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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 25, 2000
Commission file number 1-12082
HANOVER DIRECT, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-0853260
- ------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(201) 863-7300
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(Telephone number)
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
--- ---
Common stock, par value $.66 2/3 per share: 213,438,195 shares outstanding as of
May 1, 2000.
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HANOVER DIRECT, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I - Financial Information Page
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 25, 2000 and December 25, 1999.......................................... 3
Condensed Consolidated Statements of Income (Loss) - thirteen weeks ended
March 25, 2000 and March 27, 1999............................................. 5
Condensed Consolidated Statements of Cash Flows - thirteen weeks ended
March 25, 2000 and March 27, 1999............................................. 6
Notes to Condensed Consolidated Financial Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 16
Part II - Other Information
Item 1. Legal Proceedings......................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders....................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 18
Signature.............................................................................. 19
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 25, DECEMBER 25,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,376 $ 2,849
Accounts receivable, net 26,820 29,287
Inventories 55,892 54,816
Prepaid catalog costs 24,702 20,305
Deferred tax asset, net 3,300 3,300
Other current assets 2,950 2,935
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Total Current Assets 117,040 113,492
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Property and equipment, at cost:
Land 4,634 4,634
Buildings and building improvements 23,289 23,269
Leasehold improvements 9,687 9,491
Furniture, fixtures and equipment 55,798 53,863
Construction in progress 473 1,990
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93,881 93,247
Accumulated depreciation and amortization (48,586) (46,360)
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Property and equipment, net 45,295 46,887
Goodwill, net 16,205 16,336
Deferred tax asset, net 11,700 11,700
Other assets 1,824 3,004
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Total Assets $192,064 $191,419
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</TABLE>
See notes to condensed consolidated financial statements.
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 25, DECEMBER 25,
2000 1999
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 5,000 $ --
Current portion of long-term debt and capital lease obligations 3,707 3,257
Accounts payable 59,673 63,549
Accrued liabilities 24,317 24,284
Customer prepayments and credits 4,741 4,412
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Total Current Liabilities 97,438 95,502
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Non-current Liabilities:
Long-term debt 50,690 39,578
Other liabilities 2,477 2,474
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Total Non-current Liabilities 53,167 42,052
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Total Liabilities 150,605 137,554
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Shareholders' Equity:
Series B Convertible Additional Preferred Stock, $10 stated
value, authorized, issued and outstanding: none at March 25,
2000 and 634,900 shares at December 25, 1999 -- 6,318
Common Stock, $.66 2/3 par value, authorized 300,000,000 shares;
issued 213,961,498 shares at March 25, 2000 and 211,519,511
shares at December 25,1999 142,641 141,013
Capital in excess of par value 306,907 301,088
Accumulated deficit (404,298) (390,763)
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45,250 57,656
Less:
Treasury stock, at cost (652,552 shares at March 25, 2000 and
December 25, 1999) (1,829) (1,829)
Notes receivable from sale of Common Stock (1,962) (1,962)
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Total Shareholders' Equity 41,459 53,865
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Total Liabilities and Shareholders' Equity $ 192,064 $191,419
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 13 WEEKS ENDED
---------------------------------
MARCH 25, MARCH 27,
2000 1999
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<S> <C> <C>
Net Revenues $ 130,150 $ 127,714
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Operating costs and expenses:
Cost of sales and operating expenses 88,230 81,904
Selling expenses 31,967 31,946
General and administrative expenses 17,853 14,447
Depreciation and amortization 2,459 2,301
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140,509 130,598
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(Loss) from operations (10,359) (2,884)
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Interest expense, net 3,014 1,147
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(Loss) before income taxes (13,373) (4,031)
Income tax provision 75 193
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Net (loss) (13,448) (4,224)
Preferred stock dividends 87 159
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Net (loss) applicable to common shareholders $(13,535) $ (4,383)
========= =========
Net (loss) per share:
Net (loss) per share - basic and diluted $ (.06) $ (.02)
========= =========
Weighted average common shares outstanding -
basic and diluted (thousands) 211,930 210,445
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
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HANOVER DIRECT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 13 WEEKS ENDED
--------------------------
MARCH 25, MARCH 27,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(13,448) $ (4,224)
Adjustments to reconcile net (loss) to net cash (used)
by operating activities:
Depreciation and amortization, including deferred fees 4,143 2,616
Provision for doubtful accounts 784 807
Compensation expense related to stock options 797 799
Changes in assets and liabilities:
Accounts receivable 1,683 3,023
Inventories (1,076) 5,099
Prepaid catalog costs (4,397) (5,156)
Accounts payable (3,876) (20,490)
Accrued liabilities 1,356 (201)
Customer prepayments and credits 329 519
Other, net 26 (429)
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Net cash (used) by operating activities (13,679) (17,637)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (623) (404)
Proceeds from sale of Blue Ridge Associates 838 --
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Net cash provided (used) by investing activities 215 (404)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under Congress revolving loan facility $ 23,252 $ 9,915
Net borrowings (payments) under Congress term loan facility 12,325 (375)
Borrowings under Richemont line of credit facility 5,000 --
Redemption of Term Financing Facility (16,000) --
Redemption of Industrial Revenue Bonds (8,000) --
Payment of debt issuance costs (1,899) --
Proceeds from issuance of Common Stock 301 22
Series B Convertible Additional Preferred Stock dividends (920) --
Other, net (68) (118)
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Net cash provided by financing activities 13,991 9,444
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Net decrease in cash and cash equivalents 527 (8,597)
Cash and cash equivalents at the beginning of the year 2,849 12,207
--------- ---------
Cash and cash equivalents at the end of the period $ 3,376 $ 3,610
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 1,488 $ 801
========= ---------
Income taxes $ 88 $ 374
========= =========
Non-cash investing and financing activities:
Capital lease obligations $ 84 $ 82
========= =========
Redemption of Series B Convertible Additional Preferred Stock $ 6,349 $ --
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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HANOVER DIRECT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not include all information and footnotes necessary for a
fair presentation of financial condition, results of operations and cash flows
in conformity with generally accepted accounting principles. Reference should be
made to the annual financial statements, including the footnotes thereto,
included in the Hanover Direct, Inc. (the "Company") Annual Report on Form 10-K
for the fiscal year ended December 25, 1999. In the opinion of management, the
accompanying unaudited interim condensed consolidated financial statements
contain all material adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial condition, results of operations and
cash flows of the Company and its consolidated subsidiaries for the interim
periods. Operating results for interim periods are not necessarily indicative of
the results that may be expected for the entire year. Certain prior year amounts
have been reclassified to conform to the current year presentation.
2. RETAINED EARNINGS RESTRICTIONS
The Company is restricted from paying dividends at any time on its
Common Stock or from acquiring its capital stock by certain debt covenants
contained in agreements to which the Company is a party.
3. 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 Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share." As a net
loss was incurred for the periods reported in the accompanying condensed
consolidated statements of income (loss), the weighted average number of shares
used in the calculation for both basic and diluted net loss per share excludes
stock options and convertible preferred stock.
4. DISPOSITION OF BLUE RIDGE ASSOCIATES
In February 2000, the Company sold its 50% partnership interest in
Blue Ridge Associates ("Blue Ridge"), a partnership that owned an apparel
distribution center in Roanoke, VA, to the holder, an unrelated third party, of
the other 50% for $0.8 million. Since the proceeds approximated the Company's
carrying value of its investment in Blue Ridge, no gain or loss on sale was
recognized.
7
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5. SEGMENT REPORTING
The Company has two reportable segments according to the criteria
established by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information": direct commerce and business-to-business ("B-to-B")
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 for the direct commerce segment are derived primarily from the sale of
merchandise through the Company's catalogs, Internet Web sites and retail
outlets. Revenues for the direct commerce segment are also derived from the
Company's various upsell initiatives. The B-to-B services segment represents the
Company's e-commerce support and fulfillment operations. Revenues for the B-to-B
services segment are derived primarily from e-commerce transaction services,
such as order processing, customer care, and shipping and distribution services
that are provided to both third parties and the direct commerce segment. The
B-to-B services segment provides the aforementioned services to the direct
commerce segment in accordance with an intercompany service agreement.
The Company's management reviews income (loss) from operations to
evaluate performance and allocate resources.
Reportable segment data were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
RESULTS FOR THE 1ST QUARTER DIRECT B-TO-B ELIMINATIONS/
ENDED MARCH 25, 2000: COMMERCE SERVICES ALL OTHER CONSOLIDATED
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues from External Customers $ 123,604 $ 6,546 $ -- $ 130,150
Inter-segment Revenues -- 23,098 (23,098) --
Income/ (Loss) from Operations (275) (7,773) (2,311) (10,359)
Interest Income/(Expense) (1,518) (1,100) (396) (3,014)
---------------- ----------------- ---------------- -----------------
Income/ (Loss) before Income Taxes $ (1,793) $ (8,873) $ (2,707) $ (13,373)
================ ================= ================ =================
RESULTS FOR THE 1ST QUARTER
ENDED MARCH 27, 1999:
Revenues from External Customers $ 127,013 $ 701 $ -- $ 127,714
Inter-segment Revenues -- 25,017 (25,017) --
Income/ (Loss) from Operations 706 (3,590) -- (2,884)
Interest Income/(Expense) (294) (853) -- (1,147)
---------------- ----------------- ---------------- -----------------
Income/ (Loss) before Income Taxes $ 412 $ (4,443) $ -- $ (4,031)
================ ================= ================ =================
</TABLE>
During the first quarter of 2000, the Company, as part of its ongoing
strategic initiative to reposition itself as both a specialty direct marketer
and as a provider of B-to-B e-commerce transaction services, modified its
business segmentation, resulting in the reclassification of certain general and
administrative expenses from its direct commerce and B-to-B services segments to
the corporate level. Accordingly, the Company's "Eliminations/All Other"
category now includes these corporate operating expenses as well as
inter-segment eliminations, and non-reportable operating segments (primarily the
Company's Always in Style joint venture). Segmented income/(loss) from
operations for 1999, on a pro-forma basis to reflect this modification, would
have been $1.4 million for the direct commerce segment, $(3.5) million for the
B-to-B services segment and $(0.8) million for all other.
8
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6. CONVERSION OF SERIES B CONVERTIBLE ADDITIONAL PREFERRED STOCK
In February 2000, all 634,900 outstanding shares of the Company's
Series B Convertible Additional Preferred Stock issued in connection with the
Company's 1995 acquisition of Aegis Safety Holdings Inc., publisher of The
Safety Zone catalog, were redeemed via the issuance of 2,193,317 shares of the
Company's Common Stock. The market value for the Company's shares on the date of
redemption was $2.75 per share. Additionally, the Company made a $0.9 million
payment for all unpaid cumulative preferred dividends.
7. 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 the 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) attorney's fees
and costs. The Company has filed a motion to dismiss.
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.
8. CHANGES IN MANAGEMENT AND EMPLOYMENT AGREEMENTS
The Company entered into a new Executive Employment Agreement, dated as of
March 6, 2000, with Rakesh K. Kaul, the President and Chief Executive Officer of
the Company (the "Employment Agreement"). The Employment Agreement provides for
a three-year evergreen term commencing on March 6, 2000, at a base salary of
$597,300 per year. The base salary is subject to review on an annual basis. On
each annual anniversary, the Employment Agreement will automatically be extended
for an additional year unless either party has given at least 90 days prior
notice of non-renewal. The Employment Agreement also provides that the Board of
Directors, in its discretion, may assign Mr. Kaul to be Chief Executive Officer
of erizon, Inc. under certain circumstances.
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The Employment Agreement provides for Mr. Kaul's participation in the
2000 Short-Term Incentive Plan for Rakesh K. Kaul. That plan provides for an
annual bonus of between 0% and 150% of Mr. Kaul's base salary, depending on the
attainment of various performance objectives as determined in accordance with
the objective formula or standards 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 2000 Long-Term Incentive Plan for Rakesh K. Kaul. That plan provides Mr.
Kaul with an option to purchase 6% of the common stock of erizon, Inc. (with
protection against dilution through erizon, Inc.'s first round of Board-approved
equity, convertible debt or similar financing) at the fair market value on the
date of grant, with the option vesting in equal parts over four years and
expiring ten years following the date of grant (the "erizon Option"). The plan
also provides for the modification to an option, granted to Mr. Kaul pursuant to
a stock option agreement dated August 23, 1996 and expiring on March 7, 2006, to
purchase 2,000,000 shares of Common Stock of the Company (the "Closing Price
Option"). The option is now subject to a three-year vesting schedule, provided
that it shall vest and become immediately exercisable upon satisfaction of the
condition that the closing price of the Common Stock of the Company has attained
an average of $4.50 per share during any period of 91 consecutive calendar days
commencing after August 23, 1996 and ending on or before March 7, 2002. The
Closing Price Option also provides that within thirty days after the Closing
Price Option vests with respect to all or a portion of the shares of Common
Stock underlying such option, the Company shall pay Mr. Kaul an additional cash
amount equal to the number of shares of Common Stock with respect to which such
option has vested on such vesting date, multiplied by the excess of (i) the
lesser of the per share option price of such shares or the fair market value on
such vesting date of a share of Common Stock, over (ii) $1.03.
The modifications to the vesting and exercise terms of the Closing
Price Option provided for within the new Employment Agreement for Rakesh K. Kaul
will result in an additional charge for stock compensation expense of
approximately $3.2 million over the three-year vesting period commencing March
6, 2000 or earlier upon achievement of the stock price target in the Closing
Price Option. Furthermore, the Company expects additional stock compensation
expense charges for the granting of the options to purchase 6% of the Common
Stock of erizon, Inc. Based upon a preliminary valuation, the compensation
associated with the erizon Option is estimated in the range of $3.5 million to
$4.0 million, with such costs to be charged over the four-year vesting period
commencing on March 6, 2000. The amounts herein are subject to adjustment based
upon the final valuation of the option.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, the
percentage relationship to revenues of certain items in the Company's Condensed
Consolidated Statements of Income (Loss).
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------------------
MARCH 25, MARCH 27,
2000 1999
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<S> <C> <C>
Net Revenues 100% 100%
Cost of sales and operating expenses 67.8 64.1
Selling expenses 24.6 25.0
General and administrative expenses 13.7 11.3
Depreciation and amortization 1.9 1.8
(Loss) from operations (8.0) (2.2)
Interest expense, net (2.3) (0.9)
Net (loss) (10.3)% (3.3)%
</TABLE>
RESULTS OF OPERATIONS - THIRTEEN-WEEKS ENDED MARCH 25, 2000 COMPARED WITH THE
THIRTEEN-WEEKS ENDED MARCH 27, 1999
Net (Loss). The Company reported a net loss of $(13.4) million or
$(.06) per share for the thirteen-weeks ended March 25, 2000 compared with a net
loss of $(4.2) million or $(.02) per share for the comparable period last year.
The per share amounts were calculated based on weighted average shares
outstanding of 211,929,722 and 210,444,784 for the current and prior year
periods, respectively. This increase in weighted average shares was due to the
February 2000 redemption of the Company's Series B Convertible Additional
Preferred Stock via the issuance of 2,193,317 shares of the Company's Common
Stock as well as shares issued in connection with the Company's stock option
plans.
Compared to the comparable period last year, the $9.2 million increase
in net loss was primarily due to:
(i) higher losses resulting from the Company's e-commerce related strategic
initiatives;
(ii) higher personnel related expenses; and
(iii) higher interest expense/debt issuance costs,
partially offset by higher demand for the Company's core catalog offerings.
Revenues. Revenues increased $2.4 million (1.9%) for the thirteen-week
period ended March 25, 2000 to $130.1 million from $127.7 million for the
comparable period in 1999. This increase was primarily due to higher revenues
for the Company's core catalog offerings and revenues from the Company's third
party business-to-business ("B-to-B") e-commerce services operation partly
offset by 1999 revenue from the Company's discontinued catalogs. Revenues from
core catalogs increased by $4.9 million (4.1%) due to higher demand for most
merchandise offerings. The number of customers having made a purchase from the
Company's catalogs during the 12 months preceding March 25, 2000 remained at
approximately 4 million, consistent with the number at December 25, 1999, and
the Company circulated approximately 71 million catalogs during the 2000 period
versus approximately 69 million catalogs during the 1999 period. First quarter
1999 revenues from catalogs that were discontinued during 1999 were $8.3
million.
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First quarter 2000 revenues for the Company's B-to-B e-commerce
services operation increased by $5.8 million from $0.7 million in 1999 to $6.5
million for the first quarter 2000. This reflects an increase in the third party
client base for the Company's Internet order processing, customer care and
shipping and distribution services.
Cost of Sales and Operating Expenses. Cost of sales and operating
expenses increased to 67.8% of revenues for the thirteen weeks ended March 25,
2000 compared to 64.1% of revenues for the comparable period in 1999. The
increase is primarily due to higher distribution and systems development costs,
which include higher consulting and facility/equipment rental expenses primarily
related to the Company's strategic initiative to expand the infrastructure of
its B-to-B services operation, and higher postage expense. This is partially
offset by a decrease in the Company's cost of merchandise, a higher percentage
of which is now internationally sourced at lower costs, and the inclusion of
lower margin discontinued catalogs in the 1999 results.
Selling Expenses. Selling expenses decreased to 24.6% of revenues for
the thirteen weeks ended March 25, 2000 from 25.0% for the comparable period in
1999, primarily due to a higher revenue base derived from the Company's B-to-B
services operation as well as lower catalog preparation costs. This was
partially offset by lower catalog productivity primarily due to an increase in
prospecting which traditionally has lower response rates.
General and Administrative Expenses. General and administrative
expenses were 13.7% of revenues for the thirteen weeks ended March 25, 2000
versus 11.3% of revenues for the comparable period in 1999. The 2.4% increase
reflects higher professional and consulting fees attributable to the Company's
e-commerce related strategic initiatives, and higher personnel related expenses.
Depreciation and Amortization. Depreciation and amortization increased
to 1.9% of revenues for the thirteen weeks ended March 25, 2000 from 1.8% for
the comparable period in 1999.
Loss from Operations. The Company's loss from operations increased by
$7.5 million to $(10.4) million for the thirteen-weeks ended March 25, 2000 from
a loss of $(2.9) for the comparable period in 1999. The Company's results are
comprised of the following segments:
- - Direct Commerce: Loss from operations of $(0.3) million for the
thirteen-weeks ended March 25, 2000 compares to income from operations
of $0.7 million for the thirteen-weeks ended March 27,1999. The $1.0
million decrease is primarily due to higher merchandise postage, the
introductory costs of the Turiya and Company Kids catalogs, and
Internet advertising test programs, partially offset by higher demand
for the Company's core catalog offerings.
- - Business-to-Business ("B-to-B") Services: Loss from operations of
$(7.8) million for the thirteen-weeks ended March 25, 2000 compares to
a loss from operations of $(3.6) million for the thirteen-weeks ended
March 27,1999. The $4.2 million increase is primarily due to higher
distribution and systems development costs (including higher consulting
and facility/equipment rental expenses) primarily related to the
Company's strategic initiative to expand the infrastructure of its
B-to-B services operation. This was partly offset by higher earnings
resulting from an increase in Internet order processing, customer care
and shipping and distribution services provided to the Company's
expanded third party Internet client base.
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- - All Other: Loss from operations of $(2.3) million for the
thirteen-weeks ended March 25, 2000. This reflects the 2000 inclusion
of $1.8 million of certain corporate level general and administrative
expenses ($0.8 million of similar expenses were included in the direct
commerce and B-to-B services segments during 1999) and 2000 losses
related to the start-up of the Company's Always In Style joint venture.
The 2000 general and administrative expenses include higher
professional fees related to the Company's continuing strategic
initiative to reposition itself as two separate business units, and
higher personnel related expenses.
Interest Expense, Net. Interest expense, net increased $1.9 million to
$3.0 million for the thirteen weeks ended March 25, 2000 compared to the same
period last year. This was due to debt issuance costs related to the March 2000
refinancing of the Company's credit facilities and higher average borrowings
outstanding during 2000.
Income Taxes. The Company recorded state tax provisions of $0.1 million
and $0.2 million for the thirteen-week periods ended March 25, 2000 and March
27, 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations: During the thirteen weeks ended March 25,
2000, net cash used by operating activities of $13.7 million was primarily due
to the funding of net losses incurred as a result of necessary spending for the
continuing development and expansion of the Company's B-to-B services
infrastructure. Cash was also used to fund an increase in prepaid catalog costs
resulting from a planned increase in catalog circulation.
Net cash provided by investing activities: During the thirteen weeks
ended March 25, 2000, net cash provided by investing activities of $0.2 million
was primarily due to proceeds of $0.8 million from the sale of the Company's
investment in Blue Ridge Associates, partly offset by capital expenditures of
$0.6 million. The capital expenditures were primarily for computer hardware and
software in order to increase the functionality and capacity of the Company's
integrated e-commerce systems platform.
Net cash provided by financing activities: During the thirteen weeks
ended March 25, 2000, net cash provided by financing activities of $14.0 million
was primarily due to a net increase in total borrowings of $16.6 million. The
additional borrowings were primarily used to fund the continuing development and
expansion of the Company's business-to-business ("B-to-B") services operation,
the payment of debt issuance costs of $1.9 million related to the March 2000
refinancing of the Company's credit facilities, and the payment of $0.9 million
of cumulative dividends to the holders of the Series B Convertible Additional
Preferred Stock. During March 2000, the Company utilized $24.0 million of
borrowings under the amended Congress Credit Facility to reimburse UBS, AG for
drawings on the letters of credit, which were due to expire on March 31, 2000,
made by the trustees of the Term Financing Facility and the Industrial Revenue
Bonds (see below). The Company also borrowed $5.0 million under the Richemont
$25.0 million unsecured line of credit facility to fund its B-to-B services
operation (see below).
At March 25, 2000, the Company had $3.4 million in cash and cash
equivalents compared with $2.8 million at December 25, 1999. Working capital and
current ratios at March 25, 2000 were $19.6 million and 1.20 to 1 versus $18.0
million and 1.19 to 1 at December 25, 1999.
13
<PAGE> 14
On March 24, 2000, the Company amended its credit facility with
Congress Financial Corporation ("Congress") to provide the Company with a
maximum credit line of up to $82.5 million (" the Congress Credit Facility").
The Congress Credit Facility, as amended, expires on January 31, 2004 and is
comprised of a revolving loan facility, a $17.5 million Tranche A Term Loan and
a $7.5 million Tranche B Term Loan. Total cumulative borrowings, however, are
subject to limitations based upon specified percentages of eligible receivables
and eligible inventory, and the Company is required to maintain $3.0 million of
excess credit availability at all times. The Congress Credit Facility, as
amended, is secured by all assets of the Company and places restrictions on the
incurrence of additional indebtedness and on the payment of common stock
dividends. Additionally, the Company is subject to certain financial covenants
requiring it to maintain minimum levels of net worth and working capital, and
achieve specified quarterly Earnings/(Loss) Before Interest, Taxes, Depreciation
and Amortization ("EBITDA") targets.
The amended Congress Credit Facility replaced the original $65.0
million revolving line of credit facility with Congress as well as the Company's
$16.0 million Term Financing Facility and $8.0 million of Industrial Revenue
Bonds. Both the Term Financing Facility and the Industrial Revenue Bonds were
supported by letters of credit issued by UBS, AG and guaranteed by Richemont
Finance SA ("Richemont"), a 48.2% beneficial owner of the Company's common
stock, which letters of credit were scheduled to expire on March 31, 2000. The
Company utilized $24.0 million of proceeds under the amended Congress Credit
Facility to reimburse UBS, AG for drawings on the letters of credit made by the
trustees of the Term Financing Facility and the Industrial Revenue Bonds, both
of which were required to be redeemed upon the expiration of the letters of
credit.
As of March 25, 2000, the Company had $53.3 million of borrowings
outstanding under the Congress Credit Facility comprised of $28.4 million under
the revolving loan facility, and $17.4 million and $7.5 million of Tranche A
Term Loans and Tranche B Term Loans, respectively. The Company may draw upon the
Congress Credit Facility to fund working capital requirements as needed.
On March 24, 2000, the Company entered into a $10.0 million unsecured
line of credit facility (the "Richemont $10.0 million Line of Credit") with
Richemont Finance SA ("Richemont"). 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 the 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 Amount is reduced to
zero. As of March 25, 2000, there were no borrowings outstanding under the
Richemont $10.0 million Line of Credit.
On March 1, 2000, the Company entered in a $25.0 million unsecured line
of credit facility (the "Richemont $25.0 million Line of Credit") with Richemont
to obtain the necessary funding from Richemont to continue the development and
expansion of the Company's B-to-B services operation. 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 25,
2000, there were $5.0 million of borrowings outstanding under the Richemont
$25.0 million Line of Credit.
14
<PAGE> 15
Total cumulative borrowings, including financing under capital lease
obligations as of March 25, 2000, aggregated $59.4 million, $50.7 million of
which is classified as long-term. Remaining availability under the Company's
credit facilities as of March 25, 2000 was $34.7 million ($38.1 million
including cash on hand). The Company anticipates that it will be able to satisfy
its ongoing cash requirements for the foreseeable future, primarily with cash
flow from operations, supplemented by borrowings under the Congress and
Richemont facilities. Events that may impact this include, but are not limited
to, future events that may have the effect of reducing available cash balances
(such as unexpected operating losses, or increased capital or other
expenditures), as well as future circumstances that might reduce or eliminate
the availability of external financing.
SEASONALITY
The revenues and business for both the direct commerce and B-to-B
services operating segments are seasonal. The Company processes and ships more
catalog orders during the 4th quarter holiday season than in any other portion
of the year. Many of the Company'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.
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 Company's
financial statements has not yet been determined by the Company.
15
<PAGE> 16
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 7. Contingencies, of the Notes to the Condensed Consolidated
Financial Statements included in Part I, Item 1 of this report for a discussion
of legal proceedings pending against the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 annual meeting of stockholders was held in New York, New York
on May 4, 2000. 129,401,128 shares of Common Stock, or 60.6% of the outstanding
shares, were represented in person or by proxy.
1. The following twelve directors were elected to a one-year term expiring
in 2001.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------------
FOR WITHHELD
----------------------------------------
<S> <C> <C>
Ralph Destino 128,948,390 452,738
J. David Hakman 128,948,390 452,738
Rakesh K. Kaul 128,946,640 454,488
June R. Klein 128,948,123 453,005
Kenneth Krushel 128,948,390 452,738
Theodore H. Kruttschnitt 128,948,290 452,838
Shailesh J. Mehta 128,947,972 453,156
Jan P. du Plessis 128,948,390 452,738
Alan G. Quasha 128,948,390 452,738
Basil P. Regan 128,947,972 453,156
Howard M. S. Tanner 128,948,390 452,738
Robert F. Wright 128,948,390 452,738
</TABLE>
2. Proposal to ratify - The 1999 Stock Option Plan for Directors:
118,202,452 shares voted in favor; 10,934,266 shares voted against; and
264,410 shares abstained.
3. Proposal to ratify - The 2000 Management Stock Option Plan: 118,972,058
shares voted in favor; 10,158,276 shares voted against; and 270,794
shares abstained.
4. Proposal to ratify - The 2000 Short-Term Incentive Plan for Rakesh K.
Kaul: 126,647,099 shares voted in favor; 2,488,138 shares voted
against; and 265,891 shares abstained.
5. Proposal to ratify - The 2000 Long-Term Incentive Plan for Rakesh K.
Kaul: 124,848,536 shares voted in favor; 4,270,328 shares voted
against; and 282,264 shares abstained.
6. Proposal to approve an amendment to the Stock Option Agreement dated
August 23, 1996 with Rakesh K. Kaul: 125,889,237 shares voted in favor;
3,226,002 shares voted against; and 285,889 shares abstained.
7. The proposal to approve Arthur Andersen LLP as independent accountants
for fiscal year 2000: 128,929,786 shares voted in favor; 248,836 shares
voted against; and 222,506 shares abstained.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Intentionally Omitted.
10.2 Unsecured Line of Credit and Promissory Note dated March 1, 2000 given
by the Company to Richemont Finance, S.A. ("Richemont").
10.3 Employment Agreement dated as of March 6, 2000 between the Company and
Rakesh K. Kaul.
10.4 Fifteenth Amendment to Loan and Security Agreement dated as of March
24, 2000 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"), LWI Holdings, Inc. ("LWI"), Hanover Direct Virginia, Inc.
("HDVA"), Hanover Realty Inc. ("Hanover Realty"), The Company Store
Factory, Inc., The Company Office, Inc., Keystone Internet Services,
Inc., Tweeds, LLC, Silhouettes, LLC, Hanover Company Store, LLC and
Domestications, LLC.
10.5 Subordination Agreement dated as of March 24, 2000, between Congress
and Richemont.
10.6 Credit Agreement, dated as of March 24, 2000, by and among the Company,
HDPA, Brawn, Gump's By Mail, Gump's, LWI, HDVA, Keystone Internet
Services, Inc., Tweeds, LLC, Silhouettes, LLC, Hanover Company Store,
LLC, Domestications, LLC and Richemont.
10.7 Subordination Agreement dated as of March 24, 2000, between Congress
and Richemont.
10.8 Letter Agreement, dated as of March 24, 2000, between Richemont and
Congress.
10.9 Amended and Restated Stock Option Agreement dated as of April 14, 2000
between the Company and Rakesh K. Kaul.
10.10 Stock Option Agreement dated as of April 14, 2000 between erizon, Inc.
and Rakesh K. Kaul.
10.11 Hanover Direct, Inc. Key Executive Thirty-Six Month Compensation
Continuation Plan.
10.12 Hanover Direct, Inc. Key Executive Twenty-Four Month Compensation
Continuation Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On March 10, 2000, the Company filed a report on Form 8-K relating to
the election of Basil P. Regan, a beneficial owner of approximately 20% of the
Company's Common Stock, to the Company's Board of Directors. The election of Mr.
Regan resulted in an increase in the number of members of the Board of Directors
from 11 to 12.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER DIRECT, INC.
Registrant
By: /s/ Brian C. Harriss
-------------------------------
Brian C. Harriss
Senior Vice-President and Chief Financial Officer
(On behalf of the Registrant and as principal financial officer)
Date: May 9, 2000
19
<PAGE> 1
EXHIBIT 10.2
HANOVER DIRECT, INC.
UNSECURED LINE OF CREDIT & PROMISSORY NOTE
$25,000,000 New York, New York
As of March 1, 2000
ALL AMOUNTS AT ANY TIME OWING BY THE MAKER OF THIS UNSECURED LINE OF CREDIT &
PROMISSORY NOTE (THIS "NOTE") TO THE PAYEE HEREUNDER ARE SUBORDINATED IN RIGHT
OF PAYMENT TO THE INDEFEASIBLE PAYMENT AND SATISFACTION IN FULL OF ALL PRESENT
AND FUTURE OBLIGATIONS, LIABILITIES AND INDEBTEDNESS OF THE MAKER OF THIS NOTE
TO CONGRESS FINANCIAL CORPORATION (AND ITS SUCCESSORS AND ASSIGNS), AS PROVIDED
BY AND AS OTHERWISE SUBJECT TO THE SUBORDINATION AGREEMENT, DATED AS OF MARCH
24, 2000, BETWEEN THE PAYEE AND CONGRESS FINANCIAL CORPORATION.
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.
<PAGE> 2
2. This Note has been duly authorized by all necessary corporate action on
the part of Borrower, and this Note constitutes a legal, valid and
binding obligation of Borrower enforceable against Borrower in
accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3. The execution, delivery and performance by Borrower of this Note will
not (i) violate, or result in the creation of any lien in respect of
any property of Borrower under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument by which Borrower is
bound, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or governmental authority applicable to Borrower
or (iii) violate any provision of any statute or other rule or
regulation of any governmental authority applicable to Borrower.
4. No approval, consent, waiver, authorization, registration, declaration
or filing by, from or with any governmental authority or other person
or entity is required in connection with the execution, delivery or
performance by Borrower of this Note.
B. COVENANTS
1. Borrower shall at all times maintain its corporate existence and shall
not merge or consolidate with any other entity (unless Borrower shall
be the survivor) without Lender's consent.
2. Borrower shall provide to Lender such information about its assets,
liabilities and business as Lender shall from time to time reasonably
request, including, without limitation, financial statements of
Borrower and its subsidiaries.
C. EVENTS OF DEFAULT
An "Event of Default" shall exist under this Note if any of the
following conditions or events shall occur and be continuing:
(a) Borrower defaults in the payment of any principal, fees or
interest on this Note when the same becomes due and payable,
whether at maturity or by declaration or otherwise; or
2
<PAGE> 3
(b) Borrower defaults in the performance of any other
obligation hereunder or any representation or warranty made by
Borrower in this Note proves to have been false or incorrect
in any material respect on the date as of which made; or
(c) Borrower (i) is unable to pay, or admits in writing its
inability to pay, its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii)
makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee
or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes
corporate action for the purpose of any of the foregoing; or
(d) A court or governmental authority of competent
jurisdiction enters an order appointing, without consent by
Borrower, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or
any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or
liquidation of Borrower, or any such petition shall be filed
against Borrower.
Upon the occurrence of an Event of Default, Lender may, at its
option, declare the entire unpaid principal balance of, and all accrued
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. MANDATORY REDUCTION; CONVERSION
The amount Lender is required to lend to Borrower under this
Note prior to the Maturity Date (the "Commitment Amount") is initially
$25,000,000 and is subject to reduction in accordance with the
following sentence. The Commitment Amount shall be reduced at the times
of any rights offering by
3
<PAGE> 4
Borrower, Hanover Brands, Inc. or erizon, inc. or any other equity offering(s)
or equity private placement(s) of Capital Stock (as defined in the Credit
Agreement) of any such companies after March 24, 2000 which offering or
placement may take the form, in whole or in part, of a conversion of outstanding
indebtedness under this Note to an Equity Interest (as defined in the Credit
Agreement) of a Borrower or Guarantor (each, as defined in the Credit
Agreement). The Commitment Amount shall be reduced by the net cash proceeds of
such offering or placement, to the extent that such net cash proceeds are not
required to reduce the Commitment Amount (as defined in the Credit Agreement)
pursuant to Section 2.6 of the Credit Agreement, plus the dollar amount of such
indebtedness converted. The "Credit Agreement" is that certain Credit Agreement
among Borrower, certain affiliates of Borrower and Lender dated as of March 24,
2000, as amended from time to time.
The contribution for an Equity Interest (as defined in the
Credit Agreement) by the Lender may be contributed, at the Lender's
option, by conversion of all or a designated portion of the principal
amount of all advances made under the Note and then outstanding into
such Equity Interest.
E. 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.
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 Congress Financial Corporation.
4
<PAGE> 5
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS.
Accepted and Agreed to:
By Hanover Direct, Inc.
Name: /s/ Brian C. Harriss
Print Name: Brian C. Harriss
Title: SVP & CFO
By Richemont Finance S.A.
Name: /s/ Jan P. duPlessis
Print Name: Jan P. duPlessis
Title: Director
Name: /s/ Alan Grieve
Print Name: Alan Grieve
Title: Director
5
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of March 6, 2000 between HANOVER DIRECT,
INC., a Delaware corporation (the "Company"), and Rakesh K. Kaul (the
"Executive").
WHEREAS, Company desires to continue retaining the services of
Executive and Executive desires to continue providing services to Company;
WHEREAS, Company and Executive desire to formalize the terms and
conditions of Executive's continued employment with Company.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Company and the Executive agree
as follows:
1. TERM. The employment of Executive by Company shall be for a
period of thirty-six (36) months commencing on the date of this Agreement (the
"Employment Period"). On the first annual anniversary of the date of this
Agreement, and on each annual anniversary thereafter, the Employment Period
shall be extended by twelve (12) months unless, at least ninety (90) days prior
to such annual anniversary, either party has delivered to the other party
written notice that the period of employment will terminate at the expiration of
the then existing Employment Period, including any previous extensions.
2. DUTIES. During the Employment Period, Executive shall continue to
serve as Chief Executive Officer of Company and maintain his current offices at
each of its wholly-owned subsidiaries. During the Employment Period, Executive
shall continue to serve as a member of the Company's Board of Directors.
