate the increase in clients for the Company's end to end
e-commerce services,
- A 277,500 square foot warehouse and fulfillment center located in
Hanover, Pennsylvania, and
- A 58,000 square foot telemarketing facility in Lacrosse, Wisconsin.
In addition, the Company leases the following properties:
- A 185,000 square foot warehouse and fulfillment center located in
Lacrosse, Wisconsin under a 13 year lease expiring in December 2001, and
- A 123,000 square foot telemarketing and customer service facility located
in Hanover, Pennsylvania, under a recently renewed 3-year lease term
expiring in January 2003.
Additionally, the Company utilizes temporary storage facilities ranging in
size between 40,000 and 90,000 square feet to house merchandise during the
holiday selling period and leases two additional satellite telemarketing
facilities in York, Pennsylvania and San Diego, California.
ITEM 3. LEGAL PROCEEDINGS
A class action lawsuit was commenced on March 3, 2000 entitled Edwin L.
Martin v. Hanover Direct, Inc. and John Does 1 through 10, bearing case no.
CJ2000-177 in the State Court of Oklahoma (District Court in and for Sequoyah
County). Plaintiff commenced the action on behalf of himself and a class of
persons who have at any time purchased a product from the Company and paid for
an "insurance charge." The complaint sets forth claims for breach of contract,
unjust enrichment, recovery of money paid absent consideration, fraud and a
claim under the New Jersey Consumer Fraud Act. The complaint alleges that the
Company charges its customers for delivery insurance even though, among other
things, the Company's common carriers already provide insurance and the
insurance charge provides no benefit to the Company's customers. Plaintiff also
seeks a declaratory judgment as to the validity of the delivery insurance. The
damages sought are (i) an order directing the Company to return to plaintiff and
class members the "unlawful revenue" derived from the insurance charges, (ii)
declaring the rights of the parties, (iii) permanently enjoining the Company
from imposing the insurance charge, (iv) awarding threefold damages of less than
$75,000 per plaintiff and per class member, and (v) attorneys' fees and costs.
The Company has not yet been required to file an answer to the complaint.
At the end of January 2000, the Company received a letter from the Federal
Trade Commission ("FTC") conducting an inquiry into the marketing of The
Shopper's Edge club to determine whether, in connection with such marketing, any
entities have engaged in (1) unfair or deceptive acts or practices in violation
of Section 5 of the FTC Act and/or (2) deceptive or abusive telemarketing acts
or practices in violation of the FTC's Telemarketing Sales Rule. The inquiry was
undertaken pursuant to the provisions of
9
<PAGE> 12
Sections 6, 9, and 10 of the FTC Act. Following such an investigation, the FTC
may initiate an enforcement action if it finds "reason to believe" that the law
is being violated. When there is "reason to believe" that a law violation has
occurred, the FTC may issue a complaint setting forth its charges. If the
respondent elects to settle the charges, it may sign a consent agreement
(without admitting liability) by which it consents to entry of a final order and
waives all right to judicial review. If the FTC accepts such a proposed consent,
it places the order on the record for sixty days of public comment before
determining whether to make the order final. The Company believes that it
complied with all enumerated aspects of the investigation. It has not received
notice of an enforcement action or a complaint against it.
In addition, 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 these actions will not have a
material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the American Stock Exchange under the
symbol "HNV". The following table sets forth, for the periods shown, the high
and low sale prices of the Company's Common Stock as reported on the American
Stock Exchange Composite Tape. As of March 17, 2000, there were 213,308,946
shares outstanding and approximately 3,850 holders of record of Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1999
First Quarter (Dec. 27, 1998 to March 27, 1999)........... $3.813 $2.125
Second Quarter (March 28, 1999 to June 26, 1999).......... 3.188 2.250
Third Quarter (June 27, 1999 to Sept. 25, 1999)........... 3.000 1.563
Fourth Quarter (Sept. 26, 1999 to Dec. 25, 1999).......... 3.875 1.875
FISCAL 1998
First Quarter (Dec. 28, 1997 to March 28, 1998)........... $3.500 $2.375
Second Quarter (March 29, 1998 to June 27, 1998).......... 3.625 2.688
Third Quarter (June 28, 1998 to Sept. 26, 1998)........... 3.438 2.563
Fourth Quarter (Sept. 27, 1998 to Dec. 26, 1998).......... 3.438 1.938
</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.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the fiscal
years indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenues........................................ $549,852 $546,114 $557,638 $ 700,314 $749,767
Special charges (credit)............................ 144 (485) (2,209) 36,724 1,563
(Loss) from operations.............................. (13,756) (16,807) (1,849) (94,497) (22,619)
(Gain) on sale of The Shopper's Edge................ (4,343) -- -- -- --
(Gain) on sale of Austad's.......................... (967) -- -- -- --
(Loss) before interest and taxes.................... (8,446) (16,807) (1,849) (94,497) (22,619)
Interest expense, net............................... 7,338 7,778 8,028 8,398 4,531
Net (loss) before extraordinary items............... (16,314) (25,585) (10,876) (103,895) (28,153)
Extraordinary items................................. -- -- -- (1,134) (1,837)
-------- -------- -------- --------- --------
Net (loss).......................................... (16,314) (25,585) (10,876) (105,029) (29,990)
Preferred stock dividends........................... 634 578 190 225 240
-------- -------- -------- --------- --------
Net (loss) applicable to common stockholders........ $(16,948) $(26,163) $(11,066) $(105,254) $(30,230)
-------- -------- -------- --------- --------
PER SHARE:
Net (loss) before Extraordinary items............... $ (.08) $ (.13) $ (.06) $ (.93) $ (.30)
Extraordinary items................................. $ -- $ -- $ -- $ (.01) $ (.02)
-------- -------- -------- --------- --------
Net (loss)- basic and diluted....................... $ (.08) $ (.13) $ (.06) $ (.94) $ (.32)
-------- -------- -------- --------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
(THOUSANDS):
Basic............................................... 210,719 206,508 176,621 111,441 93,030
-------- -------- -------- --------- --------
Diluted............................................. 210,719 206,508 176,621 111,441 93,030
-------- -------- -------- --------- --------
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit) (1)....................... $ 17,990 $ 43,929 $ 47,570 $ (1,507) $ 28,774
Total assets........................................ 191,419 218,870 230,299 220,827 279,009
Total debt (1)...................................... 42,835 58,859 59,958 65,189 62,802
Shareholders' equity................................ 53,865 66,470 75,551 31,740 87,210
-------- -------- -------- --------- --------
</TABLE>
- ---------------
(1) The amounts for 1998 and 1997 include both a receivable and an obligation
under receivables financing of $18,998 and $21,918, respectively, pursuant
to SFAS No. 125.
There were no cash dividends declared on the Common Stock in any of the
periods presented.
See notes to consolidated financial statements.
11
<PAGE> 14
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
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Revenues................................................ 100.0% 100.0% 100.0%
Cost of sales and operating expenses........................ 63.7 62.9 64.2
Write-down of inventory of discontinued catalogs
(recovery)................................................ (0.3) 0.7 --
Special charges (credit).................................... -- (0.1) (0.4)
Selling expenses............................................ 24.8 27.3 25.3
General and administrative expenses......................... 12.5 10.6 9.7
Depreciation and amortization............................... 1.7 1.7 1.5
(Gain) on sale of The Shopper's Edge........................ (0.7) -- --
(Gain) on sale of Austad's.................................. (0.2) -- --
(Loss) before interest and taxes............................ (1.5) (3.1) (0.3)
Interest expense, net....................................... 1.3 1.4 1.4
Net (loss).................................................. (3.0)% (4.8)% (2.0)%
</TABLE>
RESULTS OF OPERATIONS
1999 Compared with 1998
Net (Loss). The Company reported a net loss of $16.3 million or ($.08) per
common share for fiscal year 1999 compared with a net loss of $25.6 million or
($.13) per common share for fiscal year 1998. Per share amounts are expressed
after deducting preferred dividends of $0.6 million in both 1999 and 1998,
respectively. The weighted average number of shares outstanding was 210,718,546
for fiscal year 1999 compared to 206,508,110 for fiscal year 1998. The increase
in weighted average shares outstanding is due to the exercise of common stock
purchase warrants by Richemont Finance S.A. in July 1998 and the exercise of
stock options in 1998 and 1999.
Compared to the comparable period last year, the $9.3 million decrease in
net loss was primarily due to:
(i) higher demand for the Company's core catalog offerings;
(ii) the 1999 gain on sale of The Shopper's Edge of $4.3 million;
(iii) 1998 losses from non-core catalogs, which were discontinued or
repositioned during 1999;
(iv) 1998 charges of approximately $5.9 million relating to the
discontinuance or repositioning of the Company's non-core
catalogs; $3.7 million related to write-down of inventory ($1.9
million of which was reversed in 1999) and $2.2 million related
to write-off of prepaid catalog costs; and
(v) gain on sale of the non-core Austad's catalog of $1.0 million
partially offset by,
(i) 1999 losses resulting from the Company's e-commerce related
strategic initiatives; and
(ii) higher personnel related expenses.
Revenues. Revenues increased $3.8 million (0.7%) to $549.9 million for
fiscal year 1999 from $546.1 million for fiscal year 1998. This increase was
primarily due to higher demand for the Company's core catalog offerings and
revenues from the expansion of the Company's third party business-to-business
("B-to-B") e-commerce services operation partly offset by lower demand from the
Company's non-core catalogs. Revenues from core catalogs increased by $18.6
million (3.8%) while revenues from non-core catalogs decreased by $29.7 million
(60.9%). The Company circulated 235 million catalogs during fiscal year 1999
versus 242 million catalogs during fiscal year 1998 reflecting the
discontinuance or repositioning of the Company's non-core catalogs. Circulation
of the Company's core catalogs increased approximately 6.0% during fiscal year
1999. The number of customers having made a purchase from the Company's catalogs
during fiscal year 1999 remained at approximately 4 million, consistent with
fiscal year 1998.
Fiscal year 1999 revenues of $14.9 million resulted from the expansion of
the Company's B-to-B e-commerce services operation, which provided Internet
order processing, customer care, and shipping and distribution services to third
party clients primarily during the 4th quarter. Third party B-to-B e-commerce
service revenues for fiscal 1998 was approximately $2.1 million.
Cost of Sales and Operating Expenses. Cost of sales and operating expenses
increased by $6.9 million (2.0%) from fiscal year 1998. This increase includes
higher order processing, distribution and systems development costs related to
the expansion of the Company's B-to-B e-commerce services operation.
Furthermore, additional personnel related costs, which include temporary
increases in headcount, were incurred in order to fill the seasonal increase in
Internet orders during the holiday period. These cost
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<PAGE> 15
increases along with demand related increases in cost of merchandise sold from
the Company's core catalogs were partly offset by cost decreases resulting from
the discontinuance or repositioning of the Company's under-performing non-core
catalogs.
Selling Expenses. Selling expenses decreased by $12.2 million (8.2%) from
fiscal year 1998. This reflects a $13.6 million decrease in expenses (including
a $2.2 million charge in 1998 for the write-down of certain non-core catalog
prepaid assets) resulting from the discontinuance or repositioning of the
Company's non-core catalogs. Selling expenses related to the Company's core
catalogs increased by $1.4 million (1.0%) due to an increase in circulation
during 1999 partly offset by lower name list rental and catalog production
costs.
General and Administrative Expenses. General and administrative expenses
increased by $11.0 million (19.1%) from fiscal year 1998. This increase is
primarily due to higher professional fees and Internet advertising costs related
to the Company's e-commerce strategic initiatives, and higher personnel related
expenses.
Depreciation and Amortization. Depreciation and amortization decreased by
$0.1 million (1.0%) from fiscal year 1998.
(Loss) before Interest and Taxes. The Company's loss before interest and
taxes decreased by $8.4 million to $8.4 million in fiscal 1999 from a loss of
$16.8 million in fiscal 1998. Beginning in 1999, the Company's results are
comprised of the following segments:
- Direct Commerce: Income before interest and taxes increased by $23.1
million primarily due to higher demand for the Company's core catalog
offerings, the gain on sale of The Shopper's Edge ($4.3 million), 1998
losses from the Company's non-core catalogs, 1998 charges related to the
discontinuance of non-core catalogs ($5.9 million, of which $1.9 million
was reversed during 1999), and the gain on sale of Austads ($1.0
million). This was partially offset by the cost of the Company's catalog
related e-commerce strategic initiatives (primarily Internet advertising
costs) and higher personnel related expenses.
- Business-to-Business ("B-to-B") Services: Loss before interest and taxes
increased by $15.2 million primarily due to 1999 losses related to the
expansion of the Company's third party B-to-B e-commerce services
operation, higher professional fees resulting from the separation of the
Company's direct commerce/ B-to-B services operations, and higher
personnel related expenses. These results reflect overhead costs incurred
by the Company throughout fiscal 1999 to systematize the infrastructure
in order to service the expected increase in third party Internet
customers, which were brought online primarily during the second half of
the year.
Interest Expense, Net. Interest expense, net decreased by $0.4 million to
$7.3 million in 1999 due to lower average borrowings outstanding during 1999.
Income Taxes. The Company did not record a Federal income tax provision in
1999 or 1998 due to net operating losses incurred during both years. The
Company's state tax provision was $0.5 million and $1.0 million for fiscal 1999
and 1998, respectively.
Shareholders' Equity. The number of shares of Common Stock outstanding
increased by 439,574 during 1999 primarily due to shares issued in connection
with the Company's stock option plans. At December 25, 1999, there were
210,866,959 shares of Common Stock outstanding compared to 210,427,385 shares of
Common Stock outstanding at December 26, 1998.
In February 2000, the Company's Series B Convertible Preferred Stock
("Series B Stock") was redeemed via the issuance of 2,193,317 shares of the
Company's common stock. Weighted average common shares outstanding as of
December 25, 1999 would have been 212,911,863 versus a reported 210,718,546,
assuming conversion of the Series B Stock at the beginning of 1999. Reported
quarterly and total year 1999 net (loss) per common share amounts would not have
been affected by the pro-forma increase in weighted average common shares
outstanding.
The Shopper's Edge. In March 1999, the Company, through a newly formed
subsidiary, started up and promoted a discount buyers club to consumers known as
"The Shopper's Edge". In exchange for an up-front membership fee, The Shopper's
Edge program enables members to purchase a wide assortment of merchandise at
discounts which are not available through traditional retail channels.
Initially, prospective members participate in a 45-day trial period that, unless
canceled, is automatically converted into a full membership term which is one
year in duration. Memberships are automatically renewed at the end of each term
unless canceled by the member.
During 1999, primarily as a result of timing of revenue and expense
recognition, The Shopper's Edge subsidiary incurred losses of $4.3 million
reflecting both cash payments and outstanding liabilities to the Company of $3.3
million and $1.0 million, respectively. The Company's operating results reflect
$0.1 million of net losses after the elimination of these intercompany
transactions. The Company recorded membership fee revenue as well as an
allowance for estimated cancellations on a straight-line basis over the one-
year membership term, which commenced immediately following the expiration of
the initial 45-day trial period. Costs tied to acceptances such as commissions
paid to service providers as well as membership servicing and transaction
processing expenses were deferred and expensed as membership fee revenue was
recognized. All other costs, including membership kits and postage, were
expensed as incurred. Under the terms of the program, the Company was entitled
to periodic withdrawals of funds provided by up-front membership fees. These
withdrawals, however, were subject to contractual limitations as The Shopper's
Edge subsidiary was required to maintain adequate cash balances to fund
estimated membership reimbursements resulting from cancellations. Accordingly,
funds retained within The Shopper's Edge subsidiary were reported as "restricted
cash" in the Company's balance sheet during 1999. If membership reimbursements
due to cancellations exceeded the amount of funds retained by The Shopper's Edge
subsidiary, the Company was liable to cover the shortfall.
Effective December 1999, the Company sold its interest in The Shopper's
Edge subsidiary to an unrelated third party for a nominal fair value based upon
an independent appraisal. At the time of the sale, the liabilities of the
subsidiary exceeded the assets by
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<PAGE> 16
$4.3 million resulting in a gain on sale to the Company of $4.3 million. The
gain represented the portion of deferred income of The Shopper's Edge that the
Company received in the form of withdrawals discussed above which, in accordance
with the Company's revenue recognition policy for memberships, would not have
been earned until the completion of the membership term. The deferred income was
recognized immediately upon the sale and has been reflected as a gain on sale in
the accompanying consolidated statement of income (loss) for the year ended
December 25, 1999. There are no conditions or obligations to the Company to
refund any portion of the cash withdrawals received prior to the sale. The
Company entered into a solicitation services agreement with the purchaser
whereby the Company will provide solicitation services for the program, and will
receive commissions for member acceptances based on a fixed fee per member
basis, adjusted for cancellation rates on a prospective basis. Membership
revenue earned during the fiscal year ended December 25, 1999 was $3.9 million,
which is included in revenues in the accompanying consolidated statement of
income (loss). Had the new solicitation services agreement been in place for
fiscal 1999, net revenues on a pro-forma basis would have increased by $1.4
million reflecting the inclusion of $5.3 million of fee revenue for solicitation
services provided versus $3.9 million of recorded membership fee revenue under
the old agreement. Furthermore, on a pro-forma basis, the Company's loss from
operations would have decreased by $5.4 million to $(8.4) million.
1998 Compared with 1997
Net (Loss). The Company reported a net loss of $25.6 million, or $(.13)
per common share, compared with a net loss of $10.9 million, or ($.06) per
common share, for 1997. Per share amounts are expressed after deducting
preferred dividends of $0.6 million and $0.2 million in 1998 and 1997,
respectively. The weighted average number of shares outstanding was 206,508,110
for the year ended December 26, 1998 compared to 176,621,080 in 1997. The
increase in weighted average shares outstanding is primarily due to a rights
offering completed in June 1997.
The higher loss in fiscal 1998 is attributed to:
(i) a $3.7 million charge for the writedown of non core catalog
inventory as well as a $2.2 million charge for other costs
associated with plans to discontinue certain under performing
company catalog brands
(ii) higher promotional activity primarily in the fourth quarter
(iii) costs related to new business initiatives
(iv) higher selling expenses due to increased promotional activity and
more competitive mailings in advance of the 1999 postal rate
increase
(v) the 1997 special credit which exceeded the amount recorded in
1998 by $1.7 million
(vi) 1997 income from the partial recovery of previously written-off
investment securities amounting to $1.3 million
partially offset by,
(i) improved gross margins from reductions in the cost of merchandise
resulting from the benefits of improved purchase strategies and
efficiencies in inventory management for the core catalog brands,
as well as the positive impact of upsell promotions
(ii) reduced distribution costs resulting from the completion of the
consolidation of distribution activities into the Company's
Roanoke, Virginia facility.
Revenues. Revenues decreased in 1998 to $546.1 million from $557.6 million
in 1997, primarily as a result of the under performing (non core) catalog brands
(Tweeds, Austad's and Colonial Garden Kitchens), partially offset by revenue
growth in other brands and the impact of upsell promotions. The Company's
revenues for 1998 for the core catalog brands increased 3% over 1997.
Catalog circulation decreased to 242 million in 1998 from 244 million in
1997.
Operating Costs and Expenses. Cost of sales and operating expenses, which
include fulfillment and telemarketing costs, decreased by $14.7 million from
1997. This decrease was the result of a reduction in catalog sales and reduced
merchandise costs as the Company's margins were enhanced by improved product
sourcing and merchandise mix as well as continued improvement in telemarketing
and fulfillment costs. Additionally, the Company attained inventory management
efficiencies resulting in improved order fill rates, lower product delivery
costs and lower backorder levels.
Selling Expenses. Selling expenses increased $7.4 million in 1998 as a
result of the increased utilization of name list rentals, additional catalog
production costs and new marketing initiatives, partially offset by the benefit
of reduced, more targeted circulation strategies. These expenses also include
$2.2 million of charges related to the aforementioned discontinuance of certain
under performing company catalog brands.
General and Administrative Expenses. General and administrative expenses
increased $4.0 million in 1998 primarily due to an increase in spending to
support growth initiatives, including electronic commerce, as well as the impact
of an offset to general and administrative expenses ($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.
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<PAGE> 17
The operating results for 1998 and 1997 include benefits of $0.5 million
and $2.2 million, respectively, relating to the reversal of a portion of the
restructuring charges that were recorded in 1996. The 1998 reversal related to
the Company's decision to remain in its Hanover, Pa. fulfillment center. The
1997 reversal related primarily to the Company's decision to remain in its
Weehawken corporate facility.
Depreciation and Amortization. Depreciation and amortization increased
$1.3 million in 1998 resulting from fixed asset additions associated with the
improvements in the distribution center in Roanoke, Virginia.
(Loss) from Operations. The Company's loss from operations increased $15.0
million to $16.8 million in 1998 from a loss of $1.8 million in 1997. As
discussed above, the 1998 operating results include $5.9 million in charges
related to discontinuing certain non core catalog brands as the Company focuses
on building brands with a strong core customer base. The operating results also
include infrastructure costs related to the Company's e-commerce initiatives.
The operating results for 1998 and 1997 include a $0.5 and $2.2 million credit,
respectively, relating to the reversal of a portion of the restructuring charges
that were recorded in 1996.
Interest Expense, Net. Interest expense, net decreased $0.2 million to
$7.8 million in 1998 from $8.0 million in 1997. This improvement was primarily
due to lower interest rates and lower amortization of capitalized debt costs.
Income Taxes. The Company did not record a Federal income tax provision in
1998 or 1997 based on each years' net operating losses. The Company's state tax
provision was $1.0 million in 1998 and 1997.
Shareholders' Equity. The number of shares of Common Stock outstanding
increased by 6,672,063 in 1998 due to 5.6 million shares issued in connection
with the exercise of certain common stock purchase warrants, its equity and
incentive plans, and other activities. At December 26, 1998, there were
210,427,385 shares of Common Stock outstanding compared to 203,755,322 shares of
Common Stock outstanding at December 27, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations: During 1999, net cash used by operating
activities was $6.7 million. This was primarily due to higher accounts
receivable attributable to the 1999 addition of several third party clients for
the Company's B-to-B e-commerce services operation and an increase in prepaid
catalog costs. These cash outflows were partly offset by increases in cash
resulting from lower inventory carrying levels.
Net cash used in investing activities: During 1999, net cash used by
investing activities of $3.3 million was primarily due to capital expenditures
of $4.9 million. These capital expenditures primarily related to computer
hardware and software to increase the functionality and capacity of the
Company's integrated e-commerce systems platform. The net cash used for capital
expenditures was partially offset by the proceeds from the sale of the Company's
non-core Austad's catalog of $1.6 million.
Net cash provided by financing activities: During 1999, net cash provided
by financing activities of $0.6 million was primarily due to increased
borrowings under the Congress Revolving Credit Facility of $5.2 million, partly
offset by payments of long-term debt obligations as well as for debt issuance
costs.
Debt and Liquidity: At December 25, 1999, the Company had $2.8 million in
cash and cash equivalents compared with $12.2 million at December 26, 1998.
Working capital and current ratio were $18.0 million and 1.2 to 1 at December
25, 1999 versus $43.9 million and 1.47 to 1 at December 26, 1998.
As of December 25, 1999, the Company had outstanding borrowings of $17.7
million and $16.0 million under the Congress Revolving Credit Facility and the
Congress Term Loan, respectively. Borrowings under the Congress Revolving Credit
Facility, which allows for total borrowings based on percentages of eligible
inventory and eligible accounts receivable, is comprised of $5.2 million under a
revolving line of credit arrangement and a $12.5 million term loan. Remaining
availability under the Revolving Line of Credit at December 25, 1999 was $30.0
million ($32.8 million including cash on hand). The weighted average rates of
interest, which are based on prime and LIBOR rates, related to the Revolving
Line of Credit and the Congress Term Loan were 8.75% and 9.00%, respectively, as
of December 25, 1999.
On March 24, 2000, the Congress Credit Facility was further amended to
provide for a maximum credit of up to $82.5 million, comprised of a revolving
line of credit facility (the "Revolving Line of Credit"), a letter of credit
facility with a sublimit of $40.0 million, and term loans with an initial
principal balance of $25.0 million. The maximum credit under the Revolving Line
of Credit is $82.5 million, less the amount of outstanding letters of credit,
less the principal balance of the term loans. The Company paid $1.4 million to
Congress to secure the amendment of the Congress Credit Facility. The $25.0
million initial principal term loan balance includes a $17.5 million Tranche A
Term Loan having an eighty-four month term, and a $7.5 million Tranche B Term
Loan having a thirty-six month term.
Borrowings under the Term Financing Facility were supported by standby
letters of credit issued through UBS AG ("UBS"), and guaranteed by Richemont
Finance, S.A., a 48.2% owner of the Company's outstanding common stock. Interest
rates related to the Term Financing Facility are based on "A-1" commercial paper
rates, and ranged from 5.3% to 6.0% as of December 25, 1999. Borrowings under
the Term Financing Facility were redeemed on March 24, 2000. The Term Financing
Facility was paid in full from borrowings under the Congress Credit Facility.
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Richemont Lines of Credit -- On March 24, 2000, the Company entered into a
new $10.0 million unsecured line of credit (the "Richemont $10.0 million Line of
Credit") with Richemont Finance, S.A. Borrowings under the Richemont $10.0
million Line of Credit bear interest at a rate of 0.125% per month (an
annualized rate of 1.5%) on the average monthly balance outstanding. In
addition, the Company will pay Richemont a monthly facility fee of approximately
$0.1 million each month during the term of the Richemont $10.0 million Line of
Credit. The maximum amount available to be drawn under the Richemont $10.0
million Line of Credit (the "Maximum Amount") was initially $10.0 million and
will be reduced on a dollar-for-dollar basis for each dollar of equity
contributed to the Company or any of its subsidiaries after March 24, 2000 by
Richemont or any subsidiary or affiliate of Richemont. If the excess
availability under the Congress Credit Facility is less than $3.0 million the
Company will be required to borrow under the Richemont $10.0 million Line of
Credit, and pay to Congress, the amount such that the excess availability under
the Congress Credit facility after such payment will be $3.0 million. The
Company may also borrow under the Richemont $10.0 million Line of Credit up to
$5.0 million to pay trade creditors in the ordinary course of business. The
Richemont $10.0 million Line of Credit will remain in place until the Congress
Credit Facility is terminated or the Maximum Credit is reduced to zero. As of
March 24, 2000, there were no borrowings outstanding under the Richemont $10.0
million Line of Credit.
On March 1, 2000, the Company entered into a new $25.0 million unsecured
Line of Credit (the "Richemont $25.0 million Line of Credit") with Richemont
Finance, S.A. Borrowings under the Richemont $25.0 million Line of Credit bear
interest at a rate of 0.583% per month (an annualized rate of 7.0%) on the
average monthly balance outstanding. In addition, the Company will pay Richemont
a monthly fee of approximately $0.1 million each month from March 1, 2000 up to
the Maturity Date. The Richemont $25.0 million Line of Credit will mature on the
earlier of December 30, 2000 and the date on which Richemont makes an equity
infusion in the Company or any of the Company's subsidiaries (such earlier date,
the "Maturity Date"). As of March 24, 2000, there were $5.0 million of
borrowings outstanding under the Richemont $25.0 million Line of Credit.
Remaining availability under all credit facilities as of March 24, 2000 was
$34.7 million ($36.5 million including cash on hand). Due to the combination of
internally generated cash flows and the multiple financing arrangements
previously discussed, the Company believes that it has sufficient liquidity to
cover its future working capital requirements.
Dividends: The Company is restricted from paying dividends at any time on
its Common Stock by certain debt covenants contained in agreements to which the
Company is a party.
Foreign Currency Translation: The Company minimizes currency risks by
making most foreign purchases in U.S. dollars and does not utilize hedging
instruments.
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. 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 primarily mail-order merchandise, which undergoes sufficiently high
turnover so that the cost of goods sold approximates replacement cost. Since
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 16.2% of
revenues in 1999 and 15.4% of revenues in 1998. Paper costs represented
approximately 5.5% of revenues in 1999 and 6.6% of revenues in 1998 reflecting
reduced paper costs during 1999.
The USPS increased its mailing rates in 1998, which became effective in
January 1999. The Company also utilizes United Parcel Service and other delivery
services. The United Parcel Service raised its rates for domestic deliveries by
3.1% for ground rates and 2.6% for air rates effective in February 1999. It has
generally been the Company's experience as well as its policy to recover the
costs of shipping, including outbound freight, and handling from customers.
YEAR 2000
The Year 2000 issue related to the way computer systems and programs
interpret calendar date entries in two-digit data code fields. A system could
have failed or made miscalculations due to the inability to distinguish the year
2000 from the year 1900. Additionally, some other systems not normally
characterized as information technology systems could contain embedded hardware
or software that might be susceptible to this problem. As a result, many
companies upgraded or replaced computer systems in order to comply with Year
2000 requirements.
As was the case with most other database marketing firms and, for the most
part, other businesses using computers and telecommunications equipment in their
operations, the Company planned for and addressed the Year 2000 issue to ensure
it would be able to continue to perform its critical functions. Specifically,
these functions included receiving, processing and shipping customer orders,
ordering and receiving merchandise from vendors, and processing payments.
The Company's Year 2000 project commenced in 1996 and was divided into the
following phases:
(i) Discovery- identification/ inventorying of all systems with
potential Year 2000 issues;
(ii) Assessment- evaluation, categorizing and prioritizing of Year
2000 issues;
(iii) Remediation- modifying and replacing existing systems; and
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(iv) Testing/ Deployment- comprehensive testing of Year 2000 readiness
to ensure all problems were discovered and adequately corrected.
The Company evaluated its internal mainframe business systems deemed
critical to its business, which included rollover tests allowing for a system
date change to January 1, 2000. Additionally, the Company performed an inventory
and assessment of hardware and software associated with individual PC systems
for Year 2000 readiness, and performed Year 2000 readiness surveys of its
suppliers to ensure a consistent flow of product. Furthermore, as an additional
contingency plan, the Company made arrangements to have technical staff
available at all locations at the turn of the millennium to support its
customers and operations in the event of a Year 2000 failure. Accordingly, while
some disruptions were anticipated with the Company's internal systems and a few
product vendors, the Company believed, absent any interruptions to either power,
utilities or telephone services that were beyond its control, the most probable
scenario was that there would not be a system failure of critical services or
infrastructure that would materially disrupt its operations.
Upon the turn of the millennium and subsequent thereto, the Company did not
experience any significant systems malfunctions related to the Year 2000
conversion. Any systems malfunctions were relatively minor in nature and were
corrected without any loss of service to customers or other third parties.
Additionally, the Company did not experience any Year 2000 issues with suppliers
and did not suffer any interruption in power, utilities or telecommunications
services. Although the Company does not anticipate any future systems
malfunctions related to the Year 2000 issue, procedures are in place to
continuously monitor all critical systems to ensure that any potential Year 2000
issues that arise are corrected with minimal or no disruption to the Company's
operations.
The Company did not modify spending patterns or postpone capital
expenditures due to efforts expended for the Year 2000 conversion nor were there
any unusual customer buying patterns prior to the turn of the millennium.
Cumulative costs associated with the necessary modifications to address the Year
2000 issue amounted to approximately $3.8 million. These costs primarily
comprised of expenditures to upgrade or replace computer hardware and software
as well as the costs of staff and consultants to perform the project.
CAUTIONARY STATEMENTS
Certain of the foregoing statements may constitute forward looking
statements which involve risks and uncertainties including the following:
". . . the Company believes it has sufficient liquidity to cover its future
working capital requirements."
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:
A general deterioration of 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 the Company offers in its catalogs. The failure of the Internet
generally to achieve the projections for it with respect to growth of
e-commerce or otherwise.
The ability of the Company's computer system to connect with the
systems of others and to be able to serve the other's fulfillment needs.
The Company had a history of operating losses. Continuation of the
operating losses may prevent the Company from making the investments in
e-commerce which are required to be made to achieve a position of
leadership in serving the e-commerce needs of companies doing business on
the Internet. Also acquisitions may be prevented by the continuation of
operating losses.
The ability of the Company to attract management with the requisite
experience in e-commerce or in Internet businesses and to develop a culture
which is consistent with the manner in which e-commerce is managed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES: The Company's exposure to market risk relates to interest
rate fluctuations for borrowings under its Congress Revolving Credit Facility
and its Term Financing Facility, which bear interest at variable rates. At
December 25, 1999, outstanding principal balances under these facilities subject
to variable rates of interest were approximately $33.7 million. At March 24,
2000, outstanding principal balances under these facilities subject to variable
rates of interest were approximately $55.0 million. If interest rates were to
increase by one quarter of one percent from current levels, the resulting
increase in interest expense would not have a material impact on our results of
operations taken as a whole.
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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 25, 1999
and December 26, 1998, 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 25, 1999. 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 schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. 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 25, 1999 and December 26, 1998 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 25, 1999 in conformity with generally accepted accounting
principles in the United States.
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
February 18, 2000 (except with respect
to the matters discussed in Note 8 and Note 18,
as to which the dates are March 24, 2000 and
March 3, 2000, respectively)
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CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 25, 1999 AND DECEMBER 26, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,849 $ 12,207
Accounts receivable, net of allowance for doubtful
accounts of $3,300 in 1999 and $2,544 in 1998.......... 29,287 22,737
Accounts receivable under financing agreement............. -- 18,998
Inventories............................................... 54,816 62,322
Prepaid catalog costs..................................... 20,305 16,033
Deferred tax asset, net................................... 3,300 3,300
Other current assets...................................... 2,935 2,402
-------- --------
Total Current Assets.............................. 113,492 137,999
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land...................................................... 4,634 4,634
Buildings and building improvements....................... 23,269 22,724
Leasehold improvements.................................... 9,491 9,303
Furniture, fixtures and equipment......................... 53,863 51,193
Construction in progress.................................. 1,990 113
-------- --------
93,247 87,967
Accumulated depreciation and amortization................. (46,360) (37,884)
-------- --------
Property and equipment, net............................... 46,887 50,083
-------- --------
Goodwill, net............................................. 16,336 16,890
Deferred tax asset, net................................... 11,700 11,700
Other assets.............................................. 3,004 2,198
-------- --------
Total Assets...................................... $191,419 $218,870
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations............................................ $ 3,257 $ 2,573
Accounts payable.......................................... 63,549 64,594
Accrued liabilities....................................... 24,284 22,212
Customer prepayments and credits.......................... 4,412 4,691
-------- --------
Total Current Liabilities......................... 95,502 94,070
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt............................................ 39,578 37,288
Obligations under receivable financing.................... -- 18,998
Other..................................................... 2,474 2,044
-------- --------
Total Non-current Liabilities..................... 42,052 58,330
-------- --------
Total Liabilities................................. 137,554 152,400
-------- --------
SHAREHOLDERS' EQUITY:
Series B Convertible Additional Preferred Stock, $10 stated
value, authorized, issued and outstanding 634,900 shares
in 1999 and 1998.......................................... 6,318 6,128
Common Stock, $.66 2/3 par value, authorized 300,000,000
shares in 1999 and 225,000,000 in 1998; issued 211,519,511
shares in 1999 and 210,785,688 in 1998.................... 141,013 140,524
Capital in excess of par value.............................. 301,088 297,751
Accumulated deficit......................................... (390,763) (373,815)
-------- --------
57,656 70,588
-------- --------
Less:
Treasury stock, at cost (652,552 shares in 1999 and 358,303
shares in 1998)........................................... (1,829) (813)
Notes receivable from sale of Common Stock.................. (1,962) (3,305)
-------- --------
Total Shareholders' Equity........................ 53,865 66,470
Total Liabilities and Shareholders' Equity........ $191,419 $218,870
======== ========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET REVENUES................................................ $ 549,852 $546,114 $557,638
---------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales and operating expenses...................... 350,502 343,554 358,219
Write-down of inventory of discontinued catalogs
(recovery)............................................. (1,932) 3,726 --
Special charges (credit).................................. 144 (485) (2,209)
Selling expenses.......................................... 136,584 148,767 141,411
General and administrative expenses....................... 68,928 57,881 53,839
Depreciation and amortization............................. 9,382 9,478 8,227
---------- -------- --------
563,608 562,921 559,487
---------- -------- --------
(LOSS) FROM OPERATIONS...................................... (13,756) (16,807) (1,849)
(Gain) on sale of The Shopper's Edge...................... (4,343) -- --
(Gain) on sale of Austad's................................ (967) -- --
---------- -------- --------
(LOSS) BEFORE INTEREST AND TAXES............................ (8,446) (16,807) (1,849)
Interest expense, net..................................... 7,338 7,778 8,028
---------- -------- --------
(Loss) before income taxes................................ (15,784) (24,585) (9,877)
Income tax provision...................................... 530 1,000 999
---------- -------- --------
NET (LOSS).................................................. (16,314) (25,585) (10,876)
Preferred stock dividends................................. 634 578 190
---------- -------- --------
NET (LOSS) APPLICABLE TO COMMON SHAREHOLDERS................ $ (16,948) $(26,163) $(11,066)
========== ======== ========
NET (LOSS) PER SHARE:
Net (loss) per share -- basic and diluted................. $ (.08) $ (.13) $ (.06)
========== ======== ========
Weighted average common shares outstanding - basic and
diluted (thousands).................................... 210,719 206,508 176,621
========== ======== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)................................................ $(16,314) $(25,585) $(10,876)
Adjustments to reconcile net (loss) to net cash (used) by
operating activities:
Depreciation and amortization, including deferred
fees.................................................. 11,951 11,466 10,581
Provision for doubtful accounts........................ 2,817 3,278 3,973
Special charges (credit)............................... 144 (485) (2,209)
Write-down of inventory of discontinued catalogs
(recovery)............................................ (1,932) 3,726 --
Gain on the sale of Austad's........................... (967) -- --
Compensation expense related to stock options.......... 2,890 2,684 1,800
Recovery from investments previously written off....... -- -- (1,274)
Changes in assets and liabilities:
Accounts receivable.................................... (8,639) (8,331) 7,742
Inventories............................................ 8,853 (1,718) 3,280
Prepaid catalog costs.................................. (4,288) 4,651 2,717
Accounts payable....................................... (1,045) 5,795 (20,788)
Accrued liabilities.................................... 710 (7,562) (6,583)
Customer prepayments and credits....................... (279) 867 (893)
Other, net............................................. (572) (867) (205)
-------- -------- --------
Net cash (used) by operating activities................... (6,671) (12,081) (12,735)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment................. (4,830) (6,111) (4,222)
Proceeds from sale of Austad's......................... 1,568 -- --
Proceeds from investment............................... -- -- 1,274
-------- -------- --------
Net cash (used) by investing activities................... (3,262) (6,111) (2,948)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments)under revolving credit
facility.............................................. 5,202 -- (13,710)
Borrowings from term loan facility..................... -- 7,272 --
Payments of long-term debt and capital lease
obligations........................................... (2,745) (5,433) (3,575)
Payment of stock issuance costs........................ -- -- (3,073)
Payment of debt issuance costs......................... (2,701) -- --
Proceeds from issuance of common stock................. 936 561 45,351
Proceeds from exercise of stock warrants............... -- 13,640 --
Other, net............................................. (117) (399) 275
-------- -------- --------
Net cash provided by financing activities................. 575 15,641 25,268
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (9,358) (2,551) 9,585
Cash and cash equivalents at the beginning of the year.... 12,207 14,758 5,173
-------- -------- --------
Cash and cash equivalents at the end of the year.......... $ 2,849 $ 12,207 $ 14,758
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................. $ 4,765 $ 5,095 $ 5,674
Income taxes......................................... $ 713 $ 447 $ 685
Non-cash investing and financing activities:
Capital lease obligations............................ $ 517 $ -- $ 163
Tandem share expirations............................. $ 1,016 $ -- $ --
Other equity issuance and exchanges.................. $ -- $ -- $ 10,000
Non-Cash gain on sale of The Shopper's Edge.......... $ 4,343 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 26, 1998 AND DECEMBER 25, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED
STOCK
SERIES B COMMON STOCK CAPITAL
CUMULATIVE $.66 2/3 PAR VALUE IN EXCESS TREASURY STOCK
---------------- ------------------- OF PAR ACCUM. ------------------
SHARES AMOUNT SHARES AMOUNT VALUE (DEFICIT) SHARES AMOUNT
------ ------ ------ ------ --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996........... 635 $5,748 145,040 $ 96,693 $270,637 $(336,586) (392) $ (813)
--- ------ ------- -------- -------- --------- ---- -------
Net income/(loss) applicable to common
shareholders......................... (11,066)
Preferred stock accretion.............. 190
Stock options granted.................. 1,800
Shares issued in 1997 Rights Offering,
net of issue costs................... 55,655 37,103 9,958
Issuance of Common Stock to SMALLCAP
World Fund, Inc...................... 3,700 2,467 2,750
Issuances & forfeitures of Common Stock
for employee stock plan.............. 47 31 20 (294) (155)
--- ------ ------- -------- -------- --------- ---- -------
BALANCE AT DECEMBER 27, 1997........... 635 $5,938 204,442 $136,294 $285,165 $(347,652) (686) $ (968)
Net income/(loss) applicable to common
shareholders......................... (26,163)
Cash received for tandem receivable....
Preferred stock accretion.............. 190
Stock options granted.................. 2,684
Exercise of Warrants................... 5,646 3,764 9,876
Issuances & forfeitures of Common Stock
for employee stock plan.............. 698 466 26 328 155
--- ------ ------- -------- -------- --------- ---- -------
BALANCE AT DECEMBER 26, 1998........... 635 $6,128 210,786 $140,524 $297,751 $(373,815) (358) $ (813)
Net income/(loss) applicable to common
shareholders......................... (16,948)
Preferred stock accretion.............. 190
Stock options granted.................. 2,890
Cash received for Tandem receivable....
Issuances & forfeitures of Common Stock
for employee stock plan.............. 734 489 447
Tandem share expirations............... (294) (1,016)
--- ------ ------- -------- -------- --------- ---- -------
BALANCE AT DECEMBER 25, 1999........... 635 $6,318 211,520 $141,013 $301,088 $(390,763) (652) $(1,829)
=== ====== ======= ======== ======== ========= ==== =======
<CAPTION>
NOTES
RECEIVABLE
FROM SALE
OF COMMON
STOCK TOTAL
---------- -----
<S> <C> <C>
BALANCE AT DECEMBER 28, 1996........... $(3,399) $32,280
------- -------
Net income/(loss) applicable to common
shareholders......................... (11,066)
Preferred stock accretion.............. 190
Stock options granted.................. 1,800
Shares issued in 1997 Rights Offering,
net of issue costs................... 47,061
Issuance of Common Stock to SMALLCAP
World Fund, Inc...................... 5,217
Issuances & forfeitures of Common Stock
for employee stock plan.............. 173 69
------- -------
BALANCE AT DECEMBER 27, 1997........... $(3,226) $75,551
Net income/(loss) applicable to common
shareholders......................... (26,163)
Cash received for tandem receivable.... 69 69
Preferred stock accretion.............. 190
Stock options granted.................. 2,684
Exercise of Warrants................... 13,640
Issuances & forfeitures of Common Stock
for employee stock plan.............. (148) 499
------- -------
BALANCE AT DECEMBER 26, 1998........... $(3,305) $66,470
Net income/(loss) applicable to common
shareholders......................... (16,948)
Preferred stock accretion.............. 190
Stock options granted.................. 2,890
Cash received for Tandem receivable.... 327 327
Issuances & forfeitures of Common Stock
for employee stock plan.............. 936
Tandem share expirations............... 1,016 --
------- -------
BALANCE AT DECEMBER 25, 1999........... ($1,962) $53,865
======= =======
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
1. BACKGROUND OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Hanover Direct, Inc., a Delaware corporation (the
"Company"), operates as both a specialty direct marketer and as a provider of
business-to-business ("B-to-B") e-commerce services. As a specialty direct
marketer, the Company markets a diverse portfolio of branded home fashions, home
improvements, men's and women's apparel, and gift products, through mail-order
catalogs and connected Internet Web sites directly to the consumer ("direct
commerce"). As a provider of B-to-B e-commerce services, the Company offers a
full range of order processing, customer care, customer information, and
shipping and distribution services to third party clients.
The Company utilizes a fully integrated systems and operations support
platform initially developed to manage the Company's wide variety of
catalog/Internet product offerings. This infrastructure has been leveraged and
expanded to provide the aforementioned B-to-B e-commerce services on behalf of
third party clients. Beginning in 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (Note 11) to report its direct commerce
and B-to-B services as separate operating and reporting segments.
Basis of Presentation -- The Consolidated Financial Statements include all
subsidiaries of the Company, and all intercompany transactions and balances have
been eliminated. 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. Certain
prior year amounts have been reclassified to conform with the current year's
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 25, 1999, December 26, 1998 and
December 27, 1997 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 $0.6 million.
Cash and Cash Equivalents -- Cash includes cash equivalents consisting of
highly liquid investments with original maturities of ninety days or less.
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 establishes criteria distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. The
application of this statement resulted in the recognition of additional credit
card accounts receivable and an offsetting long-term debt obligation at December
26, 1998 of $19.0 million. 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.
During 1999, the Company finalized a new account purchase and credit card
marketing and services agreement. The new agreement, which provides for services
similar to those of the previous agreement, transfers the Company's receivables
to a new third party provider on terms that, in accordance with SFAS No. 125,
require the transfer to be accounted for as a sale. Accordingly, the Company's
December 25, 1999 consolidated balance sheet no longer reflects additional
credit card accounts receivable or a related long-term debt obligation (See Note
6- "Transfer of Credit Card Accounts Receivable").
Inventories -- Inventories consist principally of merchandise held for
resale and are stated at the lower of cost or market. Cost, which is determined
using the first-in, first-out (FIFO) method, includes the cost of the product as
well as freight-in charges. 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.
Prepaid Catalog Costs -- Prepaid catalog costs consist of direct response
advertising costs related to catalog production and mailing. In accordance with
SOP 93-7, "Reporting on Advertising Costs", these costs are deferred and
amortized as selling expenses over the estimated period in which the sales
related to such advertising are generated. Total catalog expense was $133.0
million, $145.0 million and $139.0 million, for fiscal year 1999, 1998 and 1997,
respectively.
Depreciation and Amortization -- Depreciation and amortization of property
and equipment is computed 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 estimated useful
lives or the terms of the related leases, whichever is shorter. Repairs and
maintenance are expensed 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 $4.5 million and $4.0 million at December 25, 1999
and December 26, 1998, respectively.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Impairment of Long-Lived Assets -- In accordance with SFAS No.
121,"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to
be Disposed Of," the Company reviews long-lived assets for impairment whenever
events indicate that the carrying amount of such assets may not be fully
recoverable. The Company performs undiscounted cash flow analyses to determine
if an impairment exists. If an impairment is determined to exist, an impairment
loss is then recorded by the Company.
Stock Based Compensation -- The Company accounts for its stock based
compensation to employees using the fair value-based methodology under SFAS No.
123, "Accounting for Stock-Based Compensation."
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.
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 for fiscal
1999, 1998 and 1997 was 210,718,546, 206,508,110 and 176,621,080 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
losses incurred during fiscal years 1999, 1998 and 1997.
Revenue Recognition --
-- Direct Commerce: The Company recognizes revenue, net of estimated
returns, upon shipment of merchandise to customers. Postage and handling charges
billed to customers are also recognized as revenue upon shipment of related
merchandise. The Company accrues for expected future returns at the time of sale
based upon historical trends.
-- Shopper's Edge Buyer's Club: See Note 3.
-- B-to-B Services: Revenues from the Company's Internet transaction
services are recognized as the related services are provided. Customers are
charged on an activity unit basis, which applies a contractually specified rate
according to the type of service transaction performed.
Fair Value of Financial Instruments -- The fair value of financial
instruments does not materially differ from their carrying values.
Recently Issued Accounting Standards -- In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which the Company is required to adopt at
the beginning of fiscal year 2001. SFAS No. 133 establishes new accounting and
reporting standards for derivative financial instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Company currently does not engage in derivative and hedging activities. The
effect, if any, on the financial statements has not yet been determined by the
Company.
2. INVESTMENTS
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 an apparel distribution center in Roanoke, VA. The remaining 50%
interest is held by an unrelated third party. This investment is accounted for
under the equity method of accounting. The Company's investment in Blue Ridge
was approximately $0.8 million and $0.9 million at December 25, 1999 and
December 26, 1998, respectively. In December 1996, the Company consolidated the
fulfillment and telemarketing activities handled at this facility into its home
fashions distribution facility in Roanoke, VA, and attempted to sublease the
vacated space. In April 1999, the Company sublet the vacated premises to an
unrelated third party for a five-year period expiring in April 2004. In February
2000, the Company sold its partnership interest in Blue Ridge Associates to the
holder of the other 50% for $0.8 million, which approximates the Company's
carrying value of the investment.
Always in Style, LLC. -- On August 6, 1999, the Company and AIS Marketing
Services, LLC ("AIS Marketing") entered into a joint venture whereby the Company
contributed $1.0 million and AIS Marketing contributed specialized software to
form Always in Style, LLC ("AIS"). The Company, which owns a two-thirds interest
in AIS, includes the operating results of AIS in its consolidated financial
statements. AIS develops and markets proprietary interactive fashion, beauty and
home decorating profiling software ("Profilers"). Based upon questionnaires
filled out by the customer, the Profilers provide the customer with personalized
fashion, beauty and home decorating analysis and advice, as well as specific
product recommendations. AIS was formally launched in November 1999.
Desius, LLC -- In 1999, the Company entered into a 60/40 joint venture with
RS Software (India) Ltd. to provide 24/7 Web shop services and e-commerce
software, systems and programing. Augmenting the Company's programming services,
the Desius teams based in Calcutta, India and the United States together can
provide round the clock service. The Calcutta based Desius team
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
also provides additional resources including creative marketing, Web site
creation, maintenance and management. Desius also serves as the outsourcing arm
for Keystone clients which lack resources in these areas. The Company includes
the operating results of Desius in its consolidated financial statements.
3. DIVESTITURES
During 1999, the Company sold the following businesses:
Austad's: In October 1999, the Company sold the remaining assets of its
non-core Austad's catalog, which featured golf equipment, apparel and gifts, for
$1.6 million. The assets disposed of primarily included inventory and intangible
assets, which were written off in 1996, such as customer lists and trademarks.
The combined book value of assets sold was approximately $0.6 million resulting
in a net pre-tax gain of $1.0 million.
The Shopper's Edge: In March 1999, the Company, through a newly formed
subsidiary, started up and promoted a discount buyers club to consumers known as
"The Shopper's Edge." In exchange for an up-front membership fee, The Shopper's
Edge program enables members to purchase a wide assortment of merchandise at
discounts which are not available through traditional retail channels.
Initially, prospective members participate in a 45-day trial period that, unless
canceled, is automatically converted into a full membership term which is one
year in duration. Memberships are automatically renewed at the end of each term
unless canceled by the member.
During 1999, primarily as a result of timing of revenue and expense
recognition, The Shopper's Edge subsidiary incurred losses of $4.3 million
reflecting both cash payments and outstanding liabilities to the Company of $3.3
million and $1.0 million, respectively. The Company's operating results reflect
$0.1 million of net losses after the elimination of these intercompany
transactions. The Company recorded membership fee revenue as well as an
allowance for estimated cancellations on a straight-line basis over the one-
year membership term, which commenced immediately following the expiration of
the initial 45-day trial period. Costs tied to acceptances such as commissions
paid to service providers as well as membership servicing and transaction
processing expenses were deferred and expensed as membership fee revenue was
recognized. All other costs, including membership kits and postage, were
expensed as incurred. Under the terms of the program, the Company was entitled
to periodic withdrawals of funds provided by up-front membership fees. These
withdrawals, however, were subject to contractual limitations as The Shopper's
Edge subsidiary was required to maintain adequate cash balances to fund
estimated membership reimbursements resulting from cancellations. Accordingly,
funds retained within The Shopper's Edge subsidiary were reported as "restricted
cash" in the Company's balance sheet during 1999. If membership reimbursements
due to cancellations exceeded the amount of funds retained by The Shopper's Edge
subsidiary, the Company was liable to cover the shortfall.
Effective December 1999, the Company sold its interest in The Shopper's
Edge subsidiary to an unrelated third party for a nominal fair value based upon
an independent appraisal. At the time of the sale, the liabilities of the
subsidiary exceeded the assets by $4.3 million resulting in a gain on sale to
the Company of $4.3 million. The gain represented the portion of deferred income
of The Shopper's Edge that the Company received in the form of withdrawals
discussed above which, in accordance with the Company's revenue recognition
policy for memberships, would not have been earned until the completion of the
membership term. The deferred income was recognized immediately upon the sale
and has been reflected as a gain on sale in the accompanying consolidated
statement of income (loss) for the year ended December 25, 1999. There are no
conditions to the obligations of the Company to refund any portion of the cash
withdrawals received prior to the sale. The Company entered into a solicitation
services agreement with the purchaser whereby the Company will provide
solicitation services for the program, and will receive commissions for member
acceptances based on a fixed fee per member basis, adjusted for cancellation
rates on a prospective basis. Membership revenue earned during the fiscal year
ended December 25, 1999 was $3.9 million, which is included in revenues in the
accompanying consolidated statement of income (loss). Had the new solicitation
services agreement been in place for fiscal 1999, net revenues on a pro-forma
basis would have increased by $1.4 million reflecting the inclusion of $5.3
million of fee revenue for solicitation services provided versus $3.9 million of
recorded membership fee revenue under the old agreement. Furthermore, on a
pro-forma basis, the Company's loss from operations would have decreased by $5.4
million to $(8.4) million.
4. SPECIAL CHARGES
In December 1996, the Company recorded special charges of approximately
$36.7 million, which consisted of severance, facility exit/relocation costs and
fixed asset write-offs related to the downsizing of the Company, and a write-off
for impairment of long-lived assets of certain under-performing catalogs. In
December 1997, the Company adjusted its previous cost estimates to downsize the
Company due to exit plan modifications related to its Weehawken, NJ corporate
facility and its Hanover, PA distribution center.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
These adjustments resulted in a reduction of special charges of approximately
$2.2 million, which related primarily to the reversal of the reserve for fixed
assets expected to be abandoned. In 1998, the Company adjusted further its
reserve for fixed asset write-offs by $0.5 million reflecting the Company's
decision to remain in its Hanover, PA distribution center. In 1999, the Company
recorded an additional $0.1 million of special charges related to a change in
estimate for losses on sublease arrangements for its Roanoke, VA apparel
distribution center and its San Francisco CA office facilities (see below).
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 $0.6 million and $2.7 million of severance during
fiscal 1998 and 1997, respectively. There were no recorded severance reserves in
the Company's consolidated balance sheets at December 25, 1999 and December 26,
1998.
Facility Exit/Relocation Costs and Fixed Asset Write-Offs -- These costs
are primarily related to the Company's decision to sublease a portion of its
Weehawken, NJ and San Francisco, CA office facilities, and to consolidate its
Roanoke, VA apparel distribution center and Hanover, PA distribution center into
its Roanoke home fashion distribution center. As of December 25, 1999, the
Company consolidated the Roanoke, VA apparel distribution center and relocated
all but one catalog from its Hanover, PA distribution center into its Roanoke,
VA home fashion distribution center. The remaining catalog will continue to be
serviced out of the Hanover, PA distribution center. In addition, the Company
has sublease agreements in place for both a portion of its Weehawken, NJ and San
Francisco, CA office facilities.
During 1999, the Company revised its estimates for losses on sublease
arrangements for its Roanoke, VA apparel distribution center and its San
Francisco, CA office facilities. The Company reduced its estimate for sublease
losses for the Roanoke, VA apparel distribution center by $0.5 million due to
the Company's release from any lease related obligations resulting from the sale
of its partnership interest in Blue Ridge Associates, a partnership which owned
the facility. This was more than offset by a higher estimate for sublease losses
related to the San Francisco, CA office facilities of $0.6 million due to higher
than anticipated rent escalations. Approximately $2.3 million of estimated
losses on sublease arrangements are recorded in accrued liabilities in the
Company's consolidated balance sheet at December 25, 1999.
5. WRITE-DOWN OF INVENTORY OF DISCONTINUED CATALOGS
In 1998, the Company decided to discontinue the traditional catalog
operations of the Tweeds, Austad's and Colonial Garden Kitchens catalog brands.
These "non-core" catalog brands were to be repositioned as primarily e-commerce
brands and, if unsuccessful, discontinued. Revenues from the aforementioned
non-core catalogs were $19.0 million, $48.7 million and $65.6 million for fiscal
1999, 1998 and 1997, respectively. The Company recorded provisions of
approximately $3.7 million related to the write-down of inventory associated
with these catalogs to net realizable value based on the planned liquidation of
such inventory and $2.2 million of additional charges relating to prepaid
catalog costs associated with the discontinuance of the catalog operations.
The Company utilizes various liquidation vehicles to dispose of aged
catalog inventory including special sales catalogs, sales sections in other
catalogs, and liquidations through off-price merchants. During 1999, the Company
was able to utilize special sales catalogs, which provide higher cost
recoveries, to dispose of its non-core catalog inventory to a larger extent than
anticipated at the end of 1998. Accordingly, $1.9 million of the 1998 charges
were reversed and included in the Company's 1999 results.
During 1999, the Company sold the remaining assets of its non-core Austad's
catalog for $1.6 million; fully discontinued its Tweeds catalog operation; and
repositioned and relaunched its Colonial Garden Kitchens catalog as
Domestications Kitchen & Garden.
6. TRANSFER OF CREDIT CARD ACCOUNTS RECEIVABLE
Through July 1999, the Company was a party to an agreement involving the
sale and servicing of accounts receivable originating from the Company's private
label credit card program. This agreement included full recourse provisions
obligating the Company to repurchase uncollectible receivables as well as a
requirement for the Company to maintain a deposit, based on a specified
percentage of outstanding receivables, to secure the Company's obligations under
the contract. Approximately $3.5 million was held as security by the unrelated
third party as of December 26, 1998. Due to the conditions imposed under the
agreement, the Company, in accordance with SFAS No. 125 ("Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"),
accounted for the transfer of its private label credit card receivables as a
secured borrowing. Accordingly, the Company recorded both a financing receivable
as well as a corresponding long-term obligation of $19.0 million in its December
26, 1998 consolidated balance sheet.
During July 1999, the Company finalized a new three-year credit card
marketing and servicing agreement with a new provider and terminated the
previously mentioned agreement. The new terms include provisions requiring the
Company to equally share credit losses over an agreed upon benchmark for the
first 18 months of the agreement, however, the Company is not obligated to
repurchase any uncollectible receivables. Upon the expiration of this period,
all credit card receivables transfers are non-recourse to the Company.
Furthermore, the Company is no longer required to maintain a deposit as security
for its performance under the terms of
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
the new agreement. Reflecting the change in terms included in the new agreement,
the Company, in accordance with SFAS No. 125, now accounts for the transfer of
its private label credit card receivables as a sale. Accordingly, the Company's
December 25, 1999 consolidated balance sheet no longer reflects a financing
receivable and a related long-term obligation. No gain or loss was recognized
upon the transition to the new program.
As of December 25, 1999, the Company maintained a shared credit risk
reserve of $0.6 million, which is recorded in accrued liabilities. As of
December 26, 1998, the Company maintained a reserve for repurchases of
uncollectible accounts of $2.0 million, $1.5 million of which was recorded in
accrued liabilities and $0.5 million was recorded in the allowance for doubtful
accounts.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 25, DEC. 26,
1999 1998
-------- --------
<S> <C> <C>
Restructuring............................................... $ 2,299 $ 3,286
Reserve for future sales returns............................ 4,680 4,778
Compensation................................................ 8,290 3,999
Taxes....................................................... 881 1,211
Reserve for repurchase of accounts receivable sold with
recourse.................................................. -- 1,491
Reserve for accounts receivable -- shared credit risk....... 612 --
Reserve for discontinued operations......................... 849 982
Other....................................................... 6,673 6,465
------- -------
Total............................................. $24,284 $22,212
======= =======
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DEC. 25, DEC. 26,
1999 1998
-------- --------
<S> <C> <C>
Congress Facility........................................... $17,735 $14,033
Term Financing Facility..................................... 16,000 17,000
Industrial Revenue Bonds due 2003........................... 8,000 8,000
7.5% Convertible Subordinate Debentures due 2007............ 751 751
Obligations under capital leases............................ 349 77
------- -------
42,835 39,861
Less: current portion....................................... 3,257 2,573
------- -------
Total............................................. $39,578 $37,288
======= =======
</TABLE>
Revolving Credit Facility -- On December 25, 1999, the Company's credit
facility (the "Congress Credit Facility") with Congress Financial Corporation
("Congress") was a $65.0 million revolving line of credit, of which $12.5
million was a term loan. Total borrowings under the Congress facility, however,
were subject to limitations based upon specified percentages of eligible
inventory and eligible accounts receivable. The revolving line of credit
facility bore interest at prime plus .25% or LIBOR plus 2.75%, the term loan
bore interest at prime plus .50% or LIBOR plus 2.75%. The use of a prime or
LIBOR based rate is determinable at the Company's discretion. Additionally, the
Congress facility, which is secured by all assets of the Company, contains
restrictive covenants including restrictions on indebtedness and common stock
dividends, and requires the maintenance of a $21.5 million net worth and a
$(10.0) million working capital (deficit) position. As of December 25, 1999, the
Company had an outstanding term loan of $12.5 million, bearing a weighted
average interest rate of 9.0%, and $5.2 million of outstanding borrowings under
the revolving line of credit, bearing an interest rate of 8.75%.
On March 24, 2000, the Congress Credit Facility was further amended to
provide for a maximum credit of up to $82.5 million, comprised of a revolving
line of credit facility (the "Revolving Line of Credit"), a letter of credit
facility with a sublimit of $40 million, and term loans with an initial
principal balance of $25.0 million. The maximum credit under the Revolving Line
of Credit is $82.5 million, less the amount of outstanding letters of credit,
less the principal balance of the term loans. The Company paid a $1.4 million
closing fee to Congress to secure the amendment of the Congress Credit Facility.
The $25.0 million initial principal term loan balance includes a $17.5 million
Tranche A Term Loan having an eighty-four month term, and a $7.5 million Tranche
B Term Loan having a thirty-six month term.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
The Congress Credit Facility, as amended, is secured by all assets of the
Company and places limitations on the incurrence additional indebtedness. The
amount that can be borrowed under the amended Congress Facility is based on
percentages of eligible inventory, eligible accounts receivable, eligible credit
card receivables and eligible fulfillment contract receivables as reported to
Congress from time to time. Effective March 24, 2000, the Congress Credit
Facility was extended to January 31, 2004.
The Revolving Loans will bear interest at prime plus .5% or Eurodollar plus
2.5%, the Tranche A Term Loans will bear interest at prime plus .75% or
Eurodollar plus 3.5%, and the Tranche B Term Loans will bear interest at prime
plus 4.25%, but in no event less than 13.0%. Under the amended Congress Credit
Facility, the Company will be required to maintain throughout the term of the
agreement minimum net worth between $30.0 million and $38.0 million and working
capital between $12.0 million and $20.0 million, determinable on a month to
month basis. The Company is also required to achieve Earnings/(Loss) Before
Interest, Taxes, Depreciation and Amortization ("EBITDA") between ($1.3) million
and $17.8 million, determinable on a quarterly basis.
Term Financing Facility -- During 1994 and 1995, the Company entered into a
term loan agreement with a syndicate of financial institutions, which provided
for borrowings of $20 million ("Term Financing Facility"). The Term Financing
Facility bears interest based on "A-1" commercial paper rates existing at the
time of each borrowing. As of December 25, 1999, the Company had $16.0 million
of outstanding borrowings under the Term Financing Facility bearing applicable
rates of interest ranging from 5.3% to 6.0%. The Company was required to make
annual principal payments of approximately $1.6 million under the Term Financing
Facility for each of the next ten years.
As of December 25, 1999, letters of credit, issued by UBS AG ("UBS") and
guaranteed by Richemont Finance S.A. ("Richemont"), supported both the Term
Financing Facility and the Industrial Revenue Bonds (see below). Originating in
December 1996 and renewed in 1998 and 1999, the arrangement relating to the
guarantee of the UBS letters of credit, which were scheduled to expire on March
31, 2000, required the Company to pay to Richemont an annual facility fee equal
to 9.5% of the $25.8 million principal amount, or $2.4 million. The principal
amount of the UBS letters of credit approximated the combined outstanding
borrowings under the Term Financing Facility and the Industrial Revenue Bonds at
the time of renewal.
The Company has not extended or renewed the UBS letters of credit
supporting the Term Financing Facility and the Industrial Revenue Bonds, and,
accordingly, the $16.0 million of outstanding borrowings under the Term
Financing Facility and the $8.0 million of outstanding borrowings under the
Industrial Revenue Bonds were required to be redeemed. On March 24, 2000, the
Trustees under the Term Financing Facility and the Industrial Revenue Bonds made
drawings under the UBS letters of credit, and used the proceeds of the drawings
to redeem the Term Financing Facility and the Industrial Revenue Bonds. The
Company borrowed approximately $24.0 million under the Congress Credit Facility
on March 24, 2000 to reimburse UBS for the drawings on these letters of credit.
As a result, both the Term Financing Facility and the Industrial Revenue Bonds
have been paid in full, and the Company has paid all amounts payable to UBS and
Richemont relating to the letters of credit.
Industrial Revenue Bonds due 2003 -- The Industrial Revenue Bonds ("IRB's")
of $8.0 million were due on December 1, 2003. The IRB's are secured by all
assets purchased with the proceeds thereof and, as of December 25, 1999, were
supported by an $8.0 million letter of credit issued by UBS and guaranteed by
Richemont. The Industrial Revenue Bonds were redeemed on March 24, 2000 (see
above).
Richemont Lines of Credit -- On March 24, 2000, the Company entered into a
new $10.0 million unsecured line of credit (the "Richemont $10.0 Million Line of
Credit") with Richemont. Borrowings under the Richemont $10.0 Million Line of
Credit bear interest at a rate of 0.125% per month (an annualized rate of 1.5%)
on the average monthly balance outstanding. In addition, the Company will pay
Richemont a monthly facility fee of approximately $0.1 million each month during
the term of the Richemont $10.0 million Line of Credit. The maximum amount
available to be drawn under the Richemont $10.0 million Line of Credit (the
"Maximum Amount") was initially $10.0 million and will be reduced on a
dollar-for-dollar basis for each dollar of equity contributed to the Company or
any of its subsidiaries after March 24, 2000 by Richemont or any subsidiary or
affiliate of Richemont. If the excess availability under the Congress Revolving
Line of Credit facility is less than $3.0 million, the Company will be required
to borrow under the Richemont $10.0 Million Line of Credit, and pay to Congress,
the amount such that the excess availability under the Congress Revolving Line
of Credit after such payment will be $3.0 million. The Company may also borrow
under the Richemont $10.0 Million Line of Credit up to $5.0 million to pay trade
creditors in the ordinary course of business. The Richemont $10.0 Million Line
of Credit will remain in place until the Congress facility is terminated or the
Maximum Credit is reduced to zero. As of March 24, 2000, there were no
borrowings outstanding under the Richemont $10.0 Million Line of Credit.
On March 1, 2000, the Company negotiated a new $25.0 million unsecured Line
of Credit (the "Richemont $25.0 Million Line of Credit") with Richemont.
Borrowings under the Richemont $25.0 Million Line of Credit bear interest at a
rate of 0.583% per month (an annualized rate of 7.0%) on the average monthly
balance outstanding. In addition, the Company will pay Richemont a monthly fee
of approximately $0.1 million each month from March 1, 2000 up to the Maturity
Date. The Richemont $25.0 Million Line of Credit will mature on the earlier of
December 30, 2000 or the date on which Richemont makes an equity infusion in the
Company or any of the Company's subsidiaries (such earlier date, the "Maturity
Date"). As of March 24, 2000, there were $5.0 million of borrowings outstanding
under the Richemont $25.0 Million Line of Credit.
28
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
General -- Aggregate annual principal payments required on debt
instruments, which reflect the effects of the March 2000 refinancing of the
Congress Credit Facility and the negotiated Richemont lines of credit, are as
follows (in thousands): 2000 -- $8,243; 2001 -- $3,763; 2002 -- $3,571;
2003 -- $7,054; 2004 -- $32,547; and thereafter -- $6,376.
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
Rights were exercisable at $.90 per share. 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 S.A. 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 Group Limited ("NAR"), a company
jointly owned by Richemont and the family of Alan G. Quasha, Chairman of the
Board of the Company, 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, 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
Intercontinental Mining & Resources Limited ("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").
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 with Congress.
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 were restricted and were
subsequently registered under the Securities Act of 1933, as amended, pursuant
to a registration rights agreement with SMALLCAP.
On July 31, 1998, Richemont acquired 5,646,490 additional shares of Common
Stock of the Company pursuant to the exercise of certain common stock purchase
warrants with exercise prices from $1.95 to $2.59 per share and an aggregate
total exercise price of $13.6 million. The Company used the proceeds of the
warrant exercise to reduce the amounts outstanding under the Congress Credit
Facility.
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 had a stated value of $10 per share. Non-cumulative
dividends were to accrue and be paid at 5% per annum during each of the first
three years after the February 1995 closing if Aegis attained at least $1.0
million in earnings before interest and taxes each year. In years four and five,
dividends, which became cumulative and were to accrue and be paid at 7% per
annum, were no longer contingent upon the achievement of any earnings target.
Dividends were not accrued or paid during the first three years after closing
based on The Safety Zone catalog's operating results for
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
each respective year. During the Company's 1999 and 1998 fiscal years, no
dividends were paid; however, the Company accrued $0.4 million during each year
in order to recognize its cumulative dividend payment obligations.
The Series B Stock was convertible at any time, at $6.66 per share, subject
to antidilution, at the option of the holder and was convertible at the
Company's option if the market value of the Company's Common Stock was 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 was
not converted, it was 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 was at least $6.33 per share, subject to antidilution. If the market
value of the Company's Common Stock did not meet this minimum, the redemption
rate was subject to adjustment which would increase the number of shares for
which the Series B Stock was redeemed.
The fair value of the Series B Stock, which was based on an independent
appraisal, was $0.9 million less than the stated value at February 1995. This
discount was amortized over a five year period and resulted in a charge of
approximately $0.2 million to preferred stock dividends in the consolidated
statements of income (loss) from fiscal years 1995 through 1999, respectively.
In February 2000, the Series B Stock was redeemed via the issuance of
2,193,317 shares of the Company's Common Stock. The increase in common shares
issued upon redemption reflected a market value for the Company's shares on the
date of redemption of $2.75 per share versus the $6.66 per share amount
specified on the closing date. The Company also made a $0.9 million payment for
all unpaid cumulative preferred dividends.
Weighted average common shares outstanding as of December 25, 1999 would
have been 212,911,863 versus a reported 210,718,546, assuming conversion of the
Series B Stock at the beginning of 1999. Reported quarterly and total year net
(loss) per common share amounts would not have been affected by the pro-forma
increase in weighted average common shares outstanding.
General -- At December 25, 1999, there were 210,866,959 shares of Common
Stock issued and outstanding. Additionally, an aggregate of 14,780,984 shares of
Common Stock were reserved for issuance pursuant to the exercise of outstanding
options.
Treasury stock consisted of 652,552 and 358,303 shares of common stock at
December 25, 1999 and December 26, 1998, respectively. In December 1999, the
Company retained 294,249 shares of outstanding common stock held in escrow on
behalf of certain participants of the Company's Executive Equity Incentive Plan
whose rights, under the terms of the plan, expired during 1999.
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. SEGMENT REPORTING
Effective June 26, 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The adoption of SFAS
No. 131 coincides with the Company's decision to realign its business structure
into two separate operating and reporting segments: direct commerce and
business-to-business ("B-to-B") services. This reflects the Company's strategic
initiative to reposition itself as both a specialty direct marketer and as a
provider of B-to-B e-commerce transaction services.
The direct commerce segment is comprised of the Company's portfolio of
branded specialty mail-order catalogs and connected Internet Web sites, as well
as its retail operations, all of which market products directly to the consumer.
Revenues are derived primarily from the sale of merchandise through the
Company's catalogs and related Internet product offerings and its retail
outlets. Other sources of revenue are derived from various upsell initiatives
and other catalog related revenue. The B-to-B services segment represents the
Company's e-commerce support and fulfillment operations as well as the Company's
corporate administration function. Revenues are derived primarily from
e-commerce transaction services, which include order processing, customer care,
and shipping and distribution services. The B-to-B services segment provides the
aforementioned services to the direct commerce segment pursuant to an
intercompany service agreement.
The Company's management reviews income (loss) from operations to evaluate
performance and allocate resources. As income taxes are centrally managed at the
corporate level, deferred tax assets are not allocated by segment. The
accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies.
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Reportable segment data were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
DIRECT B-TO-B ELIMINATIONS/
COMMERCE SERVICES OTHER CONSOLIDATED
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
RESULTS FOR THE FISCAL YEAR ENDED
DECEMBER 25, 1999:
Revenue From External Customers................ $534,978 $ 14,874 $ -- $549,852
Intersegment Revenues.......................... -- 102,923 (102,923) --
Income/(Loss) before Interest and Taxes........ 10,445 (18,881) (10) (8,446)
Interest Income/(Expense)...................... (1,971) (5,313) (54) (7,338)
-------- -------- --------- --------
Income/(Loss) before Income Taxes.............. $ 8,474 $(24,194) $ (64) $(15,784)
======== ======== ========= ========
RESULTS FOR THE FISCAL YEAR ENDED
DECEMBER 26, 1998:
Revenue From External Customers................ $543,994 $ 2,120 $ -- $546,114
Intersegment Revenues.......................... -- 105,344 (105,344) --
Income/(Loss) before Interest and Taxes........ (12,685) (3,721) (401) (16,807)
Interest Income/(Expense)...................... (2,576) (4,647) (555) (7,778)
-------- -------- --------- --------
Income/(Loss) before Income Taxes.............. $(15,261) $ (8,368) $ (956) $(24,585)
======== ======== ========= ========
RESULTS FOR THE FISCAL YEAR ENDED
DECEMBER 27, 1997:
Revenue From External Customers................ $557,638 $ -- $ -- $557,638
Intersegment Revenues.......................... -- 117,373 (117,373) --
Income/(Loss) before Interest and Taxes........ 90 (1,376) (563) (1,849)
Interest Income/(Expense)...................... (1,947) (6,271) 190 (8,028)
-------- -------- --------- --------
Income/(Loss) before Income Taxes.............. $ (1,857) $ (7,647) $ (373) $ (9,877)
======== ======== ========= ========
</TABLE>
Income/(loss) before interest and taxes for the direct commerce segment
included (income)/loss from the write-down of inventory of discontinued catalogs
of $(1.9) million and $3.7 million for years ended December 25, 1999 and
December 26, 1998, respectively. Fiscal year results for the direct commerce
segment also include $4.3 million and $1.0 million related to the gain on sale
of The Shopper's Edge and the gain on sale of the Company's non-core Austad's
catalog, respectively.
The aforementioned intercompany service agreement between the Company's two
operating segments was effective as of December 27, 1998. Had the provisions of
the intercompany service agreement been in effect in 1998, intersegment revenues
for the B-to-B services segment would have been approximately $107.1 million for
the year ended December 26, 1998. Income/(loss) before interest and taxes would
have been approximately $(14.5) million and $(1.9) million for the direct
commerce and B-to-B services segments, respectively, for the year ended December
26, 1998.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
DIRECT B-TO-B
COMMERCE SERVICES OTHER CONSOLIDATED
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED
DECEMBER 25, 1999:
Depreciation and amortization...................... $ 2,525 $ 6,791 $ 66 $ 9,382
Provision for doubtful accounts.................... 1,958 801 58 2,817
Stock compensation expense......................... 2,115 775 -- 2,890
Total assets....................................... $126,686 $47,451 $17,282 $191,419
Capital expenditures............................... 792 3,751 287 4,830
FOR THE FISCAL YEAR ENDED
DECEMBER 26, 1998:
Depreciation and amortization...................... $ 3,034 $ 6,444 $ -- $ 9,478
Provision for doubtful accounts.................... 3,228 50 -- 3,278
Stock compensation expense......................... 2,009 675 -- 2,684
Total assets....................................... $161,143 $42,118 $15,609 $218,870
Capital expenditures............................... 1,352 4,759 -- 6,111
FOR THE FISCAL YEAR ENDED
DECEMBER 27, 1997:
Depreciation and amortization...................... $ 2,606 $ 5,621 $ -- $ 8,227
Provision for doubtful accounts.................... 3,973 -- -- 3,973
Compensation expense related to stock options...... 1,362 438 -- 1,800
Total assets....................................... $159,821 $55,297 $15,181 $230,299
Capital expenditures............................... 1,074 3,148 -- 4,222
</TABLE>
12. STOCK BASED COMPENSATION PLANS
The Company has established several stock based compensation plans for the
benefit of its officers and employees. As discussed in the Summary of
Significant Accounting Policies (Note 1), the Company applies the fair
value-based methodology of SFAS No. 123 and, accordingly, has recorded stock
compensation expense of $2.9 million, $2.7 million and $1.8 million for fiscal
1999, 1998 and 1997, 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 Company's stock
compensation plans, including any changes during the years presented.
1978 Stock Option Plan -- Pursuant to the Company's 1978 Stock Option Plan,
an aggregate of 2,830,519 shares were approved for issuance to employees and
consultants of the Company. The option price and the period over which an option
is exercisable is determined 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:
1978 STOCK OPTION PLAN
<TABLE>
<CAPTION>
1999 1998 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.................... 30,000 $ 2.25 30,000 $2.25 70,000 $2.11
Granted..................................................... -- -- -- -- -- --
Exercised................................................... -- -- -- -- -- --
Forfeited................................................... (30,000) $ 2.25 -- -- (40,000) $2.00
Expired..................................................... -- -- -- -- -- --
------- ------ -------
Options outstanding, end of period.......................... -- $ -- 30,000 $2.25 30,000 $2.25
======= ====== ====== ===== ======= =====
Options exercisable, end of period.......................... -- $ -- 30,000 $2.25 20,000 $2.25
======= ====== ====== ===== ======= =====
</TABLE>
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
As of December 25, 1999, there were no stock options outstanding or
exercisable under the 1978 Stock Option Plan and the Company does not anticipate
any further issuances under this plan.
Director Options -- In June 1994, one director was granted non-qualified
stock options to purchase 50,000 common shares at an exercise price of $6.125
per share. These options, which remain outstanding and exercisable as of
December 25, 1999, are due to expire in March 2000.
In February 1996, four directors were granted options to purchase 5,000
shares each at an exercise price of $1.44. Of the 20,000 total options granted,
5,000 options were exercised and 5,000 were canceled leaving 10,000 options
outstanding and exercisable at December 25, 1999. The remaining options are due
to 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
were to 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
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. 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:
EXECUTIVE EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
1999 1998 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................ 1,102,496 1,104,496 1,062,496
Shares purchased....................................... -- -- 47,000
Shares forfeited....................................... (294,249) (2,000) (5,000)
--------- --------- ---------
Shares outstanding, end of period...................... 808,247 1,102,496 1,104,496
========= ========= =========
Options outstanding, beginning of period............... 614,000 $1.44 664,000 $1.53 640,498 $1.73
Granted................................................ -- -- -- -- 94,000 $1.00
Exercised.............................................. (60,000) $2.67 -- -- -- --
Forfeited.............................................. (100,000) $2.11 (50,000) $2.50 (70,498) $2.60
--------- --------- ---------
Options outstanding, end of period..................... 454,000 $1.13 614,000 $1.44 664,000 $1.53
========= ===== ========= ===== ========= =====
Options exercisable, end of period..................... 454,000 $1.13 170,000 $2.65 130,000 $2.58
========= ===== ========= ===== ========= =====
</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: risk free interest rate of 6.37%, expected lives
of 6 years, expected volatility of 40.81%, and no expected dividends.
The following table summarizes information about stock options outstanding
under the Incentive Plan at December 25, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/25/99 LIFE PRICE 12/25/99 PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .69 to $1.00.................................. 414,000 2.8 $0.97 414,000 0.97
$2.75........................................... 40,000 1.6 $2.75 40,000 2.75
------- -------
Total................................. 454,000 2.7 $1.13 454,000 1.13
======= === ===== ======= ====
</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.
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 $0.69 to $4.94, with the Company
accepting notes bearing interest at rates ranging from 5.00% to 7.75%.
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Changes to the notes receivable principal balances related to the Incentive
Plan are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Notes receivable balance, beginning of period............. $1,690,500 $1,721,500 $1,742,000
Additions................................................. -- -- 32,000
Payments.................................................. (262,000) (31,000) (40,000)
Tandem Share Forfeitures.................................. (773,000) -- (12,500)
---------- ---------- ----------
Notes receivable, end of period........................... $ 655,500 $1,690,500 $1,721,500
========== ========== ==========
</TABLE>
In December 1999, the rights of certain participants in the Incentive Plan
expired. These participants had cumulative promissory notes of approximately
$1.0 million payable to the Company, comprised of $0.8 million of principal and
$0.2 million of interest, on the expiration date. Accordingly, collateral
encompassing 294,249 shares of the Company's common stock, held in escrow on
behalf of each participant, was transferred to and retained by the Company in
satisfaction of the aforementioned promissory notes, which were no longer
required to be settled. The Company recorded these shares as treasury stock.
Furthermore, these participants forfeited their initial 20% cash down payment,
which was required for entry into the Incentive Plan. The Incentive Plan has
been terminated.
All Employee Equity Investment Plan -- In December 1992, the Board of
Directors adopted the 1993 All Employee Equity Investment Plan, which 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 this 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 termination, any unvested shares were
forfeited.
Changes in shares outstanding expressed in numbers of shares for the
Investment Plan were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shares outstanding, beginning of period..................... 472,339 482,771 521,032
Shares purchased............................................ -- -- --
Shares forfeited............................................ (270) (10,432) (38,261)
------- ------- -------
Shares outstanding, end of period........................... 472,069 472,339 482,771
======= ======= =======
</TABLE>
1996 Stock Option Plan -- Pursuant to the Company's 1996 Stock Option Plan,
an aggregate of 7,000,000 shares of the Company's Common Stock were approved for
issuance to employees of the Company. The option exercise price is 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 is 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.
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Changes in options outstanding, granted and the weighted average exercise
prices are as follows:
1996 STOCK OPTION PLAN
<TABLE>
<CAPTION>
1999 1998 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.................................. 5,301,400 $1.66 4,451,249 $1.10 3,445,000 $0.98
Granted................................... 2,010,000 2.53 1,550,000 3.07 1,765,000 1.29
Exercised................................. (693,821) 1.01 (363,949) 1.01 -- --
Forfeited................................. (689,595) 1.95 (335,900) 1.52 (758,751) 1.01
Expired................................... -- -- -- -- -- --
---------- ---------- ----------
Options outstanding, end of period........ 5,927,984 $1.99 5,301,400 $1.66 4,451,249 $1.10
========== ===== ========== ===== ========== =====
Options exercisable, end of period........ 2,620,344 $1.41 1,749,232 $1.07 855,443 $0.98
========== ===== ========== ===== ========== =====
Weighted average fair value of options
granted................................. $ 1.21 $ 1.50 $ 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 fiscal 1999, 1998 and 1997: risk free interest rate of
5.83%, 5.64% and 6.21%, respectively, expected lives of 4 years and expected
volatility of 53.81%, 55.82% and 59.40%, respectively, and no expected
dividends. The following table summarizes information about stock options
outstanding at December 25, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/25/99 LIFE PRICE 12/25/99 PRICE
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .69 to $1.00................................. 1,781,809 3.9 $0.96 1,584,680 $0.97
$1.43 to $1.75................................. 1,011,165 4.6 $1.46 655,385 $1.46
$2.38 to $2.94................................. 1,860,010 6.5 $2.46 80,176 $2.72
$3.00 to $3.50................................. 1,275,000 5.5 $3.17 300,103 $3.23
--------- ---------
5,927,984 5.2 $1.99 2,620,344 $1.41
========= === ===== ========= =====
</TABLE>
The Chief Executive Officer (the "CEO") Stock Option Plans -- The
information below details each of the stock-based plans granted in 1996 for the
benefit of the CEO. In each of the plans: (1) the option price represents the
average of the low and high fair market values of the Common Stock on August 23,
1996, the date of the closing of the 1996 Rights Offering, (2) the options
outstanding at December 25, 1999 have an exercise price of $1.16, and (3)
payment for shares purchased upon the exercise of the option shall be in cash or
stock of the Company.
The details of the plans are as follows:
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 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. The options outstanding at December 25, 1999 have a
weighted average contractual life of 6.25 years.
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 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. The options expire 10 years from the date of grant and vest
over four years. Payment for shares purchased upon the exercise of the options
shall be in cash or stock of the Company. The options outstanding at December
25, 1999 have a weighted average contractual life of 6 years.
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 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. In May 1998, the
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Compensation Committee of the Board of Directors reduced the target per share
market price at which the Company's Common Stock had to trade in consideration
of the dilutive effect of the increase in outstanding shares from the date of
the grant. The performance period has a range of 6 years beginning August 23,
1996, the date of the closing of the 1996 Rights Offering. The options
outstanding at December 25, 1999 have a weighted average contractual life of
6.25 years.
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 is subject to
antidilution provisions and due to the Company's 1996 Rights Offering was
adjusted to 377,500 option shares. The options expire 6 years from the date of
grant and vest after one year. The options outstanding at December 25, 1999 have
a weighted average contractual life of 2.25 years.
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 is
subject to antidilution provisions and due to the Company's 1996 Rights Offering
was adjusted to 377,500 option shares. The options expire 7 years from the date
of grant and vest after two years. The options outstanding at December 25, 1999
have a weighted average contractual life of 3.25 years.
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 is
subject to antidilution provisions and due to the Company's 1996 Rights Offering
was adjusted to 377,500 option shares. The options expire 8 years from the date
of grant and vest after three years. The options outstanding at December 25,
1999 have a weighted average contractual life of 4.25 years.
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 was
subject to antidilution provisions and due to the Company's 1996 Rights Offering
was adjusted to 377,500 option shares. The options expire 9 years from the date
of grant and vest after four years. The options outstanding at December 25, 1999
have a weighted average contractual life of 5.25 years.
For the combined CEO plans, options outstanding, granted and the weighted
average exercise prices are as follows:
CEO STOCK OPTION PLANS
<TABLE>
<CAPTION>
1999 1998 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............................. 7,530,000 $1.16 7,530,000 $1.16 7,530,000 $1.16
Granted.............................. -- -- -- -- -- --
Exercised............................ -- -- -- -- -- --
Forfeited............................ -- -- -- -- -- --
Expired.............................. -- -- -- -- -- --
--------- --------- ---------
Options outstanding, end of period... 7,530,000 $1.16 7,530,000 $1.16 7,530,000 $1.16
========= ===== ========= ===== ========= =====
Options exercisable, end of period... 4,147,500 $1.16 2,765,000 $1.16 1,382,500 $1.16
========= ===== ========= ===== ========= =====
</TABLE>
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
The fair value of the options granted in 1996 for each of the CEO Stock
Option Plans was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
RISK-FREE EXPECTED
INTEREST EXPECTED DIVIDEND LIFE
RATE VOLATILITY YIELD (YEARS)
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
CEO Tandem Plan............................................. 6.79% 45.02% 0.00% 9.85
CEO Performance Plan........................................ 6.79% 45.02% 0.00% 9.85
CEO Closing Price Plan (1).................................. 6.79% 45.02% 0.00% 9.85
CEO Six Year Plan........................................... 6.42% 45.02% 0.00% 5.85
CEO Seven Year Plan......................................... 6.53% 45.02% 0.00% 6.85
CEO Eight Year Plan......................................... 6.62% 45.02% 0.00% 7.85
CEO Nine Year Plan.......................................... 6.73% 45.02% 0.00% 8.85
</TABLE>
- ---------------
(1)The CEO Closing Price Option Plan used the Black-Scholes option-pricing model
in conjunction with a Monte Carlo simulation.
The following table summarizes information about stock options outstanding
at December 25, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/25/99 LIFE PRICE 12/25/99 PRICE
- ----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.16 7,530,000 5.7 $1.16 4,147,500 $1.16
</TABLE>
OTHER STOCK AWARDS
During 1997, the Company granted, and the Compensation Committee approved,
non-qualified 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 3.2 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. As of December 25, 1999, there were 809,000
options outstanding and 475,664 options exercisable.
13. EMPLOYEE BENEFIT PLANS
The Company maintains several defined contribution (401K) plans that
collectively cover all employees of the Company and provide employees with the
option of investing in the Company's stock. The Company matches a percentage of
employee contributions to the plans up to $10,000. Matching contributions for
all plans were $0.6 million, $0.6 million and $0.7 million for fiscal 1999, 1998
and 1997, respectively.
14. INCOME TAXES
At December 25, 1999, the Company had net operating loss carryforwards
("NOLs") totalling $306.7 million which expire as follows: In the year
2001 -- $18.1 million, 2003 -- $14.6 million, 2004 -- $14.3 million,
2005 -- $20.6 million, 2006 - $46.9 million, 2007 -- $27.7 million,
2010 -- $24.6 million, 2011 -- $64.9 million 2012 -- $30.0 million,
2018 -- $24.4 million and 2019 -- $20.6 million. The Company also has $0.8
million of general business tax credit carryforwards that expire in 2000 through
2009. The Company's available NOLs for tax purposes consist of $92.2 million of
NOLs subject to a $4.0 million annual limitation under Section 382 of the
Internal Revenue Code of 1986 and $214.5 million of NOLs not subject to a
limitation. The unused portion of the $4.0 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, "Accounting for Income Taxes," 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 $20.6 million in 1999, management believes that the
Company will be able to utilize up to $15.0 million of NOLs based upon the
Company's assessment of numerous factors, including its future operating plans.
For the years ended December 25, 1999 and December 26, 1998, the Company
maintained its deferred tax asset of $15.0 million (net of a valuation allowance
of $97.5 million in 1999 and $94.7 million in 1998). Management believes that
the $15.0 million net deferred tax asset still represents a reasonable 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.
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Realization of the future tax benefits is dependent on the Company's
ability to generate taxable income within the carryforward period and the
periods in which net temporary differences reverse. Future levels of operating
income and taxable income are dependent upon general economic conditions,
competitive pressures on sales and margins, postal and other delivery rates, and
other factors beyond the Company's control. Accordingly, no assurance can be
given that sufficient taxable income will be generated for utilization of NOLs
and reversals of temporary differences.
The Company's Federal income tax provision was zero for fiscal 1999, 1998
and 1997. The Company's provision for state income taxes was $0.5 million in
1999, $1.0 million in 1998 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 25, 1999, December 26, 1998 and
December 27, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(Loss) before income taxes.................................. $(15,784) $(24,585) $ (9,877)
Differences between income before taxes for financial
statement purposes and taxable income:
State income taxes.......................................... (530) (1,000) (999)
Permanent differences....................................... 1,681 376 413
Net change in temporary differences......................... (5,986) 839 (19,543)
-------- -------- --------
Taxable (loss)......................................... $(20,619) $(24,370) $(30,006)
======== ======== ========
</TABLE>
The components of the net deferred tax asset at December 25, 1999 are as
follows (in millions):
<TABLE>
<CAPTION>
NON-
CURRENT CURRENT TOTAL
------- ------- -----
<S> <C> <C> <C>
Federal tax NOL and business tax credit carry forwards...... $ -- $107.4 $107.4
Allowance for doubtful accounts............................. 1.4 -- 1.4
Inventories................................................. 0.2 -- 0.2
Prepaid catalog costs....................................... (2.3) -- (2.3)
Property and equipment...................................... -- 2.3 2.3
Excess of net assets of acquired business................... -- (2.2) (2.2)
Mailing lists............................................... -- 1.0 1.0
Accrued liabilities......................................... 2.2 -- 2.2
Customer prepayments and credits............................ 1.2 -- 1.2
Deferred credits............................................ -- 0.7 0.7
Tax basis in net assets of discontinued operations in excess
of financial statement amount............................. 0.5 -- 0.5
Other....................................................... 2.4 (2.3) 0.1
----- ------ ------
Deferred tax asset.......................................... 5.6 106.9 112.5
Valuation allowance......................................... 2.3 95.2 97.5
----- ------ ------
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 the NOLs. The Company believes however, that IRS challenges that
would limit the utilization of the NOLs will not have a material adverse effect
on the Company's financial position.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
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>
1999 1998 1997
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
LOSS LOSS LOSS
---------- ---------- ----------
<S> <C> <C> <C>
Tax (benefit) at Federal statutory rate..................... (35.0)% (35.0)% (35.0)%
State and local taxes....................................... 2.2 2.6 6.6
Net increase in (reversal of) temporary differences
Depreciation and amortization............................. 9.7 3.1 (10.3)
Deferred compensation..................................... 11.4 0.9 7.3
Restructuring reserves.................................... (3.4) (7.8) (44.8)
Customer allowance and return reserves.................... (5.4) (0.5) (9.4)
Inventory................................................. (9.5) 4.8 (11.5)
Prepaid catalog costs..................................... (3.9) 2.0 7.6
Allowance for doubtful accounts........................... 1.6 (1.2) (9.4)
Gain on asset disposal.................................... (11.5) -- --
Other..................................................... (2.3) (0.1) 1.2
Tax NOLs for which no benefit could be recognized......... 45.7 34.7 106.4
Permanent differences..................................... 3.7 0.5 1.5
----- ----- -----
3.3% 4.0% 10.2%
===== ===== =====
</TABLE>
15. 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Minimum rentals............................................. $10,168 $9,297 $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 25, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING LEASES LEASES
- ----------- --------- -------
<S> <C> <C>
2000........................................................ $10,766 $157
2001........................................................ 8,798 169
2002........................................................ 7,379 67
2003........................................................ 5,379 --
2004........................................................ 4,946 --
Thereafter.................................................. 12,270 --
------- ----
Total minimum lease payments...................... $49,538 393
=======
Less amount representing interest (a)....................... (44)
----
Present value of minimum lease payments (b)................. $349
====
</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 $157 and $192 at December 25, 1999 and $73 and $4 at December
26, 1998, respectively.
The future minimum lease payments under noncancelable leases that remain
from the discontinued restaurant operations as of December 25, 1999 are as
follows: 2000 -- $0.8 million; 2001 -- $0.7 million; 2002 -- $0.5 million;
2003 -- $0.4 million; 2004 -- $0.4; million and thereafter $0.3 million. The
above amounts exclude annual sublease income from subleases which have the same
expiration as the underlying leases as follows: 2000 -- $0.6 million;
2001 -- $0.6 million; 2002 -- $0.4 million; 2003 -- $0.3 million; 2004 -- $0.3;
and thereafter $0.2 million.
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
16. CHANGES IN MANAGEMENT AND EMPLOYMENT AGREEMENTS
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 Common Stock (the "Tandem Plan"); 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, subsequently amended to $4.50 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 former largest 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 1933, 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.
17. RELATED PARTY TRANSACTIONS
At December 25, 1999, current and former officers and executives of the
Company, excluding Rakesh K. Kaul, owed the Company approximately $0.7 million,
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 2000 to 2002. An additional $1.0 million, excluding accrued
interest, relates to a receivable under the CEO Incentive ("Tandem") Plan for
Rakesh K. Kaul and is included in Notes Receivable from Sale of Common Stock in
the accompanying consolidated balance sheet.
Richemont Finance S.A.("Richemont"), a Luxemburg company, owns
approximately 48.2% of the Company's common stock through direct ownership.
Richemont also holds an irrevocable proxy to vote approximately 4.3 million
shares currently held by the third party. Accordingly, Richemont has voting
control of approximately 50.2% of the Company.
18. COMMITMENTS AND CONTINGENCIES
A class action lawsuit was commenced on March 3, 2000 entitled Edwin L.
Martin v. Hanover Direct, Inc. and John Does 1 through 10, bearing case no.
CJ2000-177 in the State Court of Oklahoma (District Court in and for Sequoyah
County). Plaintiff commenced the action on behalf of himself and a class of
persons who have at any time purchased a product from the Company and paid for
an "insurance charge." The complaint sets forth claims for breach of contract,
unjust enrichment, recovery of money paid absent consideration, fraud and a
claim under the New Jersey Consumer Fraud Act. The complaint alleges that the
Company charges its customers for delivery insurance even though, among other
things, the Company's common carriers already provide insurance and the
insurance charge provides no benefit to the Company's customers. Plaintiff also
seeks a declaratory judgment as to the validity of the delivery insurance. The
damages sought are (i) an order directing the Company to return to plaintiff and
class members the "unlawful revenue" derived from the insurance charges, (ii)
declaring the rights of the parties, (iii) permanently enjoining the
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
Company from imposing the insurance charge, (iv) awarding threefold damages of
less than $75,000 per plaintiff and per class member, and (v) attorney's fees
and costs. The Company has not yet been required to file an answer to the
complaint.
At the end of January, 2000, the Company received a letter from the Federal
Trade Commission ("FTC") conducting an inquiry into the marketing of The
Shopper's Edge club to determine whether, in connection with such marketing, any
entities have engaged in (1) unfair or deceptive acts or practices in violation
of Section 5 of the FTC Act and/or (2) deceptive or abusive telemarketing acts
or practices in violation of the FTC's Telemarketing Sales Rule. The inquiry was
undertaken pursuant to the provisions of Section 6, 9, and 10 of the FTC Act.
Following such an investigation, the FTC may initiate an enforcement action if
it finds "reason to believe" that the law is being violated. When there is
"reason to believe" that a law violation has occurred, the FTC may issue a
complaint setting forth its charges. If the respondent elects to settle charges,
it may sign a consent agreement (without admitting liability) by which it
consents to entry of a final order and waives all right to judicial review. If
the FTC accepts such a proposed consent, it places the order on the record for
sixty days of public comment before determining whether to make the order final.
The Company believes that it complied with all enumerated aspects of the
investigation. It has not received notice of an enforcement action or a
complaint against it.
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 several sublease agreements related to the Company's
discontinued restaurant operations, the Company remains contingently liable for
all lease related obligations should the sublessees fail to comply with all
conditions of their sublease agreements.
19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999
Net Revenues............................................... $127,714 $131,237 $121,656 $169,245
(Loss) Before Interest and Taxes........................... (2,884) (3,260) (800) (1,502)
Net (loss)................................................. (4,224) (5,794) (2,688) (3,608)
Preferred stock dividends.................................. (159) (158) (159) (158)
Net (loss) applicable to common shareholders............... $ (4,383) $ (5,952) $ (2,847) $ (3,766)
======== ======== ======== ========
Net (loss) per share -basic and diluted.................... $ (.02) $ (.03) $ (.01) $ (.02)
======== ======== ======== ========
1998
Net Revenues............................................... $124,535 $134,562 $123,417 $163,600
(Loss) Before Interest and Taxes........................... (2,964) (2,367) (763) (10,713)
Net (loss)................................................. (4,649) (4,859) (2,836) (13,241)
Preferred stock dividends.................................. (122) (158) (158) (140)
Net (loss) applicable to common shareholders............... $ (4,771) $ (5,017) $ (2,994) $(13,381)
======== ======== ======== ========
Net (loss) per share -basic and diluted.................... $ (.02) $ (.02) $ (.01) $ (.06)
======== ======== ======== ========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
41
<PAGE> 44
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>
OFFICE HELD
NAME AGE TITLE AND OTHER INFORMATION(A) SINCE
- ---- --- ------------------------------ -----------
<S> <C> <C> <C>
Rakesh K. Kaul 48 President, Chief Executive Officer and Director since March 1996
7, 1996. From 1995 until February 1996, Mr. Kaul served as
the Vice Chairman and Chief Operating Officer of Fingerhut
Companies, Inc. From January 1992 until March 1995, Mr. Kaul
was the Executive Vice President and Chief Administrative
Officer of Fingerhut. Prior to January 1992, Mr. Kaul served
as the Senior Vice President, Strategy and Finance and a
director at Shaklee Corporation.
Michael Lutz 57 Executive Vice President-Chief Operating Officer since March 1998
1998. From September 1994 to March 1998, Mr. Lutz was
Executive Vice President -- Operations of the Company. Prior
to September 1994, Mr. Lutz held various positions with New
Hampton, Inc./Avon Direct Response.
Brian C. Harriss 51 Senior Vice President and Chief Financial Officer since June 1999
1999. From 1998 to 1999, Mr. Harriss was a Managing Director
of Dailey Capital Management, L.P., a venture capital fund,
and Chief Operating Officer of E-Bidding Inc., an internet
e-commerce freight Website. From 1997 to 1998, Mr. Harriss
served as the Vice President of Corporate Development at The
Reader's Digest Association, Inc. From 1994 to 1996, Mr.
Harriss was the Chief Financial Officer of The Thompson
Minwax Company. Prior thereto, Mr. Harriss held various
financial positions with Cadbury Schweppes PLC, Tambrands,
Inc. and Pepsico, Inc.
Richard B. Hoffmann 53 President and Chief Operating Officer of Hanover Brands 1999
since August 1999 and Senior Vice President and Chief
Marketing Officer of the Company since March 1998. Prior to
March 1998, Mr. Hoffmann was engaged in private marketing
consulting from March 1997. Mr. Hoffmann was President and
Chief Operating Officer of Jayhawk Acceptance Corporation
from February 1996 to March 1997. Prior to February 1996,
Mr. Hoffmann was a Senior Vice President at Fingerhut
Companies, Inc.
Michael D. Contino 39 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 50 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.
Curt B. Johnson 44 Senior Vice President and General Counsel since December 1999
1999 and Secretary since March 2000. From 1998 to 1999, Mr.
Johnson was the General Counsel of PharMerica, Inc., a
Tampa-based institutional pharmacy company. From 1995 to
1998, Mr. Johnson was the General Counsel of Counsel Corp.,
a Toronto-based venture capital company. For ten years prior
thereto, he held various legal positions with American
Express, including head of the Technology Law Group.
William C. Kingsford 53 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.
42
<PAGE> 45
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> 46
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.
----
<C> <S> <C>
1. Index to Financial Statements
Report of Independent Public Accountants -- Hanover Direct,
Inc. and Subsidiaries Financial Statements.................. 18
Consolidated Balance Sheets as of December 25, 1999 and
December 26, 1998........................................... 19
Consolidated Statements of Income (Loss) for the years ended
December 25, 1999, December 26, 1998 and December 27,
1997........................................................ 20
Consolidated Statements of Cash Flows for the years ended
December 25, 1999, December 26, 1998 and December 27,
1997........................................................ 21
Consolidated Statements of Shareholders' Equity for the
years ended December 27, 1997, December 26, 1998 and
December 25, 1999........................................... 22
Notes to Consolidated Financial Statements for the years
ended December 25, 1999, December 26, 1998 and December 27,
1997........................................................ 23
Supplementary Data:
Selected quarterly financial information (unaudited) for the
two fiscal years ended December 25, 1999 and December 25,
1998........................................................ 41
2. Index to Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts for the
years ended December 25, 1999, December 26, 1998 and
December 27, 1997........................................... 52
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.
</TABLE>
(b) Reports on Form 8-K: None.
(c) Exhibits required by Item 601 of Regulation S-K:
See Exhibit Index.
(d) Financial Statement Schedules:
See (a) 2. above.
44
<PAGE> 47
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.
Date: March 23, 2000 HANOVER DIRECT, INC.
(registrant)
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:
<TABLE>
<S> <C>
/s/ BRIAN C. HARRISS
------------------------------------------------------
Brian C. Harriss
Senior Vice President and
Chief Financial Officer
</TABLE>
Board of Directors:
<TABLE>
<S> <C>
/s/ RALPH DESTINO /s/ SHAILESH J. MEHTA
-------------------------------------------------------- ------------------------------------------------------
Ralph Destino, Director Shailesh J. Mehta, Director
/s/ J. DAVID HAKMAN /s/ JAN P. DU PLESSIS
-------------------------------------------------------- ------------------------------------------------------
J. David Hakman, Director Jan P. du Plessis, Director
/s/ RAKESH K. KAUL
-------------------------------------------------------- ------------------------------------------------------
Rakesh K. Kaul, Director Alan G. Quasha, Director
/s/ JUNE R. KLEIN /s/ BASIL P. REGAN
-------------------------------------------------------- ------------------------------------------------------
June R. Klein, Director Basil P. Regan, Director
/s/ THEODORE H. KRUTTSCHNITT
-------------------------------------------------------- ------------------------------------------------------
Theodore H. Kruttschnitt, Director Howard M.S. Tanner, Director
/s/ KENNETH KRUSHEL /s/ ROBERT F. WRIGHT
-------------------------------------------------------- ------------------------------------------------------
Kenneth Krushel, Director Robert F. Wright, Director
</TABLE>
Date: March 23, 2000
45
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF PAGE
REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION BY REFERENCE WHERE APPLICABLE NO.
- -------------- ----------------------------------------------------------------------- ----
<C> <S> <C>
2.1 Asset Purchase Agreement dated as of December 1, 1994 among the
Company, LWI Holdings, Inc., Bankers Trust Company, Leichtung, Inc. and
DRI Industries, Inc. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
2.2 Stock Purchase Agreement dated as of February 16, 1995 among the
Company, Hanover Holdings, Inc., Aegis Safety Holdings, Inc., F.L.
Holdings, Inc., Roland A.E. Franklin, Martin E. Franklin, Jonathan
Franklin, Floyd Hall, Frederick Field, Homer G. Williams, Frank
Martucci, Norm Thompson Outfitters, Inc. and Capital Consultants, Inc.
(as agent) (collectively, the "Aegis Sellers"). Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
2.3 Stock Purchase Agreement dated as of May 19, 1995 by and among the
Company, Austad Holdings, Inc. ("AHI"), The Austad Company ("TAC"),
David B. Austad ("DBA"), Denise Austad ("DA"), David Austad, as
custodian ("DBAC"), Oscar Austad, Dorothy Austad, Randall Austad,
Kristi Austad, Lori Miller, Robin Miller, Kerri Derenge, Sharon Stahl,
Lori Miller, as custodian, Dorothy Austad, as attorney-in-fact, and
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.
2.5 Asset Sale Agreement, dated as of August 19, 1999, and First Amendment
dated October 5, 1999 between the Company, AHI and TAC and Euclid
Logistics, Inc. FILED HEREWITH.
2.6 Intentionally Omitted.
2.7 The Shopper's Edge, LLC Purchase Agreement, dated as of December 25,
1999, between Hanover Brands, Inc. and Far Services, LLC. FILED
HEREWITH.
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. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
3.3 Certificate of Amendment to Certificate of Incorporation dated May 28,
1999. FILED HEREWITH.
3.4 Certificate of Correction Filed to Correct a Certain Error in the
Restated Certificate of Incorporation dated August 26, 1999. FILED
HEREWITH.
3.5 By-laws. Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 27, 1997.
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. FILED HEREWITH.
4.2 Registration Rights Agreement dated as of July 8, 1991 among the
Company*, NAR and Intercontinental Mining & Resources Limited ("IMR").
FILED HEREWITH.
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. FILED HEREWITH
4.6 Warrant Agreement dated as of October 25, 1991 between the Company and
NAR for 931,791 shares of Common Stock. FILED HEREWITH
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.