Executive shall have the full authority customary to a Chief Executive Officer's
office to manage the Company, subject to the policies and direction of the
Board. The Executive shall devote his full working time and effort during the
Employment Period exclusively to the performance of his duties hereunder and to
the furtherance of the best interests of the Company. During the Employment
Period, the Executive shall not undertake any business or professional activity
except for the benefit of the Company or engage in any business or profession
other than the rendition of management services for and on behalf of the Company
and the performance of the other duties herein prescribed unless the Company
shall consent thereto in advance in writing. Nothing in this Section 2 shall be
interpreted as precluding the Executive from acting as a volunteer for, or
serving on the boards of, non-profit corporations or trusts. Notwithstanding the
foregoing, during the Employment Period and subject to the same terms and
conditions of this Agreement, the Board of Directors may at its discretion
assign Executive to be Chief Executive Officer solely of erizon, Inc. provided
that (a) the Company's stock in or the assets of Hanover Brands, Inc. have been
sold, assigned or otherwise transferred; and (b) erizon, Inc. is a public
company at the
1
<PAGE> 2
time of such assignment or, if not, erizon, Inc. is using its best efforts to
cause it to become a public company within 180 days of such assignment. In the
event of such assignment, (i) Executive shall have the full authority customary
to a chief executive officer's office to manage erizon, Inc. subject to the
policies and direction of its Board of Directors; (ii) Executive shall be
appointed to the Executive Committee of the Company's Board of Directors; and
(iii) Executive shall report directly to the Board of Directors of erizon, Inc.
In the event of Executive's assignment to erizon, Inc., erizon, Inc. shall
assume all of the Company's obligations hereunder. Until the conditions set
forth in (a) and (b) of this Section 2 have been met, Executive agrees that, at
the request of the Board of Directors of the Company in its sole discretion, he
shall serve as Chief Executive Officer of both the Company and erizon, Inc.
under the terms set forth in this Agreement.
3. SALARY. As compensation for his services hereunder, the Company
shall continue to pay the Executive a base salary at the annual rate of $597,300
("Base Salary"), payable in accordance with the regular payroll procedures of
the Company. Such Base Salary shall be subject to annual review, but shall not
be decreased below $597,300.
4. 2000 SHORT-TERM INCENTIVE PLAN. During the Term, the Executive
shall participate in the Short-Term Incentive Plan for Rakesh K. Kaul (the "2000
Short-Term Plan"), attached hereto as EXHIBIT 1, subject to shareholder approval
of such plan.
5. 2000 LONG-TERM INCENTIVE PLAN.
(a) During the Term, the Executive shall participate in the 2000
Long-Term Incentive Plan for Rakesh K. Kaul (the "2000 Long-Term Plan"),
attached hereto as EXHIBIT 2, subject to shareholder approval of such plan.
(b) Except as provided in Section 5 of the erizon Option Agreement
(Attachment A to Exhibit 2 hereto), the Executive agrees that there will be no
disposition of all or any part of shares of common stock of the Company or
erizon, Inc. (collectively "Common Stock"), or of any interest or interests
therein, unless and until such disposition has been registered under the
Securities Act of 1933, as amended (the "Act"), or the Company or erizon, Inc.
receives an opinion of its counsel that registration under the Act is not
required in connection with such disposition. The Executive agrees that unless
such shares have been registered under the Act, the certificate or certificates
to be issued representing shares of Common Stock acquired pursuant to this
Section 5 will conspicuously bear a legend substantially as follows:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for investment
and may not be sold. transferred, pledged, hypothecated, or otherwise disposed
of in the absence of an effective registration statement for the shares under
the Securities Act of 1933 or an opinion of counsel to the company that
registration is not required under said Act.
2
<PAGE> 3
Notwithstanding the foregoing, Company agrees as follows:
(i) All shares underlying the Option provided for in the erizon
Option Agreement (Attachment A to Exhibit 2 hereto), shall be registered within
ninety (90) days of erizon, Inc. becoming eligible to use an S-8 or other
similar form; and
(ii) All shares underlying the Option provided for in the
Amended and Restated Closing Price Option Agreement (Attachment B to Exhibit 2
hereto) as well as any shares underlying options previously granted to Executive
by the Company, shall be registered within ninety (90) days of the execution of
this Agreement.
(c) The Company shall grant the Executive "piggyback" rights and a
demand registration right with respect to shares of Common Stock acquired
pursuant to this Section 5, as set forth in a Registration Rights Agreement in
substantially the form set forth in EXHIBIT 3.
(d) Within 30 days after each date as of which any stock option
granted under Section 5 of the 2000 Long-Term Plan (regarding the Closing Price
Option) vests with respect to all or a portion of the shares of Common Stock of
the Company covered by such option, the Company shall pay the Executive an
additional cash amount equal to the number of shares of Common Stock with
respect to which such option became vested on such vesting date multiplied by
the excess of (i) the lesser of the option price of such option or the fair
market value on such vesting date of a share of Common Stock, over (ii) $1.03.
(e) An assignment of Executive to erizon, Inc. as provided for in
Section 2 of this Agreement shall not constitute a termination of Executive's
employment within the meaning of the 2000 Long-Term Plan or Attachment A and B
thereto or within the meaning of the agreements set forth in Section 10 of this
Agreement.
6. BENEFIT PLANS. During the Term, the Executive (and, to the extent
provided under the terms of such plans, members of his family) shall be eligible
to participate in the Company's medical, dental, life insurance, and retirement
plans offered to senior executives ("Benefits"), subject to the terms of such
plans as are in effect from time to time and provided that nothing herein shall
obligate Company to adopt any particular plans nor maintain any such plans.
7. TERMINATION OF EMPLOYMENT. In the event of a termination of the
Executive's employment during the Employment Period except in connection with or
following a Change of Control as such term is defined in the Hanover Direct,
Inc. Key Executive Thirty-Six Month Compensation Continuation Plan ("Change of
Control Plan"), he shall be entitled to compensation and benefits on and after
the date of such termination only as provided in this Section 7, the 2000
Short-Term Plan and the 2000 Long-Term Plan and under the terms of any prior
agreement still in effect on the date of
3
<PAGE> 4
termination as set forth in Section 10, or pursuant to the terms of any benefit
plan maintained by Company and in which Executive is a participant or a
beneficiary at the time of his termination. An assignment of Executive to
erizon, Inc. as provided for in Section 2 of this Agreement shall not constitute
a termination of employment within the meaning of this Section 7.
(a) In the event of a termination of Executive's employment for Cause
during the Employment Period, Executive's Base Salary, entitlement to a
short-term bonus under the 2000 Short-Term Plan and Benefits shall cease as of
the date of termination. The Executive shall be entitled to receive, to the
extent not previously paid, Base Salary through the date of termination and any
short-term bonus that is payable pursuant to the 2000 Short-Term Plan for the
year preceding the year of termination, but shall not be entitled to any bonus
for the year in which such termination occurs.
(b) In the event of a termination of the Executive's employment
during the Employment Period by Company without Cause or by Executive within
ninety (90) days of an occurrence constituting Good Reason, Executive shall be
entitled as a severance benefit for a 24-month period commencing on the date of
such termination to (i) a continuation of his Base Salary (at the rate in effect
immediately prior to such termination), payable in monthly installments, (ii)
continued participation in the Benefit plans of Company to the same extent and
on the same term as he participated immediately prior to the date of termination
and consistent with the terms of such plans, (iii) an amount equal to two times
the greater of (x) a short term bonus calculated pursuant to the 2000 Short-Term
Plan as if Company had met 100% of its target for the year of termination or (y)
the average of the short-term bonus amounts paid or payable to Executive
pursuant to the 2000 Short-Term Plan for the two years preceding the year of
termination, payable in 24 monthly installments; (iv) to the extent not
previously paid, the short-term bonus payable pursuant to the 2000 Short-Term
Plan for the year preceding the year of termination, and (v) for the year of
termination a short-term bonus calculated pursuant to the 2000 Short-Term Plan
as if the Company had met 100% of its target for such year, but pro-rated to
reflect the portion of such year during which the Executive was employed payable
within thirty (30) days of the termination date.
(c) In the event of a termination of the Executive's employment
during the Employment Period due to the death or Disability of Executive,
Executive's Base Salary and Benefits shall cease as of the date of termination.
The Executive (or, in the event of his death, his estate) shall be entitled to
receive, to the extent not previously paid, the short-term bonus payable
pursuant to the 2000 Short-Term Plan for the year preceding the year of
termination and for the year of termination a short-term bonus calculated
pursuant to the 2000 Short-Term Plan as if the Company had met 100% of its
target for such year, but pro-rated to reflect the portion of such year during
which the Executive was employed payable within thirty (30) days of the
termination date. In addition, if Executive is terminated due to death or
Disability, Company will provide disability and life insurance to Executive or,
if applicable, his estate pursuant to the terms of the applicable plans.
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<PAGE> 5
(d) For purposes of this Agreement, the term Cause shall mean (i)
misappropriating any funds or property of the Company, (ii) attempting to obtain
any personal profit from any transaction in which the Executive has an interest
that is adverse to the interest of the Company, other than a transaction
disclosed to and approved by the Company, (iii) the Executive's willful and
continuing neglect or refusal to perform his duties pursuant to this Agreement
which is not remedied promptly by Executive after receipt of written notice
thereof given by Company, (iv) the commission by the Executive of any material
act of misconduct or dishonesty or any wrongful act which has a direct,
substantial and adverse effect on the Company's business or reputation, or (v)
Executive's conviction of a felony.
(e) For purposes of this Agreement, the term Good Reason shall mean
(i) the assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles and reporting
requirements), authority or duties or responsibilities as contemplated by
Section 2 of this Agreement, or any other action by the Company which results in
a diminution in such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial or inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt of written
notice thereof given by the Executive and also excluding Company's exercise of
its discretion to reassign Executive as provided for in Section 2 of this
Agreement; (ii) any failure of the Company to comply with any of the provisions
of Sections 3, 4, 5 or 6 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of written notice thereof given
by the Executive; (iii) a relocation of the Executive's principal office and/or
Company's headquarters to a location that is more than fifty (50) miles from its
present location without the Executive's prior written consent; (iv) any
purported termination by the Company of Executive's employment other than as
expressly permitted by this Agreement; or (v) either (a) the Company or (b)
erizon, Inc. (if Executive has been assigned to erizon, Inc. as provided for in
Section 2), has ceased to be a public company and has become a private company,
provided that Good Reason shall not exist if this change was the result of a
buyout by the then existing principal shareholders or management group and
Executive was a principal shareholder or member of such management group.
(f) For purposes of this Agreement, the term Disability shall mean
the inability of Executive to perform the essential duties of his position on a
full-time basis for a period of 180 days (whether or not consecutively) out of
365 days as a result of incapacity due to mental or physical illness.
(g) In order to be eligible for the payments and benefits as set
forth in Section 7(b), (i) Executive must execute and deliver to Company a
general release in favor of the Company, excepting statutory contribution and
indemnity rights to which Executive is entitled, and (ii) must be and remain in
material compliance with his obligations under the Non-Competition and
Confidentiality Agreement.
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<PAGE> 6
Except as expressly provided for in this Section 7(g), in the event Company
deems that Executive has breached the obligations set forth in the
Non-Competition and Confidentiality Agreement attached as Exhibit 4 in a
material respect, the payments and benefits provided for in Section 7(b) shall
continue until such time as there has been a Final Determination that Executive
has materially breached the Non-Competition and Confidentiality Agreement. In
the event of a Final Determination that Executive has materially breached the
Non-Competition and Confidentiality Agreement, all payments and benefits under
Section 7(b) shall cease immediately and Executive shall reimburse the Company
for all payments and the value of the benefits provided to Executive under
Section 7(b), with interest calculated at the Prime Rate as announced in the
eastern edition of the Wall Street Journal on the last business day immediately
preceding the Final Determination, from the date the breach occurred, or if
continuing in nature the date such breach commenced, through the date of the
Final Determination.
Notwithstanding the foregoing, in the event Company deems that
Executive has breached Section 5 of the Non-Competition and Confidentiality
Agreement in a material respect, the Company may at its discretion cease making
the payments and providing the benefits as set forth in Section 7(b) until a
Final Determination. In the event of a Final Determination that Executive did
not breach Section 5 of the Confidentiality and Non-Competition Agreement in a
material respect, the Company shall pay to Executive an amount equal to the
payments and the value of the benefits to which Executive was entitled under
Section 7(b), with interest calculated at the Prime Rate as announced in the
eastern edition of the Wall Street Journal on the last business day immediately
preceding the Final Determination, from the date such payments and benefits
ceased through the date of the Final Determination.
As used herein, a "Final Determination" shall mean (i) a judgment of
any court, if no appeal is pending from such judgment and if the time to appeal
therefrom has elapsed, (ii) a determination by an arbitrator in any arbitration
proceedings, if there is not pending any motion to set aside such determination
and if the time within which to move to set aside such determination has
elapsed, or (iii) a written acknowledgement signed by Executive.
8. COVENANTS OF THE EXECUTIVE. Executive's continued employment is
conditioned upon his execution of the Non-Competition and Confidentiality
Agreement attached as EXHIBIT 4.
9. SEVERABILITY. If any term or provision of this Agreement shall be
determined to be invalid or unenforceable to any extent or in any application,
the remainder of this Agreement, and the remainder of such term or provision
except to such extent or in such application, shall not be affected thereby, and
each term and provision of this Agreement shall be enforced to the fullest
extent and in the broadest application permitted by law.
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<PAGE> 7
10. ENTIRE AGREEMENT. This Agreement and attachments hereto
constitute the entire Agreement between the parties pertaining to the subject
matter contained herein and supersede all prior and contemporaneous agreements,
representations and understandings of the parties with respect to the subject
matter hereof, including without limitation, the Employment Agreement, dated as
of March 6, 1996, between the Company and Executive and the Closing Price
Option, dated as of August 23, 1996, between the Company and Executive.
Notwithstanding the foregoing, this Agreement shall have no effect on and shall
not supercede the following agreements: Registration Rights Agreement, dated as
of August 23, 1996, between the Company and Executive; Tandem Loan in the
principal amount of $1,047,562, payable to the Company; Tax Note due August 23,
2001 in the principal amount of $211,729, payable to the Company; Pledge
Agreement, dated as of August 23, 1996, from the Executive to and for the
benefit of the Company; Tandem Option Agreement, dated as of August 23, 1996
between the Company and Executive; Performance Year Option Agreement, dated as
of August 23, 1996, between the Company and Executive; Six-Year Stock Option
Agreement, dated as of August 23, 1996, between NAR Group and Executive;
Seven-Year Stock Option Agreement dated as of August 23, 1996; Eight-Year Stock
Option Agreement, dated as of August 23, 1996, between NAR and Executive;
Nine-Year Stock Option Agreement, dated as of August 23, 1996, between NAR and
Executive. No provision of this Agreement may be altered or waived except in a
writing executed by both parties hereto.
11. BINDING EFFECT AND ASSIGNABILITY. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company. The rights and
obligations of the Executive hereunder may not be assigned or alienated by the
Executive.
12. ATTORNEY'S FEES. Company shall pay Executive's reasonable legal
fees in full in the event that he must seek legal counsel to enforce any of his
rights under this Agreement, provided that before he retains legal counsel he
must notify the Company of any alleged failure to abide by the terms of this
Agreement and, to the extent the matter is subject to cure, provide the Company
with a reasonable opportunity to cure.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal substantive laws of the State of New Jersey without
giving effect to the conflict of law rules thereof.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and shall become effective when one or more counterparts have been
signed by each of the parties.
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
HANOVER DIRECT, INC.
/s/ Ralph Bulle
----------------------------------
By: Ralph Bulle
Title: Senior Vice President
/s/ Curt Johnson
----------------------------------
By: Curt Johnson
Title: Senior Vice President
/s/ Rakesh K. Kaul
----------------------------------
Rakesh K. Kaul
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<PAGE> 1
EXHIBIT 10.4
FIFTEENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIFTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of
March 24, 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 ("LWI"), HANOVER DIRECT VIRGINIA INC., a Delaware
corporation ("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 an "Existing Borrower" and collectively, as "Existing Borrowers"), and
HANOVER DIRECT, INC., a Delaware corporation, ("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"), KITCHEN & HOME,
LLC, a Delaware limited liability company ("Kitchen & Home, LLC"),
DOMESTICATIONS KITCHEN & GARDEN, LLC, a Delaware limited liability company
("Domestications K&G, LLC"), ENCORE CATALOG, LLC, a Delaware limited liability
company ("Encore LLC"), CLEARANCE WORLD OUTLETS, LLC, a Delaware limited
liability company ("Clearance World"), SCANDIA DOWN, LLC, a Delaware limited
liability company ("Scandia Down, LLC"), ERIZON, INC., a Delaware corporation
("erizon, inc."), HANOVER BRANDS, INC., a Delaware corporation ("Hanover
Brands"), ERIZON.COM, INC., a Delaware corporation ("erizon.com"), LACROSSE
FULFILLMENT, LLC, a Delaware limited liability company ("LaCrosse, LLC"), SAN
DIEGO TELEMARKETING, LLC, a Delaware limited liability company ("San Diego LLC";
each individually a "Guarantor" and collectively "Guarantor" and KEYSTONE
INTERNET SERVICES, INC. ("Keystone Internet"). Each Existing Borrower, together
with Keystone Internet shall hereinafter be referred to individually as a
"Borrower" and collectively as "Borrowers".
W I T N E S S E T H:
WHEREAS, Existing 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 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
<PAGE> 2
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 ("Seventh
Amendment to Loan Agreement"), 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, the Thirteenth Amendment
to Loan and Security Agreement, dated as of September 30, 1998, Fourteenth
Amendment to Loan and Security Agreement, dated as of February 28, 2000 (as so
amended, the "Loan Agreement"), pursuant to which Lender has made loans and
advances to Existing Borrowers; and
WHEREAS, Existing Borrowers and Guarantors have requested that Keystone
Internet become a Revolving Loan Borrower pursuant to the terms and conditions
of the Loan Agreement, as amended hereby; and
WHEREAS, Borrowers and Guarantors have requested that Lender, among
other things (a) make an additional term loan to HDPI, consolidate the principal
amount of that term loan with the outstanding principal balance of the existing
HDPI Term Loan, and agree to amend and restate the terms of the HDPI Term Loan
as so consolidated, (b) make an additional term loan to Hanover Realty,
consolidate the principal amount of that term loan with the outstanding
principal balance of the existing Hanover Realty Term Loan, and agree to amend
and restate the terms of the Hanover Realty Term Loan as so consolidated, (c)
make an additional term loan to TCS Factory, consolidate the principal amount of
that term loan with the outstanding principal balance of the existing TCS
Factory Term Loan, and agree to amend and restate the terms of the TCS Factory
Term Loan as so consolidated, (d) make an additional term loan to TCS Office,
consolidate the principal amount of that term loan with the outstanding
principal balance of the existing TCS Office Term Loan, and agree to amend and
restate the terms of the TCS Office Term Loan as so consolidated, (e) make an
additional term loan to the Tranche B Term Loan Borrowers (as hereinafter
defined) in the aggregate amount of $7,500,000, (f) make available Revolving
Accounts Loans to certain Revolving Loan Borrowers in respect of Eligible Credit
Card Receivables (as hereinafter defined) and of Eligible Fulfillment Contract
Receivables, and (g) extend the Renewal Date to January 31, 2004; and
WHEREAS, the parties to the Loan Agreement desire to enter into this
Fifteenth 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
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Agreement shall be deemed and is hereby amended to
include, in addition and not in limitation, the following definitions:
(i) "Capital Expenditures" shall mean (A) all
expenditures for any fixed or capital assets or improvements, for all
replacements, substitutions or additions thereto, which should be capitalized on
a balance sheet in accordance with GAAP, whether acquired by way of purchase,
capital or finance lease, increase product service charges, offset items or
otherwise, plus (B) to the extent not included in clause (A), any expenditures
for any fixed or capital assets or improvements in connection with the
acquisition, construction, expansion or improvement of any present or future
fulfillment center or warehouse facility owned, leased or otherwise used by
Borrowers or Guarantors.
(ii) "Consolidated Net Income" shall mean, with
respect to any Person and its Subsidiaries for any period, the aggregate of the
net income (loss) of such Person and its Subsidiaries, on a consolidated basis,
for such period (excluding to the extent included therein any extraordinary
and/or unusual and non-recurring gains) after deducting all charges which should
be deducted before arriving at the net income (loss) for such period and,
without duplication, after deducting the Provision for Taxes for such period,
all as determined in accordance with GAAP; provided, that, (A) the net income of
any Person that is not a wholly-owned Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid or payable to such Person or a wholly-owned
Subsidiary of such Person; (B) except to the extent included pursuant to the
foregoing clause, the net income of any Person accrued prior to the date it
becomes a wholly-owned Subsidiary of such Person or is merged into or
consolidated with such Person or any of its wholly-owned Subsidiaries or that
Person's assets are acquired by such Person or by its wholly-owned Subsidiaries
shall be excluded; and (C) the net income (if positive) of any wholly-owned
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such wholly-owned Subsidiary to such Person or to any other
wholly-owned Subsidiary of such Person is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such wholly-owned
Subsidiary shall be excluded. For the purposes of this definition, (1) net
income excludes any gain (or loss) together with any related Provision for Taxes
for such gain (or loss) realized upon the sale or other disposition of any
assets that are not sold in the ordinary course of business (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or of any
Capital Stock of such Person or a Subsidiary of such Person and any net income
realized or loss incurred as a result of changes in accounting principles or the
application thereof to such Person, (2) the term "Provision for Taxes" shall
mean an amount equal to all taxes imposed on or measured by net income, whether
Federal, State, Provincial, county or local, and whether foreign or domestic,
that are paid or payable by any Person in respect of any period in accordance
with GAAP, and (3) the term "Capital Stock" shall mean, with respect to any
Person, any and all shares, interests, participation or other equivalents
(however designated) of such Person's capital stock at any time outstanding, and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
(iii) "Credit Card Processor" shall mean any servicing
or processing agent or any factor or financial intermediary who facilitates,
services, processes or manages the credit authorization, billing transfer and/or
payment procedures with respect to any of any Borrower's sales
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<PAGE> 4
transactions involving credit card or debit card purchases by customers using
credit cards or debit cards issued by any Credit Card Issuer, and shall include,
without limitation, Paymentech and Capital One.
(iv) "EBITDA" shall mean, as to any Person and its
Subsidiaries, with respect to any period, an amount equal to: (A) the
Consolidated Net Income of such Person and its Subsidiaries for such period
determined in accordance with GAAP, plus (B) depreciation, amortization and
other non-cash charges (including, but not limited to, imputed interest and
deferred compensation) for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), all in accordance with
GAAP, plus (1) Interest Expense for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), plus (2) charges for
Federal, State, local and foreign income taxes for such period (to the extent
deducted in the computation of Consolidated Net Income of such Person).
(v) "Eligible Credit Card Receivables" shall mean
Credit Card Receivables of Revolving Loan Borrowers which are and continue to be
acceptable to Lender based on the criteria set forth below. In general, Credit
Card Receivables shall be Eligible Credit Card Receivables if:
(A) such Credit Card Receivables arise from the
actual and bona fide sale and delivery of goods or rendition of services by such
Revolving Loan Borrower in the ordinary course of the business of such Revolving
Loan Borrower, which transactions are completed in accordance with the terms and
provisions contained in any documents binding on such Revolving Loan Borrower or
the other party or parties related thereto;
(B) such Credit Card Receivables are not past
due pursuant to the terms set forth in the Credit Card Agreements with the
Credit Card Issuer or Credit Card Processor of the credit card or debit card
used in the purchase giving rise to such Credit Card Receivables;
(C) such Credit Card Receivables are neither
Deferred Billing Receivables nor Installment Billing Receivables;
(D) such Credit Card Receivables comply with
the applicable terms and conditions contained in Section 6.12A of the Loan
Agreement;
(E) the chief executive office of the Credit
Card Issuer or Credit Card Processor with respect to such Credit Card
Receivables is located in the United States of America;
(F) the Credit Card Issuer or Credit Card
Processor with respect to such Credit Card Receivables has not asserted a
counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Credit
Card Receivables (other than transactions in the ordinary course of the business
of such Revolving Loan Borrower) and such Credit Card Issuer or Credit Card
Processor has not setoff against amounts otherwise payable by such Credit Card
Issuer or Credit Card Processor to such Revolving Loan Borrower for the purpose
of establishing a reserve or collateral for obligations of such Revolving Loan
Borrower to such Credit Card Issuer or Credit Card Processor;
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<PAGE> 5
(G) there are no facts, events or occurrences
which would impair the validity, enforceability or collectability of such Credit
Card Receivables or reduce the amount payable or delay payment thereunder;
(H) such Credit Card Receivables are subject to
the first priority, valid and perfected security interest of Lender and any
goods giving rise thereto are not, and were not at the time of the sale thereof,
subject to any liens except those permitted in the Loan Agreement;
(I) Lender shall have received, in form and
substance satisfactory to Lender, a Credit Card Acknowledgment duly authorized,
executed and delivered by the Credit Card Issuer or Credit Card Processor for
the credit card or debit card used in the sale which gave rise to such Credit
Card Receivable, such Credit Card Acknowledgment shall be in full force and
effect and the Credit Card Issuer or Credit Card Processor party thereto shall
have complied with the terms thereof;
(J) there are no proceedings or actions which
are threatened or pending against the Credit Card Issuers or Credit Card
Processors with respect to such Credit Card Receivables which might result in
any material adverse change in the financial condition of any such Credit Card
Issuer or Credit Card Processor;
(K) such Credit Card Receivables are owed by
Credit Card Issuers or Credit Card Processors deemed creditworthy at all times
by Lender;
(L) no default or event of default has occurred
under the Credit Card Agreement of such Revolving Loan Borrower with the Credit
Card Issuer or Credit Card Processor who has issued the credit card or debit
card or handles payments under the credit card or debit card used in the sale
which gave rise to such Credit Card Receivables, which default gives such Credit
Card Issuer or Credit Card Processor the right to cease or suspend payments to
such Revolving Loan Borrower, and no event shall have occurred which gives such
Credit Card Issuer or Credit Card Processor the right to setoff against amounts
otherwise payable to such Revolving Loan Borrower (other than for then current
fees and chargebacks consistent with the current practices of such Credit Card
Issuer or Credit Card Processor) or the right to establish reserves or establish
or demand collateral and such Credit Card Agreements are otherwise in full force
and effect; and
(M) the Credit Card Issuer or Credit Card
Processor has not sent any notice of default and/or notice of its intention to
cease or suspend payments to Hanover or any Revolving Loan Borrower in respect
of such Credit Card Receivables or to establish reserves or cash collateral for
obligations of Hanover or any Revolving Loan Borrower to such Credit Card Issuer
or Credit Card Processor.
General criteria for Eligible Credit Card Receivables may be established and
revised from time to time by Lender in its discretion. Any Credit Card
Receivables which are not Eligible Credit Card Receivables shall nevertheless be
part of the Collateral.
(vi) "Eligible Fulfillment Contract Receivables"
shall mean Fulfillment Contract Receivables created by Fulfillment Contract
Borrowers which are and continue to be
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<PAGE> 6
acceptable to Lender based on the criteria set forth below. In general,
Fulfillment Contract Receivables shall be Eligible Fulfillment Contract
Receivables if:
(A) such Fulfillment Contract Receivables arise
from the actual and bona fide sale and delivery of goods by such Fulfillment
Contract Borrowers or rendition of services by Borrower in the ordinary course
of its business which transactions are completed in accordance with the terms
and provisions contained in any documents related thereto;
(B) such Fulfillment Contract Receivables are
not unpaid more than the sixty (60) days after the original maturity date of the
invoice therefor or more than ninety (90) days after the date of the original
invoice for them;
(C) such Fulfillment Contract Receivables comply
with the terms and conditions contained in Section 6.12A of the Loan Agreement;
(D) such Fulfillment Contract Receivables do
not arise from sales on consignment, guaranteed sale, sale and return, sale on
approval, or other terms under which payment by the account debtor may be
conditional or contingent;
(E) the chief executive office of the account
debtor with respect to such Fulfillment Contract Receivables is located in the
United States of America or Canada;
(F) such Fulfillment Contract Receivables do
not consist of progress billings (such that the obligation of the account
debtors with respect to such Fulfillment Contract Receivables is conditioned
upon such Fulfillment Contract Borrower's satisfactory completion of any further
performance under the agreement giving rise thereto), bill and hold invoices or
retainage invoices;
(G) the account debtor with respect to such
Fulfillment Contract Receivables has not asserted a counterclaim, defense or
dispute and does not have, and does not engage in transactions which may give
rise to, any right of setoff or recoupment against such Fulfillment Contract
Receivables (but the portion of the Fulfillment Contract Receivables of such
account debtor in excess of the amount at any time and from time to time owed by
such Fulfillment Contract Borrower to such account debtor or claimed owed by
such account debtor may be deemed Eligible Fulfillment Contract Receivables);
(H) there are no facts, events or occurrences
which would impair the validity, enforceability or collectability of such
Fulfillment Contract Receivables or reduce the amount payable or delay payment
thereunder;
(I) such Fulfillment Contract Receivables are
subject to the first priority, valid and perfected security interest of Lender
and any goods giving rise thereto are not, and were not at the time of the sale
thereof, subject to any liens except those permitted in the Loan Agreement;
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(J) neither the account debtor nor any officer
or employee of the account debtor with respect to such Fulfillment Contract
Receivables is an officer, employee, agent or other Affiliate of such
Fulfillment Contract Borrower;
(K) the account debtors with respect to such
Fulfillment Contract Receivables are not any foreign government, the United
States of America, any State, political subdivision, department, agency or
instrumentality thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or instrumentality
thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as
amended or any similar State or local law, if applicable, has been complied with
in a manner satisfactory to Lender;
(L) there are no proceedings or actions which
are threatened or pending against the account debtors with respect to such
Fulfillment Contract Receivables which might result in any material adverse
change in any such account debtor's financial condition;
(M) such Fulfillment Contract Receivables of a
single account debtor, other than KB Kids.com, LLC or its affiliates do not
constitute more than ten (10%) percent of all otherwise Eligible Fulfillment
Contract Receivables (but the portion of the Fulfillment Contract Receivables
not in excess of such percentage may be deemed Eligible Fulfillment Contract
Receivables );
(N) such Fulfillment Contract Receivables of KB
Kids.com, LLC or its affiliates do not constitute more than fifty (50%) percent
of all otherwise Eligible Fulfillment Contract Receivables (but the portion of
the Fulfillment Contract Receivables not in excess of such percentage may be
deemed Eligible Fulfillment Contract Receivables );
(O) such Fulfillment Contract Receivables are
not owed by an Fulfillment Contract Receivables debtor who has Accounts unpaid
more sixty (60) days after the original maturity date of the invoice therefor or
more than ninety (90) days after the original invoice date for them which
constitute more than fifty (50%) percent of the total Fulfillment Contract
Receivables of such account debtor;
(P) such Fulfillment Contract Receivables are
owed by account debtors whose total indebtedness to such Fulfillment Contract
Borrower does not exceed the credit limit with respect to such account debtors
as determined by such Fulfillment Contract Borrower from time to time and as is
reasonably acceptable to Lender (but the portion of the Fulfillment Contract
Receivables not in excess of such credit limit may be deemed Eligible
Fulfillment Contract Receivables); and
(Q) such Fulfillment Contract Receivables are
owed by account debtors deemed creditworthy at all times by such Fulfillment
Contract Borrower consistent with its current practice and who are reasonably
acceptable to Lender.
General criteria for Eligible Fulfillment Contract Receivables may be
established and revised from time to time by Lender in good faith based on an
event, condition or other circumstance arising after the date hereof, or
existing on the date hereof to the extent Lender has no written notice thereof
from Fulfillment Contract Borrowers, which adversely affects or could reasonably
be expected to
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adversely affect the Fulfillment Contract Receivables in the good faith
determination of Lender. Any Fulfillment Contract Receivables which are not
Eligible Fulfillment Contract Receivables shall nevertheless be part of the
Collateral.
(vii) "Excess Loan Availability" shall mean, at any
time, the amount, if any, as determined by Lender, by which:
(A) the amount of the Revolving Loans determined
by Lender to be available to Revolving Loan Borrowers pursuant to the Revolving
Loan Formulas (but not to exceed (1) in the case of each Revolving Loan
Borrower, the applicable lending sublimits under the Loan Agreement and the
other Financing Agreements, or (2) in the case of Revolving Loan Borrowers
considered together, the Revolving Loan Limit) exceeds
(B) the sum of
(1) the amount of all outstanding and unpaid
Obligations of Revolving Loan Borrowers, plus
(2) the aggregate amount of all reserves
established by Lender under the Loan Agreement
and the other Financing Agreements.
(viii) "Fulfillment Contract Borrower" shall mean
Keystone Internet and such other Revolving Loan Borrowers acceptable to Lender
that may provide fulfillment services pursuant to Fulfillment Contracts.
(ix) "Fulfillment Contract Receivables" shall mean
all present and future rights of a Fulfillment Contract Borrower to payment for
goods sold or services performed pursuant to Fulfillment Contracts.
(x) "Fulfillment Contract" shall mean an agreement
between a Fulfillment Contract Borrower and a third party pursuant to which a
Fulfillment Contract Borrower, among other things, will provide telemarketing,
fulfillment and other services, including, without limitation, processing orders
of customers of such third party, and warehousing and shipping merchandise of
such third party to customers, which agreements include, without limitation, the
agreements listed on Schedule A hereto.
(xi) "Interest Expense" shall mean, for any period,
as to any Person and its Subsidiaries, all of the following as determined in
accordance with GAAP: (A) total interest expense, whether paid or accrued
(including the interest component of Capitalized Lease Obligations for such
period), including, without limitation, all bank fees, commissions, discounts
and other fees and charges owed with respect to letters of credit, banker's
acceptances or similar instruments, but excluding (1) amortization of discount
and amortization of deferred financing fees and closing costs, (2) interest paid
in property other than cash and (3) any other interest expense not payable in
cash, minus (B) any net payments received during such period as interest income
received in respect of its investments in cash and cash equivalents.
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<PAGE> 9
(xii) "Net Amount of Eligible Credit Card Receivables"
shall mean the gross amount of Eligible Credit Card Receivables, less discounts,
fees and chargebacks and other amounts payable by Revolving Loan Borrowers to
Credit Card Issuers or Credit Card Processors.
(xiii) "Net Amount of Eligible Fulfillment Contract
Receivables" shall mean the aggregate amount of regularly scheduled payments due
to the Fulfillment Contract Borrower under the terms of the Fulfillment Contract
giving rise to such Eligible Fulfillment Contract Receivables, exclusive of any
amounts otherwise payable by such Fulfillment Contract Borrower in connection
with the Fulfillment Contract and of any discounts, prepayments, fees, claims,
credits and allowances of any nature at any time issued, owing or granted with
respect to such Fulfillment Contract.
(xiv) "Restated TCS Factory Term Note" shall mean the
Amended and Restated Term Promissory Note, dated as of the date hereof, made by
TCS Factory payable to the order of Lender in the original principal amount of
$2,790,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(xv) "Restated TCS Office Term Note" shall mean the
Amended and Restated Term Promissory Note, dated as of the date hereof, made by
TCS Office payable to the order of Lender in the original principal amount of
$945,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(xvi) "Richemont Credit Facilities" shall mean the
credit facilities of Richemont made available to Hanover and Borrowers and
Guarantors evidenced by the Richemont $10,000,000 Credit Agreements and the
Richemont $25,000,000 Credit Agreements.
(xvii) "Richemont $10,000,000 Call Agreement" shall
mean the letter agreement, dated as of the date hereof, between Lender and
Richemont, acknowledged by Hanover and Borrowers, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(xviii) "Richemont $10,000,000 Credit Agreements"
shall mean the unsecured credit facility provided by Richemont to Hanover and
Borrowers in the principal amount of up to $10,000,000 as set forth in the
Revolving Loan Agreement, dated as of the date hereof, between Hanover and
Richemont, and any notes, agreements, documents and instruments executed or
delivered in connection therewith, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(xix) "Richemont $25,000,000 Credit Agreements" shall
mean the unsecured credit facility provided by Richemont to Hanover in the
principal amount of up to $25,000,000 as set forth in the Unsecured Line of
Credit & Promissory Note, dated March 1, 2000, between Hanover and Richemont,
and any agreements, documents and instruments executed or delivered in
connection therewith, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
(xx) "Second Restated Hanover Realty Term Note"
shall mean the Second Amended and Restated Term Promissory Note, dated as of the
date hereof, by Hanover Realty
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<PAGE> 10
payable to the order of Lender in the original principal amount of $10,200,000,
as such note now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(xxi) "Second Restated HDPI Term Note" shall mean the
Second Amended and Restated Term Promissory Note, dated as of the date hereof,
made by HDPI payable to the order of Lender in the original principal amount of
$3,600,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(xxii) "Tranche B Term Loan Borrowers" shall mean
HDPI, Brawn, GBM, Gump's, LWI, HDV, Hanover Realty, Tweeds LLC, Silhouettes LLC,
Domestications LLC, HCS LLC, TCS Factory, TCS Office and Keystone Internet.
(xxiii) "Tranche B Term Loan Participant" shall mean
Ableco Finance LLC, a Delaware limited liability company, and its successors and
assigns.
(xxiv) "Tranche B Term Loan Participation Agreement"
means the Participation Agreement between Participant and Lender, dated on or
about the date hereof, as from time to time amended, extended, renewed,
restated, supplemented or replaced.
(xxv) "Tranche B Term Note" shall mean the Tranche B
Term Promissory Note, dated as of the date hereof, made by the Tranche B Term
Loan Borrowers payable to the order of Lender in the original principal amount
of $7,500,000, as such note now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(b) Amendments to Definitions.
(i) Accounts Loan Formula. Section 1.4 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"1.4 "Accounts Loan Formula" shall mean,
collectively, the Deferred Billing Loan Formula, the
Installment Billing Loan Formula, the Credit Card
Receivable Loan Formula and the Fulfillment Contract
Receivable Loan Formula."
(ii) Credit Card Acknowledgments. All references to
the term "Third Party Credit Card Acknowledgment" in the Loan Agreement and the
other Financing Agreements are hereby deleted and replaced with the term "Credit
Card Acknowledgments" which shall mean, individually and collectively, the
agreements by Credit Card Issuers or Credit Card Processors who are parties to
Credit Card Agreements in favor of Lender acknowledging Lender's first priority
security interest in the monies due and to become due to Borrowers (including,
without limitation, credits and reserves) under the Credit Card Agreements, and
agreeing to transfer all such amounts to the Blocked Accounts, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
(iii) Credit Card Agreements. All references to the
term "Third Party Credit Card Agreements" in the Loan Agreement and the other
Financing Agreements are hereby
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<PAGE> 11
deleted and replaced with the term "Credit Card Agreements" which mean all
agreements now or hereafter entered into by a Borrower with any Credit Card
Issuer or any Credit Card Processor, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(iv) Credit Card Issuer. All references to the term
"Third Party Credit Card Issuer" in the Loan Agreement and the other Financing
Agreements are hereby deleted and replaced with the term "Credit Card Issuer"
which shall mean any person (other than Borrower) who issues or whose members
issue credit cards, including, without limitation, MasterCard or VISA bank
credit or debit cards or other bank credit or debit cards issued through
MasterCard International, Inc., Visa, U.S.A., Inc. or Visa International and
American Express, Discover, Diners Club, Carte Blanche and other non-bank credit
or debit cards, including, without limitation, credit or debit cards issued by
or through American Express Travel Related Services Company, Inc. and Novus
Services, Inc.
(v) Credit Card Receivables. All references to the
term "Third Party Credit Card Receivables" in the Loan Agreement and the other
Financing Agreements is hereby deleted and replaced with the term "Credit Card
Receivables" which shall mean, collectively, all present and future rights of
Borrower to payment from any Credit Card Issuer, Credit Card Processor,
including, without limitation, all MasterCard/VISA Receivables or other third
party arising from sales of goods or rendition of services to customers who have
purchased such goods or services using a credit or debit card and all present
and future rights of Borrower to payment from any Credit Card Issuer, Credit
Card Processor or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card, including, but not limited to, all amounts at any time due or to
become due from any Credit Card Issuer or Credit Card Processor under the Credit
Card Agreements or otherwise.
(vi) Interest Rate. With respect to interest accruing
on or after April 1, 2000 all references to the term "Interest Rate" in the Loan
Agreement and the other Financing Agreements shall be deemed and each such
reference is hereby amended to mean (A) as to Prime Rate Revolving Loans, a rate
of one-half of one percent (.5%) per annum in excess of the Prime Rate, (B) as
to Prime Rate Term Loans, a rate of three-quarters of one percent (.75%) per
annum in excess of the Prime Rate, (C) as to the Tranche B Term Loan, a rate of
four and one quarter percent (4 1/4%) per annum in excess of the Prime Rate, but
in no event less than thirteen percent (13%), (D) as to Eurodollar Rate
Revolving Loans, a rate of two and one-half percent (2.5%) per annum in excess
of the Adjusted Eurodollar Rate, and (E) as to Eurodollar Rate Term Loans, a
rate of three and one-half (3.5%) per annum in excess of the Adjusted Eurodollar
Rate (in each case under clauses (C) or (D), based on the Eurodollar Rate
applicable for the Interest Period selected by or on behalf of the applicable
Borrower as in effect three (3) Banking Days prior to the commencement of such
Interest Period for such Eurodollar Rate Loans in accordance with the terms of
the Loan Agreement as amended hereby, whether such rate is higher or lower than
any rate previously quoted to or for such Borrower); provided, that, the
Interest Rate, as to Prime Rate Loans and Eurodollar Rate Loans, shall mean the
rate two percent (2%) per annum more than the otherwise applicable variable
Interest Rate provided under clause (A), (B), (C), (D) or (E) above (as
applicable), at Lender's option, without notice, for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing, or after termination or non-renewal of the Loan
Agreement and the other Financing Agreements. If the aggregate amount of
Revolving Loans and
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<PAGE> 12
Letter of Credit Accommodations to one or more Revolving Loan Borrowers exceeds
the amounts determined by Lender to be available pursuant to the Revolving Loan
Formulas, net of reserves and subject to the applicable lending sublimits as to
each Revolving Loan Borrower, and subject to the Revolving Loan Limit as to all
Revolving Loan Borrowers considered together, the Interest Rate, as to Prime
Rate Revolving Loans and Eurodollar Rate Revolving Loans, shall mean the rate
two percent (2%) per annum more than the otherwise applicable Interest Rate
provided under clause (A) or (D) above (as applicable) as to the amount of any
such excess(es) (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default); provided, that, if such excess(es) arise solely by reason of the
exercise of Lender's discretion under the Loan Agreement to reduce the Revolving
Loan Formulas in the absence of an Event of Default that is continuing, the
Interest Rate, shall not be so increased as to the amount of any such excess(es)
for a period of five (5) days after Lender notifies the affected Revolving Loan
Borrowers of such discretionary reduction in the Revolving Loan Formulas and, at
and after the expiration of such period of five (5) days, the Interest Rate, may
be so increased by Lender as to the amount of any such excess(es) then
remaining.
(vii) Maximum Credit. Section 1.83 of the Loan
Agreement shall be deemed deleted and replaced in its entirety with the
following:
"1.83 "Maximum Credit" shall mean the
aggregate principal amount of $82,500,000, less
payments and pre-payments made in respect of the
Tranche A Term Loans and the Tranche B Term Loan."
(viii) Mortgages. Section 1.86 of the Loan Agreement
shall be deemed deleted in its entirety and replaced with the following:
"1.86 "Mortgages" shall mean, individually
and collectively, each of the following (as the same
now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or
replaced): (a) the Open-End Fee and Leasehold
Mortgage and Security Agreement, dated as of November
14, 1995, by HDPI in favor of Lender with respect to
the Real Property and related assets of HDPI located
in Hanover, Pennsylvania, as amended by the Mortgage
Modification Agreement, dated as of June 26, 1998,
and the Second Mortgage Modification Agreement, dated
as of the date hereof, (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, and Amendment No. 2 to Deed of Trust,
Assignment and Security Agreement, dated as of the
date hereof, (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, as amended by the
Mortgage Modification Agreement, dated as of the date
hereof 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,
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<PAGE> 13
Wisconsin, as amended by the Mortgage Modification
Agreement, dated as of the date hereof ."
(ix) Participants. The term "Participant" contained
in the Loan Agreement and the other Financing Agreements is hereby amended to
include, in addition and not in limitation, the Tranche B Term Loan Participant.
(x) Revolving Loan Borrowers. 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, Tweeds LLC, Silhouettes LLC, HCS LLC,
Domestications LLC, HDV, LWI and Keystone Internet."
(xi) Revolving Loan Limit. Section 1.119 of the Loan
Agreement shall be deemed deleted and replaced in its entirety with the
following:
"1.119 "Revolving Loan Limit" shall mean, at
any time, the amount equal to (a) $82,500,000 minus
(b) the sum of (i) the amount of outstanding Letter
of Credit Accommodations at such time, (ii) the
original principal amount of all of the Tranche A
Term Loans, and (iii) the original principal amount
of the Tranche B Term Loan."
(xii) Tranche A Term Loans. All references to the
"Term Loans" herein and in the Loan Agreement and the other Financing Agreements
are hereby redesignated "Tranche A Term Loans" and shall be deemed amended to
mean, individually and collectively, the Obligations evidenced by the Second
Restated HDPI Term Note, the Second Restated Hanover Realty Term Note, the
Restated TCS Factory Term Note and the Restated TCS Office Term Note.
(c) Interpretation. All capitalized terms used herein and
not defined herein shall have the meanings given to such terms in the Loan
Agreement.
2. Assumption of Obligations; Amendments to Guarantees and
Financing Agreements;
(d) Keystone Internet 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 Keystone Internet 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 Keystone Internet as a Borrower and Guarantor, with the same
force and effect as if Keystone Internet 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 the Loan Agreement and the other Financing Agreements, with
respect to Keystone Internet and its properties and assets with the same force
and effect as Lender has with respect to the other Borrowers and their
respective assets and
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<PAGE> 14
properties as if Keystone Internet had originally executed and had been an
original Borrower and Guarantor party signatory to the Loan Agreement and the
other Financing Agreements.
(e) 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 Keystone Internet as an
additional Guarantor party signatory thereto. Keystone Internet 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 Keystone Internet 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 Keystone Internet and its properties under the
Borrower Guarantees with the same force and effect as if Keystone Internet had
originally executed and been an original party signatory to each of the Borrower
Guarantees.
(f) Keystone Internet, in its capacity as Guarantor, hereby
expressly and specifically ratifies, restates and confirms the terms and
conditions of the Guarantee and Waiver, dated as of September 30, 1998, by
Keystone Internet and the other Guarantor parties thereto in favor of Lender and
its liability for all of the Obligations (as defined in such Guarantee), and all
other obligations, liabilities, agreements and covenants in respect of the
Existing Borrowers thereunder.
3. Tranche A Term Loans.
(g) Restated HDPI Term Loan.
(i) HDPI hereby acknowledges, confirms and agrees
that as of the date hereof and immediately before giving effect to this
Amendment, HDPI is indebted to Lender for the Obligations evidenced by the
Restated HDPI Term Note in the principal amount of $3,600,000 (the "Existing
HDPI Term Loan"), plus accrued fees and interest thereon. On the date hereof,
subject to the terms and conditions contained herein, Lender is making an
additional term loan to HDPI in the amount of $800,000, which, together with the
Existing HDPI Term Loan Balance, shall be consolidated and evidenced by and be
due and payable pursuant to the terms of the Second Restated HDPI Term Note.
(ii) The Second Restated HDPI Term Note shall (i)
supersede, amend and restate the Restated HDPI Term Note in its entirety and
(ii) be secured by all of the Collateral.
(iii) The amendment and restatement contained herein
and in the Second Restated HDPI Term Note, shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.
(h) Restated Hanover Realty Term Loan.
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<PAGE> 15
(i) Hanover Realty hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, Hanover Realty is indebted to Lender for the Obligations evidenced by
the Restated Hanover Realty Term Note in the principal amount of $10,200,000
(the "Existing Hanover Realty Term Loan"), plus accrued fees and interest
thereon. On the date hereof, subject to the terms and conditions contained
herein, Lender is making an additional term loan to Hanover Realty in the amount
of $3,160,000, which, together with the Existing Hanover Realty Term Loan
Balance, shall be consolidated and evidenced by and be due and payable pursuant
to the terms of the Second Restated Hanover Realty Term Note.
(ii) The Second Restated Hanover Realty Term Note
shall (i) supersede, amend and restate the Restated Hanover Realty Term Note in
its entirety and (ii) be secured by all of the Collateral.
(iii) The amendment and restatement contained herein
and in the Second Restated Hanover Realty Term Note, shall not, in any manner,
be construed to constitute payment of, or impair, limit, cancel or extinguish,
or constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.
(i) Restated TCS Factory Term Loan.
(i) TCS Factory hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, TCS Factory is indebted to Lender for the Obligations evidenced by
the TCS Factory Term Note in the principal amount of $2,790,000 (the "Existing
TCS Factory Term Loan"), plus accrued fees and interest thereon. On the date
hereof, subject to the terms and conditions contained herein, Lender is making
an additional term loan to TCS Factory in the amount of $1,073,000, which,
together with the Existing TCS Factory Term Loan Balance, shall be consolidated
and evidenced by and be due and payable pursuant to the terms of the Restated
TCS Factory Term Note.
(ii) The Restated TCS Factory Term Note shall (i)
supersede, amend and restate the TCS Factory Term Note in its entirety and (ii)
be secured by all of the Collateral.
(iii) The amendment and restatement contained herein
and in the Restated TCS Factory Term Note, shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, any of the Obligations evidenced by or
arising under the Financing Agreements, and the liens and security interests
securing such Obligations shall not in any manner be impaired, limited,
terminated, waived or released.
(j) Restated TCS Office Term Loan.
(i) TCS Office hereby acknowledges, confirms and
agrees that as of the date hereof and immediately before giving effect to this
Amendment, TCS Office is indebted to Lender for the Obligations evidenced by the
TCS Office Term Note in the principal amount of $945,000 (the "Existing TCS
Office Term Loan"), plus accrued fees and interest thereon. On the
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<PAGE> 16
date hereof, subject to the terms and conditions contained herein, Lender is
making an additional term loan to TCS Office in the amount of $344,000, which,
together with the Existing TCS Office Term Loan Balance, shall be consolidated
and evidenced by and be due and payable pursuant to the terms of the Restated
TCS Office Term Note.
(ii) The Restated TCS Office Term Note shall (i)
supersede, amend and restate the TCS Office Term Note in its entirety and (ii)
be secured by all of the Collateral.
(iii) The amendment and restatement contained herein
and in the Restated TCS Office Term Note, shall not, in any manner, be construed
to constitute payment of, or impair, limit, cancel or extinguish, or constitute
a novation in respect of, any of the Obligations evidenced by or arising under
the Financing Agreements, and the liens and security interests securing such
Obligations shall not in any manner be impaired, limited, terminated, waived or
released.
4. Tranche B Term Loan.
(k) 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 the Tranche B Term Loan Borrowers in the principal
amount of $7,500,000 (the "Tranche B Term Loan"). The Tranche B Term Loan is (i)
evidenced by the Tranche B Term Note in such original principal amount duly
executed and delivered by the Tranche B Term Loan Borrowers to Lender
concurrently herewith; (ii) to be repaid, together with interest and other
amounts, in accordance with this Agreement, the Tranche B Term Note, and the
other Financing Agreements; and (iii) secured by all of the Collateral;
(l) All Obligations in respect of the Tranche B Term Loan
shall be due and payable upon the earlier of (i) the termination of the Loan
Agreement and the other Financing Agreements or (ii) March 24, 2003.
5. Amendments to Revolving Accounts Loans. Section 2.1(a) of the
Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"(a) Revolving Accounts Loans. Subject to and upon the
terms and conditions contained herein and in the other Financing Agreements,
Lender shall, from time to time, make Revolving Loans as follows:
(i) to each of the Deferred Billing Borrowers, at
its request, Revolving Loans of up to seventy percent (70%) of its respective
Net Amounts of Eligible Deferred Billing Receivables, or such greater or lesser
percentages thereof as Lender shall, in its sole discretion, determine from time
to time (the "Deferred Billing Loan Formula"); provided, however, that no
Revolving Loans in respect of Eligible Deferred Billing Receivables shall be
made available or be permitted to remain outstanding, unless Lender receives
written notification from the applicable Deferred Billing Borrowers of their
intention to commence or continue as to new sales one or more Deferred Billing
Option Programs, which notice shall describe the program in reasonable detail
and be received by Lender not less than thirty (30) days prior to the
commencement of each applicable Program Quarter;
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<PAGE> 17
(ii) to each of the Installment Billing Borrowers, at
its request, Revolving Loans of up to seventy percent (70%) of its respective
Net Amounts of Eligible Installment Billing Receivables, or such greater or
lesser percentages thereof as Lender shall, in its sole discretion, determine
from time to time (the "Installment Billing Loan Formula"); provided, however,
that no Revolving Loans in respect of Eligible Installment Billing Receivables
shall be made available or be permitted to remain outstanding, unless Lender
receives written notification from the applicable Installment Billing Borrowers
of their intention to commence or continue as to new sales one or more
Installment Billing Programs, which notice shall describe the program in
reasonable detail and be received by Lender not less than thirty (30) days prior
to the commencement of each applicable Program Quarter;
(iii) to each of the Revolving Loan Borrowers, at its
request, Revolving Loans of up to seventy percent (70%) of its respective Net
Amounts of Eligible Credit Card Receivables, or such greater or lesser
percentages thereof as Lender shall, in its sole discretion, determine from time
to time (the "Credit Card Receivable Loan Formula"); and
(iv) to each of the Fulfillment Contract Borrowers,
at its request, Revolving Loans of up to eighty percent (80%) of its respective
Net Amounts of Eligible Fulfillment Contract Receivables, or such greater or
lesser percentages thereof as Lender shall, in its sole discretion, determine
from time to time (the "Fulfillment Contract Receivable Loan Formula")."
6. Revolving Accounts Loans. Section 2.2(j) of the Loan Agreement
is hereby deleted in its entirety and replaced with the following:
"(j) Without limiting the foregoing lending sublimits, (i)
the aggregate amount of Revolving Loans shall not at any one time
outstanding exceed the Revolving Loan Limit for all Revolving Loan
Borrowers and (ii) the aggregate amount of Revolving Accounts Loans for
all Deferred Billing Borrowers, Installment Billing Borrowers,
Fulfillment Contract Borrowers and any other applicable Revolving Loan
Borrowers shall not at any one time outstanding exceed $15,000,000.
Lender shall have the right, from time to time, to establish and revise
Revolving Accounts Loan sublimits for each Deferred Billing Borrower,
Installment Billing Borrower, Fulfillment Contract Borrower and each
other applicable Revolving Loan Borrower within the overall $15,000,000
sublimit applicable to all Revolving Accounts Loans."
7. Additional Condition Precedent to Revolving Loans. A new
Section 3.3 of the Loan Agreement is hereby added immediately after Section 3.2
as follows:
"3.3 Minimum Excess Loan Availability Requirement. Each
Revolving Loan and each Letter of Credit Accommodation to be made on
March __, 2000 and thereafter is subject to the prior or
contemporaneous satisfaction of the additional condition precedent
(which may be waived, in whole or in part, only by Lender in writing)
that, as of the date of any such request for a Revolving Loan or Letter
of Credit Accommodation, the sum, as determined by Lender, of Excess
Loan Availability of Revolving Loans Borrowers plus the undrawn amounts
under the Richemont $10,000,000 Credit Agreements shall be not less
than $3,000,000 after giving effect to such Revolving Loan or Letter of
Credit Accommodation."
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<PAGE> 18
8. Fees. In addition to all other fees, charges, interest and
expenses payable by Borrowers to Lender under the Loan Agreement and the other
Financing Agreements, Borrowers shall pay to Lender the following additional
fees:
(m) Closing Fee. Borrowers shall pay to Lender,
contemporaneously herewith, a closing fee in the amount of $1,250,000, which fee
is fully earned as of the date hereof; provided, that Borrowers shall be
entitled to a credit of $250,000 against such closing fee in respect of the
commitment fee paid by Hanover in consideration of the issuance of the
Commitment Letter, dated March 9, 2000, among Borrowers, Guarantors and Lender.
(n) Tranche B Closing Fee. Tranche B Term Loan Borrowers
shall pay to Lender, contemporaneously herewith, a closing fee in the amount of
$150,000, which fee is fully earned as of the date hereof and may be charged
into the loan account of any Tranche B Term Loan Borrower.
(o) Tranche B Facility Fees. Borrowers shall pay to Lender
an annual facility fee in respect of the Tranche B Term Loan of $75,000, for
each year or part thereof during the Term of the Loan Agreement, which fee shall
be fully earned and payable on each anniversary date of the Loan Agreement
during the Term and for so long thereafter as any of the Obligations are
outstanding and may be charged into the loan account of any Tranche B Term Loan
Borrower.
9. No Prepayments of Tranche A and Tranche B Term Loans. Section
2.9(c) of the Loan Agreement is hereby deleted and replaced with the following:
"[(c) Intentionally Omitted]"
10. Indebtedness.
(p) Effective on the effectiveness of this Amendment, (i)
Section 6.3(h) of the Loan Agreement is hereby deleted and such Indebtedness of
Borrowers to UBS shall no longer be permitted other than obligations and
liabilities under the UBS Agreements that expressly survive the termination
thereof; provided, that, all such Indebtedness shall be subordinated in right of
payment of Lender to receive the prior indefeasible payment in full of all
Obligation as provided in Section 6.3(h) hereof remain subject to the terms and
conditions of the Subordination Agreement, dated December 18, 1996, between
Richemont and the Borrower and Guarantor parties thereto and (ii) Section 3 of
the Seventh Amendment to Loan Agreement is hereby deleted and such contingent
Indebtedness of Borrowers to UBS shall no longer be permitted other than
obligations and liabilities under the UBS Agreements that expressly survive the
termination thereof; provided, that, all such Indebtedness shall remain shall be
subordinated in right of payment of Lender to receive the prior indefeasible
payment in full of all Obligation as provided in Section 6.3(h) hereof remain
subject to the terms and conditions of the Subordination Agreement, dated
December 18, 1996.
(q) Section 6.3 of the Loan Agreement is hereby amended by
deleting the word "and" appearing at the end of Section 6.3(g), replacing the
period with a semicolon and the word "and" appearing at the end of Section
6.3(h) and adding new Sections 6.3(i) and (j) immediately thereafter, as
follows:
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<PAGE> 19
"(i) unsecured Indebtedness of Borrowers and
Guarantors to Richemont evidenced by the Richemont $10,000,000
Credit Agreements; provided, that, each of the following
conditions are satisfied as determined by Lender:
(i) if at any time Excess Loan Availability, as
determined by Lender, is less than $3,000,000, Lender shall
have the right to request and Richemont shall be obligated to
remit proceeds of amounts that otherwise would be available
under the Richemont $10,000,000 Credit Agreements directly to
the Blocked Account as provided by the Richemont $10,000,000
Call Agreement to repay Obligations in an amount sufficient in
Lender's discretion, such that Excess Loan Availability shall,
after application of such payments to the Obligations, be at
least $3,000,000;
(ii) such Indebtedness and related obligations are
subject to, and subordinated in right of payment to, the prior
right of Lender to receive the prior indefeasible payment in
full of the Obligations in accordance with the terms and
conditions of the written subordination agreement, dated March
24, 2000, between Lender and Richemont related to such
Indebtedness;
(iii) Borrowers and Guarantors shall not, directly or
indirectly, make any payments or prepayments of principal or
interest in respect of such Indebtedness, or any expenses
related thereto, except, that, (A) Borrowers and Guarantors
may make regularly scheduled payments of interest to Richemont
when due and a facility fee each month in the amount of
$79,200 so long as no Event of Default or Incipient Default
exists or has occurred and is continuing and (B) Borrowers and
Guarantors may make from time to time payments of principal to
Richemont in respect of such Indebtedness; provided, that, as
to any such payment, each of the following conditions shall
have been satisfied as determined by Lender: (1) Lender shall
have received not less than five (5) Business Days' prior
written notice of the intention of Borrowers or Guarantors to
make such payment, which written notice shall set forth the
amount of the payment intended to be made, the then current
outstanding amount of principal and such other information
with respect thereto as Lender may reasonably request, (2) as
of the date of and after giving effect to any such payment,
the Excess Availability of Borrowers on such date and for each
of the immediately preceding thirty (30) consecutive days
shall have been not less than $5,000,000, and (3) as of the
date of any such payment and after giving effect thereto, no
Event of Default or Incipient Default shall exist or have
occurred and be continuing;
(iv) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of
the arrangements or any agreements with respect to such
Indebtedness, or (B) redeem, retire, defease, purchase or
otherwise acquire any such Indebtedness or set aside or
otherwise deposit or invest any sums for such purpose, other
than through the exercise by Richemont of the right to convert
all or any part of such Indebtedness to common stock in
accordance with the terms and conditions of the Richemont
$10,000,000 Credit Agreements as in effect on the date of
execution and delivery thereof and the written subordination
agreement referred to in Section 6.3(i) hereof;
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<PAGE> 20
and (v) Borrowers and Guarantors shall furnish to Lender all
notices, demands or other materials in connection with such
Indebtedness promptly after the receipt thereof by them or
currently with the sending thereof by them or on their behalf,
as the case may be; and
(j) unsecured Indebtedness of Borrowers and Guarantors to
Richemont evidenced by the Richemont $25,000,000 Credit Agreements;
provided, that, each of the following conditions are satisfied as
determined by Lender:
(i) such Indebtedness and related obligations are
subject to, and subordinated in right of payment to, the prior
right of Lender to receive the prior indefeasible payment in
full of the Obligations in accordance with the terms and
conditions of the written subordination agreement, dated March
24, 2000, between Lender and Richemont related to such
Indebtedness;
(ii) Borrowers and Guarantors shall not, directly or
indirectly, make any payments or prepayments of principal or
interest in respect of such Indebtedness, or any expenses
related thereto, except, that, Borrowers and Guarantors may
make regularly scheduled payments of interest to Richemont
when due and a facility fee each month in the amount of
$62,500 so long as no Event of Default or Incipient Default
exists or has occurred and is continuing;
(iii) Borrowers and Guarantors shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of
the arrangements or any agreements with respect to such
Indebtedness, or (B) redeem, retire, defease, purchase or
otherwise acquire any such Indebtedness or set aside or
otherwise deposit or invest any sums for such purpose, other
than through the exercise by Richemont of the right to convert
all or any part of such Indebtedness to common stock in
accordance with the terms and conditions of the Richemont
$25,000,000 Credit Agreements as in effect on the date of
execution and delivery thereof and the written subordination
agreement referred to in Section 6.3(j) hereof;
and (v) Borrowers and Guarantors shall furnish to
Lender all notices, demands or other materials in connection
with such Indebtedness promptly after the receipt thereof by
them or currently with the sending thereof by them or on their
behalf, as the case may be."
11. Additional Collateral Reporting. Section 6.18(a) of the Loan
Agreement is hereby amended by adding new subsections (xiv) and (xv) immediately
after subsection (xiii) as follows:
"(xiv) Weekly (or more frequently if requested by Lender)
reports on the Accounts of each Borrower and Guarantor in respect of
Credit Card Receivables, including, without limitation, Accounts in
respect of Deferred Billing Option Programs and Installment Billing
Programs and other deferred billing and installment billing Accounts of
Borrowers and Guarantors and monthly agings with respect to all other
Accounts of each Borrower and
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<PAGE> 21
Guarantor, including, as to the foregoing, the aggregate outstanding
amounts, prepayments, accruals and returns and other credits.
(xv) Weekly (or more frequently if requested by Lender), a
schedule of all sales made, credits and collections on the Accounts of
each Borrower and Guarantor in respect of all Fulfillment Contract
Receivables of Borrowers and Guarantors and monthly agings with detail
by each account debtors party to any Fulfillment Contracts of such
Borrowers and all Fulfillment Contract Receivables of each Borrower and
Guarantor, including, as to the foregoing, the aggregate outstanding
amounts, prepayments, accruals and returns and other credits.
(xvi) Borrowers shall upon the request of Lender furnish or
cause to be furnished to Lender copies of all Fulfillment Contracts."
12. Additional Accounts Covenants.
(a) Subsection 6.12A(a)(iii) of the Loan Agreement is
hereby amended by inserting between word "Receivables" and the period appearing
in the fourth line of that Subsection the following: "or Eligible Credit Card
Receivables and all Eligible Fulfillment Contract Receivables".
(b) As of the date hereof, all of the Fulfillment Contracts
of Fulfillment Contracts Borrowers are set forth on Schedule A hereto. Borrowers
shall furnish, or cause to be furnished, to Lender upon the execution and
delivery of any Fulfillment Contract entered into by Fulfillment Contract
Borrower, a true, correct and complete copy of such Fulfillment Contract.
13. Consolidated Working Capital. Section 6.19 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"6.19 Consolidated Working Capital.
(a) Hanover shall maintain Consolidated Working
Capital, calculated on a consolidated basis for Hanover and
its Subsidiaries, of not less than the following amounts as at
the end of each of the following fiscal months:
Period Amount
(i) January 1997 through ($5,000,000)
March 1997
(ii) April 1997 through ($-0-)
November 1997
(iii) December 1997 ($10,000,000)"
March 2000
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<PAGE> 22
(b) Hanover shall, commencing with the fiscal month
ending April 2000 and for each fiscal month thereafter in any
fiscal year thereafter, maintain Consolidated Working Capital,
calculated on a consolidated basis for Hanover and its
Subsidiaries, of not less than the following amounts as at the
end of each such fiscal month for each such fiscal:
Period Amount
April $20,000,000
May $20,000,000
June $20,000,000
July $20,000,000
August $20,000,000
September $20,000,000
October $20,000,000
November $20,000,000
December $20,000,000
January $12,500,000
February $12,500,000
March $20,000,000"
14. Consolidated Net Worth. Section 6.20 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
"6.20 Consolidated Net Worth.
(a) Hanover shall maintain Consolidated Net Worth,
calculated on a consolidated basis for Hanover and its
Subsidiaries, of not less than the following amounts as at the
end of each of the following fiscal months:
Period Amount
(i) January 1997 $14,000,000
through March 1997
(ii) April 1997 through $21,500,000
March 2000
(b) Hanover shall commencing with the fiscal month
ending April 2000 and for each fiscal month thereafter in any
fiscal year thereafter, maintain Consolidated Net Worth,
calculated on a consolidated basis for Hanover and its
Subsidiaries, of not less than the following amounts as at the
end of each such fiscal month for each such fiscal:
Period Amount
April $34,000,000
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<PAGE> 23
May $34,000,000
June $34,000,000
July $30,000,000
August $30,000,000
September $30,000,000
October $30,000,000
November $30,000,000
December $37,500,000
January $37,500,000
February $37,500,000
March $34,000,000"
15. Capital Expenditures. A new Section 6.30 of the Loan
Agreement is hereby added at the end of Section 6.29 as follows:
"6.30 Capital Expenditures. Hanover and its
Subsidiaries shall not, directly or indirectly, in any fiscal
year of Hanover and its Subsidiaries make any Capital
Expenditures of an aggregate amount not to exceed $5,000,000,
plus the amount of any cash proceeds obtained by Hanover and
its Subsidiaries from the sale of any Capital Stock or from
subordinated indebtedness under the Richemont Credit
Facilities other than proceeds of loans under the Richemont
$10,000,000 Credit Agreements, in each case, to the extent
permitted hereunder."
16. EBITDA. A new Section 6.31 of the Loan Agreement is hereby
added at the end of Section 6.30 as follows:
"6.31 EBITDA.
(a) Hanover and its Subsidiaries shall not, as to
any fiscal quarter commencing on April 1, 2000, permit EBITDA
of Hanover and its Subsidiaries commencing on the first day of
each fiscal quarter of Hanover and its Subsidiaries and ending
on the last day of the applicable fiscal quarter set forth
below on a cumulative nine month year-to-date ("YTD") basis
beginning April 1, 2000 through and including December 31,
2000, to be less than the respective amount set forth below
opposite such fiscal quarter end YTD period:
Fiscal Quarter
End YTD Periods Cumulative
for Fiscal Year 2000 Minimum EBITDA
(i) April 1 through June 30 ($1,250,000)
(ii) April 1 through ($1,250,000)
September 30
(iii) April through $7,527,000
December 31
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<PAGE> 24
(b) Hanover and its Subsidiaries shall not, as to
any fiscal quarter during the fiscal year 2001 of Hanover and
its Subsidiaries, permit EBITDA of Hanover and its
Subsidiaries commencing on the first day of such fiscal year
and ending on the last day of the applicable fiscal quarter
set forth below on a cumulative year-to-date basis ("YTD"), to
be less than the respective amount set forth below opposite
such fiscal quarter end YTD period:
Fiscal Quarter
End YTD Periods Cumulative
for Fiscal Year 2001 Minimum EBITDA
(i) January 1 through ($ 1,000,000)
March 31
(ii) January 1 through $ 2,525,000
June 30
(iii) January 1 through $ 5,555,000
September 30
(iv) January 1 through $17,812,000
December 31
(c) Hanover and its Subsidiaries shall not, as to
any fiscal quarter during the fiscal year 2002 of Hanover and
its Subsidiaries, permit EBITDA of Hanover and its
Subsidiaries commencing on the first day of such fiscal year
and ending on the last day of the applicable fiscal quarter
set forth below on a cumulative year-to-date basis ("YTD"), to
be less than the respective amount set forth below opposite
such fiscal quarter end YTD period:
Fiscal Quarter
End YTD Periods Cumulative
for Fiscal Year 2002 Minimum EBITDA
(i) January 1 through ($ 1,000,000)
March 31, 2002
(ii) January 1 through $ 2,525,000
June 30, 2002
(iii) January 1 through $ 5,555,000
September 30, 2002
(iv) January 1 through $17,812,000
December 31, 2002
(d) Hanover and its Subsidiaries shall not, as to
the first fiscal quarter during the fiscal year 2003 of
Hanover and its Subsidiaries, permit EBITDA of Hanover and its
Subsidiaries commencing on the first day of such fiscal year
and ending on the last day of the first fiscal quarter set
forth below on a cumulative year-
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<PAGE> 25
to-date basis ("YTD"), to be less than the respective amount
set forth below opposite such fiscal quarter end YTD period:
Fiscal Quarter
End YTD Periods Cumulative
for Fiscal Year 2002 Minimum EBITDA
(i) January 1 through ($ 1,000,000)
March 31, 2003
(e) provided, that, as to any applicable period in
Section 6.31(a), (b), (c) or (d) , to the extent that Hanover
and Borrowers shall have received any cash proceeds from the
sale of any Capital Stock or from the proceeds of loans in
respect of any subordinated indebtedness under the Richemont
Credit Facilities other than proceeds of loans under the
Richemont $10,000,000 Credit Agreements, in each case, to the
extent permitted hereunder, then the amount of such cash
proceeds shall be added back to EBITDA for purposes of
determining cumulative EBITDA for the applicable period and
for each subsequent quarterly period during the then-current
fiscal year."
17. Excess Loan Availability Test. A new Section 6.32 of the
Loan Agreement is hereby added at the end of Section 6.31 as follows:
"6.32 Excess Loan Availability.
(a) If at any time no amounts are available under
the Richemont $10,000,000 Credit Agreements or the Richemont
$10,000,000 Credit Agreements have been terminated or not
renewed, Borrowers shall at all times thereafter maintain
Excess Loan Availability of not less $3,000,000.
(b) Upon receipt of any amounts remitted to Lender
under the Richemont Credit Facilities or the Richemont
$10,000,000 Call Agreement as provided hereunder, Lender may,
at its option, either (i) apply such amounts to the repayment
of the Obligations in such order and manner as Lender may
determine subject to the right of Lender to establish a
reserve against the Revolving Loans and Letter of Credit
Accommodations available under the lending formulas in an
amount equal to the amounts received pursuant to the Richemont
Credit Facility or the Richemont $10,000,000 Call Agreement or
(ii) hold any or all of the funds received by Lender pursuant
to any of the loans as cash collateral, on terms and
conditions acceptable to Lender. In such event Borrowers shall
execute and deliver to Lender such other agreements with
respect thereto as Lender may require. Borrowers do not have
and shall not have any property or other interest in any of
the loans under the Richemont $10,000,000 Credit Facilities or
any amounts under the Richemont $10,000,000 Call Agreement.