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF PAGE
REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION BY REFERENCE WHERE APPLICABLE NO.
- -------------- ----------------------------------------------------------------------- ----
<C> <S> <C>
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. 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. FILED HEREWITH.
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. 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. FILED HEREWITH.
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. FILED HEREWITH.
10.13 Restricted Stock Award Plan. FILED HEREWITH.
10.14 All Employee Equity Investment Plan. FILED HEREWITH.
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. FILED HEREWITH.
10.17 1996 Stock Option Plan, as amended. Incorporated by reference to the
Company's 1997 Proxy Statement.
10.18 Stock Option Agreement dated as of February 9, 1996 between the Company
and Ralph Destino. FILED HEREWITH.
10.19 Stock Option Agreement dated as of February 9, 1996 between the Company
and Elizabeth Valk Long. FILED HEREWITH.
10.20 Stock Option Agreement dated as of February 9, 1996 between the Company
and Robert F. Wright. FILED HEREWITH.
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF PAGE
REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION BY REFERENCE WHERE APPLICABLE NO.
- -------------- ----------------------------------------------------------------------- ----
<C> <S> <C>
10.21 1999 Stock Option Plan for Directors. FILED HEREWITH.
10.22 Intentionally omitted.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 26, 1998.
10.32 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.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 26, 1998.
10.33 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
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 26, 1998.
10.34 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.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 26, 1998.
10.35 Twelfth Amendment to Loan and Security Agreement dated as of September
30, 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.
10.36 Thirteenth Amendment to Loan and Security Agreement dated as of
September 30, 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.
</TABLE>
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10.37 Fourteenth Amendment to Loan and Security Agreement dated as of
February 28, 2000 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.
10.38 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.
10.39 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.
10.40 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.
10.41 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.
10.42 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.
10.43 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.
10.44 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.
10.45 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.
10.46 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.
10.47 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.
10.48 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.
10.49 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.
10.50 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. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
10.51 Amendment dated as of March 26, 1999, to Letter of Credit. FILED
HEREWITH.
10.52 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.
10.53 First Amendment, dated as of February 18, 1998, to Reimbursement
Agreement, 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 26, 1998.
10.54 Second Amendment, dated as of March 26, 1999, to Reimbursement
Agreement between the Company and UBS AG. FILED HEREWITH.
10.55 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.
10.56 First Amendment, dated as of February 18, 1998, to Indemnity Agreement
between the Company and Richemont. FILED HEREWITH.
10.57 Second Amendment, dated as of March 26, 1999, to Indemnity Agreement
between the Company and Richemont. FILED HEREWITH.
10.58 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.
</TABLE>
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10.59 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.
10.60 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.
10.61 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.
10.62 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.
10.63 $10,000,000 Series A Note, dated as of November 9, 1994 and made by the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.64 First Amendment, dated as of December 29, 1995, to Series A Note made
by the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996.
10.65 Second Amendment, dated December 18, 1996, to Series A Note made by the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.66 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.
10.67 First Amendment, dated as of December 29, 1995, to Placement Agreement
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.
10.68 Second Amendment, dated as of December 18, 1996, to Placement Agreement
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.
10.69 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.
10.70 First Amendment, dated as of December 29, 1995, to Remarketing and
Interest Services Agreement 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.
10.71 Second Amendment, dated as of December 18, 1996, to Remarketing and
Interest Services Agreement 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.
10.72 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.
10.73 Amendment, dated as of February 18, 1998, to Series A Letter of Credit
between Swiss Bank and Norwest. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
10.74 Second Amendment, dated as of March 26, 1999, to Series A Letter of
Credit. FILED HEREWITH.
10.75 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.
10.76 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.
10.77 Second Supplemental Series B Note Agreement, dated as of December 18,
1996, between the Company and Norwest Bank. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
28, 1996.
10.78 $10,000,000 Series B Note, dated as of April 27, 1995 and made by the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.79 First Amendment, dated December 29, 1995, to Series B Note made by the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
10.80 Second Amendment, dated December 18, 1996, to Series B Note made by the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 28, 1996.
</TABLE>
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10.81 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.
10.82 Amendment, dated as of February 18, 1998, to Series B Letter of Credit
between Swiss Bank and Norwest. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
10.83 Second Amendment, dated as of March 26, 1999, to Series B Letter of
Credit. FILED HEREWITH.
10.84 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.
10.85 Stock Purchase Agreement, dated as of November 4, 1997, by and between
the Company and SMALLCAP World Fund, Inc. ("SMALLCAP") Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 26, 1998.
10.86 Registration Rights Agreement, dated as of November 4, 1997, by and
between the Company and SMALLCAP. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
10.87 Richemont Extension of Guaranty. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 26,
1998.
10.88 Unsecured Line of Credit and Promissory Note dated March 1, 2000 given
by the Company to Richemont. FILED HEREWITH.
10.89 Agreement, dated March 26, 1999, between the Company and Richemont.
FILED HEREWITH.
10.90 Letter Agreement, dated February 4, 1999, between the Company and UBS
AG. FILED HEREWITH.
21.1 Subsidiaries of the Registrant. FILED HEREWITH.
23.1 Consent of Independent Public Accountants. FILED HEREWITH.
27.1 Financial Data Schedule. **/FILED HEREWITH.
</TABLE>
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* Hanover Direct, Inc., a Delaware corporation, is the successor by merger to
The Horn & Hardart Company and The Hanover Companies.
** EDGAR filing only.
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SCHEDULE II
HANOVER DIRECT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998
AND DECEMBER 27, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- ---------- ----------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999:
Allowance for Doubtful Accounts Receivable, Current $ 4,035 $ 2,817 $ 2,940(1) $ 3,912
Reserves for Discontinued Operations 982 133(2) 849
Restructuring Reserve 3,286 607 1,594(3) 2,299
Reserves for Sales Returns 4,778 9,915 10,013(2) 4,680
Deferred Tax Asset Valuation 94,700 2,800(4)
1998:
Allowance for Doubtful Accounts Receivable, Current 4,755 3,278 3,998(1) 4,035
Reserves for Discontinued Operations 1,354 372(2) 982
Restructuring Reserve 5,424 2,138(2) 3,286
Reserves for Sales Returns 6,043 14,755 16,020(2) 4,778
Deferred Tax Asset Valuation Allowance 80,100 14,600(4) 94,700
1997:
Allowance for Doubtful Accounts Receivable, Current 6,419 3,973 5,637(1) 4,755
Reserves for Discontinued Operations 1,722 368(2) 1,354
Restructuring Reserve 9,504 (400) 3,680(2) 5,424
Reserves for Sales Returns 9,036 76,507 79,500(2) 6,043
Deferred Tax Asset Valuation Allowance 82,600 (2,500)(4) 80,100
Allowance for Net Unrealized Losses on Convertible
Debt Securities 1,888 1,888(1) --
</TABLE>
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(1) Accounts written-off.
(2) Utilization of reserves.
(3) Utilization of reserves ($1,131) and reversal of reserves ($463).
(4) Represents the change in the valuation allowance offset by the change in the
gross tax asset.
52
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================================================================================
ASSET PURCHASE AGREEMENT
by and among
EUCLID LOGISTICS, INC.
HANOVER DIRECT, INC.
AUSTAD HOLDINGS, INC.
and
THE AUSTAD COMPANY
Dated as of August 19, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Section Page
1. PURCHASE AND SALE OF ASSETS .............................................1
1.1 Purchased Assets ..................................................1
1.1.1 Intellectual Property Rights ...............................1
1.1.2 Eligible Inventory .........................................2
1.1.3 Prepaid Expenses ...........................................2
1.1.4 Contract and Other Rights ..................................2
1.1.5 Other Assets ...............................................2
1.2 Excluded Assets ...................................................2
1.2.1 Cash and Investments .......................................2
1.2.2 Receivables ................................................2
1.2.3 Inventory ..................................................2
1.2.4 Fixed Assets ...............................................2
1.2.5 Other Excluded Assets ......................................2
1.3 Names Following the Closing .......................................2
1.4 Documentation .....................................................2
1.5 Certain Consents to Assignment ....................................3
1.6 Closing; Closing Date .............................................3
1.7 Effective Time ....................................................3
2. PURCHASE PRICE; PAYMENT .................................................3
2.1 Purchase Price; Payment ...........................................3
2.2 Allocation of Purchase Price ......................................4
2.3 Signing Deposit ...................................................4
2.4 Purchase Price Adjustment .........................................4
2.5 Transfer Taxes ....................................................5
3. ASSUMPTION OF LIABILITIES ...............................................6
3.1 Assumed Liabilities ...............................................6
3.1.1 Executory Agreements .......................................6
3.1.2 Membership Programs ........................................6
3.1.3 Customer Returns and Credits ...............................6
3.1.4 Merchandise Purchase Orders ................................6
3.2 Liabilities Not Assumed ...........................................6
3.2.1 Accounts Payable and Accrued Liabilities ...................6
3.2.2 Violation of Representations, Etc ..........................6
3.2.3 Undisclosed Liabilities ....................................6
3.2.4 Contingent Liabilities .....................................6
3.2.5 Taxes Due on Sale ..........................................7
3.2.6 Other Taxes ................................................7
3.2.7 Pension and Other Employee Plans ...........................7
3.2.8 Personal Injury, Products Liability and Recall Claims ......7
3.2.9 Environmental Matters ......................................7
3.2.10 Infringements ..............................................7
3.2.11 Indebtedness ...............................................7
3.2.12 Litigation .................................................7
3.2.13 Excluded Assets ............................................7
3.3 Retained Liabilities ..............................................7
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<PAGE> 3
4. REPRESENTATIONS AND WARRANTIES OF HANOVER AND SELLERS ...................8
4.1 Organization / Qualification ......................................8
4.2. Authority .........................................................8
4.3 No Violation ......................................................8
4.4 Financial Information .............................................8
4.5 Liabilities and Obligations .......................................9
4.6 Absence of Certain Changes ........................................9
4.7 Tax Returns and Reports ...........................................9
4.8 Title to and Condition of Assets .................................10
4.9 Contracts ........................................................10
4.10 Eligible Inventory ...............................................10
4.11 Litigation .......................................................10
4.12 Insurance ........................................................11
4.13 Intellectual Property ............................................11
4.14 Legal Compliance .................................................11
4.15 Suppliers ........................................................12
4.16 Membership Programs ..............................................12
4.17 Merchandise Returns / Credits ....................................12
4.18 Disclosure .......................................................12
4.19 Investment Representations .......................................12
5. REPRESENTATIONS AND WARRANTIES OF BUYER ................................13
5.1 Organization / Qualification .....................................13
5.2 Authority ........................................................13
5.3 No Violation .....................................................13
5.4 Capitalization ...................................................13
5.5 Disclosure .......................................................14
5.6 Validity of Shares ...............................................14
6. COVENANTS ..............................................................14
6.1 Conduct of Business; No Material Change ..........................14
6.2 Maintain Business as Going Concern ...............................14
6.3 August Catalog ...................................................14
6.4 Investigation ....................................................14
6.5 Supplements to Exhibits ..........................................14
6.6 Exclusivity ......................................................14
7. CONDITIONS TO CLOSING ..................................................15
7.1 Mutual Conditions ................................................15
7.1.1 No Suit ...................................................15
7.1.2 Subordination .............................................15
7.2 Conditions to Buyer's Obligations ................................15
7.2.1 Representations and Warranties ............................15
7.2.2 Certificate ...............................................15
7.2.3 Opinion ...................................................15
7.2.4 Consents and Approvals ....................................15
7.2.5 No Material Adverse Change ................................16
7.2.6 Services Agreement ........................................16
7.2.7 Financing .................................................16
7.2.8 Liens .....................................................16
7.2.9 Closing Documents .........................................16
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<PAGE> 4
7.3 Conditions to Hanover's and Sellers' Obligations .................16
7.3.1 Representations and Warranties ............................16
7.3.2 Certificate ...............................................17
7.3.3 Opinion ...................................................17
7.3.4 Approvals .................................................17
7.3.5 Closing Documents .........................................17
8. TERMINATION ............................................................17
8.1 Termination of Agreement .........................................17
8.2 Remedies .........................................................18
9. INDEMNIFICATION ........................................................18
9.1 Indemnification of Buyer .........................................18
9.2 Indemnification of Hanover and Sellers ...........................19
9.3 Method of Asserting Claims .......................................20
9.4 Payments .........................................................20
9.5 Nature and Survival of Representations ...........................20
10. OTHER AGREEMENTS .......................................................21
10.1 Noncompetition/Nonsolicitation ...................................21
10.2 Membership Programs ..............................................21
10.3 Customer Returns and Credits .....................................21
10.4 Transition Services ..............................................22
10.5 Purchase Option ..................................................22
11. GENERAL PROVISIONS .....................................................22
11.1 Entire Agreement .................................................22
11.2 Waiver ...........................................................22
11.3 Amendments .......................................................22
11.4 Expenses .........................................................22
11.5 Notices ..........................................................23
11.6 Assignment .......................................................23
11.7 Commissions and Finder's Fees ....................................24
11.8 Severability .....................................................24
11.9 Counterparts .....................................................24
11.10 Headings .........................................................24
11.11 Instruments of Further Assurance .................................24
11.12 Publicity ........................................................24
11.13 No Third Party Beneficiaries .....................................24
11.14 Waiver of Trial by Jury ..........................................24
11.15 Cumulative Remedies ..............................................24
11.16 Governing Law ....................................................24
APPENDIX OF DEFINITIONS ......................................................26
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EXHIBITS
Exhibit A Opinion of Counsel to Hanover and Sellers
Exhibit B Form of Direct Marketing Services Agreement
Exhibit C Opinion of Counsel to Buyer
Exhibit D Rights and Preferences of Preferred Stock
SCHEDULES
Schedule 1.2 Excluded Assets
Schedule 2.2 Purchase Price Allocations
Schedule 4.1 Foreign Qualifications
Schedule 4.3 No Violation; Consents
Schedule 4.4 Financial Information
Schedule 4.5 Liabilities and Obligations
Schedule 4.6 Absence of Certain Changes
Schedule 4.7 Tax Returns and Reports
Schedule 4.8 Title to and Condition of Assets
Schedule 4.9 Contracts
Schedule 4.11 Litigation
Schedule 4.13 Intellectual Property
Schedule 4.14 Legal Compliance
Schedule 4.15 Principal Suppliers
Schedule 4.16 Membership Programs
Schedule 4.17 Merchandise Returns
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as of
August 19, 1999, by and among Euclid Logistics, Inc., an Illinois corporation
("Buyer"); Hanover Direct, Inc., a Delaware corporation ("Hanover"); Austad
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of Hanover
("AHI"); and The Austad Company, a South Dakota corporation and an indirect
wholly-owned subsidiary of Hanover ("TAC"). AHI and TAC are collectively
referred to herein as the "Sellers".
Capitalized terms used but not defined herein shall have the respective
meanings set forth in the Appendix to Definitions attached hereto and made a
part hereof.
RECITALS:
WHEREAS, Hanover, through Sellers, is a direct marketer of golf equipment
and related apparel and accessories (the "Business"); and
WHEREAS, Sellers wish to sell, transfer and assign to Buyer, and Buyer
wishes to purchase from Sellers, certain of the assets of Sellers used in the
Business, upon the terms and conditions set forth herein; and
WHEREAS, Hanover is the indirect owner of all of each Seller's capital
stock and will substantially benefit from the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows.
1. PURCHASE AND SALE OF ASSETS.
1.1 Purchased Assets. On the terms and subject to the conditions
contained herein, Hanover and/or Sellers agree to sell to Buyer, and Buyer
agrees to purchase from Hanover and/or Sellers at the Closing and on the Closing
Date (as each such term is defined in Section 1.6 hereof), free and clear of all
liens, claims and encumbrances, certain of the assets, interests, properties,
rights and privileges of every kind and description, owned or used by Hanover
and/or Sellers in connection with the Business (the "Purchased Assets"), but not
including those assets and properties specifically excluded by Section 1.2
hereof. The Purchased Assets shall include only the following:
1.1.1 Intellectual Property Rights. All (i) Trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all derivations and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (ii) Copyrights, copyrightable works and all applications,
registrations, and renewals in connection therewith; (iii) advertising, catalog
artwork and rights associated therewith, (iv) trade secrets and confidential
business information (including all customer and vendor lists, pricing and cost
information, and business and marketing plans and proposals), (v) electronic
domain names, addresses or locations or any other form of online address, and
all telephone numbers, and (vi) other intellectual property rights employed or
utilized in the conduct of the Business, including, without limitation those
described on Schedule 4.13 hereof (collectively, the "Intellectual Property
Rights").
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1.1.2 Eligible Inventory. All Eligible Inventory.
1.1.3 Prepaid Expenses. All prepaid expenses, deposits or
related assets relating to the Business, including, without limitation, all
prepaid advertising.
1.1.4 Contract and Other Rights. All of each Seller's rights
and interests in, to and under the contracts described in Schedule 4.9 hereof,
except as provided in Section 1.5 hereof; and all other claims, rights and
causes of action of each Seller against third parties relating to the Business.
1.1.5 Other Assets. All other assets of Hanover and/or Sellers
used primarily in the conduct of the Business, whether tangible, intangible or
mixed and whether or not reflected in the Financial Information (as defined in
Section 4.4 hereof) or on Sellers' books or records, including all books,
records and files (including all customer and vendor computer files and other
records), and permits and licenses to the extent transferable under law.
1.2 Excluded Assets. Notwithstanding anything to the contrary
contained herein, the following assets (the "Excluded Assets") shall not be sold
to Buyer and shall be retained by Hanover and/or Sellers.
1.2.1 Cash and Investments. All of the petty cash, cash on
deposit in banks or other financial institutions, and funds in payroll accounts
of Hanover and/or Sellers; and all certificates of deposit, bonds, stock and
other securities and investments of Hanover and/or Sellers.
1.2.2 Receivables. All of Hanover and/or Sellers' trade
receivables, note receivables and other accounts receivable, including any
intercompany accounts receivable).
1.2.3 Inventory. All inventory other than Eligible Inventory.
1.2.4 Fixed Assets. All fixed assets, equipment, computer
hardware, vehicles, fixtures, furniture and similar tangible personal property
employed by Hanover and/or Sellers in the conduct of the Business.
1.2.5 Other Excluded Assets. (i) All of Hanover's and Sellers'
rights under this Agreement, (ii) Hanover and Sellers' corporate minute books
and related records, (iii) all personnel records, (iv) all income tax returns
and related tax records, and (v) any other assets described on Schedule 1.2
hereof.
1.3 Names Following the Closing. Immediately following the Closing,
each Seller shall (and Hanover shall cause any of its other Affiliates which use
the "Austad" name in its corporate name to) amend its certificate or articles of
incorporation so as to change its name to a name which does not include the
"Austad" name, and neither Hanover, Sellers nor any of their Affiliates shall
thereafter use such name or other names acquired by Buyer hereunder or names
confusingly similar thereto.
1.4 Documentation. In order to effectuate the sale, conveyance,
transfer and assignment contemplated by Section 1.1 hereof, Hanover and Sellers
shall execute and deliver on the Closing Date all such bills of sale and other
documents or instruments of conveyance. transfer or assignment as shall be
necessary or appropriate to vest or confirm in Buyer, all right, title and
interest of Hanover and Sellers in and to all of the Purchased Assets, all of
which documents shall be in form and substance satisfactory to counsel for
Buyer, acting reasonably.
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1.5 Certain Consents to Assignment. Hanover and Sellers agree that
after the execution of this Agreement, at Buyer's request, they will use their
Reasonable Efforts to obtain consents to assignment for all contracts or
agreements, which require consent to assignment and which are being transferred
to Buyer hereunder, whether or not Buyer has agreed to waive such consents as a
condition to Closing, including but not limited to those consents described in
Schedule 4.3 hereto.
To the extent that the assignment of any right or agreement the
benefit of which is to be acquired by Buyer pursuant to this Agreement shall
require the consent of any other party, and Buyer shall have waived the
obtaining of such consent prior to Closing, this Agreement shall not constitute
a contract to assign the same until such consent is obtained. Hanover, Sellers
and Buyer shall use their respective Reasonable Efforts after the Closing to
obtain any consent necessary to any such assignment. If any such consent is not
obtained, (i) this Agreement shall not constitute or be deemed to be a contract
to assign the same if an attempted assignment without such consent, approval or
waiver would constitute a breach of such right or agreement or create in any
party thereto the right or power to cancel or terminate such right or agreement;
and (ii) Hanover and Sellers will cooperate with Buyer, at Buyer's expense, in
any reasonable arrangement requested by Buyer designed to provide to Buyer the
benefit, monetary or otherwise, of Sellers' rights under such right or
agreement, including enforcement of any and all rights of Sellers against the
other party thereto arising out of a breach or cancellation thereof by such
other party.
1.6 Closing; Closing Date. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Lord, Bissell & Brook, 115 South LaSalle Street, Chicago, Illinois 60603, at
9:00 a.m. (Chicago time), sixty (60) days from the date hereof or at such other
time, date or place as may be mutually agreed upon by Buyer and Hanover (the
"Closing Date").
At the Closing, (i) Hanover and Sellers shall sell, transfer,
assign, convey and deliver to Buyer the Purchased Assets, (ii) Buyer shall
assume the Assumed Liabilities (as defined in Section 3 hereof), (iii) Hanover
and Sellers will deliver to Buyer the various agreements, certificates, opinions
and documents referred to in Section 7.2 below, (iv) Buyer will deliver to
Hanover and Sellers the various agreements, certificates, opinions and documents
referred to in Section 7.3 below, and (v) Buyer will pay to Hanover and Sellers
the portion of the Purchase Price payable at Closing in accordance with Section
2.1 hereof.
1.7 Effective Time. Title to the Purchased Assets shall be deemed to
have been transferred to Buyer at 12:01 a.m. (Chicago time) on the Closing Date.
2. PURCHASE PRICE; PAYMENT.
2.1 Purchase Price: Payment. Subject to adjustment as provided in
Section 2.4 hereof, Buyer agrees to pay, and Hanover and Sellers agree to
accept, as the "Purchase Price" for the covenant not to compete described in
Section 10.1 hereof, and for the Purchased Assets the following:
(i) the assumption, payment, performance and discharge, when
and as due, of the Assumed Liabilities (as such term is defined in
Section 3 hereof);
(ii) the sum of $1,400,000 payable in cash at Closing by wire
transfer of immediately available funds to an account designated by
Sellers or otherwise as the parties may agree;
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(iii) the sum of $400,000, without interest, payable in cash
within sixty (60) days following the Closing Date by wire transfer
of immediately available Funds to an account designated by Sellers
or otherwise as the parties may agree;
(iv) the sum of $244,000, without interest, payable in cash
within ninety (90) days following the Closing Date by wire transfer
of immediately available funds to an account designated by Sellers
or otherwise as the parties may agree; and
(v) a certificate for 1,988,000 shares of Preferred Stock, to
be delivered at the Closing.
2.2 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets and the covenant not to compete contained
in Section 10.1 hereof, as set forth on Schedule 2.2 hereto. The parties agree
that the allocation set forth in Schedule 2.2 shall be used by them and
respected for all purposes, including income tax purposes, and that the parties
shall follow such allocation for all reporting purposes. The allocations set
forth on Schedule 2.2 shall be appropriately adjusted by the parties to reflect
the adjustments to the Purchase Price pursuant to Section 2.4 hereof.
2.3 Signing Deposit. Hanover and Sellers acknowledge that Buyer has
previously deposited with Hanover the sum of $50,000, which is being held by
Hanover in an interest bearing money market account (the "Signing Deposit"). At
the Closing, Buyer shall receive a credit against the Purchase Price for the
amount of the Signing Deposit plus all accrued interest thereon. In the event
this Agreement is terminated by either party pursuant to Article 8 hereof,
Hanover shall promptly return the Signing Deposit and all accrued interest
thereon to Buyer, except as otherwise provided in Section 8.2(b) hereof.
2.4 Purchase Price Adjustment. The Purchase Price shall be subject
to adjustment following the Closing Date in the manner described below.
(a) Within thirty (30) days prior to the Closing Date, Hanover
and/or Sellers will conduct a physical count of the Eligible Inventory to be
included in the Purchased Assets. Hanover will give five (5) days prior written
notice to Buyer of the date such inventory count will be conducted and Buyer
and/or its accountants shall have the right to observe such inventory count.
(b) As soon as reasonably practicable after the Closing Date and in
any event no later than forty-five (45) days after the Closing Date, Hanover
and/or Sellers will prepare and present to Buyer the following statements
prepared as of 12:01 a.m. (Chicago time) on the Closing Date statements
indicating: (i) the amount of Eligible Inventory included in the Purchased
Assets, (ii) the amount of prepaid advertising included in the Purchased Assets,
determined in accordance with Sellers' normal accounting practices, consistently
applied, and (iii) the number of Active Customers of the Business (the "Initial
Closing Statements").
(c) Upon receipt of the Initial Closing Statements, Buyer and its
accountants shall be permitted during the succeeding thirty (30) day period to
examine the accounting records and work papers prepared by Hanover and/or
Sellers or their accountants in connection with the preparation of the Initial
Closing Statements. If Buyer agrees to the Initial Closing Statements, they
shall become the final closing statements (the "Final Closing Statements"). If
Buyer does not agree to the Initial Closing Statements, it shall within thirty
(30) days after delivery of the Initial Closing Statements by Hanover and/or
Sellers, prepare and deliver to Hanover a list of disputed adjustments (the
"Disputed Adjustments") to the Initial Closing Statements. Buyer and Hanover
shall use their best efforts to resolve the Disputed Adjustments. If Buyer and
Hanover are able to reach an
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agreement on the Disputed Adjustments, the Initial Closing Statements shall be
amended to reflect such agreement and shall become the Final Closing Statements.
(d) If Buyer and Hanover are unable to reach an agreement on the
Disputed Adjustments within thirty (30) days after receipt by Buyer of the
Disputed Adjustments, then the Disputed Adjustments shall be resolved by a
nationally-recognized firm of certified public accountants mutually acceptable
to Buyer and Hanover (the "Accounting Referee"). The parties shall use their
Reasonable Efforts to cause the Accounting Referee to promptly review the
Disputed Adjustments and determine the final value of each of the Disputed
Adjustments. In making such determination, the Accounting Referee shall consider
only the items or amounts in dispute (and any other items or amounts relating
thereto), and the determination of each Disputed Adjustment's value, as so
computed, shall not, in any event, be less than zero or greater than the amount
of the Disputed Adjustments. Such determination shall be made within thirty (30)
days after the date on which the Accounting Referee receives notice of the
Disputed Adjustments. The Initial Closing Statements shall then be amended to
reflect the determination of the final value of each of the Disputed Adjustments
and shall become the Final Closing Statements, which shall be conclusive and
binding on the parties to this Agreement for purposes of determining any
adjustment of the Purchase Price pursuant to this Section 2.4 and shall be
non-appealable. The fees, costs and expenses of the Accounting Referee in
conducting such review shall be shared equally by Buyer and Hanover.
(e) The amount of the Purchase Price shall be adjusted based on the
Final Closing Statements as follows:
(i) The Purchase Price shall be either (A) increased by the amount
of Eligible Inventory reflected on the Final Closing Statement in excess
of $2,500,000, subject to a maximum increase of no more than $600,000, or
(B) decreased by the amount of Eligible Inventory reflected on the Final
Closing Statement less than $2,500,000;
(ii) The Purchase Price shall be either (A) increased by the amount
of prepaid advertising reflected on the Final Closing Statement in excess
of $400,000, subject to a maximum increase of no more than $50,000, or (B)
decreased by the amount of prepaid advertising reflected on the Final
Closing Statement less than $400,000; and
(iii) The Purchase Price shall be either (A) increased by an amount
equal to $8 multiplied by the number of Active Customers reflected on the
Final Closing Statement greater than 97,000, subject to a maximum increase
of no more than $160,000, or (B) decreased by an amount equal to $8
multiplied by the number of Active Customers reflected on the Final
Closing Statement less than 97,000.
Within five (5) business days after the determination of the Final Closing
Statements, either Buyer shall pay to Sellers the amount of the net increase in
Purchase Price or Sellers shall pay to Buyer the amount of the net decrease in
the Purchase Price, in each case as determined as provided in this Section
2.4(e). The parties agree that any amounts due to Buyer pursuant to this Section
2.4(e) shall be first offset against the payments due to Sellers pursuant to
Section 2.l(iii) and (iv) hereof and next by the redemption of shares of the
shares of Preferred Stock issued pursuant to Section 2.1(v) hereof Any remaining
amounts due to Buyer pursuant to this Section 2.4(e) shall be paid in cash.
2.5 Transfer Taxes. Buyer agrees to reimburse Sellers for fifty
percent (50%) of the first $20,000 of any sales, use, transfer taxes or
assessments incurred by Sellers and arising from, based upon or related to the
sale, transfer and delivery of the Purchased Assets pursuant to this Agreement.
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3. ASSUMPTION OF LIABILITIES.
3.1 Assumed Liabilities. At the Closing, Buyer shall assume and
agree to perform and discharge when and as due the following liabilities and
obligations which accrue on or following the Closing Date, and no others (the
"Assumed Liabilities"):
3.1.1 Executory Agreements. Liabilities and obligations which
accrue on or following the Closing Date under the contracts described on
Schedule 4.9 hereof.
3.1.2 Membership Programs. Sellers' liabilities and
obligations to members as of the Closing Date under the membership programs of
the Business to the extent disclosed on Schedule 4.16 hereof for the balance of
the current membership year, subject to Sellers' obligations under Section 10.2
hereof.
3.1.3 Customer Returns and Credits. Sellers' liabilities and
obligations for (i) customer credits issued prior to the Closing Date in the
ordinary course of business, (ii) merchandise returns for products purchased
prior to the Closing Date in accordance with Sellers' merchandise return policy
disclosed on Schedule 4.17 hereof, and (iii) gift certificates for the Business
sold prior to the Closing Date in the ordinary course of business, in each case,
subject to Sellers' obligations under Section 10.3 hereof.
3.1.4 Merchandise Purchase Orders. Seller's liabilities and
obligations for trade payables arising from merchandise ordered but not received
by Seller prior to the Closing Date which have been approved in writing by Buyer
on or prior to the Closing Date.
3.2 Liabilities Not Assumed. Except as specifically provided in
Section 3.1 hereof, Buyer shall not assume, or in any way become liable for, any
liabilities or obligations of Hanover, Sellers, or any of their Affiliates or
the Business of any kind or nature, whether accrued, absolute, contingent or
otherwise, or whether due or to become due, or otherwise, whether known or
unknown, arising out of events, transactions or facts which shall have occurred,
arisen or existed on or prior to the Closing Date, which liabilities and
obligations, if ever in existence, shall continue to be liabilities and
obligations of Hanover, Sellers or their Affiliates, as the case may be.
Specifically, but without limiting the foregoing, Buyer shall not assume or be
liable for the following debts, liabilities and obligations (the "Excluded
Liabilities"):
3.2.1 Accounts Payable and Accrued Liabilities. Accounts
payable and accrued liabilities of Sellers incurred in the ordinary course of
the Business, including any liabilities or obligations to Hanover or any of its
Affiliates.
3.2.2 Violation of Representations, Etc. Debts, obligations or
liabilities which arise or exist in violation of any of the representations,
warranties, covenants or agreements of Hanover and/or Sellers contained in this
Agreement or in any statement or certificate delivered to Buyer by or on behalf
of Hanover and/or Sellers on or before the Closing Date pursuant to this
Agreement or in connection with the transactions contemplated hereby.
3.2.3 Undisclosed Liabilities. Debts, obligations or
liabilities of any kind or nature, whether absolute, accrued, contingent or
otherwise, required by this Agreement to be disclosed to Buyer, if not so
disclosed in writing and specifically assumed in writing by Buyer.
3.2.4 Contingent Liabilities. Contingent liabilities of
Hanover or Sellers of any kind arising or existing on or prior to the Closing
Date, including, but not limited to, claims,
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proceedings or causes of action which are currently, or hereafter become, the
subject of claims, assertions, litigation or arbitration.
3.2.5 Taxes Due on Sale. Except as provided in Section 2.5
hereof, debts, obligations or liabilities of Hanover or Sellers for Federal,
state, county, local, foreign or other income, sales, use or transfer taxes or
assessments (including interest and penalties thereon, if any) of any kind
whatsoever arising from, based upon or related to the sale, transfer or delivery
of the Purchased Assets pursuant to this Agreement.
3.2.6 Other Taxes. Debts, obligations or liabilities of
Hanover or Sellers, whether absolute, accrued, contingent or otherwise, for (i)
Federal and state income taxes; (ii) all franchise taxes of Sellers (including
interest and penalties thereon, if any); and (iii) any other Taxes of Hanover or
Sellers.
3.2.7 Pension and Other Employee Plans. Debts, obligations or
liabilities under any pension, profit sharing, savings, retirement, health,
medical, life, disability, dental, deferred compensation, stock option, bonus,
incentive, severance pay, group insurance or other similar employee plans or
arrangements, or under any policies, handbooks, or custom or practice, or any
employment agreements, whether express or implied, applicable to any of Hanover
and/or Sellers' employees at any time through and including the Closing Date.
3.2.8 Personal Injury, Products Liability and Recall Claims.
Debts, expenses, obligations or liabilities of Hanover and/or Sellers arising
out of any claim for personal injury (including worker's compensation or
otherwise), property damage, product recall, product liability or strict
liability, arising from events (including the shipment of goods) occurring on or
prior to the Closing Date (whether or not such claim is then asserted).
3.2.9 Environmental Matters. Any debts, expenses, obligations
or liabilities arising out of claims alleging damage to the environment or
similar claims with respect to the conduct of the Business or the ownership or
operation by Hanover and/or Sellers of real property on or before the Closing
Date.
3.2.10 Infringements. Any liability or obligation of Hanover
and/or Sellers arising out of any wrongful or unlawful violation or infringement
of any proprietary right of any person or entity occurring on or prior to the
Closing Date.
3.2.11 Indebtedness. Any liabilities or obligations in respect
of the borrowing of money or issuance of any note, bond, indenture, loan, credit
agreement or other evidence of indebtedness or direct or indirect guaranty or
assumption of indebtedness, liabilities or obligations of others, whether or not
disclosed in this Agreement or otherwise, of or by Hanover and/or Sellers.
3.2.12 Litigation. Debts, expenses, obligations or liabilities
of Hanover or Sellers arising out of any claim, action, suit or proceeding
pending as of the Closing Date or arising out of or relating to matters or
events occurring on or prior to the Closing Date (whether or not such claim is
then asserted).
3.2.13 Excluded Assets. Any liabilities or obligations arising
out of or relating to the Excluded Assets.
3.3 Retained Liabilities. After the Closing, Hanover and Sellers,
jointly and severally, agree to pay, perform and discharge, as and when due. all
of the liabilities and obligations
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of each Seller arising or existing prior to the Closing Date, other than the
Assumed Liabilities (the "Retained Liabilities").
4. REPRESENTATIONS AND WARRANTIES OF HANOVER AND SELLERS.
Hanover and Sellers, jointly and severally, represent and warrant to
Buyer as follows:
4.1 Organization / Qualification. Hanover and each Seller is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power and
authority to own or hold under lease its properties and assets and to carry on
its business as now conducted. Each Seller is duly qualified to do business and
is in good standing as a foreign corporation in every jurisdiction in which the
nature of its activities or the ownership or leasing of property requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect, and such jurisdictions are listed on Schedule 4.1. True and
complete copies of the certificate of incorporation, as amended to date, and the
by-laws, as amended to date, of each Seller have been furnished to Buyer.
4.2. Authority. Hanover and each Seller has all necessary power and
authority (corporate or otherwise) to make, execute and deliver this Agreement
and all other agreements and documents to be executed and delivered by it
pursuant hereto, and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the other
agreements and documents to be executed and delivered herewith, and the
consummation of the transactions contemplated hereby and thereby, have been duly
approved and authorized by all necessary corporate actions on behalf of Hanover
and Sellers. This Agreement constitutes, and all other agreements and documents
to be executed and delivered by Hanover and each Seller to Buyer hereunder will
constitute, the valid and binding agreements of such parties, enforceable in
accordance with their respective terms (subject, as to the enforcement of
remedies, to general equitable principles and to bankruptcy, insolvency and
similar laws effecting creditors' rights generally).
4.3 No Violation. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
constitute a violation of, or be in conflict with, or result in a cancellation
of, or constitute a default under, or create (or cause the acceleration of the
maturity of) any debt, obligation or liability affecting the Purchased Assets
pursuant to, or result in the creation or imposition of any security interest,
lien, or other encumbrance upon, any of the Purchased Assets under: (a) any term
or provision of the certificate of incorporation or by-laws (or other organic
document) of Hanover or either Seller; (b) any statute or law; (c) any judgment,
decree, order, regulation or rule of any court or governmental authority; or (d)
any contract, agreement, indenture, lease or other commitment to which Hanover
or either Seller is a party or is bound, or cause any change in the rights or
obligations of any party under any such contract, agreement, indenture, lease,
or other commitment that would have a Material Adverse Effect.
Except as set forth on Schedule 4.3 hereto, no consent of, or notice
to, any federal, state, local or foreign authority, or any private person or
entity, is required to be obtained or given by Hanover or either Seller in
connection with the execution, delivery or performance of this Agreement or any
other agreement or document to be executed, delivered or performed hereunder by
Hanover or either Seller, or to enable Buyer to continue to conduct the Business
after the Closing.
4.4 Financial Information. Schedule 4.4 hereto contains true and
correct copies of the following financial information: (i) the unaudited balance
sheet of the Business, together with
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the related financial information at and for each of the 1996, 1997 and 1998
fiscal years; and (ii) the unaudited balance sheet of the Business, together
with the related financial information at and for the six (6) month period ended
June 30, 1999 (the "Interim Financials"). The financial information described in
clauses (i) and (ii) above is referred to herein as the "Financial Information".
Each of the balance sheets included in the Financial Information
fairly present the assets and liabilities of the Business as at the respective
dates thereof, and the financial information regarding variable contribution are
complete and accurate and fairly present the variable contribution of the
Business for the periods therein referred to, all in accordance with Sellers'
normal accounting practices, consistently applied.
4.5 Liabilities and Obligations. There are no liabilities or
obligations (direct or indirect, contingent or absolute, matured or unmatured)
of any nature whatsoever with respect to the Business, whether arising out of
contract, tort, statute or otherwise, which are not reflected, reserved against
or given effect to in the balance sheet included in the Interim Financials
except: (a) liabilities and obligations incurred in the ordinary course of
business since the date of the balance sheet included in the Interim Financials,
which are of the same nature as those set forth in such balance sheet, or (b)
liabilities and obligations which are specifically disclosed in Schedule 4.5. To
Seller's Knowledge, there is no basis for assertion against Hanover and/or
Sellers of any liabilities or obligations with respect to the Business which are
not adequately reflected, reserved against or given effect to in the balance
sheet included in the Interim Financials or in Schedule 4.5 except for
liabilities and obligations described in clause (a) above.
4.6 Absence of Certain Changes. Except as disclosed in Schedule 4.6,
since March 27, 1999, there has not been: (a) any material adverse change in the
condition (financial or otherwise) of the Purchased Assets, liabilities, results
of operation or business prospects of the Business; (b) any damage, destruction
or loss (whether or not covered by insurance) materially and adversely affecting
the Purchased Assets, liabilities, financial condition, results of operations or
business prospects of the Business; (c) any change in the accounting methods or
practices followed by Hanover and/or Sellers with respect to the Business or any
change in depreciation or amortization policies or rates theretofore adopted;
(d) any material change by Hanover or Sellers of their selling, advertising or
marketing practices with respect to the Business, or (e) any sale, lease,
abandonment or other disposition by Hanover or Sellers of any intangible assets
of the Business, or any cancellation of any material claims held by Hanover or
Sellers with respect to the Business.
4.7 Tax Returns and Reports. All returns and reports relating to
Taxes with respect to the Business (the "Tax Returns") required to be filed by
Hanover and/or Sellers through the date hereof have been, and as to Tax Returns
required to be filed through the Closing Date will be, timely filed with the
appropriate governmental authorities in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns are or will be true
and correct and prepared in accordance with applicable law and regulations and
properly reflect, or will properly reflect, the Taxes of Hanover and Sellers for
the periods covered thereby.
Except as set forth on Schedule 4.7, all Taxes due and payable by
Hanover and Sellers with respect to the Business for all periods prior to and
through the date hereof have been, and through the Closing Date will be, duly
and properly computed, reported, fully paid and discharged. There are no unpaid
Taxes with respect to any period prior to and through the date hereof, and there
will not be any unpaid Taxes with respect to any period through the Closing
Date, which are or could become a lien on the Purchased Assets, except for
current Taxes not yet due and payable.
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Neither Hanover nor either Seller has received any notice of
assessment or proposed assessment by the Internal Revenue Service ("IRS") or any
other governmental authority in connection with any Tax Returns and there are no
pending tax examinations of or tax claims asserted against Hanover or Sellers,
except as disclosed in Schedule 4.7. To Seller's Knowledge, there has been no
intentional disregard of any statute, regulation, rule or revenue ruling in the
preparation of any Tax Return. Neither Hanover nor either Seller has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
Except as disclosed in Schedule 4.7. there are no Tax liens on any
of the Purchased Assets, except for liens for current taxes not yet due and
payable and there is no basis for any additional assessment of any Taxes with
respect to the Business. Neither Hanover nor Seller has waived any law or
regulation fixing, or consented to the extension of, any period of time for
assessment of any Taxes which waiver or consent is currently in effect.
Hanover and/or Sellers have withheld and paid all Taxes with respect
to the Business required to have been withheld and paid in connection with
amounts paid or due and owing to any employee, creditor, independent contractor,
or other third party and has properly reflected the status of all employees and
independent contractors in connection therewith as required by all applicable
laws.
4.8 Title to and Condition of Assets. Hanover and/or Sellers are the
owner of, and have good and marketable title to, all of the Purchased Assets,
free and clear of all mortgages, liens, pledges, charges, security interests,
encumbrances or other third party interests of any nature whatsoever, except
for: (a) the lien of current taxes not yet due and payable, and (b) other title
exceptions disclosed and described in Schedule 4.8 hereto.
4.9 Contracts. Except as set forth in Schedule 4.9. Hanover and/or
Sellers are not a party to, or bound by, any oral or written contracts,
agreements, commitments or understandings with respect to the Business: (a) for
the purchase of Inventory or other products involving the payment of in excess
of $10,000 per annum or the term of which at any time exceeded ninety (90) days
(including, without limitation, vendor supply contracts or purchase orders); (b)
for the purchase of advertising or marketing services or other services
involving the payment of in excess of $10,000 per annum or the term of which at
any time exceeded ninety (90) days; (c) relating to the ownership, use or
licensing of any Intellectual Property Rights; or (d) which are material to the
Business.
All of the contracts listed on Schedule 4.9 hereof constitute the
legal, valid and binding obligations of the respective parties thereto, are in
full force and effect, and neither Hanover, Sellers, nor, to Seller's Knowledge,
any other party thereto has violated any provision of, or committed or failed to
perform any act which with notice, lapse of time or both would constitute a
default under the provisions of any such contract. Correct and complete copies
of all written contracts disclosed on Schedule 3.1.1 or Schedule 4.9 hereof have
been provided to Buyer.
4.10 Eligible Inventory. All Eligible Inventory included in the
Purchased Assets will at the Closing Date be valued, at purchased cost, before
valuation reserves, in accordance with Sellers' normal accounting practices,
consistently applied.
4.11 Litigation. Except as disclosed in Schedule 4.11, there are no
lawsuits, proceedings, claims or governmental investigations pending or, to
Seller's Knowledge, threatened against, or involving, Hanover or Sellers which
relate to the Business, and there is no basis known to Hanover or Sellers for
any such action. Except as set forth in Schedule 4.11, there are no
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judgments, consents, decrees, injunctions, or any other judicial or
administrative mandates outstanding against Hanover or Sellers applicable to the
Business.
4.12 Insurance. Hanover and Sellers maintain insurance in such
amounts and against such risks as are usual and customary and adequate to
protect the Business and the Purchased Assets. All such policies are (and
pending Closing will continue to be) in full force and effect, and Hanover
and/or Sellers are not in default in any material respect with respect to any
provision contained in any insurance policies, nor has Hanover and/or Sellers
failed to give any notice or present any claim thereunder in due and timely
fashion.
4.13 Intellectual Property. Schedule 4.13 hereto lists the current
interests of Hanover and each Seller in all Intellectual Property Rights used in
the conduct of the Business, including, without limitation (i) all Trademarks,
service marks, trade dress, logos, trade names, together with all derivations
and combinations thereof, and all applications, registrations, and renewals in
connection therewith, (ii) all Copyrights, copyrightable works and all
applications, registrations, and renewals in connection therewith, (iii) to
Seller's Knowledge, a list of all catalogs used in the conduct of the Business
since January 1, 1996, (iv) all customer and vendor lists, and (v) all
electronic domain names, addresses or locations or any other form of online
address, and all telephone numbers used in the conduct of the Business.
Except as described in Schedule 4.13 Hanover and/or Sellers are the
sole and exclusive owners of all of the Intellectual Property Rights, and has
the sole and exclusive right to use such rights or receive the payments of fees
and royalties described therein. No other person or entity owns any right, title
or interest not specified in Schedule 4.13, or has any right to a royalty or
payment of any kind from Hanover or Sellers with respect to the Intellectual
Property Rights. There are no asserted claims or litigation challenging or
threatening to challenge the right, title and interest of Hanover and/or Sellers
to use the Intellectual Property Rights.
The operation of the Business does not violate any rights of others
in the Intellectual Property Rights, no further rights or licenses with respect
thereto are required by Hanover and/or Sellers for the conduct of the Business
as now being conducted by it, and the Intellectual Property Rights are not being
violated or infringed by others. The consummation of the transactions
contemplated by this Agreement will not alter or impair any of the Intellectual
Property Rights.
4.14 Legal Compliance. To Seller's Knowledge, Hanover and Sellers
are not in violation of any law, regulation or order of any court or federal,
state, municipal, foreign or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, laws,
regulations, orders, restrictions and compliance schedules applicable to
environmental standards, immigration, controls, wages and hours, civil rights
and occupational health and safety) with respect to the Business and neither
Hanover nor Sellers have received any notice of claimed noncompliance.
To Seller's Knowledge, Hanover and/or Sellers possess or have
applied for all material governmental and other permits, licenses, consents,
certificates, orders, authorizations and approvals (the "Approvals") to own the
Purchased Assets and to carry on the Business as now conducted. Neither Hanover
nor Sellers have received any notice of proceedings relating to the revocation
or modification of any such Approvals which, singly or in the aggregate, if the
subject of an unfavorable ruling or finding, could have a Material Adverse
Effect. The Approvals are identified in Schedule 4.14. Hanover and/or Sellers
are operating in substantial compliance with the provisions, terms and
conditions of the Approvals.
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4.15 Suppliers. Schedule 4.15 sets forth a list of each Person
supplying goods or other services to the Business during the 1997 and 1998
calendar years and the first six (6) months of 1999, showing in each case the
approximate sales volume of products from such supplier during each such period.
Since January 1, 1999, there has not been any material adverse change in the
business relationship of Hanover or Sellers with any such supplier. To Seller's
Knowledge, no supplier listed on Schedule 4.15 intends to cease selling to or
dealing with Buyer after the Closing nor intends to alter in any material
respect the amount of sales or the extent of dealings with Buyer after the
Closing.
4.16 Membership Programs. Schedule 4.16 sets forth (i) a description
of all membership programs applicable to customers of the Business or any other
program which entitles customers of the Business to purchase goods from the
Business at a discount or on other preferential terms, and (ii) a membership
list for each such membership program which includes the expiration date of the
current membership term for each such member.
4.17 Merchandise Returns / Credits. Except as set forth on Schedule
4.17 hereof, (i) no customer of the Business has any right to return any goods
for credit or refund pursuant to any formal or informal policy or practice of
Hanover and/or Sellers, and (ii) neither Hanover nor either Seller has given any
express or implied warranties in connection with merchandise sales by the
Business. The current merchandise return policy for the Business is fully
described on Schedule 4.17 hereof. Since January 1, 1999, Hanover and Sellers
have not issued any customer credits or sold any gift certificates other than in
the ordinary course of business, consistent with their past practices.
4.18 Disclosure. No representation or warranty of Hanover or Sellers
made hereunder contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. Copies of all documents referred to herein or in the
Schedules have been delivered to Buyer, are true, correct and complete copies
thereof, and include all amendments, supplements or modifications thereto or
waivers thereunder. Except as expressly set forth in this Agreement and the
Schedules, neither Hanover nor either Seller has knowledge of any facts which
will or may reasonably be expected to have any Material Adverse Effect.
4.19 Investment Representations.
(a) Hanover and each Seller represents that it is an "accredited investor"
as such term is defined in Rule 501 of Regulation D under the Securities Act.
(b) Hanover and each Seller represents that (i) it does not presently
intend to sell or otherwise transfer or dispose of the Preferred Stock received
by Sellers pursuant to this Agreement, (ii) it is acquiring the Preferred Stock
for its own account and not for that of any other persons, and without a view to
or in connection with any distribution thereof which is in violation of the
Securities Act or in violation of any applicable state securities laws, (iii) it
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the Preferred
Stock and (iv) it has been afforded the opportunity to ask such questions and
receive such other information from Buyer's representatives as they deem
necessary in order to evaluate its investment in the Preferred Stock.
(c) Hanover and each Seller understand and acknowledge that the Preferred
Stock to be issued by Buyer pursuant to this Agreement will not have been
registered under the Securities Act or qualified under any applicable state
securities laws on the date of its issuance and will constitute "restricted
securities" within the meaning of Rule 144 of the Securities Act and therefore
may not
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be resold unless registered under the Securities Act or sold pursuant to an
exemption from registration. The certificates representing the Preferred Stock
acquired by Sellers shall bear such legend as Buyer deems necessary or
appropriate to comply with the Securities Act and any other applicable federal
and state laws.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Hanover and Sellers as follows:
5.1 Organization / Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Illinois, and
has all requisite corporate power and authority to own or hold under lease its
properties and assets and to carry on its business as now conducted. Buyer is
duly qualified to do business and is in good standing as a foreign corporation
in every jurisdiction in which the nature of its activities or the ownership or
leasing of property requires such qualification, except where the failure to so
qualify would not have a material adverse effect upon its assets, properties,
financial condition, results of operation or business prospects. True and
complete copies of the articles of incorporation, as amended to date, and the
by-laws, as amended to date, of Buyer have been furnished to Sellers.
5.2 Authority. Buyer has all requisite power and authority
(corporate or otherwise) to make, execute and deliver this Agreement and all
other agreements and documents to be executed and delivered by Buyer pursuant
hereto and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and all other agreements and documents
to be executed and delivered by Buyer pursuant hereto, and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on Buyer's part and this Agreement and all other agreements
and documents to be executed and delivered by Buyer pursuant hereto constitute
the valid and binding agreements of Buyer, enforceable in accordance with their
respective terms (subject, as to the enforcement of remedies, to general
principles of equity and to bankruptcy, insolvency and similar laws affecting
creditors' rights generally).
5.3 No Violation. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
constitute a violation of, or be in conflict with, or result in a cancellation
of, or constitute a default under, or create (or cause the acceleration of the
maturity of) any debt, obligation or liability affecting, or result in the
creation or imposition of any security interest, lien, or other encumbrance
upon, any of the assets of Buyer under: (a) any term or provision of the
certificate of incorporation or by-laws (or other organic document) of Buyer;
(b) any statute or law; (c) any judgment, decree, order, regulation or rule of
any court or governmental authority; (d) any contract, agreement, indenture,
lease or other commitment to which Buyer is a party or is bound; or (e) cause
any material change in the rights or obligations of any party under any such
contract, agreement, indenture, lease, or other commitment.
No consent of, or notice to, any federal, state or local authority,
or any other person or entity is required to be obtained or made by Buyer in
connection with the execution, delivery and performance of this Agreement and
the other agreements and documents to be executed, delivered and performed by
Buyer pursuant hereto.
5.4 Capitalization. As of the date hereof, Buyer's authorized
capital stock consists of 100,000 shares of common stock, no par value, of which
1,000 shares are currently issued and outstanding. On or prior to the Closing
Date, Buyer shall amend its articles of incorporation to increase its authorized
capital stock to: (i) at least 5,000,000 shares of common
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stock, no par value, and (ii) 1,988,000 shares of Preferred Stock. As of the
Closing Date, no more than 2,325,000 shares of Buyer's common stock shall be
issued and outstanding.
5.5 Disclosure. No representation or warranty of Buyer made
hereunder contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
5.6 Validity of Shares. The Preferred Stock to be issued pursuant to
Section 2.1(v) hereof, when issued in accordance with this Agreement, will be
validly issued, fully paid and non-assessable.
6. COVENANTS.
Hanover and Sellers, jointly and severally, covenant and agree with
Buyer that from the date hereof until the Closing or other termination of this
Agreement:
6.1 Conduct of Business; No Material Change. Hanover and Sellers
will conduct the Business only in the ordinary course and will make no material
change in the operation of the Business. Without limiting the generality of the
foregoing, Hanover and Sellers will not make or permit any change in the
Business which, if occurring prior to the date hereof, would have been subject
to disclosure pursuant to Section 4.6(c) through (e) hereof, or take any actions
that would render any representation or warranty contained in Section 4 hereof
inaccurate as of the Closing Date, except for changes permitted or contemplated
by this Agreement.
6.2 Maintain Business as Going Concern. Hanover and Sellers will
preserve the Business and will use their best efforts to preserve the goodwill
of the suppliers, customers and others having business relations with the
Business.
6.3 August Catalog. Hanover and Sellers, in consultation with Buyer,
shall continue the design and development of the Austad's catalog for August
1999.
6.4 Investigation. Hanover and Sellers shall at all reasonable times
allow Buyer and its representatives full access during normal business hours to
all offices, operations, equipment, property, books, contracts, commitments,
records and affairs of Hanover and Sellers relating to the Business for the
purpose of familiarizing themselves with the operation and conduct of all
aspects of the Business and for the purpose of reasonable inspection,
examination, audit, counting and copying; provided such access shall not
unreasonably interfere with the operation and conduct of the Business. All
information and documents provided by Hanover and Sellers to Buyer in the course
of such investigation by Buyer shall be subject to the terms of that certain
Letter of Intent dated as of July 14, 1999 between Buyer and Hanover.
6.5 Supplements to Exhibits. From time to time prior to the Closing
Date, Hanover and Sellers will promptly supplement or amend any Schedules
provided for in this Agreement (i) if any matter arises hereafter which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in any such Schedule, or (ii) if it
becomes necessary to correct any information in any such Schedule which has
become inaccurate; provided, however, that no such supplement or amendment to
any Schedule shall be considered in determining satisfaction of the conditions
set forth in Section 7.2.1 of this Agreement.
6.6 Exclusivity. Prior to the termination of this Agreement in
accordance with Article 8 hereof, neither Hanover, Sellers nor any of their
Affiliates, will solicit, negotiate, act upon or entertain in any way an offer
from any other Person to purchase any material assets of the
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Business (other than in the ordinary course of business) or furnish any
information to any other Person in that regard.
7. CONDITIONS TO CLOSING.
7.1 Mutual Conditions. The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the following conditions:
7.1.1 No Suit. No suit, action or other proceeding or
investigation shall to the knowledge of any party hereto be threatened or
pending before or by any governmental agency or by any third party
questioning the legality of this Agreement or the consummation of the
transactions contemplated hereby in whole or in part.
7.1.2 Subordination. Hanover and Sellers shall have agreed to
subordinate the deferred portion of the Purchase Price to Buyer's debt
financing for the transactions contemplated by this Agreement, on such
terms as Buyer, Buyer's lender and Hanover mutually agree.
7.2 Conditions to Buyer's Obligations. The obligations of Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the following conditions:
7.2.1 Representations and Warranties. All representations and
warranties made by Hanover and Sellers contained in this Agreement shall
be true and correct in all material respects on the date hereof and as of
the Closing Date as though such representations and warranties were made
as of the Closing Date, and Hanover and Sellers shall have duly performed
or complied with all of the obligations to be performed or complied with
by each of them under the terms of this Agreement on or prior to Closing.
7.2.2 Certificate. Hanover and Sellers shall each have
delivered to Buyer a certificate dated as of the Closing Date certifying
that: (a) all of the representations and warranties made by them under
this Agreement and the Schedules hereto are accurate, true and complete in
all material respects, and (b) all of the covenants, obligations and
conditions to be performed as of the Closing on their part under this
Agreement have been duly performed.
7.2.3 Opinion. Buyer shall have received from Brown, Raysman,
Millstein, Felder & Steiner, LLP, counsel to Hanover and Sellers, an
opinion of such counsel, dated the Closing Date, in the form attached
hereto as Exhibit A.
7.2.4 Consents and Approvals. All material authorizations,
consents, waivers, approvals or other action required in connection with
the execution, delivery and performance of this Agreement by Hanover and
Sellers and the consummation by such parties of the transactions
contemplated hereby, all as so indicated in Schedule 4.3, shall have been
obtained, and Hanover and Sellers shall have obtained any authorizations,
consents, waivers, approvals or other action required in connection with
the execution, delivery and performance of this Agreement to prevent a
material breach or default by Hanover or Sellers under any contract to
which any of them is a party or for the continuation of any agreement to
which any of them is a party and which relates and is material to the
Business.
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7.2.5 No Material Adverse Change. There shall have occurred no
material adverse change (whether or not covered by insurance) in the
Purchased Assets or business prospects of the Business since the date of
this Agreement.
7.2.6 Services Agreement. At Buyer's option, Buyer and
Keystone Fulfillment, Inc. shall have entered into a Direct Marketing
Services Agreement in the form attached hereto as Exhibit B.
7.2.7 Financing. Buyer shall have obtained equity and/or debt
financing on terms and conditions acceptable to Buyer, in its sole
discretion, in an amount sufficient to complete the transactions
contemplated by this Agreement.
7.2.8 Liens. Hanover and Sellers shall have obtained
appropriate UCC termination statements and/or releases for all liens or
other encumbrances relating to the Purchased Assets.
7.2.9 Closing Documents. The following documents shall have
been delivered to Buyer:
(a) Bill of Sale. Bill of sale(s) for the assignment, transfer
and conveyance of the Purchased Assets from Hanover and/or Sellers
to Buyer, in form and substance reasonably acceptable to Buyer's
counsel.
(b) Trademark Assignment. An assignment for the trademarks
listed on Schedule 4.13 hereto from Hanover and/or Sellers to Buyer,
in form and substance reasonably acceptable to Buyer's counsel.
(c) Certified Charter. A true and complete copy of the
articles of incorporation of each Seller, certified by its
jurisdiction of incorporation.
(d) Secretary's Certificate. True and complete copies of the
bylaws of each Seller and the resolutions of the board of directors
of each Seller authorizing the execution, delivery and performance
of this Agreement, certified by its Secretary.
(e) Good Standings. Certificates of legal existence and good
standing dated within thirty (30) days prior to the Closing Date for
Hanover from the State of Delaware and each Seller from its
jurisdiction of incorporation and each jurisdiction in which it is
qualified to do business.
(f) Other. Such other documents as counsel for Buyer may
reasonably request.
7.3 Conditions to Hanover's and Sellers' Obligations. The
obligations of Hanover and Sellers to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
of each of the following conditions:
7.3.1 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct
in all material respects on the date hereof and as of the Closing Date as
though such representations and warranties were made as of the Closing
Date, and Buyer shall have duly performed or complied with all of the
obligations to be performed or complied with by it under the terms of this
Agreement on or prior to Closing.
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7.3.2 Certificate. Buyer shall have delivered to Hanover and
Sellers a certificate of one of its duly authorized officers, dated as of
the Closing Date certifying that: (a) all of the representations and
warranties made by Buyer under this Agreement and the Schedules hereto are
accurate, true and complete in all material respects, and (b) all of the
covenants, obligations and conditions to be performed as of the Closing on
the part of Buyer under this Agreement have been duly performed.
7.3.3 Opinion. Hanover and Sellers shall have received from
Lord, Bissell & Brook counsel to Buyer, an opinion of such counsel, dated
the Closing Date, in the form attached hereto as Exhibit C.
7.3.4 Approvals. All material authorizations, consents,
waivers, approvals or other action required in connection with the
execution, delivery and performance of this Agreement by Buyer, and the
consummation by Buyer of the transactions contemplated hereby, shall have
been obtained.
7.3.5 Closing Documents. The following documents shall have
been delivered to Hanover and Sellers:
(a) Purchase Price. The portion of the Purchase Price payable
at Closing in accordance with Section 2.1 hereof.
(b) Assumption Agreement. An agreement for the assumption by
Buyer of the Assumed Liabilities, in form and substance reasonably
acceptable to Sellers' counsel.
(c) Certified Charter. A true and complete copy of the
articles of incorporation of Buyer, certified by its jurisdiction of
incorporation.
(d) Secretary's Certificate. True and complete copies of the
bylaws of Buyer and the resolutions of the board of directors of
Buyer authorizing the execution, delivery and performance of this
Agreement, certified by its Secretary.
(e) Good Standing. Certificate of legal existence and good
standing dated within thirty (30) days prior to the Closing Date for
Buyer from the jurisdiction of its incorporation.
(f) Resale Certificate. A Pennsylvania Resale Exemption
certificate with respect to the sale of the Purchased Assets to
Buyer.
(g) Other. Such other documents as counsel for Hanover and
Sellers may reasonably request.
8. TERMINATION.
8.1 Termination of Agreement. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing, as follows:
(a) Outside Closing Date. By Buyer, on one hand, or by Hanover
and Seller, on the other hand, if the Closing shall not have
occurred within sixty (60) days from the date hereof, or such later
date as may be agreed to by Buyer and
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Hanover, provided that the party desiring to terminate this
Agreement did not cause undue delay in fulfilling its obligations
hereunder.
(b) Mutual Consent. By mutual consent of all of the parties
hereto.
(c) Breach. By Buyer, on the one hand, or by Hanover and
Sellers, on the other hand, by reason of the breach by the other in
any material respect of any of its or their representations,
warranties, covenants or agreements contained in this Agreement.
(d) Respective Conditions. By Buyer, on the one hand, or by
Hanover and Sellers, on the other hand, if the conditions precedent
to their respective obligations contained in Sections 7.2 or 7.3
hereof have not been met in all material respects through no fault
of the terminating party.
(e) Mutual Conditions. By Buyer, on the one hand, or by
Hanover and Sellers, on the other hand, if any of the conditions
described in Section 7.1 shall not have been fulfilled through no
fault of the terminating party.
8.2 Remedies. (a) Except as provided in Section 8.2(b) below, in the
event of the termination of this Agreement pursuant to Section 8.1, no party
hereto shall have any liability or further obligation to any other party to this
Agreement, except for any willful breach of this Agreement prior to the
termination of this Agreement as provided herein. The foregoing provision shall
not limit or restrict the availability of specific performance or other
injunctive relief to the extent that specific performance or such other relief
would otherwise be available to a party hereunder.
(b) In the event of a termination of this Agreement (i) by Buyer
pursuant to Section 8.1(a), or Section 8.1(d) solely by reason of the failure of
the condition set forth in Section 7.2.7 (Financing), or (ii) by Hanover and
Sellers pursuant to Sections 8.1(a), (c) or (d) above, Hanover and Seller shall
be entitled to retain, as liquidated damages and not as a penalty, the Signing
Deposit and all accrued interest thereon. In the event of a termination of this
Agreement other than as provided in subclauses (i) or (ii) in the preceding
sentence, Hanover and Sellers shall promptly return the Signing Deposit and all
accrued interest thereon to Buyer.
9. INDEMNIFICATION.
From and after the Closing, the parties shall be indemnified as set
forth below.
9.1 Indemnification of Buyer. Hanover and Sellers, jointly and
severally, covenant and agree with Buyer that they shall reimburse and indemnify
and hold Buyer and its directors, officers, employees and agents (the "Buyer
Indemnified Parties") harmless from, against and in respect of any and all
actions, suits, claims, proceedings, investigations, audits, demands,
assessments, fines, judgments, costs and expenses, (including, without
limitation, reasonable attorneys' fees) ("Claims") incurred by any of Buyer
Indemnified Parties that result from:
(a) any inaccuracy in or breach of any representations or warranties
made by Hanover and Sellers in this Agreement, the Schedules or any other
written statement, list, certificate or other instrument furnished to
Buyer by or on behalf of Hanover or Sellers pursuant to this Agreement;
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(b) any nonfulfillment of any covenant or agreement of any of
Hanover or Sellers under this Agreement;
(c) any and all Retained Liabilities;
(d) any Taxes, payments or accruals for salaries, wages, amounts
payable under Employee Plans or otherwise to employees or agents of
Hanover or Sellers, and other liabilities and obligations of Hanover and
Sellers, in each case relating to and incurred with respect to the periods
prior to the Closing Date, whether or not due or payable prior to the
Closing Date;
(e) any claims or litigation matters which relate or are due to the
conduct of the Business prior to the Closing Date, including, without
limitation, the claims described in Schedule 4.11 hereto;
(f) the failure to comply with statutory provisions relating to bulk
sales and transfers, if applicable;
(g) any fees, expenses or other payments incurred or owed by Hanover
or Sellers to any brokers or comparable third parties retained or employed
by them or their affiliates in connection with the transactions
contemplated by this Agreement;
(h) any claims made by a third party alleging facts which, if true,
would entitle Buyer to indemnification pursuant to (a) through (g) above;
(i) any failure of Hanover or Sellers to comply with their
obligations under this Section 9.1; or
(j) any fees or expenses (including, without limitation, reasonable
attorneys' fees) incurred by Buyer in enforcing its rights hereunder.
9.2 Indemnification of Hanover and Sellers. Buyer covenants and
agrees with Hanover and Sellers that it shall reimburse and indemnify and hold
each of Hanover and Sellers and their respective directors, officers, employees
and agents (the "Seller Indemnified Parties") harmless from, against and in
respect of any and all Claims incurred by any of Seller Indemnified Parties that
result from:
(a) any inaccuracy in or breach of any representations or warranties
made by Buyer in this Agreement, the Schedules or any other written
statement, list, certificate or other instrument furnished to Hanover or
Sellers by or on behalf of Buyer pursuant to this Agreement;
(b) any nonfulfillment of any covenant or agreement of Buyer under
this Agreement;
(c) all Assumed Liabilities;
(d) any Taxes or other liabilities and obligations of Buyer relating
to and incurred with respect to the periods on or prior to the Closing
Date;
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(e) any fees, expenses or other payments incurred or owed by Buyer
to any brokers or comparable third parties retained or employed by them or
their affiliates in connection with the transactions contemplated by this
Agreement;
(f) any claims made by a third party alleging facts which, if true,
would entitle Hanover or Seller to indemnification pursuant to (a) through
(e) above;
(g) any failure of Buyer to comply with its obligations under this
Section 9.2; or
(h) any fees or expenses (including, without limitation, reasonable
attorneys' fees) incurred by Hanover or Sellers in enforcing its rights
hereunder.
9.3 Method of Asserting Claims. The party seeking indemnification
(the "Indemnitee") will give prompt written notice to the other party or parties
(the "Indemnitor") of any Claim which it discovers or of which it receives
notice after the Closing and which might give rise to a Claim by it against
Indemnitor under Section 9 hereof, stating the nature, basis and (to the extent
known) amount thereof; provided that failure to give prompt notice shall not
jeopardize the right of any Indemnitee to indemnification unless such failure
shall have materially prejudiced the ability of the Indemnitor to defend such
Claim.
In case of any Claim or suit by a third party or by any governmental
body, or any legal, administrative or arbitration proceeding with respect to
which Indemnitor may have liability under the indemnity agreement contained in
this Section 9, Indemnitor shall be entitled to participate therein, and, to the
extent desired by it, to assume the defense thereof, and after notice from
Indemnitor to Indemnitee of the election so to assume the defense thereof,
Indemnitor will not be liable to Indemnitee for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof,
other than reasonable costs of investigation, unless Indemnitor does not
actually assume the defense thereof following notice of such election.
Indemnitee and Indemnitor will render to each other such assistance as may
reasonably be required of each other in order to insure proper and adequate
defense of any such suit, Claim or proceeding. If the Indemnitor actually
assumes the defense of the Indemnitee, the Indemnitee will not make any
settlement of any Claim which might give rise to liability of Indemnitor under
the indemnity agreements contained in this Section without the written consent
of Indemnitor, which consent shall not be unreasonably withheld. The Indemnitor
will not make any settlement of any Claim which does not include an
unconditional release of the Indemnitee or would affect the manner in which the
Indemnitee may conduct its business, without the written consent of Indemnitee.
9.4 Payments. Buyer shall have the right to cause any amounts owing
to it by Hanover and/or Sellers pursuant to this Section 9 to be paid by
reduction or offset of such amount(s) against amounts payable by Buyer to
Hanover or Sellers, or any or them, pursuant to this Agreement, including,
without limitation, the deferred portion of the Purchase Price payable pursuant
to Section 2.1 hereof. The rights contained herein shall not be exclusive, but
shall be in addition to any other rights and remedies available to Buyer.
9.5 Nature and Survival of Representations. All statements made by
or on behalf of Hanover and Sellers herein or in the Schedules, shall be deemed
representations and warranties of Hanover and Sellers, regardless of any
investigation made by or on behalf of Buyer. The representations and warranties
made by Hanover and Sellers, on the one hand, and Buyer, on the other hand,
under this Agreement shall survive the Closing for a period (in the absence of a
showing of willful and knowing misrepresentation or breach) for a period of
eighteen (18) months after the Closing Date, except that the representations and
warranties set forth in Section 4.7 (Taxes) shall survive the Closing until
ninety (90) days after the expiration of the applicable statute of limitations.
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<PAGE> 26
10. OTHER AGREEMENTS
10.1 Noncompetition/Nonsolicitation.
(a) For a period ending four (4) years after the Closing Date,
Hanover and its Subsidiaries (including Sellers) shall not, directly or
indirectly, anywhere in the United States and Canada: (i) own, operate or manage
any retail store(s) that principally feature golf equipment and/or golf apparel
and accessories; (ii) engage in the direct marketing (via direct mail,
electronic commerce or otherwise) of golf equipment; or (iii) engage in the
direct marketing (via direct mail, electronic commerce or otherwise) of
catalog(s) that principally feature golf apparel and accessories. For purposes
hereof, "golf apparel and accessories" shall mean apparel and accessories
designed or marketed principally for use by golfers or bearing golf insignia.
(b) After the Closing Date, Hanover and its Subsidiaries (including
Sellers) shall not, directly or indirectly, use for its own behalf or on behalf
of any third party or divulge to any third party the names, addresses or other
customer information contained in the customer lists described on Schedule 4.13
hereof (the "Austad Customer List"). Without limiting the foregoing, Hanover and
its Subsidiaries (including Sellers) shall not, directly or indirectly, solicit
orders for any products or services from any customers listed on the Austad
Customer List, provided that the foregoing shall not prohibit Hanover and its
Subsidiaries from soliciting orders from any customer listed on the Austad
Customer List for products offered through another catalog of Hanover and/or its
Subsidiaries (i) if such customer purchased products from such other catalog
prior to the Closing Date, (ii) after such customer makes an unsolicited
purchase from or request for another catalog of Hanover and/or its Subsidiaries
after the Closing Date, (iii) if such customer is listed on a customer list
acquired by Hanover or its Subsidiaries from a third party, or (iv) if such
customer's name is independently developed by Hanover or its Subsidiaries.
(c) Hanover and Sellers acknowledge that the restrictions contained
in this Section 10.1 are reasonable and necessary to protect the legitimate
interests of Buyer, do not cause it undue hardship, and that any violations of
any provision of this Section 10.1 will result in irreparable injury to Buyer
and that, therefore, Buyer shall be entitled to preliminary and permanent
injunctive relief in any court of competent jurisdiction and to an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which Buyer may be entitled. In the event that any court having
jurisdiction shall determine that the foregoing restrictive covenant or other
provisions shall be unreasonable or unenforceable in any respect, then such
covenant and other provisions shall be deemed limited to the extent that such
court deems it reasonable and enforceable, and as so limited shall remain in
full force and effect.
10.2 Membership Programs. After the Closing, Sellers shall promptly
reimburse Buyer for all liabilities and obligations to members as of the Closing
Date under the membership programs applicable to the Business disclosed on
Schedule 4.16 hereof for the balance of the current membership year, including,
without limitation: (i) all shipping and handling charges for purchases by
Austad's Advantage Club members, (ii) the difference between the advertised or
other standard price and the discounted price paid by Austad's Preferred Club
members, and (iii) all refunds of annual membership fees, except, in each case,
to the extent such liability results from Buyer's negligence or wilful
misconduct.
10.3 Customer Returns and Credits. After the Closing, Sellers shall
promptly reimburse Buyer for the following amounts: (i) all customer credits
issued for sales prior to the Closing Date in the ordinary course of business
and honored by Buyer in accordance with their terms within six (6) months after
the Closing Date, (ii) Buyer's actual processing and restocking fee
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<PAGE> 27
and the sales price (less the cost of goods sold for non-defective merchandise,
if applicable) for all merchandise returns within six (6) months following the
Closing Date for products purchased prior to the Closing Date in accordance with
Sellers' merchandise return policy, as described on Schedule 4.17 hereof, and
(iii) the value of gift certificates for the Business sold prior to the Closing
Date in the ordinary course of business and honored by Buyer in accordance with
their terms within six (6) months after the Closing Date.
10.4 Transition Services. For a period of up to thirty (30) days
after the Closing, Hanover and Sellers agree to reasonably cooperate with Buyer
and to provide Buyer with such marketing, merchandising, financial and/or
information services as Buyer shall reasonably request, consistent with
Hanover's and Seller's past practices, in order to effectuate the transition of
the operation of the Business to Buyer, provided that Buyer reimburses Hanover
and Sellers for their reasonable out-of-pocket costs in providing such
assistance and services.
10.5 Purchase Option. If at any time after the Closing Date but
prior to the redemption of all of the shares of Preferred Stock issued to
Hanover pursuant to Section 2.1(v) hereof, Buyer proposes to issue additional
shares of its common stock (an "Issuance"), it shall give notice of such
Issuance to Hanover, which notice shall indicate the number of shares proposed
to be issued by Buyer and price therefor, and any other terms and conditions of
such offer. With respect to each Issuance, Hanover shall have the right and
option (the "Purchase Option") to purchase from Buyer up to fifty percent (50%)
of the amount of common stock being offered by Buyer in such Issuance, upon the
same terms and conditions than those being offered to any other prospective
investors. Each Purchase Option shall be in effect for a period of twenty (20)
days following Hanover's receipt of the notice of such Issuance required above.
Hanover shall exercise a Purchase Option by giving written notice thereof to
Buyer within the twenty (20) day period in which the Purchase Option is in
effect. The Purchase Option may be exercised for all or a part of the amount of
the shares of Buyer's common stock represented by the Purchase Option. The
purchase price payable upon exercise of a Purchase Option shall be paid to Buyer
by Hanover at the closing for the Issuance, which shall take place no earlier
than five (5) days following notice of Hanover's exercise of the Purchase
Option, at which time Buyer shall deliver to Hanover the certificates evidencing
the shares of Buyer's common stock so purchased.
11. GENERAL PROVISIONS.
The parties further covenant and agree as follows:
11.1 Entire Agreement. This Agreement and the other agreements and
documents referred to herein set forth the entire understanding of the parties
with respect to the subject matter hereof. Any previous agreements or
understandings between the parties regarding the subject matter hereof are
merged into and superseded by this Agreement.
11.2 Waiver. Any of the terms or conditions of this Agreement may be
waived at any time by the party or parties entitled to the benefit thereof but
only by a written notice signed by the party or parties waiving such terms or
conditions.
11.3 Amendments. This Agreement may be amended, supplemented or
interpreted at any time only by written instrument duly executed by each of the
parties hereto.
11.4 Expenses. Except as set forth in Section 2 hereof, the parties
shall each pay its or their own expenses, including, without limitation, the
expenses of its or their own counsel, investment bankers and accountants,
incurred in connection with the preparation, execution and
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<PAGE> 28
delivery of this Agreement and the other agreements and documents referred to
herein and the consummation of the transactions contemplated hereby and thereby.
All costs and expenses of the parties in enforcing any of the
provisions of this Agreement and the other agreements and documents referred to
herein (including but not limited to reasonable attorneys' fees and court
costs), shall be borne by the party found in default or noncompliance with the
provisions of this Agreement and the other agreements and documents referred to
herein.
11.5 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be by
hand-delivery, certified or registered mail, return receipt requested,
telecopier, or air courier to the parties set forth below. Such notices shall be
deemed given: at the time personally delivered, if delivered by hand; at the
time received if sent certified or registered mail; when receipt is acknowledged
by facsimile equipment if telecopied and if a copy is also promptly mailed by
certified or registered mail; and the next business day after timely delivery to
the courier, if sent by air courier.
If to Buyer: Euclid Logistics, Inc.
1025 North Euclid Avenue
Oak Park, Illinois 60302
Attention: Mr. Kent Arett
Telephone: 708-383-3177
Telecopier: 708-383-2838
Copy to: Lord, Bissell & Brook
115 South LaSalle Street
Chicago, Illinois 60603
Attention: David M. Seghetti, Esq.
Telephone: 312-443-0700
Telecopier: 312-443-0336
If to Hanover Hanover Direct, Inc.
or Sellers 1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Mr. Rakesh K. Kaul
Telephone: 201-272-3405
Telecopier: 201-272-3465
Copy to: Brown, Raysman, Millstein, Felder & Steiner, LLP
CityPlace I
185 Asylum Street
Hartford, Connecticut 06103
Attention: Monte Wetzler, Esq.
Telephone: 860-275-6400
Telecopier: 860-275-6410
11.6 Assignment. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by any party without the prior written
consent of the other parties hereto. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, legal representatives, successors and permitted assigns of the
parties hereto.
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<PAGE> 29
11.7 Commissions and Finder's Fees. Buyer, on the one hand, and
Hanover and Seller, jointly and severally, on the other hand, represent and
warrant that none of them has retained or used the services of any individual,
firm or corporation in such manner as to entitle such individual, firm or
corporation to any compensation for brokers' or finders' fees with respect to
the transactions contemplated hereby for which the other may be liable.
11.8 Severability. In the event that any one or more of the
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions of this Agreement shall not be in any way impaired.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Headings. The headings of the Sections and the subsections of
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
11.11 Instruments of Further Assurance. Each of the parties hereto
agrees, upon the request of any of the other parties hereto, from time to time
to execute and deliver to such other party or parties all such instruments and
documents of further assurance or otherwise as shall be reasonable under the
circumstances, and to do any and all such acts and things as may reasonably be
required to carry out the obligations of such requested party hereunder.
11.12 Publicity. No notices to third parties or other publicity,
including press releases, concerning any of the transactions provided for herein
shall be made by any party hereto unless planned and coordinated jointly among
the parties hereto, except to the extent otherwise required by law.
11.13 No Third Party Beneficiaries. Nothing in this Agreement is
intended nor shall it be construed to give any person, firm, corporation or
other entity, other than the parties hereto and their respective successors and
permitted assigns, any right, remedy or claim under or in respect of this
Agreement or any provisions hereof.
11.14 Waiver of Trial by Jury. The parties hereby knowingly,
voluntarily and intentionally waive any right they may have to a trial by jury
in respect to any litigation arising out of, under or in connection with this
Agreement, or any course of conduct, course of dealing, statements (whether
verbal or written) or actions of any party hereto. This provision is a material
inducement for Buyer, Hanover and Sellers entering into this Agreement.
11.15 Cumulative Remedies. All rights and remedies of the parties
hereto are cumulative of each other and of every other right or remedy such
parties may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
11.16 Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of New York,
excluding any choice of law rules which may direct the application of the laws
of another jurisdiction.
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<PAGE> 30
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto on the day and year first above written.
HANOVER DIRECT, INC. EUCLID LOGISTICS, INC.
By By /s/ Kent A. Arett
------------------------------ ---------------------------------
Kent A. Arett
President
THE AUSTAD COMPANY
By
------------------------------
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<PAGE> 31
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto on the day and year first above written.
HANOVER DIRECT, INC. EUCLID LOGISTICS, INC.
By /s/ L. J. Svoboda By:
------------------------------ ---------------------------------
L. J. Svoboda Kent A. Arett
Senior V.P President
THE AUSTAD COMPANY
By /s/ L. J. Svoboda
------------------------------
L. J. Svoboda
V.P
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<PAGE> 32
APPENDIX OF DEFINITIONS
The following definitions shall be applicable for purposes of the
Agreement except as otherwise specifically provided to the contrary in the text
of the Agreement.
"Active Customers" shall mean customers, without duplication, that have
made at least one purchase from the Business within twelve (12) months prior to
the Closing Date.
"Affiliates" of a person shall mean any person or entity controlling,
controlled by or under common control with that person. "Control" for this
purpose shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities or interests, by contract, or
otherwise.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Copyright" shall mean all copyrights in published and nonpublished works,
now or hereafter existing, in the United States or any foreign jurisdiction, and
all applications, registrations, and recordings related thereto filed in the
United States Copyright Office or in any other government office or agency in
the United States or any foreign jurisdiction.
"Eligible Inventory" shall mean only inventory: (i) originally purchased
by Hanover and/or Sellers in the ordinary course of business for sale through
the Austad catalog, (ii) relating to products displayed in Austad catalogs
mailed prior to, or within fifteen (15) days after, the Closing Date, and (iii)
which otherwise complies with the representations and warranties set forth in
Section 4.10 of this Agreement; provided that Eligible Inventory shall not
include any merchandise the cost of which is assumed by Buyer pursuant to
Section 3.1.4 hereof. For purposes of Section 2.4 of this Agreement, the amount
of Eligible Inventory will be determined in accordance with Sellers' normal
accounting practices, consistently applied, provided that such amount will be
reduced by the amount of all vendor discounts paid or payable to Hanover or its
Affiliates with respect to Eligible Inventory included in the Purchased Assets.
"Knowledge" The phrase "to Seller's knowledge" or similar phrases means
those facts and circumstances known to any director, officer or [ILLEGIBLE]
managerial employee of Sellers, in each case after due inquiry by such persons
to those employees of Hanover or Sellers who in the ordinary course of their
duties would be reasonably likely to have knowledge of the facts or
circumstances in question.
"Material Adverse Effect" shall mean a material adverse effect upon the
Purchased Assets, liabilities, financial condition or results of operation of
Sellers, on the continued conduct of the Business, as presently conducted, or on
the ability of Hanover or Sellers to execute this Agreement and consummate their
respective obligations hereunder.
"Person" shall mean an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or department, agency or political
subdivision thereof).
"Preferred Stock" shall mean Buyer's Series A preferred stock, no par
value per share. The rights and preferences of the Preferred Stock are set forth
on Exhibit D hereto.
"Reasonable Efforts" shall mean the good faith effort that a person
ordinarily would use, apply or exercise to protect his own rights and business,
provided that when used in connection with
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<PAGE> 33
the obtaining of a consent, approval or other act of an unaffiliated third
person or governmental authority, "reasonable efforts" shall not require the
commencement of litigation against or acquisition of control of such third
person or the assets or obligations requiring such consent, the acceleration of
payment of any indebtedness or the payment of money.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" shall mean any Person with respect to which a specified
Person (or Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Taxes" shall mean all federal, state, local and foreign income, excise,
property, sales, use, payroll, intangibles, franchise and other taxes and
assessments of whatever nature, and all penalties and interest related thereto.
"Trademark" shall mean all business names, logos, service marks,
trademarks, trade names, trade styles, and other business or source identifiers,
and all combinations, contractions, derivatives, expansions, modifications and
variations thereof.
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<PAGE> 34
Exhibit C
Form of Opinion of Buyer's Counsel
October ___, 1999
Hanover Direct, Inc.
Austad Holdings, Inc.
The Austad Company
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Ladies and Gentlemen:
We have acted as counsel for Euclid Logistics, Inc., an Illinois
corporation ("Buyer"), in connection with the transactions contemplated by an
Asset Purchase Agreement dated as of August ___, 1999 (the "Agreement") by and
among Buyer; Hanover Direct, Inc., a Delaware corporation ("Hanover"); Austad
Holdings, Inc., a Delaware corporation ("AHI"); and The Austad Company, a South
Dakota corporation ("TAC"). AHI and TAC are collectively referred to herein as
the "Sellers". This opinion is being delivered to you pursuant to Section 7.3.3
of the Agreement. Unless otherwise indicated, capitalized terms used herein and
not otherwise defined shall have the meaning given to them in the Agreement.
In so acting, we have reviewed: (i) the Agreement; and (ii) the Assumption
Agreement between Buyer and Sellers (collectively the "Acquisition Documents").
We have also examined originals or copies, certified or otherwise identified to
our satisfaction, of Buyer's certificate or articles of incorporation and
by-laws and such records, documents, certificates and other instruments as in
our judgment are necessary or appropriate to enable us to render the opinions
expressed below. We have relied, to the extent that we deem such reliance
appropriate, upon certificates and other statements of officers of Buyer and of
public officials issued with respect to Buyer. As to certain factual matters, we
have relied, with your permission and without independent investigation, upon
the representations and warranties of Buyer set forth in the Agreement.
In our examination of the aforesaid documents, we have assumed (i) the
genuineness of all signatures (other than those of officers of Buyer) and the
authenticity of all documents purporting to be originals and the conformity to
originals of all documents purporting to be copies and (ii) with respect to
documents to which parties other than or in addition to Buyer are a party, that
each such other party has the requisite power and authority to enter into and
perform its obligations under such documents, that all actions, consents,
approvals, authorization and filings necessary in respect of such parties'
performance thereunder have been taken or received, and that such documents
constitute the valid and binding obligation of each such other party,
enforceable against each such other party in accordance with their respective
terms.
<PAGE> 35
Hanover Direct, Inc.
Austad Holdings, Inc.
The Austad Company
October ___, 1999
Page 2
Based on the foregoing, and subject to the assumptions, qualifications and
limitations stated herein, we are of the opinion that:
1. Buyer is a corporation validly existing and in good standing under the
laws of the State of Illinois, and has all requisite corporate power and
authority to own its assets and to carry on its business as now conducted.
2. Buyer has all requisite power and authority (corporate or otherwise) to
execute and deliver the Acquisition Documents and to consummate the transactions
contemplated thereby.
3. The execution and delivery of the Acquisition Documents by Buyer, and
the consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate action on the part of Buyer, and the
Acquisition Documents constitute the valid and binding agreements of Buyer,
enforceable in accordance with their respective terms.
4. Neither the execution and delivery of the Acquisition Documents, nor
the consummation of the transactions contemplated thereby, will constitute a
violation of, or be in conflict with, or result in a cancellation of, or
constitute a default under, or create (or cause the acceleration of the maturity
of) any debt, obligation or liability affecting, or result in the creation or
imposition of any security interest, lien or other encumbrance upon any of the
assets of Buyer under: (a) any term or provision of the certificate or articles
of incorporation or by-laws of Buyer, (b) to our knowledge, any statute or law,
(c) to our knowledge, any judgement, decree, order, regulation or rule of any
court or governmental authority, or (d) to our knowledge, any contract,
agreement, or other commitment to which Buyer is a party or is bound, or, to our
knowledge, cause any material change in the rights or obligations of any party
under any such contract, agreement, or other commitment, except for liens and
security interests granted by Buyer to its lenders.
5. To our knowledge, no consent of, or notice to, any federal, state or
local authority, or any other person or entity is required to be obtained or
made by Buyer in connection with the execution, delivery and performance of the
Acquisition Documents.
6. To our knowledge, there are no (i) lawsuits, proceedings, claims or
governmental investigations pending or threatened against, or involving, Buyer,
or (ii) judgments, consents, decrees, injunctions, or any other judicial or
administrative mandates outstanding against Buyer.
The foregoing opinions are subject to the following qualifications,
limitations and exceptions.
<PAGE> 36
Hanover Direct, Inc.
Austad Holdings, Inc.
The Austad Company
October ___, 1999
Page 3
A. Whenever our opinion with respect to the existence or absence of
facts is indicated to be based on our knowledge, we are referring to the
actual knowledge of Lord, Bissell & Brook attorneys who have given
substantive attention to matters concerning Buyer during the course of our
representation of Buyer, which knowledge has been obtained by such
attorneys in their capacity as such. Except as expressly set forth herein,
we have not undertaken any independent investigation to determine the
existence or absence of such facts and no inference as to our knowledge
concerning such facts should be drawn from the fact that such limited
representation has been undertaken by us.
B. Our opinion is subject to any limitations as to the validity,
binding nature or enforceability of the obligations of Buyer under the
Acquisition Documents which might result from (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, and (ii) general equitable
principles and equitable remedies, regardless of whether enforceability is
considered in a proceeding in equity or at law.
C. We express no opinion as to the validity, binding nature or
enforceability of: (i) any rules to choice or conflicts of law, (ii) any
provision releasing a party from, or requiring indemnification of a party
for, liability for its own action or inaction, to the extent such action
or inaction involves gross negligence, recklessness, willful misconduct or
unlawful conduct and such release or indemnification violates public
policy, (iii) any purported waiver by a party of any rights granted
pursuant to statute, or (iv) the waiver by any party of their right to a
trial by jury.
D. We note that the Acquisition Documents provide for the laws of
the State of New York to govern such document. For purposes of this
opinion, we have assumed, with your approval and without independent
investigation, that the relevant laws of the State of New York are
identical in all material respects to the corresponding laws of the State
of Illinois.
We are members of the bar of the State of Illinois and we therefore
express no opinion with respect to any matter which may be governed by the laws
of any jurisdiction other than the State of Illinois and applicable laws of the
United States of America, all as in effect on and as of the date hereof and we
disclaim any obligation to advise you of any changes in such laws which may
hereafter come to our attention.
<PAGE> 37
Hanover Direct, Inc.
Austad Holdings, Inc.
The Austad Company
October ___, 1999
Page 4
This opinion is limited to the matters set forth herein and no opinion may
be inferred or implied beyond the matters expressly contained herein. This
opinion is rendered to you in connection with the Agreement and the transactions
related thereto and may not be relied upon by any other person or by you for any
other purpose.
Very truly yours,
Lord, Bissell & Brook
<PAGE> 38
EXHIBIT D
Rights and Preferences of Preferred Stock
The powers, qualifications, limitations, restrictions and special or
relative rights in respect of the Series A Preferred Stock are as follows:
(i) Amount. The maximum number of shares of Series A Preferred Stock
issuable by the Corporation shall be 1,988,000 shares.
(ii) Issuance: No Transfer. The Series A Preferred Stock shall be issued
only to Hanover Direct, Inc., a Delaware corporation ("Hanover"). The Series A
Preferred Stock may not be sold, assigned or otherwise transferred by Hanover
without the Corporation's prior written consent.
(iii) Dividends.
(a) The holder of record of each share of Series A Preferred Stock
will be entitled to receive, when, as and if declared by the Corporation's board
of directors (the "Board") out of funds of the Corporation legally available
therefor, fully cumulative dividends at the annual rate of five percent (5%) of
the Liquidation Preference (as defined below), payable in equal quarterly
installments of $0.0125 per Preferred Share on the first Business Day (as
defined below) after the end of a Payment Period (as defined below) (each a
"Dividend Payment Date"). Dividends will be payable to holders of record of the
Series A Preferred Stock as they appear on the stock books of the Corporation on
such record dates, not more than 60 days prior to the applicable Dividend
Payment Date, as shall be fixed by the Board. The term "Payment Period" shall
mean the three (3) month periods ending on March 31st, June 30th, September
30th, and December 31st of each year. The term "Business Day" shall mean any day
other than a day on which banking institutions are required or authorized to
close in Chicago, Illinois.
(b) Dividends shall accrue (whether or not declared by the Board)
during each Payment Period and be fully cumulative from the first day of each
Payment Period to the last day of such Payment Period, provided that, for the
first Payment Period, dividends shall accrue and be fully cumulative from the
date of the initial issuance of Series A Preferred Stock and dividends shall
terminate upon the redemption or conversion of the Series A Preferred Stock as
provided herein. Dividends payable for any partial dividend period shall be
calculated on the basis of a 365 day year. Accrued but unpaid dividends shall
not bear interest.
(c) Unless full cumulative dividends on the Series A Preferred Stock
have been paid, the Corporation shall not: (i) declare, pay or set aside for
payment any dividend (other than in shares of Junior Stock (as defined below)),
or other distribution in respect of its Junior Stock, or (ii) call for
redemption, redeem, purchase or otherwise acquire for any consideration (other
than shares of its Junior Stock) any shares of its Junior Stock. The term
"Junior Stock" means the Common Stock and any series of Preferred Stock of the
Corporation other than the Series A Preferred Stock.
<PAGE> 39
(iv) Rank. The shares of Series A Preferred Stock shall rank prior to the
shares of Junior Stock upon liquidation, so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series A Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to its
shareholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Junior Stock, an amount equal to $1.00 per share
(the "Liquidation Preference") plus an amount equal to all dividends (whether or
not earned or declared) accumulated and unpaid on the shares of the Series A
Preferred Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of shares of the Series A
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were paid in full.
After payment of the full amount of the Liquidation Preference and such
dividends to which holders of shares of the Series A Preferred Stock are
entitled, the holders of shares of the Series A Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Corporation. For the purposes hereof, neither a consolidation or merger of the
Corporation with any other corporation, nor a sale or transfer of all or any
part of the Corporation's assets for cash or securities shall be considered a
liquidation, dissolution or winding up of the Corporation.
(v) Voting Rights. The holders of shares of Series A Preferred Stock shall
have no voting rights whatsoever, except for any voting rights to which they may
be entitled under the laws of the State of Illinois.
(vi) Redemption.
(a) To the extent that the Corporation shall have funds legally
available therefor, the Corporation may, at its option, at any time and from
time to time thereafter, redeem all but not less than all of the Series A
Preferred Stock, on at least 10 but no more than 60 days' prior notice mailed to
the holders of the shares to be redeemed at their addresses as shown on the
stock books of the Corporation, for an amount equal to $1.00 per share of Series
A Preferred Stock, together in each case with an amount equal to all dividends
(whether or not earned or declared) accumulated and unpaid to the date fixed for
redemption (the "Redemption Price").
(b) The Corporation shall redeem, from funds legally available
therefor, all of the Series A Preferred Stock at the Redemption Price on
__________,2004 [fifth anniversary of the closing date] (a "Mandatory
Redemption").
(c) If any required notice of a redemption has been given as
provided above, and if on the date fixed for such redemption, funds necessary
for the redemption shall be legally available therefor and shall have been
irrevocably deposited or set aside in trust for the holders of the Series A
Preferred Stock, then, notwithstanding that the certificates representing the
shares so called for redemption shall have not been surrendered, dividends with
respect to the shares so called shall cease
-2-
<PAGE> 40
to accrue after the date fixed for redemption, such shares will no longer be
deemed outstanding, the holders thereof shall cease to be shareholders of the
Corporation and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor) shall terminate.
If funds legally available for such purpose and not sufficient for a redemption
of the Series A Preferred Stock, then the certificates representing such shares
shall be deemed not to be surrendered, such shares shall remain outstanding, and
the rights of holders of the shares of Series A Preferred Stock thereafter shall
continue to be only those of a holder of Series A Preferred Stock. Should any
Series A Preferred Stock required to be redeemed under the terms of any
Mandatory Redemption not be redeemed solely by reason of limitations imposed by
law, such unredeemed shares, or any of them, shall be redeemed on the earliest
possible date thereafter, to the maximum extent permitted by law, that such
shares, or any of them, may be redeemed.
(vii) Conversion.
(a) Subject to and upon compliance with the provisions of this
paragraph (vii), the holder of a share of Series A Preferred Stock shall have
the right, at its option, at any time after _________, 2002 [third anniversary
of the closing date], to convert such share into such number of fully paid and
non-assessable shares of Common Stock (calculated as to each conversion to the
nearest whole share) as the Liquidation Preference of such shares surrendered
for conversion is a multiple of the Conversion Price (as defined below), such
surrender to be made in the manner provided in subparagraph (b) below; provided,
however, that the right to convert shares called for redemption pursuant to
Paragraph (vi) shall terminate at the close of business on the date fixed for
such redemption unless the Corporation shall default in making payment of the
amount payable upon such redemption. In addition, Hanover shall have the right
to convert, at its option, at any time, up to 258,333 shares of Series A
Preferred Stock into shares of Common Stock on the terms set forth above.
(b) In order to exercise the conversion privilege, the holder of
share(s) of Series A Preferred Stock to be converted shall deliver to the
Corporation at its principal executive offices a written notice stating the
number of shares of Series A Preferred Stock the holder has elected to convert
pursuant to this Paragraph (vii), together with the certificate(s) representing
such shares. As promptly as practicable after the surrender by a holder of the
certificates for shares of Series A Preferred Stock as aforesaid, the
Corporation shall issue and deliver to the holder of the Series A Preferred
Stock converting same, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such shares in accordance
with the provisions of this Paragraph (vii). Each conversion shall be deemed to
have been effected immediately prior to the close of business on the date on
which the certificates for shares of Series A Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid, and the
person in whose name or names the certificate for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder of
record of the shares of Common Stock represented thereby at such time on such
date and such conversion shall be at the Conversion Price in effect at such time
on such date. All shares of Common Stock delivered upon conversion of the
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<PAGE> 41
Series A Preferred Stock will upon delivery be duly and validly issued and fully
paid and non-assessable, free of all liens, and charges and not subject to any
preemptive rights. Upon the surrender of certificates representing shares of
Series A Preferred Stock, such shares shall no longer be deemed to be
outstanding and all rights of a holder with respect to such shares surrendered
for conversion shall immediately terminate, except the right to receive the
Common Stock, as provided herein.
(c) For purposes of this paragraph, the term "Conversion Price"
shall mean $1.00 per share. If the Corporation shall (i) pay a dividend or make
a distribution on its Common Stock in shares of its Common Stock, (ii) subdivide
its outstanding Common Stock into a greater number of shares, or (iii) combine
its outstanding Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior thereto shall be adjusted so that the holder
of any share of Series A Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock of the
Corporation which he would have owned or have been entitled to receive after the
happening of any of the events described above had such share been converted
immediately prior to the happening of such event. An adjustment made pursuant to
this subparagraph (c) shall become effective immediately after the record date
in the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of subdivision or combination. If any such
dividend or distribution is not so paid or made, the Conversion Price then in
effect shall be appropriately readjusted.
(d) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock for the purpose of effecting
conversions of the Series A Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all outstanding shares of Series A
Preferred Stock not theretofore converted.
(viii) Status. Upon the conversion, redemption or other acquisition by the
Corporation of any shares of Series A Preferred Stock, the shares of Series A
Preferred Stock so converted, redeemed or otherwise acquired by the Corporation
shall be canceled and shall not be reissued by the Corporation.
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<PAGE> 42
SCHEDULE 1.2
EXCLUDED ASSETS
None.
<PAGE> 1
THE SHOPPER'S EDGE, LLC
PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is made as of December 25,
1999, between Hanover Brands, Inc., a Delaware corporation ("HBI"), and FAR
Services, LLC, a Delaware limited liability company ("FAR ").
AGREEMENT
In consideration of the mutual promises and covenants herein, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
SALE AND PURCHASE OF INTEREST
1.1 Ownership of Interest. By virtue of a capital contribution on December
25, 1999 from its parent, Hanover Direct, Inc., a Delaware corporation ("HDI"),
HBI owns all of the membership interests (the "Interest") in The Shopper's Edge,
LLC, a Delaware limited liability company (the "Company"), having the rights,
preferences, privileges and restrictions as set forth in HDI's Operating
Agreement dated as of December 24, 1998, as amended by First Amendment thereto
dated as of December 25, 1999 (the "Operating Agreement").
1.2 Purchase of Interest. Subject to the terms and conditions hereof, FAR
will purchase from HBI and HBI will sell and deliver to FAR the Interest at a
purchase price (the "Purchase Price") of $1.00 payable in cash on the Closing
Date subject to adjustment based upon the receipt of a third party valuation
mutually agreeable and acceptable to both parties.
SECTION 2
CLOSING DATE; DELIVERY
2.1 Closing Date. It is anticipated that purchase and sale of the Interest
hereunder shall be consummated at a closing (the "Closing") held at the offices
of HBI effective December 25, 1999 or at such other date, time and place upon
which HBI and FAR shall mutually agree (the date and time of the Closing is
hereinafter referred to as the "Closing Date").
2.2 Delivery and Payment. At the Closing, HBI will deliver to FAR the
Interest, and FAR shall deliver to HBI the Purchase Price, and the parties shall
have taken the other actions required by Sections 7 and 8 hereof.
<PAGE> 2
SECTION 3
REPRESENTATIONS AND WARRANTIES OF FAR; COVENANT OF FAR
FAR represents and warrants to HBI that, as of the Closing Date:
3.1 Organization, Standing and Power. FAR is a limited liability company
duly formed, validly existing and in good standing under the laws of the State
of Delaware. FAR has all requisite legal power and authority to execute and
deliver this Agreement, to purchase the Interest hereunder, and to carry out and
perform its obligations under the terms of this Agreement.
3.2 Authorization. All action on the part of FAR and its members and
managers necessary for the authorization, execution, delivery and performance of
this Agreement by FAR, the purchase of the Interest and the performance of FAR's
obligations hereunder has been taken or will be taken prior to the Closing. This
Agreement constitutes the valid and binding obligations of FAR, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3 Governmental Consent, etc. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of FAR is required in
connection with the valid execution and delivery of this Agreement, the purchase
of the Interest, or the consummation of any other transaction contemplated
hereby.
3.4 Compliance with Other Instruments. FAR is not in violation of any term
of its Operating Agreement, or of any term or provision of any mortgage,
indenture, contract, agreement, instrument, judgment or decree, and to its
knowledge, is not in violation of any order, statute, rule or regulation
applicable to FAR, which violation reasonably would be expected to have a
material adverse effect on FAR's performance of any of its material obligations
under this Agreement, The execution, delivery and performance of, and compliance
with, this Agreement, the consummation of the transactions contemplated hereby,
and the purchase of the Interest have not resulted, and will not result, in any
violation of, or conflict with or constitute a default under, any such term or
provision, or result in the creation of, any Lien upon any of the properties or
assets of FAR except for such defaults or Liens as would not prevent FAR from
performing any of its material obligations under this Agreement.
3.5 No Brokers. FAR has not entered into any contract, arrangement or
understanding with any Person which may result in the obligation of any party
hereto to pay any finder's fees, brokerage or agent's commissions or other like
payments in
2
<PAGE> 3
connection with the negotiations leading to this Agreement or the transactions
contemplated hereby.
3.6 Covenant of FAR. FAR covenants to provide to HBI within sixty (60)
days after the Closing Date documentary evidence that it has changed the
ownership information on or secured new surety bonds for appropriate State
authorities including, without limitation, Nevada, North Carolina, Arizona,
Kentucky, New Hampshire and California; and provided, further, that, if FAR
fails to do so, HBI shall proceed to effect the change of ownership information
or secure new surety bonds for appropriate State authorities, and FAR shall
cooperate in full to complete all such filings or bond applications, and all
reasonable costs and expenses thereof shall be charged to and paid by the
Company (or FAR).
SECTION 4
REPRESENTATIONS AND WARRANTIES OF HBI WITH RESPECT TO HBI
HBI represents and warrants to FAR that, as of the Closing Date:
4.1 Title. HBI owns the Interest free and clear of any Liens; provided,
however, that the Interest may be subject to restrictions on transfer under
state or federal securities laws and restrictions set forth in the Operating
Agreement and restrictions created or imposed upon FAR.
4.2 Organization, Standing and Corporate Power. HBI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. HBI has all requisite legal power and corporate power and authority to
execute and deliver this Agreement, to sell the Interest hereunder, and to carry
out and perform its obligations under the terms of this Agreement.
4.3 Authorization. All corporate action on the part of HBI and its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by HBI, the purchase of the Interest and the
performance of HBI's obligations hereunder has been taken or will be taken prior
to the Closing. This Agreement constitutes the valid and binding obligations of
HBI, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.4 Governmental Consent, etc. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of HBI is required in
connection with the valid execution and delivery of this Agreement, the offer or
sale of the Interest, or the consummation of any other transaction contemplated
hereby.
3
<PAGE> 4
4.5 Compliance with Other Instruments. HBI is not in violation of any term
of its charter documents, or of any term or provision of any mortgage,
indenture, contract, agreement, instrument, judgment or decree, and to its
knowledge, is not in violation of any order, statute, rule or regulation
applicable to HBI, which violation reasonably would be expected to have a
material adverse effect on HBI's performance of any of its material obligations
under this Agreement. The execution, delivery and performance of, and compliance
with, this Agreement, the consummation of the transactions contemplated hereby,
and the purchase and sale of the Interest have not resulted, and will not
result, in any violation of, or conflict with or constitute a default under, any
such term or provision, or result in the creation of, any Lien upon any of the
properties or assets of HBI except for such defaults or Liens as would not
prevent HBI from performing any of its material obligations under this
Agreement.
4.6 No Brokers. HBI has not entered into any contract, arrangement or
understanding with any Person which may result in the obligation of any party
hereto to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
transactions contemplated hereby.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF HBI
WITH RESPECT TO THE COMPANY
HBI represents and warrants to FAR that, as of the Closing Date:
5.1 Organization, Standing, Power and Qualification. The Company is a
limited liability company duly formed, validly existing and in good standing
under the laws of the State of Delaware, and has all necessary power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified as a foreign limited liability company
to do business, and is in good standing, in each other jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary.
5.2 Financial Statements. Schedule 5.2 annexed hereto contains a complete
and correct copy of the unaudited financial statements of the Company for the
year ended December 25, 1999 (the "Financial Statements"), including the balance
sheets for year ended December 25, 1999, and the related statements of income,
stockholders' equity and cash flows for the year ended December 25, 1999. The
Financial Statements have been prepared by the Company in accordance with
generally accepted accounting principles consistently applied.
5.3 Absence of Undisclosed Liabilities. Since December 26, 1999, the
Company does not have any indebtedness, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, related to or arising from
the operation of its
4
<PAGE> 5
business or other ownership, possession or use of its assets through the
Closing, except for indebtedness, liabilities or obligations incurred in the
ordinary course of its business consistent with past practice, which
indebtedness, liabilities or obligations are not (x) otherwise prohibited by, in
violation of, or will result in a breach of the representations, warranties or
covenants of HBI contained in this Agreement and (y) reasonably likely to have a
material adverse effect on the Company.
5.4 Absence of Certain Developments. Since December 26, 1999, the Company
has operated its business in the ordinary course consistent with past practice
and there has not been any:
(a) event which has had or is reasonably likely, individually or in the
aggregate, to have a material adverse effect on the Company's business;
(b) transactions of the Company not in the ordinary course of business,
which transactions have a value individually in excess of $2,500 or in excess of
$5,000 in the aggregate;
(c) material damage, destruction or loss, whether or not insured,
affecting the Company's business;
(d) change in accounting principles, methods or practices or investment
practices of the Company;
(e) amendment to the Company's organizational documents, including, but
not limited to, the Company's Operating Agreement; or
(f) agreement or understanding legally obligating the Company to take any
of the actions described above in this Section 5.4.