This Section 6.31(b) shall survive the repayment of the
Obligations and the termination or non-renewal of this
Agreement."
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<PAGE> 26
18. Additional Events of Default. Section 7.1 of the Loan
Agreement is hereby amended by replacing the period appearing at the end of
Section 7.1(j) with a semicolon and the word "and" and adding a new Section
7.1(k) as follows:
"(k) Richemont shall send notice that the Richemont
$10,000,000 Call Agreement shall otherwise not be extended or
renewed or shall cease to be in full force and effect except
in accordance with their terms or shall be void or invalid or
Richemont shall fail to make any advances under the Richemont
Credit Facilities or remit any amounts to Lender pursuant to
the Richemont $10,000,000 Call Agreement, as the case may be,
in accordance with their terms, or deny it has any further
liability or obligation thereunder or shall revoke, terminate
or purport to revoke or terminate any of Richemont Credit
Facilities or the Richemont $10,000,000 Call Agreement, or any
injunctive relief or restraining order is sought or granted
which does or would, if granted, limit or impair the right of
Lender to request that payments be made pursuant to the
Richemont $10,000,000 Call Agreement in accordance with the
terms or retain any funds remitted to Lender thereunder, as
the case may be."
19. Term.
(a) The first sentence of Section 9.1(a) of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"(a) This Agreement and the other Financing
Agreements shall become effective as of the date hereof and
this Agreement shall continue in full force and effect for a
term ending on January 31, 2004 (the "Renewal Date"), and from
year-to-year thereafter, unless sooner terminated pursuant to
the terms hereof."
(b) The first sentence of Section 9.1(f) of the Loan
Agreement is hereby deleted and replaced with the following, effective with
respect to any termination after the date hereof:
"(f) If Lender terminates this Agreement or the other
Financing Agreements after the occurrence and during the
continuance of an Event of Default or at the request of
Borrowers prior to the Renewal Date, in view of the
impracticality and extreme difficulty of ascertaining actual
damages, and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result
thereof, Borrowers hereby agree to pay to Lender, upon the
effective date of such termination, a fee (the "Early
Termination Fee") in an amount equal to one-half of one
percent ( 1/2%) of the Maximum Credit, if such termination is
effective on or before January 30, 2004."
20. Costs and Expenses. Section 9.9 of the Loan Agreement is
hereby amended by adding between the word "hereunder" and the comma appearing in
the fifth line up from the last line of that Section, the following: "including,
without limitation, the right to demand payment of all costs and expenses in
connection with this Agreement and the other Financing Agreements, as provided
by Section 9.2 hereof,".
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<PAGE> 27
21. Use of Proceeds. Borrowers shall use the initial proceeds of
the Revolving Loans, the additional advances of the Tranche A Term Loans and the
Tranche B Term Loan provided by Lender hereunder only for: (a) payments to each
of the other persons listed in the disbursement direction letter furnished by
Borrowers to Lender on or about the date hereof, and (b) costs, expenses and
fees in connection with the preparation, negotiation, execution and delivery of
this Amendment and the other Financing Agreements. All other Loans made or
Letter of Credit Accommodations provided by Lender to Borrowers pursuant to the
provisions hereof shall be used by Borrowers only for general operating, working
capital and other proper corporate purposes of Borrowers not otherwise
prohibited by the terms of the Loan Agreement.
22. Exhibits.
(a) Exhibits A, B-3, B-4, E, G, H-1, H-2 and H-3 to the
Loan Agreement are hereby deleted in their entirety and replaced with the
information set forth on Exhibits A, B, C, D, F, G, H and I hereto.
(b) Exhibit F to the Loan Agreement is hereby amended to
include, in addition and not in limitation, the information set forth on Exhibit
E attached hereto.
23. 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 Borrower and/or Guarantor hereunder have
been duly authorized, executed and delivered by all necessary action on the part
of each of Borrower and each Guarantor 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 Borrower and/or Guarantor, as the case may be, contained
herein and therein constitute legal, valid and binding obligations of each
Borrower and/or Guarantor, as the case may be, enforceable against them in
accordance with their terms.
(b) Each of the Richemont $10,000,000 Credit Agreements and
the Richemont $25,000,000 Credit Agreements (i) has been duly authorized,
executed and delivered by all necessary action on the part of each of Borrowers
and Guarantors, and, if necessary, their respective stockholders (with respect
to any corporation) or members (with respect to any limited liability company),
and (ii) is in full force and effect as of the date hereof, as the case may be.
The agreements and obligations of each of each Borrower and Guarantor under the
Richemont $10,000,000 Credit Agreements and the Richemont $25,000,000 Credit
Agreements constitute legal, valid and binding obligations of each Borrower
and/or Guarantor, as the case may be, enforceable against them in accordance
with terms. Borrowers and Guarantors have delivered, or cause to be
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<PAGE> 28
delivered to Lender, true, correct and complete copies of each of the Richemont
$10,000,000 Credit Agreements and the Richemont $25,000,000 Credit Agreements
(c) Neither the execution and delivery of this Amendment or
any of the agreements, documents or instruments to be delivered pursuant to this
Agreement 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 does or
shall conflict with or result in the breach of, or constitute a default in any
respect under any mortgage, deed of trust, security agreement, agreement or
instrument to which Borrowers or Guarantors is a party or may be bound, or shall
violate any provision of the Certificates of Incorporation or By-Laws of
Borrowers or Guarantors.
(d) No action of, or filing with, or consent of any
governmental or public body or authority, other than the recording of the
modification agreements with respect to the Mortgages executed and delivered to
Lender pursuant to this Amendment, and no approval or consent of any other
party, is required to authorize, or is otherwise required in connection with,
the execution, delivery and performance of this Amendment and each other
agreement or instrument to be executed and delivered pursuant to this Amendment.
(e) Neither the execution and delivery of the Richemont
$10,000,000 Credit Agreements and the Richemont $25,000,000 Credit Agreements,
or any other agreements, documents or instruments in connection therewith, nor
the consummation of the transactions therein contemplated, nor compliance with
the provisions thereof has violated or shall violate any Federal or State
securities laws or any other law or regulation or any order or decree of any
court or governmental instrumentality in any respect, or does, or shall conflict
with or result in the breach of, or constitute a default in any respect under
any mortgage, deed of trust, security agreement, agreement or instrument to
which Hanover or any other Guarantor or any Borrower is a party or may be bound,
or does or shall violate any provision of the Certificate of Incorporation or
By-Laws of Hanover of any other Guarantor or any Borrower.
(f) 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.
(g) All necessary amendments, supplements and agreements
have been executed and delivered, and all necessary actions required by the
Series A Note Agreements the Series B note Agreements and the Littlestown IDB
Agreements have been taken in accordance with the Series A Note Agreements, the
Series B Note Agreements and the Littlestown IDB Agreements, as the case may be,
in connection with the transactions contemplated by this Amendment. All notices,
supplements and disclosure documents required to be delivered to any trustee or
other person under the Series A Note Agreements, the Series B Note Agreements
and the Littlestown IDB Agreements in connection with the transactions
contemplated by this Amendment, have been timely delivered.
(h) All of the obligations, liabilities and indebtedness
arising under each of the UBS Agreements, the Richemont Reimbursement Agreement,
the Series A Note Agreements, the
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<PAGE> 29
Series B Note Agreements, and the Littlestown IDB Agreements after giving effect
to the transactions contemplated by this Amendment, shall have been indefeasibly
discharged and paid in full, other than (i) non-material liabilities that may be
owed to the remarketing agent under the Series A Note Agreements and the Series
B Note Agreements and to the Littlestown Industrial Development Authority under
the Littlestown IDB Agreements and (ii) the liabilities and obligations under
any such agreements that by their terms expressly survive the termination
thereof. All agreements, documents and instruments in respect of the UBS
Agreements, the Richemont Reimbursement Agreement, the Series A Note Agreements,
the Series B Note Agreements and the Littlestown IDB Agreements have been
terminated in accordance with their terms as amended, modified or supplemented
through the date hereof.
(i) Neither the redemption of any of the Littlestown Bonds
nor the repurchase of any of the Series A Notes or the Series B Notes, nor the
termination of the UBS Agreements and the cancellation of any of the UBS Letters
of Credit, nor any other agreements, documents or instruments in connection
therewith, nor the consummation of such transactions, nor compliance with the
provisions thereof has violated or shall violate any Federal or State securities
laws or any other law or regulation or, to the knowledge of Borrowers or
Guarantors, any order or decree of any court or governmental instrumentality in
any respect, or 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 Guarantor or any Borrower is a
party or may be bound, or does or shall violate any provision of the Certificate
of Incorporation or By-Laws of any Borrower or any Guarantor.
(j) After giving effect to the provisions of this
Amendment, no Event of Default or Incipient Default exists or has occurred and
is continuing.
24. 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 an executed original or
executed original counterparts of this Amendment, as the case may be, duly
authorized, executed and delivered by 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 to which it is a party, duly authorized, executed and delivered:
(i) Guarantee and Waiver by Guarantors, other than
Borrowers and Hanover, in favor of Lender with respect to the Obligations of
Keystone Internet; and
(ii) Guarantee and Waiver by Borrowers in favor of
Lender with respect to the Obligations of Keystone Internet;
(iii) Guarantee and Waiver by Hanover in favor of
Lender with respect to the Obligations of Keystone Internet;
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<PAGE> 30
(iv) Blocked Account Agreements by and among The
First National Bank of Maryland, Borrowers, certain Guarantors and Lender
providing for the establishment of a Blocked Account for Keystone Internet;
(v) each of the Second Restated HDPI Term Note, the
Second Restated Hanover Realty Term Note, the Restated TCS Factory Term Note,
the Restated TCS Office Term Note and the Tranche B Term Note; and
(vi) original Second Mortgage Modification Agreement
between HDPI and Lender, an original Amendment No. 2 to the Deed of Trust,
Assignment and Security Agreement between Hanover Realty and Lender, Mortgage
Modification Agreement, between TCS Factory and Lender, and Mortgage
Modification Agreement, between TCS Office and Lender;
(c) Lender shall have received, in form and substance
satisfactory to Lender, updated endorsements to the existing title insurance
policy or a new title insurance policy issued by Lawyers Title Insurance
Corporation acceptable to Lender (vii) insuring the priority, amount and
sufficiency of each of the Mortgages made by HDPI, Hanover Realty, TCS Factory
and TCS Office, as amended, and (viii) containing any legally available
endorsements, assurance or affirmative coverage requested by Lender for
protection of its interests;
(d) Lender shall have received, in form and substance
satisfactory to Lender, the Tranche B Term Loan Participation Agreement;
(e) Lender shall have received, in form and substance
satisfactory to Lender, from the appraisal firms that have conducted the
appraisals of the Real Property and Equipment, addressed to Lender or upon which
Lender is expressly permitted to rely with respect to each such Appraisal;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination (ix) of each of
the UBS Letters of Credit and the UBS Agreements, (x) of the Richemont Guaranty
and the Hanover Reimbursement Agreement, and (xi) of the Series A Note
Agreements and the Series B Note Agreements, respectively, and evidence that all
obligations have been paid in full with respect thereto, other than obligations
and liabilities under such agreements that by their terms expressly survive the
termination thereof;
(g) Lender shall have received, each in form and substance
satisfactory to Lender, (xii) a true and complete copy of all of the Richemont
Credit Facility agreements, documents and instruments related thereto, (xiii)
the Richemont $10,000,000 Call Agreement, (xiv) written subordination agreement,
dated as of the date hereof, between Richemont, and Lender, pursuant to which,
among other things, Richemont shall have subordinated its right to payment under
the Richemont $10,000,000 Credit Agreements to the prior indefeasible payment in
full of all of the Obligations, to the extent provided therein, and (xv) written
subordination agreement, dated as of the date hereof, between Richemont, and
Lender, pursuant to which, among other things, Richemont shall have subordinated
its right to payment under the Richemont $25,000,000 Credit Agreements to the
prior indefeasible payment in full of all of the Obligations, to the extent
provided therein, each duly authorized, executed and delivered by Hanover and
Richemont;
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<PAGE> 31
(h) Lender shall have received, in form and substance
satisfactory to Lender, evidence of the adoption and subsistence of authorizing
resolutions of Richemont approving the execution, delivery and performance by
Richemont of such Subordination Agreement and an opinion of Luxembourg counsel
to Richemont addressed to Lender with respect to the due authorization,
execution, validity and enforceability of such Subordination Agreement, and as
to such other matters as Lender shall reasonably require.
(i) 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 Borrowers and Guarantors;
(j) Each of the Keystone Internet, Tranche A Term Loan
Borrowers and the Tranche B Term Loan Borrowers 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;
(k) 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;
(l) Lender shall have received an opinion of counsel to
Borrowers and other Guarantors with respect to the transactions contemplated by
this Amendment and such other matters as Lender shall reasonably request,
addressed to Lender, in form and substance and satisfactory to Lender; and
(m) 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.
25. Effect of this Amendment. This Amendment constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Loan Agreement or any of the other Financing Agreements, or
waivers of or consents under any provisions of any of the foregoing, are
intended or implied by this Amendment, and in all other respects the Financing
Agreements are hereby specifically ratified, restated and confirmed by all
parties hereto as of the effective date hereof. To the extent that any provision
of the Loan Agreement or any of the other Financing Agreements conflicts with
any provision of this Amendment, the provision of this Amendment shall control.
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<PAGE> 32
26. 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.
27. 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).
28. 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.
29. 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]
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on the day and year first written.
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet Last
------------------------------
Title: Vice President
---------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
BRAWN OF CALIFORNIA, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
GUMP'S BY MAIL, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
GUMP'S CORP.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
LWI HOLDINGS, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 34
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER DIRECT VIRGINIA INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
HANOVER REALTY, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
THE COMPANY STORE FACTORY, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
THE COMPANY OFFICE, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
KEYSTONE INTERNET SERVICES, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 35
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
TWEEDS, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
SILHOUETTES, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
HANOVER COMPANY STORE, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
DOMESTICATIONS, LLC
By: /s/ Brian C. Harriss
------------------------------
By their signatures below, the
undersigned Guarantors acknowledge
and agree to be bound by the
applicable provisions of this
Amendment:
HANOVER DIRECT, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Senior Vice President
---------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 36
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AMERICAN DOWN & TEXTILE COMPANY
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
D.M. ADVERTISING, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
LWI RETAIL, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
SCANDIA DOWN CORPORATION
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
KEYSTONE LIQUIDATIONS, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
YORK FULFILLMENT COMPANY, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 37
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER HOME FASHIONS GROUP, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
KITCHEN & HOME, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
DOMESTICATIONS KITCHEN & GARDEN, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
ENCORE CATALOG, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
CLEARANCE WORLD OUTLETS, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
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<PAGE> 38
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
SANDIA DOWN, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
ERIZON, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
HANOVER BRANDS, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
ERIZON.COM, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
LA CROSSE FULFILLMENT, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
SAN DIEGO TELEMARKETING, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
38
<PAGE> 1
EXHIBIT 10.5
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Subordination Agreement"), dated as of
March 24, 2000, is by and between CONGRESS FINANCIAL CORPORATION, a Delaware
corporation ("Senior Creditor", as hereinafter further defined), and RICHEMONT
FINANCE S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg ("Junior Creditor", as hereinafter further defined). Senior
Creditor and Junior Creditor are sometimes individually referred to herein as
"Creditor" and collectively as "Creditors."
W I T N E S S E T H:
WHEREAS, Junior Creditor has made a loan in the original principal
amount of up to $25,000,000 to Hanover Direct, Inc. ("Debtor", as hereinafter
defined), which loan is and shall be unsecured; and
WHEREAS, Senior Creditor has entered into financing arrangements with
Debtor and certain of its subsidiaries, pursuant to which Senior Creditor has,
upon certain terms and conditions, made loans and provided other financial
accommodations to certain subsidiaries of Debtor, guaranteed by Debtor and
certain subsidiaries of Debtor, secured by substantially all of the assets and
properties of Debtor and of such borrower subsidiaries and guarantor
subsidiaries of Debtor; and
WHEREAS, in order to induce Senior Creditor to continue the financing
arrangements with Debtor and certain subsidiaries of Debtor, Junior Creditor
has agreed to the subordination in favor of Senior Creditor as provided herein
of its right to payment of the existing and future obligations of Debtor to
Junior Creditor arising in connection with a loan of up to $25,000,000 to
Debtor to the prior indefeasible payment of the existing and future obligations
of Debtor to Senior Creditor under the Senior Creditor Agreements, and related
matters as set forth below;
NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and in this Subordination Agreement, the following terms
shall have the meanings ascribed to them below:
<PAGE> 2
1.1 "Agreements" shall mean, individually and collectively, the
Senior Creditor Agreements and the Junior Creditor Agreements.
1.2 "Banking Day" shall mean any day, other than Saturday or Sunday,
when Senior Creditor and commercial banks are open in New York, New York and
Europe.
1.3 "Creditors" shall mean, individually and collectively, Senior
Creditor and Junior Creditor and their respective successors and assigns.
1.4 "Debtor" shall mean Hanover Direct, Inc., a Delaware
corporation, and its successors and assigns, including, without limitation, a
receiver, trustee, or debtor-in-possession on behalf of any such person or on
behalf of any such successor or assign.
1.5 "Event of Default" shall have the meaning given in the Loan
Agreement.
1.6 "Incipient Default" shall have the meaning given in the Loan
Agreement.
1.7 "Excess Loan Availability" shall have the meaning given in the
Loan Agreement.
1.8 "Insolvency Proceeding" shall have the meaning given in Section
2.3 hereof.
1.9 "Junior Creditor" shall mean Richemont Finance S.A., a societe
anonyme organized under the laws of the Grand Duchy of Luxembourg, and its
successors and assigns.
1.10 "Junior Creditor Agreements" shall mean, individually and
collectively, the "Hanover Direct, Inc. - Unsecured Line of Credit & Promissory
Note", dated March 1, 2000, by and between Debtor and Junior Creditor in the
original principal amount of up to $25,000,000, and all agreements, documents
and instruments at any time executed and/or delivered by Debtor or any other
person to, with or in favor of Junior Creditor in connection therewith or
related thereto, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.11 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor under the Junior Creditor Agreements, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether
as principal, surety, endorser, guarantor or otherwise, arising under or
evidenced by or in connection with the Junior Creditor Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Junior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable in whole or in part, in any such case or similar proceeding),
whether direct or indirect, absolute or contingent, joint or several, due or
not due, primary or secondary, liquidated or unliquidated,
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<PAGE> 3
secured or unsecured, and whether arising directly, or by way of subrogation,
contribution, reimbursement, indemnification, exoneration or otherwise, or
howsoever acquired by Junior Creditor in connection with the Junior Creditor
Agreements.
1.12 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
company, trust, joint venture, limited liability company, limited liability
partnership, or other entity or any government or any agency or instrumentality
or political subdivision thereof.
1.13 "Senior Creditor" shall mean Congress Financial Corporation, a
Delaware corporation, and its successors and assigns.
1.14 "Senior Creditor Agreements" shall mean, individually and
collectively, the Loan and Security Agreement, dated November 14, 1995, by and
among Senior Creditor, Debtor and certain subsidiaries of Debtor, as amended
through the Fifteenth Amendment to Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement"), any related guarantees by Debtor in favor
of Lender, any related security agreements, by Debtor in favor of Senior
Creditor and all agreements, documents and instruments at any time executed
and/or delivered by Debtor or any other person to, with or in favor of Senior
Creditor in connection therewith or related thereto, as all of the foregoing
now exist or, subject to the terms and conditions contained in this
Subordination Agreement, as may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.15 "Senior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor or any other
Subsidiary of Debtor to Senior Creditor and/or its affiliates, or participants,
including principal, interest, charges, fees, premiums, indemnities and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, owing in connection with the Senior Creditor Agreements, whether
now existing or hereafter arising, whether arising before, during or after the
initial or, subject to the terms and conditions contained in this Subordination
Agreement, any renewal term of the Senior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable either in whole or in part, in any such case or similar
proceeding), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and whether arising directly, or by way of subrogation,
contribution, reimbursement, indemnification, exoneration or otherwise, or
howsoever acquired by Senior Creditor in connection with the Senior Creditor
Agreements.
1.16 All terms used herein which are defined in the Uniform
Commercial Code as in effect in the State of New York, unless otherwise defined
herein shall have the meanings set forth
- 3 -
<PAGE> 4
therein. All references to any term in the plural shall include the singular
and all references to any term in the singular shall include the plural.
2. SUBORDINATION OF JUNIOR DEBT
2.1 Subordination. Except as specifically set forth in Section 2.2
hereof, Junior Creditor hereby subordinates its right to payment and
satisfaction of the Junior Debt, and the payment and satisfaction thereof,
directly or indirectly, by any means whatsoever, is hereby deferred, to the
prior indefeasible payment and satisfaction in full of all Senior Debt.
2.2 Permitted Payments. Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 2.1 hereof,
(a) unless and until Senior Creditor sends written notice to
Junior Creditor of the occurrence of an Event of Default or Incipient Default
under the Senior Creditor Agreements, Debtor may make and Junior Creditor may
receive and retain from Debtor, regularly scheduled payments of interest in
respect of the Junior Debt and of a monthly fee in the amount of $62,500, in
each case as provided by the Junior Creditor Agreements as in effect on the
date hereof; and
(b) Debtor may make, and Junior Creditor may receive and
retain, payments by Debtor to Junior Creditor of the Junior Debt solely out of
cash proceeds pursuant to a rights offering by Hanover Direct, Inc., Hanover
Brands, Inc. or erizon, inc. or any other equity offering(s) or equity private
placement(s) of capital stock of Hanover Direct, Inc, Hanover Brands, Inc. or
erizon, inc. and Junior Creditor may convert the then outstanding amount of
Junior Debt for capital stock of Hanover Direct, Inc. or Hanover Brands, Inc.
or erizon, inc.; provided, that, (i) Senior Creditor has received not less than
fifteen (15) Banking Days prior written notice from Debtor of the intention to
make such payment out of cash proceeds of such rights offering or other equity
offering or such conversion of the Junior Debt to capital stock, (ii) such
capital stock consists of ordinary common stock as in effect on the date hereof
or of other capital shares if consented to by Senior Creditor, which consent
shall not be unreasonably withheld in Senior Creditor's good faith judgment.
To the extent any such cash proceeds of any such equity offering or conversion
of Junior Debt permitted hereby reduces the amount of any commitment to advance
funds pursuant to the Junior Creditor Agreements, any such net cash proceeds or
conversion shall not also reduce the amount of any commitment to advance funds
pursuant to the Richemont $10,000,000 Credit Agreements as such term is defined
in the Senior Creditor Agreements.
2.3 Distributions.
(a) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Debtor or the proceeds
thereof to the creditors of Debtor or readjustment of the obligations and
indebtedness of Debtor, whether by reason of liquidation, bankruptcy,
arrangement, receivership,
- 4 -
<PAGE> 5
assignment for the benefit of creditors, marshalling of assets of Debtor or any
other action or proceeding involving the readjustment of all or any part of
indebtedness of Debtor or the application of the assets of Debtor to the payment
or liquidation thereof (each of the foregoing, an "Insolvency Proceeding"), or
upon the dissolution or other winding up of Debtor's business, or upon the sale
of all or substantially all of Debtor's assets, then, and in any such event, (i)
Senior Creditor shall first receive indefeasible payment in full in cash of all
of the Senior Debt prior to the payment of all or any part of the Junior Debt,
and (ii) Senior Creditor shall be entitled to receive any payment or
distribution of any kind or character, whether in cash, securities or other
property, which is payable or deliverable in respect of any or all of the Junior
Debt.
(b) In order to enable Senior Creditor to enforce its rights
under Section 2.3(a) hereof, Senior Creditor is hereby irrevocably authorized
and empowered (in its own name or in the name of Junior Creditor or otherwise),
but shall have no obligation, to enforce claims comprising any of the Junior
Debt by proof of debt, proof of claim, suit or otherwise and take generally any
action which Junior Creditor might otherwise be entitled to take, as Senior
Creditor may deem necessary or advisable for the enforcement of its rights or
interests hereunder.
(c) To the extent necessary for Senior Creditor to realize
the benefits of the subordination of the Junior Debt provided for herein
(including the right to receive any and all payments and distributions which
might otherwise be payable or deliverable with respect to the Junior Debt in
any Insolvency Proceeding or otherwise), Junior Creditor shall execute and
deliver to Senior Creditor such instruments or documents (together with such
assignments or endorsements as Senior Creditor shall deem necessary), as may be
reasonably requested by Senior Creditor.
2.4 Payments Received by Junior Creditor. Except for payments
received by Junior Creditor as provided in Section 2.2 hereof, should any
payment or distribution or security or instrument or proceeds thereof be
received by the Junior Creditor in respect of the Junior Debt, Junior Creditor
shall receive and hold the same in trust, as trustee, for the benefit of Senior
Creditor, segregated from other funds and property of Junior Creditor and shall
forthwith deliver the same to Senior Creditor (together with any endorsement or
assignment of Junior Creditor where necessary), for application to any of the
Senior Debt. In the event of the failure of Junior Creditor to make any such
endorsement or assignment to Senior Creditor, Senior Creditor, or any of its
officers or employees, are hereby irrevocably authorized on behalf of Junior
Creditor to make the same.
2.5 Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Subordination Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) the
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the
commencement of an Insolvency Proceeding. In the event
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<PAGE> 6
any legend or endorsement is omitted, Senior Creditor, or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same. No specific legend, further assignment or endorsement or
delivery of notes, guarantees or instruments shall be necessary to subject any
Junior Debt to the subordination thereof contained in this Agreement.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES
3.1 Additional Covenants. Junior Creditor and Debtor agree in
favor of Senior Creditor that:
(a) Except as specifically set forth in Section 2.2 hereof,
Debtor shall not, directly or indirectly, make and Junior Creditor shall not,
directly or indirectly, accept or receive any payment of or any prepayment or
any payment pursuant to acceleration or claims of breach or any payment to
acquire Junior Debt or otherwise in respect of any Junior Debt;
(b) notwithstanding any rights or remedies available to it
under the Junior Creditor Agreements, applicable law or otherwise, Junior
Creditor shall not, directly or indirectly, (i) seek to collect from Debtor any
of the Junior Debt or exercise any of its rights or remedies upon a default or
event of default by Debtor under the Junior Creditor Agreements or otherwise or
(ii) commence any action or proceeding against Debtor or Debtor's properties
under the U.S. Bankruptcy Code or any state insolvency law or any similar
present or future statute, law or regulation or any proceedings for voluntary
liquidation, dissolution or other winding up of Debtor's business, or the
appointment of any trustee, receiver or liquidator for Debtor or any part of
Debtor's properties or any assignment for the benefit of creditors or any
marshalling of assets of Debtor or (iii) take any other action against Debtor
or Debtor's properties in respect of the Junior Debt;
(c) Debtor shall not grant to Junior Creditor and Junior
Creditor shall not acquire any security interest, lien, claim or encumbrance on
any assets or properties of Debtor, and Junior Creditor shall not acquire any
guarantees or other agreements under which any person, other than Debtor, is or
may become obligated, directly or indirectly, for all or any portion of the
Junior Debt;
(d) Junior Creditor and Debtor shall not amend, modify, alter
or change in any material respect the terms of any arrangements related to the
Junior Debt;
(e) Junior Creditor shall not sell, assign, pledge, encumber
or otherwise dispose of any of the Junior Debt, or subordinate any of the
Junior Debt to any indebtedness of Debtors other than the Senior Debt, without
the prior written consent of Senior Creditor, which consent shall not be
unreasonably withheld in Senior Creditor's good faith determination;
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<PAGE> 7
(f) Junior Creditor and Debtor shall, at any time or times
upon the request of Senior Creditor, promptly furnish to Senior Creditor a
true, correct and complete statement of the outstanding Junior Debt; and
(g) Junior Creditor and Debtor shall execute and deliver to
Senior Creditor such additional agreements, documents and instruments and take
such further actions as may be reasonably necessary or desirable in the opinion
of Senior Creditor to effectuate the provisions and purposes of this
Subordination Agreement.
3.2 Additional Representations and Warranties. Junior Creditor and
Debtor represent and warrant to Senior Creditor that:
(a) as of the date hereof, the total principal amount of the
Junior Debt outstanding is $5,000,000;
(b) Junior Creditor has no security interest, lien, claim or
encumbrance on any assets and properties of Debtor and the Junior Debt is
unsecured;
(c) as of the date hereof, no default or event of default, or
event which with notice or passage of time or both would constitute an event of
default, exists or has occurred under the Junior Creditor Agreements;
(d) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(e) none of the Junior Debt is subject to any lien, security
interest, financing statements, subordination, assignment or other claim,
except in favor of Senior Creditor; and
(f) this Subordination Agreement constitutes the legal, valid
and binding obligations of Junior Creditor, enforceable in accordance with its
terms.
3.3 Waivers. Notice of acceptance hereof, the making of loans,
advances and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor or its subsidiaries by
Senior Creditor, and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which Junior Creditor and Debtor
are or may be entitled are hereby waived (except as expressly provided for
herein or as to Debtor, in the Senior Creditor Agreements). Junior Creditor
also waives notice of, and hereby consents to, (a) subject to the terms and
conditions contained in this Subordination Agreement, any amendment,
modification, supplement, renewal, restatement or extensions of time of payment
of or increase or decrease in the amount of any of the Senior Debt or to the
Senior Creditor Agreements or any collateral at any time granted to or held by
Senior Creditor, (b) the taking, exchange, surrender and releasing of
collateral at any time granted to or held by Senior Creditor or guarantees now
or at any time held by or available to Senior Creditor for the
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<PAGE> 8
Senior Debt or any other person at any time liable for or in respect of the
Senior Debt, (c) the exercise of, or refraining from the exercise of any rights
against Debtor or any other obligor or any collateral at any time granted to or
held by Senior Creditor, (d) the settlement, compromise or release of, or the
waiver of any default with respect to, any of the Senior Debt, and/or (e) Senior
Creditor's election, in any proceeding instituted under the U.S. Bankruptcy Code
of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of
the foregoing shall not, in any manner, affect the terms hereof or impair the
obligations of Junior Creditor hereunder. All of the Senior Debt shall be
deemed to have been made or incurred in reliance upon this Subordination
Agreement.
3.4 Subrogation; Marshalling. Junior Creditor shall not be subrogated
to, or be entitled to any assignment of any Senior Debt or Junior Debt or of any
collateral for or guarantees or evidence of any thereof until all of the Senior
Debt is indefeasibly paid and satisfied in full. Junior Creditor hereby waives
any and all rights to have any collateral or any part thereof granted to or held
by Senior Creditor marshalled upon any foreclosure or other disposition of such
collateral by Senior Creditor or Debtor with the consent of Senior Creditor.
When the Senior Debt shall have been indefeasibly paid in full and discharged
and all the Senior Creditor Agreements have been terminated, the Junior Creditor
shall, to the extent permitted by law, be subrogated to the rights of the Senior
Creditor to receive payments or distribution of assets in respect of the Junior
Debt.
3.5 No Offset. In the event Junior Creditor at any time incurs any
obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance
with the terms of the contract governing such obligation and shall not deduct
from or setoff against any amounts owed by Junior Creditor to Debtor in
connection with any such transaction any amounts the Junior Creditor claims are
due to it with respect to the Junior Debt.
3.6 Certain Amendments to Senior Creditor Agreements. Senior
Creditor shall not make loans or advances to Debtors under the Loan Agreement
that would result in the Senior Debt to be greater than $90,000,000 outstanding
at any one time and Senior Creditor shall not extend the Renewal Date (as such
term is defined in the Loan Agreement) beyond six (6) months without the prior
written consent of Junior Creditor; provided, that, if the Junior Creditor
Agreements are terminated to the extent provided herein, this Section 3.6 shall
automatically and without further action by the parties hereto shall no longer
be deemed to apply and have no further force and effect.
4. MISCELLANEOUS
4.1 Amendments. Any waiver, permit, consent or approval by either
Creditor of or under any provision, condition or covenant to this Subordination
Agreement must be in writing and shall be effective only to the extent it is
set forth in writing and as to the specific facts or
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<PAGE> 9
circumstances covered thereby. Any amendment of this Subordination Agreement
must be in writing and signed by each of the parties to be bound thereby.
4.2 Successors and Assigns.
(a) This Subordination Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of each of Creditors and its respective successors, participants
and assigns.
(b) Senior Creditor reserves the right to grant participations
in, or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and the collateral securing same; provided, that,
Junior Creditor shall not be obligated to give any notices to or otherwise in
any manner deal directly with any participant in the Senior Debt and no
participant shall be entitled to any rights or benefits under this Subordination
Agreement except through Senior Creditor. In connection with any participation
or other transfer or assignment, Senior Creditor (i) may disclose to such
assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or any collateral and (ii) shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Subordination Agreement.
(c) In connection with any assignment or transfer of any or
all of the Senior Debt, or any or all rights of Senior Creditor in any of the
property of Debtor or its subsidiaries (other than pursuant to a
participation), Junior Creditor agrees to execute and deliver an agreement
containing terms substantially identical to those contained herein in favor of
any such assignee or transferee and, in addition, will execute and deliver an
agreement containing terms substantially identical to those contained herein in
favor of any third person who succeeds to or replaces any or all of Senior
Creditor's financing of certain subsidiaries of Debtor, whether such successor
financing or replacement occurs by transfer, assignment, "takeout" or any other
means.
4.3 Insolvency. This Subordination Agreement shall be applicable
both before and after the filing of any petition by or against Debtor or any of
its subsidiaries under the U.S. Bankruptcy Code and all converted or succeeding
cases in respect thereof, and all references herein to Debtor or any of
Debtor's subsidiaries shall be deemed to apply to a trustee for Debtor or any
of its subsidiaries, as well as to Debtor or any of its subsidiaries as
debtor-in-possession. The relative rights of Senior Creditor and Junior
Creditor to repayment of the Senior Debt and the Junior Debt, respectively, and
in or to any distributions from or in respect of Debtor or any proceeds of
Debtor's property and assets, shall continue after the filing thereof on the
same basis as prior to the date of the petition, subject to any court order
approving the financing of, or use of cash collateral by, Debtor or any of its
subsidiaries as debtor-in-possession.
4.4 Bankruptcy Financing. If Debtor or any of its subsidiaries
shall become subject to a proceeding under the U.S. Bankruptcy Code and if
Senior Creditor desires to permit the use of cash collateral or to provide
financing to Debtor or any of its subsidiaries under either Section
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<PAGE> 10
363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor agrees as
follows: (a) adequate notice to Junior Creditor (if required) shall have been
provided for such financing or use of cash collateral if Junior Creditor
receives notice two (2) business days prior to the entry of the order approving
such financing or use of cash collateral and (b) no objection will be raised by
Junior Creditor to any such use of cash collateral or financing. For purposes
of this Section, notice of a proposed financing or use of cash collateral shall
be deemed given when given in the manner prescribed by Section 4.5 hereof to
Junior Creditor.
4.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed to have been
duly given or made: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, one (1) business day after
sending; and if mailed by certified mail, return receipt requested, five (5)
days after mailing. All notices, requests and demands are to be given or made
to the respective parties at their addresses set forth below (or to such other
addresses as either party may designate by notice in accordance with the
provisions of this Section:
To Senior Creditor: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Laurence S. Forte
Telecopier: 212-545-4283
Phone: 212-545-4280
To Junior Creditor: Richemont Finance S.A.
35 Boulevard Prince Henri
L 1724 Luxembourg
Attention: Mr. J. Alan Grieve
Telecopier: 011-4141-711-7138
Phone: 011-4141-710-3322
with a copy to: Robert P. Wessely, Esq.
Dorsey & Whitney
250 Park Avenue
New York, New York 10036
Telecopier: (212) 953-7201
Phone: (212) 415-9200
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 4.5, but such
change shall not be effective until notice of such change has been received by
the other Creditor.
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<PAGE> 11
4.6 Counterparts. This Subordination Agreement may be executed in
any number of counterparts, each of which shall be an original with the same
force and effect as if the signatures thereto and hereto were upon the same
instrument.
4.7 Governing Law. The validity, construction and effect of this
Subordination Agreement shall be governed by the laws of the State of New York
(without giving effect to principles of conflicts of laws).
4.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the
parties hereto hereby irrevocably consents to the non-exclusive jurisdiction of
the Supreme Court of the State of New York for New York County and the United
States District Court for the Southern District of New York and waives trial by
jury in any action or proceeding with respect to this Subordination Agreement.
4.9 Complete Agreement.
(a) This written Subordination Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
statement of the terms and conditions of their agreement.
(b) The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of the Subordination Agreement, dated as of the date hereof, between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and certain direct and
indirect subsidiaries of Debtor in respect of the Richemont $10,000,000 Credit
Agreements as such term is defined in the Loan Agreement, nor shall any of the
terms thereof be limited or affected by the terms of this Subordination
Agreement.
(c) The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of any other subordination agreement, heretofore entered into between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and/or certain of its
subsidiaries and affiliates, nor shall any of the terms of any such
subordination agreement be limited or affected by the terms of this
Subordination Agreement.
4.10 No Third Parties Benefitted. This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Subordination
Agreement.
4.11 Disclosures, Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of Debtor and neither Creditor shall have any obligation or duty
to disclose any such information to any other Creditor. Except as expressly
set forth in this Subordination Agreement, the parties hereto have not
otherwise made to each other nor do they hereby make to each other any
warranties, express or implied, nor do they assume any liability to each other
with respect to: (a) the enforceability, validity, value or collectability of
any of the Junior Debt or the Senior Debt or any collateral or guarantee which
may have been granted to any of them in connection therewith, (b) Debtor's
title
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<PAGE> 12
to or right to any of Debtor's assets and properties or (c) any other
matter except as expressly set forth in this Subordination Agreement.
4.12 Term. This Subordination Agreement is a continuing agreement
and shall remain in full force and effect until the indefeasible satisfaction
in full of all Senior Debt and the termination of the financing arrangements
among Senior Creditor, Debtor and certain subsidiaries of Debtor.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet Last
--------------------------
Title: Vice President
-----------------------
RICHEMONT FINANCE S.A.
By: /s/ Jan P. du Plessis
--------------------------
Title: Director
-----------------------
By: /s/ Alan Grieve
--------------------------
Title: Director
-----------------------
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<PAGE> 14
ACKNOWLEDGMENT
The undersigned hereby acknowledges and agrees to the foregoing terms
and provisions. By its signature below, the undersigned agrees that it shall,
together with its successors and assigns, be bound by the provisions hereof.
The undersigned acknowledges and agrees that: (i) although it may sign
this Subordination Agreement, it is not a party hereto and does not and shall
not receive any right, benefit, priority or interest under or because of the
existence of the foregoing Subordination Agreement, (ii) in the event of a
breach by the undersigned of any of the terms and provisions contained in the
foregoing Subordination Agreement, such a breach shall constitute an "Event of
Default" as defined in and under the Senior Creditor Agreements, and (iii) it
shall execute and deliver such additional documents and take such additional
action as may be necessary in the opinion of either Creditor to effectuate the
provisions and purposes of the foregoing Subordination Agreement.
HANOVER DIRECT, INC.
By: /s/ Brian C. Harriss
--------------------------
Title: SVP & CFO
-----------------------
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<PAGE> 1
Exhibit 10.6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 24, 2000, is by and between
HANOVER DIRECT, INC., a corporation organized under the laws of the State of
Delaware ("Hanover"), Hanover Direct Pennsylvania, Inc., a Pennsylvania
corporation ("HDPI"), Brawn of California, Inc., a California corporation
("Brawn"), Gump's by Mail, Inc., a Delaware corporation ("GBM"), Gump's Corp., a
California corporation ("Gump's"), Tweeds, LLC, a Delaware limited liability
company ("Tweed's 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"), Hanover Direct Virginia Inc., a Delaware corporation
("HDV"), LWI Holdings, Inc., a Delaware corporation ("LWI"), and Keystone
Internet Services, Inc., a Delaware corporation ("Keystone Internet" which,
collectively with Hanover, HDPI, Brawn, GBM, Gump's, Tweed's LLC, Silhouettes
LLC, HCS LLC, Domesticiations LLC, and HDV, are collectively referred to herein
as the "Borrowers" and each individually, a "Borrower") and RICHEMONT FINANCE
S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the following
terms shall have the following respective meanings:
"Advance": As defined in Section 2.1.
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of New York or in Luxembourg) on which banks are permitted to be
open in the State of New York and in Europe.
"Call Agreement": The letter agreement dated as of the date hereof
between the Lender and the Senior Lender, and agreed to and acknowledged by the
Borrowers, as the same may be amended, modified, supplemented or restated from
time to time.
"Capital Stock": (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalent (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of profits and losses of, or distributions of assets of, the
issuing Person.
<PAGE> 2
"Closing Date": Any Business Day selected by the Borrowers for the
making of the initial Advance hereunder; provided that all the conditions
precedent to the obligation of the Lender to make the initial Advance, as set
forth in Article III, have been, or, on such Closing Date, will be, satisfied.
The Borrowers shall give the Lender not less than one Business Day's prior
notice of the day selected as the Closing Date.
"Commitment": The obligation of the Lender to make Advances to or for
the account of a Borrower in an aggregate principal amount outstanding at any
time not to exceed the Commitment Amount upon the terms and subject to the
conditions and limitations of this Agreement.
"Commitment Amount": $10,000,000, as the same may be reduced from time
to time pursuant to Section 2.6 hereof.
"Commitment Fees": As defined in Section 2.7.
"Default": Any event which, with the giving of notice (whether such
notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.
"Equity Interests": Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excess Loan Availability": As defined in the Senior Credit Agreement.
"Existing Note": The Unsecured Line of Credit and Promissory Note dated
March 1, 2000, made by Hanover in favor of the Lender, in the principal amount
of $25,000,000, as said note may be amended, supplemented or restated from time
to time.
"Event of Default": Any event described in Section 7.1.
"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 or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
"Guarantees": The Guarantees, as defined in the Senior Credit
Agreement.
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<PAGE> 3
"Guarantors": The Guarantors as defined in the Senior Credit Agreement.
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan Document": This Agreement, the Note, the Existing Note, the Call
Agreement and the Subordination Agreements.
"Maturity Date": The earlier of (a) the date on which the revolving
loan facility under the Senior Credit Agreement is terminated and all
obligations of the Borrowers thereunder have been fully paid, and (b) the date
on which the Commitment Amount is reduced to ZERO.
"Note": As defined in Section 2.3.
"Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Revolving Loan Advances": As defined in Section 2.1.
"Senior Credit Agreement": The Loan and Security Agreement dated as of
November 14, 1995, among the Borrowers, certain Affiliates of the Borrowers and
the Lender, as amended and supplemented 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, the Thirteenth
Amendment to Loan and Security Agreement, dated as of September 30, 1998,
Fourteenth Amendment to Loan and Security Agreement, dated as of February 28,
2000, and the Fifteenth Amendment to Loan and Security Agreement dated as of
March 24, 2000.
3
<PAGE> 4
"Senior Lender": Congress Financial Corporation, a Delaware
corporation, and its successors and assigns under the Senior Credit Agreement.
"Senior Lender Advances": As defined in Section 2.1.
"Subordination Agreements": Collectively, the $10,000,000 Subordination
Agreement and the $25,000,000 Subordination Agreement.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.
"$10,000,000 Subordination Agreement": The Subordination Agreement
dated as of the date hereof between the Lender and the Senior Lender, and
acknowledged by the Borrowers, providing for, among other things, subordinating
certain payments under this Credit Agreement, as the same may be amended,
modified or supplemented from time to time.
"$25,000,000 Subordination Agreement": The Subordination Agreement
dated as of the date hereof between the Lender and the Senior Lender, and
acknowledged by the Borrowers, providing for, among other things, subordinating
certain payments under the Existing Note, as the same may be amended, modified
or supplemented from time to time.
"Trade Payables Sublimit": At any time, the lesser of (i) $5,000,000
and (ii) the Commitment Amount less $3,000,000.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 Other Definitional Terms, Terms of Construction. The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to Sections, Exhibits, Schedules and the
like references are to Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise expressly provided. The words "include," "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation." Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or." All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all necessary definitions and related
provisions from such other agreements. All covenants, terms, definitions and
other provisions from other agreements incorporated into this Agreement by
reference shall survive any
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<PAGE> 5
termination of such other agreements until the obligations of the Borrowers
under this Agreement and the Note are irrevocably paid in full and the
Commitment is terminated.
ARTICLE II
TERMS OF LENDING
Section 2.1 The Revolving Commitment. On the terms and subject to the
conditions hereof, the Lender agrees to make advances (each an "Advance"), (a)
to the Borrowers on a revolving basis ("Revolving Loan Advances"), and (b) to
the Senior Lender for the account of the Borrowers in accordance with the Call
Agreement and Section 2.2(b) hereof ("Senior Lender Advances"), at any time and
from time to time from the Closing Date to the Maturity Date. Until the Maturity
Date, (i) the Borrower may borrow, repay and reborrow Revolving Loan Advances in
accordance with the provisions hereof, and (ii) the Senior Lender may request
payment of Senior Lender Advances for the account of the Borrowers under the
Call Agreement, provided that the unpaid aggregate principal amount of all
outstanding Advances shall not at any time exceed the Commitment Amount at such
time.
Section 2.2 Procedure for Advances.
(a) Procedure for Revolving Loan Advances. Any request by the Borrowers
for an Advance shall be in writing or by telephone and must be given so as to be
received by the Lender not later than 12:00 Noon (New York City time) on the
Business Day prior to requested Advance date. Each request for a Revolving Loan
Advance shall be irrevocable and shall be deemed a representation by the
Borrowers that on the requested Advance date and after giving effect to such
Advance the applicable conditions specified in Article III have been and will
continue be satisfied. Each request for an Advance shall specify (i) the
requested Advance date (which must be a Business Day) and (ii) the amount of
such Advance. Unless the Lender determines that any applicable condition
specified in Article III has not been satisfied, the Lender will make available
to the Borrower or its designee at the Lender's principal office (or if the
$10,000,000 Subordination Agreement is in effect, by wire transfer to the Senior
Lender in accordance with such Subordination Agreement), in immediately
available funds not later than 3:00 p.m. (New York City time) on the requested
Advance date the amount of the requested Advance.
(b) Procedures for Senior Lender Advances. Requests by the Senior
Lender for an Advance for the account of the Borrowers shall be given in the
manner provided for in the Call Agreement, which the Borrowers hereby approve
and authorize. Unless the Lender determines that the requested Senior Loan
Advance either (i) does not meet the requirements of the Call Agreement, or (ii)
exceeds the Commitment Amount then available to be advanced, the Lender will
make the requested Senior Lender Advance to the Senior Lender. In the event the
requested Senior Lender Advance exceeds then available Commitment Amount, the
Lender will make an Advance to the Senior Lender only in the amount of the then
available Commitment Amount.
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In no event will outstanding Advances at any time exceed the Available
Commitment Amount. The Borrowers are jointly and severally liable to the Lender
to reimburse the Lender for any and all Senior Lender Advances and interest
thereon, as if such Advances were made directly to the Borrowers as a Revolving
Loan Advance hereunder.
Section 2.3 The Note. The Advances (including the Borrowers'
reimbursement obligations with respect to any Senior Loan Advances) shall be
evidenced by a single promissory note of the Borrowers (the "Note"),
substantially in the form of Exhibit 2.3 hereto, in the amount of the Commitment
Amount originally in effect. The Lender shall enter in its ledgers and records
the amount of each Advance made and the payments made thereon, and the Lender is
authorized by the Borrower to enter on a schedule attached to the Note a record
of such Advances and payments.
Section 2.4 Interest Rates, Interest Payments and Default Interest.
Interest shall accrue and be payable at a rate equal to 0.125% of the average
monthly unpaid balance of the Note during such month; provided, however, that
upon the happening of any Event of Default, then, at the option of the Lender,
the Note shall thereafter bear interest at the rate specified above, plus 2% per
annum. Interest shall be payable monthly in arrears on the last day of each
month and upon final payment of the Note.
Section 2.5 Repayment and Prepayment. Principal of the Note shall be
payable in full on the Maturity Date. The Borrowers may prepay the Note, in
whole or in part, at any time, without premium or penalty provided that, so long
as the Call Agreement or the $10,000,000 Subordination Agreement is in effect,
the Borrowers shall accompany such optional repayment with a certificate stating
that (a) no "Default" or "Event of Default" (as such terms are defined in the
Senior Credit Agreement) under the Senior Credit Agreement has occurred and is
continuing, and (b) for the 30 consecutive day period preceding the date of such
optional prepayment, Excess Loan Availability was not less than $5,000,000.
Amounts so optionally prepaid under this Section will increase the Commitment
Amount and may be reborrowed as Revolving Loan Advances or be available for
advance to the Senior Lender as Senior Lender Advances, upon the terms and
subject to the conditions and limitations of this Agreement. Principal of this
Note is subject to mandatory prepayment, which amounts may not be reborrowed,
upon mandatory reduction of the Commitment Amount pursuant to Section 2.6.
Section 2.6 Reduction of Commitment Amount.
(a) Mandatory Reduction. The Commitment Amount shall be reduced at the
times of any rights offering by Hanover, Hanover Brands, Inc. or erizon, inc. or
any other equity offering(s) or equity private placement(s) of Capital Stock of
any of such companies after the Closing Date which offering or placement may
take the form, in whole or in part, of a conversion of outstanding Indebtedness
under this Agreement to an Equity Interest of a Borrower or
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Guarantor. The Commitment Amount shall be reduced by the net cash proceeds of
such offering or placement plus the dollar amount of such Indebtedness
converted.
(b) Mandatory Prepayment Upon Reduction of Commitment Amount. Upon any
reduction in the Commitment Amount pursuant to this Section 2.6, the Borrowers
shall pay to the Lender the amount, if any, by which the aggregate unpaid
principal amount of the Note exceeds the Commitment Amount as so reduced.
Amounts so paid cannot be reborrowed. The Borrowers may, at any time, upon not
less than 3 Business Days prior written notice to the Lender, terminate the
Commitment in its entirety provided that the Senior Credit Agreement is
terminated and all obligations of the Borrowers thereunder have been paid. Upon
termination of the Commitment pursuant to this Section, the Borrowers shall pay
to the Lender all unpaid obligations of the Borrowers to the Lender hereunder.
Section 2.7 Commitment Fee. The Borrowers shall pay to the Lender
monthly fees (the "Commitment Fees") in an amount equal to $79,200 per month,
payable monthly in arrears on the last day of each month and on the Maturity
Date.
Section 2.8 Computation. Interest on the Note shall be computed on the
basis of actual days elapsed and a year of 360 days.
Section 2.9 Use of Proceeds. The proceeds of Revolving Loan Advances
shall be used for working capital by the payment of trade creditors in the
ordinary course of business, not to exceed the Trade Payables Sublimit; the
proceeds of Advances may be used to make payments on the Senior Credit Agreement
in accordance with the provisions of the Call Agreement and the Senior Credit
Agreement.
Section 2.10 Conversion. The contribution of cash for an Equity
Interest by the Lender may be contributed, at the Lender's option, by conversion
of all or a designated portion of the principal amount of all Advances made
under the Note and then outstanding into such Equity Interest.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions of Initial Advance. The obligation of the Lender
to make the initial Advance hereunder shall be subject to the prior or
simultaneous fulfillment of each of the following conditions:
(a) Documents. The Lender shall have received the following:
(i) The Note executed by a duly authorized officer (or
officers) of each Borrower and dated the Closing Date.
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(ii) A copy of the corporate or limited liability company
resolutions of each Borrower authorizing the execution, delivery and
performance of the Loan Documents and containing an incumbency
certificate showing the names and titles, and bearing the signatures
of, the officers of such Borrower authorized to execute the Loan
Documents, certified as of the Closing Date by the Secretary or an
Assistant Secretary of each such Borrower.
(iii) A copy of the articles of incorporation or limited
liability company agreement of each Borrower with all amendments
thereto, certified by the appropriate governmental official of the
jurisdiction of its incorporation or formation as of a current date.
(iv) A certificate of good standing for each Borrower in the
jurisdiction of its incorporation or formation, certified by the
appropriate governmental officials as of a current date.
(v) A copy of the bylaws of each corporate Borrower, certified
as of the Closing Date by the Secretary or an Assistant Secretary of
such Borrower.
(vi) The opinion of counsel to the Borrowers covering such
matters as the Lender may reasonably request.
(vii) Copies of the fully executed Senior Credit Agreement and
all related documents, certified as of the Closing Date by the
Secretary or an Assistant Secretary of Hanover.
(b) Other Matters. All organizational and legal proceedings relating to
the Borrowers and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in scope, form
and substance to the Lender and its counsel, and the Lender shall have received
all information and copies of all documents, including records of corporate
proceedings, which it may reasonably have requested in connection therewith,
such documents where appropriate to be certified by proper Borrower or
governmental authorities.
(c) Fees and Expenses. The Lender shall have received all fees and
other amounts due and payable by the Borrowers on or prior to the Closing Date,
including the reasonable fees and expenses of counsel to the Lender payable
pursuant to Section 8.2.
Section 3.2 Conditions Precedent to all Advances. The Lender shall not
have any obligation to make any Revolving Loan Advance (including Advances after
the initial Advance) hereunder unless all representations and warranties of the
Borrowers made in this Agreement remain true and correct and no Default or Event
of Default exists. The Lender shall not have any
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obligation to make any Senior Lender Advance hereunder or under the Call
Agreement unless the Senior Lender has strictly complied with the requirements
of the Call Agreement.
Section 3.3 Obligations Absolute. The obligations of the Borrowers
under this Agreement shall be absolute, unconditional and irrevocable, and shall
not be subject to any right of setoff or counterclaim and shall be paid or
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances: (a) any lack of validity or enforceability of the Call Agreement,
the Subordination Agreements, the Senior Credit Agreement or any other related
document; (b) any amendment or waiver of any provision of all or any of the Loan
Documents or the Senior Credit Agreement; (c) the existence of any claim,
setoff, defense or other rights which the Borrowers or any of them may have at
any time against the Senior Lender or the Lender (other than the defense of
payment to the Lender in accordance with the terms of this Agreement)or any
other Person, whether in connection with this Agreement, the Loan Documents, the
Senior Credit Agreement or any transaction contemplated thereby; (d) any request
for payment, demand, statement, certification, determination, calculation or any
other document presented to the Lender under the Call Agreement or the
Subordination Agreement or otherwise proving to be false, forged, fraudulent,
invalid, unauthorized or insufficient in any respect, or any statement therein
being untrue or inaccurate in any respect whatsoever; (e) payment by the Lender
under the Call Agreement upon a request therefor which does not comply with the
terms of the Call Agreement or the Subordination Agreements.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Borrower represents, warrants and covenants to the 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 and warranties and
covenants in the other Loan Documents and in the Senior Credit Agreement (which
are hereby incorporated herein, as if fully set forth herein, and if the Senior
Credit Agreement is terminated, shall continue in the form immediately prior to
such termination) are conditions to the effectiveness of this Agreement and all
Advances:
Section 4.1 Organization, Standing, Etc. Such Borrower is a corporation
or limited liability company (as applicable) duly incorporated or organized and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate or limited
liability company power and authority to carry on its business as now conducted,
to enter into this Agreement and to issue the Note and to perform its
obligations hereunder and thereunder. This Agreement, the Note and each other
Loan Document have been duly authorized by all necessary corporate or limited
liability company action and when executed and delivered will be the legal and
binding obligations of such Borrower. The execution and
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delivery of this Agreement, the Note and the other Loan Documents will not
violate such Borrower's organizational documents or any law applicable to such
Borrower. No governmental consent or exemption is required in connection with
such Borrower's execution and delivery of this Agreement and the Note.
Section 4.2 Financial Statements and No Material Adverse Change. The
Borrowers' audited consolidated financial statements as at December 31, 1999, as
heretofore furnished to the Lender, have been prepared in accordance with GAAP.
The Borrowers have no material obligation or liability not disclosed in such
financial statements, and there has been no material adverse change in the
condition of the Borrowers since the dates of such financial statements.
Section 4.3 Year 2000. The Borrowers have reviewed and assessed their
business operations and computer systems and applications to address the Ayear
2000 problem (that is, that computer applications and equipment used by the
Borrowers, directly or indirectly through third parties, may have been or may be
unable to properly perform date-sensitive functions before, during and after
January 1, 2000). The Borrowers represent and warrant that the year 2000 problem
has not resulted in and will not result in a material adverse change in the
Borrowers' business condition (financial or otherwise), operations, properties
or prospects or ability to repay the Lender. The Borrowers agree that this
representation and warranty will be true and correct on and shall be deemed made
by the Borrowers on each date a Borrower requests any Advance under this
Agreement or the Note or delivers any information to the Lender. The Borrowers
will promptly deliver to the Lender such information relating to this
representation and warranty as the Lender requests from time to time.
Section 4.4 Financial Statements, Reports and Notices. The Borrowers
will furnish to the Lender each of the financial statements, reports,
certificates and notices required to be furnished to the Senior Lender under the
Senior Credit Agreement, by the times and in the forms (except addressed to and
for the benefit of the Lender) required to be delivered to the Senior Lender.
Section 4.5 Inspection. The Borrowers will permit any Person designated
by the Lender to visit and inspect any of the properties, books and financial
records of the Borrowers, to examine and to make copies of the books of accounts
and other financial records of the Borrowers, and to discuss the affairs,
finances and accounts of the Borrowers with officers at such reasonable times
and intervals as the Lender may designate.
Section 4.6 Payment. The Borrowers shall cause the net proceeds of any
rights offering or equity offering or private placement referred to in Section
2.6(a) to be paid directly into the Payment Account, as defined in the Call
Agreement.
ARTICLE V
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EVENTS OF DEFAULT AND REMEDIES
Section 5.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) Any Borrower shall fail to make when due, whether by acceleration
or otherwise, any payment of principal of or interest on the Note or any other
obligations of the Borrower to the Lender pursuant to this Agreement.
(b) Any representation, warranty or statement of fact made by or on
behalf of a Borrower in this Agreement or by or on behalf of a Borrower in any
certificate, statement, report or document herewith or hereafter furnished to
the Lender at any time is false or misleading in any material respect.
(c) Any Borrower shall breach any of the terms, covenants, conditions
or provisions of this Agreement, any supplement hereto or any other agreement
between Lender and any Borrower or Subsidiary, including any of the other Loan
Documents or any other default or Event of Default occurs or exists under any of
the foregoing.
(d) Any Borrower or any other Person at any time liable on or in
respect of the obligations under this Agreement shall default in the payment of
an amount greater than Two Hundred Fifty Thousand Dollars ($250,000),
individually or in the aggregate, at any time due or any Indebtedness at any
time owing to any Person other than Lender or in the performance of any other
terms or covenants or any evidence of same or other agreement relating thereto
or securing same, or with respect to any material contract, lease (other than
leases under which Hanover, as successor to The Horn & Hardart Company, is the
sole obligor relating to property not used in the business of Borrowers),
license or other obligation owed to any Person other than Lender, which default
continues for more than the applicable cure period, if any, with respect
thereto, but in no event more than thirty (30) days after the occurrence of any
such default.
(e) Any Borrower or any Guarantor having assets in excess of Two
Hundred Fifty Thousand Dollars ($250,000), shall become insolvent, fail to meet
its debts as they mature, call a meeting of creditors or have a creditors'
committee appointed, make an assignment for the benefit of creditors, commence
or have commenced against it any action or proceeding for relief under the U.S.
Bankruptcy Code or any other bankruptcy law or similar statute or statutes
providing for reorganization, adjustment of debts, liquidation or dissolution
(except in the case of any such action or proceeding commenced against any
Borrower or any Guarantor having assets in excess of Two Hundred Fifty Thousand
Dollars ($250,000), such action or proceeding is dismissed within thirty (30)
days from the date such action or proceeding was commenced, unless such Borrower
or Guarantor against whom such action was brought shall acquiesce to the relief
sought or such relief sought is sooner granted; provided, however, that during
such thirty (30) day period Lender shall have no obligation to make or provide
any Advances, except
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pursuant to the Call Agreement, or if any Borrower or any Guarantor having
assets in excess of Two Hundred Fifty Thousand Dollars ($250,000) suspends or
discontinues doing business for any reason (other than as permitted in Section
6.7 hereof), or if a receiver, custodian or trustee of any kind is appointed for
any Borrower or any Guarantor having assets in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or any of their respective properties.
(f) One (1) or more judgments, decrees or orders for the payment of
damages in an amount greater than Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate at any time shall be issued by one or more courts, governmental
agencies, administrative tribunals or other bodies having jurisdiction against
any Borrower or any Guarantor with assets greater than Two Hundred Fifty
Thousand Dollars ($250,000) and a stay of execution thereof shall not be
procured within thirty (30) days after the date of entry thereof, or such
judgment(s), decree(s) or order(s) shall not be fully bonded within such period
of thirty (30) days, unless sooner enforced.
(g) Any guarantor of any of the obligations of the Borrowers under this
Agreement shall seek to revoke its guaranty or any such guaranty shall become
unenforceable for any reason.
(h) Any default shall occur under the Existing Note.
(i) Any "Event of Default" (as defined in the Senior Credit Agreement)
shall occur under the Senior Credit Agreement.
Section 5.2 Remedies. Except as provided for in the Call Agreement and
the $10,000,000 Subordination Agreement, (a) any Event of Default described in
Sections 5.1 (e), (f) or (g) shall occur with respect to a Borrower or a
Subsidiary, the Commitment shall automatically terminate and the Note and all
other obligations of the Borrowers to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may (i) declare the
Commitment terminated, whereupon the Commitment shall terminate, and (ii)
declare the Note and all other obligations of the Borrowers to the Lender under
this Agreement to be forthwith due and payable, whereupon the same shall
immediately become due and payable, in each case without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note to the contrary notwithstanding. Upon
the occurrence of any of the events described in clauses (a) or (b) of the
preceding sentence the Lender may exercise all rights and remedies under this
Agreement, the Note and any related agreements and under any applicable law.
Section 5.3 Offset. In addition to the remedies set forth in Section
5.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, the Borrowers hereby irrevocably authorize the Lender to set off
all sums owing by the Borrowers to the Lender
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against all deposits and credits of the Borrowers or any of them, with, and any
and all claims of the Borrowers against, the Lender.
Section 5.4 Subordination Agreement. Anything to the contrary contained
in this Article V notwithstanding, as long as the $10,000,000 Subordination
Agreement and the Call Agreement are in effect, the provisions of the
$10,000,000 Subordination Agreement and the Call Agreement shall govern the
Lender's rights to exercise remedies hereunder.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Modifications. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrowers; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by a Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 6.2 Costs and Expenses. Whether or not the transactions
contemplated hereby are consummated, the Borrowers agree to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of counsel to
the Lender) in connection with the negotiation, preparation, approval, review,
execution, delivery, amendment, modification, interpretation, collection and
enforcement of this Agreement or any other Loan Document and the Existing Note.
The obligations of the Borrowers under this Section shall survive any
termination of this Agreement.
Section 6.3 Waivers, etc. No failure on the part of the Lender or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.
Section 6.4 Notices. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex
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or facsimile transmission, from the first Business Day after the date of sending
if sent by overnight courier, or from four days after the date of mailing if
mailed; provided, however, that any notice to the Lender under Article II hereof
shall be deemed to have been given only when received by the Lender.
Section 6.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that a Borrower may not assign its rights or
delegate its obligations hereunder without the prior written consent of the
Lender.
SECTION 6.6 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION
AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
SECTION 6.7 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER, THIS
AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR NEW YORK STATE
COURT SITTING IN NEW YORK, NEW YORK; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT ANY BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
SECTION 6.8 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 6.9 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 6.10 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrowers
and the Lender with
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respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
Section 6.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 6.12 Joint and Several Obligations; Terms with Respect to
Guaranteed Obligations. Each Borrower shall be jointly and severally liable for
the obligations arising in connection with Advances, and the obligations arising
in connection with Advances made to or for the account of the other Borrowers;
provided, however, that if it is at any time determined that any Borrower is
liable as a guarantor (and not jointly and severally) with respect to such
obligations arising in connection with Advances made to or for the account of
the other Borrowers (the "Guaranteed Obligations"), each Borrower hereby agrees
to the following terms:
(a) Obligations Absolute. No act or thing need occur to establish the
liability of each Borrower for its Guaranteed Obligations, and no act or thing,
except full payment and discharge of all such Guaranteed Obligations, shall in
any way exonerate such Borrower or modify, reduce, limit or release the
liability of such Borrower for its Guaranteed Obligations. The obligations of
each Borrower for its Guaranteed Obligations shall be absolute, unconditional,
and irrevocable, and shall not be subject to any right of setoff or counterclaim
by such Borrower.
(b) Continuing Guaranty. Each Borrower shall be liable for its
Guaranteed Obligations, plus accrued interest thereon and all attorneys' fees,
collection costs and enforcement expenses referable thereto. Guaranteed
Obligations may be created and continued in any amount without affecting or
impairing the liability of such Borrower therefor. No notice of such Guaranteed
Obligations already or hereafter contracted or acquired by the Lender, or any
renewal or extension of any thereof need be given to such Borrower and none of
the foregoing acts shall release such Borrower from liability hereunder. The
agreement of each Borrower pursuant to this Agreement with respect to its
Guaranteed Obligations is an absolute, unconditional and continuing guaranty of
payment of such Guaranteed Obligations and shall continue to be in force and be
binding upon such Borrower until such Guaranteed Obligations are paid in full
and this Agreement is terminated, and the Lender may continue, at any time and
without notice to such Borrower, to extend credit or other financial
accommodations and loan monies to or for the benefit of the other Borrowers on
the faith thereof. Each Borrower hereby waives, to the fullest extent permitted
by law, any right it may have to revoke or terminate its guaranty of the
Guaranteed Obligations before the Guaranteed Obligations are paid in full and
this Agreement is terminated. In the event any Borrower shall have any right
under applicable law to otherwise terminate or revoke its guaranty of the
Guaranteed Obligations which cannot be waived, such termination or revocation
shall not be effective until written notice of such termination or revocation,
signed by such Borrower, is actually received by the Lender's officer
responsible for such matters. Any notice of termination or revocation described
above shall not
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affect such Borrower's guaranty of the Guaranteed Obligations in relation to (i)
any of the Guaranteed Obligations that arose prior to receipt thereof or (ii)
any of the Guaranteed Obligations created after receipt thereof, if such
Guaranteed Obligations were incurred either through loans by the Lender or
letters of credit issued by the Lender pursuant to its existing financing
arrangements with the other Borrowers, including, without limitation, advances,
readvances or letters of credit in an aggregate outstanding amount not to exceed
the aggregate amount of the Revolving Commitment as of the time such notice of
termination or revocation was received, including, but not limited, to all
protective advances, costs, expenses, and attorneys' and paralegals' fees,
whensoever made, advanced or incurred by the Lender in connection with the
Guaranteed Obligations. If, in reliance on any Borrower's guaranty of its
Guaranteed Obligations, the Lender makes loans or other advances to or for the
benefit of the other Borrower or takes other action under this Agreement after
such aforesaid termination or revocation by the undersigned but prior to the
receipt by the Lender of said written notice as set forth above, the rights of
the Lender shall be the same as if such termination or revocation had not
occurred.
(c) Other Transactions. Whether or not any existing relationship
between the Borrowers has been changed or ended, the Lender may, but shall not
be obligated to, enter into transactions resulting in the creation or
continuance of other obligations of any Borrower to the Lender, without consent
or approval by the other Borrowers and without notice to the other Borrowers,
and all such obligations shall be guaranteed by virtue of this Agreement. The
liability of the Borrowers under this Agreement with respect to the Guaranteed
Obligations shall not be affected or impaired by any of the following acts or
things (which the Lender is expressly authorized to do, omit or suffer from time
to time, without notice to or approval by the Borrowers): (i) any acceptance of
collateral security, other guarantors, accommodation parties or sureties for any
or all Guaranteed Obligations; (ii) any one or more extensions or renewals of
Guaranteed Obligations (whether or not for longer than the original period) or
any modification of the interest rates, maturities or other contractual terms
applicable to any Guaranteed Obligations; (iii) any waiver or indulgence granted
to the other Borrowers, any delay or lack of diligence in the enforcement of
Guaranteed Obligations, or any failure to institute proceedings, file a claim,
give any required notices or otherwise protect any Guaranteed Obligations; (iv)
any full or partial release of, settlement with, or agreement not to sue, any
other Borrower or any other guarantor or other person liable in respect of any
Guaranteed Obligations; (v) any discharge of any evidence of Guaranteed
Obligations or the acceptance of any instrument in renewal thereof or
substitution therefor; (vi) any failure to obtain collateral security for
Guaranteed Obligations, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to protect, ensure,
or enforce any collateral security, or any modification, substitution,
discharge, impairment or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any Guaranteed
Obligations or any evidence thereof; (ix) any order of application of any
payments or credits upon Guaranteed Obligations; (x) any release of any
collateral security for Guaranteed Obligations; (xi) any amendment to or
modification of, any agreement between the Lender and any other Borrower, or
16
<PAGE> 17
any waiver of compliance by any other Borrower with the terms thereof; and (xii)
any election by the Lender under Section 1111(b) of the United States Bankruptcy
Code.
(d) Waivers of Defenses and Rights. Each Borrower waives any and all
defenses, claims and discharges of the other Borrowers, or any other obligor,
pertaining to the Guaranteed Obligations, except the defense of discharge by
payment in full. Without limiting the generality of the foregoing, no Borrower
will assert, plead or enforce against the Lender any defense of waiver, release,
discharge in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, usury, illegality or unenforceability
which may be available to any other Borrower or any other person liable in
respect of any Guaranteed Obligations, or any setoff available against the
Lender to any other Borrower or any such other person, whether or not on account
of a related transaction. Each Borrower waives presentment, demand for payment,
notice of dishonor or nonpayment, and protest of any instrument evidencing
Guaranteed Obligations. Each Borrower agrees that its liability under this
Agreement for the Guaranteed Obligations shall be primary and direct, and that
the Lender shall not be required first to resort for payment of the Guaranteed
Obligations to the other Borrower or other persons or their properties, or first
to enforce, realize upon or exhaust any collateral security for the Guaranteed
Obligations, or to commence any action or obtain any judgment against any other
Borrower or against any such collateral security or to pursue any other right or
remedy the Lender may have against any other Borrower before enforcing the
liability of such Borrower for the Guaranteed Obligations under this Agreement.
(e) Approval of Credit. Each of the Borrowers has, independently and
without reliance upon the Lender or the directors, officers, agents or employees
of the Lender, and instead in reliance upon information furnished by the other
Borrowers and upon such other information as such Borrower deemed appropriate,
made its own independent credit analysis and decision to guaranty the
obligations of the other Borrowers pursuant to this Agreement.
(f) Waiver of Subrogation. Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution or
any other claim which it may now or hereafter have against the other Borrowers,
any endorser or any other guarantor of all or any part of the Guaranteed
Obligations, and each Borrower hereby waives any benefit of, and any right to
participate in, any security or collateral given to the Lender to secure payment
of the Guaranteed Obligations or any other liability of the other Borrowers to
the Lender. Each Borrower further agrees that any and all claims it may have
against the other Borrowers, any endorser or any other guarantor of all or any
part of the Guaranteed Obligations or against any of their respective
properties, whether arising by reason of any payment by such Borrower to the
Lender pursuant to the provisions hereof or otherwise, is hereby waived.
Section 6.13 Indemnification. Each Borrower hereby jointly and
severally indemnified and holds harmless the Lender from and against any and all
claims, damages, losses, liabilities, reasonable costs or expenses whatsoever
(including attorneys fees) which the Lender may incur
17
<PAGE> 18
(or which may be claimed against the Lender by any Person whatsoever) by reason
of or in connection with the execution and delivery or assignment or transfer
of, or payment or failure to make payment under , the Call Agreement or the
Subordination Agreements; provided that the Borrowers shall not be required to
indemnify the Lender for any claims , damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by the wilful misconduct
or gross negligence of the Lender. Nothing in this Section 6.13 is intended to
limit the obligations of the Borrowers to pay or reimburse the Lender otherwise
contained in this Agreement.