5.5 Material Contracts. Schedule 5.5 sets forth an accurate and complete
list of the contracts to which the Company is a party or bound, or pursuant to
which the Company is a beneficiary. Accurate and complete copies of each
contract set forth on Schedule 5.5 have been made available by HBI to FAR. Each
Contract described in this Section 5.5 is in full force and effect. The Company
has complied with all material commitments and obligations on its part to be
performed or observed pursuant to each contract described in this Section 5.5.
No event has occurred which is or, after the giving of notice or passage of time
or both, would constitute a default under or a breach of any Contract described
in this Section 5.5 by the Company. The Company has not received any notice of a
default, offset or counterclaim under or any notice of cancellation of or intent
to cancel, notice to make a material modification or intent to make a material
modification in, any contract described in this Section 5.5.
5.6 Taxes. For purposes of this Agreement, the terms "Tax" and "Taxes"
shall mean any and all taxes, charges, fees, levies or other assessments,
including, without
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<PAGE> 6
limitation, all net income, gross income, gross receipts, premium, sales, use,
ad valorem, value added, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, occupation, property
or other taxes, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties (including penalties for failure to file in
accordance with applicable information reporting requirements), and additions to
tax by any authority, whether federal, state, or local or domestic or foreign.
The term "Tax Return" shall mean any report, return, form, declaration or other
document or information required to be supplied to any authority in connection
with Taxes.
(a) From December 24, 1998 through the date hereof, the Company has been
treated as a partnership and disregarded as an entity (as set forth in Treasury
Regulation Section 301.7701-3(b)(l)(ii)) for federal and applicable state, local
and foreign income tax purposes
(b) As of the date hereof, the income Tax Returns for HDI, in which the
Company's income and deductions will be reported for fiscal 1999, its first year
of operation, and for periods subsequent thereto through the date of Closing,
are not yet due. It is also expected that HDI will, in the ordinary course of
preparing its 1999 income tax returns, obtain an extension of time in which to
file. The Company, HDI and HBI have filed all Tax Returns that were required to
be filed. All such Tax Returns were when filed, and continue to be, correct and
complete in all respects. All Taxes owed or required to be withheld by the
Company, HDI or HBI (whether or not shown on any Tax Return) have been timely
paid or withheld. No claim has ever been made by an authority in a jurisdiction
where the Company (HDI or HBI with respect to the business conducted or assets
owned by the Company) does not file Tax Returns that it, HDI or HBI is or may be
subject to taxation by that jurisdiction. There are no liens with respect to
Taxes on any of the assets or property of the Company, except for liens with
respect to Taxes not yet payable.
(c) There is no dispute or claim concerning any Tax Liability of the
Company, HDI or HBI either (i) claimed or raised by any authority in writing or
(ii) as to which HDI or HBI has knowledge. There are no proceedings with respect
to Taxes pending. To the knowledge of HDI or HBI, no audit or investigation with
respect to Taxes has been threatened.
(d) Neither the Company, HDI nor HBI has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) For purposes of this Section 5.6, references to the Company and HBI
shall also refer to any predecessor companies.
5.7 Compliance With Laws. The Company complies in all material respects
with all Laws applicable to the Company.
6
<PAGE> 7
5.8 Legal Proceedings. The Company is not engaged in or a party to or
threatened with any action, suit, proceeding, complaint, charge, investigation
or arbitration or other method of settling disputes or disagreements, and there
is not any reasonable basis for any such action against the Company. The Company
has not received notice of any investigation threatened or contemplated by any
Governmental Authority. The Company or any of its assets are not subject to any
Judgment or other agreement which, among other things, restricts the ability of
the Company from operating its business, as it is currently conducted, which is
reasonably likely to have a material adverse effect on the Company.
5.9 Books and Records. The books of account and other financial records of
the Company are accurate and complete in all material respects.
5.10 Employee Programs.
(a) The Company has never maintained, and has never had an obligation to
make any contribution to, any Employee Program.
(b) No Affiliate has any unpaid material liability, fine, penalty or Tax
with respect to any Employee Program for which the Company could be liable.
(c) For purposes of this Section 5.10:
1. "Employee Program" means (A) any "employee benefit
plan", within the meaning of Section 3(3) of ERISA, whether or
not it is subject to ERISA, or (B) any other employee benefit
arrangement which is (1) the portion of any employment or
consulting agreement which provides employee benefits, (2) an
arrangement providing for insurance coverage or workers'
compensation benefits, (3) an incentive bonus or deferred
bonus arrangement, (4) a stock purchase or stock option
arrangement, (5) a cafeteria plan, (6) a death benefit
arrangement, (7) an arrangement providing termination
allowance, salary continuation, severance or similar benefits,
(8) an equity compensation plan, (9) a deferred compensation
plan, (10) a tuition reimbursement, dependent care assistance,
or legal assistance plan or arrangement, (11) a fringe benefit
arrangement (cash or noncash), (12) a holiday or vacation plan
or policy, or (13) any other compensation policy or practice.
2. An entity is an "Affiliate" if it has ever been
considered a single employer with the Company under Section
4001(b) of the Employee Retirement Income Security Act of
1974, as amended, or Section 414(b), (c), (m) or (o) of the
Code.
7
<PAGE> 8
SECTION 6
INDEMNIFICATION
6.1 Survival of Representations, Warranties, Covenants and Agreements.
Except as otherwise specifically provided for herein, the representations,
warranties, covenants and agreements of the parties hereto included or provided
for herein, or in other instruments or agreements delivered or to be delivered
pursuant hereto, shall survive for a period ending eighteen months (18) after
the date of Closing; provided, however, that to the extent any breach of a
representation, warranty, covenant or agreement involves any loss, damage,
liability or claim in each case relating to or for Taxes ("Tax Liability"), the
right to assert such claims and any indemnity obligation shall survive until the
expiration of the applicable statute of limitations relating to such Tax
Liability (such period as provided in this Section 6.1 or as otherwise
specifically provided elsewhere herein being referred to as the "Survival
Period"); provided further, however, that if, prior to the expiration of the
Survival Period, any party hereto shall have been notified of a claim for
indemnity hereunder and such claim shall not have been finally resolved before
the expiration of the Survival Period, any representation, warranty, covenant or
agreement that is the basis for such claim shall continue to survive and shall
remain a basis for indemnity as to such claim until such claim is finally
resolved. The respective representations and warranties contained herein shall
not be deemed waived or otherwise affected by any investigation made by any
party hereto or any amendment or supplement to the schedules or exhibits hereto
occurring after the signing of this Agreement.
6.2 General Indemnity.
(a) HBI agrees to indemnify and hold harmless FAR against (i) any and all
damage, loss, claim, expense, deficiency or cost resulting from the breach by
HBI of any representation or warranty made by HBI hereunder; (ii) any and all
damage, loss, claim, expense, deficiency or cost resulting from the failure to
comply in any material respect with any covenant or agreement made by HBI
hereunder; (iii) all Taxes for periods (or portions of periods) ending on or
before the date of Closing: and (iv) any and all actions, suits, proceedings,
demands, assessments, Judgments, costs, costs of collection and legal and other
expenses incident to any of the foregoing.
(b) FAR agrees to indemnify and hold harmless HBI against (i) any and all
damage, loss, claim, expense, deficiency or cost resulting from the breach by
FAR of any representation or warranty made by FAR hereunder; (ii) any and all
damage, loss, claim, expense, deficiency or cost resulting from the failure to
comply in any material respect with any covenant or agreement made by FAR
hereunder; (iii) any and all actions, suits, proceedings, demands, assessments,
Judgments, costs, costs of collection and legal and other expenses incident to
any of the foregoing; and (iv) all Taxes for periods (or portions of periods)
beginning on and after the date of Closing.
8
<PAGE> 9
6.3 Reimbursement
(a) Subject to Section 6.4 hereof, HBI agrees to reimburse FAR on
demand for any payment made by FAR or any loss, damage, cost or expense suffered
by FAR at any time after the date hereof in respect of any matter to which the
indemnity referred to in Section 6.2(a) relates.
(b) Subject to Section 6.4 hereof, FAR agrees to reimburse HBI on
demand for any payment made by HBI or any loss, damage, cost or expense suffered
by HBI at any time after the date hereof in respect of any matter to which the
indemnity referred to in Section 6.2(b) relates.
6.4 Claims.
(a) In the event that at any time a claim is made by any Person not
a party to this Agreement with respect to any matter to which the indemnity
provided for by Section 6.2(a) relates, FAR, on not less than twenty (20) days'
notice to HBI, may make settlement of such claim and such settlement shall be
binding upon HBI; provided, however, that HBI shall have the option, to be
exercised by notice to FAR within ten (10) days after such first mentioned
notice shall have been given, to assume the contest and defense of such claim.
If HBI shall exercise such option, it shall have control over such contest and
defense and over the payment, settlement or compromise of such claim, and FAR
agrees to cooperate fully with HBI and its attorneys with respect to such
contest and defense. If HBI shall not exercise such option, FAR may, but shall
not be obligated to, assume the contest and defense of such claim and shall have
control over such contest and defense and over the payment, settlement or
compromise of such claim. Any payment or settlement resulting from such contest,
together with the total expenses thereof, including but not limited to
reasonable attorneys' fees, shall be binding upon HBI and FAR.
(b) In the event that at any time a claim is made by any Person not
a party to this Agreement with respect to any matter to which the indemnity
provided for by Section 6.2(b) relates, HBI, on not less than twenty (20) days'
notice to FAR, may make settlement of such claim and such settlement shall be
binding upon FAR; provided, however, that FAR shall have the option, to be
exercised by notice to HBI within ten (10) days after such first mentioned
notice shall have been given, to assume the contest and defense of such claim.
If FAR shall exercise such option, it shall have control over such contest and
defense and over the payment, settlement or compromise of such claim, and HBI
agrees to cooperate fully with FAR and its attorneys with respect to such
contest and defense. If FAR shall not exercise such option. HBI may, but shall
not be obligated to, assume the contest and defense of such claim and shall have
control over such contest and defense and over the payment, settlement or
compromise of such claim. Any payment or settlement resulting from such contest,
together with the total expenses thereof, including but not limited to
reasonable attorneys' fees, shall be binding upon FAR and HBI.
9
<PAGE> 10
SECTION 7
OBLIGATIONS AFTER THE CLOSING
7.1 Tax Periods Ending on or Before the Closing Date. HBI shall prepare or
cause to be prepared and file or cause to be filed (at its expense) all Tax
Returns relating to the Company for all periods ending on or prior to the
Closing by the Company. Such Tax Returns shall be prepared in a manner
consistent with the Tax Returns (including amended Tax Returns) filed on or
prior to the date of Closing for prior fiscal periods. HBI shall pay, or cause
to be paid, all Taxes shown as due (or required to be shown as due) on such Tax
Returns.
7.2 Tax Periods Beginning After the Closing Date. FAR shall prepare or
cause to be prepared and file or cause to be filed (at its expense) all Tax
Returns relating to the Company for all periods beginning after the Closing
which are filed after the Closing by the Company. Such Tax Returns shall be
prepared in a manner consistent with the Tax Returns (including amended Tax
Returns) filed on or prior to the date of Closing for prior fiscal periods. FAR
shall pay, or cause to be paid, all Taxes shown as due (or required to be shown
as due) on such Tax Returns.
7.3 Access to Information. Each of FAR and HBI will provide the other with
the right, at reasonable times and upon reasonable notice, to have access to,
and to copy and use, any records or information and personnel which may be
relevant in connection with the preparation of any Tax Returns, any audit or
other examination by any authority, or any judicial or administrative
proceedings relating to liability for Taxes. The party requesting assistance
hereunder shall reimburse the other party for reasonable expenses incurred in
providing such assistance. Any information obtained pursuant to this Section
shall be held in strict confidence and shall be used solely in connection with
the reason for which it was requested.
SECTION 8
CONDITIONS TO CLOSING BY FAR
FAR's obligation to purchase the Interest is, unless waived in writing by
FAR, subject to the fulfillment as of the date of the Closing of the following
conditions:
8.1 Representations and Warranties Correct. The representations and
warranties made in Sections 4 and 5 hereof by HBI shall be true and correct in
all material respects as of the date of the Closing.
8.2 Performance by HBI. HBI shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this Agreement.
10
<PAGE> 11
8.3 Transfer Document. The parties shall have executed appropriate
transfer documentation, HBI shall have executed and delivered an Amendment to
the Operating Agreement in the form of Schedule A hereto and FAR shall execute
and deliver a counterpart signature page to the Company's Operating Agreement.
8.4 Marketing and Services Agreement. The parties shall have executed and
delivered an amendment substantially in the form attached hereto as Exhibit A to
the Marketing and Services Agreement (the "Marketing Agreement") dated as of
January 7, 1999 between Hanover Direct Pennsylvania, Inc., FAR, QuotaPhone,
Inc., a New York corporation, P.M.S.I., Inc., a Connecticut corporation, and Ira
Smolev ("Smolev").
8.5 Resignation of Managers. William C. Kingsford and Brian C. Harriss
shall have submitted in writing their resignations as Managers of the Company.
8.6 Escrow Agreements. The parties shall have executed and delivered
instructions in the form attached hereto as Exhibit B suitable to release from
escrow the funds and documents held pursuant to the Escrow Agreement dated as of
January 7, 1999, among the Company, Brown Raysman Millstein Felder & Steiner,
LLP, FAR and Smolev and the Escrow Agreement dated as of January 7, 1999, among
the Company, Smolev and Swidler Berlin Shereff Friedman, LLP.
8.9 Consents. HBI shall have obtained any necessary consents to the
transactions contemplated hereby.
9.10 Termination of Guarantee. The Guarantee, attached hereto as Exhibit
C, executed by Smolev in connection with the original Marketing Agreement shall
be terminated on or before the date of Closing.
SECTION 9
CONDITIONS TO CLOSING BY HBI
HBI's obligation to sell the Interest is, unless waived in writing by HBI,
subject to the fulfillment as of the date of Closing of the following
conditions:
9.1 Representations and Warranties Correct. The representations and
warranties made in Section 3 hereof by FAR shall be true and correct in all
material respects as of the date of the Closing.
9.2 Performance by FAR. FAR shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this Agreement.
9.3 Purchase Price. HBI shall have received from FAR the Purchase Price.
11
<PAGE> 12
9.4 Marketing and Services Agreement. The parties shall have executed and
delivered an amendment substantially in the form attached hereto as Exhibit A to
the Marketing Agreement.
SECTION 10
MISCELLANEOUS
10.1 Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of New York without regard to conflict of laws
provisions.
10.2 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto, including the exhibits hereto, constitute the full
and entire understanding and agreement among the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
10.3 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
If to HBI, to:
Hanover Brands, Inc.
1500 Harbor Boulevard
Weehawken, NJ 07087
Attn: Brian C. Harriss
Fax: (201) 272-3150
or at such other address as HBI shall have furnished to FAR.
If to FAR, to:
FAR Services, LLC
350 Camino Gardens Boulevard, Suite 200
Boca Raton, Florida 33432
Attn: Ira Smolev
Fax: (561) 362-6713
12
<PAGE> 13
or at such other address as FAR shall have furnished to HBI.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when received if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
10.4 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach or default of another party under this Agreement, shall impair any such
right, power or remedy of such party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one instrument.
10.6 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, which shall be replaced with an enforceable provision
closest in intent and economic effect as the severed provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
10.7 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
10.8 Further Assurances. Each party hereto agrees to do all acts and
things, and to make, execute and deliver such written instruments, as shall from
time to time be reasonably required to carry out the terms and provisions of
this Agreement.
10.9 Expenses. Except as otherwise provided in this Agreement, each party
shall bear its own expenses in connection with the transactions contemplated by
this Agreement.
13
<PAGE> 14
10.10 Definitions. The following terms shall have the following meanings
when used in this Agreement:
GAAP: Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, applied on a consistent basis, as in
effect on the date hereof.
Governmental Authority: The federal government, any state, county,
municipal, local or foreign government and any governmental agency, bureau,
commission, authority or body.
Judgment: Any judgment, writ, order, injunction, determination,
award or decree of or by any court, judge, justice or magistrate, including any
bankruptcy court or judge, and any order of or by an Governmental Authority.
Law: Any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
Lien: Any security agreement, financing statement (whether or not
filed), security or other interest, conditional sale or other title retention
agreement, lease, consignment or bailment given for security purposes, lien,
charge, restrictive agreement, mortgage, deed of trust, indenture, pledge,
option, encumbrance, limitation, restriction, adverse interest, constructive or
other trust, claim, charge, attachment, exception to or defect in title or other
ownership interest (including reservations, rights of entry, possibilities or
reverter, encroachments, easements, rights of way, restrictive covenants and
licenses) of any kind, whether direct, indirect, accrued or contingent.
Person: Any individual, trustee, corporation, general or limited
partnership, joint venture, joint stock company, bank, firm, Governmental
Agency, trust, association, organization or unincorporated entity of any kind.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE> 15
IN WITNESS THEREOF, the undersigned have executed this Agreement on the
day and year first written above.
HANOVER BRANDS, INC.,
a Delaware corporation
By: _______________________
Name:
Title:
FAR SERVICES, LLC,
a Delaware limited liability company
By: ______________________
Name:
Title: Manager
15
<PAGE> 16
SCHEDULE A
Form of Amendment to Operating Agreement
SECOND AMENDMENT TO OPERATING AGREEMENT
OF
THE SHOPPER'S EDGE, LLC
This Second Amendment to the Operating Agreement of The Shopper's
Edge, LLC, a Delaware limited liability company (the "Company"), dated as of
December 24, 1998 (the "Amendment"), is entered into effective as of December
25, 1999 (the "Effective Date of this Amendment"), by Hanover Brands, Inc.
("HBI"), such entity constituting the sole member of the Company. HBI hereby
consents to the admission of FAR Services, LLC as a member of the Company and
amends the Operating Agreement of the Company (as amended, the "Agreement") as
follows:
1. As of the Effective Date of this Amendment, Exhibit A of the
Agreement is hereby deleted in its entirety and substituted in its place and
stead the following:
ANNEXED HERETO AS EXHIBIT A
IN WITNESS WHEREOF, the parties have executed this agreement as of
the date and year first above written.
Hanover Brands, Inc.
By:__________________________
Name:________________________
Title:_______________________
<PAGE> 17
EXHIBIT A
Members
Membership
Name and Address Contribution Interest
- ---------------- ------------ --------
FAR Services, LLC $1.00 100%
350 Camino Gardens Boulevard,
Suite 200
Boca Raton, Florida 33432
Attn: Ira Smolev
Fax: (561) 362-6713
2
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HANOVER DIRECT, INC.
(Pursuant to Section 242 of the General Corporation Law
of the State of Delaware)
----------------------------------------------------------------
The undersigned hereby certifies as follows:
1. That he is the President of Hanover Direct, Inc.
2. That the Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on the 15th day of
April, 1993.
3. That the amendment to the Certificate of Incorporation as set
forth herein and recommended by the Board of Directors was duly
adopted in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
RESOLVED: That the first paragraph of ARTICLE FOURTH be
amended as follows:
FOURTH: The total number of shares of all classes
of stock which the Corporation shall have authority to issue is 318,172,403
shares, of which 40,000 shares shall be class B 8% cumulative preferred stock,
par value $.01 per share and stated value of $1,000 per share (the "Class B
Preferred"), 861,900 shares shall be shares of 7.5% cumulative convertible
preferred stock, par value $.01 per share and stated value of $20.00 per share
(the "7.5% Preferred"), 5,000,000 shares shall be shares of additional
preferred stock, par value $.01 per share (the "Additional Preferred Stock"),
300,000,000 shares shall be common stock, par value $.66-2/3 per share (the
"Common Stock"), and 12,270,503 shares shall be shares of class B common stock,
par value $.01 per share (the "Class B Common Stock").
<PAGE> 2
IN WITNESS WHEREOF, Hanover Direct, Inc., has caused this
Certificate of Amendment of the Certificate of Incorporation to be signed by
Rakesh K. Kaul, its President and Chief Executive Officer, and attested by
Monte E. Wetzler, its Secretary, this 28th day of May, 1999.
HANOVER DIRECT, INC.
By: /s/ RAKESH K. KAUL
-------------------------
Name: Rakesh K. Kaul
Title: President and Chief Executive Officer
ATTEST:
By: /s/ MONTE E. WETZLER
-------------------------
Name: Monte E. Wetzler
Title: Secretary
<PAGE> 1
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 (the
"Corporation"),
DOES HEREBY CERTIFY:
1. The name of the Corporation is Hanover Direct, Inc.
2. That a Certificate of Incorporation was filed by the Secretary of
State of Delaware on April 15, 1993, a Certificate of Designation of Series B
Convertible Additional Preferred Stock was filed by the Secretary of State of
Delaware on May 23, 1995 and a Restated Certificate of Incorporation was filed
by the Secretary of State of Delaware on October 31, 1996 and that said
Restated Certificate of Incorporation, restating among other things said
Certificate of Designation, requires correction as permitted by Section 103(f)
of the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Restated Certificate to be corrected
is that the words "stated value" were inadvertently omitted from the second
sentence of Article FOURTH, Section 6(j) thereof, and in their place, the words
"Series B Conversion Price" were included.
4. The second sentence of Article FOURTH, Section 6(j) of the Restated
Certificate is corrected to read as follows:
"If the shares of Series B Preferred to be redeemed are to be
paid in cash, the redemption price per share shall be equal to
the stated value on the Series B Redemption Date."
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by Rakesh K. Kaul, its President and Chief Executive
Officer, this 26th day of August, 1999.
HANOVER DIRECT, INC.
By: /s/ RAKESH K. KAUL
---------------------
Rakesh K. Kaul
President and Chief Executive Officer
<PAGE> 1
Exhibit 4.1
================================================================================
WARRANT AGREEMENT
BETWEEN
THE HORN & HARDART COMPANY
AND
NORTH AMERICAN RESOURCES LIMITED
--------------------
Dated As Of October 25, 1991
For 279,110 Shares
of Common Stock
================================================================================
<PAGE> 2
Exhibit 4.1
WARRANT AGREEMENT (the "Agreement") dated as of October 25, 1991,
between THE HORN & HARDART COMPANY, a Nevada corporation (the "Company"), and
NORTH AMERICAN RESOURCES LIMITED, a British Virgin Islands corporation ("NAR").
WHEREAS, NAR has agreed to make an equity investment in the Company
and The Hanover Companies, Inc., a Nevada corporation and wholly-owned direct
subsidiary of the Company, pursuant to the Stock Purchase Agreement dated as of
July 8, 1991, as amended (the "Stock Purchase Agreement"); and
WHEREAS, as an inducement to NAR to enter into the Stock Purchase
Agreement, the Company proposes to issue to NAR warrants defined (the
"Warrants") to purchase up to an aggregate of 279,110 shares (the "Warrant
Shares") of the Company's Common stock, par value $0.66-2/3 per share (the
"Common Stock"), each Warrant entitling the holder thereof to purchase one share
of Common Stock for an exercise price of $5.25, or such other price as is
established pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant Certificate. Concurrently
with the execution of this Agreement, the Company will issue and deliver the
Warrants to NAR. The number of Warrants to be issued and delivered shall be
equal to 279,110. The text of the Warrant Certificate (the "Warrant
Certificate") and the form of election to purchase Warrant Shares to be printed
on the reverse thereof shall be as set forth in Annex A attached hereto. The
Warrant Certificate shall be executed on behalf of the Company by the manual or
facsimile signature of the Chairman of the Board, President or Vice President of
the Company, attested to by the manual or facsimile signature of the Secretary
or an Assistant Secretary of the Company.
The Warrant Certificate and any later certificate issued upon
division, exchange, substitution or transfer thereof (collectively
"Certificates"), bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company, shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold
such offices on the date of this Agreement.
Certificates shall be dated as of the date of execution thereof by
the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
- 1 -
<PAGE> 3
2. Registration. The Warrants shall be numbered and shall be
registered in a Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Certificate on the Warrant
Register (the "Holder") as the owner in fact thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Certificate on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of the fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith. The Warrants shall be registered
initially in the name of "Westmark Holdings Limited".
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Certificate may be exchanged for
another Certificate or Certificates entitling the Holder thereof to purchase a
like aggregate number of Warrant Shares as the Certificate or Certificates
surrendered then entitle such Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
Warrant Certificate or Warrant Certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
Certificate or Warrant Certificates, as the case may be, as so requested. The
Company may require payment by a Holder requesting such exchange of a sum
sufficient to cover any tax or other governmental charge that may be imposed
therewith.
4. Transfer of Warrants and Warrant Shares.
(a) The Warrants will not be transferable except to affiliates
of NAR. The Warrants shall be transferable only on the books of the Company (the
"Warrant Register") upon delivery thereof, duly endorsed by the Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, in each case accompanied by any
necessary transfer tax or other governmental charge imposed upon transfer, or
evidence of the payment thereof. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall promptly deliver a new Certificate or
- 2 -
<PAGE> 4
Certificates to the persons entitled thereto. Notwithstanding the foregoing, the
Company shall have no obligation to cause Warrants to be transferred on its
books to any person, unless the holder of such Warrants shall furnish to the
Company evidence of compliance with the Securities Act of 1933, as amended (the
"Act"), in accordance with the provisions of this Section.
(b) NAR covenants to the Company that NAR will not dispose of
any Warrants or Warrant Shares except pursuant to (i) an effective Registration
Statement or (ii) an opinion of counsel, reasonably satisfactory to counsel for
the Company, that an exemption from such registration is available.
(c) The Warrants shall be subject to a stop-transfer order and
any Certificates shall bear the following legend by which each Holder shall be
bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
FILED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE."
(d) The Warrant Shares shall be subject to a stop-transfer
order and any certificates evidencing any such shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
FILED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE."
5. Term of Warrants; Exercise of Warrants.
(a) Each Warrant entitles the Holder thereof to purchase, on
or after the date hereof, one share of Common Stock at any time on or before
5:00 p.m., New York Time, on July 10, 1996 (the "Expiration Date"), at the
lesser of (i) $5.25 per share or (ii) if there shall have occurred a Rights
Offering (as such term is defined in the Stock Purchase Agreement), a price per
share equal to the product of 1.75 multiplied by the Rights Offering Price (as
such term is defined in the Stock Purchase Agreement) (the "Exercise Price") as
the same may be adjusted pursuant to Annex B hereof.
- 3 -
<PAGE> 5
(b) Subject to the provisions of this Agreement, the Holder of
each Warrant shall have the right, which may be exercised as expressed in such
Warrant, to purchase from the Company (and the Company shall issue and sell to
each such Holder) one fully paid and nonassessable share of Common Stock upon
surrender to the Company, or its duly authorized agent, of the Certificate or
Certificates representing such Warrant or Warrants, with the form of election to
purchase on the reverse thereof duly filled in and signed, and upon payment to
the Company of the Exercise Price. Payment of such Exercise Price may be made in
cash or by certified or official bank check or wire transfer payable to the
order of the Company.
(c) Subject to Section 6 hereof, upon such surrender of
Warrants, and payment of the Exercise Price as aforesaid, the Company shall
issue and cause to be delivered to the Holder or upon the written order of such
Holder and (subject to receipt of evidence of compliance with the Act in
accordance with the provisions of Section 4 of this Agreement) in such name or
names as the Holder may designate, a Certificate a Certificate or Certificates
for the number of full Warrant Shares so purchased, together with cash or check,
as provided in Section 10 of this Agreement, in respect of a fraction of a share
of such stock otherwise issuable upon such surrender and, if the number of
Warrants represented by a Certificate shall not be exercised in full, a new
Certificate or Certificates, executed by the Company, for the balance of the
number of whole Warrants represented by the surrendered Certificate.
(d) If permitted by applicable law, such Certificate or
Certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of the
Exercise Price. The Warrants shall be exercisable, at the election of the Holder
thereof, either as an entirety or from time to time for part of the shares
specified therein.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any Warrants or certificates for Warrant Shares in a
name other than that of the Holder of such Warrants.
7. Mutilated or Missing Certificates. In case any Certificates shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and in substitution
- 4 -
<PAGE> 6
for and upon cancellation of the mutilated Certificates, or in lieu of and in
substitution for the Certificates lost, stolen or destroyed, new Certificates of
like tenor and representing an equivalent right or interest; but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Certificates and of indemnity or bond, if requested, also
satisfactory to the Company. An applicant for such substitute Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
8. Reservation of Warrant Shares; Authorization.
8.1 Reservation of Warrant Shares. The Company has reserved and will
keep available, out of the authorized and unissued shares of Common Stock or the
authorized and issued shares of Common Stock held in the Company's Treasury, the
full number of shares sufficient to provide for the exercise of the rights of
purchase represented by all the outstanding Warrants. The transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times until the Expiration Date to reserve such number of authorized and
unissued shares as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Company will supply such Transfer Agent with
duly executed stock certificates for such purpose and will itself provide or
otherwise make available any cash or check which may be issuable as provided in
Section 10 of this Agreement. The Company will furnish to such Transfer Agent a
copy of all notices of adjustments and certificates related thereto, transmitted
to each Holder pursuant to this Agreement. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be cancelled.
8.2 Authorization. This Agreement has been duly and validly executed
and delivered by the Company and this Agreement constitutes a valid and binding
agreement of the Company enforceable in accordance with its terms (except in
each such case as enforceability may be limited by bankruptcy, insolvency,
reorganization and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and except as rights to indemnity and
contribution hereunder and thereunder may be
- 5 -
<PAGE> 7
limited by federal or state securities laws). The execution, delivery and
performance of this Agreement by the Company and compliance by the Company with
the terms and provisions hereof do not and will not violate any provision of any
law, rule or regulation, order, writ, judgment, injunction, statute, decree,
determination or award having applicability to the Company, or any of its
properties or assets. The execution, delivery and performance of this Agreement
by the Company and compliance by the Company with the terms and provisions
hereof do not and will not (i) conflict with or result in a breach of or
constitute a default under any provision of the charter or by-laws of the
Company; or (ii) give rise to an event of default which may result in the
acceleration of any material amount of Indebtedness (as such item is defined in
the Stock Purchase Agreement) or an event of default under any other material
contractual obligation of the Company. The Company covenants that upon issuance
and delivery against payment pursuant to the terms of their Warrant Agreement,
all Warrant Shares will be validly issued, fully paid and nonassessable
outstanding shares of Common Stock of the Company. The Company represents and
warrants that the number of outstanding shares of the Company is 13,910,177.
Except as set forth on Schedule 1 attached hereto, there are not outstanding
subscriptions, convertible securities, options, warrants or other rights,
agreements or commitments to subscribe for or purchase or acquire from the
company, or any contracts providing for the issuance of, or the granting of
rights to acquire any capital stock of the Company or any securities convertible
or exchangeable for any such capital stock. There are no preemptive rights with
respect to and there are no outstanding contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of the Company.
9. Adjustments of Exercise Price and Number of Shares. The Exercise
Price and Warrant Shares shall be adjusted under certain circumstances in
accordance with Annex B attached hereto and expressly incorporated herein and
made a part hereof.
10. Fractional Shares of Common Stock. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the Closing Price for one share of
the Common Stock, on the trading day immediately preceding the date the Warrant
is presented for exercise,
- 6 -
<PAGE> 8
multiplied by such fraction. The Company may also make any payment required by
this Section 10 by check.
11. Registration Rights. The Holder shall have those registration
rights with respect to the Warrant Shares as set forth in that certain
Registration Rights Agreement dated as of July 8, 1991 by and among the Company,
NAR and Intercontinental Mining & Resources Limited (the "Registration Rights
Agreement").
12. Rights as Stockholders, Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferees the right to vote or to receive dividends or to
consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any of
the following events shall occur:
(a) the Company shall take any action which requires an
adjustment under Annex B attached hereto; or
(b) a merger occurs to which the Company is a party and for
which approval of any stockholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the
Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding Warrant Shares issuable
upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination); or
(c) voluntary or involuntary dissolution, liquidation, or
winding up of the Company;
then in any one or more of said events the Company shall give notice in writing
of such event to the Holders at least 20 days (10 days in any case specified in
clauses (a) and (b) above) prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution, or subscription rights, or for the determination
of stockholders entitled to vote on such proposed merger, sale,
reclassification, dissolution, liquidation or winding up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be.
13. Miscellaneous.
(a) Notices. Any notice pursuant to this Agreement to be given
or made by the Holder of any Warrant
- 7 -
<PAGE> 9
Certificate to the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed as follows:
The Horn & Hardart Company
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman
Executive Vice President
and General Counsel
Notices or demands authorized by this Agreement to be given or made to the
Holder of any Warrant shall be sufficiently given or made (except as otherwise
provided in this Agreement) if sent by first-class mail, postage prepaid,
addressed to such Holder at the address of such Holder as shown on the Warrant
Register.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to principles of conflict of laws.
(c) Amendments and Waivers. This Agreement may be amended,
modified or superseded only by written instrument signed by all of the parties
hereto, and any of the terms, provisions, and conditions hereof may be waived,
only by a written instrument signed by the party waiving such term, provision or
condition.
(d) Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holders shall bind and
inure to the benefit of their respective successors and assigns hereunder.
(e) Merger or Consolidation of the Company. So long as
Warrants remain outstanding, until the Expiration Date, the Company will not
merge or consolidate with or into, or sell, transfer to or lease all or
substantially all of its property to, any other corporation unless the successor
or purchasing corporation, as the case may be (if not the Company), shall
expressly assume, by supplemental agreement executed and delivered to the
Holder, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
(f) Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Holder, any legal or equitable right, remedy or claim under this
Agreement, but this Agreement shall be for the sole and exclusive benefit of the
Company and the Holder of the Warrants and Warrant Shares.
- 8 -
<PAGE> 10
(g) Captions. The captions of the sections and subsections of
this Agreement have been inserted for convenience only and shall have no
substantive effect.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
(i) Termination. This Agreement shall terminate at the close
of business on the Expiration Date or any earlier date when all Warrants have
been exercised, provided that the registration rights provided for in the
Registration Rights Agreement shall remain in full force and effect to the
extent provided for therein.
(j) Specific Performance. The parties hereto acknowledge and
agree that in the event of any breach of this Agreement, NAR would be
irreparably harmed and would not be made whole by monetary damages. It is
accordingly agreed that NAR, in addition to monetary damage and any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day, month and year first above written.
THE HORN & HARDART COMPANY
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
NORTH AMERICAN RESOURCES
LIMITED
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
- 9 -
<PAGE> 11
Annex A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
No. 1 279,110 Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON JULY 10, 1996
THE HORN & HARDART COMPANY
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received the registered holder hereof
or registered assign (the "Holder"), is the owner of the number of Warrants set
forth above, each of which entitles the owner thereof to purchase on or after
the date hereof, at any time on or before 5:00 P.M., New York City time, on July
10, 1996, one fully paid and nonassessable share of Common Stock, $0.66-2/3 par
value (the "Common Stock") of The Horn & Hardart Company, a Nevada corporation
(the "Company"), at the purchase price of the lesser of (i) $5.25 per share or
(ii) if there shall have occurred a Rights Offering (as such term is defined in
the Stock Purchase Agreement), a price per share equal to the product of 1.75
multiplied by the Rights Offering Price (as such term is defined in the Stock
Purchase Agreement) (the "Exercise Price"). Payment of the Exercise Price may be
made in cash or by certified or official bank check to the order of the Company.
As provided in the Agreement referred to below, the Exercise Price and the
number or kind of shares which may be purchased upon the exercise of the
Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
<PAGE> 12
This Warrant Certificate is subject to and entitled to the benefits
of all of the terms, provisions and conditions of that certain agreement dated
as of October 25, 1991 (the "Warrant Agreement") by and between the Company and
North American Resources Limited, which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof and to which Warrant Agreement
reference is hereby made of a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Company and the
Holders of the Warrant Certificates. Copies of the Warrant Agreement are on file
at the principal office of the Company.
The Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the Holder hereof as the owner for all purposes.
This Warrant Certificate, with or without other Warrant
Certificates, upon surrender at the principal office of the Company, may be
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
and date evidencing Warrants entitling the Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered. If this Warrant Certificate
shall be exercised in part, the Holder shall be entitled to receive upon
surrender hereof, another Warrant Certificate or Warrant Certificates for the
number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof
payment will be made as provided in the Warrant Agreement.
No Holder shall be entitled to vote or to receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement or herein be construed to confer
upon such Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value,
- 2 -
<PAGE> 13
consolidation, merger, conveyance, or otherwise) or, except as provided in the
Warrant Agreement, to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the Common Stock
purchasable upon the exercise thereof shall have become deliverable as provided
in the Warrant Agreement.
IN WITNESS WHEREOF, The Horn & Hardart Company has caused the
signature of its Executive Vice President and General Counsel to be printed
hereon.
THE HORN & HARDART COMPANY
By:
------------------------------------
Michael P. Sherman
Executive Vice President
General Counsel
- 3 -
<PAGE> 14
PURCHASE FORM
(To be executed upon exercise of warrant)
To The Horn & Hardart Company:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the Warrant Certificate attached hereto for, and to
purchase thereunder, ___________________ shares of Common Stock, as provided for
therein, and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $_______________.
Please issue a Certificate or Certificates for such shares of Common
Stock in the name of, and pay any cash for any fractional share to:
PLEASE INSERT SOCIAL SECURITY Name__________________________
OR OTHER IDENTIFYING NUMBER (Please Print Name and Address)
OF ASSIGNEE
______________________________________ Address_________________________
______________________________________ Signature_______________________
NOTE: The above signature should
correspond exactly with the name on
the face of this Warrant Certificate
or with the name of assignee appearing
in the assignment form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder less any fraction of a share paid in cash.
Dated: __________________________, 19__
- 4 -
<PAGE> 15
Annex B
Antidilution
The provisions set forth in this Annex B shall constitute a part of
that certain Warrant Agreement dated October 25, 1991 by and between the Horn &
Hardart Company and North American Resources Limited (the "Agreement"). Defined
terms used herein and not otherwise defined shall have the meaning set forth in
the Agreement.
1. Adjustments. The number of Warrant Shares purchasable upon the
exercise of each Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine
its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) reclassify its
shares of Common Stock, the number of Warrant Shares
purchasable upon exercise of the Warrant immediately
prior thereto shall be adjusted so that the Holder of
the Warrant shall be entitled to receive the kind and
number of Warrant Shares which it would have owned or
have been entitled to receive after any of the events
described above, had the Warrant been exercised
immediately prior to such event or any record date with
respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after
the effective date of such event retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options or
warrants to all holders of its outstanding Common Stock,
other than pursuant to the Rights Offering (as defined
in the Stock Purchase Agreement) if the Rights Offering
Price (as defined
<PAGE> 16
in the Stock Purchase Agreement) is less than $3.00 per
share, without any charge to such holders, entitling
them to subscribe for or purchase shares of Common Stock
at a price per share which is lower at the record price
per share which is lower at the record date mentioned
below than the then current market price per share of
Common Stock (as defined in paragraph (d) below), the
number of Warrant Shares thereafter purchasable upon the
Exercise of the Warrant shall be determined by
multiplying the number of Warrant Shares theretofore
purchasable upon exercise of each Warrant by a fraction,
the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of
additional shares of Common Stock offered for
subscription or purchase, and the denominator of which
shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights,
options or warrants plus the number of shares which the
aggregate offering price of the total number of shares
of Common Stock so offered would purchase at the then
current market price per share of Common Stock. Such
adjustment shall be made whenever such rights, options
or warrants are issued, and shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such
rights, options or entitled to receive such rights,
options or warrants, subject to readjustment as provided
in paragraph (i) below.
(c) In case the Company shall distribute to all holders of
its shares of Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions
payable out of consolidated earnings or earned surplus
and dividends or distributions referred to in paragraphs
(a) above) or rights, options or warrants or convertible
or exchangeable securities
- 2-
<PAGE> 17
containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in
paragraph (b) above), then in each case the number of
Warrant Shares thereafter purchasable upon the exercise
of the Warrant shall be determined by multiplying the
number of Warrant Shares theretofore purchasable upon
the exercise of the Warrant, by a fraction, the
numerator of which shall be the then current market
price per share of Common Stock (as defined in paragraph
(d) below) on the date of such distribution, and the
denominator of which shall be the then current market
price per share of Common Stock, less the then fair
value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription
rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of
Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on
the date of distribution retroactive to the record date
for the determination of shareholders entitled to
receive such distribution.
(d) For the purpose of any computation under paragraphs (b)
and (c) of this Section the current market price per
share of Common Stock at any date shall be the average
of the daily market prices for 30 consecutive trading
days commencing 45 trading days before the date of such
computation. The daily market price for each day shall
be the last reported sale price regular way or, in case
no such reported sale takes place on such day, the
average of the reported closing bid and asked prices
regular way, in either case on the principal national
securities
- 3 -
<PAGE> 18
exchange on which the Common Stock is listed or admitted
to trading, or if not listed or admitted to trading on
any national securities exchange, the average of the
highest reported bid and lowest reported asked
quotations for the Common Stock on NASDAQ or any
comparable system.
(e) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at
least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of the Warrant; provided,
however, that any adjustments which by reason of this
paragraph (e) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the
nearest one-thousandth of a share. Notwithstanding the
first sentence of this paragraph (e), any adjustment
shall be made no later than the earlier of three years
from the date of the transaction which mandates such
adjustment or the expiration of the right to exercise
any Warrant.
(f) Whenever the number of Warrant Shares purchasable upon
the exercise of each Warrant is adjusted, as herein
provided, the Exercise Price payable upon exercise of
each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of
Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Warrant
Shares so purchasable immediately thereafter.
(g) In case the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or
convertible
- 4 -
<PAGE> 19
securities containing the right to subscribe for or
purchase shares of Common Stock, at a price per share of
Common Stock (determined in the case of such rights,
options, warrants or convertible securities, by dividing
(i) the total amount received or receivable by the
Company in consideration of the sale and issuance of
such rights, options, warrants or convertible
securities, plus the total consideration payable to the
Company upon exercise or conversion thereof, by (ii) the
total number of shares of Common Stock covered by such
rights, options, warrants or convertible securities)
lower than the current market price (as defined in
paragraph (d) above) in effect immediately prior to such
sale and issuance, then the Warrant Price shall be
reduced to a price (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of
(1) the number of shares of Common Stock outstanding
immediately prior to such sale and issuance multiplied
by the then existing Warrant Price, plus (2) the
consideration received by the Company for such sale and
issuance, by (ii) the total number of shares of Common
Stock outstanding immediately after such sale and
issuance, provided, however, that adjustments pursuant
to this paragraph (g) shall only be made if such sale or
issuance is to an officer, director or other affiliate
of the Company, or any relative of any of the above,
immediately prior to such sale or issuance, and if no
adjustment for such sale or issuance is made pursuant to
paragraph (c) above. Notwithstanding anything to the
contrary, no adjustment shall be made pursuant to this
subsection (g) in the event the Company shall issue
options to employees (including officers) or directors
in consideration of services, which options have an
exercise price not less than the
- 5 -
<PAGE> 20
current market oprice (as defined in paragraph (d)
above) of Common Stock at the time of the issuance of
such options. The number of Warrant Shares purchasable
upon the exercise of each Warrant shall be that number
determined by multiplying the number of Warrant Shares
issuable upon exercise immediately prior to such
adjustment by a fraction, of which the numerator is the
Warrant Price in effect immediately prior to such
adjustment and the denominator is the Warrant Price as
so adjusted. For the purposes of such adjustment, the
shares of Common Stock which the holders of any such
rights, options, warrants or convertible securities
shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of
such sale and issuance and the consideration received by
the Company therfor shall be deemed to be the
consideration received by the Company for such rights,
options, warrants or convertible securities, plus the
consideration or premiums stated in such rights,
options, warrants, or convertible securities to be paid
for the shares of common stock, covered thereby. In case
the Company shall sell and issue shares of Common Stock,
or rights, options, warrants, or convertible securities
containing the right to subscribe for or purchse shares
of Common Stock, for a consideration consisting, in
whole or in part, of property other than cash or its
equivalent, then in determining the "price per share of
Common Stock" and the consideration received by the
Company for purposes of the first sentence of this
paragraph (g), the Board of Directors shall determine,
in its discretion, the fair value of said property and
such determination, if made in good faith, shall be
binding upon all Holders of Warrants. There shall be no
adjustment of the Warrant Price pursuant to this
- 6 -
<PAGE> 21
paragraph (g) if the amount of such adjustment would be
less than $.05 per Share; provided, however, that any
adjustment which by reason of this provision is not
required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(h) For the purpose of this Section 1, the terms "shares of
Common Stock" shall mean (i) the class of stock
designated as the Common Stock of the Company at the
date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassification of
such shares consisting solely of changes in par value,
or from par value to no par value, or from no par value
to par value.
(i) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges, if any thereof shall
not have been exercised, the Exercise Price and the
number of shares of Common Stock purchasable upon such
expiration, be readjusted and shall therafter be such as
it would have been had it been originally adjusted (or
had the original adjustment not been required, as the
case may be) as if (A) the only shares of Common Stock
so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such
rights, options, warrants or conversion or exchange
rights and (B) such shares of Common Stock, if any, were
issued or sold for the consideration actually received
by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company
for the issuance, sale or grant of the rights, options,
warrants or conversion or exchange rights that were so
exercised; provided, further that no such readjustment
shall have the effect of increasing the Exercise Price
by an
- 7 -
<PAGE> 22
amount in excess of the amount of the adjustment
initially made in respect to the issuance, sale or grant
of such rights, options, warrants or conversion or
exchange rights.
2. Notice of Adjustment. Whenever the number or Exercise Price of
Warrant Shares purchasable upon the exercise of each Warrant are adjusted, as
herein provided, the Company shall mail by first class mail, postage prepaid, to
the Holder notice of such adjustment or adjustments setting forth (i) the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant Shares after such adjustment, (ii) a brief statement of
the facts requiring such adjustment and (iii) the computation by which such
adjustment was made. Such certificate shall be conclusive evidence of the
correctness of such adjustment.
3. No Adjustment for Dividends. Except as provided in Section 1, no
adjustment in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.
4. Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of all or substantially all of the property of the Company,
Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such action to purchase upon exercise of the Warrant
the kind and amount of shares and other securities, cash and property which the
Holder would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale or conveyance had such warrant been exercised
immediately prior to such action. Adjustments to such shares and other
securities shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Annex B. The provisions of this Section 4
shall apply to successive consolidations, mergers, sales or conveyances.
5. Statement on Warrants. Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon the exercise of
the Warrant, any Warrant theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the
Warrant
- 8 -
<PAGE> 23
initially issuable pursuant to this Agreement. Upon the request of any holder of
any Warrant, the Company shall issue a new Warrant to reflect the adjustment to
number of Warrant Shares and the Exercise Price.
- 9 -
<PAGE> 24
Schedule I
Options and Convertible Securities
1. Warrants issued to Sun Life Insurance Company of America on May 9, 1991 to
purchase at any time prior to May 9, 1996 up to an aggregate of 973,712
shares of the Company's Common Stock, par value $.66 2/3 per share, for
$4.00 per share.
2. Warrants isued to Sun Life Insurance Company of America on July 10, 1991
to purchase at any time prior to July 10, 1996 up to an aggregate of
291,667 shares of the Company's Common Stock, par value $.66 2/3 per
share, for $5.25 per share.
3. Warrants issued to Intercontinental Mining & Resources Limited on July 10,
1991 to purchase at any time prior to July 10, 1996 up to an aggregate of
1,750,000 shares of the Company's Common Stock, par value $.66 2/3 per
share, for $5.25 per share.
4. Options
<TABLE>
<CAPTION>
OPTIONS OPTION
DATE OF EXPIRATION OUTSTANDING EXERCISE
GRANT DATE 12/29/90 PRICE
------- ---------- ----------- --------
<S> <C> <C> <C>
12/11/90 12/11/95 200,000 $ 2.750
9/14/90 9/14/95 291,050 5.000
10/13/89 10/11/94 41,200 7.000
5/24/88 5/24/93 235.165 7.000
10/18/88 10/18/83 304,850 8.000
4/7/89 4/7/94 37,500 8.000
9/13/89 9/13/94 34,125 9.625
9/15/87 9/2/92 28,000 13.000
4/17/87 4/17/92 13,000 11.375
1986 22,500 12.000
1988 60,000 7.000
1989 75,000 7.250
1990 10,000 5.000
----------
1,386,123
=========
</TABLE>
5. Convertible Debentures
<TABLE>
<CAPTION>
Debentures Conversion
Outstanding Price
----------- ----------
<S> <C> <C>
7-1/2% Convertible $30,000,000 $11.70
Subordinated
Debentures due
March 1, 2007
</TABLE>
<PAGE> 25
6. Agreement under consideration by and among the Company, Buyer and Jack E.
Rosenfeld.
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Registration Rights
Agreement"), dated as of July 8, 1991 among THE HORN & HARDART COMPANY, a Nevada
corporation ("H&H"), NORTH AMERICAN RESOURCES LIMITED, a British Virgin Islands
Corporation ("NAR"), and Intercontinental Mining & Resources Limited, a Delaware
corporation and indirect wholly-owned subsidiary of NAR ("IMR").
R E C I T A L S :
A. H&H, The Hanover Companies, a Nevada corporation and a
wholly-owned subsidiary of H&H ("Hanover"), and NAR are parties to a Stock
Purchase Agreement, dated as of July 8, 1991 (as modified, amended and
supplemented and in effect from time to time, the "Stock Purchase Agreement"),
providing, inter alia, subject to the terms and conditions thereof, (i) for the
issuance and sale by Hanover to NAR of 40,000 shares of its 8% Cumulative
Preferred Stock, par value $.0l per share (the "Hanover Preferred Shares") and
(ii) the issuance and sale by H&H to NAR of 13,333,334 shares of its Class B
Common Stock, par value $.0l per share (the "Company Class B Common Stock").
B. H&H is the registered and beneficial owner of all the issued and
outstanding shares of common stock, par value $1.00 per share, of Hanover (the
"Hanover Common Stock").
C. H&H and NAR are expected to be parties to an Exchange and Option
Agreement to be dated as of the closing date under the Stock Purchase Agreement
(the "Exchange and Option Agreement"), providing, subject to the terms and
conditions thereof, for NAR's option to purchase 13,333,334 shares (as adjusted
in accordance therewith) of Common Stock, par value $.66 2/3 per share, of H&H
(the "Common Stock") by exchanging the Hanover Preferred Shares and Company
Class B Common Stock owned by it.
D. IMR and several direct or indirect wholly-owned subsidiaries of
H&H are parties to a $30,000,000 secured Revolving Credit and Letter of Credit
Facility of even date herewith (the "Working Capital Facility").
<PAGE> 2
E. It is a condition precedent to the execution and delivery of the
Working Capital Facility and to the issue and sale of the Hanover Preferred
Shares and the Company Class B Common Stock and the transactions contemplated by
the Stock Purchase Agreement and the closing thereunder that this Registration
Rights Agreement be executed and delivered by H&H, IMR and NAR.
F. Each of H&H, IMR and NAR desire to enter into this Registration
Rights Agreement to satisfy the conditions described in the preceding paragraphs
and for the further purposes herein set forth.
A G R E E M E N T :
The parties agree as follows:
Section 1. Defined Terms; Effectiveness of Registration Rights.
1.1 Defined Terms. Capitalized terms used and not defined herein and
defined in the Stock Purchase Agreement shall have the meanings therein
indicated. In addition to such terms defined therein and such terms as are
otherwise defined herein, the following terms shall have the following meanings;
"Inspectors" has the meaning attributed thereto in Section 5.
"Option" has the meaning attributed thereto in the Exchange and
Option Agreement.
"Other Securities" has the meaning attributed thereto in 3.1.
"Records" has the meaning attributed thereto in Section 5.
"Registrable Securities" means (i) shares of Common Stock of H&H
issued to NAR pursuant to the terms of the Exchange and Option Agreement, (ii)
shares of Common Stock of H&H acquired upon the exercise of warrants or other
securities issued to NAR or its wholly-owned subsidiary in accordance with
Section 4.17 of the Stock Purchase Agreement, (iii) shares of Common Stock of
H&H acquired upon the exercise of warrants issued and granted to IMR or other
direct or indirect wholly-owned subsidiaries of NAR in connection with the
Working Capital Facility, (iv) warrants or other securities issued to NAR, IMR
or any direct or indirect wholly-owned subsidiaries of NAR pursuant to the
Working Capital Facility or pursuant to section 4.17 of the
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<PAGE> 3
Stock Purchase Agreement, and (v) any securities of H&H distributed with respect
to shares of its Common Stock.
"Registration Expenses" means all expenses incident to H&H's
performance of or compliance with the registration and other requirements set
forth in this Registration Rights Agreement including, without limitation, the
following: (i) the fees, disbursements and expenses of all, counsel to H&H and
all accountants in connection with the registration statement, any preliminary
prospectus or final prospectus, any other offering documents and amendments and
supplements thereto and the mailing and delivery of copies thereof to
underwriters and dealers; (ii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus, any other offering document and amendments and supplements
thereto and the mailing and delivery of copies thereof to underwriters and
dealers; (iii) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement(s) and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of the Registrable Securities to be disposed of; (iv)
all expenses in connection with the qualification of the Registrable Securities
to be disposed of for offering and sale under state securities laws, including
the fees and disbursements of counsel for the underwriters in connection with
such qualification and in connection with any blue sky and legal investment
surveys; (v) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Registrable Securities to be disposed of; (vi) the cost and charges of any
transfer agent or registrar in connection with the registration of exchange or
transfer of the Registrable Securities to be disposed of; and (vii) all stock
exchange listing fees.
"Total Number of Includible Securities" has the meaning attributed
thereto in Section 3.1(b).
1.2 Effectiveness of Registration Rights. The registration rights
pursuant to Sections 2 and 3 hereof shall become effective on the date hereof
and continue so long as IMR shall hold warrants to purchase H&H Common Shares or
Common Shares and so long as NAR has the right to receive Registrable Securities
pursuant to the Exchange and Option Agreement and after NAR has exercised the
Option, so long as Registrable Securities are held by NAR, IMR or its
wholly-owned subsidiaries or a permitted assign.
1.3 Registration Not Required. H&H shall not be obligated to effect
any registration pursuant to Section 2.1 or Section 3.1 hereof if, in the
written opinion of counsel
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<PAGE> 4
to H&H who shall be reasonably satisfactory to NAR and which opinion shall be
concurred in by counsel to NAR, the intended method or methods of disposition of
any Registrable Securities by NAR or IMR may be effected without registration
under the Securities Act and without restriction as to subsequent trading.
Section 2. Registration on Request.
2.1 Notice. Upon written notice from either NAR or IMR or upon a
joint written request from NAR and IMR requesting that H&H effect the
registration under the Securities Act of all or a portion of the Registrable
Securities beneficially owned by it, which notice shall specify the intended
method or methods of disposition of such Registrable Securities, H&H shall use
its best efforts to effect as promptly as practicable and without restriction as
to subsequent trading the registration, under the Securities Act, of such
Registrable Securities for disposition in accordance with the intended method or
methods of disposition stated in such request, provided that:
(a) if, in the reasonable judgment of H&H, a registration at the
time and on the terms requested would adversely affect any public
financing by H&H that had been firmly planned by H&H prior to the notice
by NAR and/or IMR, as the case may be, requesting registration, H&H shall
not be required to commence using its best efforts to effect a
registration pursuant to this Section 2 until 180 days after completion of
such financing or 90 days after the abandonment of such financing;
(b) H&H shall not be required to file a registration statement if,
as a result, H&H would be required to include in such registration
statement (i) audited financial statements as of any date other than a
fiscal year end or any other date as of which H&H shall have audited
financial statements or (ii) pro forma financial statements pursuant to
Regulation S-X under the Securities Act if such pro forma statements
cannot be reasonably prepared in a timely fashion, until such audited
financial statements or such pro forma financial statements have been
prepared; provided that H&H shall use its reasonable efforts to prepare on
a timely basis any audited financial statements or pro forma financial
statements required to be included;
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<PAGE> 5
(c) if H&H determines in the good faith judgment of H&H's general
counsel that the filing of a registration statement would require the
disclosure of material information which H&H has a good faith business
purpose for preserving as confidential or H&H is unable to comply with
Commission requirements, H&H shall not be required to commence using its
best efforts to effect a registration pursuant to this Section 2 until the
earlier of (i) the date upon which such material information is disclosed
to the public (it being understood that nothing herein shall require such
disclosure) or ceases to be material or (ii) 60 days after H&H makes such
good faith determination;
(d) H&H shall not, without the consent of NAR or IMR, include any
securities for sale for its own account or the account of others in any
registration statement filed pursuant to section 2; and
(e) NAR and IMR shall together have the right to exercise
registration rights pursuant to this Section 2.1 one time.
If in any case H&H shall under any of foregoing clauses (a) through (e) postpone
the filing of a registration statement requested by NAR or IMR, NAR or IMR, as
the case may be, shall have the right for 30 days after receipt of the notice of
postponement to withdraw the request for registration by giving written notice
to H&H, and in the event of such withdrawal such request shall not be counted
under the foregoing clause (e) to this Section 2.1. In addition, in no event
shall a registration request be counted if all the Registrable Securities with
respect to which a request is made are not registered pursuant to an effective
registration statement.
2.2 Registration Expenses. H&H shall pay or cause to be paid all
Registration Expenses in connection with the exercises of registration rights
pursuant to this Section 2; provided that with respect to any such registration
NAR or IMR, as the case may be, shall bear any transfer taxes applicable to its
Registrable Securities registered thereunder, all commissions, discounts or
other compensation payable to any underwriters (including fees and expenses of
underwriters' counsel other than those referred to in clause (iv) of the
definition of Registration Expenses) in respect of such Registrable Securities
and the fees and expenses of its own counsel; and provided further that in no
event shall NAR or IMR, as the case may be, be required to pay any internal
costs of H&H.
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<PAGE> 6
Section 3. Incidental Registration.
3.1 Notice and Registration. If H&H proposes to register any of its
voting securities ("Other Securities") for public sale under the Securities Act,
on a form and in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, it will give prompt
written notice to NAR and IMR of its intention to do so, and upon the written
request of NAR or IMR or upon the joint written request of NAR and IMR, as the
case may be, delivered to H&H within 10 business days after the giving of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by NAR, IMR or both, as the case may be, and the intended method
of disposition thereof) H&H will use its best efforts to effect, in connection
with the registration of the Other Securities, the registration under the
Securities Act of all Registrable Securities which H&H has been so requested to
register by NAR and/or IMR, as the case may be, to the extent required to permit
the disposition (in accordance with the intended method or methods thereof as
aforesaid) of the Registrable Securities so to be registered, provided that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the effective date
of the registration statement filed in connection with such registration,
H&H shall determine for any reason not to register the Other Securities,
H&H may, at its election, give written notice of such determination to NAR
and/or IMR, as appropriate, and thereupon H&H shall be relieved of its
obligations to register such Registrable Securities in connection with the
registration of such Other Securities (but not from its obligation to pay
Registration Expenses to the extent incurred in connection therewith as
provided in Section 3.2), without prejudice, however, to the rights, if
any, of NAR and/or IMR immediately to request that such registration be
effected as a registration under Section 2;
(b) H&H will not be required to effect any registration of
Registrable Securities under this Section 3 if, and to the extent that,
the underwriters (or any managing underwriter) shall advise H&H in writing
that, in their reasonable opinion, inclusion of such number of shares of
Registrable Securities will adversely affect the price or distribution of
the securities to be offered solely for the account of H&H. Such
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<PAGE> 7
advice shall include a statement as to the underwriters' (or any managing
underwriter's) opinion as to the number of shares which may be included
without adversely affecting the price or distribution of the securities
solely for the account of H&H (such total number of shares which such
advice states may be so included being the "Total Number of Includible
Securities"). H&H shall promptly furnish NAR and/or IMR, as appropriate,
with a copy of such written advice. In the event that the number of shares
requested to be included by NAR and/or IMR together with the number of
other shares requested to be included by any selling security holders
requesting inclusion of such security holders' securities pursuant to
registration rights granted by H&H exceeds the Total Number of Includible
Securities, the aggregate number of shares of Registrable Securities held
by NAR and/or IMR entitled to be included in the public sale shall be the
product of (A) a fraction, the numerator of which is the total number of
such shares of Registrable Securities held by NAR and/or IMR requested to
be included in such public sale and the denominator of which is the total
number of NAR's and/or IMR's shares of Registrable Securities requested
to be included in such public sale plus the number of other shares
requested to be included by other securityholders pursuant to registration
rights granted by H&H and (B) the Total Number of Includible Securities.
(c) H&H shall not be required to effect any registration of
Registrable Securities under this section 3 incidental to the registration
of any at its securities in connection with mergers, acquisitions,
exchange offers, dividend reinvestment plans or stock option or other
employee benefit plans.
No registration of Registrable Securities effected under this Section 3 shall
relieve H&H of its obligation, if any, to affect the registration of Registrable
Securities pursuant to section 2.
3.2 Registration Expenses. H&H will pay all Registration Expenses in
connection with any registration pursuant to this Section 3; provided that with
respect to any such registration NAR and/or IMR, as the case may be, shall bear
all transfer taxes applicable to its Registrable Securities registered
thereunder, its pro rata share of all commissions, discounts or other
compensation payable to any underwriters (including fees and expenses of
underwriters'
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<PAGE> 8
counsel other than those referred to in clause (iv) of the definition of
Registration Expenses) in respect of such Registrable Securities and the fees
and expenses of its own counsel, the fees associated with the filing under state
securities laws of the Registrable Securities in states and in amounts in
respect of which H&H would not otherwise have made such filings and any
Commission filing fees related solely to the Registrable Securities NAR or IMR,
as the case may be, has requested be registered; and provided, further, that in
no event shall NAR or IMR be required to pay any internal costs of H&H.
Section 4. Registration Procedures.
4.1 Registration and Qualification.
(a) If and whenever H&H is required to use its best efforts to
effect the registration of any Registrable Securities under the Securities Act
as provided in Sections 2 and 3, H&H will as promptly as is practicable:
(i) prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act regarding the
Registrable Securities to be offered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities until
the earlier of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by NAR
or IMR, as set forth in such registration statement or the expiration of
six months after such registration statement becomes effective;
(iii) furnish to NAR and IMR and to any underwriter of such
Reqistrable Securities such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in the case of NAR and IMR or any managing underwriter, including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus) or filed under the Securities Act, in conformity with
the requirements of the Securities Act, such documents as may be
incorporated by reference in
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<PAGE> 9
such registration statement or prospectus, and such other documents, as
NAR, IMR or such underwriter may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as NAR, IMR or any
underwriter of such Registrable Securities shall reasonably request, and
do any and all other acts and things which may be necessary or advisable
to enable NAR, IMR or any underwriter to consummate the disposition in
such jurisdictions of its Registrable Securities covered by such
registration statement, except that H&H shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;
(v) in the case of any underwritten offering, furnish to NAR and
IMR, as appropriate, and the underwriters, addressed to them, (A) an
opinion of counsel for H&H, dated the date of the closing under the
underwriting agreement relating to any underwritten offering, and (B) a
comfort letter signed by the independent public accountants who have
certified H&H's financial statements included in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters, respectively, delivered
to underwriters in underwritten public offerings of securities and such
other matters as NAR or IMR may reasonably request;
(vi) immediately notify NAR and IMR at any time when a prospectus
relating to a registration pursuant to Section 2 or 3 is or was required
to be delivered under the Securities Act, of the happening of any event as
a result of which the prospectus included in such registration statement,
as then in effect, includes or included an untrue statement of a material
fact or omits or omitted to state any material fact required to be stated
therein or necessary, in the light of the
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<PAGE> 10
circumstances then existing, to make the statements therein not
misleading, and at the request of NAR or IMR prepare and furnish to NAR or
IMR a reasonable number of copies of a supplement to or an amendment of
such 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, in light of the
circumstances then existing, to make the statements therein not
misleading; and
(vii) use reasonable efforts to do any and all other acts NAR or IMR
may reasonably request and which are customary for a registration of
equity securities.
H&H may require NAR or IMR to furnish such information regarding NAR or IMR and
the distribution of such securities as H&H may from time to time reasonably
request in writing and as shall be required by law or by the Commission in
connection with any registration.
(b) Each of NAR and IMR agree that, upon receipt of any notice from
H&H of the happening of any event of the kind described in Section 4.1(a) (vi)
hereof, NAR or IMR, as the case may be, shall use its best efforts to
discontinue forthwith disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until NAR's or IMR's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 4.1(a) (vi) hereof.
4.2 Listing of Common Stock. Upon the request of NAR or IMR in
connection with any public offering of the Common Stock, H&H shall use its best
efforts to effect, as promptly as is practicable, the listing of the Common
Stock on the Amex and all other national securities exchanges on which H&H's
Common Stock shall then be listed.
4.3 Underwriting.
(a) If requested by the managing underwriter for any underwritten
offering of Registrable Securities pursuant to a registration requested
hereunder, H&H will enter into an underwriting agreement with the underwriters
for such offering, such agreement to contain such representations and warranties
by H&H and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect pro-
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<PAGE> 11
vided in Section 6 hereof and the provision of opinions of counsel and
accountants letters to the effect provided in Section 4.1(a) (v) hereof. NAR
and/or IMR, as appropriate, shall be a party to any such under-writing agreement
and the representations and warranties by, and the other agreements on the part
of, H&H to and for the benefit of such underwriters, shall also be made to and
for the benefit of NAR and/or IMR.
(b) In the event that any registration pursuant to Section 3 shall
involve, in whole or in part, an underwritten offering, H&H may require the
Registrable Securities requested to be registered pursuant to Section 3 by NAR
or IMR to be included in such underwriting on the same terms and conditions as
shall be applicable to the Other Securities being sold through underwriters
under such registration. In any such case, NAR and/or IMR shall be party to any
such underwriting agreement. Such agreement shall contain such representations,
warranties and covenants by NAR or IMR, as appropriate, and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution to the effect provided in Section 6 hereof. The representations and
warranties in such underwriting agreement by, and the other agreements on the
part of, H&H to and for the benefit of such underwriters, shall also be made to
and for the benefit of NAR and IMR, as appropriate.
Section 5. Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement registering
Registrable Securities under the Securities Act, H&H will give NAR, IMR and the
underwriters, if any, and their respective counsel and accountants
(collectively, the "Inspectors"), such reasonable and customary access to its
books and records (collectively, the "Records") and such opportunities to
discuss the business of H&H with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of NAR, IMR and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
Records which H&H reasonably determines to be confidential and which it notifies
the Inspectors in writing are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary or appropriate
to avoid or correct a misstatement or omission in the registration statement,
(ii) the portion of the Records to be disclosed has otherwise become publicly
known, (iii) the information in such Records is to be used in connection with
any litigation or governmental investigation or hearing relating to any
registration statement or (iv) the release of such Records
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<PAGE> 12
is ordered pursuant to a subpoena or other order. NAR and IMR each agree that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to H&H.
Section 6. Indemnification and Contribution.
(a) Indemnification by H&H. H&H agrees to indemnify and hold
harmless each Person who participates as an underwriter, NAR, IMR, each of their
respective officers and directors and each Person, if any, who controls any such
underwriter, NAR or IMR within the meaning of Section 15 of the Securities Act
as follows:
(i) against any and all loss, claim, damage and expense whatsoever,
as incurred, arising out of or caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment thereto) pursuant to which Registrable
Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material tact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
Governmental Body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the
written consent of H&H ; and
(iii) against any and all expense whatsoever, as incurred (including
fees and disbursements of counsel chosen by NAR or any underwriter),
reasonably incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any Governmental Body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or
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<PAGE> 13
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under clause (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of or caused by
any untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to H&H by NAR
and/or IMR, as the case may be, or any underwriter expressly for use in a
registration statement (or any amendment thereto) or any prospectus (or any
amendment or supplement thereto); and further provided that this indemnity
agreement does not apply to any loss, liability, claim, damage or expense
arising out of or caused by NAR's or IMR's continued circulation, subsequent to
NAR's or IMR's, as the case nay be, receipt of the notice described in Section
4.1(a) (vi) hereof, of a prospectus including the untrue statement of a material
fact or omission of a material fact as to which such notice was provided.
(b) Indemnification by NAR or IMR. NAR and IMR agree to indemnify
and hold harmless H&H and any underwriter, and each of their respective
directors and officers (including each officer of H&H who signed the
registration statement), and each Person, if any, who controls H&H or any
underwriter within the meaning of Section 15 of the Securities Act, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in Section 6(a) hereof, as incurred, with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
registration statement (or any amendment thereto) or any prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to H&H by NAR or IMR expressly for use in the
registration statement (or any amendment thereto) or such prospectus (or any
amendment or supplement thereto).
(c) Indemnification by Underwriter. Anything in section 6(a) to the
contrary notwithstanding, H&H's obligation to indemnify any underwriter pursuant
to Section 6(a) in an underwritten offering (or any Person controlling such
underwriter within the meaning of Section 15 of the Securities Act) shall be
conditioned upon the underwriting agreement with such underwriter containing an
agreement by such underwriter to indemnify and hold harmless H&H, NAR and IMR,
and each of their respective directors and officers (including each officer of
H&H who signed the registration statement) and each Person, if any, who controls
H&H, NAR and IMR, within the meaning of Section 15 of the securities Act,
against any and all loss, liability claim, damage and
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<PAGE> 14
expense described in the indemnity contained in Section 6(a) hereof, as
incurred, with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the registration statement (or any amendment
thereto) or any prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to H&H by such
underwriter expressly for use in the registration statement (or any amendment
thereto) or such prospectus (or any amendment or supplement thereto).
(d) Conduct of Indemnification Proceedings. Each indemnified party
shall give prompt notice to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may, at its own expense, participate in and direct the defense of such
action. In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(e) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 6 is for any reason held to be unenforceable although applicable in
accordance with its terms, H&H NAR, IMR and any underwriter shall contribute to
the aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by H&H, NAR, IMR and any
underwriter, in such proportions that the underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the prospectus bears to the public offering price appearing
thereon and H&H, NAR and IMR, as the case may be, are responsible for the
balance; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. As between H&H on the one hand and NAR and/or IMR
on the other hand, such parties shall contribute to the aggregate losses,
liabilities claims, damages and expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate to reflect (i)
the relative benefits received by H&H, on the one hand, and NAR and/or IMR on
the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (ii) the relative fault of H&H, on the
one hand, and NAR and/or IMR on the other, with respect to the statements or
omissions
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which resulted in such loss, liability, claim, damage or expense, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by H&H, on the one hand, and NAR and/or IMP on the
other, with respect to such offering shall be deemed to be in the same
proportion as the sum of the total purchase price paid to H&H by NAR and/or IMP,
as the case may be, in respect of the Registrable Securities plus the total net
proceeds from the offering of any securities included in such offering (before
deducting expenses) received by H&H bears to the amount by which the total net
proceeds from the offering of Registrable Securities (before deducting expenses)
received by NAR and/or IMR, as the case may be, with respect to such offering
exceeds the purchase price paid to H&H in respect of the Registrable Securities,
and in each case the net proceeds received from such offering shall be
determined as set forth on the table to the cover page of the prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by H&H, NAR or
IMR, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
H&H, NAR and IMR agree that it would not be just and equitable if contribution
pursuant to this Section 6 were to be determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. For purposes of this Section 6, each Person,
if any, who controls NAR or IMR or an underwriter within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as NAR, IMR
or such underwriter, and each director of H&H, each officer of H&H who signed
the registration statement, and each Person, if any, who controls H&H within the
meaning of Section 15 of the securities Act shall have the same rights to
contribution as H&H.
Section 7. Permitted Assignment. NAR or IMR may assign rights
hereunder in connection with any sale of Registrable Securities provided that
such assignee shall have agreed in writing, satisfactory in form and substance
to H&H and its counsel, to be bound hereby. Rights hereunder assigned by NAR or
IMR to any other Person shall not be further assignable by such other Person
other than to a successor to all or substantially all of such other Person's
business which successor shall have agreed in writing to be bound hereby. From
and after any such assignment pursuant to this Section 7, reference herein to
NAR or IMR, as the case may be, shall include such permitted assignee or
assignees and nothing contained in this Section
- 15 -
<PAGE> 16
shall increase the number of registrations required to be made by H&H hereunder.
Section 5. Miscellaneous.
8.1 Severability. If any term, provision, covenant, restriction,
part or portion of this Registration Rights Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, or is otherwise
legally impossible to perform, the remainder of the terms, provisions,
covenants, restrictions, parts and portions of this Registration Rights
Agreement shall remain in full force and effect.
8.2 Specific Enforcement. H&H, NAR and IMR acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Registration Rights Agreement, this being in
addition to any other remedy to which they may be entitled by law or equity.
8.3 Entire Agreement. This Registration Rights Agreement contains
the entire understanding of the parties with respect to the matters covered
hereby and this Registration Rights Agreement may be amended only by an
agreement in writing executed by the parties hereto.
8.4 Counterparts. This Registration Rights Agreement may be executed
by the parties hereto in counterparts each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
8.5 Notices. Any notice pursuant to this Registration Rights
Agreement to be given by either party shall be sufficiently given for purposes
of this Registration Rights Agreement if sent by first-class mail, postage
prepaid, delivered by hand or overnight courier or sent by facsimile, addressed
as follows:
(i) if to the Company, addressed to:
The Horn & Hardart Company
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attn: Exec. V.P. - Corporate Affairs
General Counsel, and Secretary
Facsimile number: 201-392-5005
- 16 -
<PAGE> 17
with a copy to:
Martin Nussbaum, Esq
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022-9998
Facsimile Number: 212-758-9526
(ii) if to the Buyer, addressed to:
North American Resources Limited
c/o Quadrant Management Company
689 Fifth Avenue
New York, New York 10022
Attn: Mr. Alan G. Quasha
Facsimile Number: 212-753-4974
with a copy to:
Monte E. Wetzler, Esq.
Breed, Abbott & Morgan
153 East 53rd Street
New York, New York 10022
Facsimile Number: 212-688-0258
(iii) if to IMP, addressed to:
Intercontinental Mining & Resources Limited
c/o Quadrant Management Company
689 Fifth Avenue
New York, New York 10022
Attn: Chief Financial Officer
Facsimile Number: 212-753-4974
with a copy to:
Monte E. Wetzler, Esq.
Breed, Abbott & Morgan
153 East 53rd Street
New York, New York 10022
Facsimile Number: 212-888-0258
or at such other address as shall be furnished in writing to the other party.
8.6 Waivers. Each party may waive in whole or in party any benefit
or right provided to it under this Registration Rights Agreement. No waiver by
any party of any default with respect to any provision, condition, requirement,
or of any benefit or right hereof shall be deemed to be a waiver of any other
provision, condition, requirement, benefit or right hereof; nor shall any delay
or omission of either party to exercise any right hereunder in
- 17 -
<PAGE> 18
any manner impair the exercise of any such right accruing to it thereafter.
8.7 Submission to Jurisdiction; Consent to Service of Process. Any
action with respect to any claim arising out of or relating to this Registration
Rights Agreement including any claim for specific performance arising under
section 8.2 hereof shall be brought in the State, City and County of New York,
and in furtherance thereof (a) each of H&H, NAR and IMR irrevocably consents and
submits to the exclusive jurisdiction of the Supreme Court of the State of New
York for the County of New York and the United States District Court for the
Southern District of New York and (b) each of H&H, NAR and IMR irrevocably
waives any objection which it may have at any time to the laying of venue of any
suit, action or proceeding arising out of or relating to this Registration
Rights Agreement brought in any such court, irrevocably waives any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum and further irrevocably waives the right to object,
with respect to such suit, action or proceeding brought in any such court, that
such court does not have jurisdiction over such party. Each of H&H, NAR and IMR
consents that service of process upon it in any such suit, action or proceeding
may be made in the manner set forth in section 8.5 hereof.
8.8 Headings. The headings herein are for convenience only, do not
constitute a part of this Registration Rights Agreement and shall not be deemed
to limit or affect any of the provisions hereof.
8.9 Successors and Assigns. This Registration Rights Agreement shall
be binding upon and inure to the benefit of H&H, NAR, IMR, and their successors
and legal representatives. No other Person is intended to have any rights by
reason of, or to enforce, any provision of this Registration Rights Agreement.
Neither H&H, NAR nor IMR may assign this Registration Rights Agreement or any
rights hereunder except to the extent contemplated by Section 7 hereof.
8.10 Governing Law. This Registration Rights Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to contracts made and to be performed entirely within
such state.
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, H&H, NAR and IMR have caused this Registration
Rights Agreement to be duly executed by their respective authorized officers as
of the date set forth at the head of this Registration Rights Agreement.
THE HORN & HARDART COMPANY
By: /s/ Jack Rosentald
-----------------------------------
Name: Jack Rosentald
Title: President & CEO
NORTH AMERICAN RESOURCES LIMITED
By: /s/ Alan G. Quasing
-----------------------------------
Name: Alan G. Quasing
Title: Attorney-in-fact
INTERCONTINENTAL MINING &
RESOURCES, LIMITED
By: /s/ Fred Anderson
-----------------------------------
Name: Fred Anderson
Title: V.P.
- 19 -
<PAGE> 1
Exhibit 4.5
================================================================================
WARRANT AGREEMENT
BETWEEN
THE HORN & HARDART COMPANY
AND
INTERCONTINENTAL MINING & RESOURCES LIMITED
--------------------------
Dated as of July 8, 1991
For 1,750,000 Shares
of Common Stock
================================================================================
<PAGE> 2
WARRANT AGREEMENT (the "Agreement") dated as of July 8, 1991,
between THE HORN & HARDART COMPANY, a Nevada corporation (the "Company"), and
INTERCONTINENTAL MINING & RESOURCES LIMITED, a Delaware corporation ("IMR").
WHEREAS, IMR has agreed to extend credit to Hanover Direct, Inc., a
Pennsylvania corporation, Ring Response, Ltd., an Illinois corporation, and
Brawn of California, Inc., a California corporation, each a wholly-owned
indirect subsidiary of the Company, pursuant to the Credit Agreement, dated as
of July 8, 1991 (the "Credit Agreement"); and
WHEREAS, as an inducement to IMR to enter into the Credit Agreement and
extend credit thereunder, the Company proposes to issue to IMR warrants as
hereinafter defined (the "Warrants") to purchase up to an aggregate of 1,750,000
shares (the "Warrant Shares") of the Company's Common Stock, par value $0.66
2/3% per share (the "Common Stock"), each Warrant entitling the holder thereof
to purchase one share of common Stock for an exercise price of $5.25, or such
other price as is established pursuant to the terms hereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant Certificate. Concurrently
with the execution of this Agreement, the Company will issue and deliver the
Warrants to IMR. The number of Warrants to be issued and delivered shall be
equal to 1,750,000. The text of the Warrant Certificate (the "Warrant
Certificate") and the form of election to purchase Warrant Shares to be printed
on the reverse thereof shall be as set forth in Annex A attached hereto. The
Warrant Certificate shall be executed on behalf of the Company by the manual or
facsimile signature of the Chairman of the Board, President or Vice President of
the Company, under its corporate seal, affixed or in facsimile, attested to by
the manual or facsimile signature of the Secretary or an Assistant Secretary of
the Company.
The Warrant Certificate and any later certificate issued upon
division, exchange, substitution or transfer thereof (collectively,
"Certificates"), bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement.
<PAGE> 3
Certificates shall be dated as of the date of execution thereof by
the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
2. Registration. The Warrants shall be numbered and shall be
registered in a Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Certificate on the Warrant
Register (the "Holder") as the owner in fact thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Certificate on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of the fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith. The Warrants shall be registered
initially in the name of "Intercontinental Mining & Resources Limited."
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Certificate may be exchanged for
another Certificate or Certificates entitling the Holder thereof to purchase a
like aggregate number of Warrant Shares as the Certificate or Certificates
surrendered then entitle such Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
Warrant Certificate or Warrant Certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
Certificate or Warrant Certificates, as the case may be, as so requested. The
Company may require payment by a Holder requesting such exchange of a sum
sufficient to cover any tax or other governmental charge that may be imposed
therewith.
4. Transfer of Warrants and Warrant Shares.
(a) The Warrants will not be transferable except to affiliates of
IMR. The Warrants shall be transferable only on the books of the Company (the
"Warrant Register") upon delivery thereof, duly endorsed, by the Holder or by
his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment or authority to transfer, in each case
accompanied by any necessary transfer tax or other governmental charge imposed
upon transfer, or evidence of the payment thereof. In all cases of transfer by
an attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall
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<PAGE> 4
be deposited with the Company. In case of transfer by executors, administrators,
guardians or other legal representatives, duly authenticated evidence of their
authority shall be produced, and may be required to be deposited with the
Company in its discretion. Upon any registration of transfer, the Company shall
promptly deliver a new Certificate or Certificates to the persons entitled
thereto. Notwithstanding the foregoing, the Company shall have no obligation to
cause Warrants to be transferred on its books to any person, unless the holder
of such Warrants shall furnish to the Company evidence of compliance with the
Securities Act of 1933, as amended (the "Act"), in accordance with the
provisions of this Section.
(b) IMR covenants to the Company that IMR will not dispose of any
Warrants or Warrant Shares except pursuant to (i) an effective Registration
Statement or (ii) an opinion of counsel, reasonably satisfactory to counsel for
the Company, that an exemption from such registration is available.
(c) The Warrants shall be subject to a stop-transfer order and any
Certificates shall bear the following legend by which each Holder shall be
bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT FILED PURSUANT
TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN OPINION OF COUNSEL,
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THIS
CORPORATION, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE."
(d) The Warrant Shares shall be subject to a stop-transfer order and
any certificates evidencing any such shares shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT FILED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN OPINION OF
COUNSEL, WHICH OPTION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THIS
CORPORATION, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE."
5. Term of Warrants; Exercise of Warrants.
(a) Each Warrant entitles the Holder thereof to purchase, on or
after the date hereof one share of Common Stock at any time on or before 5:00
p.m., New York time, on
-3-
<PAGE> 5
the earlier to occur of (i) the 60th day after default by IMR in its obligations
under the Credit Agreement if such default shall not have been cured or waived
by such 60th day, and (ii) the fifth anniversary of the date of this Agreement
(the "Expiration Date") at the lesser of (i) $5.25 per share and (ii) if there
shall have occurred a Rights Offering (as defined in the Stock Purchase
Agreement, dated as of July 8, 1991, between the Company, Hanover Direct, Inc.
and North American Resources Limited (the "Stock Purchase Agreement")), a price
per share equal to the product of 1.75 multiplied by the Rights Offering Price
(as defined in the Stock Purchase Agreement) (the "Exercise Price"), as the same
may be adjusted pursuant to Annex B hereof.
(b) Subject to the provisions of this Agreement, and provided that
IMR shall not at the time be in default in its obligations under the Credit
Agreement, the Holder of each Warrant shall have the right, which may be
exercised as expressed in such Warrant, to purchase from the Company (and the
Company shall issue and sell to each such Holder) one fully paid and
nonassessable share of Common Stock upon surrender to the Company, or its duly
authorized agent, of the Certificate or Certificates representing such Warrant
or Warrants, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the Exercise Price.
Payment of such Exercise Price may be made in cash or by certified or official
bank check or wire transfer payable to the order of the Company.
(c) Subject to Section 6 hereof, upon such surrender of Warrants,
and payment of the Exercise Price as aforesaid, the Company shall issue and
cause to be delivered to the Holder or upon the written order of such Holder and
(subject to receipt of evidence of compliance with the Act in accordance with
the provisions of Section 4 of this Agreement) in such name or names as the
Holder may designate, a Certificate or Certificates for the number of full
Warrant Shares so purchased, together with cash or check, as provided in Section
10 of this Agreement, in respect of a fraction of a share of such stock
otherwise issuable upon such surrender and, if the number of Warrants
represented by a Certificate shall not be exercised in full, a new Certificate
or Certificates, executed by the Company, for the balance of the number of whole
Warrants represented by the surrendered Certificate.
(d) If permitted by applicable law, such Certificate or Certificates
shall deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such shares as of
the date of the surrender of such Warrants and
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<PAGE> 6
payment of the Exercise Price. The Warrants shall be exercisable, at the
election of the Holder thereof, either as an entirety or from time to time for
part of the shares specified therein.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any Warrants or certificates for Warrant Shares in a
name other than that of the Holder of such Warrants.
7. Mutilated Missing Certificate. In case any Certificates shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and in substitution for and upon cancellation of the mutilated
Certificates, or in lieu of and in substitution for the Certificates lost,
stolen or destroyed, new Certificates of like tenor and representing an
equivalent right or interest; but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Certificates and of
indemnity or bond, if requested, also satisfactory to the Company. An applicant
for such substitute Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares; Authorization.
8.1 Reservation of Warrant shares. The Company has reserved and will
keep available, out of the authorized and unissued shares of Common Stock or the
authorized and issued shares of Common Stock held in the Company's Treasury, the
full number of shares sufficient to provide for the exercise of the rights of
purchase represented by all the outstanding Warrants. The transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times until the Expiration Date to reserve such number of authorized and
unissued shares as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash or check
which may be issuable as provided in Section 10 of this Agreement. The
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<PAGE> 7
Company will furnish to such Transfer Agent a copy of all notices of adjustments
and certificates related thereto, transmitted to each holder pursuant to this
Agreement. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be cancelled.
8.2 Authorization. This Agreement has been duly and validly executed
and delivered by the Company and this Agreement constitutes a valid and binding
agreement of the Company enforceable in accordance with its terms (except in
each such case as enforceability may be limited by bankruptcy, insolvency,
reorganization and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and except as rights to indemnity and
contribution hereunder and thereunder may be limited by federal or state
securities laws). The execution, delivery and performance of this Agreement by
the Company and compliance by the Company with the terms and provisions hereof
do not and will not violate any provision of any law, rule or regulation, order,
writ, judgment, injunction, statute, decree, determination or award having
applicability to the Company, or any of its properties or assets, except that
ownership of the Warrant may violate Nevada gaming laws if the Holder has not
complied with said laws applicable to it. The execution, delivery and
performance of this Agreement by the Company and compliance by the Company with
the terms and provisions hereof do not and will not (i) conflict with or result
in a breach of or constitute a default under any provision of the charter or
by-laws of the Company; or (ii) give rise to an event of default which may
result in the acceleration of any material amount of Indebtedness (as such term
is defined in the Credit Agreement) or an event of default under any other
material contractual obligation of the company. The Company covenants that upon
issuance and delivery against payment pursuant to the term of their Warrant
Agreement, all Warrant Shares will be validly issued, fully paid and
nonassessable outstanding shares of Common Stock of the Company. The Company
represents and warrants that the number of outstanding shares of Common stock of
the Company is 13,910,177. Except as set forth on Schedule 1 attached hereto,
there are not outstanding subscriptions, convertible Securities, warrants or
other rights, agreements or commitments to subscribe for or purchase or acquire
from the Company, or any contracts providing for the issuance of, or the
granting of rights to acquire any capital stock of the Company or any securities
convertible or exchangeable for any such capital stock. There are no preemptive
rights with respect to and there are no outstanding contractual obligations of
the
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<PAGE> 8
Company to repurchase, redeem or otherwise acquire any shares of the Company.
9. Adjustments of Exercise Price and Number of Shares. The Exercise
Price and Warrant shares shall be adjusted under certain circumstances in
accordance with Annex B attached hereto, and expressly incorporated herein and
made a part hereof.
10. Fractional Shares of Common Stock. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the Closing Price for one share of
the Common Stock, on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction. The Company may also
make any payment required by this Section 10 by check.
11. Registration Rights. The Holder shall have those registration
rights with respect to the Warrant Shares as set forth in the Registration
Rights Agreement, dated as of the date hereof, in the form attached hereto as
Annex C, between IMR, the Company and North American Resources Limited (the
"Registration Rights Agreement"), provided that if IMR shall at the time be the
Holder, IMR shall not be entitled to such registration rights if it shall be in
default under the credit Agreement, unless such default shall have been cured or
waived by the 60th day after occurence thereof,
12. Rights as Stockholders; Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the holders or their transferees the right to vote or to receive dividends or to
consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any of
the following events shall occur:
(a) the Company shall take any action which requires an adjustment
under Annex B attached hereto; or
-7-
<PAGE> 9
(b) a merger occurs to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company as, or
substantially as, an entirety, or of any reclassification or change of
outstanding Warrant Shares issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination);
or
(c) voluntary or involuntary dissolution, liquidation, or winding-up
of the Company;
then in any one or more of said events the Company shall give notice in writing
of such event to the Holders at least 20 days (10 days in any case specified in
clauses (a) and (b) above) prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution, or subscription rights, or for the determination
of stockholders entitled to vote on such proposed merger, sale,
reclassification, dissolution, liquidation or winding-up. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be.
13. Miscellaneous.
(a) Notices. Any notice pursuant to this Agreement to be given or
made by the Holder of any Warrant Certificate to the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
The Horn & Hardart Company
c/o Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman
Executive Vice President
and General Counsel
Notices or demands authorized by this Agreement to be given or made to the
Holder of any Warrant shall sufficiently given or made (except as otherwise
provided in this Agreement) if sent by first-class postage prepaid, addressed to
such Holder at the address such holder as shown on the Warrant Register.
(b) Governing Law. This Agreement shall if governed by and
construed in accordance with the laws of the
-8-
<PAGE> 10
State of New York, without giving effect to principles of conflict
of laws.
(c) Amendments and Waivers. This Agreement may be amended, modified
or superseded only by written instrument signed by all of the parties hereto,
and any of the terms, provisions, and conditions hereof may be waived, only by
a written instrument signed by the party waiving such term, provision or
condition.
(d) Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(e) Merger or Consolidation of the Company. So long as Warrants
remain outstanding, until the Expiration Date, the Company will not merge or
consolidate with or into, or sell, transfer to or lease all a substantially all
of its property to, any other corporation unless the successor or purchasing
corporation, as the case may be (if not the Company), shall expressly assume, by
supplemental agreement executed and delivered to the Holder, the due and
punctual performance and observance of each and every covenant and condition of
this Agreement to be performed and observed by the Company.
(f) Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holder, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holder of the Warrants and Warrant Shares.
(g) Captions. The captions of the sections and subsections of this
Agreement have been inserted for convenience only and shall have no substantive
effect.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
(i) Termination. This Agreement shall terminate at the close of
business on the Expiration Date or any earlier date when all Warrants have been
exercised, provided that the registration rights provided for in the
Registration Rights Agreement shall remain in full force and effect to the
extent provided for therein.
(i) Specific Performance. The parties hereto acknowledge and agree
that in the event of any breach of
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<PAGE> 11
this Agreement, IMR would be irreparably harmed and would not be made whole by
monetary damages. It is accordingly agreed that IMR, in addition to monetary
damage and any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of this Agreement, including,
without limitation, the Registration Rights set forth in the Registration Rights
Agreement.
-10-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day, month and year first above written.
THE HORN & HARDART COMPANY
By: /s/ Jack E. Rosenfeld
--------------------------
Name: Jack E. Rosenfeld
Title: President
INTERCONTINENTAL MINING &
RESOURCE LIMITED
By: /s/ [ILLEGIBLE]
--------------------------
Name:
Title: VP
<PAGE> 1
Exhibit 4.6
================================================================================
WARRANT AGREEMENT
BETWEEN
THE HORN & HARDART COMPANY
AND
NORTH AMERICAN RESOURCES LIMITED
--------------------
Dated as of October 25, 1991
For 931,791 Shares
of Common Stock
================================================================================
<PAGE> 2
WARRANT AGREEMENT (the "Agreement") dated as of October 25, 1991,
between THE HORN & HARDART COMPANY, a Nevada corporation (the "Company"), and
NORTH AMERICAN RESOURCES LIMITED, a British Virgin Islands corporation ("NAR").
WHEREAS, NAR has agreed to make an equity investment in the Company
and The Hanover Companies, Inc., a Nevada corporation and wholly-owned direct
subsidiary of the Company, pursuant to the Stock Purchase Agreement dated as of
July 8, 1991, as amended (the "Stock Purchase Agreement"); and
WHEREAS, as an inducement to NAR to enter into the Stock Purchase
Agreement, the Company proposes to issue to NAR warrants (the "Warrants") to
purchase up to an aggregate of 931,791 shares (the "Warrant Shares") of the
Company's Common Stock, par value $0.66-2/3 per share (the "Common Stock"), each
Warrant entitling the holder thereof to purchase one share of Common Stock for
an exercise price of $4.00, or such other price as is established pursuant to
the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Issuance of Warrants; form of Warrant Certificate. Concurrently
with the execution of this Agreement, the Company will issue and deliver the
Warrants to NAR. The number of Warrants to be issued and delivered shall be
equal to 931,791. The text of the Warrant Certificate (the "Warrant
Certificate") and the form of election to purchase Warrant Shares to be printed
on the reverse thereof shall be as set forth in Annex A attached hereto. The
Warrant Certificate shall be executed on behalf of the Company by the manual or
facsimile signature of the Chairman of the Board, President or Vice President of
the Company, attested to by the manual or facsimile signature of the Secretary
or an Assistant Secretary of the Company.
The Warrant Certificate and any later certificate issued upon
division, exchange, substitution or transfer thereof (collectively
"Certificates"), bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company, shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices on the date of this Agreement.
Certificates shall be dated as of the date of execution thereof by
the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
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<PAGE> 3
2. Registration. The Warrants shall be numbered and shall be
registered in a Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Certificate on the Warrant
Register (the "Holder") as the owner in fact thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Certificate on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of the fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith. The Warrants shall be registered
initially in the name of "Westmark Holdings Limited".
3. Exchange of Warrant Certificates. Subject to any restriction upon
transfer set forth in this Agreement, each Certificate may be exchanged for
another Certificate or Certificates entitling the Holder thereof to purchase a
like aggregate number of Warrant Shares as the Certificate or Certificates
surrendered then entitle such Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Company, and shall surrender, properly endorsed, the
Warrant Certificate or Warrant Certificates to be so exchanged.
4. Transfer of Warrants and Warrant Shares.
(a) The Warrants will not be transferable except to affiliates
of NAR. The Warrants shall be transferable only on the books of the Company (the
"Warrant Register") upon delivery thereof, duly endorsed by the Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, in each case accompanied by any
necessary transfer tax or other governmental charge imposed upon transfer, or
evidence of the payment thereof. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall promptly deliver a new Certificate or
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<PAGE> 4
Certificates to the persons entitled thereto. Notwithstanding the foregoing, the
Company shall have no obligation to cause warrants to be transferred on its
books to any person, unless the holder of such warrants shall furnish to the
Company evidence of compliance with the Securities Act of 1933, as amended (the
"Act"), in accordance with the provisions of this Section.
(b) NAR covenants to the company that NAR will not dispose of
any Warrants or Warrant Shares except pursuant to (i) an effective Registration
Statement or (ii) an opinion of counsel, reasonably satisfactory to counsel for
the Company, that an exemption from such registration is available.
(c) The Warrants shall be subject to a stop-transfer order and
any Certificates shall bear the following legend by which each Holder shall be
bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
FILED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.'
(d) The Warrant Shares shall be subject to a stop-transfer
order and any certificates evidencing any such shares shall bear the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
FILED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE."
5. Term of Warrants; Exercise of Warrants.
(a) Each Warrant entitles the Holder thereof to purchase, on
or after the date hereof one share of Common Stock at any time on or before 5:00
p.m., New York time, on May 8, 1994, (the "Expiration Date") at $4.00 per share
(the "Exercise Price") as the same may be adjusted pursuant to Annex B hereof.
(b) Subject to the provisions of this Agreement, the Holder of
each Warrant shall have the right, which may be exercised as expressed in such
Warrant, to purchase from the Company (and the Company shall issue and sell to
each such
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<PAGE> 5
Holder) one fully paid and nonassessable share of Common Stock upon surrender to
the Company, or its duly authorized agent, of the Certificate or Certificates
representing such Warrant or Warrants, with the form of election to purchase on
the reverse thereof duly filled in and signed, and upon payment to the Company
of the Exercise Price. Payment of such Exercise Price may be made in cash or by
certified or official bank check or wire transfer payable to the order of the
Company.
(c) Subject to Section 6 hereof, upon such surrender of
Warrants, and payment of the Exercise Price as aforesaid, the Company shall
issue and cause to be delivered to the Holder or upon the written order of such
Holder and (subject to receipt of evidence of compliance with the Act in
accordance with the provisions of Section 4 of this Agreement) in such name or
names as the Holder may designate, a Certificate or Certificates for the number
of full Warrant Shares so purchased, together with cash or check, as provided in
Section 10 of this Agreement, in respect of a fraction of a share of such stock
otherwise issuable upon such surrender and, if the number of Warrants
represented by a Certificate shall not be exercised in full, a new Certificate
or Certificates, executed by the Company, for the balance of the number of whole
Warrants represented by the surrendered Certificate.
(d) If permitted by applicable law, such Certificate or
Certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such warrants and payment of the
Exercise Price. The Warrants shall be exercisable, at the election of the Holder
thereof, either as an entirety or from time to time for part of the shares
specified therein.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; provided, however, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue or delivery of any Warrants or Certificates for Warrant Shares in a
name other than that of the Holder of such Warrants.
7. Mutilated or Missing Certificates. In case any Certificates shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and in substitution for and upon cancellation of the mutilated
Certificates, or in lieu of and in substitution for the Certificates lost,
stolen or destroyed, new Certificates of like tenor and representing an
equivalent right or interest; but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of
- 4 -
<PAGE> 6
such Certificates and of indemnity or bond, if requested, also satisfactory to
the Company. An applicant for such substitute Certificates shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
8. Reservation of Warrant Shares; Authorization.
8.1 Reservation of Warrant Shares. The Company has reserved and will
keep available, out of the authorized and unissued shares of Common Stock or the
authorized and issued shares of Common Stock held in the Company's Treasury, the
full number of shares sufficient to provide for the exercise of the rights of
purchase represented by all the outstanding Warrants. The transfer agent for the
Common Stock (the "Transfer Agent") and every subsequent Transfer Agent for any
shares of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and directed at
all times until the Expiration Date to reserve such number of authorized and
unissued shares as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash or check
which may be issuable as provided in Section 10 of this Agreement. The Company
will furnish to such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each Holder pursuant to this
Agreement. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be cancelled.
8.2 Authorization. This Agreement has been duly and validly executed
and delivered by the Company and this Agreement constitutes a valid and binding
agreement of the Company enforceable in accordance with its terms (except in
each such case as enforceability may be limited by bankruptcy, insolvency,
reorganization and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and except as rights to indemnity and
contribution hereunder and thereunder may be limited by federal or state
securities laws). The execution, delivery and performance of this Agreement by
the Company and compliance by the Company with the terms and provisions hereof
do not and will not violate any provision of any law, rule or regulation, order,
writ, judgment, injunction, statute, decree,
- 5 -
<PAGE> 7
determination or award having applicability to the Company, or any of its
properties or assets. The execution, delivery and performance of this Agreement
by the Company and compliance by the Company with the terms and provisions
hereof do not and will not (i) conflict with or result in a breach of or
constitute a default under any provision of the charter or by-laws of the
Company; or (ii) give rise to an event of default which may result in the
acceleration of any material amount of Indebtedness (as such term is defined in
the Stock Purchase Agreement) or an event of default under any other material
contractual obligation of the Company. The Company covenants that upon issuance
and delivery against payment pursuant to the terms of their Warrant Agreement,
all Warrant Shares will be validly issued, fully paid and nonassessable
outstanding shares of Common Stock of the Company. The Company represents and
warrants that the number of outstanding shares of the Company is 13,910,177.
Except as set forth on Schedule 1 attached hereto, there are not outstanding
subscriptions, convertible securities, options, warrants or other rights,
agreements or commitments to subscribe for or purchase or acquire from the
Company, or any contracts providing for the issuance of, or the granting of
rights to acquire any capital stock of the Company or any securities convertible
or exchangeable for any such capital stock. There are no preemptive rights with
respect to and there are no outstanding contractual obligations of the Company
to repurchase, redeem or otherwise acquire any shares of the Company.
9. Adjustments of Exercise Price and Number of Shares. The Exercise
Price and Warrant Shares shall be adjusted under certain circumstances in
accordance with Annex B attached hereto and expressly incorporated herein and
made a part hereof.
10. Fractional Shares of Common Stock. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 10,
be issuable on the exercise of any Warrant (or specified portion thereof), the
Company shall pay an amount in cash equal to the Closing Price for one share of
the Common Stock, on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction. The Company may also
make any payment required by this Section 10 by check.
11. Registration Rights. The Holder shall have those registration
rights with respect to the Warrant Shares as set forth in that certain
Registration Rights Agreement dated as of
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<PAGE> 8
July 8, 1991 by and among the Company, NAR and Intercontinental Mining &
Resources Limited (the "Registration Rights Agreement").
12. Rights as Stockholders, Notices to Holders. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferees the right to vote or to receive dividends or to
consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any of
the following events shall occur:
(a) the Company shall take any action which requires an
adjustment under Annex B attached hereto; or
(b) a merger occurs to which the Company is a party and for
which approval of any stockholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the
Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding Warrant Shares issuable
upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination); or
(c) voluntary or involuntary dissolution, liquidation, or
winding up of the Company;
then in any one or more of said events the Company shall give notice in writing
of such event to the Holders at least 20 days (10 days in any case specified in
clauses (a) and (b) above) prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution, or subscription rights, or for the determination
of stockholders entitled to vote on such proposed dissolution, merger, sale,
reclassification, liquidation or winding up. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
13. Miscellaneous.
(a) Notices. Any notice pursuant to this Agreement to be given
or made by the Holder of any Warrant Certificate to the Company shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
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<PAGE> 9
The Horn & Hardart Company
1500 Harbor Boulevard
Weehawken, New Jersey 07087
Attention: Michael P. Sherman
Executive Vice President
And General Counsel
Notices or demands authorized by this Agreement to be given or made to the
Holder of any Warrant shall be sufficiently given or made (except as otherwise
provided in this Agreement) if sent by first-class mail, postage prepaid,
addressed to such Holder at the address of such Holder as shown on the warrant
Register.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to principles of conflict of laws.
(c) Amendments and Waivers. This Agreement may be amended,
modified or superseded only by written instrument signed by all of the parties
hereto, and any of the terms, provisions, and conditions hereof may be waived,
only by a written instrument signed by the party waiving such term, provision or
condition.
(d) Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holders shall bind and
inure to the benefit of their respective successors and assigns hereunder.
(e) Merger or Consolidation of the Company. So long as
Warrants remain outstanding, until the Expiration Date, the Company will not
merge or consolidate with or into, or sell, transfer to or lease all or
substantially all of its property to, any other corporation unless the
successor or purchasing corporation, as the case may be (if not the Company),
shall expressly assume, by supplemental agreement executed and delivered to the
Holder, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
(f) Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Holder, any legal or equitable right, remedy or claim under this
Agreement, but this Agreement shall be for the sole and exclusive benefit of the
Company and the Holder of the Warrants and Warrant Shares.
(g) Captions. The captions of the sections and subsections of
this Agreement have been inserted for convenience only and shall have no
substantive effect.
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<PAGE> 10
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
(i) Termination. This Agreement shall terminate at the close
of business on the Expiration Date or any earlier date when all Warrants have
been exercised, provided that the registration rights provided for in the
Registration Rights Agreement shall remain in full force and effect to the
extent provided for therein.
(j) Specific Performance. The parties hereto acknowledge and
agree that in the event of any breach of this Agreement, NAR would be
irreparably harmed and would not be made whole by monetary damages. It is
accordingly agreed that NAR, in addition to monetary damage and any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day, month and year first above written.
THE HORN & HARDART COMPANY
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
NORTH AMERICAN RESOURCES
LIMITED
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
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<PAGE> 11
Annex A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) AN
OPINION OF COUNSEL, WHICH OPINION SHALL BE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
No. 1 931,791 Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON MAY 8, 1994
THE HORN & HARDART COMPANY
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received the registered holder hereof
or registered assign (the "Holder"), is the owner of the number of Warrants set
forth above, each of which entitles the owner thereof to purchase on or after
the date hereof, at any time on or before 5:00 P.M., New York City time, on May
8, 1994, one fully paid and nonassessable share of Common Stock, $0.66-2/3 par
value (the "Common Stock") of The Horn & Hardart Company, a Nevada corporation
(the "Company"), at the purchase price of $4.00 per share (the "Exercise
Price"). Payment of the Exercise Price may be made in cash or by certified or
official bank check to the order of the Company. As provided in the Agreement
referred to below, the Exercise Price and the number or kind of shares which may
be purchased upon the exercise of the Warrants evidenced by this Warrant
Certificate are, upon the happening of certain events, subject to modification
and adjustment.
This Warrant Certificate is subject to and entitled to the benefits
of all of the terms, provisions and conditions of that certain agreement dated
as of October 25, 1991 (the "Warrant Agreement") by and between the company and
North American Resources Limited, which Warrant Agreement is hereby incorporated
<PAGE> 12
herein by reference and made a part hereof and to which Warrant Agreement
reference is hereby made of a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Company and the
Holders of the Warrant Certificates. Copies of the Warrant Agreement are on file
at the principal office of the Company.
The Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the Holder hereof as the owner for all purposes.
This Warrant Certificate, with or without other Warrant
Certificates, upon surrender at the principal office of the Company, may be
exchanged for another Warrant Certificate or Warrant Certificates of like tenor
and date evidencing Warrants entitling the Holder to purchase a like aggregate
number of shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered. If this Warrant Certificate
shall be exercised in part, the Holder shall be entitled to receive upon
surrender hereof, another Warrant Certificate or Warrant Certificates for the
number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof
payment will be made as provided in the Warrant Agreement.
No Holder shall be entitled to vote or to receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement or herein be construed to confer
upon such Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or, except as provided
in the Warrant Agreement, to receive notice of meetings, or to receive dividends
or subscription rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the Common Stock
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<PAGE> 13
purchasable upon the exercise thereof shall have become deliverable as provided
in the Warrant Agreement.
IN WITNESS WHEREOF, The Horn & Hardart Company has caused the
signature of its Executive Vice President and General Counsel to be printed
hereon.
THE HORN & HARDART COMPANY
By:
------------------------------------
Michael P. Sherman
Executive Vice President
General Counsel
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<PAGE> 14
PURCHASE FORM
(To be executed upon exercise of warrant)
To The Horn & Hardart Company:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the Warrant Certificate attached hereto for, and to
purchase thereunder, ___________________ shares of Common Stock, as provided for
therein, and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $_______________.
Please issue a Certificate or Certificates for such shares of Common
Stock in the name of, and pay any cash for any fractional share to:
PLEASE INSERT SOCIAL SECURITY Name__________________________
OR OTHER IDENTIFYING NUMBER (Please Print Name and Address)
OF ASSIGNEE
______________________________________ Address__________________________
______________________________________ Signature_______________________
NOTE: The above signature should
correspond exactly with the name on
the face of this Warrant Certificate
or with the name of assignee appearing
in the assignment form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder less any fraction of a share paid in cash.