Section 6.14 Liability of the Lender. As between the Lender and the
Borrowers, the Borrowers assume all risks of the acts or omissions of the Senior
Lenders with respect to its use of the Call Agreement. Neither the Lender nor
any of its affiliates, or officers or directors, shall be liable or responsible
for: (a) the use which may be made of the proceeds of any Advance by the
Borrowers or the Senior Lender or any other Person or for any acts or omissions
of the Senior Lender in connection therewith; (b) the validity, sufficiency or
genuineness of any notices, demands, requests, statements, certificates or
documents even if such communications or documents should in fact rove to be in
any or all respects invalid, insufficient, fraudulent or forged; or (c) any
other circumstances whatsoever in making or failing to make payment under the
Call Agreement, except only that the Borrowers shall have a claim against the
Bank , and the Lender shall be liable to the Borrowers, to the extent but only
to the extent of any direct, as opposed to consequential damages suffered by the
Borrowers or any of them which the Borrowers prove, by clear and convincing
evidence, were caused by the Lender's willful misconduct or gross negligence in
determining whether under the Call Agreement the terms of the Call Agreement
were satisfied by the Senior Lender. In furtherance and not in limitation of the
foregoing, the Lender may accept communications and documents from the Senior
Lender that appear to be in order, and may assume that the statements made
thereunder are accurate, without responsibility for further investigation (and
without notice to or consent by the Borrowers).
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
Address: HANOVER DIRECT, INC.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harris
-----------------------------------
Fax:
--------------------------------
Title Senior Vice President
--------------------------------
Address: HANOVER DIRECT PENNSYLVANIA, INC.
500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harris
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: BRAWN OF CALIFORNIA, INC.
741 "F" Street
San Diego, California
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
19
<PAGE> 20
Address: GUMPS BY MAIL, INC.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: GUMP'S CORP.
135 Post Street
San Francisco, California
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: TWEEDS, LLC
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
20
<PAGE> 21
Address: SILHOUETTES, LLC
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: HANOVER COMPANY STORE, LLC
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: DOMESTICATIONS, LLC
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
21
<PAGE> 22
Address: HANOVER DIRECT VIRGINIA INC.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: LWI HOLDINGS, INC.
23297 Commerce Pkwy
Beachwood, Ohio
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
Address: KEYSTONE INTERNET SERVICES, INC.
1500 Harbor Boulevard
Weehawken, New Jersey 07087
By /s/ Brian C. Harriss
-----------------------------------
Fax:
--------------------------------
Title Vice President
--------------------------------
22
<PAGE> 23
RICHEMONT FINANCE S.A.
By /s/ Jan du Plessis
------------------------------------
Print Name Jan du Plessis
--------------------------
Title Director
-------------------------------
By /s/ Alan Grieve
------------------------------------
Print Name Alan Grieve
--------------------------
Title Director
-------------------------------
Lender's Address:
Richemont Finance, S.A.
35 Boulevard, Prince Henri
L1724 Luxembourg
Attention: General Manager
Fax : 011-352 22 42 19
Phone: 011 352 22 42 10
with a copy to:
Richemont Finance S.A.
Rigistrasse 2
Zug 6300
Switzerland
Attention: Mr. J. Alan Grieve
Fax: 011-4141-711-7138
Phone: 011-4141-710-3322
23
<PAGE> 1
Exhibit 10.7
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Subordination Agreement"), dated as of
March 24, 2000, is by and between CONGRESS FINANCIAL CORPORATION, a Delaware
corporation ("Senior Creditor", as hereinafter further defined), and RICHEMONT
FINANCE S.A., a societe anonyme organized under the laws of the Grand Duchy of
Luxembourg ("Junior Creditor", as hereinafter further defined). Senior Creditor
and Junior Creditor are sometimes individually referred to herein as "Creditor"
and collectively as "Creditors."
W I T N E S S E T H:
WHEREAS, Junior Creditor has or is about to enter into financing
arrangements pursuant to which Junior Creditor may make loans and advances to
certain direct and indirect subsidiaries of Hanover Direct, Inc. ("Debtor", as
hereinafter defined) of up to $10,000,000, which loans are and shall be
unsecured; and
WHEREAS, Senior Creditor has entered into financing arrangements with
Debtor and certain of its subsidiaries, pursuant to which Senior Creditor has,
upon certain terms and conditions, made loans and provided other financial
accommodations to certain subsidiaries of Debtor, guaranteed by Debtor and
certain subsidiaries of Debtor, secured by substantially all of the assets and
properties of Hanover and of such borrower subsidiaries and guarantor
subsidiaries of Debtor; and
WHEREAS, in order to induce Senior Creditor to continue the financing
arrangements with Debtor and certain subsidiaries of Debtor, Junior Creditor has
agreed to the subordination in favor of Senior Creditor as provided herein of
its right to payment of the existing and future obligations of Debtor to Junior
Creditor arising in connection with the revolving credit facility in the amount
of up to $10,000,000 to the prior indefeasible payment of the existing and
future obligations of Debtor to Senior Creditor under the Senior Creditor
Agreements, and related matters as set forth below;
NOW THEREFORE, in consideration of the mutual benefits accruing to
Creditors hereunder and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. DEFINITIONS
As used above and in this Subordination Agreement, the following terms
shall have the meanings ascribed to them below:
<PAGE> 2
1.1 "Agreements" shall mean, individually and collectively, the Senior
Creditor Agreements and the Junior Creditor Agreements.
1.2 "Banking Day" shall mean any day, other than Saturday or Sunday,
when Senior Creditor and commercial banks are open in New York, New York and
Europe.
1.3 "Creditors" shall mean, individually and collectively, Senior
Creditor and Junior Creditor and their respective successors and assigns.
1.4 "Debtor" shall mean, individually and collectively, Hanover Direct,
Inc., a Delaware corporation, Hanover Direct Pennsylvania, Inc., a Pennsylvania
corporation, Brawn Of California, Inc., a California corporation, Gump's By
Mail, Inc., a Delaware corporation, Gump's Corp., a California corporation, LWI
Holdings, Inc., a Delaware corporation, Hanover Direct Virginia Inc., a Delaware
corporation, Hanover Realty, Inc., a Virginia corporation, The Company Store
Factory, Inc., a Delaware corporation, The Company Office, Inc., a Delaware
corporation, Tweeds, LLC, a Delaware limited liability company, Silhouettes,
LLC, a Delaware limited liability company, Hanover Company Store, LLC, a
Delaware limited liability company, Domestications, LLC, a Delaware limited
liability company, and Keystone Internet Services, Inc., a Delaware corporation,
and each of their respective successors and assigns, including, without
limitation, a receiver, trustee, or debtor-in-possession on behalf of any such
person or on behalf of any such successor or assign.
1.5 "Event of Default" shall have the meaning given in the Loan
Agreement.
1.6 "Incipient Default" shall have the meaning given in the Loan
Agreement.
1.7 "Excess Loan Availability" shall have the meaning given in the Loan
Agreement.
1.8 "Insolvency Proceeding" shall have the meaning given in Section 2.3
hereof.
1.9 "Junior Creditor" shall mean Richemont Finance S.A., a societe
anonyme organized under the laws of the Grand Duchy of Luxembourg, and its
successors and assigns.
1.10 "Junior Creditor Agreements" shall mean, individually and
collectively, the Credit Agreement, dated as of the date hereof, among Junior
Creditor and Debtor the Revolving Credit Note, dated as of the date hereof, by
Debtor payable to the order of Junior Creditor in the principal amount of up to
$10,000,000, and all agreements, documents and instruments at any time executed
and/or delivered by Debtor or any other person to, with or in favor of Junior
Creditor in connection therewith or related thereto, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.11 "Junior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor to Junior
Creditor under the Junior Creditor Agreements, including principal, interest,
charges, fees, premiums, indemnities and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under or
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<PAGE> 3
evidenced by or in connection with the Junior Creditor Agreements, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of the Junior Creditor Agreements or after the
commencement of any case with respect to Debtor under the U.S. Bankruptcy Code
or any similar statute (and including, without limitation, any principal,
interest, fees, costs, expenses and other amounts, whether or not such amounts
are allowable in whole or in part, in any such case or similar proceeding),
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured, and
whether arising directly, or by way of subrogation, contribution, reimbursement,
indemnification, exoneration or otherwise, or howsoever acquired by Junior
Creditor in connection with the Junior Creditor Agreements.
1.12 "Payment Account" shall have the meaning given in the Richmont
$10,000,000 Call Agreement.
1.13 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
company, trust, joint venture, limited liability company, limited liability
partnership, or other entity or any government or any agency or instrumentality
or political subdivision thereof.
1.14 "Richemont $10,000,000 Call Agreement" shall mean the letter
agreement, dated as of the date hereof, between Senior Creditor and Junior
Creditor, acknowledged by Debtors, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.15 "Senior Creditor" shall mean Congress Financial Corporation, a
Delaware corporation, and its successors and assigns.
1.16 "Senior Creditor Agreements" shall mean, individually and
collectively, the Loan and Security Agreement, dated November 14, 1995, by and
among Senior Creditor, Debtor and certain subsidiaries of Debtor, as amended
through the Fifteenth Amendment to Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement"), the Richemont $10,000,000 Call Agreement,
any related guarantees by Debtor in favor of Senior Creditor, any security
agreements by Hanover in favor of Senior Creditor and all agreements, documents
and instruments at any time executed and/or delivered by Debtor or any other
person to, with or in favor of Senior Creditor in connection therewith or
related thereto, as all of the foregoing now exist or, subject to the terms and
conditions contained in this Subordination Agreement, as may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.17 "Senior Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Debtor or any other
subsidiary of Debtor to Senior Creditor and/or its affiliates, or participants,
including principal, interest, charges, fees, premiums, indemnities and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, owing in connection with the Senior Creditor Agreements, whether
now existing or
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<PAGE> 4
hereafter arising, whether arising before, during or after the initial or,
subject to the terms and conditions contained in this Subordination Agreement,
any renewal term of the Senior Creditor Agreements or after the commencement of
any case with respect to Debtor under the U.S. Bankruptcy Code or any similar
statute (and including, without limitation, any principal, interest, fees,
costs, expenses and other amounts, whether or not such amounts are allowable
either in whole or in part, in any such case or similar proceeding), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
whether arising directly, or by way of subrogation, contribution, reimbursement,
indemnification, exoneration or otherwise, or howsoever acquired by Senior
Creditor in connection with the Senior Creditor Agreements.
1.18 All terms used herein which are defined in the Uniform Commercial
Code as in effect in the State of New York, unless otherwise defined herein
shall have the meanings set forth therein. All references to any term in the
plural shall include the singular and all references to any term in the singular
shall include the plural.
2. SUBORDINATION OF JUNIOR DEBT
2.1 Subordination. Except as specifically set forth in Section 2.2
hereof, Junior Creditor hereby subordinates its right to payment and
satisfaction of the Junior Debt, and the payment and satisfaction thereof,
directly or indirectly, by any means whatsoever, is hereby deferred, to the
prior indefeasible payment and satisfaction in full of all Senior Debt.
2.2 Permitted Payments. Senior Creditor hereby agrees that,
notwithstanding anything to the contrary contained in Section 2.1 hereof,
(a) unless and until Senior Creditor sends written notice to
Junior Creditor of the occurrence and continuance of an Event of Default or
Incipient Default under the Senior Creditor Agreements:
(i) Debtor may make and Junior Creditor may receive and retain
from Debtor, from time to time payments of principal to Junior Creditor in
respect of the Junior Debt; provided, that, as to any such payment, each of the
following conditions shall have been satisfied as determined by Senior Creditor:
(A) Senior Creditor shall have received not less than five (5) Banking Days'
prior written notice of the intention of Debtors to make such payment, which
written notice shall set forth the amount of the payment intended to be made,
the then current outstanding amount of principal and such other information with
respect thereto as Senior Creditor may reasonably request, (B) as of the date of
and after giving effect to any such payment, the Excess Availability on such
date and for each of the immediately preceding thirty (30) consecutive days
shall have been not less than $5,000,000; and
(ii) Debtor may make and Junior Creditor may receive and
retain from Debtor regularly scheduled payments of interest and of a monthly fee
in the amount of $79,200 as provided by the Junior Creditor Agreements as in
effect on the date hereof; and
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<PAGE> 5
(b) Debtor may make, and Junior Creditor may receive and
retain, payments by Debtor to Junior Creditor of the Junior Debt solely out of
cash proceeds pursuant to a rights offering by Hanover Direct, Inc., Harvard
Brands, Inc. or erizon, inc. or any other equity offering(s) or equity private
placement(s) of capital stock of Hanover Direct, Inc, Hanover Brands, Inc. or
erizon, inc. and Junior Creditor may convert the then outstanding amount of
Junior Debt for capital stock of Hanover Direct, Inc. or Hanover Brands or
erizon, inc.; provided, that, (i) Senior Creditor has received not less than
fifteen (15) Banking Days prior written notice from Debtor of the intention to
make such payment out of cash proceeds of such rights offering or other equity
offering or such conversion of the Junior Debt to capital stock, (ii) such
capital stock consists of ordinary common stock as in effect on the date hereof
or of other capital shares if consented to by Senior Creditor, which consent
shall not be unreasonably withheld in Senior Creditor's good faith judgment. To
the extent any such cash proceeds of any such equity offering or conversion of
Junior Debt permitted hereby reduces the amount of any commitment to advance
funds pursuant to the Junior Creditor Agreements, any such net cash proceeds or
conversion shall not also reduce the amount of any commitment to advance funds
pursuant to the Richemont $25,000,000 Credit Agreements as such term is defined
in the Senior Creditor Agreements.
2.3 Distributions.
(a) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the assets of Debtor or the proceeds thereof
to the creditors of Debtor or readjustment of the obligations and indebtedness
of Debtor, whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors, marshalling of assets of
Debtor or any other action or proceeding involving the readjustment of all or
any part of indebtedness of Debtor or the application of the assets of Debtor to
the payment or liquidation thereof (each of the foregoing, an "Insolvency
Proceeding"), or upon the dissolution or other winding up of Debtor's business,
or upon the sale of all or substantially all of Debtor's assets, then, and in
any such event, (i) Senior Creditor shall first receive indefeasible payment in
full in cash of all of the Senior Debt prior to the payment of all or any part
of the Junior Debt, and (ii) Senior Creditor shall be entitled to receive any
payment or distribution of any kind or character, whether in cash, securities or
other property, which is payable or deliverable in respect of any or all of the
Junior Debt.
(b) In order to enable Senior Creditor to enforce its rights
under Section 2.3(a) hereof, Senior Creditor is hereby irrevocably authorized
and empowered (in its own name or in the name of Junior Creditor or otherwise),
but shall have no obligation, to enforce claims comprising any of the Junior
Debt by proof of debt, proof of claim, suit or otherwise and take generally any
action which Junior Creditor might otherwise be entitled to take, as Senior
Creditor may deem necessary or advisable for the enforcement of its rights or
interests hereunder.
(c) To the extent necessary for Senior Creditor to realize the
benefits of the subordination of the Junior Debt provided for herein (including
the right to receive any and all payments and distributions which might
otherwise be payable or deliverable with respect to the Junior Debt in any
Insolvency Proceeding or otherwise), Junior Creditor shall execute and
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<PAGE> 6
deliver to Senior Creditor such instruments or documents (together with such
assignments or endorsements as Senior Creditor shall deem necessary), as may be
reasonably requested by Senior Creditor.
2.4 Payments Received by Junior Creditor. Except for payments received
by Junior Creditor as provided in Section 2.2 hereof, should any payment or
distribution or security or instrument or proceeds thereof be received by the
Junior Creditor in respect of the Junior Debt, Junior Creditor shall receive and
hold the same in trust, as trustee, for the benefit of Senior Creditor,
segregated from other funds and property of Junior Creditor and shall forthwith
deliver the same to Senior Creditor (together with any endorsement or assignment
of Junior Creditor where necessary), for application to any of the Senior Debt.
In the event of the failure of Junior Creditor to make any such endorsement or
assignment to Senior Creditor, Senior Creditor, or any of its officers or
employees, are hereby irrevocably authorized on behalf of Junior Creditor to
make the same.
2.5 Instrument Legend and Notation. Any instrument at any time
evidencing the Junior Debt, or any portion thereof, shall be permanently marked
on its face with a legend conspicuously indicating that payment thereof is
subordinate in right of payment to the Senior Debt and subject to the terms and
conditions of this Subordination Agreement, and (a) after being so marked
certified copies thereof shall be delivered to Senior Creditor and (b) the
original of any such instrument shall be immediately delivered to Senior
Creditor upon Senior Creditor's request, at any time on or after the
commencement of an Insolvency Proceeding. In the event any legend or endorsement
is omitted, Senior Creditor, or any of its officers or employees, are hereby
irrevocably authorized on behalf of Junior Creditor to make the same. No
specific legend, further assignment or endorsement or delivery of notes,
guarantees or instruments shall be necessary to subject any Junior Debt to the
subordination thereof contained in this Agreement.
2.6 Reduction in Credit Limit of Junior Creditor Agreements. Junior
Creditor may reduce the maximum credit available to Debtor under the Junior
Credit Agreements equal to the amount of net cash proceeds received by Senior
Creditor by reason of equity contribution(s) to Debtor or conversions of Junior
Debt into capital stock of Hanover Direct, Inc., Hanover Brands, Inc. and
erizon, inc. so long as each of the following conditions shall have been
satisfied as determined by Senior Creditor:
(a) Senior Creditor shall have received not less than fifteen
(15) Banking Days' prior written notice of the intention of Richemont to effect
any such reduction in such maximum credit and to make any such cash equity
contribution or conversion, together with the terms and conditions of such cash
equity contribution or conversion;
(b) such cash equity contributions or conversions shall be in
the form of capital stock consisting of ordinary common stock as in effect on
the date hereof or of other capital stock if consented to by Senior Creditor,
which consent shall not be unreasonably withheld in Senior Creditor's good faith
judgment; and
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<PAGE> 7
(c) any net proceeds of such cash equity contribution shall be
remitted directly to the Payment Account.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES
3.1 Additional Covenants. Junior Creditor and Debtor agree in favor of
Senior Creditor that:
(a) Except as specifically set forth in Section 2.2 hereof,
Debtor shall not, directly or indirectly, make and Junior Creditor shall not,
directly or indirectly, accept or receive any payment of or any prepayment or
any payment pursuant to acceleration or claims of breach or any payment to
acquire Junior Debt or otherwise in respect of any Junior Debt;
(b) notwithstanding any rights or remedies available to it
under the Junior Creditor Agreements, applicable law or otherwise, Junior
Creditor shall not, directly or indirectly, (i) seek to collect from Debtor any
of the Junior Debt or exercise any of its rights or remedies upon a default or
event of default by Debtor under the Junior Creditor Agreements or otherwise or
(ii) commence any action or proceeding against Debtor or Debtor's properties
under the U.S. Bankruptcy Code or any state insolvency law or any similar
present or future statute, law or regulation or any proceedings for voluntary
liquidation, dissolution or other winding up of Debtor's business, or the
appointment of any trustee, receiver or liquidator for Debtor or any part of
Debtor's properties or any assignment for the benefit of creditors or any
marshalling of assets of Debtor or (iii) take any other action against Debtor or
Debtor's properties in respect of the Junior Debt;
(c) Debtor shall not grant to Junior Creditor and Junior
Creditor shall not acquire any security interest, lien, claim or encumbrance on
any assets or properties of Debtor, and Junior Creditor shall not acquire any
guarantees or other agreements under which any person, other than Debtor, is or
may become obligated, directly or indirectly, for all or any portion of the
Junior Debt;
(d) Junior Creditor and Debtor shall not amend, modify, alter
or change in any material respect the terms of any arrangements related to the
Junior Debt;
(e) Junior Creditor shall not sell, assign, pledge, encumber
or otherwise dispose of any of the Junior Debt, or subordinate any of the Junior
Debt to any indebtedness of Debtors other than the Senior Debt, without the
prior written consent of Senior Creditor, which consent shall not be
unreasonably withheld in Senior Creditor's good faith determination;
(f) Junior Creditor and Debtor shall, at any time or times
upon the request of Senior Creditor, promptly furnish to Senior Creditor a true,
correct and complete statement of the outstanding Junior Debt; and
(g) Junior Creditor and Debtor shall execute and deliver to
Senior Creditor such additional agreements, documents and instruments and take
such further actions as may be
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<PAGE> 8
reasonably necessary or desirable in the opinion of Senior Creditor to
effectuate the provisions and purposes of this Subordination Agreement.
3.2 Additional Representations and Warranties. Junior Creditor and
Debtor represent and warrant to Senior Creditor that:
(a) as of the date hereof, the total principal amount of the
Junior Debt outstanding is $-0-;
(b) Junior Creditor has no security interest, lien, claim or
encumbrance on any assets and properties of Debtor and the Junior Debt is
unsecured;
(c) as of the date hereof, no default or event of default, or
event which with notice or passage of time or both would constitute an event of
default exists or has occurred under the Junior Creditor Agreements;
(d) Junior Creditor is the exclusive legal and beneficial
owner of all of the Junior Debt;
(e) none of the Junior Debt is subject to any lien, security
interest, financing statements, subordination, assignment or other claim, except
in favor of Senior Creditor; and
(f) this Subordination Agreement constitutes the legal, valid
and binding obligations of Junior Creditor, enforceable in accordance with its
terms.
3.3 Waivers. Notice of acceptance hereof, the making of loans,
advances and extensions of credit or other financial accommodations to, and the
incurring of any expenses by or in respect of, Debtor or its subsidiaries by
Senior Creditor, and presentment, demand, protest, notice of protest, notice of
nonpayment or default and all other notices to which Junior Creditor and Debtor
are or may be entitled are hereby waived (except as expressly provided for
herein or as to Debtor, in the Senior Creditor Agreements). Junior Creditor also
waives notice of, and hereby consents to, (a) subject to the terms and
conditions contained in this Subordination Agreement, any amendment,
modification, supplement, renewal, restatement or extensions of time of payment
of or increase or decrease in the amount of any of the Senior Debt or to the
Senior Creditor Agreements or any collateral at any time granted to or held by
Senior Creditor, (b) the taking, exchange, surrender and releasing of collateral
at any time granted to or held by Senior Creditor or guarantees now or at any
time held by or available to Senior Creditor for the Senior Debt or any other
person at any time liable for or in respect of the Senior Debt, (c) the exercise
of, or refraining from the exercise of any rights against Debtor or any other
obligor or any collateral at any time granted to or held by Senior Creditor, (d)
the settlement, compromise or release of, or the waiver of any default with
respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in
any proceeding instituted under the U.S. Bankruptcy Code of the application of
Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall not,
in any manner, affect the terms hereof or impair the obligations of Junior
Creditor hereunder. All
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<PAGE> 9
of the Senior Debt shall be deemed to have been made or incurred in reliance
upon this Subordination Agreement.
3.4 Subrogation; Marshalling. Junior Creditor shall not be subrogated
to, or be entitled to any assignment of any Senior Debt or Junior Debt or of any
collateral for or guarantees or evidence of any thereof until all of the Senior
Debt is indefeasibly paid and satisfied in full. Junior Creditor hereby waives
any and all rights to have any collateral or any part thereof granted to or held
by Senior Creditor marshalled upon any foreclosure or other disposition of such
collateral by Senior Creditor or Debtor with the consent of Senior Creditor.
When the Senior Debt shall have been indefeasibly paid in full and discharged
and all the Senior Creditor Agreements have been terminated, to the extent
permitted by law, the Junior Creditor shall, to the extent permitted by law, be
subrogated to the rights of the Senior Creditor to receive payments or
distribution of assets in respect of the Junior Debt.
3.5 No Offset. In the event Junior Creditor at any time incurs any
obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees
that it shall pay such obligation in cash or cash equivalents in accordance with
the terms of the contract governing such obligation and shall not deduct from or
setoff against any amounts owed by Junior Creditor to Debtor in connection with
any such transaction any amounts the Junior Creditor claims are due to it with
respect to the Junior Debt.
3.6 Certain Amendments to Senior Creditor Agreements. Senior Creditor
shall not make loans or advances to Debtors under the Loan Agreement that would
result in the Senior Debt to be greater than $90,000,000 outstanding at any one
time and Senior Creditor shall not extend the Renewal Date (as such term is
defined in the Loan Agreement) beyond six (6) months without the prior written
consent of Junior Creditor; provided, that, if the Junior Creditor Agreements
are terminated to the extent provided herein, this Section 3.6 shall
automatically and without further action by the parties hereto shall no longer
be deemed to apply and have no further force and effect.
4. MISCELLANEOUS
4.1 Amendments. Any waiver, permit, consent or approval by either
Creditor of or under any provision, condition or covenant to this Subordination
Agreement must be in writing and shall be effective only to the extent it is set
forth in writing and as to the specific facts or circumstances covered thereby.
Any amendment of this Subordination Agreement must be in writing and signed by
each of the parties to be bound thereby.
4.2 Successors and Assigns.
(a) This Subordination Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of each of Creditors and its respective successors, participants and
assigns.
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<PAGE> 10
(b) Senior Creditor reserves the right to grant participations
in, or otherwise sell, assign, transfer or negotiate all or any part of, or any
interest in, the Senior Debt and the collateral securing same; provided, that,
Junior Creditor shall not be obligated to give any notices to or otherwise in
any manner deal directly with any participant in the Senior Debt and no
participant shall be entitled to any rights or benefits under this Subordination
Agreement except through Senior Creditor. In connection with any participation
or other transfer or assignment, Senior Creditor (i) may disclose to such
assignee, participant or other transferee or assignee all documents and
information which Senior Creditor now or hereafter may have relating to the
Senior Debt or any collateral and (ii) shall disclose to such participant or
other transferee or assignee the existence and terms and conditions of this
Subordination Agreement.
(c) In connection with any assignment or transfer of any or
all of the Senior Debt, or any or all rights of Senior Creditor in any of the
property of Debtor or its subsidiaries (other than pursuant to a participation),
Junior Creditor agrees to execute and deliver an agreement containing terms
substantially identical to those contained herein in favor of any such assignee
or transferee and, in addition, will execute and deliver an agreement containing
terms substantially identical to those contained herein in favor of any third
person who succeeds to or replaces any or all of Senior Creditor's financing of
certain subsidiaries of Debtor, whether such successor financing or replacement
occurs by transfer, assignment, "takeout" or any other means.
4.3 Insolvency. This Subordination Agreement shall be applicable both
before and after the filing of any petition by or against Debtor or any of its
subsidiaries under the U.S. Bankruptcy Code and all converted or succeeding
cases in respect thereof, and all references herein to Debtor or any of Debtor's
subsidiaries shall be deemed to apply to a trustee for Debtor or any of its
subsidiaries, as well as to Debtor or any of its subsidiaries as
debtor-in-possession. The relative rights of Senior Creditor and Junior Creditor
to repayment of the Senior Debt and the Junior Debt, respectively, and in or to
any distributions from or in respect of Debtor or any proceeds of Debtor's
property and assets, shall continue after the filing thereof on the same basis
as prior to the date of the petition, subject to any court order approving the
financing of, or use of cash collateral by, Debtor or any of its subsidiaries as
debtor-in-possession.
4.4 Bankruptcy Financing. If Debtor or any of its subsidiaries shall
become subject to a proceeding under the U.S. Bankruptcy Code and if Senior
Creditor desires to permit the use of cash collateral or to provide financing to
Debtor or any of its subsidiaries under either Section 363 or Section 364 of the
U.S. Bankruptcy Code, Junior Creditor agrees as follows: (a) adequate notice to
Junior Creditor (if required) shall have been provided for such financing or use
of cash collateral if Junior Creditor receives notice two (2) business days
prior to the entry of the order approving such financing or use of cash
collateral and (b) no objection will be raised by Junior Creditor to any such
use of cash collateral or financing. For purposes of this Section, notice of a
proposed financing or use of cash collateral shall be deemed given when given in
the manner prescribed by Section 4.5 hereof to Junior Creditor.
4.5 Notices. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed to have been
duly given or made: if delivered in person, immediately upon delivery; if by
telex, telegram or facsimile transmission, immediately upon
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<PAGE> 11
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next business day, one (1)
business day after sending; and if mailed by certified mail, return receipt
requested, five (5) days after mailing. All notices, requests and demands are to
be given or made to the respective parties at their addresses set forth below
(or to such other addresses as either party may designate by notice in
accordance with the provisions of this Section:
To Senior Creditor: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Laurence S. Forte
Telecopier: 212-545-4283
Phone: 212-0545-4280
To Junior Creditor: Richemont Finance S.A.
35 Boulevard Prince Henri
L 1724 Luxembourg
Attention: Mr. J. Alan Grieve
Telecopier: 011-4141-711-7138
Phone: 011-4141-710-3322
with a copy to: Robert P. Wessely, Esq.
Dorsey & Whitney
250 Park Avenue
New York, New York 10036
Telecopier: (212) 953-7201
Phone: (212) 415-9200
Either Creditor may change the address(es) to which all notices, requests and
other communications are to be sent by giving written notice of such address
change to the other Creditor in conformity with this Section 4.5, but such
change shall not be effective until notice of such change has been received by
the other Creditor.
4.6 Counterparts. This Subordination Agreement may be executed in any
number of counterparts, each of which shall be an original with the same force
and effect as if the signatures thereto and hereto were upon the same
instrument.
4.7 Governing Law. The validity, construction and effect of this
Subordination Agreement shall be governed by the laws of the State of New York
(without giving effect to principles of conflicts of laws).
4.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties
hereto hereby irrevocably consents to the non-exclusive jurisdiction of the
Supreme Court of the State of New York for New York County and the United States
District Court for the Southern District of New York and waives trial by jury in
any action or proceeding with respect to this Subordination Agreement.
-11-
<PAGE> 12
4.9 Complete Agreement.
(a) This written Subordination Agreement is intended by the
parties as a final expression of their agreement and is intended as a complete
statement of the terms and conditions of their agreement.
(b) The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of the Subordination Agreement, dated as of the date hereof, between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and certain direct and
indirect subsidiaries of Debtor in respect of the Richemont $25,000,000 Credit
Agreements as such term is defined in the Loan Agreement, nor shall any of the
terms thereof be limited or affected by the terms of this Subordination
Agreement.
(c) The obligations of Junior Creditor under this
Subordination Agreement are in addition to, and in no way limited by the terms
of any other subordination agreement, heretofore entered into between Junior
Creditor and Senior Creditor, as acknowledged by Debtor and/or certain of its
subsidiaries and affiliates, nor shall any of the terms of any such
subordination agreement be limited or affected by the terms of this
Subordination Agreement.
4.10 No Third Parties Benefitted. This Subordination Agreement is
solely for the benefit of the Creditors and their respective successors,
participants and assigns, and no other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Subordination
Agreement.
4.11 Disclosures, Non-Reliance. Each Creditor has the means to, and
shall in the future remain, fully informed as to the financial condition and
other affairs of Debtor and neither Creditor shall have any obligation or duty
to disclose any such information to any other Creditor. Except as expressly set
forth in this Subordination Agreement, the parties hereto have not otherwise
made to each other nor do they hereby make to each other any warranties, express
or implied, nor do they assume any liability to each other with respect to: (a)
the enforceability, validity, value or collectability of any of the Junior Debt
or the Senior Debt or any collateral or guarantee which may have been granted to
any of them in connection therewith, (b) Debtor's title to or right to any of
Debtor's assets and properties or (c) any other matter except as expressly set
forth in this Subordination Agreement.
4.12 Term. This Subordination Agreement is a continuing agreement and
shall remain in full force and effect until the indefeasible satisfaction in
full of all Senior Debt and the termination of the financing arrangements among
Senior Creditor, Debtor and certain subsidiaries of Debtor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Subordination
Agreement to be duly executed as of the day and year first above written.
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet Last
---------------------------
Title: Vice President
RICHEMONT FINANCE S.A.
By: /s/ Jan P. du Plessis
---------------------------
Title: Director
By: /s/ Alan Grieve
---------------------------
Title: Director
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<PAGE> 14
ACKNOWLEDGMENT
The undersigned hereby acknowledges and agrees to the foregoing terms
and provisions. By its signature below, the undersigned agrees that it shall,
together with its successors and assigns, be bound by the provisions hereof.
The undersigned acknowledges and agrees that: (i) although it may sign
this Subordination Agreement, it is not a party hereto and does not and shall
not receive any right, benefit, priority or interest under or because of the
existence of the foregoing Subordination Agreement, (ii) in the event of a
breach by the undersigned of any of the terms and provisions contained in the
foregoing Subordination Agreement, such a breach shall constitute an "Event of
Default" as defined in and under the Senior Creditor Agreements, and (iii) it
shall execute and deliver such additional documents and take such additional
action as may be necessary in the opinion of either Creditor to effectuate the
provisions and purposes of the foregoing Subordination Agreement.
HANOVER DIRECT, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Senior Vice President
---------------------------
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
BRAWN OF CALIFORNIA, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
---------------------------
GUMP'S BY MAIL, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 15
[SIGNATURES CONTINUED FROM PRIOR PAGE]
GUMP'S CORP.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
LWI HOLDINGS, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
HANOVER DIRECT VIRGINIA INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
--------------------------
TWEEDS, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
SILHOUETTES, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
HANOVER COMPANY STORE, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
DOMESTICATIONS, LLC
By: /s/ Brian C. Harriss
------------------------------
Title: President
--------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 16
[SIGNATURES CONTINUED FROM PRIOR PAGE]
HANOVER REALTY, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: President
--------------------------
THE COMPANY STORE FACTORY, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
THE COMPANY OFFICE, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
KEYSTONE INTERNET SERVICES, INC.
By: /s/ Brian C. Harriss
------------------------------
Title: Vice President
--------------------------
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<PAGE> 1
EXHIBIT 10.8
RICHEMONT FINANCE S.A.
35 Boulevard Prince Henri
L1724 Luxembourg
As of March 24, 2000
Congress Financial Corporation,
1133 Avenue of the Americas
New York, New York 10036
Re: Unsecured Line of Credit in the Maximum Amount of $10,000,000
Ladies and Gentlemen:
Congress Financial Corporation ("Lender") has entered into financing
arrangements with Hanover Direct Pennsylvania, Inc., Brawn of California, Inc.,
Gump's By Mail, Inc., Gump's Corp., LWI Holdings, Inc., Hanover Direct Virginia
Inc., Hanover Realty, Inc., Tweeds, LLC, Silhouettes, LLC, Hanover Company
Store, LLC, Domestications, LLC, The Company Store Factory, Inc., The Company
Office, Inc. and Keystone Internet Services, Inc. (each individually, a
"Borrower" and collectively, "Borrowers") pursuant to which Lender may make
loans and provide other financial accommodations to Borrowers in accordance
with the terms and conditions of the Loan and Security Agreement, dated
November 14, 1995, by and among Lender, Borrowers and Hanover Direct, Inc.
("Hanover") and certain of Hanover's other subsidiaries (collectively, together
with Hanover, "Guarantors"), as amended through the Fifteenth Amendment to Loan
and Security Agreement (the "Fifteenth Agreement to Loan Agreement"), dated as
of the date hereof (as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement"), and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including, but not limited to, this letter agreement (all of
the foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements").
All capitalized terms used herein. unless otherwise defined herein, shall have
the meanings given to such terms in the Loan Agreement.