Dated: __________________________, 19__
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<PAGE> 15
Annex B
Antidilution
The provisions set forth in this Annex B shall constitute a part of
that certain Warrant Agreement dated October 25, 1991 by and between the Horn &
Hardart Company and North American Resources Limited (the "Agreement"). Defined
terms used herein and not otherwise defined shall have the meaning set forth in
the Agreement.
1. Adjustments. The number of Warrant Shares purchasable upon the
exercise of each Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock, (iii) combine
its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock, the
number of Warrant Shares purchasable upon exercise of
the Warrant immediately prior thereto shall be adjusted
so that the Holder of the Warrant shall be entitled to
receive the kind and number of Warrant Shares which it
would have owned or have been entitled to receive after
any of the events described above, had the Warrant been
exercised immediately prior to such event or any record
date with respect thereto. An adjustment made pursuant
to this paragraph (a) shall become effective immediately
after the effective date of such event retroactive to
the record date, if any, for such event.
(b) In case the Company shall issue rights, options or
warrants to all holders of its outstanding Common Stock,
without any charge to such holders, entitling them to
subscribe for or purchase shares of Common Stock at a
price per share which is lower at the record date
mentioned below than the then current market price per
share of Common Stock (as defined in paragraph (d)
below), the number of Warrant Shares thereafter
purchasable upon the exercise of the Warrant shall be
determined by
<PAGE> 16
multiplying the number of Warrant Shares theretofore
purchasable upon exercise of each Warrant by a fraction,
the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of
additional shares of Common Stock offered for
subscription or purchase, and the denominator of which
shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights,
options or warrants plus the number of shares which the
aggregate offering price of the total number of shares
of Common Stock so offered would purchase at the then
current market price per share of common stock. Such
adjustment shall be made whenever such rights, options
or warrants are issued, and shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such
rights, options or warrants, subject to readjustment as
provided in paragraph (h) below.
(c) In case the Company shall distribute to all holders of
its shares of Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions
payable out of consolidated earnings or earned surplus
and dividends or distributions referred to in paragraphs
(a) above) or rights, options or warrants or convertible
or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock
(excluding those referred to in paragraph (b) above),
then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of the Warrant
shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon the exercise of the
Warrant, by a fraction, the numerator of which shall be
the then current market price per share of Common Stock
(as defined in paragraph (d) below) on the date of such
distribution, and the denominator of which shall be the
then current market price per share of Common Stock,
less the then fair value (ad determined in good faith by
the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of
such
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<PAGE> 17
subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become
effective on the date of distribution retroactive to the
record date for the determination of shareholders
entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs (b)
and (c) of this Section the current market price per
share of Common Stock at any date shall be the average
of the daily market prices for 30 consecutive trading
days commencing 45 trading days before the date of such
computation. The daily market price for each day shall
be the last reported sale price regular way or, in case
no such reported sale takes place on such day, the
average of the reported closing bid and asked prices
regular way, in either case on the principal national
securities exchange on which the Common Stock is listed
or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average
of the highest reported bid and lowest reported asked
quotations for the Common Stock on NASDAQ or any
comparable system.
(e) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at
least one percent (1%) in the number of Warrant Shares
purchasable upon the exercise of the Warrant; provided,
however, that any adjustments which by reason of this
paragraph (e) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the
nearest one thousandth of a share. Notwithstanding the
first sentence of this paragraph (e) any adjustment
shall be made no later than the earlier of three years
from the date of the transaction which mandates such
adjustment or the expiration of the right to exercise
any Warrant.
(f) Whenever the number of Warrant Shares purchasable upon
the exercise of each Warrant is adjusted, as herein
provided, the Exercise
- 3 -
<PAGE> 18
Price payable upon exercise of each Warrant shall be
adjusted by multiplying such Exercise Price immediately
prior to such adjustment by a fraction, the numerator of
which shall be the number of Warrant Shares purchasable
upon the exercise of the Warrant immediately prior to
such adjustment, and the denominator of which shall be
the number of Warrant Shares so purchasable immediately
thereafter.
(g) In case the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or
convertible securities containing the right to subscribe
for or purchase shares of Common Stock, at a price per
share of Common Stock (determined in the case of such
rights, options, warrants or convertible securities, by
dividing (i) the total amount received or receivable by
the Company in consideration of the sale and issuance of
such rights, options, warrants or convertible
securities, plus the total consideration payable to the
Company upon exercise or conversion thereof, by (ii) the
total number of shares of Common Stock covered by such
rights, options, warrants or convertible securities)
lower than the current market price (as defined in
paragraph (d) above) in effect immediately prior to such
sale and issuance, then the Warrant Price shall be
reduced to a price (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of
(1) the number of shares of Common Stock outstanding
immediately prior to such sale and issuance multiplied
by the then existing Warrant Price, plus (2) the
consideration received by the Company for such sale and
issuance, by (ii) the total number of shares of Common
Stock outstanding immediately after such sale and
issuance, provided, however, that adjustments pursuant
to this paragraph (g) shall only be made if such sale or
issuance is to an officer, director or other affiliate
of the Company, or any relative of any of the above,
immediately prior to such sale or issuance, and if no
adjustment for such sale or issuance is made pursuant to
paragraph (c) above. Notwithstanding anything to the
contrary, no adjustment shall be made pursuant to this
subsection (g) in the event the Company shall issue
options to employees (including
- 4 -
<PAGE> 19
officers) or directors in consideration of services,
which options have an exercise price not less than
market value of Common Stock at the time of the issuance
of such option. The number of Warrant Shares purchasable
upon the exercise of each Warrant shall be that number
determined by multiplying the number of Warrant Shares
issuable upon exercise immediately prior to such
adjustment by a fraction, of which the numerator is the
Warrant Price in effect immediately prior to such
adjustment and the denominator is the Warrant Price as
so adjusted. For the purposes of such adjustment, the
shares of Common Stock which the holders of any such
rights, options, warrants or convertible securities
shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of
such sale and issuance and the consideration received by
the Company therfor shall be deemed to be the
consideration received by the Company for such rights,
options, warrants or convertible securities, plus the
consideration or premiums stated in such rights,
options, warrants, or convertible securities to be paid
for the shares of Common Stock, covered thereby. In case
the Company shall sell and issue shares of Common Stock,
or rights, options, warrant or convertible securities
containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in
whole or in part, of property other than cash or its
equivalent, then in determining the "price per share of
Common Stock" and the "consideration received by the
Company" for purposes of the first sentence of this
paragraph (g), the Board of Directors shall determine,
in its discretion, the fair value of said property and
such determination, if made in good faith, shall be
binding upon all Holders of Warrants. There shall be no
adjustment of the Warrant Price pursuant to this
paragraph (g) if the amount of such adjustment would be
less than $.05 per Share; provided, however, that any
adjustment which by reason of this provision is not
required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(h) For the purpose of this Section 3, the term "shares of
Common Stock" shall mean (i) the
- 5 -
<PAGE> 20
class of stock designated as the Common Stock of the
Company at the date of this Agreement, or (ii) any other
class of stock resulting from successive changes or
reclassification of such shares consisting solely of
changes in par value, or from par value to no par value,
or from no par value to par value.
(i) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges, if any thereof shall
not have been exercised, the Exercise Price and the
number of shares of Common Stock purchasable upon the
exercise of each Warrant shall, upon such expiration, be
readjusted and shall therafter be such as it would have
been had it been originally adjusted (or had the
original adjustment not been required, as the case may
be) as if (A) the only shares of Common Stock so issued
were the shares of Common Stock, if any, actually issued
or sold upon the exercise of such rights, options,
warrants or conversion or exchange rights and (B) such
shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon
such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale
or grant of the rights, options, warrants or conversion
or exchange rights that were so exercised, provided,
further that no such readjustment shall have the effect
of increasing the Exercise Price by an amount in excess
of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.
2. Notice of Adjustment. Whenever the number or Exercise Price of
Warrant Shares purchasable upon the exercise of each Warrant are adjusted, as
herein provided, the Company shall mail by first class mail, postage prepaid, to
the Holder notice of such adjustment or adjustments setting forth (i) the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant Shares after such adjustment, (ii) a brief statement of
the facts requiring such adjustment and (iii) the computation by which such
adjustment was made. Such certificate shall be conclusive evidence of the
correctness of such adjustment.
3. No Adjustment for Dividends. Except as provided in Section 1, no
adjustment in respect of any dividends shall be
- 6 -
<PAGE> 21
made during the term of a Warrant or upon the exercise of a Warrant.
4. Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of all or substantially all of the property of the Company,
Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such action to purchase upon exercise of the Warrant
the kind and amount of shares and other securities, cash and property which the
Holder would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale or conveyance had such warrant been exercised
immediately prior to such action. Adjustments to such shares and other
securities shall be as nearly equivalent as may be practicable to the
adjustments providing for in this Annex A. The provisions of this Section 4
shall apply to successive consolidations, mergers, sales or conveyances.
5. Statement on Warrants. Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon the exercise of
the Warrant, any Warrant theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the
Warrant initially issuable pursuant to this Agreement. Upon the request of any
holder of any Warrant, the Company shall issue a new Warrant to reflect the
adjustment to number of Warrant Shares and the Exercise Price.
- 7 -
<PAGE> 22
Schedule I
Options and Convertible Securities
1. Warrants issued to Sun Life Insurance Company of America on May 9, 1991 to
purchase at any time prior to May 9, 1996 up to an aggregate of 973,712
shares of the company's Common Stock, par value $.66 2/3 per share, for
$4.00 per share.
2. Warrants isued to Sun Life Insurance Company of America on July 10, 1991
to purchase at any time prior to July 10, 1996 up to an aggregate of
291,667 shares of the Company's Common Stock, par value $.66 2/3 per
share, for $5.25 per share.
3. Warrants issued to Intercontinental Mining & Resources Limited on July 10,
1991 to purchase at any time prior to July 10, 1996 up to an aggregate of
1,750,000 shares of the Company's Common Stock, par value $.66 2/3 per
share, for $5.25 per share.
4. Options
<TABLE>
<CAPTION>
OPTIONS OPTION
DATE OF EXPIRATION OUTSTANDING EXERCISE
GRANT DATE 12/29/90 PRICE
------- ---------- ----------- --------
<S> <C> <C> <C>
12/11/90 12/11/95 200,000 $ 2.750
9/14/90 9/14/95 291,050 5.000
10/13/89 10/11/94 41,200 7.000
5/24/88 5/24/93 235.165 7.000
10/18/88 10/18/83 304,850 8.000
4/7/89 4/7/94 37,500 8.000
9/13/89 9/13/94 34,125 9.625
9/15/87 9/2/92 28,000 13.000
4/17/87 4/17/92 13,000 11.375
1986 22,500 12.000
1988 60,000 7.000
1989 75,000 7.250
1990 10,000 5.000
---------
1,386,123
=========
</TABLE>
5. Convertible Debentures
<TABLE>
<CAPTION>
Debentures Conversion
Outstanding Price
----------- ----------
<S> <C> <C>
7-1/2% Convertible $30,000,000 $11.70
Subordinated
Debentures due
March 1, 2007
</TABLE>
<PAGE> 23
6. Agreement under consideration by and among the Company, Buyer and Jack E.
Rosenfeld.
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO ACCOUNT PURCHASE AGREEMENT
AMENDMENT, dated as of July 12, 1993 by and between THE HANOVER
COMPANIES ("Hanover Companies"), a Nevada corporation with its principal place
of business and chief executive offices located at 1500 Harbor Boulevard,
Weehawken, New Jersey 07087, HANOVER DIRECT FULFILLMENT, INC., formerly known as
Hanover Direct, Inc. ("HDFI"), a Pennsylvania corporation with its principal
place of business and chief executive offices located at 340 Poplar Drive,
Hanover, Pennsylvania 17331, and BRAWN OF CALIFORNIA, INC. ("Brawn"), a
California corporation with its principal place of business and chief executive
offices located at 741 F Street, San Diego, California 92112, GUMP'S BY MAIL,
INC., ("Gump's by Mail"), a Delaware corporation with its principal place of
business an chief executive offices located at 150 Post Street, San Francisco,
California 94111, GSF ACQUISITION CORP. ("GSF"), a California corporation with
its principal place of business and chief executive offices located at 150 Post
Street, San Francisco, California 94111, and GUMP'S HOLDINGS, INC. ("Gump's
Holdings"), a Delaware corporation with its principal place of business and
chief executive offices located at 1500 Harbor Boulevard, Weehawken, New Jersey
07087, and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York
corporation having an office at 260 Long Ridge Road, Stamford, Connecticut
06902.
WHEREAS, Hanover Companies, HDFI, and Brawn and GE Capital are
parties to an Account Purchase Agreement dated as of December 21, 1992 (the
"Agreement") pursuant to which GE Capital agreed to purchase and has purchased
Accounts and Indebtedness from Hanover Companies, HDFI and Brawn upon the terms
and subject to the conditions of the Agreement; and
WHEREAS, Hanover Companies, HDFI, Brawn, Gump's by Mail, GSF and
Gump's Holdings are under common control; and
WHEREAS, Gump's (as hereinafter defined) is engaged in the business
of selling Merchandise (as hereinafter defined) through mail-order catalogues
and stores using the Gump's tradestyles and financing the credit purchase of
such Merchandise by Account Debtors (as hereinafter defined) pursuant to Gump's
Accounts (as hereinafter defined); and
<PAGE> 2
WHEREAS, Hanover Companies, HDFI and Brawn and GE Capital have
agreed that Gump's will become a party to the Agreement and GE Capital has
agreed (i) to purchase Old Gump's Accounts (as hereinafter defined) and Old
Gump's Indebtedness (as hereinafter defined) on the Gump's Funding Date (as
hereinafter defined) (ii) to continue to purchase Accounts and Indebtedness (as
hereinafter defined) subsequent to the Gump's Funding Date, and (iii) to provide
certain services to Hanover (as hereinafter defined) as specified herein, all
pursuant to the terms and conditions hereinafter set forth; and
WHEREAS, to induce GE Capital to make such purchases and perform
such services, Hanover (as herein defined) has made certain undertakings,
covenants, representations and warranties; and
WHEREAS, to induce Gump's to sell the Old Gump's Accounts and Old
Gump's Indebtedness, to continue to sell Accounts and Indebtedness and to enter
into this Amendment, GE Capital has made certain undertakings, covenants,
representations and warranties; and
WHEREAS, it is the mutual desire of Hanover (as hereinafter defined)
and GE Capital that the Agreement be amended in accordance with the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and subject
to the terms and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Capitalized terms used herein which are not otherwise defined
shall have the same meaning as in the Agreement.
2. All references in the Agreement to Hanover Direct are hereby
amended to mean and include HDFI.
3. The definition of "Hanover" set forth in the introduction to the
Agreement is hereby amended to mean,
2
<PAGE> 3
individually and collectively, Hanover Companies, HDFI, Brawn, Gump's by Mail,
GSF and Gump's Holdings.
4. The definition of "Borrowings Ratio" in Section 1 is deleted and
substituted in its place is the followings:
"Borrowings Ratio" shall mean the relationship, expressed as a
numerical ratio, which Total Borrowings bear to the sum of (i) Total Borrowings
and (ii) Total Equity Investment of Hanover Companies and its subsidiaries on a
consolidated basis, together with Gump's
5. The definition of "Business Condition" in Section 1 is deleted
and substituted in its place is the following:
"Business Condition" shall mean the business, operations, or
financial condition of Hanover Companies and its consolidated subsidiaries,
together with Gump's, taken as a whole.
6. The definition of "EBIT" in Section 1 is deleted and substituted
in its place is the following:
"EBIT" means, for any period, the consolidated earnings before
interest and taxes of Hanover Companies and its subsidiaries, together with
Gump's, for such period, prepared in accordance with GAAP.
7. The definition of "EBIT" in Section 1 is deleted and substituted
in its place is the following:
"EBITDA" means, for any period, the consolidated Net Income
(Loss) of Hanover Companies and its subsidiaries, together with Gump's, for such
period taken as a single accounting period, plus (a) the sum of the following
amounts of Hanover Companies and its consolidated subsidiaries, together with
Gump's, if any, for such period to the extent included in the determination of
such Net Income (Loss): (i) depreciation expense, (ii) amortization expense,
(iii) Net Interest Expense, (iv) total income tax expense, and (v) extraordinary
losses and other losses on asset sales; less (b) the sum of the following
amounts of Hanover Companies and its consolidated subsidiaries, together with
Gump's to the extent included in the determination of such Net Income (Loss):
(i) extraordinary gains and other gains on asset sales, and (ii) the Net
3
<PAGE> 4
Income (Loss) of any other person or entity that is accounted for by the equity
method of accounting except to the extent of the amount of dividends or
distributions paid to such Person.
8. The following definitions shall be added after the definition of
"GE Capital's Accounting Practices" in Section 1:
"Gump's" shall mean Gump's by Mail, Inc., GSF Acquisition
Corp. and Gump's Holdings, Inc., collectively and individually.
"Gump's Account" shall mean any Account arising out of a
Retail Sale of Merchandise pursuant to a Credit Agreement between an Account
Debtor and Gump's.
"Gump's Closing Date" shall mean the day on which this
Amendment is executed.
"Gump's Conversion Date" shall mean the date upon which GE
Capital shall undertake the servicing of Gump's Accounts and Gump's Indebtedness
after the end of the Gump's Interim Period (as defined in Section 2.12.A
hereof).
"Gump's Indebtedness" shall man any Indebtedness in respect of
a Gump's Account.
"Hanover" shall mean Hanover Companies, HDFI, Brawn, Gump's by
Mail, GSF and Gump's Holdings, collectively and individually,
9. The definition of "Indebtedness" in Section 1 is deleted and
substituted in its place is the following:
"Indebtedness" shall mean any obligation incurred by an
Account Debtor in respect of an Account (including any Old Account and Old
Gump's Account), including, without limitation, any charges for Merchandise,
finance charges, charges for insurance financed pursuant to an Account, and any
other charges in respect of an Account as such charges are accrued pursuant to
GE Capital's Accounting Practices.
4
<PAGE> 5
10. The following definitions shall be added after the definition of
"Old Account" in Section 1:
"Old Gump's Account" shall mean any Gump's Account arising
prior to the Gump's Funding Date.
"Old Gump's Indebtedness" shall mean any Gump's Indebtedness
incurred pursuant to an Old Gump's Account and arising prior to the opening of
business of Gump's on the Gump's Funding Date.
11. The definition of "Scheduled Debt Repayment" is deleted and
substituted in its place is the following:
"Scheduled Debt Repayment" shall mean, as to Hanover Companies
together with Gump's, that portion of long-term debt and/or capital lease
obligations which was classified under "current maturities," as all such terms
are defined in accordance with GAAP, on the immediately prior fiscal year-end
consolidated balance sheets prepared in accordance with GAAP, which is currently
due and payable in the fiscal period in question.
12. The definition of "Solvent" is deleted and substituted in its
place is the following;
"Solvent" shall mean that (a) the present fair salable value of
Hanover Companies' and Gump's assets is in excess of the total amount of their
liabilities, (b) Hanover Companies and Gump's are able to pay their debts as
they become due, and (c) Hanover Companies and Gump's do not have unreasonably
small capital to carry on their businesses as theretofore operated and all
businesses in which Hanover Companies and Gump's are about to engage.
13. The definition of "Stores" is deleted and substituted in its
place is the following:
"Stores" shall mean Hanover, International Male and Gump's
retail stores operated on the date hereof or hereafter by HDFI directly or
through Brawn or Gump's and operating under the tradenames "Hanover Direct,"
"International Male," "Gump's" or any other tradename hereafter used by Hanover
of which GE Capital receives prior written notice,
14. The definition of "Tangible Net Worth" is deleted and
substituted in its place is the following:
5
<PAGE> 6
"Tangible Net Worth" means, at any date, the Net Worth of Hanover
Companies and its consolidated subsidiaries, together with Gump's, at such date,
excluding, however, from the determination of the assets of such persons at such
date, (i) all minority interests, and (ii) all intangible assets, as such terms
are defined in accordance with GAAP, except that, with respect to Hanover's
purchase of a name list or catalog company, any good will or mailing list booked
by Hanover as part of that purchase will not be excluded.
15. The definition of "Total Borrowings" is deleted and substituted
in its place is the following:
"Total Borrowings" shall mean, as to Hanover Companies together with
Gump's, (i) all short-term debt instruments, including without limitation
borrowings under term loans, revolvers, lines of credit and/or working capital
facilities, (ii) all long-term debt, including without limitation the current
portion thereof, and (iii) all capital leases, including without limitation the
current portions thereof, as all such terms are defined in accordance with GAAP.
16. The definition of "Total Equity Investment" is deleted and
substituted in its place is the following:
"Total Equity Investment" shall mean, as to Hanover Companies
together with Gump's, (i) total stockholders' equity, less (ii) treasury stock,
as such terms are defined in accordance with GAAP.
17. The following shall be added as new Section 2.1.A after Section
2.1:
2.1.A. Purchase of Gump's Accounts and Gump's Indebtedness on
Gump's Funding Date. Hanover agrees to sell, assign, and transfer to GE Capital
on the Gump's Funding Date and GE Capital agrees to purchases and acquire form
Hanover on the Gump's Funding Date all Old Gump's Accounts, including Old Gump's
Indebtedness, except Old Gump's Accounts (a) which have outstanding credit
balances in favor of Account Debtors in effect for one hundred and twenty one
(121) or more days, (b) which have been placed by Hanover for collection with an
attorney or collection agency, or (c) which fall within the definition of RFR
Indebtedness. The Old Gump's Accounts, including Old Gump's Indebtedness, being
sold by Hanover and being purchased by
6
<PAGE> 7
GE Capital pursuant to this Section 2.1.A shall be identified in the Schedule of
Gump's Accounts (which shall be in the form of a computer tape) accompanying a
Bill of Sale in the form attached as Schedule 2.1.A hereto. The purchase price
(as set forth in Section 2.3(a) hereof) of Old Gump's Accounts, including Old
Gump's Indebtedness, shall be determined based upon transactions processed by
Gump's with respect to Old Gump's Indebtedness up to the Gump's Funding Date.
Upon purchases by GE Capital, all rights with respect to such Gump's Accounts
(including but not limited to the right to receive finance charges and all other
income and profits derived from such Gump's Accounts) shall belong to GE Capital
free and clear of any claim by Hanover other than the rights of Hanover arising
under this Agreement. Payments made by GE Capital on the Gump's Funding Date
shall be subject to verification within three Business Days after receipt of the
amount of Indebtedness for which payment was made and under or overpayments will
be promptly adjusted by the parties.
18. Section 2.2 is deleted and substituted in its place is the
following:
2.2. Purchase of Accounts and Indebtedness Following the
Funding Date and Gump's Funding Date. Following the Funding Date or, with
respect to Gump's Accounts, following the Gump's Accounts, following the Grump's
Funding Date, on a daily basis, on each Business Day following a day on which
Accounts arise, Hanover agrees to offer to sell, assign, and transfer in
accordance with the terms and provisions of this Agreement all Accounts and
Indebtedness to GE Capital and GE Capital agrees, on a daily basis as above
provided, to purchase and acquire from Hanover all such Accounts and
Indebtedness offered which meet the requirements of this Agreement; provided,
however, that GE Capital may, but shall not be obligated to, purchase any
Accounts and Indebtedness from Hanover at any time during which its Aggregate
Investment equals or exceeds the Maximum Indebtedness; and Investment equals or
exceeds the Maximum Indebtedness; and provided further, that GE Capital shall
not be required to purchase Accounts and Indebtedness (1) as to which the
Account Debtors are Non-U.S. residents to the extent such Indebtedness together
with such similar Indebtedness exceeds five (5) percent of total Indebtedness
owned at any time by GE Capital; or (2) from any of Gump's by Mail, GSF or
Gump's Holdings if any such party is no longer under the Control of Hanover.
Upon purchase by GE Capital, all rights with respect to such Accounts (including
but not limited to the right to receive finance charges and all other income and
7
<PAGE> 8
profits derived from Accounts) shall belong to GE Capital free and clear of any
claim by Hanover, other than the rights of Hanover arising under this Agreement.
19. Section 2.3 is deleted and substituted in its place is the
following:
2.3. Purchase Price.
(a) The purchase price for all Indebtedness purchased on the
Funding Date and all Gump's Indebtedness purchased on the Gump's Funding Date
pursuant to, respectively, Section 2.1 and 2.1.A hereof shall be the face amount
of such Indebtedness (including billed and unpaid finance charges thereon), net
of the aggregate amount of Ineligible Indebtedness and, on the Funding Date
only, net of the aggregate amount of any outstanding credit balances in favor of
Account Debtors in effect for less than one hundred twenty one (121) days.
Effective on the Funding Date only, GE Capital assumes the obligation of Hanover
to Account Debtors to repay or apply the credit balances described in the
foregoing sentence to the extent such balances have been deducted from the
purchase price. The purchase price described above shall be payable by GE
Capital to HDFI on the Funding Date and to one of the Gump's companies on such
date that GE Capital receives both the funding file and a control report in such
form as to enable GE Capital to determine the balance of the Old Gump's Accounts
as of the Gump's Funding Date, as follows:
(i) an amount equal to 75% of such purchase price, plus
an amount equal to the amount of a Letter of Credit, if any, pursuant to Section
6.8 hereof (the "Letter of Credit Amount"), shall be paid by wire transfer of
immediately available funds to an account or accounts designated by Hanover; and
(ii) the Reserve Account, described in Section 5 hereof,
shall be credited with (A) an amount equal to the sum of (x) 25% of such
purchase price and (y) 100% of the Ineligible Indebtedness referred to above,
less (B) the Letter of Credit Amount.
On the Gump's Funding Date, GE Capital shall pay one of the Gump's companies two
million dollars ($2,000,000) toward the purchase price of the Old Gump's
Accounts, which payment shall be deducted from the purchase price for Old Gump's
Accounts.
8
<PAGE> 9
(b) The purchase price for all Indebtedness purchased pursuant to
Section 2.2 hereof shall be the face amount of such Indebtedness. GE Capital
will forward the purchase price for each purchased Account other than a Gump's
Account to HDFI and will forward the purchase price for each Gump's Account to
one of the Gump's companies. All such payments shall be subject to GE Capital's
rights under Section 2.10 hereof, including without limitation with respect to
Merchandise returns and/or credits, such as discounts and adjustments, and its
right to deduct certain sums in accordance with the terms of this Agreement, via
wire transfer if to HDFI and via ACH if to Gump's, if GE Capital receives, on
the day following the day upon which each transaction arose, in a format
compatible and in accordance with GE Capital's normal operating procedures, no
later than 9:00 AM Eastern Time on the Business Day of receipt, an electronic
data transmission or daily computer tape from Hanover reflecting Net Credit
Sales; provided, however, GE Capital must receive three electronic data
transmissions or daily computer tapes, one reflecting Net Credit Sales for GSF,
and one reflecting Net Credit Sales for all other Accounts. HDFI and Gump's
shall each allocate the purchase price and any other monies received from GE
Capital among itself and the other parties to the Agreement in accordance with
their interests. In the event an electronic data transmission or a daily
computer tape referred to in the previous sentence is received by GE Capital
after 9:00 AM Eastern Time on any Business Day, GE Capital shall have no
obligation to forward the purchase price for Accounts referred to in such
transmission or tape until the Business Day after its receipt of such
transmission or tape; provided, however, that GE Capital shall use reasonable
efforts to forward to Hanover the purchase price for Accounts referred to in
such transmission or tape on the Business Day that the transmission or tape is
received.
20. The introduction to Section 2.4 is deleted and substituted in
its place is the following:
2.4. Unit Fee. On the first twelve (12) Settlement Dates
hereunder after the Conversion Date (the first being the Settlement Date for the
Settlement Period in which there are one or more Billing Dates for which GE
Capital prepares and sends the periodic statement), to induce GE Capital to
enter into this Agreement and to perform its covenants and agreements hereunder,
Hanover shall pay GE Capital a fee ("Unit Fee") of $2.323 for each
9
<PAGE> 10
Account that is an Active Account during the immediately preceding Settlement
Period; provided, however, that Gump's Accounts shall not be considered Active
Accounts until after the Gump's Conversion Date. On each Settlement Date
thereafter (including each Settlement Date during any renewal term), Hanover
shall pay GE Capital a Unit Fee of $2.413 for each Account that is an Active
Account during the immediately preceding Settlement Period; provided, however,
that Gump's Accounts shall not be considered Active Accounts until after the
Gump's Conversion Date. (If the first Settlement Period for which GE Capital
commences servicing has less than all of the Billing Dates during a month, the
Unit Fees and other fees will be based on Accounts having Billing Dates after
which GE Capital commences servicing and will be calculated only with respect to
such Accounts.) GE Capital shall deduct the amount of such Unit Fee form any
finances charges otherwise payable to Hanover on such Settlement Date pursuant
to Section 2.7 hereof, and to the extent such Unit Fee exceeds such finance
charges, GE Capital shall deduct the amount of such excess from the purchase
price otherwise payable to Hanover pursuant to Section 2.3(b) hereof on such
Settlement Date and thereafter may deduct from such purchase price amounts for
as many days as may be required until such Unit Fee is paid in full. The Unit
Fee for such Active Accounts shall be subject to the following adjustments:
21. The following shall be added as new Section 2.12.A after Section
2.12:
2.12.A. Interim Servicing.
During the period beginning on the Gump's Funding Date and
ending the day prior to the Gump's Conversion Date (such period to be referred
to hereinafter as the "Gump's Interim Period"):
(a) Hanover shall, at its expense, service Accounts and Indebtedness
purchased by GE Capital with due care and in the same manner as Gump's has
heretofore serviced Accounts, including, without limitation, the utilization of
accounting practices previously utilized by Gump's in connection with Gump's
Accounts. Hanover shall meet or exceed the diligence and quality standards of
credit granting and credit service maintained by Gump's at the time of GE
Capital's due diligence review on July 3 through July 8, 1993 with respect to
the servicing and administration of the Gump's Accounts. During the Gump's
Interim Period,
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<PAGE> 11
Hanover shall not be obligated to pay the fees specified in paragraphs 2.4 and
2.5 with respect to Gump's Accounts, but shall be obligated to pay to GE Capital
for each day during the Gump's Interim Period the product of (x) 1/360th of the
Prime Rate plus 2%, times (y) the Gump's Aggregate Investment (i.e., the amount
of Gump's Indebtedness owned by GE Capital, less that portion of the Reserve
Balance in excess of the Required Reserve for Accounts other than Gump's
Accounts) on each such day. GE Capital shall bill Hanover for the amounts due
under this paragraph for each Settlement Period on the corresponding Settlement
Date.
(b) GE Capital may supervise and monitor Hanover's performance of
its servicing activities during the Gump's Interim Period. GE Capital may, at
its own expense, maintain an audit and control group at Hanover's offices where
services in connection with Gump's Accounts are performed for purposes of
supervising and monitoring such servicing activities. Hanover shall provide
office facilities, including desk space, for such group without expense to GE
Capital. If, at any time during the Gump's Interim Period, GE Capital, due to
the manner in which such servicing activities are being performed, or due to the
occurrence of an Event of Default (or an event which, with the giving of notice
or lapse of time or both, would be an Event of Default), reasonably deems itself
insecure, GE Capital may take any action reasonably necessary to mitigate any of
GE Capital's prospective losses due to the inadequacies of such servicing
activities, the expense thereof to be borne by Hanover; provided, however, that,
to the extent reasonably practical, GE Capital shall not take any such action
until it has notified Hanover in writing of its intention to so act and the
reasons therefor and give Hanover an opportunity to take such actions on its
own.
(c) During the Gump's Interim Period, (1) Hanover shall provide any
assistance required by GE Capital in order that Gump's Accounts may be converted
onto GE Capital's computer system by the end of the Gump's Interim Period. Each
party shall, during the Gump's Interim Period, use reasonable efforts to assure
that the Gump's Conversion Date is October 1, 1993, but in no event later than
November 1, 1993.
(d) Hanover shall prepare and transmit to GE Capital the following
reports: (i) a daily summary report in the form specified by GE Capital (which
form shall request information similar to the information provided in
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<PAGE> 12
Settlement Sheets (as defined in Section 2.12) ("Gump's Settlement Sheet"),
together with the reference reports specified therein, which shall be delivered
to GE Capital by 12:00 a.m., Eastern Time, on the first Business Day following
the day the report covers, (ii) a monthly billing report covering each calendar
month which shall be delivered to GE Capital by 9:00 a.m., Eastern Time, on the
day which is the first Business Day after the end of each calendar month, and
(iii) a billing cycle summary report covering each Billing Cycle. No later than
one day after each Billing Date, Hanover shall provide to GE Capital a copy of a
computer tape containing the updated information as of the end of such Billing
Cycle (the "Gump's Masterfile Tapes"). Hanover shall take such additional action
as GE Capital shall reasonably request, including, but not limited to preparing
and sending to GE Capital such reports as GE Capital shall reasonably request.
(e) (1) On each Business Day, a net amount (the "Gump's net
Payment"), with respect to transactions posted to Gump's Accounts since the last
Hanover Business Day, equal to (i) the sum of (1) credit card purchases charged
to the Gump's Accounts, (2) NSF check, (3) finance charges, and (4)
miscellaneous debits, minus, (ii) the sum of (1) all payments received in
connection with Gump's Accounts on prior days which are not deposited by Hanover
in a designated bank account owned by GE Capital (which deposits Hanover will
make if requested by GE Capital), (2) return Merchandise credits, (3) credits to
Cardholders' Gump's Accounts due to billing errors, (4) write-offs and (5)
miscellaneous credits, plus or minus (iii) any adjustments to Gump's net
Payments with respect to prior days that are required pursuant to subsection (2)
below, shall be calculated and shall be advised to and paid to or by GE Capital
in accordance with the following procedures. Hanover shall prepare with respect
to each Hanover Business Day a Gump's Settlement Sheet, described above,
itemizing the Gump's net Payment due to or from GE Capital for that day. Hanover
shall transmit the Gump's Settlement Sheet by telefax to GE Capital no later
than 11:00 a.m. Eastern Time on the first Business Day following the Hanover
Business Day to which it relates. If the Gump's Net Payment calculated for any
Hanover Business Day is a negative number, then Hanover shall pay such amount to
GE Capital. If such Gump's Net Payment is a positive number, then GE Capital
shall pay
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<PAGE> 13
such amount to HDFI or the Gump's Company which receives payment under this
section, as appropriate, for allocation. The party owing the Gump's Net Payment
shall initiate payment by wire transfer of immediately available funds to be
credited to the transferee on such Business Day. "Hanover Business Day" shall
mean any day that Hanover is open for business. If the Gump's Settlement Sheet
is received by GE Capital later than 11:00 a.m. Eastern Time on any Business
Day, GE Capital shall have no obligation to forward the purchase price for
Gump's Accounts referred to in such Gump's Settlement Sheet until the Business
Day after its receipt of such Gump's Settlement Sheet; provided, however, that
GE Capital shall use reasonable efforts to forward to Hanover the purchase price
for Gump's Accounts referred to in such sheet on the Business Day that the sheet
is received.
(2) On the Business Day after the Business Day Hanover
telefaxes the Gump's Settlement Sheet to GE Capital, Hanover shall send to GE
Capital an original copy of the Gump's Settlement Sheet together with such
supporting documentation as may be reasonably requested by GE Capital for GE
Capital's use in verifying the calculation of the Gump's Net Payment. GE Capital
shall notify Hanover promptly of any adjustments required to be made to the
Gump's Net Payment. Payments for any adjustments required shall be effected
through and reflected in the next Gump's Settlement Statement.
(3) All payments shall be subject to verification and
correction.
(f) All payments will be deemed to be held in trust for the party
entitled thereto until settled in accordance with the settlement methodology
described in subparagraph (3)
22. The introduction to Section 3.1 is deleted and substituted in
its place is the following:
3.1 GE Capital's Responsibilities. In connection with its
purchase and continued ownership of Accounts and Indebtedness, GE Capital shall
perform the following after the Conversion Date (except that, with respect to
Gump's Accounts, the following shall be performed only after the Gump's
Conversion Date):
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<PAGE> 14
23. Subsections (e) and (f) of Section 3.1 are deleted and
substituted in its place is the following:
(e) Credit Cards. Hanover, at Hanover's expense, shall provide
to GE Capital all plastic for credit cards. GE Capital shall emboss and mail
credit cards to Account Debtors at GE Capital's expense. It is understood that
the credit cards outstanding on the Funding Date or, with respect to Gump's
Accounts, the Gump's Funding Date, shall remain outstanding except as otherwise
agreed in writing by Hanover and except as otherwise required by law.
(f) Program Operation. GE Capital shall operate the program as
a separate private label revolving credit plan, utilizing Hanover's,
International Male's and/or Gump's logos, copies of which as of the date hereof
are attached hereto as Schedule 3.1(f). During the term of this Agreement, GE
Capital shall include such applicable logos on all billing statements. GE
Capital will not, without Hanover's prior consent, use Hanover's, International
Male's or Gump's name or logo type in any advertisement or promotion materials.
GE Capital will not assert at any time during the term of this Agreement or
thereafter that it owns any right, title and interest, with respect to Hanover
(or any successor of Hanover) service marks, trademarks or trade names, and
shall refrain from seeking or acquiring any registration thereof with any
federal, state or local government agency and bureau. On termination of the
Agreement, GE Capital will make no usage of Hanover's, International Male's or
Gump's service marks, trademarks or trade names, provided, however, in the event
Hanover (or any successor of Hanover) fails to repurchase all Accounts upon
termination of this Agreement, GE Capital or a purchaser of the Accounts
therefrom shall have the right to use such service marks, tradenames and
trademarks as they deem appropriate to liquidate and otherwise service and
collect any remaining Accounts and for no other purposes. GE Capital may use its
name in connection with the operation of the credit program described herein in
accordance with its usual standards in the context of its retail accounts
receivable business to the extent deemed reasonably necessary by GE Capital to
protect its interests hereunder.
24. Section 3.5 is deleted and substituted in its place is the
following:
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<PAGE> 15
3.5 Records. With respect to each Account sold by Hanover to GE
Capital, Hanover will (a) cause accounting entries to be made on its books of
account and other records reflecting the sale of such Account to GE Capital, (b)
except as provided in clause (d) below, and except with respect to Old Accounts
and Old Gump's Accounts, promptly after the purchase by an Account Debtor
creating the Account, deliver to GE Capital Account Documentation for such
Account as required by GE Capital, (c) execute and deliver to GE Capital such
written assignment, financing statements, and other written matter and take any
action reasonably requested by GE Capital to perfect and maintain GE Capital's
interest in the Accounts and other security granted to it herein, and (d) except
as otherwise requested by GE Capital, retain purchase orders, shipping invoices
and delivery receipts. Hanover shall submit to GE Capital information on credit
applications and, at GE Capital's request, shall deliver such applications to GE
Capital. Further, in the event that GE Capital so requests, it shall be entitled
to retain all Accounts and Account Documentation (including, without limitation,
any completed credit applications) but shall not destroy original Account
Documentation (including, without limitation, any completed credit applications)
but shall not destroy original Account Documentation other than in the ordinary
course of business pursuant to the GE Capital records retention policy in effect
from time to time. Notwithstanding the foregoing, in the event Hanover shall
retain certain Account Documentation, Hanover will store such Account
Documentation in accordance with past practices in an orderly and secure manner
and deliver such Account Documentation to GE Capital as soon as practicable, but
in no event more than ten (10) days from GE Capital's request. GE Capital will
maintain Account Documentation received by it in accordance with its customary
business practice and in accordance with its customary business practice and in
an orderly and secure manner. Hanover agrees that, as part of its servicing
activities, GE Capital may store Account Documentation forwarded to GE Capital
on microfilm or other media in accordance with its customary business practice,
provided, that if such form is incompatible with Hanover's systems, the parties
shall act together in good faith such that Hanover shall be able to make use of
the Account Documentation as so stored by GE Capital, and that GE Capital may,
in the normal course of its retail accounts
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<PAGE> 16
receivable business, destroy Account Documentation in the form forwarded to GE
Capital once such Account Documentation has been microfilmed or otherwise
recorded. In the event of a repurchase by Hanover of any Accounts or items of
Indebtedness pursuant to the terms of this Agreement, GE Capital will provide to
Hanover Account Documentation relating to such repurchase to the extent that it
is otherwise maintained such Account Documentation. If such Account
Documentation has been maintained by GE Capital in a computer-readable format,
GE Capital will provide to Hanover copies thereof in such format.
25. Section 3.6 deleted and substituted in its place is the
following:
3.6. Recovery Operations. Accounts which (i) have been placed for
collection with an attorney or collection agency by Hanover prior to the Funding
Date or, with respect to Gump's Accounts, prior to the Gump's Funding Date, or
(ii) are RPR Indebtedness as of the Funding Date or, with respect to Gump's
Accounts, as of the Gump's Funding Date may at Hanover's selection by thirty
(30) days prior written notice to GE Capital, be converted by Hanover and
transferred to the National Recovery Operation of GE Capital, even if not
purchased by GE Capital but which are included in the security interest taken by
GE Capital pursuant to Section 5.1(b) hereof. Hanover shall transmit to National
Recovery Operation such Accounts within ten (10) Business Days after the Funding
Date or Gump's Funding Date, as applicable, by a computer tape compatible and in
accordance with the normal operating procedures of the National Recovery
Operation. Following the Funding Date or the Gump's Funding Date, as applicable,
by a computer tape compatible and in accordance with the normal operating
procedures of the National Recovery Operation. Following the Funding Date or the
Gump's Funding Date, as applicable, the records relating to RPR Indebtedness
repurchased by Hanover may, at Hanover's election by thirty (30) days prior
written notice to GE Capital, also be maintained by the National Recovery
Operation. For maintained by the National Recovery Operation. For maintaining
the account file, managing the agencies and reporting collections, Hanover shall
pay to GE Capital an amount equal to fifteen percent (15%) of gross monies
received as payments on such Accounts, plus actual collection agency or
attorneys' fees and other out-of-pocket expenses. GE Capital shall pay to
Hanover the amount of such recoveries, less the fees and charges specified in
the previous sentence, provided that, if GE Capital exercised its remedies under
Section 13.2(a) hereof, such recoveries shall be withheld by GE Capital and
credited to the Reserve Account. Hanover shall have the right throughout the
term
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<PAGE> 17
of this Agreement, upon thirty (30) days prior written notice to GE Capital, to
cease transferring RPR Indebtedness repurchased by Hanover to the National
Recovery Operation; provided, that such right shall not apply to Indebtedness on
Accounts which have previously been transferred to the National Recovery
Organization.
26. The following shall be added as new Section 4.1.A after Section
4.1:
4.1.A. Conditions Precedent to GE Capital's Performance on the
Gump's funding Date. Notwithstanding any other provision of this Agreement, GE
Capital shall not be obligated to purchase Gump's Accounts and Gump's
Indebtedness on the Gump's Funding Date unless and until all of the following
conditions shall have been satisfied, and it shall be a condition precedent to
the obligation of GE Capital to purchase Accounts and Indebtedness as of the
date of such subsequent purchase throughout the Term that the requirements of
subsections (a), (b), and (c) below and, as of the respective dates set forth in
subsection (k) below, the covenants set forth in (k), shall be satisfied:
(a) Appropriate financing statements (form UCC-1 or others) in the
form attached as Schedule 4.1.A(a) hereto have been filed and are in effect;
(b) All of the representations and warranties of Hanover contained
in this Agreement shall be correct in all respects on and as of the date of such
purchase as though made on and as of such date (except for changes or
modifications permitted by this Agreement);
(c) No event shall have occurred and be continuing, or would result
from such purchase, which constitutes, or would constitute after a period of
notice, an Event of Default under Section 13.1 hereof;
(d) Evidence that all actions necessary to perfect GE Capital's
first priority Lien in and to Gump's Accounts and to the other property in which
it is given a Lien under this Agreement to the extent provided for in the Code
and ensure that GE Capital has good and marketable title in and to Accounts have
been taken, including, without limitation, the release and filing of duly signed
and executed termination statements pursuant to the Code with respect to any and
all Liens (other than GE Capital's Liens)
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<PAGE> 18
in and to the property in which GE Capital is given a security interest under
this Agreement;
(e) Resolutions of Gump's Board of Directors, certified by the
Secretary or Assistant Secretary of Gump's, as of the Gump's Funding Date, to be
duly adopted and in full force and effect on such date, authorizing (i) the
execution, delivery, and performance of this Agreement and all documents
executed or to be executed pursuant hereto, (ii) the sale of Gump's Accounts and
the granting of the Liens herein provided for herein, and (iii) specific
officers to execute and deliver the Amendment and all other related documents
and instruments;
(f) A favorable opinion of counsel to Gump's in the form attached as
Schedule 4.1.A(f) hereto;
(g) A certificate signed by the chief executive or chief financial
officer of Hanover stating in his capacity as such officer, to his knowledge,
after investigation, that: (i) all of the representations and warranties of
Hanover contained in this Agreement shall be correct on and as of the Gump's
Funding Date as though made on and as of such date; (ii) no event shall have
occurred and be continuing, or would result from such purchase, which
constitutes an Event of Default, or would constitute an Event of Default but for
the requirement that notice be given or time elapse or both; (iii) there are no
Liens filed, recorded or existing against any of the Accounts or Indebtedness,
other than the Liens arising from this Agreement, and Hanover shall not have any
notice of an intention by say potential Lien or to file, record or claim any
such Liens with respect to any of the Accounts, any other property in which GE
Capital is given a Lien under this Amendment and the Agreement;
(h) Governmental certificates showing that Gump's is organized and
in good standing under the laws of their states of incorporation and is
qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is required to be qualified to transact business and
in which the failure to be so qualified would have a material adverse effect on
Hanover's Business Condition or the Purchased Assets;
(i) Certificates of the Secretary or an Assistant Secretary of
Gump's, dated the Gump's Funding Date, as to incumbency and signatures of the
officers of Hanover,
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together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(j) An executed Bill of Sales, in the form attached as Schedule
2.1.A hereof;
(k) Evidence that the following financial covenants are true and
correct, calculated consistently in accordance with GAAP as applied:
(i) The Tangible Net Worth of Hanover Companies,
together with Gump's, shall not fall below the amount set
forth below on the date opposite such amount:
<TABLE>
<CAPTION>
Date (year ending) Amount
------------------ ------
<S> <C>
December 31, 1993 $0
December 31, 1994 $10,000,000
December 31, 1995
and thereafter $15,000,000
</TABLE>
(ii) The Borrowings Ratio of Hanover Companies, together
with Gump's, shall be less than the ratio set forth below on
the date opposite such ratio:
<TABLE>
<CAPTION>
Date (year ending) Ratio
------------------ -----
<S> <C>
December 31, 1993 .90:1
December 31, 1994 .85:1
December 31, 1995
and thereafter .80:1
</TABLE>
(iii) The EBIT of Hanover Companies, together with
Gump's, shall not fall below the amount set forth below on the
date opposite such amount:
<TABLE>
<CAPTION>
Date (year ending) Amount
------------------ ------
<S> <C>
December 31, 1993 $0
December 31, 1994 $0
December 31, 1995
and thereafter $0
</TABLE>
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<PAGE> 20
(iv) The EBITDA Ratio of Hanover Companies, together
with Gump's, shall be greater than the ratio set forth below
on the date opposite such ratio:
<TABLE>
<CAPTION>
Date (year ending) Ratio
------------------ -----
<S> <C>
December 31, 1993 .80:1
December 31, 1994 .90:1
December 31, 1995
and thereafter 1.0:1
</TABLE>
(l) Receipt of written instructions in the form attached as Schedule
4.1.A(1) hereto from Hanover Direct directing GE Capital to pay the purchase
price for the Accounts and Indebtedness on the Funding Date to persons and in
the amounts specified therein:
(m) Hanover shall have taken all necessary actions to sell Gump's
Accounts to GE Capital so that GE Capital can collect Gump's Accounts
(including, without limitation, the delivery to GE Capital of all necessary
computer tapes) no later than the opening of business on the Gump's Funding
Date; provided, that if all such conditions are not met by such time, GE Capital
shall have no obligations under this Agreement; and
(n) All conditions set forth in this Section 4 shall have been
satisfied, or waived by GE Capital, no later than the Gump's Funding Date.
27. Section 5.1 is deleted and substituted in its place if the
following:
5.l. Security Interest. The parties hereto intend that the
transactions contemplated hereby shall be treated as a purchase and sale of
Accounts and Indebtedness for all purposes and not as a lending transaction, and
shall file UCC-1 or comparable statements in order to perfect the interests
created thereby. Such filing shall also perfect in GE Capital a security
interest in the Accounts and Indebtedness, in the event the transactions
contemplated hereby are not considered a purchase and sale of Accounts and
Indebtedness despite the intentions of the parties. To secure all Obligations,
whether now existing or hereafter created or acquired, Hanover hereby grants to
GE Capital a present and continuing security interest in and to the
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<PAGE> 21
following, together with the proceeds thereof: (a) all Accounts which are
purchased by GE Capital hereunder, including, without limitation, those
repurchased by Hanover pursuant to Section 2.6 hereof and all of the proceeds of
the foregoing in any form whatsoever; provided, however, that GE Capital hereby
subordinates such Lien to the extent it may apply to any collection or similar
fees charged by an attorney or collection agency to whom such Indebtedness has
been assigned for collection, (b) all Accounts written-off by Hanover prior to
the Funding Date and all Gump's Accounts written-off prior to the Gump's Funding
Date which, in either case, are subject to recovery efforts pursuant to Section
3.6 hereof and all of the proceeds of the foregoing in any form whatsoever, (c)
all Account Documentation relating to any Account in which GE Capital has an
interest hereunder and all of the proceeds of the foregoing in any form
whatsoever, (d) all general intangibles consisting of guarantees, claims,
security interests, or other security now held by or hereafter granted to
Hanover to secure payment by any Person who is or may become obligated to
Hanover with respect to or on account of any of the items listed in (a) and (b)
above, and all of the proceeds of the foregoing in any form whatsoever, (e) all
general intangibles consisting of credit balances and reserves of whatever type
or description created or established by GE Capital in favor of or with respect
to Hanover, including without limitation all amounts recorded in the Reserve
Account established in Section 6 and all of the proceeds of the foregoing in any
form whatsoever and the rights of Hanover with respect thereto, (f) all of
Hanover's right, title and interest in and to any and all contracts, whether now
or hereafter existing or acquired, with Persons who lease or license store space
for vending privileges from Hanover, and all of the proceeds of the foregoing in
any form whatsoever, but only the provisions of such contracts if any, which
allow Hanover to charge such lessees or licensees for the amount of unpaid
Accounts, and (g) all Merchandise purchased by Account Debtors pursuant to
Accounts in which GE Capital has an interest hereunder, to the extent of the
Lien of Hanover thereon, and all of the proceeds of the foregoing in any form
whatsoever. GE Capital's security interest shall not include the items or types
of property excluded from GE Capital's collateral pursuant to the Agreement,
dated May 5, 1993, between GE Capital and Congress Financial Corp. as amended
and supplemented from time to time.
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<PAGE> 22
28. Section 6.2 is deleted and substituted in its place is the
following:
6.2. Credits. GE Capital shall credit the Reserve Balance as
follows: (a) on the Funding Date, the amount specified in Section 2.3 (a) (ii)
hereof, (b) on the Gump's Funding Date, the amount specified in Section 2.3.A(a)
(ii), (c) the amounts specified in Section 6.4 hereof or as otherwise specified
in this Agreement, (d) any amounts received by GE Capital under the Letter of
Credit, and (e) any amounts received by GE Capital from or in respect of Hanover
pursuant to this Agreement with respect to the Reserve Account. During the
Settlement Periods prior to the Conversion Date and the first six (6) Settlement
Periods followings the Conversion Date (the first being the Settlement Date for
the Settlement Period in which there are one or more Billing Dates for which GE
Capital prepares and sends the periodic statement), the required amount of the
Reserve Account (the "Required Reserve") shall be adjusted as described in
Sections 6.4 and 6.5 below to an amount equal to the sum of: (i) 25% of Eligible
Indebtedness as of the relevant Billing Dates plus (ii) 100% of Ineligible
Indebtedness as of such Billing Dates. During the seventh Settlement Period
after the Conversion Date through the twelfth Settlement Period after the
Conversion date, the Required Reserve shall be adjusted as described in Sections
6.4 and 6.5 below to an amount equal to the sum of: (i) 24.3% of Eligible
Indebtedness as of the relevant Billing Dates, plus (ii) 100% of Ineligible
Indebtedness as of such Billing Dates. During each Settlement Period thereafter
the Required Reserve shall be adjusted as described in Sections 6.4 and 6.5
below to an amount equal to the sum of: (i) 23.6% of Eligible Indebtedness as of
the relevant Billing Dates, plus (ii) 100% of Ineligible Indebtedness as of such
Billing Dates.
29. Section 7.1 is deleted and substituted in its place is the
foregoing:
7.1. Corporate Existence; Compliance with Law. Hanover
Companies, HDFI, Brawn, Gump's by Mail, GSF and Gump's Holdings (a) are
corporations duly organized, validly existing, and in good standing under the
laws of the states in which they are incorporated, (b) are duly qualified as
foreign corporations and in good standing under the laws of each jurisdiction
where their ownership or lease of property or the conduct of their business
requires such qualification and where the failure to so qualify would have
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<PAGE> 23
a material adverse effect on Hanover's Business Condition or the Purchase
Assets, (c) have the requisite corporate power and authority and the legal right
to own, pledge, mortgage, and operate their properties, to lease the properties
they operate under lease, and to conduct their business as now heretofore, and
proposed to be conducted where the failure to have such power, authority or
right would have a material adverse effect on Hanover's Business Condition or
the Purchased Assets, (d) have all necessary licenses, permits, consents or
approvals from or by, and have made all necessary filings with, and have given
all necessary notices to, all governmental authorities having jurisdiction, to
the extent required for such ownership, operation, and conduct where the failure
to have such licenses, permits, consents or approvals would have a material
adverse effect on Hanover's Business Condition or the Purchased Assets, and (e)
are in compliance with their articles of incorporation and their by-laws.
30. Section 7.2 is deleted and substituted in its place is the
following:
7.2 Executive Offices and Stores. The chief executive offices
and principal places of business of Hanover Companies, HDFI, Brawn, Gump's by
Mail, GSF and Gump's Holdings are at 1500 Harbor Boulevard, Weehawken, New
Jersey 07087; 340 Poplar Drive, Hanover, Pennsylvania 17331; and 741 F Street,
San Diego California 92112, 250 Post Street, San Francisco, California 94111
(for Gump's by Mail and GSF), and 1500 Harbor Boulevard, Weehawken, New Jersey
07087 respectively, or at such other places as Hanover shall, from time to time,
specify to GE Capital; all records relating to Accounts are and shall be
maintained at such location or at such locations as are set forth on Schedule
7.2 annexed hereto, as such Schedule may be amended by Hanover from time to
time. Schedule 7.2 contains a complete and accurate listing of the addresses of
all Stores in operation as of the date hereof. Other than as a result of
casualty or a similar event (in which case Hanover shall furnish immediate
notice of such event to GE Capital in writing), without thirty (30) days' prior
written notice to GE Capital, Hanover shall not transfer its chief executive
offices, change its principal mailing address, conduct any of its business or
maintain records relating to Accounts and Indebtedness at a location other than
those set forth on Schedule 7.2, or, without ten (10) days' prior written
notice, close any of its existing Stores. Hanover shall not
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<PAGE> 24
change its corporate name without first providing GE Capital thirty (30) days
prior written notice.
31. Section 7.5 is deleted and substituted in its place is the
following:
7.5. No Default. Hanover is not in default with respect to any
contract, agreement, document, lease, or other instrument to which it or any
subsidiary of it is a party or by which Hanover or any of its property may be
bound, nor has Hanover received any notice of default pursuant to any such
contract, agreement, lease, or other instrument, where such contract, agreement,
lease, or other instrument, where such default or defaults would have a material
adverse effect on Hanover's Business Condition or the Purchased Assets. No event
of Default or event which, with the giving of notice, the lapse of time, or
both, would be an Event of Default, has occurred and is continuing.
32. Section 7.9 is deleted and substituted in its place is the
following:
7.9. Liens and Title. On the funding Date and with respect to
Gump's Accounts, on the Gump's Funding Date and at all times thereafter, the
Liens granted to GE Capital pursuant to this Agreement are fully perfected first
priority Liens in and to the Accounts and other property in which GE Capital is
given a security interest under this Agreement to the extent obtainable under
the Code, subject to any Liens created by or through GE Capital, it being
understood that cash proceeds which are not required under this Agreement to be
perfected as required by the Code are excluded from this representation and
warranty. Upon the purchase by GE Capital of Accounts and Indebtedness pursuant
to Sections 2.1 and 2.2 hereof, GE Capital shall have good and marketable title
to such Accounts and Indebtedness, free and clear of all Liens other than
security interests created by or through GE Capital.
33. Section 7.11 is deleted and substituted in its place is the
following:
7.11. Accounts. Each item of Indebtedness purchased by GE
Capital (and, to the extent applicable, each Account pursuant to which such
Indebtedness is incurred) (a) is owned by Hanover free and clear of any and all
Liens in favor of any Person other than GE Capital; (b) arises in connection
with bona fide final sale and deliver of Merchandise by Hanover in the ordinary
course of its
24
<PAGE> 25
business; (c) is for a liquidated amount as stated in the Account Documentation
relating thereto; (d) with respect to Indebtedness incurred prior to the Gump's
Funding Date), is authorized and created in accordance with this Agreement and
any instructions as described in Section 8.2 hereof given by GE Capital to
Hanover; (e) is valid and enforceable against the Account Debtor in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, moratorium, reorganization, or other laws affecting the rights of
creditors generally or by general principles of equity (whether or not a
proceeding is brought in a court of law or equity): (f) is not subject to any
defense, deduction, offset, or counterclaim, other than as contemplated by
clause (e) above; (g) is for new and unused Merchandise, provided, that items of
Merchandise which are returned by an Account Debtor to Hanover, and which are
accepted for return by Hanover and restored to Hanover's inventory of
Merchandise held for resale, will, except as prohibited by law, be deemed "new
and unused" as contemplated by this provision; (h) other than as to Old
Indebtedness and Old Gump's Indebtedness, is not in excess of the amount of
credit approved by GE Capital for such Account Debtor; (i) bears a signature of
an Account Debtor which is genuine and not forged or unauthorized; and (j) is an
obligation of an Account Debtor; provided, that, this Section 7.11 shall not be
deem to be breached, except with respect to clause (a) above, unless such breach
would have a material adverse effect on Hanover's Business Condition or the
Purchase Assets.
34. Section 8.8 is deleted and substituted in its place is the
following:
8.8. Sales of Accounts and Indebtedness. Except as
specifically provided in Sections 2.1, 2.1A and 2.2 hereof, and except as to
Accounts and Indebtedness that have been repurchased by Hanover under this
Agreement, Hanover shall not sell, transfer, convey, or otherwise dispose of any
Accounts or Indebtedness other than Accounts and Indebtedness that GE Capital
declines to purchase hereunder.
35. Section 8.19 is deleted and substituted in its place is the
following:
8.19. Credit Agreements. On and after the Funding date, and,
with respect to Gump's Account, on and
25
<PAGE> 26
after the Gump's Funding Date, Hanover shall not use, with respect to new
Account Debtors, and Credit Agreement other than those in such form as GE
Capital shall have approved; provided, however, that GE Capital's approval shall
be restricted to the form of such agreements under applicable state and federal
law and shall not in any manner whatsoever related to the amount or rate of
finance charges or any other financial terms, all of which shall be established
solely by Hanover in accordance with applicable law.
36. The following shall be added as new Section 8.21A After Section
8.21:
8.21.a. Corporate Structure. As of the Gump's Funding Date,
the corporate structure in connection with Hanover is as follows: (a) Horn &
Hardart is the parent of Hanover Companies, (b) Horn & Hardart owns one hundred
percent (100%) of the voting common stock of Hanover Companies, (c) HDFI, Brawn
and Gump's Holdings are subsidiaries of Hanover Companies, (d) International
Male is a tradename and catalog asset owned by Brawn, and (e) Gump's By Mail and
GSF each is a wholly-owned subsidiary of Gump's Holdings. Notwithstanding the
foregoing, however, such corporate structure may be modified from time to time,
on not less than thirty (30) days prior written notice to GE Capital, in order
to (a) change the name or names of any one or more of the constituent
corporations; (b) merge any thereof with and into another; (c) incorporate any
division or other previously unincorporated business unit; or (d) effect any
other organizational change, provided, however, that (x) no such organizational
change shall be implemented if it would cause a material adverse change in
Hanover's Business Condition or the Purchased Assets; and (y) GE Capital and
Hanover shall negotiate in good faith to agree upon appropriate amendments to
the Agreement in order to take account of such organizational change and to
provide protections to GE Capital reasonably equivalent (in GE Capital's view)
to those provided in this Agreement as of the date of this Agreement.
37. Section 8.22 is deleted and substituted in its place is the
following:
8.22. Ownership of Accounts. All accounts being sold by HDFI
as of the Funding Date were originated by Hanover and previously owned only by
one of the following five companies located at the following addresses; (a) The
Hanover Companies, 1500 Harbor Boulevard, Weehawken, New
26
<PAGE> 27
Jersey 07087, (b) Hanover Direct Inc., 340 Poplar Drive, Hanover, Pennsylvania
17331, (c) Brawn of California, Inc., 741 F Street, San Diego, California, (d)
Hanover Finance Group, 1500 Harbor Boulevard, Weehawken, New Jersey 07087, or
(e) Hanover Finance Company, 1500 Harbor Boulevard, Weehawken, New Jersey 07087.
All Gump's Accounts being sold by Gump's by Mail, GSF and Gump's Holdings as of
the Gump's Funding Date were originated by Gump's and previously owned only by
one of the following companies at the following addresses: Gump's, Inc., a
California corporation, 150 Post Street, San Francisco, California 94111 and
Gump's Inc., a Texas corporation, 150 Post Street, San Francisco, California
94111.
38. Except as specifically provided herein, the terms and conditions
of the Agreement shall continue in full force and effect and shall be fully
binding on the parties hereto. Upon the execution of this Amendment, each
reference in the Agreement to "this Agreement," "hereunder," "hereof," or words
of like import, shall mean and be a reference to the Agreement as amended
hereby. In the event of any conflict between the terms of the Agreement and the
terms of this Amendment, the terms of this Amendment shall prevail.
39. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By:______________________________________________
Name:______________________________________
Title:_____________________________________
27
<PAGE> 28
THE HANOVER COMPANIES
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
HANOVER DIRECT FULFILLMENT, INC.
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
BRAWN OF CALIFORNIA, INC.
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
GUMP'S BY MAIL, INC.
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
GSF ACQUISITION CORP.
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
GUMP'S HOLDINGS, INC.
By: /s/ Edward J. O'Brien
--------------------------------------------
Name: Edward J. O'Brien
-------------------------------------
Title: Vice President
-------------------------------------
28
<PAGE> 1
Exhibit 10.10
INDEMNIFICATION AGREEMENT
Agreement, effective as of October 21, 1991, between THE HORN & HARDART
COMPANY, a Nevada corporation (the "Company"), and MICHAEL P. SHERMAN (the
"Indemnitee").
WHEREAS, the Indemnitee is and has served as a director, officer or key
employee of the Company or any one of its subsidiaries;
WHEREAS, both the Company and the Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors, officers and
key employees of public companies in today's environment;
WHEREAS, in recognition of the Indemnitee's services on behalf of the
Company and its subsidiaries, the Company wishes to provide in this Agreement
for the indemnification of and the advancing of expenses to the Indemnitee to
the full extent (whether partial or complete) permitted by law and as set forth
in this Agreement, and, if the Indemnitee is a director or officer of the
Company or any subsidiary of the Company, and to the extent insurance is
maintained, for the continued coverage of the Indemnitee under the Company's
directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of the Indemnitee's
service to the Company directly or, at its request, with another enterprise, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. (a) Change in Control: shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the total voting power
represented by the Company's then outstanding Voting Securities, or (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company, together with any new
director whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least
<PAGE> 2
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.
(b) Claim: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether conducted by the Company or
any other party, that the Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) Expenses: attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence relating to the fact that
the Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
relating to anything done or not done by the Indemnitee in any such capacity.
(e) Reviewing Party: any appropriate person or body consisting of a member
or members of the Company's Board of Directors or any other person or body
appointed by the Board (including the special, independent counsel referred to
in Section 3) who is not a party to the particular claim for which the
Indemnitee is seeking indemnification.
(f) Voting Securities: with respect to the Company or any other
corporation, any securities of the Company or such other corporation which vote
generally in the election of directors.
- 2 -
<PAGE> 3
2. Basic Indemnification Agreement. (a) In the event the Indemnitee was,
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law as soon as practicable but in
any event no later than thirty days after written demand is presented to the
Company by Indemnitee, against any and all Expenses, judgments, fines, penalties
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties or amounts paid in settlement) of such Claim.
Notwithstanding anything in this Agreement to the contrary, prior to a Change in
Control the Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by the Indemnitee against the
company or any director or officer of the Company unless the Company has joined
in or consented to the initiation of such Claim. If so requested by the
Indemnitee, the Company shall advance (within two business days of such request)
any and all Expenses to the Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
special, independent counsel referred to in Section 3 is involved) that the
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that the Indemnitee would not be permitted
to be so indemnified under applicable law, the Company shall be entitled to be
reimbursed by the Indemnitee (who hereby agrees to reimburse the Company) for
all such amounts theretofore paid; provided, that if the Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that the Indemnitee should be indemnified under applicable law,
any determination made by the Reviewing Party that the Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and the
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed). If there
has not been a Change in Control, the Reviewing Party shall be selected by the
Board of Directors, and if there has been a Change in Control, the Reviewing
Party shall be the special, independent counsel referred to in Section 3. If
there has been no determination by the Reviewing Party or if the Reviewing Party
determines, that the Indemnitee would not be permitted to be indemnified in
whole or in past under applicable
- 3 -
<PAGE> 4
law, the Indemnitee shall have the right to commence litigation in any court in
the state of New York or Nevada having subject matter jurisdiction thereof and
in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and the Indemnitee.
3. Change In Control. The Company agrees that if there is a Change in
Control then with respect to all matters thereafter arising concerning the
rights of the Indemnitee to indemnity payments and Expense Advances under this
Agreement or any other agreement or Company By-law or the Company's Restated
Articles of Incorporation now or hereafter in effect relating to Claims for
Indemnifiable Events, the Company shall seek legal advice only from special,
independent counsel selected by the Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and the Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
special, independent counsel referred to above and to fully indemnify such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify
the Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within two business days of such request)
advance such expenses to the Indemnitee which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or the Company's Restated
Articles of Incorporation now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
the Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provisions of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement or a Claim but not for the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for the portion thereof to which the
- 4 -
<PAGE> 5
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, to the extent that the Indemnitee has been successful on the merits
or otherwise in defense of any Claim relating in whole or in part to an
Indemnifiable Event or in defense of any Claim relating in whole or in part to
an Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Indemnitee shall be indemnified against all
Expenses incurred in connection therewith. In connection with any determination
by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to
be indemnified hereunder the burden of proof shall be on the Company to
establish that the Indemnitee is not so entitled.
6. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere or
its equivalent, shall not create a presumption that the Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law.
7. Non-Exclusivity, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights the Indemnitee may have under the company's
Restated Articles of Incorporation and the Nevada Revised Statutes or otherwise.
To the extent that a change in the Nevada Revised statutes (whether by statute
or judicial decision) permits greater indemnification by agreement than would be
afforded currently under the Company's Restated Articles of Incorporation and
this Agreement, it is the intent of the parties hereto that the Indemnitee shall
enjoy by virtue of this agreement the greater benefits so afforded by such
change.
8. Liability Insurance. The Company shall and shall cause its subsidiaries
to maintain an insurance policy or policies providing directors' and officers'
liability insurance and the Indemnitee shall be covered by such policy or
policies, in accordance with its or their terms, to the maximum extent of the
coverage currently available under such policy or policies maintained by the
Company and its subsidiaries any Company director or officer; provided, that the
Company shall not be required to maintain such insurance policy or policies to
the extent that the cost of such liability insurance shall exceed 150% of the
current cost of much insurance in effect on the date hereof, and, provided
further, that in the event the Company cannot obtain such insurance coverage at
150% of the current cost of such insurance, the Company shall obtain the maximum
amount of insurance coverage available for such amount.
9. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf
- 5 -
<PAGE> 6
of the Company or any affiliate of the Company against the Indemnitee or the
Indemnitee's spouse, heirs, executors or personal or legal representatives
after the expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of the Company or its affiliates shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, that if any shorter period
of limitations is otherwise applicable to any such cause of action, such shorter
period shall govern.
10. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
11. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents as may be necessary to enable the Company effectively to bring
suit to enforce such rights.
12. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. Binding Effect, Etc. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor or assign by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), spouses, heirs and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
the Indemnitee continues to serve as an officer, director or employee of the
Company or of any other enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by 1aw.
- 6 -
<PAGE> 7
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
contracts made and to be performed in such state without giving affect to New
York principles of conflicts of laws.
16. Guaranty. By its execution or this Indemnification Agreement, The
Hanover Companies unconditionally guaranties performance by the Company of its
obligations under this Indemnification Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement this ____ day of October, 1991.
THE HORN & HARDART COMPANY
By:______________________________________
Name:
Title:
THE HANOVER COMPANIES
By:______________________________________
Name:
Title:
_________________________________________
Michael P. Sherman
- 7 -
<PAGE> 1
Exhibit 10.12
HANOVER DIRECT
SAVINGS AND RETIREMENT PLAN
AMENDED AND RESTATED
AS OF JANUARY 1, 1989
HANOVER DIRECT SAVINGS AND RETIREMENT PLAN
AMENDED AND RESTATED
AS OF JANUARY 1, 1989
WHEREAS, The Horn & Hardart Company, a predecessor employer to Hanover
Direct, Inc. (hereinafter sometimes referred to as the "Company"), has
previously adopted the Horn & Hardart Company Savings Plan (hereinafter referred
to as the "Plan"), effective as of April 1, 1983, which is to continue to be
funded through the medium of a Trust Fund; and
WHEREAS, the Company desires to rename and amend and restate the Plan
in order to comply with the Tax Reform Act of 1986, the Omnibus Reconciliation
Acts of 1986 and 1987, the Revenue Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988 and the Omnibus Reconciliation Act of 1989;
NOW, THEREFORE, the Company hereby renames, amends and restates the
Plan, effective January 1, 1989, unless otherwise indicated, with such Plan to
be known as the Hanover Direct Savings and Retirement Plan as follows:
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
- -------- ----
I DEFINITIONS 1
II PARTICIPATION AND ENTRY DATE 17
III CONTRIBUTIONS 19
IV ADMINISTRATION OF FUNDS 39
V RETIREMENT BENEFITS 46
VI DEATH BENEFITS 49
VII VESTING AND SEPARATION FROM SERVICE 52
VIII WITHDRAWALS AND LOANS 55
IX ADMINISTRATION 60
X AMENDMENT, TERMINATION AND MERGERS 64
XI MISCELLANEOUS PROVISIONS 69
XII TOP-HEAVY PROVISIONS 73
<PAGE> 3
ARTICLE I
DEFINITIONS
1.01 "Account" shall mean with respect to a Participant all of the various
accounts maintained to define such Participant's proportionate interest in the
Trust Fund as follows:
(a) A "Salary Deferral Contribution Account" shall be maintained for
each Participant which includes the Salary Deferral Contributions made on behalf
of the Participant, and the appreciation or depreciation of the investments
allocated to that Account and the income earned on such investments.
(b) An "After-Tax Contribution Account" shall be maintained for each
Participant which includes the Participant's After-Tax Contributions, and the
appreciation or depreciation of the investments allocated to that Account and
the income earned on such investments.
(c) A "Matching Employer Contribution Account" shall be maintained for
each Participant which reflects the Matching Employer Contributions allocated to
the Participant and the appreciation or depreciation of the investments
allocated to that Account and the income earned on such investments.
(d) A "Discretionary Employer Contribution Account" shall be
maintained for each Participant which reflects the Discretionary Employer
Contributions allocated to the Participant and the appreciation or depreciation
of the investments allocated to that Account and the income earned on such
investments.
(e) A "Rollover Contribution Account" shall be maintained for each
Participant which reflects any rollover contribution made in accordance with
Section 3.12 and the
1
<PAGE> 4
appreciation or depreciation of the investments allocated to that Account and
the income earned on such investments.
1.02 "Affiliated Organization" shall mean (i) any corporation on or after the
date it becomes a member of a controlled group of corporations which includes
the Company, as determined under the provisions of Section 414(b) of the Code,
(ii) any trade or business, whether or not incorporated, on or after it comes
under common control with the Company, as determined under Section 414(c) of the
Code, (iii) any organization which is an affiliated service organization within
the meaning of Section 414(m) of the Code, and (iv) any other entity required to
be aggregated pursuant to regulations under Section 414(o) of the Code.
1.03 "Age" or "age" shall mean the chronological age attained by the Participant
at his most recent birthday or as of such other date of reference as set forth
in this Plan.
1.04 "Board of Directors" shall mean the board of directors of the
Company.
1.05 "Break-in-Service" shall mean a Plan Year during which an Employee has not
completed more than five hundred (500) Hours of Service.
1.06 "Code" means the Internal Revenue Code of 1986 as the same presently
exists, and as it may hereafter be amended or clarified by regulations, rulings,
notices or other publications of the Internal Revenue Service having legal
effect.
2
<PAGE> 5
1.07 "Compensation" shall mean, for any applicable period, the W-2 earnings of a
Participant including bonuses, overtime, commissions and any Salary Deferral
Contribution made on behalf of the Participant under this Plan, and any
contributions made by salary reduction to a plan established in accordance with
Section 125 or 129 of the Code. Compensation shall exclude premiums paid to a
life insurance plan of the Company for additional coverage above $50,000, the
value of Company car or commutation allowances, reimbursements for expenses and
any other fringe benefits. For any Plan Year commencing after December 31, 1988,
Compensation shall not exceed $200,000, or such other maximum amount as set
forth under Section 401(a)(17) of the Code, adjusted at the same time and in the
same manner as under Section 415(d) of the Code, except that the dollar increase
in effect on January 1 of any calendar year is effective for Plan Years
beginning in such calendar year and the first adjustment to the $200,000
limitation is effected on January 1, 1990. If Compensation is determined over a
Plan Year that contains fewer than 12 calendar months, the annual compensation
limit is an amount equal to the annual compensation limit for the calendar year
in which the compensation period begins multiplied by the ratio obtained by
dividing the number of full months in the period by 12.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
Compensation limit. The OBRA '93 annual Compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period
3
<PAGE> 6
consists of fewer than 12 months, the OBRA '93 annual compensation limit will be
multiplied by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply, except in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year.
1.08 "Contribution" shall mean any or all of the various types of contributions
made under the Plan by Participants or the Employer, as described below:
(a) "Salary Deferral Contribution" shall mean that portion of the
Contribution made to the Plan on behalf of a Participant by his Employer through
a salary reduction agreement, as described under Section 3.01.
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<PAGE> 7
(b) "After-Tax Contribution" shall mean that portion of a
Participant's Contribution to the Plan which he elects to make independent of a
salary reduction agreement, as described under Section 3.02.
(c) "Matching Employer Contribution" shall mean a Contribution made by
an Employer as described under Section 3.04, based on a Participant's Salary
Deferral Contribution (including any Salary Deferral Contributions
recharacterized as After-Tax Contributions pursuant to Section 3.06).
(d) "Discretionary Employer Contribution" shall mean a Contribution
made by an Employer which is unrelated to any Participant Contributions, as
described under Section 3.05.
(e) "Qualified Non-elective Contribution" shall mean a Contribution
made by an Employer (other than those listed above) in order that the Plan will
satisfy the requirements of Section 3.06 for a Plan Year. The allocation may be
made to all Active Participants who are not Highly-Paid Employees or, with
respect to satisfaction of the ADP test, only to those Active Participants who
have made Salary Deferral Contributions for a Plan Year and who are not
Highly-Paid Employees. Such Contributions shall be treated as Salary Deferral
Contributions for all purposes under the Plan.
1.09 "Contribution Percentage" shall mean the percentage determined by dividing
(i) the sum of the Salary Deferral Contribution, After-Tax Contribution,
Matching Employer Contribution and any Qualified Non-elective Contribution used
to satisfy the non-discrimination requirements of Section 3.06 or any
combination of such Contributions, whichever is applicable, made by or on behalf
of a Participant for the applicable period by (ii) his compensation as
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<PAGE> 8
defined under Code Section 414(s). 'ADP' shall sometimes be used herein to refer
to the average Contribution Percentage with respect to Salary Deferral
Contributions or amounts treated as Salary Deferral Contributions. 'ACP' shall
sometimes be used herein to refer to the average Contribution Percentage with
respect to Matching Employer Contributions and After-Tax Contributions, if
applicable.
1.10 "Date of Employment" shall mean the first date on which an Employee is
credited with an Hour of Service for the Employer.
1.11 "Disability" shall mean a physical or mental condition of such severity and
probable prolonged duration as to cause the Participant to be unable to continue
his duties as an Employee. The existence of any Disability shall be determined
by a physician chosen by the Plan Administrator, based on medical evidence of a
physical or mental impairment that can be expected to last more than 12 months
or result in death, or on other uniform and non-discriminatory criteria as
established by the Plan Administrator. Notwithstanding the foregoing,
eligibility for Social Security Disability benefits or for long term disability
benefits under an insured plan sponsored by the Employer shall be deemed
conclusive proof of disability.
1.12 "Effective Date" of this Plan shall mean April 1, 1983. The effective date
of this amended and restated Plan is January 1, 1989.
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1.13 "Eligible Employee" shall mean an Employee who has completed one (1) Year
of Service and attained age twenty-one (21). Notwithstanding the foregoing, the
term "Eligible Employee" shall not include any person whose terms and conditions
of employment are determined by collective bargaining with a third party and
with respect to whom inclusion in this Plan has not been provided for in the
collective bargaining agreement setting forth those terms and conditions of
employment, nor shall the term "Eligible Employee" include any independent
contractor or a leased employee.
1.14 "Employee" shall mean any employee of the Employer or an Affiliated
Organization, including a leased employee as defined under Section 414(n) of the
Code.
The term "leased employee" means any person (other than an employee of
the recipient organization) who pursuant to an agreement between the recipient
organization and any other person ("leasing organization") has performed
services for the recipient organization (including related persons determined in
accordance with Section 414(n)(6) of the Code) on a substantially full-time
basis for at least one (1) year, and such services are of a type historically
performed by employees in the business field of the recipient organization.
Contributions or benefits provided a leased employee by the leasing organization
which are attributable to services performed for the recipient employer shall be
treated as provided by the recipient employer.
A leased employee shall not be considered an employee of the recipient
organization if: (i) such employee is covered by a money purchase pension plan
providing immediate participation, full and immediate vesting and a
nonintegrated employer contribution rate of at least ten (10%) percent of
compensation (as defined in Section 415(c)(3) of the Code, but
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including amounts contributed by the employer pursuant to a salary reduction
agreement which are excludable from the employee's gross income under Section
125, Section 402(a)(8), Section 401(h) or Section 403(b) of the Code). Also, the
leased employees must not constitute more than twenty percent (20%) of the
recipient organization's non-highly compensated workforce.
1.15 "Employer" shall mean Hanover Direct, Inc. (hereinafter sometimes referred
to as the "Company"), its predecessor, The Horn & Hardart Company, and the
Company's subsidiaries and affiliates and any successor entities thereto which
adopt this Plan. Such adopting Employers shall be set forth in Appendix A
attached at the end of this document.
1.16 "Entry Date" shall mean every January 1st, April 1st, July 1st and October
1st during which the Plan remains in effect.
1.17 "ERISA" means the Employee Retirement Income Security Act of 1974
(P.L. 93-406), including all amendments thereto.
1.18 "Fund" or "Trust Fund" shall mean all of the assets of the Plan held by the
Trustees (or any nominees thereof) at any time under the Trust Agreement.
1.19 "Highly-Paid Employee" shall mean any Employee who during the current or
preceding Plan Year (`determination year' and `look back year', respectively):
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(a) was at any time a 5% owner of the Employer or an Affiliated
Organization; or
(b) received compensation for such Plan Year in excess of $75,000 or
such higher amount as provided under Section 414(q) of the Code, as adjusted at
the same time and in the same manner as under Section 415(d) of the Code; or
(c) received compensation for such Plan Year in excess of $50,000 or
such higher amount as provided under Section 414(q) of the Code, as adjusted at
the same time and in the same manner as under Section 415(d) of the Code,
provided such compensation exceeded that of 80% of all Employees for the
applicable Plan Year; or
(d) was at any time an officer of the Employer or an Affiliated
Organization, and received compensation for such Plan Year in excess of $45,000,
as adjusted at the same time and in the same manner as under Section 415(d) of
the Code (or, if higher, 50% of the amount in effect under Section 415(b)(1)(A)
of the Code for such Plan Year).
For each Plan Year for which a determination in accordance with the
above paragraph is being made, any individual not described in sub-paragraph
(b), (c) or (d) for the preceding Plan Year (without regard to this paragraph)
shall not be treated as described in sub-paragraph (b), (c) or (d) for the
current Plan Year unless such individual is among the one-hundred (100) highest
paid Employees for the current Plan Year.
In no event shall the number of officers taken into account under
sub-paragraph (d) exceed the lesser of (i) fifty (50), and (ii) the greater of
(A) three or (B) 10% of the total Employees. Furthermore, if no officer of the
Employer or an Affiliated Organization is
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<PAGE> 12
described in sub-paragraph (d) for a Plan Year, then the highest paid officer
shall be treated as described in sub-paragraph (d) for such Plan Year.
The term "Highly-Paid Employee" shall include any highly paid former
employee who separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during the
determination year, and was a Highly-Paid Employee for either the separation
year or any determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a five percent (5%) owner who is an active or former
Employee or a Highly-Paid Employee who is one of the ten (10) most highly
compensated Employees ranked on the basis of Compensation paid by the Employer
during such year, then the family member and the five percent (5%) owner or
top-ten Highly-Paid Employee shall be aggregated. In such case, the family
member and five percent (5%) owner or top-ten Highly-Paid Employee shall be
treated as a single Employee receiving compensation and plan contributions or
benefits equal to the sum of such compensation and contributions or benefits of
the family member and five percent owner or top-ten Highly-Paid Employee. For
purposes of this Section, family member includes the spouse, lineal ascendants
and descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
The determination of who is a Highly-Paid Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top one hundred (100) Employees, the number of Employees treated as officers
and the compensation that is considered, will be made in accordance with Section
414(q) of the Code. In determining the
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identity of Highly-Paid Employees for a determination year, the Company may make
the calendar year election provided for in Answer 14(b) of Treasury Reg.
section 1.414(q)-IT.
1.20 "Hour of Service" shall mean the following:
(a) An Hour of Service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for the Employer or an
Affiliated Organization during the Plan Year.
(b) An Hour of Service is each hour for which an Employee is paid, or
entitled to payment, (either directly or indirectly), by the Employer or an
Affiliated Organization on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or leave of absence.
Notwithstanding the preceding sentence:
(i) No more than 501 Hours of Service shall be credited under
this paragraph (b) to an Employee on account of any single
continuous period during which the Employee performs no
duties (whether or not such period occurs in a single Plan
Year) except as the following provisions may result in a
credit of more than 501 Hours of Service: (1) If an
Employee receives full pay during any
authorized leave of absence, and he returns to work
after such absence, he shall be credited with an Hour
of Service for each hour for which he was paid.
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(2) If an Employee is on a paid sick leave, he shall
receive an Hour of Service for each hour that he
would have normally worked during such leave.
(3) If an Employee is absent in military service, and he
retained re-employment rights under the law, and he
completed requirements under the law as to
re-employment and was re-employed, he shall be
credited with an Hour of Service for each hour that
he would have normally worked had he not entered
military service solely for purposes of determining
his vested rights; and
(4) If an Employee transfers to an employment status
which is ineligible to participate in this Plan, he
will continue to be credited with Hours of Service as
described above, for purposes of determining his
vested rights. However, he will receive no Hours of
Service for purposes of determining his right to
receive a Contribution to his Account after the date
of his change in employment status.
( ii) An hour for which an Employee is directly or indirectly paid,
or entitled to payment, on account of a period during which no
duties are performed, is not required to be credited to the
Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable
workers compensation, unemployment compensation or disability
insurance laws; and
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(iii) Hours of Service are not required to be credited for a payment
which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee.
(c) An hour worked at overtime or premium pay will count as only one
Hour of Service under the Plan.
(d) An Hour of Service is each hour for which back pay, irrespective
of mitigation of damages, is either awarded to or agreed to by the Employer. The
same Hours of Service shall not be credited both under Paragraph (a) or
paragraph (b), as the case may be, and under this paragraph (d). Crediting of
Hours of Service for each pay awarded shall be subject to the limitations set
forth in paragraphs (a), (b) and (c).
(e) An Hour of Service shall also be credited for reasons other than
the performance of duties in accordance with Department of Labor Regulations,
Section 2530.200b-2(b). Further, the computation periods used for purposes of
crediting Hours of Service shall be in accordance with Department of Labor
Regulations, Section 2530.200b-2(c). If an Employer does not maintain hourly
records with respect to any Employee, such Employee shall be credited with
forty-five (45) Hours of Service for each week in which he is entitled to be
credited with an Hour of Service.
1.21 "Named Fiduciary" shall mean the Employer, the Trustees and the Plan
Administrator. Each named Fiduciary shall have only those particular powers,
duties, responsibilities and obligations as are specifically given him under the
Plan and/or the Trust Agreement.
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1.22 "Normal Retirement Date" shall mean the date on which the Participant
has attained Age 65.
1.23 "Participant" shall mean any person who is eligible to receive benefits
under the Plan. The term "Participant" shall include an Active Participant (each
Eligible Employee who has satisfied the participation requirements of Section
2.01 as of an applicable Entry Date or who has made a Rollover Contribution),
Terminated Vested Participants (former Employees who are entitled at some future
date to the distribution of benefits from this Plan), and Inactive Participants
(former Participants who are not Terminated Vested Participants and who continue
to be employed in a non-covered class by an Employer or by an Affiliated
Organization).
1.24 "Plan" shall mean the Hanover Direct Savings and Retirement Plan as set
forth herein, and as the same may from time to time hereafter be amended.
1.25 "Plan Administrator" or "Administrator" shall mean the Employer, or the
persons or committee named as such pursuant to the provisions of Article IX
hereof.
1.26 "Plan Year" shall mean a twelve (12) month period beginning on January 1st
and ending on each December 31st.
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1.27 "Reduced Compensation" shall mean Compensation reduced by any Salary
Deferral Contributions made by the Participant and also reduced by any
contributions made by salary reduction to a plan established in accordance with
Sections 125 or 129 of the Code.
1.28 "Trust Agreement" shall mean the Hanover Direct Savings and Retirement
Trust Agreement as the same presently exists and as it may from time to time
hereafter be amended.
1.29 "Trustees" shall mean the party or parties so designated pursuant to
the Trust Agreement.
1.30 "Valuation Date" shall mean the last day of each quarter during the Plan
Year and any other date as of which the Plan Administrator elects to make a
valuation of Plan Accounts.
1.31 "Wage Base" shall mean the amount of compensation with respect to which old
age and survivors insurance benefits would be provided for a Participant under
the Social Security Act, as in effect for the calendar year in which the Plan
Year commences.
1.32 "Year of Service" shall mean a Plan Year in which an Employee has at least
one thousand (1,000) Hours of Service. In addition, solely for purposes of
determining whether an Employee is eligible to become a Participant after his
initial year of employment under Section 2.01, a Year of Service shall be
credited to an Employee who has at least one thousand (1,000)
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Hours of Service during the initial twelve (12) month period commencing with
such Employee's Date of Employment.
All Years of Service shall be counted regardless of whether or not
such years are continuous, subject to Appendix A attached at the end of this
document.
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ARTICLE II
PARTICIPATION AND ENTRY DATE
2.01 Initial Eligibility.
Each Eligible Employee who is a Participant immediately prior to the
effective date of this amended and restated Plan shall continue to participate
as of such effective date. Each other Employee shall be eligible to become a
Participant on the Entry Date coincident with or next following the date he
first becomes an Eligible Employee.
2.02 Plan Participation.
Each Employee who is eligible to participate in accordance with
Section 2.01 shall complete such forms and provide such data as are reasonably
required by the Plan Administrator as a precondition to Plan participation. In
order to receive a Salary Deferral Contribution, a Participant must enter into a
salary reduction agreement to be effective as of an Entry Date, electing to
reduce his salary by an amount equal to his Salary Deferral Contribution. A
Participant's Salary Deferral Contribution for any Plan Year shall not exceed
the lesser of (i) 10% of his Compensation for the Plan Year or portion of such
Plan Year during which he was an Active Participant, subject to the limitations
set forth in Article III, and (ii) $7,627, or such higher maximum contribution
for a taxable year as may be permitted under Section 402(g) of the Code. The
Plan Administrator shall determine the minimum and/or maximum permitted salary
reduction. Any maximum permitted salary reduction may apply to all Participants
or solely to those Participants who are Highly-Paid Employees. Participants
shall make separate
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elections with respect to Salary Deferral and After-Tax Contributions, and the
election of either type of contribution shall not, in any way, be contingent
upon any other election made under the Plan. By becoming a Participant, an
Employee shall for all purposes be deemed conclusively to have assented to the
provisions of the Plan, the corresponding Trust Agreement and to all amendments
to such instruments.
2.03 Re-employment.
In the event an Employee terminates employment, and is reemployed, he
shall be eligible to be admitted or readmitted as an Active Participant on the
date of his reemployment or, if later, the Entry Date coincident with or next
following the date he becomes an Eligible Employee.
2.04 Change in Status.
In the event that a person who has been an Employee in an employment
status not eligible for participation in this Plan subsequently becomes eligible
by reason of a change in status, he shall be eligible to become a Participant on
the Entry Date coincident with or next following the date on which he becomes an
Eligible Employee.
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ARTICLE III
CONTRIBUTIONS
3.01 Salary Deferral Contributions.
The Employer will make a Salary Deferral Contribution to the Plan for
each Active Participant who has entered into a salary reduction agreement, in
accordance with Section 2.02, as determined by such salary reduction agreement.
In addition, for any Plan Year, an Employer may elect to make a Qualified
Non-elective Contribution (including a qualified matching Contribution)
allocable only to those Participants who are not Highly-Paid Employees, in order
that the Plan will satisfy requirements of Section 3.06 for such Plan Year. Any
Contribution made in accordance with the preceding sentence shall be allocated
among applicable Participants in proportion to the ratios of each such
Participant's Compensation or, with respect to satisfaction of the ADP test,
only to those Participants who have made Salary Deferral Contributions (under
the same allocation procedure used for Matching Employer Contributions or
pro-rata). Matching Employer Contributions used to satisfy the test described
under Section 3.06 must comply with the Regulations under Code Section
1.401(k)-1(b)(3).
"Excess Elective Deferrals" shall mean any Salary Deferral
Contributions which exceed the dollar limitation under Code Section 402(g). Such
Excess Elective Deferrals shall be treated as annual additions under the Plan
unless they are distributed in accordance with this Article.
A Participant may assign to this Plan any Excess Elective Deferrals
made during a taxable year of the Participant by providing fifteen (15) days
written notification to the
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Administrator of the amount of the Excess Elective Deferrals to be assigned to
this Plan. Such notice shall be provided no later than the first March 1st
following the close of the individual's tax year. Excess Elective Deferrals with
respect to the combination of Excess Elective Deferrals and deferrals under
another plan of deferred compensation of an Employer or an Affiliated
Organization may automatically be returned to the Participant.
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15th to any Participant to whose Account Excess
Elective Deferrals were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year.
Excess Elective Deferrals shall be adjusted for any income or loss.
The income or loss allocable to Excess Elective Deferrals is the income or loss
allocable to the Participant's Account for the taxable year multiplied by a
fraction, the numerator of which is such Participant's Excess Elective Deferrals
for the year and the denominator of which is the Participant's Salary Deferral
Contribution Account without regard to any income or loss occurring during such
taxable year.
3.02 After-Tax Contributions.
Participants may elect to make After-Tax Contributions to the Trust
for each Plan Year in amounts not less than one percent (1%) of Compensation,
nor more than ten percent (10%) of Compensation for such Plan Year.
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3.03 Method of Contribution.
Salary Deferral and After-Tax Contributions may be made by periodic
payroll deductions or on such other basis as shall be determined from time to
time by the Plan Administrator. Nothing contained herein shall preclude the Plan
Administrator from not allowing Salary Deferral or After-Tax Contributions to be
made by any Participant in accordance with Section 3.06 or from limiting the
number of payroll periods in a Plan Year during which such Contributions are
permitted. A Participant may elect an increase or decrease in his Salary
Deferral Contribution or After-Tax Contributions, provided that written notice
of such change (including amendment of a salary reduction agreement, if
applicable) is submitted to the Plan Administrator at least fifteen (15) days in
advance of the effective date, which date shall be the first day of a calendar
quarter. A Participant may cease Contributions as of any payroll period upon
fifteen (15) days written notice in advance of the last day of such payroll
period.
No contributions may be made by or on behalf of any Participant during
any period that he is receiving long term disability benefits, worker's
compensation benefits or while the Participant is on a leave of absence for
which no Compensation is being paid from the Employer.
3.04 Matching Employer Contributions.
An Employer may elect, in its sole discretion, to make Matching
Employer Contributions for a Plan Year for each Active Participant on whose
behalf Salary Deferral Contributions have been made during the Plan Year.
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For any Plan Year, the Matching Employer Contributions (including any
forfeitures reallocated in accordance with Section 3.07) shall be allocated to
the Accounts of such Active Participants for the Plan Year in the same
proportion as the amount of Salary Deferral Contributions (not in excess of six
percent (6.0%) of the Participant's Compensation) for each such Active
Participant for such Plan Year bears to the total Salary Deferral Contribution
(as so limited) for all such Active Participants for such Plan Year.
3.05 Discretionary Employer Contributions.
For any Plan Year, an Employer may elect, in its sole discretion, to
make an additional Discretionary Employer Contribution to the Plan. If a
Discretionary Employer Contribution is made, then it shall be allocated as of
the last day of the Plan Year to the Account of each Active Participant who (i)
retired at or after age 65, retired due to a Disability or died during such Plan
Year or (ii) (a) had at least 1,000 Hours of Service during such Plan Year and
(b) is actively employed as of the last day of such Plan Year, including any
such Participant who did not make Salary Deferral Contributions for such Plan
Year. An individual who is terminated prior to the last day of a Plan Year, but
who is receiving severance pay as of such date, shall not be deemed to be
actively employed as of the last day of a Plan Year.
The amount allocated to each such Participant shall be an amount
chosen by the Company to be allocated under (a) below. If any Discretionary
Employer Contribution remains, such amount shall be allocated in accordance with
(b) below.
(a) An amount shall be allocated equal to a percentage of each such
Participant's Compensation earned while a Participant for such
Plan Year, plus the same
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percentage of the excess of (i) such Participant's Compensation
earned while a Participant for the Plan Year above (ii) the
Wage Base for such Plan Year. However, the percentage of
Compensation used for allocations above the Wage Base shall not
exceed 5.7% (or such other percentage which equals the maximum
percentage permitted under Code Section 401(1)).
(b) Any remaining Discretionary Employer Contribution shall be
allocated to each such Participant in proportion to the ratio
that each such Participant's Compensation earned while a
Participant bears to such eligible Compensation of all eligible
Participants for the Plan Year.
3.06 Non-Discrimination Test.
For any Plan Year, the average Contribution Percentage for Highly-Paid
Employees determined based on Salary Deferral Contributions (ADP) and separately
based on the sum of After-Tax Contributions and any Matching Employer
Contributions (ACP) shall not exceed the greater of:
(a) 1.25 multiplied by the average Contribution Percentage for all
Eligible Employees who are not Highly-Paid Employees; or
(b) the lesser of
( i) twice the average Contribution Percentage for all Eligible
Employees who are not Highly-Paid Employees; and (ii) the
average Contribution Percentage for all Eligible Employees who
are not Highly-Paid Employees, plus two percent (2%).
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If the limitation described under subsection (b) above is applied with
respect to Salary Deferral Contributions, it shall not be applied with respect
to the sum of After-Tax Contributions and Matching Employer Contributions, and
vice-versa, except as otherwise permitted under the following Definitions and
Special Rules Section describing the multiple use test.
For purposes of this Section, an Excess Contribution shall mean the
excess of a Highly-Paid Employee's Salary Deferral Contribution (or amounts
treated as Salary Deferral Contributions) over the maximum amount of such
Contributions as provided under the above test.
For purposes of this Section, Excess Aggregate Contributions shall
mean the excess of the aggregate amount of After-Tax Contributions and Matching
Employer Contributions which were made on behalf of Highly-Paid Employees for
any Plan Year, over the maximum amount of such Contributions as provided under
the above test.
The Excess Contributions or Excess Aggregate Contributions, whichever
is applicable, shall be allocated by reducing the actual Contribution Percentage
of the Highly-Paid Employee with the highest actual Contribution Percentage.
Such Contribution Percentage shall be reduced until the Highly-Paid Employee
with the highest actual Contribution Percentage is equal to that of the
Highly-Paid Employee with the next highest actual Contribution Percentage or
until the above test is passed. This process shall be repeated until the test is
passed and such leveling method shall determine the amount of Excess
Contributions attributable to each Highly-Paid Employee. The Excess Aggregate
Contribution amount shall be determined after any Salary Deferral Contributions
are recharacterized as After-Tax Contributions.
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DEFINITIONS AND SPECIAL RULES:
"Aggregate Limit" shall mean the sum of (i) 125 percent of the greater
of the ADP of the Non-Highly-Paid Employees for the Plan Year or the ACP of
Non-Highly-Paid Employees under the Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan Year of the cash or deferred
arrangement (`CODA') and (ii) the lesser of 200% or two plus the lesser of such
ADP or ACP. `Lesser' is substituted for `greater' in (i) above and `greater' is
substituted for `lesser' after `two plus the' in (ii) if it would result in a
larger Aggregate Limit.
A multiple use method may be used in order to satisfy the
non-discrimination test if one or more Highly-Paid Employees participate in both
a CODA and a plan maintained by the Employer subject to the ACP test. If the sum
of the ADP and ACP of those Highly-Paid Employees subject to either or both
tests exceeds the Aggregate Limit, then the ACP of those Highly-Paid Employees
who also participate in a CODA will be reduced (beginning with such Highly-Paid
Employee whose ACP is the highest) so that the limit is not exceeded. The amount
by which each Highly-Paid Employee's Contribution Percentage amount is reduced
shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the
Highly-Paid Employees are determined after any corrections required to meet the
ADP and ACP tests. Multiple use does not occur if both the ADP and ACP of the
Highly-Paid Employees does not exceed 1.25 multiplied by the ADP and ACP of the
Non-Highly Paid Employees.
Effective prior to the first Plan Year beginning after December 31,
1991, the Plan Administrator shall also have discretionary authority to
restructure the Plan and satisfy the above test based on specific common
attributes among Employees.
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For purposes of determining the Contribution Percentage test,
After-Tax Contributions are considered to have been made in the Plan Year in
which contributed to the trust. Salary Deferral Contributions, Matching Employer
Contributions and Qualified Non- elective Contributions will be considered made
for a Plan Year only if made no later than the end of the twelve-month period
beginning on the day after the close of the Plan Year.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the above tests and the amount of Qualified Non-elective
Contributions, including qualified matching Contributions, if applicable, used
in the test.
The determination and treatment of the Contribution Percentage of any
Participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
A Participant may treat his Excess Contributions under Section 3.01 as
an amount distributed to the Participant and then contributed by such
Participant to the Plan. Such recharacterized amounts will remain nonforfeitable
and subject to the same distribution requirements as Salary Deferral
Contributions. Amounts may not be recharacterized by a Highly-Paid Employee to
the extent that such amount, in combination with other After-Tax Contributions
made by that Employee, would exceed any stated limit under the Plan on After-Tax
Contributions.
Recharacterization must occur no later than two and one-half months
after the last day of the Plan Year in which such Excess Contributions arose and
is deemed to occur no earlier than the date the last Highly-Paid Employee is
informed in writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for the Participant's
tax year in which the Participant would have received them in cash.
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If a Highly-Paid Employee is subject to the family aggregation rules
of the Code, the combined actual Contribution Percentage (based on Salary
Deferral Contributions and separately based on After-Tax Contributions and
Matching Employer Contributions) for the family group shall be treated as one
Highly-Paid Employee. The combined actual Contribution Percentage shall be
determined as the combined actual Contribution Percentage of all eligible family
members.
The Excess Contributions or Excess Aggregate Contributions for the
family members shall be allocated in proportion to the ratio of such
Contributions for each family member.
Any distribution or forfeiture of Excess Contributions or Excess
Aggregate Contributions for any Plan Year shall be made based on the respective
portions of such amounts attributable to each Highly-Paid Employee.
Excess Contributions or Excess Aggregate Contributions shall be
adjusted for any income or loss. The income or loss allocable to such
Contributions is the income or loss allocable to the Participant's Account for
the Plan Year multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions or Excess Aggregate Contributions for the
year and the denominator is the Participant's Account attributable to
satisfaction of ADP and ACP test (as applicable) without regard to any income or
loss occurring during such Plan Year.
Notwithstanding the preceding paragraph, any other reasonable method
for computing the income allocable to Excess Contributions or Excess Aggregate
Contributions may be used, provided that the method is non-discriminatory, is
used consistently for all Participants and for all corrective distributions
under the Plan for the Plan Year, and is used by the Plan for allocating income
to Participants' Accounts.
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Excess Contributions and Excess Aggregate Contributions shall be
forfeited, or if not forfeitable, distributed from the Participant's various
Accounts in proportion to the ratio of such Participant's applicable Accounts.
Excess Contributions shall be distributed from the Participant's Qualified
Non-elective Contribution Account only to the extent that such Excess
Contributions exceed the balance in the Participant's Salary Deferral Account
and Matching Contribution Account.
Forfeitures of Excess Aggregate Contributions shall be applied to
reduce Employer Contributions in accordance with Section 3.07.
Excess Contributions or Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be forfeited, or if not
forfeitable, distributed no later than the last day of each Plan Year to
Participants to whose Accounts such Contributions were allocated for the
preceding Plan Year. If such excess amounts are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts arose, a
ten percent (10%) excise tax will be imposed on the Employer maintaining the
Plan with respect to such amounts to the extent required by law.
In the event that this Plan satisfies the requirements of Sections
401(k), 401(m), 401(a)(4), or 410(b) of the Code only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this Plan, then this Section 3.06
shall be applied by determining the Contribution Percentage of Employees as if
all such plans were a single plan. For Plan Years beginning after December 31,
1989, plans may be aggregated in order to satisfy section 401(k) or 401(m) of
the Code only if they have the same Plan Year.
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The ADP for any Participant who is a Highly-Paid Employee for the Plan
Year and who is eligible to have Salary Deferral Contributions (or amounts
treated as Salary Deferral Contributions for purposes of the ADP test) allocated
to his or her accounts under two or more arrangements described in Section
401(k) of the Code that are maintained by the Employer, shall be determined as
if such Contributions were made under a single arrangement. If a Highly-Paid
Employee participates in two or more cash or deferred arrangements that have
different Plan Years, all cash or deferred arrangements ending with or within
the same calendar year shall be treated as a single arrangement.
In the event that any provisions of this Section 3.06 are no longer
required or applicable for qualification of the Plan under the Code, then any
applicable provisions of this Section 3.06 shall thereupon be void.
3.07 Forfeitures.
As of the end of each Plan Year, any forfeitures occurring during such
Plan Year resulting from an Employee's termination of employment and election to
receive a distribution prior to being one hundred percent (100%) vested in
accordance with Section 7.01 shall first be applied to restore the previously
forfeited accounts, if applicable, of former Terminated Vested Participants who
have been re-employed. If a Participant elects to defer his distribution the
resulting forfeiture (subject to Section 7.03) shall occur after a one year
Break-in-Service.
Any remaining portion of the total forfeiture not applied in
accordance with the preceding paragraph shall be used to reduce a Matching
Employer Contribution and shall be allocated to remaining Active Participants in
the same manner as provided under Section 3.04.
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Should a Participant who is 0% vested in his Matching Employer
Contribution and Discretionary Employer Contribution Accounts under Section 7.01
terminate employment, he shall cease to be a Participant (unless reemployed) and
the resulting forfeiture of his Matching and Discretionary Employer Contribution
Accounts shall be deemed a full distribution of such
Accounts.
If a terminated Participant who was 0% vested in his Matching Employer
Contribution and Discretionary Employer Contribution Accounts and was deemed to
have received a distribution is subsequently reemployed by the Employer prior to
the occurrence of five consecutive one year Breaks-in-Service after the date of
his termination of employment, any amount forfeited shall be
reinstated to his Account.
3.08 Maximum Contributions.
Notwithstanding the above, the total amount of Salary Deferral
Contributions, Matching Employer Contributions and Discretionary Employer
Contributions for any Plan Year shall not exceed an amount equal to fifteen
percent (15%) of the total Reduced Compensation of all Participants for such
Plan Year. The excess, if any, of fifteen (15%) percent of the total
Compensation of all Participants earned in any year commencing before January 1,
1987 above the actual aggregate Employer Contributions for such years may be
added to the total contribution provided the Plan was then in effect.
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3.09 Time of Payment.
Matching Employer Contributions and Discretionary Employer
Contributions may be made at any time on or before the date required for
deduction of such Contributions on the Employer's Federal income tax return.
3.10 Annual Additions Limitation.
Notwithstanding the above provisions of this Article, in no event
shall the annual additions to a Participant's Account exceed the maximum amount
permitted under Section 415 of the Code, and all provisions of such Section are
hereby incorporated in the Plan by reference. The term "limitation year", as
defined under the Code, shall mean the Plan Year.
The term Defined Contribution Fraction shall mean a fraction, the
numerator of which is the sum of the annual additions to the Participant's
Account under all the defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior limitation years
(including the annual additions attributable to the Participant's nondeductible
employee contributions to all defined benefit plans maintained by the Employer,
whether or not terminated, and the annual additions attributable to all welfare
benefits funds, as defined in Section 419(e) of the Code, and individual medical
accounts, as defined in Section 415(1)(2) of the Code, maintained by the
Employer), and the denominator of which is the sum of the maximum aggregate
amounts for the current and all prior limitation years of service with the
Employer (regardless of whether a defined contribution plan was maintained by
the Employer). The maximum aggregate amount in any limitation year is the lesser
of 125 percent
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<PAGE> 34
of the dollar limitation determined under Sections 415(b) and (d) of the Code in
effect under Section 415(c)(1)(A) of the Code or 35 percent of the Participant's
compensation for such year.
If the Employee was a participant as of the end of the first day of
the first limitation year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in existence on
May 5, 1986, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator of
this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last limitation year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the plan made
after May 5, 1986, but using the Code Section 415 limitation applicable to the
first limitation year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before January
1, 1987, shall not be recomputed to treat all employee contributions as annual
additions.
The term "Defined Benefit Fraction" shall mean a fraction, the
numerator of which is the sum of the Participant's projected annual benefits
under all the defined benefit plans (whether or not terminated) maintained by
the Employer, and the denominator of which is the lesser of 125 percent of the
dollar limitation determined for the limitation year under Sections 415(b) and
(d) of the Code or 140 percent of the highest average compensation, including
any adjustments under Section 415(b) of the Code.
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Notwithstanding the above, if the Participant was a participant as of
the first day of the first limitation year beginning after December 31, 1986, in
one or more defined benefit plans maintained by the Employer which were in
existence on May 5, 1986, the denominator of this fraction will not be less than
125 percent of the sum of the annual benefits under such plans which the
participant had accrued as of the close of the last limitation year beginning
before January 1, 1987, disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
section 415 for all limitation years beginning before January 1, 1987.
As soon as administratively feasible after the end of the limitation
year, the maximum permissible amount for the limitation year will be determined
on the basis of the Participant's actual compensation for the limitation year.
If due to the maximum permitted above or as a result of the allocation
of forfeitures there is an excess amount, the excess will be disposed of in the
following order:
(1) Any After-Tax Contributions, to the extent they would reduce
the excess amount, will be returned to the Participant;
(2a) If an excess amount still exists, and the Participant is covered
by the Plan at the end of the limitation year, the excess amount in the
Participant's Account will be used to reduce Employer Contributions (including
any allocation of forfeitures) for such Participant in the next limitation year,
and each succeeding limitation year if necessary; or
(2b) If an excess amount still exists, and the Participant is not
covered by the Plan at the end of a limitation year, the excess amount will be
held unallocated in a suspense account.
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The suspense account will be applied to reduce future Employer Contributions for
all remaining Participants in the next limitation year, and each succeeding
limitation year if necessary.
If a suspense account is in existence at any time during a limitation
year pursuant to this Section, such account will not receive an allocation of
the trust's investment gains and losses. If a suspense account is in existence
at any time during a particular limitation year, all amounts in the suspense
account must be allocated and reallocated to Participant's Accounts before any
Employer or any employee contributions may be made to the Plan for that
limitation year. Excess amounts may not be distributed to Participants or former
Participants, except as provided below.
Notwithstanding the method for disposing of excess amounts as
indicated above, in the case where a reasonable error is made so that the
limitations of Section 415 are violated, the Plan may distribute Salary Deferral
Contributions (within the meaning of Section 402(g)(3) of the Code) to the
extent that the distribution would reduce the excess amounts in the
Participant's Account. These amounts are disregarded for purposes of the ADP and
ACP tests.
3.11 Return of Contribution.
Except as provided in Section 3.10 and paragraphs (a), (b), (c), (d),
(e) and (f) of this Section, and notwithstanding any other provision of this
Plan or of the Trust Agreement, the Employer irrevocably divests itself of any
interest or reversion whatsoever in any sums contributed by it to the Trust
Fund, and it shall be impossible for any portion of the Trust Fund to be used
for, or diverted to, any purpose other than for the exclusive benefit of
Participants or their Beneficiaries.
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(a) If a contribution by the Employer is conditioned upon initial
qualification of the Plan or any amendment thereto under Section 401 of the
Code, and the Plan or any amendment thereto under Section 401 of the Code, and
the Plan or amendment does not so qualify, the contribution shall be returned to
the Employer within one year of the date of denial of such qualification or of
the failure to qualify.
(b) If a contribution made by the Employer is based upon a good faith
mistake of fact, the contribution shall be returned to the Employer within one
year after the payment of the contribution.
(c) If a contribution which is intended to be deductible for Federal
income tax purposes is determined to not be deductible and part or all of the
deduction is disallowed, the contribution, to the extent disallowed, shall be
returned to the Employer within one year after the disallowance of the
deduction.
(d) Earnings attributable to any mistaken or non-deductible
contribution may not be returned to the Employer, but losses attributable
thereto must reduce the amount to be so returned.
(e) If the withdrawal of the amount attributable to the mistaken or
nondeductible contribution would cause the balance of the individual Account of
any Participant to be reduced to less than the balance which would have been in
the Account had the mistaken or nondeductible amount not been contributed, then
the amount to be returned to the Employer must be limited so as to avoid such
reduction. In the case of a reversion due to initial disqualification of the
Plan, the entire assets of the Plan attributable to Employer contributions may
be returned to the Employer.
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(f) A contribution may be returned to the Employer or an Employee,
whichever is applicable, in order to satisfy the requirements of Section 3.06.
3.12 Rollover Contributions.
(a) Direct Inter-Plan Transfers. Any Employee (including Employees who
are not yet Eligible Employees) may, no less than 15 days following written
notification to the Plan Administrator of such action, direct the appropriate
funding agency of any qualified retirement plan of the Employer, a former
employer, or of an Individual Retirement Account (IRA) which was established
solely as a repository for a distribution from a qualified plan of a former
employer (provided the Employee certifies that he made no contributions to such
IRA) to distribute directly to the Trustee such Participant's entire interest in
the distributing plan or IRA, exclusive of any after-tax contributions made by
the Participant as an employee or participant thereunder, provided that the
transferor plan or IRA is not subject to the requirements of Section 401(a)(11)
of the Code. Any amount presented by a Participant to the Trustees within sixty
(60) days of the receipt shall be treated, upon receipt by the Trustee, as
having been received directly from the appropriate officer or fiduciary of the
distributing plan or IRA.
(b) Cash Transfers. Only cash may be transferred in accordance
with paragraph (a) of this Section. Property other than cash cannot be
transferred.
(c) Investment of Rollover Contribution Accounts. Rollover
Contribution Accounts shall be invested as provided under Section 4.01 of the
Plan.
(d) Direct Rollovers. This paragraph applies to distributions
made on or after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise
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limit a distributee's election under this paragraph, a distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. Such
distribution may commence less than 30 days after the notice required under
section 1.411(a)-1(k) of the Income Tax Regulations is given, provided that (i)
the Plan Administrator clearly informs the Participant that the Participant has
a right to a period of at least 30 days after receiving the notice to consider
the decision of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (ii) the Participant, after receiving the
notice, affirmatively elects a distribution.
For purposes of this Section, the following definitions shall apply:
Eligible rollover distribution: An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
Eligible retirement plan: An eligible retirement plan is an individual
retirement account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the code, an annuity plan
described in section 403(a) of the Code, or a
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qualified trust described in section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
Distributee: A distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
Direct rollover: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
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ARTICLE IV
ADMINISTRATION OF FUNDS
4.01 Investment of Funds.
Participant Accounts will be invested by the Plan Trustee, in
accordance with Participant directions as described below and in Section 4.02
and 4.03, in such investment funds as may be offered under the Plan from time to
time. The available investment alternatives may include any or all of the
alternatives described below:
(a) Common or capital stocks, bonds, convertible debentures or
preferred stocks, money market investments and other short term
corporate and government investments and fixed debt obligations
of corporations and of the Federal, state and local government,
or any pooled or mutual fund invested in such instruments.
(b) One or more guaranteed interest funds which shall be invested
under a contract (or contracts) with a bank, or an insurance
company licensed in the state in which an office of the
Employer is domiciled and whereby terms of such contract
guarantee both the repayment of principal and the payment of
interest at a pre-determined minimum rate for a fixed period
of time. Any such contract is subject to approval of the Plan
Administrator and may be renewed or discontinued in its
discretion. Should such contract be discontinued and should
the Plan Administrator not enter into or instruct the Trustee
to enter into a successor contract providing similar
guarantees as to principal and
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<PAGE> 42
interest, then any Participant whose Account was invested under
the contract shall be given the opportunity to make a new
investment election.
(c) Any other managed fund which the Plan Administrator deems
appropriate for investment of plan assets.
(d) A fund invested in shares of common stock of the Company.
Any dividends received on such shares shall be reinvested
in this fund. Contributions designated for the fund, or
dividends paid on shares held in the fund, shall be temporarily
invested in a short-term investment fund while the Trustee
awaits the opportunity to purchase additional shares. The
shares of common stock of the Company from time to time
required to be acquired for the purposes of this Plan shall be
acquired by the Trustees by purchase in the open market at
prevailing prices, or, if directed by the Company, by
contribution in kind or by purchase privately from the Company
or any other person at a price per share equal to the closing
market price per share at which the shares of common stock of
the Company were sold on the last business day preceding the
day of the purchase; it being understood that shares purchased
from the Company may be either treasury shares or authorized
but unissued shares, if the Company shall make such shares
available for that purpose.
The Plan Administrator may, in its discretion, discontinue the use of
any investment alternatives maintained under the Plan, without obligation to
substitute new alternatives, provided that Participants with Accounts invested
in a discontinued investment alternative are given an
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opportunity to make an election to transfer the affected portion of their
Accounts to another investment alternative permitted under the Plan.
4.02 Investment Elections.
Each Participant shall, by written instructions to the Plan
Administrator, designate in which investment alternative or combination of
alternatives his Contributions shall be invested; provided, however, that the
portion invested in any alternative which he elects shall be 5% or any multiple
thereof, or such other percentage as designated by the Plan Administrator,
subject to the maximum of 100%. Each Participant shall, upon request, be
furnished with written confirmation of such instructions.
4.03 Change of Elections.
Changes in investment elections shall (subject to Section 4.04) be
permitted effective as of the first day of any quarter in each calendar year or
such other period as specified by the Plan Administrator, in the manner
described below:
(a) Any Participant may, by written request filed with the Plan
Administrator by a specified number of days prior to the effective date of the
change, or under any other method as prescribed by the Plan Administrator, alter
his election with respect to the investment of his future contributions.
(b) Any Participant may, by written request filed with the Plan
Administrator by a specified number of days prior to the effective date of the
change, or under any other method as prescribed by the Plan Administrator, alter
his election with respect to the investment
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alternatives in which his prior contributions have been invested and may direct
the Trustee to transfer all or any portion of the balance in his Account to any
investment alternative or combination of alternatives.
4.04 Restrictions on Changes.
The Plan Administrator may, in its sole discretion, establish
restrictions, limitations or prohibitions with respect to changes in investment
elections, or transfers, permitted under the Plan. Any such restrictions,
limitations or prohibitions which may apply to elections related to, or
transfers among, any or all investment funds maintained under the Plan, shall be
communicated in advance of their applicability to Plan Participants, and shall
apply in a non-discriminatory manner to all Participants in similar
circumstances.
4.05 Allocation of Contributions.
As of each Valuation Date, the Plan Administrator shall allocate the
Salary Deferral Contributions, Matching Employer Contributions, Discretionary
Employer Contributions and After-Tax Contributions to the Account of each
Participant.
4.06 Valuation of Assets.
As of each Valuation Date, the assets of the Trust shall be valued at
fair market value and any gains or losses shall be allocated to the same
investment alternatives in which they arose.
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4.07 Voting of Shares.
Before each annual or special meeting of shareholders of the Company,
the Company shall cause the Trustee to send to each Participant whose Account is
invested in common stock of the Company, a copy of the proxy solicitation
material therefor, together with a form providing confidential instructions to
the Trustee on how to vote the shares of Company stock held within the
Participant's Account. Upon receipt of such instructions in conformance with
said proxy solicitation material, the Trustee shall vote the shares of Company
stock as instructed. Instructions received from individual Participants by the
Trustee shall be held in strictest confidence and shall not be divulged or
released to any person, including officers or Employees of an Employer. The
Trustees shall vote the shares of the Company stock for which no instructions
have been received in the same proportion as the shares for which instructions
have been received.
4.08 Tender Offer Procedure.
In the event an offer is received by the Trustee (including, but not
limited to, a tender offer or exchange offer) to purchase any shares of Company
stock held by the Trustee in the Trust, the Company shall cause the Trustee to
send to each Participant whose Account is invested in Company stock such
information as will be distributed to shareholders of the Company in connection
with such offer, and to notify each Participant in writing of the number of
shares of Company stock which are then credited to such Participant's Account.
The Trustee shall provide to each Participant a form requesting confidential
directions as to the manner in which the Trustee is to respond to the offer with
respect to shares of Company stock allocated
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to such Participant's Account. Upon timely receipt of such directions, the
Trustee shall respond as directed with respect to the tender or exchange of such
shares. Instructions received from individual Participants by the Trustee shall
be held in the strictest confidence and shall not be divulged or released to any
person, including officers or Employees of an Employer. The Trustee shall not
tender or exchange shares of Company stock allocated to a Participant's Account
for which the Trustee has not received directions from the Participant.
A Participant who has directed the Trustee to tender or exchange
shares of Company stock allocated to such Participant's Account may, at any time
prior to the offer withdrawal date, direct the Trustee to withdraw such shares
from the offer prior to the withdrawal deadline, in which case the Trustee shall
carry out such directive.
In the event that shares of Company stock held in a Participant's
Account are tendered or exchanged pursuant to this Section 4.08, the proceeds
received upon the acceptance of such tender or exchange shall be credited to
such Participant's Account, and shall be invested in the manner determined by
the Company or as otherwise provided in the Plan.
4.09 ERISA Section 404(c) Plan.
The Plan is intended to constitute a plan described in Section 404(c)
of ERISA and shall be administered in accordance with such intent. Beginning
with the Plan Year commencing January 1, 1994, the Plan shall be administered in
compliance with Department of Labor Regulations Section 2550.440c-1.
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4.10 Confidentiality.
Information relating to the purchase, holding, and sale of Company
stock in a Participant's Account and the exercise of voting, tender, and similar
rights with respect to such stock by Participants and their beneficiaries shall
be maintained in accordance with such procedures as the Administrator shall
establish designed to safeguard the confidentiality of such information, except
to the extent necessary to comply with Federal laws or state laws not preempted
by ERISA.
4.11 Fiduciary Designation.
Effective for Plan Years commencing on or after January 1, 1994, the
Administrator is designated as the Plan fiduciary responsible for ensuring that
the procedures implemented pursuant to Section 4.10 are sufficient to safeguard
the confidentiality of information described in that Section, that such
procedures are being followed, and that an independent fiduciary is appointed to
carry out activities which the Administrator determines involve a potential for
undue influence by any Employer upon Participants and beneficiaries with regard
to the direct or indirect exercise of shareholder rights with respect to Company
stock.
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ARTICLE V
RETIREMENT BENEFITS
5.01 Normal Retirement Benefit.
A Normal Retirement Benefit shall be payable with respect to any
Participant retiring at his Normal Retirement Date, and shall be equal to the
Participant's Account as of the Valuation Date coincident with or next following
the Participant's Normal Retirement Date. Payment shall commence no later than
sixty (60) days following the last day of the Plan Year in which the
Participant's Normal Retirement Date occurs.
5.02 Deferred Retirement Benefit.
A Deferred Retirement Benefit shall be payable with respect to any
Participant retiring after his Normal Retirement Date and shall be equal to the
Participant's Account as of the Valuation Date coincident with or immediately
following the Participant's actual retirement. Any Contribution to such
Participant's Account after he has attained age 70 1/2 shall be taken into
consideration in determining the minimum distribution requirements of Section
5.04.
5.03 Disability Retirement Benefit.
A Disability Retirement Benefit shall be payable with respect to any
Participant who has suffered a Disability and who retires from service of the
Employer by reason of such Disability, and shall be equal to the Participant's
Account as of the Valuation Date coincident
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with or next following the date of the Participant's termination due to
Disability. Such a Participant may also elect to be paid in accordance with the
provisions of Section 7.02.
5.04 Payment of Benefits.
Any benefit under this Article shall be made in a lump sum payment no
later than sixty days following the close of the Plan Year in which the
Participant's retirement occurs.
If, after a Participant terminates employment, the total value of his
vested Account is less than $3,500, the Administrator may direct the Trustee to
cash-out the Participant's benefit in a single lump sum after any Valuation Date
coincident with or following the date of his or her termination of employment,
without any requirement for such Participant's consent.
For Active Participants, benefit payments as mandated by Code Section
401(a)(9) shall not commence later than the April 1st following the calendar
year in which the Participant attains age 70 1/2 or such later date as permitted
under the Code, unless the Participant was (i) over age 70 1/2 before January 1,
1988 and was not a 5% owner of the Employer during the Plan Year ending within
the calendar year in which the Participant attained age 66 1/2, or any
subsequent year, or (ii) the Participant made a designation under Section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982, in which
event benefit payments may commence after the April 1st following the calendar
year in which the Participant reaches age 70 1/2, but as soon after the
Participant terminates employment as is practical.
All distributions required under this Section shall be determined and
made in accordance with the Proposed or, if applicable, Final Regulations under
Code Section 401(a)(9),
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including the minimum distribution incidental benefit requirement of Section
1.401(a)(9)-2 of the Proposed or Final Regulations.
5.05 Additional Allocations on Retirement.
Any allocation for a Participant, made as of a Valuation Date
subsequent to the date of his retirement shall be paid to such Participant, or
his beneficiary, as soon after such Valuation Date as is practical.
5.06 Crediting of Investment Earnings.
Investment earnings shall be credited to a Participant's Account
through the Valuation Date coincident with or preceding the date that
distribution of the Account is made. No earnings shall be credited after such
Valuation Date.
5.07 Company Stock.
A Participant may elect to have the portion, if any, of his vested
Account attributable to a fund invested in common stock of the Company
distributed all in cash or all in kind. In the case of an in-kind distribution,
the value of fractional shares shall be paid in cash.
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<PAGE> 51
ARTICLE VI
DEATH BENEFITS
6.01 Death Benefits.
In the event of the death of an Active Participant or of a Terminated
Vested Participant who has not yet received payment of his Account, the Account
shall be paid to his Beneficiary in a single lump sum. Any payment under this
Section shall be paid as soon as practicable at the Beneficiary's election and
no later than five (5) years after the Participant's death. The distribution
shall be equal to the Participant's Account as of the Valuation Date coincident
with or immediately preceding the date of payment.
6.02 Additional Allocations on Death.
Any allocation for a Participant, made as of a Valuation Date
subsequent to the date of his death, shall be paid to such Participant's
Beneficiary as soon after such Valuation Date as is practical.
6.03 Beneficiary Designation.
"Beneficiary" shall mean the person or persons named to receive any
death benefits which may become payable under the Plan, and shall include any
contingent beneficiary.
If a Participant has a qualified spouse, then such spouse shall
automatically be the Beneficiary eligible to receive the Account of the
Participant pursuant to the Participant's death, unless the Participant names an
alternate Beneficiary, and the qualified spouse consents in
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<PAGE> 52
writing to the Participant's naming of an alternate Beneficiary, which consent
must acknowledge the effect of such designation and be witnessed by a
representative of the Plan Administrator, or attested to by a notary public. For
purposes of this paragraph, a qualified spouse is a spouse to whom the
Participant is married at the date of death and to whom the Participant has been
married for at least one year. Each Participant shall have the right by written
notice to the Plan Administrator, in the form prescribed by the Plan
Administrator, to designate, and from time to time to change the designation of,
one or more Beneficiaries and contingent beneficiaries to receive any benefit
which may become payable under the Plan pursuant to his death, provided his
qualified spouse, if any, consents to the designation of an alternate
Beneficiary as set forth in the preceding sentence. A qualified spouse may also
expressly permit a Participant to subsequently change an alternative beneficiary
designation without any further spousal consent.
If it is established to the satisfaction of a Plan representative that
there is no qualified spouse or that such spouse cannot be located, an
alternative beneficiary designation will be deemed a proper election without any
spousal consent.
Any consent by a qualified spouse obtained under this provision (or
establishment that the consent of a qualified spouse may not be obtained) shall
be effective only with respect to such spouse. A consent that permits
designations by the Participant without any requirement of further consent by
the qualified spouse must acknowledge that such spouse has the right to limit
consent to a specific beneficiary, and a specific form of benefit where
applicable, and that the spouse voluntarily elects to relinquish either or both
of such rights. A revocation of a prior beneficiary designation may be made by a
Participant without the consent of the qualified spouse
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<PAGE> 53
at any time before the commencement of benefits. The number of revocations
shall not be limited.
In the event that a Participant who does not have a qualified spouse
as described above fails to designate a Beneficiary to receive a benefit under
the Plan that becomes payable pursuant to his death, or in the event that the
Participant is pre-deceased by all automatic or designated primary and
contingent beneficiaries, the death benefit shall be payable to the
Participant's estate.
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ARTICLE VII
VESTING AND SEPARATION FROM SERVICE
7.01 Vesting of Accounts.
A Participant shall at all times be fully (100%) vested in his Salary
Deferral Contribution Account, After-Tax Contribution Account, Rollover
Contribution Account and in any restoration contributions made pursuant to
Section 7.03.
A Participant shall be vested in his Matching Employer Contribution
Account and his Discretionary Employer Contribution Account based on his Years
of Service in accordance with the following table:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
Notwithstanding the foregoing, an Active Participant shall be 100%
vested in his Account at his Normal Retirement Date, the date of his retirement
due to Disability or the date of his death.
7.02 Payment of Benefits.
An Active Participant who is vested in his Account and terminates
employment prior to his Normal Retirement Date shall be deemed a Terminated
Vested Participant. Payment
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of his vested Account shall be made in a single lump sum no later than sixty
(60) days following the Valuation Date coincident with or next following the
Participant's Normal Retirement Date. However, any such Participant may elect
that payment of his vested Account be made as of the Valuation Date coincident
with or following the date of his termination of employment, provided that he
makes such election on or before the applicable Valuation Date. A Terminated
Vested Participant's Account shall continue to be credited with investment
earnings through the last Valuation Date coincident with or immediately
preceding the date that payment of the Account is made. No earnings shall be
credited after such Valuation Date.
The failure of a Participant to make such an election shall be deemed
to be an election to defer commencement of benefits.
If, after a Participant terminates employment, the total value of his
vested Account is less than $3,500, the Administrator may direct the Trustee to
cash-out the Participant's benefit in a single lump sum after the Valuation Date
coincident with or following the date of his or her termination of employment,
without any requirement for such Participant's consent.
7.03 Re-employment After Distribution and Restoration Contributions.
Any former Participant who once again qualifies as an Active
Participant and who has received a distribution of any portion of his vested
Account attributable to his prior participation in this Plan may restore to the
Trustee the full amount of the distribution he previously received which was
derived from Employer Contributions. In order to reinstate his full Matching or
Discretionary Employer Contribution Account, a reemployed Participant must repay
the full amount of the distribution from such Accounts prior to the earlier of
(i) the fifth
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<PAGE> 56
anniversary of the date such participant is reemployed or (ii) five consecutive
one year Breaks-in-Service after the date of distribution. Any Participant who
fails to make his restoration contribution within such time period shall waive
his right to the portion of his Account which was not vested when he received
his distribution.
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<PAGE> 57
ARTICLE VIII
WITHDRAWALS AND LOANS
8.01 Withdrawals While Employed.
In-service withdrawals shall be made upon 15 days written notice in
the following order:
(a) A Participant may withdraw all or any portion of his After-Tax
Contribution Account. Such withdrawal shall come first from After-Tax
Contributions made prior to January 1, 1987. Next, such withdrawal shall be
allocated proportionately between the Participant's After-Tax Contributions made
after December 31, 1986 and the investment earnings on such contributions. A
Participant may then withdraw the investment earnings on his After-Tax
Contributions made prior to January 1, 1987.
(b) A Participant may withdraw any portion of his Rollover
Contribution Account upon attainment of age 59 1/2 or in the event of a
financial hardship as described below.
(c) A Participant may withdraw his Salary Deferral Contribution
Account for any reason after he has attained Age 59 1/2 and prior to Age 59 1/2
solely in the event of a financial hardship, and solely to the extent required
to satisfy the hardship. The amount that may be distributed due to a hardship
may include the amount necessary to pay income taxes or penalties resulting from
the distribution. Such hardship must be an immediate and heavy financial need of
the Participant where such Participant lacks other available resources. Expenses
in connection with a death in a Participant's immediate family would constitute
such an immediate and heavy financial need and the following conditions would
automatically be
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deemed an immediate and heavy financial need:
( i) expenses for medical care as described under Code Section
213(d) incurred by the Participant, his spouse or his
dependents or expenses necessary to obtain such medical care;
( ii) costs directly related to the purchase of a primary residence
(excluding mortgage payments);
(iii) payment of tuition or related educational fees for the next
twelve months of post-secondary education for the Employee, his
spouse or his dependents;
( iv) payment to prevent eviction of the Participant from a primary
residence or foreclosure of mortgage on his primary residence;
and
( v) any other occurrence as authorized by the IRS through
Regulations, Rulings, Notices and other documents of general
applicability.
A Participant must submit a written certification on the form
prescribed by the Plan Administrator that the hardship distribution is necessary
to satisfy an immediate and heavy financial need. The written certification must
indicate that the need cannot reasonably be relieved through reimbursement or
compensation by insurance or otherwise, by liquidation of the employee's assets,
by cessation of Salary Deferral Contributions or After Tax Contributions (if
applicable) under the Plan or by other distributions or nontaxable loans from
plans maintained by the Employer or any other employer, or by borrowing from
commercial sources on reasonable commercial terms in an amount sufficient to
satisfy the need. The Employer must
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<PAGE> 59
not have actual knowledge to the contrary that the need cannot reasonably be
relieved as described above.
A Participant may not withdraw any investment earnings included in his
Salary Deferral Contribution Account which wereaccumulated after December 31,
1988, or any Qualified Non-elective Contributions (including investment
earnings), unless he has attained Age 59 1/2.
A Participant may not withdraw any portion of his Matching Employer
Contribution Account or Discretionary Employer Contribution Account for any
reason prior to his retirement or other termination of employment.
In no event will any hardship withdrawal of Salary Deferral
Contributions be granted until any applicable distributions and loans have been
taken from this Plan and from all other qualified retirement plans of the
Employer.
8.02 Loans.
(a) Loans to Active Participants from their Accounts in amounts of not
less than $500 shall be allowed upon 15 days written notice. No more than one
Plan loan may be outstanding to each Participant at any time.
(b) No Participant shall, under any circumstances, be entitled to
loans in excess of the lesser of (i) 50% of his vested Account as of the
Valuation Date coincident with or immediately preceding the date on which the
loan is made, and (ii) $50,000 less the highest outstanding loan balance over
the 12-month period immediately preceding the issuance of the
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<PAGE> 60
loan. For purposes of this paragraph, all outstanding loans to a Participant
under this Plan or any other qualified retirement plan of the Employer shall be
aggregated.
(c) Any loan to a Participant shall be evidenced by the Participant's
promissory note and secured by the pledge of the Participant's Account in the
Trust Fund and by the pledge of such further collateral as the Trustee deems
necessary or desirable to assure repayment of the borrowed amount and all
interest payable thereon in accordance with the terms of the loan.
(d) Interest shall be charged at an annual rate equal to the prime
interest rate in effect as of the date the loan is processed, plus one percent
(1%). The rate may be revised from time to time, but no more frequently than
quarterly. The Administrator shall have sole discretion in determining the
interest rate, and its decision shall be final and binding. Principal repayments
and interest payments shall be credited to the Account of the Participant to
whom the loan was made.
(e) Loans shall be for such term as the Participant elects, except
that loans shall not be for a period in excess of five (5) years unless they are
made for the purposes of purchasing the primary residence of the Participant. In
no event shall a loan be for a period in excess of thirty (30) years or such
longer period of time as established by the Administrator to be used on a
uniform and non-discriminatory basis.
(f) Loans shall be repaid in approximately level installments made no
less frequently than quarterly. The Plan Administrator may require that loans be
repaid by payroll deduction or any other convenient manner. The manner and
frequency of payment shall be determined by the Plan Administrator.
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<PAGE> 61
(g) If not repaid in full, the unpaid portion of any outstanding loans
(including interest thereon) shall be deducted at retirement, death, disability
or other termination of employment from any benefit to which a Participant (or
his beneficiary) is entitled under this Plan, and any other security pledge
shall be sold as soon as is practicable after such default by the Trustee at
private or public sale. The proceeds of such sale shall be applied first to pay
the expenses of conducting the sale, including reasonable attorney's fees, and
then to pay any sums due from the borrower to the Trust Fund, with such payment
to be applied first to accrued interest and then to principal. The Participant
shall remain liable for any deficiency, and any surplus remaining shall be paid
to the Participant.
(h) If a required periodic payment is not made within 90 days of the
date it was due, this shall be deemed a default and foreclosure on the note and
attachment of security will not occur until a distributable event occurs in the
Plan.
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<PAGE> 62
ARTICLE IX
ADMINISTRATION
9.01 Plan Administrator.
The Plan shall be administered by the Employer in accordance with its
provisions and for purposes of such Plan administration the Employer is hereby
deemed to be Plan Administrator within the meaning of ERISA. All aspects of Plan
administration shall be the responsibility of the Plan Administrator except
those specifically delegated to the Trustees or other parties in accordance with
provisions of the Plan or Trust Agreement.
9.02 Administrative Procedures.
The Administrator shall have discretionary authority based on a
reasonable interpretation of the Plan to determine the eligibility for benefits
and the benefits payable under the Plan, and shall have discretionary authority
to construe all terms of the Plan, including uncertain terms, to determine
questions of fact and law arising under the Plan and make such rules as may be
necessary for the administration of the Plan. Any determination by the Plan
Administrator shall be given deference in the event it is subject to judicial
review, and shall be overturned only if it is arbitrary and capricious or an
abuse of discretion. The Administrator may require Participants to apply in
writing for benefits hereunder and to furnish satisfactory evidence of their
date of birth and such other information as may from time to time be deemed
necessary.
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The Plan Administrator shall appoint the Trustees, Investment
Managers, or any other professional advisors as the Administrator, in is sole
discretion, deems necessary or appropriate.
9.03 Other Plan Administrator.
Anything to the contrary notwithstanding, the Employer may appoint a
committee or an individual or individuals, whether or not employed by the
Employer, to carry out any of the duties of the Plan Administrator. Such duties
may include, but are not limited to, determining the eligibility of any Employee
for any benefits and the amount of such benefits under the Plan, maintaining
custody of all documents and elections made by an Employee, directing the
investment of any payment made by an Employer within any limits which may be
imposed by the Employer, and retaining suitable agents and advisors. Any
committee or individual shall be considered an agent of the Employer with
respect to the Plan and shall be indemnified by the Employer against any and all
claims, losses, damages, expenses and liabilities arising from any action or
failure to act, except when the same is determined to be due to the gross
negligence or willful misconduct of such individual or a member of a committee.
9.04 Claims Procedures.
(a) If any claim of a Participant or Beneficiary (hereinafter referred
to as "Claimant") is partially or totally denied, the Plan Administrator shall
advise the Claimant in writing of the method of computation of his benefit, if
any, and the specific reason for the denial. This written notice will be
provided to the Claimant within a reasonable period of time
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<PAGE> 64
(generally within 90 days) after the Administrator's receipt of the claim. The
Administrator shall also furnish the Claimant at that time with:
( i) a specific reference to pertinent Plan provisions,
( ii) a description of any additional material or
information necessary for the Claimant to perfect
his claim, if possible, and an explanation of why
such material or information is needed, and
(iii) an explanation of the Plan's claim review procedure.
If a notice of denial of the claim, or a request for additional time
to process the claim due to special circumstances, is not furnished to the
Claimant within the 90-day period, the claim shall be deemed denied. The
Claimant may then proceed to the review stage described in the following
paragraphs.
(b) The Claimant shall, if he desires further review, file a written
request for reconsideration with the Administrator. This written request must be
filed no later than 60 days after receipt of the information stated in (a)
above.
(c) So long as the Claimant's request for review is pending (including
the 60 day period in (b) above), the Claimant or his duly authorized
representative may review pertinent Plan documents and may submit issues and
comments in writing to the Administrator.
(d) A final and binding decision shall be made by the Administrator
within 60 days of the filing by the Claimant of his request for reconsideration,
provided, however, that if the Administrator, in its discretion, determines that
a hearing with the Claimant or his
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<PAGE> 65
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
(e) The Administrator's decision shall be conveyed to the Claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
9.05 Expenses.
Expenses of the Plan shall be paid from the Trust Fund unless the
Employer elects to pay such expenses.
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ARTICLE X
AMENDMENT, TERMINATION AND MERGERS
10.01 Amendment.
The provisions of this Plan may be amended at any time and from time
to time by the Employer, provided, however, that:
(a) no amendment shall increase the duties or liabilities of the
Plan Administrator or of the Trustee without the consent of such party;
(b) no amendment shall deprive any Participant or beneficiary of a
deceased Participant of any of the benefits to which he is entitled under this
Plan with respect to contributions previously made, nor shall any amendment
decrease the balance in any Participant's Account. For purposes of this
paragraph, a plan amendment which has the effect of decreasing the balance of a
Participant's Account or eliminating an optional form of benefit with respect to
benefits attributable to service before the amendment shall be treated as
reducing an accrued benefit;
(c) no amendment shall provide for the use of funds or assets held to
provide benefits under this Plan other than for the benefit of Employees and
their beneficiaries or provide that funds may revert to the Employer except as
permitted by law; and
(d) no amendment may change the vesting schedule with respect to any
Participant, unless each Participant with three or more Years of Service is
permitted to elect to have the vesting schedule which was in effect before the
amendment used to determine his vested
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benefit. The period during which the election may be made shall commence with
the date the amendment is adopted or deemed to be made and shall end on the
latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective;
or
(3) 60 days after the Participant is issued written notice
of the amendment by the Employer or Plan Administrator.
In the case of an Employee who is a Participant as of the later of the
date such amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such Employee's right
to his Employer-derived accrued benefit will not be less than his percentage
computed under the Plan without regard to such amendment.
Each amendment shall be approved by the Board of Directors by
resolution and shall be filed with the Trustee.
10.02 Plan Termination.
(a) Right Reserved. While it is the Employer's intention to continue
the Plan indefinitely the right is, nevertheless, reserved to terminate the Plan
in whole or in part. Termination or partial termination of the Plan shall result
in full and immediate vesting of each affected Participant in his entire
Account, and there shall not thereafter be any forfeitures with respect to any
Participant for any reason. Notwithstanding any other provision of this Plan,
complete or partial termination of the Plan shall not be conditioned solely upon
any resolution or other action of the Company, the Board of Directors or any
other party.
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(b) Effect on Retired Persons, etc. Termination of the Plan shall have
no effect upon payment of benefits due to former Participants, their
beneficiaries and their estates. The Trustee shall retain sufficient assets to
complete any such payments due and shall have the right, upon direction by the
Employer, to make such payments as of the effective date of the Plan
termination.
(c) Effect on Remaining Participants, etc. The Employer shall instruct
the Trustees either (i) to continue to manage and administer the assets of the
Trust for the benefit of the Participants and their beneficiaries pursuant to
the terms and provisions of the Trust Agreement, or (ii) to pay over to each
Participant (and vested former Participant) the value of his vested account, and
to thereupon dissolve the Trust.
Upon termination of this Plan, if the Employer or any Affiliated
Organization does not maintain a successor plan, the Participant's Account may,
without the Participant's consent, be distributed to the Participant. However,
if any entity within the same controlled group as the Employer maintains a
successor plan then the Participant's Account will be transferred, without the
Participant's consent, to the other plan. For purposes of this Section 10.02(c),
a successor plan is any other defined contribution plan (other than an employee
stock ownership plan as defined in Section 4975(e)(7) of the Code or a
simplified employee pension as defined in Section 408(k) of the Code) maintained
by the Employer or any Affiliated Organization unless fewer than two percent of
the Active Participants as of the time of the Plan's termination are or were
eligible under such defined contribution plan at any time during the 24-month
period beginning 12 months before the time of the termination.
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<PAGE> 69
10.03 Permanent Discontinuance of Employer Contributions.
While it is the Employer's intention to make substantial and
recurrent contributions to the Trust Fund pursuant to the provisions of this
Plan, the right is, nevertheless, reserved to at any time permanently
discontinue Employer contributions. Such permanent discontinuance shall be
established by resolution of the Board of Directors and shall have the effect of
a termination of the Plan, except that the Trustee shall not have authority to
dissolve the Trust Fund except upon adoption of a further resolution by the
Board of Directors to the effect that the Plan is terminated and upon receipt
from the Employer of instructions to dissolve the Trust Fund pursuant to Section
10.02(c) hereof.
10.04 Suspension of Employer Contributions.
The Employer shall have the right at any time, and from time to time,
to suspend Employer contributions to the Trust Fund pursuant to this Plan. Such
suspension shall have no effect on the operation of the Plan unless the Board of
Directors determines by resolution that such suspension shall be permanent. A
permanent discontinuance of contributions will be deemed to have occurred as of
the date of such resolution or such earlier date as is therein specified.
10.05 Mergers and Consolidations of Plans.
In the event of any merger or consolidation with, or transfer of
assets or liabilities to, any other plan, each Participant shall have a benefit
in the surviving or transferee plan (determined as if such plan were then
terminated immediately after such merger, etc.) that is
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<PAGE> 70
equal to or greater than the benefit he would have been entitled to receive
immediately before such merger, etc., in the Plan in which he was then a
Participant (had such Plan been terminated at that time). For the purposes
hereof, former Participants and beneficiaries shall be considered Participants.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 Non-Alienation of Benefits.
None of the payments, benefits or rights of any Participant or
beneficiary shall be subject to any claim of any creditor, and in particular, to
the fullest extent permitted by law, all such payments, benefits and rights
shall be free from attachment, garnishment, trustee's process, or any other
legal or equitable process available to any creditor of such Participant or
beneficiary. Notwithstanding the foregoing, the Plan Administrator shall assign
or recognize an alternate payee with respect to all or a portion of a
Participant's benefit, as may be required in accordance with a Qualified
Domestic Relations Order, as such term is defined and as such action by the Plan
Administrator may be required under Section 414 of the Code and regulations
issued pursuant thereto. The Administrator shall develop such guidelines and
procedures as it deems appropriate to determine, in accordance with Section 414
of the Code, and regulations issued pursuant thereto, whether, and in what
manner, to comply with any document it receives which is intended to be a
Qualified Domestic Relations Order. No Participant or beneficiary shall have the
right to alienate, anticipate, commute, pledge, encumber or assign any of the
benefits or payments which he may expect to receive, contingently or otherwise,
under this Plan, except the right to designate a beneficiary or beneficiaries as
hereinbefore provided.
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11.02 No Contract of Employment.
Neither the establishment of the Plan, nor any modification thereof,
nor the creation of any fund, trust or account, nor the payment of any benefits
shall be construed as giving any Participant or Employee, or any person
whomsoever, the right to be retained in the service of the Employer, and all
Participants and other Employees shall remain subject to discharge to the same
extent as if the Plan had never been adopted.
11.03 Severability of Provisions.
If any provision of this Plan shall be held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereof, and this Plan shall be construed and enforced as if such provisions had
not been included.
11.04 Heirs, Assigns and Personal Representatives.
This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each Participant and
beneficiary, present and future.
11.05 Headings and Captions.
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.
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11.06 Gender and Number.
Except where otherwise clearly indicated by context, the masculine and
the neuter shall include the feminine and the neuter, the singular shall include
the plural, and vice-versa.
11.07 Funding Policy.
The Plan Administrator, in consultation with the Employer, shall
establish and communicate to the Trustees a funding policy consistent with the
objectives of this Plan and of the corresponding Trust. Such policy shall
reflect due regard for the emerging liquidity needs of the Trust. Such funding
policy shall also state the general investment objectives of the Trust and the
philosophy upon which maintenance of the Plan is based.
11.08 Title to Assets.
No Participant or beneficiary shall have any right to, or interest in,
any assets of the Trust Fund upon termination of his employment or otherwise,
except as provided from time to time under this Plan, and then only to the
extent of the benefits payable under the Plan to such Participant out of the
assets of the Trust Fund. All payments of benefits as provided for in this Plan
shall be made from the assets of the Trust Fund, and neither the Employer nor
any other person shall be liable therefor in any manner.
11.09 Payment to Minors, etc.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's
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guardian or to the party providing or reasonably appearing to provide for the
care of such person, and such payment shall fully discharge the Trustees, the
Plan Administrator, the Employer and all other parties with respect thereto.
11.10 Situs.
This Plan shall, to the extent not pre-empted by ERISA or other
Federal law, be construed according to the laws of the state where the principal
office of the Company is domiciled, where such state statutes may be applicable
to an employee benefit plan.
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ARTICLE XII
TOP-HEAVY PROVISIONS
12.01 Top-Heavy Plan.
For any Plan Year commencing in 1984 or thereafter, the Plan shall be
a Top-Heavy Plan, as such term is defined under Section 416 of the Internal
Revenue Code, if the Value of Accumulated Benefits for Key Employees under all
Aggregated Plans exceeds 60% of the Value of Accumulated Benefits for all Group
Participants under all Aggregated Plans, determined as of the Determination Date
immediately preceding such Plan Year. If the Plan is a Top-Heavy Plan for a Plan
Year and, as of the Determination Date immediately preceding such Plan Year, the
Value of Accumulated Benefits for Key Employees under all Aggregated Plans
exceeds 90% of the Value of Accumulated Benefits for all Group Participants
under all Aggregated Plans, then the Plan shall be a Super Top-Heavy Plan for
such Plan Year. For such purposes, the terms "Key Employees" and "Group
Participants" shall include all persons who are or were Key Employees or Group
Participants during the Plan Year ending on such Determination Date or during
any of the four (4) immediately preceding Plan Years.
The value of Accounts and the present value of accrued benefits will
be determined as of the most recent Valuation Date that falls within or ends
with the 12-month period ending on the Determination Date, except as provided in
Section 416 of the Code for the first and second plan years of a defined benefit
plan. The Accounts and accrued benefits of a Participant (1) who is not a Key
Employee but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one Hour of Service with any Employer maintaining the
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Plan at any time during the 5-year period ending on the Determination Date will
be disregarded. The calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be made in
accordance with Section 416 of the Code. Deductible employee contributions will
not be taken into account for purposes of computing the top-heavy ratio. When
aggregating plans the value of Accounts and accrued benefits will be calculated
with reference to the determination dates that fall within the same calendar
year.
The accrued benefit of a participant other than a Key Employee shall
be determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(c)
of the Code.
For purposes of this Article, the following definitions shall apply in
addition to those set forth in Article I:
"Affiliated Employer Group" shall mean the Employer and each other
employer which must be aggregated with the Employer for purposes of Sections
414(b), 414(c) or 414(m) of the Code.
"Aggregated Plans" shall mean (i) all plans of the Employer or an
Affiliated Employer Group which are required to be aggregated with the Plan, and
(ii) all plans of the Employer or an Affiliated Employer Group which are
permitted to be aggregated with the Plan and which the Plan Administrator elects
to aggregate with the Plan, for purposes of determining whether the Plan is a
Top-Heavy Plan. A plan shall be required to be aggregated with the Plan if such
plan includes as a participant a Key Employee (and the beneficiary of such
employee)
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<PAGE> 77
or if such plan enables any plan of the Employer or of a member of the
Affiliated Employer Group in which a Key Employee participates to qualify under
Section 401(a)(4) or Section 410 of the Code. A plan of the Employer or the
Affiliated Employer Group shall be permitted to be aggregated with the Plan if
such plan satisfies the requirements of Sections 401(a)(4) and 410 of the Code,
when considered together with the Plan and all plans which are required to be
aggregated with the Plan. No plan shall be aggregated with the Plan unless it is
a qualified plan under Section 401 of the Code. The required aggregation group
shall include plans terminated within the five year period ending on the
Determination Date.
"Annual compensation" shall mean compensation as defined in Section
415(c)(3) of the Code but including amounts contributed by the Employer pursuant
to a salary reduction agreement which are excludable from the Employee's gross
income under Section 125, Section 402(a)(8), Section 402(h) or Section 403(b) of
the Code.
"Determination Date" shall mean the date as of which it is determined
whether a plan is a Top-Heavy Plan or Super Top-Heavy Plan for the Plan Year
immediately following such Determination Date. The Determination Date for the
Plan shall be:
(a) in the case of a defined benefit plan, the date as of which the
actuarial valuation of the Plan, as used for determination of
minimum funding standards under Section 412 of the Code, is
performed; and
(b) in the case of a defined contribution plan, the last day of
the Plan Year.
"Group Participant" shall mean anyone who is or was a participant in
any plan included in the Aggregated Plans during the Plan Year which includes
the Determination Date or any of the four (4) immediately preceding Plan Years,
and who received compensation from
75
<PAGE> 78
an Employer during the five (5) year period ending on the Determination Date.
Any beneficiary of a Group Participant who has received, or is expected to
receive, a benefit from a plan included in the Aggregated Plans shall be
considered a Group Participant solely for purposes of determining whether the
Plan is a Top-Heavy Plan or Super Top-Heavy Plan.
"Key Employee" shall mean any employee or former employee of the
Employer or of an Affiliated Employer Group who during the Plan Year which
includes the Determination Date, or during any of the four (4) Plan Years
immediately preceding such Plan Year, was:
(a) an officer of the Employer whose compensation is at least
$45,000 (or such higher amount as is permitted in accordance
with the Code); or
(b) a five percent (5%) owner of the Employer; or
(c) a one percent (1%) owner of the Employer whose total annual
compensation from the Affiliated Employer Group exceeds
$150,000; or
(d) an employee whose compensation equals or exceeds $30,000 (or
such higher amount as may be defined under Section 415(c)(1)(A)
of the Code), and whose ownership interest in the Affiliated
Employer Group is among the ten largest.
In no event shall a partner of an unincorporated employer be
considered an officer under paragraph(a) above. Further, the number of officers
counted under (a) above as of any Determination Date shall not exceed the lesser
of:
(1) the greater of (i) ten percent (10%) of the total number of
employees of the Affiliated Employer Group, and (ii) three
(3); and
(2) fifty (50).
76
<PAGE> 79
If the application of the preceding paragraph results in a reduction
in the number of officers to be included as Key Employees, then individuals who
are officers shall be eliminated from the group of Key Employees beginning with
the individual who had the lowest one-year compensation in the five (5) year
period including the Plan Year which includes the Determination Date, and the
four (4) immediately preceding Plan Years, and eliminating each individual with
the next higher one-year compensation in such period, until the maximum number
of officers remain in the Key Employee group.
In addition, the beneficiary of a Key Employee shall be deemed to be a
Key Employee.
"Non-Key Employee" shall mean an Employee who is not a Key Employee.
An Employee who was a Key Employee in a previous Plan Year but who is no longer
a Key Employee in the current Plan Year, shall not be considered a Non-Key
Employee for the current Plan Year.
"Value of Accumulated Benefits" shall mean
(a) in the case of a Group Participant or beneficiary covered
under a defined benefit plan, the sum of
(i) the present value of the accrued pension benefit (as such term
is defined under the applicable plan) of the Group Participant
or beneficiary determined as of the Determination Date using
reasonable actuarial assumptions as to interest and mortality,
and taking into account any non-proportional subsidies in
accordance with regulations issued by the Secretary of the
Treasury; plus
77
<PAGE> 80
(ii) the sum of any amounts distributed to the Group Participant and
his beneficiary during the plan year ending on the
Determination Date and during the four (4) immediately
preceding plan years.
(b) in the case of a Group Participant or beneficiary covered under
a defined contribution plan, the sum of the accounts of the
Group Participant or beneficiary under the plan as of the
plan's Determination Date derived from: (1) employee
contributions credited to such accounts and
investment earnings thereon; and
(2) employer contributions credited to such accounts and
investment earnings thereon; and
(3) rollover contributions made prior to January 1, 1984, and
investment earnings thereon; and
(4) any contributions which would have been credited to such
accounts on or before the Determination Date, but which
were waived as provided under the Code and resulted in a
funding deficiency; and
(5) any amount distributed from the accounts described in (1)
through (4) above during the Plan Year ending on the
Determination Date, and the four (4) immediately preceding
Plan Years.
If the Plan is determined to be a Top-Heavy Plan or Super Top-Heavy
Plan as of any Determination Date, then it shall be subject to the rules set
forth in the remainder of this
78
<PAGE> 81
Article for the Plan Year next following such Determination Date. If, as of a
subsequent Determination Date, the Plan is determined to no longer be a
Top-Heavy Plan or Super Top-Heavy Plan, then the rules set forth in the
remainder of this Article shall no longer apply, except where expressly
indicated otherwise. Notwithstanding the foregoing, if the Plan changes from
being a Super Top-Heavy Plan to a Top-Heavy Plan, the rules applicable to a
Top-Heavy Plan shall apply.
"Year of Super Top-Heavy Service" shall mean a Year of Service of a
Participant which commenced in a Plan Year during which the Plan was a Super
Top-Heavy Plan.
"Year of Top-Heavy Service" shall mean a Year of Service of a
Participant which commenced in a Plan Year during which the Plan was a Top-Heavy
Plan.
12.02 Minimum Contributions or Benefits.
For any Plan Year in which the Plan is a Top-Heavy Plan the minimum
rate of contributions and forfeitures allocated to the account of any
Participant shall be the lesser of:
( i) The highest rate of employer contributions and forfeitures
(determined as a percentage of compensation as defined under
Section 415 of the Code) allocated to the account of any Key
Employee; and
(ii) 3% of such compensation.
Notwithstanding the above paragraph, if a Participant is also a
participant in another defined contribution plan of the Affiliated Employer
Group, all or a portion of the minimum allocation described above may be
provided under such other plan and the minimum
79
<PAGE> 82
allocation provided under this Plan shall be eliminated or reduced accordingly.
If the Employee is a Participant in one or more defined benefit plans of the
Affiliated Employer Group, all or a portion of the minimum required benefits or
allocations under Section 416 of the Code may be provided under such plans as
set forth in regulations issued by the Secretary of the Treasury, and the
minimum allocation provided in the preceding paragraph shall be eliminated or
reduced accordingly. Employer contributions resulting from a salary reduction
election by an Employee shall not be counted toward meeting the minimum required
allocations under this Section. Matching Employer Contributions may be used to
satisfy the minimum required allocations under this Section, if such
contributions are not counted under the ACP test described in Section 3.06.
Participants who are Non-Key Employees and who are not separated from
service as of the last day of the Plan Year, and who have (1) failed to complete
1000 Hours of Service (or the equivalent), (2) declined to make mandatory
contributions to the Plan, or (3) been excluded from the Plan because such
individual's compensation is less than a stated amount, are considered
Participants solely for purposes of this Section.
The minimum allocation required [to the extent required to be
nonforfeitable under Section 416(b)] may not be forfeited under Section
411(a)(3)(B) or 411 (a)(3)(D).
12.03 Adjustment to Maximum Benefits.
If the Plan is a Top-Heavy Plan for any Plan Year, then the maximum
benefit which can be provided under Section 3.10 shall be determined by
substituting "1.00" for "1.25" in the applicable fractions. However, if the Plan
is not a Super Top-Heavy Plan for such Plan
80
<PAGE> 83
Year, than the preceding sentence shall not apply provided that "4%" (or such
higher rate as is required by Internal Revenue Service Regulations) is
substituted for "3%" in the first paragraph of Section 12.02.
12.04 Minimum Vesting
If the Plan is determined to be a Top-Heavy Plan for any Plan Year,
then an Active Participant's vested interest in his Account determined as of the
first day of such Plan Year, and determined as of any future date while the Plan
continues to be a Top- Heavy Plan, shall be no less than as determined under the
following Table:
Years of Service Vesting Percentage
---------------- ------------------
Less than 2 years None
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
If the Plan subsequently is determined to no longer be a Top-Heavy
Plan, then the above minimum vesting schedule shall not apply to any portion of
a Participant's Account which is accrued after the first day of the first Plan
Year in which the Plan is no longer a Top-Heavy Plan, provided that the Account
for any Participant with three (3) or more Years of Service as the first date as
of which the Plan is no longer a Top-Heavy Plan shall continue to be vested in
accordance with a schedule not less than the minimum vesting schedule applicable
during the period that the Plan was a Top-Heavy Plan.
81
<PAGE> 84
The minimum vesting schedule applies to all benefits within the
meaning of Section 411(a)(7) of the Code except those attributable to employee
contributions, including benefits accrued before the effective date of section
416 and benefits accrued before the Plan became top-heavy.
12.05 Discontinuance of Article.
In the event that the provisions of this Article are no longer
required to qualify the Plan under the Code, then this Article XII shall
thereupon be void without the necessity of further amendment of the Plan.
82
<PAGE> 85
IN WITNESS WHEREOF, and as evidence of the adoption of the foregoing,
the Company has caused this instrument to be executed by a duly authorized
officer as of this day of , 199 .
HANOVER DIRECT, INC.
By: ____________________________________
------------------------------------
Title
83
<PAGE> 1
EX. 10.13
1993 RESTRICTED STOCK AWARD PLAN
1. Purpose. The purpose of this 1993 Restricted Stock Award Plan is to
confer ownership in stock of the Horn & Hardart Company (the "Company") on
employees of the Company, Hanover Direct, Inc., and other Affiliates of the
Company who hold certain positions in the organization that are key to the
Company's current and future success, thereby ensuring that such employees will
be eligible to enjoy gains that are in line with increases in value created for
the Company's shareholders.
2. Definitions. As usual in this Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean any entity which is controlled, directly or
indirectly, by the Company.
(b) "Award" shall mean any grant of Award Shares pursuant to the
provisions of the Plan.
(c) "Award Shares" shall mean Shares awarded to an Eligible Employee
pursuant to Section 4 hereof.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Committee" shall mean the Compensation Committee of the Board. Where
the context requires, the term "Company" shall include an Affiliate.
(f) "Company" shall mean the Horn & Hardart Company and any successor
thereto by merger or otherwise.
(g) "Eligible Employee" shall mean any full-time or permanent part-time
employee of the Company or an Affiliate selected by the Committee who (i) holds
a key position that the Committee shall have designated for eligibility to
participate in the Plan, (ii) has attained age 18, (iii) has performed at least
12 months of continuous service with the Company or an Affiliate, and (iv) is
not covered by a collective bargaining agreement.
(h) "Plan" shall mean this 1993 Restricted Stock Award Plan.
(i) "Restriction Period" with respect to Award Shares shall mean the
period beginning on the date of grant of such Award Shares and ending on the
vesting date specified in the instrument evidencing the Award (or, if earlier,
the date on which such Eligible Employee attains age 65, dies, or becomes
permanently disabled).
(j) "Shares" shall mean the common stock of the Company, par value $.66
2/3 per share.
3. Effectiveness and Termination of Plan. The Plan shall become effective
February 22, 1993, subject to ratification of the approval thereof at a meeting
of shareholders by the
<PAGE> 2
holders of a majority of the Shares present and entitled to vote at such
meeting. In no event may Award Shares be sold or transferred by the holder
thereof prior to such approval. Should such shareholders fail so to approve the
Plan, the Plan and all actions taken thereunder shall automatically be rescinded
and become null and void.
The Plan shall terminate on December 31, 1995 or such earlier date as the
Board may determine. Any Award outstanding at the time of such termination shall
remain in effect in accordance with its terms and those of the Plan.
4. The Shares. Awards may be granted from time to time under the Plan for
an appropriate of not more than 500,000 Award shares (subject to adjustment
pursuant to Section 9). Such Shares shall be made available either from
authorized and unissued Shares, Shares held by the Company in its treasury, or
reacquired Shares. If any Shares awarded are reacquired by the Company by reason
of a forfeiture of Award Shares, such Shares shall be declared not to have been
issued pursuant to Awards under the Plan.
5. Participation. The Eligible Employees or whom Awards may be granted
under the Plan shall be determined by the Committee.
Nothing contained in the Plan, or in any Award granted pursuant to the
Plan, shall confer upon any Eligible Employee any right to continue in the
employ of the Company or an Affiliate or limit in any way the right of the
Company or an Affiliate to terminate such employee's employment at any time.
6. Restrictions on Award Shares.
(A) Upon the granting to an Eligible Employee of Award Shares, the
eligible Employee shall have absolute ownership of such Shares, including the
right to vote such Shares and to receive dividends, subject, however, to the
terms, conditions, and restrictions described herein and contained in the
instrument evidencing the Award.
(b) No Award Shares received by an Eligible Employee shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of during
the Restriction Period, other than by will or the laws of descent and
distribution.
(c) If an Eligible Employee ceases to be an employee of the Company or an
Affiliate before the end of the Restriction Period, all Award Shares still
subject to restriction shall be forfeited by the Eligible Employee and shall be
reacquired by the Company.
(d) The restrictions may lapse separately or in combination at such time
or times, in installments or otherwise, as the Committee may deem appropriate.
(e) The Committee may require, under such terms and conditions as it deems
appropriate, that the certificates for Shares delivered under the Plan be held
in custody by a bank or other institutions, or that the Company itself hold such
shares in custody, during the Restriction Period, and may require as a condition
of receipt of Award Shares that the Eligible Employee shall have delivered a
stock power endorsed in blank relating to the Award Shares.
7. Administration and Amendment of Plan. The Plan shall be administered by
the Committee. The Committee shall have and shall exercise all powers and duties
with respect to the Plan and its administration except such powers and duties as
are reserved under this Section 7 to the Board. The Board may from time to time
remove members from the Committee or add members thereto, and vacancies in the
Committee, however caused, shall be filled by the Board. The Committee from time
2
<PAGE> 3
to time may adopt rules and regulations for carrying out this Plan. The
interpretation and construction by the Committee of any provision of the Plan or
any Award shall be final and conclusive. No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted pursuant hereto.
The Board may from time to time make such changes in and additions to the
Plan, and the Committee may amend the terms and conditions of any Award, in each
case as it may deem proper and in the best interest of the Company; provided,
however, that no amendment shall become effective unless approved by affirmative
vote of the Company's shareholders if such amendment materially increases the
benefits accruing to Participants, materially increases the number of Shares
that may issued under the Plan pursuant to Section 4, or materially modifies the
requirements for eligibility to participate in the Plan. Amendments to the Plan
or to any Award may be applied prospectively or retroactively; provided,
however, that no such amendment to any Award previously granted to an Eligible
Employee shall impair the rights of such Eligible Employee without the consent
of such Eligible Employee or such Eligible Employee's estate.
8. Withholding. Appropriate provision shall be made for all taxes required
to be withheld with respect to Awards under the Plan under the applicable laws
or other regulations of any governmental authority, whether Federal, state or
local, and whether domestic or foreign. To that end, the Company may at any time
take such steps as it may deem necessary or appropriate (including sale or
retention of Award Shares) to provide for payment of such taxes.
9. Adjustment of and Changes in Shares. In the event that the Shares, as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise) or if the
number of such Shares shall be increased through the payment of a stock dividend
or a dividend on the Shares of rights or warrants to purchase securities of the
Company shall be made, then there shall be substituted for or added to each
Share theretofore appropriated or thereafter subject or which may become subject
to an Award the number and kind of shares of stock or other securities into
which each outstanding Share shall be so changed, or for which each such Share
shall be exchanged, or to which each such Share shall be entitled, as the case
may be, and references herein to Shares (including the restrictions on Award
Shares contained in Section 6) shall be deemed to be references to any such
stock or other securities as appropriate.
10. Securities Act Registration. The Company will cause to be prepared and
filed with the Securities and Exchange Commission such Registration Statement as
may be required by the Securities Act of 1933, as amended.
3
<PAGE> 1
Exhibit 10.14
--------------
Hanover Direct
[LOGO]
--------------
1993 All-Employee Equity Investment Plan
Plan Summary
July 1993
This document constitutes a prospectus covering securities that have been
registered under the Securities Act of 1933
<PAGE> 2
Preface
Hanover Direct is inviting you to participate in the 1993 All-Employee Equity
Investment Plan (the Plan). Hanover Direct's parent, The Horn & Hardart Company
(the Company), strongly believes that every employee has an impact on the
Company's stock price and wants to share the value created for its shareholders
with each of you. This document contains a summary description of the Plan and
outlines:
o The business and organizational objectives that support the Plan;
o The philosophy behind the Plan;
o Key provisions regarding the Plan;
o Questions and answers on how the Plan works.
It is important to note that this summary description is not intended to be a
full statement of the Plan. In the event of a conflict between this summary and
the Plan Document, a copy of which is attached, the Plan Document will be
controlling. Please read all of these materials for a better understanding of
the program. In addition, please feel free to call the Human Resources
department if you have any questions regarding any aspect of the Plan.
The Business and Organizational Objectives that Support the Plan
Over the past three years, we have taken bold steps to restructure the Company
and refocus our energies on our core business. We are now aggressively pursuing
business strategies that will have a long-term impact on the overall health and
success of the Company. Our key business and organizational objectives are to:
o Provide superior service to our customers and make us the "Preferred
Choice";
o Improve our operational processes and systems;
o Improve our overall financial performance;
o Grow and strengthen our market position;
o Build a sense of teamwork and ownership throughout the Company;
o Achieve superior growth in Company value for shareholders.
The Philosophy Behind the Plan
The achievement of these goals will require a focused and dedicated
commitment from all of our employees over the long-term. As a result, we
have adopted a compensation philosophy which emphasizes:
o Teamwork among all of our employees;
o Ownership of Company stock by employees;
o Identification of employees with shareholders' increase;
o Participation of employees in the upside potential of the Company;
o Establishing Hanover Direct as the "Preferred Choice" as an
employer.
The All-Employee Equity Investment Plan will support this philosophy by
encouraging us to own shares of Company stock. In particular, the Company is
making an attractive offer for us to purchase Company stock. In doing so, the
Plan will motivate us to think like owners and strongly identify with
shareholders' interests.
Purpose of the Plan
The purpose of the 1993 All-Employee Equity Investment Plan is to encourage
employees of the Company and its affiliates to acquire and retain a significant
ownership stake in the Company, thereby rewarding employees for creating
significant value for the Company's shareholders.
<PAGE> 3
Participation
Eligible participants of the Plan as of a August 1 Subscription Purchase Date
are those people who have been employed by the Company or its affiliates on a
full-time or permanent part-time basis since the immediately preceding June 1,
are at least 18 years of age, are not covered by a union agreement, and who do
not participate in any equity incentive or stock option plan for executives of
the Company. Eligible participant in the 1993 All-Employee Equity Investment
Plan will receive a letter inviting them to participate in the Plan.
Plan Provisions
The general description of how the Plan works is as follows:
You are given an opportunity to purchase up to a fixed number of shares of Horn
& Hardart stock at a 40% discount from the market price. The shares can be paid
for either with cash or through a Company loan. The shares you purchase vest in
equal annual installments on the first, second and third anniversaries of the
date on which you purchase the shares. A more detailed description of the Plan
is discussed below.
Stock Purchase
o You are given the opportunity (Subscription Rights) to purchase up
to a fixed number of shares of Horn & Hardart Company stock
(Discount Shares) as of August 1 (Subscription Purchase Date). The
number of Discount Shares covered by your Subscription Right (i.e.
the number of shares that you may purchase) will be indicated in the
letter inviting you to participate in the Plan
o You are given the period (Subscription Period) indicated in the
invitation letter during which you must decide how many of the
Discount Shares covered by your Subscription Right you would like to
purchase. After the end of the Subscription Period, you lose your
right to purchase Discount Shares. The Subscription Period for an
August 1 Subscription Purchase Date begins on the preceding July 1;
provided, however, that the first Subscription Period under the Plan
shall not commence prior to the date the adoption of the Plan is
ratified by the Company's shareholders.
o Your Subscription Right is not transferable and is forfeited if your
employment is terminated for any reason before the Subscription
Purchase Date
o You may purchase the Discount Shares at a 40% discount to the market
price. The market price is the average Fair Market Value of a share
on the 30 trading days immediately preceding the first date of the
Subscription Period
o It is the intent of the Plan that new Subscription Rights will be
granted annually through 1995
Vesting
o Once you purchase Discount Shares you own them so that you are
entitled to vote the shares and receive any cash dividends paid.
However, your purchased Discount Shares will be held by the
Custodian (PW Trust Company or successor custodian) until they vest.
The Company will keep an account in your name indicating how many
Discount Shares you own
o The Discount Shares you purchase will vest (i.e. you will be able to
sell the Shares) in equal installments on the first, second, and
third anniversaries of the Subscription Purchase Date. You will
receive share certificates for the Discount Shares you own within 45
days after they vest. (You may, within 30 days after your Discount
Shares vest, request the Custodian to sell some or all of your
Discount Shares)
o If you leave the Company before the end of the vesting period for
any reason other than death or disability, all unvested Discount
Shares must be resold to the Company for the discounted purchase
price at which you bought them, provided that, if you voluntarily
leave the Company or your employment is terminated for cause, the
repurchase price is not greater than the Fair Market Value of the
Discount Shares on the repurchase date
o All of your Discount Shares vest immediately upon your attainment of
age 65, death or permanent disability
<PAGE> 4
Discount Share Purchase Financing
o You may pay for the Discount Shares in cash
o You may pay for the Discount Shares with a loan provided by the
Company evidenced by a Note
o You must make payments on the principal of the Note through
level weekly or biweekly payroll deductions for a period of
one year
o The loan is interest free
o The loan becomes due in full upon the earlier of the
following
-- The first anniversary of the Subscription Purchase Date
-- Termination of employment for any reason including
retirement, death and disability
-- Default in payment
o You may elect to pay down the full balance of the Note at any
time without penalty
o You are responsible for the repayment of the Note in full. The
Discount Shares purchased through the Plan are held as
collateral by the Company pursuant to a pledge agreement
Discount Share Purchase Opportunities
The number of Discount Shares covered by your Subscription Right is based on
your salary level.
If you are not eligible to participate in the Plan when Subscription Rights are
granted, but become an eligible employee on or before December 1 of the Plan
Year (the 12-month period commencing August 1), you will be granted a
Subscription Right to purchase, as of the first business day of February, a
pro-rata portion of the number of Discount Shares that would have been covered
had you been eligible to purchase Discount Shares on the first day or the Plan
Year.
Discount Share Purchase Election
You must determine how many of the Discount Shares covered by your Subscription
Right you would like to purchase during the Subscription Period. By the end of
this period, you must deliver a completed Subscription Agreement form, together
with payment for the purchase price of the Discount Shares you have elected to
purchase in cash or through the execution of a Note covering the total purchase
price of the Discount Shares. The Note must be delivered together with (1) a
pledge agreement pledging the purchased Discount Shares as collateral for the
Note, and (2) authorization for payroll deductions. The Subscription Period and
Subscription Purchase Date will be indicated in the letter inviting you to
participate in the Plan. You may revoke your Subscription Agreement at any time
prior to the Subscription Purchase Date.
Other Information Regarding the Plan
General Information Regarding the Plan
o The Plan is not subject to any provisions of the Employee Retirement
Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended.
<PAGE> 5
o You shall receive notice of Plan amendments as they become
effective. You shall receive either a Form 10-K or an Annual Report
to Shareholders, in addition to any amendments to the Plan, on
August 1 of every Plan Year. Furthermore, any participant wishing to
receive a copy of the Company quarterly reports on Form 10-Q, may
request it from Human Resources at any time. Each participant will
also receive a copy of his/her account statement (reflecting the
total number of shares owned, vested and unvested) in August
following every Plan Year.
Effectiveness, Amendment and Termination of the Plan
o The Plan became effective as of February 22, 1993 subject to the
ratification of approval by the shareholders of the Company.
o The Board of Directors may make such changes in and additions to the
Plan as it may deem proper and in the best interest of the Company;
provided that, without the Participant's consent, no such amendment
shall materially impair a Participant's rights with respect to any
Subscription Rights previously granted to or Discount Shares
previously purchased by such Participant.
o The Plan terminates on July 31, 1996 or such earlier date as the
Board may determine.
Administration of the Plan
o The Plan will be administered by the Compensation Committee of the
Company's Board of Directors, consisting of three independent
directors. The Compensation Committee exercises all powers and
duties with respect to the Plan and its administration. The Board of
Directors appoints or add members to the Committee. The Compensation
Committee's interpretation and construction of any provision of the
Plan shall be final and conclusive.
Shares covered under the Plan
o Shares of Horn & Hardart common stock, par value $.66 2/3, at the
market price for the Plan year less 40%
o The total number of shares of Horn & Hardart common stock covered by
Subscription Rights granted under the Plan may not exceed 2,300,000
shares (subject to adjustment).
o The shares of Horn & Hardart stock covered by the Plan may be
authorized and unissued shares, shares held by the Company in its
Treasury, or reacquired shares.
Transferability of Shares acquired through the Plan
o Subscription Rights are not transferable and are canceled upon
termination of employment for any reason prior to the Subscription
Purchase Date
o Prior to vesting, Discount Shares purchased cannot be transferred,
sold, exchanged or otherwise disposed of, other than by will or the
laws of descent and distribution.
Withholding/Tax Effects
o Appropriate provisions shall be made for the collection of required
federal, state and local withholding taxes with respect to Discount
Shares. The Company may take such steps as it deems necessary to
provide for the payment of these taxes.
<PAGE> 6
Registrant Information and Employee Plan Annual Information
o The Company shall provide, upon request, the documents incorporated
by reference in Item 3 of Part II of the registration statement
covering the shares under the Plan, and these documents are thus
incorporated by reference in this prospectus. The Company will also
provide, upon request, other documents required to be delivered to
you pursuant to Rule 428(b) of the Securities Act of 1933. Please
feel free to call the Human Resources department at The Horn &
Hardart Company, 1500 Harbor Drive, Weehawken, New Jersey 07087,
telephone number (201) 865-3800, if you have any questions regarding
any aspect of the Plan or the Compensation Committee.
o Nothing contained in the Plan gives any employee the right to remain
in the employ of the Company or an affiliate or limits the right of
the Company or an affiliate to terminate the Company's employment at
any time.
Questions and Answers
Q. When can I purchase the Discount Shares covered by my Subscription Right?
A. You may buy the Discount Shares on the Subscription Purchase Date, which
is August 1, 1993 for the 1993 Plan Year. You must decide how many of the
Discount Shares covered by your Subscription Right you would like to
purchase and complete the necessary paperwork by the end of the
Subscription Period.
Q. How many Discount Shares may I purchase?
A. You may purchase any number of Discount Shares up to the number covered by
your Subscription Right
Q. How much will I have to pay for Discount Shares?
A. You may purchase Discount Shares at a 40% discount to the market price.
The market price will be the average Fair Market Value of a share on the
30 trading days immediately preceding the first day of the Subscription
Period.
Q. How does the Discount Share purchase work?
A. Assume that your Subscription Right covers 600 Discount Shares. Also
assume that, during the Subscription Period, you decide to purchase all of
the 600 Discount Shares covered by your Subscription Right. Assuming that
by the end of the Subscription Period, you deliver a completed Discount
Share purchase election form and payment for the Shares in either cash or
through the execution of a Note together with (1) a pledge agreement
pledging the purchased Discount Shares as collateral for the Note, and (2)
authorization for payroll deductions, Shares are then purchased in your
name at a 40% discount to the market price. If the average Fair Market
Value on the 30 trading days immediately preceding the first day of the
Subscription Period is $4.00, then you would purchase Discount Shares for
$2.40 per Share, or a total purchase price of $1,440.
Q. How can I pay for the Discount Shares?
A. You may pay for the Discount Shares in cash on the Purchase Date.
Alternatively, you may elect to pay for the Shares with a Note. The Note
is interest free, due in full one year from the Purchase Date, and
requires weekly or biweekly installment payments from payroll deductions.
In order to pay for the Discount Shares with the Note you must deliver, by
the end of the Subscription Period, a completed Note together with (1) a
pledge agreement pledging the purchased Discount Shares as collateral for
the Note, and (2) authorization for payroll deductions. Assume that your
Discount Share purchase price is $1,440 as in the above example; then, if
you get paid biweekly, $55.38 would be deducted from each paycheck in
order to make the payments on the Note. At the end of the year, the Note
would be repaid in full.
<PAGE> 7
Q. What if I want to prepay the loan during the year?
A. You are free to prepay the loan at any time during the year without
penalty. However, as the loan is interest free, you may want to consider
taking advantage of the payroll deduction opportunity.
Q. What if I leave the Company before the vesting period ends?
A. If you leave the Company for any reason other than death or disability
before the end of the vesting period, the Company will buy back the
unvested Discount Shares for the discounted purchase price at which you
bought them, provided that, if you voluntarily leave the Company or your
employment is terminated for cause, the repurchase price shall not be
greater than the Fair Market Value of the Discount Shares on the
repurchase date.
Q. What might my gain be at the end of five years?
A. Assume that you purchase the 600 Discount Shares at an average price of
$2.40. That is, the market price (i.e. the average Fair Market Value for
the 30 trading days immediately preceding the first day of the
Subscription Period) of the stock was $4.00, so your average discounted
purchase price is $2.40. This means your total purchase price is $1,440.
Your net gain after five years (before taxes are paid) would be as shown
in the following chart, depending on the Company's stock performance.
<TABLE>
<CAPTION>
Purchase Year 5 Net Gain(Loss) before Taxes
Annual Shares Price at Varying Stock Prices*
Salary Purchased @ $2.40 $3.00 $5.00 $7.50 $10.00
------ --------- ------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
$30,000 600 $1,440 $360 $1,550 $3,060 $4,560
</TABLE>
* Assumes that market price = $4.00, and average discounted purchase
price = $2.40.
Q. What if the stock price goes down?
A. As long as there is a market for the Company's shares, your Discount
Shares will have value. This value, however, could be less than what you
initially invested to purchase the Shares. Assume that the stock price is
$2.00 at the end of five years. If you had bought the 600 Shares for a
price of $2.40 per share (again, the market price was $4.00 so the
discounted purchase price is $2.40), or $1,440, and the Shares are worth
$1,200 at the end of five years, you would have incurred a net loss of
$240.
Q. What are my Federal income tax liabilities under the Plan?
A. The IRS views the value you get through purchasing the Discount Shares the
same way as it views your salary, and it is treated in a similar manner.
However, you do have a choice as to when to pay these taxes.
Most of you will opt to pay your taxes when your Shares vest on the first,
second and third anniversaries of the Subscription Purchase Date. At this time,
you will be taxed on the amount equal to the difference between the market price
per share on the vesting date and the price per share you paid for the Shares,
multiplied by the number of Shares vesting on that date. Using our above example
of a 600 Share purchase at a discounted price of $2.40 (i.e. the market price is
$4.00), your tax liability would be as shown in the following chart, depending
on the Company's stock price and assuming a 35% tax rate:
<TABLE>
<CAPTION>
Grant 1st 2nd 3rd
Date Anniversary Anniversary Anniversary
---- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Market Price: $4.00 $4.75 $5.50 $8.00
Shares Vesting: 0 200 200 200
Gain on Vested Shares: $0 $470 $620 $720
Approximate Tax Liability (35% $0 $165 $217 $252
rate):
Shares Unvested: 600 400 200 0
</TABLE>
Keep in mind that this is only an example. Before making a decision on when to
pay your taxes, you should consult a financial advisor.
<PAGE> 8
If you sell your Discount Shares after they become vested, you will
generally realize a long-term or short-term capital gain or loss equal to
the difference between the proceeds from such sale and the sum of the
amount you paid for your Discount Shares and the amount you included in
income when the shares vested (as described in the preceding paragraph).
If your Discount Shares are forfeited before they become vested, and they
are repurchased by the Company for the price you originally paid for them,
you will realize no gain or loss. If the Company pays you less than your
original purchase price because you terminated employment voluntarily or
were discharged for cause and the market price of the shares on the date
of repurchase is less than your original purchase price, you will realize
an ordinary loss equal to the difference between the repurchase price and
your original purchase price for the Discount Shares.
If you prefer to be taxed on your Discount Shares when you purchase them
instead of when they vest, you must file an election under section 83(b)
of the Internal Revenue Code within 30 days after the Subscription
Purchase Date. You must then include in your gross income in the year of
the purchase the difference between the market price of the Discount
Shares on the Subscription Purchase Date and your purchase price for the
Discount Shares. If you then sell the Discount Shares after they become
vested, you will generally realize a long-term or short-term capital gain
or loss equal to the difference between the amount realized on the sale
and the market value of the Discount Shares on the date you purchased
them. If your Discount Shares are forfeited before they become vested, and
they are repurchased by the Company for your original purchase price, you
will not be able to claim a loss for the amount you previously included in
income. If you terminated employment voluntarily or were discharged for
cause and the price paid to you by the Company is less than your original
purchase price for the shares, then you will realize a long-term or
short-term capital loss equal to the difference between your original
purchase price and the proceeds on the sale.
The above summary is not intended to be a complete description of the tax
consequences associated with purchasing Discount Shares. We strongly
recommend that you consult a tax advisor for more information on the tax
treatment of the Discount Shares in your particular circumstances.
Q. What are the Federal income tax consequences to the Company under the
Plan?
A. The Company will be entitled to a deduction for Federal income tax
purposes at the same time and in the same amount as a participant is in
receipt of income in connection with the purchase of Discount Shares. In
the event that a participant recognizes an ordinary loss upon the
forfeiture of Discount Shares, the Company will required to include the
amount of such loss in its gross income.
<PAGE> 1
Exhibit 10.16
HANOVER DIRECT, INC.
SUPPLEMENTAL RETIREMENT PLAN
HANOVER DIRECT, INC.
SUPPLEMENTAL RETIREMENT PLAN
INTRODUCTION
The Hanover Direct, Inc. Supplemental Retirement Plan,
previously adopted as The Horn & Hardart Company Supplemental Retirement Plan,
which was effective January 1, 1989, is hereby amended and restated in its
entirety, effective as of October 1, 1993, to read as follows:
ARTICLE I
DEFINITIONS
As used in this Plan, the following terms shall have the
meanings set forth below, unless the context clearly requires otherwise:
1.01 ACCOUNT shall mean the accumulated Annual Earned Accruals and
Matching Earned Accruals determined for the Designated Executive, including any
investment earnings. Any active employee who participated in the Horn & Hardart
Company Supplemental Retirement Plan in effect prior to October 1, 1993 shall
have his Account under this Plan credited with the value of his Contribution
<PAGE> 2
Account (as defined under such prior plan) as of September 30, 1993.
1.02 AFFILIATE shall mean any entity (whether or not incorporated)
which controls, is controlled by, or under common control with the Company.
1.03 BOARD shall mean the Board of Directors of the Company.
1.04 BREAK-IN-SERVICE shall mean any Plan Year during which a
Participant has not completed more than five hundred (500) Hours of Service.
1.05 CODE shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a specific provision of the Code shall include
such provision, any valid regulation or ruling promulgated thereunder and any
comparable provision of future law that amends, supplements or supersedes such
provision.
1.06 COMPANY shall mean Hanover Direct, Inc. and any successor
thereto by merger, consolidation or otherwise.
1.07 COMPENSATION shall mean the fixed salary or base pay which is paid
or made available to a Designated Executive during a Plan year for his personal
services actually rendered to the Company or any Affiliate, but shall not
include any amounts paid as cost-of-living supplements, bonuses, overtime
payments, expense reimbursements, golden parachutes, stock options, other
contractual stock payments, severance payments, or any incentive or other
compensation predicated or computed as a percentage of, or as a commission on,
sales. Any contributions made by a salary reduction election (in accordance with
Code Sections 401(k), 125 or 129) and
2
<PAGE> 3
which would have otherwise reduced a fixed salary or base pay shall be counted
as Compensation under the Plan.
1.08 DESIGNATED EXECUTIVE shall mean any employee whose Compensation
exceeds $70,000 and becomes eligible to become a Participant in the Plan as
prescribed in Article II. In addition, any active employee, who participated in
the Plan in effect prior to this Plan and who is not otherwise eligible for this
Plan, shall become a Designated Executive and continue to have any existing
Account held under the Plan credited with interest under Section 3.03, but shall
have no earned accruals credited under Sections 3.01 and 3.02. In no event,
however, shall an employee be eligible to become a Designated Executive unless
he is employed at one of the following Affiliates or such other Affiliate who
adopts this Plan from time to time, with the approval of the board:
------------------------------
------------------------------
------------------------------
------------------------------
1.09 DISABILITY shall mean a physical or mental condition of such
severity and probable prolonged duration as to cause the Participant to be
unable to continue his duties as an Employee. The existence of any Disability
shall be determined by a physician chosen by the Benefits Committee, based on
medical evidence of a physical or mental impairment that can be expected to last
more than 12 months or result in death, or on other uniform and non-
3
<PAGE> 4
discriminatory criteria as established by the Benefits Committee.
Notwithstanding the foregoing, eligibility for Social Security Disability
benefits or for long term disability benefits under an insured plan sponsored by
the Company shall be deemed conclusive proof of disability.
1.10 NORMAL RETIREMENT DATE shall mean the first day of the month
following the date a Designated Executive attains his sixty-fifth (65th)
birthday.
1.11 BENEFITS COMMITTEE shall mean the Committee appointed to
administer the Plan, as provided in Section 4.0l.
1.12 PARTICIPANT shall mean a Designated Executive who has met the
requirements of Section 2.01.
1.13 PLAN shall mean the Hanover Direct, Inc. Supplemental Retirement
Plan, as amended from time to time.
1.14 PLAN YEAR shall mean the calendar year.
1.15 SALARY DEFERRAL ELECTION shall mean the percentage reduction in
Compensation (not to exceed 4%) elected by a Designated Executive which will be
credited in accordance with Section 3.01.
1.16 SCHEDULED PAYMENT DATES shall mean the date(s) 45 days following a
Valuation Date.
1.17 VALUATION DATE shall mean the last day of the Plan Year and any
other date(s) as of which the Benefits Committee, in its sole discretion, elects
to value the Account of a Designated Executive.
4
<PAGE> 5
1.18 YEAR OF SERVICE shall mean a Plan Year in which an Employee has at
least one thousand (1,000) hours of service. Solely for purposes of determining
whether a Designated Executive is eligible to become a participant after his
initial year of employment under Section 2.01, a Year of Service shall be
credited to a Designated Executive who has at least one thousand (1,000) hours
of service during the initial twelve (12) month period commencing with such
Designated Executive's date of employment. In addition, solely for purposes of
determining vesting under Section 3.04, Years of Service shall be counted from a
Designated Executive's date of participation as determined under Section 2.01.
5
<PAGE> 6
ARTICLE II
PARTICIPATION
2.01 DESIGNATION OF PARTICIPANTS A Designated Executive shall commence
participation under this Plan as of the January 1st coincident with or next
following attainment of age 21 and the completion of one Year of Service.
2.02 MODIFICATION OF REQUIREMENTS The Benefits Committee, in its sole
discretion, reserves the right to change the requirements to become a
participant under Section 2.01 at any time.
6
<PAGE> 7
ARTICLE III
BENEFIT DETERMINATIONS AND DISTRIBUTIONS
3.01 ANNUAL EARNED ACCRUALS A Designated Executive shall have earned
accruals credited to his Account for each Plan Year on the same frequency as
payroll deductions have been taken, provided the Designated Executive is
employed at a rate such that he will work at least 1,000 hours during the Plan
Year. A Designated Executive shall have an Annual Earned Accrual credited to his
Account in accordance with the terms set forth below:
(a) The Annual Earned Accrual credited to the Designated Executive's
Account for each Plan Year shall be equal to his Salary Deferral Election
multiplied by his Compensation for such Plan Year.
(b) Termination of Employment - Notwithstanding the foregoing, if a
Designated Executive terminates employment for any reason during a Plan Year, he
shall receive an Annual Earned Accrual for that Plan Year, based on his
Compensation while employed for the Plan Year.
3.02 MATCHING EARNED ACCRUALS The Company shall make a contribution
called a Matching Earned Accrual contribution on behalf of each Designated
Executive in the same amount and on the same frequency as Annual Earned Accruals
are credited to his account. In no event, however, shall the Matching Earned
Accrual credited to a Designated Executive exceed 4% of Compensation earned
during the Plan Year.
7
<PAGE> 8
3.03 INTEREST On any Valuation Date during each Plan Year, an interest
amount will be credited to each Designated Executive's Account equal to that
Account's proportionate share of the investment return of all Accounts held
under the Plan.
3.04 VESTING IN ACCOUNTS A Designated Executive shall be 100% vested in
his Annual Earned Accruals at all times. In addition, a Designated Executive
shall be 100% vested in the value of his Matching Earned Accruals when he
attains his Normal Retirement Date, or if his employment terminates due to death
or Disability (as defined in Section 1.08). Otherwise, he shall be vested in his
Matching Earned Accruals (even if his participation in the Plan has been
discontinued) in accordance with the following table:
Percentage
Years of Service Vested
---------------- ----------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
Any Designated Executive who was a participant in the Plan in effect
prior to this Plan shall also be entitled to credit for Years of Service for
such period and will be entitled to the greater of the vesting percentage
determined under the prior plan for each participant as of September 30, 1993 or
the vesting percentage determined under this Plan at retirement or other
8
<PAGE> 9
termination of employment. The vested percentage of a Designated Executive's
Account will not increase after the date as of which he terminates employment.
Solely for purposes of determining vesting under the Plan, Years of Service
shall be determined from the date a Designated Executive first became a
Participant under the Plan.
3.05 DISTRIBUTIONS The vested Account of a Designated Executive will be
distributed on the first Scheduled Payment Date following the Valuation Date
coincident with or next following his retirement or other termination of
employment. The distribution will be made in a full lump sum payment of the
vested Account balance of the Designated Executive.
3.06 DEATH BENEFITS If a Designated Executive dies, his named
beneficiary shall receive his vested Account as of the Valuation Date coincident
with or next following his death distributed in accordance with Section 3.05.
If, at the time of the Designated Executive's death, there is no named
beneficiary, then the Designated Executive's estate shall be paid the benefits
otherwise due to the named beneficiary.
3.07 VALUATION OF ACCOUNT As of each Valuation Date, each Designated
Executive's Account shall be updated with all earned accruals and interest for
such Plan Year based on Sections 3.01, 3.02, and 3.03. Each Designated Executive
shall receive a statement of his Account within ninety (90) days of such
Valuation Date.
9
<PAGE> 10
ARTICLE 4
ADMINISTRATION
4.01 APPOINTMENT OF COMMITTEE The Plan shall be administered by the
Benefits Committee appointed by the Board.
4.02 POWERS AND AUTHORITY OF COMMITTEE Whenever the Plan provides
authority to the Board or its designated representative, the Benefits Committee
may be, but is not required to be, the designated representative. Otherwise, the
Benefits Committee shall have the power and full discretionary authority to
interpret and construe this Plan, to determine all questions arising under this
Plan, to correct any defect or supply any omission or reconcile any
inconsistency in this Plan in such manner and to such extent as it shall deem
necessary or appropriate to effectuate the purpose and intent of this Plan, to
adopt and amend from time to time such by-laws and rules and regulations as are
necessary of the administration of this Plan which are not inconsistent with the
terms and provisions of this Plan, and to determine all questions of
eligibility, status and rights of Designated Executives and their beneficiaries
hereunder.
4.03 QUORUM AND VOTING; PROCEDURES A majority of the members of the
Benefits Committee at the time in office shall constitute a quorum for the
transaction of business. The Benefits Committee may act by vote or consent of
the majority of its members then in office and may establish its own procedures.
The Benefits Committee may authorize any one or more of its members to sign and
10
<PAGE> 11
deliver any instrument, certificate or other paper or document on its behalf.
The Benefits Committee may appoint from its members such subcommittees (of one
or more such members), with such powers, as it shall determine.
4.04 CLAIMS PROCEDURE The Benefits Committee shall establish a claims
procedure and shall afford a reasonable opportunity to any Designated Executive
or named beneficiary whose claim for benefits has been denied for a full and
fair review of the decision denying such claims.
4.05 LIABILITY LIMITED AND INDEMNIFICATION Except as otherwise provided
by law, no person who is a member of the Benefits Committee or who is a
stockholder, employee, officer, or director of the Company or any affiliate
shall incur any liability whatsoever on account of any matter connected with or
related to the Plan or the administration of the Plan, unless such person shall
have acted in bad faith or have willfully neglected his duties in respect to the
Plan; and as a condition precedent to his participation in the Plan or the
receipt of benefits thereunder, or both, such liability, if any, is expressly
waived and released by each Designated Executive and named beneficiary, such
waiver and release to be conclusively evidenced by any act or participation in
or the acceptance of benefits under this Plan. The Company shall indemnify and
hold each such person harmless against any and all loss, liability, claim,
damage, cost and expense which may arise by reason of, or be based upon, any
matter connected with or related to the Plan or the administration of the Plan
(including, but not
11
<PAGE> 12
limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or in settlement of any such claim whatsoever) to the fullest extent
permitted under the Certificate of Incorporation and By-Laws of the Company.
12
<PAGE> 13
ARTICLE 5
AMENDMENT AND TERMINATION
The Company may amend, terminate or suspend this Plan at any time or
from time to time by a resolution of the Board; provided, however, that no
amendment or termination of the Plan shall deprive any Designated Executive or
named beneficiary of any of the benefits to which any is entitled under this
Plan by reason of the Designated Executive's prior Years of Service, death,
disability or other termination of employment. If the Plan is terminated or
contribution accruals are permanently suspended, the vesting schedule set forth
in Section 3.04 shall continue to apply to each Designated Executive, unless the
Board, in its sole discretion, elects to fully vest a particular Designated
Executive. If the Plan terminates within two years of a change in ownership of
the Company, all Designated Executives will become fully vested.
13
<PAGE> 14
ARTICLE 6
MISCELLANEOUS
6.01 SOURCE OF PAYMENTS The Company shall establish and maintain
records which incorporate the crediting of earned accruals and interest under
this Plan; provided, that the Company is advised by tax counsel that the
maintenance of such records will not result in taxation of income to a
Designated Executive or a named beneficiary prior to payment of benefits to any
such person.
6.02 NO EMPLOYMENT CONTRACT This Plan shall not be construed as
creating any contract of employment between the Company or any Affiliate and the
Designated Executive. The Company and all affiliates shall have the same control
over their employees as though this Plan had never been executed.
6.03 FORFEITURE Notwithstanding any other provision of this Plan,
neither a Designated Executive nor his named beneficiary shall be entitled to
receive any benefits under the Plan if the Designated Executive's employment is
terminated because of (a) his willful misconduct in connection with the
performance of his duties to the Company or any Affiliate, including, but
without limiting the generality of the foregoing, misappropriation of funds or
property of the Company or any Affiliate, securing or attempting to secure
personally any profit in connection with any transaction entered into on behalf
of the Company or any Affiliate, or committing the Company or any Affiliate to
any transaction adverse
14
<PAGE> 15
to their respective interests except as a result of an honest error in judgment,
or (b) his conviction for a felony.
6.04 NO ASSIGNMENT The interest in this Plan of a Designated Executive
or named beneficiary shall not be subject to assignment or transfer or otherwise
be alienable either by voluntary or involuntary acts of such person, or by
operation of law, nor shall it be subject to attachment, execution, garnishment,
sequestration or other seizure under any legal, equitable or other process. If
any Designated Executive or named beneficiary shall attempt to or shall
alienate, sell, transfer, pledge or otherwise encumber any amount to which he is
or might become entitled, or if by reason of the insolvency of any such person
or the issuance of any garnishment, writ of execution or other court process, or
other event happening at any time any amount otherwise payable hereunder to such
person should devolve upon anyone other than him or would not be enjoyed by him,
the Benefits Committee shall terminate such interest, but may, in its absolute
discretion, hold or apply it to or for the benefit of such Participant, the
spouse, children or other dependents of such person, in such manner as the
Benefits Committee may deem proper.
6.05 INCAPACITY In the event that the Benefits Committee determines
that a Designated Executive or named beneficiary is unable to care for his
affairs due to illness or accident, any payment due to such individual under
this Plan may be made to his duly appointed legal representative. The Benefits
Committee may, in its discretion, make such payments to a child, parent or
spouse
15
<PAGE> 16
of such individual, or to any other person with whom he resides or who is
charged with his care. The Benefits Committee shall make such payment according
to such instructions, which shall be in writing and witnessed by a notary
public, as the Designed Executive or named beneficiary had delivered to it prior
to becoming unable to care for his affairs due to illness or accident. Any
payment made according to the provisions of this Section shall be a complete
discharge of the liability of the Company under this Plan.
6.06 TAX WITHHOLDING Benefit payments hereunder shall be subject to
withholding, to the extent required (as advised by tax counsel) by applicable
tax or other laws.
6.07 SEPARABILITY If any provision of this Plan is held invalid or
unenforceable, to the extent necessary to effectuate the purposes of this Plan,
its invalidity or unenforceability shall not affect any other provisions of the
Plan and the Plan shall be construed and enforced as if such provisions had not
been included therein.
6.08 BINDING EFFECT This Plan shall be binding upon and shall inure to
the benefit of the successors and assigns of the Company and shall be binding
upon the Designated Executive and shall inure to his benefit and that of his
named beneficiary.
6.09 GENDER AND NUMBER The masculine pronoun whenever used herein shall
include the feminine pronoun and the singular number shall include the plural
number and vice versa unless the context clearly requires otherwise.
16
<PAGE> 17
6.10 GOVERNING LAW The Plan shall be construed in accordance with the
laws of the State of Delaware, where it is made and where it shall be enforced,
except to the extent such laws have been superseded by Federal law.
IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this instrument to
be executed by its duly appointed officers this day of
, 1993. -----------------
- ---------------------
HANOVER DIRECT, INC.
BY
-------------------------------
ATTEST
- ----------------------------
17
<PAGE> 1
HANOVER DIRECT, INC.
STOCK OPTION AGREEMENT
Agreement made as of the 9th day of February, 1996 between HANOVER
DIRECT, INC. (the "Company"), a Delaware corporation, and Ralph Destino (the
"Optionee"), residing at 870 United Nations Plaza, Apt. 27D, New York, New York
10017.
The Optionee has served as a director of the Company since 1991. In
consideration of Optionee's serving on the Search Committee of Directors to
find a replacement for the President and Chief Executive Officer of the
Company, the Company has agreed to grant to the Optionee a five-year option to
purchase 5,000 shares of Common Stock, par value 66 2/3 cents per share, of the
Company (the "Shares"), subject to and upon the terms and conditions set forth
herein (the "Option").
Therefore, in consideration of the premises and for other good and
valuable consideration, the parties hereto have agreed as follows:
1. (a) The price at which the Optionee shall have the right to
purchase Shares under this Agreement is $1.4375 per share, subject to
adjustment as provided in Paragraph 4.
(b) Subject to Paragraph 4, unless the Option is previously terminated
pursuant to this Agreement, the Option shall be exercisable in whole or in part
with respect to all 5,000 Shares beginning on the date hereof through February
8, 2001; provided, however, that the Option shall cease to be exercisable on
the date which is thirty (30) days from the termination of the Optionee's
status as a director of the Company; and provided, however, that the Company
shall have the option, in its sole discretion, to extend the period that the
Option shall be exercisable to February 8, 2002, upon written notice to the
Optionee prior to November 8, 2000.
(c) If the Optionee's status as a director of the Company terminates
due to disability or to death, the Option shall be exercisable as provided in
this subparagraph. The Optionee or, in the event of his/her disability, duly
appointed guardian or conservator or, in the event of his/her death, his/her
appointed executor or administrator, shall have the privilege of exercising the
unexercised portion of the Option which the Optionee could have exercised on
the day on which his/her status as a director of the Company terminated,
provided,
<PAGE> 2
however, that such exercise must be in accordance with the terms of this
Agreement and within one (1) year of the Optionee's disability or death, as the
case may be. In no event, however, shall the Optionee or his/her duly appointed
guardian or conservator or his/her duly appointed executor or administrator, as
the case may be, exercise the Option after February 8, 2001, unless the period
during which the Option is exercisable was extended pursuant to Paragraph 1(b).
2. Nothing contained herein shall be construed (a) to confer on the
Optionee any right to continue to serve as a director of the Company or (b) to
obligate the Company (including its shareholders, directors and officers) to
either re-nominate the Optionee for election or re-elect the nominee to serve
as a director or (c) to derogate from any right of the Company (including its
shareholders, director and officers) to remove or request the resignation of
the Optionee from the Company's Board of Directors.
3. (a) The Option shall not be sold, pledged, assigned or transferred
in any manner except (i) to the extent that the Option may be exercised as
provided in Paragraph 1(c) or (ii) as provided in Paragraph 3(b).
(b) The Option may be transferred to any living spouse, child or
parent of the Optionee (a "Permitted Transferee"), provided that (i) such
transferee executes an instrument, satisfactory in form and substance to the
Company, stating that such transferee is bound by all the terms and conditions
of this Agreement, including, without limitation, Paragraph 1(c), and
(ii) the Option may not be sold, pledged assigned or transferred in any manner
by such transferee, except to another Permitted Transferee pursuant to this
Paragraph 3(b).
(c) For all purposes of this Agreement except the Preamble and
Paragraph 1(b), the term "Optionee" shall include any Permitted Transferee or
any person entitled to exercise the Option pursuant to Paragraph 1(c).
4. (a) If the outstanding Shares of the Company are subdivided,
consolidated, increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, capital adjustment or in a similar
transaction, or if the Company shall issue Shares as a dividend or upon a stock
split, then the number and kind of shares subject to the unexercised portion of
the Option and the exercise price of the Option shall be adjusted to prevent
the inequitable enlargement or dilution of any rights hereunder, provided,
however, that any such adjustment shall be made without change in the total
exercise price applicable to the unexercised portion of the Option. Adjustments
under this paragraph shall be made by the Board of Directors, whose
determination shall be final, binding and conclusive. In computing any
adjustment under this paragraph, any fractional shares shall be eliminated.
Nothing contained in this Agreement shall be construed to affect in any way the
right or power of the Company to make any adjustment, reclassification,
reorganization or changes to its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or transfer all or any part of its
business or assets.
(b) If in the event of the dissolution or liquidation of the Company,
or in the event of a merger or consolidation in which (1) the Company is not
the surviving corporation, and (2) the agreements governing such merger or
consolidation do not provide for the issuance to the Optionee of a Substitute
Option (as hereinafter defined) or the express assumption of this Option, the
Company will make or cause to be mailed to the Optionee a notice specifying the
date on which holders of Shares shall be entitled to exchange their shares for
securities or other property deliverable in connection with such merger,
consolidation, dissolution or liquidation. Such notice shall be mailed at least
ten (10) days prior to the date therein specified to the address of the
Optionee
<PAGE> 3
specified on page 1 of this Agreement or to such other address as the
Optionee delivers or transmits by registered or certified mail to the Secretary
of the Company at its principal office. In the event the Option is not
exercised on or prior to the date specified herein, the Option and any rights
hereunder shall terminate as of said date. For purposes of this Paragraph 4, a
Substitute Option shall mean an option under which the Optionee has the right
to purchase on substantially equivalent terms (as hereinafter defined)
(in lieu of Shares), the stock, securities or other property he/she would have
been entitled to receive upon the consummation of such merger or consolidation
had he/she exercised the Option immediately prior thereto. For purposes of the
preceding sentence, substantially equivalent terms shall be those terms given
approval by the Board of Directors in its sole discretion.
5. The Option shall be exercised when written notice of such exercise,
signed by the Optionee, has been delivered or transmitted by registered or
certified mail, to the Secretary of the Company at its principal office. Said
written notice shall specify the number of Shares purchasable under the Option
which the Optionee then wishes to purchase and shall be accompanied by (i) such
documentation, if any, as may be required by the Company as provided in
Paragraphs 6 or 8 and (ii) payment of the aggregate option price. The Option
shall be exercised only with respect to full shares of Common Stock; no
fractional Shares shall be issued. Such payment shall be in the form of (i)
cash or a certified check (unless such certification is waived by the Company)
payable to the order of the Company in the amount of the aggregate option price
for such number of Shares, (ii) certificates duly endorsed for transfer (with
all transfer taxes paid or provided for) evidencing a number of Shares of which
the aggregate fair market value on the date of exercise is equal to the
aggregate option exercise price of the Shares being purchased, or (iii) a
combination of these methods of payment. Delivery of said notice and such
documentation shall constitute an irrevocable election to purchase the Shares
specified in said notice, and the date on which the Company received said
notice and documentation shall, subject to the provisions of Paragraphs 6 and
8, be the date as of which the Shares so purchased shall be deemed to have been
issued. The Optionee shall not have the right or status as a holder of the
Shares to which such exercise relates prior to receipt by the Company of such
payment, notice and documentation. For purposes of this Agreement, the fair
market value per Share on a given date shall be: (i) if the Shares are listed
on a registered securities exchange or included on the American Stock Exchange,
the closing price per Share on such date, (or, if there was not trading in the
Shares on such date, on the next preceding day on which there was trading);
(ii) if the Shares are not listed on a registered securities exchange or
included on the American Stock Exchange, but the bid and asked prices per Share
are provided by NASDAQ, the National Quotation Bureau Incorporated or any
similar organization, the average of the highest reported bid and lowest
reported asked price as furnished by NASDAQ, the National Quotation Bureau
Incorporated or any similar organization. In the absence of one or more
quotations, the Board of Directors of the Company shall in good faith determine
the fair market value per share.
<PAGE> 4
6. Anything in this Agreement to the contrary notwithstanding, in no
event may the Option be exercisable if the Company shall determine in good
faith that (i) the listing, registration or qualification of any Shares
otherwise deliverable upon such exercise, upon any securities exchange or under
any state or federal law, or (ii) the consent or approval of any regulatory
body or the satisfaction of withholding tax or other withholding liabilities is
necessary or desirable in connection with such exercise. In such event, such
exercise shall be held in abeyance and shall not be effective unless and until
such withholding, listing, registration, qualification or approval shall have
been effected or obtained free of any conditions not reasonably acceptable by
the Company.
7. (a) The Optionee agrees that there will be no disposition of all or
any part of the Shares acquired pursuant to any exercise of the Option or any
interest or interests therein, unless and until such disposition has been
registered under the Securities Act of 1933, as amended (the "Act"), or the
Company receives an opinion of its counsel that registration under the Act is
not required in connection with such disposition.
(b) The Optionee agrees that upon the exercise of the Option, unless
the Shares acquired pursuant to such exercise have been registered under the
Act, the transfer agent for the Shares acquired pursuant to such exercise will
be instructed to place appropriate stop orders against the transfer of the
Shares and that the certificate or certificates to be issued representing the
Shares will conspicuously bear a legend substantially as follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of an effective registration
statement for the shares under the Securities Act of 1933 or an
opinion of counsel to the Company that registration is not required
under said Act.
(c) The Optionee acknowledges that he/she is presently familiar with
the Company's business, operations and financial condition. In this connection,
the Company agrees that, upon the request of the Optionee, it will provide the
Optionee with a copy of its then most recent Annual Report to Shareholders, its
then most recently definitive Proxy Statement in connection with a meeting of
its shareholders for the election of directors, its then most recent Annual
Report of Form 10-K, and all Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed by the Company with the Securities and Exchange Commission
subsequent to the filing of its then most recent Annual Report on Form 10-K.
The Optionee also acknowledges that he/she has received a description of the
Shares as contained in the Company's most recent Prospectus. In addition, the
principal officers of the Company will be reasonably available to discuss with
the Optionee the information contained in these documents, this Agreement, or
any other issues. To arrange such discussions he/she should contact
Monte E. Wetzler, Esq., counsel to the Company, at (201) 272-3434.
8. The Company covenants and agrees with the Optionee that in the
event the Company proposes to file a registration statement under the Act with
respect to any class of security (other than in connection with an exchange
offer or a registration statement on Form S-4, S-8, or S-18 or other unsuitable
registration statement) which becomes or which the Company believes will become
effective at any time after the date hereof, then the Company shall in each
case give written notice of such proposed filing to the Optionee at least
twenty-five (25) days before the earlier of the anticipated and the actual
effective date of the registration statement and (unless the Board of Directors
determines in a duly adopted resolution that for reasons of confidentiality
notice prior to such filing is likely to adversely affect the Company) at least
seven (7) business days before the initial filing of such registration
statement (and, if requested, the Optionee shall maintain the confidentiality
of such information) and such notice shall offer to Optionee the opportunity to
include in such registration statement such number of Shares as he/she may
request, unless, in the opinion of counsel to the Company reasonably acceptable
to the Optionee, registration under the Act is not required for the transfer of
such Shares in the manner proposed by the Optionee. The Company shall have no
obligation to
<PAGE> 5
honor any such request (i) to register fewer than 2,500 Shares, (ii) to
register Shares on more than one occasion, (iii) to register Shares if the
Company is not notified in writing of any such request pursuant to this
Paragraph 8 at least three (3) business days prior to a proposed initial filing
and (iv) to register any Shares which at the time of the filing of such
registration statement are covered by or included in any other Statement
theretofore filed by the Company under the Act. The Company shall permit, or
shall cause the managing underwriter of a proposed offering to permit, the
Optionee to include the Shares requested to be included in the registration
(the "Piggy-back Shares") in the proposed offering on the same terms and
conditions as are applicable to securities of the Company, if any, included
therein for the account of any person other than the Company and the Optionee,
provided, however, that the Company need not register Shares pursuant to such
registration statement in the event the Company abandons such filing prior to
the effective date thereof. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company that it believes that the distribution of
all or a portion of the Piggy-back Shares requested to be included in the
registration statement concurrently with the securities being registered by the
Company would adversely affect the distribution of such securities by the
Company for its own account, then the Optionee shall delay the offering and
sale of Piggy-back Shares (or the portions thereof so designated by
such managing underwriter) for such period, not to exceed ninety (90) days, as
the managing underwriter shall request provided that no such delay shall be
required as to Piggy-back Shares if any securities of the Company are included
in such registration statement for the account of any person other than the
Company and the Optionee. In the event of such delay, the Company shall file,
at its option, such supplements, post-effective amendments or separate
registration statement, take any such other steps as may be necessary to permit
the Optionee to make the proposed offering and sale for the period of ninety
(90) days immediately following the end of such period of delay (the
"Piggy-back Termination Date"); provided, however, that if any of the
Piggy-back Shares are covered by a registration statement which is or will be
required to remain in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to
the Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Paragraph 8 shall be borne by the Company, except
that underwriting commission, discounts, fees and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the
Optionee will be borne by the Optionee.
9. This Agreement is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code. Any Shares purchased pursuant to this
Agreement shall be purchased directly from the Company out of its authorized
but unissued Shares.
10. This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
11. Subject to Paragraphs 1(c) and 3(b), this Agreement shall be
binding upon that shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors or assigns, as the case
may be.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
-----------------------------
Name: Ralph Bulle
Title: Senior Vice President
/s/ RALPH DESTINO
---------------------------------
Ralph Destino
<PAGE> 1
HANOVER DIRECT, INC.
STOCK OPTION AGREEMENT
Agreement made as of the 9th day of February, 1996 between HANOVER
DIRECT, INC. (the "Company"), a Delaware corporation, and Elizabeth Valk Long
(the "Optionee"), residing at 125 East 74th Street, Apt. 3A, New York, New York
10021.
The Optionee has served as a director of the Company since 1991. In
consideration of Optionee's serving on the Search Committee of Directors to
find a replacement for the President and Chief Executive Officer of the
Company, the Company has agreed to grant to the Optionee a five-year option to
purchase 5,000 shares of Common Stock, par value 66 2/3 cents per share, of the
Company (the "Shares"), subject to and upon the terms and conditions set forth
herein (the "Option").