In order to induce Lender to enter into the Fifteenth Amendment to
Loan Agreement and the other Financing Agreements related thereto and in
consideration of the Loans and Letter of Credit Accommodations to be provided
by Lender to Borrowers pursuant thereto, the parties hereto agree as follows:
1. Excess Availability Covenant Payments.
(a) If at any time Excess Loan Availability, as determined by
Lender, is less than $3,000,000 under the Loan Agreement, upon receipt of
notice from Lender as provided in
<PAGE> 2
Section 1(b) hereof, Richemont hereby agrees for the account of Borrowers to pay
Lender in immediately available funds amounts requested by Lender in writing, as
to which the Lender certifies to Richemont as being the amount necessary to
repay the Obligations in an amount sufficient in Lender's discretion so that
Excess Loan Availability shall, after application of such payments, be
$3,000,000; provided, that, Richemont shall not be required to make any such
payments that would result in the total outstanding amount of principal under
the Richemont $10,000,000 Credit Agreements to exceed the maximum credit
availability then in effect as set forth in the Richemont $10,000,000 Credit
Agreements and the Richemont $10,000,000 Subordination Agreement. Lender agrees
upon the written request of Borrowers to provide, at Borrower's sole cost and
expense, a copy to Borrowers of each notice so provided to Richemont, but the
failure of the Lender to so provide such copy to Borrowers shall not relieve
Richemont of its obligations to make payments to Lender hereunder.
(b) All amounts payable by Richemont to Lender hereunder shall
be paid within one (1) Banking Day after Lender gives telephonic notice (during
business hours, Luxembourg time) and sends written notice via telecopier to
Richemont. Such amounts shall be sent by wire transfer, in immediately
available funds only to the following account, or such other account as Lender
may direct in writing from time to time (the "Payment Account") :
Chase Manhattan Bank, N.A.
4 New York Plaza
New York, New York,
ABA No. 021-000-021
For credit to Congress Financial Corporation
Account No. 322-001-293
Re: Subsidiaries of Hanover Direct, Inc.
For purposes of this letter agreement, the term "Banking Day" shall mean any
day, other than Saturday or Sunday, when Lender and commercial banks are open
in New York, New York and Europe.
(c) All such loans and any other obligations, liabilities and
indebtedness of any Borrowers or Guarantors to Richemont under the Richemont
$10,000,000 Credit Agreements shall be subordinated to the right of payment of
Lender to receive the prior indefeasible payment in full of all Obligations in
accordance with the Subordination Agreement, dated as of the date hereof,
between Lender and Richemont (the "Richemont $10,000,000 Subordination
Agreement").
(d) All payments by Richemont hereunder shall be made
directly by Richemont to the Payment Account on behalf of Borrowers for the
benefit of Lender and shall be applied by Lender to the Obligations in
accordance with the Loan Agreement and the other Financing Agreements. All
payments by Richemont hereunder shall be reimbursement obligations of Borrowers
to Richemont under the Richemont $10,000,000 Credit Agreements subject to the
terms and conditions
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<PAGE> 3
of the Richemont $10,000,000 Subordination Agreement. The obligations of
Richemont hereunder to make payments are absolute and shall be made to Lender in
accordance with the terms hereof from time to time, including, without
limitation, at any time any Borrower is a debtor or debtor-in-possession in any
case under the U.S. Bankruptcy Code or any similar proceeding under any state
insolvency law.
(e) Notwithstanding anything to the contrary contained in the
Richemont $10,000,000 Credit Agreements, the obligations of Richemont to make
the payments hereunder to Lender shall be continuing from the date hereof
through and including the earlier of (i) the indefeasible payment in full of
all Obligations owed to Lender or termination of the Financing Agreements in
accordance with the terms thereof and (ii) the reduction of the maximum credit
in respect of the Richemont $10,000,000 Credit Agreements to zero ($-0-) solely
by reason of the reductions in such maximum credit availability in connection
with cash equity contributions or with conversions by Richemont to the extent
permitted by the Richemont $10,000,000 Subordination Agreement.
2. Subordination; Permitted Payments; Reductions in Credit Limit.
(a) The Indebtedness of Borrowers arising in connection with
the subordinated loans by Richemont to Borrowers pursuant to the terms hereof,
and the Richemont $10,000,000 Credit Agreements shall be subject to, and
subordinate in right of payment to, the final payment and satisfaction in full
of all of the Obligations as set forth in the Richemont $10,000,000
Subordination Agreement. Borrowers may make payments in respect of such
Indebtedness to the extent provided in the Richemont $10,000,000 Subordination
Agreement.
(b) The maximum credit availability under the Richemont
$10,000,000 Credit Agreements may be permanently reduced in the amount equal to
the net cash proceeds solely by reason of cash equity contributions or
purchases and the amount of conversions by Richemont to the extent provided in
the Richemont $10,000,000 Subordination Agreement.
(c) In the event that principal amounts outstanding under the
Richemont $10,000,000 Credit Agreements are repaid by Borrowers to Richemont as
permitted by Section 2.2(a) of the Richemont $10,000,000 Subordination
Agreement, then the amount of the loans available for request by Lender
hereunder shall be reinstated and be available to be paid to Lender in
accordance with terms and conditions hereof, but subject to the then credit
availability under the Richemont $10,000,000 Credit Agreements.
(d) In addition to all payments required to be made pursuant
hereto, Borrowers hereby irrevocably authorize and direct that all amounts
otherwise made available under the Richemont $10,000,000 Credit Agreements be
remitted by Richemont directly to the Payment Account for application to the
Obligations by Lender arising in connection with the Loan Agreement and the
other Financing Agreements.
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<PAGE> 4
3. Subrogation. Richemont hereby irrevocably and unconditionally
waives all statutory, contractual, common law, equitable and other claims
against Borrowers, or any of the Collateral for subrogation, reimbursement,
exoneration, contribution, indemnification or other recourse in respect of sums
paid or payable to Lender by Richemont hereunder until all of the Obligations
are paid and satisfied in full. When all Obligations shall have been
indefeasibly paid in full and discharged and all the Financing Agreements have
been terminated, Richemont shall, to the extent permitted by law, be subrogated
to the rights of Lender to receive payments in respect of the obligations under
the Richemont $10,000,000 Credit Agreements.
4. Waivers and Consents. Notice of acceptance hereof, the making
of Loans and providing Letter of Credit Accommodations to, and the incurring of
any expenses by or in respect of, Borrowers and Richemont by Lender, and all
other notices to which Richemont and Borrowers are or may be entitled are hereby
waived (other than notices to be provided to Richemont by Lender under Sections
1 and 11 hereof). Richemont waives notice of, and hereby consents to (a)
subject to the provision of the Richemont $10,000,000 Subordination Agreement,
any amendment, modification, supplement, renewal, restatement or extensions of
time of payment of or increase or decrease in the amount of any of the
Obligations or to the Loan Agreement or any of the other Financing Agreements or
any Collateral, (b) the taking, exchange, surrender and releasing of Collateral
or guarantees now or at any time held by or available to Lender for the
Obligations or any other person at any time liable for or in respect of the
Obligations, (c) the exercise of, or refraining from the exercise of any rights
against Borrowers, Richemont or any other obligor or any Collateral, (d) the
settlement, compromise or release of, or the waiver of any default with respect
to, any of the Lender, and/or (e) any Obligations incurred, or grant of a
security interest to secure Obligations, under Section 364 of the U.S.
Bankruptcy Code to Borrowers, as debtor-in-possession. Any of the foregoing
shall not, in any manner, affect the terms hereof or impair the obligations of
Richemont hereunder. All of the Obligations shall be deemed to have been made
or incurred in reliance upon this letter agreement.
5. Insolvency. This letter agreement shall be applicable both
before and after the filing of any petition by or against any Borrower under the
U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof,
and all references herein to any Borrower shall be deemed to apply to a trustee
for any Borrower and any Borrower as a debtor-in-possession. The rights of
Lender and the obligations of Richemont hereunder shall continue after any
filing in respect of any such proceeding on the same basis as before the date of
the petition of such proceeding.
6. Account Stated. The books and records of Lender showing the
account between Lender and Borrowers shall be admissible in evidence in any
action or proceeding against or involving Richemont as prima facie proof of the
items therein set forth, and the monthly statements of Lender rendered to
Borrowers, to the extent to which no written objection is made within thirty
(30) days from the date of sending thereof to Borrowers, shall be deemed
conclusively correct, absent manifest error, and constitute an account stated
between Lender and Borrowers and be binding on Richemont.
- 4 -
<PAGE> 5
7. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
letter agreement and any dispute arising out of the relationship between
Richemont and Lender, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of New York (without giving effect to
principles of conflicts of laws).
(b) The parties hereto hereby irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State of
New York for New York County and the United States District Court for the
Southern District of New York and waive any objection based on venue or forum
non conveniens with respect to any action instituted therein arising under this
letter agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of Richemont, Borrowers
and Lender in respect of this letter agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising and whether in contract, tort, equity or
otherwise, and agrees that any dispute arising out of the relationship between
Richemont or Borrowers and Lender or the conduct of any such persons in
connection with this letter agreement, the other Financing Agreements or
otherwise shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Richemont or its
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on any collateral at any time granted by
Borrowers or Richemont to Lender or to otherwise enforce its rights against
Richemont or its property).
(c) Richemont hereby waives personal service of any and
all process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Richemont in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Richemont shall appear in answer to such process, failing which Richemont shall
be deemed in default and judgment may be entered by Lender against Richemont for
the amount of the claim and other relief requested.
(d) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
LETTER AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF RICHEMONT, BORROWERS
AND LENDER IN RESPECT OF THIS LETTER AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. EACH OF THE PARTIES HERETO HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY AND THAT RICHEMONT
- 5 -
<PAGE> 6
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Richemont
(whether in tort, contract, equity or otherwise) for losses suffered by
Richemont in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this letter agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by a
final and non-appealable judgment or court order binding on Lender that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of the Loan
Agreement and the other Financing Agreements.
8. Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender and to Richemont at their respective addresses
set forth on Schedule A hereto as either party may designate by written notice
to the other in accordance with this provision, and (b) deemed to have been
given or made: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier service
with instructions to deliver the next business day, two (2) Banking Days after
sending; and if by certified mail, return receipt requested, seven (7) Banking
Days after mailing.
9. Partial Invalidity. If any provision of this letter agreement
is held to be invalid or unenforceable, such invalidity or unenforceability
shall not invalidate this letter agreement as a whole, but this letter agreement
shall be construed as though it did not contain the particular provision held to
be invalid or unenforceable and the rights and obligations of the parties shall
be construed and enforced only to such extent as shall be permitted by
applicable law.
10. Entire Agreement. This letter agreement represents the entire
agreement and understanding of this parties concerning the subject matter
hereof, and supersedes all other prior agreements, understandings, negotiations
and discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
11. Successors and Assigns. This letter agreement may not be
assigned by Richemont without the prior written consent of Lender, which consent
Lender shall not unreasonably withhold in its good faith judgment, and shall be
binding upon Richemont and its successors and assigns and shall inure to the
benefit of Lender and its successors, endorsees, transferees and assigns.
Lender may only transfer and assign its rights hereunder in connection with an
assignment of its interests under, and in accordance with, the Loan Agreement so
long as in the event of the transfer or assignment of such interests to more
than one person, all of such transferees and assignees shall have appointed a
single agent to be responsible for the administration of the arrangement of such
transferees or assignees with Richemont hereunder. Nothing contained herein
shall be construed to limit or affect the right of Lender to sell any
participations in the financing arrangements of Lender with Borrowers. In the
event of any such assignment, the Lender shall provide to Richemont a copy of
the assignment agreement, together
- 6 -
<PAGE> 7
with evidence of the duly authorized signatories of such assignee who are
authorized to provide the notices to be given to Richemont under Section 1
hereof. The liquidation, dissolution or termination of Richemont shall not
terminate this letter agreement as to such entity or as to Richemont.
12. Construction. All references to the term "Richemont" wherever
used herein shall mean Richemont and its successors and assigns (including,
without limitation, any receiver, trustee or custodian for Richemont or any of
its assets or Richemont in its capacity as debtor or debtor-in-possession under
the United States Bankruptcy Code). All references to the term "Lender"
wherever used herein shall mean Lender and its successors and assigns and all
references to the term "Borrowers" wherever used herein shall mean Borrowers and
their respective successors and assigns (including, without limitation, any
receiver, trustee or custodian for any Borrower or any of its assets or any
Borrower in its capacity as debtor or debtor-in-possession under the United
States Bankruptcy Code). All references to the term "Person" or "person"
wherever used herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof. All references to the plural shall also mean the singular
and to the singular shall also mean the plural.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 7 -
<PAGE> 8
13. Counterparts. This letter agreement may be executed in any
number of counterparts, but all of such counterparts shall together constitute
but one and the same agreement. Making proof of this agreement shall not be
necessary to produce or to account for more than one counterpart thereof signed
by each of the parties hereto.
Very truly yours,
RICHEMONT FINANCE, S.A.
By: /s/ Jan P. du Plessis
-------------------------------
Title: Director
----------------------------
By: /s/ Alan Grieve
-------------------------------
Title: Director
----------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet Last
---------------------------
Title: Vice President
-----------------------
ACKNOWLEDGED AND AGREED
HANOVER DIRECT PENNSYLVANIA, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
BRAWN OF CALIFORNIA, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
GUMP'S BY MAIL, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: PRES
-----------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 8 -
<PAGE> 9
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
GUMP'S CORP.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
LWI HOLDINGS, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
HANOVER DIRECT VIRGINIA INC.
By: /s/ Brian C. Harriss
---------------------------
Title: PRES
-----------------------
TWEEDS, LLC
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
SILHOUETTES, LLC
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
HANOVER COMPANY STORE, LLC
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
DOMESTICATIONS, LLC
By: /s/ Brian C. Harriss
---------------------------
Title: PRES
-----------------------
[SIGNATURES CONTINUE ON NEXT PAGE]
- 9 -
<PAGE> 10
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
HANOVER REALTY, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: PRES
-----------------------
THE COMPANY STORE FACTORY, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
THE COMPANY OFFICE, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: VP
-----------------------
KEYSTONE INTERNET SERVICES, INC.
By: /s/ Brian C. Harriss
---------------------------
Title: PRES
-----------------------
- 10 -
<PAGE> 11
SCHEDULE A
TO
RICHEMONT $10,000,000 CALL AGREEMENT
To Lender: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Laurence S. Forte
Telecopier: 212-545-4283
Telephone: 212-545-4280
To Richemont: Richemont Finance S.A.
35 Boulevard Prince Henri
L 1724 Luxembourg
Attention: General Manager
Telecopier: 011-352-22-4219
Telephone: 011-352-22-4210
with copies to: Richemont Finance S.A.
Rigistrasse 2
Zug 6300
Switzerland
Attention: Mr. J. Alan Grieve
Fax: 011-4141-711-7138
Phone: 011-4141-710-3322
and
Robert P. Wessely, Esq.
Dorsey & Whitney
250 Park Avenue
New York, New York 10036
Telecopier: 212-953-7201
Telephone: 212-415-9200
- 11 -
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
CLOSING PRICE OPTION
This AMENDED AND RESTATED STOCK OPTION AGREEMENT (this "Agreement") is
made as of April 14, 2000 between Hanover Direct, Inc., a Delaware corporation
(the "Company"), and Rakesh K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") has heretofore adopted and the
Company's shareholders have heretofore approved and ratified the 2000 Long-Term
Incentive Plan for Rakesh K. Kaul (the "Plan");
WHEREAS, the Plan provides for certain modifications to the terms of
the Closing Price Option granted to Executive as part of the Long-Term
Incentive Plan for Rakesh K. Kaul dated August 23, 1996 (the "Old Plan")
subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on August 23, 1996 (the "Date of Grant") by the Compensation
Committee of an option (the "Option") to purchase 2,000,000 shares of Common
Stock (the "Shares") at an option price of $1.15625 per share, representing the
fair market value of the Common Stock on the date thereof. The Option shall
expire on March 7, 2006 (the "Expiration Date"), subject to earlier
cancellation or termination as provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, this Option shall become exercisable only as
provided in this Section 2.
(a) Except as otherwise provided in paragraph (b), this Option shall
vest and become exercisable in equal parts on each successive anniversary of
March 6, 2000 over the three year period commencing on March 6, 2000 provided
that Executive remains employed by the Company and/or its affiliates or
subsidiaries (collectively the "Company").
(b) Notwithstanding the foregoing, the Option shall immediately vest
and become exercisable in full (i) upon the termination of Executive's
employment by reason of death, Disability, by Company without Cause or by
Executive within ninety days of an occurrence constituting Good Reason (as such
terms are defined in the Employment Agreement dated as of March 6, 2000 between
Executive and the Company (the "Employment Agreement")), (ii) upon a Change of
Control (as such term is defined in the Hanover Direct, Inc. Thirty-Six Month
Compensation Continuation Plan (the "Change of Control Plan")), or (iii) upon
satisfaction of the condition, as certified by the Compensation Committee (such
certification not to be improperly withheld), that the average closing price of
the Common Stock on the American
1
<PAGE> 2
Stock Exchange composite tape or other recognized market source, as determined
by the Compensation Committee, has obtained an average of $4.50 per share during
any period of 91 consecutive calendar days commencing after August 23, 1996 and
ending on or before March 7, 2002.
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the
Executive's rights to exercise the Option shall be exercisable only as follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for Cause or Executive
resigns for Good Reason (as such terms are defined in the Employment
Agreement), his Option may be exercised during the six-month period following
the later of (x) such termination or (y) the registration of the Shares
underlying the Option. For purposes hereof, the provisions of the Employment
Agreement shall apply in determining whether the Executive's employment has
been involuntarily terminated by the Company other than for Cause or if
Executive has resigned with Good Reason.
(ii) Death. If the Executive's employment terminates by reason of
death, the Option may be exercised during the twelve-month period following
such termination.
(iii) Disability. If the Executive's employment terminates by reason
of Disability (as such term is defined in the Employment Agreement), the Option
may be exercised during the twelve-month period following such termination. For
purposes hereof, the provisions of the Employment Agreement shall apply in
determining whether the Executive's employment has been terminated due to a
Disability.
(iv) Change of Control. If Executive's employment terminates other
than for Cause or if Executive resigns with Good Reason (as such terms are
defined in the Change of Control Plan) within twenty-four months of a Change of
Control (as such term is defined in the Change of Control Plan), the Option may
be exercised during the twelve-month period following such termination. For
purposes hereof, the provisions of the Change of Control Plan shall apply in
determining whether a Change of Control has occurred.
(v) Termination in Other Circumstances. If the Executive's employment
terminates in circumstances not described in clauses (i) through (iv), the
Executive may, within 30 days following such termination, exercise the Option
with respect to such number of Shares as to which the Option is exercisable on
the date of termination, as determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable in
whole or in part after the Expiration Date.
4. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by the
Executive.
(b) Notwithstanding the provisions of paragraph (a):
2
<PAGE> 3
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power of
Attorney;
(ii) Upon the Executive's death, the Option is transferable by will,
by a revocable or irrevocable trust established by the Executive, or by a
written beneficiary designation executed by the Executive and delivered to the
Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's spouse
and/or issue or trusts for the benefit of the Executive, the Executive's
spouse, and/or the Executive's issue.
5. In order to exercise the Option, in whole or in part, the
Executive shall give written notice to the Company, specifying the number of
Shares to be purchased and the purchase price to be paid, and accompanied by
the payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares of
Common Stock evidenced by negotiable certificates, valued at their fair market
value on the date of exercise, or in a combination of the foregoing.
Alternatively, the Option may be exercised, in whole or in part, by delivering
a properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company shall
deliver to the Executive (or to any other person entitled to exercise the
Option) a certificate or certificates for such Shares. If certificates
representing shares of Common Stock are used to pay all or part of the purchase
price of the Option, separate certificates shall be delivered by the Company
representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional shares to
which the Executive is entitled as a result of exercise of the Option.
6. The Option shall be exercised only with respect to full Shares; no
fractional Shares shall be issued.
7. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state of local, and
whether domestic or foreign. The Company shall promptly remit such taxes to the
applicable governmental authority.
8. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and another
person jointly with the right of survivorship, or in the name of a revocable
trust of which the Executive is the grantor.
9. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
10. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator, legal
representative, legatee, or distributee or transferee entitled by law or the
provisions of the Plan to the Executive's rights hereunder.
3
<PAGE> 4
11. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
12. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be modified
except by written agreement signed by the parties hereto.
13. This Agreement supercedes any prior agreements regarding the
Closing Price Option, including the Stock Option Agreement between Hanover
Direct, Inc. and Kaul dated August 23, 1996 concerning the subject matter
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By: /s/ Brian C. Harriss
-------------------------------------
Its: Senior Vice President
------------------------------------
/s/ Rakesh K. Kaul
----------------------------------------
Rakesh K. Kaul
4
<PAGE> 1
EXHIBIT 10.10
ERIZON OPTION
This STOCK OPTION AGREEMENT (this "Agreement") is made as of April 14, 2000
between Hanover Direct, Inc., a Delaware corporation (the "Company"), and Rakesh
K. Kaul (the "Executive").
WHEREAS, the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has heretofore adopted and the Company's
shareholders have heretofore approved and ratified the Long-Term Incentive Plan
for Rakesh K. Kaul (the "Plan"); and
WHEREAS, the Plan provides for the granting of stock options in erizon,
Inc. subject to the terms set forth herein
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree as follows:
1. The Company hereby evidences and confirms the grant to the
Executive on the date hereof (the "Date of Grant") by the Compensation
Committee of an option (the "Initial Option") to purchase 60 shares of the
Common Stock of erizon, Inc. (the "Shares"), which amount represents 6% of
the fully diluted Common Stock (including all outstanding warrants and
options, vested and unvested) of erizon, Inc. as of the date hereof. The
exercise price for the Initial Option shall be equal to the fair market
value of the Common Stock of erizon, Inc. on the Date of Grant as
determined in good faith by the Board of Directors of the Company, provided
that the fair market value of the Common Stock of erizon, Inc. for purposes
of establishing the exercise price for the Initial Option shall not exceed
$200,000,000. Executive shall receive protection from further dilution of
the Shares until such time as erizon, Inc. completes its first round of
Board-approved equity or convertible debt financing after which time there
shall be no protection from further dilution of the Shares. Upon completion
of its first round of Board-approved equity or convertible debt financing,
the Company shall grant Executive an additional option (the "Additional
Option") to purchase Shares that, together with the Initial Option, shall
represent 6% of the fully diluted Common Stock of erizon, Inc. (including
all outstanding warrants and options, vested and unvested). The exercise
price for the Additional Option shall be equal to the fair market value of
the Common Stock on the date the Additional Option is granted to Executive,
as determined in good faith by the Board of Directors of the Company. Other
than as expressly provided for in this Section 1, the Initial Option and
the Additional Option (collectively the "Option") shall be treated as if
granted on the Date of Grant. The Option shall expire on March 6, 2010 (the
"Expiration Date"), subject to earlier cancellation or termination as
provided herein.
2. Subject to the other provisions contained herein regarding the
exercisability of the Option, the Option shall become exercisable only as
provided in this Section 2:
(a) Except as otherwise provided in paragraph (b), the Option shall
vest and become exercisable in equal parts on each successive
anniversary of March 6, 2000 over the four-year period commencing on
March 6, 2000 provided that Executive remains employed by the Company
and/or its affiliates or subsidiaries (collectively the "Company").
(b) Notwithstanding the foregoing, the Option shall immediately
vest and become exercisable in full (i) upon the termination of
Executive's employment by reason of death, Disability, by the Company
without Cause or by Executive within ninety days of an occurrence
constituting Good
1
<PAGE> 2
Reason (as such terms are defined in the Employment Agreement dated as
of March 6, 2000 between Executive and the Company (hereinafter the
"Employment Agreement")) or (ii) upon the occurrence of a Change of
Control (as such term is defined in the Hanover Direct, Inc. Thirty-Six
Month Compensation Continuation Plan (hereinafter the "Change of Control
Plan")).
3. In the event of a termination of the Executive's employment with
the Company while any portion of the Option remains unexercised, the
Executive's rights to exercise the Option shall be exercisable only as
follows:
(i) Involuntary Termination. If the Executive's employment is
involuntarily terminated by the Company other than for Cause or
Executive resigns for Good Reason (as such terms are defined in the
Employment Agreement), his Option may be exercised during the six-month
period following the later of (x) such termination or (y) the
registration of the Shares underlying the Option. For purposes hereof,
the provisions of the Employment Agreement shall apply in determining
whether the Executive's employment has been involuntarily terminated by
the Company other than for Cause or if Executive has resigned with Good
Reason.
(ii) Death. If the Executive's employment terminates by reason of
death, the Option may be exercised during the twelve-month period
following such termination.
(iii) Disability. If the Executive's employment terminates by
reason of Disability (as such term is defined in the Employment
Agreement), the Option may be exercised during the twelve-month period
following such termination. For purposes hereof, the provisions of the
Employment Agreement shall apply in determining whether the Executive's
employment has been terminated due to a Disability.
(iv) Change of Control. If Executive's employment terminates other
than for Cause or if Executive resigns with Good Reason (as such terms
are defined in the Employment Agreement) within twenty-four months of a
Change of Control (as such term is defined in the Employment Agreement),
the Option may be exercised during the twelve-month period following
such termination. For purposes hereof, the provisions of the Change of
Control Plan shall apply in determining whether a Change of Control has
occurred.
(v) Termination in Other Circumstances. If the Executive's
employment terminates in circumstances not described in clauses (i)
through (iv), the Executive may, within 30 days following such
termination, exercise the Option with respect to such number of Shares
as to which the Option is exercisable on the date of termination, as
determined pursuant to Section 2.
Notwithstanding the foregoing, the Option shall in no event be exercisable
in whole or in part after the Expiration Date.
4. If at the time of Executive's termination for any reason the Common
Stock of erizon, Inc. is not publicly-traded, at the Executive's request,
the Company shall purchase from the Executive the Shares as to which the
Option is exercisable, as determined pursuant to Section 2, or any portion
thereof at the then current fair market value as determined by the Board of
Directors of the Company in good faith. Any dispute concerning the
valuation of the fair market value of the Company will be determined using
a "baseball arbitration model" by a mutually agreed upon investment banking
company. The computation of fair market value will assume (i) underwriter
fees and discounts as if the Initial Public Offering had taken place, and
(ii) public market security.
2
<PAGE> 3
5. (a) Except as provided in paragraph (b), the Option is not
transferable by the Executive other than by will or the laws of descent and
distribution and is exercisable, during the Executive's lifetime, only by
the Executive.
(b) Notwithstanding the provisions of paragraph (a):
(i) In the event of the Executive's incapacity, the Option may be
exercised by a conservator, guardian, or the agent under a Durable Power
of Attorney;
(ii) Upon the Executive's death, the Option is transferable by
will, by a revocable or irrevocable trust established by the Executive,
or by a written beneficiary designation executed by the Executive and
delivered to the Company prior to the Executive's death;
(iii) The Executive may transfer the Option to the Executive's
spouse and/or issue or trusts for the benefit of the Executive. the
Executive's spouse, and/or the Executive's issue.
6. In order to exercise the Option, in whole or in part, the Executive
shall give written notice to the Company, specifying the number of Shares
to be purchased and the purchase price to be paid, and accompanied by the
payment of the purchase price. Such purchase price may be paid in cash, a
certified check, or a bank check payable to the Company, or in whole shares
of Common Stock held by the Executive for at least six months evidenced by
negotiable certificates, valued at their fair market value on the date of
exercise, or in a combination of the foregoing. Alternatively, the Option
may be exercised, in whole or in part, by delivering a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price, and such other documents as the
Compensation Committee may require. Upon receipt of payment, the Company
shall deliver to the Executive (or to any other person entitled to exercise
the Option) a certificate or certificates for such Shares. If certificates
representing shares of Common Stock are used to pay all or part of the
purchase price of the Option, separate certificates shall be delivered by
the Company representing the same number of shares as each certificate so
used and an additional certificate shall be delivered representing the
additional shares to which the Executive is entitled as a result of
exercise of the Option.
7. The Option shall be exercised only with respect to full Shares or
fractional shares having a value of not less than $100,000; no fractional
Shares having lesser value shall be issued.
8. As a condition to the issuance of Shares under the Option, the
Executive agrees to remit to the Company at the time of exercise any taxes
required to be withheld by the Company under the applicable laws or other
regulations of any governmental authority, whether federal, state of local,
and whether domestic or foreign. The Company shall promptly remit such
taxes to the applicable governmental authority.
9. If the Executive so requests in writing, shares purchased upon
exercise of the Option may be issued in the name of the Executive and
another person jointly with the right of survivorship, or in the name of a
revocable trust of which the Executive is the grantor.
10. The Option does not qualify as an incentive stock option under
Section 422 of the Internal Revenue Code.
11. This Option shall be binding upon and inure to the benefit of any
successor or assignee of the Company and to any executor, administrator,
legal representative, legatee, or distributee or transferee entitled by law
or the provisions of the Plan to the Executive's rights hereunder.
3
<PAGE> 4
12. The Option is subject in all respects to the terms of the Plan,
the provisions of which are incorporated in this Agreement by reference.
13. This Agreement is entered into, and shall be construed and
enforced, under the laws of the State of New York, and shall not be
modified except by written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
-----------------------------------
Its: Senior Vice President
-------------------------------------
By: /s/ Curt Johnson
Its: Senior Vice President
/s/ Rakesh K. Kaul
-------------------------------------
Rakesh K. Kaul
4
<PAGE> 1
Exhibit 10.11
HANOVER DIRECT, INC.
KEY EXECUTIVE THIRTY-SIX MONTH
COMPENSATION CONTINUATION PLAN
ARTICLE 1
ESTABLISHMENT OF THE PLAN
1.1 Hanover Direct, Inc. (the "Company") has established the Hanover
Direct, Inc. Key Executive Thirty-Six Month Compensation Continuation Plan (the
"Plan") effective as of December 26, 1999. The purpose of the Plan is to attract
and retain key management personnel by reducing uncertainty and providing
greater personal security in the event of a Change of Control.
1.2 The Company intends for this Plan to constitute an employee welfare
plan within the meaning of Section 3(1) of the Employee Retirement Security Act
of 1974 , as amended ("ERISA"), and a severance pay plan within the meaning of
Department of Labor (DOL) Regulation Section 2510.3-2(b).
ARTICLE 2
DEFINITIONS
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Change of Control" means the first to occur of any of the events
described in subsections (i) through (iv) below.
(i) A Change of Control will occur when any Person becomes,
through an acquisition, the beneficial owner of shares of the Company having at
least fifty percent (50%) of the total number of votes that may be cast for the
election of directors of the Company (the "Voting Shares"); provided, however,
that the following acquisitions shall not constitute a Change in Control:
(a) if a Person owns less than fifty percent (50%) of
the voting power of the Company and that Person's ownership increases above
fifty percent (50%) solely by virtue of an acquisition of stock by the Company,
then no Change of Control has occurred, unless and until that Person
subsequently acquires one or more additional shares representing voting power of
the Company; or
(b) any acquisition by a Person who as of the date of
the establishment of the Plan owned at least thirty-three percent (33%) of the
Voting Shares.
(ii)(a) Notwithstanding the foregoing, a Change of Control
will occur when the shareholders of the Company approve any of the following
(each, a "Transaction"):
(I) any reorganization, merger, consolidation or
other business combination of the Company;
(II) any sale of fifty percent (50%) or more of the
Company's assets; or
(III) a complete liquidation or dissolution of the
Company.
(b) Notwithstanding (ii)(a) above, shareholder approval of
either of the following types of Transactions will not give rise to a
Change of Control:
<PAGE> 2
(I) a Transaction involving only the Company and one
or more of its subsidiaries; or
(II) a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction continue to
have a majority of the voting power in the resulting entity.
(iii) A Change of Control will occur when, within any
twenty-four (24) month period, persons who were directors of the Company
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a majority
of the Board of Directors or the board of directors of any successor to the
Company. For purposes of this subsection (iii), any director who was not a
director as of the effective date of this Plan shall be deemed to be an
Incumbent Director if such director was elected to the Board of Directors by, or
on the recommendation of, or with the approval of, at least a majority of the
members of the Board of Directors or the nominating committee who, at the time
of the vote, qualified as Incumbent Directors either actually or by prior
operation of this clause, and any persons (and their successors from time to
time) who are designated by a holder of thirty-three percent (33%) or more of
the Voting Shares to stand for election and serve as directors in lieu of other
such designees serving as directors on the effective date of the Plan shall be
considered Incumbent Directors. Notwithstanding the foregoing, any director
elected to the Board of Directors to avoid or settle a threatened or actual
proxy contest shall not, under any circumstances, be deemed to be an Incumbent
Director.
(iv) A Change of Control will occur when the Company sells,
assigns or transfers more than fifty percent (50%) of its interest in, or the
assets of, one or more subsidiaries (each, a "Sold Subsidiary" and,
collectively, "Sold Subsidiaries"); provided, however, that such a sale,
assignment or transfer will constitute a Change of Control only for:
(a) the Participants who are Employees of that Sold
Subsidiary; and
(b) the Participants who are Employees of a direct or
indirect parent company of one or more Sold Subsidiaries of the Company, and
then only if:
(I) the gross assets of its Sold
Subsidiaries constitute more than fifty percent (50%) of the gross assets of
such parent company (calculated on a consolidated basis with the direct and
indirect subsidiaries of such parent company with reference to the most recent
balance sheets of the Sold Subsidiaries and the parent company);
(II) the property, plant and equipment of
its Sold Subsidiaries constitute more than fifty percent (50%) of the property,
plant and equipment of such parent company (calculated on a consolidated basis
with the direct and indirect subsidiaries of such parent company with reference
to the most recent balance sheets of the Sold Subsidiaries and the parent
company); or
(III) in the case of a publicly-traded
parent company, the ratio (as of the date a binding agreement for the sale is
entered) of (x) the capitalization (based on the sale price) of its Sold
Subsidiaries to (y) the market capitalization of the parent company, is greater
than 0.50.
For purposes of this Section 2.2(iv), a Transaction shall be deemed to
involve the sale of more than fifty percent (50%) of a company's assets if:
(a) the gross assets being sold constitute more than
fifty percent (50%) of the gross assets of the company as stated on the most
recent balance sheet of the company;
<PAGE> 3
(b) the property, plant and equipment being sold
constitute more than fifty percent (50%) of the property, plant and equipment of
the company as stated on the most recent balance sheet of the company; or
(c) in the case of a publicly-traded company, the
ratio (as of the date a binding agreement for the sale is entered) of (x) the
capitalization (based on the sale price) of the division, subsidiary or business
unit being sold to (y) the market capitalization of the company, is greater than
0.50.
For purposes of this Section 2.2(iv), no Change of Control shall be
deemed to have occurred if, immediately following a sale, assignment or transfer
by the Company of more than fifty percent (50%) of its interest in, or the
assets of, a Sold Subsidiary, any shareholder of the Company owning 33% or more
of the voting power of the Company immediately prior to such transactions owns
no less than the equivalent percentage of the voting power of the Sold
Subsidiary.
2.3 "Company" means Hanover Direct, Inc. or any of its subsidiaries or
affiliates that adopt the Plan, except that the Company in the context of the
Plan Administrator, the Board of Directors and a Change of Control shall only
mean Hanover Direct, Inc.
2.4 "Disability" means the permanent and total disability of the
Participant such that he/she is unable to substantially perform his/her duties
and responsibilities with the Company by reason of any medically determinable
physical or mental impairment that can be expected to result in death or that
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months. The Participant will not be considered to be permanently and
totally disabled unless he/she furnishes proof of the existence of such
disability in such form and manner and based on competent medical advice, and at
such times, as the Plan Administrator may reasonably require.
2.5 "Employee" means any person whom the Company employs for purposes
of the Federal Insurance Contributions Act.
2.6 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.7 "For Cause" means the involuntary termination of employment of the
Participant because of (i) the willful and continued failure by the Participant
to perform his/her duties at the Company, (ii) misconduct by the Participant
that is injurious to the Company, financially or otherwise, (iii) commission by
the Participant of an act of fraud or dishonesty relating to and adversely
affecting the Company, (iv) conviction of the Participant of a felony in
connection with his employment with the Company, or (v) the habitual failure of
the Participant, after written notice specifying such failure and a reasonable
opportunity to cure such failure having lapsed, to perform his employment duties
at the Company in a satisfactory manner.