Therefore, in consideration of the premises and for other good and
valuable consideration, the parties hereto have agreed as follows:
9. (d) The price at which the Optionee shall have the right to
purchase Shares under this Agreement is $1.4375 per share, subject to
adjustment as provided in Paragraph 4.
(e) Subject to Paragraph 4, unless the Option is previously terminated
pursuant to this Agreement, the Option shall be exercisable in whole or in part
with respect to all 5,000 Shares beginning on the date hereof through February
8, 2001; provided, however, that the Option shall cease to be exercisable on
the date which is thirty (30) days from the termination of the Optionee's
status as a director of the Company; and provided, however, that the Company
shall have the option, in its sole discretion, to extend the period that the
Option shall be exercisable to February 8, 2002, upon written notice to the
Optionee prior to November 8, 2000.
(f) If the Optionee's status as a director of the Company terminates
due to disability or to death, the Option shall be exercisable as provided in
this subparagraph. The Optionee or, in the event of his/her disability, duly
appointed guardian or conservator or, in the event of his/her death, his/her
appointed executor or administrator, shall have the privilege of exercising the
unexercised portion of the Option which the Optionee could have exercised
<PAGE> 2
on the day on which his/her status as a director of the Company terminated,
provided, however, that such exercise must be in accordance with the terms of
this Agreement and within one (1) year of the Optionee's disability or death,
as the case may be. In no event, however, shall the Optionee or his/her duly
appointed guardian or conservator or his/her duly appointed executor or
administrator, as the case may be, exercise the Option after February 8, 2001,
unless the period during which the Option is exercisable was extended pursuant
to Paragraph 1(b).
10. Nothing contained herein shall be construed (a) to confer on the
Optionee any right to continue to serve as a director of the Company or (b) to
obligate the Company (including its shareholders, directors and officers) to
either re-nominate the Optionee for election or re-elect the nominee to serve
as a director or (c) to derogate from any right of the Company (including its
shareholders, director and officers) to remove or request the resignation of
the Optionee from the Company's Board of Directors.
11. (a) The Option shall not be sold, pledged, assigned or transferred
in any manner except (i) to the extent that the Option may be exercised as
provided in Paragraph 1(c) or (ii) as provided in Paragraph 3(b).
(b) The Option may be transferred to any living spouse, child or
parent of the Optionee (a "Permitted Transferee"), provided that (i) such
transferee executes an instrument, satisfactory in form and substance to the
Company, stating that such transferee is bound by all the terms and conditions
of this Agreement, including, without limitation, Paragraph 1(c), and (ii) the
Option may not be sold, pledged assigned or transferred in any manner by such
transferee, except to another Permitted Transferee pursuant to this Paragraph
3(b).
(c) For all purposes of this Agreement except the Preamble and
Paragraph 1(b), the term "Optionee" shall include any Permitted Transferee or
any person entitled to exercise the Option pursuant to Paragraph 1(c).
12. (a) If the outstanding Shares of the Company are subdivided,
consolidated, increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, capital adjustment or in a similar
transaction, or if the Company shall issue Shares as a dividend or upon a stock
split, then the number and kind of shares subject to the unexercised portion of
the Option and the exercise price of the Option shall be adjusted to prevent
the inequitable enlargement or dilution of any rights hereunder, provided,
however, that any such adjustment shall be made without change in the total
exercise price applicable to the unexercised portion of the Option. Adjustments
under this paragraph shall be made by the Board of Directors, whose
determination shall be final, binding and conclusive. In computing any
adjustment under this paragraph, any fractional shares shall be eliminated.
Nothing contained in this Agreement shall be construed to affect in any way the
right or power of the Company to make any adjustment, reclassification,
reorganization or changes to its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or transfer all or any part of its
business or assets.
(b) If in the event of the dissolution or liquidation of the Company,
or in the event of a merger or consolidation in which (1) the Company is not
the surviving corporation, and (2) the agreements governing such merger or
consolidation do not provide for the issuance to the Optionee of a Substitute
Option (as hereinafter defined) or the express assumption of this Option, the
Company will make or cause to be mailed to the Optionee a notice specifying the
<PAGE> 3
date on which holders of Shares shall be entitled to exchange their shares for
securities or other property deliverable in connection with such merger,
consolidation, dissolution or liquidation. Such notice shall be mailed at least
ten (10) days prior to the date therein specified to the address of the
Optionee specified on page 1 of this Agreement or to such other address as the
Optionee delivers or transmits by registered or certified mail to the Secretary
of the Company at its principal office. In the event the Option is not
exercised on or prior to the date specified herein, the Option and any rights
hereunder shall terminate as of said date. For purposes of this Paragraph 4, a
Substitute Option shall mean an option under which the Optionee has the right
to purchase on substantially equivalent terms (as hereinafter defined) (in lieu
of Shares), the stock, securities or other property he/she would have been
entitled to receive upon the consummation of such merger or consolidation had
he/she exercised the Option immediately prior thereto. For purposes of the
preceding sentence, substantially equivalent terms shall be those terms given
approval by the Board of Directors in its sole discretion.
13. The Option shall be exercised when written notice of such
exercise, signed by the Optionee, has been delivered or transmitted by
registered or certified mail, to the Secretary of the Company at its principal
office. Said written notice shall specify the number of Shares purchasable
under the Option which the Optionee then wishes to purchase and shall be
accompanied by (i) such documentation, if any, as may be required by the
Company as provided in Paragraphs 6 or 8 and (ii) payment of the aggregate
option price. The Option shall be exercised only with respect to full shares of
Common Stock; no fractional Shares shall be issued. Such payment shall be in
the form of (i) cash or a certified check (unless such certification is waived
by the Company) payable to the order of the Company in the amount of the
aggregate option price for such number of Shares, (ii) certificates duly
endorsed for transfer (with all transfer taxes paid or provided for) evidencing
a number of Shares of which the aggregate fair market value on the date
of exercise is equal to the aggregate option exercise price of the Shares being
purchased, or (iii) a combination of these methods of payment. Delivery of said
notice and such documentation shall constitute an irrevocable election to
purchase the Shares specified in said notice, and the date on which the Company
received said notice and documentation shall, subject to the provisions of
Paragraphs 6 and 8, be the date as of which the Shares so purchased shall be
deemed to have been issued. The Optionee shall not have the right or status as
a holder of the Shares to which such exercise relates prior to receipt by the
Company of such payment, notice and documentation. For purposes of this
Agreement, the fair market value per Share on a given date shall be: (i) if the
Shares are listed on a registered securities exchange or included on the
American Stock Exchange, the closing price per Share on such date, (or, if
there was not trading in the Shares on such date, on the next preceding day on
which there was trading); (ii) if the Shares are not listed on a registered
securities exchange or included on the American Stock Exchange, but the bid and
asked prices per Share are provided by NASDAQ, the National Quotation Bureau
Incorporated or any similar organization, the average of the highest reported
bid and lowest reported asked price as furnished by NASDAQ, the National
Quotation Bureau Incorporated or any similar organization. In the absence of
one or more quotations, the Board of Directors of the Company shall in good
faith determine the fair market value per share.
14. Anything in this Agreement to the contrary notwithstanding, in no
event may the Option be exercisable if the Company shall determine in good
faith that (i) the listing, registration or qualification of any Shares
otherwise deliverable upon such exercise, upon any securities exchange or under
any state or federal law, or (ii) the consent or approval of any regulatory
body or the satisfaction of withholding tax or other withholding liabilities is
necessary or desirable in connection with such exercise. In such event, such
exercise shall
<PAGE> 4
be held in abeyance and shall not be effective unless and until such
withholding, listing, registration, qualification or approval shall have been
effected or obtained free of any conditions not reasonably acceptable by the
Company.
15. (a) The Optionee agrees that there will be no disposition of all
or any part of the Shares acquired pursuant to any exercise of the Option or
any interest or interests therein, unless and until such disposition has been
registered under the Securities Act of 1933, as amended (the "Act"), or the
Company receives an opinion of its counsel that registration under the Act is
not required in connection with such disposition.
(b) The Optionee agrees that upon the exercise of the Option, unless
the Shares acquired pursuant to such exercise have been registered under the
Act, the transfer agent for the Shares acquired pursuant to such
exercise will be instructed to place appropriate stop orders against the
transfer of the Shares and that the certificate or certificates to be issued
representing the Shares will conspicuously bear a legend substantially as
follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of an effective registration
statement for the shares under the Securities Act of 1933 or an
opinion of counsel to the Company that registration is not required
under said Act.
(c) The Optionee acknowledges that he/she is presently familiar with
the Company's business, operations and financial condition. In this connection,
the Company agrees that, upon the request of the Optionee, it will provide the
Optionee with a copy of its then most recent Annual Report to Shareholders, its
then most recently definitive Proxy Statement in connection with a meeting of
its shareholders for the election of directors, its then most recent Annual
Report of Form 10-K, and all Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed by the Company with the Securities and Exchange Commission
subsequent to the filing of its then most recent Annual Report on Form 10-K.
The Optionee also acknowledges that he/she has received a description of the
Shares as contained in the Company's most recent Prospectus. In addition, the
principal officers of the Company will be reasonably available to discuss with
the Optionee the information contained in these documents, this Agreement, or
any other issues. To arrange such discussions he/she should contact Monte E.
Wetzler, Esq., counsel to the Company, at (201) 272-3434.
16. The Company covenants and agrees with the Optionee that in the
event the Company proposes to file a registration statement under the Act with
respect to any class of security (other than in connection with an exchange
offer or a registration statement on Form S-4, S-8, or S-18 or other unsuitable
registration statement) which becomes or which the Company believes will become
effective at any time after the date hereof, then the Company shall in each
case give written notice of such proposed filing to the Optionee at least
twenty-five (25) days before the earlier of the anticipated and the actual
effective date of the registration statement and (unless the Board of Directors
determines in a duly adopted resolution that for reasons of confidentiality
notice prior to such filing is likely to adversely affect the Company) at least
seven (7) business days before the initial filing of such registration
statement (and, if requested, the Optionee shall maintain the confidentiality
of such information) and such notice shall offer to Optionee the opportunity to
include in such registration statement such number of Shares as he/she may
request, unless, in the opinion of counsel to the Company reasonably acceptable
to the Optionee,
<PAGE> 5
registration under the Act is not required for the transfer of such
Shares in the manner proposed by the Optionee. The Company shall have no
obligation to honor any such request (i) to register fewer than 2,500 Shares,
(ii) to register Shares on more than one occasion, (iii) to register Shares if
the Company is not notified in writing of any such request pursuant to this
Paragraph 8 at least three (3) business days prior to a proposed initial filing
and (iv) to register any Shares which at the time of the filing of such
registration statement are covered by or included in any other Statement
theretofore filed by the Company under the Act. The Company shall permit, or
shall cause the managing underwriter of a proposed offering to permit, the
Optionee to include the Shares requested to be included in the registration
(the "Piggy-back Shares") in the proposed offering on the same terms and
conditions as are applicable to securities of the Company, if any, included
therein for the account of any person other than the Company and the Optionee,
provided, however, that the Company need not register Shares pursuant to such
registration statement in the event the Company abandons such filing prior to
the effective date thereof. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company that it believes that the distribution of
all or a portion of the Piggy-back Shares requested to be included in the
registration statement concurrently with the securities being registered by the
Company would adversely affect the distribution of such securities by the
Company for its own account, then the Optionee shall delay the offering and
sale of Piggy-back Shares (or the portions thereof so designated by such
managing underwriter) for such period, not to exceed ninety (90) days, as the
managing underwriter shall request provided that no such delay shall be
required as to Piggy-back Shares if any securities of the Company are included
in such registration statement for the account of any person other than the
Company and the Optionee. In the event of such delay, the Company shall file,
at its option, such supplements, post-effective amendments or separate
registration statement, take any such other steps as may be necessary to permit
the Optionee to make the proposed offering and sale for the period of ninety
(90) days immediately following the end of such period of delay (the
"Piggy-back Termination Date"); provided, however, that if any of the
Piggy-back Shares are covered by a registration statement which is or will be
required to remain in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to
the Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Paragraph 8 shall be borne by the Company, except
that underwriting commission, discounts, fees and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the
Optionee will be borne by the Optionee.
9. This Agreement is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code. Any Shares purchased pursuant to this
Agreement shall be purchased directly from the Company out of its authorized
but unissued Shares.
10. This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
11. Subject to Paragraphs 1(c) and 3(b), this Agreement shall be
binding upon that shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors or assigns, as the case
may be.
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
-----------------------------
Name: Ralph Bulle
Title: Senior Vice President
/s/ ELIZABETH VALK LONG
--------------------------------
Elizabeth Valk Long
<PAGE> 1
HANOVER DIRECT, INC.
STOCK OPTION AGREEMENT
Agreement made as of the 9th day of February, 1996 between HANOVER
DIRECT, INC. (the "Company"), a Delaware corporation, and Robert F. Wright (the
"Optionee"), residing at 37 Coniston Road, Short Hills, New Jersey 07078.
The Optionee has served as a director of the Company since 1991. In
consideration of Optionee's serving on the Search Committee of Directors to
find a replacement for the President and Chief Executive Officer of the
Company, the Company has agreed to grant to the Optionee a five-year option to
purchase 5,000 shares of Common Stock, par value 66 2/3 cents per share, of the
Company (the "Shares"), subject to and upon the terms and conditions set forth
herein (the "Option").
Therefore, in consideration of the premises and for other good and
valuable consideration, the parties hereto have agreed as follows:
17. (d) The price at which the Optionee shall have the right to
purchase Shares under this Agreement is $1.4375 per share, subject to
adjustment as provided in Paragraph 4.
(e) Subject to Paragraph 4, unless the Option is previously terminated
pursuant to this Agreement, the Option shall be exercisable in whole or in part
with respect to all 5,000 Shares beginning on the date hereof through February
8, 2001; provided, however, that the Option shall cease to be exercisable on
the date which is thirty (30) days from the termination of the Optionee's
status as a director of the Company; and provided, however, that the Company
shall have the option, in its sole discretion, to extend the period that the
Option shall be exercisable to February 8, 2002, upon written notice to the
Optionee prior to November 8, 2000.
(f) If the Optionee's status as a director of the Company terminates
due to disability or to death, the Option shall be exercisable as provided in
this subparagraph. The Optionee or, in the event of his/her disability, duly
appointed guardian or conservator or, in the event of his/her death, his/her
appointed executor or administrator, shall have the privilege of exercising the
unexercised portion of the Option which the Optionee could have exercised on
the day on which his/her status as a director of the Company terminated,
provided, however, that such exercise must be in accordance with the terms of
this Agreement and within one (1) year of the Optionee's disability or death,
as the case may be. In no event, however, shall the Optionee or his/her duly
appointed guardian or conservator or his/her duly appointed executor or
administrator, as the case may be, exercise the Option after February 8, 2001,
unless the period during which the Option is exercisable was extended pursuant
to Paragraph 1(b).
18. Nothing contained herein shall be construed (a) to confer on the
Optionee any right to continue to serve as a director of the Company or (b) to
obligate the Company (including its shareholders, directors and officers) to
either re-nominate the Optionee for election or re-elect the nominee to serve
as a director or (c) to derogate from any right of the Company (including its
shareholders, director and officers) to remove or request the resignation of
the Optionee from the Company's Board of Directors.
19. (a) The Option shall not be sold, pledged, assigned or transferred
in any manner except (i) to the extent that the Option may be exercised as
provided in Paragraph 1(c) or (ii) as provided in Paragraph 3(b).
<PAGE> 2
(b) The Option may be transferred to any living spouse, child or
parent of the Optionee (a "Permitted Transferee"), provided that (i) such
transferee executes an instrument, satisfactory in form and substance to the
Company, stating that such transferee is bound by all the terms and conditions
of this Agreement, including, without limitation, Paragraph 1(c), and (ii) the
Option may not be sold, pledged assigned or transferred in any manner by such
transferee, except to another Permitted Transferee pursuant to this Paragraph
3(b).
(c) For all purposes of this Agreement except the Preamble and
Paragraph 1(b), the term "Optionee" shall include any Permitted Transferee or
any person entitled to exercise the Option pursuant to Paragraph 1(c).
20. (a) If the outstanding Shares of the Company are subdivided,
consolidated, increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, capital adjustment or in a similar
transaction, or if the Company shall issue Shares as a dividend or upon a stock
split, then the number and kind of shares subject to the unexercised portion of
the Option and the exercise price of the Option shall be adjusted to prevent
the inequitable enlargement or dilution of any rights hereunder, provided,
however, that any such adjustment shall be made without change in the total
exercise price applicable to the unexercised portion of the Option. Adjustments
under this paragraph shall be made by the Board of Directors, whose
determination shall be final, binding and conclusive. In computing any
adjustment under this paragraph, any fractional shares shall be eliminated.
Nothing contained in this Agreement shall be construed to affect in any way the
right or power of the Company to make any adjustment, reclassification,
reorganization or changes to its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or transfer all or any part of its
business or assets.
(b) If in the event of the dissolution or liquidation of the Company,
or in the event of a merger or consolidation in which (1) the Company is not
the surviving corporation, and (2) the agreements governing such merger or
consolidation do not provide for the issuance to the Optionee of a Substitute
Option (as hereinafter defined) or the express assumption of this Option, the
Company will make or cause to be mailed to the Optionee a notice specifying the
date on which holders of Shares shall be entitled to exchange their shares for
securities or other property deliverable in connection with such merger,
consolidation, dissolution or liquidation. Such notice shall be mailed at least
ten (10) days prior to the date therein specified to the address of the
Optionee specified on page 1 of this Agreement or to such other address as the
Optionee delivers or transmits by registered or certified mail to the
Secretary of the Company at its principal office. In the event the Option is
not exercised on or prior to the date specified herein, the Option and any
rights hereunder shall terminate as of said date. For purposes of this
Paragraph 4, a Substitute Option shall mean an option under which the Optionee
has the right to purchase on substantially equivalent terms (as hereinafter
defined) (in lieu of Shares), the stock, securities or other property he/she
would have been entitled to receive upon the consummation of such merger or
consolidation had he/she exercised the Option immediately prior thereto. For
purposes of the preceding sentence, substantially equivalent terms shall be
those terms given approval by the Board of Directors in its sole discretion.
21. The Option shall be exercised when written notice of such
exercise, signed by the Optionee, has been delivered or transmitted by
registered or certified mail, to the Secretary of the Company at its principal
office. Said written notice shall specify the number of Shares purchasable
under the Option which the Optionee then wishes to purchase and shall be
accompanied by (i) such documentation, if any, as may be required by the
Company as provided in Paragraphs 6 or 8 and (ii) payment of the aggregate
option price. The Option shall be exercised only with respect to full shares of
Common Stock; no fractional Shares shall be issued. Such payment shall be in
the form of (i) cash or a certified check (unless such certification is waived
by the Company) payable to the order of the Company in the amount of the
aggregate option price for such number of Shares, (ii) certificates duly
endorsed for transfer (with all transfer taxes paid or provided for) evidencing
a number of Shares of which the aggregate fair market value on the date of
exercise is equal to the aggregate option exercise price of the Shares being
purchased, or (iii) a combination of these methods of payment. Delivery of said
<PAGE> 3
notice and such documentation shall constitute an irrevocable election to
purchase the Shares specified in said notice, and the date on which the Company
received said notice and documentation shall, subject to the provisions of
Paragraphs 6 and 8, be the date as of which the Shares so purchased shall be
deemed to have been issued. The Optionee shall not have the right or status as
a holder of the Shares to which such exercise relates prior to receipt by the
Company of such payment, notice and documentation. For purposes of this
Agreement, the fair market value per Share on a given date shall be: (i) if the
Shares are listed on a registered securities exchange or included on the
American Stock Exchange, the closing price per Share on such date, (or, if
there was not trading in the Shares on such date, on the next preceding day on
which there was trading); (ii) if the Shares are not listed on a registered
securities exchange or included on the American Stock Exchange, but the bid and
asked prices per Share are provided by NASDAQ, the National Quotation Bureau
Incorporated or any similar organization, the average of the highest reported
bid and lowest reported asked price as furnished by NASDAQ, the
National Quotation Bureau Incorporated or any similar organization. In the
absence of one or more quotations, the Board of Directors of the Company shall
in good faith determine the fair market value per share.
22. Anything in this Agreement to the contrary notwithstanding, in no
event may the Option be exercisable if the Company shall determine in good
faith that (i) the listing, registration or qualification of any Shares
otherwise deliverable upon such exercise, upon any securities exchange or under
any state or federal law, or (ii) the consent or approval of any regulatory
body or the satisfaction of withholding tax or other withholding
liabilities is necessary or desirable in connection with such exercise. In such
event, such exercise shall be held in abeyance and shall not be effective
unless and until such withholding, listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
reasonably acceptable by the Company.
23. (a) The Optionee agrees that there will be no disposition of all
or any part of the Shares acquired pursuant to any exercise of the Option or
any interest or interests therein, unless and until such disposition has been
registered under the Securities Act of 1933, as amended (the "Act"), or the
Company receives an opinion of its counsel that registration under the Act is
not required in connection with such disposition.
(b) The Optionee agrees that upon the exercise of the Option, unless
the Shares acquired pursuant to such exercise have been registered under the
Act, the transfer agent for the Shares acquired pursuant to such exercise will
be instructed to place appropriate stop orders against the transfer of the
Shares and that the certificate or certificates to be issued representing the
Shares will conspicuously bear a legend substantially as follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of an effective registration
statement for the shares under the Securities Act of 1933 or an
opinion of counsel to the Company that registration is not required
under said Act.
(c) The Optionee acknowledges that he/she is presently familiar with
the Company's business, operations and financial condition. In this connection,
the Company agrees that, upon the request of the Optionee, it will provide the
Optionee with a copy of its then most recent Annual Report to Shareholders, its
then most recently definitive Proxy Statement in connection with a meeting of
its shareholders for the election of directors, its then most recent Annual
Report of Form 10-K, and all Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed by the Company with the Securities and Exchange Commission
subsequent to the filing of its then most recent Annual Report on Form
10-K. The Optionee also acknowledges that he/she has received a description of
the Shares as contained in the Company's most recent Prospectus. In addition,
the principal officers of the Company will be reasonably available to discuss
with the Optionee the information contained in these documents, this Agreement,
or any other issues. To arrange such discussions he/she should contact Monte E.
Wetzler, Esq., counsel to the Company, at (201) 272-3434.
24. The Company covenants and agrees with the Optionee that in the
event the Company proposes to file a registration statement under the Act with
respect to any class of security (other than in connection with an exchange
offer or a registration statement on Form S-4, S-8, or S-18 or other unsuitable
registration statement) which becomes or which the Company believes will become
effective at any time after the date hereof, then the Company shall in each
case give written notice of such proposed filing to the Optionee at least
twenty-five (25) days before the earlier of the anticipated and the actual
effective date of the registration statement and (unless the Board of Directors
determines in a duly adopted resolution that for reasons of confidentiality
notice prior to such filing is likely to adversely affect the Company) at least
seven (7) business days before the initial filing of such registration
statement (and, if requested, the Optionee shall maintain the confidentiality
of such information) and such notice shall offer to Optionee the opportunity to
include in such
<PAGE> 4
registration statement such number of Shares as he/she may request, unless, in
the opinion of counsel to the Company reasonably acceptable to the Optionee,
registration under the Act is not required for the transfer of such Shares in
the manner proposed by the Optionee. The Company shall have no obligation to
honor any such request (i) to register fewer than 2,500 Shares, (ii) to
register Shares on more than one occasion, (iii) to register Shares if the
Company is not notified in writing of any such request pursuant to this
Paragraph 8 at least three (3) business days prior to a proposed initial filing
and (iv) to register any Shares which at the time of the filing of such
registration statement are covered by or included in any other Statement
theretofore filed by the Company under the Act. The Company shall permit, or
shall cause the managing underwriter of a proposed offering to permit, the
Optionee to include the Shares requested to be included in the registration
(the "Piggy-back Shares") in the proposed offering on the same terms and
conditions as are applicable to securities of the Company, if any, included
therein for the account of any person other than the Company and the Optionee,
provided, however, that the Company need not register Shares pursuant to such
registration statement in the event the Company abandons such filing prior to
the effective date thereof. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company that it believes that the distribution of
all or a portion of the Piggy-back Shares requested to be included in
the registration statement concurrently with the securities being registered by
the Company would adversely affect the distribution of such securities by the
Company for its own account, then the Optionee shall delay the offering and
sale of Piggy-back Shares (or the portions thereof so designated by such
managing underwriter) for such period, not to exceed ninety (90) days, as the
managing underwriter shall request provided that no such delay shall be
required as to Piggy-back Shares if any securities of the Company are included
in such registration statement for the account of any person other than the
Company and the Optionee. In the event of such delay, the Company shall file,
at its option, such supplements, post-effective amendments or separate
registration statement, take any such other steps as may be necessary to permit
the Optionee to make the proposed offering and sale for the period of ninety
(90) days immediately following the end of such period of delay (the
"Piggy-back Termination Date"); provided, however, that if any of the
Piggy-back Shares are covered by a registration statement which is or will be
required to remain in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to
the Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Paragraph 8 shall be borne by the Company, except
that underwriting commission, discounts, fees and expenses attributable to the
Piggy-back Shares and fees and disbursements of counsel (if any) to the
Optionee will be borne by the Optionee.
9. This Agreement is not subject to any provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code. Any Shares purchased pursuant to this
Agreement shall be purchased directly from the Company out of its authorized
but unissued Shares.
10. This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
11. Subject to Paragraphs 1(c) and 3(b), this Agreement shall be
binding upon that shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors or assigns, as the case
may be.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
-----------------------------
Name: Ralph Bulle
Title: Senior Vice President
/s/ ROBERT F. WRIGHT
--------------------------------
Robert F. Wright
<PAGE> 1
HANOVER DIRECT, INC.
1999 STOCK OPTION PLAN FOR DIRECTORS
1. PURPOSE. The purpose of the 1999 Stock Option Plan for Directors (the
"Plan") is to advance the interests of Hanover Direct, Inc. (the "Company") by
providing non-employee directors of the Company, through the grant of options
to purchase shares of Common Stock (as hereinafter defined), with a larger
personal and financial interest in the Company's success.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") consisting of at least two members of the Board of Directors of
the Company (the "Board"). The Committee shall have full power and authority to
interpret the Plan, to establish such rules and regulations as it deems
appropriate for the administration of the Plan, and to take such other action
as it deems necessary or desirable for the administration of the Plan. The
Committee's interpretation and construction of any provision of the Plan or the
terms of any Option (as hereinafter defined) shall be conclusive and binding on
all parties.
3. PARTICIPANTS. Each director of the Company who is neither an employee
of the Company nor an Ineligible Director (as hereinafter defined)(a
"Non-Employee Director") shall be eligible to be granted options to purchase
shares of Common Stock ("Options") under the Plan. An "Ineligible Director"
means any director who is a nonresident alien.
<PAGE> 2
Nothing contained in the Plan, or in any Option granted pursuant to the
Plan, shall confer upon any director any right to the continuation of his or
her directorship or limit in any way the right of the Company to terminate his
or her directorship at any time.
4. THE SHARES. Options may be granted from time to time under the Plan for
the purchase, in the aggregate, of not more than 700,000 shares of common
stock, par value $0.66-2/3 per share, of the Company ("Common Stock") (subject
to adjustment pursuant to Section 13). Such shares of Common Stock may be set
aside out of the authorized but unissued shares of Common Stock not reserved
for any other purpose or out of previously issued shares acquired by the
Company and held in its treasury. Any shares of Common Stock which, by reason
of the termination or expiration of an Option or otherwise, are no longer
subject to purchase pursuant to an Option granted under the Plan, may again be
subjected to an Option under the Plan.
5. OPTION GRANTS. Options shall be evidenced by option agreements which
shall be subject to the terms and conditions set forth in the Plan and such
other terms and conditions not inconsistent herewith as the Committee may
approve.
(a) INITIAL APPOINTMENT AWARDS. As of the effective date of his or her
initial appointment or election to the Board (or, if later, the effective date
of the Plan)(the "Initial Appointment Date"), a Non-Employee Director shall
receive a grant of an Option to purchase 50,000 shares of Common Stock (subject
to adjustment pursuant to Section 13).
(b) ANNUAL SERVICE AWARDS. On each Award Date (as hereinafter defined)
occurring after a Non-Employee Director's Initial Appointment Date, such
Non-Employee Director shall be granted, provided he or she continues to serve
as a member of the Board on such date, an Option
to purchase of 10,000 shares of Common Stock (subject to adjustment pursuant to
Section 13). An "Award Date" means August 4, 2000 or August 3, 2001.
6. OPTION PRICE. The price (the "Option Price") at which shares of Common
Stock may be purchased upon the exercise of an Option granted under the Pan
shall be the fair market value of such shares on the date of grant of such
Option. Solely for purposes of this Section 6, the fair market value of a share
of Common Stock shall be deemed to be the average of the closing prices of the
Common Stock on the Initial Appointment Date or Award Date, as the case may
be,the 10 trading days immediately preceding such date, and the 10 trading days
immediately following such date.
7. TERM AND EXERCISABILITY OF OPTIONS. Options shall be granted for terms
of 10 years. Subject to the other provisions of the Plan relating to
exercisability of Options, the participant shall have the cumulative right as
of the first, second, and third anniversaries of the date of grant, to purchase
up to one-third, two-thirds, and 100%, respectively, of the Option Shares.
8. TERMINATION OF DIRECTORSHIP. Except as otherwise provided in this
Section 8, no person may exercise an Option more than three months after the
first date on which he or she ceases to be a director of the Company. If a
participant ceases to be a director of the Company by reason of death or
disability, any Options held by him or her may be exercised within 12 months
after the date he or she ceases to be a director of the Company. In no event
may an Option be exercised after the expiration of the term of such Option.
9. PAYMENT. Full payment of the purchase price for shares of Common Stock
purchased upon the exercise, in whole or part, of an Option granted under the
Plan shall be made at the time of such exercise. The Option Price may be paid
in cash or in shares of Common Stock valued at their fair market value on the
date of exercise. Alternatively, an Option may be exercised in whole or in part
by
<PAGE> 3
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds necessary to pay the Option Price, and such other documents as
the Committee may determine.
No shares of Common Stock shall be issued or transferred to a participant
until full payment therefor has been made, and a partcipant shall have none of
the rights of a stockholder until shares are issued or transferred to him or
her.
10. NONTRANSFERABILITY. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution, and
during a participant's lifetime, shall be exercisable only by him or her.
Nothwithstanding the foregoing, a participant may transfer any Nonqualified
Stock Option granted under the Plan to the participant's spouse, children,
grandchildren, parents, and/or siblings or to one or more trusts for the
benefit of such family members, if the agreement evidencing such Option so
provides and the participant does not receive any consideration for the
transfer. Any Option so transferred shall continue to be subject to the same
terms and conditions that applied to such Option immediately prior to its
transfer (except that such transferred Option shall not be further transferable
by the transferee during the transferee's lifetime).
11. ISSUANCE OF SHARES. If a participant so requests, shares purchased
upon the exercise of an Option may be issued or transferred in the name of the
participant and another person jointly with the right of survivorship.
12. STATUS OF OPTION. Options granted under the Plan are nonstatutory
options not qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended.
13. CHANGES IN CAPITAL STRUCTURE, ETC. In the event of any change in the
outstanding Common Stock by reason of any stock dividend, stock split,
combination of shares, recapitalization, or other similar change in the capital
stock of the Company, or in the event of the merger or consolidation of the
Company into or with any other corporation or the reorganization of the
Company, there shall be substituted for or added to each share of Common Stock
theretofore appropriated for the purpose of the Plan or thereafter subject, or
which may become subject, to an Option under the Plan, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock shall be so changed or for which each such share shall be exchanged or to
which each such share shall be entitled, as the case may be. Outstanding
Options shall be appropriately amended as to price and other terms in a manner
consistent with the aforementioned adjustment to the shares of Common Stock
subject to the Plan. Fractional shares resulting from any adjustment in Options
pursuant to this Section 13 may be settled in cash or otherwise as the
Committee shall determine. Notice of any adjustments shall be given by the
Company to each holder of an Option which shall have been adjusted and such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of this Plan.
14. EFFECTIVE DATE AND TERMINATION OF PLAN. The Plan shall become
effective on the date of its adoption by the Board or duly authorized committee
thereof, subject to the ratification of the Plan by the affirmative vote or
consent of holders of a majority of the issued and outstanding shares of Common
Stock. The Plan shall terminate 10 years from the date of its adoption or such
earlier date as the Board or such committee may determine. Any Option
outstanding under the Plan at the time of its termination shall remain in
effect in accordance with its terms and conditions and those of the Plan.
15. AMENDMENT. The Board or a duly authorized committee thereof may amend
the Plan in any respect from time to time; provided, however, that no amendment
<PAGE> 4
shall become effective unless approved by affirmative vote of the Company's
shareholders if such approval is necessary or desirable for the continued
validity of the Plan or if the failure to obtain such approval would adversely
affect the compliance of the Plan with Rule 16b-3 or any successor rule under
the Securities Exchange Act of 1934 or any other rule or regulation. No
amendment may, without the consent of a participant, impair his or her rights
under any Option previously granted under the Plan.
The Board or a duly authorized committee thereof shall have the power, in
the event of any disposition of substantially all of the assets of the Company,
its dissolution, any merger or consolidation of the Company with or into any
other corporation, or the merger or consolidation of any other corporation into
the Company, to amend all outstanding Options to terminate such Options
as of such effectiveness. If the Board shall exercise such power, all Options
then outstanding shall be deemed to terminate upon such effectiveness.
16. LEGAL AND REGULATORY REQUIREMENTS. No Option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable federal and state laws and regulations including, without
limitation, compliance with the rules of all domestic stock exchanges on which
the Common Stock may be listed. Any share certificate issued to evidence shares
for which an Option is exercised may bear such legends and statements as the
Committee shall deem advisable to assure compliance with federal and state laws
and regulations. No Option shall be exercisable, and no shares will be
delivered under the Plan, until the Company has obtained consent or approval
from regulatory bodies, federal or state, having jurisdiction over such matters
as the Committee may deem advisable.
In the case of the exercise of an Option by a person or estate acquiring
the right to exercise the Option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the Option and may require
consents and releases of taxing authorities that it may deem advisable.
August 5, 1999
<PAGE> 1
TWELFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS TWELFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
September 30, 1998, is entered into by and among CONGRESS FINANCIAL CORPORATION,
a Delaware corporation, successor by merger to 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"), HANOVER HOLDING CORP., a
Delaware corporation, successor by merger of The Company Store, Inc. with and
into Tweeds, Inc., which has changed its name to Hanover Holding Corp. ("HHC
Corp."; as hereinafter further defined), 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, HH Corp., LWI, Aegis, HDV and Hanover Realty, each individually referred
to herein as an "Existing Borrower" and collectively, "Existing Borrowers"), and
HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL
CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware
corporation ("Aegis Holdings"), AEGIS VENTURES, INC., a Delaware corporation
("Aegis Ventures"), AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation,
BRAWN WHOLESALE CORP., a California corporation ("Brawn Wholesale"), THE COMPANY
STORE FACTORY, INC., a Delaware corporation, successor by merger of The Company
Factory, Inc., a Wisconsin corporation, with and into The Company Store Factory,
Inc. ("TCS Factory"), THE COMPANY OFFICE, INC., a Delaware corporation,
successor by merger to The Company Office, Inc., a Wisconsin corporation ("TCS
Office"), COMPANY STORE HOLDINGS, INC., a Delaware corporation ("CSHI"), 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 Casuals"), HANOVER CATALOG HOLDINGS,
INC., a Delaware corporation ("Hanover Catalog"), HANOVER FINANCE CORPORATION, a
Delaware corporation ("HFC"), HANOVER LIST MANAGEMENT INC., a New Jersey
corporation ("Hanover List"), HANOVER VENTURES, INC., a Delaware corporation
("Hanover Ventures"), LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN
CORPORATION, a Delaware corporation ("Scandia"), AUSTAD HOLDINGS, INC., a
Delaware corporation ("Austad Holdings"), YORK FULFILLMENT COMPANY, INC., a
Pennsylvania corporation ("York Fulfillment"), and TWEEDS OF VERMONT, INC., a
Delaware corporation (each individually an "Existing Guarantor" and
collectively, "Existing Guarantors"), TWEEDS, LLC, a Delaware limited liability
company ("Tweeds LLC"; as hereinafter further defined), SILHOUETTES, LLC, a
Delaware limited liability company ("Silhouettes LLC"; as hereinafter further
defined), HANOVER COMPANY STORE, LLC, a Delaware limited
<PAGE> 2
liability company ("HCS LLC"; as hereinafter further defined), DOMESTICATIONS,
LLC, a Delaware limited liability company ("Domestications LLC"; as hereinafter
further defined), COLONIAL GARDEN KITCHENS, INC., a Delaware corporation
("Colonial Garden"; as hereinafter further defined), HANOVER HOME FASHIONS
GROUP, LLC, a Delaware limited liability company ("HHFG LLC"; as hereinafter
further defined), HANOVER WOMEN'S APPAREL, LLC, a Delaware limited liability
company ("HWA LLC"; as hereinafter further defined), and KEYSTONE FULFILLMENT,
INC., a Delaware corporation ("Keystone"; as hereinafter further defined). Each
Existing Borrower, together with Tweeds LLC, Silhouettes LLC, HCS LLC,
Domestications LLC and Colonial Garden, shall hereinafter be referred to
individually as a "Borrower" and collectively as "Borrowers", and each Existing
Guarantor, together with HWA LLC, HHFG LLC and Keystone, shall hereinafter be
referred to individually as a "Guarantor" and collectively as "Guarantors".
W I T N E S S E T H:
WHEREAS, Existing Borrowers, Existing 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 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 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, the Tenth Amendment to Loan
and Security Agreement, dated as of October 31, 1997, and the Eleventh Amendment
to Loan and Security Agreement, dated as of March 25, 1998 (as so amended, the
"Loan Agreement"), pursuant to which Lender has made loans and advances to
Existing Borrowers; and
WHEREAS, Existing Borrowers and Existing Guarantors have requested
that Lender consent to, and enter into certain amendments to the Loan Agreement
and agreements with respect to certain transactions as described herein in
connection with, the corporate reorganization of certain Existing Borrowers and
certain Existing Guarantors; and
WHEREAS, Existing Borrowers and Existing Guarantors have requested
that each of Tweeds LLC, Silhouettes LLC, HCS LLC, Domestications LLC and
Colonial Garden become a Revolving Loan Borrower pursuant to the terms and
conditions of the Loan Agreement, as amended hereby, and that each of HWA LLC,
HHFG LLC
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and Keystone become a Guarantor pursuant to the terms and conditions of the Loan
Agreement, as amended hereby; and
WHEREAS, Existing Borrowers and Existing Guarantors have also
requested that Lender acknowledge that it has released certain availability
reserves previously established by Lender against the Revolving Loan
availability of LWI and HDPI; and
WHEREAS, Existing Borrowers and Existing Guarantors have also
requested that Lender consent to the assignment by Hanover Catalog and Brawn of,
and that Lender release its security interest in and lien on, certain Trademarks
described herein; and
WHEREAS, the parties to the Loan Agreement desire to enter into this
Twelfth Amendment to Loan and Security Agreement (this "Amendment") to evidence
and effectuate such consents, amendments and agreements, and certain other
amendments to the Financing Agreements relating thereto, in each case subject to
the terms and conditions and to the extent 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 Subsidiary Merger Agreements"
shall mean, collectively, the certificates or agreements executed, delivered or
filed in connection with, or otherwise evidencing, the Hanover List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger, the TCS Factory/Company Factory Merger, the TCS Office/Company
Office Merger, the TCSI/Tweeds Merger, and the Aegis Safety/HDI Merger and all
related agreements, documents and instruments, as the same now exist or may
hereafter be entered into, amended, modified, supplemented, extended, renewed,
restated or replaced.
(ii) "Aegis Safety/HDI Merger" shall mean the merger of
Aegis Safety Holdings, Inc. with and into Hanover Direct, Inc., with Hanover
Direct, Inc. as the surviving corporation.
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<PAGE> 4
(iii) "Austad/Austad Holdings Merger" shall mean the
merger of The Austad Company with and into Austad Holdings, Inc., with Austad
Holdings, Inc. as the surviving corporation, which shall, contemporaneously with
that merger and pursuant thereto, change its name to The Austad Company.
(iv) "Colonial Garden" shall mean Colonial Garden
Kitchens, Inc., a Delaware corporation, and its successors and assigns.
(v) "Colonial Garden Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HDPI immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to Colonial
Garden and (B) are or have been owned or acquired by Colonial Garden at any time
on or after the effective date of Phase I of the Hanover 1998 Reorganization as
to Colonial Garden, which assets and properties were and are primarily related
to or primarily used in connection with or arise from the sale of merchandise or
services sold through the "Colonial Garden Kitchens" mail order catalog,
including, without limitation, all Accounts, Inventory, Customer Lists and other
General Intangibles so related, used or sold.
(vi) "Colonial Garden Eligible Inventory" shall mean all
Colonial Garden Catalog Assets consisting of finished goods Inventory of
Colonial Garden in the merchandise categories of work saving and lifestyle
enhancing items for the kitchen and home offered for sale by Colonial Garden in
its "Colonial Garden Kitchen" catalog, or such other catalogs created or
acquired by Colonial Garden covering substantially similar merchandise which
Colonial Garden has requested Lender to include in this Inventory category.
(vii) "Company Store Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HH Corp. immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HH
Corp. and (B) are or have been owned or acquired by HCS LLC at any time after
the effective date of Phase I of the Hanover 1998 Reorganization as to HH Corp.,
which assets and properties were and are primarily related to or primarily used
in connection with or arise from the sale of merchandise or services sold
through the "The Company Store" mail order catalog, including, without
limitation, all Accounts, Inventory, Customer Lists and other General
Intangibles so related, used or sold.
(viii) "Domestications Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HDV immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to HDV, and
(B) are or have been owned or acquired by Domestications LLC at any time on or
after the effective date of Phase I of the Hanover 1998 Reorganization
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<PAGE> 5
as to HDV, which assets and properties were and are primarily related to or
primarily used in connection with or arise from the sale of merchandise or
services sold through the "Domestications" mail order catalog, including,
without limitation, all Accounts, Inventory, Customer Lists and other General
Intangibles so related, used or sold.
(ix) "Domestications LLC" shall mean Domestications,
LLC, a Delaware limited liability company, and its successors and assigns.
(x) "Domestications LLC Eligible Inventory" shall mean
all Domestications Catalog Assets consisting of Inventory of Domestications LLC
in the merchandise categories of home fashions offered for sale by
Domestications LLC in its "Domestications" catalog or such other catalogs
created or acquired by Domestications LLC covering substantially similar
merchandise which Domestications LLC has requested Lender to include in this
Inventory category.
(xi) "HCS LLC" shall mean Hanover Company Store, LLC, a
Delaware limited liability company, and its successors and assigns.
(xii) "HCS LLC Eligible Inventory" shall mean all the
Company Store Catalog Assets consisting of Inventory of HCS LLC in the
merchandise categories of comforters, blankets, sheets, towels, curtains,
pillows, featherbeds, decorative home products, loungewear and outer garments
offered for sale by HCS LLC in its "The Company Store" catalog, or such other
catalog created by HCS LLC covering substantially similar merchandise which HCS
LLC has requested Lender to include in this Inventory category.
(xiii) "HH Corp." shall mean Hanover Holding Corp., a
Delaware corporation, and its successors and assigns, the surviving corporation
of the TCSI/Tweeds Merger.
(xiv) "HHFG LLC" shall mean Hanover Home Fashions Group,
LLC, a Delaware limited liability company, and its successors and assigns.
(xv) "HWA LLC" shall mean Hanover Women's Apparel, LLC,
a Delaware limited liability company, and its successors and assigns.
(xvi) "Hanover List/DM Advertising Merger" shall mean
the merger of Hanover List Management, Inc. with and into D.M. Advertising,
Inc., with D.M. Advertising, Inc. as the surviving corporation.
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<PAGE> 6
(xvii) "Hanover 1998 Reorganization" shall mean,
individually and collectively, the reorganization steps and transactions
effected under the Hanover 1998 Reorganization Agreements.
(xviii) "Hanover 1998 Reorganization Agreements" shall
mean, collectively, the agreements, documents and instruments listed in Schedule
1 hereto, the Hanover Subsidiary Dissolution Agreements, the Additional Hanover
Subsidiary Merger Agreements, and all related agreements, documents and
instruments executed, delivered or filed in connection with, or otherwise
evidencing, each of the transactions consented to in Section 2 hereof, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(xix) "Hanover Subsidiary Dissolution Agreements" shall
mean, collectively, the certificates or agreements executed, delivered or filed
in connection with, or otherwise evidencing, the dissolution of Aegis Ventures,
Hanover Casuals, Gump's Catalog, HFC, York Fulfillment, Brawn Wholesale, Hanover
Ventures, and all related agreements, documents and instruments, as the same now
exist or may hereafter entered into, be amended, modified, supplemented,
extended, renewed, restated or replaced.
(xx) "Keystone Fulfillment" shall mean Keystone
Fulfillment, Inc., a Delaware corporation, and its successors and assigns.
(xxi) "La Crosse, Wisconsin Telemarketing Center Assets"
shall mean all of the fixed assets that (A) are or were owned by HH Corp.
immediately before the consummation of Phase I of the Hanover 1998
Reorganization as to HH Corp. and (B) are or have been owned or acquired by HHFG
LLC at any time on or after the effective date of Phase I of the Hanover 1998
Reorganization as to HH Corp, which fixed assets were and are primarily related
to or primarily used in connection with the business and operations of the
telemarketing and call center located at 455 Park Plaza, La Crosse, Wisconsin.
(xxii) "LWI Retail/LWI Holdings Merger" shall mean the
merger of LWI Retail, Inc. with and into LWI Holdings, Inc., with LWI Holdings,
Inc. as the surviving corporation.
(xxiii) "Phase I of the Hanover 1998 Reorganization"
shall mean the transactions comprising part of the Hanover 1998 Reorganization
consented to in Section 2(a) hereof.
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<PAGE> 7
(xxiv) "Roanoke, Virginia Fulfillment Center Assets"
shall mean all of the fixed assets that (A) are or were owned by HDV immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HDV,
and (B) are or have been owned or acquired by HHFG LLC at any time on or after
the effective date of Phase I of the Hanover 1998 Reorganization as to HDV,
which fixed assets were and are primarily related to or primarily used in
connection with the business and operations of the mail order fulfillment center
located at 5022 Hollins Road, Roanoke, Virginia, also known as The Home Fashion
Center, including, without limitation, any leasehold interest of HDV with
respect to such premises.
(xxv) "Silhouettes Catalog Assets" shall mean all of the
assets and properties that (A) are or were owned by HDPI immediately before the
consummation of Phase I of the Hanover 1998 Reorganization as to HDPI, and (B)
are or have been owned or acquired by Silhouettes LLC at any time on or after
the effective date of Phase I of the Hanover 1998 Reorganization as to HDPI,
which assets and properties were and are primarily related to or primarily used
in connection with or arise from the sale of merchandise or services sold
through the "Silhouettes" mail order catalog, including, without limitation, all
Accounts, Inventory, Customer Lists and other General Intangibles so related,
used or sold.
(xxvi) "Silhouettes LLC" shall mean Silhouettes, LLC, a
Delaware limited liability company, and its successors and assigns.
(xxvii) "Silhouettes LLC Eligible Inventory" shall mean
all Silhouettes Catalog Assets consisting of finished goods Inventory of
Silhouettes LLC in the merchandise category of women's apparel and accessories
offered for sale by Silhouettes LLC in its "Silhouettes" catalog, or such other
catalogs created or acquired by Silhouettes LLC covering substantially similar
merchandise which Silhouettes LLC has requested Lender to include in this
Inventory category.
(xxviii) "TCS Factory/Company Factory Merger" shall mean
the merger of The Company Factory, Inc., a Wisconsin corporation, with and into
The Company Store Factory, Inc., a Delaware corporation, with The Company Store
Factory, Inc. as the surviving corporation.
(xxix) "TCS office/Company Office Merger" shall mean the
merger of The Company Office, Inc., a Wisconsin corporation, with and into The
Company office, Inc., a Delaware corporation, with The Company Office, Inc., a
Delaware corporation, as the surviving corporation.
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<PAGE> 8
(xxx) "TCSI/Tweeds Merger" shall mean the merger of The
Company Store, Inc. with and into Tweeds, Inc., with Tweeds, Inc. as the
surviving corporation, which thereafter has changed its name to Hanover Holding
Corp.
(xxxi) "Tweeds Catalog Assets" shall mean all of the
assets and properties (A) that are or were owned by Tweeds immediately before
the consummation of Phase I of the Hanover 1998 Reorganization as to Tweeds, and
(B) are or have been owned or acquired by Tweeds LLC at any time on or after the
effective date of Phase I of the Hanover 1998 Reorganization as to Tweeds, which
assets and properties were and are primarily related to or used in connection
with or arise from the sale of merchandise or services through the "Tweeds" mail
order catalog, including, without limitation, all Accounts, Inventory, Customer
Lists and other General Intangibles so related, used or sold.
(xxxii) "Tweeds LLC" shall mean Tweeds, LLC, a Delaware
limited liability company, and its successors and assigns.
(xxxiii) "Tweeds LLC Eligible Inventory" shall mean all
Tweeds Catalog Assets consisting of Inventory of Tweeds LLC in the merchandise
categories of men's and women's apparel, shoes, hosiery, costume jewelry,
accessories and outerwear offered for sale by Tweeds LLC in its "Tweeds" catalog
or such other catalogs created or acquired by Tweeds LLC covering substantially
similar merchandise which Tweeds LLC has requested Lender to include in this
Inventory category.
(xxxiv) "Tweeds of Vermont" shall mean Tweeds of
Vermont, Inc., a Delaware corporation, and its successors and assigns.
(xxxv) "Wisconsin Retail Outlet Assets" shall mean all
of the assets and properties that (A) are or were owned by HH Corp. immediately
before the consummation of Phase I of the Hanover 1998 Reorganization as to HH
Corp., and (B) are or have been owned or acquired by HH Corp. on and after the
effective date of Phase I of the Hanover 1998 Reorganization as to HH Corp.,
which assets and properties are primarily related to or primarily used in
connection with or arise from the business and operations of the four (4) retail
outlet stores previously operated by HH Corp. and located in La Crosse,
Wisconsin, including, without limitation, all Accounts, Inventory, and other
General Intangibles so related, used or sold.
(b) Amendments to Definitions.
(i) Revolving Loan Borrowers. Effective as of the
consummation of Phase I of the Hanover 1998
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<PAGE> 9
Reorganization, Section 1.117 of the Loan Agreement shall be deemed deleted in
its entirety and replaced with the following:
"1.117 "Revolving Loan Borrowers" shall mean, individually and
collectively, HDPI, Brawn, GBM, Gump's, HH Corp., Tweeds LLC,
Silhouettes LLC, HCS LLC, Domestications LLC, Colonial Garden, LWI,
HDV, Aegis and Austad."
(ii) General Merchandise Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to Colonial
Garden, Section 1.47 of the Loan Agreement shall be deemed amended by deleting
the reference to "Colonial Garden Kitchens" referred to in that Section.
(iii) Home Furnishings Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HDV, Section
1.66 of the Loan Agreement shall be deemed amended by deleting the reference to
the catalog "Domestications" referred to in that Section.
(iv) Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization, the first sentence
of Section 1.34 of the Loan Agreement is hereby shall be deemed amended by
deleting the references to "TCS Eligible Inventory", "Tweeds Eligible Inventory"
and "Women's Fashion Inventory", which shall be replaced with the following
references: "Tweeds LLC Eligible Inventory", "HCS LLC Eligible Inventory",
"Silhouettes LLC Eligible Inventory", "Domestications LLC Eligible Inventory"
and "Colonial Gardens Eligible Inventory."
(v) TCS Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HH Corp., (A)
Section 1.130 of the Loan Agreement shall be deemed deleted in its entirety and
replaced with the following: "[Intentionally Deleted]" and (B) all references to
the term "TCS Eligible Inventory" contained in the Loan Agreement and any of the
other Financing Agreements shall be deemed deleted.
(vi) Tweeds Eligible Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to Tweeds, (A)
Section 1.140 of the Loan Agreement shall be deemed deleted in its entirety and
replaced with the following: "Section 1.140 [Intentionally Deleted]" and (B) all
references to the term "Tweeds Eligible Inventory" contained in the Loan
Agreement or in any of the other Financing Agreements shall be deemed deleted.
(vii) Women's Fashion Inventory. Effective as of the
consummation of Phase I of the Hanover 1998 Reorganization as to HDPI, (A)
Section 1.145 of the Loan
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<PAGE> 10
Agreement shall be deemed deleted in its entirety and replaced with the
following: "1.145 [Intentionally Deleted]" and (B) all references to the term
"Women's Fashion Inventory" contained in the Loan Agreement or in any of the
other Financing Agreements shall be deemed deleted.
(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. Consents.
(a) Phase I of Hanover 1998 Reorganization. Subject to the
terms and conditions contained herein and in the Loan Agreement and in the other
Financing Agreements, and notwithstanding anything contained in Sections 6.2,
6.5, 6.6(a), 6.6(c) or 6.9 of the Loan Agreement to the contrary, Lender
consents to the following transactions:
(i) the merger of TCSI with and into Tweeds, Inc.,
pursuant to the TCSI/Tweeds Merger, with Tweeds, Inc. as the surviving
corporation, pursuant to which merger Tweeds, Inc. changed its name to Hanover
Holding Corp. in accordance with the applicable Hanover 1998 Reorganization
Agreements;
(ii) the formation of Silhouettes LLC and the
contribution, assignment and transfer by HDPI to Silhouettes LLC of all of the
Silhouettes Catalog Assets, subject to the security interests and liens of
Lender therein, in consideration of a one hundred percent (100%) membership
interest in Silhouettes LLC, and the assumption by Silhouettes LLC of all
obligations, liabilities and indebtedness of HDPI allocated to the Silhouettes
Catalog Assets (including the Obligations of HDPI allocated thereto, but without
thereby releasing HDPI from liability therefor), all in accordance with the
applicable Hanover 1998 Reorganization Agreements;
(iii) the formation of Tweeds LLC and the contribution,
assignment and transfer by HH Corp. to Tweeds LLC of all of the right, title and
interest of HH Corp., in and to the Tweeds Catalog Assets, but in any event
excluding (A) the fifty percent (50%) ownership interest of HH Corp. in the Blue
Ridge Associates general partnership, and (B) the leasehold interest of HH Corp.
in the premises located at One Avery Row, Roanoke, Virginia, in each case,
subject to the security interests and liens of Lender therein, in consideration
of a one hundred percent (100%) membership interest in Tweeds LLC, and the
assumption by Tweeds LLC of all obligations, liabilities and indebtedness of
HH Corp. allocated to the Tweeds Catalog Assets (including the Obligations of
HH Corp. allocated thereto, but
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<PAGE> 11
without thereby releasing HH Corp. from liability therefor, but excluding in any
event any obligations, liabilities and indebtedness of HH Corp. as a general
partner of Blue Ridge Associates general partnership and also excluding loans
made by Hanover to Tweeds, Inc. before the TCSI/Tweeds Merger for the purpose of
funding the capital contribution of Tweeds, Inc. to the Blue Ridge Associates
general partnership and those relating to the leasehold interest in One Avery
Row) all in accordance with the applicable Hanover 1998 Reorganization
Agreements;
(iv) the formation of HWA LLC by HDPI and HH Corp. and
(A) the contribution, assignment and transfer by HH Corp. to HWA LLC of
ninety-nine and nine tenths percent (99.9%) of HH Corp.'s membership interest in
Tweeds LLC in consideration of a membership interest in HWA LLC, expressed as a
percentage equal to the fraction, (1) the numerator of which is the book value
of the net assets contributed by HH Corp. to HWA LLC as of the effective date of
Phase I of the Hanover 1998 Reorganization as to HH Corp. and (2) the
denominator of which is equal to the sum of the book value of net assets
contributed by each of HH Corp. and HDPI to HWA LLC as of the effective date of
Phase I of the Hanover 1998 Reorganization as to HH Corp. and HDPI, and (B) the
contribution, assignment and transfer by HDPI to HWA LLC of ninety-nine and nine
tenths percent (99.9%) of HDPI'S membership interest in Silhouettes LLC in
consideration of a membership interest in HWA LLC, expressed as a percentage,
equal to the fraction, (1) the numerator of which is the book value of the net
assets contributed by HDPI to HWA LLC as of the effective date of Phase I of the
Hanover 1998 Reorganization as to HDPI and (2) the denominator of which is the
sum of the book value of the net assets contributed by each of HH Corp. and HDPI
to HWA LLC as of the effective date of Phase I of the Hanover 1998
Reorganization as to HH Corp. and HDPI, in each case subject to the security
interests and liens of Lender in the assets of HH Corp. and HDPI; provided,
that, HWA LLC shall deliver to Lender, as soon as available, but in any event no
later than January 15, 1999, a Secretary's or Assistant Secretary's Certificate
stating the percentage membership interests of HDPI and HH Corp. in HWA LLC as
of the effective date of that portion of Phase I of the Hanover 1998
Reorganization described in this Section 2(a)(iv) as reflected on the books and
records of HWA LLC;
(v) the formation of HCS LLC and the contribution,
assignment and transfer by HH Corp. to HCS LLC of all of the Company Store
Catalog Assets (excluding in any event the Wisconsin Retail Outlet Assets and
the La Crosse, Wisconsin Telemarketing Center Assets), subject to the security
interests and liens of Lender therein, in consideration of a one hundred percent
(100%) membership interest in HCS LLC, and the assumption by HCS LLC of all
obligations, liabilities and indebtedness of HH Corp., as the surviving
corporation to the TCSI/Tweeds Merger, allocated to the Company Store Catalog
Assets (including the
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Obligations of HH Corp., as the surviving corporation of the TCSI/Tweeds Merger,
allocated thereto, but excluding in any event any obligations, liabilities and
indebtedness of HH Corp. allocated to the Wisconsin Retail Outlet Assets and the
La Crosse, Wisconsin Telemarketing Center Assets, but without thereby releasing
HR Corp. from liability therefor), all in accordance with the applicable Hanover
1998 Reorganization Agreements;
(vi) the formation of Domestications LLC and the
contribution, assignment and transfer by HDV to Domestications LLC of all of the
Domestications Catalog Assets (excluding in any event, the Roanoke, Virginia
Fulfillment Center Assets), subject to the security interests and liens of
Lender therein, in consideration of a one hundred percent (100%) membership
interest in Domestications LLC, and the assumption by Domestications LLC of all
obligations, liabilities and indebtedness of HDV allocated to the Domestications
Catalog Assets (including the Obligations of HDV allocated thereto, but
excluding in any event any obligations, liabilities and indebtedness of HDV
allocated to the Roanoke, Virginia Fulfillment Center Assets, but without
thereby releasing HDV from liability therefor), all in accordance with the
applicable Hanover 1998 Reorganization Agreements;
(vii) the formation of HHFG LLC by HDV and HH Corp., and
(A) the contribution, assignment and transfer by HH Corp. to HHFG LLC of the
La Crosse, Wisconsin Telemarketing Center Assets and ninety-nine and nine tenths
percent (99.9%) of HH Corp.'s membership interest in HCS LLC in consideration of
a membership interest In HHFG LLC expressed as a percentage equal to the
fraction, (1) the numerator of which is the book value of the net assets
contributed by HH Corp. to HHFG LLC as of the effective date of Phase I of the
Hanover 1998 Reorganization as to HDV and (2) the denominator of which is the
sum of the book value of the net assets contributed by each of HDV and HH Corp.
to HHFG LLC, as of the effective date of Phase I of the Hanover 1998
Reorganization as to HDV and HH Corp. and (B) the contribution, assignment and
transfer by HDV to HHFG LLC of the Roanoke, Virginia Fulfillment Center Assets
and the ninety-nine and nine tenths percent (99.9%) of HDV's membership interest
in Domestications LLC in consideration of a membership interest in HHFG LLC,
expressed as a percentage, equal to the fraction, (1) the numerator of which is
the book value of the net assets contributed by HDV as of the effective date of
Phase I of the Hanover 1998 Reorganization and (2) the denominator of which is
the sum of the book value of net assets contributed by each of HDV and HH Corp.
to HHFG LLC as of the effective date of Phase I of the Hanover 1998
Reorganization, in each case, subject to the security interests and liens of
Lender in the assets of HDV and HH Corp.; provided, that, HHFG LLC shall deliver
to Lender, as soon as available, but in any event no later than January 15,
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1999, a Secretary's or Assistant Secretary's Certificate stating the percentage
membership interests of HDV and HH Corp. in HHFG LLC as of the effective date of
that portion of Phase I of the Hanover 1998 Reorganization described in this
Section 2(a) (vii) as reflected on the books and records of HHFG LLC;
(viii) the formation of Colonial Garden and the
contribution, assignment and transfer by HDPI to Colonial Garden of all of the
Colonial Garden Catalog Assets, subject to the security interests and liens of
Lender therein, in consideration of all of the issued and outstanding shares of
capital stock of Colonial Garden, and the assumption by Colonial Garden of all
obligations, liabilities and indebtedness of HDPI allocated to the Colonial
Garden Catalog Assets (including the Obligations of HDPI allocated thereto, but
without thereby releasing HDPI from liability therefor), all in accordance with
the applicable Hanover 1998 Reorganization Agreements;
(ix) the formation of Keystone Fulfillment and the
capital contribution by Hanover of Ten Dollars ($10) in consideration of all of
the issued and outstanding shares of capital stock of Keystone Fulfillment, in
accordance with the applicable Hanover 1998 Reorganization Agreements;
(x) the merger of The Company Factory, Inc. with and
into The Company Store Factory, Inc., pursuant to the TCS Factory/Company
Factory Merger, with The Company Store Factory, Inc. as the surviving
corporation, in accordance with the applicable Hanover 1998 Reorganization
Agreements; and
(xi) the merger of The Company Office, Inc., a Wisconsin
Corporation, with and into The Company Office, Inc., a Delaware corporation,
pursuant to the TCS Office/Company Office Merger, with The Company Office, Inc.,
a Delaware corporation, as the surviving corporation, in accordance with the
applicable Hanover 1998 Reorganization Agreements.
(b) Additional Hanover Subsidiary 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 List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger and the Aegis Safety/HDI Merger, conditioned on the following:
(i) as soon as available, but in any event no later than
ten (10) days after the date of the effectiveness of each of the Hanover List/DM
Advertising Merger, the Austad/Austad Holdings Merger, the LWI Retail/LWI
Holdings Merger and the Aegis Safety/HDI Merger, Lender shall have received, in
form and substance satisfactory to Lender, (A) true and complete
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<PAGE> 14
copies of all of the Additional Hanover Subsidiary Merger Agreements with
respect to each such merger and (B) evidence that the Additional Hanover
Subsidiary Merger Agreements with respect to each such merger have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of such Additional Hanover Subsidiary
Merger Agreements have been duly and validly effected;
(ii) as soon as available, but in any event no later
than ten (10) days after the date of the effectiveness of each of the Hanover
List/DM Advertising Merger, the Austad/Austad Holdings Merger, the LWI
Retail/LWI Holdings Merger and the Aegis Safety/HDI Merger, Lender shall have
received, in form and substance satisfactory to Lender, evidence that the
certificates of merger with respect to each such merger have been filed with the
Secretary of State of the appropriate States of incorporation of each
constituent corporation;
(iii) after giving effect to the consummation of the
respective mergers consented to in this Section 2(b), no Event of Default or
Incipient Default shall exist or have occurred and be continuing; and
(iv) the mergers consented to under this Section 2(b)
and contemplated by the Additional Hanover Subsidiary Merger Agreements shall
have occurred and be effective by no later than December 26, 1998 or such later
date or dates as Lender shall approve in writing.
(c) Guarantor dissolutions. 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 Aegis Ventures,
Hanover Casuals, Gump's Catalog, HFC and York Fulfillment, conditioned on the
following:
(i) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions described
in this Section 2(c), Borrowers and Guarantors shall deliver to Lender, in form
and substance satisfactory to Lender, (A) true and complete copies of all of the
Hanover Subsidiary Dissolution Agreements with respect to the dissolution of
each such Guarantor and (B) evidence that the Hanover Subsidiary Dissolution
Agreements with respect to the dissolution of each such Guarantor have been duly
executed and delivered by and to the appropriate parties thereto, and the
transactions contemplated under the terms of such Hanover Subsidiary Dissolution
Agreements have been effected;
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(ii) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions consented
to in this Section 2(c), Lender shall have received, in form and substance
satisfactory to Lender, evidence that the certificate of dissolution with
respect to such Guarantor has been issued by the appropriate State governmental
authority;
(iii) after giving effect to the respective dissolutions
consented to in this Section 2(c), no Event of Default or Incipient Default
shall exist or have occurred and be continuing; and
(iv) the dissolutions consented to under this Section
2(c) and contemplated by the Hanover Subsidiary Dissolution Agreements shall
have occurred, and be effective, by no later than December 26, 1998 or such
later date as Lender shall approve in writing.
(d) Withdrawal of Foreign Qualification by Tweeds of Vermont.
(i) Borrowers and Guarantors hereby notify Lender that
Tweeds of Vermont intends to withdraw its qualification to do business as a
foreign corporation in the State of Vermont on or before December 26, 1998.
Borrowers and Guarantors jointly and severally represent and warrant to Lender
that the nature of the business of Tweeds of Vermont as presently conducted does
not require Tweeds of Vermont to qualify to do business as a foreign corporation
in the State of Vermont, and the failure to be qualified does not and shall not
have a material adverse effect on Borrowers or on the rights and interests of
Lender in the Collateral or Guarantor Collateral.
(ii) As soon as available, but in any event no later
than ten (10) days after the date of the effectiveness of the withdrawal by
Tweeds of Vermont from qualification to do business as a foreign corporation in
the State of Vermont, Borrowers shall deliver, or cause to be delivered, to
Lender a certificate of withdrawal to do business as a foreign corporation that
has been issued by the Vermont Secretary of State with respect to Tweeds of
Vermont.
3. Assumption of Obligations; Amendments to Guarantees and Financing
Agreements; Acknowledgments with respect to Hanover 1998 Reorganization.
Effective as of the earlier of the date hereof or effective date of
completion of Phase I of the Hanover 1998 Reorganization as to the respective
parties thereto:
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<PAGE> 16
(a) Each of Domestications LLC, HCS LLC, Tweeds, LLC,
Silhouettes LLC and Colonial Garden hereby expressly (i) assumes and agrees to
be directly liable to Lender, jointly and severally with the other Borrowers,
for all Obligations under, contained in, or arising out of the Loan Agreement
and the other Financing Agreements applicable to all Borrowers and as applied to
each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden as a Borrower and Guarantor, (ii) agrees to perform, comply with and be
bound by all terms, conditions and covenants of the Loan Agreement and the other
Financing Agreements applicable to all Borrowers and as applied to each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden as
a Borrower and Guarantor, with the same force and effect as if each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden had
originally executed and been an original Borrower and Guarantor party signatory
to the Loan Agreement and the other Financing Agreements, and (iii) agrees that
Lender shall have all rights, remedies and interests, including security
interests in and to the Collateral granted pursuant to Section 4(a) hereof, the
Loan Agreement and the other Financing Agreements, with respect to each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden and
their respective properties and assets with the same force and effect as Lender
has with respect to the other Borrowers and their respective assets and
properties as if each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden had originally executed and had been an original
Borrower and Guarantor party signatory to the Loan Agreement and the other
Financing Agreements.
(b) Each of the respective Guarantee and Waivers, dated
November 14, 1995, made by the Existing Borrowers as of that date in their
capacities as Guarantors, as heretofore amended (collectively, the "Borrower
Guarantees") shall be deemed further amended to include each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden as an additional
Guarantor party signatory thereto. Each of Domestications LLC, HCS LLC, Tweeds
LLC, Silhouettes LLC and Colonial Garden hereby expressly (i) assumes and agrees
to be directly liable to Lender, jointly and severally with the other Borrowers
signatories thereto and the Guarantors, for all obligations as defined in the
Borrower Guarantees, (ii) agrees to perform, comply with and be bound by all
terms, conditions and covenants of the Borrower Guarantees with the same force
and effect as if each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden had originally executed and been an original party
signatory to each of the Borrower Guarantees, and (iii) agrees that Lender shall
have all rights, remedies and interests with respect to each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden and their
respective properties under the Borrower Guarantees with the same force and
effect as if each of Domestications LLC, HCS LLC, Tweeds LLC,
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<PAGE> 17
Silhouettes LLC and Colonial Garden had originally executed and been an original
party signatory to each of the Borrower Guarantees.
(c) The Guarantee and Waiver, dated November 14, 1995,
executed by the Existing Guarantors as of such date, other than Hanover and the
Existing Borrowers as of such date, in favor of Lender, as heretofore amended
(the "Subsidiary Guarantee"), shall be deemed further amended to include HHFG
LLC, HWA LLC and Keystone as an additional Guarantor party signatory thereto.
Each of HHFG LLC, HWA LLC and Keystone hereby expressly (i) assumes and agrees
to be directly liable to Lender, jointly and severally with the other Guarantors
signatories thereto and the Borrowers, for all Obligations (as defined in the
Subsidiary Guarantee), (ii) agrees to perform, comply with and be bound by all
terms, conditions and covenants of the Subsidiary Guarantee with the same force
and effect as if each of HHFG LLC, HWA LLC and Keystone had originally executed
and been an original party signatory to the Subsidiary Guarantee, and (iii)
agrees that Lender shall have all rights, remedies and interests with respect to
each of HHFG LLC, HWA LLC and Keystone and their respective properties with the
same force and effect as if each of HHFG LLC, HWA LLC and Keystone had
originally executed and been an original party signatory to the Subsidiary
Guarantee.
(d) Each of HHFG LLC, HWA LLC and Keystone hereby expressly
(i) assumes and agrees to be directly liable for all Obligations under,
contained in, or arising out of the Loan Agreement, the General Security
Agreement, dated November 14, 1995, by the Existing Guarantors as of such date,
other than Hanover and Borrowers as of such date, in favor of Lender, as
heretofore amended (the "Subsidiary General Security Agreement") and the other
Financing Agreements applicable to all Guarantors and as applied to each of HHFG
LLC, HWA LLC and Keystone as a Guarantor, (ii) agrees to perform, comply with
and be bound by all terms, conditions and covenants of the Loan Agreement, the
Subsidiary General Security Agreement and the other Financing Agreements
applicable to all Guarantors and as applied to each of HHFG LLC and HWA LLC and
Keystone as a Guarantor with the same force and effect as if each of HHFG LLC,
HWA LLC and Keystone had originally executed and been an original Guarantor or
Debtor, as the case may be, party signatory to the Loan Agreement, the
Subsidiary General Security Agreement and the other Financing Agreements, and
(iii) agrees that Lender shall have all rights, remedies and interests,
including security interests in the Collateral granted pursuant to Section 4(b)
hereof, the Loan Agreement, the Subsidiary General Security Agreement, and the
other Financing Agreements, with respect to each of HHFG LLC, HWA LLC and
Keystone and their respective properties and assets with the same force and
effect as if each of HHFG LLC, HWA LLC and Keystone had originally executed and
had been an original Guarantor or Debtor, as the case may be, party signatory to
the
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<PAGE> 18
Loan Agreement, the Subsidiary General Security Agreement and the other
Financing Agreements, and such agreements shall be deemed so amended.
(e) Each Guarantor, including without limitation,
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden, in
its capacity as Guarantor pursuant hereto, and each of HHFG LLC, HWA LLC and
Keystone as a Guarantor pursuant hereto, hereby expressly and specifically
ratifies, restates and confirms the terms and conditions of its respective
Guarantee(s) in favor of Lender and its liability for all of the Obligations (as
defined in its Guarantee(s)), and all other obligations, liabilities, agreements
and covenants thereunder.
(f) Each Borrower, including, without limitation,
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden,
and each Guarantor, including, without limitation, HHFG LLC, HWA LLC and
Keystone, hereby agrees that all references to Borrower or Borrowers or other
terms intended to refer to a Borrower or Borrowers, such as Debtor or Debtors,
contained in any of the Financing Agreements are hereby amended to include each
of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden,
and each other person or entity at any time hereafter made a "Borrower" under
the Loan Agreement, as an additional Borrower or Debtor, or other appropriate
term of similar import, as the case may be. Each Borrower, including, without
limitation, Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden, and each Guarantor, including, without limitation, HHFG LLC,
HWA LLC and Keystone, hereby agrees that all references to Guarantor or
Guarantors or other terms intended to refer to a Guarantor or Guarantors, such
as Debtor or Debtors, contained in any of the Financing Agreements are hereby
amended to include each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes
LLC and Colonial Garden, in its capacity as Guarantor and each of HHFG LLC, HWA
LLC and Keystone and each other person or entity at any time hereafter made a
"Guarantor" under the Loan Agreement, as an additional Guarantor or Debtor, or
other appropriate term of similar import, as the case may be.
(g) Each Borrower and Guarantor hereby acknowledges, confirms
and agrees that, by operation of law and as provided in the Hanover 1998
Reorganization Agreements, as the case may be, and this Amendment:
(i) HH Corp., as the surviving corporation pursuant to
the TCSI/Tweeds Merger, has continued and shall continue to be directly and
primarily liable in all respects for the Obligations of TCSI arising prior to
the effective time of the TCSI/Tweeds Merger;
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(ii) Lender shall continue to have valid and perfected
security interests, liens and rights in and to all of the Silhouettes Catalog
Assets and the Company Store Catalog Assets and any other assets and properties
owned and acquired (A) by HH Corp., as the surviving corporation of the
TCSI/Tweeds Merger, and (B) by each Borrower or Guarantor that is the purchaser,
assignee or transferee of any such assets and properties, pursuant to the
Hanover 1998 Reorganization Agreements or otherwise, and all such assets and
properties shall be deemed included in the Collateral or the Guarantor
Collateral, as the case may be, and such security interests, liens and rights
and their perfection and priorities have continued and shall continue in all
respects in full force and effect;
(iii) The Company Store Factory, Inc., as the surviving
corporation pursuant to the TCS Factory/Company Factory Merger, has continued
and shall continue to be directly and primarily liable in all respects for the
Obligations of The Company Factory, Inc. arising prior to the effective time of
the TCS Factory/Company Factory Merger;
(iv) The Company Office, Inc., a Delaware corporation,
as the surviving corporation pursuant to the TCS Office/Company Office Merger,
has continued and shall continue to be directly and primarily liable in all
respects for the Obligations of The Company Office, Inc., a Wisconsin
corporation, arising prior to the effective time of the TCS Office/Company
Office Merger;
(v) Lender has and shall continue to have valid and
perfected security interests, liens and rights in and to all of the assets and
properties owned and acquired (A) by The Company Store Factory, Inc., as the
surviving corporation of the TCS Factory/Company Factory Merger, and (B) by The
Company Office, Inc., a Delaware corporation, as the surviving corporation of
the TCS Office/Company Factory Merger, pursuant to the Hanover 1998
Reorganization Agreements or otherwise, and all such assets and properties shall
be deemed included in the Collateral and such security interests, liens and
rights and their perfection and priorities have continued and shall continue in
all respects in full force and effect;
(vi) Without limiting the generality of the foregoing,
(A) none of the transactions contemplated by the Hanover 1998 Reorganization
Agreements shall in any way limit, impair or adversely affect the Obligations
now or hereafter owed to Lender by any existing or former Borrowers or
Guarantors or any security interests or liens in any assets or properties
securing the same, (B) the security interests, liens and rights of Lender in and
to the assets and properties of (1) The Company Store Factory, Inc., as the
surviving corporation of the TCS Factory/Company Factory Merger, (2) The Company
Office, Inc., a
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<PAGE> 20
Delaware corporation, as the surviving corporation of the TCS Office/Company
Office Merger, (3) HH Corp., as the surviving corporation of the TCSI/Tweeds
Merger, or (4) any Borrower or Guarantor that is the recipient, assignee or
transferee of any such assets and properties contributed, assigned or
transferred pursuant to the Hanover 1998 Reorganization Agreements have
continued and, upon and after the consummation of the TCSI/Tweeds Merger, TCS
Factory/Company Factory Merger, the TCS Office/Company Office Merger, or such
contribution, assignment or transfer, as the case may be, shall continue to
secure all Obligations to Lender of HH Corp., TCS Factory, TCS Office, or the
predecessor owner of such assets and properties, as the case may be, in addition
to all other existing and future Obligations of HH Corp, TCS Factory, TCS Office
or such Borrower or Guarantor, as the case may be, to Lender.
4. Collateral.
(a) New Borrower Collateral. Without limiting the provisions
of Section 3(a) hereof, the Loan agreement and the other Financing Agreements,
as collateral security for the prompt performance, payment and performance when
due of all of the Obligations of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC and Colonial Garden to Lender, each of Domestications LLC, HCS
LLC, Tweeds LLC, Silhouettes LLC and each of Colonial Garden hereby grant to
Lender, a continuing security interest in, and liens upon, and rights of setoff
against, and Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden hereby pledges and assigns to Lender, all of its now owned and
hereafter acquired and arising assets and properties, all of which shall be
included in the definition of Collateral as set forth in the Loan Agreement
(which definition is hereby amended accordingly), including, without limitation,
the following:
(i) all of the following, whether now owned or hereafter
acquired or arising: (A) all Accounts, including, without limitation, all
Mastercard/VISA Receivables and all other Third Party Credit Card Receivables,
and all monies, credit balances and other amounts due from or through or held by
Third Party Credit Card Issuers, or other parties to the Third Party Credit Card
Agreements, all monies paid by or through the Private Credit Card Purchaser, all
rentals or license fees receivable in respect of sale, lease, or license of
Customer Lists, all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Lender from or
for it, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of its respective deposits (general or special), balances,
sums and credits with Lender at any time existing; (B) all its right, title and
interest, and all rights, remedies, security and liens, in, to and in respect of
the Accounts and other Collateral, including, without limitation,
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rights of stoppage in transit, replevin, repossession and reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, guarantees or
other contracts of suretyship with respect to the Accounts, deposits or other
security for the obligations of any Account Debtor, all credit and other
insurance; (C) all its right, title and interest in, to and in respect of all
goods relating to, or which by sale have resulted in, Accounts, including,
without limitation, all goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, any
Account or other Collateral, including, without limitation, all returned,
reclaimed or repossessed goods; (D) all deposit accounts; and (E) all other
general intangibles of every kind and description, including, without
limitation, (1) tradenames and trademarks, and the goodwill of the business
symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) Federal,
State and local tax and duty refund claims of all kinds, (6) catalogs and
promotional materials, (7) all Customer Lists, and (8) all of its right, title
and interest in and to Mail Order Joint Ventures, and other joint ventures,
partnerships and other Persons;
(ii) Inventory;
(iii) Equipment;
(iv) Real Property;
(v) all present and future books, records, ledger cards,
computer software (including all manuals, upgrades, modifications, enhancements
and additions thereto), computer tapes, disks, other electronic data storage
media, documentation of file and record formats and source code, documents,
other property and general intangibles evidencing or relating to any of the
above, any other Collateral or any Account Debtor, together with the file
cabinets or containers in which the foregoing are stored; and
(vi) all present and future products and proceeds of the
foregoing, in any form whatsoever, including, without limitation, any insurance
proceeds and any claims against third persons for loss or damage to or
destruction of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include (a) the GECC
Collateral owned by Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden, other than the respective right, title and interest of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden in
and to the GECC Reserve Balance or (b) any leasehold interests of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden in real property.
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(b) New Guarantor Collateral. Without limiting the provisions
of Section 3(d) hereof, the Loan Agreement, the Subsidiary General Security
Agreement and the other Financing Agreements, as collateral security for the
prompt payment and performance when due of all of the Obligations of HHFG LLC,
HWA LLC and Keystone to Lender, each of HHFG LLC, HWA LLC and Keystone hereby
grants to Lender, a continuing security interest in, and lien upon, and right of
setoff against, and each of HHFG LLC, HWA LLC and Keystone hereby pledges and
assigns to Lender, all of its now owned and hereafter acquired and arising
assets and properties, all of which shall be included in the definition of
Collateral as set forth in the Subsidiary General Security Agreement (which
definition is hereby amended accordingly), including, without limitation, the
following:
(i) all present and future: (A) accounts, credit card
receivables (including credit card charge records and other evidences of credit
card transactions), contract rights, general intangibles, chattel paper,
documents and instruments (collectively, "Accounts"), including, without
limitation, all obligations for the payment of money arising out of the sale,
lease or other disposition of goods or other property or rendition of services,
all monies, all credit balances, reserve balances and other monies due from or
held by factors or credit card issuers or servicing agents or financial
intermediaries; (B) all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Lender or any
participant from or for it whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of its deposits (general or
special), balances, sums and credits with Lender or any participant at any time
existing; (C) all of its right, title and interest, and all of its rights,
remedies, security and liens, in, to and in respect of the Accounts and other
collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any account debtor, credit and other insurance; (D) all of its
right, title and interest in, to and in respect of all goods relating to, or
which by sale have resulted in Accounts, including, without limitation, all
goods described in invoices, documents, contracts or instruments with respect
to, or otherwise representing or evidencing, any Account or other collateral,
including, without limitation, all returned, reclaimed or repossessed goods; (E)
all deposit accounts; and (F) all other general intangibles of every kind and
description, including, without limitation, (1) trade names and trademarks, and
the goodwill of the business symbolized thereby, (2) patents, (3) copyrights,
(4) licenses, (5) claims and other choses in action, (6) Federal, State, local
and foreign tax refund claims of all kinds, (7) catalogs and promotional
materials, customer and
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mailing lists, and (8) all of its right, title and interest in and to joint
ventures and partnerships;
(ii) all Inventory;
(iii) all Equipment;
(iv) all Real Property;
(v) all present and future books, records, ledger cards,
computer programs and other property and general intangibles evidencing or
relating to any of the above, any other collateral or any account debtor,
together with the file cabinets or containers in which the foregoing are stored;
and
(vi) all present and future products and proceeds of the
foregoing, in any form, including, without limitation, any insurance proceeds
and any claims against third persons for loss or damage to or destruction of any
or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include (a) the GECC
Collateral owned by HHFG LLC, HWA LLC and Keystone, other than the respective
right, title and interest of HHFG LLC, HWA LLC and Keystone in and to the GECC
Reserve Balance or (b) any leasehold interests of HHFG LLC, HWA LLC and Keystone
in real property.
5. Acknowledgments Regarding Additional Hanover Subsidiary Mergers
and Hanover Guarantor Subsidiary 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(b) hereof, by operation of law and this Amendment:
(i) Effective as of the effective time of the
Austad/Austad Holdings Merger, (A) Austad Holdings, Inc. as the surviving
corporation pursuant to the Austad/Austad Holdings Merger, which shall have
contemporaneously therewith changed its name to The Austad Company, shall
continue to be directly and primarily liable in all respects for the Obligations
of Austad arising prior to the effective time of the Austad/Austad Holdings
Merger and (B) Section 1.13 of the Loan Agreement shall be deleted in its
entirety and replaced with the following:
"1.13 "Austad" shall mean The Austad Company, a Delaware
corporation, and its successors and assigns."
(ii) Effective as of the effective time of the Hanover
List/D.M. Advertising Merger, D.M. Advertising, Inc.,
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as the surviving corporation pursuant to the Hanover List/DM Advertising Merger,
shall continue to be directly and primarily liable in all respects for the
Obligations of Hanover List Management, Inc. arising prior to the effective time
of the Hanover List/DM Advertising Merger;
(iii) Effective as of the effective time of the LWI
Retail/LWI Holdings Merger, LWI Holdings, Inc., as the surviving corporation
pursuant to the LWI Retail/LWI Holdings Merger, shall continue to be directly
and primarily liable in all respects for the Obligations of LWI Retail, Inc.
arising prior to the effective time of the LWI Retail/LWI Holdings Merger;
(iv) Effective as of the effective time of the Aegis
Safety/HDI Merger, Hanover Direct, Inc., as the surviving corporation pursuant
to the Aegis Safety/HDI Merger, shall continue to be directly and primarily
liable in all respects for the Obligations of Aegis Safety Holdings, Inc.
arising prior to the effective time of the Aegis Safety/HDI Merger;
(v) Lender 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(b) 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 to be consummated as consented to under Section 2(b)
hereof shall in any way limit, impair or adversely affect the Obligations then
or thereafter owed to Lender by any existing 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(b) hereof, 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 corporation to Lender.
(b) Guarantor dissolutions. Each of Borrowers and Guarantors
hereby acknowledges, confirms and agrees that, upon the effectiveness of the
dissolutions of those Guarantors consented to under Section 2(c) hereof:
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(i) The dissolutions of those Guarantors consented to
under Section 2(c) hereof 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 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(c) 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.
(iii) On or before the dissolution of HFC as consented
to under Section 2(c) hereof, the Austad Subordinated Notes shall, pursuant to
the Hanover Subsidiary Dissolution Agreements and by operation of law, be
assigned, distributed or conveyed to HDPI as the sole shareholder of HFC. The
security interests, liens, rights and their perfection and priority of Lender in
the Austad Subordinated Notes shall continue in all respects in full force and
effect. HDPI and HFC shall deliver to Lender, in form and substance satisfactory
to Lender, documents, agreements or instruments to amend the existing Allonge
Indorsements in favor of Lender to each of the Austad Subordinated Notes to
reflect such assignment, distribution or conveyance.
6. Allocation of Revolving Loans and Letter of Credit
Accommodations. Each of Borrowers and Guarantors confirms, acknowledges and
agrees that:
(a) as of the effective date of Phase I of the Hanover 1998
Reorganization, the portion of the Revolving Loans and Letter of Credit
Accommodations to or for the account of HDPI determined by Lender to be
allocable to the Silhouettes Catalog Assets before the consummation of Phase I
of the Hanover 1998 Reorganization as to HDPI, shall be deemed to be Revolving
Loans and Letter of Credit Accommodations of Silhouettes LLC;
(b) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as to Colonial Garden, the portion of the Revolving
Loans and Letter of Credit Accommodations to or for the account of HDPI
determined by Lender to be allocable to the Colonial Garden Catalog Assets
before the consummation of Phase I of the Hanover 1998 Reorganization as to
Colonial Garden, shall be deemed to be Revolving Loans and Letter of Credit
Accommodations of Colonial Garden;
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(c) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as HDV, the portion of the Revolving Loans and
Letter of Credit Accommodations to or for the account of HDV determined by
Lender to be allocable to the Domestications Catalog Assets before the
consummation of Phase I of the Hanover 1998 Reorganization shall be deemed to be
Revolving Loans and Letter of Credit Accommodations of Domestications LLC;
(d) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization as to HH Corp., the portion of the Revolving Loans
and Letter of Credit Accommodations to or for the account of HH Corp. determined
by Lender to be allocable to the Tweeds Catalog Assets before the consummation
of Phase I of the Hanover 1998 Reorganization as to HH Corp. shall be deemed to
be Revolving Loans and Letter of Credit Accommodations of Tweeds LLC;
(e) as of and after the effective date of Phase I of the
Hanover 1998 Reorganization, the portion of the Revolving Loans and Letter of
Credit Accommodations to or for the account of HH Corp. determined by Lender to
be allocable to the Company Store Catalog Assets before the consummation of
Phase I of the Hanover 1998 Reorganization as to HH Corp., shall be deemed to be
Revolving Loans and Letter of Credit Accommodations of HCS LLC; and
(f) contemporaneously with any determination by Lender of the
outstanding amount of Revolving Loans and Letter of Credit Accommodations to be
allocated to each of Silhouettes LLC, Colonial Garden, Domestications LLC,
Tweeds LLC and HCS LLC, as provided in Sections 6(a) through (e) hereof,
respectively, the outstanding amount of Revolving Loans and Letter of Credit
Accommodations of the transferor Borrower shall be reduced by those amounts so
allocated, but without thereby relieving the transferor Borrower of liability
therefor.
7. Amendments to Lending Sublimits.
(a) Brawn. Section 2.2(a) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following;
"(a) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Brawn shall not exceed Five Million Five Hundred
Thousand Dollars ($5,500,000) at any one time outstanding."
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(b) HDPIO Section 2.2(b) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(b) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to HDPI shall not exceed One Million Five Hundred
Thousand Dollars ($1,500,000) at any one time outstanding."
(c) GBM. Section 2.2(c) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(c) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to GBM shall not exceed Five Million Dollars
($5,000,000) at any one time outstanding."
(d) Gump's. Section 2.2(d) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(d) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Gump's shall not exceed Three Million Five
Hundred Thousand Dollars ($3,500,000) at any one time
outstanding."
(e) HCS LLC. Section 2.2(e) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(e) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to HCS LLC shall not exceed Ten Million Three
Hundred Fifty Thousand Dollars ($10,350,000) at any one time
outstanding."
(f) Tweeds LLC. Section 2.2(f) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(f) Subject to, and upon the terms and conditions
contained herein, the aggregate
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principal amount of Revolving Inventory Loans and Letter of
Credit Accommodations made available to Tweeds LLC shall not
exceed Three Million Five Hundred Thousand Dollars
($3,500,000) at any one time outstanding."
(g) Domestications LLC. Section 2.2(g) of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:
"(g) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Domestications LLC shall not exceed Twenty-One
Million Five Hundred Thousand Dollars ($21,500,000) at any one
time outstanding."
(h) Silhouettes LLC. Section 2.2(h) of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"(h) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Silhouettes LLC shall not exceed Four Million
Dollars ($4,000,000) at any one time outstanding."
(i) LWI. Section 2.2(i) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(i) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to LWI shall not exceed Two Million Five Hundred
thousand Dollars ($2,500,000) at any one time outstanding."
(j) Colonial Garden. Section 2.2(j) of the Loan Agreement (as
previously amended by the Eleventh Amendment to Loan Agreement) is hereby
redesignated Section 2.2(o) and a new Section 2.2(j) of the Loan Agreement is
hereby added as follows:
"(j) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Colonial Garden shall not exceed Seven Hundred
Fifty Thousand Dollars ($750,000) at any one time
outstanding."
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(k) Austad. Section 2.2(k) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(k) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Austad shall not exceed Two Million Three Hundred
Thousand Dollars ($2,300,000) at any one time outstanding."
(l) Aegis. A new Section 2.2(1) of the Loan Agreement is
hereby added as follows:
"(l) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to Aegis shall not exceed Two Hundred Thousand
Dollars ($200,000) at any one time outstanding."
(m) HDV. A new Section 2.2(m) of the Loan Agreement is hereby
added as follows:
"(m) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to HDV shall not exceed zero ($0) at any one time
outstanding."
(n) HH Corp. A new Section 2.2(n) of the Loan Agreement is
hereby added as follows:
"(n) Subject to, and upon the terms and conditions
contained herein, the aggregate principal amount of Revolving
Inventory Loans and Letter of Credit Accommodations made
available to HH Corp. shall not exceed zero ($0) at any one
time outstanding."
8. Exhibits.
(a) Exhibits A and B-1 to the Loan Agreement are hereby
amended to include, in addition and not in limitation, the information set forth
on Exhibits A and B attached hereto. Exhibit C to the Loan Agreement is hereby
deleted in its entirety and replaced with the information set forth on Exhibit C
hereto.
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(b) Exhibit A to the Subsidiary General Security Agreement is
hereby amended to include, in addition and not in limitation, the information
set forth on Exhibit D attached hereto.
9. Release of Certain Existing Availability Reserves.
The parties hereto acknowledge and agree that Lender has previously
released the following availability reserves under the Loan Agreement in the
following amounts:
(a) the availability reserve in the amount of $641,740 against
the amount of Revolving Loans and Letter of Credit Accommodations
otherwise determined by Lender to be available to LWI, previously
established and being maintained by Lender pursuant to Section 3 of the
letter agreement, dated May 15, 1997, among Lender, Borrowers and
Guarantors re: Sale of Certain Improved Property and Fixtures of LWI
Holdings, Inc.;
(b) the availability reserve in the amount of $1,000,000
against the amount of Revolving Loans and Letter of Credit Accommodations
otherwise determined by Lender to be available to HDPI, previously
established and being maintained by Lender pursuant to Section 3 of the
Second Amendment to Loan Agreement; and
(c) the availability reserve in the amount of $317,540.59
against the amount of Revolving Loans and Letter of Credit Accommodations
otherwise determined by Lender to be available to HDPI, previously
established and being maintained by Lender pursuant to Section 3(b) of the
letter agreement, dated July 16, 1996, among Lender, Borrowers and
Guarantors re: Sale of Certain Real Property, Fixtures and Equipment of
The Austad Company.
10. Consent and Release by Lender of Certain Trademarks.
(a) In accordance with the request by Borrowers, Hanover
Catalog and the other Guarantors, subject to the terms hereof, Lender consents
to the assignment by Hanover Catalog to the American Cancer Society Foundation
of all of the right, title and interest of Hanover Catalog in and to the
trademark entitled "TLC" and Design, Registration No. 2,002,663, together with
the goodwill of the business symbolized thereby (the "TLC Trademark"). Lender
hereby releases all interests in the TLC Trademark previously assigned to Lender
under the Trademark Security Agreement between certain Guarantors and Lender,
and all interests in the TLC Trademark previously assigned to Lender under that
Trademark Security Agreement are hereby reassigned to Hanover Catalog, without
representation or warranty of any kind, nature or description.
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<PAGE> 31
(b) In accordance with the request by Brawn and the other
Borrowers and Guarantors, subject to the terms hereof, Lender consents to the
assignment by Brawn to Eugene R. Burkard ("Burkard") of all of the right, title
and interest in and to the trademark entitled "FREIGHTER", Registration No.
1,365,700, together with the goodwill of the business symbolized thereby (the
"Freighter Trademark"), and Lender hereby releases all interests in the
Freighter Trademark previously assigned to Lender under the Trademark Security
Agreement between certain Borrowers and Lender, and all interests in the
Freighter Trademark previously assigned to Lender under that Trademark Security
Agreement are hereby reassigned to Brawn, without representation or warranty of
any kind, nature or description; provided, that, Brawn shall have delivered to
Lender, in form and substance satisfactory to Lender, (i) a royalty free license
agreement between Burkard and Brawn with respect to the license by Burkard to
Brawn of the trademark entitled "BUNS", Registration No. 1,023,313, together
with the goodwill of the business symbolized thereby (the "Buns Trademark"), and
(ii) an agreement between Lender and Burkard, as consented to by Brawn,
providing for, among other things, the use by Lender of the Buns Trademark upon
an Event of Default.
(c) Conditioned as provided in Sections 10(a) and (b) hereof,
Lender agrees, at the request of Borrowers and Guarantors, to deliver to
Borrowers and Guarantors or their counsel, at the sole cost and expense of
Borrowers and Guarantors, an instrument, in form and substance satisfactory to
Lender, evidencing the release and reassignment of the Freighter Trademark that
is part of the Collateral held by Lender.
11. 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 and each other agreement or instrument to
be executed and delivered by each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone, the other
Borrowers and/or the other Guarantors hereunder have been duly authorized,
executed and delivered by all necessary action on the part of each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and each of the other Guarantors
which is a party
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<PAGE> 32
hereto and thereto and, if necessary, their respective stockholders (with
respect to any corporation) or members (with respect to any limited liability
company), and is in full force and effect as of the date hereof, as the case may
be, and the agreements and obligations of each of Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone,
the other Borrowers and/or the other Guarantors, as the case may be, contained
herein and therein constitute legal, valid and binding obligations of each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and/or the other Guarantors, as
the case may be, enforceable against them in accordance with their terms.
(b) Neither the execution and delivery of the Hanover 1998
Reorganization Agreements, nor the consummation of the transactions contemplated
by the Hanover 1998 Reorganization Agreements, nor compliance with the
provisions of the Hanover 1998 Reorganization Agreements, shall result in the
creation or imposition of any lien, claim, charge or encumbrance upon any of the
Silhouettes Catalog Assets, the Company Store Catalog Assets, the Tweeds Catalog
Assets, the Domestications Catalog Assets and the Colonial Garden Catalog
Assets, the La Crosse, Wisconsin Telemarketing Center Assets, the Wisconsin
Retail Outlet Assets, the Roanoke, Virginia Fulfillment Center Assets, or any
other Collateral, except in favor of Lender pursuant to this Amendment and the
Financing Agreements as amended hereby.
(c) Neither the execution and delivery of the Hanover 1998
Reorganization Agreements, nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof, (i) has violated or
shall violate any Bulk Sales Act, Bulk Transfer Act or Article 6 of the UCC, if
applicable, the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, if applicable, or 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 any of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC or Keystone, or any other Borrower or other Guarantor is a party or
may be bound, or (iii) shall violate any provision of the Certificates of
Incorporation or By-Laws of Keystone or Colonial Garden, or any other Borrower
or other Guarantor, or (iv) shall violate any provision of the Certificates of
Formation or Operating Agreements of any of Domestications LLC, HCS LLC, Tweeds
LLC, Silhouettes LLC, HHFG LLC or HWA LLC.
(d) All of the outstanding shares of capital stock of each of
Keystone and Colonial Garden have been duly
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<PAGE> 33
authorized, validly issued and are fully paid and non-assessable, free and clear
of all claims, liens, pledges and encumbrances of any kind. Hanover is the
beneficial and direct owner of record of one hundred (100%) percent of the
issued and outstanding shares of capital stock of each of Keystone and Colonial
Garden.
(e) None of the membership interests in any of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC have been
evidenced by a membership certificate or other certificate, document, instrument
or security. All of the membership interests in each of Domestications LLC, HCS
LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC (i) are noted in the
respective books and records of each such company, (ii) have been duly
authorized, validly issued and (iii) are fully paid and non-assessable, free and
clear of all claims, liens, pledges and encumbrances of any kind.
(f) No court of competent jurisdiction has issued any
injunction, restraining order or other order which has prohibited or prohibits
consummation of the Hanover 1998 Reorganization or any part thereof, 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 1998 Reorganization Agreements.
(g) Each of Keystone and Colonial Garden is a Delaware
corporation, duly organized and validly existing in good standing under the laws
of the State of Delaware. Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC is a limited liability company, duly
formed and validly existing in good standing under the laws of the State of
Delaware. Each of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC,
Colonial Garden, HHFG LLC, HWA LLC and Keystone (i) is duly licensed or
qualified to do business as a foreign limited liability company or foreign
corporation, as the case may be, and is in good standing in each of the
jurisdictions set forth in Exhibit A annexed hereto, which are the only
jurisdictions wherein the character of the properties owned or licensed or the
nature of the business of any of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC or Keystone, makes such
licensing or qualification to do business necessary; and (ii) has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and will be conducted in the future.
(h) The assets and properties of Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone are
owned by them, free and clear of all security interests, liens and encumbrances
of any kind, nature or description, as of the date hereof, except those
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security interests existing in favor of Lender and those granted pursuant hereto
in favor of Lender, and except for Liens (if any) permitted under Section 6.4 of
the Loan Agreement or the other Financing Agreements.
(i) Upon the effectiveness of each of the mergers consented to
under Sections 2(a) or 2(b) hereof, each such merger has or shall become
effective in accordance with the terms of each of the Additional Hanover
Subsidiary Merger Agreements applicable to it and of the applicable corporate
statutes of the States of incorporation of each Borrower and each Guarantor that
is a constituent corporation pursuant to the mergers so consented to. As of the
respective date of the effectiveness of the respective mergers consented to
under Sections 2(a) or 2(b) hereof, (i) Austad Holdings, Inc. shall be the
surviving corporation of the Austad/Austad Holdings Merger and the name of
Austad Holdings, Inc. shall have been changed to The Austad Company in
accordance with the applicable State laws of Delaware and South Dakota, (ii)
D.M. Advertising, Inc. shall be the surviving corporation of the Hanover List/DM
Advertising Merger, (iii) LWI Holdings, Inc. shall be the surviving corporation
of the LWI Retail/LWI Holdings Merger, (iv) The Company Store Factory, Inc. was
and is the surviving corporation of the TCS Factory/Company Factory Merger, (v)
The Company Office, Inc. was and is the surviving corporation of the TCS
Office/Company Office Merger, and (vi) Hanover Direct, Inc. shall be the
surviving corporation of the Aegis Safety/HDI Merger.
(j) Neither the consummation of the mergers, as consented to
under Section 2(a) or 2(b) hereof, nor the dissolution of certain Guarantors as
consented to under Section 2(c) hereof, nor the execution, delivery and/or
filing of the Additional Hanover Subsidiary Merger Agreements, the Hanover
Subsidiary 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 if consummated
or effected on or before the date hereof has resulted in or if consummated or
effected after the date hereof shall result in the creation or imposition of any
lien, claim, charge or incumbrance upon any of the Collateral, except in favor
of Lender.
(k) All actions and proceedings required by the Additional
Hanover Subsidiary Merger Agreements applicable to the mergers consented to
under Sections 2(a) and 2(b) hereof and the Hanover Subsidiary Dissolution
Agreements, applicable law and regulation, have been or shall be taken prior to
the effectiveness of such mergers and dissolutions and all transactions required
thereunder have been and shall be, or will be duly and validly consummated.
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<PAGE> 35
(l) 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
Sections 2(a) or 2(b) hereof or the dissolution of certain Guarantors as
consented to under Section 2(c) hereof, and no governmental action or proceeding
has been, or, prior to the effectiveness thereof, shall have been, threatened or
commenced, seeking any injunction, restraining order or other order which seeks
to void or otherwise modify the transactions described in the Additional Hanover
Subsidiary Merger Agreements or the Hanover Subsidiary Dissolution Agreements.
(m) Neither the consummation of the mergers consented to under
Section 2(a) or 2(b) hereof, nor the dissolution of certain Guarantors consented
to under Section 2(c) hereof, nor the execution, delivery or filing of the
Additional Hanover Subsidiary Merger Agreements, the Hanover Subsidiary
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 before the date hereof
or upon the effectiveness of such mergers and dissolutions (i) has violated or
will 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 will 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 will
violate any provision of the Certificate of Incorporation or By-Laws of any
Guarantor or any Borrower.
(n) The aggregate amount of the actual and contingent
indebtedness, liabilities and obligations, other than those owed to Lender,
incurred by the Guarantors dissolved or which will be dissolved as consented to
under Section 2(c) hereof, including any such indebtedness, liabilities and
obligations arising in connection with or relating to such dissolutions, shall
not exceed $10,000 for any one such dissolved Guarantor.
(o) No action of, or filing with, or consent of any
governmental or public body or authority, other than the filing of UCC financing
statements, 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.
(p) All of the representations and warranties set forth in the
Loan Agreement as amended hereby, and the other
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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.
(q) After giving effect to the provisions of this Amendment,
no Event of Default or Incipient Default exists or has occurred and is
continuing.
(r) Within fifteen (15) days after the date of the
consummation of the mergers consented to in Section 2(b) 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 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(b) hereof.
12. Conditions Precedent. Concurrently with the execution and
delivery 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) Lender shall have received, in form and substance
satisfactory to Lender, evidence that (i) the Hanover 1998 Reorganization
Agreements in connection with Phase I of the Hanover 1998 Reorganization have
been duly executed and delivered by and to the appropriate parties thereto and
(ii) the transactions contemplated by Phase I of the Hanover 1998 Reorganization
have been consummated prior to, or contemporaneously with, the execution of this
Amendment;
(b) Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone, Existing
Borrowers and Existing Guarantors shall have delivered to Lender, in form and
substance satisfactory to Lender, each of the following agreements to which it
is a party, duly authorized, executed and delivered:
(i) Second Amendment to Trademark Collateral Assignment
and Security Agreement, dated November 14, 1995, by and among Hanover, Hanover
Catalog, Scandia, Aegis Holdings, CSHI, Austad Holdings and Lender, providing
for certain amendments to the existing exhibit(s) to such Trademark Collateral
Assignment and Security Agreement, and any such documents, instruments or
filings with respect thereto with the U.S. Patent and Trademark Office to
protect such Collateral;
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<PAGE> 37
(ii) First Amendment to Trademark Collateral Assignment
and Security Agreement, dated November 14, 1995, by and among Gump's, Tweeds,
Brawn and Lender, providing for certain amendments to the existing exhibit(s) to
such Trademark Collateral Assignment and Security Agreement,, and any such
documents, instruments or filings with respect thereto with the U.S. Patent and
Trademark Office to protect such Collateral;]
(iii) amendments to the Third Party Credit Card
Acknowledgments setting forth such acknowledging parties' agreement to transfer
to the Blocked Accounts all monies due and other funds payable to or for the
account of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden under the applicable Third Party Credit Card Agreements;
(iv) evidence that notice has been received by the
Customer List Escrow Agent setting forth any changes in ownership to all
existing Customer Lists that are being held by the Customer List Escrow Agent
pursuant to the Customer List Escrow Agreement;
(v) Amended and Restated Agency Agreement by and among
Hanover, Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial
Garden and certain Borrowers;
(vi) Guarantee and Waiver by Borrowers, other than
Domestications LLC, HDPI and Hanover Realty, in favor of Lender with respect to
the Obligations of Domestications LLC to Lender (HDPI and Hanover Realty hereby
acknowledge and confirm that each of the Guarantee and Waivers, dated June 26,
1998, by each of them in favor of Lender with respect to the existing and future
Obligations of Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and
Colonial Garden to Lender, are in full force and effect);
(vii) Guarantee and Waiver by Borrowers, other than HCS
LLC, HDPI and Hanover Realty, in favor of Lender with respect to the Obligations
of HCS LLC to Lender;
(viii) Guarantee and Waiver by Borrowers, other than
Tweeds LLC, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Tweeds LLC to Lender;
(ix) Guarantee and Waiver by Borrowers, other than
Silhouettes LLC, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Silhouettes LLC to Lender;
(x) Guarantee and Waiver by Borrowers, other than
Colonial Garden, HDPI and Hanover Realty, in favor of Lender with respect to the
Obligations of Colonial Garden to Lender;
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(xi) Guarantee and Waiver by Guarantors, other than
Borrowers and Hanover, in favor of Lender with respect to the Obligations of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden to
Lender;
(xii) Guarantee and Waiver by Hanover in favor of Lender
with respect to the Obligations of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC and Colonial Garden to Lender; and
(xiii) Blocked Account Agreement(s) by and among The
First National Bank of Maryland, Borrowers, certain Guarantors and Lender
providing for the establishment of a Blocked Account for each of Domestications
LLC, HCS LLC, Tweeds LLC, Silhouettes LLC and Colonial Garden;
(c) Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC,
Colonial Garden, HHFG LLC, HWA LLC and Keystone and all other Borrowers and
Guarantors shall have duly executed and delivered to Lender such UCC financing
statements and other documents and instruments which Lender in its sole
discretion has determined are necessary to perfect the security interests of
Lender in all Collateral now or hereafter owned by Domestications LLC, HCS LLC,
Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG LLC, HWA LLC and Keystone;
(d) Each of Colonial Garden and Keystone shall have delivered
to Lender (i) a copy of its Certificate of Incorporation, and all amendments
thereto, certified by the Secretary of State of its jurisdiction of
incorporation as of the most recent practicable date certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein, (ii) a copy of its By-Laws, certified
by its Secretary or Assistant Secretary, (iii) a certificate from its Secretary
or Assistant Secretary dated the date hereof certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein;
(e) Each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC shall have delivered to Lender (i) a copy
of its Certificate of Formation or Articles of Organization, and all amendments
thereto, certified by the Secretary of State of its jurisdiction of formation as
of the most recent practicable date certifying that each of the foregoing
documents remains in full force and effect and has not been modified or amended,
except as described therein, (ii) a copy of its Operating Agreement, certified
by the Secretary or Assistant Secretary of the company, and (iii) a certificate
from its Secretary or Assistant Secretary dated the date hereof certifying that
each of the foregoing documents remains in full
-38-
<PAGE> 39
force and effect and has not been modified or amended, except as described
therein;
(f) Each of HWA LLC, HCS LLC, Domestications LLC, HHFG LLC and
Keystone shall have delivered to Lender evidence, as of the most recent
practicable date, that it is duly qualified and in good standing in each
jurisdiction set forth in Exhibit A annexed hereto;
(g) Lender shall have received, in form and substance
satisfactory to Lender, Secretary's or Assistant 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, Colonial Garden, Keystone and the other Guarantors of
this Amendment and the agreements, documents and instruments to be delivered
pursuant to this Amendment;
(h) Lender shall have received, in form and substance
satisfactory to Lender, for each of Domestications LLC, HCS LLC, Tweeds LLC,
Silhouettes LLC, HHFG LLC and HWA LLC (i) a Management and Incumbency
Certificate of each such company identifying all managers, officers or other
persons authorized to act on behalf of such company and if applicable, the
specific management responsibilities of each such manager, officer or other
authorized person, including a description of any restriction on any such
manager's, officer's or other person's authority to act for such company or, if
no restrictions are so imposed, a statement to that effect, (ii) Company
Resolutions of each such company, evidencing the adoption and subsistence of
company resolutions approving the execution, delivery and performance by each of
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, HHFG LLC and HWA LLC,
respectively, of this Amendment and the agreements, documents and instruments to
be delivered pursuant to this Amendment, in each case signed by all members of
each such company, and (iii) Certificates of the Secretary or Assistant
Secretary of each such company identifying all members of such company and the
relative voting and/or management rights of the members, if applicable, of such
company;
(i) Lender shall have received, in form and substance
satisfactory to Lender, updates or amendments to the existing Evidence of
Property Insurance and Certificate of Liability Insurance issued by the existing
insurance broker or agent of Borrowers and Guarantors in favor of Lender;
(j) Lender shall have received an opinion of counsel to
Domestications LLC, HCS LLC, Tweeds LLC, Silhouettes LLC, Colonial Garden, HHFG
LLC, HWA LLC and Keystone, the other Borrowers and other Guarantors with respect
to the transactions contemplated by this Amendment and the Hanover 1998
Reorganization Agreements, and such other matters as Lender shall
-39-
<PAGE> 40
reasonably addressed to Lender, in form and substance and satisfactory to
Lender; and
(k) each of Borrowers and Guarantors shall deliver, or cause
to be delivered, to Lender a true and correct copy of any consent, waiver or
approval to or of this Amendment, which any Borrower or Guarantor is required to
obtain from any other Person, and such consent, approval or waiver shall be in a
form reasonably acceptable to Lender.
13. 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.
14. 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.
15. 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 conflict of laws).
16. 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.
17. 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.
-40-
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By: [ILLEGIBLE]
------------------------------------
Title: 1st VP
---------------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
BRAWN OF CALIFORNIA, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
GUMP'S BY MAIL, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
GUMP'S CORP.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
HANOVER HOLDING CORP., as successor to
the merger of The Company Store, Inc.
with and into Tweeds, Inc.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
LWI HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-41-
<PAGE> 42
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS CATALOG CORPORATION
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
HANOVER DIRECT VIRGINIA INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
HANOVER REALTY, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
THE AUSTAD COMPANY
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
TWEEDS, LLC
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
SILHOUETTES, LLC
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
HANOVER COMPANY STORE, LLC
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-42-
<PAGE> 43
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
DOMESTICATIONS, LLC
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
COLONIAL GARDEN KITCHENS, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
By their signatures below, the
undersigned Guarantors acknowledge
and agree to be bound by the
applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
By: Larry Svoboda
------------------------------------
Title: Senior Vice President
---------------------------------
AEGIS RETAIL CORPORATION
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
AEGIS SAFETY HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-43-
<PAGE> 44
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS VENTURES, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
AMERICAN DOWN & TEXTILE COMPANY
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
BRAWN WHOLESALE CORP.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
THE COMPANY STORE FACTORY, INC., a
Delaware corporation, as successor by
merger to The Company Factory, Inc., a
Delaware corporation
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
THE COMPANY OFFICE, INC., a Delaware
corporation, as successor by merger to
The Company Office, Inc., a Wisconsin
corporation
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
COMPANY STORE HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-44-
<PAGE> 45
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
D.M. ADVERTISING, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
GUMP'S CATALOG, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
GUMP'S HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
HANOVER CASUALS, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
HANOVER CATALOG HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
HANOVER FINANCE CORPORATION
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
HANOVER LIST MANAGEMENT INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-45-
<PAGE> 46
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER VENTURES, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
LWI RETAIL, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
SCANDIA DOWN CORPORATION
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
TWEEDS OF VERMONT, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
YORK FULFILLMENT COMPANY, INC.
By: Larry Svoboda
------------------------------------
Title: President
---------------------------------
AUSTAD HOLDINGS, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
HANOVER HOME FASHIONS GROUP, LLC
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
-46-
<PAGE> 47
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER WOMEN'S APPAREL, LLC
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
KEYSTONE FULFILLMENT, INC.
By: Larry Svoboda
------------------------------------
Title: VP
---------------------------------
-47-
<PAGE> 48
SCHEDULE 1
TO
TWELFTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
HANOVER 1998 REORGANIZATION DOCUMENTS
Formation/Contribution Agreements:
Silhouettes, LLC:
Certificate of Formation of Silhouettes, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Operating Agreement of Silhouettes, LLC
Unanimous Consent of the Board of Managers of Silhouettes, LLC
Unanimous Consent of Members of Silhouettes, LLC
Unanimous Written Consent of the Board of Managers of Silhouettes, LLC
Assignment and Assumption Agreement with HDPI
Written Consent of Sole Stockholder of HDPI
Unanimous Written Consent of the Board of Directors of HDPI
Membership Interest Subscription by HDPI
Tweeds, LLC:
Certificate of Formation of Tweeds, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Operating Agreement of Tweeds, LLC
Unanimous Consent of the Board of Managers of Tweeds, LLC
Unanimous Consent of Members of Tweeds, LLC
Unanimous Written Consent of the Board of Managers of Tweeds, LLC
Assignment and Assumption Agreement with HHC
Written Consent of Sole Stockholder of HHC
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC
HWA LLC:
Certificate of Formation of HWA LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Unanimous Consent of the Board of Managers of HWA LLC
Unanimous Consent of Members of HWA LLC
Operating Agreement of HWA LLC
<PAGE> 49
Unanimous Written Consent of the Board of Managers of HWA LLC
Assignment Agreement with HHC
Assignment Agreement with HDPI
Written Consent of Sole Stockholder of HHC
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC
Membership Interest Subscription by HDPI
TCSI/Tweeds Merger and related name change:
Certificate of Merger - TCSI/Tweeds becomes Hanover Holding Corp.
Articles of Merger of TCSI with Tweeds
HCS LLC:
Certificate of Formation of HCS LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Authority or Registration - WI
Certificate of Correction
Unanimous Consent of the Board of Managers of HCS LLC
Unanimous Consent of Members of HCS LLC
Operating Agreement of HCS LLC
Unanimous Written Consent of the Board of Managers of HCS LLC
Assignment and Assumption Agreement with HHC
Written Consent of Sole Stockholder of HHC
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC
Domestications, LLC:
Certificate of Formation of Domestications, LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Correction
Unanimous Consent of the Board of Managers of Domestications, LLC
Unanimous Consent of Members of Domestications, LLC
Operating Agreement of Domestications, LLC
Unanimous Written Consent off the Board of Managers
of Domestications, LLC
Assignment and Assumption Agreement with HDV
Written Consent of Sole Stockholder of HDV
Unanimous Written Consent of the Board of Directors of HDV
Membership Interest Subscription by HDV
HHFG LLC:
Certificate of Formation of HHFG LLC
Registration of Foreign Limited Liability Company - NJ
Certificate of Registration - VA
Certificate of Authority or Registration - WI
Certificate of Correction
Unanimous Consent of the Board of Managers of HHFG LLC
<PAGE> 50
Unanimous Consent of Members of HHFG LLC
Operating Agreement of HHFG LLC
Unanimous Written Consent of the Board of Managers of HHFG LLC
Assignment and Assumption Agreement with HHC
Assignment and Assumption Agreement with HDV
Written Consent of Sole Stockholder of HHC
Unanimous Written Consent of the Board of Directors of HHC
Membership Interest Subscription by HHC
Membership Interest Subscription by HDV
Colonial Garden:
Certificate of Incorporation of Colonial Garden
By-laws of Colonial Garden
Statement of Sole Incorporator
Unanimous Written Consent of the Board of Directors of Colonial Garden
Written Consent to Action of the Sole Shareholder of Colonial Garden
Unanimous Written Consent to Action of the Executive Committee of the Board of
Directors of HIM
Subscription Agreement by HDI
Unanimous Written Consent of the Board of Directors of HDPI
Stock Certificate issued to HDI
Assignment and Assumption Agreement by HDI
Keystone:
Certificate of Incorporation of Keystone
By-laws of Keystone
Statement of Sole Incorporator of Keystone
Unanimous Written Consent of the Board of Directors of Keystone
Written Consent to Action of the Sole Shareholder of Keystone
Subscription Agreement by HDI
Stock certificate issued to HDI
Hanover Subsidiary Dissolution and Withdrawal Agreements for filing in the
following States:
Aegis Ventures: DE
Hanover Casuals: DE, CA, MA, VA
Gump's Catalog: DE, CA, TX
Hanover Finance Corporation: DE, CA
<PAGE> 51
York Fulfillment: CA
Tweeds of Vermont: MA
Additional Hanover Subsidiary Merger Agreements for filing in the fol1owing
States::
Hanover List Management, Inc. into DM Advertising, Inc.:
Certificate of Merger to be filed in the state of New Jersey
The Austad Company into Austad Holdings, Inc.:
Certificate of Merger to be filed in the states of South
Dakota and Delaware
(The name of the surviving corporation shall be amended to
The Austad Company)
LWI Retail, Inc. into LWI Holdings, Inc.:
Certificate of Merger to be filed in the states of Ohio and Delaware
Additional Hanover Subsidiary Merger Agreements
TCS Factory/Company Factory Merger:
Articles of Merger of TCS Factory with Company Factory
Certificate of Authority or Registration - TCS Factory
TCS Office/Company Office Merger:
Articles of Merger of TCS Office with The Company Office
Certificate of Authority or Registration - The Company Office
<PAGE> 52
Exhibit A
to 12th Amendment
to Loan and Security Agreement
The following additional information is hereby added
to Exhibit A to the Loan and Security Agreement
Jurisdictions of Qualification
Company State of Incorporation Qualifications
- ------- ---------------------- --------------
or
--
Formation
---------
Colonial Garden Kitchens, Inc. Delaware New Jersey
Ohio
Virginia
Domestications, LLC Delaware New Jersey
Virginia
Hanover Company Store, LLC Delaware New Jersey
Wisconsin
Hanover Home Fashions Group, LLC Delaware New Jersey
Virginia
Wisconsin
Hanover Women's Apparel, LLC Delaware New Jersey
Virginia
Keystone Fulfillment, Inc. Delaware Pennsylvania
Silhouettes, LLC Delaware New Jersey
Virginia
Tweeds, LLC Delaware New Jersey
Virginia
<PAGE> 53
EXHIBIT B
TO
TWELFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
The following additional subsidiaries
are hereby added to Exhibit B-1 to Loan and Security Agreement
Existing Subsidiaries
Name of New Borrower Subsidiary
Colonial Garden Kitchens, Inc.
Domestications, LLC
Hanover Company Store, LLC
Silhouettes, LLC
Tweeds, LLC
Name of Guarantor Subsidiary Percentage Owned by Parent
Keystone Fulfillment, Inc. 100%
Hanover Home Fashions Group, LLC Equal to the proportion the book value
of the net assets contributed to the
company bears to the total book value
of the net assets of the company.
Hanover Women's Apparel, LLC Equal to the proportion the book value
of the net assets contributed to the
company bears to the total book value
of the net assets of the company.
<PAGE> 54
AMENDED AND RESTATED EXHIBIT C
TO
12th AMENDMENT TO LOAN AND SECURITY AGREEMENT
Borrowers and Guarantors
Chief Executive Offices, Principal Places of Business,
Locations and Types of Collateral
<TABLE>
<CAPTION>
===================================================================================================================================
Location of Chief Places of
Company Executive Office Business Location of Collateral Types of Collateral
- ------- ---------------- -------- ---------------------- -------------------
==================================================================================================================================='
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aegis Ventures Inc. (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Aegis Retail Corporation (2) Roanoke, VA Roanoke, VA Roanoke, VA Documents
Instruments
Inventory
Lease
Equipment
Fixtures
- -----------------------------------------------------------------------------------------------------------------------------------
Aegis Safety Holdings. Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Aegis Catalog Corporation Weehawken, NJ Weehawken, NJ Weehawken, NJ Inventory
Hanover, PA Hanover, PA Accounts
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
American Down & Textile Company La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Equipment
Fixtures
General Intangibles
Inventory
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
The Austad Company, SD (3) San Diego, CA San Diego, CA San Diego, CA
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Austad Company, DE (4) San Diego, CA San Diego, CA San Diego, CA Trademarks
Conewago Township, PA Accounts
Equipment
General Intangibles
Documents
Instruments
Inventory
Lease
- -----------------------------------------------------------------------------------------------------------------------------------
Brawn Wholesale Corp. (5) San Diego, CA San Diego, CA
- -----------------------------------------------------------------------------------------------------------------------------------
Brawn of California, Inc. San Diego, CA San Diego, CA San Diego, CA Accounts (CA)
Los Angeles, CA Los Angeles, CA Documents (CA)
Roanoke, VA Roanoke, VA Equipment (CA)
Fixtures (CA)
General Intangibles (CA)
Inventory
(VA and CA)
- -----------------------------------------------------------------------------------------------------------------------------------
Colonial Garden Kitchens, Inc. (6) Beachwood, OH Beachwood, OH Beachwood, OH Accounts (NJ)
Conewago Township, PA Documents (NJ)
Weehawken, NJ Weehawken, NJ General Intangibles (NJ)
Inventory (PA)
- -----------------------------------------------------------------------------------------------------------------------------------
Company Store Holdings, Inc. (7) Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
General Intangibles
Accounts
- -----------------------------------------------------------------------------------------------------------------------------------
D.M. Advertising, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Lease
Hanover, PA Fixtures
Roanoke, VA Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestications, LLC (8) Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts (NJ)
Roanoke, VA Roanoke, VA Documents (VA)
General Intangibles (NJ)
Instruments
Inventory (VA)
- -----------------------------------------------------------------------------------------------------------------------------------
Gump's By Mail, Inc. Weehawken, NJ Weehawken, NJ Hanover, PA Accounts
Hanover, NJ Documents
San Francisco, CA Equipment
Fixtures
General Intangibles
Instruments
Inventory
- -----------------------------------------------------------------------------------------------------------------------------------
Gump's Corp. San Francisco, CA San Francisco, CA San Francisco, CA Accounts
Documents
Equipment
Fixtures
General Intangibles
Instruments
Inventory
- -----------------------------------------------------------------------------------------------------------------------------------
Gump's Holdings, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
General Intangibles
- -----------------------------------------------------------------------------------------------------------------------------------
Gump's Catalog, Inc. (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Company Store, LLC (10) Weehawken, NJ LaCrosse, WI Weehawken, NJ Accounts (WI)
Weehawken, NJ LaCrosse, WI Documents (WI)
Roanoke, VA General Intangibles (WI)
Instruments
Inventory (WI)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Direct Virginia Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Ownership Interests
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 57
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hanover Finance Corporation (11)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Direct Pennsylvania, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Ownership Interests
Hanover, PA Hanover, PA Equipment
Roanoke, VA Fixtures
LaCrosse, WI General Intangibles
San Diego, CA Stock
San Francisco, CA Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Home Fashions Group, LLC (12) Weehawken, NJ Roanoke, VA Weehawken, NJ Equipment
LaCrosse, WI Ownership Interests
Roanoke, VA Fixtures
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Ventures, Inc. (13) Weehawken, NJ Weehawken, NJ
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Women's Apparel, LLC (14) Weehawken, NJ Weehawken, NJ Weehawken, NJ Ownership Interests
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Realty. Inc. Roanoke, VA Roanoke, VA Roanoke, VA Property
Fixtures
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover List Management Inc. (15)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Casuals. Inc. (16)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Catalog Holdings, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ General Intangibles
- -----------------------------------------------------------------------------------------------------------------------------------
Keystone Fulfillment, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Direct, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts
Stock
General Intangibles
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE> 58
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LWI Retail, Inc. (17) Mayfield Heights, OH Mayfield Heights, OH Mayfield Heights, OH Accounts
Inventory
Lease
Fixtures
Equipment
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
LWI Holdings, Inc. Beachwood, OH Beachwood, OH Beachwood, OH Accounts
Conewago Township, PA Equipment
Fixtures
Inventory (PA)
Property
Leases
Documents
Instruments
General Intangibles
- -----------------------------------------------------------------------------------------------------------------------------------
Scandia Down Corporation Weehawken, NJ Weehawken, NJ Weehawken, NJ Documents
General Intangibles
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Silhouettes, LLC (18) Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts
Roanoke, VA Roanoke, VA Documents
General Intangibles
Instruments
Inventory (VA)
- -----------------------------------------------------------------------------------------------------------------------------------
The Company Office, Inc. La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Fixtures
General Intangibles
Real Property
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE> 59
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Company Factory, Inc. La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Equipment
Fixtures
General Intangibles
Real Property
Documents
Instruments
Inventory
- -----------------------------------------------------------------------------------------------------------------------------------
The Company Store, Inc. (19)
- -----------------------------------------------------------------------------------------------------------------------------------
Tweeds of Vermont, Inc. (20)
- -----------------------------------------------------------------------------------------------------------------------------------
Tweeds, Inc.(21) Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts
Roanoke, VA Roanoke, VA Equipment
LaCrosse, WI LaCrosse, WI Fixtures
Madison, WI Madison, WI General Intangibles
Kenoshal, WI Kenoshal, WI Inventory
Oshkosh, WI Oshkosh, WI Documents
Instruments
Ownership Interests
- -----------------------------------------------------------------------------------------------------------------------------------
Tweeds, LLC (22) Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts
Roanoke, VA Roanoke, VA Documents
General Intangibles
Instruments
Inventory
- -----------------------------------------------------------------------------------------------------------------------------------
York Fulfillment Company, Inc.(23)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE> 60
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C> <C>
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
</TABLE>
(1) Hanover Direct, Inc. intends to liquidate Aegis Ventures, Inc. The
corporation is inactive and has no assets.
(2) The McLean, Virginia store will be closed and vacated by September 30,
1998.
(3) Hanover Direct, Inc., intends to merge The Austad Company with and into
Austad Holdings, Inc.
(4) Following the merger of The Austad Company with and into Austad Holdings,
Inc., the name of Austad Holdings, Inc. is to be changed to The Austad
Company.
(5) Brawn Wholesale Corp. has been inactive since early 1998 and will be
dissolved by December 26, 1998.
(6) Colonial Garden Kitchens, Inc. is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan and Security Agreement, will own the assets of the Hanover House and
Colonial Garden Kitchens catalogs. All the assets located in Beachwood,
Ohio will be moved to Weehawken, New Jersey by December 26, 1998.
(7) Company Store Holdings, Inc. is to merge with Tweeds, Inc.; the name of
the surviving company is to be changed to Hanover Holding Corp.
(8) Domestications, LLC is a newly formed entity which, following consummation
of the transactions contemplated by the 12th Amendment to Loan and
Security Agreement, will own certain assets of the Domestications catalog.
(9) Hanover Direct, Inc. intends to liquidate Gump's Catalog, Inc. The
corporation is inactive and has no assets.
(10) Hanover Company Store, LLC is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan and Security Agreement, will own certain assets of The Company Store
catalog.
(11) Hanover Direct, Inc. intends to liquidate Hanover Finance Corporation.
(12) Hanover Home Fashions, LLC is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan and Security Agreement, will own the primary ownership interests in
Domestications, LLC and Hanover Company Store, LLC.
(13) Hanover Direct, Inc. intends to dissolve Hanover Ventures, Inc.
(14) Hanover Women's Apparel, LLC is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan
-7-
<PAGE> 61
<TABLE>
===================================================================================================================================
<S> <C> <C> <C> <C>
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
</TABLE>
and Security Agreement, will own the primary ownership interests in
Tweeds, LLC and Silhouettes, LLC.
(15) Hanover Direct, Inc. intends to liquidate Hanover List Management, Inc.
The corporation is inactive and has no assets.
(16) Hanover Direct, Inc. intends to liquidate Hanover Casuals, Inc. The
corporation is inactive and has no assets.
(17) LWI Retail, Inc. is to merge with and into LWI Holdings, Inc.
(18) Silhouettes, LLC is a newly formed entity which, following consummation of
the transactions contemplated by the 12th Amendment to Loan and Security
Agreement, will own certain assets of the Silhouettes catalog.
(19) The Company Store, Inc. is to merge with and into Tweeds, Inc.
(20) Hanover Direct, Inc. intends to liquidate Tweeds of Vermont, Inc. The
corporation is inactive and has no assets.
(21) Tweeds, Inc. still has a lease for property at 155 River Road in
Edgewater, NJ but is subleasing a portion of the space and has no
intention of recommencing operations at that facility prior to the Lease
expiration.
(22) Tweeds, LLC is a newly formed entity which, following consummation of the
transactions contemplated by the 12th Amendment to Loan and Security
Agreement, will own certain assets of the Tweeds catalog.
(23) Hanover Direct, Inc. intends to liquidate York Fulfillment Company, Inc.
The corporation is inactive and has no assets.
-8-
<PAGE> 62
Mailing Addresses
- --------------------------------------------------------------------------------
Location Addresses and Zip Codes
- -------- -----------------------
- --------------------------------------------------------------------------------
Beachwood, OH 23297-99 Commerce Park Road, 44122
- --------------------------------------------------------------------------------
Conewago Township, PA 101 E. Kindig Lane, 17331
- --------------------------------------------------------------------------------
Hanover, PA 340 Poplar Street, 17331
Baltimore Street, 17331
- --------------------------------------------------------------------------------
Kenosha, WI 7700 120th Avenue, 53142
- --------------------------------------------------------------------------------
La Crosse, WI (a) 455 Park Plaza Drive, 54601
(b) 2929 Airport Road, 54603
301 Sky Harbor Drive, 54603
2809 Losey Boulevard, 54601
- --------------------------------------------------------------------------------
Los Angeles, CA 9000-9006 Santa Monica Boulevard
- --------------------------------------------------------------------------------
Madison, WI 4050 University Avenue, 53705
- --------------------------------------------------------------------------------
Mayfield Heights, OH 5876 Mayfield Road, 44124
- --------------------------------------------------------------------------------
McLean, VA 7916 Tysons Corner Center, 22102
- --------------------------------------------------------------------------------
Oshkosh, WI 901 South Main Street, 54901
- --------------------------------------------------------------------------------
Roanoke, VA (1) 5022 Hollins Road, 24019
- --------------------------------------------------------------------------------
San Francisco, CA 135 Post Street, 94108
- --------------------------------------------------------------------------------
San Diego, CA 9369 Dowdy Drive, 92121
3964 Fifth Avenue, 92103
741 "F" Street, 92101
- --------------------------------------------------------------------------------
Weehawken, NJ 1500 Harbor Boulevard, 07087
- --------------------------------------------------------------------------------
(1) The One Avery Row facility in Roanoke is not currently in use by Tweeds,
Inc. and an attempt is being made to sublease the facility and sell the
interest in the Partnership that owns it.
-9-
<PAGE> 63
EXHIBIT D
TO
12th AMENDMENT TO LOAN AND SECURITY AGREEMENT
Guarantors
Chief Executive Offices, Principal Places of Business,
Locations and Types of Collateral
<TABLE>
<CAPTION>
===================================================================================================================================
Location of Chief Places of
Company Executive Office Business Location of Collateral Types of Collateral
- ------- ---------------- -------- ---------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aegis Ventures, Inc. (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Aegis Retail Corporation (2) Roanoke, VA Roanoke, VA Roanoke, VA Documents
Instruments
Inventory
Lease
Equipment
Fixtures
- -----------------------------------------------------------------------------------------------------------------------------------
Aegis Safety Holdings, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
- -----------------------------------------------------------------------------------------------------------------------------------
American Down & Textile Company La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Equipment
Fixtures
General Intangibles
Inventory
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brawn Wholesale Corp. (3) San Diego, CA
- -----------------------------------------------------------------------------------------------------------------------------------
Company Store Holdings, Inc. (4) Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
General Intangibles
Accounts
- -----------------------------------------------------------------------------------------------------------------------------------
D.M. Advertising, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Lease
Hanover, PA Fixtures
Roanoke, VA Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE> 65
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gump's Holdings, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Stock
General Intangibles
- -----------------------------------------------------------------------------------------------------------------------------------
Gump's Catalog, Inc. (5)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Finance Corporation (6)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Home Fashions Group, LLC (7) Weehawken, NJ Roanoke, VA Weehawken, NJ Equipment
LaCrosse, WI Ownership Interests
Roanoke, VA Fixtures
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Ventures, Inc. (8) Weehawken, NJ
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Women's Apparel, LLC (9) Weehawken, NJ Weehawken, NJ Weehawken, NJ Ownership Interests
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover List Management Inc. (10)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Casuals, Inc. (11)
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Catalog Holdings, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ General Intangibles
- -----------------------------------------------------------------------------------------------------------------------------------
Hanover Direct, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ Accounts
Stock
General Intangibles
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 66
<TABLE>
<CAPTION>
===================================================================================================================================
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Keystone Fulfillment, Inc. Weehawken, NJ Weehawken, NJ Weehawken, NJ
- -----------------------------------------------------------------------------------------------------------------------------------
LWI Retail, Inc. (12) Mayfield Heights, OH Mayfield Heights, OH Mayfield Heights, OH Accounts
Inventory
Lease
Fixtures
Equipment
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
Scandia Down Corporation Weehawken, NJ Weehawken, NJ Weehawken, NJ Documents
General Intangibles
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
The Company Office, Inc. La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Fixtures
General Intangibles
Real Property
Documents
Instruments
- -----------------------------------------------------------------------------------------------------------------------------------
The Company Factory, Inc. La Crosse, WI La Crosse, WI La Crosse, WI Accounts
Equipment
Fixtures
General Intangibles
Real Property
Documents
Instruments
Inventory
- -----------------------------------------------------------------------------------------------------------------------------------
Tweeds of Vermont, Inc. (13)
- -----------------------------------------------------------------------------------------------------------------------------------
York Fulfillment Company, Inc.(14)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE> 67
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C> <C>
Company Location of Chief Places of
- ------- Executive Office Business Location of Collateral Types of Collateral
---------------- -------- ---------------------- -------------------
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Hanover Direct, Inc. intends to liquidate Aegis Ventures, Inc. The
corporation is inactive and has no assets.
(2) The McLean, Virginia store will be closed and vacated by September 30,
1998.
(3) Brawn wholesale Corp. has been inactive since early 1998 and will be
dissolved by December 26, 1998.
(4) Company Store Holdings, Inc. is to merge with Tweeds, Inc., the name of
the surviving company is to be changed to Hanover Holding Corp.
(5) Hanover Direct, Inc. intends to liquidate Gump's Catalog, Inc. The
corporation is inactive and has no assets.
(6) Hanover Direct, Inc. intends to liquidate Hanover Finance Corporation.
(7) Hanover Home Fashions, LLC is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan and Security Agreement, will own the primary ownership interests in
Domestications, LLC and Hanover Company Store, LLC.
(8) Hanover Direct, Inc. intends to dissolve Hanover Ventures, Inc.
(9) Hanover Women's Apparel, LLC is a newly formed entity which, following
consummation of the transactions contemplated by the 12th Amendment to
Loan and Security Agreement, will own the primary ownership interests in
Tweeds, LLC and Silhouettes, LLC.
(10) Hanover Direct, Inc. intends to liquidate Hanover List Management, Inc.
The corporation is inactive and has no assets.
(11) Hanover Direct, Inc. intends to liquidate Hanover Casuals, Inc. The
corporation is inactive and has no assets.
(12) LWI Retail, Inc. is to merge with and into LWI Holdings, Inc.
(13) Hanover Direct, Inc. intends to liquidate Tweeds of Vermont, Inc. The
corporation is inactive and has no assets.
(14) Hanover Direct, Inc. intends to liquidate York Fulfillment Company, Inc.
The corporation is inactive and has no assets.
-5-
<PAGE> 68
Mailing Addresses
Location Addresses and Zip Codes
- -------- -----------------------
- --------------------------------------------------------------------------------
Beachwood, OH 23297-99 Commerce Park Road, 44122
- --------------------------------------------------------------------------------
Conewago Township, PA 101 E. Kindig Lane, 17331
- --------------------------------------------------------------------------------
Hanover, PA 340 Poplar Street, 17331
Baltimore Street, 17331
- --------------------------------------------------------------------------------
Kenosha, WI 7700 120th Avenue, 53142
- --------------------------------------------------------------------------------
La Crosse, WI (a) 455 Park Plaza Drive, 54601
(b) 2929 Airport Road, 54603
301 Sky Harbor Drive, 54603
2809 Losey Boulevard, 54601
- --------------------------------------------------------------------------------
Los Angeles, CA 9000-9006 Santa Monica Boulevard
- --------------------------------------------------------------------------------
Madison, WI 4050 University Avenue, 53705
- --------------------------------------------------------------------------------
Mayfield Heights, OH 5876 Mayfield Road, 44124
- --------------------------------------------------------------------------------
McLean, VA 7916 Tysons Corner Center, 22102
- --------------------------------------------------------------------------------
Oshkosh, WI 901 South Main Street, 54901
- --------------------------------------------------------------------------------
Roanoke, VA (1) 5022 Hollins Road, 24019
- --------------------------------------------------------------------------------
San Francisco, CA 135 Post Street, 94108
- --------------------------------------------------------------------------------
San Diego, CA 9369 Dowdy Drive, 92121
3964 Fifth Avenue, 92103
741 "F" Street, 92101
- --------------------------------------------------------------------------------
Weehawken, NJ 1500 Harbor Boulevard, 07087
- --------------------------------------------------------------------------------
(1) The One Avery Row facility in Roanoke is not currently in use by Tweeds,
Inc. and an attempt is being made to sublease the facility and sell the
interest in the Partnership that owns it.
-6-
<PAGE> 1
THIRTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIRTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of September
30, 1998, by and among CONGRESS FINANCIAL CORPORATION, a Delaware corporation,
successor by merger to 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"), HANOVER HOLDING CORP., a Delaware corporation, successor
by merger of The Company Store, Inc. with and into Tweeds, Inc. ("HH Corp."),
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"), THE AUSTAD COMPANY, a South Dakota corporation ("Austad"), TWEEDS,
LLC, a Delaware limited liability company ("Tweeds LLC"), SILHOUETTES, LLC, a
Delaware limited liability company ("Silhouettes LLC"), HANOVER COMPANY STORE,
LLC, a Delaware limited liability company ("HCS LLC"), DOMESTICATIONS, LLC, a
Delaware limited liability company ("Domestications LLC"), COLONIAL GARDEN
KITCHENS, INC., a Delaware corporation ("Colonial Garden"; and together with
HDPI, Brawn, GBM, Gump's, HH Corp., LWT, Aegis, HDV, Hanover Realty, Tweeds LLC,
Silhouettes LLC, HCS LLC and Domestications LLC, 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
Holdings"), AEGIS VENTURES, INC., a Delaware corporation ("Aegis Ventures"),
AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP.,
a California corporation ("Brawn Wholesale"), THE COMPANY STORE FACTORY, INC., a
Delaware corporation, successor by merger of The Company Factory, Inc., a
Wisconsin corporation, with and into The Company Store Factory, Inc. ("TCS
Factory"), THE COMPANY OFFICE, INC., a Delaware corporation, successor by merger
to The Company Office, Inc., a Wisconsin corporation ("TCS Office"), COMPANY
STORE HOLDINGS, INC., a Delaware corporation ("CSHI"), 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 Casuals"), HANOVER CATALOG HOLDINGS, INC., a Delaware
corporation ("Hanover Catalog"), HANOVER FINANCE CORPORATION, a Delaware
corporation ("HFC"), 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 ("Scandia"),
AUSTAD HOLDINGS, INC., a Delaware corporation ("Austad Holdings"), YORK
FULFILLMENT COMPANY, INC., a Pennsylvania corporation ("York Fulfillment"), and
TWEEDS OF VERMONT, INC., a Delaware corporation, HANOVER HOME FASHIONS GROUP,
LLC, a Delaware limited liability company ("HHFG
<PAGE> 2
LLC"), HANOVER WOMEN'S APPAREL, LLC, a Delaware limited liability company ("HWA
LLC"), and KEYSTONE FULFILLMENT, INC., a Delaware corporation ("Keystone") (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 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 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, the Tenth Amendment to Loan and Security Agreement, dated as of
October 31, 1997, the Eleventh Amendment to Loan and Security Agreement, dated
as of March 25, 1998, and the Twelfth Amendment, dated as of September 30, 1998,
(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 make a term
loan to TCS Factory in the original principal amount of $2,000,000 and a term
loan to TCS Office in the original principal amount of $700,000; and
WHEREAS, the parties to the Loan Agreement desire to enter into this
Thirteenth 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:
- 2 -
<PAGE> 3
(i) "TCS Factory Lease" shall mean the Lease, dated as of
August 26, 1993, between Company Store Holdings, Inc., f/k/a TCSA, Inc., and TCS
Factory with respect to the Real Property covered by the Mortgage made by TCS
Factory to Lender, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(ii) "TCS Factory Term Loan" shall mean the Obligations at any
time outstanding in respect of the Term Loan to be made by Lender to TCS Factory
pursuant to Section 2(a) hereof.
(iii) "TCS Factory Term Note" shall mean the Term Promissory
Note, dated of even date herewith, made by TCS Factory payable to the order of
Lender in the original principal amount of $2,O00,000, as such note now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
(iv) "TCS Office Lease" shall mean the Lease, dated as of
August 26, 1993, between Company Store Holdings, Inc., f/k/a TCSA, Inc., and TCS
Office with respect to the Real Property covered by the Mortgage made by TCS
Office to Lender, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(v) "TCS Office Term Loan" shall mean the Obligations at any
time outstanding in respect of the Term Loan to be made by Lender to TCS Office
pursuant to Section 2(b) hereof.
(vi) "TCS Office Term Note" shall mean the Term Promissory
Note, dated of even date herewith, made by TCS Office payable to the order of
Lender in the original principal amount of $700,000, as such note now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(b) Amendments to Definitions.
(i) Mortgages. Section 1.86 of the Loan Agreement is hereby
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
- 3 -
<PAGE> 4
Agreement, dated as of June 26, 1998, between Lender and HDPI, (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 amended by Amendment No. 1 to Deed of Trust,
Assignment and Security Agreement, dated as of June 26, 1998,
between Lender and Hanover Realty, (c) the Mortgage and Security
Agreement, dated as of September 30, 1998, by TCS Factory in favor
of Lender with respect to the Real Property and related assets of
TCS Factory located at 2929 Airport Road, La Crosse, Wisconsin, and
(d) the Mortgage and Security Agreement, dated as of September 30,
1998, by TCS Office in favor of Lender with respect to the Real
Property and related assets of TCS Office located at 455 Park Plaza
Drive, La Crosse, Wisconsin."
(ii) Real Property.
(A) Section 4.1(vi) of the Loan Agreement is hereby deleted
and the following substituted therefor "(vi) [Intentionally Deleted]; and".
(B) Section 1.111 of the Loan Agreement shall be deemed
deleted in its entirety and replaced with the following:
"1.111 "Real Property" shall mean all now owned and hereafter
acquired real property of Borrowers, together with all buildings,
structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located,
including without limitation, the real property, leasehold interests
and related assets more particularly described in the Mortgages,
located in Hanover, Pennsylvania, Roanoke, Virginia, and La Crosse,
Wisconsin."
(iii) Reference Bank. All references to the term "Reference
Bank" in the Loan Agreement and the other Financing Agreements shall be deemed
and each such reference is hereby amended to mean First Union National Bank, or
such other bank as Lender may from time to time designate.
(iv) Term Loan Borrowers. All references to the "Term Loan
Borrowers" herein and in the Loan Agreement and the other Financing Agreements
shall mean, individually and collectively, HDPI, Hanover Realty, TCS Factory and
TCS Office.
(v) Term Loans. All references to the "Term Loans" herein and
in the Loan Agreement and the other Financing Agreements shall mean,
individually and collectively, the
- 4 -
<PAGE> 5
Obligations evidenced by the Restated HDPI Term Note, the Restated Hanover
Realty Term Note, the TCS Factory Term Note and the TCS Office Term Note.
2. TCS Factory Term Loan; TCS Office Term Loan.
(a) Subject to and upon the terms and conditions contained herein
and in the other Financing Agreements, Lender shall, contemporaneously herewith,
make a term loan to TCS Factory in the principal amount of Two Million Dollars
($2,000,000) (the "TCS Factory Term Loan"). The TCS Factory Term Loan is (a)
evidenced by the TCS Factory Term Note in such original principal amount duly
executed and delivered by TCS Factory to Lender concurrently herewith; (b) to be
repaid, together with interest and other amounts, in accordance with this
Agreement, the TCS Factory Term Note, and the other Financing Agreements; and
(C) secured by all of the Collateral.
(b) Subject to and upon the terms and conditions contained herein
and in the other Financing Agreements, Lender shall, contemporaneously herewith,
make a term loan to TCS Office in the principal amount of Seven Hundred Thousand
Dollars ($700,000) (the "TCS Office Term Loan"). The TCS Office Term Loan is
(a) evidenced by the TCS Office Note in such original principal amount duly
executed and delivered by TCS Office to Lender concurrently herewith; (b) to be
repaid, together with interest and other amounts, in accordance with this
Agreement, the TCS Office Term Note, and the other Financing Agreements; and (c)
secured by all of the Collateral.
(c) Each of TCS Office and TCS Factory hereby irrevocably authorizes
and directs Lender to disburse the proceeds of the TCS Office Term Loan and the
TCS Factory Term Loan to the respective Revolving Loan Borrowers in the
respective amounts set forth on Exhibit A attached hereto to repay or to
partially repay the outstanding amounts of intercompany loans owed by each of
TCS Office and TCS Factory, respectively, to such Revolving Loan Borrowers in
the amounts set forth on Exhibit A (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 TCS Office or TCS Factory, as the case may be, 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. Each such Revolving Loan
Borrower hereby acknowledges the right of Lender to charge principal, interest,
fees and other obligations of TCS
- 5 -
<PAGE> 6
Office and TCS Factory as Term Loan Borrowers in respect of the TCS Office Term
Loan and the TCS Factory Term Loan to the Revolving Loan account of such
Revolving Loan Borrower under Section 2.9(f) of the Loan Agreement.
3. Acknowledgment by Guarantors. Guarantors hereby acknowledge, confirm
and agree that their Guarantees guaranteeing the payment and performance of all
Obligations of Borrowers are in full force and effect as of the date hereof, and
the "Obligations" (as such term is defined in the Guarantees) shall, without
limitation, extend to and cover the TCS Factory Term Loan and the TCS Office
Term Loan.
4. 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 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.
(b) Neither the execution, delivery or performance 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 any of 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 that are corporations or
any provisions of the Certificates of Formation or Operating Agreements of
Borrowers or Guarantors.
- 6 -
<PAGE> 7
(c) No action of, or filing with, or consent of any governmental or
public body or authority, other than the recording of the Mortgages and the UCC
Fixture Filings 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.
(d) 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.
(e) Except as set forth on Exhibit B hereto, which sets forth
certain of Borrowers obligations with respect to the Real Property of TCS Office
and TCS Factory located in La Crosse, Wisconsin, and the time periods and other
requirements for compliance therewith, Borrowers and Guarantors are in
compliance with all obligations in respect of environmental matters as provided
by the Financing Agreements
(f) As soon as available, but in any event by no later than January
15, 1999, TCS Factory shall deliver, or cause to be delivered to Lender, a
release by the City of La Crosse with respect to the Purchase Contract covering
the parcel of Real Property subject to the Mortgage made by TCS Factory in favor
of Lender.
(g) After giving effect to the provisions of this Amendment, no
Event of Default or Incipient Default exists or has occurred and is continuing.
5. Conditions Precedent. 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) Borrowers and Guarantors shall have delivered to Lender an
original of this Amendment, duly authorized, executed and delivered by each of
Borrowers and Guarantors;
(b) Each of Borrowers and Guarantors shall have delivered to
Lender, in form and substance satisfactory to Lender, each of the following
agreements, documents or instruments to which it is a party, duly authorized,
executed and delivered:
- 7 -
<PAGE> 8
(i) an original of each of the TCS Factory Term Note and the
TCS Office Term Note;
(ii) an original Guarantee and Waiver, dated of even date
herewith, by the Borrowers, other than TCS Office in favor of Lender with
respect to the Obligations of TCS Office to Lender;
(iii) an original Guarantee and Waiver, dated of even date
herewith, by Borrowers, other than TCS Factory, in favor of Lender with respect
to the Obligations of TCS Factory to Lender;
(iv) an original Guarantee and Waiver, dated of even date
herewith, by Guarantors, other than Borrowers and Hanover, in favor of Lender
with respect to the Obligations of TCS Office and TCS Factory to Lender;
(v) an original guarantee and Waiver, dated of even date
herewith, by Hanover, in favor of Lender with respect to the Obligations of TCS
Office and TCS Factory to Lender;
(vi) an original Mortgage and Security Agreement, dated of
even date herewith, by TCS Factory in favor of Lender with respect to the Real
Property of TCS Factory securing the Guarantor Obligations and the other
Obligations of TCS Factory, including, without limitation, the TCS Factory Term
Loan, up to the Maximum Credit;
(vii) an original Mortgage and Security Agreement, dated of
even date herewith, by TCS Office in favor of Lender with respect to the Real
Property of TCS Office securing the Guarantor Obligations and other Obligations
of TCS Office, including, without limitation, the TCS Office Term Loan, up to
the Maximum Credit;
(viii) an original UCC Fixture Filing between TCS Office, as
debtor, and Lender, as secured party, for filing with the Clerk of La Crosse
County, Wisconsin;
(ix) an original UCC Fixture Filing between TCS Factory, as
debtor, and Lender, as secured party, for filing with the Clerk of La Crosse
County, Wisconsin;
(x) an agreement or agreements, in form and substance
acceptable to Lender (A) assigning the TCS Factory Lease to HH Corp., (B)
amending certain provisions of the TCS Factory Lease, and (C) subordinating any
interest of the lessee in the Real Property covered by the TCS Factory Lease to
the interest of Lender in the Real Property covered by the Mortgage made by TCS
Factory to Lender; together with memorandum(s) or amendment to any existing
memorandums with respect to such
- 8 -
<PAGE> 9
agreement(s), in form acceptable for recording with the Clerk of La Crosse
County, Wisconsin;
(xi) an agreement or agreements, in form and substance
acceptable to Lender (A) assigning the TCS Office Lease to HH Corp., (B)
amending certain provisions of the TCS Office Lease, and (C) subordinating any
interest of the lessee in the Real Property covered by the TCS Factory Lease to
the interest of Lender in the Real Property covered by the Mortgage made by TCS
Factory to Lender; together with memorandum(s) or amendments to any existing
memorandums with respect to such agreement(s), in form acceptable for recording
with the Clerk of La Crosse County, Wisconsin;
(c) Lender shall have received evidence that all prior encumbrances
upon the Real Property subject to the Mortgages made by TCS Factory and TCS
Office in favor of Lender have been satisfied and discharged and have been
delivered to Lender, in form and substance satisfactory to Lender and a title
insurance company acceptable to Lender (the "Title Company"), including, without
limitation, the release of any liens of the State of Wisconsin Investment Board
with respect to the Real Property and any other assets of TCS Factory and the
release of any liens of Prudential Interfunding Corp with respect to the Real
Property and any other assets of TCS Office;
(d) Lender shall have received a certificate of occupancy with
respect to each improved parcel of Real Property subject to the Mortgages made
by TCS Factory and TCS Office in favor of Lender, together with other evidence
satisfactory to Lender of final municipal approval for completion of any
improvements on such Real Property and the legal occupancy thereof by TCS
Factory, TCS Office and the tenant under the amended lease agreements referred
to in Sections 5(b)(x) and (xi) hereof;
(e) Lender shall have received a full ALTA (highest standard)
as-built survey by a licensed surveyor with respect to each parcel of Real
Property subject to the Mortgages made by TCS Factory and TCS Office in favor of
Lender, certified to Lender and the Title Company, according to a certification
satisfactory in form and substance to Lender and the Title Company, showing the
current location of all improvements, setbacks, easements, rights of way and
other matters affecting title to or use of such property;
(f) Lender shall have received updated evidence of casualty
insurance and loss payee endorsements required pursuant to the Loan Agreement
and under the other Financing Agreements, in form and substance satisfactory to
Lender, together with certificates of insurance policies and/or endorsements
naming Lender as mortgagee, loss payee and additional insured, as applicable;
- 9 -
<PAGE> 10
(g) 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 those Borrowers and
Guarantors that are corporations and Manager Certificates and Company
Resolutions evidencing the adaption and subsistence of company resolutions
approving the execution, delivery and performance by those Borrowers and
Guarantors that are limited liability companies of this Amendment and the
agreements, documents and instruments to be delivered pursuant to this
Amendment;
(h) Lender shall have received an appraisal, in form and substance
satisfactory to Lender, prepared by an appraiser and in form, scope and
methodology, satisfactory to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely, with respect to the Real Property of TCS Office and
TCS Factory;
(i) Lender shall have received updated environmental audits of the
owned real property of TCS Factory and of TCS Office 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 review such updated audits and
any follow-up work requested by such consultant at Borrowers' expense, that (i)
each of TCS Factory and TCS Office are in compliance with all material
applicable Environmental Laws and (ii) the absence of any material environmental
problems;
(j) Lender shall have received, in form and substance satisfactory
to Lender, a valid and effective title insurance policy issued by the Title
Company (i) insuring the priority, amount and sufficiency of the Mortgages made
by TCS Factory and TCS Office, (ii) insuring against matters that would be
disclosed by surveys and (iii) containing any legally available endorsements,
assurances or affirmative coverage requested by Lender for protection of its
interests;
(k) Lender shall have received an opinion(s) of counsel to Borrowers
and Guarantors with respect to this Amendment, the Mortgages made by each of TCS
office and TCS Factory and the transactions and agreements and other instruments
contemplated by this Amendment, and such other matters as Lender shall
reasonably require, in form and substance and satisfactory to Lender;
(l) 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
- 10 -
<PAGE> 11
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; and
(m) UCC, tax and judgment searches against TCA Office and TCS
Factory with the Wisconsin Secretary of State and the Clerk of La Crosse County,
Wisconsin showing no financing statements or other liens of record against
either TCS Office or TCS Factory except in favor of Lender and except as
otherwise permitted under the Loan Agreement.
6. 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.
7. 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.
8. 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 conflict of laws).
9. 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.
10. 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.
- 11 -
<PAGE> 12
Exhibit 10.36
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By: [ILLEGIBLE]
---------------------------
Title: 1st. VP
------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
BRAWN OF CALIFORNIA, INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
GUMP'S BY MAIL, INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
GUMP'S CORP.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
HANOVER HOLDING CORP.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
LWI HOLDINGS, INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
(SIGNATURES CONTINUE ON NEXT PAGE]
- 12 -
<PAGE> 13
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS CATALOG CORPORATION
By: Larry Svoboda
---------------------------
Title: VP
------------------------
HANOVER DIRECT VIRGNIA INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
HANOVER REALTY, INC.
By: Larry Svoboda
---------------------------
Title: VP
------------------------
THE AUSTAD COMPANY
By: Larry Svoboda
---------------------------
Title: VP
------------------------
TWEEDS, LLC
By: Larry Svoboda
---------------------------
Title: VP
------------------------
SILHOUETTES, LLC
By: Larry Svoboda
---------------------------
Title: VP
------------------------
HANOVER COMPANY STORE, LLC
By: Larry Svoboda
---------------------------
Title: VP
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 13 -
<PAGE> 14
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
DOMESTICATIONS, LLC
By: William Kingsford
---------------------------
Title: VP
------------------------
COLONIAL GARDEN KITCHENS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
THE COMPANY STORE FACTORY, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
THE COMPANY OFFICE, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
By their signatures below, the
undersigned Guarantors
acknowledge and agree to be
bound by the applicable
provisions of this Amendment:
HANOVER DIRECT, INC
By: William Kingsford
---------------------------
Title: VP
------------------------
AEGIS RETAIL CORPORATION
By: William Kingsford
---------------------------
Title: VP
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 14 -
<PAGE> 15
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AEGIS SAFETY HOLDINGS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
AEGIS VENTURES, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
AMERICAN DOWN & TEXTILE COMPANY
By: William Kingsford
---------------------------
Title: VP
------------------------
BRAWN WHOLESALE CORP.
By: William Kingsford
---------------------------
Title: VP
------------------------
COMPANY STORE HOLDINGS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
D.M. ADVERTISING, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
GUMP'S CATALOG, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 15 -
<PAGE> 16
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
GUMP'S HOLDINGS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER CASUALS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER CATALOG HOLDINGS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER FINANCE CORPORATION
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER LIST MANAGEMENT INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER VENTURES, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
LWI RETAIL, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 16 -
<PAGE> 17
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
SCANDIA DOWN CORPORATION
By: William Kingsford
---------------------------
Title: VP
------------------------
TWEEDS OF VERMONT, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
YORK FULFILLMENT COMPANY, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
AUSTAD HOLDINGS, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER HOME FASHIONS GROUP, LLC
By: William Kingsford
---------------------------
Title: VP
------------------------
HANOVER WOMEN'S APPAREL, LLC
By: William Kingsford
---------------------------
Title: VP
------------------------
KEYSTONE FULFILLMENT, INC.
By: William Kingsford
---------------------------
Title: VP
------------------------
- 17 -
<PAGE> 18
EXHIBIT A
To Thirteenth Amendment To Loan and Security Agreement
Intercompany Loans Owed By The Company Store Factory, Inc.
Revolving Loan Outstanding Amount Intercompany Loan
Borrower that is of Intercompany Repayment Amount
now payee under Loans
loan made to The
Company Store
Factory, Inc.
Domestications,
LLC* $2,000,000 Full Amount of The
Company Store
Factory, Inc. Term
Advance
Intercompany Loans Owed By The Company Office, Inc.
Revolving Loan Outstanding Amount Intercompany Loan
Borrower that is of Intercompany Repayment Amount
now payee under Loans
loan made to The
Company Office,
Inc.
Domestications, $700,000 Full Amount of The
LLC* Company Office, Inc.
Term Advance
* Hanover Direct Virginia Inc. originally made the loans set forth above to The
Company Store Factory, Inc. and The Company Store Office, Inc., respectively. In
connection with Phase I of the Hanover 1998 Reorganization and the transfer of
certain assets and liabilities from Hanover Direct Virginia Inc. to
Domestications, LLC, the right to repayment of both such loans was transferred
to Domestications, LLC.
<PAGE> 19
EXHIBIT B
TO
THIRTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
Environmental Matters with respect to Certain Real Property
Located at 455 Park Plaza Drive, La Crosse, Wisconsin
As soon as available, but in any event, by no later than February 15,
1999, TCS Office shall furnish to Lender, in form and substance satisfactory to
Lender, (a) evidence that the thirty-five (35) gallon drum of waste oil on or at
the Real Property of TCS Office located at 455 Park Plaza Drive, La Crosse,
Wisconsin (the "TCS Office Real Property"), has been stored in a manner to
reduce the possibility of leakage, spillage or other contamination of soil, and
(b) evidence that the Wisconsin Department of Natural Resources has issued a
letter or stating that the 2,000 gallon underground storage tank located at the
TCS Office Real Property and any contamination related thereto has been
sufficiently remediated so that the site and TCS Office comply with all
Wisconsin Environmental Laws and that no further remediation or other action
with respect to the site is necessary (the "UST La Crosse, Wisconsin
Remediation").
In addition to, and not in limitation of, the foregoing, pending the
completion of the UST La Crosse, Wisconsin Remediation, upon the earlier of (i)
February 15, 1999 (the "UST Remediation Date"), or (ii) the existence or
occurrence and continuance of an Event of Default or Incipient Default, Lender
may, without limiting Lender's other rights and remedies under the Loan
Agreement and the other Financing Agreements, in its sole discretion, establish
a reserve against the availability of Revolving Loans in an amount, as
determined by Lender, not to exceed $225,000; provided, that, if TCS Office has
not completed the UST La Crosse, Wisconsin Remediation by February 15, 1999,
Lender agrees to extend the UST Remediation Date to such later date beyond
February 15, 1999, as Lender may determine in its good faith discretion and set
forth in writing, so long as, during the period between September 30, 1998 and
February 15, 1999 (and at all times thereafter through the extended UST
Remediation Date, if the UST Remediation Date is so extended by Lender), TCS
Office uses, and continues to use its best efforts to effect the UST La Crosse,
Wisconsin Remediation, as determined by Lender in good faith.
<PAGE> 1
EXHIBIT 10.37
FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FOURTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated
as of February 28, 2000, is entered into by and among CONGRESS FINANCIAL
CORPORATION, a Delaware 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"), LWI HOLDINGS, INC.,
a Delaware corporation, successor by merger of Aegis Catalog Corporation with
and into LWI Holdings, Inc. ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation, successor by merger of Hanover Holding Corp. with and into Hanover
Direct Virginia Inc. and successor by merger of Colonial Garden Kitchens, Inc.
with and into Hanover Direct Virginia, Inc. ("HDV"), HANOVER REALTY, INC., a
Virginia corporation ("Hanover Realty"), THE COMPANY STORE FACTORY, INC., a
Delaware corporation ("TCS Factory"), THE COMPANY OFFICE, INC., a Delaware
corporation ("TCS Office"), TWEEDS, LLC, a Delaware limited liability company
("Tweeds LLC"), SILHOUETTES, LLC, a Delaware limited liability company
("Silhouettes LLC"), HANOVER COMPANY STORE, LLC, a Delaware limited liability
company ("HCS LLC"), DOMESTICATIONS, LLC, a Delaware limited liability company
("Domestications LLC"; and together with HDPI, Brawn, GBM, Gump's, LWI, HDV,
Hanover Realty, TCS Factory, TCS Office, Tweeds LLC, Silhouettes and HCS LLC,
each individually referred to herein as a "Borrower" and collectively, as
"Borrowers"), and HANOVER DIRECT, INC., a Delaware corporation, successor by
merger of Company Store Holdings, Inc. with and into Hanover Direct, Inc.
("Hanover"), AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation ("American
Down"), D.M. ADVERTISING, INC., a New Jersey corporation ("DM Advertising"),
SCANDIA DOWN CORPORATION, a Delaware corporation ("Scandia"), YORK FULFILLMENT
COMPANY, INC., a Pennsylvania corporation ("York Fulfillment"), KEYSTONE
LIQUIDATIONS, INC., a Delaware Corporation, formerly known as Tweeds of Vermont,
Inc., HANOVER HOME FASHIONS GROUP, LLC, a Delaware limited liability company
("HHFG LLC"), and KEYSTONE INTERNET SERVICES, INC., a Delaware corporation,
formerly known as Keystone Fulfillment Services, Inc. ("Keystone"; each
individually referred to herein as an "Existing Guarantor" and collectively, as
"Existing Guarantors"), KITCHEN & HOME, LLC, a Delaware limited liability
company ("Kitchen & Home, LLC"; as hereinafter further defined), DOMESTICATIONS
KITCHEN & GARDEN, LLC, a Delaware limited liability company ("Domestications
K&G, LLC"; as hereinafter further defined), ENCORE CATALOG, LLC, a Delaware
limited liability company ("Encore LLC"; as hereinafter further defined),
CLEARANCE WORLD OUTLETS, LLC, a Delaware limited liability company ("Clearance
World"; as hereinafter further defined), SCANDIA DOWN, LLC, a Delaware limited
liability company ("Scandia Down, LLC"; as hereinafter further defined), ERIZON,
INC., a Delaware corporation ("erizon, inc."; as hereinafter further defined),
HANOVER BRANDS, INC., a Delaware corporation ("Hanover Brands"; as hereinafter
further defined), ERIZON.COM, INC., a Delaware corporation ("erizon.com"; as
hereinafter further defined), LA CROSSE FULFILLMENT, LLC, a Delaware limited
liability company ("LaCrosse, LLC"; as hereinafter further defined) and SAN
DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC";
as
<PAGE> 2
hereinafter further defined). Each Existing Guarantor, together with Kitchen &
Home, LLC, Domestications K&G, LLC, Encore LLC, Clearance World LLC, Scandia
LLC, erizon, inc., Hanover Brands, erizon.com, LaCrosse LLC and San Diego LLC,
shall hereinafter be referred to individually as a "Guarantor" and collectively
as "Guarantors".
W I T N E S S E T H:
WHEREAS, Borrowers, Existing 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 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, 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,
the Ninth Amendment to Loan and Security Agreement, dated as of April 18, 1997,
the Tenth Amendment to Loan and Security Agreement, dated as of October 31,
1997, the Eleventh Amendment to Loan and Security Agreement, dated as of March
25, 1998, the Twelfth Amendment to Loan and Security Agreement, dated as of
September 30, 1998, and the Thirteenth Amendment to Loan and Security Agreement,
dated as of September 30, 1998 (as so amended, the "Loan Agreement"), pursuant
to which Lender has made loans and advances to Borrowers; and
WHEREAS, Borrowers and Existing Guarantors have requested that Lender
consent to, and enter into certain amendments to the Loan Agreement and
agreements with respect to certain transactions as described herein in
connection with, the corporate reorganization of certain Borrowers and certain
Existing Guarantors; and
WHEREAS, Borrowers and Existing Guarantors have requested that each of
Kitchen & Home LLC, Domestications K&G LLC, Encore LLC, Clearance World LLC,
Scandia LLC, erizon, inc., Hanover Brands, erizon.com, LaCrosse LLC and San
Diego LLC become a Guarantor pursuant to the terms and conditions of the Loan
Agreement, as amended hereby; and
WHEREAS, the parties to the Loan Agreement desire to enter into this
Fourteenth Amendment to Loan and Security Agreement (this "Amendment") to
evidence and effectuate such consents, amendments and agreements, and certain
other amendments to the Financing Agreements relating thereto, in each case
subject to the terms and conditions and to the extent 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.
<PAGE> 3
(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 1999 Reorganization Guarantors"
shall mean, individually and collectively, each of Kitchen & Home, LLC,
Domestications K&G, LLC, Encore LLC, Clearance World LLC, Scandia LLC, erizon,
inc., Hanover Brands, erizon.com, LaCrosse LLC and San Diego LLC.
(ii) "Aegis/LWI Holdings Merger" shall mean the merger of
Aegis Catalog Corporation with and into LWI Holdings, Inc., with LWI Holdings,
Inc. as the surviving corporation.
(iii) "Clearance World LLC" shall mean Clearance World
Outlets, LLC, a Delaware limited liability company, and its successors and
assigns.
(iv) "Colonial Garden Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by Colonial Garden
immediately before the consummation of the Hanover 1999 Reorganization as to
Colonial Garden and (B) are or have been owned or acquired by Domestications K&G
LLC at any time on or after the effective date of the Hanover 1999
Reorganization as to HDV, which assets and properties, in each case, were and
are primarily related to or primarily used in connection with or arise from the
sale of merchandise or services sold through the "Colonial Garden Kitchens" mail
order catalog, including, without limitation, all Accounts, Inventory, Customer
Lists and other General Intangibles so related, used or sold.
(v) "Colonial Garden/HDV Merger" shall mean the merger
of Colonial Garden Kitchens, Inc., with and into Hanover Direct Virginia Inc.,
with Hanover Direct Virginia Inc. as the surviving corporation.
(vi) "CSHI/HDI Merger" shall mean the merger of Company
Store Holdings, Inc. with and into Hanover Direct, Inc. with Hanover Direct,
Inc. as the surviving corporation.
(vii) "Domestications K&G LLC" shall mean Domestications
Kitchen & Garden, LLC, a Delaware limited liability company, and its successors
and assigns.
(viii) "Encore Catalog Assets" shall mean all of the
assets and properties that (A) are or were owned by HDPI immediately before the
consummation of the Hanover 1999 Reorganization as to HDPI and (B) are or have
been owned or acquired by Encore Catalog LLC at any time after the effective
date of the Hanover 1999 Reorganization as to HDPI, which assets and properties,
in each case, were and are primarily related to or primarily used in connection
with or arise from the sale of merchandise or services sold through the "Encore"
mail order
<PAGE> 4
(viii) "Encore Catalog Assets" shall mean all of the
assets and properties that (A) are or were owned by HDPI immediately before the
consummation of the Hanover 1999 Reorganization as to HDPI and (B) are or have
been owned or acquired by Encore Catalog LLC at any time after the effective
date of the Hanover 1999 Reorganization as to HDPI, which assets and properties,
in each case, were and are primarily related to or primarily used in connection
with or arise from the sale of merchandise or services sold through the "Encore"
mail order
<PAGE> 5
catalog, including, without limitation, all Accounts, Inventory, Customer Lists
and other General Intangibles so related, used or sold.
(ix) "Encore LLC" shall mean Encore Catalog, LLC, a
Delaware limited liability company, and its successors and assigns.
(x) "erizon, inc." shall mean erizon, inc., a Delaware
corporation, and its successors and assigns.
(xi) "erizon.com" shall mean erizon.com, inc., a
Delaware corporation, and its successors and assigns.
(xii) "Hanover Brands" shall mean Hanover Brands, Inc., a
Delaware corporation, and its successors and assigns.
(xiii) "HH Corp./HDV Merger" shall mean the merger of
Hanover Holding Corp. with and into Hanover Direct Virginia Inc., with Hanover
Direct Virginia Inc. as the surviving corporation.
(xiv) "Hanover 1999 Reorganization" shall mean,
individually and collectively, the reorganization steps and transactions
effected under the Hanover 1999 Reorganization Agreements.
(xv) "Hanover 1999 Reorganization Agreements" shall
mean, collectively, the agreements, documents and instruments listed in Schedule
1 hereto, the Hanover Subsidiary Dissolution Agreements and all related
agreements, documents and instruments executed, delivered or filed in connection
with, or otherwise evidencing, each of the transactions consented to in Section
2 hereof, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(xvi) "Hanover Subsidiary 1999 Dissolution Agreements"
shall mean, collectively, the certificates or agreements executed, delivered or
filed in connection with, or otherwise evidencing, the dissolution of Aegis
Retail, Austad Holdings (now known as Hanover Golf, Inc., Austad (now known as
Hanover South Dakota Company), York Fulfillment and HWA LLC, and all related
agreements, documents and instruments, as the same now exist or may hereafter
entered into, be amended, modified, supplemented, extended, renewed, restated or
replaced.
(xvii) "Kitchen & Home Catalog Assets" shall mean all of
the assets and properties that (A) are or were owned by HDPI immediately before
the consummation of the Hanover 1999 Reorganization as to HDPI, and (B) are or
have been owned or acquired by Kitchen & Home LLC at any time on or after the
effective date of the Hanover 1999 Reorganization as to HDPI, which assets and
properties, in each case, were and are primarily related to or primarily used in
connection with or arise from the sale of merchandise or services
<PAGE> 6
sold through the "Kitchen & Home" mail order catalog, including, without
limitation, all Accounts, Inventory, Customer Lists and other General
Intangibles so related, used or sold.
(xviii) "Kitchen & Home LLC" shall mean Kitchen & Home,
LLC, a Delaware limited liability company, and its successors and assigns.
(xix) "LaCrosse Fulfillment Center Assets" shall mean all
of the fixed assets that (A) are or were owned by American Down immediately
before the consummation of the Hanover 1999 Reorganization as to American Down,
and (B) are or have been owned or acquired by LaCrosse LLC at any time on or
after the effective date of the Hanover 1999 Reorganization as to American Down,
which fixed assets, in each case, were and are primarily related to or primarily
used in connection with the business and operations of the mail order
fulfillment center located at 2809 Losey Boulevard, LaCrosse, Wisconsin.
(xx) "La Crosse LLC" shall mean La Crosse Fulfillment,
LLC, a Delaware limited liability company, and its successors and assigns.
(xxi) "San Diego LLC" shall mean San Diego Telemarketing,
LLC, a Delaware limited liability company, and its successors and assigns.
(xxii) "San Diego Telemarketing Center Assets" shall mean
all of the fixed assets that (A) are or were owned by Brawn immediately before
the consummation of the Hanover 1999 Reorganization as to Brawn and (B) are or
have been owned or acquired by San Diego LLC at any time on or after the
effective date of the Hanover 1999 Reorganization as to Brawn, which fixed
assets, in each case, were and are primarily related to or primarily used in
connection with the business and operations of the telemarketing and call center
located at 741 F Street, San Diego, California.
(xxiii) "Scandia LLC" shall mean Scandia Down, LLC, a
Delaware limited liability company, and its successors and assigns.
(xxiv) "Clearance World Retail Outlet Assets" shall mean
all of the assets and properties that (A) are or were owned by HDPI immediately
before the consummation of the Hanover 1999 Reorganization as to HDPI, and (B)
are or have been owned or acquired by Clearance World LLC on and after the
effective date of the Hanover 1999 Reorganization as to HDPI, which assets and
properties, in each case, are primarily related to or primarily used in
connection with or arise from the business and operations of the three (3)
outlet stores previously operated by HDPI and located in Pennsylvania,
including, without limitation, all Accounts, Inventory, and other General
Intangibles so related, used or sold.
(b) Interpretation. All capitalized terms used herein and not defined
herein shall have the meanings given to such terms in the Loan Agreement.
2. Consents.
(a) Hanover 1999 Reorganization. Subject to the terms and
conditions contained herein and in the Loan Agreement and in the other Financing
Agreements, and notwithstanding
<PAGE> 7
anything to the contrary contained in Sections 6.2, 6.5, 6.6(a), 6.6(c) or 6.9
of the Loan Agreement, Lender consents to the following transactions:
(i) the formation of Encore Catalog LLC and the
contribution, assignment and transfer by HDPI to Encore Catalog LLC of all of
the Encore Catalog Assets, subject to the security interests and liens of Lender
therein, in consideration of a one hundred percent (100%) membership interest in
Encore Catalog LLC, and the assumption by Encore Catalog LLC of all obligations,
liabilities and indebtedness of HDPI allocated to the Encore Catalog Assets
(including the Obligations of HDPI allocated thereto, but without thereby
releasing HDPI from liability therefor), all in accordance with the applicable
Hanover 1999 Reorganization Agreements;
(ii) the merger of Aegis Catalog with and into LWI
Holdings, pursuant to the Aegis/LWI Holdings Merger, with LWI Holdings as the
surviving corporation in accordance with the applicable Hanover 1999
Reorganization Agreements;
(iii) the formation of San Diego LLC by Brawn and (A) the
contribution, assignment and transfer by Brawn to San Diego LLC of all of the
San Diego Telemarketing Assets, subject to the security interests and liens of
Lender therein, in consideration of a one hundred percent (100%) membership
interest in San Diego LLC, and the assumption by San Diego LLC of all
obligations, liabilities and indebtedness of Brawn allocated to the San Diego
Telemarketing Assets (including the Obligations of Brawn allocated thereto, but
without thereby releasing Brawn from liability therefor), (B) the sale, transfer
and assignment by Brawn to Hanover of its hundred percent (100%) membership
interest in San Diego LLC, subject to the security interests and liens of Lender
in the assets of Hanover, (C) the sublease by Brawn to San Diego LLC of the
premises of Brawn located at 741 F Street, San Diego, California, subject to
Lender's right of access to the premises contained herein, (D) the contribution,
assignment and transfer by Hanover to erizon, inc. of its hundred percent (100%)
membership interest in San Diego LLC, subject to the security interests and
liens of Lender in the assets of erizon, inc, all in accordance with the
applicable Hanover 1999 Reorganization Agreements;
(iv) the formation of Clearance World LLC by HDPI and
(A) the contribution, assignment and transfer by HDPI to Clearance World LLC of
all of the Clearance World Assets, subject to the security interests and liens
of Lender therein, in consideration of a one hundred percent (100%) membership
interest in Clearance World LLC, and the assumption by Clearance World LLC of
all obligations, liabilities and indebtedness of Brawn allocated to the
Clearance World Assets (including the Obligations of HDPI allocated thereto, but
without thereby releasing HDPI from liability therefor), (B) the sale, transfer
and assignment by HDPI to Hanover of its hundred percent (100%) membership
interest in Clearance World LLC, subject to the security interests and liens of
Lender in the assets of Hanover, (C) the contribution, assignment and transfer
by Hanover to Hanover Brands of its hundred percent (100%) membership interest
in Clearance World LLC, subject to the security interests and liens of Lender in
the assets of Hanover Brands, all in accordance with the applicable Hanover 1999
Reorganization Agreements;
(v) the merger of CSHI with and into Hanover, pursuant
to the
<PAGE> 8
CSHI/Hanover Merger, with Hanover as the surviving corporation in accordance
with the applicable Hanover 1999 Reorganization Agreements;
(vi) the formation of LaCrosse LLC by American Down and
(A) the contribution, assignment and transfer by American Down to LaCrosse LLC
of all of the LaCrosse Fulfillment Center Assets, subject to the security
interests and liens of Lender therein, in consideration of a one hundred percent
(100%) membership interest in LaCrosse LLC, and the assumption by LaCrosse LLC
of all obligations, liabilities and indebtedness of American Down allocated to
the LaCrosse Fulfillment Center Assets (including the Obligations of American
Down allocated thereto, but without thereby releasing American Down from
liability therefor), (B) the sale, transfer and assignment by American Down to
Hanover of its hundred percent (100%) membership interest in LaCrosse LLC,
subject to the security interests and liens of Lender in the assets of Hanover,
(C) immediately before the effectiveness of the HH Corp./HDV Merger, the
assignment by HH Corp. of its leasehold interest in the premises located at 2809
Losey Boulevard, LaCrosse, Wisconsin to LaCrosse LLC, subject to Lender's right
of access to the premises contained herein, (D) the contribution, assignment and
transfer by Hanover to erizon, inc. of its hundred percent (100%) membership
interest in LaCrosse LLC, subject to the security interests and liens of Lender
in the assets of erizon, inc, all in accordance with the applicable Hanover 1999
Reorganization Agreements;
(vii) the formation of Kitchen & Home LLC and the
contribution, assignment and transfer by HDPI to Kitchen & Home LLC of all of
the Kitchen & Home Catalog Assets, subject to the security interests and liens
of Lender therein, in consideration of a one hundred percent (100%) membership
interest in Kitchen & Home LLC, and the assumption by Kitchen & Home LLC of all
obligations, liabilities and indebtedness of HDPI allocated to the Kitchen &
Home Catalog Assets (including the Obligations of HDPI allocated thereto, but
without thereby releasing HDPI from liability therefor), all in accordance with
the applicable Hanover 1999 Reorganization Agreements;
(viii) the formation of Scandia LLC and the capital
contribution, by HHFG LLC of Nine Hundred Ninety-Nine Dollars ($999) in
consideration of a ninety-nine and nine tenths percent (99.9%) membership
interest in Scandia LLC, and the capital contribution by HH Corp. of One Dollar
($1.00) in consideration of a one tenth percent (.1%) membership interest in
Scandia LLC, all in accordance with the applicable Hanover 1999 Reorganization
Agreements;
(ix) immediately before the effectiveness of the HH
Corp./HDV Merger, the sale, assignment and contribution by HH Corp. to HHFG LLC
all of the right, title and interest of HH Corp. in and to the fifty percent
(50%) ownership interest of HH Corp. in the Blue Ridge Associates general
partnership, subject to the security interests and liens of Lender in the assets
of HH Corp., and the assumption by HHFG LLC of all obligations, liabilities and
indebtedness of HH Corp. as a general partner of Blue Ridge Associates general
partnership, in consideration of the adjustment of HH Corp.'s membership
interest in HHFG LLC such that, after giving effect thereto and to the
contribution, assignment and transfer by HDPI to HHFG LLC consented in Section
2(a)(x) hereof, HH Corp.'s membership interest in HHFG LLC will be the
percentage expressed as a fraction, (A) the numerator of which is the value of
the net assets
<PAGE> 9
contributed to HHFG LLC by HH Corp. and (B) the denominator of which is the
combined value of the net assets contributed by each of HH Corp., HDPI and HDV
in HHFG LLC, all in accordance with the applicable Hanover 1999 Reorganization
Agreements;
(x) immediately before the effectiveness of the HH
Corp./HDV Merger, the sale, assignment and contribution by HDPI to HHFG LLC of a
one-tenth percent (0.1%) membership interest in Kitchen & Home LLC, subject to
Lender's security interests in and liens on the assets of HDPI, in consideration
of the adjustment of HDPI's membership interest in HHFG LLC such that, after
giving effect thereto and to the contribution, assignment and transfer by HH
Corp.'s fifty percent (50%) interest in the Blue Ridge Associates general
partnership to HHFG LLC consented to in Section 2(a)(ix) hereof, HDPI's
membership interest in HHFG LLC will be the percentage expressed as a fraction,
(A) the numerator of which is the value of the net assets contributed to HHFG
LLC by HDPI and (B) the denominator of which is the combined value of the net
assets contributed by each of HDPI, HH Corp. and HDV in HHFG LLC, all in
accordance with the applicable Hanover 1999 Reorganization Agreements;
(xi) immediately before the effectiveness of the HH
Corp./HDV Merger, the distribution by HHFG LLC to HH Corp. of that portion of
HHFG LLC's ninety-nine and nine-tenths percent (99.9%) membership interest in
each of Domestications LLC, Scandia LLC and HCS LLC and that portion of HHFG
LLC's one hundred percent (100%) membership interest in Kitchen & Home LLC,
based upon HH Corp.'s percentage membership interest in HHFG LLC, as reflected
on the books and records of HHFG LLC immediately after the effectiveness of the
transactions contemplated by Sections 2(a)(ix) and (x) hereof, subject to
Lender's security interest in and lien on the assets of HH Corp., all in
accordance with the applicable Hanover 1999 Reorganization Agreements;
(xii) immediately before the effectiveness of the HH
Corp./HDV Merger, the distribution by HHFG LLC to HDV of that portion of HHFG
LLC's ninety-nine and nine-tenths percent (99.9%) membership interest in each of
Domestications LLC, Scandia LLC and HCS LLC and that portion of HHFG LLC's one
hundred percent (100%) membership interest in Kitchen & Home LLC, based upon
HDV's percentage membership interest in HHFG LLC, as reflected on the books and
records of HHFG LLC immediately after the effectiveness of the transactions
contemplated by Sections 2(a)(ix) and (x) hereof, subject to Lender's security
interest in and lien on the assets of HDV, all in accordance with the applicable
Hanover 1999 Reorganization Agreements;
(xiii) immediately before the effectiveness of the HH
Corp./HDV Merger, the contribution by HDPI to HWA LLC of a one-tenth percent
(0.1%) membership in Silhouettes LLC, subject to Lender's security interests in
and liens on the assets of HDPI, in consideration of the adjustment of HDPI's
membership interest in HWA LLC such that, after giving effect thereto and to the
contribution, assignment and transfer by HH Corp. to HWA LLC of a one-tenth
percent (0.1%) membership in Tweeds LLC consented in Section 2(a)(xiv) hereof,
HDPI's membership interest in HWA LLC will be the percentage expressed as a
fraction, (A) the numerator of which is the value of the net assets contributed
to HWA LLC by HDPI and (B) the
<PAGE> 10
denominator of which is the combined value of the net assets contributed by each
of HDPI and HH Corp in HWA LLC, all in accordance with the applicable Hanover
1999 Reorganization Agreements;
(xiv) immediately before the effectiveness of the HH
Corp./HDV Merger, the contribution by HH Corp. to HWA LLC of a one-tenth percent
(0.1%) membership in Tweeds LLC, subject to Lender's security interests in and
liens on the assets of HDPI, in consideration of the adjustment of HH Corp.'s
membership interest in HWA LLC such that, after giving effect thereto and to the
contribution, assignment and transfer by HH Corp. to HWA LLC of a one-tenth
percent (0.1%) membership in Silhouettes LLC consented to in Section 2(a)(xiii)
hereof, HH Corp.'s membership interest in HWA LLC will be the percentage
expressed as a fraction, (A) the numerator of which is the value of the net
assets contributed to HWA LLC by HH Corp. and (B) the denominator of which is
the combined value of the net assets contributed by each of HH Corp. and HDPI in
HWA LLC, all in accordance with the applicable Hanover 1999 Reorganization
Agreements;
(xv) the contribution, assignment and transfer by HDPI
to Hanover of all of HDPI's membership interest in HWA LLC, and immediately upon
the effectiveness thereof, the contribution, assignment and transfer by Hanover
to HDV of such membership interest in HWA LLC, in each case, subject to the
security interests and liens of Lender in the assets of and Hanover and HDV, all
in accordance with the applicable Hanover 1999 Reorganization Agreements;
(xvi) the contribution, assignment and transfer by HDPI
to Hanover of all of HDPI's membership interest in Encore Catalog LLC, subject
to the security interests and liens of Lender in the assets of HDPI and Hanover,
all in accordance with the applicable Hanover 1999 Reorganization Agreements
(xvii) the formation of Hanover Brands and the
contribution, assignment and transfer by Hanover to Hanover Brands of (A) all of
the shares of capital stock of the corporations listed on Schedule 2(a)(i)
hereto and all of the membership interests of the limited liability companies
listed on Schedule 2(a)(ii) hereto, and (B) all of the patents, trademarks,
copyrights and other intellectual property of Hanover used in connection with
the business or operations of such corporations or limited liability companies,
and immediately upon the effectiveness of the transfers in the foregoing clauses
(A) and (B), the contribution, assignment and transfer by Hanover Brands to HDV
of the membership interest in Encore Catalog LLC, in each case, subject to the
security interests and liens of Lender in the assets of Hanover and Hanover
Brands, all in accordance with the applicable Hanover 1999 Reorganization
Agreements;
(xviii) the formation of erizon, inc. and the
contribution, assignment and transfer by Hanover to erizon, inc. of (A) all of
the shares of capital stock of the corporations listed on Schedule 2(a)(iii)
hereto and all of the membership interests of the limited liability companies
listed on Schedule 2(a)(iv) hereto, and (B) all of the patents, trademarks,
copyrights and other intellectual property of Hanover used in connection with
the business of such corporations or limited liability company, and immediately
upon the effectiveness of the transfers
<PAGE> 11
in the foregoing clauses (A) and (B), the contribution, assignment and transfer
by erizon, inc. to HDPI of the membership interests in each of San Diego LLC and
LaCrosse LLC, in each case, subject to the security interests and liens of
Lender in the assets of erizon, inc. and HDPI, all in accordance with the
applicable Hanover 1999 Reorganization Agreements;
(xix) the merger of Colonial Garden Kitchens, Inc. with
and into HDV, pursuant to the Colonial Garden/ HDV Merger, with HDV as the
surviving corporation in accordance with the applicable Hanover 1999
Reorganization Agreements;
(xx) upon the effectiveness of the Colonial Garden/HDV
Merger, the formation of Domestications K&G LLC and the contribution, assignment
and transfer by HDV to Domestications K&G LLC of all of the Colonial Garden
Catalog Assets, subject to the security interests and liens of Lender therein,
in consideration of a one hundred percent (100%) membership interest in
Domestications K&G LLC, and the assumption by Domestications K&G LLC of all
obligations, liabilities and indebtedness of HDV allocated to the Colonial
Garden Catalog Assets (including the Obligations of HDV allocated thereto, but
without thereby releasing HDV from liability therefor), all in accordance with
the applicable Hanover 1999 Reorganization Agreements;
(xxi) the contribution, assignment and transfer by HDPI
to erizon, inc. of all of the issued and outstanding shares of capital stock of
Keystone Liquidations, and immediately upon the effectiveness thereof, the
contribution, assignment and transfer by erizon, inc. to Hanover of such capital
stock, and immediately upon the effectiveness of such transfer by erizon, inc.,
the contribution, assignment and transfer by erizon, inc. to Hanover Brands of
such capital stock, in each case, subject to Lender's security interests in and
liens on the assets of HDPI and erizon, inc., all in accordance with the
applicable Hanover 1999 Reorganization Agreements; and
(xxii) the contribution, assignment and transfer by the
Borrowers and Guarantors listed on Schedule (xxii) hereto of all patents,
trademarks, copyrights and other intellectual property to Hanover Brands, Inc.
and erizon, inc.
(b) Guarantor Dissolutions. 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 Aegis Retail,
Austad Holdings, Austad, York Fulfillment and HWA LLC, conditioned on the
following:
(i) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions described
in this Section 2(b), Borrowers and Guarantors shall deliver to Lender, in form
and substance satisfactory to Lender, (A) true and complete copies of all of the
Hanover Subsidiary 1999 Dissolution Agreements with respect to the dissolution
of each such Guarantor and Austad and (B) evidence that the Hanover Subsidiary
1999 Dissolution Agreements with respect to the dissolution of each such
Guarantor and Austad have been duly executed and delivered by and to the
appropriate parties thereto, and the transactions contemplated under the terms
of such Hanover Subsidiary 1999 Dissolution
<PAGE> 12
Agreements have been effected;
(ii) as soon as available, but in any event, no later
than ten (10) days after the effectiveness of each of the dissolutions consented
to in this Section 2(b), Lender shall have received, in form and substance
satisfactory to Lender, evidence that the certificate of dissolution with
respect to such Guarantor and Austad has been issued by the appropriate State
governmental authority;
(iii) after giving effect to the respective dissolutions
consented to in this Section 2(b), no Event of Default or Incipient Default
shall exist or have occurred and be continuing; and
(iv) the dissolutions consented to under this Section
2(b) and contemplated by the Hanover Subsidiary 1999 Dissolution Agreements
shall have occurred, and be effective, by no later than February 29, 2000,
subject, in the case of any of the Guarantors or Austad that are incorporated in
or authorized to do business in the Commonwealth of Pennsylvania to the earlier
of September 30, 2000 or the issuance of a certificate from the appropriate
Pennsylvania taxing authority confirming that any Pennsylvania taxes due and
owing have been paid, or such later date as Lender shall approve in writing.
3. Assumption of Obligations; Amendments to Guarantees and Financing
Agreements; Acknowledgments with respect to Hanover 1999 Reorganization.
Effective as of the earlier of the date hereof or effective date of completion
of the Hanover 1999 Reorganization as to the respective parties thereto:
(a) The Guarantee and Waiver, dated November 14, 1995, executed
by the Existing Guarantors as of such date, other than Hanover and Borrowers as
of such date, in favor of Lender, as heretofore amended (the "Subsidiary
Guarantee"), shall be deemed further amended to include each Additional Hanover
1999 Reorganization Guarantor as an additional Guarantor party signatory
thereto. Each Additional Hanover 1999 Reorganization Guarantor hereby expressly
(i) assumes and agrees to be directly liable to Lender, jointly and severally
with the other Guarantors signatories thereto and the Borrowers, for all
Obligations (as defined in the Subsidiary Guarantee), (ii) agrees to perform,
comply with and be bound by all terms, conditions and covenants of the
Subsidiary Guarantee with the same force and effect as if each Additional
Hanover 1999 Reorganization Guarantor had originally executed and been an
original party signatory to the Subsidiary Guarantee, and (iii) agrees that
Lender shall have all rights, remedies and interests with respect to each
Additional Hanover 1999 Reorganization Guaranty and their respective properties
with the same force and effect as if each had originally executed and been an
original party signatory to the Subsidiary Guarantee.
(b) Each of Additional Hanover 1999 Reorganization Guarantor
hereby expressly (i) assumes and agrees to be directly liable for all
Obligations under, contained in, or arising out of the Loan Agreement, the
General Security Agreement, dated November 14, 1995, by the Existing Guarantors
as of such date, other than Hanover and Borrowers as of such date, in favor
<PAGE> 13
of Lender, as heretofore amended (the "Subsidiary General Security Agreement")
and the other Financing Agreements applicable to all Guarantors and as applied
to each Additional Hanover 1999 Reorganization Guarantor as a Guarantor, (ii)
agrees to perform, comply with and be bound by all terms, conditions and
covenants of the Loan Agreement, the Subsidiary General Security Agreement and
the other Financing Agreements applicable to all Guarantors and as applied to
each Additional Hanover 1999 Reorganization Guarantor as a Guarantor with the
same force and effect as if each Additional Hanover 1999 Reorganization
Guarantor had originally executed and been an original Guarantor or Debtor, as
the case may be, party signatory to the Loan Agreement, the Subsidiary General
Security Agreement and the other Financing Agreements, and (iii) agrees that
Lender shall have all rights, remedies and interests, including security
interests in the Collateral granted pursuant to Section 4 hereof, the Loan
Agreement, the Subsidiary General Security Agreement, and the other Financing
Agreements, with respect to each Additional Hanover 1999 Reorganization
Guarantor and their respective properties and assets with the same force and
effect as if each Additional Hanover 1999 Reorganization Guarantor had
originally executed and had been an original Guarantor or Debtor, as the case
may be, party signatory to the Loan Agreement, the Subsidiary General Security
Agreement and the other Financing Agreements, and such agreements shall be
deemed so amended.
(c) Each Guarantor, including, without limitation, each
Additional Hanover 1999 Reorganization Guarantor as a Guarantor pursuant hereto,
hereby expressly and specifically ratifies, restates and confirms the terms and
conditions of its respective Guarantee(s) in favor of Lender and its liability
for all of the Obligations (as defined in its Guarantee(s)), and all other
obligations, liabilities, agreements and covenants thereunder.
(d) Each Borrower, and each Guarantor, including, without
limitation, each Additional Hanover 1999 Reorganization Guarantor, hereby agrees
that all references to Guarantor or Guarantors or other terms intended to refer
to a Guarantor or Guarantors, such as Debtor or Debtors, contained in any of the
Financing Agreements are hereby amended to include each of Additional Hanover
1999 Reorganization Guarantor and each other person or entity at any time
hereafter made a "Guarantor" under the Loan Agreement, as an additional
Guarantor or Debtor, or other appropriate term of similar import, as the case
may be.
(e) Each Borrower and each Guarantor hereby acknowledges,
confirms and agrees that, by operation of law and as provided in the Hanover
1999 Reorganization Agreements, as the case may be, and this Amendment:
(i) LWI Holdings, as the surviving corporation pursuant
to the Aegis/LWI Holdings Merger, has continued and shall continue to be
directly and primarily liable in all respects for the Obligations of Aegis
arising prior to the effective time of the Aegis/LWI Holdings Merger;
(ii) Lender shall continue to have valid and perfected
security interests, liens and rights in and to all of the assets and properties
owned and acquired (A) by LWI Holdings, as the surviving corporation of the
Aegis/LWI Holdings Merger, and (B) by each Borrower or Guarantor that is the
purchaser, assignee or transferee of any such assets and properties, pursuant to
the Hanover 1999 Reorganization Agreements or otherwise, and all such
<PAGE> 14
assets and properties shall be deemed included in the Collateral or the
Guarantor Collateral, as the case may be, and such security interests, liens and
rights and their perfection and priorities have continued and shall continue in
all respects in full force and effect;
(iii) HDV, as the surviving corporation pursuant to the
Colonial Garden/HDV Merger, has continued and shall continue to be directly and
primarily liable in all respects for the Obligations of Colonial Gardens arising
prior to the effective time of the Colonial Garden/HDV Merger;
(iv) Lender has and shall continue to have valid and
perfected security interests, liens and rights in and to all of the Colonial
Garden Catalog Assets and any other assets and properties owned and acquired (A)
by HDV, as the surviving corporation of the Colonial Garden/HDV Merger, and (B)
by each Borrower or Guarantor that is the purchaser, assignee or transferee of
any such assets and properties, pursuant to the Hanover 1999 Reorganization
Agreements or otherwise, and all such assets and properties shall be deemed
included in the Collateral or the Guarantor Collateral, as the case may be, and
such security interests, liens and rights and their perfection and priorities
have continued and shall continue in all respects in full force and effect;
(v) Hanover, as the surviving corporation pursuant to
the CSHI/HDI Merger, has continued and shall continue to be directly and
primarily liable in all respects for the Obligations of CSHI arising prior to
the effective time of the CSHI/HDI Merger;
(vi) Lender has and shall continue to have valid and
perfected security interests, liens and rights in and to all of the assets and
properties owned and acquired (A) by Hanover, as the surviving corporation of
the CSHI/HDI Merger, and (B) by each Borrower or Guarantor that is the
purchaser, assignee or transferee of any such assets and properties, pursuant to
the Hanover 1999 Reorganization Agreements or otherwise, and all such assets and
properties shall be deemed included in the Collateral or the Guarantor
Collateral, as the case may be, and such security interests, liens and rights
and their perfection and priorities have continued and shall continue in all
respects in full force and effect;
(vii) HDV, as the surviving corporation pursuant to the
HH Corp./HDV Merger, has continued and shall continue to be directly and
primarily liable in all respects for the Obligations of HH Corp. arising prior
to the effective time of the HH Corp./HDV Merger; and
(viii) Lender has and shall continue to have valid and
perfected security interests, liens and rights in and to all of the HH Corp.
assets and properties owned and acquired (A) by HDV, as the surviving
corporation of the HH Corp./HDV Merger, and (B) by each Borrower or Guarantor
that is the purchaser, assignee or transferee of any such assets and properties,
pursuant to the Hanover 1999 Reorganization Agreements or otherwise, and all
such assets and properties shall be deemed included in the Collateral or the
Guarantor Collateral, as the case may be, and such security interests, liens and
rights and their perfection and priorities have continued and shall continue in
all respects in full force and effect.
(ix) Without limiting the generality of the foregoing,
(A) none of the
<PAGE> 15
transactions contemplated by the Hanover 1999 Reorganization Agreements shall in
any way limit, impair or adversely affect the Obligations now or hereafter owed
to Lender by any existing or former Borrowers or Guarantors or any security
interests or liens in any assets or properties securing the same, (B) the
security interests, liens and rights of Lender in and to the assets and
properties of (1) LWI Holdings, as the surviving corporation of the Aegis/LWI
Holdings Merger, (2) HDV, as the surviving corporation of the Colonial
Garden/HDV Merger, (3) Hanover, as the surviving corporation of the CSHI/HDI
Merger, (4) HDV, as the surviving corporation of the HH Corp./HDV Merger, or (5)
any Borrower or Guarantor that is the recipient, assignee or transferee of any
such assets and properties contributed, assigned or transferred pursuant to the
Hanover 1999 Reorganization Agreements have continued and, upon and after the
consummation of the Aegis/LWI Holdings Merger, the Colonial Garden/HDV Merger,
the CSHI/HDI Merger, the HH Corp./HDV Merger, or such contribution, assignment
or transfer, as the case may be, shall continue to secure all Obligations to
Lender of LWI Holdings, Hanover, HDV, or the predecessor owner of such assets
and properties, as the case may be, in addition to all other existing and future
Obligations of LWI Holdings, Hanover, HDV or such Borrower or Guarantor, as the
case may be, to Lender.
4. Collateral.
Without limiting the provisions of Section 3(d) hereof, the Loan
Agreement, the Subsidiary General Security Agreement and the other Financing
Agreements, as collateral security for the prompt payment and performance when
due of all of the Obligations of the Additional Hanover 1999 Reorganization
Guarantors to Lender, each of the Additional Hanover 1999 Reorganization
Guarantors hereby grants to Lender, a continuing security interest in, and lien
upon, and right of setoff against, and each of the Additional Hanover 1999
Reorganization Guarantors hereby pledges and assigns to Lender, all of its now
owned and hereafter acquired and arising assets and properties, all of which
shall be included in the definition of Collateral as set forth in the Subsidiary
General Security Agreement (which definition is hereby amended accordingly),
including, without limitation, the following:
(i) all present and future: (A) accounts, credit card
receivables (including credit card charge records and other evidences of credit
card transactions), contract rights, general intangibles, chattel paper,
documents and instruments (collectively, "Accounts"), including, without
limitation, all obligations for the payment of money arising out of the sale,
lease or other disposition of goods or other property or rendition of services,
all monies, all credit balances, reserve balances and other monies due from or
held by factors or credit card issuers or servicing agents or financial
intermediaries; (B) all monies, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, Lender or any
participant from or for it whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of its deposits (general or
special), balances, sums and credits with Lender or any participant at any time
existing; (C) all of its right, title and interest, and all of its rights,
remedies, security and liens, in, to and in respect of the Accounts and other
collateral, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any account debtor, credit and other insurance; (D) all of its
right, title and interest in, to and in respect of all goods relating
<PAGE> 16
to, or which by sale have resulted in Accounts, including, without limitation,
all goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing, any Account or other
collateral, including, without limitation, all returned, reclaimed or
repossessed goods; (E) all deposit accounts; and (F) all other general
intangibles of every kind and description, including, without limitation, (1)
trade names and trademarks, and the goodwill of the business symbolized thereby,
(2) patents, (3) copyrights, (4) licenses, (5) claims and other choses in
action, (6) Federal, State, local and foreign tax refund claims of all kinds,
(7) catalogs and promotional materials, customer and mailing lists, and (8) all
of its right, title and interest in and to joint ventures and partnerships;
(ii) all Inventory;
(iii) all Equipment;
(iv) all Real Property;
(v) all present and future books, records, ledger
cards, computer programs and other property and general intangibles evidencing
or relating to any of the above, any other collateral or any account debtor,
together with the file cabinets or containers in which the foregoing are stored;
and
(vi) all present and future products and proceeds of the
foregoing, in any form, including, without limitation, any insurance proceeds
and any claims against third persons for loss or damage to or destruction of any
or all of the foregoing.
5. Acknowledgments Regarding Hanover Guarantor Subsidiary Dissolutions.
Each of Borrowers and Guarantors hereby acknowledges, confirms and
agrees that, upon the effectiveness of the dissolutions of those Guarantors
consented to under Section 2(b) hereof:
(i) The dissolutions of those Guarantors consented to
under Section 2(b) hereof 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 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.
6. Allocation of Revolving Loans and Letter of Credit Accommodations.
Each of
<PAGE> 17
Borrowers and Guarantors confirms, acknowledges and agrees that:
(a) as of the effective date of the Hanover 1999 Reorganization
as to Aegis, the portion of the Revolving Loans and Letter of Credit
Accommodations to or for the account of Aegis determined by Lender to be
allocable to the Inventory or other Collateral of Aegis before the consummation
of the Hanover 1999 Reorganization as to Aegis, shall be deemed to be Revolving
Loans and Letter of Credit Accommodations of LWI Holdings;
(b) as of and after the effective date of the Hanover 1999
Reorganization as to Colonial Garden, the portion of the Revolving Loans and
Letter of Credit Accommodations to or for the account of Colonial Gardens
determined by Lender to be allocable to the Inventory and other Collateral of
Colonial Gardens before the consummation of the Hanover 1999 Reorganization as
to Colonial Garden, shall be deemed to be Revolving Loans and Letter of Credit
Accommodations of HDV;
(c) as of and after the effective date of the Hanover 1999
Reorganization as to HH Corp., the portion of the Revolving Loans and Letter of
Credit Accommodations to or for the account of HH Corp. determined by Lender to
be allocable to the Inventory and other Collateral of HH Corp. before the
consummation of the Hanover 1999 Reorganization shall be deemed to be Revolving
Loans and Letter of Credit Accommodations of HDV; and
(d) contemporaneously with any determination by Lender of the
outstanding amount of Revolving Loans and Letter of Credit Accommodations to be
allocated to each of HDV and LWI Holdings, as provided in Sections 6(a) through
(c) hereof, respectively, the outstanding amount of Revolving Loans and Letter
of Credit Accommodations of the transferor Borrower shall be reduced by those
amounts so allocated, but without thereby relieving the transferor Borrower of
liability therefor.
7. Exhibits.
(a) Exhibits A, B-1 and C to the Loan Agreement are hereby
deleted in their entirety and replaced with the information set forth on
Exhibits A, B-1 and C hereto.
(b) Exhibit A to the Subsidiary General Security Agreement is
hereby amended to include, in addition and not in limitation, the information
set forth on Exhibit D attached hereto.
8. 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 and each other agreement or instrument to be
executed and delivered by each of the Additional Hanover 1999 Reorganization
Guarantors, the other
<PAGE> 18
Borrowers and/or the other Guarantors hereunder have been duly authorized,
executed and delivered by all necessary action on the part of each of the
Additional Hanover 1999 Reorganization Guarantors, the other Borrowers and each
of the other Guarantors which is a party hereto and thereto and, if necessary,
their respective stockholders (with respect to any corporation) or members (with
respect to any limited liability company), and is in full force and effect as of
the date hereof, as the case may be, and the agreements and obligations of each
of the Additional Hanover 1999 Reorganization Guarantors, the other Borrowers
and/or the other Guarantors, as the case may be, contained herein and therein
constitute legal, valid and binding obligations of each of the Additional
Hanover 1999 Reorganization Guarantors, the other Borrowers and/or the other
Guarantors, as the case may be, enforceable against them in accordance with
their terms.
(b) Neither the execution and delivery of the Hanover 1999
Reorganization Agreements, nor the consummation of the transactions contemplated
by the Hanover 1999 Reorganization Agreements, nor compliance with the
provisions of the Hanover 1999 Reorganization Agreements, shall result in the
creation or imposition of any lien, claim, charge or encumbrance upon any of the
Collateral, except in favor of Lender pursuant to this Amendment and the
Financing Agreements as amended hereby.
(c) Neither the execution and delivery of the Hanover 1999
Reorganization Agreements, nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof, (i) has violated or
shall violate any Bulk Sales Act, Bulk Transfer Act or Article 6 of the UCC, if
applicable, the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended, if applicable, or 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 material
mortgage, deed of trust, security agreement, agreement or instrument to which
any of Borrowers, the Additional Hanover 1999 Reorganization Guarantors or other
Guarantor is a party or may be bound, other than conflicts or defaults under
certain real estate leases, intellectual property licenses and equipment leases,
or (iii) shall violate any provision of the Certificates of Incorporation or
By-Laws of erizon, inc., Hanover Brands or erizon.com or any other Borrower or
other Guarantor, or (iv) shall violate any provision of the Certificates of
Formation or Operating Agreements of any of Kitchen & Home LLC, Domestications
K&G LLC, Encore LLC, Clearance World LLC, Scandia LLC, LaCrosse LLC and San
Diego LLC.
(d) All of the outstanding shares of capital stock of each of
erizon, inc., Hanover Brands and erizon.com have been duly authorized, validly
issued and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, other than liens in favor of
Lender. As of the date hereof, Hanover is the beneficial and direct owner of
record of one hundred (100%) percent of the issued and outstanding shares of
capital stock of each of Hanover Brands and erizon, inc. As of the date hereof,
erizon, inc. is the beneficial and direct owner of record of one hundred (100%)
percent of the issued and outstanding shares of capital stock of erizon.com.
(e) None of the membership interests in any of Kitchen & Home
LLC, Domestications K&G LLC, Encore LLC, Clearance World LLC, Scandia LLC,
LaCrosse LLC
<PAGE> 19
and San Diego LLC have been evidenced by a membership certificate or other
certificate, document, instrument or security. All of the membership interests
in each of Kitchen & Home LLC, Domestications K&G LLC, Encore LLC, Clearance
World LLC, Scandia LLC, LaCrosse LLC and San Diego LLC (i) are noted in the
respective books and records of each such company, (ii) have been duly
authorized, validly issued and (iii) are fully paid and non-assessable, free and
clear of all claims, liens, pledges and encumbrances of any kind, other than
liens in favor of Lender.
(f) No court of competent jurisdiction has issued any injunction,
restraining order or other order which has prohibited or prohibits consummation
of the Hanover 1999 Reorganization or any part thereof, 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 1999 Reorganization Agreements.
(g) As of the date hereof, each of Hanover Brands, erizon, inc.
and erizon.com is a Delaware corporation, duly organized and validly existing in
good standing under the laws of the State of Delaware. As of the date hereof,
each of Kitchen & Home LLC, Domestications K&G LLC, Encore LLC, Clearance World
LLC, Scandia LLC, LaCrosse LLC and San Diego LLC is a limited liability company,
duly formed and validly existing in good standing under the laws of the State of
Delaware. As of the date hereof, each of the Additional Hanover 1999
Reorganization Guarantors (i) is duly licensed or qualified to do business as a
foreign limited liability company or foreign corporation, as the case may be,
and is in good standing in each of the jurisdictions set forth in Exhibit A
annexed hereto, which are, as of the date hereof, the only jurisdictions wherein
the character of the properties owned or licensed or the nature of the business
of any of the Additional Hanover 1999 Reorganization Guarantors, makes such
licensing or qualification to do business necessary; and (ii) has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and will be conducted in the future.
(h) The assets and properties of the Additional Hanover 1999
Reorganization Guarantors are owned by them, free and clear of all security
interests, liens and encumbrances of any kind, nature or description, as of the
date hereof, except those security interests existing in favor of Lender and
those granted pursuant hereto in favor of Lender, and except for Liens (if any)
permitted under Section 6.4 of the Loan Agreement or the other Financing
Agreements.
(i) Upon the effectiveness of each of the mergers consented to
under Section 2(a) hereof, each such merger has become effective in accordance
with the terms of each of the applicable Hanover 1999 Reorganization Agreements
applicable to it and of the applicable corporate statutes of the States of
incorporation of each Borrower and each Guarantor that is a constituent
corporation pursuant to the mergers so consented to. As of the respective date
of the effectiveness of the respective mergers consented to under Section 2(a)
hereof, (i) LWI Holdings was and continues to be the surviving corporation of
the Aegis/LWI Holdings Merger (ii) HDV was continuing to be the surviving
corporation of the Colonial Garden/HDV Merger, (iii)
<PAGE> 20
Hanover was and continues to be the surviving corporation of the CSHI/HDI
Merger, and (iv) HDV was and continues to be the surviving corporation of the HH
Corp./HDV Merger.
(j) Neither the consummation of the mergers, as consented to
under Section 2(a) hereof, nor the dissolution of certain Guarantors as
consented to under Section 2(b) hereof, nor the execution, delivery and/or
filing of the applicable merger documents in respect of the Hanover 1999
Reorganization 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 if consummated or
effected on or before the date hereof has resulted in or if consummated or
effected after the date hereof shall result in the creation or imposition of any
lien, claim, charge or incumbrance upon any of the Collateral, except in favor
of Lender.
(k) All actions and proceedings required by the Hanover 1999
Reorganization Guarantors applicable to the mergers consented to under Section
2(a) hereof and the Hanover Subsidiary 1999 Dissolution Agreements, applicable
law and regulation, have been or shall be taken prior to the effectiveness of
such mergers and dissolutions and all transactions required thereunder have been
and shall be, or will be duly and validly consummated.
(l) 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 certain Guarantors as consented to
under Section 2(b) hereof, and no governmental action or proceeding has been,
or, prior to the effectiveness thereof, shall have 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 1999
Reorganization Agreements applicable to the mergers consented to in Section 2(a)
hereof or the Hanover Subsidiary 1999 Dissolution Agreements.
(m) Neither the consummation of the mergers consented to under
Section 2(a) hereof, nor the dissolution of certain Guarantors consented to
under Section 2(b) hereof, nor the execution, delivery or filing of the Hanover
1999 Reorganization Agreements applicable to the mergers consented to in Section
2(a) hereof, the Hanover Subsidiary 1999 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 before the date hereof or upon the effectiveness of such
mergers and dissolutions (i) has violated or will 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 will conflict with or result in the breach of, or constitute a
default in any respect under any material 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, other than conflicts or defaults under
certain real estate leases, intellectual property licenses and equipment leases,
or (iii) does or will violate any provision of the Certificate of Incorporation
or By-Laws of any Guarantor or any Borrower.
(n) The aggregate amount of the actual and contingent
indebtedness, liabilities and obligations, other than those owed to Lender or
any other Borrower or Guarantor, incurred
<PAGE> 21
by the Guarantors dissolved or which will be dissolved as consented to under
Section 2(b) hereof, including any such indebtedness, liabilities and
obligations arising in connection with or relating to such dissolutions, shall
not exceed $10,000 for any one such dissolved Guarantor.
(o) No action of, or filing with, or consent of any governmental
or public body or authority, other than the filing of UCC financing statements
and filings with the United States Patent and Trademark Office, 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.
(p) 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.
(q) After giving effect to the provisions of this Amendment, no
Event of Default or Incipient Default exists or has occurred and is continuing.