2.8 "For Good Reason" means the voluntary termination of employment by
the Participant, within two (2) years of any of the following actions that occur
in anticipation of or upon or after a Change of Control, and because of (i) a
substantial and material diminution in the then-current duties or
responsibilities of the Participant at the Company, (ii) a material and
substantial diminution in the then-current base salary, target bonus or
comparable long-term incentive opportunity of the Participant, (iii) requiring
the Participant to regularly report to work at a facility that is more than
thirty (30) miles from the facility the Participant regularly reports, (iv) the
failure by the Company to continue in effect any material benefit or
compensation plan including, but not limited to, life insurance plan, health
insurance plan and accidental death or disability plan in which the Participant
is participating, unless such benefit or compensation plan, life insurance plan,
health insurance plan, or accidental death or disability plan or similar plan is
replaced with a comparable plan in which the Participant will participate or
which will provide the Participant with comparable benefits, (v) the failure of
the Company to provide the Participant with the number of paid vacation days to
which the Participant is normally entitled in accordance with the normal
vacation policy of the Company, or (vi) any action by the Company that adversely
affects in a
<PAGE> 4
material way the Participant's participation in or materially reduces the
Participant's benefits under any of such benefit or compensation plans.
2.9 "Participant" means Rakesh Kaul, or other employee selected for
participation in the Plan by the Chief Executive Officer of the Company, all of
whom are approved by the Plan Administrator upon the adoption of the Plan or
following their employment by the Company after the effective date of the Plan.
2.10 "Person" means any person (as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof), including a
'group' as defined in Section 13(d)(3) of the Exchange Act, but excluding (i)
the Company, (ii) any subsidiary of the Company, (iii) any employee benefit plan
sponsored or maintained by the Company or any subsidiary of the Company
(including any trustee of such plan acting as trustee), and (iv) any person who,
as of the date of the establishment of the Plan, owned at least thirty-three
percent (33%) of the Voting Shares (but excluding any unaffiliated successor or
assignee of such 33% or greater holder).
2.11 "Plan Administrator" means the Company.
2.12 "Without Cause" means the involuntary termination of employment of
the Participant due to lack of work at the Company or any other reason that the
Board of Directors determines is in the best interest of the Company other than
For Cause or a Disability.
ARTICLE 3
ELIGIBILITY FOR PLAN PARTICIPATION
Section 2.9 sets forth the employees of the Company who shall be
participants in the Plan. Except as set forth in Article 9 of the Plan, prior to
a Change of Control the participation in the Plan of any Participant shall cease
on the following dates: (i) the date a Participant is no longer classified as an
eligible Employee; (ii) the date of the Participant's death; (iii) the date on
which a Participant voluntarily terminates his/her employment with the Company;
(iv) the date on which a Participant is terminated by the Company; or (v) the
effective date of the termination of the Plan; provided, however, that in no
event shall Employee's participation in the Plan be terminated in anticipation
of a Change of Control. Except as set forth in Article 9 of the Plan, upon or
after a Change of Control the participation in the Plan of any Participant shall
cease on the following dates: (i) the date a Participant is no longer classified
as an eligible Employee; (ii) the date on which a Participant voluntarily
terminates his/her employment with the Company without Good Reason; (iii) the
date on which a Participant is terminated by the Company for Cause; (iv) the
date on which a Participant voluntarily or involuntarily terminates employment
as a result of Disability; or (v) the effective date of the termination of the
Plan.
ARTICLE 4
CONDITIONS FOR PAYMENT OF BENEFITS
A Participant shall be entitled to severance pay and benefits under the
Plan only if there occurs a Change of Control and thereafter the Company
terminates his/her employment Without Cause or the Participant voluntarily
terminates his/her employment for Good Reason during the two (2) year period
following the Change of Control. A Participant shall not be entitled to
severance pay and benefits under the Plan if he/she (i) resigns other than for
Good Reason, (ii) is terminated for Cause, (iii) dies prior to a Change of
Control or prior to a termination qualifying for severance pay and benefits
under the Plan; or (iv) voluntarily or involuntarily terminates employment as a
result of Disability.
<PAGE> 5
ARTICLE 5
SALARY CONTINUATION BENEFITS
5.1 The amount of severance pay and benefits to which a Participant
will be entitled shall include (i) an amount equal to thirty-six (36) months of
the Participant's base annualized salary; (ii) an amount equal to three (3)
times the greater of (x) a short-term bonus calculated pursuant to the 2000
Short-Term Plan for Rakesk K. Kaul (the "Short-Term Plan") as if the Company had
met 100% of its target for the year in which the termination occurs or (y) the
average of the short-term bonus amounts paid or payable to the Participant
pursuant to the Short-Term Plan for the greater of (1) the two years preceding
the year of termination or (2) the two years preceding the year of the Change of
Control; (iii) to the extent not previously paid to the Participant, the
short-term bonus payable to the Participant pursuant to the Short-Term Plan for
the year preceding the termination of the Participant; (iv) for the year of the
Participant's termination, a short-term bonus calculated pursuant t o the
Short-Term Plan as if the Company had met 100% of its target for such year, but
pro rated to reflect the portion of such year during which the Participant was
employed; (v) an amount equal to thirty-six (36) times the monthly applicable
premium that would be charged by the Company for COBRA continuation coverage for
the Participant, the Participant's spouse and the dependents of the Participant
under the Company's group health plan at the time of the Participant's
termination of employment; (vi) an amount equal to thirty-six (36) months of the
Participant's car allowance then in effect as of the date of the termination of
the Participant; and (vii) an amount equal to the cost of twelve (12) months of
executive-level outplacement services at a major outplacement services firm.
5.2 Except as set forth in Section 5.3, the aggregate severance
payments described in Section 5.1 above shall be made to the Participant in one
lump sum payment within thirty (30) days of the Participant's termination of
employment with the Company.
5.3 Severance payments will be made only after the Participant executes
a release and waiver containing such terms and conditions as the Plan
Administrator may reasonably require.
5.4 In the event that any portion of the aggregate of all payments or
benefits made or provided to, or that may be made or provided to, the
Participant under the Plan ("Aggregate Payments") is determined to constitute an
Excess Parachute Payment, as such term is defined in Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to
the Participant prior to the time any excise tax imposed by Section 4999 of the
Code ("Excise Tax") is payable with respect to such Aggregate Payments, an
additional amount which, after the imposition of all income and excise taxes
thereon, is equal to the Excise Tax on the Aggregate Payments; provided,
however, that if the present value of the Aggregate Payments exceed the
Safe-Harbor Amount (as hereinafter defined) by ten percent (10%) or less, then
the Aggregate Payments shall be reduced (in present value) to the Safe-Harbor
Amount. The "Safe-Harbor Amount" means the amount, expressed as a present value,
which maximizes the aggregate present value of the Aggregate Payments without
causing any payment to be subject to the Excise Tax as a result of Section 280G
of the Code. For purposes of this Section 5.4, present value shall be determined
in accordance with Section 280G(d)(4) of the Code.
ARTICLE 6
CURRENT YEAR BONUS PAYOUT
Upon the occurrence of a Change of Control, the Participant will be
eligible for a current year bonus payout of an amount equivalent to his or her
eligible target bonus as defined in the Company's Management Incentive Plan
prorated by the portion of the year that has elapsed up to the date of the
Change of Control. Such bonus payout shall be made within thirty (30) days of
the Participant's termination of employment with the Company if such
Participant's employment terminates as a result of the Change of Control.
<PAGE> 6
ARTICLE 7
OPTIONAL CASH OUT OF STOCK OPTIONS
7.1 Notwithstanding any other provisions of the Plan, if a Change of
Control occurs then all stock options and stock appreciation rights previously
granted to the Participant shall become fully exercisable as of the date of the
Change of Control, whether or not otherwise exercisable and vested as of that
date.
7.2 In the event that during the two (2) year period following a Change
of Control the Company terminates the Participant's employment Without Cause or
the Participant voluntarily terminates his/her employment for Good Reason, any
options held by the Participant at the time of such termination shall remain
exercisable until twelve (12) months following such termination (but not beyond
the expiration of the option's term).
7.3 Any Participant may, at any time within thirty (30) days next
following the Change of Control, in lieu of exercising his/her stock options,
elect to receive a cash payment equal to the positive difference between (i) the
aggregate exercise price of the shares for which such election is made, and (ii)
the fair market value of such shares on the date such right is exercised;
provided, however, that any such election to receive a cash payment would not
violate the applicable pooling of interest rules in effect at the time of the
Change of Control.
7.4 Any restricted period in effect as of the date of the Change of
Control shall end with respect to shares of restricted stock previously awarded
to the Participant.
ARTICLE 8
CLAIMS FOR BENEFITS
8.1 In the event that a Participant desires to make a claim with
respect to any of the benefits provided hereunder, the Participant shall submit
evidence satisfactory to the officer of the Company that the Plan Administrator
designates to receive claims. Any claim with respect to any of the benefits
provided under the Plan shall be made in writing within ninety (90) days of the
event that the Participant is asserting constitutes a termination of employment
or the first occurrence of the event which otherwise forms the basis of the
Participant's claim. Failure by the Participant to submit his/her claim within
the ninety (90) day period shall bar the Participant from any claim for benefits
under the Plan as a result of the occurrence of that event.
8.2 In the event that a claim of a Participant is wholly or partially
denied, the Participant or his/her duly authorized representative may appeal the
denial of the claim to the Board of Directors or to any committee that the Board
of Directors designates at any time within ninety (90) days after the
Participant receives written notice from the Company of the denial of the claim.
In connection therewith, the Participant or his/her duly authorized
representative may request a review of the denied claim, may review pertinent
documents, and may submit issues and comments in writing. Upon receipt of an
appeal, the Board of Directors or such designated committee shall make a
decision with respect to the appeal and, not later than sixty (60) days after
receipt of a request for review, shall furnish the Participant with a decision
on review in writing, including the specific reasons for the decision written in
a manner calculated to be understood by the Participant, as well as specific
references to the pertinent provisions of the Plan upon which the decision is
based.
8.3 No benefit that shall be payable under the Plan to any Participant
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to do so shall be
void.
<PAGE> 7
8.4 The Plan shall not give any Employee or Participant any right or
claim except to the extent that the right is fixed specifically under the Plan.
The establishment of the Plan shall not be construed to give any Employee or
Participant a right to be continued in the employ of the Company or as
interfering with the right of the Company to terminate the employment of any
Employee or Participant at any time.
ARTICLE 9
ADMINISTRATION AND FINANCING OF THE PLAN
9.1 The Plan Administrator and/or the Board of Directors shall have the
discretion, authority, duty, power and responsibility to decide all factual and
legal questions under the Plan, including without limitation, (i) the
interpretation and construction of the provisions of the Plan as it deems
appropriate, necessary or advisable and any ambiguous or unclear terms within
the plan document, (ii) the adoption, establishment and revision of rules,
procedures and regulations relating to the Plan, (iii) the determination of the
conditions subject to which any benefits may be payable, (iv) the resolution of
all questions concerning the status and rights of a participant and others under
the Plan, whether a claimant is eligible for benefits under the Plan and the
amount of the benefits, if any, a claimant is entitled to receive, and (v) any
other determinations which it believes necessary or advisable for the
administration and operation of the Plan.. All determinations of the Plan
Administrator and/or Board of Directors shall be final and binding on all
Employees and Participants. The Plan Administrator may appoint a committee or an
agent or other representative to act on its behalf, and may delegate to such
committee or agent or representative any of the powers of the Plan Administrator
(the "Committee"). Any action that such Committee or agent or representative
takes shall be considered to be the action of the Plan Administrator, when the
committee or agent or representative is acting within the scope of the authority
that the Plan Administrator delegates it, and the Plan Administrator shall be
responsible for all such actions.
9.2 The company that employs the Participant on his last day of
employment will fund the Plan by payments made from its general assets.
ARTICLE 10
AMENDMENT AND TERMINATION
The Board of Directors in accordance with applicable corporate law
reserves the right at any time to amend or terminate the Plan, except that if
the Plan is terminated in anticipation of or upon or after a Change of Control
has occurred, the Board of Directors may not terminate the participation in the
Plan of any Participant who is in the Plan when a Change of Control is
anticipated or as of the date of the Change of Control and the Board of
Directors may not amend or terminate the Plan as it affects any Participant in
the Plan as of the date of the Change of Control.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 The failure of the Plan Administrator to enforce any of the
provisions of the Plan shall in no way be construed to be a waiver of these
provisions, nor in any way to affect the validity of the Plan or any part
thereof, or the right of the Plan Administrator thereafter to enforce every
provision.
11.2 This Plan replaces and supercedes all prior plans, programs and
arrangements providing severance-type benefits to the Participant. The severance
pay and benefits payable under this Plan shall not duplicate any benefits
provided to the Participant under any agreement, arrangement, program, employee
handbook , severance or other plan entered into or effective after the effective
date of the Participant's
<PAGE> 8
participation in the Plan and prior to or after a Change of Control. The
benefits that this Plan provides shall not be reduced or offset by any other
payments or benefits that the Participant may receive from any other third party
or other employer after the termination of the Participant's employment with the
Company.
11.3 Article headings are for convenience only and the language of the
Plan itself will be controlling.
11.4 This Plan shall be unfunded. Any liability of the Company under
the Plan shall be based solely on contractual obligations, if any, that are
created hereunder. No such liability of the Company shall be deemed to be
secured by any property of the Company.
11.5 Each member of any committee and each member of the Board of
Directors shall, except as prohibited by law, be indemnified and held harmless
by the Company from any and all liabilities, costs and expenses (including legal
fees), to the extent not covered by liability insurance, arising out of any
action taken (or the omission of any action) by such individual with respect to
the Plan unless the liability, cost or expense arises from the individual's (i)
claim for his or her own benefit, (ii) gross negligence, (iii) bad faith, (iv)
reasonable belief his or her conduct was unlawful, (v) conviction of any
criminal act or criminal misconduct. This indemnification shall continue as to
an individual who has ceased to be a committee member or member of the Board of
Directors and shall inure to the benefit of the heirs, executors and
administrators of such individual.
11.6 Whenever any benefits become payable under the Plan, the Company
shall have the right to withhold such amounts as are sufficient to satisfy any
federal, state or local withholding tax requirements.
11.7 The Participant is under no obligation to mitigate the terms of
this Agreement.
11.8 The Plan shall be construed and administered under the laws of the
State of New York.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on
March 6, 2000.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
--------------------------------
Title: Senior Vice President
-----------------------------
<PAGE> 1
Exhibit 10.12
HANOVER DIRECT, INC.
KEY EXECUTIVE TWENTY-FOUR MONTH
COMPENSATION CONTINUATION PLAN
ARTICLE 1
ESTABLISHMENT OF THE PLAN
1.1 Hanover Direct, Inc. (the "Company") has established the Hanover
Direct, Inc. Key Executive Twenty-Four Month Compensation Continuation Plan (the
"Plan") effective as of December 26, 1999. The purpose of the Plan is to attract
and retain key management personnel by reducing uncertainty and providing
greater personal security in the event of a Change of Control.
1.2 The Company intends for this Plan to constitute an employee welfare
plan within the meaning of Section 3(1) of the Employee Retirement Security Act
of 1974 , as amended ("ERISA"), and a severance pay plan within the meaning of
Department of Labor (DOL) Regulation Section 2510.3-2(b).
ARTICLE 2
DEFINITIONS
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Change of Control" means the first to occur of any of the events
described in subsections (i) through (iv) below.
(i) A Change of Control will occur when any Person becomes,
through an acquisition, the beneficial owner of shares of the Company having at
least fifty percent (50%) of the total number of votes that may be cast for the
election of directors of the Company (the "Voting Shares"); provided, however,
that the following acquisitions shall not constitute a Change in Control:
(a) if a Person owns less than fifty percent (50%) of
the voting power of the Company and that Person's ownership increases above
fifty percent (50%) solely by virtue of an acquisition of stock by the Company,
then no Change of Control has occurred, unless and until that Person
subsequently acquires one or more additional shares representing voting power of
the Company; or
(b) any acquisition by a Person who as of the date of
the establishment of the Plan owned at least thirty-three percent (33%) of the
Voting Shares.
(ii)(a) Notwithstanding the foregoing, a Change of Control
will occur when the shareholders of the Company approve any of the following
(each, a "Transaction"):
(I) any reorganization, merger, consolidation or
other business combination of the Company;
(II) any sale of fifty percent (50%) or more of the
Company's assets; or
(III) a complete liquidation or dissolution of the
Company.
(b) Notwithstanding (ii)(a) above, shareholder approval of
either of the following types of Transactions will not give rise to a
Change of Control:
<PAGE> 2
(I) a Transaction involving only the Company and one
or more of its subsidiaries; or
(II) a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction continue to
have a majority of the voting power in the resulting entity.
(iii) A Change of Control will occur when, within any
twenty-four (24) month period, persons who were directors of the Company
immediately before the beginning of such period (the "Incumbent Directors")
shall cease (for any reason other than death) to constitute at least a majority
of the Board of Directors or the board of directors of any successor to the
Company. For purposes of this subsection (iii), any director who was not a
director as of the effective date of this Plan shall be deemed to be an
Incumbent Director if such director was elected to the Board of Directors by, or
on the recommendation of, or with the approval of, at least a majority of the
members of the Board of Directors or the nominating committee who, at the time
of the vote, qualified as Incumbent Directors either actually or by prior
operation of this clause, and any persons (and their successors from time to
time) who are designated by a holder of thirty-three percent (33%) or more of
the Voting Shares to stand for election and serve as directors in lieu of other
such designees serving as directors on the effective date of the Plan shall be
considered Incumbent Directors. Notwithstanding the foregoing, any director
elected to the Board of Directors to avoid or settle a threatened or actual
proxy contest shall not, under any circumstances, be deemed to be an Incumbent
Director.
(iv) A Change of Control will occur when the Company sells,
assigns or transfers more than fifty percent (50%) of its interest in, or the
assets of, one or more subsidiaries (each, a "Sold Subsidiary" and,
collectively, "Sold Subsidiaries"); provided, however, that such a sale,
assignment or transfer will constitute a Change of Control only for:
(a) the Participants who are Employees of that Sold
Subsidiary; and
(b) the Participants who are Employees of a direct or
indirect parent company of one or more Sold Subsidiaries of the Company, and
then only if:
(I) the gross assets of its Sold
Subsidiaries constitute more than fifty percent (50%) of the gross assets of
such parent company (calculated on a consolidated basis with the direct and
indirect subsidiaries of such parent company with reference to the most recent
balance sheets of the Sold Subsidiaries and the parent company);
(II) the property, plant and equipment of
its Sold Subsidiaries constitute more than fifty percent (50%) of the property,
plant and equipment of such parent company (calculated on a consolidated basis
with the direct and indirect subsidiaries of such parent company with reference
to the most recent balance sheets of the Sold Subsidiaries and the parent
company); or
(III) in the case of a publicly-traded
parent company, the ratio (as of the date a binding agreement for the sale is
entered) of (x) the capitalization (based on the sale price) of its Sold
Subsidiaries to (y) the market capitalization of the parent company, is greater
than 0.50.
For purposes of this Section 2.2(iv), a Transaction shall be deemed to
involve the sale of more than fifty percent (50%) of a company's assets if:
(a) the gross assets being sold constitute more than
fifty percent (50%) of the gross assets of the company as stated on the most
recent balance sheet of the company;
<PAGE> 3
(b) the property, plant and equipment being sold
constitute more than fifty percent (50%) of the property, plant and equipment of
the company as stated on the most recent balance sheet of the company; or
(c) in the case of a publicly-traded company, the
ratio (as of the date a binding agreement for the sale is entered) of (x) the
capitalization (based on the sale price) of the division, subsidiary or business
unit being sold to (y) the market capitalization of the company, is greater than
0.50.
For purposes of this Section 2.2(iv), no Change of Control shall be
deemed to have occurred if, immediately following a sale, assignment or transfer
by the Company of more than fifty percent (50%) of its interest in, or the
assets of, a Sold Subsidiary, any shareholder of the Company owning 33% or more
of the voting power of the Company immediately prior to such transactions owns
no less than the equivalent percentage of the voting power of the Sold
Subsidiary.
2.3 "Company" means Hanover Direct, Inc. or any of its subsidiaries or
affiliates that adopt the Plan, except that the Company in the context of the
Plan Administrator, the Board of Directors and a Change of Control shall only
mean Hanover Direct, Inc.
2.4 "Disability" means the permanent and total disability of the
Participant such that he/she is unable to substantially perform his/her duties
and responsibilities with the Company by reason of any medically determinable
physical or mental impairment that can be expected to result in death or that
has lasted or can be expected to last for a continuous period of not less than
twelve (12) months. The Participant will not be considered to be permanently and
totally disabled unless he/she furnishes proof of the existence of such
disability in such form and manner and based on competent medical advice, and at
such times, as the Plan Administrator may reasonably require.
2.5 "Employee" means any person whom the Company employs for purposes
of the Federal Insurance Contributions Act.
2.6 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.7 "For Cause" means the involuntary termination of employment of the
Participant because of (i) the willful and continued failure by the Participant
to perform his/her duties at the Company, (ii) misconduct by the Participant
that is injurious to the Company, financially or otherwise, (iii) commission by
the Participant of an act of fraud or dishonesty relating to and adversely
affecting the Company, (iv) conviction of the Participant of a felony in
connection with his employment with the Company, or (v) the habitual failure of
the Participant, after written notice specifying such failure and a reasonable
opportunity to cure such failure having lapsed, to perform his employment duties
at the Company in a satisfactory manner.
2.8 "For Good Reason" means the voluntary termination of employment by
the Participant, within two (2) years of any of the following actions that occur
in anticipation of or upon or after a Change of Control, and because of (i) a
substantial and material diminution in the then-current duties or
responsibilities of the Participant at the Company, (ii) a material and
substantial diminution in the then-current base salary, target bonus or
comparable long-term incentive opportunity of the Participant, (iii) requiring
the Participant to regularly report to work at a facility that is more than
thirty (30) miles from the facility the Participant regularly reports, (iv) the
failure by the Company to continue in effect any material benefit or
compensation plan including, but not limited to, life insurance plan, health
insurance plan and accidental death or disability plan in which the Participant
is participating, unless such benefit or compensation plan, life insurance plan,
health insurance plan, or accidental death or disability plan or similar plan is
replaced with a comparable plan in which the Participant will participate or
which will provide the Participant with comparable benefits, (v) the failure of
the Company to provide the Participant with the number of paid vacation days to
which the Participant is normally entitled in accordance with the normal
vacation policy of the Company, or (vi) any action by the Company that adversely
affects in a
<PAGE> 4
material way the Participant's participation in or materially reduces the
Participant's benefits under any of such benefit or compensation plans.
2.9 "Participant" means any employee who is a corporate executive vice
president or corporate senior vice president of the Company or strategic
business unit president or other employee selected for participation in the Plan
by the Chief Executive Officer of the Company, all of whom are approved by the
Plan Administrator upon the adoption of the Plan or following their employment
by the Company after the effective date of the Plan.
2.10 "Person" means any person (as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof), including a
'group' as defined in Section 13(d)(3) of the Exchange Act, but excluding (i)
the Company, (ii) any subsidiary of the Company, (iii) any employee benefit plan
sponsored or maintained by the Company or any subsidiary of the Company
(including any trustee of such plan acting as trustee), and (iv) any person who,
as of the date of the establishment of the Plan, owned at least thirty-three
percent (33%) of the Voting Shares (but excluding any unaffiliated successor or
assignee of such 33% or greater holder).
2.11 "Plan Administrator" means the Company.
2.12 "Without Cause" means the involuntary termination of employment of
the Participant due to lack of work at the Company or any other reason that the
Board of Directors determines is in the best interest of the Company other than
For Cause or a Disability.
ARTICLE 3
ELIGIBILITY FOR PLAN PARTICIPATION
Section 2.9 sets forth the employees of the Company who shall be
participants in the Plan. Except as set forth in Article 9 of the Plan, prior to
a Change of Control the participation in the Plan of any Participant shall cease
on the following dates: (i) the date a Participant is no longer classified as an
eligible Employee; (ii) the date of the Participant's death; (iii) the date on
which a Participant voluntarily terminates his/her employment with the Company;
(iv) the date on which a Participant is terminated by the Company; or (v) the
effective date of the termination of the Plan; provided, however, that in no
event shall Employee's participation in the Plan be terminated in anticipation
of a Change of Control. Except as set forth in Article 9 of the Plan, upon or
after a Change of Control the participation in the Plan of any Participant shall
cease on the following dates: (i) the date a Participant is no longer classified
as an eligible Employee; (ii) the date on which a Participant voluntarily
terminates his/her employment with the Company without Good Reason; (iii) the
date on which a Participant is terminated by the Company for Cause; (iv) the
date on which a Participant voluntarily or involuntarily terminates employment
as a result of Disability; or (v) the effective date of the termination of the
Plan.
ARTICLE 4
CONDITIONS FOR PAYMENT OF BENEFITS
A Participant shall be entitled to severance pay and benefits under the
Plan only if there occurs a Change of Control and thereafter the Company
terminates his/her employment Without Cause or the Participant voluntarily
terminates his/her employment for Good Reason during the two (2) year period
following the Change of Control. A Participant shall not be entitled to
severance pay and benefits under the Plan if he/she (i) resigns other than for
Good Reason, (ii) is terminated for Cause, (iii) dies prior to a Change of
Control or prior to a termination qualifying for severance pay and benefits
under the Plan; or (iv) voluntarily or involuntarily terminates employment as a
result of Disability.
<PAGE> 5
ARTICLE 5
SALARY CONTINUATION BENEFITS
5.1 The amount of severance pay and benefits to which a Participant
will be entitled shall include (i) an amount equal to twenty-four (24) months of
the Participant's base annualized salary; (ii) an amount equal to the lesser of
(a) two (2) times the target bonus for the Participant as defined in the
Company's Management Incentive Plan, or (b) two (2) times the largest bonus
calculated as a percentage of base salary earned by the Participant during any
of the three (3) years prior to the Change of Control, except that those
Participants with less than one (1) full year of service as of the date of the
Change of Control will be paid at two (2) times their target bonus amount as
defined in the Company's Management Incentive Plan; (iii) an amount equal to
twenty-four (24) times the monthly applicable premium that would be charged by
the Company for COBRA continuation coverage for the Participant, the
Participant's spouse and the dependents of the Participant under the Company's
group health plan at the time of the Participant's termination of employment;
(iv) an amount equal to twenty-four (24) months of the Participant's car
allowance then in effect as of the date of the termination of the Participant;
and (v) an amount equal to the cost of twelve (12) months of executive-level
outplacement services at a major outplacement services firm.
5.2 Except as set forth in Section 5.3, the aggregate severance
payments described in Section 5.1 above shall be made to the Participant in one
lump sum payment within thirty (30) days of the Participant's termination of
employment with the Company.
5.3 Severance payments will be made only after the Participant executes
a release and waiver containing such terms and conditions as the Plan
Administrator may reasonably require.
5.4 In the event that any portion of the aggregate of all payments or
benefits made or provided to, or that may be made or provided to, the
Participant under the Plan ("Aggregate Payments") is determined to constitute an
Excess Parachute Payment, as such term is defined in Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to
the Participant prior to the time any excise tax imposed by Section 4999 of the
Code ("Excise Tax") is payable with respect to such Aggregate Payments, an
additional amount which, after the imposition of all income and excise taxes
thereon, is equal to the Excise Tax on the Aggregate Payments; provided,
however, that if the present value of the Aggregate Payments exceed the
Safe-Harbor Amount (as hereinafter defined) by ten percent (10%) or less, then
the Aggregate Payments shall be reduced (in present value) to the Safe-Harbor
Amount. The "Safe-Harbor Amount" means the amount, expressed as a present value,
which maximizes the aggregate present value of the Aggregate Payments without
causing any payment to be subject to the Excise Tax as a result of Section 280G
of the Code. For purposes of this Section 5.4, present value shall be determined
in accordance with Section 280G(d)(4) of the Code.
ARTICLE 6
CURRENT YEAR BONUS PAYOUT
Upon the occurrence of a Change of Control, the Participant will be
eligible for a current year bonus payout of an amount equivalent to his or her
eligible target bonus as defined in the Company's Management Incentive Plan
prorated by the portion of the year that has elapsed up to the date of the
Change of Control. Such bonus payout shall be made within thirty (30) days of
the Participant's termination of employment with the Company if such
Participant's employment terminates as a result of the Change of Control.
<PAGE> 6
ARTICLE 7
OPTIONAL CASH OUT OF STOCK OPTIONS
7.1 Notwithstanding any other provisions of the Plan, if a Change of
Control occurs then all stock options and stock appreciation rights previously
granted to the Participant shall become fully exercisable as of the date of the
Change of Control, whether or not otherwise exercisable and vested as of that
date.
7.2 In the event that during the two (2) year period following a Change
of Control the Company terminates the Participant's employment Without Cause or
the Participant voluntarily terminates his/her employment for Good Reason, any
options held by the Participant at the time of such termination shall remain
exercisable until twelve (12) months following such termination (but not beyond
the expiration of the option's term).
7.3 Any Participant may, at any time within thirty (30) days next
following the Change of Control, in lieu of exercising his/her stock options,
elect to receive a cash payment equal to the positive difference between (i) the
aggregate exercise price of the shares for which such election is made, and (ii)
the fair market value of such shares on the date such right is exercised;
provided, however, that any such election to receive a cash payment would not
violate the applicable pooling of interest rules in effect at the time of the
Change of Control.
7.4 Any restricted period in effect as of the date of the Change of
Control shall end with respect to shares of restricted stock previously awarded
to the Participant.
ARTICLE 8
CLAIMS FOR BENEFITS
8.1 In the event that a Participant desires to make a claim with
respect to any of the benefits provided hereunder, the Participant shall submit
evidence satisfactory to the officer of the Company that the Plan Administrator
designates to receive claims. Any claim with respect to any of the benefits
provided under the Plan shall be made in writing within ninety (90) days of the
event that the Participant is asserting constitutes a termination of employment
or the first occurrence of the event which otherwise forms the basis of the
Participant's claim. Failure by the Participant to submit his/her claim within
the ninety (90) day period shall bar the Participant from any claim for benefits
under the Plan as a result of the occurrence of that event.
8.2 In the event that a claim of a Participant is wholly or partially
denied, the Participant or his/her duly authorized representative may appeal the
denial of the claim to the Board of Directors or to any committee that the Board
of Directors designates at any time within ninety (90) days after the
Participant receives written notice from the Company of the denial of the claim.
In connection therewith, the Participant or his/her duly authorized
representative may request a review of the denied claim, may review pertinent
documents, and may submit issues and comments in writing. Upon receipt of an
appeal, the Board of Directors or such designated committee shall make a
decision with respect to the appeal and, not later than sixty (60) days after
receipt of a request for review, shall furnish the Participant with a decision
on review in writing, including the specific reasons for the decision written in
a manner calculated to be understood by the Participant, as well as specific
references to the pertinent provisions of the Plan upon which the decision is
based.
8.3 No benefit that shall be payable under the Plan to any Participant
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to do so shall be
void.
<PAGE> 7
8.4 The Plan shall not give any Employee or Participant any right or
claim except to the extent that the right is fixed specifically under the Plan.
The establishment of the Plan shall not be construed to give any Employee or
Participant a right to be continued in the employ of the Company or as
interfering with the right of the Company to terminate the employment of any
Employee or Participant at any time.
ARTICLE 9
ADMINISTRATION AND FINANCING OF THE PLAN
9.1 The Plan Administrator and/or the Board of Directors shall have the
discretion, authority, duty, power and responsibility to decide all factual and
legal questions under the Plan, including without limitation, (i) the
interpretation and construction of the provisions of the Plan as it deems
appropriate, necessary or advisable and any ambiguous or unclear terms within
the plan document, (ii) the adoption, establishment and revision of rules,
procedures and regulations relating to the Plan, (iii) the determination of the
conditions subject to which any benefits may be payable, (iv) the resolution of
all questions concerning the status and rights of a participant and others under
the Plan, whether a claimant is eligible for benefits under the Plan and the
amount of the benefits, if any, a claimant is entitled to receive, and (v) any
other determinations which it believes necessary or advisable for the
administration and operation of the Plan.. All determinations of the Plan
Administrator and/or Board of Directors shall be final and binding on all
Employees and Participants. The Plan Administrator may appoint a committee or an
agent or other representative to act on its behalf, and may delegate to such
committee or agent or representative any of the powers of the Plan Administrator
(the "Committee"). Any action that such Committee or agent or representative
takes shall be considered to be the action of the Plan Administrator, when the
committee or agent or representative is acting within the scope of the authority
that the Plan Administrator delegates it, and the Plan Administrator shall be
responsible for all such actions.
9.2 The company that employs the Participant on his last day of
employment will fund the Plan by payments made from its general assets.
ARTICLE 10
AMENDMENT AND TERMINATION
The Board of Directors in accordance with applicable corporate law
reserves the right at any time to amend or terminate the Plan, except that if
the Plan is terminated in anticipation of or upon or after a Change of Control
has occurred, the Board of Directors may not terminate the participation in the
Plan of any Participant who is in the Plan when a Change of Control is
anticipated or as of the date of the Change of Control and the Board of
Directors may not amend or terminate the Plan as it affects any Participant in
the Plan as of the date of the Change of Control.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 The failure of the Plan Administrator to enforce any of the
provisions of the Plan shall in no way be construed to be a waiver of these
provisions, nor in any way to affect the validity of the Plan or any part
thereof, or the right of the Plan Administrator thereafter to enforce every
provision.
11.2 This Plan replaces and supercedes all prior plans, programs and
arrangements providing severance-type benefits to the Participant. The severance
pay and benefits payable under this Plan shall not duplicate any benefits
provided to the Participant under any agreement, arrangement, program, employee
handbook , severance or other plan entered into or effective after the effective
date of the Participant's participation in the Plan and prior to or after a
Change of Control. The benefits that this Plan provides shall
<PAGE> 8
not be reduced or offset by any other payments or benefits that the Participant
may receive from any other third party or other employer after the termination
of the Participant's employment with the Company.
11.3 Article headings are for convenience only and the language of the
Plan itself will be controlling.
11.4 This Plan shall be unfunded. Any liability of the Company under
the Plan shall be based solely on contractual obligations, if any, that are
created hereunder. No such liability of the Company shall be deemed to be
secured by any property of the Company.
11.5 Each member of any committee and each member of the Board of
Directors shall, except as prohibited by law, be indemnified and held harmless
by the Company from any and all liabilities, costs and expenses (including legal
fees), to the extent not covered by liability insurance, arising out of any
action taken (or the omission of any action) by such individual with respect to
the Plan unless the liability, cost or expense arises from the individual's (i)
claim for his or her own benefit, (ii) gross negligence, (iii) bad faith, (iv)
reasonable belief his or her conduct was unlawful, (v) conviction of any
criminal act or criminal misconduct. This indemnification shall continue as to
an individual who has ceased to be a committee member or member of the Board of
Directors and shall inure to the benefit of the heirs, executors and
administrators of such individual.
11.6 Whenever any benefits become payable under the Plan, the Company
shall have the right to withhold such amounts as are sufficient to satisfy any
federal, state or local withholding tax requirements.
11.7 The Participant is under no obligation to mitigate the terms of
this Agreement.
11.8 The Plan shall be construed and administered under the laws of the
State of New York.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on
December 26, 1999.
HANOVER DIRECT, INC.
By: /s/ Ralph Bulle
-------------------------------------
Title: Senior Vice President
----------------------------------
<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 THREE MONTHS ENDED MARCH 25, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> MAR-25-2000
<CASH> 3,376
<SECURITIES> 0
<RECEIVABLES> 30,708
<ALLOWANCES> (3,888)
<INVENTORY> 55,892
<CURRENT-ASSETS> 117,040
<PP&E> 93,881
<DEPRECIATION> (48,586)
<TOTAL-ASSETS> 192,064
<CURRENT-LIABILITIES> 97,438
<BONDS> 50,690
0
0
<COMMON> 142,641
<OTHER-SE> (101,182)
<TOTAL-LIABILITY-AND-EQUITY> 192,064
<SALES> 130,150
<TOTAL-REVENUES> 130,150
<CGS> 53,016
<TOTAL-COSTS> 138,050
<OTHER-EXPENSES> 2,459
<LOSS-PROVISION> 784
<INTEREST-EXPENSE> 3,014
<INCOME-PRETAX> (13,373)
<INCOME-TAX> 75
<INCOME-CONTINUING> (13,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,448)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