9. Conditions Precedent. Concurrently with the execution and delivery
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) Lender shall have received, in form and substance
satisfactory to Lender, evidence that (i) the Hanover 1999 Reorganization
Agreements have been duly executed and delivered by and to the appropriate
parties thereto and (ii) the transactions contemplated by the Hanover 1999
Reorganization have been consummated prior to, or contemporaneously with, the
execution of this Amendment;
(b) Each of Borrowers, the Additional Hanover 1999 Reorganization
Guarantors and Existing Guarantors shall have delivered to Lender, in form and
substance satisfactory to Lender, each of the following agreements to which it
is a party, duly authorized, executed and delivered:
(i) Third Amendment to Trademark Collateral Assignment
and Security Agreement, dated November 14, 1995, by and among Hanover Brands,
erizon, inc. and Lender, providing for certain amendments to the Trademark
Collateral Assignment and Security Agreement, and any such documents,
instruments or filings with respect thereto with the U.S. Patent and Trademark
Office to protect such Collateral;
(ii) evidence that notice has been received by the
Customer List Escrow Agent setting forth any changes in ownership to all
existing Customer Lists that are being held by the Customer List Escrow Agent
pursuant to the Customer List Escrow Agreement;
(iii) Guarantee and Waiver by the Additional Hanover 1999
<PAGE> 22
Reorganization Guarantors, Guarantors, other than Borrowers and Hanover, in
favor of Lender with respect to the Obligations of Borrowers; and
(c) Borrowers, the Additional Hanover 1999 Reorganization
Guarantors and Guarantors shall have duly executed and delivered to Lender such
UCC financing statements and other documents and instruments which Lender in its
sole discretion has determined are necessary to perfect the security interests
of Lender in all Collateral now or hereafter owned by Additional Hanover 1999
Reorganization Guarantors;
(d) Each of Hanover Brands, erizon, inc. and erizon.com shall
have delivered to Lender (i) a copy of its Certificate of Incorporation, and all
amendments thereto, certified by the Secretary of State of its jurisdiction of
incorporation as of the most recent practicable date certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein, (ii) a copy of its By-Laws, certified
by its Secretary or Assistant Secretary, (iii) a certificate from its Secretary
or Assistant Secretary dated the date hereof certifying that each of the
foregoing documents remains in full force and effect and has not been modified
or amended, except as described therein;
(e) Each of Kitchen & Home LLC, Domestications K&G LLC, Encore
LLC, Clearance World LLC, Scandia LLC, LaCrosse LLC and San Diego LLC shall have
delivered to Lender (i) a copy of its Certificate of Formation or Articles of
Organization, and all amendments thereto, certified by the Secretary of State of
its jurisdiction of formation as of the most recent practicable date certifying
that each of the foregoing documents remains in full force and effect and has
not been modified or amended, except as described therein, (ii) a copy of its
Operating Agreement, certified by the Secretary or Assistant Secretary of the
company, and (iii) a certificate from its Secretary or Assistant Secretary dated
the date hereof certifying that each of the foregoing documents remains in full
force and effect and has not been modified or amended, except as described
therein;
(f) Each of the Additional Hanover 1999 Reorganization Guarantors
shall have delivered to Lender evidence, as of the most recent practicable date,
that it is duly qualified and in good standing in each jurisdiction set forth in
Exhibit A annexed hereto;
(g) Lender shall have received, in form and substance
satisfactory to Lender, Secretary's or Assistant 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 and the other Guarantors that are corporations of this
Amendment and the agreements, documents and instruments to be delivered pursuant
to this Amendment;
(h) Lender shall have received, in form and substance
satisfactory to Lender, for each of Kitchen & Home LLC, Domestications K&G LLC,
Encore LLC, Clearance World LLC, Scandia LLC, LaCrosse LLC and San Diego LLC (i)
a Management and Incumbency Certificate of each such company identifying all
managers, officers or other persons authorized to act on behalf of such company,
(ii) Company Resolutions of each such company, evidencing the adoption and
subsistence of company resolutions approving the execution, delivery and
<PAGE> 23
performance by each of Kitchen & Home LLC, Domestications K&G LLC, Encore LLC,
Clearance World LLC, Scandia LLC, LaCrosse LLC and San Diego LLC, respectively,
of this Amendment and the agreements, documents and instruments to be delivered
pursuant to this Amendment, in each case signed by all members of each such
company, and (iii) Certificates of the Secretary or Assistant Secretary of each
such company identifying all members of such company;
(i) Lender shall have received, in form and substance
satisfactory to Lender, updates or amendments to the existing Evidence of
Property Insurance and Certificate of Liability Insurance issued by the existing
insurance broker or agent of Borrowers and Guarantors in favor of Lender;
(j) Lender shall have received an opinion of counsel to the
Additional Hanover 1999 Reorganization Guarantors, Borrowers and other
Guarantors with respect to the transactions contemplated by this Amendment and
the Hanover 1999 Reorganization Agreements, and such other matters as Lender
shall reasonably request, addressed to Lender, in form and substance and
satisfactory to Lender; and
(k) each of Borrowers and Guarantors shall deliver, or cause to
be delivered, to Lender a true and correct copy of any consent, waiver or
approval to or of this Amendment, which any Borrower or Guarantor is required to
obtain from any other Person, and such consent, approval or waiver shall be in a
form reasonably acceptable to Lender.
10. 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.
11. 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.
12. 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).
13. 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.
<PAGE> 24
14. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By:
Title:
HANOVER DIRECT PENNSYLVANIA, INC.
By:
Title:
BRAWN OF CALIFORNIA, INC.
By:
Title:
GUMP'S BY MAIL, INC.
By:
Title:
GUMP'S CORP.
By:
Title:
LWI HOLDINGS, INC.
By:
Title:
<PAGE> 26
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT VIRGINIA INC.
By:
Title:
HANOVER REALTY, INC.
By:
Title:
THE COMPANY STORE FACTORY, INC.
By:
Title:
THE COMPANY OFFICE, INC.
By:
Title:
[SIGNATURES CONTINUE ON NEXT PAGE]
<PAGE> 27
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TWEEDS, LLC
By:
Title:
SILHOUETTES, LLC
By:
Title:
HANOVER COMPANY STORE, LLC
By:
Title:
DOMESTICATIONS, LLC
By:
By their signatures below, the
undersigned Guarantors acknowledge and
agree to be bound by the applicable
provisions of this Amendment:
HANOVER DIRECT, INC.
By:
Title:
<PAGE> 28
[SIGNATURES CONTINUE ON NEXT PAGE]
<PAGE> 29
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AMERICAN DOWN & TEXTILE COMPANY
By:
Title:
D.M. ADVERTISING, INC.
By:
Title:
SCANDIA DOWN CORPORATION
By:
Title:
KEYSTONE LIQUIDATIONS, INC.
By:
Title:
YORK FULFILLMENT COMPANY, INC.
By:
Title:
HANOVER HOME FASHIONS GROUP, LLC
By:
Title:
<PAGE> 30
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
KEYSTONE INTERNET SERVICES, INC.
By:
Title:
KITCHEN & HOME, LLC
By:
Title:
DOMESTICATIONS KITCHEN & GARDEN, LLC
By:
Title:
ENCORE CATALOG, LLC
By:
Title:
CLEARANCE WORLD OUTLETS, LLC
By:
Title:
SCANDIA DOWN, LLC
By:
Title:
<PAGE> 31
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ERIZON, INC.
By:
Title:
HANOVER BRANDS, INC.
By:
Title:
ERIZON.COM, INC.
By:
Title:
LA CROSSE FULFILLMENT, LLC
By:
Title:
SAN DIEGO TELEMARKETING, LLC
By:
Title:
<PAGE> 32
EXHIBIT A TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
EXHIBIT A
TO
LOAN AND SECURITY AGREEMENT
JUSDICTIONS OF QUALIFICATION
<TABLE>
<CAPTION>
COMPANY STATE OF QUALIFICATIONS
INCORPORATION OR
FORMATION
<S> <C> <C>
American Down & Wisconsin None
Textile Company
Brawn of California, California New Jersey
Inc. Pennsylvania
Virginia
To be withdrawn from
Pennsylvania
Clearance World Delaware New Jersey
Outlets, LLC Pennsylvania
The Company Office, Delaware Wisconsin
Inc.
The Company Store Delaware Wisconsin
Factory, Inc.
D.M. Advertising, New Jersey Pennsylvania
Inc. Virginia
Domestications, LLC Delaware New Jersey
Virginia
Domestications Delaware New Jersey
Kitchen & Garden, LLC Virginia
Encore Catalog, LLC Delaware New Jersey
erizon, Inc. Delaware Pennsylvania
New Jersey
erizon.com, Inc. Delaware New Jersey
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C>
Gump's By Mail, Inc. Delaware California
New Jersey
Pennsylvania
Gump's Corp. California None
Hanover Brands, Inc. Delaware New Jersey
Pennsylvania
Hanover Company Delaware New Jersey
Store, LLC Virginia
Wisconsin
Hanover Direct, Inc. Delaware New Jersey
Hanover Direct Pennsylvania New Jersey
Pennsylvania, Inc. Virginia
California
to be qualified in
Wisconsin
Hanover Direct Virginia New Jersey
Virginia, Inc. Virginia
Minnesota
Wisconsin
Hanover Home Delaware New Jersey
Fashions Group, LLC Virginia
Wisconsin
Hanover Realty, Inc. Virginia None
Henre, Inc. Delaware New Jersey
New York
Keystone Internet Delaware Pennsylvania
Services, Inc. Virginia
New Jersey
California
Keystone Delaware New Jersey
Liquidations, Inc. Pennsylvania
Kitchen & Home, LLC Delaware New Jersey
Virginia
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C> <C>
LaCrosse Delaware Wisconsin
Fulfillment, LLC
LWI Holdings, Inc. Delaware Ohio
Pennsylvania
Virginia
To be withdrawn from
Pennsylvania
San Diego Delaware California
Telemarketing, LLC
Scandia Down Delaware Pending in California
Corporation
Scandia Down, LLC Delaware New Jersey
Pennsylvania
Silhouettes, LLC Delaware New Jersey
Virginia
Pennsylvania (d/b/a
Silhouettes Catalog, LLC)
Tweeds, LLC Delaware New Jersey
Virginia
Pennsylvania
</TABLE>
<PAGE> 35
EXHIBIT B TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
EXHIBIT B-1
TO
LOAN AND SECURITY AGREEMENT
EXISTING SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF PARENT PERCENTAGE OWNED BY PARENT
- -------------- --------------------------
Guarantor/Borrower Subsidiaries of Hanover Direct, Inc.
-------------------------------------------------------
<S> <C>
erizon, Inc. 100%
BC Corporation of Tennessee, Inc. 100%
The Horn & Hardart Company, Inc. 100%
Hanover Brands, Inc. 100%
Always In Style, LLC 66%
Hanover Syndication Corp. 100%
<CAPTION>
Guarantor/Borrower Subsidiaries of erizon, Inc.
-----------------------------------------------
<S> <C>
Hanover Realty, Inc. 100%
Desius, LLC 60%
Keystone Internet Services, Inc. 100%
The Company Office, Inc. 100%
erizon.com, Inc. 100%
Hanover Direct Pennsylvania, Inc. 100%
<CAPTION>
Guarantor/Borrower Subsidiaries of Hanover Direct Pennsylvania, Inc.
---------------------------------------------------------------------
<S> <C>
San Diego Telemarketing, LLC 100%
Hanover Home Fashions Group, LLC 100%
LaCrosse Fulfillment, LLC 100%
Hanover Direct Mail Marketing, Inc. 100%
York Fulfillment Company, Inc. 100%
Guarantor/Borrower Subsidiaries of Hanover Brands, Inc.
-------------------------------------------------------
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
Gump's By Mail, Inc. 100%
Gump's Corp. 100%
Henre, Inc. 100%
D,M. Advertising, Inc. 100%
Brawn of California, Inc. 100%
LWI Holdings, Inc. 100%
American Down & Textile Company 100%
Scandia Down Corporation 100%
The Company Store Factory, Inc. 100%
Clearance World Outlets, LLC 100%
Keystone Liquidations, Inc. 100%
Hanover Direct Virginia, Inc. 100%
<CAPTION>
Guarantor/Borrower Subsidiaries of Hanover Direct Virginia, Inc.
----------------------------------------------------------------
<S> <C>
Scandia Down, LLC 100%
Domestications, LLC 100%
Hanover Company Store, LLC 100%
Kitchen & Home, LLC 100%
Tweeds, LLC 100%
Silhouettes, LLC 100%
Domestications Kitchen & Garden, LLC 100%
Encore Catalog, LLC 100%
100%
100%
<CAPTION>
Guarantor/Borrower Subsidiaries of The Horn & Hardart Company, Inc.
------------------------------------------------------------------
<S> <C>
The Horn & Hardart Realty Company, 100%
Inc.
</TABLE>
<PAGE> 37
BRMF&S DRAFT
02/22/2000
EXHIBIT C TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
Borrowers and Guarantors
Chief Executive Offices, Principal Places of Business,
Locations and Types of Collateral
<TABLE>
<CAPTION>
COMPANY LOCATION OF PLACES OF TYPES OF ADDRESSES AT
CHIEF BUSINESS(1) COLLATERAL WHICH COLLATERAL
EXECUTIVE IS MAINTAINED
OFFICE
<S> <C> <C> <C> <C>
American Down 2929 Airport 2929 Airport Accounts 2929 Airport Rd.
& Textile Road Park Rd.* Equipment LaCrosse, WI
Company Plaza LaCrosse, WI Fixtures
LaCrosse, WI General
Intangibles
455 Park Plaza Inventory 455 Park Plaza
LaCrosse, WI Documents LaCrosse, WI
Instruments
Leased real
estate
Brawn of 741 "F" St. 741 "F" St.* Accounts 741 "F" St.
California, San Diego, CA San Diego, CA Documents San Diego, CA
Inc. Equipment
Fixtures
General
Intangibles
3964 Fifth Inventory 3964 Fifth Ave.
Ave. Leased real San Diego, CA
San Diego, CA estate
9369 Dowdy Dr. 9369 Dowdy Dr.
Suite E Suite E
San Diego, CA San Diego, CA
8465 Holloway 8465 Holloway
West West Hollywood,
Hollywood, CA CA
</TABLE>
- -------------------------------------
(1) Principal place of business marked "*".
<PAGE> 38
EXHIBIT C TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
Borrowers and Guarantors
Chief Executive Offices, Places and Principal Places of Business,
Locations and Types of Collateral
<TABLE>
<S> <C> <C> <C> <C>
5022 Hollins Rd. 5022 Hollins Rd.
Roanoke, VA Roanoke, VA
Clearance 1500 Harbor 1947 Franklin Accounts 1947 Franklin
World Outlets, Blvd. Mills Circle Equipment Mills Circle #537
LLC Weehawken, NJ #537 Fixtures Franklin Mills
Franklin Mills General Mall
Mall Intangibles Philadelphia,
Philadelphia, Inventory PA 19154
PA 19154
Rockville Documents Rockville Square
Square Outlets Leased real Outlets
Lancaster, PA estate Lancaster, PA
South Hanover South Hanover
Shopping Center Shopping Center
845 Baltimore 845 Baltimore Rd.
Rd. Hanover, PA
Hanover, PA
1500 Harbor 1500 Harbor Blvd.
Blvd.* Weehawken, NJ
Weehawken, NJ
The Company 455 Park Plaza 455 Park Plaza* Accounts 455 Park Plaza
Office, Inc. LaCrosse, WI LaCrosse, WI Fixtures LaCrosse, WI
General
Intangibles
Owned Real
Estate
Documents
Instruments
The Company 2929 Airport 2929 Airport Accounts 2929 Airport Rd.
Factory, Inc. LaCrosse, WI LaCrosse, WI* Fixtures LaCrosse, WI
General Intangibles
Owned Real Estate
Documents
Instruments
</TABLE>
2
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C>
D.M. 1500 Harbor 1500 Harbor Leased Real 1500 Harbor
Advertising, Blvd. Blvd.* Estate Blvd.*
Inc. Weehawken, NJ Weehawken, NJ Fixtures Weehawken, NJ
Equipment
101 Kindig Ln.
Hanover, PA
340 Poplar St.
Hanover, PA
5022 Hollins Rd.,
Roanoke, VA
24019
Domestications, 1500 Harbor 5022 Hollins Accounts 5022 Hollins
LLC Blvd. Rd., Roanoke Equipment Rd., Roanoke VA
Weehawken, NJ VA 24019 General 24019
Intangibles
Inventory
1500 Harbor Documents 1500 Harbor Blvd.
Blvd.* Instruments Weehawken, NJ
Weehawken, NJ
Domestications 1500 Harbor 5022 Hollins Accounts 5022 Hollins
Kitchen & Blvd. Rd., Roanoke, General Rd., Roanoke, VA
Garden, LLC Weehawken, NJ VA 24019 Intangibles 24019
Inventory
Documents
1500 Harbor Instruments 1500 Harbor Blvd.
Blvd.* Weehawken, NJ
Weehawken, NJ
Encore 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Catalog, LLC Blvd. Blvd.* General Weehawken, NJ
Weehawken, NJ Weehawken, NJ Intangibles
Documents
Instruments
erizon, Inc. 1500 Harbor 1500 Harbor Certificated Security 1500 Harbor Blvd.
Weehawken, NJ Weehawken, NJ * [stock] Weehawken, NJ
General Intangibles
Accounts
erizon.com, 1500 Harbor 1500 Harbor General 1500 Harbor Blvd.
Inc. Blvd. Blvd.* Intangibles Weehawken, NJ
Weehawken, NJ Weehawken, NJ
</TABLE>
3
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C>
Gump's By 1500 Harbor 135 Post St. Accounts 135 Post St.
Mail, Inc. Blvd. San Francisco, Equipment San Francisco, CA
Weehawken, NJ CA Fixtures
General
Intangibles
1500 Harbor Inventory 101 Kindig Ln.,
Blvd.* Documents Hanover, PA 17331
Weehawken, NJ Instruments
Leased Real 1500 Harbor Blvd.
Estate Weehawken, NJ
Gump's Corp. 135 Post St. 135 Post St.* Accounts 135 Post St.
San Francisco, CA San Francisco, Documents San Francisco, CA
CA Equipment
Fixtures
349 Sutter St. General 349 Sutter St.
San Francisco, Intangibles San Francisco, CA
CA Instruments
Inventory
Leased Real
Estate
Hanover 1500 Harbor 1500 Harbor Certificated 1500 Harbor Blvd.
Brands, Inc. Blvd. Blvd.* security Weehawken, NJ
Weehawken, NJ Weehawken, NJ* [stock]
General
Intangibles
Accounts
Hanover 1500 Harbor 2809 Losey Accounts 2809 Losey
Company Store, Blvd. Blvd., Equipment Blvd., LaCrosse,
LLC Weehawken, NJ LaCrosse, WI General WI
Intangibles
3272 Airport Inventory 3272 Airport
Rd., LaCrosse, Documents Rd., LaCrosse,
WI Instruments WI
1500 Harbor 5022 Hollins
Blvd.* Rd., Roanoke, VA
Weehawken, NJ
1500 Harbor Blvd.
Weehawken, NJ
</TABLE>
4
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C>
Hanover 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Direct, Inc. Blvd. Blvd.* Certificated Weehawken, NJ
Weehawken, NJ Weehawken, NJ* Security
[stock]
General
Intangibles
Documents
Instruments
Leased Real
Estate
Owned Real
Estate
Equipment
Goods covered
by certificate
of title(2)
340 Poplar St.
Hanover, PA
455 Park Plaza
LaCrosse, WI
2929 Airport Rd.
LaCrosse, WI
5022 Hollins Rd.
Roanoke, VA
135 Post St.
San Francisco, CA
23299 Commerce
Parkway
Beechwood, OH
2809 South Losey
LaCrosse, WI
741 F St.
San Diego, CA
</TABLE>
- -----------------------------------
(2) Leased motor vehicles
5
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C>
3232 Hollins
Rd., N.E.
Roanoke, Virginia
1912 Ninth St.,
S.E.
Roanoke, Virginia
1830 Blue Hills
Dr.
Roanoke, Virginia
1045 North Main
St.
Rock Mount,
Virginia
1713 Plantation
Rd., N.E.
Roanoke, Virginia
1809 Campbell
Ave.
Roanoke, VA
4498 Electric Rd.
Roanoke, VA
Hanover Direct 340 Poplar St. 1500 Harbor Accounts 1500 Harbor Blvd.
Pennsylvania, Hanover, PA Blvd. Equipment Weehawken, NJ
Inc. Weehawken, NJ Fixtures
General
Intangibles
101 Kindig Ln. Inventory 101 Kindig Ln.
Hanover, PA Documents Hanover, PA
Instruments
Goods covered
by certificate
of title(3)
340 Poplar St.* 340 Poplar St.
Hanover, PA Hanover, PA
</TABLE>
- -------------------------------
(3) Leased motor vehicles
6
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C>
Hanover Direct 1500 Harbor Medford Accounts Medford Village
Virginia, Inc. Blvd. Village Outlet Equipment Outlet Center
Weehawken, NJ Center Fixtures Medford, MN
Medford, MN General
Intangibles
LaCrosse Inventory LaCrosse Factory
Factory Outlet Documents Outlet
301 Sky Harbor Instruments 301 Sky Harbor
Dr. Certificated Dr.
LaCrosse, WI Security LaCrosse, WI
7700 120th Ave. [stock] 7700 120th Ave.
Factory Outlet Leased Real Factory Outlet
Center Estate Center
Kenosha, WI Kenosha, WI
The Walnut The Walnut Grove
Grove 4050 University
4050 Ave.
University Ave. Madison, WI
Madison, WI
115 River Rd. 115 River Rd.
Edgewater, NJ Edgewater, NJ
901 South Main 901 South Main
St. St.
Oshkosh, WI Oshkosh, WI
1500 Harbor 1500 Harbor Blvd.
Blvd.* Weehawken, NJ
Weehawken, NJ
Hanover Home 1500 Harbor 1500 Harbor Equipment 1500 Harbor Blvd.
Fashions Blvd. Blvd.* Fixtures Weehawken, NJ
Group, LLC Weehawken, NJ Weehawken, NJ
455 Park Plaza 455 Park Plaza
Dr. Dr.
LaCrosse, WI LaCrosse, WI
5022 Hollins 5022 Hollins Rd.
Rd. Roanoke, VA
Roanoke, VA
Hanover 5022 Hollins 5022 Hollins Owned Real 5022 Hollins Rd.
Realty, Inc. Rd. Rd.* Estate Roanoke, VA
Roanoke, VA Roanoke, VA
</TABLE>
7
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
Henre, Inc. 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Blvd. Blvd.* General Intangibles Westhawken, NJ
Weehawken, NJ Weehawken, NJ
Keystone 1500 Harbor 1500 Harbor Accounts 240 Kindig Ln.
Internet Blvd. Blvd.* Documents Hanover, PA
Services, Inc. Weehawken, NJ Weehawken, NJ General
Intangibles
240 Kindig Ln. Instruments
Hanover, PA Leased Real
Estate
3232 Hollins 3232 Hollins
Rd., N.E., Rd., N.E.,
Roanoke, Roanoke, Virginia
Virginia
1912 Ninth 1912 Ninth St.,
St., S.E., S.E., Roanoke,
Roanoke, Virginia
Virginia
1830 Blue 1830 Blue Hills
Hills Dr., Dr., Roanoke,
Roanoke, Virginia
Virginia
1045 North 1045 North Main
Main St., Rock St., Rock Mount,
Mount, Virginia Virginia
1713 Plantation 1713 Plantation
Rd., N.E., Rd., N.E.,
Roanoke, Virginia Roanoke, Virginia
1809 Campbell 1809 Campbell
Ave., Roanoke, VA Ave., Roanoke, VA
4498 Electric 4498 Electric
Rd., Roanoke, VA Rd., Roanoke, VA
Keystone 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Liquidations, Blvd. Blvd. General Weehawken, NJ
Inc. Weehawken, NJ Weehawken, NJ Intangibles
Documents
Instruments
Kitchen & 1500 Harbor 5022 Hollins Accounts 5022 Hollins Rd.
Home, LLC Blvd. Rd. Equipment Roanoke, VA
Weehawken, NJ Roanoke, VA General
Intangibles
</TABLE>
8
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C>
1500 Harbor Inventory 1500 Harbor Blvd.
Blvd.* Documents Weehawken, NJ
Weehawken, NJ Instruments
LaCrosse 3272 Airport 2809 Losey Accounts 2809 Losey Blvd.
Fulfillment, Rd. Blvd. Documents La Crosse, WI
LLC LaCrosse, WI La Crosse, WI General
Intangibles
Instruments
3272 Airport Leased Real 3272 Airport Rd.
Rd.* Estate LaCrosse, WI
LaCrosse, WI Equipment
Fixtures
455 Park Plaza 455 Park Plaza
LaCrosse, WI LaCrosse, WI
LWI Holdings, 23297 23632 Accounts 23632 Mercantile
Inc. Commerce Pkwy. Mercantile Rd.. Equipment Rd..
Beachwood, OH Unit E Fixtures Unit E
Beachwood, Ohio Inventory Beachwood, Ohio
5022 Hollins Leased Real 5022 Hollins
Rd., Roanoke, Estate Rd., Roanoke, VA
VA 24019 Documents 24019
Instruments
5876 Mayfield General 5876 Mayfield Rd.
Rd. Intangibles Mayfield
Mayfield Heights, OH
Heights, OH
23297 Commerce 23297 Commerce
Parkway* Parkway
Beechwood, Ohio Beechwood, Ohio
San Diego 741 "F" St. 741 "F" St. Accounts 741 "F" St.
Telemarketing, San Diego, CA San Diego, CA* Documents San Diego, CA
LLC General
Intangibles
Instruments
Equipment
Fixtures
Leased Real
Estate
</TABLE>
9
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C>
Scandia Down 741 "F" St. 741 "F" St. Documents 741 "F" St.
Corporation San Diego, CA San Diego, CA* General San Diego, CA
Intangibles
Instruments
1500 Harbor Blvd.
Weehawken, NJ
Scandia Down, 1500 Harbor 101 Kindig Ln. Accounts 101 Kindig Ln.
LLC Blvd. Hanover, PA Equipment Hanover, PA
Weehawken, NJ General
Intangibles
1500 Harbor Inventory 1500 Harbor Blvd.
Blvd.* Documents Weehawken, NJ
Weehawken, NJ Instruments
Silhouettes, 1500 Harbor 5022 Hollins Accounts 5022 Hollins
LLC Blvd. Rd., Roanoke, Documents Rd., Roanoke, VA
Weehawken, NJ VA 24019 Equipment 24019
1500 Harbor General 1500 Harbor Blvd.
Blvd.* Intangibles Weehawken, NJ
Weehawken, NJ Instruments
Inventory
Tweeds, LLC 1500 Harbor 5022 Hollins Accounts 5022 Hollins
Blvd. Rd., Roanoke, Equipment Rd., Roanoke, VA
Weehawken, NJ VA 24019 General 24019
Intangibles
1500 Harbor Inventory 1500 Harbor Blvd.
Blvd.* Documents Weehawken, NJ
Weehawken, NJ Instruments
</TABLE>
10
<PAGE> 47
EXHIBIT D TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
Guarantors' Chief Executive Offices, Places and Principal Places
of Business, Locations and Types of Collateral
<TABLE>
<CAPTION>
COMPANY LOCATION OF PLACES OF TYPES OF ADDRESSES AT
CHIEF BUSINESS(4) COLLATERAL WHICH COLLATERAL
EXECUTIVE IS MAINTAINED
OFFICE
<S> <C> <C> <C> <C>
American Down 2929 Airport 2929 Airport Accounts 2929 Airport Rd.
& Textile Road Park Rd.* Equipment LaCrosse, WI
Company Plaza LaCrosse, WI Fixtures
LaCrosse, WI General
Intangibles
455 Park Plaza Inventory 455 Park Plaza
LaCrosse, WI Documents LaCrosse, WI
Instruments
Leased real
estate
Clearance 1500 Harbor 1947 Franklin Accounts 1947 Franklin
World Outlets, Blvd. Mills Circle Equipment Mills Circle #537
LLC Weehawken, NJ #537 Fixtures Franklin Mills
Franklin Mills General Mall
Mall Intangibles Philadelphia,
Philadelphia, Inventory PA 19154
PA 19154
Rockville Documents Rockville Square
Square Outlets Leased real Outlets
Lancaster, PA estate Lancaster, PA
South Hanover South Hanover
Shopping Center Shopping Center
845 Baltimore 845 Baltimore Rd.
Rd. Hanover, PA
Hanover, PA
1500 Harbor 1500 Harbor Blvd.
Weehawken, NJ Weehawken, NJ
</TABLE>
- ------------------------------------
(4) Principal place of business marked "*".
11
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C>
D.M. 1500 Harbor 1500 Harbor Leased Real 1500 Harbor
Advertising, Blvd. Blvd.* Estate Blvd.*
Inc. Weehawken, NJ Weehawken, NJ Fixtures Weehawken, NJ
Equipment
101 Kindig Ln.
Hanover, PA
340 Poplar St.
Hanover, PA
5022 Hollins
Rd.,
Roanoke, VA
24019
Domestications 1500 Harbor 5022 Hollins Accounts 5022 Hollins
Kitchen & Blvd. Rd., Roanoke, General Rd., Roanoke, VA
Garden, LLC Weehawken, NJ VA 24019 Intangibles 24019
Inventory
Documents
1500 Harbor Instruments 1500 Harbor Blvd.
Blvd.* Weehawken, NJ
Weehawken, NJ
Encore 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Catalog, LLC Blvd. Blvd.* General Weehawken, NJ
Weehawken, NJ Weehawken, NJ Intangibles
Documents
Instruments
erizon, Inc. 1500 Harbor 1500 Harbor Certificated security 1500 Harbor Blvd.
Weehawken, NJ Weehawken, NJ (stock) Weehawken, NJ
General Intangibles
Accounts
erizon.com, 1500 Harbor 1500 Harbor General 1500 Harbor Blvd.
Inc. Blvd. Blvd.* Intangibles Weehawken, NJ
Weehawken, NJ Weehawken, NJ*
Hanover 1500 Harbor 1500 Harbor Certificated 1500 Harbor Blvd.
Brands, Inc. Blvd. Blvd.* security Weehawken, NJ
Weehawken, NJ Weehawken, NJ* [stock]
General
Intangibles
Accounts
</TABLE>
12
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C>
Hanover 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Direct, Inc. Blvd. Blvd.* Certificated Weehawken, NJ
Weehawken, NJ Weehawken, NJ* Security
[stock]
General
Intangibles
Documents
Instruments
Leased Real
Estate
Owned Real
Estate
Equipment
Goods covered
by certificate
of title(5)
340 Poplar St.
Hanover, PA
455 Park Plaza
LaCrosse, WI
2929 Airport Rd.
LaCrosse, WI
5022 Hollins Rd.
Roanoke, VA
135 Post St.
San Francisco, CA
23299 Commerce
Parkway
Beechwood, OH
2809 South Losey
LaCrosse, WI
741 F St.
San Diego, CA
</TABLE>
- ------------------------------
(5) Leased motor vehicles
13
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C>
3232 Hollins
Rd., N.E.
Roanoke, Virginia
1912 Ninth St.,
S.E.
Roanoke, Virginia
1830 Blue Hills
Dr.
Roanoke, Virginia
1045 North Main
St.
Rock Mount,
Virginia
1713 Plantation
Rd., N.E.
Roanoke, Virginia
1809 Campbell
Ave.
Roanoke, VA
4498 Electric Rd.
Roanoke, VA
Hanover Home 1500 Harbor 1500 Harbor Equipment 1500 Harbor Blvd.
Fashions Blvd. Blvd.* Fixtures Weehawken, NJ
Group, LLC Weehawken, NJ Weehawken, NJ
455 Park Plaza 455 Park Plaza
Dr. Dr.
LaCrosse, WI LaCrosse, WI
5022 Hollins Rd 5022 Hollins Rd.
Roanoke, VA Roanoke, VA
Keystone 1500 Harbor 1500 Harbor Accounts 240 Kindig Ln.
Internet Blvd. Blvd.* Documents Hanover, PA
Services, Inc. Weehawken, NJ Weehawken, NJ General
Intangibles
240 Kindig Ln. Instruments
Hanover, PA Leased Real
Estate
</TABLE>
14
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C>
3232 Hollins 3232 Hollins
Rd., N.E., Rd., N.E.,
Roanoke, Roanoke, Virginia
Virginia
1912 Ninth St., 1912 Ninth St., S.E.,
Virginia Roanoke, Virginia
1830 Blue 1830 Blue Hills
Hills Dr., Dr., Roanoke,
Roanoke, Virginia
Virginia
1045 North 1045 North Main
Main St., Rock St., Rock Mount,
Mount, Virginia Virginia
1713 Plantation 1713 Plantation
Rd., N.E., Rd., N.E.,
Roanoke, Virginia Roanoke, Virginia
1809 Campbell 1809 Campbell
Ave., Roanoke, VA Ave., Roanoke, VA
4498 Electric 4498 Electric
Rd., Roanoke, VA Rd., Roanoke, VA
Keystone 1500 Harbor 1500 Harbor Accounts 1500 Harbor Blvd.
Liquidations, Blvd. Blvd. General Weehawken, NJ
Inc. Weehawken, NJ Weehawken, NJ Intangibles
Documents
Instruments
Kitchen & 1500 Harbor 5022 Hollins Accounts 5022 Hollins Rd.
Home, LLC Blvd. Rd. Equipment Roanoke, VA
Weehawken, NJ Roanoke, VA General
Intangibles
1500 Harbor Inventory 1500 Harbor Blvd.
Blvd.* Documents Weehawken, NJ
Weehawken, NJ Instruments
LaCrosse 3272 Airport 2809 Losey Accounts 2809 Losey Blvd.
Fulfillment, Rd. Blvd. Documents La Crosse, WI
LLC LaCrosse, WI La Crosse, WI General
Intangibles
Instruments
</TABLE>
15
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C>
3272 Airport Leased Real 3272 Airport Rd.
Rd.* Estate LaCrosse, WI
LaCrosse, WI Equipment
Fixtures
455 Park Plaza 455 Park Plaza
LaCrosse, WI LaCrosse, WI
San Diego 741 "F" St. 741 "F" St. Accounts 741 "F" St.
Telemarketing, San Diego, CA San Diego, CA* Documents San Diego, CA
LLC General
Intangibles
Instruments
Equipment
Fixtures
Leased Real
Estate
Scandia Down 741 "F" St. 741 "F" St. Documents 741 "F" St.
Corporation San Diego, CA San Diego, CA* General San Diego, CA
Intangibles
Instruments
1500 Harbor Blvd.
Weehawken, NJ
Scandia Down, 1500 Harbor 101 Kindig Ln. Accounts 101 Kindig Ln.
LLC Blvd. Hanover, PA Equipment Hanover, PA
Weehawken, NJ General
Intangibles
1500 Harbor Inventory 1500 Harbor Blvd.
Blvd.* Documents Weehawken, NJ
Weehawken, NJ Instruments
</TABLE>
16
<PAGE> 53
SCHEDULE 1 TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
REORGANIZATION DOCUMENTS
<TABLE>
<S> <C>
Hanover Direct Pennsylvania creates a new P-1.10 Bill of Sale
single member LLC ("Encore Catalog, LLC") by
contributing assets related to Encore Catalog
P-1.11 Assignment and Assumption Agreement
Brawn of California, Inc. creates a new single 1.10 Assignment and Assumption Agreement
member LLC ("San Diego Telemarketing, LLC") by
contributing telemarketing department in
exchange for LLC interest
1.11 Bill of Sale
Hanover Direct Pennsylvania, Inc. (HDP) creates 2.10 Assignment and Assumption Agreement
a new single member LLC (CLEARANCE WORLD
OUTLETS, LLC) by contributing Clearance World
and International Male outlet stores in
exchange for LLC interest
2.11 Assignment of Lease relating to store located at
(a) Hanover, Pennsylvania (Clearance World)
(b) Philadelphia, Pennsylvania (International Male)
(c) Rockville Square, Lancaster, Pennsylvania
2.13 Bill of Sale
Brawn of California, Inc. transfers LLC 3.3 Assignment and Assumption Agreement
interest in San Diego Telemarketing, LLC to HDI
San Diego Telemarketing, LLC subleases space for 3.7 Sublease
741 F Street, San Diego call center from
Brawn of California, Inc.
Hanover Direct, Inc. (HDI) creates a new 4.3 Assignment and Assumption Agreement
subsidiary, Erizon, Inc. ("Erizon") and HDI
contributes LLC interest in San Diego
Telemarketing, LLC to Erizon
HDP distributes LLC interest in CLEARANCE WORLD 5.3 Assignment and Assumption Agreement
OUTLETS, LLC to HDI
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
HDI contributes LLC interest in CLEARANCE WORLD 6.3 Assignment and Assumption Agreement
OUTLETS, LLC to Brands
Merge Company Store Holdings, Inc. 7.7 Filings relating to trademarks and other
("CSH") (DE) into HDI (DE) intellectual property owned by Company
Store Holdings to reflect merger of Company
Store Holdings (the owner of the trademarks)
into Hanover Direct, Inc.
American Down & Textile Company ("AD&T") 8.10 Assignment and Assumption Agreement
forms a new single member LLC
("LaCrosse Fulfillment, LLC") by
contributing assets used in connection with
LaCrosse fulfillment center for the LLC
interest
8.11 Bill of Sale
Hanover Holding Corp. assigns lease of LaCrosse 8.12 Assignment of Lease relating to LaCrosse fulfillment center
fulfillment center to LaCrosse Fulfillment, LLC
AD&T transfers LLC interest in LACROSSE 9.3 Assignment and Assumption Agreement
FULFILLMENT, LLC to HDI
HDI contributes LLC interest in LACROSSE 10.3 Assignment and Assumption Agreement
FULFILLMENT, LLC to Erizon (tax free
contribution under IRC Section 351)
Hanover Holding Corp. ("HHC") contributes its 11.3 Assignment and Assumption Agreement
50% partnership interest in Blue Ridge
Associates to Hanover Home Fashions Group LLC
("HHFG") in return for a larger LLC interest in
HHFG
HDP contributes 0.1% LLC interest in Kitchen & 12.3 Assignment and Assumption Agreement
Home LLC ("K&H") to HHFG in return for a larger
LLC interest in HHFG
HHFG distributes 99.9% LLC interests in 13.4 Assignment and Assumption Agreement
Domestications, LLC, Scandia Down,
LLC and Hanover Company Store LLC,
and its 100% LLC interest in K&H, to HHC
and Hanover Direct Virginia, Inc. ("HDV")
in redemption of their LLC interest in HHFG
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
HDP contributes 0.1% LLC interest in Silhouettes, 14.3 Assignment and Assumption Agreement
LLC to Hanover Women's Apparel, LLC ("HWA") in
return for a larger LLC interest in HWA
HHC contributes 0.1% LLC interest in Tweeds, 15.3 Assignment and Assumption Agreement
LLC to HWA in return for a larger partnership
interest in HWA
HDP transfers its 50% + LLC interest in HWA to 16.3 Assignment and Assumption Agreement
HDI
HDI contributes its 50% + LLC interest in HWA 17.3 Assignment and Assumption Agreement
to Hanover Direct Virginia
HDP transfers 100% interest in Encore Catalog, 17A.2 Assignment and Assumption Agreement
LLC to HDI
HDI contributes stock or LLC interests in 18.3 Assignment and Assumption Agreement
various subsidiaries and intellectual property
assets acquired in merger with Company Store
Holdings, to Brands
18.9 Assignment of Domain Names
18.12 Assignment of Trademarks
Brands contributes interest in Encore Catalog, 18A.3 Assignment and Assumption Agreement
LLC to Hanover Direct Virginia
HDI contributes stock in various subsidiaries 19.4 Assignment and Assumption Agreement
to Erizon
19.7 Assignment of Domain Names
19.9 Assignment of Trademarks
erizon, Inc. transfers 100% interest in San 19A.2 Assignment and Assumption Agreement
Diego Telemarketing and LaCrosse Fulfillment to
HDP
Horn & Hardart Realty Company (NY) liquidates II-1.4 Assignment and Assumption Agreement
into Hanover Direct, Inc.
II-1.5 Bill of Sale
H.H.B.K. 45th Street Corporation (NY) II-2.4 Assignment and Assumption Agreement
liquidates into The Horn & Hardart
Company, Inc. II-2.5 Bill of Sale
Hanover Direct Mail Marketing, Inc. (PA) II-4.10 Assignment and Assumption Agreement
liquidates into Hanover Direct Pennsylvania,
Inc. II-4.12 Bill of Sale
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
Hanover South Dakota Company (SD) liquidates II-7.5 Assignment and Assumption Agreement
into Hanover Golf, Inc.
II-7.6 Bill of Sale
Hanover Golf, Inc. (DE) liquidates into Hanover II-8.5 Assignment and Assumption Agreement
Brands, Inc.
II-8.6 Bill of Sale
Hanover Syndication Corporation (PA) liquidates II-9.10 Assignment and Assumption Agreement
into Hanover Direct, Inc.
II-9.12 Bill of Sale
York Fulfillment Company, Inc. (PA) liquidates II-10.10 Assignment and Assumption Agreement
into Hanover Direct Pennsylvania,
Inc. II-10.12 Bill of Sale
Aegis Retail Corporation (DE) liquidates into II-13.5 Assignment and Assumption Agreement
Hanover Brands, Inc.
II-13.6 Bill of Sale
Hanover Holding Corporation (DE) merges into II-14.14 Assignment of lease of property located
Hanover Direct Virginia, Inc. (DE) at 115 River Road, Edgewater, New Jersey
II-14.20 Assignment of lease of property located
at 301 Sky Harbor Drive, LaCrosse, Wisconsin
II-14.22 Assignment of lease of property located
at 901 South Main Street, Oshkosh, Wisconsin
II-14.24 Assignment of lease of property located
at 7700 120th Avenue, Kenosha Wisconsin
II-14.26 Assignment of lease of property located
at 4050 University Avenue, Madison, Wisconsin
II-14.30 Assignment of lease of premises located
at 3272 Airport Road, LaCrosse, Winconsin
Hanover Women's Apparel, LLC (DE) liquidates II-14A.3 Assignment and Assumption Agreement,
into Hanover Direct Virginia, Inc. assigning assets to sole member and under which
sole member assumes liabilities
II-14A.7 Bill of Sale
Gump's Holdings, Inc. (DE) liquidates into II-15.5 Assignment and Assumption Agreement
Hanover Brands, Inc.
II-15.6 Bill of Sale
HDV creates a new single member LLC II-17.10 Assignment and Assumption Agreement
("Domestications Kitchen & Garden, LLC")
by contributing the assets of the former
Colonial Garden Kitchens, Inc.
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
II-17.11 Bill of Sale
HDP transfers interest in Keystone Liquidations II-18.3 Assignment and Assumption Agreement
to Erizon, Inc.
Erizon, Inc. transfers interest in Keystone II-19.3 Assignment and Assumption Agreement
Liquidations to HDI
HDI contributes interest in Keystone II-20.3 Assignment and Assumption Agreement
Liquidations to Brands
</TABLE>
<PAGE> 58
SCHEDULE 2(a)(i) TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
CORPORATIONS ALL OF WHOSE SHARES WERE
TRANSFERRED BY HANOVER TO HANOVER BRANDS
American Down & Textile Corporation
Hanover Golf, Inc.
Brawn of California, Inc.
Colonial Garden Kitchens, Inc.
DM Advertising, Inc.
Gump's Holdings, Inc.
Hanover Direct Virginia, Inc.
Hanover Holding Corporation
Henre, Inc.
LWI Holdings, Inc.
Scandia Down Corporation
The Company Store Factory, Inc.
Keystone Liquidations, Inc.
Hanover South Dakota Company
Aegis Retail Corporation
<PAGE> 59
SCHEDULE 2(a)(ii) TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
LLCS ALL OF WHOSE MEMBERSHIP INTERESTS WERE
TRANSFERRED BY HANOVER TO HANOVER BRANDS
The Shopper's Edge, LLC
Encore Catalog, LLC
<PAGE> 60
SCHEDULE 2(a)(iii) TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
CORPORATIONS ALL OF WHOSE SHARES WERE
TRANSFERRED BY HANOVER TO ERIZON
Hanover Direct Pennsylvania, Inc.
Hanover Realty, Inc.
Keystone Internet Services, Inc.
The Company Office, Inc.
erizon.com, Inc.
<PAGE> 61
SCHEDULE 2(a)(iv) TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
LLCS ALL OF WHOSE MEMBERSHIP INTERESTS WERE
TRANSFERRED BY HANOVER TO ERIZON
None
<PAGE> 62
SCHEDULE 2(a)(xxii) TO FOURTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
PATENTS
ERIZON, INC.
None.
HANOVER BRANDS, INC.
<TABLE>
<CAPTION>
PATENT NO. OR ISSUE DATE OR
SERIAL NO. FILING DATE TITLE COUNTRY
<S> <C> <C> <C>
D363,046 Issued 10/10/95 Planting System for Enhanced United States
Plant Growth
D374,704 Issued 10/15/96 Flying Insect Trap United States
5,685,109 Issued 11/11/97 Trap for Flying Insects United States
D381,412 Issued 7/22/97 Heat Reflector United States
ND-056347 Issued 5/5/97 Tile For A Cooking Grill Taiwan
D385,459 Issued 10/28/97 Tile For A Cooking Grill United States
NI-088671 Issued 12/6/97 Landscape Timber Connecting Taiwan
System 2X6 Joint
5,901,526 Issued 5/11/99 Landscape Timber Connecting United States
System 2X6 Joint
ND-056661 Issued 5/27/97 Landscape Timber Connecting Taiwan
System 2X6
D386,652 Issued 11/25/97 Landscape Timber Connecting United States
System 2X6
NI-087481 Issued 6/21/97 Landscape Timber Connecting Taiwan
System 4X4
5,913,781 Issued 6/22/99 Landscape Timber Connecting United States
System 4X4
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
ND058471 Issued 7/1/97 Landscape Timber Connecting Taiwan
System Member 4X4 Round Fixed
D386,365 Issued 11/18/97 Landscape Timber Connecting United States
System Member 4X4 Round Fixed
ND-058053 Issued 6/1/97 Landscape Timber Connecting Taiwan
System Member 4X4 Square Fixed
D386,367 Issued 11/18/97 Landscape Timber Connecting United States
System Member 4X4 Square Fixed
ND-058052 Issued 6/1/97 Landscape Timber Connecting Taiwan
System Member 4X4 Fixed Round
Dovetail
D386,368 Issued 11/18/97 Landscape Timber Connecting United States
System Member 4X4 Fixed Round
Dovetail
ND-058772 Issued 7/1/97 Landscape Timber Connecting Taiwan
System Member 4X4 Fixed Square
Dovetail
D386,364 Issued 11/18/97 Landscape Timber Connecting United States
System Member 4X4 Fixed Square
Dovetail
ND-058771 Issued 7/1/97 Landscape Timber Connecting Taiwan
System Member 4X4 Pivot Round
D386,366 Issued 11/18/97 Landscape Timber Connecting United States
System Member 4X4 Pivot Round
ND-058034 Issued 6/1/97 Landscape Timber Connecting Taiwan
System Member
</TABLE>
<PAGE> 64
<TABLE>
<S> <C> <C> <C>
D387,252 Issued 12/9/97 Landscape Timber Connecting United States
System Member
D393,127 Issued 3/31/98 Utility Cart Frame United States
D401,107 Issued 11/17/98 Oval Heat Plate United States
99108497.2 Filing 7/1/99 Microwave Heated Ice Cream Scoop China
88111193 Filing 9/22/99 Microwave Heated Ice Cream Scoop Taiwan
09/243,577 Filing 2/3/99 Microwave Heated Ice Cream Scoop United States
09/365,074 Filing 7/30/99 Microwave Heated Ice Cream Scoop United States
D414,907 Issued 10/5/99 Base For A Portable Clothes Rack United States
88301134 Filing 2/25/99 Portable Clothes Rack Taiwan
D414,625 Issued 10/5/99 Portable Clothes Rack United States
29/090,183 Filing 7/1/98 Ice Cream Scoop United States
29/104,268 Filing 4/30/99 Ice Cream Scoop United States
88307526 Filing 11/17/99 Bath Squeegee Taiwan
29/107,180 Filing 6/29/99 Bath Squeegee United States
29/116,269 Filing 12/31/99 Clothes Hanger Support United States
09/476,647 Filing 12/31/99 Multi-Positionable United States
Clothes-Hanger Support Apparatus
4,974,284 Abandon N/A United States
5,491,907 Issued 2/20/96 Multi-Functional Gauge United States
85105186 Filing 5/1/96 Tile for Use With A Cooking Grill Taiwan
5,735,260 Issued 4/7/98 Tile For Use With A Cooking Grill United States
86307237 Filing 8/20/97 Oval Heat Plate Taiwan
60/091,445 Filing 7/1/98 Microwave Heated Ice Cream Scoop United States
</TABLE>
TRADEMARKS
ERIZON, INC.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MARK APP. NO. CLASS APP. DATE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ERIZON 75-867430 9, 35, 38 and 42 December 9, 1999
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
KEYSTONE FULFILLMENT 75/528,629 35, 38 and 39 July 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
KEYSTONE INTERNET SERVICES 75/751,107 35, 38 and 42 July 14, 1999
- ------------------------------------------------------------------------------------------------------------------------------
KEYSTONE INTERNET SERVICES and Design 75/848,891 35, 38 and 42 November 15, 1999
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
HANOVER BRANDS, INC.
Registrations:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARK REG. NO CLASS REG. DATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COLONIAL GARDEN KITCHENS 968,358 42 September 11, 1973
- ---------------------------------------------------------------------------------------------------------------------------
DOMESTICATIONS 1,384,266 16 February 25, 1986
- ---------------------------------------------------------------------------------------------------------------------------
H.I.M. 1,421,579 16 December 16, 1986
- ---------------------------------------------------------------------------------------------------------------------------
HOME, SAFE HOME. 1,810,230 42 December 7, 1993
- ---------------------------------------------------------------------------------------------------------------------------
THE COMPANY STORE'S WHITE EUROPEAN DOWN 1,770,809 22 May 11, 1993
- ---------------------------------------------------------------------------------------------------------------------------
THE SAFETY ZONE 1,801,200 42 October 26, 1993
- ---------------------------------------------------------------------------------------------------------------------------
THE SAFETY ZONE and Design (in color) 1,636,432 42 February 26, 1991
- ---------------------------------------------------------------------------------------------------------------------------
YOUR SOURCE FOR THE UNIQUE 1,817,228 42 January 18, 1994
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN VIEW 1,450,915 25 August 4, 1987
- ---------------------------------------------------------------------------------------------------------------------------
AUSTIN KANE (stylized) 1,525,863 25 February 21, 1989
- ---------------------------------------------------------------------------------------------------------------------------
BODY TECH and Design 1,206,768 25 and 42 August 31, 1982
- ---------------------------------------------------------------------------------------------------------------------------
BRAWN 1,043,613 25 July 13, 1976
- ---------------------------------------------------------------------------------------------------------------------------
CALIFORNIA SPLITS 2,235,630 25 March 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
DECOR IM 2,064,167 16 May 20, 1997
- ---------------------------------------------------------------------------------------------------------------------------
FITNESS LOCKER 1,937,576 16 November 21, 1995
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN LEGION 1,126,004 25 October 16, 1979
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN LEGION 1,295,511 3 September 18, 1984
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN LEGION 1,286,633 42 July 17, 1984
- ---------------------------------------------------------------------------------------------------------------------------
GREAT FINDS 1,968,264 42 April 16, 1996
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL MALE 1,706,850 25 August 11, 1992
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL MALE 1,103,620 42 October 3, 1978
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL MALE, STYLE AS INDIVIDUAL AS YOU 2,159,174 16 May 19, 1998
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 66
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL MALE, STYLE AS INDIVIDUAL AS YOU 2,132,951 42 January 27, 1998
and Design
- ---------------------------------------------------------------------------------------------------------------------------
JAI ALAI 1,402,247 25 July 22, 1986
- ---------------------------------------------------------------------------------------------------------------------------
LEANOS 1,227,620 25 February 15, 1983
- ---------------------------------------------------------------------------------------------------------------------------
MEN AMERICA 1,534,391 25 April 11, 1989
- ---------------------------------------------------------------------------------------------------------------------------
MEN AMERICA 1,584,123 42 February 20, 1990
- ---------------------------------------------------------------------------------------------------------------------------
NEW WORLD ORDER 1,857,283 25 October 4, 1994
- ---------------------------------------------------------------------------------------------------------------------------
ONIONSKINS 1,755,458 25 March 2, 1993
- ---------------------------------------------------------------------------------------------------------------------------
ONIONSKINS and Design 1,376,030 25 December 17, 1985
- ---------------------------------------------------------------------------------------------------------------------------
OUTTAKES 2,261,160 16, 35 July 13, 1998
- ---------------------------------------------------------------------------------------------------------------------------
SOCCER and Design 1,291,159 25 August 21, 1984
- ---------------------------------------------------------------------------------------------------------------------------
TACTICS 1,261,013 25 December 13, 1983
- ---------------------------------------------------------------------------------------------------------------------------
UNDERGEAR 1,435,631 25 April 7, 1987
- ---------------------------------------------------------------------------------------------------------------------------
UNDERGEAR 1,571,385 42 December 12, 1989
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S 1,771,023 4, 6, 14, 16, May 18, 1993
20, 21, 24,
25 27, 31,
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 516,417 36, 37, 41, 42 October 18, 1949
21
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S 515,064 20 September 13, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 526,051 11 June 6, 1950
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 506,525 14 February 8, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 525,197 8 May 16, 1950
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 513,332 20 August 9, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S 507,389 18 March 8, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 506,994 16 February 22, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 516,418 21 October 18, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S 512,182 25 July 12, 1949
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S (Stylized) 523,729 20, 21 April 11, 1950
- ---------------------------------------------------------------------------------------------------------------------------
GUMP'S GALLERY 1,719,091 42 September 22, 1992
- ---------------------------------------------------------------------------------------------------------------------------
THE RARE, THE UNIQUE, THE IMAGINATIVE 1,913,986 42 August 22, 1995
- ---------------------------------------------------------------------------------------------------------------------------
ADAM YORK 1,892,652 16 May 2, 1995
- ---------------------------------------------------------------------------------------------------------------------------
AMERIDOWN 2,032,691 24 January 21, 1997
- ---------------------------------------------------------------------------------------------------------------------------
AT HOME WITH STYLE AND VALUE 1,874,384 42 January 17, 1995
- ---------------------------------------------------------------------------------------------------------------------------
CLEARANCE WORLD 2,027,155 42 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
CLEARANCEWORLD 2,274,635 35 August 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
COLONIAL GARDEN KITCHENS 968,358 42 September 11, 1973
- ---------------------------------------------------------------------------------------------------------------------------
COMFORT BY DESIGN 2,300,870 20 and 24 December 14, 1999
- ---------------------------------------------------------------------------------------------------------------------------
COTTON BRILLIANCE 2,047,950 24 March 25, 1997
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 67
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTICATIONS 1,384,266 16 February 25, 1986
- ----------------------------------------------------------------------------------------------------------
DOMESTICATIONS 1,857,730 24 October 11, 1994
- ----------------------------------------------------------------------------------------------------------
DOMESTICATIONS 2,285,376 16, 20, 21, October 12, 1999
27 and 35
- ----------------------------------------------------------------------------------------------------------
ENCHANTMENTS 2,069,412 42 June 10, 1997
- ----------------------------------------------------------------------------------------------------------
EXPERIENCE THE VALUE 1,928,393 42 October 17, 1995
OF QUALITY
- ----------------------------------------------------------------------------------------------------------
FASHION FAVORITES 1,969,133 42 April 23, 1996
- ----------------------------------------------------------------------------------------------------------
FASHION GALAXY 1,408,456 16 September 9, 1986
- ----------------------------------------------------------------------------------------------------------
FLAGSTONE 1,962,165 16 March 12, 1996
- ----------------------------------------------------------------------------------------------------------
GERTIE GOOSE 1,991,265 21 August 6, 1996
- ----------------------------------------------------------------------------------------------------------
GRO-MATO 2,037,588 21 February 11, 1997
- ----------------------------------------------------------------------------------------------------------
HALL OF HANOVER 2,009,590 42 October 22, 1996
- ----------------------------------------------------------------------------------------------------------
HANOVER HOUSE 1,431,912 16 March 10, 1987
- ----------------------------------------------------------------------------------------------------------
HANOVER SHOP AT HOME 1,481,983 42 March 22, 1998
- ----------------------------------------------------------------------------------------------------------
H.I.M. 1,421,579 16 December 16, 1986
- ----------------------------------------------------------------------------------------------------------
KITCHEN & HOME and Design 1,926,033 42 October 10, 1995
- ----------------------------------------------------------------------------------------------------------
LAKELAND NURSERIES 1,991,572 42 August 6, 1996
- ----------------------------------------------------------------------------------------------------------
LIMITED QUANTITIES 2,279,031 35 September 21, 1999
UNLIMITED STYLE
- ----------------------------------------------------------------------------------------------------------
LOUNGE-A-ROUND 2,272,024 20 and 24 August 24, 1999
- ----------------------------------------------------------------------------------------------------------
MAKING A STATEMENT 1,965,862 42 April 2, 1996
- ----------------------------------------------------------------------------------------------------------
MATURE WISDOM 1,389,046 16 April 8, 1986
- ----------------------------------------------------------------------------------------------------------
MW MATURE WISDOM 1,859,053 42 October 18, 1994
- ----------------------------------------------------------------------------------------------------------
NIGHT 'N DAY INTIMATES 1,417,842 42 November 18, 1986
- ----------------------------------------------------------------------------------------------------------
OLD VILLAGE SHOP 1,407,673 16 September 2, 1986
- ----------------------------------------------------------------------------------------------------------
HORN & HARDART 1,654,581 42 August 20, 1991
- ----------------------------------------------------------------------------------------------------------
ONE 212 1,960,854 25 March 5, 1996
- ----------------------------------------------------------------------------------------------------------
ONE 212 1,962,324 42 March 12, 1996
- ----------------------------------------------------------------------------------------------------------
PLATINUM WHITE GOOSE 1,751,917 22 February 9, 1993
DOWN
- ----------------------------------------------------------------------------------------------------------
PREMIERE CHOICE 1,812,567 42 December 21, 1993
- ----------------------------------------------------------------------------------------------------------
SILHOUETTES 1,526,821 16 February 28, 1989
- ----------------------------------------------------------------------------------------------------------
SIMPLY TOPS 1,839,470 25 and 42 June 14, 1994
- ----------------------------------------------------------------------------------------------------------
ST SIMPLY TOPS (Stylized) 2,005,581 42 October 8, 1996
- ----------------------------------------------------------------------------------------------------------
SLEEPY TEES 2,094,622 24 September 9, 1997
- ----------------------------------------------------------------------------------------------------------
STANCE A WHOLE NEW 1,933,293 42 November 7, 1995
WAY TO LOOK
- ----------------------------------------------------------------------------------------------------------
STUDIO COLLECTION 2,269,946 20 and 24 August 10, 1999
- ----------------------------------------------------------------------------------------------------------
STYLE BEYOND SIZE 2,226,305 35 February 23, 1999
- ----------------------------------------------------------------------------------------------------------
TAPESTRY 1,394,017 16 May 20, 1986
- ----------------------------------------------------------------------------------------------------------
THE CATALOG THAT 1,910,627 42 August 8, 1995
BRINGS STYLE HOME
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 68
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE COMPANY STORE 1,263,272 42 January 3, 1984
- -------------------------------------------------------------------------------------------------------
THE COMPANY STORE 1,284,377 24 and 25 July 3, 1984
- -------------------------------------------------------------------------------------------------------
THE COMPANY STORE'S 1,770,809 22 May 11, 1993
WHITE EUROPEAN DOWN
- -------------------------------------------------------------------------------------------------------
THE COST OF LIVING 1,951,602 42 January 23, 1996
GRACIOUSLY
- -------------------------------------------------------------------------------------------------------
THERMATILES 2,110,467 11 November 4, 1997
- -------------------------------------------------------------------------------------------------------
TWEEDS 1,697,698 25 and 42 June 30, 1992
- -------------------------------------------------------------------------------------------------------
WOMEN GIVING BACK 2,084,136 42 July 29, 1997
- -------------------------------------------------------------------------------------------------------
YOUR SOURCE FOR THE 1,817,228 42 January 18, 1994
UNIQUE
- -------------------------------------------------------------------------------------------------------
IMPROVEMENTS 1,852,742 42 September 6, 1994
- -------------------------------------------------------------------------------------------------------
ASCENSIA 1,269,223 24 March 6, 1984
- -------------------------------------------------------------------------------------------------------
ETHERIA 1,267,157 24 February 14, 1984
- -------------------------------------------------------------------------------------------------------
Miscellaneous Design 1,250,410 24 September 6, 1983
(Goose Logo)
- -------------------------------------------------------------------------------------------------------
Miscellaneous Design 1,752,601 20 and 24 February 16, 1993
(Goose Logo)
- -------------------------------------------------------------------------------------------------------
QUINTESSA 1,276,167 24 May 1, 1984
- -------------------------------------------------------------------------------------------------------
SCANDIA DOWN 1,016,939 24 July 29, 1975
- -------------------------------------------------------------------------------------------------------
SCANDIA DOWN 1,725,746 20 and 24 October 20, 1992
- -------------------------------------------------------------------------------------------------------
SCANDIA DOWN SHOPS and 1,299,511 20 and 24 October 9, 1984
Design (Goose Logo)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 69
Applications:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
MARK APP. NO. CLASS APP. DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
KEYSTONE FULFILLMENT 75/528,629 35, 38 and 39 July 31, 1998
- --------------------------------------------------------------------------------------------------------------
KIDCALE 75/501,411 24 June 11, 1998
- --------------------------------------------------------------------------------------------------------------
MAXIMUM EXPOSURE 75/764,262 35 July 30, 1999
- --------------------------------------------------------------------------------------------------------------
SHAPE ENHANCER 75/607,820 25 December 18, 1998
- --------------------------------------------------------------------------------------------------------------
GUMP'S BY MAIL 75/721557 42 June 9, 1999
INTERIORS, & Design
- --------------------------------------------------------------------------------------------------------------
COMPAGNIE DE LA CHINE 75/713,766 21 May 25, 1999
- --------------------------------------------------------------------------------------------------------------
COMPAGNIE DE LA CHINE 75/757,999 3, 4, 5, 8, 11, July 22, 1999
and Design 14, 20, 21, 24,
25, 27, 30
- --------------------------------------------------------------------------------------------------------------
A PLACE FOR 75/630,138 35 January 28, 1999
EVERYTHING... AND
EVERYTHING IN ITS
PLACE!
- --------------------------------------------------------------------------------------------------------------
AMERICA'S AUTHORITY IN 75/208,182 42 November 21, 1996
HOME FASHIONS
- --------------------------------------------------------------------------------------------------------------
CASHMINA 75/767,446 24 August 4, 1999
- --------------------------------------------------------------------------------------------------------------
COMPANY COTTON 75/501,410 24 June 11, 1998
- --------------------------------------------------------------------------------------------------------------
COMPANY KIDS 75/503,072 24 and 27 June 12, 1998
- --------------------------------------------------------------------------------------------------------------
COMPANY TABLE 75/503,396 21 and 24 June 12, 1998
- --------------------------------------------------------------------------------------------------------------
COMPANY TOTS 75/501,408 24 June 11, 1998
- --------------------------------------------------------------------------------------------------------------
CONTOUR 75/524,481 25 July 23, 1998
- --------------------------------------------------------------------------------------------------------------
DESIUS 75/739,566 9, 35 and 42 June 29, 1999
- --------------------------------------------------------------------------------------------------------------
ENCORE 75/758,062 35 July 22, 1999
- --------------------------------------------------------------------------------------------------------------
HANOVER BRANDS 75/749,277 16 and 35 July 13, 1999
- --------------------------------------------------------------------------------------------------------------
HOT SCOOP 75/534,368 8 August 11, 1998
- --------------------------------------------------------------------------------------------------------------
IN GOOD COMPANY 75/610,610 35 December 22, 1998
- --------------------------------------------------------------------------------------------------------------
JOBBERWORLD 75/707,506 35, 36 and 39 May 17, 1999
- --------------------------------------------------------------------------------------------------------------
KIDCALE 75/501,411 24 June 11, 1998
- --------------------------------------------------------------------------------------------------------------
LIFE'S EASIER, NOW THAT 75/629,034 35 January 28, 1999
CLEANING'S EASIER!
- --------------------------------------------------------------------------------------------------------------
NETSAVE 75/498,551 35 June 9, 1998
- --------------------------------------------------------------------------------------------------------------
PILLOW MENU 75/758,920 35 and 42 July 23, 1999
- --------------------------------------------------------------------------------------------------------------
PLUSH PERFORMANCE 75/ 24 and 25 January 28, 2000
- --------------------------------------------------------------------------------------------------------------
TCS 75/528,265 20 and 24 July 30, 1998
- --------------------------------------------------------------------------------------------------------------
PRODUCTIVITY PILLOW 75/461,968 20 April 3, 1998
- --------------------------------------------------------------------------------------------------------------
SOFTESSENCE 75/406,722 24 December 16, 1997
- --------------------------------------------------------------------------------------------------------------
ST. TROPEZ 75/499,381 24 June 11, 1998
- --------------------------------------------------------------------------------------------------------------
THE SHOPPER'S EDGE 75/474,697 35 April 27, 1998
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
THE SHOPPING EDGE 75/462,705 42 April 6, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
THE SOCK 75/507,438 25 June 23, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
SCANDIA 75. 20, 24 and 35 January 14, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
TURIYA 75/751,412 20, 24 and 27 June 28, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COPYRIGHTS
ERIZON, INC.
None recorded
HANOVER BRANDS, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
TITLE REGISTRATION NO. DATE OF REG.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Combination stirring spoon [In sterling silver] GP 643 7/15/50
- -----------------------------------------------------------------------------------------------------------------------------------
GUMP's since 1861, a San Francisco legend TX-3-544-126 4/20/93
- -----------------------------------------------------------------------------------------------------------------------------------
Home for the holidays VA-611-237 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Country angels VA-611-251 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
[Puppy love; Flannel puppies] VA-611-254 1/24/95
- -----------------------------------------------------------------------------------------------------------------------------------
Minuet VA-682-070 1/20/95
- -----------------------------------------------------------------------------------------------------------------------------------
Calico cat VA-682-149 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Velvet bouquet VA-682-152 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Morning splendor VA-682-153 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Velvet bouquet VA-682-155 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Minuet VA-682-156 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Samba VA-682-157 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Morning splendor VA-682-158 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Country angels VA-682-159 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Laura VA-682-160 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Baemore VA-682-161 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Candle rose VA-682-810 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Laura VA-684-363 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Morning splendor VA-684-364 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Minuet VA-684-365 1/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
Country angels VA-700-292 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
[Garden fairy] VA-950-630 5/10/99
- -----------------------------------------------------------------------------------------------------------------------------------
Tomorrow west Philadelphia welcomes its first Horn & Hardart
automat - cafeteria A 110971 4/2/40
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 71
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Fresh; nothing has ever been contrived or invented that takes the
place of fresh, natural goodness in food. KK 149134 2/15/60
- -----------------------------------------------------------------------------------------------------------------------------------
Get total flavor! Automated gilt edge coffee. KK 190890 10/14/65
- -----------------------------------------------------------------------------------------------------------------------------------
Mark Twain's riverboat playhouse V Au-37-722 4/20/82
- -----------------------------------------------------------------------------------------------------------------------------------
Nature walk-stepping stone molds. VA-705-957 4/6/95
- -----------------------------------------------------------------------------------------------------------------------------------
American VA-646-658 5/2/95
- -----------------------------------------------------------------------------------------------------------------------------------
Scheherazade VA-689-418 4/10/95
- -----------------------------------------------------------------------------------------------------------------------------------
Indies VA-700-290 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
Galaxy VA-700-291 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
Teddy bear throw VA-705-740 4/10/95
- -----------------------------------------------------------------------------------------------------------------------------------
Papillon VA-705-742 4/10/95
- -----------------------------------------------------------------------------------------------------------------------------------
Ipanema VA-705-743 4/10/95
- -----------------------------------------------------------------------------------------------------------------------------------
Veranda VA-710-819 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
Captiva comforter set VA-710-820 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
Angels flannel sheets; Angel throw VA-710-821 4/11/95
- -----------------------------------------------------------------------------------------------------------------------------------
Coronado VA-711-856 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Topiary VA-711-857 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Enchanted forest VA-711-858 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Bellissima VA-711-859 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Verve VA-711-860 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Teddy bear flannels VA-711-861 4/12/95
- -----------------------------------------------------------------------------------------------------------------------------------
Twelve days of Christmas VA-721-725 5/23/95
- -----------------------------------------------------------------------------------------------------------------------------------
St. Nick VA-726-212 5/26/95
- -----------------------------------------------------------------------------------------------------------------------------------
Turkey VA-726-598 5/30/95
- -----------------------------------------------------------------------------------------------------------------------------------
Pumpkin VA-742-792 5/2/95
- -----------------------------------------------------------------------------------------------------------------------------------
Regal paisley VA-751-418 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
Nostalgic Santa Throw VA-751-419 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
Snowman VA-754-002 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
Rallye stripes VA-759-696 8/15/95
- -----------------------------------------------------------------------------------------------------------------------------------
Nutcracker screen VA-761-121 12/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
Velvet scroll VA-761-122 12/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
Sheepy meadows VA-761-123 12/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
Jewelstone VA-761-124 12/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
We three kings VA-761-125 12/13/95
- -----------------------------------------------------------------------------------------------------------------------------------
Lady Guinevere: no. H95 VA-761-549 12/18/95
- -----------------------------------------------------------------------------------------------------------------------------------
Picket Fence chest. VA-783-519 2/2/96
- -----------------------------------------------------------------------------------------------------------------------------------
Farm scene screen VA-783-525 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
Nostalgia Santa sheets VA-783-526 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
Nostalgia Santa comforter VA-783-527 12/27/95
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 72
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Summer Breeze VA-807-871 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Bedtime bears VA-807-872 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Shell island VA-807-873 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Yo Yo Quilt VA-807-874 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Barnyard friends VA-807-875 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Santa's PJs VA-807-876 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Mrs. Claus' nightgown VA-807-877 9/12/96
- -----------------------------------------------------------------------------------------------------------------------------------
Teddy bear wall hanging VA-809-786 10/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
Rose portrait VA-810-444 9/16/96
- -----------------------------------------------------------------------------------------------------------------------------------
Jungle shadows VA-810-445 9/16/96
- -----------------------------------------------------------------------------------------------------------------------------------
Daydreams VA-810-452 9/16/96
- -----------------------------------------------------------------------------------------------------------------------------------
Pandemonium VA-810-453 9/16/96
- -----------------------------------------------------------------------------------------------------------------------------------
Sweetheart quilt VA-810-454 9/16/96
- -----------------------------------------------------------------------------------------------------------------------------------
Timberline VA-810-991 9/6/96
- -----------------------------------------------------------------------------------------------------------------------------------
Candy cane sheets VA-813-688 9/23/96
- -----------------------------------------------------------------------------------------------------------------------------------
Verona Rose VA-816-149 9/20/96
- -----------------------------------------------------------------------------------------------------------------------------------
Fern glade VA-817-050 9/20/96
- -----------------------------------------------------------------------------------------------------------------------------------
Chantilly rose VA-817-051 9/20/96
- -----------------------------------------------------------------------------------------------------------------------------------
Vivaldi VA-817-052 9/20/96
- -----------------------------------------------------------------------------------------------------------------------------------
Puppy Love VA-848-808 4/4/97
- -----------------------------------------------------------------------------------------------------------------------------------
Merry Christmas VA-856-108 5/8/97
- -----------------------------------------------------------------------------------------------------------------------------------
Night before Christmas VA-856-109 5/8/97
- -----------------------------------------------------------------------------------------------------------------------------------
Carousel VA-856-110 5/8/97
- -----------------------------------------------------------------------------------------------------------------------------------
Frosty VA-856-111 5/8/97
- -----------------------------------------------------------------------------------------------------------------------------------
Flower of the month VA-862-843 8/11/97
- -----------------------------------------------------------------------------------------------------------------------------------
Merry Christmas bed-in-a-bag VA-865-028 4/9/97
- -----------------------------------------------------------------------------------------------------------------------------------
Crystal lace VA-871-485 8/11/97
- -----------------------------------------------------------------------------------------------------------------------------------
Savannah Lane Bedding VA-872-656 7/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
Purrfection VA-872-688 7/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
Country walk VA-873-593 7/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
Skyline VA-873-594 7/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
x
AMENDMENT TO LETTER OF CREDIT NO. S567171
Amendment to Letter of Credit No. S567171 issued by Swiss Bank
Corporation, Stamford Branch on February 18, 1998 (the "Letter of Credit") for
the account of Hanover Direct, Inc., a Delaware corporation (the "Company"), in
favor of State Street Bank and Trust Company, as successor trustee under the
Indenture of Trust dated as of September 1, 1987 (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, Stamford Branch has assigned all of its
interests and obligations under the Letter of Credit to UBS AG, Stamford Branch
and UBS AG, Stamford Branch has assumed all of the obligations of Swiss Bank
Corporation, Stamford Branch under the Letter of Credit;
WHEREAS, UBS AG, Stamford Branch has agreed to extend the Scheduled
Expiration Date of the Letter of Credit from March 30, 1999 to March 31, 2000;
and
WHEREAS, UBS AG, 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, Stamford Branch" are hereby amended to refer to "UBS AG, Stamford
Branch".
(b) The parties hereto hereby agree that any references in the Letter of
Credit to "the Bank" shall be deemed to be references to "UBS AG, Stamford
Branch".
(c) The references to the "March 30, 1999" expiration date in the Letter
of Credit shall be deemed to be "March 31, 2000". The "Scheduled Termination
Date" in the Letter of Credit shall be deemed to mean "March 31, 2000".
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.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
this ___ day of March, 1999.
UBS AG, STAMFORD BRANCH
By: /s/ Richard T. Conway
--------------------------
Name: Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
--------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By: /s/ Laurel Melody Casasanta
---------------------------
Name:
Title:
-2-
<PAGE> 3
UBS AG,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
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, two duly authorized officers of UBS AG, Stamford Branch
(as successor to Swiss Bank Corporation, Stamford Branch) (the "Bank"), hereby
notify 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 March 31, 2000. The
terms used in this Certificate and not defined herein shall have the meanings
given in the Letter of Credit.
Please be advised that UBS AG, Stamford Branch has assumed all of the
obligations of Swiss Bank Corporation, Stamford Branch in connection with the
Letter of Credit. In order to provide you with the appropriate notice
information, a First Amendment to the Letter of Credit will be prepared. The
changes effected by the First Amendment to the Letter of Credit will be limited
to revising the expiration date to March 31,2000, substituting "UBS AG, Stamford
Branch" in place of "Swiss Bank Corporation, Stamford Branch", and making any
appropriate address, telephone number and facsimile number changes. Certain
provisions regarding the "Year 2000" issue will be added to the Reimbursement
Agreement dated as of December 18, 1996, as amended, pursuant to the terms of
the Second Amendment to the Reimbursement Agreement.
IN WITNESS WHEREOF, the Bank has executed and delivered this Certificate
this __ day of March, 1999.
UBS AG,
Stamford Branch
By: /s/ Richard T. Conway
--------------------------
Name: Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
--------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
<PAGE> 1
SECOND AMENDMENT
TO
REIMBURSEMENT AGREEMENT
SECOND AMENDMENT, dated as of March __, 1999 (the "Second Amendment"), by
and between UBS AG, a banking corporation organized under the laws of
Switzerland, acting through its Stamford Branch (said UBS AG being the successor
to Swiss Bank Corporation, as described below), 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;
WHEREAS, Swiss Bank Corporation, New York Branch subsequently assigned 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 and the Borrower amended
the Reimbursement Agreement pursuant to the First Amendment to Reimbursement
Agreement dated as of February 18, 1998 by and between Swiss Bank Corporation,
Stamford Branch and the Borrower;
WHEREAS, Swiss Bank Corporation, Stamford Branch subsequently assigned all
of its interests and obligations under the Reimbursement Agreement, as amended,
to UBS AG, Stamford Branch (hereinafter referred to as the "Bank"), and the Bank
has assumed all of the obligations of Swiss Bank Corporation, Stamford Branch
under the Reimbursement Agreement, as amended.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
1. As of the date hereof, the Reimbursement Agreement is hereby further
amended as follows:
(a) All references throughout the Reimbursement Agreement to "Swiss Bank
Corporation, Stamford Branch" and "Swiss Bank Corporation" are hereby amended to
read "UBS AG, Stamford Branch" and "UBS AG," respectively.
<PAGE> 2
(b) Section 2.03 of the Reimbursement Agreement is hereby amended by
deleting the reference to "0.25%" in paragraph (b) and replacing it with
"0.375%."
(c) Article VI is hereby amended by adding at the end thereof the
following language:
"6.11 Year 2000 Compliance. The Borrower and each Subsidiary have
conducted and are continuing to conduct a review and assessment of
their respective computer applications, and have undertaken certain
modifications thereto, relating to any defect or potential defect
relating to "Year 2000" compatibility. Based on the foregoing review
and modification, the Borrower believes that no such defect could
reasonably be expected to have a Material Adverse Effect."
(d) Article VII is hereby amended by adding at the end thereof the
following language:
"7.10 Year 2000 Compliance. The Borrower and each Subsidiary shall
take all actions necessary to eliminate any defects in computer
software, databases, hardware, controls and peripherals which may
occur in connection with the occurrence of the year 2000 or the use
thereof on any date after December 31, 1999, to the extent such
defect could reasonably be expected to have a Material Adverse
Effect."
2. It shall be a condition precedent to the effectiveness of this Second
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, as amended, or shall have amended the Guaranty to extend its
term to March 31, 2000, as applicable.
3. This Second 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 Second 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 by the First Amendment to the Reimbursement Agreement dated
as of February 18, 1998 and this Second Amendment. Except as specifically
amended by the First and
<PAGE> 3
Second Amendments, the Reimbursement Agreement shall remain in full force and
effect in accordance with its terms.
6. The provisions of this Second 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 Second Amendment in any jurisdiction.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the date first above written.
UBS AG, STAMFORD BRANCH
By: /s/ Richard T. Conway
------------------------------------
Name: Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
------------------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
HANOVER DIRECT, INC.
By:
------------------------------------
Name:
Title:
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the date first above written.
UBS AG, STAMFORD BRANCH
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
HANOVER DIRECT, INC.
By: /s/ Robert Vill
------------------------------------
Name: Robert Vill
Title: VP Finance -- Treasurer
<PAGE> 1
EXECUTION COPY
FIRST AMENDMENT TO
HANOVER INDEMNITY AGREEMENT
FIRST AMENDMENT, dated as of February 18, 1998 ("First
Amendment"), by and among RICHEMONT FINANCE S.A., a Luxembourg corporation
("Richemont"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), and
each Borrower party to the Hanover Indemnity Agreement referred to below.
Capitalized terms used but not defined herein have the meanings given to them
in the Hanover Indemnity Agreement referred to below.
WHEREAS, Richemont, Hanover and the Borrowers are parties to
that certain Hanover Indemnity Agreement, dated as of December 17, 1996 (the
"Hanover Indemnity Agreement"); and
WHEREAS, Richemont, Hanover and the Borrowers wish to amend
the Hanover Indemnity 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, Section 1 of the Hanover Indemnity
Agreement is hereby amended by deleting "February 28, 1998" in the second and
fourth lines thereof and substituting "March 30, 1999" therefor.
2. As of the date hereof, Section 7 of the Hanover Indemnity
Agreement is hereby amended by deleting "February 28, 1997" in the third line
thereof and substituting "March 30, 1999" therefor.
3. Each of Hanover and the Borrowers hereby (a) certifies
that, as of the date hereof, each of the representations and warranties
contained in Section 10 of the Hanover Indemnity Agreement is true and correct
in all material respects and (b) confirms that it has and will continue to
comply with all of its obligations contained in the Hanover Indemnity
Agreement.
4. 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.
5. 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.
6. From and after the date hereof, all references to the
Hanover Indemnity Agreement contained in the Hanover Indemnity Agreement, the
Guaranty and the Reimbursement 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
Hanover Indemnity Agreement as amended hereby.
[Signature pages follow]
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed as of the date first above written.
RICHEMONT FINANCE S.A.
By: /s/
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
HANOVER DIRECT, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
BRAWN OF CALIFORNIA, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
GUMP'S BY MAIL, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
<PAGE> 3
GUMP'S CORP.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
THE COMPANY STORE, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
TWEEDS, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
LWI HOLDINGS, INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
AEGIS CATALOG CORPORATION
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
HANOVER DIRECT VIRGINIA INC.
By: /s/ SARAH HEWITT
-------------------------------
Name: Sarah Hewitt
Title: Assistant Secretary
<PAGE> 1
SECOND AMENDMENT TO
HANOVER INDEMNITY AGREEMENT
SECOND AMENDMENT, dated as of March 26, 1999 ("Second
Amendment"), by and among RICHEMONT FINANCE S.A., a Luxembourg corporation
("Richemont"), HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), and
each Borrower party to the Hanover Indemnity Agreement referred to below.
Capitalized terms used but not defined herein have the meanings given to them
in the Hanover Indemnity Agreement referred to below.
WHEREAS, Richemont, Hanover and the Borrowers are parties to
that certain Hanover Indemnity Agreement, dated as of December 17, 1996 (as
amended by the First Amendment thereto, dated as of February 18, 1998, the
"Hanover Indemnity Agreement"); and
WHEREAS, Richemont, Hanover and the Borrowers wish to amend
the Hanover Indemnity 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, Section 1 of the Hanover Indemnity
Agreement is hereby amended by deleting "March 30, 1999" in the second and
fourth lines thereof and substituting "March 31, 2000" therefor.
2. As of the date hereof, Section 7 of the Hanover Indemnity
Agreement is hereby amended by deleting "March 30, 1999" in the third line
thereof and substituting "March 31, 2000" therefor.
3. Each of Hanover and the Borrowers hereby (a) certifies
that, as of the date hereof, each of the representations and warranties
contained in Section 10 of the Hanover Indemnity Agreement is true and correct
in all material respects and (b) confirms that it has and will continue to
comply with all of its obligations contained in the Hanover Indemnity
Agreement.
4. This Second 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.
5. This Second 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.
6. From and after the date hereof, all references to the
Hanover Indemnity Agreement contained in the Hanover Indemnity Agreement, the
Guaranty and the Reimbursement 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
Hanover Indemnity Agreement as amended hereby. From and after the date hereof,
all references to the Guaranty and the Reimbursement Agreement contained in 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 such
agreements as amended on February 18, 1998 and as of the date hereof. From and
after the date hereof, all references
<PAGE> 2
to the Letters of Credit contained in the Hanover Indemnity Agreement, the
Guaranty and the Reimbursement 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
Letters of Credit issued by UBS, A.G., Stamford Branch for the account of
Hanover and numbered S567169, S567170 and S567171, each as amended as of the
date hereof to extend the expiration date of each to March 31, 2000.
[Signature pages follow]
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Second Amendment to be executed as of the date first above written.
RICHEMONT FINANCE S.A.
By: /s/ J DU PLESSIS
-------------------------------
Name: J du Plessis
Title:
By: /s/ A. GRIEVE
-------------------------------
Name: A. Grieve
Title:
HANOVER DIRECT, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
BRAWN OF CALIFORNIA, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
GUMP'S BY MAIL, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
<PAGE> 4
GUMP'S CORP.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
THE COMPANY STORE, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
TWEEDS, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
LWI HOLDINGS, INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
AEGIS CATALOG CORPORATION
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
HANOVER DIRECT VIRGINIA INC.
By: /s/ ROBERT VILL
-------------------------------
Name: Robert Vill
Title: VP Finance-Treasurer
<PAGE> 1
SECOND AMENDMENT TO LETTER OF CREDIT NO. S567169
Second Amendment to Letter of Credit No. S567169 issued by Swiss Bank
Corporation, New York Branch on December 18, 1996 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"), as amended
pursuant to that certain Amendment to Letter of Credit No. S567169 dated as of
February 18, 1998 between Swiss Bank Corporation, Stamford Branch (successor to
Swiss Bank Corporation, New York Branch) and the Trustee (as amended on February
18, 1998, the "Letter of Credit"). 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, Stamford Branch has assigned all of its
interests and obligations under the Letter of Credit to UBS AG, Stamford Branch
and UBS AG, Stamford Branch has assumed all of the obligations of Swiss Bank
Corporation, Stamford Branch under the Letter of Credit;
WHEREAS, UBS AG, Stamford Branch has agreed to extend the scheduled
Expiration Date of the Letter of Credit from March 30, 1999 to March 31, 2000;
and
WHEREAS, UBS AG, 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, Stamford Branch" are hereby amended to refer to "UBS AG, Stamford
Branch".
(b) The parties hereto hereby agree that any references in the Letter of
Credit to "the Bank" shall be deemed to be references to "UBS AG, Stamford
Branch."
(c) All references to "March 30, 1999" as the Expiration Date set forth in
the Letter of Credit are hereby deemed to be references to "March 31, 2000." The
term "Expiration Date" as used in the Letter of Credit shall mean "March 31,
2000."
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 Second Amendment from and after
the date hereof.
3. This Second Amendment may be executed in one or more counterparts, each
of which taken together shall constitute an original and all of which shall
constitute and the same instrument.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as
of this __ day of March, 1999.
UBS AG, STAMFORD BRANCH
By: /s/ Richard T. Conway
-------------------------------------
Name: Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
--------------------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
NORWEST BANK MINNESOTA, N.A., AS TRUSTEE
By:
--------------------------------------
Name:
Title:
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as
of this __ day of March, 1999.
UBS AG, STAMFORD BRANCH
By:
-------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, N.A., AS
TRUSTEE
By: /s/ Martha Kantorowicz
--------------------------------------
Name: Martha Kantorowicz
Title: Corporate Trust Officer
-2-
<PAGE> 4
UBS AG,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
EXTENSION OF SCHEDULED TERMINATION DATE
Norwest Bank Minnesota, N.A., as Trustee
Norwest Center
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention Corporate Trust Department
Re: Irrevocable Letter of Credit Ref. No. S567169
For the Account of Hanover Direct, Inc.
----------------------------------------------
Ladies and Gentlemen:
The undersigned, two duly authorized officers of UBS AG, Stamford Branch,
as successor to Swiss Bank Corporation, Stamford Branch (the "Bank") hereby
notify the Trustee with respect to the above-referenced Letter of Credit issued
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 March 31, 2000. The terms used in
this Certificate and not defined herein shall have the meanings given in the
Letter of Credit.
Please be advised that UBS AG, Stamford Branch has assumed all of the
obligations of Swiss Bank Corporation, Stamford Branch in connection with the
Letter of Credit. In order to provide you with the appropriate notice
information, a Second Amendment to the Letter of Credit will be prepared. The
changes effected by the Second Amendment to the Letter of Credit will be limited
to revising the expiration date to March 31, 2000, substituting "UBS AG,
Stamford Branch" in place of "Swiss Bank Corporation, Stamford Branch" and
making any appropriate address, telephone number and facsimile number changes.
<PAGE> 5
IN WITNESS WHEREOF, the Bank has executed and delivered this Certificate
this __ day of March, 1999.
UBS AG,
Stamford Branch
By: /s/ Richard T. Conway
-------------------------------------
Name: Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
--------------------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
-2-
<PAGE> 1
SECOND AMENDMENT TO LETTER OF CREDIT No. S567170
Second Amendment to Letter of Credit No. S561170 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"), as amended pursuant to that certain Amendment to Letter of Credit
No. S567170 dated as of February 18, 1998 between Swiss Bank Corporation,
Stamford Branch (successor to Swiss Bank Corporation, New York Branch) and the
Trustee (as amended on February 18, 1998, the "Letter of Credit"). 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, Stamford Branch has assigned all of its
interests and obligations under the Letter of Credit to UBS AG, Stamford Branch
and UBS AG, Stamford Branch has assumed all of the obligations of Swiss Bank
Corporation, Stamford Branch under the Letter of Credit;
WHEREAS, UBS AG, Stamford Branch has agreed to extend the Scheduled
Expiration Date of the Letter of Credit from March 30, 1999 to March 31, 2000;
and
WHEREAS, UBS AG, 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, Stamford Branch" are hereby amended to refer to "UBS AG, Stamford
Branch".
(b) The parties hereto hereby agree that any references in the Letter of
Credit to the "Bank" shall be deemed to be references to UBS AG, Stamford
Branch.
(c) All references to "March 30, 1999" as the Expiration Date set forth in
the Letter of Credit are hereby deemed to be references to "March 31, 2000." The
term "Expiration Date" as used in the Letter of Credit shall mean "March 31,
2000."
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 Second Amendment from and after
the date hereof.
<PAGE> 2
3. This Second 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.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as
of this ______ day of March, 1999.
UBS AG, STAMFORD BRANCH
By: /s/ Richard T. Conway
------------------------------------
Name: Richard T. Conway
Title: Associate Director Portfolio
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
------------------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
NORWEST BANK MINNESOTA, N.A., AS
TRUSTEE
By:
------------------------------------
Name:
Title:
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment as
of this ___ day of March, 1999.
UBS AG, STAMFORD BRANCH
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, N.A., AS
TRUSTEE
By: /s/ Martha Kantorowicz
------------------------------------
Name: Martha Kantorowicz
Title: Corporate Trust Officer
<PAGE> 5
UBS AG,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
EXTENSION OF SCHEDULED TERMINATION DATE
Norwest Bank Minnesota, N.A., as Trustee
Norwest Center
Sixth & Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: Irrevocable Letter of Credit Ref. No. S567170 For the Account of
Hanover Direct, Inc.
Ladies and Gentlemen:
The undersigned, two duly authorized officers of UBS AG, Stamford Branch,
as successor to Swiss Bank Corporation, Stamford Branch (the "Bank"), hereby
notify the Trustee with respect to the above-referenced Letter of Credit issued
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 March 31, 2000. The terms used in
this Certificate and not defined herein shall have the meanings given in the
Letter of Credit.
Please be advised that UBS AG, Stamford Branch has assumed all of the
obligations of Swiss Bank Corporation. Stamford Branch in connection with the
Letter of Credit. In order to provide you with the appropriate notice
information, a Second Amendment to the Letter of Credit will be prepared. The
changes effected by the Second Amendment to this Letter of Credit will be
limited to revising the expiration date to March 31, 2000, substituting "UBS AG,
Stamford Branch" in place of "Swiss Bank Corporation, Stamford Branch" and
making any appropriate address, telephone number and facsimile number changes.
<PAGE> 6
IN WITNESS WHEREOF, the Bank has executed and delivered this Certificate
this _____ day of March, 1999.
UBS AG,
Stamford Branch
By: /s/ Richard T. Conway
------------------------------------
Name: Richard T. Conway
Title: Associate Director Portfolio
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
------------------------------------
Name: Thomas R. Salzano
Title: Associate Director
Loan Portfolio Support, US
- 2 -
<PAGE> 1
HANOVER DIRECT, INC.
UNSECURED LINE OF CREDIT & PROMISSORY NOTE
$25,000,000 New York, New York
March 1, 2000
FOR VALUE RECEIVED, the undersigned, HANOVER DIRECT, INC., a Delaware
corporation ("Borrower"), promises to pay to the order of RICHEMONT FINANCE,
S.A., or its assigns ("Lender"), on or before the Maturity Date referred to
below, TWENTY-FIVE MILLION DOLLARS ($25,000,000), or such lesser amount as shall
then be outstanding under this Line of Credit and Promissory Note as evidenced
by Lender's record of the loans made hereunder.
Fees: The Borrower will pay the Lender a monthly fee of $62,500 each month
in arrears from the date of the Note up to the Maturity Date (as defined below).
Interest: The Borrower will pay the Lender monthly interest at a rate of
0.583% on the average monthly balance outstanding in arrears.
All outstanding principal, fees and interest not previously paid shall be
due and payable in full on the date (the "Maturity Date") which is the earlier
to occur of December 30, 2000 and the date on which Lender makes an equity
infusion in Borrower or any of Borrower's subsidiaries. Principal, fees and
interest on this Note are payable in lawful currency of the United States of
America to the Lender at its principal office at 35 Boulevard, Prince Henri,
L1724 Luxemborg, or as such other place as may be designated by Lender, in same
day funds.
A. Representations and Warranties
1. Borrower is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Borrower has
the corporate power and authority to execute and deliver this Note and to
perform its obligations hereunder.
2. This Note has been duly authorized by all necessary corporate action on
the part of Borrower, and this Note constitutes a legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
<PAGE> 2
3. The execution, delivery and performance by Borrower of this Note will not
(i) violate, or result in the creation of any lien in respect of any
property of Borrower under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument by which Borrower is bound, (ii) conflict
with or result in a breach of any of the terms, conditions or provisions
of any order, judgment, decree, or ruling of any court, arbitrator or
governmental authority applicable to Borrower or (iii) violate any
provision of any statute or other rule or regulation of any governmental
authority applicable to Borrower.
4. No approval, consent, waiver, authorization, registration, declaration or
filing by, from or with any governmental authority or other person or
entity is required in connection with the execution, delivery or
performance by Borrower of this Note.
B. Covenants
1. Borrower shall at all times maintain its corporate existence and shall not
merge or consolidate with any other entity (unless Borrower shall be the
survivor) without Lender's consent.
2. Borrower shall provide to Lender such information about its assets,
liabilities and business as Lender shall from time to time reasonably
request, including, without limitation, financial statements of Borrower
and its subsidiaries.
C. Events of Default
An "Event of Default" shall exist under this Note if any of the following
conditions or events shall occur and be continuing:
(a) Borrower defaults in the payment of any principal, fees or interest
on this Note when the same becomes due and payable, whether at
maturity or by declaration or otherwise; or
(b) Borrower defaults in the performance of any other obligation
hereunder or any representation or warranty made by Borrower in this
Note proves to have been false or incorrect in any material respect
on the date as of which made; or
(c) Borrower (i) is unable to pay, or admits in writing its inability to
pay, its debts as they become due, (ii) files, or consents by answer
or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy,
for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction,
(iii) makes an assignment for the benefit of its
2
<PAGE> 3
creditors, (iv) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v)
is adjudicated as insolvent or to be liquidated, or (vi) takes
corporate action for the purpose of any of the foregoing; or
(d) A court or governmental authority of competent jurisdiction enters
an order appointing, without consent by Borrower, a custodian,
receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of Borrower, or any such petition shall be filed against
Borrower.
Upon the occurrence of an Event of Default, Lender may, at its
option, declare the entire unpaid principal balance of, and all accrued
fees and interest on, this Note to be immediately due and payable. If an
Event of Default described in paragraph (c) or (d) above has occurred,
this Note shall automatically become immediately due and payable. Upon
this Note becoming due and payable, whether automatically or by
declaration, this Note will forthwith mature and the entire unpaid
principal amount hereof, plus all accrued and unpaid interest hereon,
shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby
waived.
D. General
In addition to the foregoing, Lender may proceed to protect and
enforce its rights hereunder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or by law or otherwise.
Lender or its assignee may assign this Note to any person or entity
without Borrower's consent. Lender or its assignee shall be entitled to
apply this Note in payment of the price payable in respect of any equity
infusion by Lender in erizon.
Failure of Lender to exercise any of its rights and remedies shall
not constitute a waiver of the right to exercise the same at that or any
other time. All rights and remedies of Lender shall be cumulative to the
full extent permitted by law.
3
<PAGE> 4
The invalidity or unenforceability of any provision of this Note shall not
impair the validity or enforceability of any other provision of this Note.
This Note and the rights of Lender hereunder are subject to the terms of a
Subordination Agreement between Lender and its subsidiaries and GECC.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS.
Accepted and Agreed to:
By Hanover Direct Inc.
Name: /s/ [ILLEGIBLE]
Print Name:
Title
Date
By Richemont Finance S.A.
Name: /s/ Alan Grieve
Print Name: Alan Grieve
Title
Date
Name: /s/ Jan du Plessis
Print Name: Jan du Plessis
Title
Date
/s/ Lazara M. Morejon
LAZARA M. MOREJON
My Commission Expires July 2, 2001
<PAGE> 1
AGREEMENT
AGREEMENT dated as of March 26, 1999 by and between Richemont Finance S.A., a
Luxembourg corporation ("Richemont"), and Hanover Direct, Inc., a Delaware
corporation ("Hanover").
W I T N E S S E T H:
WHEREAS, Hanover entered into that certain Reimbursement Agreement dated as of
December 18, 1996 with Swiss Bank Corporation (now UBS A.G., Stamford Branch)
("Bank") (as amended to the date hereof, the "Reimbursement Agreement") in
connection with the Bank's issuance of three letters of credit which support
certain obligations of Hanover (the "Letters of Credit");
WHEREAS, Richemont entered into an agreement dated as of December 18, 1996 with
the Bank pursuant to which Richemont guaranteed the reimbursement obligations
of Hanover in connection with draws under any Letter of Credit (the
"Guarantee"); and
WHEREAS, Richemont and Hanover and certain of Hanover's subsidiaries (Hanover
and such certain subsidiaries are herein collectively referred to as the
"Borrowers") entered into that certain Hanover Indemnity Agreement dated as of
December 17, 1996 (as amended to the date hereof, the "Indemnity Agreement")
whereby the Borrowers have agreed to reimburse Richemont for any payment it
makes to the Bank under the Guarantee in accordance with the Reimbursement
Agreement;
WHEREAS, Richemont and Hanover have agreed to extend the terms of the Indemnity
Agreement to March 31, 2000 on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The parties agree to amend the Indemnity Agreement to extend its term to
March 31, 2000 and to take all steps necessary to so amend the Indemnity
Agreement, and Hanover agrees to cause those of its subsidiaries that are
party thereto to consent to such amendment.
2. The parties agree to use their reasonable best efforts to obtain the
Bank's consent to amend the Reimbursement Agreement, the Letters of Credit
and the Guarantee and other related agreements, as necessary, to extend
the terms of those instruments or agreements to March 31, 2000.
<PAGE> 2
3. Hanover shall use its reasonable best efforts to obtain from Congress
Financial Corporation ("Congress") its consent to extend the various
agreements referenced herein.
4. Richemont agrees to use its reasonable best efforts to obtain from
Congress its consent to amend the terms of the Subordination Agreement
between itself and Congress dated as of December 18, 1996 to the extension
of the various agreements referenced herein.
5. Upon the completion of all actions necessary to obtain the extension to
March 31, 2000 of the agreements referred to herein and the issuance of
the extended Letters of Credit, the Borrower agrees to pay to Richemont a
fee equal to 9-1/2% of the principal amount of each Letter of Credit, plus
all fees incurred by Richemont in connection with providing the Guarantee,
including all legal fees, expenses, bank fees and any similar costs and
expenses, all pursuant to the terms of the Term Sheet of even date
herewith and attached hereto as Exhibit A.
6. All capitalized terms used herein and not otherwise defined in the
Agreement shall have the meaning ascribed thereto in the Reimbursement
Agreement.
7. This Agreement contains the entire agreement of the parties with respect
to its subject matter, supersedes all prior discussions between them, and
shall be amended or modified only by a writing executed by the parties
hereto.
8. This Agreement shall be construed under and enforced in accordance with
the laws of New York, without reference to conflict of laws principles.
RICHEMONT FINANCE S.A.
By: /s/ J. DU PLESSIS
------------------- /s/ A. GRIEVE
Name: J. du Plessis A Grieve
-------------------
Title:
-------------------
HANOVER DIRECT, INC.
By: /s/ ROBERT VILL
-------------------
Name: Robert Vill
---------------------
Title: VP Finance-Treasurer
-------------------
<PAGE> 3
Exhibit A
TERM SHEET
$25.8 MILLION LETTERS OF CREDIT
<TABLE>
<S> <C>
PARTIES: Hanover Direct, Inc. ("Hanover"), Richemont, S.A. ("Richemont"),
UBS, A.G., Stamford Branch ("UBS") and Congress Financial Corp.
("Congress").
FACILITY: In accordance with the Reimbursement Agreement, dated December 18,
1996, between Hanover and UBS, UBS has issued three letters of
credit for up to $25,837,082 (the "Letters of Credit").
TERM: The expiration date of the Letters of Credit shall be extended
until March 31, 2000 at the closing of the contemplated transaction
(the "Closing").
FACILITY FEE AND A facility fee of 9-1/2% of the principal amount of the Letters of
EXPENSE: Credit shall be paid by Hanover to Richemont, subject to reduction
for prepayment, other than that portion of the facility fee paid at
closing. In addition, Hanover shall pay all fees incurred by
Richemont in connection with providing the facilities described
herein, including legal fees, expenses, bank fees and any other
similar costs and expenses.
TIMING OF Payment of the facility fee and expenses incurred by Richemont
PAYMENTS: shall be made as follows: (a) $500,000 shall be paid at Closing,
and (b) the balance shall be paid in four equal quarterly
installments. Provision shall be made to prorate the remaining
quarterly payments of the facility fee balance but, by way of
clarification, not the $500,000 fee payable at closing, in the
event of prepayment of amounts due thereunder by Hanover.
INTEREST: Interest on all amounts, if any, drawn under the Letters of Credit
shall be paid to Richemont at a rate equal to 3.5% above the prime
rate, but in no event shall such rate be less than the rate charged
Richemont by UBS with respect to any such drawings, plus 2%.
Interest shall be paid quarterly in arrears based on a 360-day year
and actual days elapsed.
REIMBURSEMENT Hanover and Richemont shall amend the Agreement, dated December 18,
AGREEMENT: 1996 and amended as of February 18, 1998, to reflect the terms set
forth herein.
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SUBORDINATION: Obligations of Hanover to Richemont in connection herewith shall be
subordinated to all obligations of Hanover to Congress under that
Loan and Security Agreement, dated as of November 14, 1995, as
amended, between Congress, Hanover and certain other borrowers.
SECURITY: Unsecured.
</TABLE>
ACCEDPTED
/s/ J. DU PLESSIS /s/ A. GRIEVE
- ------------------------- ---------------------------
J. du Plessis A. Grieve
<PAGE> 1
February 4, 1999
UBS AG,
Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901-3793
Attention: Will Saint
Ladies and Gentlemen:
Reference is made to that certain Reimbursement Agreement, dated as of
December 18, 1996. between Hanover Direct, Inc., a Delaware corporation (the
"Borrower") and Swiss Bank Corporation, a banking corporation organized under
the laws of Switzerland, acting by and through its New York Branch, as amended
pursuant to the First Amendment to Reimbursement Agreement dated as of February
28, 1998 by and between Swiss Bank Corporation, Stamford Branch and the Borrower
(the "Reimbursement Agreement"). Swiss Bank Corporation and Union Bank of
Switzerland were subsequently merged into UBS AG in June, 1998. UBS AG is the
surviving organization and the successor to Swiss Bank Corporation. Defined
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Reimbursement Agreement.
Pursuant to the terms of the Reimbursement Agreement, the Bank issued the
Direct Pay Letters of Credit. The Expiration Date for each of the three Direct
Pay Letters of Credit is March 30, 1999. Please be advised that the Borrower
hereby requests that the scheduled Expiration Date be extended until March 31,
2000 for each such Direct Pay Letter of Credit.
In connection with this request, the Borrower hereby agrees to pay to the
Bank all counsel fees incurred by the Bank, as well as other fees, expenses,
disbursements, taxes and other charges payable by the Borrower to the Bank
pursuant to Sections 2.03 and 7.02 of the Reimbursement Agreement, subject to
the limitations set forth in Section 1(b) of that certain letter from Congress
Financial Corporation to Hanover Direct, Inc. dated March 26, 1999 and
concerning the Consent to Extension of UBS Letters of Credit and Related
Matters. The Borrower hereby agrees that the letter of credit fee set forth in
Section 2.03 of the Reimbursement Agreement shall be increased from 0.25% to
0.375%. The Borrower hereby also agrees to pay to the Bank a non-refundable
arrangement fee in the amount of $10,000. Any amounts payable by the Borrower to
the Bank shall be paid on or prior to Closing.
<PAGE> 2
UBS AG, -2- February 4, 1999
Stamford Branch
The Borrower hereby acknowledges and agrees that it is a condition
precedent to the Bank's obligations to extend the scheduled Expiration Dates of
the Direct Pay Letters of Credit
that Richemont Finance S.A., a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg, provide the Bank with a guarantee of the
Reimbursement Obligations of the Borrower under the Reimbursement Agreement
during the extension period.
Very truly yours,
Hanover Direct, Inc.
/s/ Robert Vill
---------------------------------------
By: Robert Vill
Title: Vice President Finance Treasurer
The foregoing is hereby accepted
as of the date first written above.
UBS AG, Stamford Branch
By:
------------------------------------
Title:
By:
------------------------------------
Title:
-2-
<PAGE> 3
UBS AG, -2- February 4, 1999
Stamford Branch
The Borrower hereby acknowledges and agrees that it is a condition
precedent to the Bank's obligations to extend the scheduled Expiration Dates of
the Direct Pay Letters of Credit
that Richemont Finance S.A., a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg, provide the Bank with a guarantee of the
Reimbursement Obligations of the Borrower under the Reimbursement Agreement
during the extension period.
Very truly yours,
Hanover Direct, Inc.
---------------------------------------
By:
Title:
The foregoing is hereby accepted
as of the date first written above.
UBS AG, Stamford Branch
By: /s/ Richard T. Conway
------------------------------------
Title: Richard T. Conway
Associate Director
Loan Portfolio Support, US
By: /s/ Thomas R. Salzano
------------------------------------
Title: Thomas R. Salzano
Associate Director
Loan Portfolio Support, US
-2-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME -- STATE OF INCORPORATION
<TABLE>
<CAPTION>
COMPANY INCORPORATION
------- -------------
<S> <C>
Always In Style, LLC........................................ Delaware
American Down and Textile Company........................... Wisconsin
Brawn of California, Inc.................................... California
Desius, LLC................................................. Delaware
Domestications Kitchen & Garden, LLC........................ Delaware
Domestications, LLC......................................... Delaware
Encore Catalog, LLC......................................... Delaware
erizon, Inc................................................. Delaware
Gump's By Mail, Inc......................................... Delaware
Gump's Corp................................................. Delaware
Hanover Brands, Inc. ....................................... Delaware
Hanover Company Store, LLC.................................. Delaware
Hanover Direct Pennsylvania, Inc. .......................... Pennsylvania
Hanover Direct Virginia, Inc. .............................. Delaware
Hanover Home Fashions Group, LLC............................ Delaware
Hanover Realty, Inc. ....................................... Delaware
Keystone Internet Services, Inc. ........................... Delaware
Kitchen & Home, LLC......................................... Delaware
LWI Holdings, Inc. ......................................... Delaware
Scandia Down Corporation.................................... Delaware
Scandia Down, LLC (d/b/a Turiya)............................ Delaware
Silhouettes, LLC............................................ Delaware
- doing business in the Commonwealth of Pennsylvania as
"Silhouettes Catalog LLC"
The Company Office, Inc. ................................... Delaware
The Company Store Factory, Inc. ............................ Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
"As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 18, 2000 (except with
respect to the matters discussed in Note 8 and Note 18, as to which the dates
are March 24, 2000 and March 3, 2000, respectively) previously filed
Registration Statement Nos. 2-92383, 2-94286, 33-52059, 33-52061, 33-52353,
33-52687, 33-58756, 33-58758, 33-58760, 33-66394, 333-3871, 333-02743,
333-03871, 333-13817, 333-25141, 333-51433, 333-80007, 333-91687 and 333-91689.
It should be noted that we have not audited any financial statements of the
company subsequent to December 25, 1999 or performed any audit procedures
subsequent to the date of our report."
Arthur Andersen LLP
New York, New York
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER
DIRECT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 25, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> DEC-25-1999
<CASH> 2,849
<SECURITIES> 0
<RECEIVABLES> 32,587
<ALLOWANCES> (3,300)
<INVENTORY> 54,816
<CURRENT-ASSETS> 113,492
<PP&E> 93,247
<DEPRECIATION> (46,360)
<TOTAL-ASSETS> 191,419
<CURRENT-LIABILITIES> 95,502
<BONDS> 39,578
6,318
0
<COMMON> 141,013
<OTHER-SE> (93,466)
<TOTAL-LIABILITY-AND-EQUITY> 191,419
<SALES> 549,852
<TOTAL-REVENUES> 549,852
<CGS> 228,505
<TOTAL-COSTS> 554,226
<OTHER-EXPENSES> 9,382
<LOSS-PROVISION> 2,817
<INTEREST-EXPENSE> 7,338
<INCOME-PRETAX> (15,784)
<INCOME-TAX> 530
<INCOME-CONTINUING> (16,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,314)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
